31 Wn.2d 739, ED. THYS et al., Respondents, v. THE STATE OF WASHINGTON, Appellant
[No. 30281. En Banc. Supreme Court November 4, 1948.]
ED. THYS et al., Respondents, v. THE STATE OF
WASHINGTON, Appellant.«1»

Respondents rely upon the case of Thys v. Rivard, 25 Wn. (2d) 345, 171 P. (2d) 255, and the same case, on a later appeal, after a retrial, 29 Wn. (2d) 502, 187 P. (2d) 952. In the case cited, the question to be determined was whether or not Rivard, who had purchased an unpatented appliance from respondents, had used the appliance in a hop-picking machine which he constructed and which respondents contended infringed patents controlled by them. The case, on neither appeal, is in point here.

The case at bar concerns complete, patented, hop-picking machines sold by respondents. Of course, the purchasers of the machines bought them to use in harvesting their hops.

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[1] The right to use an article is one of the most valuable elements of a property right therein, and, of Course, this right to use becomes of particular importance in connection with patented appliances. Had respondents sold their hoppicking machines for a fixed amount, without any privision as to the right of the purchaser to use the same, any purchaser would obtain the implied right to use the patented machine for the purpose for which it was constructed, without paying any compensation other than the purchase price. Of course, in such a case, the purchase price would be based not alone upon cost plus profit but would include a sum estimated to compensate for the value of the use of the patented appliance. Ellis, Patent Assignments and Licenses (2d ed.) 552, § 498.

In 2 Walker on Patents (Deller's ed.) 1461, § 366, the rule is stated, as based upon the maxim of the common law, to the effect that anyone granting a thing impliedly grants that without which the thing expressly granted would be useless to the grantee.

Of course, many owners of or dealers in patented appliances frequently fix a selling price for the article and, in addition, provide for the payment to the seller of additional sums for the use of the appliance sold. These payments may be fixed amounts accruing at stated periods or amounts to be determined by the use of the machine.

These principles have been discussed and approved in many cases, including the following:

In Keeler v. Standard Folding Bed Co., 157 U. S. 659, 39 L. Ed. 848, 15 S. Ct. 738, the court said:

"Where the patentee has not parted, by assignment, with any of his original rights, but chooses himself to make and vend a patented article of manufacture, it is obvious that a purchaser can use the article in any part of the United States, and, unless restrained by contract with the patentee, can sell or dispose of the same. It has passed outside of the monopoly, and is no longer under the peculiar protection granted to patented rights. As was said by Mr. Justice Clifford, in Goodyear v. Beverly Rubber Co. (1 Cliff. 348, 354): `Having manufactured the material and sold it for a satisfactory compensation, whether as material or in the form of a

756 THYS v. STATE. [31 Wn. (2d)

manufactured article, the patentee, so far as that quantity of the product of his invention is concerned, has enjoyed all the rights secured to him by his letters patent, and the manufactured article, and the material of which it is composed, go to the purchaser for a valuable consideration, discharged of all the rights of the patentee previously attached to it, or impressed upon it, by the act-of Congress under which the patent was granted.'"

In Henry v. A. B. Dick Co., 224 U. S. 1, 56 L. Ed. 645, 32 S. Ct. 364, Ann. Cas. 1913D, 880, appears the following:

"An absolute and unconditional sale operates to pass the patented thing outside the boundaries of the patent, because such a sale implies that the patentee consents that the purchaser may use the machines so long as its identity is preserved. This implication arises, first, because a sale without reservation, of a machine whose value consists in its use, for a consideration, carries with it the presumption that the right to use the particular machine is to pass with it. The rule and its reason is thus stated in Robinson on Patents, § 824: `The sale must furthermore be unconditional. Not only may the patentee impose conditions limiting the use of the patented article, upon his grantees and express licensees, but any person having the right to sell may at the time of sale restrict the use of his vendee within specific boundaries of time or place or method, and these will then become the measure of the implied license arising from the sale.'

