Griffith v. Conagra Brands, Inc.
| Decision Date | 30 May 2012 |
| Docket Number | No. 11–0252.,11–0252. |
| Citation | 229 W.Va. 190,728 S.E.2d 74 |
| Court | West Virginia Supreme Court |
| Parties | Craig A. GRIFFITH, West Virginia State Tax Commissioner, Respondent Below, Petitioner v. CONAGRA BRANDS, INC., Petitioner Below, Respondent. |
OPINION TEXT STARTS HERE
1. In an administrative appeal from the decision of the West Virginia Office of Tax Appeals, this Court will review the final order of the circuit court pursuant to the standards of review in the State Administrative Procedures Act set forth in W.Va.Code, 29A–5–4(g) [1988]. Findings of fact of the administrative law judge will not be set aside or vacated unless clearly wrong, and, although administrative interpretation of State tax provisions will be afforded sound consideration, this Court will review questions of law de novo.
2. Syl. pt. 1, Western Maryland Railway Co. v. Goodwin, Comm'r, 167 W.Va. 804, 282 S.E.2d 240 (1981).
3. Assessments against a foreign licensor for West Virginia corporation net income and business franchise tax, on royalties earned from the nation-wide licensing of food industry trademarks and trade names, satisfied neither “purposeful direction” under the Due Process Clause nor “significant economic presence” under the Commerce Clause, where the foreign licensor, with no physical presence in this State, did not sell or distribute food-related products or provide services in West Virginia and where: (1) all products bearing the trademarks and trade names were manufactured solely by unrelated or affiliated licensees of the foreign licensor outside of West Virginia, (2) the foreign licensor did not direct or dictate how its licensees distributed the products and (3) the licensees, operating no retail stores in West Virginia, sold the products only to wholesalers and retailers in this State.
Darrell V. McGraw, Jr., Attorney General, Katherine A. Schultz, Senior Deputy Attorney General, Charli Fulton, Senior Assistant Attorney General, Charleston, WV, for Petitioner, West Virginia State Tax Commissioner.
Michael E. Caryl, Esq., Floyd M. Sayre, III, Esq., Bowles Rice McDavid Graff & Love, Martinsburg, WV, for Respondent, ConAgra Brands, Inc.
This case is before this Court upon the appeal of the West Virginia State Tax Commissioner from the final order of the Circuit Court of Berkeley County which set aside the decision of the West Virginia Office of Tax Appeals. The Office of Tax Appeals rejected the challenge of ConAgra Brands, Inc. (“ConAgra Brands”) to assessments for unpaid corporation net income tax and business franchise tax. The assessments were imposed on apportioned royalties ConAgra Brands received from the licensing of its intangible trademarks and trade names for use throughout the United States, including West Virginia. In setting aside the decision of the Office of Tax Appeals, the circuit court held that ConAgra Brands' licensing transactions did not constitute doing business in West Virginia and that the assessments failed to meet the requirements of the Due Process and Commerce Clauses of the Constitution of the United States. 1
The State Tax Commissioner seeks reinstatement of the assessments for corporation net income tax and business franchise tax.
This Court has carefully reviewed the record-appendix, the briefs and argument of the parties and the law relevant to this matter and is of the opinion that the order setting aside the decision of the Office of Tax Appeals and invalidating the assessments should not be disturbed. Accordingly, the final order of the Circuit Court of Berkeley County is affirmed.
The principal facts are not in dispute and may be summarized from the stipulations of the parties and the adjudicated findings below as follows:
ConAgra Foods, Inc., (“CA Foods”) and its affiliates owned a large number of trademarks and trade names in the food products industry. In 1997, CA Foods established ConAgra Brands for the purpose of centralizing the management and protection of its trademark and trade name portfolio. ConAgra Brands, a Nebraska corporation, was a wholly-owned subsidiary of CA Foods.
CA Foods and its affiliates transferred the trademarks and trade names to ConAgra Brands and agreed, through license agreements, to pay royalties to ConAgra Brands for the use of the trademarks and trade names. ConAgra Brands acquired additional trademarks and trade names from unrelated entities.
