November 12, 1965 

Honorable Robert S. Calvert 

Comptroller of Public Accounts 

Austin, Texas 

Opinion No. C-543 

Re: Whether distributing agents, 

now defined in H.B. No. 

474, Section &A, who qualify 

as distributors, will be 

required, under this Article, 

to affix cigarette stamps 

or meter impressions to 

all unstamped cigarettes 

stored in such a person's 

place of business that 

are designated for distribution or first sale 

to other distributors 

wholesalers and retailers 

that now hold permits 

within the State of Texas, 

before such cigarettes 

Dear Mr. Calvert: leave their place of business. 

You have requested the opinion of this office on the 

following questions: 

"1 . Will distributing agents, now defined 

in H.B. No. 474, Section 4A, who qualify as 

distributors be required-under this Article to 

affix cigarette stamps or meter impressions to 

all unstamped cigarettes stored in such a person's 

place of business that are designated for dlstribution or first sale to other distributors, 

wholesalers and retailers that now hold permits 

within the State of Texas, before such cigarettes 

leave their place of business? 

“2 . As Section 4H of H.B. No. 474 repeals 

Section 2 of 7.23, what effect will this have 

on 7.01 (16) and 7.23 (1) (3) (4)?” 

-2595- 
Hon. Robert S. Calvert, page 2 (C-543) 

Section 4A and 4B of, House Bill No. 479, Acts 1965, 

59th Legislature,. Chapter 580, Tage 1262, reads as follows: 

"Sec. 4A. Section (1) of Article 7.23, 

Title 122A Taxation-General Revised Civil 

Statutes of Texas, 1925, is hereby amended 

to read as follows: 

"'(1) Every distributing agent who 

stores cigarettes in the State for delivery 

in this State except to an exempt consignee 

shall be treated as a "distributor" and shali 

be, except as in this Section provided, subject to the provisions of this Chapter regulating 

"distributors" and cigarettes stored in such a 

person's place of business for distribution In 

this State shall be considered possessed for the 

purposes of making a "first sale" In Texas within the meaning of this Chapter and such a person 

shall pay the taxes assessed by this Chapter 

and affix the stamps as for a "first sale" in 

the manner provided in this Chapter, except 

that such a person shall be required to affix 

said stamps only prior to the time that such 

cigarettes shall leave the warehouse of such a 

person for a delivery in this State except to 

an exempt consignee. Such a dis,tributing agent 

shall be subject to the licensing provisions 

applicable to a distributor as provided in 

Article 7.09 of this Chapter, as amended, except 

that persons holding a valid permit as a distributing agent at the effective date of this 

law may continue In business under such permits, 

subject to the terms and regulations of this 

~. law, until the expiration, thereof at which time 

such a distributing agent must obtain a distributor's permit under the terms and conditions 

set forth In Article 7.09 of this Chapter, as 

amended, and no persons subject to this Article 

who are lawfully engaged in the business as a 

distributing agent on the date of the enactment _ 

of this law shall be denied the right to carry 

on such business pending reasonable opportunity 

to make application for permit and final action 

thereon.' 

-25% 
Hon. Robert S. Calvert, page 

"Sec. 4B. 'Section 

3 (c-543) 

(2) of Article 7.23, 

Title 122A, Taxation-General, Revised Civil 

Statutes of Texas, 1925, is repealed." 

The term "distributing agent" is defined in Article 

7.01 (16) of Taxation-General of Vernon's Civil Statutes, 

which is a part of what is commonly known as the Cigarette 

Tax Law. Such Section reads as follows: 

“(1.6) ~Distributing Agent' shall mean and 

include every person in this State who acts as 

an agent of any person outside the State by receiving cigarettes in interstate commerce and 

storing such cigarettes subject to distribution 

or delivery upon order from said pe'rson outside 

the State to distributors 

and retail dealers. . . :" 

wholesale dealers 

The rate of tax is specified by Article 7.02 and 

Article 7.06 of the Cigarette Tax Law and is imposed upon "all 

cigarettes used or otherwise disposed of in this State for any 

purpose whatsoever." Such Articles further provide that: 

"The said tax shall be paid only once by 

the person making the 'first sale' In this State 

and shall become due and payable as soon as such 

cigarettes are subject to a 'first sale' in 

Texas, . . .' 

The term "first sale" is defined in Article 7.01 (8) 

of the Cigarette Tax Law, which reads as follows: 

“(8) 'First Sale' shall mean and include 

the first sale or distribution of cigarettes in 

intrastate commerce, or the first use or consumption of cigarettes within this State." 

Article 7.02 (3) of the Cigarette Tax Law provides 

as follows: 

"(3) The impact of the‘tax levied by this 

Chapter is hereby declared to be on the vendee, 

user, consumer or possessor of cigarettes in 

this State and when said tax is paid by any 

other person, such payment shall be considered 

as an advance payment and shall thereafter be 

-2597- 
Hon. Robert S. Calvert, page 4(C-543) 

added to the price of the cigarettes and recovered from the ultimate consumer or user. . . ." 

