State v. Northwestern States Portland Cement Co.
| Citation | 84 N.W.2d 373,250 Minn. 32 |
| Decision Date | 14 June 1957 |
| Docket Number | No. 36826,36826 |
| Parties | STATE of Minnesota, Respondent, v. NORTHWESTERN STATES PORTLAND CEMENT COMPANY, Appellant. |
| Court | Supreme Court of Minnesota (US) |
Syllabus by the Court.
1. Jurisdictional presence of a foreign corporation is established only if the
activities carried on within the forum are of such a quality and nature that it can be said that the foreign corporation has, as a matter of due process, established contacts, ties, or relations within the forum which give rise to privileges and obligations which reasonably obligate it to respond to any suit brought within the forum.
2. Regular and systematic solicitation of business within the state--which results in a continuous flow of the foreign corporation's products into the state through the channels of interstate commerce--when corroborated by other jurisdictionally significant acts or manifestations within the forum, establishes jurisdictional presence in compliance with the requirements of due process.
3. A nondiscriminatory state tax upon the net income of a foreign corporation engaged Solely in interstate business, which is fairly apportioned to and measured by that part of the net income which is derived from business done within the state, contravenes neither the due process clause nor the commerce clause, Where the incidence or subject of the tax is not the privilege of either engaging in, or continuing to engage in, interstate commerce, but is instead those income-producing activities and transactions which, though indirectly related to interstate commerce, have become separated from the flow of that commerce and have become so localized within the state as to compete with, and enjoy the benefits and advantages of, a local business, and which as localized commerce ought to pay their own way and not place other local business at a competitive disadvantage.
4. The tax imposed under M.S.A. § 290.03 not only complies with the requirements of due process but is also not in contravention of the commerce clause since it does not impose a burden upon, or discriminate against, interstate commerce.
5. The annual tax imposed by § 290.03 Upon the taxable net income is not an excise or privilege tax measured by net income, but purely a net-income tax wholly unrelated to the privilege of engaging in interstate commerce.
6. A net-income tax, The nonpayment of which involves no forfeiture or restriction upon the privilege of engaging in interstate commerce, places no burden upon interstate commerce where it is levied only upon those interstate commerce transactions which have become localized within the state and have been completed so that the tax is exacted only after the stream of income-producing interstate commerce has ceased to flow.
7. Although a net-income tax may not be imposed by a state on the Privilege of engaging in interstate commerce, the state is not precluded from imposing such a tax upon other activities and aspects of the taxpayer's business which have become localized within the state, even though the payment of such tax comes out of funds derived from the taxpayer's interstate business, provided, however, that the tax is fairly apportioned and the burden thereof is reasonably related to the powers of the state and is nondiscriminatory.
Joseph A. Maun, Mandt Torrison, William R. Busch, St. Paul, Bundlie, Kelley & Maun, St. Paul, Smith & Beck, Mason City, Iowa, of counsel, for appellant.
Miles Lord, Atty. Gen., Perry Voldness, Asst. Atty. Gen., Arthur C. Roemer, Sp. Asst. Atty. Gen., St. Paul, for respondent.
Defendant taxpayer, a foreign corporation engaged exclusively in interstate commerce, appeals from a judgment in a proceeding by the State of Minnesota to collect income taxes--together with penalties and interest--upon that portion of the taxpayer's total net income which is allocable to Minnesota. The allocated tax relates to income derived solely from interstate commerce business conducted in this state. 1
Three questions are presented on appeal:
(1) Does the taxpayer have sufficient contact with the State of Minnesota to make it amenable to service of process and subject to the jurisdiction of the Minnesota courts?
