Gross Income Tax Division, State of Indiana v. Indiana Associated Telephone Corporation

• Decision Date: 07 December 1948
• Docket Number: 17760.
• Parties: GROSS INCOME TAX DIVISION, STATE OF INDIANA v. INDIANA ASSOCIATED TELEPHONE CORPORATION.
• Court: Indiana Appellate Court

82 N.E.2d 539

118 Ind.App. 669

GROSS INCOME TAX DIVISION, STATE OF INDIANA v. INDIANA ASSOCIATED TELEPHONE CORPORATION.

No. 17760.

Appellate Court of Indiana, in Banc.

December 7, 1948

Appeal from Tippecanoe Circuit Court; W. Lynn Parkinson Judge.

Cleon H. Foust, Atty. Gen., and Eugene M. Fife, Jr., John J McShane, and Lloyd E. Hutchinson, Deputy Atty. Gens., for appellant.

McHale Patrick, Myers & Cook, of Indianapolis, and Stuart Devol, Branigin, Ball & Ricks, of Lafayette, for appellee.

ROYSE, Presiding Judge.

This action arose out of a dispute between appellant and appellee as to the gross income of the latter for the years 1939, 1940 and 1941. The facts as shown by the record may be summarized as follows: The appellee is a corporation organized and existing under the laws of this state. The Michigan Associated Telephone Company (hereinafter referred to as Michigan) is a corporation existing under the laws of Michigan. The Lexington Telephone Company (hereinafter referred to as Lexington) is a corporation existing under the laws of Delaware. Each of these corporations do a general telephone business. Appellee is the only one of the three authorized to do business in this state. Michigan operates in Michigan. Lexington operates in Kentucky. The common stock of all of these corporations is owned by the General Telephone Corporation of New York (hereinafter referred to as the General), a corporation existing under the laws of New York. For many years the first three mentioned companies and another subsidiary of the General (not involved here) maintained what are known as group offices in Madison, Wis. Appellee, Michigan and Lexington had the same president, treasurer, secretary, general auditor, chief engineer and plant superintendent, group and commercial superintendent, and traffic superintendent. These officers maintained their offices in the group office at Madison, Wis. Each of the three companies had its own Vice-president residing at the home office in the state in which it operated.

About August, 1930, to avoid the unnecessary expense to each of these companies in operating its own separate billing and accounting office, these group officers at Madison set up a certral billing and accounting office (hereinafter referred to as Bureau). This Bureau was located on the premises of appellee, first at Goshen and later at Lafayette, Indiana. Appellee was paid rent for the use of office space required by this Bureau. It also charged the Bureau for telephone calls in the same manner it did its regular customers. (In this case appellee does not contend that the sums it received for rent and telephone charges are non-taxable). It was conducted separately and apart from the business of appellee. However, it was operated in the name of appellee. It was under the supervision and control of the group officers at Madison, Wis. The function of the Bureau was to prepare and mail to the subscribers of each of these companies the monthly telephone bills and to perform such additional services as related to lists of their subscribers, such as the compilation and revision of their respective telephone directories. It was under the immediate control of a local manager who was appointed to the position and whose salary was fixed by the general auditor at Madison acting for said three companies. The local manager, with the approval of the general auditor, employed and fixed the wages of its employees. Appellee had nothing to do with its management or operation.

The operating expenses of the Bureau which could be directly attributed to a single company, were charged to such Company in full. All other expenses were prorated among the three on the basis of the proportion which the total number of telephones served by each Company bore to the total number served by all three.

The following plan was adopted for the contribution of each Company for the expenses of the Bureau: Shortly after the first day of January of each year an estimate of the expenses of operating such office during such month was prepared, together with the estimated portion thereof to be borne by each of such Companies. Following such estimate Michigan and Lexington transmitted to the appellee their respective portions as shown by such January estimate. The funds so transmitted to the appellee, supplemented by such additional funds provided by it as were necessary, were then disbursed by it in payment of the expenses of such Bureau pursuant to requisitions made upon it. As soon as practicable after the close of the month of January, a summary or statement of the actual expenses of such office for such month was prepared, which expenses were classified in such summary as either 'direct' or 'pro-rate'. The amount so set out upon such statement or summary as each Company's portion of the expenditures actually incurred by such office during the month of January was then adopted as its estimated portion of the anticipated expenses for the ensuing month of February. Michigan and Lexington thereupon transmitted to the appellee the amounts so charged to them, as their estimated portion of the anticipated expenses of such office for February. The same plan was followed each succeeding month.

The appellee supplied from its own funds each month whatever amounts were necessary, over and above the funds so transmitted by the two out-state Companies, to meet the actual expenditures of such office for such month. Necessarily, during some months of the year the funds so supplied by the appellee exceeded its estimated portion of such expenses for such month as shown by the monthly estimate while in other months the funds so supplied by it for such purpose were less. The...