Stockham Valves & Fittings, Inc. v. Williams, 19838

• Decision Date: 08 November 1957
• Docket Number: No. 19838,19838
• Citation: 213 Ga. 713,101 S.E.2d 197
• Parties: STOCKHAM VALVES & FITTINGS, Inc. v. WILLIAMS, State Revenue Commissioner.
• Court: Georgia Supreme Court

Page 197

101 S.E.2d 197

213 Ga. 713

STOCKHAM VALVES & FITTINGS, Inc. v. WILLIAMS, State Revenue Commissioner.

No. 19838.

Supreme Court of Georgia.

Nov. 8, 1957.

Rehearing Denied Nov. 26, 1957.

Writ of Certiorari Granted March 17, 1958.

See 78 S.Ct. 670.

Syllabus by the Court

The Georgia Income Tax Statute (Code Ann.Supp. § 92-3113) as applied to the plaintiff, a nonresident corporation with its home office and manufacturing plant outside of the State of Georgia--which maintained only a sales service office in this State, which was used as headquarters by one of its sales representatives who spent about one-third of his time in that office or traveling within this State, and in which office a small amount of office furniture, valued at approximately $1,000, was maintained, and one woman secretary was employed, and where the sales representative carried on the ordinary duties of a salesman in Georgia calling on customers and prospective customers, but no orders were accepted within the State of Georgia, and all sales were made on an 'f.o.b. warehouse' basis and were completed at warehouses outside of the State by deliveries to customers or to common carriers consigned to customers, violates both the commerce and due process clauses of the Federal Constitution, art. 1, § 8, cl. 3, Amend. 14 (Code §§ 1-125(3), 1-815), and the trial court erred in sustaining its validity as against such attacks.

This was an action brought by Stockham Valves & Fittings, Inc. (hereinafter referred to as the plaintiff) against T. V. Williams as Revenue Commissioner of the State of Georgia, to recover income taxes paid by the plaintiff under protest to the State for the calendary years 1952, 1954, and 1955, assessed against the plaintiff under the following Georgia Income Tax Statutes: Code (Ann.Supp.) § 92-3102, which provides that 'Every domestic corporation and every foreign corporation shall pay annually an income tax equivalent to four percent of the net income from property owned or from business done in Georgia, as defined in section 92-3113'; and Code (Ann.Supp.) § 92-3113, which provides that '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.' Claims for a refund of the taxes paid having been denied by the defendant the present suit was brought.

The plaintiff contends that all of its activities within the State of Georgia are a part of and inseparable from interstate commerce, and that any income tax assessed against the plaintiff is a direct burden on such commerce and violates the commerce clause of the Federal Constitution, art. 1, § 8, cl. 3 (Code § 1-125(3)); that the fact that the plaintiff maintains one sales service office in Georgia and one of its sales representatives spends one-third of his time in Georgia does not make the plaintiff present in the state in any substantial sense, and an attempt to subject it to an income tax violates the due process clause of the Federal Constitution, Amend. 14 (Code § 1-815). No question is raised by the plaintiff as to the reasonableness of the apportionment of its net income to Georgia under the prescribed statutory apportionment formula or to the amount of taxes, if liable, but the plaintiff contends that the state is without jurisdiction to impose a net income tax upon a foreign corporation engaged within Georgia in exclusively interstate commerce.

The facts were stipulated, and the issue was submitted to the trial judge without a jury; and to the judgment upholding the validity of the statute and the tax the plaintiff excepts.

From the stipulation of facts it appears that the plaintiff is a corporation organized under the laws of Delaware with its principal or home office and its manufacturing plant located in Birmingham, Alabama. Since 1905, and including the tax years in question, it has been engaged in the business of manufacturing and selling valves and pipe fittings and in promoting the sale and use of valves and pipe fittings which it manufactured. For the tax years in question, it maintained inventories of its products in established warehouses at Birmingham, Ala., Philadelphia, Pa., Chicago, Ill., Houston, Tex., and Vernon, Calif. It maintained established sales service offices at the foregoing locations and also at Cambridge, Mass., New York, N. Y., Atlanta, Ga., Pittsburgh, Pa., San Francisco, Calif., Washington, D. C., Dallas, Tex., and St. Louis, Mo. Purchasers of plaintiff's valves and pipe fittings were located in all the United. States.

