Case Name: State ex rel. G. Thomas Battle, State Tax Commissioner, v. B. D. Bailey & Sons, Inc.
Court: Supreme Court of Appeals of West Virginia
Jurisdiction: West Virginia
Decision Date: 1965-12-14
Citations: 150 W. Va. 37
Docket Number: No. 12447
Parties: State ex rel. G. Thomas Battle, State Tax Commissioner, v. B. D. Bailey & Sons, Inc.
Judges: Haymond, Judge, dissenting.
Reporter: West Virginia Supreme Court
Volume: 150
Pages: 37–71

Head Matter:
State ex rel. G. Thomas Battle, State Tax Commissioner, v. B. D. Bailey & Sons, Inc.
(No. 12447)
Submitted September 28,1965.
Decided December 14, 1965.
Haymond, Judge, dissenting.
BerRY, Judge, concurring.
C. Donald Robertson, Attorney General, Jack M. McCarty, Assistant Attorney General, for appellant.
Campbell, McNeer, Woods, Bagley & Emerson, Selden S. McNeer, Jr., R. G. McNeer, for appellee.

Opinion:
Calhoun, Judge:
On May 10, 1962, in accordance with the provisions of Chapter 11, Article 1, Section 2a of Code, 1931, as amended, B. D. Bailey & Sons, Inc., filed with the state tax commissioner a petition for refund of certain taxes theretofore collected and paid under the provisions of Chapter 11, Article 13, Sections 2 and 2h of Code, 1931, as amended. On March 15,1963, the state tax commissioner made a ruling by which the request of a refund was denied. Thereafter, B. D. Bailey & Sons, Inc., pursuant to the provisions of Chapter 11, Article 1, Section 2a of Code, 1931, as amended, requested that the state tax commissioner institute a declaratory judgment action in order that it might be determined judicially whether the taxes, or any part thereof, had been collected unlawfully.
On November 7, 1963, Honorable G. Thomas Battle, State Tax Commissioner, instituted a declaratory judgment action in the Circuit Court of Kanawha County in order to have a determination whether the taxes in question, or any part thereof, had been unlawfully collected. The case was submitted for decision upon the complaint, an answer by B. D. Bailey & Sons, Inc., and a written stipulation of facts. The circuit court held that the imposition and collection of the taxes in question contravened the commerce clause of Section 8 of Article I of the Constitution of the United States; and the circuit court, therefore, directed the state tax commissioner to refund to the taxpayer the sum of $1,125.09, the amount of taxes which were held to have been unlawfully collected.
From the final judgment of the circuit court, embodied in an order entered on June 8, 1964, the state tax commissioner has prosecuted this appeal. The case has been submitted in this Court for decision on the record made in the circuit court and upon briefs and oral argument of counsel.
B. D. Bailey & Sons, Inc., is a West Virginia corporation which, for the salte of brevity and convenience, miay be referred to in this opinion merely as Bailey or as the defendant. Its business activities are conducted at and from its place of business in the City of Clarksburg, West Virginia.
In the circuit court, the state tax commissioner as the plaintiff and Bailey as the defendant in the declaratory judgment action entered into a written stipulation of facts, a portion of which is as follows:
"That the Defendant was and is, and specifically during the years 1959, 1960, and 1961, engaged in the business of acting as manufacturer's representative and merchandise broker, under a franchise or contract arrangement, whereby the said manufacturer's representative and merchandise broker was granted the right by certain manufacturers and food processors to represent exclusively such manufacturers and food processors within a certain geographical area in the State of West Virginia, which area is specifically set forth in the said franchise or contract; that such franchise or contract provides for the commissions to be paid the said manufacturer's representative and merchandise broker by the manufacturer or food processor; that certain of the said manufacturers and food processors are located in the State of West Virginia and certain of them are located outside the State of West Virginia; that the defendant's business activities consist of soliciting orders of merchandise for the said manufacturers and food processors from wholesalers and chain-store operators located in West Virginia; that the Defendant, after securing such orders, sends them on to the manufacturer and food processor, who reserves the right to accept or reject such orders, and upon acceptance fills the orders and arranges for delivery of the merchandise by common carrier, F. O. B. point of shipment, to the purchaser in West Virginia; that any loss of merchandise in shipment is borne by the purchaser, with the manufacturer and food processor, as a courtesy, processing the claims for such loss against the common carrier and the original merchandise or its replacement being ultimately delivered to the purchaser in West Virginia; such purchaser being the said wholesaler or chain-store operator located in West Virginia; that all of the Defendant's business activities of soliciting, securing, and preparing merchandise orders takes place entirely within the State of West Virginia; that the billing for such merchandise is sent directly to the said West Virginia purchaser by the manufacturer and food processor and payment is made by the said purchaser directly to the manufacturer and food processor; that none of the said merchandise involved in the above-described activity has ever been purchased in the name of or by the Defendant; that the Defendant's business activity and the gross receipts upon which taxes have been paid and which the Defendant alleges have been unlawfully exacted has been exclusively between citizens and business firms, that is, manufacturers and food processors located outside the State of West Virginia on the one hand, and citizens and business firms, that is, wholesalers and chain-store operators, located within the State of West Virginia on the other hand; and that all of the Defendant's income and gross receipts are in the form of commissions received from the said manufacturers and food processors for the performance by the Defendant of the said business activities.
