IN RE SALES & USE TAX DETERMINATION BY ST. TAX COM'R

VOGEL, Judge.

The question before us is whether the district court was correct in reversing a decision of the State Tax Commissioner which assessed additional sales tax against the appellees on moneys received by them for transportation of goods sold by them.

The appellees are in the business of selling oil well drilling muds and supplies to the oil well drilling industry in the State of North Dakota. They made sales within the State of North Dakota of various items of tangible personal property to customers located within the State. The period of time involved is April 1, 1962, to March 31, 1968, as to appellee Baroid Division, National Lead Company, and April 1, 1965, to June 30, 1968, as to appellee Ace Mud Service, Inc. The appellees' sales invoices for items sold to their customers during these periods of time included a price charged for the items sold, and on these prices North Dakota sales or use tax was computed and paid to the State. Many of the sales invoices included a separate amount stated for transporting the items from the North Dakota warehouses of the appellees to the location in the oil fields designated by the customer. Upon these amounts the appellees did not compute or pay a sales or use tax. The Tax Commissioner assessed additional taxes on the latter sums, the appellees protested the assessments, hearings were held, and rulings were made against the appellees in administrative proceedings. Subsequently, they appealed to the district court (the appeals being consolidated for trial pursuant to stipulation), which reversed the administrative determination and held that the sums collected for transportation were not subject to sales or use tax.1

The statute upon which the district court relied, and upon which the appellees rely here, is Section 57-39.2-04, N.D.C.C., the pertinent portions of which follow:

Based on a general authority to make regulations [Sec. 28-32-02, N.D.C.C.] and an explicit authority pursuant to Section 57-39.2-19, N.D.C.C., the Tax Commissioner promulgated Rule 36, which was in effect the entire period of time here in question and which remains in effect (with subsequent additions not pertinent here), and also promulgated former Rule 82, which was in effect until June 1, 1968, and Rule 81, in effect on June 1, 1968, and still in effect. Pertinent portions of those rules follow:

Although Rules 81 and 82 are quite dissimilar, the parties seem to have treated them as if they are identical for the purposes of this lawsuit. In making his rulings, the Tax Commissioner relied rather rigorously upon the language of the rules, while the district court, as a basis for reversal of the ruling of the Tax Commissioner, held that the exemption statute governed and the rules did not apply and were inconsistent with and in conflict with that statute.

The Tax Commissioner based his ruling in large part upon a determination as to when title passed between the appellees and their customers, and ruled that the record was silent as to the intention of the parties as to time and place of passage of title, and therefore the appellees had not shown that the amounts charged for delivery of the goods sold were not subject to sales and use tax. The trial court, on the other hand, found that the evidence showed that the taxpayers and their customers had established a course of dealing, as evidenced by an invoice received in evidence pursuant to a stipulation in district court and testimony of Tax Department accountants, whereby the sales were made at the warehouses of the taxpayers, and the taxpayers and their customers negotiated separately for transportation of the tangible personal property from the taxpayers' warehouses to the oil fields.

We thus are faced with different findings of fact and conclusions of law as between the administrative agency and the trial court.

Both this court and the trial court are required to sustain the administrative agency in matters of fact if its findings are based upon substantial evidence in light of the entire record. O'Brien v. North Dakota Workmen's Compensation Bureau, 222 N.W.2d 379 (N.D.1974). Questions of law are fully reviewable. O'Brien v. North Dakota Workmen's Compensation Bureau, supra.

We agree with appellees that the Tax Commissioner is not aided by the last sentence of Rule 36, supra. That sentence does not mean, as the Tax Commissioner states, that retailers of goods cannot make or arrange for delivery of goods without charging sales tax on the delivery charges. The term "cost of goods sold" is an accounting term, a term of art with a specific meaning. It is a total of all the costs of a retailer incurred in bringing the goods into a place and condition ready to be sold. It therefore includes the cost of freight in to the retailer, but not freight out from the retailer.

Of course, if the retailer quotes a delivered price to the customer, then that delivered price becomes the retail sales price, and tax is to be computed upon it.

The basic question of statutory interpretation before us relates to the treatment of delivery charges ("freight out") where those charges are not included in the quoted price and are assessed separately and stated separately on invoices, and where the customer has the option of picking up the goods at the retail place of business at the quoted price for the goods or taking delivery at some other point and paying the retail price plus a charge for delivery.

The Tax Commissioner apparently believes that the statutory exemption of "gross receipts from the sales, furnishing or service of transportation service" does not apply to such circumstances, while the appellees insist that it does.

We hold that the statutory exemption is not restricted to those who deal primarily in freight and passenger service, but is applicable to retailers of goods who incidentally (but separately) provide or arrange for transportation services. If the Legislature had intended to limit the exemption to transportation companies, we believe it could readily have done so in appropriate terms.

The next question before us is whether the evidence in this case is sufficient to sustain the exemption as to the appellees before us. The evidence, while scanty, was deemed sufficient by the district court to establish the exemption.

