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State Tax Commission v. Murray Co. of Tex., Inc.

Supreme Court of Arizona

March 30, 1960

STATE TAX COMMISSION of the State of Arizona, Appellant,
MURRAY COMPANY OF TEXAS, INC., a corporation, Appellee.

Rehearing Denied April 19, 1960.

Page 675

[87 Ariz. 269] Wade Church, Atty. Gen., Leslie C. Hardy, Chief Asst. Atty. Gen., Stanley Z. Goodfarb, Asst. Atty. Gen., for appellant.

Evans, Kitchel & Jenckes, Jos. S. Jenckes, Jr., Morton M. Scult, Phoenix, for appellee.

PHELPS, Justice.

This is an appeal by the State Tex Commission of the State of Arizona from a judgment against it in the sum of $14,213.29 paid by plaintiff-appellee under protest following an additional assessment against it by the Commission in the above amount as and for a transaction privilege tax as provided for under the provisions of A.R.S. § 42-1301 et seq. The parties will hereinafter be designated as plaintiff and the Commission.

The facts are that plaintiff is a Delaware corporation with its principal place of business located at Dallas, Texas, and a branch office in Fresno, California. It is engaged in the manufacture of cotton gins [87 Ariz. 270] and prefabricated steel buildings which it sells in many states, including Arizona, as well as in foreign countries. It consigns a stock of gin repair parts to Food Machinery & Chemical Corporation at

Page 676

Phoenix, Arizona. These repair parts are sold by Food Machinery to its customers in Arizona, and it pays to the Commission the transaction privilege tax incident to such sales. Plaintiff exercises no control over the sales of such parts. Food Machinery handles said parts on a commission basis and at intervals remits to plaintiff the wholesale price thereof.

Plaintiff has as its sales representative in Arizona one W. J. Simmons who resides in Phoenix, and reports to the Fresno branch office. He solicits orders for plaintiff's products from persons and firms in Arizona. All sales of cotton gins and steel buildings are made pursuant to orders given to Simmons by customers or sent directly by the customer to plaintiff at Fresno or Dallas office. Simmons transmits orders procured by him to the Fresno office which are forwarded by it to the Dallas office for acceptance. Delivery of the gin machinery and steel buildings to customers are made on cars or trucks at Dallas. Billings are made and payments received either by the Fresno or Dallas office.

The contract between plaintiff and purchaser provides that 'Any sales or use tax payable at source, that it or may be made effective and applicable to the goods and machinery embraced in this contract, shall be added to the purchase price.' Where the tax has been paid by the customer it has been remitted to the Commission. If the purchaser did not pay such tax none was paid to the Commission.

It further provides that plaintiff will provide an erector (an expert in assembling and installing gins) if desired by the customer. The gin is (necessarily) shipped to the gin site in a knocked down condition and is there assembled. The purchaser agrees to install and operate the gin according to printed instructions furnished by plaintiff. When requested, the assembly, installation and testing is supervised by an erector furnished by plaintiff. The purchaser pays for services of the erector. The cost of assembly and installation is insignificant in comparison to cost of the gin. But they are necessary to the use for which it was intended.

Practically the same provisions are incorporated in the contract for the sale of steel buildings. The purchaser furnishes all labor for its erection except a superintendent and a helper who are furnished by plaintiff. The concrete work, plumbing and electrical work are the sole responsibility of the purchaser. These buildings are (Necessarily) shipped to customers knocked down. They are assembled in a short time at a small cost compared with cost of manufacturing. The assembling [87 Ariz. 271] of these buildings, like the gins, is necessary to their use for which they were intended. The superintendent and helper do no work except that inherent in the task of assembling them.

During the period here involved Joe E. May, who resides in Arizona, performed the work incident to gin machinery if requested by purchaser to do so. May receives his pay and directions from the Fresno office and makes his reports to that office. He receives his pay check and other mail from Fresno at his home address. May also repairs gins when desired by the gin owner. Occasionally a call for May is placed at Food Machinery office and relayed to May or given to him personally if he comes in. May is furnished an automobile by the company for his use, but he furnishes his own hand tools used in assembling or repairing gins. Some time in 1957 one Richard Milligan was employed in the same capacity as May and now resides in Phoenix. He also works out of the Fresno office.

It is immediately apparent that the facts in this case are quite different from the facts either in the case of Arizona State Tax Commission v. Ensign, 75 Ariz. 220, 254 P.2d 1029, or any of the other Arizona cases, or Norton Co. v. Department of Revenue, 405 Ill. 314, 90 N.E.2d 737; 340 U.S. 534, 71 S.Ct. 377, 95 L.Ed. 517. The cases upholding collection of a privilege tax are largely based upon the fact of an established business in the State.

Page 677

It is the contention of counsel for the Commission however that the plaintiff had engaged in sufficient localized activities in this State to bring it within the rule enunciated in the Norton case, supra, and that this State may lawfully impose the privilege and transaction tax upon it under the provisions of A.R.S. § 42-1301 et seq. The stipulated facts are all set out above and the depositions of Messrs. Simmons and Jodis do not materially modify the facts extrinsically stipulated to be correct except that, in addition to being a salesman, Simmons testified he has engineering knowledge acquired through his employment of several years with plaintiff and that he keeps blueprints (of some kind presumably of gins). Also that he keeps a filing cabinet for his correspondence at the office of Food Machinery and sometimes, after visiting the gins and looking over the plant, he makes suggestions as to improvements in the installation then in use. This would appear to be a sales suggestion.

We perceive nothing of material benefit to plaintiff performed by Simmons different from what he might have performed as an ordinary salesman visiting the State periodically. We believe it to be indisputable that all sales of gins and steel buildings made pursuant to orders solicited[87 Ariz. 272] by Simmons or sent by the customer direct to the Fresno office or to the Dallas office, accepted in Dallas, ...

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