Montag Bros. Inc v. State Revenue Comm'n Of Ga.

• Decision Date: 13 February 1935
• Docket Number: No. 24221.,24221.
• Citation: 50 Ga.App. 660,179 S.E. 563
• Parties: MONTAG BROS., Inc. v. STATE REVENUE COMMISSION OF GEORGIA et al.
• Court: Georgia Court of Appeals

50 Ga.App. 660

179 S.E. 563

MONTAG BROS., Inc.

v.STATE REVENUE COMMISSION OF GEORGIA et al.

No. 24221.

Court of Appeals of Georgia,

Division No. 2.

Feb. 13, 1935.

Rehearing Denied Feb. 27, 1935.

Syllabus by Editorial Staff.

STEPHENS, J., dissenting.

Error from Superior Court, Fulton County; Virlyn B. Moore, Judge.

Tax execution proceeding by the State Revenue Commission of Georgia and others against Montag Brothers, Inc., wherein defendant in execution filed an affidavit of illegality. To review an adverse judgment, defendant in execution brings error.

Affirmed.

Statement of facts by JENKINS, Presiding Judge:

The affidavit of illegality to the levy of a tax execution involves a construction of sections 4 and 15 of the state income tax act of 1931 (Laws 1931, Ex. Sess., pp. 26, 34), in determining whether, under the facts, the defendant corporation, organized in Delaware but domesticated in Georgia was subject to taxation as to all of its net income, or only on such portion of this income as can be reasonably attributed to business within the state; the defendant contending that its business was not carried on entirely within the state, but partly within and partly without the state. It was agreed that, if the contentions of the Revenue Commission are correct, the execution was issued for the proper amount of $1,253.77 and interest; but that, if the defendant is correct, the proper percentage of net income on the business which should be allocated to Georgia would be 73 per cent., and the defendant would be thus due to the state $385.-93.

The essential stipulated facts are as follows: In the taxable year in question, the defendant's only office, place of business, and plant for the manufacture of its stationery, were in Atlanta, Ga., although it maintained a sale office in New York with samples and office equipment amounting to $2,500, and one of its bank accounts in New York, a sample room in Chicago, for six months during the fiscal year, and traveling salesmen operating out of the state, all of which •subordinate sale office, sample room, and salesmen were managed and directed from its Atlanta office, the executive supervising the New York-office living in Atlanta, although making frequent trips to New York; that all goods were shipped from its Atlanta plant, and it maintained no warehouse or stock of goods elsewhere; that all of its business is managed and directed from its Atlanta office, the prices of goods being fixed there, and payments by purchasers being made there; that in its several kinds of sales, some were made to customers within the state, and some to mail-order customers out of the state. As to these groups there is no contention, but the defendant insists that its sales to department stores and one large wholesale drug concern out of the state constituted business for which it was not liable to pay a tax to the state on its net income. This trade was handled as follows: The defendant's salesmen out of the state would submit samples to these customers' buyers and prepare orders in duplicate, which the buyers would sign after writing thereon "subject to confirmation." The original order would be sent to the defendant's Atlanta office, and if the duplicate order was approved by the customer's proper executive, it would so notify the defendant in Atlanta, and the goods would be shipped therefrom according to the terms of the order. Some of these goods were shipped f. o. b. Atlanta, and some f. o. b. destination. The judge, passing without a jury on the stipulated facts, found in favor of the state and against the affidavit of illegality.

Pertinent parts of the income tax act of 1931 are as follows:

Section 4 provides that "every domestic corporation, and every foreign corporation, shall pay annually an income tax equivalent to 4% of the net income from property owned or from business done in Georgia, as is defined in section 15 of this Act."

Section 15 and subdivision (b) thereof provide: "The tax imposed by this Act shall apply to the entire net income, as herein defined, received by every domestic corporation, and every foreign corporation owning property or doing business in this State. * * * (b) If the trade or business of the corporation is carried on entirely within the State, the tax shall be imposed on the entire business income, but if such trade or business is carried on partly within and partly without the State, the tax shall be imposed only on the portion of the business income reasonably attributable to the trade or business within the State, to be determined as follows: " Preceding subdivision (a) of section 15 as a title in connection with the subsections following are the words "Allocation and Apportionment of Income." Following the quoted portion of subdivision (b), provision is made for a division of tax on "interest, and rents * * * received in connection with business in the State, " which are "allocated to the State, " and those "received in connection with business outside of the State, " which are "allocated outside of the State"; and for a division of tax on "gains from the sale of capital assets or property held, owned, or used in connection with the trade or business, * * * but not for sale in the regular course of business, " which are allocated to the state "if the property sold is real or tangible personal property situated in the State, or intangible property connected with the business in the State, " but which, otherwise, are "allocated outside of the State." Other paragraphs of section 15, subd. (b), which follow, make provision for the allocation and apportionment of other "net business income" from intangible property and other assets. Subdivision (b) (3) (e) then provides: "Where income is derived from the manufacture or sale of tangible personal property, the portion thereof attributable to business within the State shall be taken to be such percentage of the total of such income as the tangible property and business within the State bear to the total tangible property and total business, the percentage of tangible property and of business being separately determined and the two percentages averaged."

Herbert J. Haas, Bertram S. Boley, and Jas. F. Haas, all of Atlanta, for plaintiff in error.

M. J. Yeomans, Atty. Gen., and B. D. Murphy and Jno. T. Goree, Asst. Attys. Gen., for defendants in error.

Syllabus Opinion by the Court.

JENKINS, Presiding Judge.

1. The taxing powers of a state with regard to its own residents and citizens and nonresidents are " 'necessarily limited to subjects within the jurisdiction of the state. These subjects are persons, property, and business. » * * Unless restrained by provisions of the federal Constitution, the power of the state as to the mode, form, and extent of taxation is unlimited, where the subjects to which it applies are within her jurisdiction.' * * * Just as a state may impose general income taxes upon its own citizens and residents whose persons are subject to its control, it may, as a necessary consequence, levy a duty of like character, and not more onerous in its effect upon incomes accruing to nonresidents from their property or business within the state, or their occupations carried on therein, enforcing payment, so far as it can, by the exer cise of a just control over persons and property within its borders." Shaffer v. Carter, 252 U. S. 37, 52, 40 S. Ct. 221, 225, 64 L. Ed. 445, 456, and citations; Travis v. Yale & Towne Mfg. Co., 252 U. S. 60, 40 S. Ct 228, 64 L. Ed. 460. While as to nonresident individuals and foreign corporations the power of the state to tax incomes on property or business does not extend to sources where both the property and the business produc-ing the income are located outside the state, this restriction does not cover resident individuals and domestic corporations, and as to them it has been generally held that their income is taxable, whether it be derived from sources within or without the state. Maguire v. Tax Com'r, 230 Mass. 503, 120 N. E. 162, affirmed 253 U. S. 12, 40 S. Ct. 417, 64 L. Ed. 739; State v. Gulf, M. & N. R. Co., 138 Miss. 70, 104 So. 689; Lawrence v. Mississippi State Tax Commission. 162 Miss. 338, 137 So. 503; Village of West-by v. Bekkedal, 172 Wis. 114, 178 N. W. 451;...