"The argument for the defendants ignores the distinction between the property right in the materials composing a patented machine, and the right to use for the purpose and in the manner pointed out by the patent. The latter may be and often is the greater element of value, and the buyer may desire it only to apply to some or all of the uses included in the invention. But the two things are separable rights. If sold unreservedly the right to the entire use of the invention passes, because that is the implied intent; but this right to use is nothing more nor less than an unrestricted license presumed from an unconditional sale."

The case last cited was modified in the later case of Motion Picture Patents Co. v. Universal Film Mfg. Co., 243 U. S. 502, 61 L. Ed. 871, 37 S. Ct. 416, Ann. Cas. 1918A, 959, L. R. A. 1917E, 1187, but the latter case does not affect the principle referred to in the foregoing quotation.

Nov. 1948] THYS v. STATE. 757

In the case of Bauer & Cie v. O'Donnell, 229 U. S. 1, 57 L. Ed. 1041, 33 S. Ct. 616, Ann. Cas. 1915A, 150, L. R. A. (N.S.) 50, 1185, where it appeared that a patented article had been sold for a fixed amount, with a notice reserving the right to fix the price at which the article might be resold by the vendee, the court held that such a provision was ineffective, saying:

"The packages were sold with as full and complete title as any article could have when sold in the open market, excepting only the attempt to limit the sale or use when sold for not less than one dollar. In other words, the title transferred was full and complete with an attempt to reserve the right to fix the price at which subsequent sales could be made. There is no showing of a qualified sale for less than value for limited use with other articles only, as was shown in the Dick Case. There was no transfer of a limited right to use this invention, and to call the sale a license to use is a were play upon words.

". . . This being so, the case is brought within that line of cases in which this court from the beginning has held that a patentee who has parted with a patented machine by passing title to a purchaser has placed the article beyond the limits of the monopoly secured by the patent act."

There are other authorities to the same effect. It is, of course, true that the authorities above cited all concerned the validity of covenants in a contract of sale of a patentedarticle, restricting the use of the appliance sold, and are not directly in point upon the question here presented. However, the language used by the courts in deciding these cases has some bearing upon the question of whether or not some right on the part of the vendor of a patented machine to receive from his vendee, in addition to the purchase price of the machine fixed by the contract, additional payments for the use of the machine, amounts to a contract to pay royalties, in the technical sense, as used in connection with patent law, or is, on the other hand, when considered from a different point of view, as in the case at bar, a substantial part of the purchase price.

Respondents sold their patented hop-picking machine for a cash price, based, apparently, upon the cost of production

758 THYS v. STATE. [31 Wn. (2d)

plus a maker's profit. Of course, it is possible that respondents were themselves paying license fees or royalties to the holder of a patent or patents covering portions of the machines which respondents sold.

Pursuant to the contract between respondents and the purchaser, the latter obtained title to the machine, subject to the restrictions in the contract above quoted; this without the payment of any amount for the use of the machine. However, the sale of the machine to the purchaser was without the right to use the same, and, to acquire that right, the purchaser agreed to secure from respondents a license to use the machine and agreed to pay therefor certain sums described in the contract and referred to as "royalties." By the contract, the purchaser agreed to pay a fixed sum each year, generally five hundred dollars, whether his machine was used in.the picking of hops or not, and a larger amount if, according to the agreement, the machine picked in excess of a certain number of pounds of hops.

It appears, then, that the difference between the actual sale value of the machine, when used for the purpose for which it was made and bought, and the money actually paid for the machine on delivery, was to be compensated in respondents' favor by the payment of the so-called "royalties."

The "royalties," which, at face value, would exceed the purchase price of the machine, were an important and, to respondents, an essential part of the sale. Apparently, that was almost the entire profit on the deal accruing to respondents.

