Champion Intern. Corp. v. Bureau of Rev.

Decision Date13 August 1975
Docket NumberNo. 1746,1746
Citation1975 NMCA 106,88 N.M. 411,540 P.2d 1300
PartiesCHAMPION INTERNATIONAL CORPORATION, Appellant, v. BUREAU OF REVENUE, State of New Mexico, Appellee.
CourtCourt of Appeals of New Mexico
Benjamin J. Phillips, White, Koch, Kelly & McCarthy, Santa Fe, Dennis J. Barron, David A. Beanblossom, Frost & Jacobs, Cincinnati, Ohio, for appellant
OPINION

SUTIN, Judge.

Champion International Corporation (Champion) appeals the Decision and Order of the Commissioner of Revenue (Commissioner) which assessed additional corporate income tax for the year 1972.

The Commissioner found that Champion erroneously allocated as 'nonbusiness income' the income it received in the form of interest, rent, and gains from the sale of assets. The Commissioner found that such income was properly classified as 'business income' under § 72--15A--17(A), N.M.S.A.1953 (Repl.Vol. 10, pt. 2, 1973 Supp.). This section falls within the Uniform Division of Income for Tax Purposes Act, 'UDITPA', (§§ 72--15A--16 to 72--15A--36), which provides the uniform division for income tax purposes, among the states participating in the Multistate Tax Compact, oft he income of a multistate business. See § 72--15A--37.

Champion is a New York corporation engaged, in fifty states, in manufacturing and selling a variety of wood products, including building materials, paper, pulp, packaging, and home furnishings.

Champion protested the assessment made. At the hearing on Champion's protest of the assessment, Champion was represented solely by an employee, a tax consultant. He had not prepared the tax returns. He evidenced no knowledge of the conglomerate business operation of Champion. However, Champion relied solely on this tax consultant at the hearing. Champion tendered no business records, documents or other exhibits to support its claims.

This case can be decided by affirmance in two ways: (A) The record leaves us no basis on which to make any determination whether all of Champion's activities were an integral part of their New Mexico operations and (B) and analysis of the statute and its application to Champion's income.

(A) No Basis to Make Determination

A multistate business is a 'unitary business' for income tax purposes when operations conducted in one state benefit and are in turn benefited by operations in another state. Great Lakes Pipe Line Co. v. Commissioner of Taxation, 272 Minn. 403, 138 N.W.2d 612 (1965). 'If its various parts are interdependent and of mutual benefit so as to form one integral business rather than several business entities, it is unitary.' Webb Resources, Inc. v. McCoy, 194 Kan. 758, 766, 401 P.2d 879, 886 (1965).

On the other hand, '. . . (I)f a multistate business enterprise is conducted in a way that one, some or all of the business operations outside (New Mexico) are independent of and do not contribute to the business operations within this State, the factors attributable to the outside activity may be excluded.' Commonwealth v. ACF Industries, Incorporated, 441 Pa. 129, 271 A.2d 273, 280 (1970). See, Rudolph, State Taxation of Interstate Business: The Unitary Business Concept and Affiliated Corporate Groups, 25 Tax L.Rev. 171 (1970).

'Any assessment of taxes made by the bureau is presumed to be correct.' Section 72--13--32(C), N.M.S.A.1953 (Repl.Vol. 10, pt. 2, 1973 Supp.). The duty rests on Champion to present '. . . evidence tending to dispute the factual correctness of the assessments.' McConnell v. State ex rle. Bureau of Revenue, 83 N.M. 386, 387--88, 492 P.2d 1003, 1004--05 (Ct.App.1971). Champion had the burden to ovecome this presumption. Mears v. Bureau of Revenue, 87 N.M. 240, 531 P.2d 1213 (Ct.App.1975).

Champion has failed to produce evidence that its business activity outside of New Mexico was dependent or independent of its instate operations. Champion failed to show that interest, rent, and gains income was not an integral part of its business carried on in New Mexico. On the facts before us, no question is raised whether any of its income is nonbusiness income because there is no evidence that its activities were not part of a unitary business.

The state of the record leaves us no basis on which to make any determination as to whether all the business activity of Champion was an integral part of their New Mexico operations.

By this conclusion, the assessed additional corporate income tax for the year 1972 is affirmed.

(B) An Analysis of the Statute and its Application to Champion's Income

Champion contends that:

(1) Its income from interest, rents and the sale of logs constituted 'nonbusiness income' which could not lawfully be taxed by the State of New Mexico.

(2) The amount that was attributable to the cutting of its timber, and that was taxed by the federal government as IRC § 631(a) gain, was unrealized income that could not lawfully be taxed by the State of New Mexico.

These questions are matters of first impression in New Mexico.

(1) Income from interest, rents and log sales constituted 'business income'.

Section 72--15A--17 defines 'business income' and 'nonbusiness income', under UDITPA, as follows:

A. 'Business income' means income arising from transactions and activity in the regular course of the taxpayer's trade or business and includes income from tangible and intangible property if the acquisition, management, and disposition of the property constitute integral parts of the taxpayer's regular trade or business operations; (Emphasis added)

D. 'Nonbusiness income' means all income other than business income; . . ..

What is meant by the italicized phrase, 'transactions and activity in the regular course of the taxpayer's trade or business'? This is broad terminology.

