Linear Films, Inc. v. State ex rel. Oklahoma Tax Com'n, 81654
| Citation | 876 P.2d 301 |
| Decision Date | 08 February 1994 |
| Docket Number | No. 3,No. 81654,81654,3 |
| Parties | 1994 OK CIV APP 20 LINEAR FILMS, INC. and Subsidiaries, Appellant, v. STATE of Oklahoma, ex rel., OKLAHOMA TAX COMMISSION, Appellee. Court of Appeals of Oklahoma, Division |
| Court | United States State Court of Criminal Appeals of Oklahoma. Court of Civil Appeals of Oklahoma |
Appeal from an Order of the Oklahoma Tax Commission.
Affirmed.
Mark H. Allen, Francis F. Hillsman, Gable & Gotwals, Inc., Tulsa, for appellant.
David Hudson, Gen. Counsel, Robert B. Struble, Asst. Gen. Counsel, Oklahoma Tax Com'n, Oklahoma City, for appellee.
Linear Films, Inc. and subsidiaries (Taxpayer) seek review of an order of the Oklahoma Tax Commission (OTC) denying Taxpayer's application for a refund of corporate income taxes paid. In this appeal, Taxpayer asserts error by OTC in determining Taxpayer's sales of personal property outside of Oklahoma should be included within the Oklahoma tax base, arguing Taxpayer was not doing business outside Oklahoma for purposes of the Oklahoma corporate income tax code.
Briefly, Taxpayer is an Oklahoma corporation. Taxpayer owns and operates two plants--one in Tulsa, the other in Kentucky--for the manufacture and sale of plastic films. Taxpayer engages approximately ten independent contractors who solicit sales on Taxpayer's behalf in states other than Oklahoma.
Taxpayer filed with OTC amended returns with claims for refunds for 1985, 1986, and 1987. OTC denied entitlement to refund. Taxpayer protested the denial, and Taxpayer and OTC agreed to submit the matter for consideration by the Administrative Law Judge based on stipulations and briefs. The Administrative Law Judge issued Findings, Conclusions and Recommendations, denying Taxpayer relief on the grounds Taxpayer was not "doing business" in the states to which Taxpayer shipped its product. Taxpayer appealed to the full Commission which issued its order upholding the decision of the Administrative Law Judge. Taxpayer appeals.
The sole issue presented is whether Taxpayer's activities constituted "doing business" in other states for purposes of 68 O.S.1991 § 2358(A)(5)(c)(1). That section provides for apportionment of income from sales of tangible personal property in other states in which Taxpayer is not "doing business" to be included as income in the Oklahoma tax base. The OTC considered the stipulated facts and applicable law, and concluded Taxpayer's activities in other states, i.e., solicitation and sales of tangible personal property, did not constitute "doing business" in those states so that sales delivered in the other states from Oklahoma were subject to Oklahoma income tax as Oklahoma sales.
We have reviewed the record herein and find the order of OTC adopting the Findings, Conclusions and Recommendations of the Administrative Law Judge free of legal error, and the latter, appended hereto, adequately explains its decision. The order of OTC denying Taxpayer's claims for refund is therefore AFFIRMED. Rule 1.202(d), Rules of Appellate Procedure in Civil Cases, 12 O.S.Supp.1991, Ch. 15, App. 2.
APPENDIX
Before the Administrative Law Judge of the
Oklahoma Tax Commission
State of Oklahoma
In the Matter of the Income Tax Claim for Refund of Linear
Films, Inc. and Subsidiaries.
Filed March 26, 1993.
NOW on this 26th day of March, 1993, the above styled and numbered cause comes on for consideration pursuant to assignment regularly made by the Oklahoma Tax Commission to Melanie K. Parks, Administrative Law Judge. By agreement of the parties, this matter was submitted for a decision without a formal hearing. Protestant, Linear Films, Inc., by and through its attorney, Mark H. Allen, GABLE & GOTWALS, and the Income Tax Division, by and through its representatives, Robert B. Struble, Assistant General Counsel, and Jerri K. Golden, Legal Research Assistant, General Counsel's Office of the Oklahoma Tax Commission, submitted a Stipulation of Facts and briefs outlining their respective positions, all in accordance with and as permitted by Rule 710:1-5-38, Oklahoma Administrative Code.
The parties stipulate to the following:
1. Taxpayer is an Oklahoma corporation which manufactures and sells plastic films which are used in packaging commercial products. Taxpayer owns and operates two manufacturing plants, one of which is located in Tulsa, Oklahoma, and the other of which is located in Nicholasville, Kentucky. Taxpayer also stores finished product at a warehouse which Taxpayer leases in Charlotte, North Carolina.
