Allied-Signal, Inc. v. Wyoming State Bd. of Equalization, ALLIED-SIGNA

CourtUnited States State Supreme Court of Wyoming
Citation813 P.2d 214
Parties, a Delaware Corporation, Appellant (Petitioner), v. The WYOMING STATE BOARD OF EQUALIZATION, Appellee (Respondent).
Docket NumberALLIED-SIGNA,No. 90-97,INC,90-97
Decision Date12 June 1991

Gregory C. Dyekman, Dray, Madison & Thomson, P.C., Cheyenne, for appellant.

Joseph B. Meyer, Atty. Gen., and Michael L. Hubbard, Sr. Asst. Atty. Gen., for appellee.


THOMAS, Justice.

The essential question to be resolved in this case is the value to be ascribed to stock in a new corporation that is exchanged for the assets of sister corporations for purposes of the state sales tax. In a time period spanning part of 1985 and part of 1986, a corporate reorganization was structured in which the assets held by wholly owned subsidiary corporations were exchanged for 100 percent of the stock in a newly formed subsidiary corporation with no assets. In addition, the acquiring corporation assumed certain liabilities. The Wyoming State Board of Equalization ruled that this transaction was a transfer for consideration and subject to the imposition of the sales tax under the laws of Wyoming in effect at that time. The district court upheld the ruling by the State Board of Equalization which assessed the sales tax at $2,838,767. We acquiesce in the determination that, under the law in effect at that time, this was a transfer for consideration resulting in a sales tax. We hold, however, that the only consideration paid for the assets was the stock of the acquiring corporation and that, while certainly that stock was worth at least the expenses of capitalization, the record is silent as to that amount. Therefore, there is no proof of the value of the consideration paid for the assets. The net effect is that the stock that was transferred has no value according to this record, and there is no basis upon which to impose a Wyoming sales tax on this transaction. The judgment of the district court is reversed.

Allied-Signal, Inc. (Allied-Signal), presents the following issues for review:

"A. Whether the District court erred in sustaining the finding of the State Board of Equalization that the subject transaction constituted a 'Sale' within the meaning of Wyo. Stat. § 39-6-402(a)(iii).

"1. Whether the legislature did not intend to subject such transfers to tax.

"2. Whether the District Court erred in concluding that Appellant did not carry its burden of proving a long-standing policy of the department.

"3. Whether the District Court erred in concluding that the statute is not ambiguous.

"4. Whether the ambiguity in the meaning of the term 'consideration' as it applies to an incorporation transfer should be resolved by this court finding that the stock received upon an incorporation transfer is not consideration for purposes of the Act.

"B. Whether the imposition of tax on Allied's transfer was in violation of the Wyoming Administration Procedure Act and the due process provisions of the Wyoming and Federal Constitutions.

"C. Whether, even if the subject transaction constituted a 'sale,' the State Board of Equalization acted arbitrarily, capriciously and contrary to law in finding that the intrinsic value of the stock received by Allied, and therefore the amount subject to tax, was greater than zero and the District Court erred in sustaining that finding."

The Wyoming State Board of Equalization (Board), as appellee, sees the issues in this way:

"Has the appellant carried its burden of proving that the board's decision is contrary to the standards established for this review under W.S. 16-3-114(c)?

"(1) Is W.S. 39-6-402(a)(iii)(1986) ambiguous?

"(2) Does the rule of construction cited by appellant apply? If so, does it change the result of this case?

"(3) Is the decision supported by substantial evidence?"

In September of 1985, Allied-Signal acquired Allied Corporation (Allied), which was a public corporation involved in the chemical, automotive, and aerospace industries. Allied became a wholly-owned subsidiary of Allied-Signal. One of the major assets of Allied was a soda ash mining and manufacturing facility located near Green River. In December of 1985, Allied-Signal caused One Newco to be incorporated under the laws of the state of Delaware. The officers and directors of this new company were composed of either officers or employees of Allied or one of its affiliates.