"That approximately 90 per cent of the Defendant's gross business is transacted with those manufacturers or food processors located outside the State of West Virginia."
The taxes in question were levied and collected pursuant to the following statutory provisions:
" (2) Imposition of Privilege Tax. — There is hereby levied and shall be collected annual privilege taxes against the persons on account of the business and other activities, and in the amounts to be determined by the application of rates against values or gross income as set forth in sections two-a to two-j, inclusive, of this article."
" (2h) Service Business or Calling not Otherwise Specifically Taxed. — -Upon every person engaging or continuing within this state in any service business or calling not otherwise specifically taxed under this law, there is likewise hereby levied and shall be collected a tax equal to one and five one-hundredths per cent of the grbss income of any such business."
The taxes involved in this case have been levied and paid exclusively on the gross amount earned by Bailey, during the period of time in question, in the form of commissions paid to it by nonresident manufacturers and food processors. That is, all the taxes in question relate to shipments from nonresident sellers to resident purchasers. Bailey contends that its business in this respect is "an instrumentality of interstate commerce"; and that the tax in question constitutes an unconstitutional burden on interstate commerce. On the other hand, the state tax commis sioner contends that Bailey's business activity upon which the taxes in question have been levied is performed wholly within the State of West Virginia and that, therefore, it is not an activity in interstate commerce; and that, even if the business activity of Bailey is one in interstate commerce, the tax imposed is not precluded or rendered unlawful by the commerce clause of the Constitution.
At the outset, the Court is mindful of the well settled legal principle that, in considering the constitutionality of any legislative enactment, courts are required to exercise due restraint, in recognition of constitutional principles pertaining to the separation of powers in government among the judicial, legislative and executive branches. Constitution of West Virginia, Article V, Section 1. Every reasonable construction must be resorted to by the courts in order to sustain constitutionality. Any reasonable doubt must be resolved in favor of the constitutionality of the legislative enactment in question. State ex rel. Appalachian Power Co. v. Gainer, etc., et al., 149 W. Va. 740, 143 S. E. 2d 351, and cases therein cited. Substantially identical legal principles are applied when the question of constitutionality involves the commerce clause of the Constitution of the United States. Eureka Pipe Line Co. v. Hallanan et al., 87 W. Va. 396, pt. 1 syl., 105 S. E. 506.
