Gеrald H. GOLDBERG, Director of Revenue, State of Missouri, Petitioner-Respondent, v. STATE TAX COMMISSION, Respondent-Appellant.
No. 62821.
Supreme Court of Missouri.
Aug. 23, 1982.
Rehearing Denied Oct. 12, 1982.
WELLIVER, Judge.
Jack S. Curtis, Springfield, for respondent-appellant.
John Ashcroft, Atty. Gen., Richard L. Wieler, Asst. Atty. Gen., Jefferson City, for petitioner-respondent.
William D. Crampton, Thomas C. Walsh, Juan D. Keller, St. Louis, for Associated Industries of Missouri.
Lawrence H. Weltman, John P. Barrie, Lea A. Bailis, St. Louis, for Checker Food Products Co. and Swing-A-Way Mfg.
Ernest M. Fleischer, J. Scott Merritt, Jr., Steven J. Beilke, Kansas City, for Continental Disc Corp., et al.
The State Tax Commission appeals a circuit court judgment reversing its decision in favor of Paul Mueller Company, the real party in interest, and reinstating an assessment by the director of revenue of additional income tax against Mueller for the years 1972 through 1975. The issue is whether Mueller may, for purposes of determining its Missouri income tax liability, apportion the income it derived from the sale of goods to out-of-state customers. The director of revenue determined, and the trial court held, that it may not. We reverse and remand.
I
Paul Mueller Company is a Missouri corporation located in Springfield, Missouri, that manufactures stainless steel products for sale throughout the United States and in a number of foreign countries. Many of its products are specially manufactured to meet customer specifications. Mueller is not domesticated in any other state, and it neither owns property nor maintains branch offices outside Missouri. It employs sales representatives who live outside the state, and the salesmen based at the Springfield office also travel extensively throughout the United States. All of the sales representatives are under the control of the Springfield office, which must approve all purchase orders and receive all payments. Negotiations with potential purchasers are often necessary after solicitation of orders when terms appearing in purchase orders are not in accord with terms proposed by Mueller. All of Mueller‘s products are manufactured in Springfield, and most are shipped F.O.B. Springfield. Personnel are sent from the Springfield office whenever Mueller‘s products require service or repair.
Although Mueller paid no income tax to any other state during the years in question, for 1972 it apportioned its income pursuant to the single factor formula set forth in
II
This case presents an issue of far-reaching significance to Missouri businesses engaged in interstate commerce.2 The central inquiry is the method by which the determination is to be made whether a taxpayer may for Missouri income tax purposes allocate income earned from the transaction of business in interstate commerce. In M.V. Marine Co. v. State Tax Commission, 606 S.W.2d 644, 649 (Mo. banc 1980), we said that the advent of the Multistate Tax Compact,
Missouri enacted the Compact in 1967. S.B. 3, 74th Gen. Assem., Reg. Sess., 1967 Mo. Laws 102. Article III, § 1 of the Compact provides in part that a taxpayer may elect to apportion his income pursuant to either Article IV of the Compact or state law existing independently of the Compact if that income “is subject to apportionment and allocation for tax purposes pursuant to the laws of a party state or pursuant to the laws of subdivisions in two or more party states.” Article IV, § 2 of the Compact provides in part that “[a]ny taxpayer having income from business activity which is taxable both within and without this state” shall apportion his net income as therein provided. Relying upon M.V. Marine, the director of revenue argues that the trial court‘s decision should be affirmed because Paul Mueller Company paid no income tax in any other state during the years in question and has made no showing that it was subject to tax liability in any other state. The sole issue before this Court, therefore, is whether M.V. Marine‘s statement of the law is correct. Upon this reexamination we conclude that it is not.
M.V. Marine involved income from the lease of barges. Those transactions were fully consummated within Missouri, and the income therefrom was properly taxable by Missouri under the applicable statutes, nоw
III
The flaw in the M.V. Marine dictum rests upon a fundamental misinterpretation of the purpose underlying the adoption of the Compact. The Compact was never intended by anyone to be a substantive taxation statute. Instead, it was the product of a fear among the states that Congress would act to wrest from the states the authority to tax the income of businesses operating in interstate commerce. It was conceived as merely a procedural vehicle by which the states could resolve conflicts among themselves and aggrieved taxpayers concerning the proper scope of taxation authority that affected states could exercise with regard to a taxpayer subject to taxation in more than one state.
