Signal Thread Co. v. King

• Decision Date: 11 October 1968
• Citation: Signal Thread Co. v. King, 222 Tenn. 241, 435 S.W.2d 468, 26 McCanless 241 (Tenn. 1968)
• Parties: , 222 Tenn. 241 SIGNAL THREAD COMPANY, Appellant, v. Donald R. KING, etc., Appellee.
• Court: Tennessee Supreme Court

Page 468

435 S.W.2d 468

26 McCanless 241, 222 Tenn. 241

SIGNAL THREAD COMPANY, Appellant, v. Donald R. KING, etc., Appellee.

Supreme Court of Tennessee, at Nashville.

Oct. 11, 1968.

Stophel, Caldwell & Heggie, Chattanooga, for appellant.

George F. McCanless, Atty. Gen., and Milton P. Rice, Deputy Atty. Gen., Nashville, for appellee.

OPINION

HUMPHREYS, Justice.

This case presents the question whether Signal Thread Company was doing business during the tax years involved 'in Tennessee and elsewhere', so as to entitle it to use the apportionment formula for excise and franchise tax set forth in T.C.A. §§ 67--2708 and 67--2914. The Chancellor found appellant was not doing business elsewhere and dismissed its suit to recover the portion of these taxes appellant had claimed were due to business done elsewhere, and appellant had appealed assigning this action as error.

The case was tried on a stipulation of fact which in pertinent part is as follows:

'V. The Complainant is a Tennessee corporation whose principal business conducted within the State of Tennessee is and has been throughout the years in question selling, distributing, dealing in or using tangible personal property.

'The Complainant now, and during the years before the court, processes and finishes a limited amount of raw materials into finished thread at its plant in Chattanooga, Tennessee. A much larger portion of the thread sold by the Complainant or approximately 70% To 75% Is now processed and finished, and was during the years before the court, at and by plants located in North Carolina, which plants are owned by other corporations, and operated in the manner described in section VII insofar as Complainant's products are concerned.

'VI. The Complainant's sales activity within the State of North Carolina during the years before the court and prior thereto consists of the following: the Complainant has one full-time resident employee in the State of North Carolina who lives in Charlotte, North Carolina. This employee solicits orders which are submitted to the home office at Chattanooga, Tennessee. Occasionally the orders are filled direct from goods on hand at Spindale, North Carolina. However, Complainant generally directs that the merchandise be shipped to its Chattanooga, Tennessee, office. Complainant advertises in the Yellow Pages of the Charlotte, North Carolina, phone book. In practice the salesman actually approves all orders from established customers established products. The sales which the salesman actually approves constitute the greater portion of sales made by the salesman.

'VII. The Complainant's other activity within the State of North Carolina during the years before the Court and prior thereto consists of the following: the Complainant enters into a contract for the purchase of a specified number of pounds of yarn at a fixed price. The Complainant also contracts for the processing of its yarn. During the years in question the Complainant contracted for the purchase and processing of the following amounts of yarn by Wiscassett Mills Company, located at Albemarle, North Carolina:

Fiscal Year Ended  Pounds of Yarn
                -----------------  --------------
                June 30,1963              850,000
                June 30,1964               75,000
                June 30,1965            1,365,000
                June 30,1966              775,000
                

'The first step in the processing of the yarn into finished thread is generally performed by Wiscassett Mills Company. At this mill the yarn is spun onto skeins, transfer tubes or cones, etc., as specified by the Complaint. Thread lubricant is also applied to the Complainant's yarn at this plant. The formula for the thread lubricant is owned by Complainant. The thread lubricant was developed by Eugene C. Doyle, who is the Complainant's Vice President in charge of production. The thread lubricant is applied to the Complainant's yarn in accordance with instructions furnished by Eugene Doyle.

'The Complainant's yarn is processed into thread at the Wiscassett Mills Company plant. The thread is made especially for the Complainant. The thread is designed and given an individual trade character by the Complainant to meet the requirements of its customers. At Wiscassett Mills Company the yarn is occasionally dyed according to colors specified by the Complainant. The price per pound paid for the processing varies according to the type of processing.