Article 7.08 (2) of the Cigarette Tax Law requires 

that the State Treasurer supply stamps to persons required to 

stamp cigarettes at a discount of 2-l/4$ of the face value of 

such stamps. 

All cigarettes sold and'consumed in Texas are manufactured outside the State and shipped into this State by the 

manufacturer. The cigarettes are manufactured by: American 

Tobacco Company; Brown and Williamson Tobacco Company; Liggett 

and Meyers Tobacco Company; P. Lorillard Company; Phillip 

Morris, Inc.; and R. J. Reynolds Tobacco Company, all of which 

are foreign corporations with a certificate of authority to 

transact business within the State of Texas. At the present 

time there are ten warehouses within the State which are 

licensed as distributing agents and which receive and distribute cigarettes on behalf of the manufacturing companies. 

Each of the manufacturers employ a number of persons 

in Texas who promote the sale of cigarettes within the State 

and who occasionally receive orders for cigarettes which in 

turn are relayed by them to a wholesale dealer or distributor. 

All orders for cigarettes are sent to the home office of the 

out-of-state manufacturer for approval and acceptance. 

Representatives of the Comptroller's Office-have 

inquired into and ascertained the details involved in the 

shipment to, and distribution from, Universal Terminal Warehouse 

located in Houston, Texas. The facts revealed by this investigation will be taken as typical of the operation of all warehouses in Texas now holding permits as distributing agents. 

Except for an insignificant number of "drop shipments" 

specifically covered by Article 7.01 (9) of the Cigarette Tax 

Law, all cigarettes sold within this State are shipped into 

the State by the manufacturer in railroad freight cars or 

common carrier trucks. The cigarettes are shipped pursuant 

to bills of lading showing the shipment to be from the manufacturer, consigned to the manufacturer in care of a particular distributing agent warehouse. The manufacturer retains 

title to the cigarettes. Upon arrival at the warehouse of 

the distributing agent, the cigarettes are unloaded, placed 

in the warehouse, and a check sheet verifying the arrival of 

the shipment of cigarettes is returned to the manufacturer. 

-2598- 
Hon. Robert S. Calvert, page 5 (c-543) 

No warehouse receipt is issued. Once the cigarettes enter 

the warehouse of the distributing agent they are removed only 

pursuant to the order of the manufacturer. All orders directing the distribution of the cigarettes are transmitted from 

the manufacturer to the distributing agent by mail, teletype 

or telephone. Distributions from the warehouse are on bills 

of lading from the manufacturer to the purchaser. Shipping 

charges are paid by the manufacturer direct to the carrier 

and the purchaser is billed for the cigarettes by the manufacturer. The distributing agent ships the cigarettes from 

the warehouse on a "first in - first out" basis and is compensated for its services according to the volume of cigarettes 

handled, calculated on a flat rate per hundred weight. Frequent 

audits of the cigarette stocks on hand in the warehouses of ! 

the distributing agents are made at unscheduled times by the 

manufacturers. The Comptroller's investigation of Universal 

Terminal Warehouse disclosed that the average supply of 

cigarettes in such warehouse at all, times is sufficient to 

meet average daily demands for 13 working days. 

The Comptroller's Office has made an analysis of 

the inventory of cases of cigarettes on hand at each of the 

ten distributing agents for the month of December, 1964, in 

order to show a typical monthly operation of these facilities. 

The average days supply on hand and the average daily deliveries 

are based upon a monthly delivery period of twenty-one days. 

Rather than naming the distributing agents we are for convenience 

simply numbering them from 1 to 10 in the table that follows. 

In relating the quantities of cigarettes listed in this table 

to shipments into the State, we are informed that a carload 

of cigarettes consists of approximately 1,250 cases of cigarettes. 

WAREHOUSE CASES DELIVERY DAILY CASE NUMBER OF CASES AVERAGE DAYS 

NUMBER DECRMBER, 1964 DELIVERIES ON HAND OF SUPPLY ON 

DECEMBER, 1964 HAND AVAILABLE, 

FOR DELIVERY 

418 

z,‘i 

401 

31: 

907 

1,044 

2,157 

154 

1,664 

6,309 

11,661 

3,798~58/6o 

12,385 

5,232-14/60 

12,465 

11,759-W/60 

2;,;$-45/60 

211613-22/60 

15 

:‘3 

30-1/2 

:z 

11 

11 

191 

-2599- 
Hon. Robert S. Calvert, page 6 (C-543) 

The cigarettes are shipped by the manufacturer in 

cardboard containers known as cases. Each case contains 60 

cartons of cigarettes; each carton contains 10 packages of 

cigarettes; and each package contains 20 cigarettes. The 

Cigarette Tax Law requires that the tax stamp be affixed on 

each package of cigarettes. In order to accomplish this, it 

is necessary that the cases be opened and the cartons placed 

upon a machine which opens the cartons, affixes the stamp to 

each package, and reseals the cartons which are then replaced 

in the cases and the cases resealed. 

