297 N.W. 574 | Wis. | 1941
Action commenced on April 22, 1939, by Burroughs Adding Machine Company, a Missouri corporation, against Wisconsin Tax Commission, Wisconsin Department of Taxation, and Elmer E. Barlow, commissioner of taxation of the state of Wisconsin, defendants, under sec.
In 1921 appellant and the parent corporation entered into a contract by the terms of which appellant agreed to purchase from the parent all of the products manufactured by it. It was agreed that for these products appellant would pay to the parent all sums received by it except such a sum as would permit appellant to earn annually twenty-four per cent of the par value of appellant's capital stock. The corporations *426
operated under this contract until 1934, and during the period of its operation appellant's books annually disclosed a net income of twenty-four per cent of $150,000, or $36,000 per year. In 1926 the Tax Commission demanded consolidated statements of the income of appellant and the parent company, but appellant refused the demand, whereupon a doomage assessment on $100,000 of income was proposed by the Tax Commission under sec.
The question here is whether there is any authority in the Tax Commission under the provisions of sec.
The state contends that since the contract of 1921 was concededly unfair in that it tended arbitrarily to limit the profits of appellant and to divert income from the state of Wisconsin, the original returns based upon it for years 1929 to 1933 were properly disregarded under sub. (1) of sec.
Sec.
"(1) When any corporation liable to taxation under this act conducts its business in such a manner as either directly or indirectly to benefit the members or stockholders thereof or any person interested in such business, by selling its products or the goods or commodities in which it deals at less than the fair price which might be obtained therefor, or where a *429 corporation, a substantial portion of whose capital stock is owned either directly or indirectly by another corporation, acquires and disposes of the products of the corporation so owning a substantial portion of its stock in such a manner as to create a loss or improper net income, the commission may determine the amount of taxable income of such corporation for the calendar or fiscal year, having due regard to the reasonable profits which but for such arrangement or understanding might or could have been obtained from dealing in such products, goods or commodities.
"(2) For the purpose of this chapter, whenever a corporation which is required to file an income tax return, is affiliated with or related to any other corporation through stock ownership by the same interests or as parent or subsidiary corporations, or whose income is regulated through contract or other arrangement, the tax commission may require such consolidated statements as in its opinion are necessary in order to determine the taxable income received by any one of the affiliated or related corporations."
Sec.
"The tax has been laid upon the theory that the profit to the agent in order to be fair and reasonable must absorb the entire profit to the principal from the business of the agency. . . . The privilege for which the appellant has been taxed is the privilege of selling in New York the products of its principal. The business transacted by the principal included the process of manufacture carried on in Michigan and Indiana, a process which was anterior of necessity to any service by the agent. We find no basis for holding that a fair agreement between the parent which manufactured and the subsidiary which sold would have given the whole profit to the subsidiary and nothing to the parent."
Judge CARDOZO concedes, as did this court in the CurtisCase, supra, that if the selling agency is a mere bookkeeping device of the parent, there is power in the taxing state to assess the parent corporation upon its activities there and to use a consolidated return to apportion the proper amount of this tax to the taxing state. But where a statute, as does sec.
As Judge CARDOZO points out, there should be little difficulty in addressing the inquiry to the question how much would have been made had contracts not artificially controlled the income. A consideration of the usual or customary commissions and the normal and usual expenses of selling and servicing, the profit or loss on trade-ins, and other such matters, would bear directly upon the issue prescribed by sec.
We are cited to several cases which warrant brief mention. Respondent relies upon Buick Motor Co. v. Milwaukee
(D.C.),
Appellant contends that its method of estimating income for the years 1929 to 1933, inclusive, establishes conclusively what it would have made but for the 1921 contract, and that its 1934 contract is in no way obnoxious to the policy of sec.
By the Court. — Judgment reversed, and cause remanded with directions to remand the record to the Tax Commission or its successor for further proceedings. *433