Motion to Dismiss Appeal — F. & M. Schaefer Brewing Co. v. Gerosa

eae

Supreme Court of the United States

(heroBeR Prim, [ys

No. 526

THE F. & M. SCHAEFER BREWING CO.

App han,

LAWRENCE Bo GEROSAL a. Comptroller

of the City of New York,

Appeal from Final Order of the

New York Court of Appeals

MOTION TO DISMISS APPEAL

Cirsnces th, Tenney,

Sivanney Becuspatn,

Office & PL OL Address,

Municipal Building,

New York 7, N. Y:,

Counsel for App eg .

Menor T. Hearn.

'? Counsel.

|

s Press ( p., 82 Beekman Street, N.Y Beekrian 2-105 )-3] ae ])y

TABLE OF CONTENTS

PAGE

Pumisiiwany STATEMENT... 2... ook ccc cccce cues. 1

StaTUTEs AND ReGuuarions INVOLVED............... 2

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ArGUMENT—The challenge to the constitutionality of

the New York City General Business and Financial

Tax as applied to appellant’s rec*ipts from sales to

out-of-state distributors, where delivery was taken

in the City of New York, does not present a sub-

stantial federal QWGStiOn. .....06.ccccscccscvbeces 7

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ii TABLE OF CONTENTS

Cases Cite2

PAGE

Crew Levick Co. v. Pennsylvania, 245 UU, S, 292

(IDETY coccevvccccsscccccedes<envesvenseeousnses ll

Dahnke-Walker Milling Co. v. Bondurant, 257 U. 5.

QB2 (1DZ1)... ccvcccvcccccvesscccccccscversccens 12

Department of Treasury v. Wood Preserving Corp.,

313 U.S. 62 rere errr errr. ai ee

Furst v. Brewster, 282 U. S. 493 (1931).....--6065. 12

Gloucester Ferry Co. v. Pennsylvania, 114 U.S. 196

(1885) ..ccccsccccvccescccsevcccvcccccvesererers 11

Indiana Dept. of State Revenue v. Bendix Aviation

Corp., Ind, —, 143 N. E. 2d 91 (1957), appeal

dismissed, 355 U. S. 607 (1958)... .... eee eee eeees 7, 10

International Harvester Co. v. Department of Treas-

ury, 322 U.S. 340 (1944)... ..cceeeeevees 3, 7-10, 12, 13

International Textbook Co, v. Pigg, 217 U. S. 91

(1910) ...cccccescccvccovccvccccvcceccssesessees 12

J.D. Adams Mfg. Co. v. Storen, 304 U.S. 307.....-.. 10

Kelley v. Rhoads, 188 U.S. 1 (1903).....-----+ seers 11

McGoldrick v. Berwind-White Co., 309 U. S. 35

RO oo iadiea svar uevepegeeenaetes o> 9

Miles v. Department of Treasury, 209 Ind. 172, 199

N. E. 372, appeal dismissed, 298 U. S. 640........ 10

Minnesota v. Blasius, 290 U.S. 1 (1933)...........- 12

Richfield Oil Corp. v. State Board, 329 U. S. 69

CIDADE ci cntevecdecaseccgteetetsetioeesss cugures 11,12

Sonneborn Bros. v. Cureton, 262 U. S. 506 (1923)... 12

Swift & Co. v. United States, 196 U. S. 375 (1905)... 12

United States v. Simpson, 252 U. S. 465 (1920)...... 12

TABLE OF CONTENTS iil

Statute Cited

PAGE

Civil Practice Act of the State of New York:

NE Pie cuwodunuentaue cca dul yews 2,3

Rule Cited

Comptrcller’s Regulations:

ST EG ik or Ciao eT ERs Ph Oech eae 6

IN THE

Supreme Court of the United States

Octoser ‘TERM, 1958

No. 526

¢

Tue F. & M. Scuarrer Brewine Co.,

Appellant,

v.

Lawrence E. Gerosa, as Comptroller

of the City of New York,

Appellee.

Appeal from Final Order of the

New York Court of Appeals

. os

MOTION TO DISMISS APPEAL

Preliminary Statement

The appellant has appealed from a final order of the

Court of Appea’» of the State of New York dated June 25,

1958, unanimously affirming an order of the Appellate Divi-

sion of the Supreme Court of that State.

The opinion of the Court of Appeals is officially reported

in 4 N. Y, 2d 423 and is set forth in Appendix A of the

appellant’s statement as to jurisdiction. The decision of

2

the Appellate Division is officially reported in 3 App. Div.

2d 898.

