State Tax Commission of Utah v. Pacific State Cast Iron Pipe Company

PETITIONER:State Tax Commission of Utah
RESPONDENT:Pacific State Cast Iron Pipe Company
LOCATION:Bay County Circuit Court

DOCKET NO.: 178
DECIDED BY: Warren Court (1962-1965)
LOWER COURT:

CITATION: 372 US 605 (1963)
ARGUED: Mar 20, 1963
DECIDED: Apr 01, 1963

Facts of the case

Question

Audio Transcription for Oral Argument – March 20, 1963 in State Tax Commission of Utah v. Pacific State Cast Iron Pipe Company

Earl Warren:

Number 178, Tax — State Tax Commission of Utah, Petitioner, versus Pacific States Cast Iron Pipe Company.

Mr. Howard.

F. Burton Howard:

May it please the Court.

This case involves the imposition of sales tax by the petitioner, the State Tax Commission of Utah upon sales of cast-iron pipe, fittings and other related commodities by the Pacific States Cast Iron Pipe Company, who is the respondent here, to contractors who came within the State of Utah, took title to and accept the delivery of the items so purchased within that State, and thereafter pursuant to the contractual agreement with the seller, transport of the items outside of the State of Utah for use and consumption.

This is an interstate commerce situation which has arisen to trouble less court in times passed.

Utah law requires that every sale consummated within the borders of that State be subjected to a sales tax and the question here presented for review is whether or not this tax as imposed by the Tax Commission on sales conducted by the respondent in this manner is a burden on interstate commerce which is prohibited by the Commerce Clause of the United States Constitution.

The case began as an original proceeding in the Supreme Court of Utah to review an order and decision of the Tax Commission imposing sales tax liability upon to respondent for these sales.

The pipe company below contended that as its quotations which it issued to prospective purchasers, call for a sale FOB, its foundry Provo, Utah and as it claimed to be legally obligated to effectuate delivery across state lines out of Utah and that out-of-state use and consumption being conceded by the Tax Commission, and because of these facts, there was sufficient certainty of out-of-state use or destination to require the decision of these sales were in interstate commerce.

Respondent further contended below that the risk of multiple taxations herein constituted the sales tax imposed by the Tax Commission, a burden on interstate commerce.

Now after argument, the Utah Supreme Court ruled that the states sales tax statute as applied under the facts of this case reflected a situation offensive to the Commerce Clause, apparently because of the certainty of foreign destination and with considerable reliance upon the Richfield Oil case.

The Tax Commission filed a timely petition for certiorari which is granted by this Court on October 8, last fall.

The facts as found on the record indicate that the pipe company respondent is a Nevada corporation qualified to do business in Utah, that it manufactures cast-iron pipe, fittings and related items, selling in most of the Western States, and that the majority of its sales are in interstate commerce, that is the delivery is made to the purchaser across state lines.

These sales are not involved in the present controversy at all.

The materials purchased from the pipe company by contractors coming into Utah, wherein they took delivery of the materials in Utah, the title passed in Utah subject to quotations given them by the pipe company and invitations given them by the pipe company to haul their our own materials on their own trucks are the only matters which are involved and need efficiency assessment which has been levied by the State.

These materials, the materials which were taken in Utah by the ultimate consumers whereof specified sizes and lengths to conform to the specifications of out-of-state jobs.

Often these specifications were federal specifications.

They were concededly designed to be used out of Utah and this is one of the items that the respondent relies upon in great detail.

All of the sales however, were proved at the home office of the respondent in Provo, Utah.

John M. Harlan II:

(Inaudible)

F. Burton Howard:

No, Your Honor.

The original quotations which where issued by the respondent to all bidders on these federal projects or other projects, the original quotations contemplated that delivery would be made out of Utah to the job site, where the work was going to be done, but in these quotations, as a matter of fact, provide that the prices quoted under FOB are foundry at Ironton with whole present 3,500 or whatever it may have been found a minimum rate of truckload freight allowed to the foreign destination, that the parties here on all of the sales which we’ve included in this deficiency assessment, the parties by a subsequent correspondents are dealing have modified this original requirement.

And they have agreed that delivery is to be made to the purchaser at the pipe company’s foundry in Utah.

Exhibit 6B is typical of this, it’s found in the record on 197, and this exhibit and other similar ones which we’ve included provides the prices quoted herein are FOB, our foundry at Littleton, Provo, Utah with full truckload freight allowed to Farmington, New Mexico.

Therefore, these are delivered prices and then significantly, should you desire to haul this material from our foundry at Provo, Utah, we will allow $20.40 per net ton which is the current freight rate.

All of these sales, where the contractor came into Utah pursuant to this or similar invitations to haul the pipe in its own trucks and to take delivery in Utah have been included in this deficiency assessment, others have not.

Now —

Potter Stewart:

But those are the only ones that were —

F. Burton Howard:

That’s right.

Potter Stewart:

— included in this deficiency assessment?

F. Burton Howard:

That’s right.

Potter Stewart:

Only those delivered to the customers on trucks in the State of Utah, am I right?

F. Burton Howard:

That is correct.

Potter Stewart:

Yes.

Arthur J. Goldberg:

But General, I take it, (Inaudible)

F. Burton Howard:

I think that’s correct, Your Honor.