2. Except for the Kentucky plant and the North Carolina warehouse, Taxpayer does not now have, (sic) or has it at any time had an office, agency, warehouse or other place of business in a state other than Oklahoma.
3. Throughout the period in question, Taxpayer has made occasional deliveries of products to customers in other states by two trucks which were owned by Taxpayer. The product was delivered throughout the Taxpayer's sales area, which generally encompassed most of the continental United States. Taxpayer does not currently own any vehicles. However, even during the period when the Taxpayer owned the two trucks, 80% to 90% of all product delivered by Taxpayer to its customers was delivered by common or contract carriers. The deliveries made by Taxpayer's trucks in any one state were occasional and infrequent. Further, Taxpayer does not pick up material used in manufacturing or for resale in a state other than Oklahoma by owned vehicles or vehicles leased by the Taxpayer. All raw materials used in Taxpayer's manufacturing process are delivered to Taxpayer's plants by rail.
4. It is possible that Taxpayer picked up damaged or returned merchandise during the period in which it made deliveries by its own trucks. No records are kept which would indicate whether Taxpayer's agents picked up returned merchandise. Any such occurrences would have been extremely rare.
5. No employees of Taxpayer (resident or non-resident) solicit sales, perform services, promote Taxpayer's products or otherwise act on Taxpayer's behalf in states other than where Taxpayer's manufacturing and warehouse operations are conducted (i.e. North Carolina, Kentucky and Oklahoma), except for the occasional and infrequent delivery of products by employees operating Taxpayer's trucks.
6. Throughout the periods in controversy, Taxpayer has engaged approximately ten independent contractors who solicit sales on Taxpayer's behalf in states other than Oklahoma. The sales representatives are independent contractors who call on potential customers to promote Taxpayer's products and who solicit orders from the customers. The sales representatives pay their own expenses and are compensated by commissions on sales. Taxpayer did not have a written agreement with these independent contractors in the years in question. Many of the independent contractors are closely held corporations although a few are sole proprietors. Taxpayer provides these sales representatives with samples of its product. Taxpayer's product is a plastic film used in packaging commercial products, and the samples are rolls of the various types of film which are provided to the sales representatives. The samples are not usable in commercial application. The value of each roll is approximately $5.00, and each representative may have ten to fifteen samples at any given time. When Taxpayer transmits these samples to its representatives, it relinquishes all ownership to the samples. Taxpayer has never sought the return of samples because Taxpayer considers title to the samples to pass to the representative upon delivery. These samples are routinely provided to representatives, customers and distributors, and the cost of shipping the sample often exceeds the value thereof.
7. Some of Taxpayer's sales representatives may have a listing in a telephone directory under Taxpayer's name. This is analogous to manufacturers of other products which may be listed generically in the Yellow Pages, with the specific dealers or representatives described within the listing. Taxpayer did not cause its telephone number to be listed in any telephone or building directory outside of Oklahoma and did not pay for any such listing. The sales representatives may have caused such a listing to be made in order to further their solicitation activities. Further, the sale representatives generally listed their office as a business address and received business calls there, but did not store inventory or receive any office expense reimbursement from the Taxpayer.
8. Taxpayer's sales representatives routinely solicit sales in states other than Oklahoma and maintain an office in their home or elsewhere. Taxpayer's sales representatives make sales calls to solicit business on behalf of Taxpayer at least twice a month in each state in the continental United States.
9. Taxpayer's sales representatives have limited authority and do not:
a. Accept or secure deposits or down payments.
b. Check or stock inventories of customers or distributors.
c. Make "on the spot" sales of any items carried by them.
d. Collect installments and/or delinquent accounts.
e. Pick up or replace damaged, obsolete or defective merchandise. However, the sales representative might arrange for the shipping for the return of damaged, obsolete or defective merchandise.
f. Accept or pick up damaged or returned merchandise.
g. Authorize credits, warranty adjustments or repairs. The sales representatives might inspect the goods for warranty protection. The sales representatives would have no authority to authorize credits, warranty adjustments or repairs.
h. Set up merchandising or advertising displays.
i. Handle complaints, (at least to the extent "handle" means to take responsibility with the authority to correct problems). The sales...
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...... causing Alcoa to forfeit immunity from State taxation under Pub. L. 86-272. Instead, Alcoa ... find that hints at such a distinction is Linear Films, Inc., v. State ex rel. Okla. Tax Comm'n, ......
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