Engs Motor Truck Co. v. State Board of Equalization

—Plaintiff Engs Motor Truck Company (Engs), a retail truck dealer, appeals following summary judgment for defendant State Board of Equalization (the board) in this action for a refund of sales tax and interest paid under protest. (Rev. & Tax. Code, § 6933, all further section references are to the same code unless stated otherwise.)

The issues are (1) whether trucks sold for ostensible delivery to an out-of-state point must actually be so delivered in order to gain the seller a sales tax exemption under section 6396 of the Sales and Use Tax Law (§ 6001 et seq.), (2) if so, whether the buyer’s certification that the trucks will be delivered out-of-state shifts liability for the sales tax to the buyer under section 6421, and (3) whether the board may be estopped to collect the tax on the facts of this case.

Background

The case concerns 42 Peterbilt trucks sold by Engs during March 1976 to May 1978 for shipment by a carrier to designated locations in Arizona where delivery to the buyer was to have occurred. The sales invoice and bill of lading in each instance reflected an Arizona delivery point, and each buyer certified on a Department of Motor Vehicles “Statement of Facts” form as follows (brackets ours): “The above mentioned Vehicle was delivered to me and I took possession and title thereof at [designated Arizona location]. [$] This vehicle is currently engaged in Inter-State Commerce prior to its return to the State of California and will be so used continuously hereafter.”

The deliveries in fact occurred in California. During an audit of Engs, the board discovered postsale service records showing odometer readings too low for the trucks to have been driven to their designated Arizona delivery points and back to their California servicing sites, and a check with some of the buyers confirmed that trucks had been delivered in California.

The board asserted a tax deficiency for the 42 sales. Engs challenged the deficiency determination and, after exhausting its administrative remedies without success, paid under protest. The amount paid was $206,544.58, consisting of $112,524.48 tax and the rest interest.

Engs filed the instant action in superior court after the board denied a refund claim. This appeal by Engs is from a judgment entered in favor of the board after the court denied summary judgment to Engs and granted it as to the board.

Summary judgment may be granted only where there is no triable issue of material fact and the moving party is entitled to judgment as a matter of law. (Code Civ. Proc., § 437c, subd. (c).) We will uphold the judgment. As will appear, those factual questions in this case potentially requiring resolution by trial become immaterial in light of the proper resolution of purely legal questions (Frazier, Dame, Doherty, Parrish & Hanawalt v. Boccardo, Blum, Lull, Niland, Teerlink & Bell (1977) 70 Cal.App.3d 331 , 338 [ 138 Cal.Rptr. 670 ]), and the superior court correctly resolved those legal questions.

The initial question for review is whether section 6396, which exempts from the computation of sales tax the gross receipts from tangible personal property sold in interstate commerce, requires actual delivery of the property to an out-of-state point or could reasonably be so interpreted by the board in the exercise of its powers. There is no dispute that the trucks in this case were not actually delivered outside California. The parties accordingly acknowledge that a pure question of law is presented, that is, the applicability of a taxing statute to undisputed facts. (Montgomery Ward & Co. v. State Bd. of Equalization (1969) 272 Cal.App.2d 728 , 734 [ 78 Cal.Rptr. 373 ], cert. den. (1970) 396 U.S. 1040 [ 24 L.Ed.2d 684 , 90 S.Ct. 688 ].)

Section 6396 provides in pertinent part: “There are exempted from the computation of the amount of the sales tax the gross receipts from the sale of tangible personal property which, pursuant to the contract of sale, is required to be shipped and is shipped to a point outside this state by the retailer by means of: (a) facilities operated by the retailer, or (b) delivery by the retailer to a carrier, customs broker or forwarding agent, whether hired by the purchaser or not, for shipment to such out-of-state point.”

Crucial to this case is the language mandating that the property “is required to be shipped and is shipped to a point outside this state” by means of a carrier. Engs contends that the condition “and is shipped” means that the exemption is obtained by mere delivery to the carrier for an out-of-state destination whereas the board contends that actual delivery of the property outside California must occur.

