Armco Steel Corp. v. State

• Decision Date: 01 October 1959
• Docket Number: No. 76,76
• Citation: 102 N.W.2d 552,359 Mich. 430
• Parties: ARMCO STEEL CORPORATION, an Ohio Corporation, Plaintiff and Appellant, v. STATE of Michigan, Department of Revenue and Louis M. Nims, Commissioner, Defendants and Appellees. ,
• Court: Michigan Supreme Court

Page 552

102 N.W.2d 552

359 Mich. 430

ARMCO STEEL CORPORATION, an Ohio Corporation, Plaintiff and Appellant, v. STATE of Michigan, Department of Revenue and Louis M. Nims Commissioner, Defendants and Appellees.

No. 76, Oct. Term, 1959.

Supreme Court of Michigan.

April 11, 1960.

Dykema, Jones, Wheat, Spencer & Goodnow, Detroit, for plaintiff and appellant.

Paul L. Adams, Atty. Gen., Samuel J. Torina, Sol. Gen., Lansing, T. Carl Holbrook, Maurice Barbour, William D. Dexter, Asst. Attys. Gen., for defendants and appellees.

Before the Entire Bench, except KAVANAGH, J.

DETHMERS, Chief Justice.

Plaintiff sued to recover business activities taxes paid under protest. This is its appeal from summary judgment of no cause for action.

It is plaintiff's position that the trial court erred in entering judgment for defendants because:

'1. The only activities of plaintiff in Michigan are integral and inseparable incidents of interstate commerce and consequently plaintiff's receipts are solely derived from or attributable to either intrastate activities wholly without Michigan or to interstate commerce.

'2. The tax under consideration is in operation and effect the equivalent of a tax on gross receipts and is therefore a direct tax on interestate commerce. Furthermore the tax exposes plaintiff's receipts from interstate commerce to a multiple burden. Such a direct and multiple burden is forbidden by the commerce clause of the Federal Constitution.

'3. Even assuming that the tax in question is a tax on local activity, and further assuming that plaintiff's activity in Michigan is 'local' in nature, the manner in which the tax is applied to the plaintiff does not limit the tax to Michigan activity but results in a substantial tax on activities taking place outside of the State of Michigan contrary to guarantees of due process.

'4. The tax violates the Michigan Constitution by failing to distinctly state the tax and by requiring reference to other law.

'5. Finally, without regard to the foregoing constitutional objections, the department of revenue has incorrectly construed and applied the phrase 'gross receipts' to mean the entire receipts of plaintiff everywhere, instead of its entire receipts derived from its activities in Michigan.'

Plaintiff's declaration with attached exhibits, defendants' answer, plaintiff's reply, affidavits in support of defendants' motion for summary judgment with attached exhibits, and plaintiff's affidavit of merits filed in opposition thereto, are the sources from which the facts are to be gleaned. As set forth in those sources, the undisputed, pertinent facts, and the allegations of material facts, necessary to decision herein, which, though disputed by defendants, favor plaintiff, are as follows:

Plaintiff is an Ohio corporation with its principal place of business there. It is engaged in the production, manufacture and sales of various types of steel and steel products. All of its production and manufacture, from the smelting of ore through fabrication of steel and steel products and storing of same, occur outside of Michigan. Plaintiff has not been qualified to do business in Michigan, although defendants claim that it should have been. It has a sales office in Detroit and a branch office in Grand Rapids, which plaintiff alleges are maintained solely for convenience in the solicitation of orders for its products. It maintains a bank account in Michigan for the convenience of the operations of the two offices. It employs in Michigan five salesmen, who solicit orders for its products in this State, and eight clerks, in the two offices, who facilitate the work of the salesmen and process the orders obtained by them. It has more than 31,000 employees. Its Michigan payroll is less than 1/10 of 1% of its total payroll. The total value of its property in Michigan is less than 1/40,000 of its total property. Orders from Michigan are accepted or rejected at the home office in Ohio. Its sales to Michigan customers are shipped f. o. b. points outside this State, and payments by them are made to plaintif at its Ohio offices. During 1954 and 1955, the period here involved, plaintiff's receipts from all sources were $1,036,764,419.13 and those from sales in Michigan $91,038,459.21.