By this appeal, the appellant challenges the constitu-

tional validity of the New York City General Business and

Financial Tax, as imposed on it for the privilege of carry-

ing on business within the City, to the extent that the tax

is measured by appellant’s gross receipts from sales to

out-of-state customers where the customers took delivery

within the City of New York. It vontends that the tax,

io the extent that it is measured by such receipts, is

repugnant to the Commerce Clause.

Appellee moves to dismiss the appeal on the ground that

it does not present a substantial federal question.

Statutes and Regulations Involved

The statutes imposing the tax, and the regulations of the

Comptroller of the City of New York issued thereunder,

are set forth in Appendix B of the appellant’s statement

as to jurisdiction.

Statement of the Case

This proceeding was brought under the provisions of

Article 78 of the Civil Practice Act of the State of New

York to annul a determination of the Comptroller of the

City of New York assessing additional general business

taxes for the period between July 1, 1948 and June 30,

1952, in the total principal amount of $28,019.56.

The determination under review was made as the result

of a hearing held by the Comptroller of the City of New

York at which evidence was taken. Appellant appeared,

and was represented by counsel, at such hearing.

Under the practice in New York the administrative hear-

ing constitutes the trial of the issues in the case (Civil

*.

Practice Act, Article 7%). The Getermination issued in

this case as a result of the hearing was first reviewed by

the Appellate Division, First Department, which unani-

mously confirmed it. Upon appeal by appellant to the

Court of Appeals of the State of New York that Court

unanimously affirmed.

The Appellate Division wrote no opinion. The Court of

Appeals wrote an opinion holding the ease to be indis-

tinguishable from Department of Treasury v. Wood Pre-

serving Corp., 313 U.S. 62 (1941), and International Har-

vester Co. v. Department of Treasury, 322 U.S. 340 (1944).

Facts

I

Appellant is a New York corporation with its principal

place of business and brewery at 430 Kent Avenue, Brook-

lyn, New York (fol. 17). {t does a substantial business

with customers in the City and State of New York and is

adinittedly subject to the New York City business tax. The

present controversy relates solely to a portion of its sales;

to wit, those mace to out-of-state distributors where deliv-

ery is made at the local brewery (fols. 68-69, 250-263, Txp’s

Exhs. 1, 20, City’s Exh. B).

Appellant sells its beer directly to retailers, as well as

to wholesale distributors, which in turn sell to retailers

(fols. 91-92). Such distributors are assigned territories

hy appellant in which they are authorized to sell Schaefer

beer, coinciding with the territory granted to the distribu-

tor by the state liquor authorities in the state where the

distributor is licensed to sell beer (fols. 95, 352-355, 396-

397). None of the out-of-state distributors here in ques-

tion are licensed to sell beer in the State of New York

(fols. 246-247, 346-347, 399, 406).

4

The distributors have no corporate affiliation with appel-

lant, and are not limited to distributing Schaefer beer

alone, but distribute the beer of other breweries as well

(fols. 232-233, 353). The distributors acquire the beer from

appellant by outright purchase, not consignment (fol. 233).

Most of the sales to distributors are on open account, terms

net, but there are also some C. O. D. sales (fol. 323, Txp’s

Exh. 24, p. 151).

The sales and deliveries to New York State distributors,

the receipts from which are admittedly taxable in full, are

handled in exactly the same way as the deliveries to the

out-of-state distributors here in issue (fols. 68-69, 264-266).

The sales in question were misdle to distributors in eight

states (Pennsylvania, New Jersey and the six New Eng-

land States) (fols. 532-533}. In every case the beer was

picked up at appeilant’s brewery in Brooklyn by vehicles

and drivers selected by the distributors (fols. 96, 228-229,

239-241, 475-480). Appellant had nothing to do with se-

lecting the method of transportation (fols. 196, 362, 407-

408). The distributors decided what method of transpor-

tation to use and the drivers and carriers admittedly rep-

resented and acted for the distributors, not for appellant

(fols. 239-240, 244-245, 251, 343-344, 363, 388-390).

So far as appellant was concerned its part of the trans-

action was finished when the truck supplied by the dis-

tributor was loaded at the brewery in Brooklyn \ fols. 189-

186, 198-201). Appellant sent no representative along with

the truck, did not reserve title to the beer during transit, -

and had no control over the beer after delivering it to the

truck (fols. 200, 203, 206). Appellant carried no insurance

against loss of the beer during transit, all risk of loss

being on the distributors or their carriers (fols. 359-362,

392-393).

