American Bemberg Corp. v. Carson
| Decision Date | 11 March 1949 |
| Parties | AMERICAN BEMBERG CORPORATION v. CARSON. NORTH AMERICAN RAYON CORPORATION v. CARSON. |
| Court | Tennessee Supreme Court |
Appeal from Chancery Court, Davidson County; Wm. J. Wade Chancellor.
Separate suits by American Bemberg Corporation and North American Rayon Corporation against Sam K. Carson, Commissioner of Finance and Taxation, to recover certain franchise and excise taxes paid under protest, which were consolidated. From a decree dismissing the bills of complaint, the complainants appeal.
Decree affirmed.
Cox, Taylor, Epps & Miller, of Johnson City, and George F. Dugger, of Elizabethton, for appellants.
Roy H Beeler, Atty. Gen., William F. Barry, Sol. Gen., of Nashville, and Harry Phillips, Asst. Atty. Gen., for appellee.
This appeal presents two consolidated causes. Bills were filed in the Chancery Court of Davidson County by the American Bemberg Corporation and by the North American Rayon Corporation against the Commissioner of Finance and Taxation, to recover certain franchise and excise taxes paid under protest for the year ending July 1, 1946, and to assail the method of assessment by which the taxes had been levied and collected. The Commissioner filed an answer, and after voluminous proof was taken, the Chancellor heard the two causes together, filed a careful written opinion, denied the relief sought and dismissed the bills. The complainants have perfected appeals in a single record, and it is agreed that identical questions are presented in the two cases. Numerous assignments of error are made to support the appeal, and the case being here on broad appeal, we will consider such assignments as we consider material to the disposition of the case in the course of the opinion.
Under the excise and franchise tax laws, both these corporations are assessable as manufacturing corporations. Their manufacturing operation is entirely in Tennessee and almost all their tangible properties are in Tennessee. Both maintain offices in New York, and from the New York offices almost all sales are made to customers, the goods being delivered from stocks in Tennessee.
A tabular analysis of the operations of the two corporations for the tax period is incorporated in the Chancellor's opinion. Some of these figures are assailed in one of the assignments of error, and we have made such changes as the record justifies in making the following copy:
For the questioned tax year, the statutory formula, Williams' Code, sec. 1316, for allocation of the excise tax was applied and resulted in a factor of 68.1665% of Bemberg's net earnings, and 67.0573% of North America's net earnings for the year ending July 1, 1946.
Application of the statutory formula for the franchise tax, Williams' Code, sec. 1248.145, resulted in allocation to Tennessee for the franchise tax for the same period, of capital stock, surplus and undivided profits of Bemberg 99.9559% and of North American 99.9756%.
The first attack is upon the validity and constitutionality of these statutory formulas, and it is insisted that the Chancellor erroneously held that the decision of General Shoe Corporation v. Stokes, 181 Tenn. 286, 290, 181 S.W.2d 146, established the validity of these formulas. It is insisted that that decision furnishes no such authority since it was agreed in that case that these formulas were valid. If the Chancellor cited the wrong case, it is immaterial. The validity and constitutionality of such statutory formulas for the calculation of privilege taxes has long been recognized both by this Court and the Supreme Court of the United States, so that the question is no longer open. Reynolds Tobacco Co. v. Carson, 187 Tenn. 157, 213 S.W.2d 45, 49; Corn v. Fort, 170 Tenn. 377, 95 S.W.2d 620, 106 A.L.R. 647; Bank of Commerce v. Senter, 149 Tenn. 569, 260 S.W. 144; International Harvester Co. v. Evatt, 1947, 329 U.S. 416, 67 S.Ct. 444, 91 L.Ed. 390; Butler Bros. v. McColgan, 1942, 315 U.S. 501, 62 S.Ct. 701, 86 L.Ed. 991; Underwood Typewriter Co. v. Chamberlain, 1920, 254 U.S. 113, 41 S.Ct. 45, 65 L.Ed. 165; United States Glue Co. v. Oak Creek, 1920, 247 U.S. 321, 38 S.Ct. 499, 62 L.Ed. 1135, Ann.Cas.1918E, 748.
