GENERAL MOTORS CORPORATION v. CITY OF LOS ANGELES (1970)

General Motors Corporation appeals from two summary judgments in favor of the City of Los Angeles dismissing complaints for refund of business privilege taxes that were levied generally during the years 1962 through 1967 and aggregated, exclusive of interest, close to $1,250,000.00.¹ The judgment in 2 Civil 34224 concerns taxes measured by gross receipts from new truck sales; that in 2 Civil 34225 concerns gross receipts measured from Chevrolet sales. The taxes based on truck sales were levied in 1964 and 1965.

The sole issue on these consolidated appeals, aside from one category of sales,² is whether the City was constitutionally required to apportion General Motors' gross receipts, the measure of the tax, so as to reflect accurately the circumstance that the transactions producing these gross receipts involved activities of General Motors occurring both without and within the City. General Motors argues that this result is compelled by City of Los Angeles v. Belridge Oil Co., 42 Cal.2d 823, 831–832, 271 P.2d 5. The City replies that under Carnation Co. v. City of Los Angeles, 65 Cal.2d 36, 39–40, 52 Cal.Rptr. 225, 416 P.2d 129, apportionment of a taxpayer's gross receipts is not generally required where the City's jurisdiction to tax is based upon an activity of the taxpayer occurring completely within the City.

This litigation arose because of a change in General Motors' method of distributing assembled Chevrolets within California and because after this change the City included for the first time in its measure of the tax General Motors' gross receipts from sales within the City of Chevrolets assembled elsewhere in California. Prior to 1960 substantially all of the Chevrolets distributed within Southern California were assembled within the City; substantially all of the Chevrolets distributed elsewhere in the state were assembled in Oakland. In 1960 General Motors divided the output of these two assembly plants by models instead of by geographic areas with the result that substantial cross-shipping of Chevrolets began and has continued.

General Motors' position is that when a taxable transaction of a taxpayer involves taxpayer activity, both within and without the City, the gross receipts of the taxpayer from the transaction, which is the measure of the business privilege tax, must be divided between that generated by the taxpayer's activity outside the City and such activity within the City. Otherwise out of City activity is taxed by the City, and a taxpayer operating within more than one taxing jurisdiction is discriminated against as compared to one operating wholly within a single jurisdiction. A taxpayer operating in more than one taxing jurisdiction is also exposed to the possibility of multiple taxation measured by more than its total gross receipts from the transactions involved. According to General Motors these untoward results stem from the City's ignoring the fact that the gross receipts involved in this case were produced by activities of General Motors occurring without the City as well as within the City. They were accomplished by including in the tax base, or measure of tax, gross receipts arising from General Motors' activities outside the City.

General Motors claims further that the City was constitutionally required to follow a reciprocity principle in apportioning the measure of the tax as between in-City and out of City activities of the taxpayer. This principle is that for these purposes an activity of the taxpayer must be weighed and treated exactly the same whether it occurs within or without the City.

Generally, during the tax years at issue, General Motors operated within this state Chevrolet division assembly plants in Los Angeles, South Gate, Oakland and Fremont,³ and Chevrolet division sales zone offices in Los Angeles, Oakland and San Diego. The GMCT&C division of General Motors had a retail store in Los Angeles until March 19, 1964; on that date the store was moved out of the City and into county territory.

The Los Angeles Chevrolet assembly plant had a payroll of approximately 3,500 persons. An accounting center and warehouse facilities for parts and accessories were maintained at this plant. Dealers located within the Los Angeles sales zone made payment for vehicles to this plant.

The Los Angeles sales zone office in 1968 had a payroll of 68 persons. Its basic function was to promote the retail sales of Chevrolet dealers within its zone. Its personnel advised these dealers continuously in regard to various operational problems of their dealerships. The Los Angeles sales zone covered Southern California from approximately Bakersfield south, until December 31, 1963; thereafter the zone embraced only the greater Los Angeles metropolitan area and part of Orange County. Approximately 43% of the weighted selling time of the personnel of this office was spent within the office; the remainder was spent almost entirely at the dealers' places of business. Dealer orders from within the zone were sent to this office until September 1965; after that they went to a regional processing center in Oakland.

