D. C. O'NEIL, THAD M. MOORE and C. WARREN PETERSON, as Members of the ARIZONA STATE TAX COMMISSION, Appellants,
UNITED PRODUCERS and CONSUMERS COOPERATIVE, Appellee
APPEAL from the Superior Court of Maricopa County. G. A. Rodgers, Judge. Judgment reversed.
Mr. Joe Conway, Attorney General, and Mr. Earl Anderson, Special Assistant Attorney General, for Appellants.
Messrs. Langmade and Langmade and Mr. Fred J. Elliott, for Appellee.
Messrs. Baker & Whitney, Mr. Lawrence L. Howe, and Mr. Harold E. Whitney, of Counsel for Appellee.
Messrs. Cunningham and Carson, Amici Curiae.
[57 Ariz. 297] McALISTER, J.
A question having arisen as to whether the United Producers and Consumers Co-operative, a corporation, was liable for the payment of the sales tax of 2% on sales made by it from and after January 31, 1938, that corporation brought an action against D. C. O'Neil, Thad M Moore and C. Warren Peterson, members of the state tax commission of Arizona, under the declaratory judgments act, sections 27-701 to 27-706, Arizona Code of 1939, to have its rights and those of the tax commission relative to the payment of this tax ascertained and declared by a judgment of the court.
The agreed statement of facts upon which the matter was heard in the trial court discloses that the United Producers and Consumers Co-operative, hereinafter referred to as the Co-op, is a nonprofit corporation organized in June, 1934, by five persons engaged in agricultural pursuits, under article 7, chapter 49, Arizona Code of 1939, entitled "Co-operative Marketing Act." It has no capital stock but section 49-710, [57 Ariz. 298] Arizona Code of 1939, a part of that act, provides that "when a member of an association established without capital stock, has paid his membership fee, he may receive a certificate of membership," and the by-laws of the organization fixes this fee at fifty cents, which the record discloses had been paid by 11,700 persons up to the day of the trial.
The principal purpose of the organization was to purchase supplies and equipment for the use of its members and other persons and turn these articles over to them at cost plus necessary expenses of handling, and also to market the agricultural products of its members or other producers and turn back to them the proceeds of sales, less the necessary expenses. Other powers were conferred by its articles but it is unnecessary to mention them here.
The Co-op conducts its business at 1821 east Jackson street, Phoenix, in three buildings which it leases for $100 a month from C. M. Martin, and, according to the record, it purchased from Martin goods, wares and merchandise amounting to more than one million dollars in value from May 1, 1935, to July 31, 1937, and from November 1, 1938, to January 31, 1939, and sold practically all of these goods at retail to its members, only a small amount going to nonmembers or to wholesalers. It further appears that the Co-op paid voluntarily the retail tax of 2% on the sales to its members from May 1, 1935, to January 31, 1938, and on sales to nonmembers through May 31, 1938. It ceased to pay this tax after January 31, 1938, because the director of the sales tax division of the tax commission wrote its secretary-treasurer, W. G. Ashby, under date of March 12, 1938, that the income from its sales of merchandise to its members was exempt from the provisions of the Excise Revenue Act of 1935, as amended, Code 1939, § 73-1301 et seq., though he demanded that it continue paying the tax on sales to its [57 Ariz. 299] nonmembers and it did so until the last of May of that year. The action of the director was taken pursuant to a letter from the attorney general to him, dated February 18, 1938, advising him that the Co-op was not liable for the tax on such sales under the Co-operative Marketing Act.
It appears further that the Co-op does business without profit; has created no surplus or reserve fund, and since February 1, 1938, has made no provision for collection of the tax on its sales of supplies, merchandise or equipment to its members.
The controversy that the Co-op and the tax commission agree exists between them is whether the former is liable for the payment of a privilege sales tax on supplies, machinery and equipment sold by it to its members from and after February 1, 1938, the Co-op claiming that it is not by virtue of the Co-operative Marketing Act under which it was incorporated and does business, while the defendant takes the position that it is.
We have just held in State Tax Commission v. Martin, ante, p. 283, 113 P.2d 640, that all the goods, wares and merchandise sold by the ...