The general practice was for a distributor to put in an

order in advance by writing, telegraphing or calling the

brewery and setting a date for delivery (fols. 92-93). Ap-

pellant’s credit department would review the order and,

if it was approved, would indicate whether it was to be

a cash or credit transaction (fols. 171-175, 324-326, 329,

330-336). The day before the distributor was to eall at

the brewery and pick up the beer appellant’s traffie depart-

ment would prepare four copies of a document ealk 1 a.

‘Delivery Ticket and Invoice’? (one document) showing,

among other things, the number of units of each descrip-

tion ordered by the distributer (fols. 101-104, 176, 186,

Txp’s Exh. 24, p. 150).

When the distributor’s driver arrived at the brewery

with his vehicle to pick up the beer, he \ ~uld show a pick-

up order to appellant’s dispatcher and .eceive from that

individual all four copies of the aforesaid delivery ticket

(fols. 101-103). If appellant’s credit department had indi-

eated **C. O. D.’’ on the ticket the driver would make the

payment prior to picking up the delivery ticket forms (fols.

821-322, 327-328). In all cases, after receiving the papers

the driver would take them to the loading dock or platform

at the brewery, where any empty cases were first unloaded,

and the full cases of beer were loaded on the truck by

appellant’s employees (fols. 179-181).

Prior to the loading, the driver of the truck would hand

the pick-up order and the four copies of the delivery ticket

to one of appellant’s employees called a checker (fols. 101-

103). The checker supervised the actual loading of the

truck, keeping a tally, with the driver, of ‘‘exactly what is

delivered’? (fols. 94, 182-183). When the loading was com-

pleted, the checker entered on the delivery ticket the num-

ber of units delivered; he and the driver signed the deliv-

ery tickets; the driver took one copy; and the driver de-

parted with the truckload of beer (fols. 103-104, 184-188).

6

IV

All the witnesses who testified on the subject stated that

the delivery of the beer was made at the loading platform

of appellant’s brewery in Brooklyn (fols. 185-186, 189-190,

198-204, 234, 251, 255, 268-269, 290-291, 312). Its Assistant

Controller designated this loading platform as the ** point

on the premises of The F. & M. Schaefer Brewing Com-

pany at which beer is transferred from the possession of

The F. & M. Schaefer Brewing Company to the customer

or his agent’’ (fols. 203, 316-317).

Vv

The distributors picked up the beer in a number of ways.

Some used their own vehicles, or vehicles leased to them,

and operated by their own employees (fols. 429-433).

Others used rotor vehicle contract carriers and still others

used motor vehicle common carriers (fols. 433-424). The

precise amount of sales falling in each of these categories

was established at the hearing on the basis of question-

naires which appellant sent to the distributors (fols. 430-

440, Txp’s Exhs. 39 and 40).

Based on this data, the Comptroller in the final deter-

mination eliminated the additional tax on receipts from

sales where the distributors used common carriers to pick

up the beer (fols. 529-534). This allowance was made in

accordance with the last paragraph of Article 209 of the

Comptroller’s Regulations, quoted at page 23 of the appel-

lant’s statement as to jurisdiction.

Thus the final determination treats all appellant’s re-

ceipts trom sales to out-of-state distributors, where the

beer was picked up at its brewery in Brooklyn, as fully

taxable, except that where such a distributor used a com-

mon earrier the receipt is treated as allocable.

~*~

<

ARGUMENT

The challenge to the constitutionality of the New

York City General Business and Financial Tax as ap-

plied to appellant’s receipts from sales to out-of-state

distributors, where delivery was taken in the City of

New York, does not present a substantial federal ques-

tion.

This case is indistinguishable from Department of Treas-

ury Vv. Wood Preserving Corp., 313 U.S. 62 (1941), and

International Harvester Co. v. Department of Treasury,

322 U.S. 340 (1944).

The issue is not novel or unsettled, and the decision of

the Court of Appeals of the State of New York is not in

conflict with any decision of this Court. In faet it is ex-

pressly and wholly based op the aforesaid two decisions of

this Court, together with the reeent decision in Indiana

Dept. of State Revenue v. Bendix Aviation Corp., Ind. ,

143, N. EB. 2d 91 (1957), appeal dismissed 355 U. S. 607

(1958).

I

This Court has established that, ror tax purposes, a

sale of goods in whieh delivery is taken hy the purchaser

within the state of the seller is a local or intrastate trans-

action, the receipts from which are taxable in full by the

state of the seller. The sale is not transformed into an

interstate transaction simply because the parties intend

that the purchaser w'!l transport the goods out of the state

after taking delivery of them or because the purchaser

does in fact transport them out of the state. For purposes

of a tax on the gross receipts of the seller, such transpor-

tation by the purchaser is deemed separate and distinct

from the sale.

