American Refrigerator Transit Co. v. State Tax Commission
Decision Date | 10 September 1964 |
Citation | 238 Or. 340,395 P.2d 127 |
Parties | AMERICAN REFRIGERATOR TRANSIT COMPANY, a corporation, Respondent, v. STATE TAX COMMISSION, Appellant. |
Court | Oregon Supreme Court |
Alfred B. Thomas, Asst. Atty. Gen., Salem, argued the cause for appellant. With him on the briefs were Robert Y. Thornton, Atty. Gen., and Theodore W. de Looze, Asst. Atty. Gen., Salem.
Roy F. Shields, Portland, argued the cause for respondent. With him on the brief were Maguire, Shields, Morrison, Bailey & Kester, Portland.
Before McALLISTER, C. J., and ROSSMAN, PERRY, SLOAN, O'CONNELL, GOODWIN and LUSK, JJ.
This is an appeal from a decree of the Oregon Tax Court setting aside defendant's order requiring plaintiff to pay the Oregon corporate income tax for the calendar years 1955 through 1960. The following statement of facts is adopted from the opinion of the Oregon Tax Court.
Plaintiff (hereafter referred to as 'ART') owns refrigerator cars which it leases to operating railroads. 'It is not a public carrier, it issues no bills of lading, it has no dealings with shippers, and it publishes no tariffs of rates for shippers. ART'S sole activity in the transportation field is to rent railroad refrigerator cars to operating railroads for their use in performing their own transportation service for their own shippers under their own tariffs and shipping documents.
'ART has no rental agreement with railroads operating in Oregon. However, under the interchange procedures applicable to railroads today, some of its cars are interchanged onto railroads operating in Oregon and thereby do travel to, into, and through Oregon. Under its rental contracts and the interchange rules, a railroad using an ART car pays a fixed rate per mile of its use. Monthly, each using railroad reports to ART the mileage traveled by each car used by it. These reports and the rental payments are sent directly to St. Louis. Light or running repairs on ART cars are made by the using railroad, and some such repairs are made in Oregon by railroads serving this state which have the use of cars under interchange arrangements with ART'S lessees. All other repairs are made outside of Oregon.
'ART cars are delivered to the contracting railroads at certain junction points, none of which is in Oregon, and thereafter, until the cars are returned to ART at a junction point, ART has no control over there routing, movement, interchange or other use. The cars are used as are any other cars of the using railroad.
'ART files with the commission all required property tax reports and pays Oregon property tax upon its cars in Oregon as a centrally assessed utility pursuant to ORS 308.505 et seq.'
The tax was imposed under ORS 318.020, which provides as follows:
'(1) There hereby is imposed upon every corporation for each taxable year a tax at the rate of eight percent upon its net income derived from sources within this state after August 3, 1955, other than income for which the corporation is subject to the tax imposed by the Corporation Excise Tax Law of 1929 (ORS chapter 317) according to or measured by its net income. For tax years beginning on and after January 1, 1957, the tax rate shall be six percent.
'(2) Income from sources within this state includes income from tangible or intangible property located or having a situs in this state and income from any activities carried on in this state, regardless of whether carried on in intrastate, interstate or foreign commerce.'
Defendant assessed the tax upon the ground that the income received by plaintiff for the mileage its cars travel in Oregon is 'income from tangible * * * property located or having a situs in this state' and is, therefore, 'income derived from sources within this state' under ORS 318.020.
Plaintiff contends that ORS 318.020 does not apply because it has no property 'located or having a situs' in Oregon, and does not carry on any activity in this state. Plaintiff further contends that if ORS 319.020 was intended to apply to its property the statute would violate the due process clause of the Fourteenth Amendment. In short, plaintiff argues that there is no nexus between the tax and the transactions within Oregon for which the tax is an exaction. The Oregon Tax Court concluded that the required nexus was lacking. The court's reasoning was as follows:
'A review of the cases brings forth, from those cases in which sufficient nexus has been found, the presence of one salient and determinative feature which is not found in this case. In each of those cases finding sufficient nexus, there was, within the borders of the taxing state, a person or persons connected with, and engaged in business activities and transactions on behalf of, the proposed taxpayer. In the instant case there is no such person or activity in Oregon. Without such person acting on behalf of the taxpayer, doing within this state something in furtherance of the business of the taxpayer, there can be no 'transaction' or 'activity' of the plaintiff within this state for which our corporate income tax can be an exaction. Thus the required nexus between tax and transaction fails for want of one of the elements which due process requires.
'In this case not only was there no activity of any person on behalf of the taxpayer, but such of its property as was in Oregon was here under the control of the interchange bailees of its lessees. The mere presence of ART'S property here on January 1 subjects it to property tax, which it pays. However, liability for property tax does not create ipso facto, liability for income tax.
'The benefits conferred by the state in return for the property tax are not sufficient to support income tax liability. "* * * The tax on each [on property and on income] is predicated upon different governmental benefits; the protection offered to the property in one state does not extend to the receipt and enjoyment of income from it in another.' New York ex rel. Cohn v. Graves, 300 U.S. 308, 314, 57 S.Ct. 466, 81 L.Ed. 666, 671, 108 A.L.R. 721, 724 (1937).
'Instead, the benefits assumed to accrue to the taxpayer in return for exaction of the in rem property tax, which arises as it does from the mere presence of property within the state, would appear to preclude mere presence of property within the state, without more, from being sufficient nexus for an in personam income tax predicated upon benefits conferred by the taxing state other than those for which the property tax is an exaction.
We cannot accept the lower court's concept of nexus necessary to sustain the constitutionality of the tax imposed upon plaintiff. We do not regard it as essential to the existence of a nexus that the taxpayer, through its agents, directly engage in some form of physical activity within the state in furtherance of a business purpose. The connection between the taxing state and the one-of-state taxpayer necessary to establish nexus is essentially an economic rather than a physical relationship. The theory is that a state is free to exact a reasonable tribute from those using its economic resources.
'* * * A state is free to pursue its own fiscal policies, unembarrassed by the Constitution, if by the practical operation of a tax the state has exerted its power in relation to the opportunities which it has given, to protection which it has afforded, to benefits which it has conferred by the fact of being an orderly, civilized society.' Wisconsin v. J. C. Penney Co., 311 U.S. 435, 444, 61 S.Ct. 246, 249, 85 L.Ed. 267 (1940).
The nexus exists whenever the corporation takes advantage of the economic milieu within the state to realize a profit. The state is entiled to tax if the benefits it provides...
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