And the reason for that is that Utah at least requires a consummated transaction of sale, unless there’s delivery to the ultimate consumer within the borders of the State of Utah, if the delivery is processed across states line, there is no consummated sale within our State.

Byron R. White:

That is — is that a matter of the construction of your own statute or do you say that the constitutional requirement —

F. Burton Howard:

The sales tax law in Utah is contained in several sections but one of them says that the tax applies to every consummated transaction of sale.

This is constructed and a matter of statute that we don’t apply to —

Byron R. White:

You don’t — you don’t suggest that you’re forced to exempt these sales and make the common carrier — whether the deliveries made to a common carrier, do you?

F. Burton Howard:

We feel that that isn’t before the Court.

Utah Supreme Court seemed to take the position that we conceded this —

Byron R. White:

Well, but in this — in this case that’s before the Court, do you think there’s really substantially a lot of difference between delivery to a common carrier where under the Uniform Sales Act, the title passes at the time you delivered it to a common carrier and the delivery to a man own trucks?

F. Burton Howard:

The case has generally upheld that delivery to a common carrier is not delivery to the ultimate consumer.

He’s not acting as an agent for the consumer —

Byron R. White:

But the risk is on —

F. Burton Howard:

— for purposes of —

Byron R. White:

— the risk — who is the risk on when it’s delivered to a common carrier?

F. Burton Howard:

This is often a matter a contractual agreement.

Byron R. White:

But when there isn’t a contractual arrangement, who’s the risk for losses —

F. Burton Howard:

Usually the risk is on the carrier.

Byron R. White:

When the risk — which means that the carrier can’t pay the risk of the buyer?

F. Burton Howard:

That’s correct.

Byron R. White:

And on — and who’s got title to it — who’s got the insurable interest in it?

F. Burton Howard:

You’re talking about the situation where a common carrier carries the property?

Byron R. White:

Yes.

F. Burton Howard:

Well —

Byron R. White:

Well, I mean, I’m just wondering what the really the substantial difference is between delivery to the common carrier and delivery to the man’s own truck?

F. Burton Howard:

I can’t personally see any substantial difference as far as the — the theory that we’re proceeding in this case on.

In other words, we’re holding that this is a local transaction which is taxable by the State and I can’t —

William J. Brennan, Jr.:

By which you mean, the sale is in fact been consummated —

F. Burton Howard:

Yes.

William J. Brennan, Jr.:

— in Utah?

F. Burton Howard:

That’s absolutely right.

William J. Brennan, Jr.:

Because I take it that Utah law was that on delivery to a common carrier, the sale is com — within Utah, the sale was consummated within Utah, you wouldn’t recognize any constitutional discovery, would you?

F. Burton Howard:

No.

William J. Brennan, Jr.:

With that fact as one of the Federal Constitution?

F. Burton Howard:

That the construction of the — of the Utah law and the regulations of the Commission at the present time have precluded taxation of this kind of situation.

Now, when the contractor comes into Utah, he — and accepts delivery of the property, he receives two documents.

He signs a bill of lading and an invoice to accompany these goods in their transportation out of Utah.

The bill of lading and the invoice together, we submit, showed the title passes to the purchaser in Utah at the moment of delivery.

In this regard Exhibit 4D is typical and it’s found on the record in 155.

It provides in Section 1 (a), the carrier or party in possession of any of the property herein described shall be liable as at common law for any loss thereof or damage thereto, except as hereinafter provided.

Section 7 on the same exhibit provides the owner or a consignee shall pay the freight and an average of any —

William J. Brennan, Jr.:

I don’t suppose that’s blown up, anyway?

F. Burton Howard:

No.

I’m sorry, Your Honor, it isn’t.

William J. Brennan, Jr.:

My eyes are not that good for these.

F. Burton Howard:

The invoices which accompany these goods — this is in larger print, Exhibit 4E on page 158, is typical of these invoices and if you will notice paragraph four provides, delivery is to be made FOB to seller’s foundry upon which the seller’s responsibility ceases.

Arthur J. Goldberg:

What paragraph?

F. Burton Howard:

Paragraph four, on page 158, delivery is to be made FOB to seller’s foundry upon which the seller’s responsibility ceases.

Paragraph five says, freight charges when agreed in a selling price are to be paid by the buyer.

Now, as a result of all of these contractual documents, a result of both parties considered the pipe to be the exclusive property of the vendee at the time it accept the delivery at the respondent’s foundry.

In this regard, Mr. W. W. Clyde, a Utah-based in domicile contract purchaser who was a successful bidder on the Glen Canyon Arizona project, upon being asked if he’d obtained a permit to operate as a contract motor carrier of property as required by the Utah statute testified you don’t need a license to carry your own products.

This, if nothing else, indicates the intention of the parties to consider this the property of the contract purchaser as it accepted delivery in Utah.

Now, based upon these facts, in this testimony, the Tax Commission concluded the title of the pipe passed to the purchaser in Utah, that the purchaser who are not shipping for hire, were not contract motor carriers of property and could not be, and that the pipe company have no obligation to deliver the pipe out of Utah to the ultimate consumer.

This particular set of findings was not reviewed by the Utah Supreme Court.

Petitioner’s position essentially is that we have a completed transaction of sale within the State of Utah and that the International Harvester — the Department of Treasury case control here, just as in that case, if you will recall, Indiana imposed a gross receipt tax on Indiana sellers who sold Indiana goods to out-of-state buyers who came into that State, accept the delivery and immediately transported the materials out of the State of Indiana.

The agreement to sell and the delivery took place there and this Court held that a local transaction was made a taxable event and that it — that event was separate and distinct from the transportation or intercourse which was interstate commerce.

The Court here held we only hold that where a state seeks to tax gross receipts from interstate transactions consummated within its borders, its power to do so cannot be withheld on constitutional grounds where it treats wholly local transaction by the same way.

F. Burton Howard:

So in the present case, we have the goods manufactured and produced in Utah, a title passing in Utah, and delivery to the ultimate consumer in Utah, and we feel that this case is controlling.

However, respondent disagrees.

The pipe company contends that because of the nature of the quotations and the bills of lading that this case differs from the International Harvester case and that there is more than a mere intention to deliver outside of the state here, but that rather there is a contractual obligation to deliver outside of the state present in this case.

The Tax Commission concedes that the materials were purchased for out-of-state use and consumption.

We don’t concede that the pipe company was legally obligated to effectuate this delivery out of Utah but even assuming for purposes of argument that it was, the case then falls within the holding of the Department of Treasury v. Wood Preserving Corporation case.

I’d like to review the facts of that case just a moment.

This case was decided in the same year as the International Harvester case.

It was a case where Indiana imposed a tax upon the gross income that Wood Preserving Corporation which basically consisted of gross receipts from the sale of raw ties to the Baltimore and Ohio Railroad, under two contracts.

The first contract there called for the sale of raw ties to the railroad FOB, the cars on the railroad tracks in Indiana.

A supplemental contract called for the delivery of all ties outside of Indiana.

In Ohio, it required them to be shipped to Ohio for treatment.

The payments to the respondent in that case, the Wood Preserving Corporation were made in Pennsylvania and deposited in the bank account there to its account.

The lower court in that case held that these receipts were not taxable in Indiana and this Court held in reviewing and distinguishing the Adams Manufacturing case which is relied on by the respondent, held that this was an intrastate local sale.

This Court said there can be no doubt but what Indiana had authority to lay the tax and further held that 313 U.S. 68, they were local transactions, sales and deliveries of particular ties by the respondent to the railroad company in Indiana, the transactions were nonetheless intrastate activities because the ties less sold and delivery were forthwith loaded on the railroad cars to go to Ohio.

And in commenting on the supplemental contract which required delivery out of the State of Indiana to another state for treatment, this Court said that this was not a consequence in light of the facts showing a completed delivery in Indiana.

We submit that basically, this case is bottomed on those two cases.

Now, there’s a significant feature —

Arthur J. Goldberg:

In those cases, were they negotiated outside the state?

F. Burton Howard:

One of them was and one of them wasn’t, I understand.

The Wood Preserving case requisitions for the ties were issued in Ohio but accepted at the home office in Indiana, very similar to the problem we have here.

Arthur J. Goldberg:

(Inaudible)

F. Burton Howard:

That is basically correct.

The respondent here had sales offices out of the State of Utah, in various states, principally in Denver.

Arthur J. Goldberg:

(Inaudible)

F. Burton Howard:

Yes.

Arthur J. Goldberg:

The acceptance?

F. Burton Howard:

No, the acceptance was always in Utah.

Arthur J. Goldberg:

(Inaudible)

F. Burton Howard:

Perhaps Mr. Gilmore can clarify this more than I can.

But basically, the pipe company maintained sales offices in various parts of the western United Sates and the original quotations are issued from those offices to contractors known to be bidding on the big federal projects involved.

F. Burton Howard:

These quotations always provide on the bottom that they’re subject to acceptance in the home office in Provo.

I cite this on my brief and I’m not — oh, here it is on page 149, the last line of the quotation.

There are no agreements or verbal understandings outside of its proposal foregoing shall become a contract to agreement only when accepted by you as purchaser and approved in writing by an executive officer of our company in our home office in Provo, Utah.

Arthur J. Goldberg:

(Inaudible)

F. Burton Howard:

I don’t believe, in practice, it is, although the exhibit I just said was signed by the pipe company.

Arthur J. Goldberg:

(Inaudible)

F. Burton Howard:

I don’t know about the procedure involving that as a whole.

Arthur J. Goldberg:

(Inaudible)

F. Burton Howard:

No.

Arthur J. Goldberg:

(Inaudible)

F. Burton Howard:

I think concededly that the — that the pipe company was obligated at that time to deliver these goods to the foreign job site.

But subsequently there was another arrangement made whereby they agreed that the delivery should be made in Utah instead.

Arthur J. Goldberg:

I understand that, but I was wondering what happened practically at the time when these sales are initiated.

F. Burton Howard:

I think your understanding is correct on that.

The significant point of this case has escaped treatment so far in the International Harvester case, 19 years ago much was said concerning double taxation of the Class D sales there involved.

It was argued by the appellant that it would also probably be subjected to a tax, the Illinois retailers’ occupation tax on some of the sales which had been included in the Indiana gross receipts tax.

And this Court at that time speaking through Mr. Justice Douglas said there will be time to cross that bridge when we come to it.

