OXFORD, Stаte Revenue Commissioner, et al. v. NEHI CORPORATION.
20380
Supreme Court of Georgia
April 9, 1959
May 8, 1959
REHEARING DENIED JUNE 5, 1959
5. There was no error in overruling the defendants’ special demurrers to the petition.
Judgment affirmed. All the Justices concur.
ARGUED APRIL 14, 1959—DECIDED MAY 8, 1959.
Eugene Cook, Attorney-General, Paul Miller, E. J. Summerour, Assistant Attorneys-General, Ariel V. Conlin, Deputy Assistant Attorney-General, for plaintiffs in error.
Matthews, Maddox, Walton & Smith, Oscar M. Smith, contra.
ARGUED MARCH 9, 1959—DECIDED APRIL 9, 1959—ADHERED TO ON REHEARING MAY 8, 1959—REHEARING DENIED JUNE 5, 1959.
Swinson, Elliott & Schloth, J. Robert Elliott, Willis Battle, contra.
John Izard, Furman Smith, for parties at interest not parties to record.
ALMAND, Justice. This case originated in a suit by Nehi Corporation against the State Revenue Commissioner to recover stated sums alleged to have been collected illegally or erroneously by the Commissioner as income taxes for the years 1950-1954 inclusive. The case was tried by the court without the intervention of a jury upon the following agreed stipulation of facts:
- “Plaintiff is a Delaware corporation with its principal office located in Columbus, Muscogee County, Georgia. The principal business of Plaintiff is the manufacture and sale of flavor concentrates used by bottlers in the production of soft drinks. These concentrates are manufactured by Plaintiff solely at its plant in Columbus, Georgia. Plaintiff maintains inventories of these concentrates at its plant in Columbus, Georgia, and also at a warehouse owned and operated by Plaintiff in Los Angeles, California.
- “Plaintiff‘s only customers are bottlers of soft drinks located in all of the forty-eight states and various foreign countries, and substantially all of its orders for flavor concentrates are received by mail from these bottlers.
- “Plaintiff derives its income from the manufacture and sale of tangible personal property and is entitled to use the three factor formula prescribed by
Code Section 92-3113 (4) in the allocation and apportionment of its income. No questions exist between the parties with respect to the amount of Plaintiff‘s total net income for each of the tax years in question, or the ‘average inventory ratio’ or the ‘salaries and wages ratio’ of the apportionment formula; the only question is with respect to the make-up of the ‘gross receipts ratio‘, underCode section 92-3113 (4) (c) and the facts here stipulated. - “During each of the tax years in question, Plaintiff‘s gross receipts were derived from three types of shipments of the con
centrates which it manufactured for sale: (a) Shipments from its Georgia plant to bottlers located in Georgia; (b) shipments from its Georgia plant to bottlers located in states other than Georgia and various foreign countries; and (c) shipments from its California warehouse to bottlers located in states other than Georgia. - “All shipments from its Georgia plant, irrespective of destination, were made pursuant to orders received, accepted and handled entirely at Plaintiff‘s principal office in Columbus, Georgia.
- “Substantially all of Plaintiff‘s shipments were effected by common carriers, and the Plaintiff prepaid transportation charges thereon. Most of such shipments wеre made on bills of lading which named Plaintiff as consignee and which were attached to sight drafts drawn against the bottler for whom the shipments were intended; such bills of lading, with drafts attached, were forwarded to local banks for collection, and when collected, the bills of lading were endorsed to the bottler who could then claim the shipment from the carrier. In all cases Plaintiff assumed the responsibility for shipments lost or damaged in transit and, with respect to all shipments, it was agreed between Plaintiff and its customers that the products shipped by Plaintiff would be actually delivered to its customers at destination, Plaintiff retaining title until the shipments reached their destination.
