10 N.W.2d 728 | Minn. | 1943
Cargill, Incorporated, was organized under the laws of Delaware, where it maintains a statutory office for the purpose of continuing its right to exist and function as a corporation, but transacts no business. It took over the business of another corporation known as Cargill Elevator Company. Taxpayer has its general business office in Minneapolis, where all corporate business is transacted and from which it manages and controls its operations, including those in Minnesota and in other states. Its business consists of merchandising, warehousing, and handling of grain and other commodities. Its operations extend to substantially every grain-producing state, including Nebraska and Illinois.
During the taxable periods here involved, taxpayer received dividends from three foreign corporations, which transacted no business in Minnesota and all of whose capital stock it owned.
One of the three foreign corporations is the Cargill Nebraska Company, a corporation organized under the laws of Nebraska, which owns an elevator in Omaha which is leased to taxpayer and in which taxpayer, as lessee, conducted its business in Nebraska. The reason assigned for such an arrangement is that a foreign corporation is prohibited by the constitution and laws of Nebraska from acquiring ownership of real property in that state.
Another is the Cargill Grain Company of Illinois, a corporation organized under the laws of Illinois. Prior to July 1, 1937, taxpayer was unable to operate a public warehouse and elevator business *542 in Illinois, because, under the law of that state, it was unable, as a foreign corporation, to obtain the necessary statutory permit. The Illinois corporation leased part of an elevator in Chicago, in which it transacted substantially the same line of business as that conducted by taxpayer.
The third is Cargo Carriers, Incorporated, a Delaware corporation, whose business consists of the transportation of grain and other commodities by vessels on the Great Lakes and on the seas and by barges operating on the Erie Canal. The reason given for organizing this corporation was to make available to taxpayer, for use in connection with the financing of its business, forwarders' receipts of this corporation, as a separate entity, for the purpose of pledging the same as security for money borrowed by taxpayer for financing its business operations.
The three corporations mentioned did not file any income tax return or pay any income tax in Minnesota.
Some facts are common to all the cases. The separate entity of the parent and of the stock-owned subsidiaries was observed. Each transacted its own business as a separate corporation. In their *543 intercorporate relations they made contracts, leases, and charges for services and use of money the same as if no such relationship existed. The principal source of the Nebraska corporation's income was rent paid to it by the parent corporation. Substantially all the income of the Illinois corporation was charges for handling and storage of grain and commissions and brokerage on transactions with the parent. Between 80 and 90 percent of the income of Cargo Carriers, Incorporated, was for freight charges, brokerage and charter fees, and miscellaneous items paid by the parent.
In Nos. 33481 and 33482, the taxpayer's original objections to the inclusion of the dividends in its net income for purposes of income taxation were that each of the subsidiaries was a foreign corporation not doing business in Minnesota; that they were "not in any way integrated with the business of taxpayer either as conducted in the state of Minnesota or elsewhere," and that any income received by taxpayer from such sources was in no way connected with its local business in Minnesota and was allocable under the state income tax law to the state of Delaware, taxpayer's domicile, and not to the state of Minnesota.
In No. 33483, taxpayer's original objections to the inclusion of the interest received from the parent corporation in its net income for purposes of taxation were that it was a foreign corporation whose business was not integrated with that of its parent and that the interest should be assigned under the state income tax law to the state of Delaware, taxpayer's domicile, and not to the state of Minnesota.
Subsequent to the filing of the original objections by the taxpayers, we decided the case of The Canisteo Corporation v. Spaeth,
In each case the commissioner of taxation found, and his decision was affirmed by the board of tax appeals, that each of the subsidiaries was an independent corporate entity in law and in fact; that each taxpayer had a "commercial domicile" in Minnesota, in consequence of which it was taxable here upon income from intangibles from sources outside the state the same as a resident of the state or a corporation organized under the laws thereof, and that the items in question were not to be apportioned under the income tax law, but were to be assignedin toto to Minnesota for purposes of income taxation.
1. First we shall consider the dividends received by the parent from its subsidiaries. The state income tax law2 prescribes rules for assigning income to this state or other states or countries. The state contends that the dividends and interest in question should be assigned to Minnesota under § 23(b)3 as a domiciled-within-the-state recipient's "income or gains from intangible personal property not employed in the business of the recipient." (Italics supplied.) Taxpayer contends that the dividends were income from *545 intangibles employed in its business, carried on partly within and partly without the state, and that such income is assignable in virtue of § 23 (d)4 under the provisions of § 25 (amended by L. 1939, c. 446, § 22). The assignability of the dividends depends on whether or not the stock of the subsidiaries was employed in the business of the parent, the recipient of the dividends. If the question is answered in the negative, the dividends were assignable solely to Minnesota; if it is answered in the affirmative, they were assignable among Minnesota and other states by apportionment as provided in § 25.
Primarily, the question whether taxpayer employed the stocks of the subsidiaries in its business is one of fact. The determination of the taxing officials, if reasonably supported by competent evidence and permissible inferences therefrom, will be sustained under the rule that findings of administrative officers, when made upon such proofs, are final on review. State ex rel. Ging v. Board of Education,
Since the board of tax appeals determined upon the merits that the dividends and interest were received from intangiblesnot employed *546
in the taxpayer's business, we shall not stop to inquire whether or not, as the state contends, the taxpayer, after having caused the corporate subsidiaries to be organized, will be heard to say that the corporate entities should be disregarded and that only the taxing authorities may raise that question. See Higgins v. Smith,
Here, the evidence supports the finding that the stocks of the subsidiaries were not employed in the business of the parent. The written statement in the original objections to the effect that the stocks were not employed by the taxpayer in its business were admissions constituting substantive evidence sufficient, standing alone, to support a finding of the fact to which they related. Litman v. Peper,
Proof that the subsidiaries' stocks were not employed in the parent's business is not confined to the admissions. The other evidence supports the view that the separate corporate entities of the parent and the subsidiaries were punctiliously observed and that their intercorporate business was transacted as if no parent-subsidiary relationship existed. "Where * * * the corporate separation is maintained and the subsidiary conducts its own business, the subsidiary, not the parent, is doing the business." Garber v. Bancamer-ica-Blair Corp.
