Dow Chemical Co., Inc. v. Director of Revenue, State of Mo.
| Decision Date | 02 June 1992 |
| Docket Number | No. 74140,74140 |
| Citation | 834 S.W.2d 742 |
| Parties | DOW CHEMICAL COMPANY, INC., Respondent, v. DIRECTOR OF REVENUE, STATE OF MISSOURI, Appellant. |
| Court | Missouri Supreme Court |
William L. Webster, Atty. Gen., Carole Lewis Iles, Asst. Atty. Gen., Jefferson City, for appellant.
W.H. Bates, William K. Waugh III, Kansas City, for respondent.
Dow Chemical Company, a Delaware corporation with headquarters in Michigan, operates an international as well as interstate business that includes Missouri. Dow elected to use the three-factor apportionment ratio of the Multistate Tax Compact, § 32.200, art. III, IV, RSMo 1986, to derive its Missouri taxable income. In its Missouri tax returns for years 1975 through 1980, Dow excluded from apportionment certain corporate income, deemed as dividends for purposes of federal income tax return. Dow contended that none of the deemed dividend income was derived from sources within Missouri under § 143.451.1, and so was subject to neither apportionment nor taxation under our revenue laws. 1
In Dow Chemical Co. v. Director of Revenue, 787 S.W.2d 276 (Mo. banc 1990) [Dow I ], this Court held that the apportionment On remand, Dow and the Director agreed, and the Commission found independently, that the deemed dividends were business income as defined in the Multistate Tax Compact, and so subject to apportionment to Missouri for purposes of income tax. Dow and the Director did not agree, however, on how Dow I should be applied to properly calculate Dow's dividend subtraction under § 143.431.2. Dow contends that the apportioned dividends must be subtracted from apportioned federal taxable income. The Director contends that the apportioned dividends must be subtracted from unapportioned federal taxable income. The method of calculation used by Dow predisposes to a Missouri taxable income less than that derived by the method used by the Director. 2
formula of the compact functions on the income of a multistate corporation as a unitary business to derive the local tax base, and not on income from sources within Missouri treated as specific geographical transactions, as does the apportionment formula of § 143.451.1. Id. at 284. Dow I remanded the proceeding to the Administrative Hearing Commission to determine whether the dividends were business or nonbusiness income within the terms of the Multistate Tax Compact. Id. at 286. If business income, the Commission was ordered to "apportion under the compact formula the dividends attributable to Missouri and subtract them from the federal taxable income as Section 143.431.2 directs" to arrive at Missouri taxable income. Id
The Commission adopted the Dow method of calculation and ordered that the apportioned dividends be subtracted from the apportioned federal taxable income to derive Dow's taxable Missouri income for the years in issue. The Director contends that the order of the Commission misconstrues § 143.431 and misapplies our decision in Dow I.
This case involves the construction of the revenue laws of this state. Accordingly, this Court has exclusive jurisdiction of the appeal. Mo.Const. art. V, § 3.
Section 143.071, RSMo 1986, imposes a tax upon the Missouri taxable income of corporations. Section 143.431.1 defines Missouri taxable income as "so much of its federal taxable income for the taxable year [with specified modifications] as is derived from sources within Missouri as provided in section 143.451." Section 143.431.2 provides: "There shall be subtracted, to the extent included in federal taxable income, corporate dividends from sources within Missouri." 3 The nub of the issue, as Dow and the Director correctly identify, is how our decision in Dow I bears to calculate the subtraction of corporate dividends under § 143.431.2.
Dow and the Director agree that on remand, given a determination that the deemed dividends are business income, Dow I directs that they be apportioned to Missouri under the three-factor formula and thereby derive the dividends "attributable to Missouri sources." It is these corporate dividends, as apportioned, that subsection 2 of § 143.431 requires to be subtracted to the extent included in federal taxable income. Dow I, 787 S.W.2d at 286. That, also, was the determination of the Commission. To derive Missouri taxable income, the Commission formula then subtracted the apportioned dividends from apportioned federal taxable income. See Appendix A, §§ IA and IIA.