- “For each of the tax years in question, Plaintiff filed its Geоrgia income tax returns with the State Revenue Commissioner and computed and paid its income taxes on the basis of including as gross receipts from business done in Georgia the gross receipts from all shipments made from its Georgia plant irrespective of the destination of such shipments (i.e. the gross receipts described in (a) and (b) of paragraph 4) and excluding therefrom the gross receipts from all shipments made from its California warehouse (i.e. the gross receipts described in (c) of paragraph 4). At no time has the State Revenue Commissioner disputed Plaintiff‘s returns for these years with respect to this make-up of the gross receipts factor.
- “On May 29, 1956, Plaintiff filed with the State Revenue Commissioner claims fоr the refund of a portion of the taxes
paid as aforesaid. In these claims, Plaintiff took the position for the first time that its gross receipts from business done in Georgia included only the gross receipts from shipments made from its Georgia plant to its bottlers located in Georgia (i.e. gross receipts described in (a) of paragraph 4); this decision was prompted by the decision of the Court of Appeals in State of Georgia vs. Coca Cola Bottling Co., 93 Ga. App. 609, decided February 23, 1956; rehearing denied March 15, 1956. - “On November 8, 1956, the State Revenue Commissioner denied the aforesaid claims for refund on the grounds that the aforesaid decision of the Court of Appeals, having been reversed by the Supreme Court, 212 Ga. 630, was not controlling.
- “For each of the tax years in question, Plaintiff returned and paid state income taxes in Georgia, Alabama and California; the income tax liability to Alabama was incurred by reason of Plaintiff‘s operating there a bottling plant separate from its concentrate business.
- “The only issue in this case is whether, under the facts here stipulated as applied to
Code section 92-3113 (4) (c) , gross receipts from business done in Georgia includes only gross receipts from shipments made from Plaintiff‘s Georgia plant to its Georgia bottlers (i.e. only the gross receipts described in (a) of paragraph 4), as contended by Plaintiff, or whether it includes all gross receipts from shipments made from its Georgia plant to both its Georgia bottlers and to its bottlers located in other states and foreign cоuntries (i.e. the gross receipts described in both (a) and (b) of paragraph 4), as contended by Defendants.”
A judgment was rendered in favor of the taxpayer, and affirmed by the Court of Appeals (two judges dissenting), Oxford v. Nehi Corporation, 98 Ga. App. 779 (106 S. E. 2d 857). This court granted the Revenue Commissioner‘s petition for the writ of certiorari.
The controlling question in this case is the meaning and effect of subsection (4) (c) of section 1 of the act of 1950 (Ga. L. 1950, p. 299), which amended
The Revenue Commissioner contends that this subsection, when construed with the whole of
A brief history of the Three-Factor Formula will be helpful in determining the meaning of
“3. Sales Ratio. The ratio of the total sales made through or by offices, agencies, or branches located in Georgia during the income year to the total net sales made everywhere during said income year. The tangible property ratio, the manufacturing cost ratio, and the sales ratio being separately determined and the three percentages averaged.
“d. Where income is derived principally from the holding and/or sale of tangible рersonal property having a taxable situs in this State, the taxable income shall be apportioned as follows:
“1. Real estate and tangible personalty. The ratio of the value of its real estate and tangible personal property in this State on the date of the close of the income year of such company to the value of its entire real estate and tangible personal property then owned by it with no deduction on account of incumbrances thereon.
“2. Sales. The ratio of the total sales made through or by its offices, agencies, or branches located in Georgia during the income year to the total net sales made everywhere during said income yeаr. The tangible property ratio and the sales ratio being separately determined and the two percentages averaged.”
Section 1(n) of this act defined the word “sale or sales” as follows: “The word ‘sale or sales’ wherever appearing in this Act for the purpose of apportioning net income to Georgia shall be deemed to be the total value of all sales made through or by
It is clear that the General Assembly in adopting the “Gross receipts ratio” as one of the three factors in apportioning corporate-income tax, substituted the factor of gross receipts for that of sales by providing that such receipts be derived from products shipped to customers in this State or delivered within the State to customers, in lieu of the prior provision as to where the sales were negotiated or effected.