Another principle we are required to bear in mind in this case is that, in considering whether a state law violates the commerce clause of the Constitution, this Court must yield to decisions of the Supreme Court of the United States. Brown v. City of Richmond et al., 204 Va. 471, 132 S. E. 2d 495; Western Union Telegraph Co. v. Bowles, 124 Va. 730, 98 S. E. 645. See also Blossom Dairy Co. v. International Brotherhood of Teamsters et al., 125 W. Va. 165, 171-72, 23 S. E. 2d 645, 649; Staton v. Virginian Railway Co., 119 W. Va. 658, 661, 195 S. E. 601, 603; Harness, Admr. v. Baltimore & Ohio Railroad Company et al., 86 W. Va. 284, pt. 2 syl., 103 S. E. 866. "Where a question is federal in its nature, the decisions of the supreme court of the United States are absolutely binding on the various state courts and must be followed regardless of the views of the latter courts, and even though such decisions are inconsistent with prior decisions of the state courts. So' the decisions of the federal court are binding as to the construction of the federal constitution and are also binding as to the validity vel non of state statutes assailed as being in conflict with the federal constitution, 21 C. J. S., Courts, Section 206, pages 365-66. "A rule stated in a decision of the United States Supreme Court and based upon the Federal Constitution is, under the supremacy clause of the Federal Constitution, binding upon the state courts as well as upon federal courts. It follows that a decision of the United States Supreme Court on a question of construction or applicability of the Federal Constitution is a precedent binding on state courts, including the highest court of a state, faced with the same problems of federal constitutional law. If the United States Supreme Court overrules its prior decision concerning the construction of a provision of the Federal Constitution, the overruling decision is binding on the highest court of a state." 20 Am. Jur. 2d, Courts, Section 226, pages 557-58. The Supreme Court of the United States, therefore, is the final arbiter in relation to the constitutionality of state statutes in the light of the commerce clause of the Constitution. Prior decisions of this Court and decisions of appellate courts of other states are helpful, in a determination of the constitutional question presented in this case, only to the extent that they aid in an interpretation and application of pertinent decisions of the Supreme Court of the United States. •
It appears from decisions of the Supreme Court of the United States that legal principles relating to constitutionality of state statutes, in the light of the commerce clause, are not static, but rather that they are evolving in character; and that, for this reason, our attention in the present case should be directed to current trends of such decisions in this area.
In three recent cases, this Court has been called upon to deal with the commerce clause of the Constitution. Nuckols v. Athey, 149 W. Va. 40, 138 S. E. 2d 344, involved a statu tory provision which, in its operation, clearly discriminated against interstate commerce. The present case involves a contention of an undue burden upon, rather them a discrimination against, interstate commerce. State ex rel. Battle v. The Baltimore and Ohio Railroad Company, 149 W. Va. 810, 143 S. E. 2d 331, involved a taxpayer which was clearly engaged in interstate commerce. Gambino et al. v. Jackson et al., 150 W. Va. 305, 145 S. E. 2d 124, involved a resident of this state who was engaged in two distinct business enterprises, one clearly interstate and the other clearly intrastate in character. None of these three recent decisions is a direct precedent for a decision of the present case, except that each of them tends to sustain the obvious proposition that the shipments of merchandise in the present case from nonresident sellers to resident buyers constituted shipments in interstate commerce. The fact remains, however, that Bailey was not directly involved in such interstate transactions between the nonresident sellers and the resident buyers. He was merely an intermediary whose services facilitated or brought into operation the interstate operations involving the nonresident sellers and the resident buyers. In each instance, his services, rendered wholly within this state, were performed before the interstate shipment of merchandise was made, and payment of his commissions was received by him in this state after the merchandise shipped in interstate commerce had come to rest within this state.
Harper, Executrix v. Alderson, 126 W. Va. 707, 30 S. E. 2d 521, 153 A. L. R. 819, involved a taxpayer whose principal place of business was in the City of Wheeling, West Virginia. The taxpayer was engaged in a business of providing a linen and towel supply service to customers both within this state and in the State of Ohio. A fee was charged by the taxpayer to the customers for rental or use of the linen and towels. In the operation of such business, the taxpayer delivered clean linen and towels to customers in Ohio and later the linen and towels were picked up in Ohio and returned to the taxpayer's place of business in this state where they were laundered. The Court divided three to two on the question whether the taxpayer's business with customers in Ohio constituted a letting or hiring of chattels and consequently interstate commerce, or whether such business constituted merely a rendering of service and consequently intrastate commerce. The first and second points of the syllabus of the case are as follows:
"1. The furnishing of towels, linen and other like articles to users for pay, followed by a reclaiming of the articles furnished and a laundering of them in preparation for further use by customers in general, is essentially a letting or hiring of chattels rather than a rendering of service.
"2. Chattels furnished for hire by an owner from a point in one state to a user at a point in another state, which requires and results in the movement of the chattels across a state line is interstate commerce."