On account of the results reached by application of the statutory formulas, complainants insist that defendant Commissioner should have exercised the following power vested in him in identical language by the two Acts:
'If, because of peculiar or unusual circumstances inherent in a particular case, the application of the above formulas would work a hardship or injustice, the commissioner, upon application of the taxpayers and upon such showing, is authorized, with the approval of the attorney-general, to adopt such other method of apportionment as would be fair and just under the facts of the case.' Williams' Code, section 1248.145 and Code, section 1316.
We think it clear beyond argument that this confers a discretionary power upon the Commissioner. He is given authority, with the approval of the Attorney General, to determine what peculiar or unusual circumstances justify a method of apportionment other than that provided by the statutory formulas and he, under the facts of the particular case, is to determine what allocation would be fair and just. The Chancellor correctly so held, and the assignments of error attacking that holding are overruled.
To support their argument, conplainants show that in prior years the statutory formulas were not enforced against them, but a 'hardship formula' was used to assess both excise and franchise taxes. Clearly, this liberality of former collecting agents was not binding on the State for subsequent tax years, National Life & Accident Ins. Co. v. Dempster, 168 Tenn. 446, 461, 79 S.W.2d 564; R. J. Reynolds Tobacco Co., supra, 213 S.W.2d at page 48,
and is effective as argument only. In July 1946, complainants made returns for the preceding tax year and attached checks for taxes in an amount calculated on the 'hardship formula' which has been theretofore acceptable. The Commissioner, with the approval of the Attorney General, refused to agree to the application of the 'hardship formula' and insisted on the higher assessment by application of the statutory formulas in the regular way. Thereupon, Bemberg paid additional excise taxes in the sum of $1147.12, and additional franchise taxes in the sum of $3010.16, and North American paid additional excise taxes in the sum of $1068.49, and franchise taxes in the amount of $5543.83. These amounts were paid under protest and their recovery is sought by the bill.
The effect of the prayer of the bill and of the principal argument to support the appeal is not that the Court should compel the defendant Commissioner to exercise his discretionary power, but that it should compel the exercise of that discretionary power in a particular way,--by abandoning the statutory formulas and applying a 'hardship formula.' No authority is cited to support the Court's exercise of such a power, and we are confident that none can be found in view of the wealth of authority to the contrary. Though the relief sought is not in terms a writ of mandamus, the declaration sought would have the same effect, and cases on mandamus present identical legal principles. State ex rel. v. Meador, 153 Tenn. 634, 284 S.W. 890; State ex rel. v. Clark, 173 Tenn. 81, 114 S.W.2d 800. Cf. 55 C.J.S., Mandamus, § 182, p. 355, where numerous cases from other jurisdictions are collected to support the statement that 'as a general rule mandamus will not lie to control a discretion vested in an officer or board with respect to the levy and assessment of taxes.'
Since we hold that the discretion to apply the 'hardship formula' was vested in the defendant Commissioner, subject to the approval of the Attorney General, the burden is on the complainants to introduce clear and cogent evidence that the discretion vested in the Commissioner has been abused. That burden is the heavier on the appellants in view of the Chancellor's adverse decree. As we view it, the degree of proof that would support our finding that the Commissioner had abused his discretion, would sustain the alternate proposition of complainants that the method adopted was unconstitutional as violating the due process and commerce clauses of the Federal Constitution, art. 1, § 8, cl. 3; Amend. 14. To show a violation of the 14th Amendment, complainants must show that application of the statutory formulas results in arbitrary and palpably disproportionate allocation to Tennessee of income actually earned in another State, or net worth actually employed outside the borders of Tennessee. International Harvester Co. v. Evatt, supra; Hans Rees' Sons v. North Carolina, 283 U.S. 123, 51 S.Ct. 385, 75 L.Ed. 879; R. J. Reynolds Tobacco Co. v. Carson, supra.
"One who attacks a formula of apportionment carries a distinct burden of showing by 'clear and cogent evidence' that it results in extraterritorial values being taxed. See Norfolk & W. R. Co. v. (State of) North...
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