Minnesota Tribune Co. v. Commissioner of Taxation

• Decision Date: 20 May 1949
• Docket Number: No. 34882.,34882.
• Citation: 37 N.W.2d 737,228 Minn. 452
• Parties: MINNESOTA TRIBUNE CO. v. COMMISSIONER OF TAXATION.
• Court: Minnesota Supreme Court

37 N.W.2d 737

228 Minn. 452

MINNESOTA TRIBUNE CO. v.COMMISSIONER OF TAXATION.

No. 34882.

Supreme Court of Minnesota.

May 20, 1949.

Certiorari to Board of Tax Appeals.

Certiorari proceeding by the Minnesota Tribune Company, successor by merger to Mutual Holding Company, to review a decision of the Board of Tax Appeals affirming an order of the Commissioner of Taxation determining an additional tax liability for the taxable year ending December 31, 1941.

Affirmed.

Hayner N. Larson, John B. Faegre, Jr., Faegre & Benson, Minneapolis, for relator.

J. A. A. Burnquist, Atty. Gen., David W. Lewis, Charles P. Stone, Asst. Attys. Gen., for respondent.

Doar & Knowles, New Richmond, Wis., amici curiae.

THOMAS GALLAGHER, Justice.

Certiorari on the relation of Minnesota Tribune Company, a Minnesota corporation, successor by merger in 1943 to Mutual Holding Company, a Delaware corporation, to review a decision of the board of tax appeals affirming an order of the commissioner of taxation determining additional tax liability of Mutual Holding Company in the sum of $2,862 for the taxable year ending December 31, 1941.

For convenience, Minnesota Tribune Company for the period prior to its merger with Mutual Holding Company will be referred to as Tribune and subsequent to such merger as relator, while Mutual Holding Company will be referred to as Mutual.

In its income and franchise tax return for 1941, Mutual reported receipt of $54,000 in nontaxable dividends from stock held by it in Tribune.The commissioner treated such dividends as taxable income and assessed the additional tax above described by virtue thereof.

Minn.St.1941, 290.02, M.S.A. § 290.02, imposes a privilege or franchise tax on foreign corporations "for the actual transaction * * * of any local business within this state * * * measured by such corporations' taxable net income for the taxable year for which the tax is imposed, * * *."M.S.A. § 290.17 provides that taxable gross income assigned to Minnesota for the computation of this tax shall include:

"* * * income or gains * * * from intangible personal property employed in the business of such recipient if such business consists principally of the holding of such property and the collection of the income and gains therefrom, wherever held and whether in trust or otherwise, * * if the recipient thereof is domiciled within this state; * * *." and

"Income derived from carrying on a trade or business, * * * if the trade or business is conducted wholly within this state, and to other states if conducted wholly without this state".(Italics supplied.)

It is the contention of respondent that income which Mutual received from its Tribune stock was assignable to Minnesota and taxable here under the foregoing sections, because Mutual, by virtue of its activities here, had acquired a commercial domicile within this state, and the Tribune stock which it owned had its business situs in and constituted an integral part of the business which Mutual conducted exclusively in Minnesota.

Relator asserts that Mutual's only activities here consisted in doing such things as were incident to the mere holding of stock in another corporation and the receipt and distribution of dividends therefrom to its stockholders; that such activities could not be held to constitute "doing business" within this state; and that hence Mutual had not acquired a commercial domicile here so as to subject the income described to taxation under the foregoing statutes.

Mutual was incorporated under the laws of Delaware in 1924.Its articles recite that it was to — "purchase, acquire, * * own, hold, * * * and generally deal and trade in * * *, shares of stock, voting trust certificates and other evidences of title to shares of corporate stock, * *."

It is further recited therein: "If, and to the extent that, this corporation shall become the owner by purchase from Frederick E. Murphy, as Trustee, of shares of the Preferred Stock in the Minnesota Tribune Company, a Minnesota corporation, or of the Voting Trust Certificates by which the same are now represented, or of both, this corporation will issue, in exchange (and in full payment) therefor, share for share, certificates of equal par value representing Preferred Stock in this corporation."

It is admitted by relator that the underlying reason for and the purpose of organizing Mutual was to establish and exercise control over Tribune, which was engaged in the business of publishing the Minneapolis Tribune.The immediate reason for following this method of obtaining such control was to prevent the holders of other substantial blocks of stock in Tribune from acquiring such additional shares as would give to them control of Tribune to the exclusion of the organizers of Mutual.