We have been unable to find a technical definition of the phrase. 'Transaction' is defined as '. . . something that is transacted: as a: a business deal . . ..' 'Activity' is defined as '. . . an organizational unit for performing a specific function; also: its duties or function . . ..' 'Regular' is defined as '. . . steady or uniform in course, practice, or occurrence . . . steadily pursued . . .. Synonyms: NORMAL, TYPICAL, NATURAL. . . .' 'Course' is defined as '. . . accustomed procedure: customary action: usual method of proceeding . . . policy chosen: manner of conducting oneself . . . way of acting . . ..' Webster's Third New International Dictionary (Unabridged, 1961), at 2426, 22, 1913, 522.

Accordingly, we define the phrase 'transactions and activity in the regular course of the taxpayer's trade or business' in § 72--15A--17(A) as:

Business deals and the performance of a specific function in the normal, typical, customary or accustomed policy or procedure of the taxpayer's trade or business.

Cf. Western Natural Gas Company v. McDonald, 202 Kan. 98, 446 P.2d 781 (1968).

(a) Interest Income

The tax consultant for Champion testified that interest income was derived from capital earned in the business. Rather than have a large cash balance in the bank, Champion purchased short-term investments and highly liquid assets from which interest income was derived. This was a specific function of Champion. The money from these short-term investments was needed for future business activity. It was usual and customary in Champion's business to follow this practice, whenever there was enough money or business income that was not immediately needed in the business.

Champion contends that the determining factor is the nature of the transaction from which the interest income was derived, and its relationship to Champion's business. The interest income was derived from investments. Champion argues that this is not 'business income' because Champion is not in the investment business.

We disagree. Champion's representative testified that a normal and customary practice by Champion was to invest excess capital, not needed for business purposes, in short-term securities. Following our definition, supra, this was a specific function done in the regular course of Champion's business. Therefore, Champion's investment income is 'business income'.

Champion's reliance on Western Natural Gas Company, supra, is misplaced. It deals, not with recurring, customary investments, but with a one-time liquidation sale of all of the taxpayer's oil and gas leases.

Sperry and Hutchinson Co. v. Department of Revenue, 527 P.2d 729 (Ore.1974) interprets the reach of a statute almost identical to § 72--15A--17(A). Oregon is a party to the Multistate Tax Compact. The court distinguished, (1) income from short-term investments held to satisfy the corporation's need for capital from (2) long-term investment income that is used for other purposes. The former, the court held, arises from the transactions and activity in the regular course of the taxpayer's trade or business, and, therefore is business income. Champion has failed to distinguish their investments from those found by the Oregon court to be business income.

In the instant case, Champion introduced no evidence as to the use to which it put its short-term investment income. This income was needed for future business activity. It necessarily follows that the income was used for this purpose. Great Lakes Pipe Line Co. v. Commissioner of Taxation, supra. In the light of Sperry and Great Lakes, that the use to which it put this income determines whether it is 'business income', we affirm the Commissioner as to Champion's short-term investment income.

(b) Rents

Champion rented out approximately five percent of its total office space. It claims that the income derived from rent is not 'business income' because Champion was not in the business of renting real estate.

Like 'interest' income, supra, the most reasonable inference to be drawn from the record is that rental of available office space was a customary...

To continue reading

Request your trial
26 cases
  • American Smelting and Refining Co. v. Idaho State Tax Commission
    • United States
    • Idaho Supreme Court
    • March 12, 1979
    ...Mfg. Co. v. Bair, 437 U.S. 267, 98 S.Ct. 2340, 57 L.Ed.2d 197 (1978); Champion International Corp. v. Bureau of Revenue, 88 N.M. 411, 540 P.2d 1300, 1307-08 (Ct.App. 1975) (Lopez, J., specially concurring). Second, under I.C. § 63-3027(a)(1) business income includes not only a corporation's......
  • Holt v. DEPARTMENT OF TAXATION & REVENUE
    • United States
    • New Mexico Supreme Court
    • November 13, 2002
    ...by reference to the income on which the taxpayer is required to pay a tax to the United States." Champion Int'l Corp. v. Bureau of Revenue, 88 N.M. 411, 416, 540 P.2d 1300, 1305 (Ct. App.1975). Section 62 defines adjusted gross income as gross income minus specific deductions. Pursuant to I......
  • NCR Corp. v. Comptroller of the Treasury, Income Tax Div.
    • United States
    • Maryland Court of Appeals
    • September 1, 1987
    ...3109, 73 L.Ed.2d at 795. Several cases illustrate approaches other states have taken to the problem. In Champion Int'l Corp. v. Bureau of Revenue, 88 N.M. 411, 540 P.2d 1300 (App.1975), Champion International challenged tax assessments by New Mexico's Commissioner of Revenue on "short-term ......
  • Qualls v. Montgomery Ward & Co., Inc.
    • United States
    • Arkansas Supreme Court
    • July 2, 1979
    ...income. Its use, just as other working capital is used, also leads to the conclusion that it is business income. Champion International Corp. v. Bureau of Revenue, supra; Montgomery Ward & Co. v. Commissioner of Taxation, 276 Minn. 479, 151 N.W.2d 294 (1967). See also, Great Lakes Pipe Line......
  • Request a trial to view additional results
1 books & journal articles

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT