Bethlehem Mines Corp. v. Haden, 12822
| Decision Date | 27 February 1970 |
| Docket Number | No. 12822,12822 |
| Citation | 172 S.E.2d 126,153 W.Va. 721 |
| Court | West Virginia Supreme Court |
| Parties | BETHLEHEM MINES CORPORATION, v. Charles H. HADEN, II, Successor to G. Thomas Battle, Tax Commissioner of the State of W. Va. |
Syllabus by the Court
1. Syllabus, Greaser v. Appaline Oil Company, 109 W.Va. 396 (155 S.E. 170).
2. Where the terms of a contract are clear and unambiguous, they must be applied and not construed.
3. The Business and Occupation Tax imposed by Code, Chapter 11, Article 13, as amended, is not an income tax. It is a tax upon the privilege of doing business in this State.
4. Under Code, 11--13--1, as amended, the measure of the Business and Occupation Tax is the gross income of the taxpayer defined therein as 'the gross receipts * * * received as compensation for personal services and the gross receipts * * * derived from trade, business, commerce or sales. * * * ' Gross income does not include reimbursements from a party to a taxpayer for expenditures made by the taxpayer in accordance with the provisions of an agreement between the taxpayer and such party when it is clear from the terms of the agreement and the manner in which it is executed that such reimbursements were not a part of the remuneration of the taxpayer for services rendered to the other party to the agreement.
Chauncey H. Browning, Jr., Atty. Gen., William F. Carroll, James G. Anderson, III, Asst. Attys. Gen., Charleston, for appellant.
Jackson, Kelly, Holt & O'Farrell, Homer A. Holt, Thomas N. Chambers, Charleston, for appellee.
This is an appeal from a final order of the Circuit Court of Kanawha County entered on April 8, 1968, in an appeal by Bethlehem Mines Corporation, appellee herein, from an administrative decision of G. Thomas Battle, Tax Commissioner of the State of West Virginia, predecessor to Charles H. Haden, II, appellant herein. In that final order that court expunged, voided and held for naught an assessment of Business and Occupation Tax and penalty made by appellant against appellee. This Court granted the appeal and supersedeas on March 24, 1969. All of the statutory references in this opinion are to sections of Chapter 11, Article 13, of the Code of West Virginia, as amended.
On March 16, 1965, appellant, under Code, 11--13--7, as amended, issued an assessment of Business and Occupation Tax for the years 1960 through 1964 against appellee, hereinafter sometimes referred to as Taxpayer, in the sum of $722,582.90 with a penalty thereon of $250,370.43, for a total of $972.953.33. During the assessment period Taxpayer was a wholly-owned subsidiary of Bethlehem Steel Corporation, hereinafter sometimes referred to as Parent Company. Among other such subsidiaries of Parent Company during that time were Bethlehem Steel Company, hereinafter sometimes referred to as Manufacturing Company, and Bethlehem Minerals Company, hereinafter sometimes referred to as Mining Company. During this period each member of Taxpayer's board of directors was also a director of Mining Company, Manufacturing Company and Parent Company. Also, each officer of Taxpayer was an officer in one or more of the other companies. Appellee here is the successor to a December 31, 1964, merger in which Taxpayer and Mining Company merged to form Bethlehem Mines Corporation. The assessment period in question is prior to that merger.
During the assessment period Parent Company owned or leased the following coal properties in West Virginia: Marion Division Mines at Barrackville and Ida-may, producing coal from the Pittsburgh seam; a Barbour Division mine at Century, producing coal from the Redstone seam; and until November 10, 1961, a Randolph Divison mine at Golden Ridge, producing coal from the Sewell seam. The Parent Company leased and subleased these mines to the Mining Company.
On March 1, 1955, the Mining Company and the Taxpayer entered into a contract, entitled 'Operating Agreement,' which is, as summarized by appellee, as follows:
A. Recitals
(1) Mining Company subleased coal lands from the Parent Company.
(2) The Mining Company bought plant and equipment.
(3) The Mining Company desired to employ the Taxpayer to manage the operation of the coal properties.
B. Agreements
(1) The Undertaking--The Mining Company employed the taxpayer to manage the operation of the coal properties; to 'handle for' it all leases relating to extracting coal and to 'handle for' it all leases of dwellings or structures.
(2) The Term--The agreement was to December 31, 1955, and from year to year thereafter, terminable on thirty days' notice.
