Kimberly-Clark Corp. v. Commissioner of Revenue
Decision Date | 19 June 2015 |
Docket Number | 8670-R |
Court | Tax Court of Minnesota |
Parties | KIMBERLY-CLARK CORPORATION & SUBSIDIARIES, Appellants, v. COMMISSIONER OF REVENUE, Appellee. |
Attorneys and Law Firms
Walter A. Pickhardt, Faegre Baker Daniels LLP, Minneapolis Minnesota, and Amy L. Silverstein and Edwin P. Antolin Silverstein & Pomerantz LLP, San Francisco, California represent appellants Kimberly-Clark Corporation and its subsidiaries.
Alan I. Gilbert, Minnesota Solicitor General, and Alethea M Huyser, Assistant Minnesota Attorney General, represent appellee Commissioner of Revenue.
ORDER GRANTING THE COMMISSIONER'S MOTION FOR SUMMARY JUDGMENT
This matter came before the Minnesota Tax Court, sitting en banc, on the parties' cross-motions for summary judgment.
We grant the Commissioner's motion for summary judgment and deny Kimberly-Clark's motion.
The undersigned judges, upon all the files, records, and proceedings herein, now make the following:
ORDERIT IS SO ORDERED. THIS IS A FINAL ORDER. LET JUDGMENT BE ENTERED ACCORDINGLY.
MEMORANDUMAppellant Kimberly-Clark Corporation and its subsidiaries (collectively Kimberly) constitute a combined group for purposes of Minnesota's corporate franchise tax.[1] Kimberly-Clark Corporation is the reporting entity for the combined group.[2] Kimberly has done business in Minnesota since 1958 and has filed Minnesota tax returns since at least 1983.[3] During the tax years in issue (2007, 2008 and 2009), Kimberly engaged in a unitary, multi-state business.[4] This case concerns the computation of Minnesota corporate franchise tax liability for Kimberly's unitary business conducted partly within and partly without Minnesota.
Container Corp. of Am. v. Franchise Tax Bd., 463 U.S. 159, 165, 103 S.Ct. 2933, 77 L.Ed.2d 545 (1983). Minnesota uses the unitary-business / formula-apportionment method to determine a unitary business' local tax base. See Comm'r of Revenue v. Associated Dry Goods, Inc., 347 N.W.2d 36, 38 (Minn.1984); Minn.Stat. § 290.191, subd. 1(a) (2014) ().
It is undisputed that during the tax years in issue, multistate businesses could: (1) apportion income to Minnesota using the apportionment formula set forth in Minn.Stat. § 290.191; or (2) petition the Minnesota Commissioner of Revenue to permit the use of an alternative apportionment formula. See Minn.Stat. § 290.20, subd. 1 (2014) ( ). The dispute in this case concerns whether, during the tax years in issue, multistate businesses also enjoyed a third option, namely, the unfettered right to use the apportionment formula contained in Articles III and IV of Minn.Stat. § 290.171 (Minnesota's version of the Multistate Tax Compact) between 1983 and its repeal in 1987. A proper explication of this dispute requires us to briefly explain the emergence of the Multistate Tax Compact from a controversy over how states tax multistate businesses.
In 1964, the Special Subcommittee (known as the Willis Committee) issued the first in a series of reports.[7] The subcommittee characterized the existing system as one “which calls upon tax administrators to enforce the unenforceable, and the taxpayer to comply with the uncompliable.”[8] The subcommittee further found “inescapable” the conclusion “that the voluntary adoption by the States of any kind of uniform system [for taxing the income of multistate businesses] is a slow and halting process, if not a virtual impossibility.”[9] The subcommittee recommended that all corporate income be apportioned among the states by a two-factor formula based on property and payroll attributed to the state, with no provision for state-specific formulas.[10]
Following the issuance of the Willis Report, the National Association of Tax Administrators convened a special meeting in January 1966 to both oppose pending federal legislation and “to suggest workable alternatives which would eliminate the need for the kind of congressional action embodied in” the federal legislation.[11] The text of the Multistate Tax Compact was released in December 1966 by the Council of State Governments.[12]
Article I of the Compact lists its purposes, including “[f]acilitat[ion of] proper determination of State and local tax liability of multistate taxpayers” and “[p]romot[ion of] uniformity or competibility [sic, compatibility] in significant components of tax systems.”[13]
Article II sets out definitions of various terms used in the Compact, none of which need be recited here.[14]
Articles III and IV are at the center of the parties' dispute. Articles III and IV incorporate, almost verbatim, the Uniform Division of Income for Tax Purposes Act, a uniform act drafted by the National Conference of Commissioners on Uniform State Laws in 1957.[15] Article III, section 1, allows a multistate taxpayer to “elect to apportion and allocate his income in the manner provided by the laws of such State ... without reference to this compact” or “in accordance with Article IV.”[16] Article IV, in turn, provides for the apportionment of income by a three-factor, equally-weighted formula using sales, payroll, and property:
All business income shall be apportioned to this State by multiplying the income by a fraction, the numerator of which is the property factor plus the payroll factor plus the sales factor, and the denominator of which is three.[17]
Article IV, sections 10, 13, and 15, define the three factors.[18] Under Article III, section 1, the taxpayer may elect which apportionment formula to use “without reference to the election made” in any other state.[19]
Article V, section 1, allows a credit against use tax on tangible personal property imposed in one state for use tax paid to another state with respect to the same property.[20] Article V, section 2 allows a seller to rely on an exemption certificate.[21]
Article VI establishes the Multistate Tax Commission, composed of one “member” from each “party State.”[22] Article VI further requires that any action of the Commission be approved by a majority of members, requires the Commission to adopt bylaws, establishes the Commission's governing and financial structure, and enumerates the powers of the Commission.[23]
Article VII allows the Commission to “adopt uniform regulations for any phase of the administration” of income taxes.[24] It requires the Commission to submit such regulations “to the appropriate officials of all party States and subdivisions to which they might apply” and provides that each such state “shall consider any such regulation for adoption in accordance with its own laws and procedures.”[25]
Article VIII allows any party state to ask the Commission to perform audits on its behalf and sets procedures for such audits.[26] Article VIII must be specifically adopted by a party state.[27]
Article IX provides for arbitration of “disputes concerning apportionments and allocations” by taxpayers “dissatisfied with the final administrative determination of the tax agency of the State” and establishes procedures for such arbitrations.[28]
Article X, also important to the parties' dispute, provides in section 1 that the Compact “shall enter into force when enacted into law by any seven States.”[29] Article X section 2,...
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