Albertson's, Inc. v. State, Dept. of Revenue, State Tax Com'n, No. 14808

CourtUnited States State Supreme Court of Idaho
Writing for the CourtHUNTLEY; DONALDSON
Citation106 Idaho 810,683 P.2d 846
PartiesALBERTSON'S, INC., a Delaware Corporation, Plaintiff-Respondent, v. STATE of Idaho, DEPARTMENT OF REVENUE, STATE TAX COMMISSION, Defendant- Appellant.
Decision Date23 May 1984
Docket NumberNo. 14808

Page 846

683 P.2d 846
106 Idaho 810
ALBERTSON'S, INC., a Delaware Corporation, Plaintiff-Respondent,
v.
STATE of Idaho, DEPARTMENT OF REVENUE, STATE TAX COMMISSION, Defendant- Appellant.
No. 14808.
Supreme Court of Idaho.
May 23, 1984.

[106 Idaho 811]

Page 847

Jim Jones, Atty. Gen., Lynn E. Thomas, Sol. Gen., and William B. Dillon, III, Deputy Atty. Gen., Boise, for defendant/appellant.

Robert L. Miller, Boise, for plaintiff/respondent.

HUNTLEY, Justice.

The principal issue on appeal is whether it is appropriate to treat the income of a Texas corporation which is a wholly-owned subsidiary of Albertson's, Inc. as income of the parent corporation, subject to apportionment under the Idaho version of the Uniform Division of Income for Tax Purposes Act (UDITPA). Fundamental to the determination of that issue is whether the two corporations constitute a "unitary business" for tax purposes.

I
THE FACTUAL BACKGROUND

In 1965 Idaho adopted with slight modification the Uniform Division of Income for Tax Purposes Act (UDITPA). I.C. § 63-3027. The Act contains rules for determining the portion of a corporation's total income from a multistate business which is attributable to this state and therefore subject to Idaho's income tax. In general, UDITPA divides a multistate corporation's income into two groups: business income and non-business income. Business income is apportioned according to a three factor formula, I.C. § 63-3027(i), while non-business income is allocated to a specific jurisdiction, I.C. § 63-3027(d)-(h). Idaho modified UDITPA to provide that "a parent and subsidiary corporation may, when necessary to accurately reflect income, be considered a single corporation." I.C. § 63-3027(s) (1975 version).

Albertson's, Inc. (Albertson's) is a Delaware corporation based in Idaho which owns and operates a chain of retail grocery supermarkets. This case involves a deficiency assessment of $42,839, plus interest for fiscal years ending February 1st, 1975, January 31st, 1976, and January 29th, 1977, respectively.

As of January 31st, 1976, Albertson's operated 313 stores in the western United States under 9 divisions as follows:

Idaho (including Eastern Oregon and

Elko, Nevada) 20
                Inland Empire (Eastern Washington,
                Northern Idaho and Montana) 24
                Utah 28
                Western Washington 32
                Oregon (Western Oregon) 31
                Southern California (including Southern
                Nevada and Yuma, Arizona) 43
                Northern California (including Northern
                Nevada) 45
                Rocky Mountain (Colorado, Wyoming,
                and New Mexico) 29
                Skaggs-Albertson's 61
                 ----
                 313
                

Page 848

[106 Idaho 812] The resolution of this appeal requires detailed consideration of the organization, operations and relationships between Albertson's and its subsidiary Texas-Albertson's. It is helpful also to understand the relationship between those two corporations and the Skaggs-Albertson's partnership.

Skaggs-Albertson's was formed in 1968, Skaggs having been primarily an operator of "super drug stores" and Albertson's having been an operator of grocery stores. The management of Skaggs and Albertson's determined that it would be in their mutual interest to house the two types of stores under one roof, and in 1968 formed a partnership denominated Skaggs-Albertson's. Each parent corporation was to own 50% of the partnership and its initial operation commenced with the contribution by Skaggs of 11 stores it had in Texas, with Albertson's contributing cash equal in value to the 11 stores. By the time the partnership was dissolved in 1977, Skaggs-Albertson's had expanded from the original 11 stores to an operation of approximately 70 stores.

A few months after the Skaggs-Albertson's partnership was formed, because of certain benefits under Texas tax laws and for limitation of liability and other reasons, the parties determined that it would be desirable to establish separate corporations which would be holding companies for their respective 50% interests in the Skaggs-Albertson's operation. Accordingly, Albertson's formed a wholly-owned subsidiary corporation called Texas-Albertson's, Inc. (Texas-Albertson's). Skaggs formed a similar holding corporation, Texas-Skaggs, Inc. (Texas-Skaggs).