One Newco became an active entity on May 21, 1986 when Allied transferred its Wyoming soda ash business plus the assets of various other chemical companies to One Newco in exchange for the entire first issue of One Newco stock. In addition, One Newco assumed certain liabilities incurred earlier by Allied in connection with the assets that were transferred. Prior to that time, One Newco had acquired no assets whatsoever and, as a result of the transaction, it became a wholly-owned subsidiary of Allied. Through this arrangement, Allied continued to maintain control and ownership of the assets and businesses transferred to One Newco. Allied Signal was the corporate owner of Allied, and it possessed ultimate control and ownership over the entire business structure that included One Newco. Allied Signal's asset pool was not affected by the exchange of property for stock other than to the extent of some ostensible increase in net worth reflected by a return of the intrinsic value contained in the incorporation of One Newco. One Newco changed its name to General Chemical Corporation following the transaction.

As a part of the transfer of assets for stock, Allied assumed liability for all taxes associated with the formation of One Newco. Allied reported the transfer on its May, 1986 sales tax return and remitted sales tax in the amount of $2,858,593. The following January, it filed an amended return and requested a refund of $2,838,767 from the Wyoming Department of Revenue and Taxation (Department) on the ground that the exchange of assets of Allied for One Newco stock did not constitute a taxable event. The request for refund was denied and, on appeal, the Board ruled that the transfer did constitute a "sale" and that the stock received by Allied amounted to consideration, thus upholding the Department's denial. In order to establish the amount of taxes due, the stock was found to be worth the value of the assets received.

Subsequently, Allied and Allied-Signal merged and Allied-Signal became the successor in interest to all claims previously initiated by Allied. In August of 1989, Allied-Signal petitioned the district court to review the order of the Board. The district court affirmed the agency's determination.

At the time of the transaction upon which the tax was imposed, the controlling Wyoming law, found in § 39-6-402(a)(iii), (iv), and (v), W.S.1977, (May 1985 Repl.), reads as follows:

"(a) As used in this article:

* * * * * * "(iii) 'Sale' means any transfer of title or possession for a consideration and includes the fabrication of tangible personal property when the materials are furnished by the purchaser;

"(iv) 'Sales price' means the consideration paid by the purchaser of tangible personal property excluding the actual trade-in value allowed on tangible personal property exchanged at the time of transaction, admissions or services which are subject to taxation as provided by this article and excluding any taxes imposed by the federal government or this article;

"(v) 'Tangible personal property' means any property not real or intangible * * *."

It is to be noted that the statute defines a sale as any transfer of title or possession for a consideration and then describes the sales price as a consideration paid by the purchaser. These provisions were promulgated initially with the Selective Sales Tax Act of 1937, Ch. 102, 1937 Wyo. Sess. Laws, but the provision was not enforced to impose a tax upon the contribution of assets to a wholly-owned subsidiary in exchange for the stock of the subsidiary until 1982. In that year, the Wyoming Telephone Company contested case culminated in an affirmation by the Board of an assessment made on exactly such an exchange. The case involved a factual situation quite similar to that involved in this case, but the disputed tax was $584.23. The Board's ruling was not appealed. See The Wyoming Lawyer, Vol. VI, No. 2, (June 1983) (reviews the Administrative decision).

The testimony of the director of the Internal Operations Division of the Department of Revenue and Taxation in this case is to the effect that the Department, at least prior to the 1982 case, had believed that a transfer upon an incorporation such as that occurring in this instance would not be the subject of a sales tax assessment. In 1985, however, the Department, apparently upon its conclusion that its prior interpretation of the statutes had been either erroneous or lax, adopted Chapter III, Section 5 of the Rules and Regulations of the Wyoming State Tax Commission, in which a transfer of tangible personal property pursuant to the sale of a business was declared to be subject to the sales tax.

At the next general session of the legislature following promulgation of the new regulation by the Department, the legislature, apparently reacting to the Department's changed posture, expanded the language of the applicable statutes to establish express exceptions for certain types of transactions. Section 39-6-402(a)(iii), (iv), and (v), W.S.1977 (July 1990 Repl.), in pertinent part, now read as follows:

"(a) As used in this article; * * *

* * * * * *

"(iii) 'Sale' means any transfer of title or possession for a consideration including the fabrication of tangible personal property when the materials are furnished by the purchaser but excluding an exchange or transfer of tangible personal property upon which the seller has directly or indirectly paid sales or use tax incidental to:

* * * * * *

"(B) The formation of a corporation by the owners of a business and the transfer of...

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