Opinion
42806.
ARGUED MAY 4, 1967.
DECIDED JUNE 20, 1967. REHEARING DENIED JULY 13, 1967.
Tax appeal. Coweta Superior Court. Before Judge Knight.
Arthur K. Bolton, Attorney General, William L. Harper, John A. Blackmon, Assistant Attorneys General, for appellant.
Jones, Bird Howell, Frazer Durrett, Jr., Earle B. May, Jr., for appellee.
The plaintiff, a Georgia corporation, was "doing business" outside the state within the meaning of Code Ann. § 92-3113 so as to authorize it to apportion its income.
ARGUED MAY 4, 1967 — DECIDED JUNE 20, 1967 — REHEARING DENIED JULY 13, 1967 — CERT. APPLIED FOR.
William L. Bonnell Company, a Georgia corporation, brought a suit for refund of Georgia income taxes for the tax years 1961, 1962 and 1963 in the Coweta Superior Court. Bonnell contended it was entitled to apportion that part of its income attributable to out-of-state business under the "three factor ratio" of Code Ann. § 92-3113 (Ga. L. 1950, pp. 299, 300; Ga. L. 1962, pp. 455, 456) and thus claimed a refund of income taxes on approximately 36% of its income for the years in question.
The State of Georgia and the State Revenue Commissioner filed an answer to the petition. The facts were then stipulated and the parties agreed that the trial judge sitting without the intervention of a jury would decide all issues of law and fact. The trial judge found that the Bonnell Company was entitled to apportion its income and entered judgment for the taxpayer for the amount sought. Appeal was taken from that judgment.
Pertinent facts as stipulated by the parties are as follows: The taxpayer is a Georgia corporation manufacturing, producing and selling tangible personal property, i.e. aluminum extrusion products. Its sole manufacturing plant is located in Newnan, Ga. All orders for the taxpayer's products are forwarded to Newnan, and are subject to acceptance by the taxpayer in Newnan. The taxpayer sells its products to customers located both within and without the State of Georgia. All of the taxpayer's goods are manufactured and shipped from Newnan. All contracts are accepted in Newnan. All commissions and salaries are paid by the taxpayer from Newnan. All sales promotion and advertising programs are originated, conducted and directed from Newnan. The taxpayer is not qualified to do business under the laws of any other state. The taxpayer is not domesticated in any state other than Georgia. The taxpayer did not and does not pay corporate franchise taxes, state income taxes or property taxes to any other state. The taxpayer pays road use, motor fuel, sales and use taxes to other states. The Revenue Commissioner does not contend that the taxpayer "must pay an income or franchise tax to, or qualify to do business or domesticate in, another state in order to apportion its Georgia income."
The parties further stipulated that the taxpayer markets its products through salaried salesmen, a New York corporation and a Florida corporation manufacturer's representatives and sales arrangements made with certain out-of-state companies.
All the taxpayer's customers were instructed to make payments at its Newnan office, except those customers whose accounts were serviced through a New York corporation, which customers were instructed to make payment to the taxpayer in the New York City office for deposit in the taxpayer's New York City bank account.
The following facts relative to the taxpayer's business activities outside Georgia were stipulated. Ninety-two percent of the taxpayer's gross sales were to customers outside Georgia. During the years in issue the taxpayer paid his employees outside Georgia over $1,250,000. The taxpayer maintained an office in New York City on the same premises occupied by its New York sales agency. From this office, the taxpayer served its eastern sales account; its name was on the door of this office, on the building directory and in the telephone directory. The taxpayer bore the full expense of rent, furnishing and upkeep of the office in which a full time employee of the taxpayer worked. This employee devoted his efforts exclusively to credit and collection work on the taxpayer's accounts.
It was also stipulated that the taxpayer employed full time, salaried salesmen, residents of five different states, who devoted their time exclusively and regularly to soliciting sales and promoting products of the taxpayer outside Georgia; that the salesmen were assigned to territories covering several states; each salesman, operating from an office in his home where he maintained files, papers and correspondence relating to the taxpayer's business, was supervised by taxpayer's home sales manager and carried on the taxpayer's payroll. The taxpayer owned four automobiles out of state and furnished a car for four of its salesmen and reimbursed another for the business use of his car.
The taxpayer had two corporate sales agencies, one in New York, the other in Florida, each run by a vice president of the taxpayer and each the taxpayer's sole and exclusive agent under a long term employment contract. Each employment contract required the agency to sell and promote no other product but the taxpayer's and to "devote his entire time, skill, ability, experience and best efforts to the duties of his employment."
Certain "manufacturer's representatives" outside the state, who were independent contractors, by arrangement with the taxpayer were permitted to solicit orders for products. However, their activity was not the taxpayer's activity outside Georgia. The taxpayer also had sales arrangements with several companies in various states. The goods involved were "shelf inventory," shipped on orders received directly from the particular company. The taxpayer assumed any risk of loss until the goods were actually sold, but the individual company sold the goods to customers of its own choosing, on its own terms and any credit loss was the company's and not the taxpayer's. Each company had the right to return the goods. The taxpayer neither paid rent for space occupied by the goods nor paid any service or handling charges to the companies. When the goods were shipped an invoice was issued and entered on its books by the taxpayer as an account receivable "until the end of each quarter and fiscal year when the receivable account was eliminated and restated as consignment inventory at cost price for financial statement purposes." The taxpayer reimbursed one company for ad valorem taxes paid but did not pay ad valorem taxes on products held by the others.
The question for decision in this case is whether the taxpayer is "doing business" outside Georgia within the meaning of Code Ann. § 92-3113 (Ga. L. 1950, pp. 299, 300; Ga. L. 1962, pp. 455, 456) so as to permit the taxpayer to apportion its income under that Code section. There is no issue as to the portion of income which might be allocated under the "three factor ratio," but solely whether the taxpayer is entitled to apportion at all.
The applicable provisions of the present Act are here set out. "The tax imposed by this law shall apply to the entire net income, as herein defined, received by every corporation, foreign or domestic, owning property or doing business in this State. Every such corporation shall be deemed to be doing business within this State if it engages within this State in any activities or transactions for the purpose of financial profit or gain, whether or not such corporation qualifies to do business in this State, and whether or not it maintains an office or place of doing business within this State, and whether or not any such activity or transaction is connected with interstate or foreign commerce.
"If the entire business income of the corporation is derived from property owned or business done in this State, the tax shall be imposed on the entire business income, but if the business income of the corporation is derived in part from property owned or business done in the State and in part from property owned or business done without the State, the tax shall be imposed only on that portion of the business income which is reasonably attributable to the property owned and business done within the State." Code Ann. § 92-3113. The Department of Revenue concedes that activities which, under the Georgia Income Tax Law, amount to "doing business" by a foreign corporation so that taxes might be levied on its income also amount to "doing business" outside this state by a domestic corporation so as to authorize such corporation to apportion its income.
The taxpayer's out-of-state activities consisted of: customers located beyond the state; delivery of merchandise beyond the state; manufacturer's representatives located outside the state; salaried salesmen and a credit man located outside the state; automobiles located in other states; sales arrangements with certain companies located in other states; selling contracts with a New York and a Florida corporation.