The United States Supreme Court held in Northwestern States Portland Cement Co. v. Minnesota, 358 U.S. 450, 79 S. Ct. 357, 3 L. Ed. 2d 421 (1959), that states сould tax the net income from the interstate operations of foreign corporations if the tax were nondiscriminatory and were fairly apportioned to local activities that constituted a sufficient nexus to support the exercise of the taxing power. Following Portland Cement, Congress acted to establish minimum standards for the exercise of that power by providing, among other things, that a state may not tax a foreign corporation on income derived from the transaction of business in interstate commerce if the corporation‘s only contact with that state is the solicitation of orders for the sale of tangible personal property. Act of Sept. 14, 1959, § 101(a), Pub.L. No. 86-272, 73 Stat. 555, 555 (codified at
the basic justification for the Multistate Tax Compact is that the States themselves are the most appropriate instruments for the determination of their own tax laws and policies. The Compact is a means by which the States can cooperatively work out any problems which may exist, or which may arise in the future, because businesses function in more than one State. Further, the record of activity in Congress over the past few years appears to make it likely that if the States do not take cooperative action to deal with the problems alleged to exist, Federal legislation restricting the jurisdiction of the States and their local governments to tax will ensue. This may be true whether or not allegations that serious problems and inequities exist are actually covered.
In 1959, the United States Supreme Court decided the Northwestern Portland Cement and Stockham Valve cases. The net effect of these decisions, and of that in the Scripto case of 1961, was to make it absolutely clear that State and local jurisdiction to tax could rest on sales activity of the taxpayer within the jurisdiction, even if the taxpayer had no physical property or fulltime employees within the jurisdiction. . . . [T]he final judicial determination that such was the case led some elements of the multistate business community to press for Federal legislation that would establish a contrary result. Within months of the Northwestern and Stockham decisions, this pressure succeeded in securing enactment of Public Law 86-272, a statute which removed many sales activities of out-of-state firms from State and local taxing jurisdiction. . . .
Also authorized by Public Law 86-272 and amendments to it was a study of State and local taxation of multistate businesses. On the last day of the first session of the 89th Congress, the Willis Subcommittee presented its bill, H.R. 11798. Briefly stated, H.R. 11798 would
have limited drastically the jurisdiction of State and local governments in the fields of income, sales and use, gross receipts and capital stock taxation. It wоuld have injected the Federal Government into the administration of State and local tax laws and adjudication of tax disputes. Finally, it would have prohibited certain practices complained of. The several more recent Congressional bills, like H.R. 11798, prevent overlapping or nonuniform State and local taxation by the simple expedient of exempting certain multistate businesses from such taxation. Obviously, this would relieve the favored taxpayers of any compliance burdens or from any concern with nonuniformity of State and local laws. But it would do so at the expense of State and local revenue raising capacity, and without attempting to determine whether the favored taxpayers actually do owe any obligation of support to the jurisdictions affected.
Multistate Tax Commission, Suggested State Legislation and Enabling Act, at C-3 to C-4 (emphasis added), reprinted in 23 Committee of State Officials on Suggested State Legislation, Council of State Governments, Suggested State Legislation, at C-3 to C-4 (1968).
In short, the Compact represents an effort by the states to devise some method by which they could settle disputes among themselves and aggrieved taxpayers regarding the taxation of the income of businesses operating in interstate commerce. It provides the vehicle that allows the states to avoid a confrontation with the federal government by settling their own disputes and, at the same time, permits them to continue to take a bite of the income earned by businesses in interstate commerce. The purpose clauses of Article I and the arbitration provisions of Article IX confirm this interpretation. Only through a cooperative effort such as the Compact could the states forestall the threat that Congress might take from them the authority to tax any
IV
Any reasonable reading of the evidence before us compels the conclusion that neither the Multistate Tax Commission, which was established pursuant to Article VI of the Compact, nor the Missouri legislature ever intended that the Compact have the effect that M.V. Marine would give it.
The issue in this case is not whether a taxpayer may elect to apportion its income under either the Compact or
Reg. III.1.(A). Taxpayer option, state and local taxes; state apportionment and allocation.—This option is available to taxpayers whose income is subject to apportionment and allocation for tax purposes pursuant to the laws of the party state. The provisions of this compact are a part of the law of a compact state. To qualify for election, therefore, the taxpayer‘s income must be subject to apportionment and allocation either (1) under the income tax laws of the party state, other than by reason of Article IV, or (2) under Article IV.