(3) Production of Coal
(a) The Mining Company was to indicate the quantities and and grades of coal that it desired to have produced and shipped, the mines to be operated, the schedules and dates and places of delivery.
(b) The taxpayer was to purchase all tools, supplies, materials and stores and to employ such labor and technical assistance as should be necessary for the proper conduct of mining operations, and, when approved by the Mining Company to purchase necessary equipment.
(c) All costs of operations referred to in item (3)(b) above, were to be paid by the Mining Company or reimbursed to Taxpayer by the Mining Company in accordance with accounts maintained by the Taxpayer.
(4) Title--All coal to be mined, while in place and after extraction, remained the property of the Mining Company.
(5) Sales--Profit or Loss--The Mining Company had agreed to sell to Manufacturing Company at market prices all coal produced which Manufacturing Company desired; excess quantities were to be sold by the Mining Company.
(6) The Compensation--The Mining Company agreed to pay to the Taxpayer as compensation for its services in managing the operation of the coal properties under the agreement a fee at the rate of three cents (3cents) per gross ton on all coal shipped by or on the order of the Mining Company up to but not exceeding 2,000,000 tons in any calendar year, and on any additional tonnage to pay to the Taxpayer a fee at the rate of one and one-half cents (1 1/2) per gross ton, and in any event the Mining Company was to pay to the Taxpayer a minimum compensation of $1,500.00 a month.
This contract continued in effect until the aforementioned merger. It is with respect to Taxpayer's activities under this contract that the instant controversy has arisen.
Under the 'Operating Agreement,' Parent Company leased coal properties to Mining Company. Parent Company paid Business and Occupation Tax on its royalties. Mining Company produced the coal and sold it to Manufacturing Company. Mining Company paid Business and Occupation Tax upon its production for the years in question in a total of $1,459,016, that amount representing the tax on the gross income derived from the production of coal under Code, 11--13--2a, as amended. Taxpayer managed the operation of the coal properties for Mining Company for a fee pursuant to the contract. During the period in question, Taxpayer received annual fees ranging in amounts from $68,189 to $77,890, upon which it paid Business and Occupation Tax in the total amount of $3,613.60. The total amount of fees received by Taxpayer was $357,906.88. It filed Business and Occupation Tax Returns with the Tax Commissioner each year on which it reported the gross receipts derived from the fee income and other miscellaneous items. The appellant's assessment reclassified this fee income from 'rents and royalties' under Code, 11--13--2i, as amended, to 'service' under Code, 11--13--2h, as amended, and thus increased the gross income by the full amount of the operating expenses of mining, stating that such expenses for which taxpayer was reimbursed were includable in gross income. The amounts of operating expenses added to Taxpayer's income are as follows:
Year Amount
---- -----------
1960 $14,995,921
1961 13,211,402
1962 12,923,016
1963 13,027,521
1964 14,659,559
---- -----------
TOTAL $68,817,419
These operating expenses were composed of the expense or cost of materials, repairs and operations, hereinafter sometimes referred to collectively as M.R.O. items. Purchases of supplies and services were made and processed in the following manner: (1) A purchase requisition for the particular M.R.O. item originated at the mine. (2) Pursuant to the requisition a purchase order was issued to the suppliers by personnel of the Manufacturing Company from its plant in Johnstown, Pennsylvania. On these purchase orders, Taxpayer is designated as that member of the Bethlehem Companies which is the buyer. (3) The suppliers were furnished invoice forms headed 'Subsidiary Companies of Bethlehem Steel Corporation,' complete with billing instructions. Over ninety percent of all invoices received were made out to 'Subsidiary Companies of Bethlehem Steel Corporation' or to Bethlehem Steel Corporation. The remaining portion was billed directly to Taxpayer. Billing instructions directed that all invoices be sent to 'Subsidiary Companies of Bethlehem Steel Corporation,' Bethlehem, Pennsylvania, for payment. (4) Operating expenses, including purchases and payroll, were paid by Manufacturing Company, which received the invoice, consolidated it with other invoices received from the same supplier during each month for the various subsidiary companies, and issued a single check in payment therefor drawn on a bank account in the name of 'Subsidiary Companies of Bethlehem Steel Corporation.'
Manufacturing Company paid the expenses incurred by most of the subsidiaries,...
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