The opinion of the court was delivered by
This was an action for a declaratory judgment wherein the plaintiff asked for an interpretation of certain sections of G.S. 1947 Supp. 79-3701 to 79-3711, inclusive, commonly known as the "Kansas Compensating Tax," and certain related sections of G.S. 1947 Supp. 79-3601 to 79-3625 commonly known as the "Kansas Retailers' Sales Tax Act." The trial court interpreted the sections against the contentions of the plaintiff and it was appealed.
The petition, after the formal allegations as to the official positions of defendants and that plaintiff was engaged in the telephone business, stated that the service offered by plaintiff was subject to the Kansas retailers' sales tax act of two percent upon its gross receipts and that the plaintiff had been complying with the provisions of that statute. The petition then alleged that G.S. 1947 Supp. 79-3703 levied a tax of two percent for the privilege of "using, storing or consuming" within the state any articles of tangible personal property purchased subsequent to June 30, 1945, except such articles as were exempt, as provided in G.S. 1947 Supp. 79-3704; that the above section exempted the use, storage or consumption of tangible property brought into the state by public utility for consumption or movement in interstate commerce, tangible personal property purchased other than at retail, tangible personal property upon which a sales tax or use tax of two percent had already been paid and tangible personal property brought into Kansas, which, if purchased in Kansas, would not have been subject to tax under the provisions of G.S. 1947 Supp. 79-3601 to 79-3625, inclusive; that plaintiff's telephone system consisted of central office equipment, telephone instruments, booths, pole lines, wire, cable, conduit and private branch exchanges and other related equipment, all necessary in furnishing intrastate communication service; that in addition plaintiff owned and maintained buildings and purchased stationery, office supplies, typewriters, janitor supplies, furniture and office equipment, vehicles, tools and other work equipment; that plaintiff had in the past and would in the future exercise the privilege of using, storing or consuming within the state all articles of personal property first spoken
The defendants answered admitting the nature of the business of the telephone company; that plaintiff was subject to the retailers' sales tax act and admitting certain other allegations as to the statutes. The answer denied that the articles mentioned were exempt from the Kansas compensating tax act and alleged that all of such property was purchased outside the state of Kansas and brought into the state, where it was used, stored and consumed by
The trial court heard considerable evidence as to the operation of a telephone system. With such details we are fairly familiar, that is, we all understand that when one makes a call by dialing his phone, it must go to the central switchboard and thereby be switched to the line of the person called and when that person hears his instrument ring he answers and the means of communication is complete. We understand that a great deal of property other than the telephone instruments in question must be used in making such communication possible.
The defendants demurred to the evidence of the plaintiff on the ground that it failed to prove a cause of action in favor of the plaintiff and against the defendants. This was overruled. Defendants introduced no evidence. The court found that an actual controversy existed and that the parties were entitled to an interpretation of the two statutes mentioned.
The final judgment was that the central office equipment, telephone instruments, booths, pole lines, wires, cables, conduits, private branch exchange switchboards, and related equipment purchased outside the state by plaintiff temporarily stored and later incorporated into its integrated telephone system were taxable under the compensating tax act and the assessment of such a tax by defendants constituted the legal exercise of the powers of the defendants.
The plaintiff filed a motion for a new trial on the grounds of erroneous rulings and that the decision was contrary to the evidence. This motion was overruled, hence this appeal.
The sales tax act was passed in 1937. It was chapter 374 of the Sessions Laws for that year. It is now with some amendments G.S. 1947 Supp. 79-3601 to 79-3625. It levied a tax of two percent upon the privilege of selling tangible personal property at retail in
With the enactment of the sales tax act another problem arose. Much property is bought outside the state and brought in for various purposes. Kansas could not tax the privilege of selling property where the sale took place beyond its borders. It could, however, tax the privilege of using property within this state. The result was the enactment of chapter 375 of the Session Laws for 1937, now with some amendments G.S. 1947 Supp. 79-3701 to 79-3711. It is denominated "compensating tax" in the Session Laws. It is sometimes referred to as the "use tax." These two acts are really complementary and supplemental to each other and are construed together generally. It would not do to make a taxpayer pay two percent tax when he bought property and also two percent tax when he used it. On that account the section following the section which imposed the tax provided certain transactions to which the tax should not apply. Among these is one in respect to the use of property, the sale of which had already been subject to a sales or use tax, in respect to the use of any property brought into or used within the state, if such property would not have been subject to tax under the provisions of the retailers' sales tax act of this state, if purchased within this state.