In less than a month after the decision of Harper, Executrix v. Aldeson, supra, the Court unanimously decided Arslain v. Alderson, 126 W. Va. 880, 30 S. E. 2d 533, which involved taxpayers (plaintiffs in the trial court) who were engaged in the business of cleaning, dyeing and repairing wearing apparel and household furnishings at their plants and establishments in the City of Wheeling, West Virginia. As a part of the services rendered, the taxpayers furnished to their customers hangers, garment bags, mothproof bags and materials necessary for alteration and repair of wearing apparel and household articles. In the operation of their businesses, the taxpayers transported wearing apparel and household furnishings from the homes or establishments of their customers in the State of Ohio to the taxpayer's plants in this state where services were performed and thereafter the wearing apparel and household furnishings were returned to the owners in the State of Ohio. The case involved the question whether the imposition of a privilege tax on the taxpayers' earnings from business done with customers in the State of Ohio was prohibited by the commerce clause of the Constitution. In its opinion, the Court reviewed its prior decisions, including Harper, Executrix v. Alderson, supra, and pertinent decisions of the Supreme Court of the United States, and summarized its unanimous decision in the first point of the syllabus as follows: "A person engaged in the business of rendering services for hire at a plant or establishment within this State, is not engaged in interstate commerce, and he may be assessed a privilege tax measured by the gross income received, including that derived from persons and sources beyond state boundaries, notwithstanding the incidental interstate transportation of articles of personal property on which the work is done." In the body of the opinion, the Court stated (126 W. Va. at page 886, 30 S. E. 2d at 536): "Bearing in mind that the services performed by plaintiffs are activities carried on in the State of West Virginia and that the transportation of the articles on which work is done is only in aid of the primary purpose, we conclude that the assessment and collection of the privilege tax on the businesses of plaintiffs do not contravene Article I, Section 8 of the Constitution of the United States."
The Harper case and the Arslain case, decided almost simultaneously, appear to be clear and distinct authority for a decision in the present case that Bailey is merely engaged in the performance of services within the State of West Virginia, as distinguished from interstate transportation or shipment of property; and that it is not engaged in interstate commerce and, therefore, is not exempt from payment of the taxes in question, notwithstanding the fact that, as an incident of the proper performance of its services within this state, it transmits messages to and receives messages from the nonresident manufacturers and food processors and notwithstanding the fact that, after the goods are shipped by the nonresident sellers and received by resident buyers from time to time, Bailey receives, by United States mail, payment in this state of its commissions from the nonresident sellers. In final analysis, the interstate shipment of goods directly involves only the nonresident sellers and the resident buyers. The interstate transportation of goods is set in motion in each instance only after there has been a "meeting of minds" between the two contracting parties; that is, after the offer of the resident to purchase is accepted by the nonresident seller. We are unable to perceive how the imposition of the tax by this state upon Bailey's gross earnings in the form of commissions can be construed to impose any burden upon or to impede the free flow of interstate commerce. Bailey cannot he held to be exempt from payment of the taxes in question merely because it may be a fact that its business, in some remotely incidental way, relates to or involves interstate commerce.
Counsel for Bailey state that Pennywitt v. Blue, 73 W. Va. 718, 81 S. E. 399, decided in 1914, represents the law of this state and that it should control the decision of the present case. Pennywitt, the taxpayer, was engaged in a merchandise brokerage business involving exclusively citizens and business firms in Charleston, West Virginia, on the one hand, and, on the other hand, involving persons, firms and corporations doing business in states other than West Virginia. Pennywitt's clients were nonresident sellers from whom he arranged sales of merchandise to resident purchasers. His place of business in this state was an office in which he kept samples of goods for which he negotiated sales by his nonresident clients to resident merchants. He negotiated no sales from resident sellers to resident buyers. The case involved the propriety, under the commerce clause, of . an annual license tax upon his brokerage business. This Court held, in the third point of the syllabus, that Penny-witt's brokerage business was "an instrumentality of interstate commerce" and that, therefore, imposition and collection of the state license tax "would be tantamount to a state tax upon interstate commerce or state regulation thereof" in contravention of the commerce clause of the Constitution.