The evidence consists of one exhibit, stipulated to be a "typical invoice," and the testimony of employees of the Tax Department as to their findings.

The "typical invoice" shows a list of items and the amount charged for each, followed by an item "N.D. Use Tax" based on a total of the charges for the individual items, to which is added a final item for "trucking." Thus the use tax is computed upon the total charges for the items, and not upon the charge for trucking. The stipulation further indicates that the language of the invoice "shipped via No. 18" refers to shipment by Truck No. 18, owned and operated by Ace Mud Service Inc., and that the words on the invoice "Well Name & No. Roharehaber # 1" refers to an oil well to which delivery of the goods was made.

The testimony at the administrative hearing to which appellees point as sustaining their position that the sales were made at their respective places of business and the trucking was separately negotiated and separately billed includes the following:

The trial court held that the evidence established that the taxpayers and their customers "separately negotiated for transportation of the tangible personal property from taxpayer's warehouse to the oil field."

This is a finding of fact which we are obligated to uphold unless it is "clearly erroneous." Rule 52(a), N.D.R.Civ.P. We hold that it is not clearly erroneous.

It follows from this finding, we believe, that title to the goods in question passed at the delivery point, the place of business of the taxpayers. The fact is more pertinent under the new Rule 81 than it was under former Rule 82, but under either rule the taxpayers are entitled to prevail in this case by reason of the finding that the sale was made at the warehouse of the taxpayer and that there were separate negotiations for transportation to the oil field.

The parties have called to our attention a number of cases from other jurisdictions. Such cases are more or less pertinent, depending upon the similarity of the language of their statutes to ours or the lack of similarity. The two cases most discussed are those entitled O'Kelley-Eccles Co. v. State of California, 160 Cal.App.2d 60, 324 P.2d 683 (1958), and Clarion Ready Mixed Concrete Co. v. Iowa State Tax Commission, 252 Iowa 500, 107 N.W.2d 553 (1961). Of the two, the Iowa case is the more comparable to both the facts of the dispute before us and the North Dakota statute. We believe it correctly distinguishes the California case in the following language:

The Iowa case involved sales of ready-mixed concrete, the price of which was quoted at the plant with an additional charge per mile for delivery in the trucks of the seller.

Since our statute does not require a completed sale prior to transportation service, we agree.

One further question deserves comment. Since these cases involve the review of a decision of an administrative agency, the district court heard it upon the evidence produced before the administrative agency. The evidence considered by the court therefore was confined to the record filed with the court, pursuant to Section 28-32-19, N.D.C.C. However, the parties stipulated in the district court for the submission of an additional exhibit, the "typical invoice" referred to above. We have held, in Langer v. State, 75 N.D. 435, 28 N.W.2d 523 (1947), that the trial court may accept, under a stipulation of all interested parties, additional evidence taken before it. It is the stipulation of the parties which distinguishes Langer v. State from Knutson v. North Dakota Workmen's Compensation Bureau, 120 N.W.2d 880 (N.D.1963), which held that it was improper for the district court to take additional evidence over the objection of the adverse party.

Since the parties in the instant cases stipulated for the reception in evidence of the additional evidence, they were within the rule of Langer v. State and there was no error in the reception of the evidence by the district court.

Of course, when additional evidence is received in the district court, that court's function no longer is to review the determination of the administrative agency, but instead to make a new determination of its own based upon all the evidence, including the new evidence. And the function of the Supreme Court likewise is changed. We no longer are bound to review the findings of the administrative agency to determine whether they are supported by substantial evidence, and, if so, to sustain them. Instead, we are required to sustain the findings of the district court unless they are clearly erroneous. We have followed the latter rule here.

Affirmed.

ERICKSTAD, C. J., and KNUDSON, JOHNSON and PAULSON, JJ., concur.

ON PETITION FOR REHEARING.

VOGEL, Judge.

In his petition for rehearing the appellant states that the "typical invoice" referred to in the opinion related only to Ace Mud, and not to Baroid, and was not stipulated into evidence as to Baroid, and therefore the court was in error in applying the "substantial evidence" rule as to Baroid.

The record shows that the trial court, on February 27, 1974, called for trial the two appeals of Ace Mud and Baroid, "which appeals have been consolidated pursuant to stipulation of counsel." Appellant's Exhibit 1, consisting of the "typical invoice" and an attached stipulation, was then marked for identification and offered, without any limitation whatever. The exact language used by counsel follows:

Since the proffer of the evidence was general and unrestricted, it was not improper to consider it in both of the cases consolidated on appeal to the district court and to the Supreme Court. Island v. Fireman's Fund Indemnity Co., 30 Cal.2d 541, 184 P.2d 153, 173 A.L.R. 896 (1947).

See also Wigmore on Evidence, 3d Ed., § 13.

Rehearing is denied.

ERICKSTAD, C. J., and PEDERSON, PAULSON and SAND, JJ., concur.