As a matter of policy and practice, during the tax years in question, the plaintiff made sales only to established local wholesalers and jobbers and (except for sales to makers of automatic sprinkler systems) made no sales directly to users and installers of valves and pipe fittings. The local wholesalers and jobbers who handled the plaintiff's products, however, were in no way tied in or committed by any type of license, franchise, or other authorized or exclusive dealership arrangement, to the distribution of the plaintiff's products. Any established local wholesaler or jobber, having established credit, was considered as a prospective customer and could buy from the plaintiff. Established local wholesalers and jobbers who did buy from the plaintiff were entirely free to discontinue buying from it at any time and for any reason; they were also free to deal in competitive products and usually did handle one or more lines of competing products.

The plaintiff, during the years in question, made no sales on a consignment basis and maintained no inventories of its own at any place except at the aforesaid warehouses, none of which were located in Georgia. Through its sales representative, it encouraged every local wholesaler and jobber who handled its products to carry a local inventory, and to those local wholesalers and jobbers who did maintain a local inventory of valves, it gave a price concession which was not available to wholesalers and jobbers who did not. Pipe fittings were, however, sold at uniform prices whether or not carried in inventory.

All orders for the plaintiff's products were contractually accepted or rejected at the home office of the plaintiff in Birmingham, Alabama. No representative of the company at any sales-service office had any authority to, or did, contractually accept or reject any order under any circumstances. Contractual authority was vested exclusively in the home office in Birmingham, Alabama. For the most part, orders were received by mail at the company's home office in Birmingham directly from wholesalers and jobbers. Such orders as were received at sales-service offices, or by the solicitation of sales representatives working out of sales-service offices, were relayed by mail, telephone or teletype to the home office at Birmingham for contractual acceptance or rejection. Some such orders were rejected by the home office for credit or other reasons.

The plaintiff had no plant or warehouse in Georgia. All sales were made on an 'f. o. b. warehouse' basis and were completed at the plant or warehouse by deliveries to customers or to common carriers consigned to customers.

Since 1950, and during the tax years in question, the plaintiff maintained a sales-service office in Atlanta. One of its sales representatives used this office as his headquarters. He worked in a territory which included Georgia, North Carolina, South Carolina, and parts of Tennessee and Virginia. Part of Florida was also included in his territory until 1954. This representative spent approximately one-third of his time at the Atlanta sales office or traveling in the State of Georgia. The other two-thirds of his time was spent traveling outside of Georgia. He was paid a salary plus a commission on the amount of business derived from the territory served by the Atlanta office.

The plaintiff also employed at its sales-service office in Atlanta a full-time woman secretary. She functioned on the basis of her own knowledge and experience and literature furnished by the company as a source of information concerning the plaintiff's products. She performed stenographic and clerical duties and facilitated communications between plaintiff's home office in Birmingham, the plaintiff's sales representative when he was out in the territory, and customers, prospective customers, contractors and users of the plaintiff's products. She operated the teletype machine and sometimes obtained information from Birmingham to give to architects, engineers or other people interested in the plaintiff's products.

The Atlanta sales-service office was listed in the Atlanta telephone directories in the plaintiff's name in both the alphabetical and classified business listings. The office was listed in the plaintiff's name in the Atlanta city directories. The company, on its sales-service office letterheads, in its catalogues and discount sheets, and on some promotional material, listed the fact that it maintained a sales-service office in Atlanta. A small amount of office furniture was maintained there of the approximate value of $1,000. The representative carried on the ordinary duties of a salesman in Georgia. No orders were, however, accepted within the State of Georgia. All sales were completed at warehouses outside the State by deliveries to customers or to common carriers consigned to customers. All such sales took place outside of Georgia.

At no time...