56 Wn.2d 738, EDGAR J. GALVIN et al., Respondents, v. THE STATE TAX COMMISSION et al., Appellants
[No. 35483. En Banc. Supreme Court September 15, 1960.]
EDGAR J. GALVIN et al., Respondents, v. THE STATE TAX
COMMISSION et al., Appellants.«1»

[1] CONSTITUTIONAL LAW - PERSONS ENTITLED TO RAISE CONSTITUTIONAL QUESTION. Out-of-state tobacco wholesalers shipping tobacco products to ultimate consumers in the state had no standing to challenge the validity of the tax of twenty-five per cent of the wholesale sales price of these products imposed on such wholesalers by Laws of 1959, Ex. Ses., chapter 5, where the State Tax Commission had made no attempt to collect the tax from such wholesalers, and they were, therefore, in no way discriminated against by the enforcement of the tax.

[2] TAXATION - CONSTITUTIONAL REQUIREMENTS - EQUALITY AND UNIFORMITY - DISTINCTION - VALIDITY. A wholesale tobacco dealer doing business within the state was not unjustly discriminated against because Laws of 1959, Ex. Ses., chapter 5, imposed such a tax upon the dealer but did not purport to tax tobacco products being purchased by resident consumers outside the state either by mail order or actual purchase; since the distinction between ultimate consumers who purchase tobacco products in interstate commerce for their own use, and those manufacturing or bringing into the state such products for sale, is a reasonable one, and does not render the statute unconstitutional.

[3] CONSTITUTIONAL LAW - PERSONS ENTITLED TO RAISE CONSTITUTIONAL QUESTION. Out-of-state tobacco wholesalers shipping tobacco products both to consumers and retailers within the state were not affected in any manner which presented a constitutional or justiciable issue by that portion of Laws of 1959, Ex. Ses., chapter 5 which imposed a "floor stocks tax," of twenty-five per cent of the wholesale sales price of certain tobacco products that every distributor of tobacco had on hand on the effective date of the act, where no attempt had been made to impose this tax on such out-of-state wholesalers.

[4] TAXATION - CONSTITUTIONAL REQUIREMENTS - EQUALITY AND UNIFORMITY - DISTINCTION - VALIDITY. Wholesale tobacco dealers doing business within the state were not affected by such "floor stocks tax" in any manner that presented a constitutional or justiciable issue, notwithstanding that the provisions of the act did not include stocks held by retailers on the effective date of the act, where the State Tax Commission had enforced the tax against such retailers.

«1» Reported in 355 P. (2d) 362.

[2] See Ann. 89 A. L. R. 1435, 110 A. L. R. 1487; Am. Jur., Sales and Use Taxes, § 6.

Sept. 1960] GALVIN v. STATE TAX COM. 739

Appeal from a judgment of the Superior Court for Thurston county, No. 31454, Raymond W. Clifford, J., entered December 21, 1959, upon findings in favor of the plaintiffs, in an action for a declaratory judgment. Reversed.

The Attorney General, John W. Riley and Henry W. Wager, Assistants, for appellants.

Monheimer & Schenner (John M. Schermer, of counsel), for respondents.

PER CURIAM. -

This is an action brought to test the constitutionality of the "Tobacco products" tax, being §§ 11 through 21 of chapter 5, Laws of 1959, Ex. Ses., p. 1671.

The tax is twenty-five per cent of the wholesale sales price, and is upon the sale, use, consumption, handling, or distribution of tobacco products as defined by the act (cigars are included; cigarettes excluded).

      The tax is to be paid by dis- The tax is imposed at the
      tributors, defined as,           time when the distributor,
"(a) any person engaged in the      "(a) brings, or causes to be
      business of selling tobacco      brought, into this state
      products in this state who      from without the state
      brings, or causes to be          tobacco products for sale,
      brought, into this state from
      without the state any to-
      bacco products for sale,
"(b) any person who makes,           "(b) makes, manufactures, or
      manufactures, or fabricates      fabricates tobacco prod-
      tobacco products in this state ucts in this state for sale
      for sale in this state,          in this state, or
"(c) any person engaged in the      "(c) ships or transports tobacco
      business of selling tobacco      products to retailers in
      products without this state      this state, to be sold by
      who ships or transports to-      those retailers."
      bacco products to retailers in
      this state, to be sold by those
      retailers;"

It is stipulated that cigars and other tobacco products covered by the act are being purchased by ultimate consumers within the state of Washington, either by mail orders or by actual purchase beyond the state, and that no provision is contained in the act imposing payment

740 GALVIN v. STATE TAX COM. [56 Wn. (2d)

upon the ultimate consumer or the without-the-state distributor from whom he purchases.

It is stipulated further that no attempt is made to collect the tax from distributors in the "(c)" classification, supra, unless they voluntarily register with the tax commission and pay the tax.

Plaintiffs are a wholesale tobacco dealer doing business in Renton, Washington (a class "(a)" distributor), and two out-of-state (Oregon) tobacco dealers doing business as H. F. Smith Company (a class "(c)" distributor), and shipping both to ultimate consumers and retailers in the state of Washington. They seek to have the tax declared unconstitutional and the state tax commission restrained from collecting it. The trial court granted the relief requested, and the tax commission appeals.

[1] The class "(c)" out-of-state plaintiffs have no standing to challenge the validity of the tax, as they do not pay it, and no attempt is being made to collect it from them. The out-of-state plaintiffs are in no way discriminated against by the enforcement of the taxing statute. If and when the tax commission attempts to collect the tax on the sales of tobacco products by the out-of-state plaintiffs to ultimate consumers or retailers in the state of Washington, a constitutional issue could be raised, but not upon the facts now before the court. King County v. Port of Seattle (1950), 37 Wn. (2d) 338, 350, 223 P. (2d) 834.