Counsel for the Commissioner insists that the definition of the word “sale or sales” as contained in the act of 1937 (Ga. L. 1937, pp. 109, 114;
The cases of State of Ga. v. Coca-Cola Bottling Co., 212 Ga. 630 (94 S. E. 2d 708), and State of Ga. v. Coca-Cola BottlingCo., 214 Ga. 316 (104 S. E. 2d 574), did not involve the use of the Threе-Factor Formula and are of no value here as precedents.
The Court of Appeals held that the instant case was controlled by its ruling in State of Ga. v. Coca-Cola Bottling Co., 93 Ga. App. 609 (92 S. E. 2d 548). The judgment in that case on certiorari to this court was reversed (State of Ga. v. Coca-Cola Bottling Co., 212 Ga. 630, supra), and the judgment in that case was vacated (State of Ga. v. Coca-Cola Bottling Co., 94 Ga. App. 506, 95 S. E. 2d 33). This court, in referring to the ruling in State of Ga. v. Coca-Cola Bottling Co., 93 Ga. App. 609, supra, said, “the ruling on the demurrer resulted in all other portions of the Court of Appeals opinion becoming completely void.” State of Ga. v. Coca-Cola Bottling Co., 214 Ga. 316, 322, supra. The case reported in 93 Ga. App. 609, supra, is of dubious vitality as a precedent. However, the Court of Appeals arrived at the correct result, and its judgment upholding the judgment of the trial court is affirmed.
Judgment affirmed. All the Justices concur except Duckworth, C. J., Head and Hawkins, JJ., who dissent.
DUCKWORTH, Chief Justice, dissenting. Our decision in State of Georgia v. Coca-Cola Bottling Co., 214 Ga. 316 (104 S. E. 2d 574), was a forthright holding in harmony with
But the majority have glibly passed over the heart of the statute, the portion that levies the tax and plainly expresses the intent to levy it upon the “entire net income” derived from business done in this State. They pass over the part which states that, when income is derived from business done in this and another State, the portion subject to Georgia taxation shall be that portion which is “reasonаbly attributable” to business done in Georgia. They seize upon verbiage used in defining gross-receipts ratio in
In imposing the tax upon the income reasonably attributable to business done in this State, then thereinafter in 4c ignoring all income except that only derived from goods shipped to customers in this State or delivered in this State to customers, the law is self-contradictory. It is a judicial function to construe ambiguous legislation, and the only true meaning it ever has is that given it by judicial construction. One type of ambiguity is that created by contradictory provisions. The Judiciary by construction gives such contradictory enactment its first and only true meaning. No matter how plain the conflicting clauses may be,
The plain legislative intent to place the tax upon the “entire net income” derived from business done in this State should be effectuated by applying the tax to all such net income as can be reasonably attributable to business done in this State. To accomplish this end, the portion of 4c relied upon by the taxpayer to defeat this legislative intent should be either disregarded or else construed to harmonize therewith if its verbiage will stand such construction. Since, as above pointed out, the latter part of the same sentence spells out what must be excluded from the Georgia receipts, it could be held that receipts not thus excluded may be included, or the language relied upon might be construed to be that receipts derived from goods shipped on orders procured in Georgia to customers wherever located, which would harmonize with the real purpose of the law. Counsel for the Revenue Commissioner suggests a plausible and sound construction since the only division of receipts contemplated by the law is one between the places of business in this and the other State which produced the entire receipts. And since those receipts must be apportioned to one or the other of the taxpayer‘s placеs of business, then preface the clause relied upon by what was undeniably in the legislative mind when it was enacted, which is “[as to foreign corporations ‘doing business’ in this State] only if received from products shipped to customers in this State, or delivered within this State to customers, and [as to local corporations] in determining the gross receipts within Georgia, receipts from sales negotiated or effected through offices of the taxpayer outside the State and delivered from storage in the State to customers outside the State shall be excluded.” Code
A simple illustration of what the law will do whеn construed as the majority contend is as follows: If corporations A and B with principal places of business located in Georgia are competitors in identical lines of business, and each has a net income of $100,000, and only 10% or $10,000 of the net income of each is derived from delivery and shipment of goods to customers within this State, and A establishes another place of business in Alabama, from which sales are made and from which 1% or $1,000 of its net income is derived, B would have to pay to the State of Georgia taxes on its entire net income of $100,000, while A would pay Georgia taxes on the 10% of its net income which is $10,000, although it would pay Alabama taxes on only 1% or $1,000, and consequently A would pay no taxes on 89% or $89,000, which it earned by activities or transactions in this State identical with the activities or transactions of B in this State. Such an injustice would shock the conscience, and would constitute such an overwhelming advantage of A over its competitor, as would surely result in quick bankruptcy of B. This shocking experience of a corporation would be the penalty a Georgia legislature imposed upon B for its full-fledged loyalty to Georgia by confining its place of business to Georgia, while A would be rewarded by the legislature for dividing its loyalty by putting some, even ever so small a part, of its business operations in another State.
