Grain Belt Breweries, Inc. v. Commissioner of Taxation

• Decision Date: 18 June 1976
• Docket Number: No. 45838,45838
• Citation: 309 Minn. 190,243 N.W.2d 322
• Parties: GRAIN BELT BREWERIES, INC., Relator, v. COMMISSIONER OF TAXATION, Respondent.
• Court: Minnesota Supreme Court

Page 322

243 N.W.2d 322

309 Minn. 190

GRAIN BELT BREWERIES, INC., Relator, v. COMMISSIONER OF TAXATION, Respondent.

No. 45838.

Supreme Court of Minnesota.

June 18, 1976.

Syllabus by the Court

Sales of beer by a Minnesota brewery to out-of-state independent distributors which are not solicited or negotiated by out-of-state salesmen are included in computing the ratio of sales within Minnesota to the total sales for Minnesota income tax purposes.

The fact that sales representatives and managers, employed by the Minnesota office but living and operating in other states, enhanced sales to out-of-state distributors by activities involving management and quality control does not bring such sales within the statutory exclusion as being 'negotiated or effected' outside the state.

Callinan, Raidt & Haertzen, Edward M. Callinan and Thomas L. Johnson, Minneapolis, for relator.

Warren Spannaus, Atty. Gen., Kenneth E. Raschke, Jr., Asst. Atty. Gen., St. Paul, for respondent.

Heard before PETERSON, MacLAUGHLIN, and SCOTT, JJ., and considered and decided by the court en banc.

SCOTT, Justice.

The taxpayer, Grain Belt Breweries, Inc., petitioned for a writ of certiorari to review an affirmance by the Tax Court of an assessment of additional income taxes by the commissioner of taxation (now commissioner of revenue). We granted certiorari and hereby affirm.

Both parties adopted the following findings of fact of the Tax Court:

'1. Appellant is a corporation organized under the laws of the State of Minnesota. Its principal office is located in Minneapolis, Minnesota. During the years in question it also operated a brewery in Omaha, Nebraska.

'2. For the years 1967, 1968 and 1969, appellant filed Minnesota income tax returns and apportioned its income by the use of the three factor formula. There is no dispute about the fact that the appellant was entitled to apportion its income by the use of the formula, but in determining the numerator of the sales factor of the formula, appellant reported only those sales made to distributors operating in Minnesota. Appellant contends that all other sales were made outside of the State of Minnesota and should not be included in the numerator.

'3. By his Order dated February 26, 1971, the Commissioner redetermined the numerator of the sales factor to include all sales processed through the Minneapolis office of the appellant.

'4. Appellant filed a timely appeal, claiming that all sales to distributors outside of the State of Minnesota were negotiated or effected by sales personnel connected with offices located outside of the State of Minnesota, except for a few sales negotiated through the Moorhead office. It is the appellant's contention that all sales to distributors outside of the State of Minnesota were assignable to the states in which the offices of the Regional Sales Managers were located.

'5. After filing the appeal appellant has conceded those additional income taxes assessed for the years in question which are based on issues other than the application of Minnesota Statutes, Section 290.19, Subdivision 1(4) relating to apportionment of out-of-state sales. With such concession the appellant paid the additional tax but left at issue and unpaid an alleged deficiency for each of the years as follows:

                          Year      Amount
                         -------  ----------
                          1967    $22,225.89
                          1968     15,924.09
                          1969     17,066.31
                                  ----------
                 Total at issue    55,216.29
                

'6. From June 1, 1967, through 1969, appellant operated brewing plants at Minneapolis, Minnesota, and Omaha, Nebraska, from which it shipped beer to all the states in which appellant did business. In the Order Determining Tax Liability, the Commissioner of Taxation excluded, for purposes of appellant's Minnesota income tax, sales in those states or portions thereof, supplied from the Omaha, Nebraska plant. The Order further provided, however, that all other sales were attributable to and taxable by Minnesota on the theory that they were sales made by agents situated at, connected with, or sent out from the Minneapolis office.

