ARIZONA STATE TAX COMMISSION et al.
ENSIGN et al.
Rehearing Denied May 14, 1953.
[75 Ariz. 222] Fred O. Wilson, Atty. Gen., and Richard C. Briney, Asst. Atty. Gen., for appellants.
Snell & Wilmer and Edward Jacobson, of Phoenix, for appellees.
The Arizona State Tax Commission has appealed from an adverse judgment 'reluctantly' entered by Judge Windes of the Superior Court of Maricopa County in a 'suit for recovery of taxes illegally collected'. Such an action is provided for in Article II, Section 17, of the Excise Revenue Act of 1935, now appearing as Section 73-1318, A.C.A.1939. The learned trial Judge considered himself bound by a previous decision of this court even though he thoroughly disagreed with the conclusion.
Appellees Ensign and Kempson, plaintiffs below, are partners engaged, among other things, in the business of selling, installing and servicing deep well turbine pumps in Arizona. They have a 'Dealers Agreement' with Layne & Bowler, a California corporation, whereby they handle only Layne & Bowler pumps, and have exclusive selling rights in Arizona.
The appellant Commission made a privilege tax assessment based on appellees' unreported sales as disclosed by an audit covering a two-year and four-month period. Appellees protested the assessment in part, being an amount of $2,554.12, which covered transactions hereinafter described. The Commission, after a hearing, denied the protest and appellees brought suit to review said ruling.
Approximately four-fifths of appellees' business, over which there is no controversy consists of sales to Arizona users, which sales include installation. Upon these sales an excise tax is paid to Arizona. The transactions in controversy constituting approximately one-fifth of appellees' business are as follows: Appellees receive an order for a complete pump or component parts from a large Arizona user, such as Phelps Dodge Corporation or Goodyear Farms Co., that has available trained personnel and engineers who can make the required installation or repairs. Appellees then place an order on their forms for the requested pumps or parts from the manufacturer. If the order is accepted by Layne & Bowler, they deliver the pump, freight prepaid, f. o. b. to a common carrier in Los Angeles, the Arizona user being shown as consignee on the bill of lading. Appellees collect from the user on such terms as they choose to give, and later they remit to the manufacturer.
The question presented, which is basically the same question the court had before it in the case of Pratt-Gilbert Hardware Co. v. O'Neil, 64 Ariz. 393, 173 P.2d 91; On Rehearing[75 Ariz. 223] 65 Ariz. 90, 174 P.2d 620 is: are sales of merchandise made by a licensee under the Excise Revenue Act of 1935, Laws of 1935, Ch. 77, as amended, now appearing as Section 73-1301 et seq. A.C.A.1939, to be included in the gross proceeds of sales against which the rate is applied, where such sales have been consummated by delivery f. o. b. to the purchaser in another state?
The language of the act pertinent to the inquiry is:
Sec. '73-1303. Imposition of tax.--From and after the effective date of this act, there is hereby levied and shall be collected by the tax commission for the purpose of raising public money * * * annual privilege taxes measured by the amount or volume of business done by the persons on account of their business activities and in the amounts to be determined by the application of rates against values, gross proceeds of sales, or gross income, as the case may be, in accordance with the following schedule:
* * *
* * *
'(c) At an amount equal to two (2) per cent of the gross proceeds of sales or gross income from the business upon every person engaging or continuing within this state in the following businesses:
'1. Selling any tangible personal property whatsoever at retail, except bonds and stock. * * *'
Sec. '73-1308. Constitutional prohibition.--The taxes herein levied shall not be construed to apply to transactions in interstate commerce which, under the Constitution of the United States, the state of Arizona is prohibited from taxing * * *.'
The tax imposed by the act is not a sales tax as such but is a tax upon the privilege of engaging in business measured by the amount or value of business done. State Tax Commission v. Quebedeaux Chevrolet,71 Ariz. 280, 226 P.2d 549. Subsection (c) 1, supra, levies privilege taxes at the rate of 2% of the gross proceeds of sales or gross income from the business of a person engaged, within this state, in the business of selling ...