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State Tax Commission of State v. Martin

Supreme Court of Arizona

May 20, 1941

STATE TAX COMMISSION OF THE STATE OF ARIZONA and D. C. O'NEIL, THAD M. MOORE and C. WARREN PETERSON, as Members of said State Tax Commission, Appellants,
C. M. MARTIN, Appellee

APPEAL from a judgment of the Superior Court of the County of Maricopa. G. A. Rodgers, Judge. Judgment reversed.

Mr. Joe Conway, Attorney General, and Mr. Earl Anderson, Special Assistant Attorney General, for Appellants.

Messrs. Baker & Whitney, Mr. Lawrence L. Howe and Mr. Harold E. Whitney, for Appellee.


[57 Ariz. 285] McALISTER, J.

This action was filed by C. M. Martin against D. C. O'Neil, Thad M. Moore and C. Warren Peterson, as members of the tax commission of Arizona, to recover $18,392.60 paid by him under protest in accordance with the provisions of the Excise Revenue Act, Code, 1939, § 73-1301 et seq. Judgment in favor of the plaintiff in the amount sought with interest was rendered and the tax commission appeals.

The facts out of which the action grows are substantially as hereinafter stated. From May 1, 1935, until the date of the trial appellee, C. M. Martin, was engaged in the wholesale hardware, farm supply, gasoline and lumber business at 1821 East Jackson street, Phoenix, where he has a number of buildings, one of which is a large structure facing north and divided by an east-west partition running almost through its center. The portion south of the partition is occupied by appellee and that north of it by the United Producers & Consumers Co-operative, a corporation, which will be referred to hereafter as the Co-op. Appellee's office and that of his

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office manager and accounting force is in the part of the building occupied by him near the partition and all the space south or back of this office is a warehouse where goods are received, uncrated and placed on shelves. He has other warehouses, however, east and west of this building and across the street from it.

The Co-op is a nonprofit organization incorporated in 1934 by five persons engaged in agricultural pursuits. [57 Ariz. 286] It has no capital stock and those wishing to become members of it do so by paying the membership fee of fifty cents fixed by the association's bylaws for which they are issued a certificate of membership entitling the holder to purchase goods from it at cost, and at the time of the trial about 11,700 persons had become members of the organization. It was organized originally to purchase gas and oil at wholesale for the purpose of resale to its members at cost plus the expense of handling. To begin with it rented from appellee a tank in which to store its gas for distribution to its members and also space for its office. It had no money with which to start this venture, so appellee extended it credit, and after its first annual meeting he and the board of directors agreed that he should buy other commodities in large quantities and sell them to the Co-op at wholesale prices for resale by it to its members for cost plus overhead and, according to the testimony, from that time on this was done. Appellee was not an officer of the Co-op and had no connection with it other than the advancement to it of credit with which to do business, except that he leased to it for $100 per month three business places, namely, the north half of the large structure just mentioned, one across the street for the service department, and one to the east for the lumber department.

In the portion of the building north of the partition the Co-op has its office, a "bull-pen" for the cashier and a cash register, and shelves and counters on which goods are displayed. This merchandise is the property of appellee and is taken from the warehouse and placed on the shelves and counters by his employees who keep stock records of it, so as to know for insurance purposes how much he has there and how much in the warehouse. These goods are sold by the Co-op to its members in this way: When a member enters [57 Ariz. 287] the Co-op's place of business and purchases an article of merchandise the clerk serving him makes out a sales ticket showing whether the purchaser is a member, his name, his Co-op number, the date, amount paid and the description of the merchandise, marks it "paid," all sales being for cash, and turns it into the Co-op's cashier. At the close of the day the Co-op's bookkeeping department segregates the sales tickets into different classes of commodities for which the Co-op has a classification, there being nine in all, for instance, all tickets on gasoline sales being placed in one class, those for hardware in another, those for kerosene in still another, etc., totals them, and the next morning issues a purchase order for them and turns it over to C. M. Martin, wholesaler, stating that the goods have been purchased for resale. The purchase order does not list the individual sales but groups the various commodities according to the different classifications. Upon receipt of the purchase order, appellee makes out a bill for the goods included therein and delivers it to the Co-op, both the purchase order and the bill being for the goods the Co-op sold the previous day. Upon receipt of the bill from appellee the Co-op posts the purchases in its purchase journal as a permanent record of accounts payable and about every other day pays appellee on account, there being at all times a balance due him.

After giving the foregoing testimony as to the manner in which the wholesale business between appellee and the Co-op was transacted, Harlan Russell, office manager for appellee, testified as follows on cross-examination:

"Q. Now, assume, Mr. Russell, that I was a member of the Co-operative during the period that is involved in this lawsuit, and I wanted to buy any article, say a pair of irrigating boots, and went to the Co-operative for them, those boots there in stock would [57 Ariz. 288] be Charlie Martin's boots, wouldn't they? A. Yes, sir.

"Q. And the Co-operative would sell them to me although they belonged to him, that is true, is it? A. The merchandise would be there on hand.

"Q. The merchandise would be in the Co-operative's place of business, that is true? A. It would be ...

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