The tax imposed by the Cigarette Tax Law is, by 

Article 7.02 (3), declared to be a tax imposed upon the ultimate consumer or user of cigarettes within this State, and 

when the tax is paid by any other person it is to be considered 

an advance payment and must be added to the price collected 

from the ultimate consumer or user. This tax is clearly a 

use tax. A formidable line of decisions by the Supreme Court 

of the United States have sustained the imposition of use 

taxes against the challenge of the commerce clause and the 

due process clause of the United States Constitution. Scripto 

v. Carson, 362 U.S. 207 (1960); General Trading Co. v. Tax 

Commissioner, 322 U.S. 335 (1944); Nelson v. Montgomery Ward, 

312 U.S. 73 

? 

59 (1941 7 

(1941); Nelson v. Sears, Roebuck & Co., 312 U.S. 

* McGoldrick v. Berwind-White Coal Co., 309 U.S. 33 

1939); So&hern Pacific Co. v. Gallagher, 306 U.S. 167 (1939); 

Felt & Tarrant Mfg Co. v. 

Henneford v. Silas'Mason Co 

Gallagher_, 306 U.S. 62 (1939); 

300 U.S. 577 (1937); Monamotor 

Oil Co. v. Johnson, 292 U.S:'86 (1934). 

- 

Although these cases are not completely determinative 

of the question before us--- because of the restrictive definition of "first sale" in the Cigarette Tax Law---we nevertheless 

feel that a discussion of these cases, with relevant quotations, 

is essential to an understanding of taxes of this nature and 

their relation to the interstate commerce clause of the United 

States Constitution. For a comprehensive study of the decisions 

of the Supreme Court of the United States on the subject of 

state powers of taxation and regulation as they relate to the 

commerce clause see: Hartman, State Taxation of Interstate 

Commerce, 46 Virginia Law Review 1051 (1960). 

In each of the above cited cases the tax was levied 

upon the use, consumption, storage, or transfer of possession 

of tangible personal property within the taxing state. The 

ultimate burden of the tax was imposed upon the purchaser of 

the property. 

-2600- 
Hon. Robert S. Calvert, page 7 (c-543) 

Southern Pacific Co. v. Gallagher, 306 U.S. 167 

d upon the use or storage of 

property purchased out-of-state which was required to be paid 

to the State by the purchaser. Southern Pacific Company 

purchased materials and supplies out-of-state and brought them 

into California for use in the operation of its interstate 

railroad business; Silas Mason Company purchased machinery 

out-of-state which was brought into Washington for use in the 

construction of the Grand Coulee Dam, In both Instances the 

Court upheld the tax against the contention that it was a tax 

on Interstate commerce. 

I, .State taxes upon national commerce 

or its'incidents do not depend for their validity 

upon a choice of words but upon the choice of 

the thing taxed. It is true the increased 

cost to the interstate operator from a tax on 

installation is the same as from a tax on consumption or operation. This is not significant. 

The prohibited burden upon commerce between the 

states is created by state interference with 

that commerce, a matter distinct from the expense 

of doing business. A discrimination against 

it, or a tax on its operations as such, is an 

interference. A tax on property or upon a taxable event in the state, apart from operation, 

does not interfere. This is a practical adjustment of the right of the state to revenue from 

the instrumentalities of commerce and the obligation of the state to leave the regulation of 

interstate and forei n commerce to the Congress." 

306 U.S. 167, 177-17 8 . 

"The tax is not upon the operations of 

interstate commerce, but upon the privilege of 

use after commerce is atan end. 

II . . .The privilege of use is only one 

attribute, among many, of the bundle of privileges that make up property or ownership. 

Nashville. C. & St. L. 

them all collectively, or to separate the 

-2601- 
Hon. Robert S. Calvert, page 8 (C-543) 

faggots and lay the charge distributively, Ibid, 

Calling the tax an excise when It is laid &my 

upon the use (Vancouver Oil Co. v. Hennef'ord, 

183 Wash. 317; 49 P.(2dJ 14) does not make the 

power to impose it less, for anything the 

commerce clause has to say of it6 validity, 

than calling it a property tax and laying it 

on ownership. . . .A tax upon the privilege of 

use or storage when the chattel used or stored 

has ceased to be in transit is now an impost 

so common that its validity has been withdrawn 

from the arena of debate. . . .'I 

582-583. 

3oo U.S. 577, 

Script0 v. Carson, 362 U.S. 207 (1960); General 

Trading Co. v. Tax Commissioner, 322 U.S. 335 (1944);mson 

v. Montgomery Ward, 312 U.S. 373 (1941); Nelson v. Sears, 

Roebuck & Co., 312 U.S. 359 (1941); McGoldrick v. Berwind-White 

Coal Co., 309 U.S. 33 (1940); Felt & Tarrant Mfg Co. v. 

6 

306 U.S. 62 (1939) and Monamotor Oil Co. v. Johnson, 

(1934) also involved the 

the statutes of the state of the residence of the 

purchaser. These cases differed from the Southern Pacific 

Company case and Silas Mason Company case in that under the 

provisions of the statutes the seller was required to remit 

the amount of the use tax to the state and collect from the 

user who had purchased the property. In each instance, under 

varying facts, the use tax and method of collection was upheld 

by the Court. 