(2) Is M.S.A. § 290.03 in conflict with, and thus invalid and void under, the due process clause of U.S.Const. Amend. XIV, and Minn.Const. art. 1, § 7, M.S.A., insofar as it imposes a tax on that portion of the net income of a foreign corporation arising out of sales assignable to and activities conducted within Minnesota? 2
(3) Is § 290.03 in conflict with, and thus invalid and void under, the commerce clause, U.S.Const. art. I, § 8, clause 3, insofar as it imposes a tax on that portion allocable to the taxing state of the net income of a foreign corporation whose business within the taxing state consists exclusively of interstate commerce? 3
Taxpayer is an Iowa corporation engaged in the manufacture and sale of cement; its principal office and place of business is at Mason City, Iowa. Although the taxpayer maintains an office in Minneapolis and employs several representatives within the state who regularly and systematically solicit orders for the taxpayer's product, the taxpayer has never qualified under M.S.A. § 303.03 as a foreign corporation authorized to transact business within this state.
Although in the course of its business in interstate commerce the taxpayer has for over 30 years systematically marketed a substantial part of its products in Minnesota, it has never filed income tax returns in this state. On refusal of the taxpayer to file income tax returns for the fiscal years 1933 through 1948 as required under § 290.03, the commissioner of taxation prepared returns on the basis of the best information available to him, filed these returns for the taxpayer, and assessed against the taxpayer the income taxes shown to be due by the returns. In the preparation of the returns, the commissioner used the three-factor formula prescribed by § 290.19 to determine what portion of the taxpayer's total net income should be allocated to Minnesota and subjected to the income tax imposed by this state. The following application of the formula defines each of the three factors and illustrates the result of their employment in determining the portion of the taxpayer's net income allocable to Minnesota for the year ending November 30, 1948:
(1) The ratio of the taxpayer's sales assignable
to Minnesota to its total sales for the
year wherever made 48.4493 percent
(2) The ratio of the taxpayer's total tangible
property in Minnesota to its total tangible
property used in the business that year
wherever situated .1142 percent
(3) The ratio of the taxpayer's total payroll in
Minnesota to its total payroll for the
the entire business 1.6484 percent
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Total 50.2119 percent
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Arithmetical Average 16.7373 percent
The percentages for the three factors were added together for a total of 50.2119 percent and then divided by 3 to give the final arithmetical average of 16.7373 percent which represents the percentage of taxpayer's income allocable to Minnesota for the 1948 fiscal year. 4 The average percentage when applied to taxpayer's 1948 total net income of $852,897.41--after first deducting therefrom $12,667.57 for non-apportionable income arising from interest and rents derived from property located outside Minnesota--shows for that year as apportionable to Minnesota a taxable net income of $140,631,84. Upon this latter sum of income, which is allocated to Minnesota pursuant to the three-factor formula, the commissioner assessed a tax of $8,370.53 plus certain penalties and interest. Total taxes, penalties, and interest assessed for the fiscal years 1933 to 1948 are $102,536.82.
1. We turn to the first issue to ascertain whether the taxpayer was juridically present in this state as to be amenable to the jurisdiction of our courts. Whether a foreign corporation domiciled in another state is jurisdictionally present so as to be subject to the jurisdiction of the Minnesota courts depends in each case upon the quality and nature of the activities which it carries on within our state. 5 What activity or combination of activities are necessary to constitute jurisdictional presence 6 of a foreign corporation domiciled elsewhere, in order to comply with the due process clause of Amend. XIV, cannot be summarized so as to provide an arbitrary test for all cases. Each case must be determined on its own peculiar facts to ascertain whether the corporation has carried on activities of such a quality and nature that it can be said that it has, as a matter of due process, established contacts, ties, or relations within the forum which give rise to privileges and obligations which reasonably obligate it to respond to any suit brought within the forum.
2. Whether regular and systematic solicitation of business within the state--which results in a continuous flow of the corporation's products into the state
through the channels of interstate commerce--alone and of itself-constitutes jurisdictional presence we need not here determine. It is clear, in any event, however, that such regular and systematic solicitation, when corroborated by other and additional corporate acts or manifestations within the forum, does establish jurisdictional presence in compliance with the requirements of the due process clause. We need not here attempt to define what other acts are sufficient to furnish corroboration since in the present case the corroborative acts are both abundant and...
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