Laurentide Co. v. Durey

• Decision Date: 13 March 1916
• Docket Number: 18.,13
• Citation: 231 F. 223
• Parties: LAURENTIDE CO., Limited, v. DUREY, Collector of Internal Revenue. SAME v. IRWIN, Collector of Internal Revenue.
• Court: U.S. District Court — Northern District of New York

231 F. 223

LAURENTIDE CO., Limited, v. DUREY, Collector of Internal Revenue.

SAME v. IRWIN, Collector of Internal Revenue.

Nos. 13, 18.

United States District Court, N.D. New York.

March 13, 1916

Louis M. Brown, of Glens Falls, N.Y. (Frederick W. Cameron, of Albany, N.Y., of counsel), for complainant.

Dennis B. Lucey, U.S. Atty., of Ogdensburg, N.Y., and Frank J Cregg, Asst. U.S. Atty., of Syracuse, N.Y., for defendants.

RAY District Judge.

The assessment of the taxes above referred to and their payment to the collectors above named under protest is not in question. Complainant took all preliminary steps essential to the commencement of the actions. The question is: Were such taxes legally assessed and properly paid under and on the returns made and facts shown, or, to put the question another way, was the complainant, on the returns made and facts shown, exempt from the assessment and payment of the taxes mentioned on the ground it was a foreign corporation and was not doing business in the United States within the meaning of the laws referred to?

Section 38 of the Act of 1909, 'An act to provide revenue equalize duties and encourage the industries of the United States and for other purposes' (36 Stat.pt 1, pp. 112 113) provides:

'That every corporation * * * organized for profit and having a capital stock represented by shares, * * * now or hereafter organized under the laws of any foreign country and engaged in business in any state or territory of the United States, * * * shall be subject to pay annually a special excise tax with respect to the carrying on or doing business by such corporation, * * * equivalent to one per centum upon the entire net income over and above five thousand dollars received by it from all sources during such year, exclusive of amounts received by it as dividends upon stock of other corporations, * * * subject to the tax hereby imposed; or if organized under the laws of any foreign country, upon the amount of net income over and above five thousand dollars received by it from business transacted and capital invested within the United States and its territories, Alaska, and the District of Columbia during such year, exclusive,' etc.

Then follows a provision for ascertaining such net income by making deductions from the gross income for operating expenses, etc., and losses, depreciation, etc. Special provision is made for the deduction of $5,000, and for a return or report by the corporation.

February 29, 1912, the Laurentide Company, Limited, verified and filed with the collector its return of annual net income for the year 1911, giving its location, etc., and paid-up capital stock at $7,200,000, 'no capital invested in United States of A.,' and bonded indebtedness as $1,200,000. This return gave its 'gross income' as $162,291, its net income as $162,291, made no claim to deductions except the 'specific deduction from net income allowed by law, $5,000,' which was deducted, leaving $157,291 as subject to the said tax. In this return no claim was made that the corporation was not doing business in the United States.

The return for 1912 showed 'gross income $725,238.93,' deductions for maintenance and operation of the business $605,329.30, and for losses $19,348.37, 'net income $100,561.26,' and specific deduction from net income allowed by law $5,000; leaving, says the return, 'amount on which tax at 1 per centum is to be calculated for assessment $95,561.26,' and on this sum the tax was assessed.

The return for 1913 gave gross income as $929,629.12, deductions for operating expenses $733,669.22, total deductions, same $733,669.22, and 'net income on which tax at 1 per centum is calculated,' and on which it was calculated $195,959.90.

These last two returns had written on the margin thereof 'This company is not doing business in the United States and this return is given under protest. ' The collector held adversely to this clause.

Chapter 16, Laws of U.S. (Act of Cot. 3, 1913), 38 St., being an act 'to reduce tariff duties and to provide revenue for the government, and for other purposes,' section 2, provides (A, subd. 1, and G (a, b)):

'That there shall be levied, assessed, collected and paid annually upon the entire net income arising or accruing from all sources * * * a tax of 1 per centum per annum upon such income * * * and a like tax shall be assessed, levied, collected, and paid annually upon the entire net income from all property owned and of every business, trade, or profession carried on in the United States by persons residing elsewhere.'