In Nelson v. Montgomery Ward, su ra and Nelson v. 

Sears. Roebuck,& Co.*, su ra each company ma ntained retail 

+ 

-+ 

stores in Iowa, yet bo h did large mail order businesses on 

orders mailed by Iowa residents to out-of-state branches of 

the stores which were filled and shipped directly to the 

purchaser. 

.The fact that under Iowa law the sale 

is made outside of the state does not mean that 

the power of Iowa 'has nothing on which to operate.' Wisconsin v. J. C. Penney Co., supra. 

The purchaser is in Iowa and the tax is upon 

the use in Iowa. The validity of such a tax, 

so far as the purchaser is concerned, 'has been 

withdrawn from the arena of debate.' Henneford 

v. Silas Mason Co., 300 U.S. 577, 583; Southern 

-2602- 
Hon. Robert S. Calvert, Page 9 (C-543) 

Pacific Co. v. Gallagher, supra. . . .Use in 

Iowa is what is taxed regardless of the time 

and place of passing title and regardless of 

the time the tax is required to be paid. Cf. 

McGoldrick v. Berwind-White Coal Mining Co., 

309 U.S. 33, 49 .” 312 U.S. 359, 3b3. 

“Respondent, however, insists that the 

duty~of tax collection placed on it constitutes 

a regulation of and substantial burden upon 

interstate commerce and results In an impairment 

of the free flow of such commerce. .Respondent further stresses the cost to it’of making 

these collections and its probable loss as a 

result of Its inability to collect the tax on 

all sales. But cost and inconvenience inhered 

in the same duty imposed on the foreign corporations In the Monamotor and Felt & Tarrant cases. 

And so far as assumed losses on tax collections 

are concerned, respondent is in no position to 

found a constitutional right on the practical 

opportunities for tax avoidance which Its method 

of doing business affords Iowa residents, or 

to claim a constitutional immunity because it 

may elect to deliver the goods before the tax 

is paid." 312 U.S. 359, 365. 

In speaking of the tax and the method of collection’ 

under consideration in Monamotor Oil Co. v. Johnson, 292 U.S. 

86 (1933) the Court stated at page 95 of its opinion: 

.The statute obviously was not lntended'& reach transactions in interstate 

commerce, but to tax the use of motor fuel 

after it had come to rest in Iowa, and the requirement that the appellant as shipper into 

Iowa shall, as agent of the state, report and 

pay the tax on the gasoline thus coming Into 

the state for use by others on whom the tax 

falls, imposes no unconstitutional burden either 

upon interstate commerce or upon the appellant. 

I, .The distributor does 

tax; the-user does. . . ." 

not pay the 

-2603- 
Hon. Robert S. Calvert, page 10 (C-543) 

McGoldrick v. Berwind-White Coal Mining Co. 309 U.S. 

33 (1940) upheld a New York City tax levied upon the transfer 

of possession of coal mined by Berwind-White in Pennsylvania, 

sold by contract to residents of New York City and delivered 

by Berwind-White to the purchaser. The Court further upheld 

the provision of the statute which made Berwind-White liable 

to the City for the tax due and required them to collect such 

tax from the purchaser. The opinion of the Court contains 

an excellent discussion relating to the balancing of the taxing powers of the states with the regulatory power of Congress 

over interstate commerce. 

Script0 v. Carson, 362 U.S. 207 (1960); General 

Trading Co. v. Tax Commissioner, 322 U.S. 335 (1944)mFelt 

& Tarrant Mfg. Co. v. Gallagher, 306 U.S. 62 (1939) all isved taxes levied upon the use of property within the taxing 

state for which the out-of-state seller was made liable to the 

taxing state and was required to collect from the purchaser. 

Scripto, General Trading Company and Felt & Tarrant Manufacturing Company were all corporations chartered under the laws of 

states other than the taxing state and neither of them were 

authorized to transact business within such states nor did 

they maintain any office, warehouse or stock of merchandise 

within the taxing state. General Trading Company employed 

traveling salesmen who solicited orders for merchandise; 

Scripto received orders for merchandise from jobbers and wholesalers under a commission agreement; and Belt & Tarrant Company 

employed general agents who obtained orders for their merchandise. In all three cases the orders were subject to approval 

and acceptance at the home office of the company and, when 

accepted, the merchandise was shipped from the home office to 

the purchaser. Payment was remitted directly from the purchaser to the company. The Court upheld the taxes and method 

of collection in all three cases against contentions that 

they were in violation of the commerce clause and the due 

process clause of the United States Constitution. 

