Pacific States Cast Iron Pipe Co. v. State Tax Commission

369 P.2d 123, 13 Utah 2d 113, 1962 Utah LEXIS 158

• Court: Utah Supreme Court
• Decided: February 20, 1962
• Docket: 9493
• Status: Published

Opinions

HENRIOD, Justice.

Review of a tax assessment levied for alleged sales tax liability incident to the sale of pipe to a nonresident purchaser taking delivery, not by common carrier, but in his own equipment at the pipe company’s foundry in Utah, delivering it himself to an out-of-state destination designated in the contract. Reversed.

The question: whether under the facts of this case, delivery in Utah to the purchaser, coupled with actual transportation by him to an out-of-state destination transmutes an erstwhile interstate shipment, whose taxa-bility by Utah concededly would be invalid, as being a burden on interstate commerce under the commerce clause,¹ into a taxable intrastate transaction not burdensome to interstate commerce.

It is conceded that had the pipe been delivered to a common carrier consigned to an out-of-state purchaser, the sale would not have been taxable in Utah. Also, that delivery was taken in Utah by the out-of-state purchaser in his own equipment, actually transported from the pipe company’s foundry directly, and without interruption, to the out-of-state destination called for by the contract and bill of lading.

It seems to be undisputed also that: The pipe company makes and sells pipe in 11 western states. Delivery mostly is in interstate commerce by common carrier or in the company’s own equipment. As has been said, the out-of-state purchaser took delivery here in his own equipment. The contract called for out-of-state shipment, and the pipe company set the destination price which included the going common carrier freight charge between the two points. In this case such tariff was credited to the purchaser. The bill of lading and contract of sale clearly demonstrated an understanding by both seller and buyer that the pipe was to be shipped to an out-of-state destination, to be used on a municipal project, under engineered specifications, federally okayable because of federal fiscal participation. Under such contract, bills of lading and the highly detailed specifications, it was quite improbable, if not almost impossible, to conclude other than that the goods could not be diverted to any other or intrastate consumption. Also, it appears inescapable to conclude from the record in this case, other than that there was no effort or intent to circumvent any tax laws in virtue of the. use of any contractual or transportational format designed to deceive. All of the evidence adduced points up a certainty of interstate shipment that would override any suggestion that the products were to be consumed or stored in Utah. The contract clearly evinced a contemplated interstate shipment. The contention of the Tax Commission that the documents of sale and transportation were an evasive gesture to avoid taxation, and that the goods could have been diverted to a local use, simply is not sustained by the facts since the goods actually reached their consigned destination. Nor would the cases seem to sustain such a contention.² Had they in fact been so diverted the most that could be said is that there would have been a contractual breach respondable in damages, and perhaps reflecting a circumstance justifying the imposition of a Utah sales tax on an intrastate transaction.

The Tax Commission demurs to the pipe company’s contention that the facts of this case unerringly point up an unburdenable interstate shipment, commerce clausewise. It points to several facts which it claims are conclusive of the intrastateness of this sale: 1) that delivery was taken here,³ that title passed here,⁴ and that the risk of loss shifted here. It urges that delivery, etc. constituted a “taxable event” invulnerable to any claimed offense against the commerce clause. Ordinarily it would be right.⁵ But delivery here, as a technical matter, cannot transcend the interdictions of the commerce clause, if, piercing the veil of technicality, based on the particular facts here, substance reflects a situation offensive to the commerce clause. We think this case, in substance, pierces that veil.⁶

The Commission relies heavily on International Harvester Co. v. Department of Treasury 7 to support its contention. That case, on stipulated facts, simply generalizes that “Sales by branches located in Indiana to dealers and users residing outside of Indiana, in which the customers came to Indiana and accepted delivery to themselves in this state” would be taxable because of a local taxable event. If that were all we had in the instant case, our decision would be an antithesis, since, to reduce the above commentary to its own words, it simply implies, for example, that if a Utahn visits New York and buys wearing apparel with the intent of wearing it en route back to and in Utah thereafter, the sale is taxable in New York, inoffensive to the inhibitions of the commerce clause. No corrollary, no analogy applies here. The New York seller is unconcerned as to whether the vestment be worn out in Utah or elsewhere. But if the contract were to ship 1,000 suits of clothes to a retailer in Utah without anything else, the import of such a contractual arrangement would reflect an interstate shipment that if taxed by New York, would do injustice to the traditional and historic concepts anent interstate commerce and its inviolability by local tax burdens. The International Harvester case, its forebears and successors, have provided fuel for a judicial fire over the years with respect to close factual situations, but the instant case in substance lends itself to no factual obscurity or uncertainty of contemplated result, such as to be dominated by that case and any others cited that might confuse, but do not decide the case here. We leave that confusion to those who have discussed it, and to their observations appurtenant thereto, a couple of which we refer to the reader for a review of the cases covering this whole field ⁸ which are discussed better there than space justifies here. If the International Harvester case created any dubitability as to application in the case here, it was laid at Test by its author, who later fathered Richfield Oil Corp. v. State Board of Equalization,⁹ involving an attempted sales tax imposition on a transaction where oil was delivered to a foreign purchaser’s equipment in a local harbor, wherein Mr. Justice Douglas had this to say:

