Olympia Brewing Co. v. Com'r of Revenue, 82-429.
| Citation | 326 NW 2d 642,326 Minn. 642 |
| Decision Date | 24 November 1982 |
| Docket Number | No. 82-429.,82-429. |
| Parties | OLYMPIA BREWING COMPANY, Relator, v. COMMISSIONER OF REVENUE, Respondent. |
| Court | Supreme Court of Minnesota (US) |
Briggs & Morgan, John M. Sullivan and Steven Z. Kaplan, St. Paul, for relator.
Warren Spannaus, Atty. Gen., and Paul R. Kempainen, Spec. Asst. Atty. Gen., Dept. of Revenue, St. Paul, for respondent.
Considered and decided by the court en banc without oral argument.
The tax court, affirming an assessment of the Minnesota Commissioner of Revenue, held that beer picked up at the taxpayer's brewery in Minnesota by out-of-state distributor-purchasers in their own trucks for transportation and resale outside Minnesota constituted sales made within Minnesota for purposes of Minn.Stat. § 290.19 (1980). We disagree with the tax court's interpretation of the statute and reverse.
During 1975 and 1976 relator Olympia Brewing Company operated a brewery in St. Paul, Minnesota, and sold its beer to some 310 wholesale distributors who were conducting business in 15 states, including Minnesota. Olympia prepared a "product scheduling worksheet" for each distributor based upon data showing each distributor's past purchases. Olympia provided each distributor with its worksheet as well as a preprinted purchase order form. The distributor would review the worksheet and note on the order form any changes in the quantity of beer desired. The distributor would also indicate the method of shipment to be used, i.e., by rail or truck. If the distributor specified shipment by truck, one of three modes of transportation could be used: common carriers, contract carriers (transportation companies having contracts with the distributor), or use by the distributor of his own trucks to make pickup at the St. Paul brewery. During 1975 and 1976, approximately 34.7% of all Olympia sales made to out-of-state distributors were picked up by these distributors using their own trucks.
For all truck transportation, Olympia prepared a straight bill of lading the day before loading the truck. These bills of lading indicated the name of the carrier, the date, the quantity of goods sold, the name of the consignee, and the destination of the truck. If the distributor was using his own truck for transportation, the words "their truck" or "picked up" would appear on the bill of lading. After the bills of lading were completed, they were hand carried to Olympia's loading dock foreman and were used to fill the distributors' orders. After the beer was loaded onto the truck, the truck driver signed the original copy of the bill of lading and was given a copy. On the day after the truck was loaded, Olympia prepared sales or memorandum invoices which were mailed to the wholesale distributors. In addition, Olympia prepared monthly shipping reports for each state.
Since Olympia carried on a trade or business partly within and partly without Minnesota as contemplated by Minn.Stat. § 290.17, subd. 2(4) (1981), it apportioned its net income to Minnesota according to the sales, tangible property, and payroll factors specified in section 290.19, subd. 1 (1980). In computing the sales-within-Minnesota factor, Olympia excluded all beer sold by its St. Paul brewery to out-of-state wholesale distributors and included all beer sold by the St. Paul brewery to Minnesota wholesale distributors. Olympia made this computation through use of the bills of lading and sales or memorandum invoices which it had prepared for each sale.
On audit examination, the Commissioner of Revenue agreed with Olympia that the sales to out-of-state distributors wherein the beer was transported by rail or by common or contract truck carriers were properly classified as sales made outside of Minnesota. The commissioner, however, determined that the pickup sales, where the out-of-state distributor picked up the beer in Minnesota with his own trucks and then transported it out of state, should have been classified as Minnesota sales.
Olympia does not trace the commercial routing of its beer after sale to a distributor. Neither party, however, could identify any instances in which beer sold by Olympia's St. Paul brewery to an out-of-state distributor was later sold by that distributor in Minnesota or to any other party for resale within this state. The tax court found additional verification of the destination of Olympia's sales to out-of-state distributors through state labeling requirements for beer sold by wholesale distributors. Assuming these requirements were complied with (noncompliance subjects the distributor's beer to confiscation), which label ("strong beer" or "low beer") Olympia placed on a container, if any, would indicate the intended destination of the beer.
The issue before us, then, is this: Is beer picked up dockside at the taxpayer's St. Paul brewery by out-of-state distributors in their own trucks for transportation and resale outside Minnesota a sale within or without Minnesota?
Subdivision 1a then sets out the rule for determining whether or not sales are made "within this state." This subdivision, the interpretation of which is critical, reads:
Sales of tangible personal property are made within this state if the property is delivered or shipped to a purchaser within this state, and the taxpayer is taxable in this state, regardless of the f.o.b. point or other conditions of the sale.
The commissioner asserts that the meaning of the statute is plain. If the goods are "delivered or shipped * * * within this state," it is a sale within this state, and here the out-of-state distributor obviously takes delivery and possession of the beer within Minnesota, to be precise, at Olympia's Minnesota loading dock. In other words, the commissioner contends that the phrase "within this state" modifies "delivered or shipped" rather than "purchaser," making the purchaser's physical possession of the goods within Minnesota the key event. It is this interpretation that the tax court adopted.
On the other hand, Olympia argues that a sale within this state is a sale "to a purchaser within this state," i.e., to a purchaser located in Minnesota. In other words, the phrase "within this state" modifies "purchaser" and not "delivered or shipped," thereby making the purchaser's business location the key fact.
Contrary to the commissioner's assertion, we do not think the meaning of section 290.19, subd. 1a, is plainly evident. Consequently, to ascertain legislative intent, we must consider the factors given in Minn. Stat. § 645.16 (1980).1 We find it helpful here to discuss, in particular, first, the legislative history of the statute, its occasion and necessity; next, the impact of the uniform law from which our statute was taken; and, finally, the practical consequences of the language interpretations urged by the parties.
A. The 1973 amendment of section 290.19 eliminated the "office test" method of apportionment of income. The "office test" was so called because whether a taxpayer maintained an office without the state was dispositive of whether a sale should be allocated to that other state. Minn.Stat. § 290.19, subd. 1(4) (1953) (amended 1973). Under the "office test" this court was required to analyze the manner in which a taxpayer marketed its products, solicited and negotiated sales, and shipped the goods. See, e.g., Grain Belt Breweries, Inc. v. Commissioner of Taxation, 309 Minn. 190, 243 N.W.2d 322 (1976); Ralston Purina Co. v. Commissioner of Revenue, 306 Minn. 321, 236 N.W.2d 779 (1975).
As Olympia points out, a taxpayer could easily structure transactions artificially around the "office test" to minimize income tax liability in Minnesota. Significantly, the revised apportionment statute as it exists today involves no inquiry into the taxpayer's sales-marketing activities; rather, the focus is now on where delivery or shipment to a "purchaser within this state" is effected. While the contemporaneous legislative history of section 290.19 reveals nothing as to the specific mischief to be remedied or the object to be attained, it appears likely the revision was to ensure greater tax revenue by making more difficult the restructuring of sales to avoid Minnesota's income tax. This object is satisfied if Olympia's statutory interpretation is adopted, since the purchaser's business location is not likely to be changed by the distributor solely for Olympia's benefit. Conversely, the commissioner's interpretation permits the taxpayer to structure a delivery that affords the greatest tax savings.
Tax avoidance aside, the legislature also had apparent concerns about uniformity with other states to make Minnesota more attractive to business. A Minnesota Tax Study Commission submitted a report to the legislature in January 1973 just before the "office test" was abandoned, in which it advocated changing the then-existing basis for apportionment of sales. The commission stated:
Under present Minnesota law a sale is counted at the place where it originates. Most states use the destination of a sale as the basis for determining whether it is attributable to them for allocation purposes. The origin basis tends to make it harder on Minnesota businesses...
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