J. C. Penney Co., Inc. v. Hardesty

• Decision Date: 18 December 1979
• Docket Number: 14408,PITTSBURGH-DES,Nos. 14389,14407 and 14373,s. 14389
• Citation: 164 W.Va. 525,264 S.E.2d 604
• Court: West Virginia Supreme Court
• Parties: J. C. PENNEY CO., INC. v. David C. HARDESTY, as Tax Commissioner, etc.MOINES STEEL CO. v. Thomas R. GOODWIN, State Tax Commissioner, etc. RICHARDSON, GORDON AND ASSOCIATES v. David C. HARDESTY, Jr., Tax Commissioner, etc. Carolyn Sue STURGEON v. Virginia L. ROBERTS, Commissioner, etc. et al.

Page 604

264 S.E.2d 604

164 W.Va. 525

J. C. PENNEY CO., INC. v. David C. HARDESTY, as Tax Commissioner, etc.

PITTSBURGH-DES MOINES STEEL CO. v. Thomas R. GOODWIN, State Tax Commissioner, etc.

RICHARDSON, GORDON AND ASSOCIATES v. David C. HARDESTY, Jr., Tax Commissioner, etc.

Carolyn Sue STURGEON v. Virginia L. ROBERTS, Commissioner, etc. et al.

Nos. 14389, 14408, 14407 and 14373.

Supreme Court of Appeals of West Virginia.

Dec. 18, 1979.

Concurring Opinion Feb. 12, 1980.

No. 14408 Rehearing Denied Jan. 24, 1980.

No. 14389 Rehearing Denied March 27, 1980.

Syllabus by the Court

1. "Whether a person, firm or corporation is engaging or continuing within this state in any business or calling under our Business and Occupation Tax statute depends upon the facts and circumstances of each case." Syl. pt. 1, Virginia Foods of Bluefield, Va., Inc. v. Dailey, W.Va., 239 S.E.2d 770 (1977).

2. "A foreign corporation owning no property and having no place of business in this state, which engages in substantial business activities in this state which are essential to the establishment and maintenance of sales and which make possible the continuance of valuable contractual relationships is subject to this state's Business and Occupation Tax consistent with the Commerce Clause." Syl. pt. 2, Virginia Foods of Bluefield, Va., Inc. v. Dailey, supra.

3. "A taxpayer making a claim of multiple or cumulative taxation bears the burden of proving that it will be required to pay taxes on the same gross receipts by two or more states." Syl. pt. 3, Virginia Foods of Bluefield, Va., Inc. v. Dailey, supra.

4. Where a resident of another state purchases an automobile in that state and pays a sales tax and then seeks to register the automobile in West Virginia it is not unconstitutional for West Virginia to levy a use tax on the value of the automobile at the time West Virginia registration is sought, where the taxing scheme is not designed to discriminate against interstate commerce and does not have that effect.

Chauncey H. Browning, Jr., Atty. Gen., C. Page Hamrick, III, Sp. Asst. Atty. Gen., Charleston, for appellant Hardesty.

Love, Wise, Robinson & Woodroe, Ernest H. Gilbert, David K. Higgins, Charleston, for J. C. Penney Co.

Schrader, Stamp & Recht, Frederick P. Stamp, Jr., Wheeling, for Pittsburgh-Des Moines Steel.

Chauncey H. Browning, Jr., Atty. Gen., Michael G. Clagett, Asst. Atty. Gen., Charleston, for appellee Goodwin, Comm'r Roberts et al.

Kay, Casto & Chaney, Stephen A. Weber, Charleston, for Richardson, Gordon and Associates.

Chauncey H. Browning, Jr., Atty. Gen., Robert P. Howell, Asst. Atty. Gen., C. Page Hamrick, III, Sp. Asst. Atty. Gen., Charleston, for appellee Hardesty.

Pauley, Curry & Thaxton, James M. Sturgeon, Jr., Charleston, for Sturgeon.

NEELY, Justice:

These four tax cases raise once more the perennial problem of the extent to which a state may impose a tax upon activities in interstate commerce. "The history of this problem is spread over hundreds of volumes of (the U.S.) Reports. To attempt to harmonize all that has been said in the past would neither clarify what has gone before nor guide the future." Freeman v. Hewit, 329 U.S. 249, 252, 67 S.Ct. 274, 276, 91 L.Ed. 265 (1946). "It would be a Herculean, if not impossible task, to review and harmonize the myriad decisions of the Supreme Court of the United States on the subject of interstate commerce and exactly what incidents thereof may be constitutionally taxed by the States. The dissenting opinions in many of those cases make clear that the task of reconciling all the decisions is more difficult than was the task of Theseus as he threaded his way through the famous Cretan Labyrinth in search of the Minotaur." Roy Stone Transfer Corp. v. Messner, 377 Pa. 234, 243-44, 103 A.2d 700, 705 (1954). "The U.S. Supreme Court's effort to establish a free trade zone within the United States dates from Gibbons v. Ogden, 22 U.S. 1, 6 L.Ed. 23 (1824), and an important part of this effort has been constant federal vigilance to insure that state taxation does not discriminate against interstate commerce." Chesapeake & Potomac Co. v. State Tax Dept., W.Va., 239 S.E.2d 918, 926-27 (1977).