All St. Tax Guide (P-H) ¶ 1612 (1977).4 From this regulation it is clear that the
The Compact on its face recognizes the existence and applicability of state laws independent of the Compact. Article III, § 1 provides that
[a]ny taxpayer subject to an income tax whose income is subject to apportionment and allocation for tax purposes pursuant to the laws of a party state or pursuant to the laws of subdivisions in or more party states may elect to apportion and allocate his income in the manner provided by the laws of such state or by the laws of such states and subdivisions without reference to this compact, or may elect to apportion and allocate in accordance with article IV.
(Emphasis added.) At the time Missouri adopted the Compact in 1967, the “source of income” test embodied in present
The Multistate Tax Commission as amicus curiae points out that Article IV of the Compact comprises the Uniform Division of Income for Tax Purposes Act, 7A U.L.A. 91-108 (1978), which was first approved by the National Conference of Commissioners on Uniform State Laws in 1957. Section 21 of the uniform act provides for the repeal of “acts and parts of acts.” The Missouri legislature did not adopt that section of the act, and thus repealed no laws, when it adopted Article IV as a part of the Compact. It is clear, therefore, that the legislature did not intend by the adoption of the Compact to vitiate the “source of income” test of
Evidence exists that is even more affirmative. First, the legislature has specifically refused to enact three bills that would abolish the “source of income” test in favor of the Compact‘s jurisdictional test. H.B. 507, 80th Gen.Assem., 1st Reg.Sess. (1979); S.B. 566, 79th Gen.Assem., 2d Reg. Sess. (1978); H.B. 1682, 79th Gen.Assem., 2d Reg. Sess. (1978). Two other bills that would have altered or abolished the single factor formula of
(7) . . . For the purposes of taxation under chapter 143, RSMo, a transaction involving the sale of tangible property is:
(a) “Wholly in this state” and not “in commerce” if both the seller‘s shipping point and the purchaser‘s destination point are in this state;
(b) “Partly within this state and partly without this state” and “in commerce” if: (i) the seller‘s shipping point is in this state and the purchaser‘s destination point is outside this state, or (ii) the seller‘s shipping point is outside this state and the purchaser‘s destination point is in this state. The purchaser‘s destination point shall be determined without regard to the F.O.B. point or other conditions of the sale.
S.B. 200, 81st Gen.Assem., 1st Reg.Sess., 1981 Mo.Laws 232, 234; C.C.S.H.C.S.S.C.S. S.B. 218, 235, 298, 340 & 398, 80th Gen.Assem., 1st Reg.Sess., 1979 Mo.Laws 331, 333-32.
“This Court‘s primary responsibility is to ascertain the intent of the general assembly from the language used, and to give effect to that intent.” Goldberg v. Administrative Hearing Commission, 609 S.W.2d 140, 144 (Mo. banc 1980). It takes no strained interpretation to make that determination. The English language need only be read sequentially: Article IV of the Compact must be read as following Article III. Rarely has this Court been presented with more positive proof of legislative intent. We should heed that directive. The application of the dictum in M.V. Marine would produce a result in direct opposition to the clearly expressed intent of the legislature. It is the function of the legislature, and not that of this Court, to impose taxes.
V
The assumption that the legislature intended to tax all income of corporations doing business in interstate commerce, which both M.V. Marine and the opinion before rehearing made, flies squarely in the face of the long-established rule that taxation statutes must be construed strictly against the taxing authority absent a clearly expressed contrary legislative intent. This Court said in Artophone, which considered the same statute involved in the present case, that
[g]enerally it may be said that taxing statutes are to be strictly construed in favor of the taxpayer and the fact that a particular subject of taxation, claimed to be taxed, is within the purview and intendment of the taxing statute must clearly appear from the statute so to be. “It is well established that the right of the taxing authority to levy a particular tax must be clearly authorized by the statute, and that all such laws are to be construed strictly against such taxing authority.”
Artophone Corp. v. Coale, 345 Mo. at 353, 133 S.W.2d at 347. That principle remains
The circuit court found after reviewing the record that Mueller‘s only activities outside Missouri were the “mere solicitation of orders” to be approved by the home office, and it concluded that in situation the entire transaction occurs within Missouri. The record shows, however, that negotiation over the terms of a contract often occurs after the solicitation of orders but before acceptance of the purchase orders by Mueller. This Court has said that “[t]he word ‘transaction’ as frequently used in the singular and plural, is practically all inclusive, and signifies any business activity prоductive of income.” In re Kansas City Star Co., 346 Mo. at 672, 142 S.W.2d at 1037. It “is a word of flexible meaning” and “may comprehend a series of many occurrences, depending not so much upon the immediateness of their connection as upon their logical relationship.” Artophone Corp. v. Coale, 345 Mo. at 355, 133 S.W.2d at 348. In this case both the solicitation of orders outside the state6 and any negotiation necessary before consummation of the contract were integral components of the entire transaction, and they should have been considered. We held in International Travel Advisors that the statute imposes a tax on income derived from “transactions,” which encompasses more than “sales.” 567 S.W.2d at 654. The trial court ignored those portions of the transactions occurring outside of Missouri7 and in essence applied a “sales,” rather than a “transactions,” test.
