Summary
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."
Summary of this case from Hawes v. William L. Bonnell Co., Inc.Opinion
38454.
DECIDED OCTOBER 13, 1960. REHEARING DENIED NOVEMBER 21, 1960.
Tax refund. Muscogee Superior Court. Before A. J. Land, Judge pro hac vice. May 27, 1960.
Eugene Cook, Attorney-General, Ben F. Johnson, Deputy Assistant Attorney-General, for plaintiff in error.
Powell, Goldstein, Frazer Murphy, B. D. Murphy, Hatcher, Smith, Stubbs Rothschild, contra.
1. Under the facts stipulated in this case the taxpayer was not doing business outside of Georgia so as to be entitled to apportion its income under the provisions of Code § 92-3113, and the judge of the superior court erred in entering a judgment granting to the taxpayer a refund based on the taxpayer's claim of the right to apportion its income under the three-factor ratio.
2. Under the provisions of the act approved February 27, 1953 (Ga. L. 1953, Jan.-Feb. Sess., p. 274 et seq.), as amended by the act approved June 24, 1955 (Ga. L. 1955, Ex. Sess., pp. 27, 32), a corporate taxpayer could deduct from its State income tax due on a return for its fiscal year which began prior to January 1, 1955, an amount actually paid during such fiscal year on its Federal income tax liability for that fiscal year though the amount so paid was not actually due under the Federal income tax law until 75 days after the end of the taxpayer's fiscal year.
DECIDED OCTOBER 13, 1960 — REHEARING DENIED NOVEMBER 21, 1960.
Tom Huston Peanut Company filed its petition against T. V. Williams, as State Revenue Commissioner, in the Superior Court of Muscogee County to recover $66,833.55 in alleged overpayments of income tax on its corporate business for the fiscal years 1953, 1954 and 1955. Consolidated with that petition was an appeal from the overruling of its protest to proposed adjustments in its income-tax liability for the same years, which proposed adjustments totaling, with interest, $30,600.24, were made by the Commissioner. It was alleged and contended in the petition that the overpayments sued for were made on account of the erroneous collection by the defendant of income taxes on income derived by the plaintiff "from products shipped and delivered to customers outside of the State of Georgia," and that the plaintiff is taxable only upon such portion of its business income as is represented by business done within the State of Georgia and that the plaintiff is entitled to apportion its income to Georgia under the provisions of Code § 92-3113, as amended. It was further contended in the petition with respect to the amounts alleged by the Commissioner to be due in the proposed adjustments that so much of said claim as represented the disallowance by the defendant of a deduction of $525,000 paid by the plaintiff on Federal income taxes for its fiscal year ending August 31, 1955, should be abated, since said taxes were properly deductible by the plaintiff, having been paid in a fiscal year which began prior to January 1, 1955.
The defendant answered denying liability to refund the plaintiff the amounts claimed and denying the right of the plaintiff to have his proposed assessment of additional taxes abated. Prior to the trial of the case T. V. Williams was succeeded as Revenue Commissioner by Dixon Oxford, and the latter's name was duly substituted as the party defendant.
Upon the trial the parties stipulated the facts, and the trial judge, upon consideration thereof, entered a judgment for the plaintiff allowing a recovery of $88,510.44 principal and interest on the plaintiff's claim for refund and holding that as to $28,875 of the Commissioner's additional assessment made on October 4, 1957, the same was abated and canceled. To the final judgment the Revenue Commissioner excepted and brought the case to this court by a bill of exceptions assigning error thereon on 14 grounds, of which the following are pertinent to the opinion and judgment here rendered:
"(a) To the extent that said final judgment holds that the so-called `district sales managers', under the stipulated facts, were employees of plaintiff, and that their activities outside this State were activities of plaintiff outside this State and constituted plaintiff's doing business outside this State so as to entitle plaintiff to use the three-factor formula prescribed in Code Section 92-3113 (4) in apportioning its income to this State for income tax purposes, said final judgment is erroneous and contrary to the law and the evidence in the case.
"(b) To the extent that said final judgment holds that the delivery of goods by plaintiff in plaintiff's own trucks to customers outside this State, under the stipulated facts, constituted plaintiff's doing business outside this State so as to entitle plaintiff to use the three-factor formula prescribed in Code Section 92-3113 (4) in apportioning its income to this State for income tax purposes, said final judgment is erroneous and contrary to the law and the evidence in the case.
"(c) To the extent that said final judgment holds that the sale of goods on a `delivered at destination' basis, under the stipulated facts, constituted plaintiff's doing business outside this State so as to entitle plaintiff to use the three-factor formula prescribed in Code Section 92-3113 (4) in apportioning its income to this State for income tax purposes, said final judgment is erroneous and contrary to the law and the evidence in the case.
" . . .
"(f) Defendant contended that under the stipulated facts, the so-called `district sales managers' were not the employees of plaintiff, that their offices were not plaintiff's offices, that their activities outside this State were not the activities of plaintiff outside this State, and that plaintiff is not entitled to use the three-factor formula prescribed in Code Section 92-3113 (4) in apportioning its income to this State for income-tax purposes; said final judgment rejected these contentions and in so doing it proceeded erroneously and contrary to the law and the evidence in the case.
"(g) Defendant contended that neither the delivery of goods by plaintiff in plaintiff's own trucks to customers outside this State nor the sale of goods on a `delivered at destination' basis, under the stipulated facts, constituted plaintiff's doing business outside this State so as to entitle plaintiff to use the three-factor formula prescribed in Code Section 92-3113 (4) in apportioning its income to this State for income-tax purposes; said final judgment rejected these contentions and in so doing it proceeded erroneously and contrary to the law and the evidence in the case.
" . . .
"(j) To the extent that said final judgment holds, for any other reason, that the amounts paid by plaintiff, as alleged, were erroneously and illegally collected under the Georgia Income Tax Act, as amended, said final judgment is erroneous and contrary to the law and the evidence in the case.
"(k) Under the stipulated and agreed facts, judgment for the defendant denying recovery to plaintiff was demanded, and said final judgment in favor of plaintiff is in error and contrary to the law and the evidence in the case.
"(l) Said final judgment, in holding that plaintiff is entitled, for purposes of computing its income-tax liability to the State of Georgia, for its fiscal year ended August 27, 1955, to a deduction, under Code Section 92-3109 (c) as it was in effect prior to the 1955 amendment (Ga. Laws 1955, Ex. Sess., pp. 28, 32), for $525,000 as an alleged payment of Federal income taxes, under the stipulated facts, is erroneous and contrary to the law and the evidence in the case.
"(m) Defendant contended that the assessment of the State Revenue Commissioner of an additional $28,875.00 in income tax due by plaintiff for said fiscal year on account of the disallowance of such a deduction was a correct and legal assessment; said final judgment, in abating and canceling said assessment, proceeded erroneously and contrary to the law and the evidence in the case.
"(n) Said final judgment proceeded erroneously and contrary to the law and the evidence in the case in not sustaining the aforesaid assessment of the State Revenue Commissioner of an additional $28,875 in income tax due by plaintiff for said fiscal year."
Upon the trial of the case the parties entered into a stipulation of facts which it was agreed would be all the evidence in the case and that the court would take as true the facts set forth therein and decide all issues of law and fact on the basis of that stipulation. The material parts of this stipulation read as follows:
"1. Plaintiff is a Georgia corporation with its principal office located in Columbus, Muscogee County, Georgia. The business of plaintiff is the processing, manufacture and sale of salted peanuts, sandwiches, candies, fruit and other confections and promoting the sale of similar products manufactured by other manufacturers.
"2. Plaintiff's gross income falls in three categories as follows: (a) Gross receipts from products manufactured by plaintiff and sold by plaintiff under its trade name `Tom's'; . . . (b) commissions from products manufactured by over forty other manufacturers and distributed under the trade name `Tom's; and . . . (c) commissions from products manufactured by other manufacturers and distributed under the trade names of such other manufacturers, . . .
"3. As to the products manufactured and sold by plaintiff under its trade name `Tom's, such products are manufactured solely at its plant in Columbus, Georgia, and plaintiff has no factory, warehouse, or other place of doing business, outside of Georgia except as hereinafter described.
"4. As to the products manufactured by other manufacturers and distributed under the trade name `Tom's' and under other trade names of such other manufacturers (both of these are hereinafter referred to as `affiliated products'), plaintiff never takes possession [of] or title to such goods. Such other manufacturers manufacture and sell the products of their manufacture, including those marketed under the trade name `Tom's', completely independently of plaintiff except that plaintiff promotes the sale of such products as hereinafter described. As to the products of other manufacturers distributed under their own trade names, plaintiff promotes sales thereof under contracts of which the contract attached hereto as Stipulation Exhibit `A' is typical. As to the products of other manufacturers distributed under the trade name `Tom's,' plaintiff promotes sales thereof under contracts of which the contract attached hereto as Stipulation Exhibit `B' is typical.
"5. Plaintiff maintains no inventory of products, either of its own manufacture, or of the manufacture of others, at any place outside of the State of Georgia.
"6. The products of plaintiff's manufacture and the affiliated products of other manufacturers are distributed in Georgia and in forty-four others of the United States through wholesale distributors. These wholesale distributors buy these products and resell them to retail dealers for resale to consumers. In so doing, these wholesale distributors, with respect to plaintiff, are acting entirely as independent dealers, and stand in no control relationship whatever to plaintiff. They are, however, known as `Tom's Distributors,' and as a practical matter devote their time and organizations to the sale of products purchased from or promoted by plaintiff.
"7. Sales of goods manufactured by plaintiff are made to these wholesale distributors on a `delivered at destination' basis, that is, plaintiff agrees to pay the cost of transportation from Columbus, Georgia, to the wholesale distributor's place of business, to assume all risk of loss in transit, and to deliver the merchandise sold to its destination. Sales of goods of other manufacturers to `Tom's Distributors' are on a similar basis. The title to all merchandise sold remains in the manufacturers until delivered to the wholesale distributor at its destination. About 39% of the merchandise manufactured by plaintiff is delivered to its destination in trucks owned and operated by plaintiff, and the balance is delivered by common carrier.
"8. All shipments of products manufactured by plaintiff are made from plaintiff's place of business in Columbus, Georgia. Most of the products of other manufacturers sold to `Tom's Distributors' are shipped directly from their respective plants in other states to the distributors. All orders received for products manufactured by plaintiff are subject to acceptance by the plaintiff at its principal office in Columbus, Georgia, and orders received for products manufactured by other manufacturers are subject to acceptance by such manufacturers at their respective offices outside this State.
"9. Plaintiff's sales efforts of its own products and its sales promotional efforts of the products of other manufacturers are done through plaintiff's Sales Department, consisting of a Vice-President in charge of Sales, an Assistant General Sales Manager, and a Sales Promotion Manager, whose offices are in Columbus, Georgia, and eleven other persons whom plaintiff denominates `District Sales Managers'. The names and locations of the headquarters of these `District Sales Managers' are as follows: [Here are listed names and addresses of eleven individuals all located outside the State of Georgia and at such widely scattered locations as St. Paul, Minnesota, Miami, Florida, Westwood, Massachusetts, and Santa Barbara, California], and each of these `District Sales Managers' is assigned and operates within a certain specified territory.
"10. The function of a `District Sales Manager' is to solicit and promote the sale of plaintiff's products and of affiliated products to `Tom's Distributors' operating within his prescribed territory and to do so he may, and does, employ his own initiative, independent judgment, methods and procedures so long as these are fair and honorable. Each `District Sales Manager' employees at his own expense such assistants, whom plaintiff denominates `Assistant District Sales Manager' also employs such additional personnel as in his judgment he deems necessary and all such personnel, including the `Assistant District Sales Manager', are hired, paid, controlled, and discharged, when necessary, by each `District Sales Manager' as his own employees.
"11. The relationship between plaintiff and each `District Sales Manager', as herein described, may be terminated at any time either by said `District Sales Manager' or by the plaintiff. As long as the sales in a `District Sales Manager's' prescribed territory are satisfactory in volume, and the `District Sales Manager's' reputation is good, each `District Sales Manager' may, and does, adopt such methods, employ such assistants, sell and promote the sale of products of other manufacturers, and do such other things as the `District Sales Manager' may see fit. There are no written contracts between plaintiff and these `District Sales Managers.' [Italics by the court].
"12. A `District Sales Managers.' never takes possession of [or] title to any of the products manufactured by plaintiff or of affiliated products and maintains no inventory of such products at any place.
"13. `District Sales Managers' and their assistants secure new `Tom's Distributors' for the products manufactured by plaintiff and affiliated products, solicit orders for such products from new and old distributors, introduce new products to such distributors and their retail customers, obtain new retail customers for said distributors, and constantly promote and increase the sales of such products in many different ways.
"14. Orders which the aforesaid `District Sales Managers' or their assistants, receive from `Tom's Distributors' for affiliated products are forwarded by them directly to the principal office of the manufacturer which manufacturers and sells the products ordered for acceptance and shipment.
"15. Orders which the aforesaid `District Sales Managers', or their assistants, receive from `Tom's Distributors' for products manufactured and sold by plaintiff are forwarded by them directly to plaintiff at its principal office at Columbus, Georgia, where said orders are accepted, filled, shipped and otherwise handled in their entirety, including accounting and collection.
"16. The aforesaid `District Sales Managers' are paid by plaintiff a commission of 5% of the invoice price of all goods manufactured by plaintiff and shipped to `Tom's Distributors' within their respective territories and 2 1/2% of the invoice price of all goods manufactured by other manufacturers and shipped to `Tom's Distributors' within their respective territories, the same being paid for performing and carrying on the functions herein described. Said `District Sales Managers' themselves pay out of said commissions for all additional personnel employed by them, their office expenses, selling expenses and all other expenses incurred in performing and carrying on the functions herein described. Plaintiff maintains records as to commissions paid `District Sales Managers' and makes returns and reports with respect thereto for purposes of Social Security and Old Age Benefit taxes, withholding for purposes of Federal Income Tax and includes all `District Sales Managers' as employees for purposes of plaintiff's group life insurance contract on the lives of its employees. Plaintiff does not maintain any record of compensation paid by said `District Sales Managers' to their additional personnel and does not make returns and reports with respect thereto for purposes of Social Security and Old Age Benefit taxes, or withholding for purposes of Federal Income Tax, and does not include such additional personnel as employees for purposes of plaintiff's group life insurance contract on the lives of its employees.
"17. Five of the eleven `District Sales Managers' operate from their residences and the other six operate from offices separate from their residences. Whether a `District Sales Manager' operates from his residence or from an office is determined by the `District Sales Manager' himself. Such residences or offices are not contracted for, or on behalf of, plaintiff, and plaintiff pays no part of the cost of maintaining any such residence or office, directly or indirectly. Said residences and offices are not held out to the public in any telephone directories, city directories, or other publications as being offices of plaintiff, although they are held out to the public as being places of business for soliciting and promoting the sale of products manufactured by plaintiff and of affiliated products.
"18. Plaintiff is not qualified or registered to do business as a foreign corporation in any state, and plaintiff has made no income tax returns and has paid no income tax to any state other than Georgia."
