Gulf Oil Corp. v. Clayton, 524

• Decision Date: 13 April 1966
• Docket Number: No. 524,524
• Citation: 267 N.C. 15,147 S.E.2d 522
• Court: North Carolina Supreme Court
• Parties: GULF OIL CORPORATION v. I. L. CLAYTON, Commissioner of Revenue of North Carolina.

Page 522

147 S.E.2d 522

267 N.C. 15

GULF OIL CORPORATION v. I. L. CLAYTON, Commissioner of Revenue of North Carolina.

No. 524.

Supreme Court of North Carolina.

April 13, 1966.

Smith, Leach, Anderson & Dorsett, Raleigh, for plaintiff appellee.

Atty. Gen. T. W. Bruton, Deputy Atty. Gen. Peyton B. Abbott for defendant appellant.

SHARP, Justice.

Defendant Commissioner's first contention is that the Superior Court had no original jurisdiction under G.S. § 105--267 to review the allocation and apportionment, made under G.S. § 105--134, of the income of a corporation transacting business partly within and partly without North Carolina. He asserts that G.S. § 105--134(6)(g) limits original jurisdiction to review such an allocation or apportionment to the Tax Review Board, augmented by the presence of the Commissioner of Revenue himself. This section provides that if any corporation believes that the statutory method of allocation or apportionment, as administered by the Commissioner, has operated, or will operate, so as to subject to taxation 'a greater portion of its income than is reasonably attributable to earnings within the State, it shall be entitled to file with the Tax Review Board a petition setting forth the facts upon which its belief is based and its argument with respect to the application' of the allocation formula. It authorizes the 'augmented Board' to vary the statutory formula if another will more clearly reflect the income attributable to business within the State, and it prohibits any corporation from using an alternative formula except with the Board's permission.

In our opinion, it was not the intention of the Legislature, when, by Pub.L.1953, ch. 1302, § 4, it amended G.S. § 105--134, to require a corporation to secure a ruling from the augmented Tax Review Board before it might have the Superior Court determine the legality of a tax assessment against specific items of its income earned outside of North Carolina, no part of which, it contends, is allocable to North Carolina. The purpose of G.S. § 105--134(6)(g) was not to provide either a substitute for, or an alternative to, G.S. § 105--267, but to afford relief from the apportionment formula of G.S. § 105--134(6) when it operates to tax a greater portion of a corporation's income than is reasonably attributable to business in this State. Plaintiff here, has not sought to vary the statutory formula for apportioning its income. It seeks to recover taxes which, it alleges, have been illegally assessed upon income not attributable to North Carolina and which, therefore, the State may not constitutionally tax. The statute under which it proceeds, G.S. § 105--267, requires the taxpayer to pay the amount of the disputed tax and sue the State for its recovery. Such a method has, in effect, been available to taxpayers since 1887 (Pub.L.1887, ch. 137 § 84). It is appropriate procedure for a taxpayer who seeks to test the constitutionality of a statute or its application to him. The law does not contemplate that administrative boards shall pass upon constitutional questions. See Great American Insurance Co. v. Gold, Commissioner of Insurance, 254 N.C. 168, 118 S.E.2d 792. Had the General Assembly meant to deprive a corporation of the right to proceed under G.S. § 105--267 when it contends that it has been illegally taxed upon income not attributable to business within the State, it would undoubtedly have said so. Plaintiff has strictly complied with the provisions of G.S. § 105--267. We hold that it is entitled to proceed thereunder. Sayles Biltmore Bleacheries, Inc. v. Johnson, Comr., 266 N.C. 692, 147 S.E.2d 177. See Duke v. Shaw, Commissioner of Revenue, 247 N.C. 236, 100 S.E.2d 506

The second question presented by this appeal is whether dividends from income earned outside North Carolina and paid to plaintiff by four of its subsidiary corporations, which were operated independently of plaintiff, are subject to taxation in North Carolina.

