motion to dismiss — National Geographic Society v. Cal. Equalization Bd.

=

ICHAEL RODAK, JR..CLERK

In the Supreme Court of

United States

Ocroser Term, 1975

No. 75-1868

NationaL Geoorapuic Sovtery,

Appellant,

Vv.

Boarp or EQuALIZATION OF THE

Stare oF CALiForNIA,

Appellee.

On Appeal From the Supreme Court of California

Motion to Dismiss or Affirm

EVELLE J. YOUNGER

Attorney General

Ernest P. GoopMan

Assistant Attorney General

Puiuie M. PLant

Deputy Attorney General

6000 State Building

350 MeAllister Street

San Francisco, California 94102

(415) 557-2878

Attorneys for Appellee

SORG PRINTING COMPANY OF CALIFORNIA, 346 FIRST STREET, SAN FRANCISCO #4105

Qe

INDEX

Page

Motion to Dismiss or Affirm .2...0..0000000000..cccccccccceeceeeeeeeeeee 1

I ciel caceleciaeteemiald 2

I ee oat ta ee Se 2

i 4

Bee a ee a eT ee 6

A. The Decision Below Is In Accord With the

I Ge Te I drerientteescteerinteerrecrntcerestoeens 6

B. The “Dissociation” Test Applicable In Measur-

ing the Validity of Excise Taxes the Incidence

of Which Falls Upon Foreign Retailers Is Inap-

posite to the Resolution of the Instant Contro-

I ssciniclicsenitsneretisiictninsianiiniismmnttiioationiiuinnnignutiniaiien 11

C. The Decision of This Court In Miller Bros. v.

Maryland, 347 U.S. 340 (1954) Is Inapplicable

to the Resolution of the Instant Controversy ... 15

D. The Remaining Contentions of Appellant Are

PE IEE inithincnenineiemninitisitimasineemmmnets 18

EE Sen SF AO PR ee LOE RT 24

Appenprxes To Tue Brier

Appendix A: Stipulation of Facts

Appendix B: California Statutes

TABLE OF AUTHORITIES

CasEs

Pages

American Oil Co. v. Neill, 380 U.S. 451 (1965)... 11,14

Bank of America v. State Bd. of Equal., 209 Cal.App.

Be I I nitiiicdihstsiiaitiianstiiskieeein rein ee eee 12

Felt & Tarrant Mfg. Co. v. Gallagher, 306 U.S. 62

Tana”. itinseenddepsbcnnislncseceaeaiapieideschceliaditanaiianeatieblicicatiaceiaa ain 20

General Trading Co. v. Tax Comm'n, 322 U.S. 335

IE . steiieseisceicinasdineeeisddiatieiaiilianla dea ina cas 14, 20

McLeod vy. Dilworth Co., 322 U.S. 327 (1944) 00000000... 13, 14

Miller Bros. v. Maryland, 347 U.S. 340 (1954)

sina aia inciandialeiaiadeaiaiipatia ta aie ogi 2, 15, 16, 17, 23

Nat. Bellas Hess v. Dept. of Revenue 386 U.S. 753

SI Giscsishleaii iste hindi latina ial 2, 6, 10, 18, 19, 23

Nelson v. Sears, Roebuck & Co., 312 U.S. 359 (1941)

hides aaa ect ae 2, 8,9, 10, 19

Norton Co. v. Department of Revenue, 340 U.S. 534

PRUETT -sachsinibitansicicepeiecmiintdsiaeiddiasiiibaadiaiicale tl alate Lie: 11, 12,13

Reader's Digest Association v. Mahin, 255 N.E.2d

458 (1970), cert. den. 399 U.S. 919 10, 22, 23

Seripto v. Carson, 362 U.S. 207 (1960) 00000000... 14, 16, 17, 23

Standard Steel Co. v. Washington Revenue Dept., 419

EE: SIT UD cicsesnidailahianslnithbmassesintanbtieaibinpiaitliaieante 2,8

Wisconsin vy, J. C. Penney Co., 311 U.S. 435 (1940) .. 7,18

TABLE OF AUTHORITIES iil

STATUTE Pages

California Revenue and Taxation Code

RRS canes cre ee her ee ae re

I a etenislseiiniitatnciall 20, 21, 22

AS ae cee as Se a es 21

EA ER I ee 21

BOL EEE ea: ee 3, 20

OrHER AUTHORITIES

SS I a semesnuieienaiils 14

In the Supreme Court of the

United States

October TERM, 1975

No. 75-1868

NationaL Greocrapuic Society,

Appellant,

v.

Boarp oF EQUALIZATION OF THE

Stave or CaLiFrornia,

Appellee.

On Appeal From the Supreme Court of California

Motion to Dismiss or Affirm

Appellee. Board of Equalization of the State of Cali-

fornia, puftsuant to Rule 16 of the Revised Rules of the

Supreme Court of the United States, moves the Court to

dismiss the instant appeal or to affirm judgment of the

Supreme Court of California.

There is no substantial federal question presented as a

basis of jurisdiction inasmuch as the questions have been

foreclosed} by previous decisions of this Court. In this

c

—

regard, the decision of the Supreme Court of California

correctly applies the principles set forth in the cases of

Nelson v. Sears, Roebuck & Co., 312 U.S. 359 (1941), Nat.

Bellas Hess v. Dept. of Revenue, 386 U.S. 753 (1967) and

Standard Steel Co. v. Washingion Revenue Dept., 419 U.S.

560 (1975). The case of Miller Bros. Co. v. Maryland, 347

U.S. 340 (1954), which appellant contends is contrary to the

opinion of the Supreme Court of California herein, is dis-

tinguishable from and not inconsistent with the said

opinion,

QUESTION PRESENTED

Appellant National Geographie Society (hereinafter

“the Society”) has not fairly stated the question presented

herein and has engaged in the wholesale insertion of un-

necessary, irrelevant and argumentative detail in the state-

ment of the said question presented to such an extent that it

has broken a simple straightforward question into four

partial and therefore improper “questions”. The question

presented is the following: Whether the Society's activities

in the State of Calfornia provided sufficient nexus to sup-

port the constitutional imposition of a use tax collection

liability measured by the Society's gross receipts from its

sales of maps, atlases, globes and books from its District

of Columbia and Maryland offices to California residents

during the period from April 1, 1964 to September 30, 1964.