The expansion and development of new stores by Skaggs-Albertson's was accomplished generally through the following described device. An additional corporation was formed, Skaggs-Albertson's Properties, Inc., which would procure the financing for the construction of new buildings on the credit of Skaggs for 50% of the buildings and on the credit of Albertson's for the other 50% of the buildings. Skaggs-Albertson's Properties, Inc. held the buildings during construction, and then sold them to an investor, who then leased the stores to either Skaggs or Albertson's, each being the separate lessees of an equal number of the stores. Then the lessee, Skaggs or Albertson's as the case might be, would sublease the store to the Skaggs-Albertson's partnership.

All directors and officers of Texas-Albertson's, Inc. were directors, officers or employees of Albertson's. Texas-Albertson's held only one formal board meeting, that being the initial board meeting when it was first formed. Albertson's then vice-chairman and chief financial administrative officer who at various times was executive vice-president of administration and finance, and president and chief financial administrative officer of Albertson's, served as a member of the Texas-Albertson's board and as an officer of Texas-Albertson's. He negotiated financing for all of the Albertson's divisions including the stores being added to Skaggs-Albertson's. He testified:

Ultimately, the two corporations, Texas-Albertson's and Texas-Skaggs, were really shell corporations. We didn't use them for any other purpose than just mechanics.

Between 1968 and 1977, Albertson's had advanced monies to Skaggs-Albertson's by way of direct cash contributions, or procurement of loans. Those advances plus the retention by Skaggs-Albertson's of internally generated funds totaled $20,058,606. There was no formal arrangement for specific interest payments on those advances, nor was there an agreement for the return of that capital.

The record established the following transactions as representative of the type of financial involvement and assistance Albertson's, Inc. engaged in with respect to the stores in the Skaggs-Albertson's division: (a) cash advance on October 15, 1969 of $1,125,000 to Skaggs-Albertson's Properties, Inc. for the purpose of providing Albertson's share of the funds to hold title to seven parcels of real estate in Texas; (b) on the next day, the seven properties were [106 Idaho 813]

Page 849

transferred from Albertson's, Inc. to Skaggs-Albertson's Properties, Inc.; (c) in October 1969, Albertson's, Inc. procured a $3,000,000.00 loan commitment from the United States Steel and Carnegie Pension Fund, Inc., transferred seven of the corporation's stores to the pension fund under a sale-leaseback arrangement, and then provided that the unused portion of the $3,000,000 loan commitment would be made available to Skaggs-Albertson's for use in the sale and leaseback of new store properties; (d) in February 1972, Albertson's transferred $2,507,577.20 to the Skaggs-Albertson's partnership for the purpose of purchasing seven Katz stores owned by Skaggs in Oklahoma and Arkansas; and (e) in May 1972, Albertson's then executive vice-president for administration and finance reported having negotiated a $7,500,000 commitment with Southwestern Bell Telephone Pension Fund to cover sale-leaseback commitments of the Skaggs-Albertson's operation at 7 1/8% to 7 1/4% effective interest rate. 1

Because of anticipated anti-trust problems 2 and differing philosophies of growth, the parties agreed to terminate and dissolve the Skaggs-Albertson's partnership effective March 31, 1977, and distribute the assets between the two parent companies. When the dissolution of Skaggs-Albertson's occurred, the stores and accumulated profits were evenly divided (50% each) and transferred to Skaggs, Inc. and Albertson's Inc. respectively. Those facilities received by Albertson's were then placed in its Southco Division.

Albertson's annual reports for fiscal years ending February 1st, 1975 and January 31st, 1976 make no mention of the Texas-Albertson's subsidiary corporation but rather describe the relationship as being directly between Albertson's and Skaggs-Albertson's. 3

No separate financial reports were ever made from Texas-Albertson's to Albertson's.

During the three years in question, the following income payments were made by Skaggs-Albertson's to Texas-Albertson's:

1975 $3,370,354
                1976 $5,897,626
                1977 $10,989,862
                 -----------
                 $20,257,842
                

It is that $20,257,842 of income to Texas-Albertson's which is the basis of the $50,615 ($42,839 plus interest) deficiency determination made by the Tax Commission after applying the three factor formula of UDIPTA.

In 1977 the partnership paid Albertson's $746,890 on the advances, which equates to an annual return of 3.7% on $20,058,606, the $746,890 having been reported to Idaho as business income. No such interest or Idaho business income was reported for either 1975 or 1976.

106 Idaho 814

Page 850

II.

