Lever Bros. Co. v. District of Columbia

• Citation: 92 US App. DC 147,204 F.2d 39
• Decision Date: 26 March 1953
• Docket Number: No. 11284,11285.,11284
• Parties: LEVER BROS. CO. v. DISTRICT OF COLUMBIA. DISTRICT OF COLUMBIA v. LEVER BROS. CO.
• Court: United States Courts of Appeals. United States Court of Appeals (District of Columbia)

92 US App. DC 147, 204 F.2d 39 (1953)

LEVER BROS. CO. v. DISTRICT OF COLUMBIA.

DISTRICT OF COLUMBIA v. LEVER BROS. CO.

Nos. 11284, 11285.

United States Court of Appeals, District of Columbia Circuit.

Argued October 17, 1952.

Decided March 26, 1953.

Petition for Rehearing Denied May 26, 1953.

Mr. Milton V. Freeman, Washington, D. C., with whom Messrs. G. Duane Vieth and George Bunn, Washington, D. C., were on the brief, for petitioner in No. 11284 and for respondent in No. 11285.

Mr. George C. Updegraff, Assistant Corporation Counsel for the District of Columbia, Washington, D. C., with whom Messrs. Vernon E. West, Corporation Counsel, and Chester H. Gray, Principal Assistant Corporation Counsel, Washington D. C., were on the brief, for petitioner in No. 11285 and for respondent in No. 11284. Mr. William S. Cheatham, Assistant Corporation Counsel, Washington, D. C., at the time the record was filed, entered his appearance in behalf of the petitioner in No. 11285 and for respondent in No. 11284.

Before CLARK, FAHY and WASHINGTON, Circuit Judges.

WASHINGTON, Circuit Judge.

We are here called upon to review the correctness of a decision of the Board of Tax Appeals for the District of Columbia.¹ The decision relates to the franchise tax assessed against the taxpayer, Lever Brothers Company, for the year 1948, under the District of Columbia Income and Franchise Tax Act of 1947, as amended in 1948.² Both Lever and the District contend that the Board erred.

1. Taxability: "Doing Business." The first question is one of coverage.³ Is Lever liable to pay any tax under the Act? Lever is a Maine corporation, which in 1948 made and sold soap, dental and similar products. Its Soap Division had offices and a warehouse in Baltimore, Maryland. Its Pepsodent Division was conducted as a separate operation, based in New York and Philadelphia. During 1948, Lever's total sales to District of Columbia purchasers amounted to $2,632,870.88. Soap sales were solicited by three salesmen employed by the Baltimore office but regularly assigned to the District. Two of them lived here. Pepsodent sales were made under a factoring arrangement, to be discussed later.

The District of Columbia Income and Franchise Tax Act of 1947 imposes a tax on the net income from District sources of foreign and domestic corporations "For the privilege of carrying on or engaging in any trade or business within the District and of receiving income from sources within the District * * *."⁴ The Act defines "trade or business" to include "any * * * commercial activity in the District * * *: Provided, however, That the words `trade or business' shall not include * * * (1) Sales of tangible personal property * * * by a corporation * * * which does not physically have or maintain an office, warehouse, or other place of business in the District, and which has no officer, agent, or representative having an office or other place of business in the District * * *."⁵ For corporations subject to the tax, the statute adds that its "measure * * * shall be that portion of the net income of the corporation * * * fairly attributable to any trade or business carried on or engaged in within the District and such other net income as is derived from sources within the District; Provided further, That income derived from the sale of tangible personal property by a corporation * * * not carrying on or engaging in trade or business within the District as defined * * * shall not be considered as income from sources within the District * * *."⁶

Did Lever's 1948 activities in the District come within the intended reach of this statutory framework? In Owens-Illinois Glass Co. v. District of Columbia, supra note 3, we held that "extensive solicitation by salesmen, in the District, which results in a large volume of sales and shipments to customers in the District, is plainly `commercial activity in the District'. The corporation was therefore * * * `engaging in * * * trade or business within the District.'" unless its activities came within the provisos quoted above ("Provided, however * * *" and "Provided further * * *"). The same may aptly be said of Lever.