The judgment of the circuit court is reversed, and the cause is remanded for entry of judgment affirming the decision of the State Tax Commission.
DONNELLY, C.J., and SEILER and BARDGETT, JJ., concur.
HIGGINS, J., dissents in separate dissenting opinion filed.
RENDLEN and MORGAN, JJ., dissent and concur in separate dissenting opinion of HIGGINS, J.
HIGGINS, Judge, dissenting.
I dissent because I believe the majority opinion misconstrues and fails to apply this Court‘s decision in M.V. Marine Co. v. State Tax Commission, 606 S.W.2d 644 (Mo. banc 1980)1 in resolution of this case.
Paul Mueller Company, in support of this appeal, contends the trial court erred in its reversal of the ruling of the State Tax Commission. It asserts: (1) the Commission‘s finding that Mueller‘s sales to out-of-state customers constituted transactions partly in and partly outside Missouri is suppоrted by substantial and competent evidence; (2) the court‘s finding that Mueller‘s sales to out-of-state customers constituted transactions wholly within Missouri and taxable one hundred percent in Missouri is contrary to
Dispositive of this case is whether the decision in M.V. Marine controls the present case. In that case this Court recognized that “the advent of the [Interstate Tax] Compact has simplified the process of determining entitlement to apportion taxes by changing the focus of the inquiry from a search for the ‘source’ of income to a simple showing of ‘tax liability’ in another state.” Id. at 649, quoting from
Mueller would distinguish M.V. Marine as factually unique and inapplicable to the present case; however, the ruling in that case is one of statutory interpretation and not a factual determination. The legal issue of a taxpayer‘s eligibility to apportion income pursuant to
Mueller, in recognition that its tendered distinction might prove unacceptable, urges alternatively that this Court should recon-
1. Any taxpayer subject to an income tax whose income is subject to apportionment and allocation for tax purposes pursuant to the laws of a party state or pursuant to the laws of subdivisions in
two or more party states may elect to apportion and allocate his income in the manner provided by the laws of such state or by the laws of such states and subdivisions without reference to this compact, or may elect to apportion and allocate in accordance with article IV. This election for any tax year may be made in any party states or subdivisions thereof or in any one or more of the party states or subdivisions thereof without reference to the election made in the others. . . .
I
Whether the interpretation of the Compact and
We need not here discuss or consider the question whether or not the Legislature could tax the entire net income from all sources of a domestic corporation. The question is does the present law do so? Generally it may be said that taxing statutes are to be strictly construed in favor of the taxpayer and the fact that a particular subject of taxation, claimed to be taxed, is within the purview and intendment of the taxing statute must clearly appear from the statute so to be. “It is well established that the right of the taxing authority to levy a particular tax must be clearly authorized by statute, and that all such laws are to be construed strictly against such taxing authority.” State ex rel. Ford Motor Co. v. Gehner, 325 Mo. 24, 29, 27 S.W.2d 1, 3 (1930), and cases cited. Of course “The primary rule of construction of statutes is to ascertain the lawmakers’ intent, from the words used if possible; and to put upon the language of the Legislature, honestly and faithfully, its plain and rational meaning and to promote its object and ‘the manifest purpose of the statute, considered historically,’ is properly given consideration.” Cummins v. Kansas City Public Service Co., 334 Mo. 672, 684, 66 S.W.2d 920, 925 (1933).
These rules are equally applicable in the present case. Additional rules are applicable in this case because the Compact is considered as it relates to Chapter 143, RSMo 1978. When more than one statutory provision is involved, the Court must consider that the law does not favor a repeal by implication, but instead the provision relating to the same subject matter must if possible be construed so as to maintain the integrity of each. 2A C. Sands, Sutherland Statutory Construction, §§ 51.01, 51.02, at 287-291 (4th ed. 1973); See, e.g., City of Raytown v. Danforth, 560 S.W.2d 846, 848 (Mo. banc 1977). Statutes must be read in para materia, giving effect to each word, clause and provision, State ex rel. Fort Zumwalt School Dist. v. Dickherber, 576 S.W.2d 532, 536 (Mo. banc 1979); Blue Springs Bowl v. Spradling, 551 S.W.2d 596 (Mo. 1977); a chronologically later statute, which functions in a particular way will prevail over an earlier statute of a more general nature, Laughlin v. Forgrave, 432 S.W.2d 308 (Mo. banc 1968); and the latter statute will be regarded as an exception to or qualification of the earlier general statute, City of Flat River v. Mackley, 212 S.W.2d 462 (Mo.App.1948). See generally Sutherland Statutory Construction, supra, § 51.02.