'7. Appellant has conceded that from January 1, 1967, through September 1968, the net income applicable to its sales in North Dakota, South Dakota, Montana, and states west of those three, (was) taxable in Minnesota because for that period its Regional Sales Manager managed these sales from an office in his residence located at Moorhead, Minnesota.

'8. In all states, other than Minnesota, appellant sold its products exclusively to distributors who were independent contractors. These distributors in turn sold to retailers who were licensed to sell beer to consumers. All sales were made F.O.B. appellant's brewery location. Until March of 1966 the administration of sales was at appellant's principal office in Minneapolis under the Director of Sales and Marketing and the Wholesale Sales Manager. Up to said date appellant had District Sales Supervisors working in its marketing area who reported to and were under the direction of the executives in Minneapolis.

'9. In March of 1966, appellant nearly doubled its sales force and divided its sales territory into regions, assigning a Regional Sales Manager (Sales Manager) to each region with District Sales Supervisors (Salesmen) working under each Sales Manager. This was done to improve appellant's competitive position and to create more direct contact with distributors and retailers. This new system enabled the executives in Minneapolis and particularly the Wholesale Sales Manager, to spend more time on general policies of marketing, advertising and related activities, rather than negotiating or effecting sales.

'10. The Sales Managers were in charge of seeking new distributors to handle appellant's products. Upon locating a prospective distributor, the Sales Manager would investigate the applicant concerning his business policies and practices and his financial condition. The application would then be forwarded to the home office for credit approval. After confirmation, the Sales Manager would assist the distributor in the preparation of his first order, which involved assisting him in the preparation of the order form and advising him of the different varieties of products available; helping him order his advertising material, advising him what would be the best packages to sell and setting out the general policies of appellant. The Sales Manager would then assign some of appellant's salesmen under his control to that distributor's territory to assist the distributor in selling appellant's products to the retail accounts. The Sales Manager would also assist in the training and motivation of the distributor's sales personnel.

'11. The Sales Manager was directly responsible for all sales within his region. Each had direct supervision of all salesmen within that region and was in charge of hiring, firing and training these salesmen. Further, the Sales Manager assigned weekly duties and specific sales areas to the salesmen, who would then report directly to him. Contacts between the home office and the salesmen were routed through the Sales Manager.

'12. Advertising of appellant's products was guided by the Sales Manager in his region. He developed radio advertising where it was needed most and chose the sites for billboard type advertising. The Sales Manager also recommended the type and amount of advertising to be employed. With the aid of his sales staff the Sales Manager kept constant surveillance on the sales of competitive brands within each region. He assigned his men to call on retailers for the purpose of selling new packages on behalf of the local distributor. Constant watch was kept to assure that appellant's products were fresh when sold by the distributor and the retailer.

'13. Regional sales meetings were conducted at least annually in each region. These were arranged and presided over by the Sales Manager. They were attended by all the salesmen of appellant assigned to the particular region together with all the distributors in the area who dealt with appellant.

'14. In the event any distributor became delinquent in his account, the Sales Manager handled the collection which, when necessary, included retaining counsel.

'15. All salesmen of appellant advised the distributors on freight rates. They sought out the most favorable rates and, on occasion, arranged pool car shipments to reduce freight charges to the distributor.

'16. Each Sales Manager maintained an office in his home equipped with a typewriter, adding machine, desk, file cabinets, telephone, memo pads, order forms and other general office equipment. Business conducted from the home included telephone sales and contacts with distributors; telephone contacts with District Sales Supervisors and the home office; preparation of promotional plans; answering of correspondence; preparation of reports and other general work. Out of a 45-hour work week, the Sales Manager spent from 13 to 15 hours working in his home. Each Sales Manager had a business card listing Grain Belt Breweries, Inc., his name and title and the address and telephone number of his office.

'17. The salesmen received their weekly work assignment from the Sales Manager. Typically, their duties would include checking competitor's sales and...