STATEMENT

The statement of facts set forth in the Jurisdictional

Statement is unacceptable to appellee Board of Equaliza-

tion (hereinafter “the Board”) because it states as fact

matters outside the record before this Court, omits relevant

facts and dwells upon other irrelevant facts.

At page 5 of the Jurisdictional Statement, the Society

states as fact the following:

3

“The Society is not registered to do business in the

State of California and does not engage in activities

in the State of California which would require the

Society so to register.”

There is nothing in the record before this Court to show

that the Society is not registered to do business in Cali-

fornia. Moreover, there is an ample record to contradict

the further assertion that the Society does not engage in

activities within the State of California which would re-

quire registration. Thus, as even the Society is forced to

admit, it is a stipulated fact that the Society sold certain

of its maps, atlases, globes and books over-the-counter in

California for a nine month period. Jurisdictional State-

ment, page 7; Stip. Par. 13; CT 27 (11-17). Under Cali-

fornia Law (California Revenue and Taxation Code see-

tion 60667) the Society has clearly engaged in business

during this time.

The Society further deletes from the statement of facts

certain relevant facts which will hereafter be t forth. In

addition, the Society sets forth in detail certain facts per-

taining to its non profit status which have no bearing upon

the resolution of the instant controversy.’

1. References to “stip” embrace the stipulation of facts which

is contained in the Clerk's Transcript on Appeal lodged with this

Court. For convenience, a copy of this stipulation is attached hereto

as “Appendix A”. References to “CT” denote the page number of

the Clerk’s Transcript wherein the referenced matters can be found

with the appropriate line number thereafter indicated in paren-

thesis.

2. At all times relevant hereto, Section 6066 provided in rele-

vant part that “|e]very person desiring to engage in or conduct

business as a seller within this State shall file with the board an

application for a permit for each place of business”.

3. The Society’s character as a non profit, scientifie and edu-

. cational institution is not relevant to the resolution of the instant

controversy. While the Society’s character in this regard is de-

4

STATEMENT OF FACTS

The Society, a District of Columbia corporation, pub-

lishes a monthly magazine known as the National Geo-

graphic Magazine (hereinafter “the Magazine”). Stip.

Pars. 1 and 4; CT 24(31)-25(2), 25(16-21). The Society

also sells maps, atlases, globes and books. Stip. Par. 4;

CT 25(19-21).

The stated objective for organization of the Society is

“the increase and diffusion of geographic knowledge.” Stip.

Par. 4; CT 25(13-21). The scientific and educational in-

formation it obtains is made available to its members and

subscribers through the Magazine, its offerings of maps,

atlases, globes, books and through school bulletins, tele-

vision programs and research reports. Jd.

At all times relevant hereto, the Society maintained two

offices in California—one in San Francisco and the other in

Beverly Hiils. Stip. Par. 12; CT 27(5-9). These offices were

originally staffed with one salesman and one secretary

each, but both offices have since doubled their personnel.

scribed in paragraphs 1 and 3 of the Stipulation of Facts, these

paragraphs were included in the stipulation only at the request of

the Society and are subject to the express reservation of the right

of either party to argue relevancy set forth in the preamble to the

Stipulation of Facts. Stip. p. 1, 11. 28-30; CT 24 (28-30).

In defending this action for refund of the disputed use tax collec-

tion liability, the Board is by no means asserting that the Society’s

objectives are not commendable or worthwhile. The fact remains,

however, that the Society’s character as a non profit, scientific and

educational organization does not entitle it to different tax treat-

ment than would be accorded a private enterprise trying to turn a

profit. Stated in another way the Society’s character is here irrele-

vant because this case will stand as a precedent which will govern

the Board’s treatment of other out-of-state retailers similarly situ-

ated. Such other retailers need not possess the non profit character

of the Society. On the contrary, they will, in the main, be comprised

of profit making retailers eager to escape the requirement of collect-

ing use taxes in order to gain a competitive pricing advantage over

local retailers.

5

Stip. Par. 12 and Footnote 1; CT 27(9-10), 27(27-31). These

offices functioned as bases from which the Society solicited

advertising for the Magazine; however, during the period

from August 1, 1963, through May 6, 1964, the Society

also sold certain of its maps, atlases, globes and books over

the counter from these offices to Californians. Stip. Par.

13; CT 27(11-14).

The Society’s primary method of selling these maps,

atlases, globes and books to California residents was

through orders placed with its Pistrict of Columbia offices.

Stip. Par. 10; 26(21-24). The society advertised offerings

of these items in the Magazine and by announcements

mailed to all members and subscribers. Stip. Par. 10; CT

26(18-21). Forms or coupons were attached to these ad-

vertisements for use in placing orders with the Society.

Stip. Par. 10; CT 26(21-24). These orders were mailed to

the Society’s District of Columbia offices and filled by

postal deliveries of the merchandise to the purchaser from

the Society’s District of Columbia and Maryland offices.

Stip. Par. 10; CT 26(21-27). Payment was either on a cash

with order basis or a later billing basis. Stip. Par. 10; CT

26 (27-29).

Although these advertisements were sent only to sub-

seribers or members, anyone with access to the Magazine

could remove the order coupon and purchase these articles

from the Society. Stip. Par. 11; CT 27(1-4).

During the period from April 1, 1964, to September 30,

1964, the Society sold maps, atlases, globes and books from

its District of Columbia offices to California residents in

the aggregate sum of $83,596.48. Stip. Par. 17; CT 28(10-

14). The Board assessed a use tax collection liability

against the Society measured by these sales and the Society

paid this assessment under protest in the sum of $3,838.76.

6

Stip. Par. 19; CT 28(20-27). The Society thereafter ex-

hausted its administrative remedies and timely commenced

this suit for refund of the sum described above as allowed

by law. Stip. Par, 21; CT 29(3-5).

ARGUMENT

The Question Presented Herein, Having Been Resolved

by Prior Decisions of this Court, is Neither Substantial

Nor Important.

A. The Decision Below Is In Accord With the Decisions of This

Court.

The California Supreme Court held below that the So-

ciety’s activities in the State of California provided suffi-

cient nexus to support the constitutional imposition of the

use tax collection liability imposed upon it by the Board

and measured by the Society’s gross receipts from its sales

of maps, atlases, globes and hooks from its District of

Columbia and Maryland offices to California residents. In

so holding, the Court predicated its finding of sufficient

nexus upon the fact that the Society’s maintenance of two

employee-staffed offices in this State from which it solicited

advertising for the Magazine occasioned it to receive from

California protection and benefits for which California

could ask return and upon the further fact that these

activities were not unrelated to the transaction taxed, It

is shown below that this holding is in comyj.ete accord

with the prior decision of this Court.