And I think we’ve come to this bridge today.

Respondent in point one of its brief alleges that the tax here sought to be a levied by Utah as the state of the seller is on proceeds of interstate sales of the bulk of which have already been taxed by the states of the buyer.

This allegation is somewhat misleading.Only the State of Colorado has imposed or will impose a use tax upon the goods sold by the respondent, which were ultimately consumed in that State.

These transactions constitute 32.3% of the total sales involved in this deficiency.

Byron R. White:

Did you say Colorado would do that?

F. Burton Howard:

Yes, Your Honor, they will.

Byron R. White:

I thought the use tax there had an exemption — had a credit for any, any sales tax had paid.

F. Burton Howard:

I wish I had been able to find that exemption because I haven’t.

Byron R. White:

You know as a matter of practice whether do it or whether you just can’t find it?

F. Burton Howard:

I don’t know as a matter of practice and I haven’t been able to find it.

Byron R. White:

So you actually think that we — it probably adverted to International Harvester is here?

F. Burton Howard:

I think so.

Byron R. White:

Although perhaps it ought to be raised when — when the fellow pays his use tax in Colorado.

F. Burton Howard:

The respondent is registered with the State of Colorado to correct — to collect use tax.

Byron R. White:

Yes.

F. Burton Howard:

And as a matter of fact, I understand that it did collect tax on these transactions.

I don’t know whether it’s been forwarded to Colorado or not, the record doesn’t show that.

Potter Stewart:

All these exhibits to which you referred is — I know this indicates the 2% Colorado use tax have been (Voice Overlap) —

F. Burton Howard:

That’s correct.

Before I go into that, I’d like to comment on the rest of the deficiency, that final destinations of some these sales were Arizona, New Mexico and Wyoming.

This is 36.6% of the total sales here and we can find no indication in the record that these sales have been taxed or will be taxed, and that no tax has been paid.

Mr. — two of the states, Mr. Justice White have this reciprocal exemption you’re talking about which provide that if the purchaser can prove that he has paid the sales tax on the items in the state of origin, they won’t impose a use tax on the use or other enjoinment in the state of destination.

Those two states are New Mexico and Arizona.

We can’t find in the record any indication that these taxes have been paid to any of these states.

Mr. Clyde, the Grand Canyon contractor again testified that he had included Arizona taxes in preparing his bids to the Government, but the record is silent as to whether they have been paid.

The other 31.1% of the sales went into the States of Montana and Idaho, which at that time and today, to the best of my understanding have no sales or use tax by at all.

So whatever this Court decides concerning a double taxation of the Colorado sales, the majority of these sales have not been taxed and will not be subject to double taxation and we submit all within the language of Mr. Justice Douglas again in the International Harvester case where he said — for example in the Wood Preserving, case the state to which the purchaser took the ties might also have sought to tax the transactions by levying a use tax but we did not withhold the hand of Indiana’s tax collector on that account.

Basically, the risk or the likelihood or the possibility of double taxation not being present was not enough to strike down the tax imposed in the International Harvester case when this matter was considered there.

This double tax situation was foreseen like I have said 19 years ago in the International Harvester case, it was also anticipated by Mr. Justice Frankfurter in Freeman v. Hewitt and I cite his reference as to this matter in my brief.

I think we’ve come to the crux of the case really here.

The petitioner cannot deny that there is a double taxation of these transactions if Utah imposes the sales tax on the sales and Colorado imposes the use tax on their user consumption.

However, we believe that this procedure is implicitly authorized by this Court, where in McLeod v. Dilworth, this Court distinguished between a sales and a use tax.

The Court said a sales tax and a use tax be in many instances bring about the same result but they are different in conception, are assessments upon different transactions, and the interlacing of the two legislation authorities within our federation may have to justify themselves on different constitutional grounds.

A sales tax is a tax on a freedom of purchase and a use tax is a tax from the enjoyment of that which was purchased.

We think it is also significant that the purchaser here deliberately chose to submit itself to the jurisdiction of Utah.

It could have protected itself on these so-called interstate transactions by making them real, legitimate, bona fide interstate transactions and accepting delivery across the state line, but it didn’t want to do that.

We submit that possibly the petitioner or the purchaser itself burdens interstate commerce more than the State by deliberately placing itself in a situation where it will possibly be subjected to two or even more state taxes which arise out of the same transaction of sale.

We don’t feel, however, that the State of Utah or the State of Colorado is unduly burdening interstate commerce when it imposes its tax on a legitimate local and that which occurs in either state.

But the significant point here is that the buyer brought this all on himself.

There are certain equities involved which we would like to call to the Court’s attention.

If the goods are to be turned over to a buyer, tax exempt on his naked representation that they are to be taken to another state or based upon some contractual agreement which may be broken that they are to be taken to another state, the fact of subsequent exportation is very difficult to establish.

Thousands of transactions would fall into this category across this nation.

And petitioner submits that it is impracticable for — from an administrative point of view to require the taxing authorities to the various states to verify the out-of-state destination of claimed local sale.

F. Burton Howard:

Another basic consideration is the principle of tax administration that all taxpayers who are required to bear a burden should bear it.

Nothing was more damaging or detrimental to taxpayer morale and to have a situation developed where a one man knows that his neighbor is the evading a tax that he has to pay.