The GMC retail store sold primarily trucks. Of these sales 84% were new trucks. Selling time of the store's personnel on such sales was spent 25.5% at the customers' places of business and 74.5% at the store. However, preliminary work in obtaining these sales was normally done almost entirely at the customers' places of business.

General Motors contends that its gross receipts from the following three categories of sales transactions should have been apportioned between its activity occurring within and without the City: (1) gross receipts from sales of Chevrolets assembled within the City but shipped to dealers outside the City pursuant to orders placed outside the City; (2) gross receipts from sales of Chevrolets assembled outside the City but shipped to dealers within the City pursuant to orders placed within the City; and (3) gross receipts from sales of new GMC trucks delivered from the store outside the City to customers located within the City pursuant to sales solicited within the City but consummated outside the City.⁴

General Motors further contends that the apportionment made by the City pursuant to City Clerk's Ruling No. 14 on its gross receipts from sales of Chevrolet automobiles assembled outside the City and shipped to dealers located outside of the City but pursuant to orders placed through the zone office within the City was constitutionally improper.

We will now consider the constitutionality of the taxes at issue as applied to the four categories of sales transactions which we have just stated. As regards the first category, that is gross receipts from sales of Chevrolets assembled within the City but shipped to dealers without the City pursuant to orders placed outside the City, we believe the Carnation case controls. Like Carnation, during the period in question General Motors was engaged in Los Angeles in the taxable activity of manufacturing and selling Chevrolets. In Carnation our supreme court held that in such circumstances the City's tax was properly measured by the gross receipts from the sales of products manufactured in Los Angeles whenever such sales occurred in California. (Carnation Co. v. City of Los Angeles, supra, 65 Cal.2d 36, 40, 52 Cal.Rptr. 225, 416 P.2d 129.)

The second transaction category concerns gross receipts from sales of Chevrolets assembled outside the City but shipped to dealers within the City pursuant to orders placed within the City. The taxable activity involved here is selling. We hold that no apportionment of gross receipts was required in this situation. It seems to us to be the reverse of the first situation. There, assembly (manufacture) of vehicles subsequently sold and shipped to customers located outside the City was done wholly within the City. The occurrence of the manufacturing activity entirely within the City justified an unapportioned tax. Here, the selling activity apparently occurs also entirely within the City and under the rationale of the Carnation case an unapportioned tax is likewise constitutional in this situation.

The third transaction category, however, is not controlled by Carnation, but by Belridge. We refer to gross receipts from sales and deliveries of new GMC trucks from the retail store located outside the City. These sales were solicited within the City but they were consummated outside the City. We note that these sales by this retail outlet of the GMCT & C division of General Motors were in no way related to the activities of General Motors' Chevrolet division assembly plant and zone sales offices, both of which were located within the City. The only activity of General Motors within the City with respect to these trucks was selling. But, as in Belridge, not all of this selling activity occurred within the City and under Belridge only those gross receipts which are attributable to selling activity conducted within the City may be included in the measure of this tax. (City of Los Angeles v. Belridge Oil Co., supra, 42 Cal.2d 823, 831–832, 271 P.2d 5.) In other words, that portion of these gross receipts attributable to the selling activity carried on at the store outside the City must be excluded from the tax base or measure of the tax.⁵ What that portion constitutionally is, we leave for determination below.

Gross receipts from sales of Chevrolets assembled outside the City and shipped to dealers located outside the City, but pursuant to orders placed through the Los Angeles zone office, constitutes the fourth transaction category at issue. The most substantial activity of General Motors within the City involved in the generation of this income, is the zone office which exists primarily to promote retail sales.⁶ Approximately 43% of the selling time of the personnel of this office was spent in the office and the remainder almost entirely at the dealers' places of business.