Article III.1 of
Compact to apply to all state and local taxes.—The provisions of the compact shall apply to any tax levied by the state of Missouri or its political subdivisions.
This section is not part of the Multistate Tax Compact as adopted by other party states; it is unique to Missouri. Therefore, although it is among the statutory sections which comprise the Compact as adopted in Missouri, it is the “law of a party state” because it is specifically Missouri law and not part of the uniform provisions as adopted by all compact states.
With this legislative declaration in mind, we conclude that although taxpayers still are given an option on the method of allocation they may use, all other questions reference apportionment of income are to be resolved by reference to the Compact. We reach this conclusion by virtue of the mandatory language of
§ 32.210 , the provisions of§ 32.200, art. III. § 1 providing for the сhoice of methods of allocation and the continued existence of§ 143.451 which sets out some of those choices.
Amicus on behalf of Mueller and the majority opinion assert that
III
Next it is argued that if M.V. Marine is correct and the right to apportion is deter-
The foregoing interpretation is supported by the manifest intent and purpose of the Compact as expressed in article I. This is particularly true when it is recognized that the purpose of the Compact and that of
No case other than M.V. Marine has addressed what effect adoption of the Compact has had on a taxpayer‘s entitlement to elect to allocate or apportion. Although in other cases the single factor formula has been referred to as “the elective alternative formula,” this is in regard to a taxpayer‘s right to use the apportionment formula as opposed to the allocation method. See, e.g., International Travel Advisors, Inc. v. State Tax Commission, 567 S.W.2d at 653. The right to elect one versus the other is distinct from the entitlement to use either. The right to the former is not affected by M.V. Marine. Notwithstanding their limited precedential value, examination of cases decided priоr to M.V. Marine is useful to illustrate that the Compact may in part have been adopted to remedy the problems presented by these cases.
In the “allocation” or “source of income” cases, the “source of income” has been determined by locating the place where it was earned or produced, if by labor, where the labor is performed—if by capital, the place where the capital is employed. A.P. Green Fire Brick Co. v. State Tax Commission, 277 S.W.2d at 548; In re Union Electric Co. of Missouri, 161 S.W.2d at 971; Union Electric Co. v. Coale, 146 S.W.2d at 635; see also In re Kansas City Star Co., 142 S.W.2d at 1037. The cases involving use of the apportionment formula of
Notwithstanding this common theme, the statutory language has caused difficulty and the cases conflict in their constructions of it. This confusion is demonstrated by the cases of Artophone Corp. v. Coale, supra; F. Burkhart Mfg. Co. v. Coale, supra; In re Kansas City Star Co., supra; River Corp. v. State Tax Commission, supra; and International Travel Advisors, Inc. v. State Tax Commission, supra. In four of these cases the single factor apportionment formula was in issue and each time the Court was faced with how to construe the phrase “sales which are transactions partially within and partially without”
In Artophone Corp. v. Coale, supra, the Court broadly construed “transactions” to permit the taxpayer to apportion its income by use of the formula and include one-half of its sales income to out-of-state customers. The “out-of-state portion” of Artophone‘s “transactions” was the sending of traveling salesmen to other states. In F. Burkhart Mfg. Co. v. Coale, supra, (decided less than a year after Artophone) the Court narrowly construed “transactions” to exclude all income which the taxpayer made from sale of products manufactured out of state to out-of-state customers. The Court ruled that the directory control by this Missouri company‘s executives at the Missouri home office was not sufficient to make any part of the contested sales transaction within this state. This ruling was made contrary to Coale‘s contention that if traveling salesmen‘s solicitation was enough to take part of the transaction out of Missouri (as
In In re Kansas City Star Co., supra, the Court considered the propriety of the taxpayer‘s use of a special formula which included as taxable income in Missouri that percentage of its total newspaper circulation which was distributed in this state. Id. 142 S.W.2d at 1036; see
In State ex rel. River Corp. v. State Tax Commission, supra, the taxpayer had its principal office and plant in Missouri. From this Missouri plant cement was manufactured and shipped to non-Missouri terminals where it was stored and sold. The Court ruled that the place where the sale was completed was determinative of the “source of the income,” thus yet another construction of “sales which are transaction” was made. The result in River Corp. was that none of the company‘s income was considered to be even partially from within this state even though the cement sold out of state was manufactured here. One hundred percent of that taxpayer‘s out-of-state sales income was excluded from Missouri taxable income. This ruling is clearly contrary to Artophone, supra, and Kansas City Star, supra.