This action concerns the claim of the state of Washington against respondents for taxes which the state has levied against them. No possible question between respondents and any of their vendees is pertinent to this inquiry. In selling their hop-picking machines, the respondents divided their contracts into two parts, first, the sale of the machine without the right to use it, and, second, the right to use the machine for the purpose for which it was constructed and purchased. There can be no objection to this procedure on the part of respondents; but if, in the light of the statutes

Nov. 1948] THYS v. STATE. 759

of this state providing for the payment of sales taxes and similar exactions, and pertinent legal principles, it appears that all of the sums payable to respondents by the purchaser of the machine are, in fact, payments for the machine, the state is entitled to collect appropriate taxes thereon.

Under the circumstances here shown, the so-called "royalties," in so far as the payment of five hundred dollars a year are concerned, are, in effect, a part of the cost of the machine and of the right to use the same to the purchaser. The minimum payment of five hundred dollars a year (or some other sum) required in any event is, in effect, a payment simply for the right to use the machine and is not based upon any actual use thereof, which right, joined with ownership, results in a complete, unrestricted title to own and use the machine.

By the contracts for the sale and purchase of the machines, the purchaser agreed to pay a fixed price for the machine and further payments of not less than five hundred dollars a year for seventeen years. For the purposes of this case, each contract must be considered by its four corners. While the amount paid by the purchaser at the time of the execution of the contract doubtless fairly represented the cost of the machine and a reasonable maker's profit for the material and work required to build a machine, if taxes upon the amounts to be paid subsequently by the purchaser may be avoided by the method used, a vendor might, by a contract similar in substance, sell a machine, without the right to use it, for much less than its cost, and, by providing for the payment of "royalties," receive the greater portion of the cost of the machine by way of such payments.

The contract between respondents and the purchasers of their machines requires that the purchaser pay all state taxes accruing because of the sale and purchase of the machine.

Of course, situations may easily be imagined in connection with which a royalty paid for use of a machine would have nothing to do with the sale of any property whatsoever. For example, if a citizen of this state should build a machine

760 THYS v. STATE. [31 Wn. (2d)

and be using it, and if it should develop that the machine infringed upon some valid patent, the owner of the patent would be entitled either to stop the use of the machine or receive money by way of a license or royalty, on account of the continued use of the appliance.

In the case a bar, while title to the machine itself passed from respondents to the purchaser upon payment of the purchase price named as such in the contract, the purchaser thereby obtained no more than bare title to the machine, without the right to use it, and respondents, by that portion of the contract, did not receive the value of the machine as a patented article of merchandise. It is reasonable to suppose that the sale of a mechanical device, intended for use, should, and is intended to, not only pass title to the machine but also convey the right to use it in the manner and for the purpose for which it was constructed. While the annual payments reserved to respondents by the contract are therein referred to as "royalties," such payments, together with the so-called purchase price of the machine, are, as a matter of fact, when taken together, the amount paid by the purchaser for the complete and unqualified title to the hop-picking machine purchased.

[2]:: In the case of Klickitat County v. Jenner, 15 Wn. (2d) 373, 130 P. (2d) 880, we said:

"Clearly, the legislature intended that, in any taxable transaction, as in the case of the ordinary and conventional retail sale of personal property, the measure of the tax is to be the cost to the buyer or consumer, and not the cost to the seller."

While the facts in the case cited differ radically from those in the case at bar, the foregoing quotation is pertinent to the situation here presented.

In Philadelphia v. Heinel Motors, Inc., 142 Pa. Super. Ct. 493, 16 A. (2d) 761, appears .the following:

"`The sales tax is imposed on the purchaser or consumer; . . .' The tax being a tax on the purchaser measured by the amount of the purchase, it is clear that the medium of payment agreed upon is immaterial. In other words, when the dealer in automobiles sells two new automobiles, each

Nov. 1948] THYS v. STATE. 761

for the same price, accepting (a) cash from one customer for the automobile, and (b) personal property at an agreed valuation from another customer, either in complete or partial payment of the purchase price, both purchasers ought to pay the same amount of tax since they are buying identical merchandise and have agreed to pay the same price."