This situation may well develop here and well it occurs all too frequently now, we feel that it would be seriously aggravated by adopting the petitioner’s viewpoint.

For these reasons, we urge that the judgment of the Supreme Court of Utah be reversed and that the Tax Commission’s assessment be upheld as a lawful levy on a series of wholly local transactions.

Arthur J. Goldberg:

(Inaudible)

F. Burton Howard:

The classical distinction, Your Honor, is the point of asset you’ve titled.

Arthur J. Goldberg:

(Inaudible)

F. Burton Howard:

No, I don’t think so.

Arthur J. Goldberg:

(Inaudible)

F. Burton Howard:

I think that will be one point in Utah with a full freight allowed to a point outside of Utah is really a meaningless conglomeration.

FOB traditionally hasn’t met the point where title passes.

This pipe company is trying to have its cake in either two in this — in this situation we think.

There is a great difference.

Arthur J. Goldberg:

(Inaudible)

F. Burton Howard:

It is but the — the significant considerations here are that FOB, means passage of title and the responsibility for bearing the freight is also an indicia who actually owns the goods at the time.

And we submit that the purchaser takes delivery and title and owns the goods and has the responsibility of thereafter assuming the freight all in the State of Utah that this is a local transaction and has to be taxed under Utah law, we can exempt them.

Earl Warren:

Mr. Gilmour.

C. M. Gilmour:

Mr. Chief Justice, may it please the Court.

I have no quarrel here with the general proposition that a fully consummated local sale to a purchaser, resident or non-resident, who with or without the knowledge of the seller merely intends then or thereafter to transport the goods out-of-state, that is not the question in this case.

Here, the question is whether or not Utah as the state of the seller may levy and impose a direct tax on the — on the unapportioned gross receipts of an interstate sale.

Now, the situation here on the facts is that the Court has specifically held on the facts that this is an interstate sale.

The petitioner itself at the hearing specifically found that all of the goods here have been negotiated by the companies out-of-state sales agents.

And that they were purchased for use in the specific sizes and lengths called for by the engineering specifications covering the particular waterworks or sewerage project, and were strictly inconformity with those — with those specifications.

So the — under the facts, under those two facts as found by the petitioner and the additional facts as they were found by the Supreme Court and our procedure there it’s a certiorari under which the Supreme Court has authority to review the decision on both the law and the facts.

And the Supreme Court of our State held that if this pipe has had been conceded and admitted had gone by a common carrier, that there would have been no, no tax payable here.

Now, under the company’s system of pricing pipe, it is on a basis of delivered price to the job site.

The way these things come up El Jebel or the town of Littleton may have a water project.

And the engineer will get the plans and specifications in great detail with blueprints and the material, the pipe material for that job is specifically prescribed in those engineering plans and specifications.

Then the pipe company knowing when this job will come up for bid, will ascertain the names of all of the contractors that are proposing to bid of that job.

The pipe company will then give a delivered price quotation on that specific job.

C. M. Gilmour:

The quotation will be tied right into the job, it will name the job, it will list in detail the exact sizes of pipes and fittings, the prices delivered at the job site and identify that quotation to that particular job.

Now, the — that the pricing system in this industry is a little unusual by reason of the nature of the product, all quotations, all prices are given to the customer, delivered at the specific point of use, and in each individual sale and quotation of pipe, the — the company computes a price in the light of the competitive conditions that it will face at that particular point of use.

The — those prices are and quotations are given to all these contractors that bid and then thereafter, the — the pipe is either shipped to the customers by — on a freight prepaid basis.

The bulk of course of the — of the pipe is sold and delivered by common carrier or in remote areas it is delivered by the respondent’s own trucks.

These — yes?

Arthur J. Goldberg:

(Inaudible)

C. M. Gilmour:

Yes.

Arthur J. Goldberg:

(Inaudible)

C. M. Gilmour:

That is correct.

Arthur J. Goldberg:

(Inaudible)

C. M. Gilmour:

That’s right.

Arthur J. Goldberg:

(Inaudible)

C. M. Gilmour:

That particular quotation is then signed by him.

When he is the successful bidder, it’s forwarded to Provo at the home office, and it is approved there and that constitutes the — that part of the contract.

Arthur J. Goldberg:

It was first signed by both parties and then it was submitted.

C. M. Gilmour:

Yes.

Arthur J. Goldberg:

(Inaudible)

C. M. Gilmour:

That’s right.

Arthur J. Goldberg:

(Inaudible)

C. M. Gilmour:

By the home office and approved by the home office.

Now, we — this case is unique not only on the basis of the facts, but here the bulk of this tax — the bulk of these sales have been subjected to tax in the state of destination.

Now, in the case of Colorado, the pipe company of course is qualified to do business there and has it has sales office there, and on all of these sales that go over to Colorado either by customer truck or by a common carrier, the respondent collects that tax from the purchaser and remits it periodically to the — to the State of Colorado Department of Revenue.

Now, the evidence was that in the case of Wyoming, New Mexico and Arizona that the customers have paid taxes down there that was not really controverted at the hearing, it was the testimony of the company that those taxes were paid.

We didn’t call in these witnesses, the dozens upon dozens of contractors, but we did have Mr. Clyde who was there, and he testified that the taxes down in Arizona were — were included.