The Due Process Clause and the Commerce Clause are

closely related insofar as similar standards have been

applied by the Courts to determine whether state tax laws

are constitutional thereunder. National Bellas Hess v.

Dept. of Revenue, supra, 386 U.S. 753, 756 (1967). These

7

standards are incorporated into a test of nexus or mini-

mum contact between the taxpayer and the taxing jurisdic-

tion which is necessary to support a finding that the tax is

constitutionally imposed. Although the test has been vari-

ously stated, the most workable definition of what consti-

tutes nexus is set forth in Wisconsin v. J. C. Penney Co.,

311 U.S. 435, 444 (1940), wherein the Court noted:

“That test is whether property was taken without

due process of law, or, if paraphrase we must,

whether the taxing power exerted by the state bears

fiscal relation to protection, opportunities and benefits

given by the state. The simple but controlling question

* “is whether the state has given anything for which it

ean ask return.” Jd. at 444.

oe

Applying this definition to the facts of this case, it can

readily be seen that the Society has secured substantial

benefit from its activities within California. By virtue of

the protection conferred by this State, the Society has been

able to establish and maintain employee staffed offices in

San Francisco and Beverly Hills from which to solicit

advertising revenues for the Magazine. In this regard it is

noteworthy that the Society has since doubled its salesmen

and secretaries in both California offices. Further, the very

opportunity of having a market of potential advertisers in

California from whom to solicit business is a benefit con-

ferred by the state insofar as its laws protects them and

permits their continued existence. The net result of these

activities is obviously beneficial insofar as it provides the

Society with advertising dollars from California busi-

nesses.

Certainly the above benefits justify requiring the Society

to collect a use tax on its mail order sales to Californians.

It is asking the Society no more than to bear a fair share

8

of the cost of local government. Indeed, in Standard Steel

Co. v. Wash. Revenue Dept., supra, 419 U.S. 560 (1975),

this Court declared that it “verges on the frivolous” to

contend that a foreign retailer whose only connection with

the taxing state exclusive of U.S. mail and common earrier

was a consulting engineer who worked out of his home

and discussed anticipated needs of customers had not

received anything for which the taxing jurisdiction could

ask return by imposing a business and occupation tax upon

the retailer measured by the gross receipts of its mail

order-common carrier sales. Jd. at 562.

Having found the Society’s activities in California suffi-

ciently substantial to support a finding of nexus under the

aforementioned principles, the California Supreme Court

went on to conclude that the relational requirements estab-

lished by this Court in Nelson v. Sears, Rochuck & Co.,

supra, 312 U.S. 359 (1941), were also met in the instant

ease. In that regard, the California Supreme Court held

that the Society’s sales of maps, atlases, globes and hooks

from its District of Columbia and Marvland offices were

not unrelated to its California solicitation of advertising

for the Magazine insofar as they both constituted a part of

the Society’s business in California, both were remarkably

similar in nature, function and purpose, and both fulfilled

the Society’s fundamental purpose of making the informa-

tion it gathered available to the enhancement of geographic

knowledge generally.‘

4. The Society suggests in the Jurisdictional Statement that the

California Supreme Court upheld the validity of the use tax ecol-

lection liability imposed upon it without regard to whether or not

its advertising soliciting activities had anv connection whatsoever

with the transaction taxed. Jurisdictional Statement at pages 12,

15. This suggestion ignores the Court’s holding as deseribed above.

The Court clearly found the Society's in-state activities were not

dissimilar from its mail order sales and that both were parts of the

9

Nelson v. Sears, Roebuck & Co., supra, 312 U.S. 359

(1941), supports the Court’s ruling as above described. In

that case, this Court upheld the imposition of an Iowa use

tax collection liability upon mail order sales which were

ordered and shipped by mail or common carrier hetween

the Iowa purchaser and the retailer’s out-of-state stores.

The Court based its finding of taxable nexus upon the fact

that the retailer had stores in Iowa from which it made

over-the-counter sales and took orders for shipments of

merchandise from out-of-state branches direct to the lowa

purchasers. The retailer argued that the sales made and

orders placed through its Iowa retail outlets were separate

and distinct from the mail order sales in dispute. In re-

sponse to this argument, the Court observed:

“Respondent [the retailer] cannot avoid that burden

[the disputed use tax collection liabilitv] though its

business is departmentalized. Whatever may be the

inspiration of these mail orders, however they may be

filled, Towa may rightly assume that they are not un-

related to respondent’s course of business in Iowa.

They are nonetheless a part of that business though

none of respondent’s agents in Iowa actually solicited

or placed them. Hence to include them in the global

amount of benefits which respondent is receiving from

Towa business is to conform to business facts.” /4. at

364.

The rule of the Sears case applies in the instant case.

Both cases involve the imposition of a use tax collection

liability upon mail order sales which may rightly be as-

sumed to be not unrelated to the retailer’s other contacts

Society’s overall California business and could not be said to be

unrelated under the guise of departmentalization. In so holding

the Court recognized that under the rule of the Sears case these

activities must be shown not to be unrelated to the Society’s overall

course of business within this State.

10

with the taxing jurisdiction in light of commonly under-

stood facts of business life. In Sears, the existence of the

retail outlets in lowa could be said to contribute to some

unknown extent to the generation of mail order sales, In

the instant case, the Society’s advertising offices provide

revenus for the Magazine which serves as a vehicle through

which the disputed mail order sales are generated and

which lends its prestige to the mail order merchandise

thereby enhancing their salability.

In addition te its compatibility with the Sears decision,

the opinion of the California Supreme Court in the instant

case is consistent with this Court’s holding in Nat. Bellas

Hess v. Dept. of Revenue, supra, 386 U.S. 753 (1967). While

this Court there held that a use tax collection liability could

not be imposed upon an out-of-state retailer whose only

contacts with the taxing jurisdiction were through the use

of common carriers and the U.S. mail, it scrupulously re-

stricted its decision in that regard to retailers who “do no

more than communicate with customers in the State by

mail or common carier as a part of general interstate busi-

ness.” Jd. at 758. It thus suggests that any contacts with

the taxing jurisdiction independent of the use of mails and

common carriers could support the imposition of a use tax

collection liability.