If the owner of a patented mechanical device should sell a machine to A for ten thousand dollars cash, with the unrestricted right to use the device, and sell an identical machine to B for six thousand dollars, the contract providing for the payment of "royalties" in the amount of four thousand dollars, it would seem that the same rule for the application of the sales tax should apply to both sales.

In the case of Rotorite Corp. v. Commissioner of Internal Revenue, 117 F. (2d) 245, it appeared that a patentee granted to a manufacturer a license to make appliances covered by the patent, in consideration of the payment of a royalty and an option to purchase the patent, and, in the event that the option was exercised, agreed to apply the royalties previously paid on account of the purchase price. Within the time limited, the grantee exercised the option and purchased the patent. It was held that payments previously made by way of royalties became purchase-money payments, and not royalties taxable as income. In the course of the opinion appears the following:

"It has often been said, `Taxation * * * is eminently practical.' Tyler v. United States, 281 U. S. 497, 503, 50 S. Ct. 356, 359, 74 L.Ed. 991, 69 A. L. R. 758. We must look through the form to the substance of the transaction."

In the case of State ex rel. Attorney General v. Halliday, 61 Ohio St. 352, 56 N. E. 118, 49 L. R. A. 427, the court considered the matter of the taxation of hand telephones and transmitters, which were held by the taxpayer under lease from the American Bell Telephone Company, the lessor holding the title and receiving royalties for the use of the patented appliances. The state levied a property tax against the lessee on account of the value of the telephones, and the question before the court was the determination of the value

762 THYS v. STATE [31 Wn. (2d)

of the appliances for taxation purposes. The taxpayer contended that only the physical value of the instruments should be considered, independent of their use value. It was held that, where an article of tangible personal property is protected by a patent and not on the market for sale, but its ownership retained by the manufacturer and leased, the property in the possession of the lessee should be taxed at its true value in money, including its enhanced value by reason of the patent. In the course of the opinion, the court said:

"The value of the article itself is the same whether it remains in the hands of the owner of the patent or has been sold by him to another. The state should not be required to pause before taxing an article of tangible personal property found in its borders to ascertain whether it was the fruit of some patented process or combination or not. A mowing machine is taxed at its value in money although that value may consist largely of a patented combination. It would be impossible to ascertain what proportion of the entire value was due to the patented combination, and if it could not be taxed upon its entire value it could not be taxed at all. And this is true of all articles the manufacture of which involves the application of any process or combination covered by a patents so that if an article cannot be taxed on the value which-accrues to it by reason of its being patented, a large and valuable proportion of the property in the state will be withdrawn from taxation altogether.

"These views find support in a considerable number of authorities, among which are: Webber v. Virginia, 103 U. S., 344; Commonwealth v. C. D. & P. Telephone Co. 145 Penn. St., 121; Patterson v. Kentucky, 97 U. S., 501, 503."

In 51 Am. Jur. 303, Taxation, § 248, is found the following:

"It is also a long-established rule that a patented article may be taxed as tangible personal property at its full market value, although its value is enhanced by reason of the patent."

Respondents rely upon the opinion of the United States circuit court for the southern district of Ohio in the case of United States v. American Bell Tel. Co., 29 Fed. 17. This matter was presented to the court by way of the telephone company's motion to set aside the marshal's return of

Nov. 1948] THYS v. STATE. 763

service, and a plea in abatement to the jurisdiction of the court over the telephone company. The circuit court sustained the plea in abatement, holding that the American Bell Telephone Company was not doing business in the state of Ohio, and that the court had not acquired jurisdiction over that corporation.

In brief, it appears that the American Bell Telephone Company was a Massachusetts corporation, having its principal place of business in Boston, and owning telephone patents. The company delivered telephone instruments to lessees in Ohio for the consideration of certain rentals or royalties, granting licenses to the lessees to use the company's patented instruments. The telephones were manufactured in Boston and there delivered to the local corporation users, who paid the company in Boston for the use of the instruments. The telephone company reserved title to the telephones, subject to the right of the lessees or licensees to use them, upon making the agreed payments.

