Emerson Elec. Co. v. Wasson

• Court: South Carolina Court of Appeals
• Writing for the Court: GARDNER
• Citation: Emerson Elec. Co. v. Wasson, 322 S.E.2d 671, 283 S.C. 257 (S.C. App. 1984)
• Decision Date: 18 September 1984
• Docket Number: No. 0277,0277
• Parties: EMERSON ELECTRIC CO., Appellant, v. Robert C. WASSON, John H. Lafitte, Jr. and Charles N. Plowden, Members of and Collectively Constituting the South Carolina Tax Commission, Respondents.

Page 671

322 S.E.2d 671

283 S.C. 257

EMERSON ELECTRIC CO., Appellant, v. Robert C. WASSON, John H. Lafitte, Jr. and Charles N Plowden, Members of and Collectively Constituting the South Carolina Tax Commission, Respondents.

No. 0277.

Court of Appeals of South Carolina.

Sept. 18, 1984.

Robert P. Wilkins, Lexington, for appellant.

Atty. Gen. T. Travis Medlock, Retired Atty. Gen. Daniel R. McLeod, Deputy Atty. Gen. Joe L. Allen, Jr., and Asst. Atty. Gen. Jackson E. Fields, Jr., Columbia, for respondents.

GARDNER, Judge:

Emerson Electric Co. (Emerson), together with its wholly owned subsidiary Therm-O-Disc, Incorporated (TOD), filed a consolidated state income tax return for the fiscal year ending September 30, 1978. The State audited the return and imposed additional taxes in the amount of $28,070 which were paid under protest; this action was brought to recover these taxes. The trial court found for the Tax Commission. We disagree and reverse.

At issue is how the "throwback rule" of Section 12-7-1170, Code of Laws of South Carolina, 1976, should be applied to a consolidated corporate income tax return.

At the outset, we hold that the word consolidate means to join together into one whole, or in a general sense to unite into one mass or body. See Webster's New Collegiate Dictionary and Black's Law Dictionary. In the writer's mind, the word consolidate can be analogized to the word homogenize and so the writer coins a new definition for the words to consolidate, i.e., "to homogenize."

We next observe that a multi-state corporation is taxed in a state when it is doing business in that state. Certain activities, such as the maintenance of a branch office, cause corporations to be determined as doing business in a particular state and therefore subject to having a pro rata part of their total net income taxed by that state. Determining that pro rata part of the total net income of a multi-state corporation's income to be taxed by a particular state is called apportionment.

Emerson does business in South Carolina and 43 other states; TOD in South Carolina and Ohio.

With reference to § 12-7-1570, South Carolina Code of Laws, 1976, the appealed order held: "It is significant to note that it is the consolidated 'net income' that is to be reflected. The net income of each of the corporations is to be determined by the formula. Nowhere does this language require that the corporations become one entity for business purposes."

We disagree. Section 12-7-1570, in pertinent parts, reads:

§ 12-7-1570. Consolidated returns may be permitted.

Any taxpayer capable of exercising, directly or indirectly, substantially the entire control of the business of another taxpayer, either by ownership or control of substantially the entire capital stock (if a corporation) of such other taxpayer or otherwise, may, under regulations prescribed by the Commission, be permitted to make a consolidated return, showing the consolidated net income and such other information as the Commission may require in order to compute the net income properly attributable to the State and to impose the tax upon the taxpayers concerned. (Emphasis ours.)

* * *

* * *

Moreover, Regulation 117-77 IV of the Tax Commission provides:

Two or more corporations doing a multistate business may file a consolidated return provided all corporations in the consolidation are subject to the same method of apportionment. Corporations not subject to the same method of apportionment must compute the South Carolina net income of each corporation separately and then combine the South Carolina net income of each into one return.

The parties stipulate that the same three factor formula for determining what portion of income is taxable in South Carolina applies to both Emerson and TOD. Thus the method of apportionment is the same for both corporations and they are entitled to file a consolidated return.

It is to be noted that the statute refers to both a consolidated return and a consolidated net income. We hold that the clear intent of the statute is that the taxpayer (Emerson) under this statute be permitted "to homogenize" all items of income and expense (cost of doing business) in the consolidated...