41 Haw. 615 | Haw. | 1957
OPINION OF THE COURT BY
This is an appeal by the tax commissioner of the Territory of Hawaii, hereinafter referred to as the commissioner, from the decision of the tax appeal court in
During the period in question, the taxpayer was engaged in the business of processing and refining oil and selling the resulting products to its customers. These products included oil and gas. It was also engaged in the business of purchasing oil and reselling it to its customers without processing or refining. It held a license issued under the general excise tax law.
Also during the period in question, the gas company was a public utility as defined in section 4701 of the Revised Laws of Hawaii 1945. In addition to doing business as a public utility, it was engaged in business activity other than as a public utility. As a public utility, it was subject to the public utility tax under chapter 106, which is a tax imposed in lieu of all taxes other than income taxes, certain specific taxes and fees, and any tax imposed by the terms of its franchise. With respect to its business other than as a public utility, it was subject to the general excise tax law and held a license thereunder.
The general excise tax law, as set forth in chapter 101 and comprising sections 5441 to 5482 of the Revised Laws of Hawaii 1945, imposes a tax for the privilege of engaging in certain business activities, including manufacturing and the selling of tangible personal property. The tax is measured by the gross income derived from the activity that a taxpayer is engaged in. But different rates are applied to different activities. Under section 5451, all persons who have gross income upon which the .tax is imposed are required to obtain licenses to engage in the activities from which such gross income is derived. Section
This case involves three categories of sales.. These categories, amounts of sales involved, tax rates applied and amounts of tax reported by the taxpayer,. and rates applied and amounts assessed by the commissioner, were as follows:
Category 1. Sales of oil without processing or refining by taxpayer
As reported by As assessed by
taxpayer commissioner
Amounts of sales Rate Amounts of tax Rate Amounts of tax
$ 100,812.14 1% $ 1,008.12 2y2% $ 2,520.30
Category 2. Sales of oil processed or refined by taxpayer
$ 78,768.81 1 y2% $ 1,181.53 2Yo.% $ 1,969.22
Category 3. Sales of gas manufactured by taxpayer
$ 23,320.71 V/o.% $ 349.81 2^% $ 583.02
Tax assessed by the commissioner.................................... $ 5,072.54
Tax reported by the taxpayer .......................................... 2,539.46
Amount of tax in dispute .......................................... $ 2,533.08
The tax appeal court held:
(1) That as to category 1, the taxpayer sold the oil, without processing or refining by it, to the gas company for use in the production of gas which the latter sold in its public utility business through its gas mains in Honolulu and such sales were sales by a wholesaler to a licensed manufacturer to which the rate of one per cent applied.
(2) That as to category 2, the taxpayer sold the oil, after processing and refining it, to the gas company for use in the production of gas which the latter sold in its public utility business through its gas mains in Honolulu
(3) That as to category 3, the taxpayer sold the’ gas manufactured by it to the gas company in containers for use. by the latter in its public utility system in Hilo, with the gas company making virtually no change in the product, and such sales were sales by a manufacturer to a licensed retailer to which the rate of one and one-half per cent applied.
The tax appeal court thereby sustained the position of the taxpayer as to all categories. It is the contention of the commissioner that the rate of two and one-half per cent applicable to every person engaging in the business of selling tangible personal property, other than as a wholesaler or producer, should apply with respect to all categories. However, he interposes no objection to taxing $9,342.38 of category 1 sales at the wholesaler’s rate of one per cent and taxing $7,299.24 of category 2 sales at the manufacturer’s rate of one and one-half per cent. The reason for this concession is that there is evidence in the record that out of the total sales of $179,580.95 in categories 1 and 2, $16,641.62 represented sales of oil from which the gas company derived products which were resold in its non-utility business. The record is devoid of any direct evidence as to what portion of $16,641.62 represented sales by the taxpayer of oil before processing by it and what portion represented sales of oil processed by it. The figures $9,342.38 and $7,299.24 have been derived by allocating $16,641.62 to the two categories on the basis of the total amounts of sales in such categories. Such allocation is supported by the testimony that the oil in both categories was about the same when-received by the gas company, whether it was sold by the taxpayer without processing by it or after being first processed by it. By
We sustain the contention of the commissioner. We hold that the amounts involved in all categories, after the deduction mentioned above, represent sales made by a person engaged in the business of selling tangible personal property to which the rate of two and one-half per cent applies.
As to category 1, the taxpayer did not sell as a manufacturer, for it did not process or refine the oil that was sold. The taxpayer made the sales as a person engaged in the business of selling tangible personal property. Under paragraph (1) of section 5455B, the rate applicable to every person engaging in such business is two and one-half per cent, unless he is a wholesaler or a producer. The rate applicable to a wholesaler is one per cent. The rate applicable to a producer is one and one-half per cent. The taxpayer did not come within the definition of a producer in section 5447. So, the question is whether the taxpayer was a wholesaler. Under section 5446, a wholesaler is a person doing a regularly organized wholesale or jobbing business, known to the trade as such, and he is recognized as a wholesaler only with respect to sales made to a licensed retail merchant, a licensed manufacturer or a licensed contractor. The taxpayer was doing a regularly organized wholesale business. No contention is made that the gas company was either a licensed retail merchant or a licensed contractor. So, the question narrows down to whether it was a licensed manufacturer. In the determination of this question, we confine our inquiry to whether the gas company was licensed, although there is also a question as to whether it was a manufacturer. For, even if we assume that it was a manufacturer, if we reach the conclusion that
Brodhead v. Borthwick involved sales of merchandise by a regularly organized wholesaler to army post exchanges and navy ships’ services for the purpose of resale. Army post exchanges and navy ships’ services were Federal instrumentalities which were not subject to the general excise tax law. For that reason, they were not required to be licensed and did not have any license under such law. Under such circumstances, this court held that they were not licensed retail merchants although they exercised retail functions. In so holding, this court stated, at page
The taxpayer, however, argues that Brodhead v. Borthwick stands only for the proposition that sales of personal property are to be taxed twice and that a sale is taxable at the lower rate if subsequent taxable activity follows. This argument is based on the statement of this court at page 322 that “The exception of ‘wholesalers’ as a class from ‘every person’ as a class affects a natural and reasonable classification of vendors especially where, as here, it
The taxpayer counters such proposition by asserting that the gas company paid the public utility tax which is measured by its gross income from its public utility business, that. such tax is in lieu of all other taxes and is equivalent to the general excise tax, that it thus, in effect paid the further tax on resale and should be considered as “licensed” as that word is used in the general ■ excise tax law. The commissioner answers such assertion by arguing
We are not. at liberty to go beyond the plain meaning of the word used by the legislature merely because of our
The legislature in enacting the general excise tax law was not entirely unaware that inequalities and situations which they failed to foresee might be found in the administration of such law. The senate committee on ways and means of the Eighteenth Legislature reported: “It is recognized that in this, as in the case of all measures which have a broad scope, inequalities are inevitable, nor can every conceivable situation be properly provided for.” (Senate Journal 1935, page 422) If there is any inequality or any situation that was overlooked in the law, it is up to the legislature to make the correction. For this court to do so under the guise of statutory construction is to indulge in judicial legislation which we are prohibited from doing under the doctrine of separation of powers. The following statement of Mr. Justice Brandéis in Ebert v. Poston, 266 U. S. 549, at page 554, in a case involving the construction of the Federal Soldiers’ and Sailors’ Civil Relief Act of March 8, 1918 (40 Stat. 440), is particularly appropriate to the instant case: “The judicial function to be exercised in construing a statute is limited to ascertaining the intention of the legislature therein expressed. A casus omissus
As to category 2, the taxpayer was a manufacturer in fact because it processed and refined the oil before selling it, but it was not taxable as such under the general excise tax law. Under paragraph (1) of section 5455A, manufacturers, who are taxed as such under the general excise tax law, consist of millers and processors of sugar, canneries, and all manufacturers on whose gross income a tax is not otherwise levied under such law. The rate applicable to millers and processors of sugar and canneries is two and one-half per cent. The rate applicable to all manufacturers on whose gross income a tax is not otherwise levied under the general excise tax law is one and one-half per cent.
A manufacturer, in addition to being such, is a seller of tangible personal property with respect to the sales of his products. The language of paragraph (1) of section 5455B, concerning the imposition of the tax on sellers of tangible personal property, is broad enough to cover the sales by a manufacturer of his products.
Thus, the taxpayer, with respect to the sales of oil in category 2 to the gas company, was subject to the payment of the tax as a seller of tangible personal property, unless there is some provision in the general excise tax law to
There are two paragraphs, namely, paragraphs (4) and (5), in section 5455B which relate to the applicability of the tax on selling to the sales by a manufacturer. Paragraph (4) provides that a manufacturer engaged in the business of selling his products at retail shall pay the tax on selling at the retailer’s rate and the value of the products sold by him at retail shall be deducted from the gross income used in measuring his tax as a manufacturer. Paragraph (5) provides that a manufacturer engaging in the business of selling his products to manufacturers, wholesalers, or licensed retailers shall not be required to pay the tax imposed for the privilege of selling such products at wholesale or for the privilege of selling such products for delivery outside of this Territory, and that the gross income from his sales to manufacturers, wholesalers, or licensed retailers and from his sales for delivery outside of this Territory shall be included in the gross income used in measuring his tax as a manufacturer.
We think that paragraphs (4) and (5) are included in section 5455B for the purpose of preventing the imposition of a double tax on manufacturers who sell their products, that is, one on manufacturing and one on selling. That is the only basis on which their inclusion in section 5455B can be explained logically. We construe the word “manufacturer,” as used in paragraphs (4) and (5), to include not only a manufacturer on whose gross income a tax is not otherwise levied under the general excise tax law
As to paragraph (5), here again, if a miller or processor of sugar or a cannery sells its products to manufacturers, wholesalers, or licensed retailers, or for delivery outside of this Territory, a strict application of paragraph (1) of section 5455A and paragraph (1) of section 5455B will result in the imposition of the tax on manufacturing at the rate of two and one-half per cent and another tax on selling at the rate of one per cent in the case of sales to licensed purchasers and at the rate of two and one-half per cent in the case of sales to unlicensed purchasers.
A manufacturer, other than a miller or processor of sugar or a cannery, who sells to manufacturers, wholesalers or licensed retailers, falls within the class of manufacturers on whose gross income a tax is not otherwise levied under the general excise tax law with respect to his wholesale sales and his sales for delivery outside of this Territory because paragraph (5) exempts such manufacturer from the payment of the tax for the privilege of selling at wholesale and for the privilege of selling for delivery outside of this Territory. But with respect to its other sales, that is, sales to unlicensed purchasers and not for delivery outside of this Territory, he does not fall within such class of manufacturers, but is a seller, because paragraph (5) does not exempt such other sales from the tax on selling.
The specific language of paragraph (5) which exempts a manufacturer who sells at wholesale from the tax on selling is that “a manufacturer or producer engaging in
The exemptions from the tax on selling which are provided in paragraph (5) relate to specified classes of sales, namely, wholesale sales and sales for delivery outside of this Territory, made by a specified class of manufacturers, namely, manufacturers engaging in the business of selling their products to manufacturers, wholesalers, or licensed retailers. Thus, the adjectival phrase “engaging in the business of selling his products to manufacturers, wholesalers, or licensed retailers” specifies the class of manufacturers who may be exempt, provided their transactions also fall within the classes of exempt transactions. A manufacturer who sells to unlicensed manufacturers or unlicensed wholesalers falls into the exempt class of manufacturers, but not a manufacturer who sells to unlicensed retailers. The reason for not confining the class to manufacturers who sell to licensed manufacturers, licensed wholesalers, or licensed retailers is understandable. If the class is so confined, the exemption from the tax on selling with respect to sales for delivery outside of this Territory becomes nugatory because such sales are usually made directly to manufacturers and wholesalers outside of this Territory, who are not subject to the general excise tax law and are therefore unlicensed.
As to category 3, the determinative factor is our holding under category 1 that the word “licensed” as used in the general excise tax law means licensed under such law. The tax appeal court ruled that the sales by the taxpayer to the gas company in this category constituted sales by a manufacturer to a licensed retailer. The taxpayer states that such ruling does not necessarily preclude a finding that the gas company was a licensed manufacturer. It is immaterial whether the gas company was a retailer or a manufacturer. In either case it was not licensed. The taxpayer sold to an unlicensed purchaser and so the sales did not constitute wholesale sales. The sales were not made for delivery outside of this Territory. Thus, our conclusion with respect to category 3 is the same as in the case of category 2, that the taxpayer was liable for the tax on selling at the higher rate, and, being so liable, it was not taxable as a manufacturer on whose gross income a tax is not otherwise levied under the general excise tax law.
We have not, up to this point, considered the question as to whether the gas company was a manufacturer for the reason that the fact that it was not licensed was
The decision of the tax appeal court is reversed and the case is remanded to the tax appeal court with direction to enter a judgement in accordance with this opinion.