The Felt & Tarrant Company case was based squarely 

upon the decisions in Henneford v. Silas Mason Co., supra; 

Monamotor Oil Co. v. Johnson, supra; and Bowman v. Continental 

011 Company, 25b U.S. 642 (192ir 

In General Trading Co. v. Tax Commissioner, supra, 

the Court made Its position clear in a terse manner at page 

338: s 

-2604- 
Hon. Robert S. Calvert, page 11 (C-543) 

II 

. . .The exaction 

ultimate consumer---the 

paying taxes to sustain 

Is made against the 

Iowa resident who is 

hi9 own state government. To make the distributor the tax collector 

for the State is a familiar and sanctioned device. Monamotor Oil Co. v. Johnson, 292 U.S. 

86, 931194; Felt & Tarrant Co. v. Gallagher, 

supra. 

at page 337-338: 

.We agree with the Iowa Supreme Court 

that Felt &,Tarrant Co. v. Gallagher, 306 U.S. 

control62; Nelson v. SeaX.~~ Roebuck & Co., &prra; and Nelson v. Montgomery Ward, gupra. are 

ling . .Anzh,";l$a;h;;, case is 

Mot&gomery Ward cases the intersta' 

also had ret; 

distinguishable. 

at in Sears. Roebuck and 

te 'vendor 

n stores in Iowa, whose sales 

were appropriately subjected tj the sales 

tax, is constitutionally Irrelevant to the 

right of Iowa sustained in those cases to 

exact a use tax from purchasers on mail order 

goods forwarded into Iowa from without the 

State. All these differentiations are without 

constitutional significance." 

Script0 v. Carson, 362 U.S. 207 (1960) was affirmed 

squarely upon the basis of the decision in General Trading Co. 

v. Tax Commissioner, supra, and involved similar facts. 

The foregoing cases clearly hold that a state statute 

which requires an out-of-state vendor to remit to the state 

the amount of a use tax imposed upon the vendee and collect 

such tax from the vendee is not invalid under the interstate 

commerce clause or the due process clause of the United States 

Constitution. 

Upon the basis of the above cited cases, we hold 

that the use tax imposed by the Cigarette Tax Law is a valid 

exercise of the state taxing power and were it not for the 

restrictive definition of "first sale" contained in the 

Cigarette Tax Law we would sustain the method of collection 

upon these authorities. However, since by definition of 

"first sale" the events upon which payment of the tax is 

predicated must be in intrastate commerce we must pursue this 

aspect of the transactions further. 

-2605- 
Hon. Robert S. Calvert, page 12 (C-543) 

The tax imposed by the Cigarette Tax Law is required 

to be paid by the person making the "first sale" in this State 

and the payment of such tax is to be evidenced by affixing a 

tax stamp to each package of cigarettes. House Bill No. 474, 

Section 4A, Acts 1965, 59th Legislature, declares that cigarettes 

received by distributing agents shall be deemed possessed for 

purposes of making a "first sale" and requires that they pay 

the tax and affix the tax stamp to the packages of cigarettes, 

"First sale" is defined by Article 7.01 (8)'to "mean 

and include the first sale or distribution of cigarettes in 

intrastate commerce, or the first use or consumption of cigarettes within this State." (Emphasis added.) From the plain 

wording of this provision it is apparent that the duties 

imposed upon distributing agents by Section 4A of House Bill 

No. 474 must be performed only in the event that the activities 

of the distributing agent constitute a first sale or distribution of cigarettes in Intrastate commerce. Even though the 

cigarettes are by the terms of Section 4A of House Bill No. 

474, declared $0 be possessed by the distributing agent for 

purposes of making a first sale within the meaning of the 

Cigarette Tax Law, the test of whether they are possessed for 

that purpose is a question to be ultimately determined by 

federal decisions relating to the subject of what is and what 

is not interstate commerce for purposes of state regulation. 

If the cigarettes distributed by the distributing agent are, 

under federal decisions, in interstate commerce then no 

declaration to the contrary by our Legislature can take them 

out of such commerce for purposes of bringing them within the 

definition of "first sale." 

We turn now to the determination of the status of 

the cigarettes in the hands of the distributing agent. 

At the outset we wish to make It clear that we do 

not consider cases such as Binderup v. Pathe Exchange, 263 

U.S. 291 (1923); Stafford v. Wallace, 258 U.S. 495 (1922); 

Swift & co. v. U.S., 196 U.S. 375 1905); and Walling v. 

Jacksonville Paper Co., 317 U.S. 5 4 (1943) to be in point 

upon the question before us. These cases arose under either 

the Sherman Anti-Trust Act, Packers and Stockyards Act, or 

the Fair Labor Standards Act. The question in those cases is 

the extent of the power of Congress to regulate interstate 

commerce and those business activities and practices which 

pertain thereto. This is a different question from that of 

whether a particular exercise of state power is, in view of 

-2606- 
Hon. Robert S. Calvert, page 13 (C-543) 

its nature and operation, considered to be in conflict with 

the authority of Congress under the commerce clause. The 

aower of Conaress extends to activities which. when considered 

beparately, are intrastate but which have a Glose,and substantial relation to interitate commerce. Santa Cruz Co. v. 

Labor Board, 303 U.S. 453 (1938); Atlantic Coast Line Ry. Co. 