The crucial question, then, is whether Lever can take advantage of the provisos, which were added to the Act by amendment passed in 1948.⁷ Lever urges that it can: that it comes within the first proviso, and that the second is therefore applicable to it as well. It says that all its District activities were "sales of tangible personal property," and that it had no place of business, or representative having a place of business, in the District. The District, in urging the contrary, relies mainly on the fact that Lever entered into contracts with three local wholesale drug companies to handle its Pepsodent products. Under the contracts, the three companies were designated as factors, with authority to sell the merchandise only in the ordinary course of business and only to such retailers as were not blacklisted by Lever; they agreed actively to promote the sale of the products and to store, display and sell the products only in their regular places of business; they had no authority to purchase, encumber or dispose of the products except as provided by the contract; they agreed to sell only at the prices and upon the terms specified by Lever, and the proceeds of the sales were to be held in trust until accounted for by the factor. They made monthly accountings and monthly remittances to Lever, and sold the merchandise without any indication that they were selling as factors. They kept the products in their own warehouses in the District, from which they filled the orders they obtained, plus occasional small orders received by salesmen of Lever's Soap Division after solicitation in the District.

The question comes down to whether Lever had, in the factors, an "agent, or representative having an office or other place of business in the District." On this issue, Lever concedes that a factor is for many purposes an agent, but argues that factors are not necessarily agents for purposes of taxation,⁸ and should not be treated as agents here. But we have found nothing in the legislative history that would indicate that Congress intended such factors as these to be excluded from the ambit of the word "agent." The relationship outlined above would seem to come within the definition of the statutory concept of agency which Lever itself offers: that the corporation (Lever) have supervisory control over at least a substantial part of the business of the local agent or representative or at least a part-time claim on the services of the individuals or organizations acting for it.⁹ Furthermore, the Act specifically excludes "independent brokers" from the definition of agent.¹⁰ Lever makes no attempt to equate the factors with independent brokers.¹¹ The specific exclusion would seem to indicate that the factors should be included within the definition of agent in the statute on the expressio unius principle.¹² We agree with the Board of Tax Appeals that Lever had, in the factors, agents having places of business in the District.¹³

It follows, to paraphrase our opinion in Owens-Illinois, that because the corporation had agents in the District, "the first statutory proviso quoted above (`Provided, however * * *') does not apply. Because the corporation was engaging in business in the District, the second proviso (`Provided further * * *') does not apply." Accordingly, Lever is taxable under the statute.

2. The Measure of the Tax: Validity of the Commissioners' Regulations. The District Commissioners have authority under the Act, "Where the net income of a corporation * * * is derived from sources both within and without the District," to prescribe regulations for determining "the portion thereof subject to tax * * *."¹⁴ Acting pursuant to this authority, the Commissioners promulgated a regulation applicable to the year 1948¹⁵ which prescribed that the portion of gross income from sales of tangible personal property "to be apportioned to the District shall be such percentage of the total of such gross income as the District sales made during such taxable year bear to the total sales made everywhere during such taxable year. For the purpose of this regulation the phrase `District sales' shall mean the gross receipts from all sales made which were principally secured, negotiated, or effected by owners, employees, agents, officers and branches of the corporation or unincorporated business located in the District * * *."¹⁶ The regulation does not make the place of passage of title to the goods sold any part of the test of a sale's taxability. The validity of this regulation, as applied to Lever, has therefore been subjected to a twofold challenge.

A. Lever contends that even if it is taxable, this regulation cannot properly be applied to it so as to include in the measure of its tax any sales in which title passed outside the District. Such sales made up the bulk of its District business in 1948. The factor sales, which have been described, amounted to only $37,000, and Lever does not contend that title to the goods thus sold passed outside the District. But in addition, Lever sold about $2,500,000 of its products to District customers by other means — chiefly, the efforts of salesmen working out of the Baltimore office. These salesmen, according to Lever, secured orders "accepted" outside the District, so that title to the goods "passed" outside the District. The Board of Tax Appeals held, contrary to Lever's contentions, that sales of this sort should be included in the measure of Lever's tax.

Lever's argument on this issue may be simply stated. It points out that the Act defines "taxable income" as "the amount of net income derived from sources within the District within the meaning of" certain subsequent sections.¹⁷ It then urges that income from the sale of goods cannot be "derived from sources within the District" unless title...