Excel, Inc. v. Clayton

152 S.E.2d 171 (1967) 269 N.C. 127

EXCEL, INC.
v.
Ivey L. CLAYTON, Acting Commissioner of Revenue, State of North Carolina.

No. 191.

Supreme Court of North Carolina.

January 20, 1967.

Jonas & Jonas by Harvey A. Jonas, Jr., and Don M. Pendleton, Lincolnton, for plaintiff appellant.

Atty. Gen. T. W. Bruton and Asst. Atty. Gen. Charles D. Barham, Jr., for defendant appellee.

PARKER, Chief Justice.

Excel manufactures textile handling equipment and other tangible property at its plant in Lincolnton, North Carolina, for sale as a retailer both in North Carolina and outside of the State. A sales tax is a tax on the freedom of purchase, and, when applied to interstate transactions, is a tax on the privilege of doing interstate commerce, creates a burden on interstate commerce and runs counter to the commerce clause of the Federal Constitution. McLeod v. J. E. Dilworth Co., 322 U.S. 327, 64 S.Ct. 1023, 88 L.Ed. 1304; Johnston v. Gill, Comr. of Revenue, 224 N.C. 638, 32 S.E.2d 30.

Incidental interstate attributes do not, however, transform purely local transactions into interstate transactions and thereby create a burden on interstate commerce, and run counter to the commerce clause of the Federal Constitution. Department of the Treasury of the State of Indiana v. Wood Preserving Corp., 313 U.S. 62, 61 S.Ct. 885, 85 L.Ed. 1188; International Harvester Co. v. Department of the Treasury, 322 U.S. 340, 64 S.Ct. 1019, 88 L.Ed. 1313.

The mere intention of the buyer and the seller that the goods sold be used outside of the state does not make the sales transaction any less a local intrastate activity. Where the delivery of the goods sold is in the taxing state and is accepted within the taxing state, a sales tax may lawfully be imposed upon the transaction. Superior Oil Co. v. State of Mississippi ex rel. Knox, 280 U.S. 390, 50 S.Ct. 169, 74 L.Ed. 504; Department of the Treasury of the State of Indiana v. Wood Preserving Corporation, supra; International Harvester Co. v. Department of the Treasury, supra; State Tax Commission of Utah v. Pacific States Cast Iron Pipe Co., 372 U.S. 605, 83 S.Ct. 925, 10 L.Ed.2d 8; Phillips v. Shaw, Comr. of Revenue, 238 N.C. 518, 78 S.E.2d 314; Superior Coal Co. v. Department of Revenue, 4 Ill.2d 459, 123 N.E.2d 713; Pressed Steel Car Co. v. Lyons, 7 Ill.2d 95, 129 N.E.2d 765; Rite Tile Co. v. State, 278 Ala. 100, 176 So.2d 31.

Plaintiff states in its brief: "Plaintiff concedes that if purchasers had not been franchised interstate commerce carriers who delivered the merchandise out of the state under bill of lading, the sales would be taxable." It seems that plaintiff's basic contention is this: Huckabee, Carolina-Norfolk, and McLean took custody of the property which each purchased in the capacity of a common carrier and that possession and control over the property was deferred by them until it delivered the property to itself as a purchaser outside of the State. Inherent in this contention is the assertion that the purchasing motor carrier has a dual personality when it carries property consigned to itself so that its role as carrier is divorced from its role as purchaser. This concept, while a novel proposition with us, has been passed upon and rejected in a series of cases in Illinois and California. Superior Coal Co. v. Department of Finance, 377 Ill. 282, 36 N.E.2d 354; Moffat Coal Co. v. Daley, 405 Ill. 14, 89 N.E.2d 892; Superior Coal Co. v. Department of Revenue, supra; Pressed Steel Car Co. v. Lyons, supra; Standard Oil Co. of California v. Johnson, 33 Cal.App.2d 430, 92 P.2d 470; Id. 56 Cal.App.2d 411, 132 P.2d 910; Id. Cal.App., 135 P.2d 638; Id. 24 Cal.2d 40, 147 P.2d 577.

In Pressed Steel Car Co. v. Lyons, supra, the Court held that where railroads purchase goods in Illinois which are shipped by the seller under uniform straight bills of lading from its Illinois plant to the purchasing railroad at a destination outside of Illinois, but in each instance the purchasing railroad receives the goods in Illinois as carrier, the transaction is an intrastate sale and is subject to the Illinois retailers' occupation tax, as the reality of the situation must be recognized, and the carrier hauling its own goods does so as a purchaser and not as an agent of the seller. In its opinion the Court said:

"The argument against the tax is based upon the commerce clause of the Federal constitution, and stresses the intention of the seller and the purchaser that the goods sold should be shipped to a destination outside of Illinois, and the fact that the goods were actually so shipped. It appears to be settled, however, that a transaction by which a purchaser buys goods which are delivered to him within the taxing State may properly measure a tax, even though both parties know that the goods are purchased for use outside of the State, and they are so used. [Citing voluminous authority.]