As ruled in Lamons v. Yarbrough, 206 Ga. 50, supra, courts should never construe enactments to be thus nonsensical and unjust unless the whole act demands such. And, as ruled by the majority, the entire amount involved will escape taxation altogether, since it is agreed that none of it was produced by the place of business in California which is the only place of business of the taxpayer except that in Georgia. It had to be produced by one or the other place of business, and since admittedly it was not produced by the California place of business, it necessarily must have been produced by the Georgia place of business,
Failure of this court to recognize, respect, and enforce the legislative imposition of the tax can not be еxcused upon the claim that a legislative attempt to prescribe a method of ascertaining the income to be thus taxed, contradicts the description of the taxable income given in immediate connection with the imposition of the tax. It is trifling with legislation to say that, although its indisputable single purpose was to impose a tax, yet it preferred adherence to a formula it defined whereby it was thought the tax imposed could be arrived at, over the collection of the tax. The statutory language imposing the tax in cases like the instant one is as follows: “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.” (Italics ours.) There is a positive unambiguous imposition of the tax upon a readily ascertainable income. Must we prevent the State‘s collection of the tax thus plainly imposed because the legislature undertakes erroneously to describe a procedure for ascertaining the income upon which the tax is thus imposed? Can we in fairness to the legislature attribute to it an intention that its single objective which is to impose the tax be defeated in order that its palpably erroneous procedure, which defeats imposition of the tax, be adhered to? It constitutes the rankest sort of unreasonableness for this court to thus sacrifice substance for form. This is especially true when to do so renders the whole statute discriminatory and unconstitutional. A simple homely example will illustrate what reason and common sense dictate in this situation. If one gave a boy money to buy a package of cigarettes, and told him to go to a certain store by a certain street to get them, and the boy found that the street designated was a dead-end street, and he could never reach the store by traveling it, but he well knew how to get to the store by a known street, should the boy return without the cigarettes solely because he found he could not get there by traveling the street designated, or should he fulfill the true purpose of the sender and get the cigarettes? The street in this example is analogous to the directions in 4c, and the cigarettes are analogous to the taxes in
Thus the tax plainly imposed upon an income definitely described will go uncollected because of palpable error by the legislature in attempting to state a method for its ascertainment, upon which clause the majority opinion plainly rests. The majority have decided that what the legislature intended as an incidental effort to help effectuate its single objective should be given full literal effect, even though it defeats the sole purpose of the whole legislation, which is to impose a tax on income reasonably attributable to business done in this State. It is unreasonable to attribute such a trifling intention, and this court can do so only after abandoning all sound sensible rules of construction consistently followed in all previous cases.
By the construction given above we would not be writing legislation, but preserving the substance of legislation in the only way whereby any of it can stand a constitutional test. For all the foregoing reasons I dissent. Head and Hawkins, JJ., have authorized me to state that they concur in this dissent.