Since the inception of the income tax law relative to corporations (Ga. L. 1931, Ex. Sess., pp. 24, 34) the Georgia courts have interpreted the words "doing business" when applied to a foreign corporation to encompass a substantial activity on its own behalf in this State. Suttles v. Owens-Illinois Glass Co., 206 Ga. 849 ( 59 S.E.2d 392). Likewise, the same test is applied as to a domestic corporation seeking to apportion its income for "doing business" outside the state. Montag Bros., Inc. v. State Revenue Comm., 50 Ga. App. 660 ( 179 S.E. 563). "It seems to be rather well established by all the authorities that `doing business' in order to incur tax liability under statutes imposing taxes on persons `doing business' in a State means that a foreign corporation must transact some substantial part of its ordinary business, and that it must be continuous in character as distinguished from a mere casual or occasional transaction." Redwine v. United States Tobacco Co., 209 Ga. 725, 728 ( 75 S.E.2d 556). Hence, the following activities have been found insufficient to constitute "doing business" under the statute: (1) customers and delivery of merchandise; (2) salaried salesmen; (3) sales arrangements and selling contracts with various companies. See Montag Bros., Inc. v. State Revenue Comm., 50 Ga. App. 660, supra; Oxford v. Tom Huston Peanut Co., 102 Ga. App. 714, 726 ( 118 S.E.2d 204); City of Atlanta v. York Mfg. Co., 155 Ga. 33 ( 116 S.E. 195); Redwine v. Dan River Mills, Inc., 207 Ga. 381 ( 61 S.E.2d 771); Redwine v. Schenley Industries, Inc., 210 Ga. 769 ( 83 S.E.2d 16); State of Ga. v. Coca-Cola Bottling Co., 214 Ga. 316 ( 104 S.E.2d 574).
In 1950 the second sentence of Code Ann. § 92-3113, providing that every corporation is deemed to be doing business within this state if it engages in any activities or transactions for financial profit or gain, whether or not, (1) the corporation qualifies to do business in the state, (2) maintains an office or place of business within the state, or (3) any such activity or transaction is connected with interstate or foreign commerce, was added. In passing upon the 1950 Act the Supreme Court held it to be unconstitutional as applied to a corporation which was not "doing business" under the rulings in Suttles v. Owens-Illinois Glass Co., 206 Ga. 849, supra, and Redwine v. Dan River Mills, Inc., 207 Ga. 381, supra. Stockham Valves Fittings v. Williams, 213 Ga. 713 ( 101 S.E.2d 197). Following this decision, State of Ga. v. Coca-Cola Bottling Co., 214 Ga. 316, 321, supra, in discussing the effect of the 1950 Act, pointed out: "Therefore, the 1950 Act contained the clause hereinbefore discussed, which it was thought would authorize the tax even though there was no office or place of business maintained in the State. Our decision in Stockham Valves Fittings v. Williams, 213 Ga. 713, supra, effectively barred any taxation with no more basis than that."
However, subsequent to these decisions the U.S. Supreme Court reversed Stockham Valves Fittings v. Williams, 213 Ga. 713, supra, and held the 1950 provision constitutional. Northwesternc. Cement Co. v. Minn., 358 U.S. 450 ( 79 SC 357, 3 L.Ed.2d 421, 67 ALR2d 1292). Thereafter in Owens-Illinois Glass Co. v. Oxford, 216 Ga. 316, 324 ( 116 S.E.2d 293) the Georgia Supreme Court, following the Northwestern Cement Co. case, supra, expressly distinguished Suttles v. Owens-Illinois Glass Co., 206 Ga. 849, supra; Redwine v. Dan River Mills, Inc., 207 Ga. 381, supra; Redwine v. United States Tobacco Co., 209 Ga. 725, supra; Redwine v. Schenley Industries, Inc., 210 Ga. 769, supra; and held: "The material distinction between those four cases and the present one lies in the fact that there this court judicially determined, without being restricted by legislative definition, what facts constituted doing business in this State sufficient to place a tax situs here, while in this case the legislature by the 1950 amendment to Chapter 92-31 of the Code, and particularly Code Ann. § 92-3113, has fixed a legislative definition of what constitutes a basis for assessing income taxes against corporations, foreign or domestic, which engage in any activities or transactions in this State for the purpose of financial profit or gain. Hence, we now hold that such 1950 amendment had the legal effect of shifting the operation of such section from the `closed transaction' test, which the courts of this State had previously applied to it, to the activities or transactions test, which the amendment established as the criterion to be used thereafter in determining an income-tax liability to this State of a corporation, foreign or domestic, which engages in any activities or transactions in this State for the purpose of financial profit or gain."