Every corporation doing business in North Carolina is required to pay an annual income tax equivalent to 6% Of its net taxable income as defined by G.S. § 105--140. 'If the corporation is transacting or conducting its business partly within and partly without North Carolina, the tax shall be imposed upon a base which reasonably represents the proportion of the trade or business carried on within the State.' G.S. § 105--134. Such apportionment is designed to meet the due process requirement that a state show a sufficient nexus between such a tax and the transaction within a state for which the tax is an exaction, and the proscriptions of the Commerce Clause of the Federal Constitution which permit a state to tax only that part of a corporation's net income from multistate operations which is attributable to earnings within the taxing state. Northwestern States Portland Cement Co. v. State of Minnesota, 358 U.S. 450, 79 S.Ct. 357, 3 L.Ed.2d 421; Memphis Natural Gas Co. v. Beeler, 315 U.S. 649, 62 S.Ct. 857, 86 L.Ed. 1090; Butler Bros. v. McColgan, 315 U.S. 501, 62 S.Ct. 701, 86 L.Ed. 991; Western Live Stock v. Bureau of Revenue, 303 U.S. 250, 58 S.Ct. 546, 82 L.Ed. 823, 115 A.L.R. 944; Norfolk & W.R. Co. v. State of North Carolina, 297 U.S. 682, 56 S.Ct. 625, 80 L.Ed. 977; Hans Rees' Sons v. State of North Carolina, 283 U.S. 123, 51 S.Ct. 385, 75 L.Ed. 879. Upon these and other authorities, this Court has held that North Carolina has the right to collect nondiscriminatory income taxes from a corporation doing business both within and without the State, so long as such taxes are imposed solely on that part of its net income 'earned within the State of North Carolina in its interstate business, and reasonably attributable to its interstate business done or performed within the borders of this State.' E T & W N C Transportation Co. v. Currie, Comr. of Revenue, 248 N.C. 560, 577, 104 S.E.2d 403, 415, aff'd mem., 359 U.S. 28, 79 S.Ct. 602, 3 L.Ed.2d 625. Accord, American Bakeries Co. v. Johnson, Commissioner of Revenue, 259 N.C. 419, 131 S.E.2d 1; Virginia Electric & Power Company v. Currie, Comr. of Revenue, 254 N.C. 17, 118 S.E.2d 155, appeal dismissed, 367 U.S. 910, 81 S.Ct. 1919, 6 L.Ed.2d 1250.

Defendant contends that, in G.S. § 105--134, the Legislature expressed its intent to adopt as its basis for allocation or apportionment the Entire net income of a corporation carrying on multistate operations, except for certain segments specifically allocated to other states; that by subsection (2) it excluded from apportionable income all corporate dividends, 'other than (those from) stocks of a subsidiary corporation having business transactions with or being engaged in the same or similar type of business as the taxpayer'; that it thus Included dividends from any subsidiary with which taxpayer transacted business or which was engaged in the same or similar type of business as that carried on by the taxpayer anywhere, irrespective of where the subsidiary did its business; that all of the subsidiaries with whose dividends we are here concerned were engaged, albeit not in North Carolina, in the same or similar business in which plaintiff itself was engaged; and that there were business transactions between these subsidiaries and plaintiff, either directly or through other subsidiaries. Defendant argues, therefore, that these dividends were properly allocable and apportionable to North Carolina, even though the subsidiaries which paid them are not domesticated, carried on no business here, owned no property and sold none of their products in the State.

That contention, however, was rejected by this Court in American Bakeries Co. v. Johnson, Commissioner of Revenue, supra. In that case, plaintiff, a Delaware corporation doing business in North Carolina, was engaged in the wholesale bakery business, manufacturing and selling its products to customers such as chain stores and restaurants. It had several subsidiaries; only one, Cushman Sons, Inc., paid dividends during 1953 and 1954. Cushman was also engaged in the retail bakery business, manufacturing and selling its products to the general public entirely outside North Carolina. It was not domesticated here, did no business and owned no property in the State. It was not a retail outlet for American Bakeries, and sold none of its products to or through the parent corporation. Cushman maintained separate records and books, and paid for all services rendered it by the plaintiff. In...