The problematic effect of the River Corp. “sales” test was made apparent in International Travel Advisors, Inc. v. State Tax Commission, supra, wherein taxpayer was a travel agency which solicited tour business from professional and social organizations throughout the country from its Missouri office. The taxpayer‘s business procedures enabled it to argue based on River Corp. that most of its “sales” were made completely out of state, although most of its activities in the transaction of sales were in Missouri. The Court overruled the “location where the sale was completed” test of River Corp., and focused upon the entire transactiоn to determine income source.
This decisional inconsistency refutes the majority‘s assertion that any certain construction by this Court has existed for the legislature to approve by re-enactment of the statute. Therefore the deference normally given to statutory interpretation decisions which are subsequently approved by re-enactment is not persuasive in considering the decision made prior to M.V. Marine.
The conflicting results in these cases demonstrate the confusion which surrounds the question when one may apportion. This confusion is caused by the wording of
IV
Next, Mueller argues that adoption of the M.V. Marine interpretation of the Multistate Tax Compact returns Missouri to the discriminatory situation which existed prior to 1927 by “taxing domestic corporations on a greater portion of their income and upon a different basis than foreign corporations, who would again be in a favored position.” That is if a corporation pays a franchise tax or corporate stock tax in another jurisdiction, it may apportion as it chooses because it is subject to tax as defined in
It is plain, we think, that the original income tax law, that of 1917, did impose a tax upon the entire net income of domestic corporations from all sources, intrastate or interstate. By subsequent legislation, as pointed out above, the Legislature apparently recognized that the original law contained or permitted certain discriminations, which it sought to remove by the amendment or change of 1927, continued in principle, with clarifying provisions on this point, by later amendments. . . . In rewriting or amending the law in 1927 the Legislature evidently had in mind that the then existing law made “certain discriminations between residents and non-residents, and between individuals and corporations.” What were those discriminations which the Legislature obviously sought to eliminate? Learned counsel for Amici Curiae, in a brief filed with us, thus illustrate:
“As stated before, the 1917 and 1919 Acts discriminated against Missouri corporations. Take, for instance, two large nationwide shoe manufacturing concerns located in St. Louis. Each is competing in the same territory in Missouri and in
Missouri‘s vast trade area in many other states, for the same business, from the same customers. Company A has paid its charter fees we will say, to the State of New Jersey, and it is a citizen of that state. Company B has paid its charter fees and incorporating fees to the State of Missouri, and it is a citizen of this state. Let us assume that each corporation did 90% of its business outside the State of Missouri. Corporation A then paid to the State of Missouri a tax upon only 10% of its net income, while Corporation B paid to its own government, of which it was a citizen, a tax upon 100% of its net income. It thus paid, assuming the business is equal, nine times as much tax to its own mother government as the stranger, equally protected by its laws. The discrimination is visible to the naked eye. It gave foreign corporations a tremendous competitive advantage.”
Id. Mueller suggests and the majority determines that the Artophone tax policy interpretation should be retained.
The remedial intent accredited to the legislature should be that which is directly related to the nature of the discrimination. The above hypothetical case has been accepted as indicative of the discrimination which the legislature was thought to be alleviating. The discrimination was said to be in requiring domestic corporations to pay more income tax to Missouri than was required of foreign corporations when both did the same amount of business here. This was accepted as the explanation for the adoption of the “source of income” rule because that rule put all corporations upon equal footing; using the amount of income earned in Missouri to decide the amount of income taxable in this state.
