Hawes v. William L. Bonnell Co., 42806

• Decision Date: 20 June 1967
• Docket Number: No. 42806,No. 3,42806,3
• Citation: 116 Ga.App. 184,156 S.E.2d 536
• Parties: Peyton S. HAWES, Commissioner, et al. v. WILLIAM L. BONNELL COMPANY, Inc
• Court: Georgia Court of Appeals

Page 536

156 S.E.2d 536

116 Ga.App. 184

Peyton S. HAWES, Commissioner, et al. v. WILLIAM L. BONNELL COMPANY, Inc.

No. 42806.

Court of Appeals of Georgia, Division No. 3.

June 20, 1967.

Rehearing Denied July 13, 1967.

Certiorari Denied Sept. 7, 1967.

Syllabus by the Court

The plaintiff, a Georgia corporation, was 'doing business' outside the state within the meaning of Code Ann. § 92-3113 so as to authorize it to apportion its income.

William L. Bonnell Company, a Georgia corporation, brought a suit for refund of Georgia income taxes for the tax years 1961, 1962 and 1963 in the Coweta Superior Court. Bonnell contended it was entitled to apportion that part of its income attributable to out of state business under the 'three factor ratio' of Code Ann. § 92-3113 (Ga.L.1950, pp. 299, 300; Ga.L.1962, pp. 455, 456) and thus claimed a refund of income taxes on approximately 36% of its income for the years in question.

The State of Georgia and the State Revenue Commissioner filed an answer to the petition. The facts were then stipulated and the parties agreed that the trial judge sitting without the intervention of a jury would decide all issues of law and fact. The trial judge found that the Bonnell Company was entitled to apportion its income and entered judgment for the taxpayer for the amount sought. Appeal was taken from that judgment.

Pertinent facts as stipulated to by the parties are as follows: The taxpayer is a Georgia corporation manufacturing, producing and selling tangible personal property, i.e. aluminum extrusion products. Its sole manufacturing plant is located in Newnan, Ga. All orders for the taxpayer's products are forwarded to Newnan, and are subject to acceptance by the taxpayer in Newnan. The taxpayer sells its products to customers located both within and without the State of Georgia. All of the taxpayer's goods are manufactured and shipped from Newnan. All contracts are accepted in Newnan, Georgia. All commissions and salaries are paid by the taxpayer from Newnan. All sales promotion and advertising programs are originated, conducted and directed from Newnan. The taxpayer is not qualified to do business under the laws of any other state. The taxpayer is not domesticated in any state other than Georgia. The taxpayer did not and does not pay corporate franchise taxes, state income taxes or property taxes to any other state. The taxpayer pays road use, motor fuel, sales and use taxes to other states. The Revenue Commissioner does not contend that the taxpayer 'must pay an income or franchise tax to, or qualify to do business or domesticate in, another state in order to apportion its Georgia income.'

The parties further stipulated that the taxpayer markets its products through salaried salesmen, a New York corporation and a Florida corporation, manufacturer's representatives and sales arrangements made with certain out of state companies.

All the taxpayer's customers were instructed to make payments at its Newnan office, except those customers whose accounts were serviced through a New York corporation, which customers were instructed to make payment to the taxpayer in the New York City office for deposit in the taxpayer's New York City bank account.

The following facts relative to the taxpayer's business activities outside Georgia were stipulated. Ninety-two percent of the taxpayer's gross sales were to customers outside Georgia. During the years in issue the taxpayer paid his employees outside Georgia over $1,250,000. The taxpayer maintained an office in New York City on the same premises occupied by its New York sales agency. From this office the taxpayer served its eastern sales accounts; its name was on the door of this office, on the building directory and in the telephone directory. The taxpayer bore the full expense of rent, furnishing and up-keep of the office in which a full time employee of the taxpayer worked. This employee devoted his efforts exclusively to credit and collection work on the taxpayer's accounts.

It was also stipulated that the taxpayer employed full time, salaried salesmen, residents of five different states, who devoted their time exclusively and regularly to soliciting sales and promoting products of the taxpayer outside Georgia; that the salesmen were assigned to territories covering several states; each salesman, operating from an office in his home where he maintained files, papers and correspondence relating to the taxpayer's business, was supervised by taxpayer's home sales manager and carried on the taxpayer's payroll. The taxpayer owned four automobiles out of state and furnished a car for four of its salesmen and reimbursed another for the business use of his car.

The taxpayer had two corporate sales agencies, one in New York, the other in Florida, each run by a vice president of the taxpayer and each the taxpayer's sole and exclusive agent under a long term employment contract. Each employment contract required the agency to sell and promote no other product but the taxpayer's and to 'devote his entire time, skill, ability, experience and best efforts to the duties of his employment.'

Certain 'manufacturer's representatives' outside the state, who were independent contractors, by arrangement with the taxpayer were permitted to solicit orders for products. However, their activity was not the taxpayer's activity outside Georgia. The taxpayer also had sales arrangements with several companies in various states. The goods involved were 'shelf inventory,' shipped on orders received directly from the particular company. The taxpayer assumed any risk of loss until the goods were actually sold, but the individual company sold the goods to customers of its own choosing, on its own terms and any credit loss was the company's and not the taxpayer's. Each company had the right to return the goods. The taxpayer neither paid rent for space occupied by the goods nor paid any service or handling charges to the companies. When the goods were shipped an invoice was issued and entered on its books by the taxpayer as an account receivable 'until the end of each quarter and fiscal year when the receivable account was eliminated and restated as consignment inventory at cost price for financial statement purposes.' The taxpayer reimbursed one company for ad valorem taxes paid but did not pay ad valorem taxes on products held by the others.

Arthur K. Bolton, Atty. Gen., William L. Harper, John A. Blackmon, Asst. Atty. Gens., Atlanta, for appellants.

Jones, Bird & Howell, Frazer Durrett, Jr., Earle B. May, Jr., Atlanta, for appellee.

J. KELLEY QUILLIAN, Judge.

The question for decision in this case is whether the taxpayer is 'doing business' outside Georgia within the meaning of Code Ann. § 92-3113 (Ga.L.1950, pp. 299, 300; Ga.L.1962, pp. 455, 456) so as to permit the taxpayer to apportion its income under that code section. There is no issue as to the portion of income which might be allocated under the 'three factor ratio,' but solely whether the taxpayer is entitled to apportion at all.

The applicable provisions of the present Act are here set out. 'The tax imposed by this law shall apply to the entire net income, as herein defined, received by every corporation, foreign or domestic, owning property or doing business in this State. Every such corporation shall be deemed to be doing business within this State if it engages within this State in any activities or transactions for the purpose of financial profit or gain, whether or not such corporation qualifies to do business in this State, and whether or not it maintains an office or place of doing business within this State, and whether or not any such activity or transaction is connected with interstate or foreign commerce.

'If the entire business income of the corporation is derived from property owned or business done in this State, the tax shall be imposed on the entire business income, but if the business income of the corporation is derived in part from property owned or business done in the State and in part from property owned or business done without the State, the tax shall be imposed only on that portion of the business income which is reasonably attributable to the property owned and business done within the State.' Code Ann. § 92-3113. The Department of Revenue concedes that activities which, under the Georgia Income Tax Law, amount to 'doing business' by a foreign corporation so that taxes might be levied on its income also amount to 'doing business' outside this state by a domestic corporation so as to authorize such corporation to apportion its income.

The taxpayer's out of state activities consisted of: customers located beyond the state; delivery of merchandise beyond the state; manufacturer's representatives located outside the state; salaried salesmen and a credit man located outside the state; automobiles located in other states; sales arrangements with certain companies located in other states; selling contracts with a New York and a Florida corporation.

Since the inception of the income tax law relative to corporations (Ga.L.1931, Ex.Sess., pp. 24, 34) the Georgia courts have interpreted the words 'doing business' when applied to a foreign corporation to encompass a substantial activity on its own behalf in this state. Suttles v. Owens-Illinois Glass Co., 206 Ga. 849, 59 S.E.2d 392. Likewise, the same test is applied as to a domestic corporation seeking to apportion its income for 'doing business' outside the state. Montag Bros. Inc. v. State Revenue Com., 50 Ga.App. 660, 179 S.E. 563. 'It seems to be rather well established by all the authorities that 'doing business' in order to incur tax liability under statutes imposing taxes on persons 'doing business' in a State means that a foreign corporation must transact some substantial part of its ordinary business, and that it must be continuous in character as distinguished from a mere casual or occasional transaction.' Redwine v....