The board’s interpretation is expressed in its sales and use tax regulations. (Cal. Admin. Code, tit. 18, ch. 2, subch. 4, § 1500 et seq.; all subsequent references to numbered regulations are to the corresponding section numbers of that code and subchapter.) Regulation 1620, captioned “Interstate and

At the outset, Engs argues that the section 6396 phrase “is shipped to a point outside this state” cannot reasonably be read as requiring actual out-of-state delivery because the verb “ship,” as commonly defined, means only to place on board or deliver to a carrier for transportation. (See, e.g., Webster’s Third New Intemat. Diet. (1965) p. 2096 [“to place or receive on board ... for transportation,” “to cause to be transported”]; Black’s Law Diet. (5th ed. 1979) pp. 1234-1235 [“to transport; to deliver to a carrier (public or private) for transportation”].) In Engs’s view, the language is clear and therefore does not leave room for construction.

The argument is unsound. Our research reveals cases (discussed post) in which the word “ship” has been construed as meaning completed shipment where the context and purpose of a statute require it. “The fundamental rule of statutory construction is that the court should ascertain the intent of the Legislature so as to effectuate the purpose of the law. [Citations.] Moreover ‘every statute should be construed with reference to the whole system of law of which it is a part so that all may be harmonized and have effect.’ [Citation.] If possible, significance should be given to every word, phrase, sentence and part of an act in pursuance of the legislative purpose. [Citation.] Such purpose will not be sacrificed to a literal construction of any part of the act. [Citations.]” (Select Base Materials v. Board of Equal. (1959) 51 Cal.2d 640 , 645 [ 335 P.2d 672 ], italics added; see also People v. Knowles (1950) 35 Cal.2d 175 , 182 [ 217 P.2d 1 ], cert, den., 340 U.S. 879 [ 95 L.Ed. 639 , 71 S.Ct. 117 ].)

The United States Supreme Court reached a similar result in United States v. Freeman (1915) 239 U.S. 117 [ 60 L.Ed. 172 , 36 S.Ct. 32 ], in construing language making it a criminal offense “to 'ship or cause to be shipped from one State,... into any other State,... or from any foreign country into any State,...”’ any intoxicating liquor. (Id., at p. 119 [60 L.Ed. at p. 173, italics added.) As in the Alaska Consol. Canneries case, supra, the defendant argued that he could not be prosecuted in the state of destination, urging that the offense was “complete when the [liquor was] delivered to the carrier for shipment, ...” (Freeman, supra, 239 U.S. at p. 119.) The Supreme Court rejected the argument and construed the statute as defining a continuing offense that was not completed until delivery of the goods in the state of destination, declining to read “the word ‘ship’ ... as if it were ‘deliver for shipment.’ ” (Id., at p. 120 [60 L.Ed. at p. 174].) Noting that the statute outlawed shipments in foreign as well as interstate commerce, the court observed: “Congress did not intend to do anything so obviously futile as to denounce as criminal an act wholly done in a foreign country, such as is the delivery to the carrier where the shipment is from a foreign country into a State. So, if its words permit, as we think they do, the statute must be given a construction which will cause it to reach both classes of shipments, and thereby to accomplish the purpose of its enactment.” (Ibid.)

We conclude that section 6396’s language, “is shipped to,” does not necessarily prevent a construction requiring actual delivery outside the state. The question therefore remains whether the board reasonably gave the language that interpretation.

Like similar provisions of the Sales and Use Tax Law, section 6396 is designed to accommodate federal constitutional restrictions on state taxa

Engs, by its argument that actual delivery outside the state need not occur for the exemption to apply, is asserting that the Legislature has seen fit to go beyond the compulsion of the federal Constitution and exempt any sale in which the retailer places goods in the hands of a carrier for out-of-state shipment, regardless of whether delivery to the seller actually takes place outside the state. Already, the board’s contrary position begins to sound reasonable: Why would the Legislature do that and thereby lose sales tax revenues that the state could otherwise have?

