CRUTCHER DENTAL SUPPLY CO. v. RABREN

COLEMAN, Justice.

A taxpayer appeals from an adverse decree in a proceeding wherein taxpayer sought to have the court declare illegal and void a regulation adopted by the Commissioner of Revenue of the State of Alabama.

The taxpayer is engaged in the business of selling to dental laboratories in Alabama certain materials which are used by the laboratories in making or manufacturing dental appliances or prostheses such as artificial teeth. Taxpayer is sometimes referred to as a dental supply house or supplier. The laboratory makes the appliance on prescription from a dentist and the article made by the laboratory is delivered to the dentist, who in turn delivers the article and fits it into the mouth of the patient.

Taxpayer also sells the same material to some dentists who themselves make such appliances for their patients without sending the prescription to a laboratory.

The regulation under attack is Number P18-129,1 which was adopted May 18, 1967. The effect of P18-129 is to impose on taxpayer the liability to collect from its customers and to pay over to the state the amount of sales tax imposed by law on retail sales of material sold by taxpayer to its customers, the dentists and laboratories.

Taxpayer's argument is that the sales made by taxpayer to dentists and laboratories are wholesale sales, not retail sales, and, therefore, taxpayer is not liable to collect and pay over to the state the tax which is imposed by law on retail sales of the materials mentioned to laboratories and dentists.

The trial court declared that P18-129 is valid and that taxpayer is liable for sales tax on sales made by taxpayer to dentists and laboratories which are not barred by the applicable three-year statute of limitations.

Certain related events occurred prior to the commencement of the instant suit. Some understanding of these prior events is helpful to an understanding of the case.

Laws imposing a tax on retail sales in Alabama were enacted in 1939 or a comparatively short time before that year. Since that year, the statute has been amended many times, but we do not understand that any of the amendments has made any material change in the provisions which are material to the issues presented in the instant case.

The tax is levied, and shall be collected as provided by the statute, on ". . . . every person . . . . engaged . . . . in business of selling at retail any tangible personal property whatsoever . . . ." Title 51, § 786(3) (a), 1958 Recompilation of 1940 Code, 1969 Pocket Parts.

Taxpayer contends, as we understand the argument, that sales of materials made by taxpayer to laboratories and dentists are wholesale sales because the laboratories and dentists use the materials in the manufacture of dental prostheses and the materials become an ingredient or component part of the prostheses which are manufactured by the laboratories and the dentists for the patients of the dentists. We hold that the sales by taxpayer to laboratories and dentists are not wholesale sales because the articles manufactured by the laboratories and dentists are not manufactured "for sale," as the words "for sale" are used in the sales tax statute. This holding rests upon two previous decisions of this court hereinafter referred to.

On March 1, 1939, the Commissioner of Revenue adopted Regulation R28-012,2 which is substantially identical with Regulation P18-129, supra, adopted on May 18, 1967.

Regulation R28-012 is to effect that the sale of material for making artificial teeth, etc., by dental supply houses to laboratories and dentists are retail sales and imposes on dental supply houses the duty to collect and remit to the state the sales tax due on such sales. Regulation R28-012 remained in effect for twenty-two years until the Commissioner adopted Regulation P18-131,3 on March 9, 1961.

In effect, Regulation P18-131 imposed on dentists the duty to collect and remit to the state sales tax on the "sale" of artificial teeth to patients. On the same date, March 9, 1961, the Commissioner adopted Regulation P18-132,4 which declared that dental supply houses sell to laboratories and dentists at wholesale the materials used to make dental prostheses. Also, on March 9, 1961, the Commissioner adopted Regulation P18-133,5 which declares that sales of prostheses by laboratory to dentist are wholesale sales. The 1961 regulations purported to relieve the supply houses and the laboratories from the duty to collect the sales tax on prostheses and to place that duty on the dentists.

The dentists challenged the validity of the 1961 regulation imposing the tax on dentists, and this court, in Haden v. McCarty, 275 Ala. 76, 152 So.2d 141, held Regulation P18-131 invalid in requiring dentists to pay to the state ". . . . a sales tax on purported `sales' at retail of dental prosthetics such as, but not limited to, dental plates and bridges." The opinion was delivered April 11, 1963.