[2] The class "(a)" plaintiff, likewise, has no basis for complaint so far as the continuing tax is concerned. All tobacco products brought into the state for sale are subject to the tax; any wholesaler or any retailer who brings or causes tobacco products to be brought into the state from an out-of-the-state source becomes liable for the tax when such tobacco products are brought into the state. The only claim of discrimination which the class "(a)" plaintiff can justifiably make is that the ultimate consumer can buy his cigars and other tobacco products outside of the state, and that no tax is paid on the sale, use, consumption, handling, or distribution of such tobacco products.

This is but the recognition of a practical problem of

Sept. 1960] GALVIN v. STATE TAX COM. 741

collection and enforcement: a tax net which permits small fish to escape may still be constitutional. The distinction between ultimate consumers, who purchase tobacco products in interstate commerce for their own use, and those manufacturing or bringing into the state tobacco products for sale, is a reasonable one, and does not render the statute unconstitutional. Texas Co. v. Cohn (1941), 8 Wn. (2d) 360, 112 P. (2d) 522; State v. Hart (1923), 125 Wash. 520, 217 Pac. 45; State Board of Tax Com'rs v. Jackson (1931), 283 U.S. 527, 51 S. Ct. 540, 75 L. Ed. 1248, 73 A. L. R. 1464. As we said in Texas Co. v. Cohn, supra (pp. 386, 387),

"A state legislature has very broad discretion in making classifications in the exercise of its taxing powers. A classification of commodities, businesses, or occupations, for excise tax purposes, under which the classes are taxed at unequal rates, or one class is taxed and another is exempted, will be upheld as constitutional if it is not arbitrary nor capricious and rests upon some reasonable basis of difference or policy. . . . Classification may also be permissible if it is reasonably related to some lawful taxing policy of the state, such as greater ease or economy in the administration or collection of a tax, the selection of a fruitful source of revenue with the exemption of sources less promising, or the equalization of the burdens of taxation. If any such reasonable basis for the classification exists, or conceivably may exist, then the circumstance that there is competition between a commodity or business which is taxed and some commodity or business which is not taxed, does not materially affect the validity of the classification."

The statute providing for a tax on the sale, use, consumption, handling, or distribution of tobacco products also provides for what is termed a "floor stocks tax," and it presents quite a different problem. It was included in the act to prevent wholesalers and retailers from laying in a large supply of tax-free tobacco products before July 1, 1959, the effective date of the continuing tax. By it, the legislature imposed upon every distributor of tobacco products a tax of twenty-five per cent of the wholesale sales price on each tobacco product in his possession on July 1, 1959.

742 GALVIN v. STATE TAX COM. [56 Wn. (2d)

[3] No attempt was made to impose this tax on class "(c)" distributors; so again our class "(c)" out-of-state plaintiff has no grounds for complaint.

[4] It will be noted, however, that class "(a)" distributors includes any person

". . . engaged in the business of selling tobacco products in this state who brings, or causes to be brought, into this state from without the state any tobacco products for sale." (Italics ours.) This definition presents no problem so far as the continuing tax is concerned, as the tax is imposed when either a wholesaler or retailer brings tobacco products into the state for sale. However, as far as the "floor stocks tax" is concerned, it leaves retailers who had tobacco products in their possession on July 1, 1959, which they had not brought into the state (i.e., which they had purchased from an in-state wholesaler), beyond the purview of the tax (unless it can be successfully argued that such retailer "causes" such tobacco products to be brought into the state for sale).

Had such retailers been exempted from the "floor stocks tax," there would certainly be a justiciable issue before the court on the basis of a discrimination against the class "(a)" distributors, who were liable for the "floor stocks tax" because they had tobacco products in their possession on July 1, 1959, which they had brought into the state for sale; however, it is stipulated

". . . That as interpreted, and administered by the Tax Commission, the floor stocks tax was required to be paid by all persons within this State having in their possession on July 1, 1959, tobacco products for sale."

The tax commission may have misinterpreted the act, but, as a result of their interpretation, all possessors of tobacco products for sale on July 1, 1959, have been taxed on the same basis. The class "(a)" plaintiff was clearly subject to the tax, and, unless he has been in some way discriminated against, he has no cause for complaint. Griffiths v. State (1947), 28 Wn. (2d) 493, 501, 183 P. (2d) 821; Gengler v. King County (1942), 12 Wn. (2d) 227, 235, 121 P. (2d) 346;

Sept. 1960] GALVIN v. STATE TAX COM. 743

Roberts & Schaefer Co. v. Emmerson (1926), 271 U. S. 50, 54, 55, 70 L. Ed. 827, 46 S. Ct. 375, 45 A. L. R. 1495.

What the result might have been had' the "floor stocks tax" been challenged by retailers who had tobacco products for sale in their possession on July 1, 1959, which they had not brought into the state but had purchased from in-state wholesalers, we need not here consider; no such persons are before us.

In fairness to the trial court, we should point out that the tax commission did not raise, in the trial court, the questions concerning the right of the plaintiffs to the relief requested which are now regarded as decisive. It is recognized that the issue of the right to maintain an action may be raised for the first time in this court in actions brought under the declaratory judgment act. Washington Beauty College v. Huse (1938), 195 Wash. 160, 80 P. (2d) 403. We have expressed no views in disagreement with the trial court's conclusions on the questions relating to the constitutionality of the continuing tax, as applied to class "(c)" distributors, or as to the proper interpretation and constitutionality of the "floor stocks tax."

Lest there be confusion as to just what the court has here determined, we summarize: