Montgomery Ward & Co. v. Commissioner of Taxation

• Decision Date: 12 May 1967
• Docket Number: No. 39991,39991
• Citation: 151 N.W.2d 294,276 Minn. 479
• Parties: MONTGOMERY WARD & CO., Inc., Respondent, v. COMMISSIONER OF TAXATION, Relator.
• Court: Minnesota Supreme Court

Page 294

151 N.W.2d 294

276 Minn. 479

MONTGOMERY WARD & CO., Inc., Respondent, v. COMMISSIONER OF TAXATION, Relator.

No. 39991.

Supreme Court of Minnesota.

May 12, 1967.

Rehearing Denied June 7, 1967.

Syllabus by the Court

1. Where a corporation is operating a mercantile business partly in Minnesota and partly without, income derived from intangible property owned and held out of state by the corporation is attributable, in part, to the Minnesota business activity and is, therefore, taxable if the intangibles and the yielded income are employed in the mercantile business.

2. The burden of proving that such intangibles and the income derived therefrom were not employed in the corporate taxpayer's principal business rested with the taxpayer and, on the present record, this burden was not sustained.

Douglas M. Head, Atty. Gen., Don G. Paterick, Special Asst. Atty. Gen., St. Paul, for relator.

Timothy J. Halloran, St. Paul, for respondent.

OPINION

FRANK T. GALLAGHER, Justice.

Certiorari to the Board of Tax Appeals.

Montgomery Ward & Company, Inc., conducts a general merchandising business partly within and partly without the State of Minnesota. Before 1959, and in line with established corporate policy, amounts up to $300,000,000 accumulated through retention of earnings from its nationwide business operations were held by it in anticipation of a change in the economic climate which would make expansion of the business operation profitable. Pending this anticipated development, the accumulated funds were invested outside of Minnesota in liquid securities yielding income which was not segregated from other current operating corporate income. In assessing the franchise tax payable by the corporation to the State of Minnesota for the years 1955 to 1958 inclusive, the commissioner of taxation included the earnings from these investments with income earned by the corporation in the conduct of its merchandising operations in the total income of which a proportionate part (i.e., the percentage of the whole derived by application of the three-factor formula set out in Minn.St. 290.19, subd. 1(2)(a)) was considered to be income attributable to business operations conducted in and taxable by Minnesota. On appeal to the tax court, this investment income was excluded from the total and the issue raised upon certiorari by the state is whether the tax commissioner's determination should be reinstated.

In essence, the problem is to determine whether the investment income received by the taxpayer during the period in question was in whole or in part income from intangible property employed by Montgomery Ward in the general retailing business which should be considered as income partly attributable to Montgomery Ward operations in the State of Minnesota within the meaning of § 290.17(4), which provides as follows:

'When a trade or business is carried on partly within and partly without this state, the entire income derived from such trade or business, Including income from intangible property employed in such business * * *, shall be governed * * * by the provisions of section 290.19 (which set out the formula by which the total net income of a business conducted partly wihtin and partly without the state is to be apportioned in determining the part of the total attributable to business activity in Minnesota) * * *.' (Italics supplied.)

The commissioner of taxation having determined that the intangibles were employed in the nationwide business of which the Minnesota operations were a unitary part, the burden of proving the incorrectness or invalidity of the assessment was upon the taxpayer. Minn.St. 290.48, subd. 8; Western Auto Supply Co. v. Commr. of Taxation, 245 Minn. 346, 71 N.W.2d 797. Because at least a part of the income derived from the intangibles held by Montgomery Ward was employed in its general merchandising business, the decision of the Board of Tax Appeals must be reversed.

The controlling case is Great Lakes Pipe Line Co. v. Commr. of Taxation, 272 Minn. 403, 138 N.W.2d 612, appeal dismissed, 384 U.S. 718, 86 S.Ct. 1886, 16 L.Ed.2d 881. In that case the question for consideration was whether income derived from short-term government obligations and commercial paper held by the taxpayer, a Delaware corporation with principal offices in Kansas City, Missouri, engaged primarily in the business of transporting refined petroleum products by a pipeline system which extended into Minnesota, should be treated as income subject to apportionment under § 290.19. The determination of the Board of Tax...