This illustration is defective, however, because it fails to consider the tax consequences of the taxpayers’ operation in other states. This contradicts the Court‘s view that: “In the field of income taxation in particular it is important to penetrate be-
| A Company of New Jersey | B Company of Missouri | |
|---|---|---|
| Business in Missouri | 10% | 10% |
| Business in New Jersey | 10% | 10% |
| Business elsewhere | 80% | 80% |
| Income taxable in Missouri | 10% | 100% |
| Income taxable in New Jersey | 100% | 10% |
| Income taxable elsewhere | 80% | 80% |
| Total taxable income | 190% | 190% |
Consider in the alternative, other states including New Jersey tax only that portion of a company‘s income earned within that state regardless of whether it is a domestic or foreign company; that is, the other states used the source rule.7
| A Company of New Jersey | B Company of Missouri | |
|---|---|---|
| Business in Missouri | 10% | 10% |
| Business elsewhere | 90% | 90% |
| Income taxable in Missouri | 10% | 100% |
| Income taxable elsewhere | 90% | 90% |
| Total taxable income | 100% | 190% |
The result of Missouri‘s taxation on one hundred percent of the Missouri B Compa-
The use of “source” as the method of testing what income this state can tax its domestic corporation without fear of taxation by another state is effective because this same taxpayer is a foreign corporation in other states and may be taxed only upon income earned in that state. This is true because a state‘s jurisdiction to tax a foreign company‘s income depends upon the “nexus” requirements of the Fourteenth Amendment of the United States Constitution: “[A] ‘minimal connection’ between the interstate activities and the taxing State, and a rational relationship between the in-come attributed to the State and the intrastate values of the enterprise.” (Citing earlier cases) Mobil Oil Corporation v. Commissioner of Taxes, 445 U.S. 425, 436-437, 100 S. Ct. 1223, 1231-1232, 63 L. Ed. 2d 510 (1980); see Northwestern States Portland Cement Co. v. Minn., 358 U.S. 450, 79 S. Ct. 357, 3 L. Ed. 2d 421 (1959).
All of this demonstrates that this Court in Artophone may have misinterpreted the legislative intent underlying the “source of income” language. Notwithstanding this, the issue of present concern is the legislature‘s current intent in enacting the Compact and whether this may be harmonized with the purpose of the “source” rule,
The four purposes of the Compact are expressed in
The Act addressed the problem of how to divide the income of a multistate business for tax purposes among those states possessing power to tax some portion of that income. In place of the ‘exceedingly diverse’ methods developed by the states over the years, UDITPA proposed uniform principles of allocation and apportionment of a multistate firm‘s income designed to simplify the task of tax collection and reporting and to ensure that 100 percent of a multistate firm‘s income—neither more nor less—is taxable by the states.
* * * * * *
It is important at the outset to understand that UDITPA does not attempt to ensure that 100 percent of a multistate firm‘s income is actually taxed by the states; it seeks only to ensure that 100 percent of such income is taxable by them. W. Hellerstein, Construing the Uniform Division of Income for Tax Purposes Act:
The formerly accepted “discrimination policy” would also defeat a second purpose of the Compact expressed in article I to “facilitate taxpayer convenience and comрliance in filing of tax returns and in other phases of tax administration.” Id. The “subject to tax” test is easier to satisfy in the sense of proving one‘s entitlement to allocate or apportion. The earlier cases examined, supra, demonstrate the difficulty and inconsistency in administering the former “source” rule of entitlement.9 As rec-
In response to the majority‘s concept of legislative approval of Mueller‘s position by its failure to adopt alternative legislation, the answer is twofold. First, as noted in 3 Sutherland Statutory Construction, supra, § 49.10, p. 291, “legislative inaction has been called a ‘weak reed upon which to lean’ and a ‘poor beacon’ to follow in construing a statute.” Id. Second, although legislative intent may be gleaned from failure of proposed legislation, the noted Senate and House Bills which have not been enacted are aimed at completely eliminating or substantially modifying the single factor apportionment formula. See, e.g., Senate Bills 471 and 481, 79th General Assembly, First Rеgular Session; House Bill 507, 80th General Assembly, First Regular Session. This is not the effect of the Compact or of the M.V. Marine decision. A taxpayer may use that formula if he has shown that he is entitled to do so by establishing his jurisdictional tax liability elsewhere
V
Finally, it is asserted that of the other compact states, four10 permit “taxpayers to determine entitlement to allocate and apportion income using tests other than the ‘jurisdictional tax’ liability test in article IV of the Multistate Compact” and “In no state or the District of Columbia has there been a decision involving the issue of entitlement as determined by the Court in M.V. Marine; nor has the issue apparently ever been raised.” It is asserted that no other jurisdictions’ “statutes, cases, regulations or instructions to the income tax returns direct an interpretation similar to the one suggested in M.V. Marine.” From this amicus asserts that Mueller‘s position is correct. This argument falls of its own weight. The lack of activity in other states does not establish the error in one action versus another in Missouri. Additionally, even if prohibitive, the statutes cited by amicus are substantially different аnd as such are not analogous.
The argument that the “Suggested State Legislative and Enabling Act,” circulated by the Multistate Tax Commission, indicates the drafters of the Compact intended the opposite of that found in M.V. Marine also fails. The Interstate Tax Commission has filed a memorandum stating its position in this litigation and clearly supports affirmance of M.V. Marine.