And he, in his testimony, meant not only that they were included, but that they were paid down there in Arizona on that Grand Canyon project.

Now, the only — the only sales that where no tax was paid to the — to the state of destination were those sales into Idaho and into Montana which at the present time do not have any sales or use tax.

The testimony being that the — and it was the question of time in Idaho but that in the last legislature, the governor had vetoed the passage of the sales and use tax there.

Now, we read — yes?

Arthur J. Goldberg:

(Inaudible)

C. M. Gilmour:

Yes.

C. M. Gilmour:

As I mentioned, we have in these tax cases out in Utah, the hearings are conducted by the State Tax Commission which has an exclusive jurisdiction over them.

Arthur J. Goldberg:

(Inaudible) was it not?

C. M. Gilmour:

That’s correct and has —

Arthur J. Goldberg:

(Inaudible)

C. M. Gilmour:

We —

Byron R. White:

They ruled — didn’t they rule on the constitutional ground that the reason that the — that the law may — may cover it, but that it can’t because of the United States Constitution?

C. M. Gilmour:

That — that is correct, Mr. Justice.

The — we had raised the interstate commerce, the due pro — pro — process because the sale is in two states and it was negotiated out.

We had raised the equal protection point because of the irrational discrimination between the — the mere means of transport.

We had raised the point that under the regulations, the tax was not payable because the goods went across the state as an essential part of the sale, and under contracts, it legally obligated the seller to get the goods to the out-of-state job site.

But the Court ruled, as we’re assuming here, that the tax was invalid under the Commerce Clause of the Federal Constitution and left unanswered — these other — these other questions.

And the Court, I think in reading its opinion, found that on the facts, these were inters — interstate sales.

And Utah being state of the seller was prohibited from levying a tax on them and that is certainly borne out, I might turn to the — to the cases, the law applicable here.

We rest squarely on the Adams Manufacturing Company case, the Gwin, White case, and the Freeman against Hewitt case which specifically hold that the state of the seller cannot tax the — levy a direct tax on the unapportioned gross receipts of the inter — interstate sale.

Now, as a matter of interest and going back a little bit in history and as assistance to the Court, I might point out the sequence here at — it has long been settled that state of destination, state of market, the place where the property is to be used is the state that has the primary claim for the tax here.

Now, there were some earlier cases involving motor fuels but in 1937, this Court in Henneford case held at Washington could levy a use tax on the goods that were shipped into the state of Washington.

In 1938, the Adams Manufacturing case followed which held at the state of the seller could not.

And the Western Livestock came in 1938 hold — which brought in a principle of the multiple levies.

And in Gwin, White in 1939, again reaffirmed the Adams Manufacturing that the — that the tax on the state of the seller was invalid.

And in 1940, the Berwind-White case was decided which upheld the right of New York City, the state of the buyer to levy a sales tax.

Now, the case is — the Wood Preserving case was in 1941, and the International Harvester case which is a fully consummated type of transaction in intention case was in 1944.

Now, Freeman against Hewitt, although it had been first argued in 1944, was reargued in this Court in 1946.

At the same time that the Richfield Oil case, some 10 days or two weeks afterwards, and the Freeman against Hewitt is in, is in 3 — Volume 329 of the reports of 249, Richfield Oil at page 69.

So Freeman against Hewitt is a later case, then the Richfield Oil by a matter of days.

The Rich — the, the Freeman against Hewitt reaffirmed again the principle that the state of the seller cannot levy the tax and the reason, and what we have involved here essentially is the historic distinction, if not continental divide between two types, between Adams Manufacturing and the Grin, White and on the other side is the Henneford and the Berwind-White.

Now, commentators in the law reviews say like gnats buzzing over a bowl of fruit have attempted to analyze these various decisions.

Is the tax bad by reason that isn’t apportioned?

Is the tax bad because it’s a direct tax?

Is the tax bad because it imposes the risk of multiple taxation?

It is unnecessary here to pursue those various interesting theories because the cases have in holding — in actual holdings hold that a direct tax on the unapportioned gross receipts of an interstate sale is bad and invalid.

C. M. Gilmour:

Now —

Hugo L. Black:

But do I understand that these — do you think that either those two cases overruled International Harvester statement that as the sale take place in the state even though it’s to be delivered out of the state, it can be taxed by the state — by the state of the carrier?

C. M. Gilmour:

International Harvester, Mr. Justice Black is — has not been overruled.

It’s — it stands for the proposition that a fully consummated local sale where the non-resident comes in Indiana and purchases Indiana goods from an Indiana seller —

Hugo L. Black:

To be delivered in another state —

C. M. Gilmour:

Well, he transported it — he transported under the stipulated facts that were involved in that case, he took title, he took delivery, and then he thereafter transported those goods —

Hugo L. Black:

But he was — he was to do that.

That was understood all the time and that what which was levied, was it not?

C. M. Gilmour:

Under — under the — under the stipulated facts there the — it was — it was clear that the contract between seller and buyer did not require an interstate of shipment of goods.

Hugo L. Black:

And may I ask you just one more question —

C. M. Gilmour:

Yes.

Hugo L. Black:

— because this is very important point to me.

In the International Harvester, Mr. Justice Douglas said the Wood Preserving Corporation case indicates that it’s immaterial to the present issue that the goods ought to be transported out of Indiana immediately on delivery.