* * * * * *

"Inherent in this contention is an assertion that the purchasing railroad has a dual personality when it carries goods consigned to itself so that its role as carrier is divorced from its role as purchaser.

* * * * * *

"* * * In the absence of congressional action, we do not find in the language of the commerce clause or in any authoritative decision a requirement that a State must recognize for taxing purposes a dual personality on the part of railroads which are carriers of goods they have purchased."

The United States Supreme Court in the case of Department of the Treasury of the State of Indiana v. Wood Preserving Corp., supra, had this to say, which is pertinent to the contention that a bill of lading requiring delivery to out-of-state destination indicated that a railroad was a carrier but not a purchaser:

"These were local transactions,—sales and deliveries of particular ties by respondent to the Railroad Company in Indiana. The transactions were none the less intrastate activities because the ties thus sold and delivered were forthwith loaded on the railroad cars to go to Ohio for treatment. The contract providing for that treatment called for the treatment of ties to be delivered by the Railroad Company at the Ohio plant, and the ties bought by the Railroad Company in Indiana, as above stated, were transported and delivered by the Railroad Company to that treatment plant. Respondent did not pay the freight for that transportation and the circumstance that the billing was in its name as consignor is not of consequence in the light of the facts showing the completed delivery to the Railroad Company in Indiana."

The only decision which lends any possible credence to Excel's view that common carriers purchasing for their own use have a dual personality is In re Globe Varnish Co., 7 Cir., 114 F.2d 916, cert. den., Nudelman v. Globe Varnish Co., 312 U.S. 690, 61 S.Ct. 621, 85 L.Ed. 1126. The subsequent decision of the United States Supreme Court in Department of the Treasury of the State of Indiana v. Wood Preserving Corp., supra, casts considerable doubt upon the soundness of the result reached in Globe Varnish. The Wood Preserving Corporation case, 7 Cir., 114 F.2d 922, was a companion case to In re Globe Varnish Co. in the Circuit Court of Appeals. Similar facts were resolved by that court in similar fashion in the two cases. Subsequently, review by the United States Supreme Court was sought in both cases. A unanimous court reversed the judgment in the Wood Preserving Corporation case. Certiorari was denied in the Globe Varnish case on a procedural ground. 312 U.S. 690, 61 S.Ct. 621, 85 L.Ed. 1126. (For an excellent analysis of the effect of Wood Preserving Corporation decision upon the holding in In re Globe Varnish Co., supra, see Pressed Steel Car Co. v. Lyons, supra, 129 N.E.2d at pages 769-770.) Following the Wood Preserving Corporation decision, the California Court on two separate occasions repudiated one of its earlier decisions based upon the Globe Varnish Company case; Standard Oil Co. of California v. Johnson, 56 Cal.App.2d 411, 132 P.2d 910, 911; Id. Cal.App., 135 P.2d 638. In the latter decision the Court said: "The mere use of a standard bill of lading and a designation of respondent as consignor should not be allowed to change what is essentially an intrastate transaction into an interstate transaction." 135 P.2d at page 642.

Plaintiff further contends that the defendant should be bound by the terms of Regulation 23 which it promulgated, that plaintiff has complied with the direct terms of that regulation, and that the transactions here are exempt from North Carolina sales tax on the basis of that regulation. This contention is untenable. This regulation merely recognizes that where a seller is required to deliver the property out of the State to the purchaser in order to complete the sale, the transaction is considered an interstate sale and exempt from the North Carolina sales tax.

In this case, Huckabee, Carolina-Norfolk, and McLean each purchased push carts and other material from Excel in the State of North Carolina, each received complete delivery of the push carts and other material within the State of North Carolina, and each of them loaded the push carts and other material on their trucks in North Carolina and transported the push carts and other material in their trucks out of the State of North Carolina to the places designated by the waybills. Sales were f. o. b. Lincolnton. The sales, according to the stipulated and agreed facts, were essentially intrastate transactions and not interstate transactions, and we find no ground for holding that in imposing a sales tax upon the receipts from these local transactions North Carolina has exceeded its constitutional authority by taxing interstate commerce or discriminating against it.

The unconditional commitment of property to a common carrier for trans portation in regular course to another state or country is generally held to place it in the stream of interstate or foreign commerce, so as to render it immune from local taxation. Annot., 11 A.L.R.2d 944. That principle of law is not applicable here for the reason that the push carts and other material were delivered to Huckabee, Carolina-Norfolk, and McLean in North Carolina, the taxing jurisdiction. 47 Am.Jur., Sales and Use Taxes, § 10, pp. 210-11; Annot., 128 A.L.R. 900.

The judgment below is

Affirmed.