We note, by way of distinguishing the facts of the Pen-nywitt case from the facts of the present case, that Penny-witt did no business with resident sellers; and that the tax imposed upon his business was an annual license fee, as distinguished from the privilege tax, or business and occupation-tax, imposed on Bailey's gross earnings in form of commissions paid to him for services performed in this state in behalf of his nonresident clients. We believe the Arslain case is more persuasive and should furnish a far more reli able guide in our decision of the present case because the Arslain decision was made more than thirty years after the decision of the Pennywitt case. The statement by the Court that Pennywitt's business was "an instrumentality of" interstate commerce leaves something to be desired from the standpoint of clarity and lucidity. Counsel for Bailey quote the following statement from the Pennywitt case: "Any state burden of any kind upon interstate commerce, unless incident in some way to the exercise of the state's police power or authorized by the Congress, is unconstitutional and void." (Italics supplied.) In their brief, counsel assert that the commerce clause "provides, hr effect, that a state may not levy a tax or place a burden of any kind upon interstate commerce." (Italics supplied.) We believe that the statements we have emphasized, in the quotations appearing immediately above, are too broad and not sustained by more recent decisions of the Supreme Court of the United States.
A summary of federal court decisions was made by this Court in the Arslain case as follows (126 W. Va. 884-85, 30 S. E. 2d 535-36): "Interstate transportation of property is not always a sufficient indicium to characterize transactions as interstate commerce. If the transportation across state lines is in aid of, or incidental to, intrastate activities, the assessment by a state of a privilege tax measured by gross income from such activities is not an impediment to, regulation of, or burden on interstate commerce. Department of Treasury v. Ingram-Richardson Mfg. Co., 313 U. S. 252, 61 S. Ct. 866, 85 L. Ed. 1313; Western Live Stock v. Bureau of Revenue, supra." The taxpayers in the Arslain case, as a routine part of their businesses conducted in this state, regularly transported tangible items of property across the state line to and from the State of Ohio, and apparently on a considerable scale. On the contrary, it does not appear in the present case that Bailey, in the performance of its services within this state, transported any tangible items of property across any state line or that performance of its business ever required any of its officers, agents, or employees to go outside West Virginia.
Western Live Stock et al. v. Bureau of Revenue et al., 303 U. S. 250, 58 S. Ct. 546, 82 L. Ed. 823, involved a privilege tax (as in the present case) levied by the State of New Mexico upon the gross amount received by a resident engaged in a business of publishing newspapers and magazines. The constitutional question presented was whether, in the light of the commerce clause, it was lawful for the state to levy and collect such a tax on the gross amount received by the taxpayer from advertising furnished to nonresident advertisers in one of its journals published within the taxing state. The contracts with nonresident advertisers involved interstate transmission from the advertisers of cuts, mats, information, copy, etc., and payment for the cost of the advertisement so furnished. The journal in which the advertisement was furnished was circulated both intrastate and interstate. The Supreme Court of the United States held that imposition and collection of the tax by the State of New Mexico did not violate the commerce clause of the Constitution. We will refrain from extended quotation from the opinion in this case, but, nevertheless, we would like to emphasize our view that it clearly sustains the constitutional validity of the tax in the present case. The court reiterated its position that even interstate business "must pay its way," and stated that it was "not the purpose of the commerce clause to relieve those engaged in interstate commerce from their just share of state tax burden even though it increases the cost of doing the business."
In the Western Live Stock case, the court stated that the vice characteristic of state taxes which violate the commerce clause "is that they have placed on the commerce burdens of such a nature as to be capable, in point of substance, of being imposed with equal right by every state which the commerce touches, merely because interstate commerce is being done, so that without the protection of the commerce clause it would bear cumulative burdens not imposed on local commerce." At another place in the opinion, the court stated: "As we have said, the carrying on of a local business may be made the condition of state taxation, if it is distinct from interstate commerce, and the business of preparing, printing and publishing magazine advertising is peculiarly local and distinct from its circulation whether or not that circulation be interstate commerce." At still another place in its opinion, the court stated: "The tax is not one which in form or substance can be repeated by other states in such manner as to lay an added burden on the interstate distribution of the magazine."
