American Home Products Corp. v. Iowa State Bd. of Tax Review

• Decision Date: 18 February 1981
• Docket Number: No. 64837,64837
• Citation: 302 N.W.2d 140
• Parties: AMERICAN HOME PRODUCTS CORPORATION, Appellant, v. IOWA STATE BOARD OF TAX REVIEW, Appellee, and G. D. Bair, Director of Revenue and Iowa Department of Revenue, Intervenors.
• Court: Iowa Supreme Court

Page 140

302 N.W.2d 140

AMERICAN HOME PRODUCTS CORPORATION, Appellant, v. IOWA STATE BOARD OF TAX REVIEW, Appellee and G. D. Bair, Director of Revenue and Iowa Department of Revenue, Intervenors.

No. 64837.

Supreme Court of Iowa.

Feb. 18, 1981.

John V. Donnelly and Harold N. Schneebeck, Jr. of Swift, Brown, Winick & Graves, Des Moines, for appellant.

Thomas J. Miller, Atty. Gen., Harry M. Griger, Sp. Asst. Atty. Gen., and Gerald A. Kuehn, Asst. Atty. Gen., for appellee and intervenors.

Considered by LeGRAND, P. J., and UHLENHOPP, McCORMICK, LARSON, and SCHULTZ, JJ.

SCHULTZ, Justice.

This appeal involves the interpretation of section 422.33, The Code, as it was in effect from January 1, 1971, through June 30, 1975. The question presented is whether the phrase "gross sales from goods delivered within the state" encompasses sales when the seller accepted the orders underlying the sales outside the State of Iowa, filled such orders from a stock of goods maintained outside the State of Iowa, and shipped those goods by common carrier f. o. b. seller's place of business outside the State of Iowa directly to Iowa customers. The district court found that it does. We affirm.

Appellant, American Home Products Corporation (hereinafter American), is a corporate entity incorporated under the laws of the State of Delaware, having its home office in New York, New York, and doing business in the State of Iowa. American reports its income for purposes of income taxation on a calendar-year basis. On March 28, 1977, the Iowa Department of Revenue (hereinafter Department) issued an income tax assessment notice against American in the amount of $1,106,256.96 relating to American's Iowa corporate income tax returns for the years 1968 through 1975. The portion of that assessment which is attributable to the period from January 1, 1971, through June 30, 1975, is at issue in this appeal.

American filed a protest to the assessment, and the dispute was heard on stipulated facts before a hearing officer, who issued a ruling upholding the assessment. Thereafter, American unsuccessfully appealed the ruling to the Iowa State Board of Tax Review and subsequently filed a petition for judicial review in district court. The Polk District Court heard the case on the stipulated facts without further evidence and affirmed the order of the Board of Tax Review.

Section 422.33, The Code imposes a corporate income tax on corporations incorporated under the laws of this state and on foreign corporations doing business in the state. For corporations deriving income from the sale or manufacture of tangible personal property both within and outside the state, the statute subjects to taxation only that income which is reasonably attributable to trade or business within the state. Such income is determined by an apportionment formula contained in section 422.33(1)(b). That provision, as it was in effect from January 1, 1971, through June 30, 1975, provided in pertinent part:

Where income is derived from the manufacture or sale of tangible personal property, the part thereof attributable to business within the state shall be in that proportion which the gross sales made within the state bear to the total gross sales.

The gross sales of the corporation within the state shall be taken to be the gross sales from goods delivered within the state, excluding deliveries for transportation out of the state.

(emphasis added).

In its corporate income tax returns for the years at issue, American failed to include as "gross sales made within the state" certain sales of goods to Iowa customers from business locations outside the State of Iowa. The relevant facts concerning these sales were stipulated before the hearing examiner and are uncontroverted. All orders were sent by Iowa customers to American's business locations outside the State of Iowa and accepted by American outside the state. These orders were filled from a stock of goods maintained outside the state and shipped by common carrier from such locations directly to Iowa customers. The agreements between American and its customers were shipment contracts providing for delivery f. o. b. American's place of business outside the State of Iowa. The contracts provided that American place the goods in the possession of the common carrier with a bill of lading so delivery could be completed. Title to the goods and risk of loss passed to the Iowa customers at the time and place of shipment (outside the State of Iowa).