8

In Department of Treasury v. Wood Preserving Corp.,

313 U.S. 62 (1941), the transactions in question were sales

of untreated railroad ties by the Wood Preserving Cor-

poration to the Baltimore and Ohio Railroad Company.

The contracts called for the ties to be delivered f. 0. b.

ears on the purchaser’s railroad tracks at loading points

in Indiana for transportation to a ereosoting plant in Ohio.

The practice was for a representative of the purchaser

to inspect and accept the ties at the loading points in In-

diana. The seller would then load them upon the pur-

chaser’s ears consigned to the purchaser at the Ohio plani.

The railroad company (purchaser) then carried the ties

to Chio at its own cost.

The seller, Wood Preserving Corporation, was held to

be subject to the Indiana gross income tax on its receipts

from these sales, without apportionment of any kind, the

tourt saying (313 U.S., at p. 68):

‘‘These were local transactions—sales and deliver-

ies of particular ties by respondent to the Railroad

Company in Indiana, The transactions were none the

less intrastate activities because the ties thus sold and

delivered were forthwith loaded on the railroad cars to

go to Ohio for treatment.”

That the parties intended the ties to be transported out

of the state immediately upon their sale and delivery to the

railroad company appears from the fact that at the time

of the sale the railroad company was under contract to de-

liver the ties so purchased to a plant in Ohio operated by

a subsidiary of the seller for creosoting treatment.

International Harvester Co. v. Department of Treasury,

399 U.S. 340 (1944), involved sales by Indiana branches of

the Harvester Company to purchasers (dealers and users)

located outside of Indiana, under contracts ealling for the

9

purchasers to pick up the articles at the Indiana branch.

The opinion designates these as ‘*Class D’’ sales. The tax

Was disputed on the ground that the purchasers trans-

ported the articles out of Indiana immediately upon taking

delivery.

In sustaining the Indiana gress income tax on the Har-

vester Company's receipts from these sales the Court cited

and followed the Wood Preserving ease. It referred to

McGoldrick v. Berwind-White Co., 309 U.S. 33 1946),

and said (322 ULS., at pp. 345-346) :

“Under the principle of that ease, a buyer who ae-

cepted delivery in New York would not be exempt

from the sales tax because he came from without the

State and intended to return to his home with the

goods, The present tax, to be sure, is on the seller.

But in each a local transaction is made the taxable

event and that event is separate auc distinet from the

transportation or intercourse which is interstate

commerce. **

The Harvester case establishes thai such a sale is tax-

able even though the subsequent removal of the goods from

the state by the purchaser is certain (322 U. S., at p. 345).

Appellant in the present ease contends that the beer it

-old was certain to leave the state because the distributors

purchasing it had no license to sell it in this state. Essen-

ually the same contention was made and rejected in the

Harvester case.

Most of the sales involved in this phase of the Harvester

ease were made by Indiana branches to retail dealers who

had been assigned specific selling territories outside of

Indiana and who were not permitted, under their contracts

with the Harvester Company, to make sal@s in Indiana of

Harvester Company preducts (322 U. S. 340; Record at

10

pp. 27-30, 32, 45, 50, 58-59, 68-69). The goods purchased

by such dealers in Indiana could only be resold outside of

Indiana, just as the beer purchased by appellant’s dis-

tributors could only be resold outside of New York.

The tax in the present case is further sustained by the

recent case of Indiana Department of State Revenue v.

Bendiz Aviation Corp., Ind. — , 143 N. E. 2d 91 (1997),

dismissed for want of a substantial federal question, 500

U. S. 607 (1958). In that case the Indiana gross income

tax was held valid as applied to a company’s receipts from

sales of articles manufactured by it in Indiana, where the

articles were delivered to the purchaser’s carrier at the

taxpayer’s Indiana plant, consigned to points outside of

the state.

The New York Court of Appeals stated that * [in]

purpose and in language’ the similarity between the In-

diana tax, involved in the foregoing cases, and the New

York City tax ‘‘could hardly be more comp! te’’ (4 N. Y.

2d, at p. 428). Jt noted that the Indiana tax was imposed

on ‘‘the gross receipts * * * received from trades, busi-

nesses, or commerce,’’ whereas the New York City tax is

on ‘‘all receipts received * * * from * * * trade, busi-

ness or commercial activity’’ (7d.).