V. Standard Oil Co., 12 F.2d 541 (4th Cir. 1926) reasoning 

and conclusions approved in 275 U.S. 257 (1927); Bacon v. 

Illinois, 

10. 

227 U.S. 504 (1913); Minnesota v. Blasius, 290 U.S. 

Neither do we consider those cases dealing with the 

original package doctrine or the power of the states with respect to the export-import clause determinative of the question 

before us. That provision of the United States Constitution 

which declares that "No state shall, without the consent of 

Congress, lay any imposts or duties on imports or exports" 

does not refer to articles brought into one state from another, 

it refers onlv to articles imoorted from foreinn countries 

into the Unit&d States. Brow; v. Houston, 114-U.S. 622 (1885); 

Woodruff v. Parham, 8 Wall. 123 (1868); Sonneborn Bros. v. 

Cureton, 262 U.S. 506 (1923). The "original package doctrine" 

is also limited in application to articles imported from foreign 

countries. The distinction is that the Immunity from state 

taxation attaches to the import before sale, while an article 

in interstate commerce is immune to state regulation or taxation only if it regulates or burdens interstate commerce. 

Sonneborn Bros. v. Cureton, s;pra. We also point out that 

Standard Oil Co. v. ffraves 2 9 U.S. 389 (1919) Askren v. 

Continental Oil Co.. 252 UTS. 444 11920) and Bowman v. Continental Oil Co_, Led insofar as the 

-U.S. 6&(19213 have been overrul 

-purport to extend the protection of the "original 

package doctrine" to articles brought from one state into 

another. Sonneborn Bros. v. Cureton, supra, page 520. 

After consideration of the decisions of the Supreme 

Court of the United States dealing with the question of when 

articles in interstate commerce have come to rest for purposes 

of state taxation or regulation, we are of the opinion that 

once the cigarettes have arrived at the warehouse of the 

distributing agent they are no longer the subject of interstate 

commerce. American Steel & Wire Co. v. Speed, 192 U.S. 500 

(1904); General Oil Co. v. Crain, 209 U.S. 211 (1938); Bacon 

v. Illinois, 227 U.S. 504 (19135; Independent Warehouses v. 

331 U S 70 (1947); Minnesota v. Blasius 290 U.S. 

m,* SusqGeianna Coal Co. v. City of South Akboy, 228 

U.S. 665'(P913). 

While it is contended by the manufacturer that when 

a carload of cigarettes leaves its plants destined for the 

-2607- 
Hon. Robert S+ Calvert, page 14 (c-543) 

warehouse of the distributing agent in Texas there are contracts 

covering 50% oft the carload and upon arrival at the warehouse 

W-98$ of such cigarettes have been sold under additional 

contracts entered into while the car was in transit, the fact 

remains that upon arrival at the warehouse the cigarettes 

are the property of the ,manufacturer. They are billed from 

the manufacturer to the manufacturer and at the time of 

shipment and arrival have no ascertainable destination beyond 

the warehouse. It is only upon the subsequent order of the 

manufacturer that the distributing agent rebills the cigarettes 

to purchasers. Although the manufacturer may, at the time a 

given carload arrives at the warehouse, have accepted and 

approved orders calling for the delivery of a quantity of 

cigarettes equal in number to 97-98s of such carload, none 

of the cigarettes in a given carload are definitely committed 

to a particular purchaser. The manufacturer is free to fill 

such orders from cigarettes already on hand in the warehouse 

to which the carload was sent or from any other warehouse in 

which it may have cigarettes stored. The figures submitted 

by the Comptroller's Office indicate that the manufacturers 

keep on hand at the various warehouses presently acting as 

distributing agents a supply of cigarettes sufficient to meet 

daily demands of from 9 to 30-l/2 days. Good business 

practice dictates that cigarettes already in the warehouse be 

used to fill orders rather than the fresh stock just arrived 

from the factory. Cigarettes are In fact distributed from 

the warehouse on a "first in - first out" plan, and, at the 

time the cigarettes are shipped from the factory of the 

manufacturer no particular case or carton of cigarettes can 

be pointed to as being destined for any place other than the 

warehouse of the distributing agent. 

This method of operation is solely for the business 

purposes of the manufacturer in facilitating the sale and 

delivery of its products and to secure the economic advantage 

of lower freight rates on carload shipments. The facts do 

not present a case where a delay In transit to the destination 

is occasioned bv the necessities of safets or in furtherance 

of interstate transportation as was the case in Champlain Co. 

v. Brattleboro, 260 U.S. 366 (1922). 