The court held that the American Bell Telephone Company was not doing business in the state of Ohio, and that jurisdiction over that company could not be obtained in Ohio by the Federal court by service of process upon its lessees.

In the case at bar, the hop-picking machines were manufactured within the state of Washington, were sold by respondents while the machines were within this state, and the "royalties" due respondents were collected by respondents' agent within this state. The facts in the case cited differ radically from those in the case at bar, and the case is not here in point.

Respondents also cite the case of State ex rel. Cruse v. American Can Co., 117 Colo. 312, 186 P. (2d) 779, in which the supreme court of Colorado held that a certain class of sales made to residents of that state by a foreign corporation, which maintained an office and warehouse in Colorado, were made by way of interstate commerce and were not subject to taxation by the state. It appeared that the sales made were subject to approval at the home office of the corporation, and

764 THYS v. STATE [31 Wn. (2d)

that the goods sold were manufactured without the state of Colorado and delivered to the purchaser at the company's factory. Under the facts upon which the case was decided, the decision is not here in point.

Respondents also cite the case of United States v. Eastern Underwriters Ass'n, 322 U. S. 533, 88 L. Ed. 1440, 64 S. Ct. 1162, in which the supreme court held that insurance contracts between residents of different states constituted interstate commerce, under the constitution of the United States. The facts in the case cited are so different from those involved in the case at bar that the decision is not here in point.

[3] We hold that, under the contracts whereby respondents sold the hop-picking machines within this state, the socalled "royalties" (referring to the payments of five hundred dollars a year, regardless of the use or nonuse of the mchine) are, for the purposes of the statutes of this state providing for the payment of a sales tax, part of the selling price of the machine and taxable as such, and, if respondents were, in fact, within this state engaged in the business of making sales at retail, such reserve payments are a portion of the "gross proceeds" and subject to the business tax, in an appropriate amount. The same is true if respondents are, within this state, engaged in business as a manufacturer, the so-called "royalties" being a portion of the true sale price of the hop-picking machines.

The trial court held that respondents were not subject to the payment of the taxes in question, because they were not doing business in the state of Washington.

It does not appear that respondents ever solicited business in this state. Indeed, the evidence shows that this was unnecessary, as, during the years for which the tax is sought to be collected, the demand for the hop-picking machines was so great that it was impossible to supply the number of machines desired.

[4] It is also true, as contended by respondents, that taxing statutes are, in doubtful cases, to be construed in favor of the taxpayer. Union Trust Co. v. Spokane County, 145 Wash. 193, 259 Pac. 9.

Nov. 1948] THYS v. STATE. 765

Counsel for respondents, in his opening statement before the trial court, said:

"The point in dispute here relates primarily, if not entirely, to whether or not the royalties for the use of the patented hop picking machines are taxable in this state. So far as the three per cent sales tax on what we call the original purchase price of the machine is concerned and the one-fourth of one per cent occupation tax, there is no dispute as to that, nor is there any dispute as to the relatively minor items of repair parts which are manufactured in California and shipped to this state, and which are subject to the three per cent compensating tax, and those taxes have been fully paid. The dispute is as to whether or not the royalties are taxable."

Respondents' contracts with their vendees provide that the vendee shall pay the sales tax.

Laws of 1941, chapter 178, § 2, p. 486 (Rem. Supp. 1941, § 8370-5), reads, in part, as follows:

"(m) The word `business' includes all activities engaged in with the object of gain, benefit or advantage to the taxpayer or to another person or class, directly or indirectly;

"(n) The term `engaging in business' means commencing, conducting or continuing in business and also the exercise of corporate or franchise powers as well as liquidating a business when the liquidators thereof hold themselves out to the public as conducting such business."