THE ACCOUNTING TREATMENT FOR TAX PURPOSES

The audit staff of the Tax Commission determined that Texas-Albertson's was engaged in a unitary business with the parent corporation, Albertson's, and therefore income of the subsidiary should be combined with that of the parent corporation in reporting income pursuant to the version of I.C. § 63-3027(s) then effective, which provided:

For purposes of this section, a parent and subsidiary corporation may, when necessary to accurately reflect income, be considered a single corporation.

...

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12 practice notes
  • Dunn v. Idaho State Tax Comm'n, Docket No. 44378.
    • United States
    • Idaho Supreme Court
    • September 25, 2017
    ...and the burden is on the taxpayer to show that the Commission's decision is erroneous. Albertson's Inc. v. State Dep't of Revenue , 106 Idaho 810, 814, 683 P.2d 846, 850 (1984). Parker v. Idaho State Tax Comm'n , 148 Idaho 842, 845, 230 P.3d 734, 737 (2010) (footnote omitted)."Because ......
  • Dunn v. Idaho State Tax Comm'n, Docket No. 44378
    • United States
    • Idaho Supreme Court
    • September 25, 2017
    ...and the burden is on the taxpayer to show that the Commission's decision is erroneous. Albertson's Inc. v. State Dep't of Revenue , 106 Idaho 810, 814, 683 P.2d 846, 850 (1984). Parker v. Idaho State Tax Comm'n , 148 Idaho 842, 845, 230 P.3d 734, 737 (2010) (footnote omitted)."Because ......
  • Parsons v. Idaho State Tax Com'n, Dept. of Revenue and Taxation, No. 15935
    • United States
    • Court of Appeals of Idaho
    • March 21, 1986
    ...As the movant, Parsons must show that the deficiency determination was incorrect. See Albertson's, Inc. v. State, Department of Revenue, 106 Idaho 810, 683 P.2d 846 (1984); American Smelting and Refining Co. v. Idaho State Tax Commission, 99 Idaho 924, 592 P.2d 39 (1979), rev'd on other gro......
  • Noell Indus., Inc. v. Idaho State Tax Comm'n, Docket No. 46941
    • United States
    • United States State Supreme Court of Idaho
    • May 22, 2020
    ...connection between the interstate business activities generating the income and the state seeking to tax that income. Albertson's, Inc. , 106 Idaho 810, 811, 815 n.4, 683 P.2d 846, 847, 851 n.4 (1984) (internal citations and quotation marks omitted) (quoting Am. Smelting & Ref. Co. v. I......
  • Request a trial to view additional results
12 cases
  • Dunn v. Idaho State Tax Comm'n, Docket No. 44378.
    • United States
    • Idaho Supreme Court
    • September 25, 2017
    ...and the burden is on the taxpayer to show that the Commission's decision is erroneous. Albertson's Inc. v. State Dep't of Revenue , 106 Idaho 810, 814, 683 P.2d 846, 850 (1984). Parker v. Idaho State Tax Comm'n , 148 Idaho 842, 845, 230 P.3d 734, 737 (2010) (footnote omitted)."Because ......
  • Dunn v. Idaho State Tax Comm'n, Docket No. 44378
    • United States
    • Idaho Supreme Court
    • September 25, 2017
    ...and the burden is on the taxpayer to show that the Commission's decision is erroneous. Albertson's Inc. v. State Dep't of Revenue , 106 Idaho 810, 814, 683 P.2d 846, 850 (1984). Parker v. Idaho State Tax Comm'n , 148 Idaho 842, 845, 230 P.3d 734, 737 (2010) (footnote omitted)."Because ......
  • Parsons v. Idaho State Tax Com'n, Dept. of Revenue and Taxation, No. 15935
    • United States
    • Court of Appeals of Idaho
    • March 21, 1986
    ...As the movant, Parsons must show that the deficiency determination was incorrect. See Albertson's, Inc. v. State, Department of Revenue, 106 Idaho 810, 683 P.2d 846 (1984); American Smelting and Refining Co. v. Idaho State Tax Commission, 99 Idaho 924, 592 P.2d 39 (1979), rev'd on other gro......
  • Noell Indus., Inc. v. Idaho State Tax Comm'n, Docket No. 46941
    • United States
    • United States State Supreme Court of Idaho
    • May 22, 2020
    ...connection between the interstate business activities generating the income and the state seeking to tax that income. Albertson's, Inc. , 106 Idaho 810, 811, 815 n.4, 683 P.2d 846, 847, 851 n.4 (1984) (internal citations and quotation marks omitted) (quoting Am. Smelting & Ref. Co. v. I......
  • Request a trial to view additional results

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