Plaintiff's five Michigan salesmen not only solicit orders for its products, but they also discuss adjustments with customers for malfunctioning of its steel deliveries, involving less than 1% of its sales here. They are in charge of and responsible to plaintiff's district sales manager in this State, who reports to an area manager in Ohio. Under the district sales manager there is an office manager in Detroit, who is in charge of the general work in the two offices and of the clerical aspects of processing Michigan orders and handling related correspondence.

Included in the duties and responsibilities of plaintiff's district sales manager in Michigan are the following: To serve the customer's interests, to direct plaintiff's activities in the Detroit area, to act in a consulting capacity, to assume managerial responsibilities, to direct and coordinate activities of sales personnel in an effort to carry out effectively and efficiently management requests pertaining to the securing of profitable business in Michigan, to promote and protect the best interests of plaintiff, to provide proper and adequate leadership, to keep his immediate superiod informed of any unusual changes made by customers and competition which may affect plaintiff's overall position in the industry, including prices, expansion, strikes, changes in personnel, new products and grades, etc., to develop and maintain a harmonious working staff to work with customers and the home office, to build up customer relationships, to endeavor to operate within the budget, with especial emphasis on controllable items, to direct performance of assignments and responsibilities delegated by management, to resolve claims and complaints, to help plan sales programs, to analyze customers' needs in relation to patterns and determine the distribution of allotted tonnages, to report and resolve matters of price, quality, practices and methods not considered ordinary or competitive, to observe and report trends of commercial, industrial or economic nature as may affect or influence future business levels and plaintiff's planning, to maintain and develop contacts other than of a straight sales nature that may be of benefit to plaintiff, at times to accompany salesmen on customer calls and customers on calls to the home office, to set up budgets and disburse moneys for travelling expenses of salesmen, etc. He is not required to be a salesman or to solicit orders.

The Detroit office manager is under the sales manager. He is responsible for the prompt and accurate execution of all work involved in handling inquiries, quotations, entry and service of orders, and general service to customers and district office personnel. This includes direct supervision of some seven or eight persons who are under the indirect supervision of the district sales manager. It also entails the responsibility for the accuracy of records in the office on quotas, status of orders, etc., and of files, such as pending claims, correspondence and the like, visualizer, order books, tonnage, and various other records, including salesmen's call reports and general information in regard to customer packaging and traffic problems.

The role of plaintiff's Michigan salesmen is extensive. Existing customers of plaintiff in Michigan are assigned to individual salesmen. Each salesman is generally given a specific territory in which existing customers are located, to the end that all the area of the State of Michigan and all existing customers are assigned and served by sales personnel of plaintiff. Approximately 40% of the time of the salesmen is spent in the district office, answering inquiries of the customers assigned to them and adjusting, processing, correcting and screening customers' orders. The remaining time of the salesmen is spent in making calls on customers assigned to them at the customers' places of business. The salesmen's service activities include processing order changes; handling quality problems; investigating into customers' claims and complaints; negotiating settlement of such claims and complaints; assisting the customer and other personnel of plaintiff by arranging for mill representatives, sales engineers, metallurgists, research personnel, market development personnel and credit representatives to visit the customer and give specialized help; and providing technical information to customers' research or metallurgical personnel, which the salesmen secure from plaintiff's technical personnel at plaintiff's mill locations or its home office in Middletown, Ohio. The activity of plaintiff's salesmen in providing these services to customers assigned to them is discharged primarily by regular, routine and systematic calls on the customers at the locations where the customers are using the plaintiff's products. Plaintiff's salesmen make general, routine contacts with the customers to handle specific problems or complaints and to get commitments for orders on a continuing basis and in handling complaints and problems in connection with processing orders in their offices.

Both in connection with the ordering of steel to make new parts, and in connection with claims of Michigan customers, mill representatives are frequently in Michigan. The mill representatives have special technical knowledge of the physical characteristics and qualities of plaintiff's products and their application to particular uses. The activities of such representatives of plaintiff in Michigan are solely an aid to plaintiff's sales efforts. If there is a complaint, for instance, that a given shipment of steel did not perform as specified, the salesman would request assistance from the mill, whereupon a mill...