Opinion
10-31-1956
The CITY OF LOS ANGELES, a municipal corporation, Plaintiff and Appellant, v. BELRIDGE OIL COMPANY, a California corporation, Defendant and Respondent. * Civ. 21778.
Roger Arnebergh, City Atty., Bourke Jones and James A. Doherty, Asst. City Attys., Los Angeles, for appellant. Wellborn, Barrett & Rodi, Vernon Barrett, F. C. Lowell Head, Los Angeles, for respondent.
The CITY OF LOS ANGELES, a municipal corporation, Plaintiff and Appellant,
v.
BELRIDGE OIL COMPANY, a California corporation, Defendant and Respondent. *
Oct. 31, 1956.
Rehearing Denied Nov. 26, 1956.
Hearing Granted Dec. 24, 1956.
Roger Arnebergh, City Atty., Bourke Jones and James A. Doherty, Asst. City Attys., Los Angeles, for appellant.
Wellborn, Barrett & Rodi, Vernon Barrett, F. C. Lowell Head, Los Angeles, for respondent.
ASHBURN, Justice.
The problem here presented is the extent of liability of defendant for a tax under § 21.166 of the City of Los Angeles License Tax Ordinance No. 77000. On a first trial of the case it was held that defendant was not within the terms of the said section and hence not liable for the tax. The Supreme Court reversed in City of Los Angeles v. Belridge Oil Co., 42 Cal.2d 823, 271 P.2d 5. It was a general reversal. Upon re-trial plaintiff contended that the tax is to be measured by all gross receipts of defendant which are attributable wholly or in part to selling activities conducted within the city of Los Angeles; defendant asserted and now asserts that an apportionment of gross income is necessary as a result of the Supreme Court decision even though the entire amount is partially attributable to Los Angeles activities, and that it should be made according to a certain formula which was worked out at the trial.
Upon the former appeal the Supreme Court was confronted first with a question of construction of the ordinance. Section 21.166 provides: 'Every person manufacturing and selling any goods, wares or merchandise at wholesale, or selling goods, wares or merchandise at wholesale, and not otherwise specifically licensed by other provisions of this Article, shall pay for each calendar year, or portion thereof, the sum of $8.00 for the first $20,000, or less, of gross receipts, and, in addition * * *.' All the facts had been stipulated in the lower court. It appeared that: 'Defendant company is engaged in the production and sale of crude oil and natural gas. All of its wells are located in Kern County which is the scene of all productive operations. The field office of the defendant is located in Kern County while the main office is situated in the city of Los Angeles. Its various products which are marketed under long-term contracts, are delivered to the purchasers directly at the field plants and never enter the territorial limits of the city of Los Angeles.' 42 Cal.2d at page 825, 271 P.2d at page 7. Also: 'Negotiations for the sale of defendant's products are conducted in part at the main office, in part at the offices of purchasers and in part by mail, telegraph or telephone communications between the defendant's main office in Los Angeles and the customer. Defendant company signs all contracts at tis main office.' 42 Cal.2d at page 826, 271 P.2d at page 7. The stipulation itself says: 'Substantially all said sales are made pursuant to the provisions of long-term contracts. All said contracts contain provisions for fixing the prices at which such substances are sold. * * * The contracts abovementioned were negotiated and signed in behalf of defendant solely by its president, vice presidents and secretary. Approximately 15 per cent of the negotiation of said contracts occurred at the head office, approximately 15 per cent thereof occurred in San Francisco, and approximately 70 per cent thereof occurred by telephonic, telegraphic and mail communication between Los Angeles and San Francisco. Said contracts were signed by defendant in Los Angeles and by the buyers in San Francisco.'
In solving this question of ordinance construction in favor of plaintiff the court said: 'Thus all businesses which are engaged in selling goods, wares or merchandise at wholesale in the City of Los Angeles and which are not licensed by other sections of the ordinance come within section 21.166. This is true regardless of whether they are engaged in 'manufacturing and selling' or merely 'selling.' The important thing is that they are engaged in selling within the City of Los Angeles. If they are so engaged, all gross receipts attributable to selling in the City of Los Angeles are subject to the business license tax provided for by section 21.166. The fact that the goods sold are produced in remote areas is unimportant. * * * The important thing is that the taxpayer is engaged in selling goods at wholesale in the City of Los Angeles. * * * The fact that an organization is engaged in selling in the city is sufficient and it is of no import that selling is but a small part of the total effort or that selling is not difficult for the instant company. * * * The purpose of the section was to place a business license tax on those activities which took place within the City of Los Angeles regardless of their relationship to activities outside the city.' (Emphasis added.) 42 Cal.2d at pages 828-829, 271 P.2d at page 9.
The court then addressed itself to defendant's second contention, namely, 'that even if section 21.166 is applicable, the city cannot constitutionally tax the total gross receipts of the company since such would be an attempt to impose a tax on business carried on outside the city.' 42 Cal.2d at page 831, 271 P.2d at page 10. It said: 'This argument is based on the ground that since the total gross receipts include the proceeds of products produced and delivered outside the city the effect would be to allow a city to tax transactions occurring outside its boundaries. This argument seems to lose sight of the nature of section 21.166.