The Court has consolidated these four cases for decision because there is a framework of legal principles which apply in common to all four. In this one opinion we shall attempt to outline all of the current rules which apply to state taxation of activities in interstate commerce.

There are four United States Supreme Court cases since 1975 which form the corners of a perimeter which circumscribes the permissible area in which the states may tax activities in interstate commerce. The first of these cases is Standard Pressed Steel Co. v. State of Washington Dept. of Revenue, 419 U.S. 560, 95 S.Ct. 706, 42 L.Ed.2d 719 (1975) which articulated two principles: first, that the state must give something for which it can ask return; second, where the taxpayer alleges that a given tax discriminates against interstate commerce, the burden is on the taxpayer factually to demonstrate the discrimination. We applied this second criterion in Virginia Foods v. Dailey, W.Va., 239 S.E.2d 770 (1977). In Standard Pressed Steel, a manufacturer of aerospace fasteners, with a home office and manufacturing plant in Pennsylvania, challenged Washington's Business and Occupation Tax on the grounds that the manufacturer's business activities in Washington were insufficient to sustain the tax. The manufacturer had one employee in Washington who was paid a salary and who operated from his home near Seattle. His primary duty was to consult with the customer, Boeing Aircraft, regarding its anticipated and current requirements for aerospace fasteners and to follow up any problems in the use of appellant's product after delivery. In addition there was a group of engineers paid by the manufacturer who visited Boeing about three days out of every six weeks. While the manufacturer's resident employee did not take orders from Boeing, the Supreme Court dismissed as frivolous the argument that there were insufficient contacts to support a direct tax when there existed one employee with a full time job within the State of Washington facilitating a valuable contractual relationship between the manufacturer and Boeing. The Court recognized that taxes of this nature create the possibility of double taxation which would discriminate against interstate commerce but reiterated its holding in General Motors Corp. v. Washington, 377 U.S. 436, 84 S.Ct. 1564, 12 L.Ed.2d 430 (1964) that the burden is on the taxpayer to demonstrate any alleged discrimination.

The second corner of our perimeter is established by Boston Stock Exchange v. State Tax Comm'n, 429 U.S. 318, 97 S.Ct. 599, 50 L.Ed.2d 514 (1977) which held that no state may tax local transactions involving products manufactured or business operations performed in any other state at a higher rate than similar local activities with no out-of-state components. In Boston the State of New York attempted to provide relief from the competitive disadvantage thought to be created by the transfer tax for New York stock exchanges in competition with out-of-state exchanges. A New York statute imposing a transfer tax on securities transactions, if part of the transaction occurs in New York, was amended so that transactions involving an out-of-state sale were taxed more heavily than most transactions involving an entirely in-state sale. The court found that the statute imposed a greater tax liability on out-of-state sales than on in-state sales and, therefore, lacked even-handed treatment demanded by the Commerce Clause. While the focus of the court in Boston was upon an intentional discrimination against interstate commerce in favor of local commerce, a fair reading of the case discloses that any taxing scheme which discriminates in fact, regardless of intent, against interstate commerce is unconstitutional.

The third corner of our perimeter is formed by Complete Auto Transit, Inc. v. Brady, 430 U.S. 976, 97 S.Ct. 1669, 52 L.Ed.2d 371 (1977) which rejected any determination about the legitimacy of a tax based upon what the tax is called in favor of three functional criteria: (1) nexus with the taxing state in terms of the tax bearing a fair relation to services provided by the state; (2) fair apportionment; and, (3) nondiscrimination against interstate commerce. In Complete Auto Mississippi attempted to tax a motor carrier which transported to Mississippi dealers motor vehicles manufactured outside the state. The Supreme Court upheld the tax since the activity taxed was sufficiently connected to the State of Mississippi to justify the tax, the tax was fairly related to the benefits provided the carrier, the tax did not discriminate against interstate commerce, and the tax was fairly apportioned.

Finally the case of National Geographic Society v. California Board of Equalization, 430 U.S. 551, 97 S.Ct. 1386, 51 L.Ed.2d 631 (1977) recognized that there is a difference between a direct tax which is borne by the commercial taxpayer itself and a use tax which is borne by the taxpayer's customers. The National Geographic Society sold magazines by direct mail to residents of California without an intermediary in that state although the magazine had two offices in California which solicited advertising copy but performed no activities related to the seller's operation of its mail order business. The magazine challenged California's right to impose a use tax, which is the mirror image of a sales tax. A use tax is collected when a good is sold from an out-of-state supplier for use within a state and the Supreme Court upheld the California tax on the grounds that there was sufficient contact between the magazine and the State of California for California to impose the administrative burden on the magazine of collecting the use tax from California residents who subscribed. The...