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State Tax Commission v. Ryan-Evans Drug Stores

Supreme Court of Arizona

December 21, 1960

STATE TAX COMMISSION of Arizona et al., Appellants,
v.
RYAN-EVANS DRUG STORES, a corporation, Appellee.

Rehearing Denied May 2, 1961.

Robert Morrison, former Atty. Gen., Bernard T. Caine, former Asst. Atty. Gen., Robert G. Mooreman, former Asst. Atty. Gen., Wade Church, present Atty. Gen., Arthur E. Ross, Asst. Atty. Gen., for appellants.

Shimmel, Hill, Cavanagh & Kleindienst, Fennemore, Craig, Allen & McClennen, Phoenix, for appellee.

[89 Ariz. 19] JENNINGS, Justice.

Pursuant to A.R.S. § 42-1339, Ryan-Evans Drug Stores, hereinafter referred to as appellee, brought suit to recover certain taxes paid under protest. The trial court entered judgment in favor of appellee for the sum of $3,839.43, together with costs. From this judgment the Arizona Tax Commission, hereinafter referred to as appellant, has appealed.

Appellee is a corporation duly organized and existing under the laws of the State of Arizona, and is and was at all times mentioned herein engaged in the retail drug business in the counties of Maricopa, Pinal, Gila and Pima of the State of Arizona. During the period from September 1, 1952 to June 30, 1955, the appellee used, in connection with and as a part of its retail business, the 'Sperry & Hutchinson Co-operative Discount System.' This trading stamp system was maintained and advertised by appellee under a written contract with Sperry & Hutchinson Company of New York, hereinafter referred to as the company. The company co-operative discount system as used by appellee was the ordinary trading stamp plan. Appellee issued to its customers the stamps which it had purchased from the company. The stamps were referred to as 'S. & H. Green Stamps'.

The stamps were issued and offered by appellee to those of its customers who paid

Page 608

cash for their merchandise or who promptly paid their monthly bills. Customers were issued stamps on ths basis of one stamp for each ten cents of the purchase price paid, without regard to the kind or amount of merchandise purchased. The stamps were redeemable when presented by the customer at a store owned and conducted by the company, who furnished the stamps to the appellee. The company redeemed said stamps when the same were presented by customers at the stores of company on the basis of 2 1/2 cents for each ten stamps or $3 per book of 1,200 stamps. According to the stipulation of counsel the stamps were not redeemed in cash but in merchandise.

Appellee maintained the theory that this stamp distribution to its customers was in the nature of a cash discount and during the said period from September 1, 1952 to June 30, 1955, the total amount of these purported 'discounts allowed and taken' amounted to $173,730. On this premise appellee deducted such an amount from its gross sales during the period.

The Arizona State Tax Commission contended that such stamp payments were not 'discounts allowed and taken on sales' within the meaning of § 73-1302, A.C.A.1939 (now A.R.S. § 42-1301(6), and that the trading stamp transaction was not a true discount of any sort, but rather a device or scheme designed to attract customers, induce sales and supplement advertising.

[89 Ariz. 20] Under the Excise Revenue Act, the State Tax Commission of Arizona has the duty, obligation and right to levy and collect transaction privilege taxes, measured by the amount or volume of business transacted by persons on account of their business activities and in the amounts as determined by the rates set forth in the Act as applied to the 'gross proceeds of sales' of a business. A.R.S. § 42-1309.

The Commission assessed a 2% tax under the authority of the Excise Revenue Act of 1935, § 73-1301 et seq., A.C.A.1939, now A.R.S. § 42-1301 et seq., against appellee on the theory that the transaction constituted retail sales within the scope of the Act.

The court below, without making any findings of fact as to the precise basis of its determination, entered judgment in favor of appellee. Hence this appeal.

There is only one issue in this case. That is whether trading stamps given by a retail merchant to his customer in order to stimulate sales volume constitute 'cash discounts allowed and taken on sales' within the meaning of A.R.S. § 42-1301(6). The provision reads:

"Gross proceeds of sales' means the value proceeding or accruing from the sale of tangible personal property without any deduction on account of the cost of property sold, expense of any kind, or losses, but cash discounts allowed and taken on sales shall not be included as gross income.'

It is presumed that all gross receipts of a business are subject to the taxes imposed under the Excise Revenue Act until the contrary is established. The reason for this (stamps) to the retail merchant. A.R.S. proper administration of ...


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