'The business license tax here sought to be collected is a privilege tax, exacted for the privilege of engaging in the activity of 'selling.' When this activity takes place within the city, the rate of tax may be measured by the gross receipts derived therefrom. Union Pac. R. Co. v. City of Los Angeles, 53 Cal.App.2d 825, 830, 128 P.2d 408. As stated by this court in Martin Ship Service Co. v. City of Los Angeles, 34 Cal.2d 793, 796, 215 P.2d 24, 26, 'In view of the recent decisions of the United States Supreme Court in Memphis Natural Gas Co. v. Stone, 335 U.S. 80, 68 S.Ct. 1475 , and Central Greyhound Lines, Inc. [of New York] v. Mealey, 334 U.S. 653, 68 S.Ct. 1260 , the city may clearly tax plaintiffs' local activities and the gross receipts therefrom.' In the case at bar it is true that some of these gross receipts are attributable to extraterritorial elements such as the production and delivery of the goods. However there is no constitutional objection to resorting to extraterritorial elements in determining the rate of tax. Great Atlantic & Pac. Tea Co. v. Grosjean, 301 U.S. 412, 57 S.Ct. 772, 81 L.Ed. 1193 ; Maxwell v. Bugbee, 250 U.S. 525, 40 S.Ct. 2, 63 L.Ed. 1124; Cedar Hill Cemetery Corp. v. District of Columbia, 75 U.S.App.D.C. 84, 124 F.2d 286. The activity being taxed here is the activity of selling and such activity can be taxed by the city even though the goods never enter its territorial limits. Keystone Metal Co. v. City of Pettsburgh, supra, 374 Pa. 323, 97 A.2d 797.
'In the instant case we can find no objection, constitutional or otherwise, to the imposition of a business license tax on the privilege of engaging in selling activities within the city. Likewise there is no objection to basing the rate of such tax on the gross receipts attributable to such selling activities, even though various extraterritorial events contribute to such gross receipts.' 42 Cal.2d at page 831, 271 P.2d at page 10. It is well to emphasize at this point the fact that the court here holds as a matter of constitutional law that the license tax for doing business within the city may be constitutionally measured by the gross receipts 'derived therefrom' or 'attributable to such selling activities'.
Next follows in the opinion a limitation upon the general proposition, so phrased that when applied to the facts developed at the re-trial it gave rise to the controversy presented on this appeal: 'There is, however, one important limitation which should be pointed out and that is this: even though the city can tax the activity of selling it can only base the tax on such selling activities as are carried out within its territorial limits. For this reason it is only those gross receipts which are attributable to selling activities within the city which should form the basis for the rate of tax. Gross receipts attributable to selling activities conducted outside the city should not be included. Such a construction necessarily follows from the fact that the business license tax is on the privilege of engaging in selling activities in the City of Los Angeles and as such should only be based upon such activities. * * * To allow a city to levy a license tax based upon gross receipts attributable to selling activities outside the city would be an unreasonable discrimination and a denial of equal protection of the law. See Ferran v. City of Palo Alto, 50 Cal.App.2d 374, 122 P.2d 965. If such taxation were allowed it would unjustly discriminate against those firms whose selling activities in Los Angeles compose but a small fraction of the total sales effort and whose gross receipts are in large part attributable to selling activities in other areas.' 42 Cal.2d at pages 831-832, 271 P.2d at page 10. Again at page 833 of 42 Cal.2d at page 11 of 271 P.2d: 'In the instant case a just and reasonable construction requires that the measure of the tax be limited to those gross receipts attributable to selling activities within the City of Los Angeles.'
The parties stipulated at the second trial, 'that all of the gross receipts of defendant are attributable in part to its selling activities within the City of Los Angeles and in part to its selling actitivites without the City.' The crux of the present controversy lies in the application of the stipulated facts to these two sentences of the opinion: 'For this reason it is only those gross receipts which are attributable to selling activities within the city which should form the basis for the rate of tax. Gross receipts attributable to selling activities conducted outside the city should not be included.' 42 Cal.2d at page 832, 271 P.2d at page 10. They seem to assume that sales activities within and outside the city of Los Angeles may be separately identified and the gross receipts thus allocated in accordance with the principles previously announced. There were no findings of fact in the record because the appeal arose upon a summary judgment. The stipulation of facts then before the court did not clarify the matter but left open the possibility of separate identification of proceeds of sales made within the city and those made outside its territory.