Subsequent to its organization, Mutual acquired, held, and voted the controlling stock of Tribune and collected and distributed the dividends paid on said stock.It did not qualify here as a foreign corporation.It owned no other property or stock, and, except for its corporate books and records and a small cash balance, had no other property here and engaged in no other business.

Through a courtesy arrangement with Tribune, it maintained its only office in the latter's building in Minneapolis, where its stockholders' and directors' meetings were held and its corporate books and records were kept.Its clerical work was performed there by Tribune employes without charge.

During the taxable year 1941Mutual had seven directors; Tribune had five.Mutual's directors comprised a majority of Tribune's.The president of Mutual was vice president and general manager of Tribune.Its secretary-treasurer was likewise secretary-treasurer of Tribune.

In 1941, its meetings consisted of five directors' meetings and its annual stockholders' meeting.At such meetings the business was confined to the election of directors or officers and the appointment of proxies to vote its Tribune stock.At one meeting it specifically authorized such proxies to support a resolution of Tribune's stockholders directing the sale of Tribune properties.The foregoing constituted all of its activities within the state.

1.The question whether a foreign corporation may be held to be "doing business" within another state where it is not qualified is primarily one of fact.The determination of this issue ordinarily does not depend upon any single act of such foreign corporation, but rather upon the effect of all its actions within the state involved.See, Von Baumbach v. Sargent Land Co., 242 U.S. 503, 37 S.Ct. 201, 61 L.Ed. 460;Edwards v. Chile Copper Co., 270 U.S. 452, 46 S.Ct. 345, 70 L.Ed. 678;Phillips v. International Salt Co., 274 U.S. 718, 47 S.Ct. 589, 71 L.Ed. 1323, reversingInternational Salt Co. v. Phillips, 3 Cir., 9 F.2d 389;andHarmar Coal Co. v. Heiner, 3 Cir., 34 F.2d 725, certiorari denied280 U.S. 610, 50 S.Ct. 159, 74 L.Ed. 653.

2.The general rule is that mere ownership by a foreign corporation of stock in a domestic corporation within a state, and even of a controlling interest therein, does not in itself necessarily constitute "doing business" within the state concerned.This rule is predicated upon the theory of the separate entity of the two corporations.Where such entity is preserved, the rule is adhered to in the absence of circumstances justifying the court in looking through the form to the substance of the relationship between the two corporations.McCoach v. Minehill & S. H. R. Co., 228 U.S. 295, 33 S.Ct. 419, 57 L.Ed. 842;United States v. Nipissing Mines Co., 2 Cir., 206 F. 431, writ dismissed on motion234 U.S. 765, 34 S.Ct. 673, 58 L.Ed. 1582;United States v. Emery, Bird, Thayer Realty Co., 237 U.S. 28, 35 S.Ct. 499, 59 L.Ed. 825;Butterick Co. v. United States, D.C., 240 F. 539, writ dismissed on motionUnited States v. Butterick Co., 248 U.S. 587, 39 S.Ct. 5, 63 L. Ed. 434;Continental Baking Corp. v. Higgins, 2 Cir., 130 F.2d 164;Automatic Fire Alarm Co. v. Bowers, D.C., 51 F.2d 118;Rose v. Nunnally Inv. Co., 5 Cir., 22 F.2d 102, certiorari denied276 U.S. 628, 48 S. Ct. 321, 72 L.Ed. 739;Eaton v. Phœnix Securities Co., 2 Cir., 22 F.2d 497;United States v. Three Forks Coal Co., 3 Cir., 13 F.2d 631;State ex rel. State Corporation Comm. v. Old Abe Co., 43 N.M. 367, 94 P.2d 105, 124 A.L.R. 1085;People ex rel. Manila Electric R. & Lighting Corp. v. Knapp, 229 N.Y. 502, 128 N.E. 892;People ex rel. Butterick Co. v. Gilchrist, 213 App.Div. 533, 211 N.Y.S. 75, affirmed per curiam 241 N.Y. 591, 150 N.E. 567;Welch Holding Co. v. Galloway, 161 Or. 515, 89 P.2d 559.

3.A large number of courts, however, have held that where a foreign corporation is organized for the purpose of holding the controlling stock in a local corporation and directing its management through the voting power of the stock thus held, or where in addition to such ownership there...