Source: https://caselaw.findlaw.com/us-supreme-court/425/268.html
Timestamp: 2019-04-20 21:24:16+00:00

Document:
DIAMOND NATIONAL v. STATE EQUALIZATION BD.
The incidence of state and local sales taxes falls upon appellant national bank as purchaser and not upon vendors, and therefore the national bank is exempt from the taxes under former 12 U.S.C. 548 (1964 ed.), which was in effect at the time here pertinent.
49 Cal. App. 3d 778, 123 Cal. Rptr. 160, reversed.
The judgment is reversed. We are not bound by the California court's contrary conclusion and hold that the incidence of the state and local sales taxes falls upon the national bank as purchaser and not upon the vendors. The national bank is therefore exempt from the taxes under former 12 U.S.C. 548 (1964 ed.), which was in effect at the time here pertinent. First Agricultural Nat. Bank v. Tax Comm'n, 392 U.S. 339, 346 -348 (1968).
Since the case involves a federal claim of immunity from state taxation, we are not bound by the California court's determination of where the incidence of the tax falls. 2 On the other hand, we are not free simply to disregard the state court's determination. 3 More narrowly, I believe we must accept the state court's interpretation of the meaning of a state statute insofar as it defines the legal obligations of the vendor, the purchaser, and the tax collector independently of any claim of federal immunity.
In this case we have the benefit of completely consistent construction by the California courts since the statute was enacted in 1933. Both in cases involving a federal claim of immunity, 4 and also in cases which involved no question of federal law, 5 the California courts [425 U.S. 268, 270] have unambiguously held that the statute imposes no legal obligation on a purchaser either to pay the tax himself or to reimburse his vendor.
Deciding where the legal incidence of a state tax falls is not the most intriguing task that judges are called [425 U.S. 268, 272] upon to perform. Such work is facilitated, however, when the controlling standards are expressed in simple language. I had thought two rather clear rules controlled this case. First, the location of the economic impact of a tax does not identify the place where its legal incidence falls. Second, it is only if the State imposes a legal obligation on the purchaser either to pay the tax, or to reimburse the vendor for a tax payment, that the legal incidence is on the purchaser. The Court's disposition of this appeal apparently is not predicated on either of those rules. However, I am persuaded that they require us to affirm the judgment of the California Court of Appeal.
[ Footnote 1 ] 49 Cal. App. 3d 778, 123 Cal. Rptr. 160 (1975).
[ Footnote 2 ] See Society for Savings v. Bowers, 349 U.S. 143, 151 .
"When a state court has made its own definitive determination as to the operating incidence [of a tax], our task is simplified. We give this finding great weight in determining the natural effect of a statute, and if it is consistent with the statute's reasonable interpretation it will be deemed conclusive."
[ Footnote 4 ] The very question which confronts us here arose in Western Lithograph Co. v. State Board of Equalization, 11 Cal. 2d 156, 78 P.2d 731 (1938); in that case the plaintiff-vendor claimed not to be liable for taxes measured by sales made to the Bank of America National Trust and Savings Association. The Supreme Court of California affirmed the denial of a refund, holding that the incidence of the tax was on the retailer, not on the consumer.
[ Footnote 5 ] In National Ice & Cold Storage Co. of California v. Pacific Fruit Express Co., 11 Cal. 2d 283, 79 P.2d 380 (1938), the court held that the vendor could not add sales tax reimbursement to the price paid by a vendee under a pre-existing contract, even though the court was required, in order to reach this result, to hold unconstitutional a section of the taxing statute which expressly allowed such a result. The court reasoned that while it [425 U.S. 268, 270] was not beyond the power of the legislature to impose a tax on the consumer, it had not done so, and it was beyond the power of the legislature to require the vendee to pay the vendor's debt.
That this left the California sales tax reimbursement as a matter of contract between vendor and vendee is affirmed by the later holdings of the lower California courts in Clary v. Basalt Rock Co., 99 Cal. App. 2d 458, 222 P.2d 24 (1950), which held that there was no venue against the vendee in a particular county because it could not be found that any tax obligation arose against the vendee when a sale was made, and Livingston Rock & Gravel Co. v. DeSalvo, 136 Cal. App. 2d 156, 288 P.2d 317 (1955), where the vendor under a lease-sale overlooked providing for sales tax reimbursement. Although the vendor had been held liable for payment to the State, the court held that the vendor could not collect the tax from the vendee.
"But the controlling significance of First Agricultural Bank for our purposes is the test formulated by that decision for the determination where the legal incidence of the tax falls, namely, that where a State requires that its sales tax be passed on to the purchaser and be collected by the vendor from him, this establishes as a matter of law that the legal incidence of the tax falls upon the purchaser." United States v. Mississippi Tax Comm'n, 421 U.S. 599, 608 .
In this case, unlike First Agricultural Bank, the State does not require that its sales tax be passed on to the purchaser.
" 6052 Collection by retailer from consumer. The tax hereby imposed shall be collected by the retailer from the consumer in so far as it can be done."
On its face this provision could reasonably be read to require that the tax be paid by the consumer. However, in the face of the state courts' consistent interpretation of the state statute as not requiring that result, we are not free to place our own interpretation on the statute.

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