Opinion ID: 1382971
Heading Depth: 1
Heading Rank: 3

Heading: Wholesale sales of Chevrolets assembled at out-of-city plants and shipped to dealers within the City pursuant to orders placed at the in-city zone office.

Text: (7) With respect to this category of transactions, we think that General Motors has sustained its burden of showing that the inclusion of unapportioned gross receipts within the tax base results in the taxation of significant extraterritorial values  for it clearly appears that substantial elements of the sales process which produces these receipts take place outside the City. Thus, for instance, it is undisputed that when Los Angeles dealers order through their zone office a model produced at an out-of-city plant, that plant accepts or rejects the order, ships the vehicle, and bills the dealer or his financing institution. The City's application of Ruling 14 to this category of transactions  which purports to reach total unapportioned gross receipts solely because the vehicles are shipped into the City  is violative of the constitutional principles explained in Shell because it refuses to take cognizance of the out-of-city elements of the transactions. [13] The gross receipts arising from this category of transactions must be apportioned in a manner which fairly reflects the proportion of in-city to out-of-city selling activities. [14] General Motors, not content with the requirement of apportionment as to these gross receipts, contends that it should not be subject to any tax at all upon sales of automobiles shipped into the City from out-of-city assembly plants. The argument as we understand it is as follows: When we look to the business of General Motors as a whole it is clear that that business is the manufacturing of motor vehicles. The fact that it sells the products of its manufacturing labors does not mean that it is per se in the business of selling, for any manufacturer must sell his products in order to realize the profits of manufacture. Unless a manufacturer, after the production of his goods, also engages in merchandising activities whereby he seeks to take a dealer's profit in addition to a manufacturer's profit, he should not be taxed as a seller or merchant but only as a manufacturer. (Citing Chattanooga Plow Company v. Hays (1911) 125 Tenn. 148 [140 S.W. 1068].) Because, it is argued, General Motors does not engage in merchandising activities in addition to its activities of manufacturing and disposing of manufactured goods, it should not be subject to tax under L.A.M.C. sections 21.166 or 21.167 as a person engaged in selling. Rather, it should be taxed only as a manufacturer (i.e., on unapportioned gross receipts derived from the sale of vehicles produced in the City  see part IV. (1) above). Indeed, the argument concludes, any other result will bring about multiple taxation: if General Motors can be taxed as a manufacturer at the point of production and a seller at the point of sale, it will be taxed on more than 100 percent of the gross receipts derived from the sale of any one vehicle, for the taxing jurisdiction at the place of manufacture can tax on the basis of 100 percent of the gross receipts under the Carnation principle (part IV. (1) above) and the taxing jurisdiction of the place of sale can tax on the basis of an apportionment according to selling activities there. This contention rests upon a fundamental misconception of the tax with which we are here concerned. Indeed it is noteworthy that a virtually identical contention was made in the first Belridge case ( City of Los Angeles v. Belridge Oil Co. (1954) 42 Cal.2d 823 [271 P.2d 5]), was accepted by the Court of Appeal which concluded that the taxpayer was not engaged in selling within the City, [15] and was specifically rejected by this court: There is no reason to believe that the authors of [L.A.M.C.] section 21.166 were concerned with the degree of effort or expense involved in the selling of goods nor were they concerned with whether or not selling was the dominant or incidental activity of the company. The main concern would appear to be whether or not the company. The main concern of goods. The purpose of the section was to place a business license tax on those activities which took place within the city of Los Angeles regardless of their relationship to activities outside the city. [Par.] ... There is no requirement that the seller must be in the merchandising business before the transaction can be called a sale and likewise it is not logical to attempt to narrow the meaning of the term `selling' to include only those whose dominant business is of a merchandising nature. (42 Cal.2d at p. 829.) The point is that the tax here in question is one levied upon those engaged in business within the City for the privilege of so engaging, and that it is measured on the basis of gross receipts which are directly attributable to the business activities which the taxpayer carries on within the City. (8) Provided that fair apportionment of gross receipts is undertaken when substantial out-of-city activities have contributed to their production, and further provided that the taxation is neither prohibitory nor confiscatory, the City is constitutionally free to tax the business presence within its jurisdiction by reference to the taxable events occurring there. (See Fox etc. Corp. v. City of Bakersfield (1950) 36 Cal.2d 136 [222 P.2d 879].) (9) Thus, we perceive no constitutional impediment to the City's taxing manufacturing within the City by reference to the total gross receipts, handling or storage within the City by reference to the same total gross receipts, and selling by reference to the same total or apportioned [16] gross receipts. This would not constitute that multiple taxation which our Belridge and Shell cases took pains to proscribe, for the possibility of duplicate taxation by another taxing jurisdiction based upon the same activity would not exist. In view of these constitutional facts of life General Motors' rationale of multiple taxation appears to have little if any substance. (10) The fact that the taxing jurisdiction containing an out-of-city assembly plant may include within its tax base the unapportioned gross receipts derived from the sale of a vehicle manufactured there cannot affect the City's constitutional power to include within its own tax base an apportioned part of the gross receipts attributable to the selling activity taking place within its borders. We hasten to dispel any confusion that may arise between the outer limits of the City's constitutional power to tax and the levy which it has chosen to exact through its tax ordinance. Although as we have indicated there exists no constitutional limitation [17] which would preclude the City from basing its tax on selling activities as well as on manufacturing activities with respect to the same products, it is clear that the City's ordinance does not extend that far, for it bases the tax on selling activities only in those instances wherein the products sold are manufactured or produced elsewhere. This is the lesson of Universal Consolidated Oil Co. v. City of Los Angeles (1962) 202 Cal. App.2d 771 [21 Cal. Rptr. 61], a case upon which General Motors lays heavy, albeit misplaced, reliance. There the taxpayer produced crude oil at well sites both within and without the City. A segment of its business tax was based on its activity as a producer of oil within the City and was measured according to L.A.M.C. section 21.124 on the basis of barrels produced from in-city wells. The City sought in addition to tax it as a wholesale seller of that oil under L.A.M.C. section 21.166. The Court of Appeal properly held that the ordinance would not permit this, for L.A.M.C. section 21.166, like the two other catch-all provisions in the ordinance, permits a tax upon selling only when the taxpayer has not been specifically taxed by other provisions of this Article for the production of the substance or product sold. (See fns. 3 and 4, ante. ) Significantly, however, the Court of Appeal went on to hold that the taxpayer could be taxed under L.A.M.C. section 21.166 as a seller of oil produced at wells outside the City and sold through its in-city office. It appears that the activities of plaintiff in the city with respect to oil produced from wells outside the city are substantially the same as the selling activities of Belridge Oil Company [in the Belridge case], wherein it was held that the company was subject to the tax imposed by section 21.166 measured by the company's selling activities in the city. In the present case, plaintiff is subject to the tax imposed by section 21.166 measured by plaintiff's activities in the city in selling oil produced from wells located outside the city. (202 Cal. App.2d at p. 781.) (11) For the foregoing reasons, we conclude that General Motors' business tax may be based upon properly apportioned gross receipts arising from sales of vehicles produced outside the City and sold to dealers within the City pursuant to orders placed at the in-city zone office.