Through the execution of licensing agreements, ConAgra Brands began collecting royalty payments for the use of its trademarks and trade names by various unrelated, third party licensees and CA Foods affiliated licensees. The trademarks and trade names, to name but a few, included familiar brands, such as Armour, Butterball, Country Skillet, Healthy Choice, Kid Cuisine, Morton, Swift and Swift Premium. The royalties were collected by ConAgra Brands from the sale by the licensees of food products bearing the trademarks and trade names to clients and customers throughout the United States, including West Virginia.2
Items bearing ConAgra Brands' trademarks and trade names were found in many, if not in most, retail grocery stores in this State. As subsequently observed by the West Virginia Office of Tax Appeals, the items included “prepared poultry, such as turkey and chicken, processed and smoked meats, breads, pastas, canned food, boxed processed dishes, frozen food, jarred food, sandwich spreads, pre-packaged meals, entrees and side dishes, dairy products, desserts, condiments and canned, bottled and frozen drinks.” ConAgra Brands did not manufacture or sell the products. All products in question were manufactured by the licensees in facilities outside West Virginia. As the circuit court determined, ConAgra Brands conducted its business of licensing and protecting the value of its trademarks and trade names entirely outside of this State.
ConAgra Brands did not own or rent any offices, warehouses or other facilities in West Virginia and did not maintain any inventory or sell or distribute merchandise in this State. ConAgra Brands had no employees or agents in West Virginia. Various licensees sold or distributed products bearing the trademarks and trade names to wholesalers and retailers located in West Virginia, and the licensees provided services in West Virginia to those clients and customers. ConAgra Brands provided no services in that regard and, as stipulated, did not direct or dictate how the licensees distributed the products bearing the trademarks and trade names. Nevertheless, ConAgra Brands paid all expenses in defending its trademarks and trade names against infringement and in overseeing national marketing by developing marketing strategies and purchasing advertisements with national media outlets.
During the audit period, ConAgra Brands obtained substantial royalties related to product sales in West Virginia. As subsequently confirmed by the Office of Tax Appeals, four principal licensees made between $19,269,000 and $46,247,000 in sales in West Virginia of ConAgra Brand trademarked or trade named products. Those sales earned royalties for ConAgra Brands during the audit period of approximately $1,156,000.3
Following a field audit, which included a Multistate Tax Commission Audit Report, the Director of the Auditing Division of the State Tax Division, in July 2006, issued a notice of assessment for the period June 1, 2000, through May 31, 2003, stating that ConAgra Brands failed to pay corporation net income tax on income apportioned to West Virginia. The amount of the assessment was $44,012.00 in tax plus $16,789.00 in interest for a total assessed liability of $60,801.00. At that time, corporation net income tax was imposed in this State pursuant to W.Va.Code, 11–24–1 [1967]et seq.4 Also in July 2006, the Director issued a notice of assessment for the same audit period stating that ConAgra Brands failed to pay business franchise tax as apportioned to West Virginia. The amount of the assessment was $12,501.00 in tax plus $4,541.00 in interest for a total assessed liability of $17,042. Business franchise tax is imposed in this State pursuant to W.Va.Code, 11–23–1 [1985]et seq. In both assessments, interest was computed through August 2006.
ConAgra Brands filed petitions for reassessment alleging that it was subject to neither corporation net income tax nor business franchise tax in West Virginia. In March 2009, an evidentiary hearing on the petitions was conducted before the Office of Tax Appeals followed by the submission of briefs.5
By decision dated January 6, 2010, the Office of Tax Appeals upheld the two assessments.
The Office of Tax Appeals concluded that the corporation net income tax and business franchise tax assessments were consistent with the requirements of Due Process since, during the audit period, ConAgra Brands had minimum contacts with West Virginia, and the royalty income attributed to West Virginia for tax purposes was rationally related to benefits provided by this State. The decision stated:
In addition, the Office of Tax Appeals concluded that neither assessment violated the Commerce Clause since: (1) ConAgra Brands had a substantial nexus with West Virginia, (2) the taxes as assessed were fairly...
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