'G (a) That the normal tax hereinbefore imposed upon individuals likewise shall be levied, assessed and paid annually upon the entire net income arising or accruing from all sources during the preceding calendar year to every corporation * * * organized in the United States, no matter how created or organized, not including partnerships; but if organized, authorized, or existing under the laws of any foreign country, then upon the amount of net income accruing from business transacted and capital invested within the United States during such year. * * * (b) Provided.'

Here follows a provision for deductions. The question presented is: Did the Laurentide Company, Limited, have 'a net income from business transacted (by it) and capital invested within the United States during such year,' the year for which return was made (under protest) and the tax was imposed?

There is no claim it had capital invested in the United States, but it is insisted that during each of the years mentioned, 1911, 1912, and 1913, it transacted business in the United States and derived the net income shown by the returns.

The facts proved by abundant evidence are as follows:

(1) The plaintiff was and is a foreign corporation organized and existing under the laws of the Dominion of Canada.

(2) It was and is engaged in the manufacture and sale of paper used by printers and newspaper concerns in printing newspapers.

(3) Its manufacturing plant and home office was and is at Grandmere, Quebec, Dominion of Canada.

(4) It, for a time in 1911, had desk room in New York City occupied by a stenographer and employe of the corporation, and, in 1912, rented a room and opened up an office in the city of New York, N.Y., where it by its agent and representative did business of and for the corporation in selling paper during the rest of 1912 and during 1913.

(5) It had one, and sometimes two, traveling salesmen in the United States, headquarters in New York at such room, who traveled and solicited business and contracts for the supply and purchase of paper manufactured by it in Canada. The corporation owned the office furniture.

(6) These traveling salesmen or agents had power to solicit contracts in the United States and agree upon terms, except price of goods, and insert same in printed form contracts, ascertain from the home office in Canada by telephone the price they could fix, have such contract signed by the purchaser or contracting party in the United States, and then forward same by mail to the home office of the company in Canada for acceptance or approval and signature by one of its executive officers, and return to such salesman or agent for delivery to the customer in the United States, who then delivered same. The contract was not to be binding on the corporation 'unless signed by one of its executive officers at Grandmere, P.Q.'

(7) These contracts were not for the manufacture of the paper and sale and delivery of same, but simply for the sale thereof, that is, as stated in the contract:

'The paper company agrees to sell and the purchaser agrees to purchase . . . entire requirements of newspaper used in the publication of (name of newspaper designated) a newspaper published in the city of . . . . . . tons of paper per . . . during (time fixed) according to terms and conditions as set forth as follows:' (Then followed terms as to delivery, etc.).

(8) After such contracts were made, the Laurentide Company consulted its own convenience in providing for delivery according to the terms of the contract, and shipped the paper consigned to itself in such quantities as ti saw fit, provided the quantity was sufficient to fulfill the contract as to delivery, from time to time as demanded, to a point in the town or city where the purchaser under the contract carried on his or its business of printing and publication, selected by itself, and to some storehouse selected by it, where the paper was kept or stored until required for actual delivery to the purchaser. The paper was shipped at the expense and risk of the said corporation and stored at its own risk, and such corporation, the seller, also paid the warehouse or storage charges. The corporation had a standing contract with a cartage company in New York City to deliver paper stored for it when called for by customers. It had contracts with warehousemen to deliver the goods in storage when properly called for by the purchasers as customers. The corporation also kept on hand, usually in New York, paper to supply extra demands for paper. In fact, there was no delivery to the purchaser until called for by it under the contract, and then delivery was made from the storehouse or warehouse of the corporation in the town or city where the purchaser did its business. Insurance, if any, was paid by the corporation, and, in fact, the paper until actually delivered was held, stored, and owned by the said Laurentide corporation.

(9) The corporation also purchased supplies, etc., for its plant in Canada in the United States.

(10) The corporation had a bank account at a bank in Glens Falls N.Y., where checks given in payment for paper were deposited for collection, and on which checks in...