Has that been changed?

C. M. Gilmour:

That — that’s correct.

Any — any locally consummated sale where the — where the buyer intends whether then with or without the knowledge of the seller, if he intends to transport that — that goods out and even though that intent is known of the seller, even though it’s a fact of the case, it’s irrelevant.

Hugo L. Black:

It’s irrelevant, so that it can be taxed.

C. M. Gilmour:

It can be taxed because that’s a locally consummated sale.

The interstate commerce has absolutely nothing to do with the contract.

The seller has no obligation to get the goods across the state line to an out-of-state water works or sewerage project.

There’s no requirement.

There wasn’t even any finding of fact by the — there that as here by the — by the Commission at the —

Hugo L. Black:

I’m just (Voice Overlap) — I evidently overlooked some — not understood some of your statement.

I understood the other side and I looked to the contrast, the amendment say that these have made in that state to be delivered there and that’s the only ones they attack, those that were delivered there and to stay inside the state.

C. M. Gilmour:

No, the contracts here are all setup.

They’re tied into the job.

We paid the purchasers, the common carrier established freight rate for hauling the goods to the out-of-state job site.

The purchaser’s truck driver, when he drove into the boundary with his truck, he signed the bill of lading, bill of lading showed on its face, the out-of-state destination, and we paid that purchaser.

Hugo L. Black:

What’s the difference in that in the Wood Preserving?

C. M. Gilmour:

The Wood Preserving situation, like the Harvester case was a fully consummated local sale where the only — there was no — no requirement in the contract that necessitated an interstate transport of the goods.

Hugo L. Black:

But that was not relevant.

C. M. Gilmour:

The bill of lading —

Hugo L. Black:

That was irrelevant.

C. M. Gilmour:

The bill of lading in the Wood Preserving case was held in view of the completed delivery and transfer of title in Indiana to be irrelevant.

Hugo L. Black:

But did he not complete the delivered this FOB at his foundry, these things that are attacked here?

C. M. Gilmour:

The title — the technical title passed to FOB foundry and —

Hugo L. Black:

Well, I won’t ask anymore.

I just —

C. M. Gilmour:

Yes.

But the delivery to the customer — customer’s truck driver was not a fully consummated delivery.

William J. Brennan, Jr.:

You mean the cause Mr. Gilmour, the end — the destination — partly, a completed transaction was that the pipe gets to its destination —

C. M. Gilmour:

That’s —

William J. Brennan, Jr.:

— in a sense that it’s all wrapped up into the fitting arrangement that you described to us awhile ago, is that the distinction you’re drawing?

C. M. Gilmour:

Yes, that is it, Mr. Justice, but I might also add that in all these cases, the pipe is paid for out of the proceeds of the particular governmental job.

William J. Brennan, Jr.:

For example, suppose they’re building a sewer system or something out in Colorado, and that also takes all different kinds of specification of the pipe and the rest of it?

C. M. Gilmour:

That’s correct.

William J. Brennan, Jr.:

And you described the truck — you in effect say that there’s no transaction completed notwithstanding the technical type of the pipe until it’s — this pipe special specification arrives at the job site in Colorado.

C. M. Gilmour:

Absolutely.

William J. Brennan, Jr.:

In that sense, interstate is in effect?

C. M. Gilmour:

That’s — that’s right and the, and the — and each — and each sale is paid for out of the proceeds of that particular job.

William J. Brennan, Jr.:

By the Colorado governmental agency or maybe —

C. M. Gilmour:

That’s — that is correct.

There —

Arthur J. Goldberg:

(Inaudible)

C. M. Gilmour:

Because under the record, all of the — in all these cases, the pipe is paid for out of the job before any quotation is made or contract entered into the sales department of the respondent gets a legal description of the real property where that pipe is going to be buried, so that it can file a mechanic’s lien in order to get a collection or it gets the name of the bonding company if the job bonded so that a job can — so that a suit could be filed against the bonding company.

And as a matter of proof, we are able and have always been able, even where the contractor goes — well, to prove that the pipe went into that particular job and —

William J. Brennan, Jr.:

Well that — doesn’t your client couldn’t pay the interest, Mr. Gilmour, unless the pipe gets to the job?

C. M. Gilmour:

The evidence, Mr. Justice, is that they’re paid for out of the proceeds.

The —

William J. Brennan, Jr.:

Well, I suppose there’d be no proceed unless the pipe gets in place —

C. M. Gilmour:

That’s —

William J. Brennan, Jr.:

— on the job?

C. M. Gilmour:

That’s correct.

William J. Brennan, Jr.:

Is that to say then that unless the pipe actually gets into place, at this job site in Colorado, you wouldn’t get paid for it?

C. M. Gilmour:

That is the evidence here that the pipe is paid for in practically all cases out of the proceeds of the particular job on which it’s used.

Now, the —

Hugo L. Black:

Does that mean that they don’t always pay you?

C. M. Gilmour:

The contractor —

Hugo L. Black:

When you deliver it to them, that they don’t owe you the money then?

C. M. Gilmour:

The contractor owes it by —

Hugo L. Black:

From when, from what time?