In light of the foregoing, it is respectfully submitted

that the decision below is in full accord with the decisions

of this Court.®

5. While not a decision of this Court, the decision of Reader’s

Digest Association v. Mahin, 255 N.E.2d 458 (1970), with regard

to which this Court denied review in 399 U.S. 919, also supports

the decision below. In the Reader’s Digest ease, the Illinois Su-

preme Court upheld a use tax collection liability imposed by Illinois

upon mail order sales of books and phonograph albums made during

the fourth quarter of 1967. The retailer, Reader’s Digest Associa-

tion, published a monthly magazine (which was exempt from II-

1l

B. The "Dissociation" Test Applicable in Measuring the Validity

of Excise Taxes the Incidence of Which Falls Upon Foreign

Retailers Is Inapposite to the Resolution of the Instant

Controversy

The Society argues in the Jurisdictional Statement that

the California Supreme Court improperly refused to apply

the “dissociation” test set forth in American Oil Co. v. Neill,

380 U.S. 451 (1965) and Norton Co. v. Department of Reve-

nue, 340 U.S. 534 (1951). In advancing this argument, the

Society ignores the fact that the excise taxes before the

linois use tax) in addition to selling books and phonograph albums.

During 1967, the retailer used Illinois advertising media to promote

its sales of the books and phonograph albums. The retailer also

owned two subsidiaries and held a majority interest in a third

corporation all of which had certain contacts with Illimois. One

of these subsidiaries, Reader’s Digest Sales and Service, Inc., so-

licited advertising for the magazine although it also had made

door-to-door sales of phonograph record players and albums for a

time prior to August 1, 1967.

Two grounds were advanced below and reviewed on appeal in

support of a finding a taxable nexus: (1) the retailer’s local adver-

tising supported a finding of nexus; (2) the activities of the retail-

er’s subsidiaries supported a finding of nexus. The Court considered

the first ground and concluded that “certain promotional benefits

were derived throughout the year”. 255 N.E.2d 458, 460. The Court

then considered the second ground but restricted its analysis to the

activities of Reader’s Digest Sales and Services, Inc. With regard

to these activities, it observed:

“Through its solicitors in the State of Illinois, plaintiff

would be liable for use-tax collection on its magazine sales,

absent its exemption. However, this exemption does not extend

to other products, i.e., books and albums, sold to Illinois

residents. Considering the full benefits flowing to plaintiff’s

aggregate business from its resident solicitors and local adver-

tising, we find without further examination of the-other sub-

sidiaries an adequate basis for use-tax liability.” 255 N.E.2d

458, 460. (Emphasis added.)

It is clear that the word “solicitors” underscored in the quote was

intended to describe the employees of Reader’s Digest Sales and

Services, Inc., who solicited advertising for the magazine. Therefore,

this opinion upholds the imposition of a use tax collection liability

on two grounds, one of which was the activities of Reader’s Digest

Sales and Services, Ine., which for purposes of the Court’s analysis

were indistinguishable from the Society’s activities in the instant

case.

12

Court in those cases fell upon the foreign retailers whereas

the use tax collection liability involved in the instant case

falls upon the local California purchaser, This difference

is crucial insofar as stricter standards of nexus are applied

with regard to testing the validity of taxes falling on the

foreign retailer.

It is settled under state law that the California use tax

collection liability has its incidence upon the California pur-

chasers who store, use or consume the products purchased

from foreign retailers. See Bank of America v. State Bd.

of Equal., 209 Cal.App.2d 780, 793 (1962); 26 Cal.Rptr.

348. The foreign retailer is liable only for his default in the

performance of his duty as collection agent of this tax

under California Revenue and Taxation Code section 6203.

Id. at 799.

The significance of the distinction between a use tax

collection liability, the incidence of which is on the local

purchaser, and an excise tax imposed directly upon the

out-of-state retailer itself was recognized by this Court in

Norton Co. v. Dept. of Revenue, supra, 340 U.S. 534 (1951),

where, in passing upon the constitutionality of a gross

receipts tax imposed upon a nonresident retailer, it declared

inapposite cases involving the collection of taxes attri-

butable to the local buyer observing that a state imposing

use taxes can more easily meet the burden of demonstrating

sufficient nexus to support the tax because the impact of

those taxes is on the local buyer or user. In that regard,

the Court said:

“Where a corporation chooses to stay at home in all

respects except to send abroad advertising or drum-

mers to solicit orders which are sent directly to the

home office for acceptance, filling, and delivery back

to the buyer, it is obvious that the State of the buyer

has no local grip on the seller. Unless some local inci-

13

dent occurs sufficient to bring the transaction within

its taxing power, the vendor is not taxable. McLeod v.

Dilworth Co., 322 U.S. 327. Of course, a state imposing

a sales®* or use tax can more easily meet this burden,

because the impact of those taxes is on the local buyer

or user. Cases involving them are not controlling here,

for this tax falls on the vendor.” (Emphasis added.)

340 U.S. at 537.

This distinction is justified because the local buyer or

user has more obvious contracts with the taxing jurisdic-

tion than the nonresident retailer and therefore a tax whose

incidence falls upon such buyers or users is more easily

sustainable. This is a difference in substance and not merely

form. In McLeod v. Dilworth Co., 322 U.S. 327 (1944), the

Court noted:

“.. we are not dealing with matters of nomenclature

even though they be matters of nicety. ‘The state court

could not render valid, by misdeseribing it, a tax law

which in substance and effect was repugnant to the

Federal Constitution, neither can it render uncon-

stitutional a tax, that in its actual effect violates no

constitutional provision, by inaccurately defining it.’

Wagner v. City of Covington, 251 U.S. 95, 102. Though

sales and use taxes may secure the same revenues and

serve complementary purposes, they are, as we have

indicated, taxes on different transactions and for dif-

ferent opportunities afforded by a State.” Jd. at 331.

6. The reference to a “sales” tax at this point is explained by

the fact that some states have sales taxes the incidence of which

falls upon the consumer rather than the vendor. See State and

Local Taxation, John F. Due (1971), pp. 24-26. Illinois (at the

time of the Norton decision) had a sales tax the incidenee of which

was on the vendor and therefore the court was holding inapplicable

decisions involving consumer type sales taxes and use tax collection

liabilities such as are present in this case.