Engs has a two-part answer. First, the Legislature would want to relieve the retailer of the burden of ensuring that deliveries are made outside the state; and second, the Legislature has statutorily provided for a shift of tax liability to the buyer in these circumstances so that tax revenue will not always be lost (see § 6421).

As will appear from our discussion in part II of this opinion, however, the Legislature has not provided for a shift of liability to the buyer in these circumstances. Thus, in order to sustain Engs’s position, we have to believe that legislators were willing to forego the tax revenue completely in order to relieve the retailer’s burden. That appears unlikely for several reasons.

Foremost is the structure of section 6396, which requires that property “is shipped to” the out-of-state point by means of either (a) facilities operated by the retailer or (b) delivery to a carrier. The instant case presents situation (b), where the retailer delivers the property to a carrier. One can sympathize with a retailer who so delivers the property in good faith reliance on a bill of lading, and perhaps contractual assurances from the buyer, calling for

As Engs points out, a familiar canon of construction holds that statutes relating to the same subject should be construed in light of one another and that a word or phrase contained in one but omitted from another thus may signal a different legislative intent. (See, e.g., Gonzales & Co. v. Department of Alcoholic Bev. Control (1984) 151 Cal.App.3d 172 , 178 [ 198 Cal.Rptr. 479 ]; Hennigan v. United Pacific Ins. Co. (1975) 53 Cal.App.3d 1 , 8 [ 125 Cal.Rptr. 408 ].) However, application of that rule in this case would achieve a result inconsistent with the evident purpose of section 6396, as just discussed. Further, it would be inconsistent with the result required by other applicable canons of construction.

One such canon is that a court should, if possible, give significance to every word and phrase of the statute. (Select Base Materials v. Board of Equal., supra, 51 Cal.2d 640 , 645; Coast Elevator Co. v. State Bd. of Equalization (1975) 44 Cal.App.3d 576 , 587 [ 118 Cal.Rptr. 818 ], disapproved on another point in Culligan Water Conditioning v. State Bd. of Equalization (1976) 17 Cal.3d 86 , 93 , fn. 4 [ 130 Cal.Rptr. 321 , 550 P.2d 593 ].) To do as Engs suggests, and substitute the phrase “delivered for shipment” for the word “shipped,” creates a redundancy. The exemption would apply if the property “is [delivered for shipment] to a point outside this state by the retailer by means of:... (b) delivery by the retailer to a carrier ... for shipment (Substitution in brackets.) To paraphrase, the retailer would have to deliver the property for shipment by means of delivering it for shipment. If that were intended, “(b)” could simply read “a carrier,” thus accomplishing the same thing without redundancy.

Another canon is that where a word of common usage has more than one meaning, the one which will best attain the purposes of the statute should be adopted, even though the ordinary meaning of the word is thereby enlarged or restricted. (Moyer v. Workmen’s Comp. Appeals Bd. (1973) 10 Cal.3d 222 , 232 [ 110 Cal.Rptr. 144 , 514 P.2d 1224 ].) The word “ship” usually means to deliver for shipment, but it is also a synonym for “transport.” (Black’s Law Diet. (5th ed. 1979) p. 1235.) If section 6396 used the synonym “transport,” it would require that property “is transported to” the out-of-state point, and there would be little if any room for argument that actual delivery is not required. Engs in fact relies on the phrase “transported to” in section 6385 as a clear requirement of actual out-of-state delivery. Adopting the meaning “transported” for “shipped” in section 6396 best attains the statutory purpose of exempting those sales which cannot be

As applied to a buyer, the definition of “use” clearly refers, not to the transfer of possession and title by taking delivery, but to some exercise of right or power over the property after that point. Section 6009 refers to use which is “incident” to ownership. Where, as here, title to the property does not pass until delivery to the buyer (Satco, Inc. v. State Bd. of Equalization, supra, 144 Cal.App.3d 12 , 17; see Standard Oil Co. v. Johnson, supra, 24 Cal.2d 40 , 45-46), delivery cannot logically be “incident” to the buyer’s ownership.