The promotion by zone office personnel of retail sales by Chevrolet dealers located within the zone undoubtedly was a very significant factor in the wholesale orders for Chevrolets placed by these dealers at the zone office within the City. The City has included 15% of the gross receipts from such sales pursuant to City Clerk's Ruling No. 14 1.(d) providing for such an apportionment when less than four of the elements of the selling process, set forth in the ruling, take place within the City.⁷

General Motors attacks this apportionment as being contrary to its reciprocity principle and as not being as accurate a method of apportionment as the common payroll measure. General Motors, however, cites no authority for its claimed reciprocity principle; therefore, we do not feel constrained to follow it. Furthermore, the making of these two objections by General Motors in this court does not meet in any way the burden of proof that General Motors had in the trial court of showing by clear and convincing evidence that the City's method of apportionment of this income resulted either in significant extraterritorial values being taxed or that it was otherwise so arbitrary and unreasonable as to be constitutionally unjust. (See City of Los Angeles v. Moore Business Forms, Inc., 247 Cal.App.2d 353, 361–362, 55 Cal.Rptr. 820.) In this connection we note that General Motors has made no claim to this court or below that a summary judgment was improper in this case because triable issues of fact with respect to apportionment of its gross receipts existed. (See Code Civ. Proc. § 437c.)

The judgment in 2 Civil 34224 is reversed. That in 2 Civil 34225 is affirmed.

FOOTNOTES

1.  Under Los Angeles Municipal Code section 21.00(b), these taxes were imposed on General Motors for the privilege of engaging in business within the City. Sections 21.166 and 21.167 of the Code respectively fix the rate of tax for one engaged in ‘manufacturing and selling’ or in ‘selling’ goods, etc., at wholesale and at retail.

2.  This category of sales presents another issue—whether the method of apportionment followed by the City was so arbitrary and unreasonable as to be unconstitutional.

3.  On September 1, 1963, the South Gate and Fremont plants took over the assembly work formerly done at the Oakland plant.

4.  This categorization of transactions is taken from General Motors' opening brief. The numbering of these transactions differs from that of the brief.

5.  We recognized that the gross receipts of General Motors at issue in this case generally involve extra-territorial elements. In so stating, we are thinking of such things as the fact that the component parts assembled into Chevrolets in Los Angeles were manufactured elsewhere and the national advertising by General Motors of Chevrolets and GMC trucks, which orginates outside of Los Angeles, supports the sales of these cars and trucks. But there is no constitutional objection to resorting to these remote and comparatively insignificant extra-territorial elements in determining the measure of the tax. (See City of Los Angeles v. Belridge Oil Co., 48 Cal.2d 320, 323, 309 P.2d 417.)

6.  In making this statement we do not overlook the fact that payment for these vehicles was normally made to the Chevrolet assembly plant in the City because of the location of the accounting center there.

7.  This ruling was authorized by Los Angeles Municipal Code section 21.15(h). In relevant part the ruling reads as follows:‘1. * * *‘(d) If the person engaged in such business owns, leases, occupies or otherwise maintains within the City of Los Angeles a place or premises upon which or from which he engages in business and has receipts which are attributable both to business activities based upon that place of business and business activities carried on outside the City of Los Angeles, 25 percent of the receipts resulting from the sale of goods, wares or merchandise manufactured and sold or sold by the person which are not shipped from or into the City of Los Angeles as provided in paragraph (c) above, shall be considered directly attributable if four or more of the elements of the selling process listed below take place within the City of Los Angeles with respect to the sales of goods, wares or merchandise which produce those receipts; if less than four of the listed elements of the selling process take place within the City, 15 percent of the gross receipts so derived shall be considered directly attributable.‘For the purpose of determining the amount of attributable gross receipts which shall be considered directly attributable for the purposes of this paragraph (d), the following elements of the selling process shall be considered:‘1. Negotiating sales of, or soliciting, receiving or taking orders for the sale of goods, wares or merchandise, and/or carrying on activities by an employee, agent, or otherwise, designated to promote, stimulate or otherwise encourage the sale of goods, wares or merchandise.‘2. Display of articles or samples of goods, wares or merchandise of like or similar kind to those offered for sale where the actual articles sold or to be sold will be delivered from a place of storage or manufacture located outside the City of Los Angeles but within the State of California.‘3. Processing of orders received or taken preparatory to their being accepted, where the actual acceptance occurs elsewhere.‘4. Approval or acceptance of orders received or taken.‘5. Giving an order for or arranging for delivery or shipment of articles sold or to be sold from a place of storage or manufacture located outside the City of Los Angeles but within the State of California.‘6. Billing for goods, wares or merchandise sold.‘7. Receiving or collecting receipts (as defined in sub-paragraph (a) in Section 21.00) resulting from sales of goods, wares or merchandise.’

COBEY, Associate Justice.

FORD, P. J., and ALLPORT, J., concur.