“The certainty that the goods are headed to sea and that the process of exportation has started may normally be best evidenced by the fact that they have been delivered to a common carrier for that purpose. But the same degree of certainty may exist though no common carrier is involved. The present case is an excellent illustration. The foreign purchaser furnished the ship to carry the oil abroad. * * * That delivery marked the commencement of the movement of the oil abroad. It is true * * * that at the time of the delivery the vessel was in California waters and was not bound for its destination until it started to move from the port. But when the oil was pumped into the hold of the vessel, it passed into the control of a foreign purchaser and there zvas nothing equivocal in the transaction which created even a probability that the oil would be diverted to a domestic use. It would not be clearer that the oil had started upon its export journey had it been delivered to a common carrier at an inland point. The means of shipment are unimportant so long as the certainty of the foreign destination is plain.”

We think our case is bottomed on facts so certainly pointing up an interstate shipment free from local tax burdens, as to transcend, even, the facts and conclusions reached in the Richfield Oil Case. It is the substance of it that counts, — not technicalities of delivery, title or assumption of risk, else the commerce clause would suffer senility and impotence.¹⁰

Both sides have pointed to our statute ¹¹ and Tax Commission Regulations ¹² which purport taxwise to include or exclude a particular transaction. The Regulations, no matter how definitive of what a taxable event is cannot obfuscate the true purpose and intent of the commerce clause. That clause contemplates facts and substance, and not definitions amounting to legal conclusions. We say this, conceding our disposition to sustain administrative agencies enjoying a greater degree of expertness in their field than do we. But we cannot interpret a conceded factual situation pointing to an interstate shipment, to result in victimization by a regulatory definitional legal conclusion, urged as being controlling over facts defying it. (Emphasis supplied)

WADE, C. J., and CALLISTER, J., concur.

1 . Art. I, Sec. 8, U. S. Constitution, having to do 'with federal power “to regulate Commerce * * * among the several States * *

2 . United Fuel Gas Co. v. Hallanan, 257 U.S. 277, 42 S.Ct. 105, 66 L.Ed. 234 (1921) : “Tlio typical and actual course oí events marks the carriage of the greater part as commerce among tlie States and theoretical possibilities may be left out of account.” Hughes Bros. Timber Co. v. Minnesota, 272 U.S. 469, 47 S.Ct. 170, 71 L.Ed. 359 (1926): “The mere power of the owner to divert the shipment already started does not take it out of interstate commerce, if the other facts show that the journey has already begun in good faith and temporary interruption of the passage is reasonable and in furtherance of the intended transportation

3 . The Richfield Oil case, post, negatives this concept.

4 . In re Globe Varnish Co., 7 Cir., 114 F.2d 916 (1940) : “ * * * we think it makes no difference when the title passed, and we are unable to perceive how that fact, whenever it occurred, could be determinative of the character of the sale, as to whether it was an interstate or intrastate transaction.” United States v. Ohio Oil Co. [The Pipe Line Cases], 234 U.S. 548, 34 S.Ct. 956, 58 L.Ed. 1459 (1914): “ * * * the fact that the oils transported belonged to the owner of the pipe line is not conclusive against the transportation being such commerce.” Hughes Bros. Timber Co. v. Minnesota, 272 U.S. 469, 47 S.Ct. 170, 71 L.Ed. 359 (1926): “We do not think it important, for purposes of this case, to decide where the title to the timber was at the time the drive began.” Spalding & Bros. v. Edwards, 262 U.S. 66, 43 S.Ct. 485, 67 L.Ed. 865 (1923): “Neither does it matter that the title was in Scholtz & Co. and that theoretically they might change their mind and retain the bats and balls for their own use.” Also: Dahnke-Walker Milling Co. v. Bondurant, 257 U.S. 282, 42 S.Ct. 106, 66 L.Ed. 239 (1921).

5 . McGoldrick v. Berwind-White, 309 U.S. 33, 60 S.Ct. 388, 84 L.Ed. 565, 128 A.L. R. 876 (1940). International Harvester Co. v. Department of Treasury, 322 U.S. 340, 64 S.Ct. 1019, 88 L.Ed. 1313 (1944).

6 . “ * * * substance, and not form, controls in determining whether a particular transaction is one of interstate commerce * * Heyman v. Hays, 236 U.S. 178, 35 S.Ct. 403, 59 L.Ed. 527 (1915).

7 . Supra, note 5.

8 . New Light on Gross Receipts Taxes, 53 Harvard Law Review; Sales Taxation of Interstate Commerce, Univ. of Detroit Law Journal, Vol. 18, p. 416.

9 . 329 U.S. 69, 67 S.Ct. 156, 91 L.Ed. 80 (1946).

10 . “ * * * substance, anti not form, controls in determining whether a particular transaction is one of interstate commerce, and hence the mere method of delivery is a negligible circumstance if, in substantial effect, the transaction under the facts of a given ease is interstate commerce.” Iioyman v. Hays, supra.

11 . Title 59-15-2, Utah Code Annotated 1953, and subdivisions.

12 . Regulations 31 and 44, Utah Sales Tax Regulations.