American's failure to include these transactions as "gross sales made within the state" in its tax returns represents the sole controversy involved in this appeal. In conducting an audit of American's books, which is the basis for the tax deficiency assessment, the Department included as "gross sales made within the state" all sales of tangible personal property whose ultimate destination was an Iowa customer.

I. Judicial review of final agency action is governed by the Iowa Administrative Procedure Act, § 17A.19, The Code 1979. There are no constitutional or factual issues present in this appeal; hence, our review is limited to construing the statutory language at issue. In reviewing an administrative agency's interpretation of statutory provisions we may give deference to, but are not bound by, the agency's interpretation. "(T)he meaning of a statute is always a matter of law, and final construction and interpretation of Iowa statutory law is for this court." Sorg v. Iowa Department of Revenue, 269 N.W.2d 129, 131 (Iowa 1978).

We must determine whether the controverted sales of goods were "delivered within the state" within the meaning of section 422.33(1)(b), thus designating such sales as "gross sales made within the state" for purposes of the apportionment formula. The parties agree that the statutory term "delivered" is facially ambiguous.

American argues that "delivery" is a commercial concept tied to transfer of title, legal possession, and the passing of risk of loss from seller to buyer. See Iowa Uniform Commercial Code, §§ 554.2401, .2504, .2509, The Code 1979. American asserts that under this theory all rights and duties associated with the goods passed to the Iowa customer when the goods were turned over to the common carrier with the bill of lading at American's place of business outside Iowa, and that the transaction was complete at that time; thus, there could be no delivery within the state.

The Department concedes that constructive delivery occurred outside Iowa if the transactions at issue are analyzed under the provisions of the Iowa Uniform Commercial Code in effect at that time. See § 554.2319, The Code 1975. The Department contends, however, that the term delivery, which has been in the statute since its inception in 1934, has never hinged on the law of sales or the Uniform Commercial Code but is synonymous with actual physical receipt in Iowa of goods destined for consumption or use in Iowa.

Since the meaning of the term "delivered" is not clear from the statutory language, we must resort to principles of statutory construction to determine the intent of the legislature.

II. The purpose of all rules of statutory construction is to ascertain the intent of the enacting legislature. Iowa National Industrial Loan Co. v. Iowa State Department of Revenue, 224 N.W.2d 437, 439 (Iowa 1974). Some of the general rules of statutory construction that have been applied by this court are:

(1) In considering legislative enactments we should avoid strained, impractical or absurd results.

(2) Ordinarily, the usual and ordinary meaning is to be given the language used but the manifest intent of the legislature will prevail over the literal import of the words used.

(3) Where language is clear and plain, there is no room for construction.

(4) We should look to the object to be accomplished and the evils and mischiefs sought to be remedied in reaching a reasonable or liberal construction which will best effect its purpose rather than one which will defeat it.

(5) All parts of the enactment should be considered together and undue importance should not be given to any single or isolated portion.

(6) We give weight to the administrative interpretation of statutes, particularly when they are longstanding.

(7) In construing tax statutes doubt should be resolved in favor of the taxpayer.

Id. at 440 (citations omitted). Other rules of construction will be considered later.

American asserts that the rule of construction that tax statutes are to be construed against the taxing authority and in favor of the taxpayer overrides any other rule of statutory construction. In support of this position American cites Scott County Conservation Board v. Briggs, 229 N.W.2d 126, 127 (Iowa 1975) ("We think the decision is controlled by the general principle that a taxing statute is construed liberally in favor of the taxpayer and strictly against the taxing body."), and Dodgen Industries, Inc. v. Iowa State Tax Commission, 160 N.W.2d 289, 296 (Iowa 1968) ("It must appear from the language of the statute the tax assessed against taxpayer was clearly intended."). See also Estate of Dieleman v. Department of Revenue, 222 N.W.2d 459, 461 (Iowa 1974); Knudsen v. Iowa Liquor Control Commission, 171 N.W.2d 538, 540 (Iowa 1969). We do not believe the case authority cited by American supports its position. In Iowa National Industrial Loan Co. we stated:

With one exception none of (the rules of statutory construction) is to be used to the exclusion of the others and all must be applied together in the light of the particular facts of the case then under examination. The single departure from this relates to the polestar of all statutory construction the search for the true intention of the legislature.

224 N.W.2d at 439; cf. In re Horse Heaven Irrigation District, 11 Wash.2d 218, 226, 118 P.2d 972, 976 (1941) (one standard of statutory construction cannot be followed to exclusion of all others...