Ruppert v. Morrison, 1791

• Citation: 117 Vt. 83,85 A.2d 584
• Decision Date: 02 January 1952
• Docket Number: No. 1791,1791
• Court: United States State Supreme Court of Vermont
• Parties: RUPPERT v. MORRISON, Commissioner of Taxes.

Page 584

85 A.2d 584

117 Vt. 83

RUPPERT v. MORRISON, Commissioner of Taxes.

No. 1791.

Supreme Court of Vermont.

Jan. 2, 1952.

Lawrence & O'Brien, Rutland, for plaintiff.

Clifton G. Parker, Atty. Gen., Frederick G. Mehlman, Deputy Atty. Gen., for defendant.

Before JEFFORDS, CLEARY, ADAMS and BLACKMER, JJ., and HUGHES, Superior judge.

BLACKMER, Justice.

This proceeding originated before the commissioner of taxes under V.S. 47, § 973, to obtain a revision of taxes assessed under V.S. 47, §§ 949-951. Relief was denied, and the complainant appealed to the Washington County Court under V.S. 47, § 974. To the plaintiff's petition the defendant demurred; the demurrer was sustained; the plaintiff excepted; and the cause was passed to this Court.

The petition shows these facts. The plaintiff is a New York corporation with its principal place of business in New York City. The defendant is the commissioner of taxes of this state. The plaintiff has never qualified to do business in Vermont by obtaining a certificate of authority from the secretary of state as secretary of foreign corporations under V.S. 47, Chapter 265. It held a certificate of approval issued by the Vermont liquor control board under the provisions of V.S. 47, §§ 6144-6149. This certificate of approval authorized the plaintiff to sell its product, malt beverages, to holders of Vermont wholesale dealers licenses. The plaintiff had no brewery in this state, nor any employee resident here. Its only Vermont outlet was the Champlain Valley Fruit Co., Inc., a Vermont corporation. The Champlain Valley Fruit Co., Inc. was an independent wholesaler duly licensed by the liquor control board to distribute malt beverages. The wholesaler ordered by mail or telephone. Deliveries were made to it in New York City, either at the brewery platform or at railroad freight yards on straight bills of lading. The wholesaler paid the costs of transportation. It was billed from New York City, and paid by check mailed to New York City. Sales of the plaintiff's products were made through an agent resident in New York. The plaintiff kept the absolute and unqualified right to approve, disapprove and reject any and all orders produced by the agent, and further reserved the right to determine prices and credit. The sales agent, in accordance with the terms of his contract, visited the wholesaler in Vermont in connection with promotional work. The promotional work related to preserving or increasing the market for the Ruppert product in Vermont. It tied in with and was related to national and area advertising campaigns. The plaintiff advertised extensively in Vermont. We take judicial notice that such newspapers were published both here and elsewhere. The plaintiff also participated in radio programs broadcast from within and without Vermont, and also in television programs from without Vermont. The plaintiff's amended tax returns set forth that it made no sales in Vermont, paid no salaries or wages here, nor owned any real or tangible personal property in this jurisdiction. On its return for the calendar year 1947 its franchise tax was assessed at $366.83. For the calendar year 1948 the tax was assessed at $25, this sum being the minimum tax.

So far as material to this inquiry, V.S. 47, Chap. 44, Franchise Taxes, has these provisions. V.S. 47, § 949, III, defines 'doing business' as any transaction or transactions in the course of its business by a corporation qualified to do or doing business in this state. V.S. 47, § 949, V, defines 'franchise tax' as a tax on every domestic corporation for the privilege of exercising its franchise in this state, and on every foreign corporation for the privilege of doing business in this state, measured by or according to net income. V.S. 47, § 950 levies a franchise tax on every domestic corporation and on every foreign corporation liable, to be measured by its net income, and further provides that each such corporation shall pay a tax of not less than $25 for each income year. V.S. 47, § 951 provides for the allocation of income derived from business done within and without the state. Normally such allocation is made by giving equal weight to three factors: (1) The ratio of the value of real and tangible personal property within the state to all such property; (2) the ratio of the personal service compensation paid to employees within the state to all such compensation; (3) the ratio of gross sales or charges for services within the state to all of such sales or charges.

V.S. 47, § 951 contains a further proviso that in special cases where, in the judgment of the commissioner of taxes, the application of the above three factors does not result in a fair and equitable allocation to the state, allocation shall be made in accordance with rules and regulations prescribed by the commissioner. This provision of the statute was not invoked in the present case, and we dismiss it with the observation that it is of very dubious constitutional validity. 16 C.J.S., Constitutional Law, § 133, p. 339, note 6.

The statutes just summarized have been held to impose not a direct tax on allocated net income, but an annual tax for the privilege of doing business within this state. Union Twist Drill Co. v. Harvey, 113 Vt. 493, 508, 37 A.2d 389.

It has been seen from the facts set forth that the plaintiff had no real or tangible personal property in the state; it paid no personal service compensation to employees within the state; and it made no sales or charges for services within the state. When the measure for allocation of income in V.S. 47, § 951 is applied, there is no net income by which to measure the tax imposed by V.S. 47, § 950. To the extent that the commissioner of taxes endeavored to assess a tax in excess of the minimum his action was erroneous. Whether the facts justify the imposition of the minimum tax remains for consideration.

Mention is now made of such parts of those statutes and regulations of the liquor control board which are pertinent to the consideration of certificates of approval. The liquor control board may grant to a manufacturer of malt beverages, not otherwise licensed, a certificate of approval authorizing it to sell such beverages to holders of wholesalers' licenses. V.S. 47, § 6144. The applicant must agree to comply with the regulations of the liquor control board, and agree to file a monthly report under oath with the commissioner of taxes showing the quantity of malt beverages sold or delivered to each Vermont wholesaler, and also such further information as the liquor control board or commissioner of taxes deems necessary. V.S. 47, § 6145; Regulation No. 25. The certificate is renewable annually on application and payment of the fee. V.S. 47, § 6146. It may be revoked for failure to comply with any regulation of the board, or for failure to furnish the required reports. V.S. 47, § 6147. No wholesaler shall purchase or import any malt beverages unless the seller holds a valid certificate of approval. V.S. 47, § 6148. A person violating a provision of the statutes is subject to fine and imprisonment, and shall forfeit any liquor license held by him. V.S. 47, § 6149. The holder of a certificate of approval shall file with the liquor control board a list of wholesalers authorized to distribute its products and designating the territory assigned to each distributor within the state; shall notify the liquor control board of any change in distributors or territories; and in case of a change of distributors shall make provision for taking over the stock on hand. Regulation No. 26.

The plaintiff urges that the due process clause of the Fourteenth Amendment to the Constitution of the United States of America denies to the State of Vermont the power to levy the tax sought to be imposed. The reason assigned is that the plaintiff is not doing business in Vermont.

What constitutes 'doing business' is important for three different purposes: (1) to determine jurisdiction for service of process; (2) to determine jurisdiction to tax; (3) to determine whether or not the corporation must 'domesticate.' Restatement, Conflict of Laws, § 167; 16 U.Chi.L.Rev. 523, 525, 526. A state may have jurisdiction over a foreign corporation for service of process, but not for taxation. Thurman v. Chicago, M. & St. P. R. Co., 254 Mass. 569, 151 N.E. 63, 46 A.L.R. 563, 658. A broader meaning is sometimes attributed to 'doing business' in a tax statute, the fact that the interests or activities of the corporation receive the protection of local laws being of weight. 23 Am.Jur. Foreign Corporations, § 362; Palmetto Fire Ins. Co. v. Conn, 272 U.S. 295, 47 S.Ct. 88, 71 L.Ed. 243. The fact that none of several acts or transactions subject a foreign corporation to a state tax is not conclusive. 23 Am.Jur. Foreign Corporations, § 361 p. 338, n. 5. Each case stands on its own facts and circumstances. 23 Am.Jur. Foreign Corporations, § 360, n. 8.

The authorities on the subject of 'doing business in the state' are multitudinous. In order to show on which side of the dividing line a case falls, extensive analysis of the cases would be of little avail. The dividing line in many instances is very tenuous. State v. Winsted, 66 Idaho 504, 162 P.2d 894, 897. No case squarely in point has been given to us; we believe there is no such.

The plaintiff says that the certificate of approval from the liquor control board did not authorize it to do business in Vermont, but that such authority could be obtained only from the commissioner of foreign corporations under the provisions of V.S. 47, Chapter 265. This is not so. V.S. 47, § 5981 expressly leaves it open for foreign corporations to obtain authority to do business in this state by means other than a certificate of authority from the secretary of foreign corporations. The certificate of approval fairly falls within the exception made in V.S. § 5981. It authorized the plaintiff to sell its malt beverages...