The facts before us are surprisingly similar to the 

S;;;;,in American Steel & Wire Co. V.-Speed, 192 U.S. 500 

. In that case. the Wire Comoanv was a New Jersey 

corporation which had'made an agreement with a Memphis," 

Tennessee warehouse company whereby the warehouse company 

would receive the Wire Company's products shipped from its 

factory and billed to itself, warehouse such shipments and 

-2608- 
Hon. Robert S. Calve&, page 15 (C-543) 

deliver them upon the order of the Wire Company to persons 

who had purchased the products. The Wire Company contended 

that the products were merely in transit from the point of 

manufacture outside Tennessee to persons who had previously 

purchased them and were thus not subject to a merchant's tax 

and merchant's privilege tax. In rejecting this contention 

and holding that such products as were in the warehouse were 

not in interstate commerce, the Court stated at page 519: 

"With these facts in hand we are of opinion 

that the Court below was right in deciding that 

the goods were not in transit, but, on the contrary, had reached their destination at Memphis 

and were there held in store at the risk of the 

Steel Company, to be sold and delivered as contracts for that purpose were completely consummated. . . ." 

In General Oil Co. v. Grain, 209 U.S. 211 (1908) 

the company conducted an oil business in Memphis, Tennessee 

where it gathered shipments of oil from other states, placed 

it in storage tanks and distributed it to purchasers. Part 

of the oil was placed in a tank marked for distribution 

pursuant to orders for oil already sold in other states. The 

Court held that the first shipment had ended with the storage 

at Memphis for subsequent distribution and was "for the 

business purposes and profit of the company"; that the tank 

in Memphis had merely become a depot in the oil business of 

the company for preparing the oil for another interstate 

journey. The language at page 230-231 of the opinion in the 

General Oil Co. case is especially relevant to the case before 

us. 

I, .The company was doing business in 

the State and its property was receiving the 

protection? of the State. Its oil was not in 

movement through the State. It had reached 

the destination of its first shipment, and it 

was held there, not in necessary delay or 

accommodation to the means of transportation, 

. . . but for the business purposes and profft 

of the company. It was only there for distribution, it is said, to fulfill orders already 

received. But to do this required that the 

property be given a locality in the State beyond a mere halting in its transportation. It 

-2609- 
Hon. Robert S. Calvert, page 16 (c-543) 

required storage there ---the maintenance of the 

means of storage, 

it from s'torage. 

of putting it in and taking 

The bill takes pains to allege 

this. 'Complainant shows that it is impossible, 

in the coal oil business, such as complainant 

carries on, to fill separately each of these 

small orders directly from the railroad tank 

cars, because of the great delay and expense 

in the way of freight charges incident to such 

a plan, and for the further reason that an extensive plant and apparatus is necessary, in 

order to properly and conveniently unload and 

receive oil from said tank cars, and it 

would be impracticable, if not impossible, to 

have such apparatus and machinery at every 

point to which complainant ships said oil,' 

"This certainly describes a business--- 

describes a purpose for which the oil is taken 

from transportation, brought to rest in the 

State and for which the protection of the State 

is necessary, a purpose outside of the mere 

transportation of the oil. The case, therefore, 

comes under the principle announced in American 

Steel & Wire Co. v. Speed, 192 U.S. 5007 

It was held in Susquehanna Coal Co. v. South Amboy 

228 U.S. 665 (1918) that the storage for distribution of coal, 

under facts similar to the American Steel & Wire and General 

Oil Co. cases, was not within the protection of the 1Bt.e 

commerce clause. See also Independent Warehouses v. Scheele, 

331 U.S. 70 (1947). 

As a general rule, where the owner of property withdraws it from the stream of interstate commerce for his own 

benefit and business purposes and brings it to rest within 

the state under his control and subject to disposal at his 

direction, such property becomes a part of the mass of property within the state and Is subject to regulation. Brown v. 

Hmston, 114 U.S. 622 (1885); Bacon V. Illinois, 227 U.S. 504, 

m Minnesota v. Blasius, WT. 

We therefore hold that shipments from the warehouse 

by the distributing agent upon the order of the manufacturer 

are distributions or sales in intrastate commerce within the 

meaning of the definition of "first sale" in Article 7.01 (8) 

and are not protected from state regulation by the interstate 

-2610- 
, 

Hon. Robert S. Calvert, page 17( C-543) 

commerce clause. 

As to the question of whether the exaction of the 

payment of the tax from the distributing agent and the ensuing 

cost of affixing the tax stamp to the packages of cigarettes 

deprives the distributing agent of property without due process, we hold that it does not. 

Under the facts before us, we consider the distributing agent to be exactly what the term Implies---an agent 

of each manufacturer of cigarettes which it contracts to 

serve. While, as the facts reveal, each of the 13 distributing agents now operating in this State are public warehouses, 

this fact does not change their relationship with the cigarette 

manufacturers. Each of these public warehouses have contracted, 

with the respective cigarettes manufacturers which they serve, 

to receive shipments of cigarettes belonging to the manufacturer, unload them from boxcars, sort and store them in their 

warehouse, and, upon the subsequent order of the manufacturer, 

rebill and deliver to carriers specified quantities of 

cigarettes for purchasers located in Texas who have placed 

their orders directly with the manufacturer. That the contracts 

between the warehouses and the manufacturer may by their 

terminology designate the relationship as something other than 

that of principal and agent or the fact that the warehouse 

may serve any number of principals does not affect the legal 

significance of the relationship as one of agency. Any doubt 

in this respect is specifically resolved by Article 7.01 (16) 

which makes those persons performing the services rendered 

by the warehouses in question agents of the out-of-state manufacturers. 