In Washington-Oregon Shippers Cooperative Association, Inc. v. Schumacher et al. (1962), 59 Wash. 2d 159, 367 P. 2d 112, the court, in a case we consider in point, reviewed in a thorough way decisions of the Supreme Court of the United States and stated some conclusions which we believe to be sound and also pertinent to a proper decision of the present case. The Association was referred to in the opinion as WOSCA and it will be so referred to in this opinion. It was a nonprofit Washington corporation with a membership of 119 business entities with principal places of business in Washington and Oregon. Each member was engaged in a type of business which involved the acquisition and transportation of goods or products from sources outside the State of Washington. WÓSCA was formed to provide services or means whereby members were able to consolidate shipments in order to gain the cost advantage of shipments in volume, usually at carload, rates. WOSCA handled no shipments originating in Washington and its services were available only to its members. Each member (independently of WOSCA) ordered commodities it desired from sellers in states other than Washington. The consequent shipments were consolidated with other shipments in carload lots which were shipped to members in care of WOSCA at convenient points in Washington or Oregon. This case involved only the shipments to points in Washington. The tax in question was levied on gross earnings by WOSCA for services to its Washington members. In upholding the validity of the tax, the court made the following summarization of decisions of the Supreme Court of the United States: "Since the decision in Western Live Stock v. Bureau of Internal Revenue (1938), 303 U. S. 250, 58 S. Ct. 546, 82 L. Ed. 823, the primary considerations for determining the limits of a state's power to tax activities connected with interstate commerce have been these: (1) Whether the tax places an extra burden on interstate commerce not borne by intrastate commerce, or erects barriers, placing out-of-state businesses at a disadvantage when competing locally; the discrimination test. (2) Whether the interstate commerce involved is subject to the risk of repeated exactions of the same nature from other states; the multiple burden test. That the latter has become increasingly important is shown by Northwestern States Portland Cement Co. v. State of Minnesota (1959), 358 U. S. 450, 79 S. Ct. 357, 3 L. Ed. 2d 421." These two salient tests were discussed at some length and the court held that the tax imposed in that case met both tests.
In Re Taxes, etc., 46 Haw. 269, 379 P. 2d 336, is regarded as helpful in arriving at a correct decision in the present case, not only because of the analogous factual situation involved, but also because of the careful review made by the Supreme Court of Hawaii of pertinent decisions of the Supreme Court of the United States. The taxpayer in that case, a resident of the State of Hawaii, maintained his place of business in that state. He was engaged in a business of performing services to mainland manufacturers of tangible goods whereby orders were obtained from resident buyers for goods to be sold by the mainland manufacturers and shipped by them to the purchasers in the State of Hawaii. The taxpayer kept at his place of business samples of the manufactured goods in order to facilitate sales by the mainland manufacturers to the resident purchasers. Goods were shipped directly from the mainland manufacturers to the resident buyers. The taxpayer was paid commissions by the manufacturers upon orders obtained by the taxpayer. The question presented for decision was whether a tax imposed by the State of Hawaii upon the gross amount earned by the taxpayer in form of commissions violated the commerce clause of the Constitution.
In holding that the tax was constitutional, the Supreme Court of Hawaii stated that the taxpayer incorrectly as sumed "that all state action affecting interstate transactions" violates the commerce clause and in that connection the court quoted the following language from Nippert v. City of Richmond, 327 U. S. 416, 425, 66 S. Ct. 586, 590, 90 L. Ed. 760: "As has been so often stated but nevertheless seems to require constant repetition, not all burdens upon commerce, but only undue or discriminatory ones, are forbidden." (Italics supplied.) The court also quoted language from Ficklen v. Shelby County Taxing Dist., 145 U. S. 1, 12 S. Ct. 810, 36 L. Ed. 601, a case analogous to our present case. A portion of the language quoted by the court is as follows: "This tax is not on the goods, or on the proceeds of the goods, nor is it a tax on nonresident merchants; and, if it can be said to affect interstate commerce in any way, it is incidentally, and so remotely as not to amount to a regulation of such commerce."
The tax involved in the present case does not discriminate against interstate commerce. We are unable to perceive how any other state could impose a tax upon Bailey, the resident taxpayer, and hence there is no basis for the possibility of "multiple burden" of taxation. Even if it can be said that the tax in question affects interstate commerce in any way, it is of such an indirect, incidental and remote nature and degree that it cannot be regarded as imposing any undue or unconstitutional burden on interstate commerce.
For reasons stated in this opinion, the Court holds that the tax in question does not violate the commerce clause contained in Article I, Section 8 of the Constitution of the United States; and, therefore, the judgment of the Circuit Court of Kanawha County is reversed.
Reversed.