All briefs and arguments considered in their entirety, the decision, originally made in M.V. Marine that the analysis used in earlier cases is no longer applicable and that the right to allocate and apportion is determined by use of the Compact, should be reaffirmed.
Because the decision in M.V. Marine is an appropriate interpretation of legislation, neither it, nor this dissent which follows and applies it, is subject to the majority‘s charge of dictum and judicial legislation in imposition of taxes.
VI
The question would remain whether Mueller is subject to the tax in another state. The Tax Commission made its findings of fact prior to the M.V. Marine decision. The record reflects that the Commission‘s attention was focused on whether any part of Mueller‘s income was derived from “transactions . . . partly outside the state,”
The activities of Mueller‘s salespersons and repair-service personnel are the only contacts which the company has with its out-of-state customers. The facts show and both the commission and the Court found that the salespersons are authorized only to solicit sales; all other aspects of the sales are performed only in Missouri. Mueller argues that frequently negotiations occur after the original solicitation and this is more than “mere solicitation” of orders. Such negotiations, however, do not rise to the level of Mueller‘s presence in other states. It is difficult to imagine a solicitation without some discussion of terms. As a matter of course, some discussion is always included in solicitation, and the results of these negotiations are meaningless until approved by the Missouri office. In 1959, Congress passed
(a) No State, or political subdivision thereof, shall have power to impose, for any taxable year ending after September 14, 1959, a net income tax on the income derived within such State by any person from interstate commerce if the only business activities within such State by or on behalf of such person during such taxable year are either, or both, of the following:
(1) the solicitation of orders by such person, or his representative, in such
State for sales of tangible personal property, which orders are sent outside the State for approval or rejection, and, if approved, are filled by shipment or delivery from a point outside the State; and (2) the solicitation of orders by such person, or his representative, in such State in the name of or for the benefit of a prospective customer of such person, if orders by such customer to such person to enable such customer to fill orders resulting from such solicitation are orders described in paragraph (1).
As a matter of federal law other states are prohibited from taxing mere solicitation by one in interstate commerce. See generally 1959 U.S.Code Cong. and Ad.News, p. 2549; United States Steel Corp. v. Multistate Tax Commission, 434 U.S. 452, 455-56, 98 S.Ct. 799, 803-04, 54 L.Ed.2d 682 (1978); U.S. Tobacco Co. v. Comm‘n, 478 Pa. 125, 386 A.2d 471, cert. denied, 439 U.S. 880, 99 S.Ct. 217, 58 L.Ed.2d 193 (1978). This provision was discussed by this Court in State ex rel. Ciba Pharmaceutical Products, Inc. v. State Tax Commission, 382 S.W.2d 645 (Mo. banc 1964), where the Court set aside certain income tax assessments against the taxpayer, a foreign corporation, because its contacts in this state were insufficient to constitute the requisite business activity necessary for imposition of state income tax. The activities of Mueller in other states are similar but certainly are not greater than the activities of the Ciba corporation in the State of Missouri. Thus it appears Mueller is not entitled to apportion its income from out-of-state customer solicitations because they are not subject to any tax elsewhere.
Mueller‘s fact stipulation classifies all income involved as derived from “sales to out-of-state purchasers.” Although not conclusive,11 Mueller admits no income taxes paid to any other state during the years involved. It has never suggested it is subject to tax in another state. Upon such record assessment of tax on 100 percent of Mueller‘s income is proper because Mueller is not subject to any tax in another state and thus it should not be permitted to apportion as though it was.
The judgment should be affirmed.
Notes
The amount of sales which are transactions wholly in this state shall be added to one-half of the amount of sales which are transactions partly within this state and partly without this state, and the amount thus obtained shall be divided by the total sales or in cases where sales do not express the volume of business, the amount of business transacted wholly in this state shall be added to one-half of the amount of business transacted partly in this state and partly outside this state and the amount thus obtained shall be divided by the total amount of business transacted, and the net income shall be multiplied by the fraction thus obtained, to determine the proportion of income to be used to arrive at the amount of Missouri taxable income. The investment or reinvestment of its own funds, or sale of any such investment or reinvestment, shall not be considered as sales or other business transacted for the determination of said fraction.
Thаt section was enacted as a part of the income tax revision of 1972. S.B. 549, 76th Gen. Assem., 2d Reg. Sess., 1972 Mo. Laws 698, 713-14. The single factor formula of
Henceforth all statutory references are to