Ralston Purina Co. v. Commissioner of Revenue

• Decision Date: 12 December 1975
• Docket Number: No. 45435,45435
• Citation: 236 N.W.2d 779,306 Minn. 321
• Parties: RALSTON PURINA COMPANY, Respondent, v. COMMISSIONER OF REVENUE, Relator.
• Court: Minnesota Supreme Court

Page 779

236 N.W.2d 779

306 Minn. 321

RALSTON PURINA COMPANY, Respondent, v. COMMISSIONER OF REVENUE, Relator.

No. 45435.

Supreme Court of Minnesota.

Dec. 12, 1975.

Syllabus by the Court

Minnesota-based brokers solicited orders from Minnesota customers, the customers placed their orders in Minnesota, the goods were shipped to the customers in Minnesota, and the customers received their invoices in and made payment from Minnesota. The sales thus made were 'made within this state' and were allocable as Minnesota sales under the three-factor formula found in Minn.St.1965, § 290.19.

Warren Spannaus, Atty. Gen., Kenneth E. Raschke, Jr., Sp. Asst. Atty. Gen., Dept. of Revenue, St. Paul, for relator.

John S. Morrison, St. Louis, Mo., for respondent.

Heard before PETERSON, KELLY and MacLAUGHLIN, JJ., and considered and decided by the court en banc.

PETERSON, Justice.

The issue in this case involves the application of the three-factor formula for allocation of net income of a business carried on partly within and partly without this state. Minn.St. 290.19.

Ralston Purina Company, the taxpayer, is based in St. Louis, Missouri, and is authorized to do business in Minnesota. It manufactures and sells food products both within and without Minnesota. Its sales in Minnesota are generated through independent broker representatives which have their offices in Minnesota and solicit orders for Ralston from Minnesota customers, principally from grocery retail chains and wholesalers.

The issue in this case arises from the mechanics of effectuating the disputed sales. The Minnesota broker solicits the order from the Minnesota customer. Upon receipt of an order, the broker prepares a new order on a different form which is sent to one of Ralston's warehouses outside Minnesota, depending upon the food commodity ordered. An acknowledgment, or confirmation, of the order is returned from that place to the broker, and shipment is made from that place directly to the customer. Ralston retains the right to reject the order for such reasons as unacceptable credit or unavailability of the commodity ordered. It appears that the latter is the more usual reason. When and if shipment is made of the ordered commodities, the customer is invoiced by Ralston, with an information copy being transmitted to its broker representative.

The sole function of Ralston's Minnesota broker representatives in the sales process is the solicitation of orders in Minnesota. Other sales-related functions are conducted by Ralston outside Minnesota, such as selection of markets, advertising and promotion of its food products, establishing credit-limitation criteria, shipping of approved orders, invoicing, and collecting amounts due.

Ralston did not allocate the disputed sales to Minnesota in its returns for the 1966 and 1967 tax years. The commissioner of revenue ordered that the sales be included. Upon Ralston's appeal to the Tax Court, the commissioner's order was set aside, that court being of the opinion that the sales were not allocable to Minnesota under the statute. We are of a contrary opinion and reverse the Tax Court.

Minnesota imposes on foreign corporations either an excise tax for the privilege of transacting local business, or an income tax, both of which are measured by the taxpayer's taxable net income. Minn.St. 290.02, 290.03, and 290.06. Taxable net income is defined in § 290.01, subd. 22, as the net income assignable to Minnesota, and it is to be determined according to the rules set forth in §§ 290.17 to 290.20. The parties agree that this case is controlled by Minn.St.1965, § 290.19. ¹

Section 290.19, subd. 1, sets forth a three-factor formula for determining what fraction of certain taxpayers' net income is assignable to Minnesota. Clause (1)(a) of this subdivision, which is the provision in issue, describes the percentage of a taxpayer's sales that are to be used in the formula:

'The percentage which the sales made within this state and through, from or by offices, agencies, branches or stores within this state is of the total sales wherever made.'

We hold that the disputed sales should be included in the numerator of the fraction described in clause (1)(a).

In The Maytag Co. v. Commr. of Taxation, 218 Minn. 460, 463, 17 N.W.2d 37, 39 (1944), we construed a provision which was substantially similar to clause (1) (a) of Minn.St.1965, § 290.19, subd. 1, as reading in the disjunctive, meaning that the numerator should include both sales made within Minnesota and sales made through, from, or by offices, agencies, branches, or stores within Minnesota. The two provisions of this clause are separate and different. The first part of the clause, 'sales made within this state,' is a test which we characterize as based on the geography of the steps which go into the 'making' of a sale; the second part of the clause is a test based on the geography, not of the steps, but of the persons who represent the seller. The first test includes sales made in Minnesota, regardless of through whom they are made. The second test includes sales made through...