'Certain of the machines used at Wiscassett Mills Company in North Carolina to process the Complainant's yarn into thread are used approximately ninety per cent (90%) of the time for the processing of the Complainant's yarn. Occasionally Eugene C. Doyle recommends repairs or improvements to be made to these machines so that the machines will work properly. Wiscassett Mills Company does not otherwise normally process the type of thread processed for the Complainant. There are no legally binding restrictions however on said company's contracting with anyone else to do any kind of work it is capable of doing.

'The processing of the Complainant's yarn is supervised by the Complainant's skilled employees in the following manner: whenever questions arise concerning the processing of the Complainant's yarn, the Complainant's employees are contacted by phone to give advice regarding the problems that arise in processing the yarn into thread. In addition to numerous telephone calls, Complainant's skilled employees go to the plant at Albemarle, North Carolina, whenever problems develop to set up and check the machines used for the processing and to test the quality of the thread processed for the Complainant. Many suggestions and problems encountered by Wiscassett Mills Company are handled by correspondence between employees of Signal Thread Company and Wiscassett Mills Company.

'During the years in question Eugene C. Doyle, who is the Complainant's Vice President in charge of production, made a minimum of the following trips to North Carolina in connection with the production of Complainant's thread in North Carolina:

                   No. of Trips to  No. of days Spent
                Fiscal Year Ended  North Carolina   in North Carolina
                -----------------  ---------------  -----------------
                June 30, 1963             4                 6
                June 30, 1964             5                11
                June 30, 1965             2                 2
                June 30, 1966             3                 3
                

The Complainant's employees spend whatever time is necessary at Wiscassett Mills Company located at Albermarle, North Carolina, to assure that the yarn which they have purchased is properly processed to meet the requirements of their customers.

'When the processing of the Complainant's yarn at Wiscassett Mills Company is completed a large part of the processed yarn is shipped to the Elmore Corporation located at Spindale, North Carolina for finishing. The processing at the plant located at Spindale, North Carolina, consists of dyeing and winding.

'The amount of thread which was finished by the Elmore Corporation at Spindale, North Carolina, was approximately 150,000 pounds per year for each of the years in question.

'In addition to the yarn processed and finished by Wiscassett Mills Company and the Elmore Corporation for the Comporation, China Grove Cotton Mills, processed approximately Grove Cotton Mills, processed approximately 150,000 Pounds of yarn for the Complainant for each of the years in question. The processing of yarn into thread by China Grove Cotton Mills is not supervised as is the processing by Wiscassett Mills Company, since China Grove Cotton Mills can process yarn into thread without the supervision of Signal Thread Company's employees.

'In all cases of work done upon Complainant's products, the day-to-day activities of the contracting firms are carried on by the employees of said firms, and day-to-day supervision of said activities and employees are by the supervisory personnel of the contractor, except for the activities of Complainant hereinbefore set forth. The contractors are wholly responsible to Complainant for the end results of their word; however, if the work is performed as directed by the Complainant and according to the specifications and instructions furnished by the Complainant, the Complainant is wholly responsible to its customers for the products sold to its customers. Complainant has no employees located in North Carolina who are engaged in manufacturing other than its employee who goes to North Carolina as required as hereinbefore set forth in this paragraph, to the extent that his activities may be said to constitute engaging in manufacturing.'

'IX. The Complainant normally has in process or awaiting shipment at the plant located in Spindale, North Carolina, approximately 45,000 to 50,000 pounds of thread.

'The Complainant has carried $50,000.00 of fire insurance on its thread located in the warehouse of the Elmore Corporation at Spindale, North Carolina, during all of the years in question. The average value of Complainant's thread located at Spindale, North Carolina, for the years in question was as follows:

Fiscal Year Ended    Amount
                -----------------  -----------
                June 30, 1963      $45,767.66
                June 30, 1964       57,066.00
                June 30, 1965       62,501.00
                June 30, 1966       86,893.00"
                

'XXVI. Complainant owns no real estate in North Carolina and no personalty other than such of its products as may at a given time be in the course of processing by independent contractors or completed and awaiting shipment according to Complainant's order. Complainant operates no office, warehouse or other place of business in North Carolina, except to the extent that its salesman utilizes his home as an office, and to the extent that Complainant utilizes the plants of other concerns as described in sections VI and VII of this stipulation. All orders for its products are subject to approval at Complainant's home office in Chattannoga.'

'XXVIII. At no time during the years 1962 to 1966, inclusive, has any tangible...