We recognize that a short time afterwards this court in Oxford v. Tom Huston Peanut Co., 102 Ga. App. 714, supra, (certiorari denied) followed the decisions distinguished in Owens-Illinois Glass Co. v. Oxford, 216 Ga. 316, supra, and held that a domestic corporation must be engaged in substantial activity outside of this state to entitle it to apportion its income under Code Ann. § 92-3113. However, any conflict, real or imagined, between these cases is academic since we are bound by Owens-Illinois Glass Co. v. Oxford, 216 Ga. 316, supra.
Nevertheless, a further factor complicates the problem. In 1959 Congress passed an Act (Public Law 86-272; 15 U.S.C. §§ 381-384 which appears to negate or at least partially affect the Northwestern c. Cement Co. case, 358 U.S. 450, supra. The law provides that no state shall have the power to impose a net income tax on income derived within such state by any person from interstate commerce if the only business activities within the state of that person are either: (1) the solicitation of orders which are sent outside the state for approval and, if approved, are filled by delivery from a point outside the state or (2) the solicitation of orders by such person for the benefit of a prospective customer of such person, if the orders to enable the customer to fill orders resulting from such solicitation are orders as described in (1). The appellant contends that this Act must now be read into the Georgia law, compelling the conclusion that activities such as are here set out are not taxable insofar as a foreign corporation with such activities in Georgia are concerned, a fortiori, preventing an exclusion of a Georgia corporation's income where its similar activities are conducted out of state.
Regardless of the soundness of the first proposition the second does not of necessity follow and is demonstrably fallacious. In construing statutes we consider the intent of the Georgia legislature at the time of its enactment. Haley v. Bailey, 199 Ga. 486, 490 ( 34 S.E.2d 685). Disregarding what effect the federal statute now has on Code Ann. § 92-3113, the fact remains that the only expression of legislative intent with which we are concerned is contained in the original Act. Mayor c. of Butler v. Hortman, 70 Ga. App. 848 ( 29 S.E.2d 811); Ezekiel v. Dixon, 3 Ga. 146. Clearly the quoted provision was designed to provide a broad basis for taxation of foreign corporations and to offer Georgia corporations "doing business" without the state commensurate tax benefits. However, the statute did not provide that whatsoever would be deemed to constitute doing business within the state shall similarly constitute doing business without the state but merely provided a definition of doing business.
In Oxford v. Tom Huston Peanut Co., 102 Ga. App. 714, 727, supra, the court pointed out that: "If the plaintiff is not doing business in other States so as to be subject to their jurisdiction for taxing purposes, it is not entitled to apportion its income in Georgia." This language merely serves to strengthen the proposition that the definition in Code Ann. § 92-3113 applies both to foreign corporations, regarding whether they are doing business in Georgia, and Georgia corporations, regarding whether they are doing business outside this state. It does not determine the crucial question of whether the federal statute's prohibition against taxing certain activities within a state can be read into the Georgia law relating to allowance of an exclusion of income derived from certain activities without the state.
The federal Act at best only impliedly modified the 1950 Act insofar as a foreign corporation's activities within the state are concerned. The fact that attempting to tax a foreign corporation under that provision might now run afoul of the federal statute would not affect the provision as to Georgia corporations with described activities in other states. The federal law does not endeavor to preempt that area. It did not in any manner relate to the Act's provisions insofar as a domestic corporation was concerned.
The Revenue Department argues that they apply complete reciprocity and that it is a bad policy to allow a corporation an exemption for certain activities which are no longer taxable in a foreign state. If this be true it is a matter for the remedial power of the legislature, not the courts. What the legislature might have intended had it known of the federal statute is a matter of pure speculation and is better left to the realm of conjecture.
Thus, despite the apparent anomaly of treatment under the statute, we now consider whether the facts of this case place the taxpayer in the posture of one doing business without the state under Code Ann. § 92-3113. Testing the facts of this case by the broad standards prescribed in the Code section the taxpayer was engaged in activities and transactions outside this state for the purpose of financial profit or gain. Thus we hold that the taxpayer is doing business outside Georgia and is entitled to apportion its income.
Judgment affirmed. Jordan, P. J., and Deen, J., concur.