Sugar refiners sell sugar. It cannot be delivered to customers like coal, shoveled into bins; it must be contained in some receptacle like a box or a bag. This part of the business is a necessary part. The refiner cannot say to the customer, "here is your sugar, come and get it; it is no business of mine how you carry it away." There would be few sales if such were the case. Trade would go to the refiner who properly packed or boxed it, made it convenient for delivery and for handling. The refiners, therefore, use bags; they buy bags in the market which become as much a part of the refiners' sale of sugar as the sugar itself, part of the output. The refiner is not in the business of selling bags; he sells sugar; and to sell it he needs bags as much as he needs men and machinery to refine the sugar, and salesmen to get trade.
No one would ever think that the refiners, in disposing of their product, were selling bags, no matter what the price or how much the price varied. Now that there is a city tax on sales the claim is put forth that the refiners are merchants of bags.
The Sterling Bag Company, Inc., as its name implies, is a manufacturer of burlap and cotton bags, having its principal office in the borough of Brooklyn, New York city. The sales here involved are sales of sugar bags to refiners of sugar for delivery in New York city. It is in no way *Page 275 affiliated with these refiners. The bags sold are of three general types, (1) bulk sugar bags of 100-pound capacity; (2) burlap "sacks" or "envelopes" generally of 100-pound capacity, designed as containers for smaller cotton bags filled with sugar; and (3) smaller cotton bags of two-, five-, ten-, fifteen- and twenty-five-pound capacity with which the "sacks" or "envelopes" are filled. The company solicits orders from the sugar refiners and upon receiving an order prints the cloth with the particular refiner's name or other designation according to instructions, manufactures the bags and delivers them to refiners. The bags have the refiner's name branded on them. Invoices are forwarded to the refiners and payment is received by the plaintiff in due course. The sugar in one-hundred pound bulk bags is sold to manufacturers who use sugar in large quantities, such as confectioners, bakers or food canners, and the sugar packed in cotton bags inserted in the sacks is sold to jobbers, wholesalers or chain stores in the retail trade.
This appeal involves only the taxability of the sales of the larger containers of one-hundred pound capacity for sugar or the burlap "sacks" or "envelopes" generally of the same capacity to hold the smaller cotton bags filled with sugar. These facts place these wrappings of sugar in the same class with wrapping paper, wooden or cardboard boxes. The goods must be placed in something to be sold, some kind of container; for sugar, coarse bags; for fruit, wooden or tin boxes; for oil, barrels, etc., according to the nature of the article. The refiners buy bags, but they do not deal in bags, nor is it accurate to say that they sell bags. Of course the bags go along with the sugar — it cannot of necessity be otherwise — but to say that the purchaser of sugar is buying bags or intends to buy bags except as they contain his purchase of sugar is a refined and strained construction adopted only for tax purposes; it is not the natural meaning or one which merchants or the trade recognize, nor is it true to fact. The bags, it is said, after the sugar is taken out can be sold in the second-hand market. So can old barrels or wrapping paper. *Page 276 This, too, has an artificial sound. The disposition of waste bags or paper is not such a resale as is contemplated by the local law.
The Sales Tax Law is Local Law No. 20 (published as No. 21) of 1934, section 2 (as amd. Local Law No. 24 [published as No. 25] of 1934), applicable only to New York city. "There shall be paid a tax of two per centum upon the amount of the receipts from every sale in the city of New York of: (a) Tangible personal property sold at retail, except those articles described in Schedule `A' * * *." Bags or containers are not in the excepted list. A "sale" is "any transfer of title or possession or both * * * for a consideration." The word "receipt" means "the amount of the sale price." A "retail sale" or "sale at retail" means "a sale to a customer, or to any person for any purpose other than for resale in the form of tangible personal property."
The local law also provides:
"§ 2. * * * For the purpose of the proper administration of this local law and to prevent evasion of the tax hereby imposed, it shall be presumed that all receipts for property and services mentioned in this section are subject to the tax until the contrary is established, and the burden of proving that a receipt is not taxable hereunder shall be upon the vendor or the purchaser, unless the vendor shall have taken from the purchaser a certificate signed by and bearing the name and address of the purchaser * * * to the effect that the property or service was purchased for resale."