14

Perhaps the best illustration of the effect of this distine-

tion is a comparison of the McLeod case and General

Trading Co. v. Tax Comm’n, 322 U.S. 335 (1944). These

two cases were argued and decided on the same dates and

presented virtually identical facts save and except that

McLeod involved a sales tax upon an out-of-state retailer

and General Trading Co. involved a use tax collection

liability imposed upon an out-of-state retailer. In both

cases the out-of-state corporations were not qualified to do

business in the taxing state and had no office or place of

business there but did solicit orders from its residents by

traveling salesmen. In the McLeod case, the sales tax was

held unconstitutional; in the General Trading Co. case, the

use tax collection liability was upheld. The dissents in both

cases indicate that the majority reached different results

in the two cases solely because of the nature of the tax

imposed.

Similarly, McLeod also can be contrasted with Scripto

v. Carson, 362 U.S. 207 (1960), where on comparable facts,

the court upheld the constitutionality of a use tax collection

liability imposed upon the nonresident retailer. The facts

of these two cases were recognized as indistinguishable in

81 Harv.L.Rev. 69, 216.

Just as the Norton case has been shown to be inapplicable

to the instant controversy, sv is the case of American Oil

Co. v. Neill, supra, 380 U.S. 451. In that case, an Idaho

State Tax Collector imposed an excise tax on an out-of-

state motor fuel dealer. Jd. at 454, 455. The court expressly

adopted the findings of the trial judge that the incidence

of the tax was on the dealer not the local user. Jd. at 456-

457.

15

C. The Decision of This Court in Miller Bros. v. 347

U.S. 340 (1954) Is Inapplicable to the of the

Instant Controversy

The mainstay of the Society’s attack upon the decision

below is that it is “flatly contrary to the holding of this

Court in Miller Bros. Co. v. Maryland, 347 U.S. 340 (1954)”

Jurisdictional Statement, page 1. As is shown below, the

Miller Bros. case is not germane to the question here pre-

sented because the Court’s finding of insufficient nexus in

that case turned upon defects not present in the instant

case,

In Miller Bros. v. Maryland, the court invalidated a

Maryland use tax collection liability imposed with regard

to the sales of merchandise by a Delaware corporation from

its Delaware store to visiting Maryland customers. The

merchandise purchased from the Delaware store was either

handed to the customer over-the-counter or delivered to the

customer’s Maryland address by common carrier or the

vendor’s vehicle. The court in holding the Maryland use

tax collection requirement unconstitutional, noted that it

was uncertain as to whether merchandise sold over-the-

counter was actually transported to Maryland prior to use.

347 U.S. 340, 344.

It is clear from the above that the Court’s holding in

Miller Bros. turned upon a defect in the relationship be-

tween the foreign retailer and the transaction taxed which

is not present in the instant case. This defect was aptly

described hy the court below as follows:

“The court in denying iax liability noted that no

one was liable for a use tax until the merchandise was

imported into the taxing state. When there is an over-

the-counter out-of-state sale, the taxable event, use

occurs only after the sale is complete; the seller has

no control over that use. When discussing Miller Bros.

in Scripto v. Carson, supra, 362 U.S. 207. 212[4 L.Ed.

16

2d 660, 664-665], the Supreme Court declared that it

was impossible for Miller to determine that goods sold

for cash to a customer over the counter at its store in

Delaware were to be used and enjoyed in Maryland.

The use in the taxing state must be certain from the

retailer’s own actions and not just known to him from

other factors. Knowledge is an insufficient connection

to uphold a tax against attack under the due process

clause. (American Oil Co. v. Neill, swpra, 380 U.S. 451,

457 [14L.Ed.2d 1, 6].)” 16 Cal.3d 637, 649-650

In direct contrast, the Society in the instant case shipped

all purchases directly to its California customers inside

California; hence no uncertainty or gaps intervene be-

tween the Society’s activities and the taxable transaction.

In addition to the foregoing, Miller Bros. may be distin-

guished from the instant case insofar as the foreign retailer

in that case did not directly exploit the market of the taxing

State. Thus, the Court in Miller Bros. emphasized that the

Delaware based foreign retailer did not engage in solicita-

tion in Maryland, the taxing jurisdiction, “other than the

incidental effects of general advertising” in Delaware and

that there had been “no invasion or exploitation of the

consumer market in Maryland”, thereby recognizing the

incidental nature of the solicitation of the Marylanders

there involved, 347 U.S. 340, 347. Stated in another way,

the Delaware store did not direct an advertising campaign

specifically against the residents of Maryland; rather, its

general advertising directed to potential customers in the

vicinity of the store spilled over into Maryland as well as

reaching residents of Delaware. Further, the purchasers

did not deal with the store from their residences but had to

leave Marvland and visit the store in Delaware. This situa-

tion prompted the United States Supreme Court in Scripto

17

v. Carson, supra, 362 U.S. 207 (1960), to characterize the

facts of Miller Bros. as follows:

“True, there was an ‘occasional’ delivery of such

purchases by Miller into Maryland, and it did oe-

casionally mail notices of special sales to former cus-

tomers; but Marylanders went to Delaware to make

purchases—Miller did not go to Maryland for sales.”

(Emphasis added.) 362 U.S. 207, 212.

All of the above described factors which led the court in

Miller Bros. to find that there had been no exploitation of

the Maryland market are absent in the instant case. The

Society specifically directed its advertising campaign for

the sales of maps, atlases, globes and books against its Cali-

fornia subscribers. This solicitation was continuous in the

form of repeated advertisements in the Magazine and

mailed announcements sent throughout all periods relevant

hereto. Finally, the Society did not wait for these California

residents to come to its out-of-state stores, but enclosed

with the advertisements mail order coupons which were

completed and sent directly to respondent. It is clear that

under the rationale of the Miller Bros. case the Society has

exploited the California market.

For all the foregoing reasons, the Miler Bros. case is in-

apposite."

7. The case of Montgomery Ward & Co. v. Bd. of Equalization,

272 Cal.App.2d 728 (1969), cert. den. 396 U.S. 1040, cited

by Society ean be distinguished on the same grounds as Miller Bros.

insofar as it involved a California use tax collection liability im-

posed with regard to over-the-counter sales of goods by an out-of-

state retailer from its Reno, Nevada and Klamath Falls, Oregon

stores to customers with California addresses. As the California

Supreme Court below noted, the constitutional defect in the Mont-

gomery Ward case “lay in the lack of certainty between the seller's

activities and the event to be taxed, namely the use”. 16 Cal.3d

637, 649.

