Dick Proctor Imports, Inc. v. Director of Revenue
| Decision Date | 15 March 1988 |
| Docket Number | No. 69564,69564 |
| Citation | 746 S.W.2d 571 |
| Parties | DICK PROCTOR IMPORTS, INC., a Missouri corporation, Appellant, v. DIRECTOR OF REVENUE, Respondent. |
| Court | Missouri Supreme Court |
Timothy F. Noelker, Steven H. Akre, Daniel T. Engle, St. Louis, for appellant.
William L. Webster, Atty. Gen., Melodie A. Powell, Asst. Atty. Gen., Jefferson City, for respondent.
Dick Proctor Imports, Inc., challenges a decision of the Director of Revenue finding deficiencies in its payment of income taxes for the period between April 1, 1978 and December 31, 1979. The issues are whether appellant was entitled to apportion income pursuant to the single factor apportionment formula contained in § 143.451.2(2)(b), RSMo 1986, and, if so, whether it properly applied this formula to its sales for the time period in question. The Court concludes that appellant was entitled to use the single factor apportionment formula but that the case must be remanded to the Administrative Hearing Commission for the presentation of additional evidence relevant to the question of the propriety of appellant's application of the formula.
Appellant is a Missouri corporation whose main office is located in St. Louis, Missouri. It engages in the wholesale distribution of consumer electronics, such as stereos and portable radios, to retail stores and other distributors within and outside of the state of Missouri.
Approximately 65 percent of appellant's sales during the time in question were made through a network of sales representatives located throughout the United States. These sales representatives were independent contractors who exercised a great degree of freedom in making their sales. Appellant's employees trained the representatives by making sales calls with them. Sales resulting from these sales calls were credited to the sales representative even if most of the actual negotiation was done by appellant's employee. From time to time, when a customer was unable to contact its sales representative, it would call direct to the St. Louis office to place an order. Also, sales representatives and their customers occasionally came to St. Louis to preview new product lines and sales were sometimes transacted at these meetings.
Approximately 35 percent of appellant's sales were made to large customers (whose accounts were known as house accounts) serviced directly by appellant's president and two sales managers who worked out of the St. Louis office. These three employees made regular trips out of Missouri to service the house accounts. They also regularly went out of state to attend trade shows and to train and maintain contact with the sales representatives. Sales to house account customers were generally made at the customer's place of business, but were on occasion made over the telephone, at trade shows, or possibly even in St. Louis when the customer came to the new product preview. Appellant's employees apparently also made some sales to non-regular customers at trade shows.
During the time in question, as well as before and since, appellant elected to apportion its income by means of the single factor apportionment formula provided in § 143.451.2(2)(b), RSMo 1986. Under this formula, a taxpayer adds the entire "amount of sales which are transactions wholly in this state" to one-half of the "amount of sales which are transactions partly within this state and partly without this state." The sum obtained is then divided by the taxpayer's total sales. This quotient is then multiplied by the taxpayer's net income to determine "the proportion of income to be used to arrive at the amount of Missouri taxable income." In terms of a mathematical equation, the single factor apportionment formula can be reduced to:
Amount of sales k 1/2 (Amount of sales x Net Proportion of
which are which are Income income to be used
transactions transactions partly = to arrive at the
wholly in within and partly amount of
Missouri without Missouri) Missouri taxable
income
---------------------------------------------
Total Sales
The effect of a taxpayer's use of the single factor apportionment formula is to reduce its tax burden if it has engaged in any sales which can be characterized as transactions partly within and partly without Missouri.
Following an audit conducted by a representative of the Missouri Department of Revenue, the Director of Revenue determined that the sales made by appellant during the period in question which had been reported as being transactions partly within and partly without Missouri were actually transactions wholly within Missouri. As all appellant's sales were deemed to be transactions wholly within Missouri, the Director concluded appellant was not entitled to apportion its income pursuant to the single factor apportionment formula. Accordingly, an assessment against appellant of additional state income tax was upheld.
Appellant appealed the Director's decision to the Administrative Hearing Commission. The Commission held that at least some of the challenged sales were, in fact, transactions partly within and partly without Missouri and that appellant was thus eligible to use the single factor apportionment formula. The Commission further held, however, that there was insufficient evidence to determine what portion of appellant's sales could be characterized as transactions partly within and partly without Missouri. Thus, the Commission concluded that appellant had failed to carry the burden, placed on taxpayers by § 143.661, RSMo 1986, to prove that the tax imposed on any specific transaction was improper. Because appellant had failed to carry its burden of proof, the assessment against appellant was upheld.
A decision of the Administrative Hearing Commission shall be upheld when authorized by law and supported by competent and substantial evidence upon the whole record unless a mandatory procedural safeguard has been violated or the court concludes that the result is contrary to the reasonable expectations of the General Assembly. Section 621.193, RSMo 1986.
The initial issue here is whether appellant was eligible to use the single factor apportionment formula. Taxpayers are eligible to do so when some of their sales are transactions partly within and partly without Missouri. If a sale occurred prior to January 1, 1980, the "source of income" test is used to determine the nature of a sale. 1 See Goldberg v. State Tax Comm'n, 639 S.W.2d 796, 803 (Mo. banc 1982). Under this test a sale is a transaction partly within and partly without Missouri if the taxpayer has used labor or capital outside Missouri in the transaction. Langley v. Administrative Hearing Comm'n, 649 S.W.2d 216, 217-18 (Mo. banc 1983).
The predominant portion of appellant's challenged sales were made either by appellant's sales representatives or to house accounts serviced directly by appellant's employees. With respect to the sales of the sales representatives to customers located out of Missouri, appellant did use labor outside Missouri. Though the sales representatives were independent contractors, their labor outside Missouri in making sales for appellant is to be treated just as if it was the labor of appellant's employees. In re Kansas City Star Co., 346 Mo. 658, 675, 142 S.W.2d 1029, 1039 (banc 1940). The sales representatives made...
To continue reading
Request your trial
-
Wohl Shoe Co. v. Director of Revenue, State of Mo.
...2 the "source of income" test is used to determine if a sale occurred partly within and partly without Missouri. Dick Proctor Imports v. Director of Revenue, 746 S.W.2d 571, 573 (Mo. banc 1988). The source of income "is the place where it was produced." In re Kansas City Star Company, 142 S......
-
Seba, LLC v. Dir. of Revenue
...and provided, the auditor necessarily had to estimate SEBA's gross receipts pursuant to section 144.250.4. See Dick Proctor Imports, Inc. v. Dir. of Revenue , 746 S.W.2d 571, 575 (Mo. banc 1988) (holding the AHC "shall make as close an approximation as it can" when the precise amount of the......
-
Jay Wolfe Imports Missouri, Inc. v. Director of Revenue, SC 89568.
...to apportion its taxable income only where it can show it had income from outside Missouri. See, e.g., id.; Dick Proctor Imps., Inc. v. Dir. of Revenue, 746 S.W.2d 571, 573-74 (Mo. banc 1988). In Dick Proctor, for example, this Court stated: "The initial issue here is whether [the corporate......
-
Kansas City Power & Light v. Direc. of Rev.
...AHC's discretion. Kansas City Power & Light Co. v. Director of Revenue, 783 S.W.2d 910, 912 (Mo. banc 1990). Under Dick Proctor Imports v. Director of Revenue, 746 S.W.2d 571 (Mo. banc 1988), where evidence is not sufficient to allow for a precise calculation of the amount of tax, then "the......