[5] In Restatement of the Law of Conflict of Laws 244, § 167, is found the following:

"A foreign corporation can do business through a]i agent.

"Comment:

"a. What constitutes `doing business.' Doing business is doing a series of similar acts for the purpose of thereby realizing pecuniary benefit, or otherwise accomplishing an object, or doing a single act for such purpose with the intention of thereby initiating a series of such acts."

The question of whether a nonresident person or corporation is doing business within the state of Washington frequently arises from different angles, sometimes as to the jurisdiction of the state courts, again as to the assessment of taxes, and, on other occasions, as to the qualification of a foreign corporation to engage in business in this state.

766 THYS v. STATE [31 Wn. (2d)

The application of the term "doing business" is not always the same in the instances mentioned.

In connection with acts which constitute engaging in business in the state, the recent decision of the supreme court of the United States in the case of United States v. Scophony Corp. of America, 333 U. S. 795, 92 L. Ed. 763, 68 S. Ct. 855, is of interest.

Pursuant to the agreement between respondents and Lindeman, the latter constructed the hop-picking machines in this state, under directions from and supervision by respondents, and placed therein appliances and combinations for which respondents controlled patents. Some parts for the machines were furnished by respondents, and the machines were respondents' property and sold by them to the purchasers. From the evidence, it appears that a considerable number of the machines were sold to purchasers residing in this state, who bought the machines for the purpose of using them within the state.

Respondents employed Mr. Gamache as their agent in this state to collect the deferred payments due pursuant to the contracts with the purchasers and, apparently, to check the use of the machines by the purchasers and act as consultant to the purchasers.

Respondents frequently visited Yakima to inspect the machines and to study the processes followed in constructing them, and deposited their money in a bank in Yakima for the purpose of financing all, or a considerable portion, of the work performed by Lindeman. The parts shipped from California by respondents for use in the machines remained, at all times, respondents' property. All offers to purchase machines were subject to the approval of respondents, who signed the contracts at their Sacramento office. The machines were delivered to the purchasers at Yakima, who would acquire their titles to the machines in this state after making the required payments and accomplishing the contracts.

The money received by Lindeman was deposited to respondents' credit in a Yakima bank. The "royalties" due respondents under the contracts were collected by their

Nov. 1948] THYS v. STATE. 767

agent in this state and forwarded to respondents. During the years 1940 to 1944, inclusive, respondents received many thousands of dollars as the proceeds of their transactions in the state of Washington.

In the case of Kernchen Co. v. English, 70 Pa. Super. Ct. 293, it appeared that the plaintiff, an Illinois corporation, was the owner of a patent covering a type of ventilator, a nd had not registered in Pennsylvania as a foreign corporation, thereby becoming entitled to engage in business ln Pennsylvania. The defendants operated a factory in Pennsylvania, and, for several years, had been making ventilators pursuant to orders from the plaintiff, and shipping them to purchasers in Pennsylvania and other states in accordance with plaintiff's directions.

The plaintiff sued defendants for the price of three ventilators alleged to have been sold by plaintiff to the defendants. The appliances were manufactured by the defendants upon plaintiff's order and pursuant to an agreement between the parties. When manufactured, the ventilators were delivered to plaintiff's vendees, with plaintiff's tags attached thereto. Plaintiff fixed the sale price, and the ventilators could not be manufactured or sold by defendants save on plaintiff's order.

In the trial court, a jury rendered a verdict in favor of the plaintiff, and the trial judge set the verdict aside and dismissed the action on the ground that the plaintiff had not complied with the laws of Pennsylvania by registering as a foreign corporation doing business in that state. The trial court held that plaintiff was doing business in Pennsylvania and, because of its failure to register in that state, could not maintain an action before a Pennsylvania court.

On appeal to the superior court, the judgment was affirmed, the court holding that the plaintiff's operations within the state of Pennsylvania did not involve interstate commerce, and that, having engaged in business in Pennsylvania without registering as a foreign corporation, it could not sue before a Pennsylvania court.

768 THYS v. STATE. [31 Wn. (2d)

The business operations conducted by the plaintiff were very similar to the course of business followed by respondents in the state of Washington.

[6] The trial court erred in holding that respondents were not engaged in business in this state. Our conclusion is supported by the following authorities: Grams v. Idaho Nat. Harvester Co., 105 Wash. 602, 178 Pac. 815; Dalton Adding Mach. Sales Co. v. Lindquist, 137 Wash. 375, 242 Pac. 643; State ex rel. Kerr Glass Mfg. Corp. v. Superior Court, 166 Wash. 41, 6 P. (2d) 368; International Shoe Co. v. State, 22 Wn. (2d) 146, 154 P. (2d) 801 (affirmed 326 U. S. 310, 90 L. Ed. 95, 66 S. Ct. 154, 161 A. L. R. 1057); St. Louis Southwestern R. Co. v. Alexander, 227 U. S. 218, 57 L. Ed. 486, 33 S. Ct. 245, Ann. Cas. 1915B, 77; International Harvester Co. v. Kentucky, 234 U. S. 579, 58 L. Ed. 1479, 34 S. Ct. 944.

Respondents rely upon cases in which it has been held that the solicitation of business, sales, or contracts, subject to approval or rejection without the state of Washington, is not doing business within this state. The general principle relied upon by respondents is sound, but, when solicitation of patronage is accompanied by other activities within the state, a different situation is presented.

[7] Respondents also argue that Lindeman was not their agent, but was an independent contractor.

Laws of 1941, chapter 178, § 2, subd. (j) and (k), p. 485 (Rem. Supp. 1941, § 8370-5 (j) (k)), read as follows:

"(k) The term `to manufacture' embraces all activities of a commercial nature wherein labor or skill is applied, by hand or machinery, to materials so that as a result

Nov. 1948] THYS v. STATE. 769

thereof a new, different or useful article of tangible personal property or substance of trade or commerce is produced and shall include the production or fabrication of special made or custom made articles; . . . "

These sections define respondents' situation contrary to their contention.

The trial court erred in awarding respondents judgment against appellant for the recovery of the sums above referred to, which had been paid under protest by respondents. The trial court also erred in reversing, vacating, and setting aside the rulings, orders, and decisions of the tax commission of the state of Washington, from which respondents had prosecuted appeals to the superior court, and in permanently restraining and enjoining the state tax commission from asserting or enforcing tax levies based upon and with reference to hop-picking machine "royalties."

The court also erred in entering the declaratory judgment and decree to the effect that respondents are not and shall not be liable to the state of Washington for any taxes levied with reference to or by reason of the hop-picking machine "royalties," and that respondents were not and are not doing business in the state of Washington.

It appears that the state tax commission had levied certain taxes, in the sum of $238.33, on account of machine parts shipped by respondents from Sacramento to Lindeman, to be used in the manufacture of the hop-picking machines. Respondents contend that this levy resulted, pro tanto, in a double taxation against respondents.

As the questions presented before the superior court were determined by that court contrary to appellant's contentions, with the result that the judgment above referred to was entered, there was no precise determination of the amount due appellant from respondents by way of taxes, in case appellant's contentions were found correct and that respondents were liable to pay taxes by reason of their activities above described.

The judgment appealed from is reversed, and the cause remanded to the superior court, with instructions to reopen the case and, upon the record already made before the

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superior court and such other evidence as may be introduced by either party or both parties, in accordance with the views herein expressed, determine the amount of taxes due the state, for which respondents are liable, based upon the record herein, as amplified by other evidence, if any be introduced.

MALLERY, C. J., STEINERT, JEFFERS, SCHWELLENBACH, and HILL, JJ., concur.

SIMPSON, J. (dissenting) - I am unable to agree with the majority opinion in holding that the contract entered into between respondents and Lindeman Power Equipment Company, as set out on pp. 695 and 696, did not provide for the payment of royalties.