The local law provides that a sale at retail is a sale "for any purpose" other than a resale. The refiner buys the bags for the purpose of shipping or transporting sugar to its customers. This use or purpose, while passing title to the bags to the customer with the delivery of the sugar, is not such a resale as here defined. This use is a "purpose" other than a resale of bags as bags.
That the parties here involved understood that this was a retail sale of bags to enable the purchasing refiners to *Page 277 pack sugar and not to resell the bags as such is evident from the fact that the bag company failed to obtain any resale certificates or the refiners (who ultimately pay the tax) to offer them. One who is exempt in carrying on an extensive business seldom forgets the exemption. Then again the refiners sold their sugar at scheduled prices without claiming or stating any separate rate for containers. The purchaser of the sugar could never tell what he was paying for bags; he did not expect to, as he was buying sugar, not bags.
I am of the opinion that these sales of sugar bags came within this tax law and that the courts below were in error in holding that the refiners intended to resell the bags as bags.
The respondent claims and the evidence shows that the price of sugar varied. The manager of the production division of the American Sugar Refining Company explained how the price of sugar was determined; what elements had to be considered. "Q. In determining the base price, which you have told us about, and which you have described, as 100 pounds of fine granulated sugar in a bag, what are the factors which go to make up that base price? A. The cost of refining, the fuel, labor and repairs. Q. And the cost of the bag? A. And the cost of the bag, and the cost of packing the bag." It is thus a mistake to say that the increase in price is dependent solely on the size or style of bag or container. The cost of labor in packing the bag — larger in size — is also an element which is included. The variance from the base price fluctuates for various reasons and even the respondent cannot and does not say that the cost of the bag is represented by (not in) the increased price of the sugar. The fact is that the cost of bags is of course taken into account in fixing the price of sugar, the same as the cost of refining, fuel, labor, repairs, packing and all other expenses incurred in placing refined sugar on the market. The item of profit is also included. Merely because the necessary container passes along with the sugar does not constitute a resale of the container within this local law. Neither does the question of book-keeping *Page 278 aid us here. Whether the cost of bags was charged to overhead or in some other manner is immaterial. Overhead expenses, all expenses must figure somewhere in the price of manufacturer's output or he will soon go bankrupt. The ease with which goods can be handled, delivered and again passed on in trade is as important as advertising if inducement is considered in the sugar trade. The cases of City Paper Co. v. Long (235 Ala. 652) andWarren v. Fink (146 Kan. 716) have taken this view under similar laws. We have not overlooked McCarroll v. Scott PaperBox Co. (195 Ark. 1105), but cannot reach the same conclusion as applied to the facts of this case.
The vice-president and treasurer of the plaintiff testified that in his opinion the business of the company had fallen off because refiners were purchasing bags out of the State to escape the tax. "Q. In your opinion has the adoption of the New York City sales tax anything to do with the refusal of the sugar refiners to accept deliveries from your Company in New York City? A. I think it has a great deal to do with it. It is obviously responsible for our decline in local deliveries," etc. And the manager of the production division of the American Sugar Refining Company said, "We have ceased largely our purchases of bags in New York City, from all bag manufacturers. Q. In your opinion has the passage or the adoption of the New York City sales tax anything to do with your discontinuing the purchase of bags for New York City delivery? A. Yes."
This is unfortunate, but I cannot see what bearing it has upon the meaning of the local law. That the effect is to drive business out of the city to the loss of manufacturers located there is a matter for legislative consideration but not for the court which applies the law.
This action for a declaratory judgment was an appropriate remedy. After the motion to dismiss upon the pleadings had been denied the case was tried out at Special Term where the allegations of the complaint were given in detail with appropriate explanations. This at least was more satisfactory than relying on pleas and conclusions. However, *Page 279 the evidence not being contradicted and the facts clearly appearing, a judgment as to the relative rights of the parties could easily be given. (German Masonic Temple Association v.City of New York, 279 N.Y. 452.)
The judgment should be reversed and case remitted to the Special Term for such judgment as may be appropriate in the light of this opinion, with costs to appellants in all courts.