In People ex rel. Waclark Realty Co. v. Williams,
"The relator was really a holding corporation for Senator Clark. It employed its capital in the precise way contemplated by the incorporators, in holding the title to a large quantity of real property *547 which it had acquired from its principal stockholder to promote the personal convenience of that gentleman. Where a corporation devotes its capital stock to the very purpose for which it was formed, it will hardly do to say that such stock is not employed."
A corporation and a sole owner of its stock will be treated as separate and distinct for income tax purposes, except in some exceptional cases, such as where the corporation is a mere sham and is used for tax avoidance, and in some others not here pertinent. In Moline Properties, Inc. v. Commr. of Int. Revenue,
In Interstate Transit Lines v. Commr. of Int. Revenue,
"For petitioner to engage in intrastate business in California, was, on the findings, illegal. Thus, the businesses of the two companies were distinct."
The finding that the stocks of the subsidiaries were intangibles not employed in the parent's business should be sustained. In short, the stock of each subsidiary was employed to carry on its own, not the parent's business. The separate and distinct corporate entities were maintained and observed. In the cases of the Illinois and Nebraska subsidiaries, the business transacted by them *548
could not, as a matter of law, have been transacted by the parent. It could not use the stocks of its subsidiaries to carry on business which it was prohibited by law from doing. These cases come squarely within the rule of Interstate Transit Lines v. Commr. of Int. Revenue, supra. In the case of Cargo Carriers, Incorporated, it appears that it was organized to carry on a distinct line of business for the parent's advantage and convenience. That is a sufficient reason for treating it as "a separate taxable entity." Moline Properties, Inc. v. Commr. of Int. Revenue,
The dividends were from intangibles not employed in taxpayer's business. They were assignable solely to Minnesota for purposes of income taxation.
We have examined the cases cited by taxpayer and find that they are not controlling. We shall refer to only two of them. In Kentucky Tax Comm. v. Fourth Avenue Amusement Co.
In Butler Bros. v. McColgan,
2. The provision of § 23(b), assigning to this state income from intangibles not employed in the business of the recipient, if the recipient is domiciled within the state, is a statutory application of the rule that income from intangibles follows the domicile of the *549
recipient. Rottschaefer, "The Minnesota State Income Tax," 18 Minn. L.Rev. 93, at p. 154. In Graves v. Schmidlapp,
"Intangibles, which are legal relationships between persons and which in fact have no geographical location, are so associated with the owner that they and their transfer at death are taxable at the place of his domicile, where his person and the exercise of his property rights are subject to the control of the sovereign power."
In this connection it should be borne in mind that the determination of the board of tax appeals is not based upon the ground given in The Canisteo Corp. v. Spaeth,
Corporations are organized in some states in full recognition of the fact that they will depart therefrom to other states to establish their business homes. As a practical matter, the migration is no different from that of an individual. Legal fiction should be made to yield to reality. A corporation may make its actual, as distinguished from its technically legal, home in a state other than that of its incorporation. Where a corporation, organized under the laws of one state, transacts no business there and establishes its principal office in another, where it manages and directs its business, it acquires a commercial domicile there, in virtue of which it is subject to taxation there upon its intangibles, even though its business may extend into other states. For purposes of taxation, intangibles have a situs at the taxpayer's commercial domicile. Memphis Natural Gas Co. v. Beeler,
3. What has been said is sufficient to show that the interest received by the subsidiary warehouse company from its parent, the elevator company, is taxable in Minnesota. The fact that the subsidiary had its commercial domicile here renders it subject to a tax on such income. Since both the subsidiary and the parent had their commercial domicile within the state, there may be some question whether the interest was not received here as a matter of law. But decision need not be put on that ground. A state may tax interest received by a domiciliary thereof from a source without the state. New York ex rel. Cohn v. Graves,
Writs dismissed and decision of board of tax appeals in each case affirmed.
MR. JUSTICE MAGNEY, not having been a member of the court when this case was argued and submitted, took no part in its consideration or decision.
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"(b) Income or gains from intangible personal property not employed in the business of the recipient of such income or gains, and from intangible personal property employed in the business of such recipient if such business consists principally of the holding of such property and the collection of the income and gains therefrom, wherever held and whether in trust or otherwise, shall be assigned to this state if the recipient thereof is domiciled within this state; * * *."
"Income derived from carrying on a trade or business partly within and partly without this state, including in the case of a business owned by natural persons the income imputable to the owner for his services and the use of his property therein, shall be governed by the provisions of Section 25. This shall not apply to business income subject to the provisions of subdivision (a)." (L. 1933, c. 405, § 23[d].)
As amended in 1937, the section reads [Id. §
"(d) Whenever a trade or business is carried on partly within and partly without this state, the entire income derived from such trade or business, including income from intangible property employed in such business and including in the case of a business owned by natural persons the income imputable to the owner for his services and the use of his property therein, shall be governed, except as otherwise provided in sections 32-2 and 32-3, by the provisions of Section 25, notwithstanding any provisions of this Section 23 to the contrary. * * *" (Ex. Sess. L. 1937, c. 49, § 17.) *551