The New York Court of Appeals further held that the

taxes were not different simply because the New York City

tax contains a provision describing it as a tax on ‘*the

privilege of carrying on business’’, particularly since, as it

noted (id.), this Court, and the Indiana state coun:, had

described the Indiana tax as ‘‘a privilege tax’’ in Inter-

national Harvester Co. v. Department of Treasury, $22

U. S. 340, 345; J. D. Adams Mfg. Co. v. Storen, 304 U. 5.

307, 311; and Miles v. Department of Treasury, 209 Ind.

172, 188, 199 N. E. 372, 379, appeal dismissed 298 U. 5.

640.

11

The appellant, at pages 8-10 of its statement as to juris-

diction, asserts that the New York Court of Appeals in this

ease adopted a new construction with regard to the nature

of the New York City tax. There is no basis for this view.

The Court of Appeals simply held that the New York City

tax was the same as the Indiana tax in that both are im-

posed on persons engaged in business in their respective

jurisdictions, for the privilege of carrying on business,

measured by the gross receipts from such business. There

is no ground for differentiating the taxes on the basis of

their purpose or terms.

The nine eases on which appellant appears principally

to rely (statement as to jurisdiction, p. 6) have lite per-

tineney.

Four are tax cases. Crew Levick Co. v. Pennsylvania,

245 U.S. 292 (1917) ; Gloucester Ferry Cu. v. Pennsylvania,

114 U.S. 196 (1885); Welley v. Rhoads, 188 U.S. 1 (1903) ;

Richfield Ol Corp. v. State Board, 329 U. S. 69 (1946).

In the Crew Levick case a tax on gross receipts was held

invalid as applied to receipts of a wholesale merchant from

sales to customers in foreign countries, where the goods

were ‘‘shipped direct by plaintiff in error from its ware-

house in Pennsylvania to its customers in the foreign coun-

tries’? (p. 293). The present plaintiff made no such out-

of-state shipments.

Fs

In the Gloucester Ferry and Rhoads eases taxes were

held invalid as applied, respectively, to an interstate ferry

and to sheep moving in interstate commerce. The factual

situations were totally unlike the facts in the present case.

In the Richfield Oil-case a state tax was held invalid

under the Import-Export Clause as applied to a sale of oil

for shipment abroad. This Court held that the Woo Pre-

12

serving and Harvester cases did not apply because they

involved the Commerce Clause, whereas the Richfield Oil

case involved the Import-Export Clause, and ‘‘the limita-

tions of one cannot be read into the other’’ (329 U.5., at

pp. 74-76).

Three of the cases relied on by appellant are state quali-

fication cases. International Textbook Co. v. Pigg, 217

U. S. 91 (1910) ; Daknke-Walker Muling Co. v. Bondurant,

957 U. S. 282 (1921); and Furst v. Brewster, 282 U. S.

493 (1931). Such cases have no application in a tax case

since they are ‘‘not concerned with the power to ‘e

[Sonneborn Bros. v. Cureton, 262 U.S. 506, 514 (1923)].

That these cases have no bearing in the present case is

borne out by the fact that the Pigg and Dahnke-W alker

cases were unsuccessfully relied on by the taxpayer in the

Wood Preserving case (313 U. S. 62, Respondent’s Brief,

pp. 68-77), and that the Pahnke-Walker case was cited

without success by the taxpayer in the Harvester case (322

U. S. 340, Appellant’s Brief, pp. 25-27). |

One of the remaining two cases relied on by appellant

(Swift & Co. v. Umited States, 196 U. S. 375 [1905]), in-

volved federal regulation of a stockyard. It was later

aligned with Dahnke-Walker, and other regulation cases,

as inapplicable in tax cases. Minnesota v. Blasius, 290

U. S. 1, 7-8 (1933).

The ninth case cited by the appellant (United States v.

Simpson, 252 U.S. 465 [1920]), was a decision sustaining

the validity of an indictment of an individual under a fed-

eral prohibition act for transporting five quarts of whiskey

for his own use across state lines. Such a case has no

_ relevancy here. .

| IV

Appellant’s assertion that the tax.subjects it to the risk

of multiple taxation is groundless, The tax is imposed on

a transaction of sale in which the agreement to sell was

made in the City of New York and the delivery also took

place there. No jurisdiction outside of the State of New

York has the power to impose a similar tax on such a

transaction.

The identical contention was made and rejected in Inter-

national Harvester Co. v. Department of Revenue, 322

U. S. 340, 348-349 (1944).

CONCLUSION

The appeal to this Court from the order of the Court of

Appeais of the State of New York should be dismissed.

December 4, 1958.

Respectfully submitted,

Cares H. Tenney,

STANLEY Bucuspaum,

Counsel for Appellee.

Morris L. Heatu,

Of Counsel.