On September 9, 1963, the Commissioner adopted an amendment to Regulation P18-1336 which, in effect, imposed on laboratories the duty to collect and remit to the state the tax on sales of dental prostheses by laboratories to dentists. In Hamm v. Proctor, 281 Ala. 54, 198 So.2d 782, this court held amended Regulation P18-133 invalid in imposing on laboratories the duty to collect and remit to the state the tax on sales of prostheses by laboratories to dentists. Opinion was delivered May 5, 1967.

On May 18, 1967, the Commissioner rescinded Regulations P18-131, P18-132, and P18-133 and adopted P18-129, which is now challenged by taxpayer in the instant case. The regulations have traveled the full circle and are now back to the position which was first taken in 1939 and was followed for twenty-two years thereafter.

We are not persuaded that we should overturn or modify the holdings in either McCarty or Proctor. In McCarty, the trial court held, and this court approved, the proposition that dentists are not engaged in merchandising, and that the supplying of prostheses is incidental to the professional service rendered by the dentist to the patient. The consequence of this proposition is that the prosthesis made by the dentist for the patient is not an article manufactured "for sale" as the term "for sale" is used in the sales tax statute; and, therefore, the sale by taxpayer to the dentist is not a wholesale sale but is a retail sale and subject to sales tax which the taxpayer, the dental supply house, must collect from the dentist. It follows that the supplying of the prosthesis by the dentist to the patient is not a "retail sale."

In Proctor, the laboratory is held, in effect, to be an extension of the arm of the dentist or an extension of his office, and the laboratory is in the same position as the dentist who makes a set of artificial teeth for the individual patient. The result is that the making of the prosthesis is not a manufacturing "for sale" under the sales tax act.

We will not repeat at length what this court said in McCarty and Proctor. The two cases hold that the use of material by dentist and laboratory in making the prosthesis is a consumption incident to rendering professional service and not a manufacture for sale any more than the preparation and production of a deed or a will or a lengthy brief by a lawyer for a client would be a manufacture of the instrument for sale. Such a holding may not appear to be strictly logical from a purely theoretical viewpoint, but, in the light of experience, we are of opinion that the holding is reasonable.7

In both McCarty and Proctor, this court observed that the 1939 Regulation had been followed for twenty-two years, and that the sales tax statute had been amended many times without change in the particulars with which we are here concerned. We say again that reenactment of the statute without material change in the provisions here pertinent "may be considered as a legislative approval of the departmental construction." (275 Ala. at 79, 80, 152 So.2d 143)

The trial court did not err in holding Regulation P18-129 valid.

The trial court further declared that taxpayer is liable for all sales tax accrued for sales of material to dentists and laboratories and used or consumed by them which are not barred by the three-year statute of limitations. As we understand, taxpayer is now held liable for tax on sales of materials sold by taxpayer to laboratories and dentists during the period of time when the 1961 and 1963 Regulations purported to be in effect and were being followed by taxpayer. We understand further that taxpayer relied on the 1961 and 1963 Regulations which state that sales by taxpayer to laboratories and dentists were wholesale sales, and that taxpayer did not collect sales tax from laboratories and dentists on sales made during the period when the 1961 and 1963 Regulations apparently relieved taxpayer from that duty.

Taxpayer argues that the trial court erred in holding Regulation P18-129, adopted May 18, 1967, to be retroactive because the Department of Revenue, by its regulations, had expressly exempted taxpayer from tax on sales of material to laboratories and dentists when the material was used by the purchasers in manufacture of prostheses as discussed supra. Taxpayer says ". . . . this Court should follow the announced judicial policy of this and other states, that such retrospective laws have not been looked upon with favor, but with disfavor"; and that to allow retrospective enforcement of the regulation would be to allow the Department of Revenue to make an ex post facto law, which would be oppressive and unfair.

We have examined the decisions cited by taxpayer, but they have to do with statutes, not departmental regulations. Ex parte Buckley, 53 Ala. 42; Harlan v. State, 31 Ala.App. 478, 18 So.2d 744; Board of Revenue of Jefferson County v. Hewitt, 206 Ala. 405, 90 So. 781; Dickson v. Alabama Machinery & Supply Co., 18 Ala.App. 164, 89 So. 843.

If the state were a private suitor, then it might be estopped by the conduct of its agents from collecting from taxpayer taxes on sales made during the period when the 1961 and 1963 Regulations were purportedly in effect, but the state is not a private suitor and the doctrine of estoppel does not apply against the state in the instant case. This court has said:

Referring to § 100 of Constitution of 1901, this court said further:

Affirmed.

HEFLIN, C. J., and SIMPSON, BLOODWORTH, and McCALL, JJ., concur.