18

D. The Remaining Contentions of Appellant Are Without Merit

Althongh it has been shown in the preceding sections of

this brief that the Society’s basic contentions are without

merit, certain points raised by the Society in its Jurisdic-

tional Statement have not previously been touched upon

and will be dealt with below.

The Society argues that the instant case is distinguish-

able from all prior decisions of this Court which held suffi-

cient nexus existed to warrant the imposition of a use tax

collection liability upon a foreign retailer because the “in-

dispensible element” of a local sales activity is missing

herein. Jurisdictional Statement, page 14. This conclusion

is totally at variance with the rationale underlying the

decisions of this Court. As noted earlier, the question of

whether sufficient nexus exists turns upon the question of

whether the taxing State has given anything for which it

ean ask return. Wisconsin v. J. C. Penney Co., supra, 311

U.S. 435, 444 (1940). Obviously, a foreign retailer can

enjoy the benefit of the protection of the local government

of the taxing jurisdiction in the conduct of activities other

than sales activities. It would contradict the logic of the

fairness concept underlying the nexus requirements above

described to say that, while sales related local activities

would be recognized as drawing upon the protection of local

government, all other activities would not. Yet that is what

the Society is asking this Court to do. It is submitted that it

would be folly to entertain the fiction that the Society,

wh.ch has two emplovee staffed offices in California, does

not enjoy benefits for which a return can be asked.

In addition to the logical inconsistency of the Society’s

position, it is evident that such a limitation upon the char-

acter of a foreign retailer’s local activities supporting a

finding of nexus would conflict with the decisions of this

Court. Thus, in National Bellas Hess v. Department of

ee

19

Revenue, supra, 386 U.S. 753 (1967), in holding that a use

tax collection liability could not be imposed upon an out-

of-state mail order retailer whose only contacts with the

taxing jurisdiction were through the use of common car-

riers or the U.S. mail, this Court noted that to conclude

otherwise would be to:

“... repudiate totally the sharp distinction which these

and other decisions have drawn between mail order

sellers with retail outlets, solicitors, or property within

a State, and those who do no more than communicate

with customers in the State by mail or common carrier

as part of a general interstate business.” (Emphasis

added.) 386 U.S. 753, 758.

It is evident from the above that the Court recognized that

a mail order seller with property within a state would sub-

ject itself to taxation upon its mail order sales to the

residents of that state even though ownership of property

does not equate to the sales activities which the Society

suggests constitute an “indispensable element” of nexus.

The Society attemps to distinguish the holding of this

Court in Nelson v. Sears, Roebuck & Co., supra, 312 U.S.

359 (1941) upon the ground that the foreign retailer in that

ease was qualified to do business within the taxing jurisdic-

tion. Jurisdictional Statement, page 18. In that regard, as

noted earlier, the Society has gone outside the record

before this Court to suggest that it was not similarly quali-

fied to do business in California. This suggestion conflicts

with the record insofar it is stipulated that the Society

did sell tangible personal property in California during

the first nine months of the period in controversy and

therefore, pursuant to the presumption that things are

8. McFarland v. Campbell, 213 F.2d 855, 858 (1954).

20

lawfully done,’ it must be presumed that the Society com-

plied with California Revenue and Taxation Code Section

6066 and secured a seller’s permit. Moreover, even if it

were assumed that the Society did not seek a seller’s per-

mit, it should nevertheless be estopped to deny the lack

of having qualified to do business in California in light of

its stipulated admission that it did in fact do business

in this state.

Furthermore, the result reached in Sears would not have

been otherwise if the retailer in that case had not been

registered to do business within that state. Although the

Court there speculated hypothetically that the lack of qual-

ification to do business within the taxing jurisdiction might

result in an inability to tax occasioned by the impotence of

state power, it went on to find that the taxpaver’s local

activities in the taxing jurisdiction were “not unrelated”

to its mail order business. 312 U.S. 359, 364. Thus the court

recognized that the presence or absence of qualification to

do business within the taxing jurisdiction was superfluous

to the conclusion it reached on the facts before it. More-

over, this Court has easily found sufficient nexus to support

the imposition of a use tax collection liability against for-

eign corporations in other cases before it despite the fact

that the corporation was not licensed to do business in the

taxing state. Felt d Tarrant Mfg. Co. v. Gallagher, 306

U.S. 62 (1939); General Trading Co. v. Tax Comm’n., 322

U.S. 335 (1944). It follows that the Society’s arguments in

this regard should be dismissed as irrelevant.

The Society alludes to the fact that the Magazine is

exempt from tax. Jurisdictional Statement, pages 15, 18.

This exemption is conferred as a matter of legislative grace

under California Revenue and Taxation Code 6362 which

exempts the gross receipts from the sale or use of periodi-

cals and their components from sales and use taxation and

21

is not germane to the resolution of the instant controversy.®

Nevertheless, the Society makes reference to this statute

thereby suggesting that it somehow compels this Court to

disregard its California advertising soliciting activities in

passing upon the question of whether sufficient nexus exists

to support the disputed use tax collection liability. This

suggestion is spurious.

In the first place, the periodical exemption contained in

section 6362 does not relate to the Society’s California ad-

vertising soliciting activities. The statute only addresses

itself to the taxability of gross receipts from the sale or

use of tangible personal property. This is eminently logical

because sales and use taxes are only imposed with regard

to the gross receipts from the sale of tangible personal

property or the sales price of tangible personal property

stored, used or otherwise consumed in California, Califor.

nia Revenue and Taxation Code Sections 6051, 6201. Thus,

unless there is a sale or use of tangible personal property,

the event is nontaxable under the Sales and Use Tax Law.

Section 6362, which confers an exemption from sales and

use taxes, must therefore necessarily refer exclusively to

gross receipts from transactions in tangible personal prop-

erty. To hold otherwise would be to construe this statute

as exempting from sales and use taxation transactions

which are not subject to sales and use tax in the first place.

In contrast, the Society’s solicitation of advertising and

subsequent sale of advertising space is a service as opposed

9. California Revenue and Taxation Code Section 6362 provides

in relevant part as follows:

“(a) There are exempted from the taxes imposed by this part,

the gross receipts from the sale of, and the storage, use or other

consumption in this state, of tangible personal property which he-

comes an ingredient or component part of any newspaper or per-

iodieal regularly issued at average intervals not exceeding three

months and any such newspaper or periodical.”