The payment of the tax is occasioned by the performance 

of acts which are within the scope of the agency relationship. 

If the warehouseman does not act as the agent of a cigarette 

manufacturer then no payment of the tax is exacted from him. 

No one is compelled to act as a distributing agent for the 

manufacturer and should anyone choose to so act they should 

assure themselves that they will be reimbursed by their 

principal for the taxes paid in the cwrse of such agency. 

Bowman v. Continental Oil Co. 256 U.S. 642 (1921); 

Monamotor Oil Co. v. Johnson, 292 U.S. 66 (1934); Felt & 

Tarrant Mfg Co. v. Gallagher, 

Sears, Roebuck & Co 

306 U.S. 62 (193g);Nelson v. 

312 U.S. 359 (1941); Nelson v. Montgomery 

Ward, 312 U.S. 373 ci941); Wisconsin v. J. C. Penney Co., 311 

-2611- 
. . . 

Hon. Robert S. Calvert, page 18 (C-543) 

U.S. 435 (1940: and Qeneral Trading Co. v. Tax Commissioner, 

322 U.S. 335 (1944) are all directly opposed to the contention 

that the imposition upon an out-of-state vendor of personal 

liability for the collection of use taxes exacted by the state 

of the vendee violates the,due process clause of the 14th 

Amendment to the United States Constitution. We can perceive 

of no reason why the rationale of these decisions would not 

apply with equal force where the collection of such tax is 

made through the agent of the vendor. The fact that a aubstantial expense is involved in the rental of machines and employment of operators necessary to affix the stamps to the cigarettes 

does not alter our decision upon this question. Reliable 

figures furnished to us by the Comptroller indicate that the 

2-l/4$ discount allowed those who are required to purchase 

and affix stamps to cigarettes not only offsets the expense 

of such operation but affords a substantial profit. Under 

such circumstances there is no denial of due process. 

In answer to your first question, you are hereby 

advised that under the provisions of Section 4A of House Bill 

No. 474, Acts 1965, 59th Legislature, distributing agents are 

required to pay the taxes assessed by the Cigarette Tax Law 

and affix the tax stamps to all cigarettes distributed by such 

agent prior to the time the cigarettes leave the warehouse of 

the distributing agent for delivery within this State to anyone 

other than an exempt consignee. 

In this connection, you are further advised that 

the term "exempt consignee" has reference to those persons 

who are authorized to receive and distribute or sell unstamped 

cigarettes. When cigarettes leave the warehouse of a distributing agent under a bill of lading, "consigned to" a person 

authorized to receive and distribute or sell unstamped 

cigarettes, the distributing agent Is not required to pay 

the tax or affix the stamps to such cigarettes. Any other 

construction of the term “exempt consignee” would be in direct 

conflict with the other provisions of Section 4A which provide that every distributing agent shall be treated as a 

“distributor” and the distributing agent shall pay the taxes 

assessed by this Chapter and affix the stamps. 

Your second question inquires as to what effect 

Section 4B of House Bill 474 will have upon Article 7.01 (16) 

and Article 7.23 (l), (3) and (4). 

-2612- 
Hon. Robert S. Calvert., page 19 (C-93) 

Section 4H of House Bill No. 474 merely repeals 

Section 2 of Article 7.23 and has no effect upon the other 

provisions of the Cigarette Tax Law which you mention In your 

second question. We wish to point out, however that Section 

&A of House Bill No. 474 by amending Section (1) of Article 

7.23 "to read as follows" completely replaces such section. 

SUMMARY 

The tax imposed by the Cigarette ,Tax Law 

is a valid use tax. 

1965, 

Section 4A of House Bill No. 474, Acts 

59th Legislature, is constitutional and 

by its terms "distributing agents" are required 

to pay the tax assessed by the Cigarette Tax 

Law and affix the tax stamps to all cigarettes 

prior to the time such cigarettes leave the 

warehouse for delivery in this State; provided 

that no tax need be paid or stamp affixed to 

cigarettes which leave such warehouse for delivery within this State on a bill of lading 

"consigned to" a person who is authorized under 

the law to receive and distribute or sell unstamped cigarettes. 

1965, 

Section 4B of House Bill No. 474, Acts 

59th Legislature, merely repeals Article 

7 2 (2) and has no effect u on Article 7.01 

(id or Article 7.23 (l), (37 and (4). 

Very truly yours, 

WAGGONER CARR 

Attorney General 

W. 0. Sh 

Assistan 

wos :ml 

-2613- 
-/ . 

Hon. Robert S. Calvert, @age 20, (C-543) 

APPROVED: 

OPINION COMMI~EE 

W. V. Geppert, Chairman 

Kerns Taylor 

John Reeves 

Arthur Sandlin 

John Banks 

Bill Allen 

APPROVED FOR THE ATTORNEY GENERAL 

BY: T. Ei. Wright 

-2614-