C. M. Gilmour:

The invoices provide 30 days in that, but the evidence is that — and in the light of this information about the legal description of the real estate and the method of payment that it comes — he’s paid for out of the proceeds of the particular job on which it’s used.

Hugo L. Black:

If it were lost on the way, would that relief the purchaser?

They’ve delivered the FOB purchase.

If that’s lost on the way, transported to the other state, who’s lost is it?

C. M. Gilmour:

The risk of loss is technically —

Hugo L. Black:

I’m not talking about technically.

C. M. Gilmour:

In the buyer.

Hugo L. Black:

What?

C. M. Gilmour:

The risk of —

Hugo L. Black:

The buyer?

C. M. Gilmour:

The risk of loss is in the buyer.

Hugo L. Black:

Why?

Because you bought it, isn’t it?

C. M. Gilmour:

Because he has title to the goods in transit —

Hugo L. Black:

And has been delivered to him.

C. M. Gilmour:

And it has been — it has been delivered to him, but it has been delivered to him for the sole and the paid purpose as in the case of a common carrier if hauling that — hauling those goods to that particular sewerage or water works —

Hugo L. Black:

But the transaction is over so far as they’re concerned with reference to the establishment of liability for the purchase of the goods?

Yes?

C. M. Gilmour:

No, because the facts as found by the lower court are — are directly contrary to that, Mr. Justice.

C. M. Gilmour:

The contract is not over.

The contract required the interstate shipment of goods across the state line into the out of work — out-of-state waterworks.

Hugo L. Black:

If you furnished its sole wisdom with agreement to deliver FOB at the furnish that it has really not delivered, it hadn’t completed the transaction, and it still got to see that gets through them at the other end before the other company is liable.

C. M. Gilmour:

Yes.

Byron R. White:

Well then — well then, the risk of loss isn’t on the buyer as you say — but you’re talking about the original contract.

You are talking about the original contract before they buyer said, “Couldn’t I please pick this up at your plant?”

Because you originally contemplated sending it to them by common carrier, do you not?

C. M. Gilmour:

That’s correct.

Byron R. White:

So we came and said, “Let me pick this up from your plant and you’ll get me credit for the freight and it will cost me less than the — than the freight.”

C. M. Gilmour:

Well, we pay him the freight and we had the —

Byron R. White:

I understand you pay him the freight, but you give him credit for what the common carrier freight would be, not what it costs him.

C. M. Gilmour:

That’s right.

Byron R. White:

So he wants to come and pick it up himself.

Do you really think your transaction isn’t over because of what the original contract says, even though the buyer says that, “I want this — do me this favor”?

C. M. Gilmour:

We — yes, because the evidence is that — in the whole contractual setup here is that the (Voice Overlap) —

Byron R. White:

You wouldn’t have accrued an account receivable until and unless that is arrives in Colorado?

C. M. Gilmour:

The — in this particular business, the company follows each length of pipe by piece right into the ground and follows it right through until it gets paid out of the proceeds of that — of that ground.

And occasionally, some of these contractors go broke as the contractor did in the Air Force Academy and we have to go into court and prove that each piece of pipe was buried in a specific piece of Colorado real estate and collect it.

Byron R. White:

Well, that’s not what I’m getting at, it hasn’t got the — the only reason you do it is because you have accrued an account receivable, and you want to collect your money —

C. M. Gilmour:

Absolutely.

Byron R. White:

— and you want to collect your money because they owe it to you, so you file a mechanic’s lien.

C. M. Gilmour:

So —

Tom C. Clark:

(Inaudible)

C. M. Gilmour:

If it were a sale on open credit, it would be — it would be —

Tom C. Clark:

(Inaudible)

C. M. Gilmour:

We would — we would have to go in and prove it.

Byron R. White:

Do you know whether the Colorado authorities are aware of the — this situation of whether it is the buyer that talked to the Colorado use tax collectors about this problem?

C. M. Gilmour:

The — I don’t believe, Mr. Justice, that there is any question of what the Colorado use tax is — is applicable here.

The company affects the sale —

Byron R. White:

Are they going to collect it though.

Byron R. White:

I mean —

C. M. Gilmour:

It has been collected and remitted.

The Colorado —

Byron R. White:

They have been collected because the buyer has been returning them.

C. M. Gilmour:

No, the company.

The seller — the seller has been — has been billing them on the invoice.

Byron R. White:

Well, that’s what — well, that’s why — on the company because of the Colorado use tax collector.

C. M. Gilmour:

That’s — that’s correct and because of the — and because under Scripto and General Trading, and even far more, so here —

Byron R. White:

You can put the freights on that and leave it up to the buyer and let the buyer freight it out from Colorado use tax though.

C. M. Gilmour:

Oh, we’re — we’re obligated to — to —

Byron R. White:

(Inaudible)

C. M. Gilmour:

Well here, we’ve got sales offices, Mr. Justice in all these states.

Our activity is not only the negotiation of the sale, the constant work with the municipal engineering water department authorities.

There is matter of the collection activity out of the state where we’re — we’re in those — we’re in these states.

Byron R. White:

(Inaudible)

C. M. Gilmour:

Very — we have — we’re in — we’re in activity, sales collection, negotiation activity in all those states.

Thank you very much for your kind attention.

If the Court has no more questions, we’ll submit the matter.

Earl Warren:

Very well.