Dow I advises that the dividends "attributed to Missouri" by the compact apportionment formula be subtracted from the "federal taxable income as Section 143.431.2 directs." Dow I, 787 S.W.2d at 286. The Director argues that the term federal taxable income as used in § 143.431 is clear. It has the same meaning given the term by the laws of the United States relating to federal income taxes: "gross income minus deductions allowed by this Chapter." See Internal Revenue Code § 63; Brown Group, Inc. v. Administrative Hearing Comm'n, 649 S.W.2d 874, 876 Indeed, § 143.091 provides that "[a]ny term used in sections 143.011 to 143.966 shall have the same meaning as when used in a comparable context in the laws of the United States relating to federal income taxes, unless a different meaning is clearly required by [those provisions]." It is not only the text of a statute that makes the legislative intent known, however, but also the judicial decisions that construe and give effect to the statute. State v. Crawford, 478 S.W.2d 314, 317 (Mo.1972). The construction of a statute by a court of last resort becomes a part of the statute " 'as if it had been so amended by the legislature.' " Cramp v. Board of Public Instruction, 368 U.S. 278, 285, 82 S.Ct. 275, 280, 7 L.Ed.2d 285 (1961). Accordingly, § 143.431 and its component subsections must be read in terms of Dow I as if the text incorporates the judicial gloss of that opinion. Palcher v. J.C. Nichols Co., 783 S.W.2d 166, 169 (Mo.App.1990).
(Mo. banc 1983). "Apportioned federal taxable income," therefore, is not the same as "federal taxable income," and hence the calculation of Missouri taxable income as derived by the Commission formula conforms to neither the directive of Dow I nor to the plain meaning of § 143.431.2.
The Director notes that subsection 1 of § 143.431 defines Missouri taxable income as "so much of its federal taxable income for the taxable year, with the modifications specified in subsections 2 and 3 of this section, as is derived from sources within Missouri as provided in section 143.451." 4 To that statutory definition text, the Director addends: "or, in this case, as provided by the Multistate Tax Compact." The Director also notes that subsection 2 expressly provides that the "modifications" in subsection 1 [] shall be performed on "federal taxable income." Subsection 2, however does not refer to "so much of its federal taxable income for the taxable year ... as is derived from sources within Missouri as provided in section 143.451," as does subsection 1, or to the Multistate Tax Compact, or to apportioned federal taxable income. It departs from plain language, the Director argues, to read § 143.431.2--as does the Commission--to mean that federal taxable income must be apportioned to Missouri before the subtraction of dividend modification may be made under that subsection.
Three responses suffice. First, the law of the case in Dow I adopts the apportionment principle of the Multistate Tax Compact into § 143.431 as a method to compute the tax imposed by that section. Second, the language of integral § 143.431, accommodated through Dow I to the apportionment method of the Multistate Tax Compact, intends that the subtraction of corporate dividends be a calculation other than the alternatives that the Director and Dow propose or the Commission adopts. Third, Constitutional constraints on state taxation of interstate and foreign commerce confine the local tax base to a reasonable share of the total income tax base of the corporation as a unitary business, as computed by a fair apportionment formula. Dow I at 280.
In Dow I, the immediate issue was whether certain business income of the multistate corporation from extraterritorial payors, that included dividends, was subject to Missouri taxation under the source of income test. The proximate, and more fundamental, issue was how the apportionment formula of the Multistate Tax Compact functions to compute a tax imposed under the source of income test. Dow I, 787 S.W.2d at 280. The quandary was that, under the statutes and developed law, apportionment by source of income looks to the geographical situs where the income is produced, whereas apportionment by the compact looks to the income from the unitary business of the multistate enterprise to derive the tax base in Missouri.
That quandary was heightened by the emergent constitutional doctrine that the income of a multistate corporation may Dow I decides that under § 143.431 Missouri taxable income derived from interstate "sources" is a computation of an apportionment formula, whether by the single-factor method of § 143.451 or the three-factor method of the Multistate Tax Compact. Id. at 284-5, 286 & n. 16. The decision accommodates the literal discordance between the statutory source of income text and the unitary business premise of the compact formula. 5 It infuses § 143.431 with the grounding of principle that validates the compact apportionment formula as a device of constitutional state taxation of interstate activity. Dow I, 787 S.W.2d at 283. That construction given by Dow I to § 143.431 and Multistate Tax Compact § 32.200 in pari materia has become part of those statutes " 'as if [they] had been so amended by the legislature.' " Cramp v. Board of Public Instruction, 368 U.S. at 285, 82 S.Ct. at 280.
not be taxed unless the corporation
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