22

to a transaction in tangible personal property. Therefore,

section 6362 does not apply.

In the second place, even if the Society’s California

advertising soliciting activities were declared by some

hypothetical statute to be exempt from state taxation, this

would be irrelevant to the instant controversy. Such a

statute would not affect the determination of whether the

Society had received any benefits from its California

advertising activities for which California can ask a return

under federal constitutional standards of nexus. The Cali-

fornia Supreme Court noted this when it observed:

“The existence of a nexus to tax an interstate trans-

action is a constitutional question. The only relevant

considerations are the contacts between the taxing

state and the person and event to be taxed. The fact

that a state chooses not to tax when it could constitu-

tionally do so does not in any way reduce these con-

tacts with the state. The manner in which the state

chooses to exercise the power does not affect the ex-

istence of the power.” 16 Cal.3d 637, 645,

This point was also made in Reader's Digest Associa ‘on

v. Mahin, supra, 255 N.E.2d 458 (1970), cert. den. 399 U.S.

919. Reader’s Digest involved many facts similar to the

instant case. One such fact was that Reader’s Digest Asso-

ciation published a monthly magazine exempt from taxa-

tion under the Illinois equivalent to California’s periodical

exemption. Despite this exemption, the court held that the

presence of Reader’s Digest Association’s advertising so-

licitors within Illinois could be considered as one basis for

finding sufficient nexus to uphold the taxation of its mail

order sales of books and albums to Illinois residents in the

face of constitutional objections. Thus, the court said:

23

“Through its solicitors in the State of Illinois,

plaintiff would be liable for use-tax collection on its

magazine sales, absent its exemption. However, this

exemption does not extend to other products, i.e.,

books and albums, sold to Illinois residents.” 255

N.E.2d 458, 460.

In light of the above, it is clear that section 6362 is irrel-

evant to the resolution of the instant controversy.

The Society, as a final point, attacks the California Su-

preme Court opinion below as having improperly regarded

the substantiality of the Society’s California business as a

“determining factor” with regard to the validity of the dis-

puted use tax collection liability contrary to the holding of

this Court in Nat. Bellas Hess v. Dept. of Revenue, supra,

386 U.S. 753 (1967). Jurisdictional Statement, pages 23-25.

This point is without merit. The California Supreme

Court’s reference to the substantiality of the Society’s

business in this state was merely intended to demonstrate

that it could not be dismissed as de minimis. This distine-

tion is of critical significance. It has been implicitly recog-

nized in the decisions of this Court that exploitation of the

local market of the taxing jurisdiction is a fundamental

attribute of nexus. E.g., Miller Bros. v. Maryland, supra,

347 U.S. 340, 347 (1954); Seripto v. Carson, supra, 362

U.S. 207, 212 (1960). Therefore, had the volume of the

Society's California business been inconsequential, a find-

ing of sufficient nexus to support the imposition of the

disputed use tax liability would be inappropriate. Clearly,

the Court’s holding in this regard does not run counter

to the Nat. Bellas ITess decision or any other decision of

this Court.

24

CONCLUSION

Wherefore, the Board respectfully submits that the issue

here involved is so unsubstantial as not to need further

argument, and it respectfully moves the Court to dismiss

the appeal or, in the alternative, to affirm the judgment

entered in the case by the California Supreme Court.

DATED: August 17, 1976.

Respectfully submitted,

EVELLE J. YOUNGER

Attorney General

Ernest P. GoopMan

Assistant Attorney General

Purp M, Plant

Deputy Attorney General

Attorneys for Appellee,

Board of Equalization of the

State of California.

(Appendices follow)

APPENDIX

Appendix A

FILED

SEP 14 1973

MARTIN MONGAN, CLERK

By Gerald Gallagher, Deputy

Superior Court of the State of Californa

For the City and County of San Francisco

No. 577928

NaTIoNaAL GEOGRAPHIC SOcIETY,

Plaintiff,

v.

Boarp oF EQUALIZATION OF THE STATE

or CALIFORNIA,

Defendant.

STIPULATION OF FACTS

Ir Is Heresy Stiputatep by and between the parties

hereto by their respective counsel that for the purpose of

trial of the above entitled case the facts hereinafter stipu-

lated are true and correct and may be treated by this court

as facts proven in open court.

This stipulation shall be the sole and exclusive evidence

before the court in the trial of this matter; however, the

parties reserve the right to amend this stipulation of

facts by further and additional stipulations.

It is agreed, however, that this stipulation shall not be

construed as a concession by either party of the relevancy

or materiality of any of the facts stipulated herein and

the parties hereto expressly reserve the right to argue

the relevancy or materiality of any of the facts stipulated

herein to be true.

' 2 Appendiz

1. National Geographic Society (hereinafter “the So-

ciety”) is a non-profit scientific and educational organiza-

tion incorporated in 1888 under the laws of the District of

Columbia with its administrative offices located at 17th

and M Streets, N. W., Washington, D. C.

2. The State Board of Equalization (hereinafter “the

Board”) is the agency of the State of California ~upow-

ered and required to assess and collect liabilities arising

under the Sales and Use Tax Law of California.

3. The Society is exempted as an organization from

the payment of federal income taxes under Interne’

Revenue Code section 501(¢)(3) as amended,

4. The stated objective for organization of the Society

is “the increase and diffusion of geographic knowledge.”

Since 1890 the Society has supported exploration and re-

search projects dedicated to increasing man’s knowledge

of earth, sea, sky and the universe. The scientific and edu-

cational information it obtains is made available to its

members and subscribers through its monthly National

Geographic Magazine (hereinafter “the Magazine”), its

offerings of maps, atlases, globes, books and through

school bulletins, television programs and research reports.

5. The Magazine, the official journal of the Society, is

furnished only to members of the Society except for sub-

scribing schools, libraries, bookdealers and corporations

which represent less than five percent (5%) of total cir-

culation.

6. Membership in the Society is open to all persons.

The majority of such members joined the Society because

they desired to obtain the Magazine. Applications for

membership must be completed and mailed to the Society’s

headquarters in the Washington area. Members presently

pay $7.50 a vear for membership in exchange for which

they receive one year’s subscription to the Magazine.

a ra =

Appendix 3

Members do not become entitled by virtue of their member-

ship status to any other publications or articles of merchan-

dise free of charge (except six month indexes) ; however,

they do have the opportunity to purchase items published

by the Society from its offices in Washington, D. C.

7. Non-member subscribers to the Magazine (the

schools, libraries, bookdealers and corporations referred

to in paragraph 5 above) must pay $9.00 a year and are

primarily restricted to institutions that are not eligible for

individual membership in the Society.

8. As of June, 1972, there were approximately 872,000

member subscriptions and 21,000 non-member subscrip-

tions to the Magazine in California.

9. The National Geographic Magazine is exempted from

the California Sales and Use Tax as a “Periodical” under

California Sales and Use Tax Law § 6362.

10. The Society advertised offerings of maps, atlases,

globes and books in the Magazine and by announcements

mailed to members and subscribers during all periods

relevant hereto. To take advantage of these offerings, an

order form enclosed with the mail announcements or an

order coupon in the Magazine is removed, completed and

mailed to the administrative offices of the Society in Wash-

ington, D. C. Deliveries of such publications are made

through the mail either directly from the Society’s Wash-

ington and/or Maryland offices. Payment for the merchan-

dise ordered is either cash with order or by a mailed billing

following the purchaser’s receipt of the merchandise.

Finally, a small volume of merchandise is sold directly

over the counter in the Washington, D. C. offices,

11. Although these offerings of maps, atlases, globes

and books are made only in the Magazine and in mail

announcements, anyone who removes an order coupon from

the Magazine may order and receive such merchandise.

t Appendiz

12. Since 1956 the Society has maintained two offices

in California. One such office has been on the 10th floor of

the 31 story Russ Building in San Francisco. Until 1965

the other was on the second floor of a two-story building

at 8693 Wilshire Boulevard in Beverly Hills. Each office

was staffed by a manager and secretary.’

13. During the period from August 1, 1963 through

May 6, 1964, maps, atlases, globes and books of the type

described in paragraph 9 were sold to individuals over

the counter from the San Francisco and Los Angeles

offices of the Society totalling a sales’ value as follows:

San Francisco Los Angeles

$679.20 $2,161.85

14. In comparison with local sales as tabulated in the

foregoing schedule, the shipment of maps, atlases, globes

and books exclusive of the Magazine to California Society

members and residents from orders received at the Wash-

ington, D. C. office during the same period totalled a sales’

value of $452,470.00.

15. With regard to the sales of maps, atlases, globes

and books from the San Francisco and Los Angeles offices

of the Society as described in paragraph 13 above, the

offices did not verify whether or not a prospective pur-

chaser was a member of the Society and sales could have

been made to individuals who were neither members nor

subscribers.

16. The Society paid to the Board state and local sales

taxes plus appropriate penalties and interest upon sales

1. In June, 1965, the Los Angeles office was relocated to the

eighteenth floor of the 25-story California Savings and Loan Asso-

ciation Building located at 5670 Wilshire Boulevard, Beverly Hills.

From July 1967 to June 1972, the Los Angeles office has been

staffed by two secretaries. The San Francisco office did not relocate.

In October 1968 it added a salesman. A second secretary was added

in January, 1970.

Appendiz 5

totaling $546.20 described in paragraph 13 above during

the period April 1, 1964 to May 6, 1964. The Society does

not seek refund of these taxes, penalties and interest.

17. At all times other than during the period from

August 1, 1963 to May 6, 1964, no sales were made from the

San Francisco and Los Angeles offices of the Society and

said offices were again restricted in authority and function

to solicitation of advertising for the Magazine.

18. During the period from April 1, 1964 to September

30, 1964 the Society made sales of maps, atlases, globes

and books te California residents from its Washington,

D. C. offices in the manner described in paragraph 10 above

in the sum of $83,596.48.

19. Based upon the sales described in paragraph 18

above, the Society paid under protest a use tax collection

liability as follows:

State and Local

Use Tax Collection

Measure Liability With Interest

Period of Tax and Penaities

4/1 /G4-G6/30/G4 onececceeccsceecnee $45,156.36 $2,085.90

7/1/64-9/3B0/G4 oeceececceeceeceeeoeee 38,440.12 1,752.86

$83,596.48 $3,838.76

20. Two typical issues of the Magazine are attached

hereto, These issues exemplify the Magazine during the

period in question and today. The offerings of maps, at-

lases, globes and books in these issues and the order forms

which constitute a part of such offerings are typical of the

advertised offerings described in paragraph 10 above.

21. The Society has exhausted its administrative re-

medies and has timely brought this action for refund of the

payments described in paragraph 19 above.

22. It is hereby stipulated and agreed by and between

the parties hereto, through their respective counsel, that

this action may be brought to trial at any time prior to

6 Appendir

August 1, 1974 and that the Board hereby waives the pro-

visions of Code of Civil Procedure section 583 up to and

including July 31, 1974.

DATED: September 14, 1973.

For the Eve.Le J. YouNGER,

NATIONAL GEOGRAPHIC Attorney General of the

Society State of California

ArTuur B. Hanson Ernest P. Goopman,

Bernat E. Doseii Assistant Atorney

General

Puuip M. Piant, Deputy

Attorney General

ee

Appendix 7

Appendix B

California Statutes in effect during period in contro-

versy. (Not set forth in Appendix C in Jurisdictional State-

ment. )

California Revenue and Taxation Code Section 6051:

For the privilege of selling tangible personal property

at retail a tax is hereby imposed upon all retailers at the

rate of 24% percent of the gross receipts of any retailer

from the sale of all tangiblé personal property sold at retail

in this state on or after August 1, 1933, and to and including

June 30, 1935, and at the rate of 3 percent thereafter, and

at the rate of 2% percent on and after July 1, 1943, and to

and including June 30, 1949, and at the rate of 3 percent on

and after July 1, 1949, and to and including July 31, 1967,

and at the rate of 4 percent thereafter.

California Revenue and Taxation Code Section 6066:

very person desiring to engage in or conduct business

as a seller within this State shall file with the board an

application for a permit for each place of business. very

application for a permit shall be made upon a form pre-

scribed by the board and shall set forth the name under

which the applicant transacts or intends to transact busi-

ness, the location of his place or places of business, and

such other information as the board may require. The

application shall be signed by the owner if a natural per-

son; in the case of an association or partnership, by a

member or partner; in the case of a corporation, by an

executive officer or some person specifically authorized by

the corporation to sign the application, to which shall be

attached the written evidence of his authority.