The word 'attributable' is not a term of art, nor is it used in any such sense in the Supreme Court opinion. Webster's New International Dictionary defines the noun 'attribute' as including the following connotations: '1. That which is attributed; as: * * * A quality considered as belonging to, or inherent in, a person or thing. * * * 4. Logic. Any quality or characteristic which may be predicated of some subject; specif., such a quality or characteristic as belongs to the subject essentially or necessarily.' The idea of immediate relationship, cause and effect, 'fiscal relation,' as appellant phrases it, is expressed by the word 'attributable' in the opinion; it seems to be the equivalent of the word 'derived' in the phrase 'gross receipts derived therefrom' as used on page 831 of 42 Cal.2d, on page 10 of 271 P.2d.
It seems a fair interpretation of the opinion that the language just quoted from page 832 of 42 Cal.2d, page 10 of 271 P.2d means that the Los Angeles tax may be measured by gross receipts attributable wholly or partly to sales activities within that city, and that only those gross receipts should be excluded which are not attributable in any measure to sales activities within that city. The court is here engaged in a discussion of constitutional law, the phrasing of a constitutional limitation upon the constitutional principle just announced, namely, that the city of Los Angeles may measure its business license tax by the entire gross receipts derived from or attributable to sales activities within the city; and there is no basis for inferring an intent to qualify or limit beyond the necessities of constitutional exegesis.
The argument that this would make all gross income taxable again by Kern County does not impair the view just expressed, for Mr. Justice Carter, the author of the Belridge opinion, also wrote Fox Bakersfield Theatre Corp. v. City of Bakersfield, 36 Cal.2d 136, 140, 141, 222 P.2d 879, 882, wherein it is said: 'Taxation, other than of property, upon the same activity or incident for the same purpose by the same taxing agency, more than once in the same period, sometimes called double taxation, standing alone, is not forbidden by the constitutions, state or federal. * * * Our constitution provides that 'all property' in the state except as otherwise provided 'shall be taxed in proportion to its valud'. Cal.Const., art. XIII, sec. 1. And under that provision it has been held that there could be no double taxation of property. * * * 'The mere fact that the state has imposed one excise under one act does not prevent the state from imposing another excise upon the same privilege for the same period. Article XIII, section 1, of the State Constitution, has no application, because that section applies only to property taxes.'' We think the Supreme Court, by its general reversal, left open as a factual question the problem of whether any portion of defendant's sales were not attributable to Los Angeles selling activities, and if so, how much.
When counsel came to applying the opinion to the facts they reached certain stipulations: 'Oral stipulation in open court that the delivery of the goods to a purchaser by the defendant is one of the elements of a selling business and is included in the selling activities of the defendant.
'Oral stipulation in open court that all of the gross receipts of defendant are attributable in part to its selling activities within the City of Los Angeles and in part to its selling activities without the City.
'Oral stipulation in open court that subject to the reservation that the plaintiff, the City of Los Angeles, does not agree that allocation, as required by the Court in its oral opinion of November 16, 1955, is necessary for determining the amount of tax due to the City from the defendant, and without foreclosing any right of the City of Los Angeles to maintain on appeal the position which it has maintained in this Court that there should be no allocation of receipts for purposes of determining the amount of the tax and that the measure of the tax should be defendant's entire gross receipts, the parties hereto stipulate as follows: (a) On the basis of all the stipulated facts, not more than 20% of defendant's total gross receipts for the years 1948 and 1949 are attributable to defendant's business in the City of Los Angeles under any method of allocation which is fairly calculated to determine the defendant's gross receipts derived from or attributable to sources within the City of Los Angeles and to determine the defendant's gross receipts derived from r attributable to sources outside the City of Los Angeles.' Subparagraph (b) is a repetition of (a) except for the substitution of the words 'selling activities' for the word 'business' which appears in (a). Subparagraph (d) reads: 'Based upon the foregoing stipulations, it is agreed that, after allowing credit for all payments made by the defendant to the plaintiff as license taxes for the years 1949 and 1950, there remains due and owing to the City of Los Angeles the sum of $536.43, including both principal and penalties.' The court adopted this formula and rendered judgment against defendants for $536.43. The stipulation as to the formula to be applied if allocation be found necessary was reached at a conference in chambers after the trial judge had ruled as follows: 'Reading from Section 21.190, subsection (d)--and doing so without regard to whether or not that section applies to our instant case in so far as its application is concerned but only for the purpose of considering the matter of how an apportionment should be made--that section provides that, 'Such gross receipts shall be determined by an allocation upon the basis of payroll, value and situs of tangible property, general expenses, or by reference to any of these or other factors, or by such other method of allocation as is fairly calculated to determine the gross receipts derived from or attributable to sources within this city.' That seems a proper method of apportionment and a proper principle to follow.' The stipulation was adequately protected by the express reservation of the contention that there was and is no room for any such allocation. We find in the Supreme Court opinion no basis, either in the words or the reasoning, for the application of the formula which was adopted below.
We conclude that the judgment is erroneous. It is reversed with instructions to enter judgment for plaintiff computed in accordance with § 21.166 for the years 1949 and 1950.
MOORE, P. J., and FOX, J., concur. --------------- * Opinion vacated 309 P.2d 417.