Similarly, section 6009.1 refers to use by a buyer which follows the taking of possession and title at delivery. (See, e.g., H. J. Heinz Co. v. State Board of Equalization (1962) 209 Cal.App.2d 1 , 4-6 [ 25 Cal.Rptr. 685 ]; Atchison etc. Ry. Co. v. State Bd. Equal. (1955) 131 Cal.App.2d 677 , 680-682 [ 281 P.2d 99 ].) The section refers to keeping, retaining or exercising some right or power for purposes of “subsequently transporting” the property outside the state or for altering the property before transporting it outside the state. Both situations necessarily imply prior passage of title.

The board has interpreted section 6421 as not applying to the section 6396 requirement of out-of-state delivery. Subdivision (a)(3)(A) of regulation 1620, which has been in effect during all periods relevant to this case, provides in part: “Regardless of the documentary evidence held by the retailer ... to show delivery of the property was made to a carrier for shipment to a point outside the state, tax will apply if the property is diverted in transit to the purchaser or his representative in this state, or for any other reason it is not delivered outside this state.” (Italics added.) Engs argues that the regulation is ambiguous since it states that “tax will apply” without specifying which party, retailer or buyer, is liable. (See also reg. 1500, subd. (c), defining “tax applies” but without reference to who is liable.) However, it is long established that the sales tax, being an excise tax on the privilege of conducting a retail business in this state, is imposed on the retailer, not the consumer. (Coast Elevator Co. v. State Bd. of Equalization, supra, 44 Cal.App.3d 576 , 587; see generally National Ice etc. Co. v. Pacific F. Exp. Co. (1938) 11 Cal.2d 283 , 289-290 [ 79 P.2d 380 ].) That being so, it follows that the tax applies to the retailer unless some provision of the law, such as section 6421, expressly states otherwise. (Cf. Paine v. State Bd. of Equalization (1982) 137 Cal.App.3d 438 , 446 [ 187 Cal.Rptr. 47 ].)

Finally, and of significance to Engs’s argument in this case, the court in H-R Truck rejected the board’s contention that exempt status as to some of the transactions was lost because certain vehicles—those sold to the carrier Navajo Freight Lines, Inc. (Navajo)—had been used to haul payloads en route to their out-of-state destinations. The court reasoned: “[T]he action of Navajo ... could not affect the interest of the [retailer] truck company, it not appearing that it had any knowledge, notice or responsibility for the conduct of Navajo----Under these circumstances the truck company cannot be charged a tax by reason of this subsequent conduct of Navajo.” (Id., at p. 385.)

Engs sees H-R Truck as standing for a general principle that a retailer’s sales tax exemption cannot be lost on account of a buyer’s subsequent conduct. However, the holding is not nearly so broad. As was explained in Southern Pacific Equip. Co. v. State Bd. of Equalization (1971) 16 Cal.App.3d 302 [ 94 Cal.Rptr. 107 ], a case out of this division, mere literal compliance with section 6385’s facial elements is not enough to achieve the exemption; a critical additional inquiry implied in the statutory language is whether the purchaser-carrier exercised such independent control over the property during shipment that the shipment can be characterized as being to a point within, rather than outside, California. (Id., at pp. 305-307.) This court noted that comments in H-R Truck about “literal compliance” with the statute being sufficient were made in the context of discussing the irrelevance of the location of passage of title, and bad faith. (Id., at p. 306.)

Similarly, we observe that H-R Truck's discussion of subsequent conduct as affecting the seller’s exemption was apparently part of the discussion of bad faith. The court appears to say that, while literal compliance with the exemption criteria is not itself proof of bad faith (H-R Truck, supra, 166

The judgment is affirmed.

Kline, P. J., and Rouse, J., concurred.