131 Cal. App. 2d 677 | Cal. Ct. App. | 1955
Appellant is a Kansas corporation. It operates an immense railway system through many states with terminals and repair shops at Barstow and San Bernardino, in California. Only a comparatively short stretch of its track in Iowa and Illinois is designed and equipped for the purpose of operating automatic control equipment which is installed upon the locomotive for the purpose of signalling the engineer and controlling the speed. The parts constituting such equipment include loop and track receivers, each weighing 200 pounds; the equipment box, weighing 300 pounds; the steel cab signal, a fixture inside the locomotive cab; governor, and steel cutoff switch. Each of such parts is so installed in the locomotive as to become an integrated part thereof.
In 1950 and 1951, the Union Switch and Signal Company of Swissvale, Pennsylvania, sold at retail to appellant certain train control equipment repair parts for $68,086.11 for the express purpose of bringing them to San Bernardino and Barstow for storage until installed permanently on appellant’s locomotives. At that time, it was the practice of appellant to maintain a 90-day supply of such repair parts on hand, in the California cities. During the same two-year period (1950-1951) the parts so stored in California were integrated by appellant into the automatic train control equipment on its locomotives and thereby became permanent parts of such locomotives although such equipment functions only when the locomotive moves upon the limited mileage that is equipped for its use in controlling the speed. Such equipment is not used on locomotives operating solely in California.
The Issues
In making returns to respondent for sales and use taxes for the two years, appellant inadvertently included the purchase of the above described repair parts and paid taxes thereon in the sum of $2,042.58. A demand for refund of the tax was duly made. Having exhausted all administrative remedies, appellant instituted this action on the grounds that
Respondents contend, on the contrary, that (1) nonuse of the equipment in California is immaterial; (2) it was stored in California and was used to make repairs in this state; (3) section 6009.1, supra, is not applicable as a statute pertaining only to property used “thereafter out of the state,” it being conceded that the trains return to California. The decision of whether the tax was properly chargeable depends upon whether the equipment is a permanent part of the locomotive. If it is not, there is no use in California, hence no use tax. The finding is that the equipment is a permanent part of the locomotive repaired, although it was stipulated that the use of train control repair parts on locomotives operating in interstate commerce is not subject to the use tax. Therefore, this discussion will be confined to the application of the use tax as it applies to the storage and installation of the parts in California prior to the movement of the repaired locomotives in interstate commerce.
The Statutes on Use Tax
Four statutes play an important role. They are sections 6008, 6009, 6009.1 and 6201 as they appeared in the Revenue and Taxation
Referring to the first portion of section 6009.1, appellant argues that “if the automatic train control unit into which the repair parts are integrated is treated as separate from the locomotive to which it is attached, it is clear that such unit is used solely outside the State of California after its transportation out of the state.” Thereby, appellant disregards the findings as to the purpose for which the parts were shipped.
The repair parts had become permanently incorporated into the locomotives. Therefore, the stored parts cannot be exempt from tax under section 6009.1 on the theory that they were imported into California to be incorporated into other tangibles “to be transported outside the State and thereafter used solely outside the State.”
Appellant contends that the time and place of the functional use of the parts so stored among its “90-day” supply and incorporated into its locomotives should be considered. Such interpretation of the taxing statute would require the keeping of records of the time and place of the functional use of each and all of the parts incorporated into and attached to a locomotive and would give rise to interminable difficulties in administering the provisions of section 6009.1.
Appellant contends that in order to make the automatic train control equipment repair parts subject to tax, they must have been purchased with the intention of using them in California and they must be used here. (See § 6201.) The findings §ay nothing to the contrary. They were purchased from a retailer “for the express purpose” of storing them in the California cities to be used “to repair automatic train control equipment installed on some of its locomotives.” Subsequently they were so stored and used in California. They became parts of the locomotives, as permanent as the cowcatcher or headlight. Since they became permanent parts of the locomotive repaired, section 6201 does apply. Also,
The authorities relied upon by the superior court (Southern Pac. Co. v. Gallagher, supra; Pacific Tel. & Tel. Co. v. Gallagher, supra) are not so readily distinguishable as suggested. They held that storage and installation in Cálifornia is sufficiently a local incident, apart from subsequent interstate commerce, to constitute a taxable use under the use tax provision. When 6009.1 was later enacted, the exemption was not worded to exempt property subsequently used in interstate commerce but only exempted property “thereafter used solely outside the state.” These words cannot mean “within” or “without” the state or “in interstate commerce.”
Judgment affirmed.
Fox, J., concurred.
McComb, J., dissented.
Appellant’s petition for a hearing by the Supreme Court was denied May 18, 1955. Schauer, J., was of the opinion that the petition should be granted.
California Sales and Use Tax Law.
Section 6008: “Storage” includes any keeping or retention in' this State for any purpose except sale in the regular course of business or subsequent use solely outside this State of tangible personal property purchased from a retailer.
Section 6009: “Use” includes the exercise of any right or power over tangible personal property incident to the ownership of that property, except that it does not include the sale of that property in the regular course of business.
Section 6009.1: “Storage” and “use” do not include the keeping, retaining or exercising any right or power over tangible personal property shipped or brought into this State for the purpose of subsequently transporting it outside the State for use thereafter solely outside the State, or for the purpose of being processed, fabricated, or manufactured into,# attached to or incorporated into, other tangible personal property to be transported outside the State and thereafter used solely outside the State.
Section 6201: An excise tax is hereby imposed on the storage, use, or other consumption in this State of tangible personal property pur
Finding III. The aforesaid automatic train control equipment repair parts were purchased . . . for the express purpose of bringing them to California, namely, to the cities of San Bernardino and Barstow, for storage in those cities until needed ... to repair automatic train control equipment installed on some of the locomotives employed by plaintiff in its operations.