The plaintiff in its petition pleaded itself within at least two of the above exemptions. In its brief the plaintiff says "Appellant in this case does not contend that the purchase of the property outside the state has already been subject to a two percent gross receipts tax. Its contention is that the property here involved was purchased other than at retail as defined in the Kansas retailers' sales tax act and if purchased in the state of Kansas, the sale would not have been subject to the Kansas retailers' sales tax act."
This argument takes us to an examination of G.S. 1947 Supp. 79-3601 to 79-3625, inclusive, and more especially 79-3602. That is the section of the sales tax act that deals with definitions. As in so many cases where the legislature enters upon a new field, it was thought wise to provide in this act for the meaning of certain words used. So that for the purpose of the act we are not bound by the dictionary or common meaning to be given a word, but could look to the act itself also.
First, G.S. 1947 Supp. 79-3602 (e) defined "retail sale" as a sale
We find that, however, in G.S. 1947 Supp. 79-3602 (k) that subsection described certain transactions which for the purposes of this act should be deemed wholesale sales. Upon this subsection plaintiff bases its argument. It argues that the transaction it pleaded and proved are such as this subsection provides shall be wholesale sales. The subsection is important and will be set out here, as follows:
Stated succinctly, plaintiff argues that the property in question is used and enters into the processing of and becomes an ingredient of the service it furnishes. In other words, it argues that its instruments, poles, wire and other similar property bears the same relation to its telephone service that a carload of hides would to one engaged in the manufacture of shoes or a carload of flour does to a baker. Plaintiff argues that the words "ingredient" "component part" and "processing" should be given their ordinary or generally
There is one basic principle about our sales tax act. It is that the ultimate consumer should pay the tax and no article should have to carry more than one sales tax. The intention was that in the various steps between a loaf of bread and the wheat field the person who bought the wheat from the farmer should not pay a sales tax nor the mill that bought it from the elevator man nor the jobber who bought the flour from the mill nor the baker who bought the flour from the jobber. To prevent such a result as nearly as possible, G.S. 1947 Supp. 79-3602 (k) was enacted. It had to be so. It should be noted that for each step from the wheat field to the bakery the title to the wheat and flour passed. It was bought each time with the idea of the title passing and there being a resale. This is not true of the property in question here. When the telephone company buys a pole and sets it in the ground the pole belongs to it and the title does not pass to anyone of the telephone company's service. When the baker buys a new oven or the shoemaker a new machine or the shirtmaker a new sewing machine, he pays a sales tax on these purchases because they are the ultimate consumers, the title has come to rest, no further transfer of title is contemplated.
The result was that the use and consumption of the property in question was held not to be exempt from the tax.
The rule is stated in 47 Am. Jur. 225, as follows:
Bedford v. Colorado Fuel and Iron Corp., 102 Colo. 538, 81 P.2d 752, is a case where a company engaged in the manufacture of steel and steel products claimed that its use of certain property, such as hay fed to the mules, refractories used in the furnaces, tools, office supplies, equipment, trucks, chemicals, workmen's equipment and many other items were exempt from paying the tax under a statute such as we are considering. The court did not agree and said:
See, also, People v. Monterey Ice & Dev. Co., 29 Cal.App.2d 421. There it was held that the tax should be paid on ice that was crushed and used in icing lettuce in carload lots. See, also, National Ice, Etc., Co. v. Pacific F. Exp. Co., 11 Cal.2d 283, 79 P.2d 380. In Warren v. Fink, supra, we held that the sale of string, butter, trays and related items to a retail grocer was taxable. See, also, Wiseman v. Ark. Wholesale Grocers' Ass'n, 192 Ark. 313, 90 S.W.2d 987; also J.R. Raible Co. v. State Tax Commission, 239 Ala. 41, 194 So. 560. In practically all the cases the test was whether the sale in question is for resale or to be finally consumed by the buyer. Here it seems clear that the property in question is finally used by the plaintiff.
The judgment of the trial court is affirmed.