E.C. Olsen Co. v. State Tax Commission , 109 Utah 563 ( 1946 )

I dissent. I agree that a decision of the commission must be in writing; that a quorum (3 members) of the commission may transact the business of the commission; and that the decision of a majority of the commission, or the quorum present, constitutes a decision of the commission. I agree that a written decision of the commission need not affirmatively show on its face that a quorum was present when it was made, and that a majority of those present agreed to the decision, as long as the record or minutes of the commission so shows. Quere: If the decision as filed or certified contains the signature of only one member of the commission would it not impel a holding that the face of the order showed it was not a decision of the commission? Where the decision is signed by some members only, I think the conclusion inescapable that the non-signing members either did not approve, or did not participate, in making the decision.

Coming now to the items involved in the taxes in question, I note that as to manufacturers or compounders, there is no sales tax imposed on "containers, labels, and shipping cases" used by the manufacturer or compounder. Such sales are not exempted from sales tax because the tax is passed on to the consumer of the goods so contained, labeled, or shipped, but apparently upon the ground that such articles are not articles sold to be "consumed" as that word is used in the act, but constitute a part of incident of the manufacturing, or compounding, and the marketing process. Certainly there is no sales tax collected from any source on the carton in which 24 or 48 cans of salmon, peanut butter, soap or toilet paper is shipped to the retailer; nor is the bottle in which olives, jam or mayonnaise, cola or beer is contained when sold at retail, "consumed" by anyone. Often the bottle is emptied where purchased and left on the counter; or it is returned for credit, and again used by the bottler. It is not consumed nor does it become a component part of the goods which are sold and consumed, nor is sales tax collected on it in any of such transactions. Such property is exempt from the tax — the tax is not passed on to the ultimate consumer. This exemption seems to be upon the theory that while such goods do not enter into and become an ingredient or component part of the product manufactured or compounded, its use becomes a necessary incident to the manufacture and compounding of the product, and the marketing process for getting the goods to an ultimate consumer, without which there could be no taxable sales. This I think, is the theory, import, and purpose of the provisions of exemption in the act, and should govern its interpretation and application.

Insecticides, while not becoming an ingredient or component part of the fruit or vegetable, is an essential element in its production — its manufacture and compoundment. It serves a similar purpose to that of lime in the manufacture of sugar, or chlorine in the purification of waters to be used for human consumption, salt and alum in curing meats and making pickles, — all of which are for the purpose of producing an article that is edible and can be preserved in an edible condition. Otherwise there would be no fruit or vegetables produced for retail sales or consumption. Such insecticides are not "consumed" within the meaning of the act, but are necessarily used in the manufacture of a product for sale and without the use of which such product could not be produced, just as much as in the dye used in producing cloth. I think such sales of insecticides not taxable.

Car Strip — I cannot see where these differ at all from shipping cases. The cases are used to hold the cans, or bottles, bags or loose articles like apples or tools for shipment from manufacturer or producer to the retailer. One could not well shovel butter, jam, pickles or bottles of ketchup loose into a corner of a warehouse, nor into a car from transport. The car strips are just as essential to preserve the goods whole and intact in the shipping process as is the carton or basket. I think the commission was right during the twelve years these sales were not taxed.

Sales of picking boxes and pea canning trays are properly taxable. They are not purchased for resale; they are convenient, but not necessary in manufacturing or producing goods for sale; they are not used up as a necessity in the production of goods; nor does their use or consumption enter into the transaction constituting the effecting and completing of a wholesale sale.

Milk cases have no relation to the production, manufacture, or compounding of tangible property for sale. They are merely conveniences of the retailer in the conducting of his retail business, and are therefore properly taxable. The same is true of the corrugated carton sold to the Union Pacific Railroad.

I must dissent wholly from the holding that the Tax Commission, interpreting and applying an act such as this, can supervise another's business as to taxes he must collect and pay, year after year, directing him to collect and remit taxes on certain transactions, and not to collect taxes on other types of transactions, and then years later comes back and says,

"Because you followed our instructions and directions, you shall now be penalized by being required to pay out of your own pocket the taxes we told you not to collect, and also be subjected to a severe penalty because we have now changed our mind and way of doing business."

Bear in mind that the merchant collecting the sales tax, does so as the agent or employee of the tax commission and under its supervision and direction and not as part of his own business. Nor does it help to say this was done by the auditor. If the tax commission assumes to act through the auditor, it is in the same position as any other concern who assumes to act through a superintendent, foreman, or other agent or employee. The question is not whether the State should have had the taxes, but whether the tax commission can penalize the merchants for doing what the Tax Commission directed them to do. A case that goes farther than this in holding to administrative determination as binding isUnited States v. Otley, D.C., 34 F. Supp. 182.

I think Olsen should not be held liable for any of these taxes prior to the time the Commission notified him of its change of policy and interpretation.

I therefore dissent.

PRATT, J., not participating.