In paragraphs 19, 20 and 21 it was set forth that plaintiff reported on its Georgia income tax returns for the fiscal years 1953, 1954 and 1955 the gross amount received by it from its affiliated manufacturers as "brokerage on jobbing sales" which was the gross amount of commissions received in those fiscal years and in paragraph 22 it was stipulated that for each of the taxable years in question plaintiff reported its Georgia income tax on the basis of 100 percent of its taxable net income without any apportionment under the provisions of Code § 92-3113 (4). Paragraphs 23 through 26 of the stipulation merely recite the fact that the plaintiff filed its petition for refund with the State Revenue Commissioner and set forth therein the computations as to the amount of refund claimed to be due and the computations for each of the years involved of the ratio of inventories, salaries and wages and gross receipts applicable to the plaintiff's income if the plaintiff is entitled to use the three-factor ratio.
The stipulation continues: "27. More particularly, the aforesaid claims for refund, and plaintiff's rights to the full recovery claimed in this action, are based on the concurrence of three propositions: (1) that plaintiff is entitled to apportion its income under Code Section 92-3113 (4); (2) that the commissions paid to its `District Sales Managers', as described above, constitute `salaries, wages, commissions, and other compensations', within the meaning of Code Section 92-3113 (4) (b); and (3) that in determining the gross receipts ratio under Code Section 92-3113 (4) (c) only shipments to wholesale distributors in this State, or delivered within this State to wholesale distributors, are includable in the numerator as Georgia gross receipts.
"28. If all three of the above propositions are correct in law, then plaintiff is entitled to a judgment in the amounts set forth in paragraph 23 above, together with interest thereon at the rate of 6% per annum from the respective dates paid until repaid.
"29. If plaintiff is not entitled to apportion its income under Code Section 92-3113 (4), then defendant is entitled to a judgment denying any recovery to plaintiff."
Paragraphs 30 and 31 relate to alternative computations submitted for decision of issues 2 and 3 of paragraph 27, which, under the decision here rendered, it is unnecessary to set forth.
"32. Plaintiff's fiscal year 1955 ended on August 27, 1955, and on plaintiff's Georgia income tax return for its fiscal year ended August 27, 1955, plaintiff deducted the amount of $525,000 as Federal income taxes paid during said fiscal year.
"33. After audit by the Revenue Department of plaintiff's income tax return for said fiscal year, the State Revenue Commissioner disallowed the aforesaid deduction and proposed, on October 25, 1956, an additional assessment, because of the disallowance, in the amount of $28,875, plus interest as provided by law. Plaintiff protested this proposed assessment; a hearing was had, and on August 12, 1957, this protest was denied by the State Revenue Commissioner.
"34. Thereafter, on October 4, 1957, assessment of the aforesaid $28,875 was made against plaintiff as additional income tax due for its fiscal year ended August 27, 1955.
". . .
"37. On August 22, 1955, plaintiff filed with the Director of Internal Revenue for the District of Georgia what it called a `tentative return' for its fiscal year which was to end on August 27, 1955. A true and correct copy of said `tentative return' is attached hereto as Stipulation Exhibit `C.'
"38. To the aforesaid `tentative return' plaintiff attached its check in the amount of $525,000, and this check was tendered in part payment of Federal income taxes shown to be due on said `tentative return'. Said check was received and accepted by the aforesaid Director on August 22, 1955.
"39. The aforesaid Director entered the aforesaid `tentative return' and said amount of $525,000 on the assessment roll of the Commissioner of Internal Revenue on August 24, 1955, deposited said check for collection, and same was paid by the bank upon which it was drawn on August 25, 1955.
"40. Thereafter, on November 15, 1955, plaintiff filed with the Director of Internal Revenue for the District of Georgia its fiscal Federal income tax return for its fiscal year ended August 27, 1955, showing thereon a total liability of $1,046,671.44, a credit of $525,000 paid as aforesaid, and a balance due of $521,671.44, which plaintiff paid in due course.
"41. The State Revenue Commissioner contends that the aforesaid $525,000 did not constitute a payment of Federal taxes during plaintiff's fiscal year ended August 27, 1955, as contemplated by Code Section 92-3109 (c), prior to its amendment by the act approved June 24, 1955 (Ga. Laws 1955, Ex. Sess., pp. 27, 32). Plaintiff contends that it did, that it was a proper deduction on its Georgia income tax return filed for its fiscal year ended August 27, 1955, that its disallowance by the State Revenue Commissioner was erroneous and should be so declared by this court.
"42. If the plaintiff is correct in its contention, then the assessment made against plaintiff under date of October 4, 1957, should be abated and canceled to the extent of $28,875."
The contract attached to the stipulation as Exhibit "A" is denominated a "Sales Representation Agreement." Under its provisions, Tom Huston Peanut Company is appointed sales representative by the affiliated manufacturer but is not given thereby any exclusive right in the assigned territory. Under its terms, the compensation to be paid Tom Huston Peanut Company is 5 percent of the net selling price of such products as are sold on orders furnished by Tom Huston. Tom Huston is to receive no reimbursement for office, sales, traveling expense, salaries, or other charges of any nature incurred by it in carrying on its activities under the contract, and the contract expressly denominates the relation between the parties as that of independent contractors.
Under the contracts attached as Exhibit "B" the affiliated manufacturers merely agree to manufacture and ship certain of their products upon the order of the various distributors of Tom Huston Peanut Company and to package such products under "Tom's" brand name if requested to do so by Tom Huston Peanut Company. For such products Tom Huston Peanut Company is to receive a commission of 5 per cent based on the gross sales of such merchandise.
1. The material provisions of Code § 92-3113 read as follows: "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, to be determined as follows: . . ."
The remaining paragraphs of this Code section provide for the methods of apportioning corporate income, the various methods to be used depending on the sources of the income and the type of business done by the corporation. One of these methods thus provided is the so-called "three-factor ratio," which is to be used by corporations engaged in the manufacture, production or sale of tangible personal property. It is unnecessary to set forth or to consider these provisions for the purposes of this opinion.
With respect to the first issue in this case, that is, the apportionment issue, the solution turns solely upon the question of whether the plaintiff is doing business outside of Georgia. Under the plain terms of the Code section quoted above, if the plaintiff is not doing business outside of Georgia, that is, if all of its business activity is conducted within this State, then it is not entitled to apportion its income under the three-factor ratio or on any other basis. The solution of this question, in turn, depends on whether the eleven so-called district sales managers were, under the facts stipulated, employees of the plaintiff or whether they were independent contractors conducting a business of their own and wholly free from the control of the plaintiff. This is so because the only activity of the plaintiff outside this State, as shown by the stipulation of facts, aside from the activities of these district sales managers, is the delivery of some of its merchandise in its own trucks. This activity, standing alone, would be insufficient to authorize a finding that the plaintiff was engaged in business outside the State of Georgia. The mere delivery of merchandise, even on a delivered at destination basis, as in this case, is insufficient to charge a taxpayer with doing business within the state where such deliveries are made, so as to subject him to the jurisdiction and the taxing laws of such state. Miller Bros. Co. v. Maryland, 347 U.S. 340 ( 74 S. Ct. 535, 98 L. Ed. 744). 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.
With respect to the issue of whether the district sales managers are servants and agents of the plaintiff acting solely for it and are conducting its business, or whether these so-called district sales managers are independent contractors conducting business on their own account, the facts stipulated show: These district sales managers, while charged with the duty of promoting the sale of the plaintiff's products and the products of the affiliated manufacturers within their prescribed territory are, nevertheless, free to "sell and promote the sale of products of other manufacturers, and do such other things as the `district sales managers' may see fit." They are also free to employ their own initiative, independent judgment, methods and procedures, hire such assistants and clerical personnel and to discharge such assistants and clerical personnel as and when they set fit. The only requirements imposed upon them by the plaintiff are that they produce a satisfactory sales volume within their territory and maintain a good reputation. These latter requirements do not authorize a finding that these district sales managers are employees of the plaintiff. "Under the Georgia statute and decisions, the test to be applied in determining whether the relationship of the parties under a contract for the performance of labor is that of employer and servant, or that of employer and independent contractor, lies in whether the contract gives, or the employer assumes, the right to control the time, manner and method of executing the work, as distinguished from the right merely to require certain definite results in conformity to the contract. Zurich General Accident Liability Ins. Co. v. Lee, 36 Ga. App. 248 ( 136 S.E. 173); Quinan v. Standard Fuel Supply Co., 25 Ga. App. 47 ( 102 S.E. 543); Mount v. Southern Ry. Co., 42 Ga. App. 546, 550 ( 156 S.E. 701); Home Accident Ins. Co. v. Daniels, 42 Ga. App. 648 (2) ( 157 S.E. 245); Irving v. Home Accident Ins. Co., 36 Ga. App. 551 ( 137 S.E. 105)." Yearwood v. Peabody, 45 Ga. App. 451 (2) ( 164 S.E. 901). To the same effect see Glens Falls Indem. Co. v. Clark, 75 Ga. App. 453, 459 ( 43 S.E.2d 752), and Alexander-Bland Lumber Co. v. Jenkins, 87 Ga. App. 678, 682 ( 75 S.E.2d 355). Applying this simple test, the district sales managers in this case are clearly independent contractors conducting a business on their own account and not subject to the control of the plaintiff as to the time, manner and method of doing the work, but are merely required to produce certain required results.
This case on its facts is not distinguishable from the cases of Montag Bros. v. State Revenue Commission, 50 Ga. App. 660 ( 179 S.E. 563) (affirmed without opinion, 182 Ga. 568); Suttles v. Owens-Illinois Glass Co., 206 Ga. 849 ( 59 S.E.2d 392); Redwine v. Dan River Mills, 207 Ga. 381 ( 61 S.E.2d 771); and Redwine v. United States Tobacco Co., 209 Ga. 725 ( 75 S.E.2d 556). The rulings in those cases, based on facts substantially like those of this case, require the ruling here made.
The fact that the plaintiff carried these district sales managers on its payroll as employees for the purposes of social security, old age benefits, and for income tax withholding purposes, does not, even when considered in connection with other facts stipulated, authorize the conclusion that they are not independent contractors. Young v. Bureau of Unemployment Compensation, 63 Ga. App. 130, 137 ( 10 S.E.2d 412); McNeel, Inc. v. Redwine, 90 Ga. App. 345, 347 ( 83 S.E.2d 33); Moore v. Williams, 95 Ga. App. 309, 310 ( 97 S.E.2d 718).
It follows with respect to the first issue that since the plaintiff was not engaged in any substantial activity on its own behalf outside of this State, it was not entitled to apportion its income under the provisions of Code § 92-3113. Since this ruling applies to the plaintiff's entire business activity, it is unnecessary to determine the nature of the plaintiff's business and the income therefrom with respect to the commissions received by it from the sales of affiliated products.
2. The solution of the question presented by the Federal tax deduction issue depends upon the interpretation and construction to be placed upon the act of the General Assembly approved February 27, 1953 (Ga. L. 1953, Jan.-Feb. Sess., p. 274 et seq.). This act amended Code § 92-3109 (c). The Income Tax Act of 1931 from which the present law stems made no provision for the deduction for the Federal income taxes. Ga. L. 1931, Ex. Sess., pp. 24, 32, § 11 (c). It is interesting to note in passing, however, that this act allowed to be deducted those taxes paid or accrued within the taxable year. It contained the further provision in § 2 (m) (Ga. L. 1931, Ex. Sess., pp. 24, 25) that for the purpose of deductions under the act, the word "Paid" meant "Paid or accrued," or "Paid or incurred," and that the words "Paid or accrued," "Paid or incurred," and "Incurred" should be construed according to the method of accounting upon the basis of which the net income was to be computed under the act, and that the word "Received" for the purpose of computation of net income under the act meant "Received or accrued," and that the words "Received or accrued" should be construed according to the method of accounting upon the basis of which the net income of the taxpayer was to be computed under the act.
The first material amendment to this section was enacted by the General Assembly at its extra session in 1937. By section 7 of the act approved Dec. 29, 1937 (Ga. L. 1937, Ex. Sess., pp. 150, 155) subdivision (c) of § 92-3109 was repealed and superseded. The new section thus enacted again listed as an allowable deduction from gross income taxes paid or accrued within the taxable year and allowed for the first time a deduction of Federal income taxes. This section carried the following proviso: "Provided, however, that the taxpayer may only deduct from gross income the amount of Federal net income taxes shown to be due and actually paid during the immediate preceding taxable year on the return filed by said taxpayer in such preceding taxable year." (Italics supplied). This proviso prevented a taxpayer from taking credit for such payments on his Federal tax liability as might arise by reasons of deficiency assessments on prior tax years and the like, and it indicated an intention on the part of the General Assembly to limit within narrow confines the taxpayer's right of deducting Federal income taxes on its State income tax return to only such taxes as were due and paid on a return filed by such taxpayer in the taxable year.
This section was again amended in an act approved January 26, 1950 (Ga. L. 1950, p. 16) and in an act approved Feb. 15, 1952 (Ga. L. 1952, pp. 405, 427 (10)). Neither of these amendments was material to the question now before the court. However, at the 1953 January-February session of the General Assembly, the legislature deemed it expedient to make clear its intention with respect to the deduction of Federal income taxes, and in an act approved Feb. 27, 1953 (Ga. L. 1953, Jan.-Feb. Sess., pp. 274-279), subsection (c) of § 92-3109 was extensively amended and re-enacted. In substance, it provided a deduction from gross income for taxes "Paid or accrued within the taxable year." With respect to this subject, section 1, par. (3) of this act provides: "Federal income taxes shall be deducted only in the year in which paid regardless of the method of accounting used by the taxpayer in keeping his books and records." And, "In the event of recovery or refund of Federal income taxes, actual or constructive, such refund shall be included in gross income of the taxpayer in the taxable period in which received, regardless of the method of accounting used by the taxpayer in keeping his books and records." (Italics supplied). Elsewhere in this act in Section I (6), it was declared that, "In the case of the first taxable year ending on or after February 15, 1952, a taxpayer reporting on the cash receipts and disbursements basis may deduct Federal income taxes paid within such year. For said taxable year a taxpayer reporting on the accrual basis may deduct Federal income taxes paid within such year." (Italics supplied). In dealing with the subject of a taxpayer on an accrual basis who had, prior to the enactment of that act, filed a tax return with the State covering a taxable period in which he might have deducted Federal income tax, but in which such taxpayer had failed to deduct Federal income tax, the act permitted such taxpayer to file an amended return for said period "in order to deduct Federal income taxes actually paid during said period."
In Paragraph (8) of Section I of this act, individual taxpayers were permitted to report their Federal income tax deduction on a cash or accrual basis only to the extent that such taxes, if reported on accrual basis, were actually paid to the Federal Government on or before the due date. This section did not apply to corporations.
As may be seen from the above, the 1953 act made it clear that in the case of corporations it was the intent of the legislature that they were to be permitted to deduct Federal income taxes actually paid during the taxable year covered by their return. The act contains no restriction with respect to income taxes paid on prior years as a result of deficiency assessments and the like, and it notably contained no restriction that such taxes must be actually due when paid, as contained in the 1937 act. Under these circumstances, the construction is demanded that under the 1953 act it was the intent of the General Assembly that a taxpayer could deduct Federal income taxes actually paid in the taxable year without regard to whether such taxes were due when paid and without regard to whether they were paid on prior years, the current year, or on future years. It likewise follows that the taxpayer in this case properly deducted the Federal income taxes actually paid by it and accepted by the Federal government, and that the Commissioner erred in overruling the taxpayer's protest to the additional assessment, and the superior court did not err in reversing that ruling.
Judgment affirmed in part and reversed in part. Townsend and Frankum, JJ., concur. Gardner, P. J., not participating.