Southwestern Gas & Elec. Co. v. Oklahoma Tax Com'n, 34143

• Decision Date: 10 February 1953
• Docket Number: No. 34143,34143
• Parties: SOUTHWESTERN GAS & ELECTRIC CO. v. OKLAHOMA TAX COMMISSION.
• Court: Oklahoma Supreme Court

Page 549

253 P.2d 549

208 Okla. 85

SOUTHWESTERN GAS & ELECTRIC CO. v. OKLAHOMA TAX COMMISSION.

No. 34143.

Supreme Court of Oklahoma.

Feb. 10, 1953.

Syllabus by the Court

Under the provisions of Title 68 O.S.1951 § 878, a tax may be levied on net income of a domesticated foreign corporate unitary business which is wholly derived from interstate commerce, and authority to allocate to this state under a formula that portion of the net income of such unitary business which is reasonably attributable to its Oklahoma property and its unitary business processes conducted within this state is not conditioned upon the doing of local or intrastate business or the capturing of income locally, and the levying and collection thereof is not violative of the commerce and due process provisions of the constitution of the United States.

Richard L. Arnold, Arnold & Arnold, Texarkana, Ark., Lee B. Thompson, McInnis Thompson & Sullivan, Oklahoma City, for plaintiff in error.

R. F. Barry, W. F. Speakman and E. J. Armstrong, Oklahoma City, for defendant in error.

JOHNSON, Vice Chief Justice.

The Southwestern Gas and Electric Company, hereinafter referred to as 'Protestant', appealed from an order of the Oklahoma Tax Commission, hereinafter referred to as 'Commission', assessing income taxes against Protestant for the years 1944 to 1947, inclusive, in the amounts set forth in the body of this opinion.

The written stipulation of the parties ests out the facts involved as follows:

The Protestant is a Delaware corporation with its principal office in Shreveport, Louisiana and is domesticated under the laws of Oklahoma and authorized to do business therein.

In 1941 and 1942 Protestant built an electric transmission line from Ashdown, Arkansas to Weleetka, Oklahoma, 164 miles in length, of which 137 miles thereof is in Oklahoma and which the Protestant operates and maintains. Maintenance and replacement work on the line for the most part is done by independent contractors but on occasions and in times of emergency Protestant sends its employees into this State to make repairs or patrol the line.

The Protestant operated and maintained an inter-connected system of power generating plants, transmission lines and distributing systems for the generation and transmission of electric current which was sold at wholesale and retail outside of Oklahoma. It purchased from the Public Service Company of Oklahoma at Weleetka, Oklahoma, electric current which was transmitted over its transmission line for sale at wholesale and retail in Arkansas, Louisiana and Texas. All current transmitted over the Oklahoma line was purchased from said Public Service Company. From the sale of current in said states the defendant received during the period in controversy net income in excess of Fifteen Million Dollars. It generated no electricity and made no sales of current in Oklahoma and directly captured no income in said state.

Protestant filed an income tax return for each of the years involved herein with the Commission and therein showed a net loss for each year in excess of Fifty Thousand Dollars. The Commission declined to accept the returns as filed and proposed the assessment of income taxes for each year, which assessments were based upon net income as allocated to the property and operations of Protestant in Oklahoma pursuant to formula set out in Section 878, Title 68 O.S.1951, Oklahoma Income Tax Laws 1935, which formula was the average ratio of three separate factors consisting of property, expense and sales in Oklahoma to property, expense and sales everywhere. The pertinent figures involved in the assessments made by order of the Commission and appealed from herein are these:

                'Year  Loss Shown   Net income    Allocated     Okla.  Tax
                                       in return
                                     shown in      to Okla.   con allocated
                                      return       by Comm.    net income
                -----------------------------------------------------------
                '1944  $55,961.79  $3,963,930.65  $29,769.84        $758.26
                 1945   52,422.63   3,747,270.08   32,550.55         858.59
                 1946   53,200.69   3,593,027.88   45,709.36        1676.62
                 1947   54,047.02   3,989,097.72   22,826.96        563.84'
                

The only property that Protestant owned in Oklahoma was the 137 miles of transmission line and the current transmitted over same. It had no employees, officials or directors residing in Oklahoma, and did no banking business in Oklahoma.

Protestant paid general ad valorem taxes on its transmission line and corporate license taxes imposed on the value of its capital that was here used, invested and employed for years in question.

Monthly bills for current purchases of electric current from the Public Service Company of Oklahoma were mailed to Protestant's office in Shreveport, Louisiana and checks in payment thereof were mailed from that city to the Tulsa, Oklahoma office of the Public Service Company of Oklahoma.

It was stipulated that if Protestant owed income taxes that it was in the amount assessed as above set out.

The above assessment were protested by Protestant on the theory that its business in Oklahoma was wholly interstate in character; that it did no intrastate business and captured no gross income in Oklahoma and for such reason the imposition of net income taxes would violate the Commerce Clause and the Due Process Clause of the Federal Constitution.

The business conducted by Protestant is obviously unitary in character, which fact is not questioned by Protestant. See definition of unitary business, 43 W. & P. Perm. 256, Fleming v. Oklahoma Tax Commission, 10 Cir., 157 F.2d 888, certiorari denied, 329 U.S. 812, 67 S.Ct. 634, 91 L.Ed. 693. In view of the character of the business and the fact that net income accrued to the business as a whole, the right of Oklahoma as a state of the situs of a unit of the business, to allocate and assign to itself that portion of Protestant's net income which is reasonably attributable to Protestant's property owned in this state and 'process conducted' within its borders would ordinarily be conceded as being free from doubt. Underwood Typewriter Co. v. Chamberlain, 254 U.S. 113, 41 S.Ct. 45, 65 L.Ed. 165.

The pertinent portion of the levying Section 876(a) Title 68 O.S.1951, reads as follows:

'(a) A tax is hereby levied upon every person as defined in Section 874, which tax shall be collected and paid, for each taxable year, upon, and with respect to, the entire net income of such person, which is derived from all property owned and/or business transacted within this State. And a like tax is hereby levied upon every person as defined in Section 874(b), which tax shall be collected and paid, for each taxable year, upon, and with respect to, the entire net income of such person which is derived from all property owned partly within and partly without this State and/or business done partly within and partly without this State (commonly known as interstate business), such income derived from property owned partly within and partly without this State and/or business transacted partly within and partly without this State, upon which said tax is hereby levied, to be determined or allocated under the formula or formulae as provided in Section 878'. (Emphasis ours.)

The statute treating with allocating income Section 878(g) Title 68 O.S.1951, which is referred to in the above quotation, authorizes the use of such a formula as was here used. The Protestant in effect concedes such is true for, as has been indicated, it is stipulated that if it owes any tax it was that produced through an application of the formula.

Section 874(o), Title 68 O.S.1951 reads as follows:

'The terms 'transacting business' and 'business transacted' are used herein in their broadest sense. Such terms are hereby declared to include the performance of any act or the carrying on of any activity, either by the principal, agents or any representatives, resulting in income to the person, as defined in subsection (b) of this Section, performing such act or carrying on such activity (whether such act or carrying on of any activity results in income directly or in conjunction with other acts or activities in part within and in part without Oklahoma). The performance of such an act or the carrying on of such an activity shall, within itself, be sufficient to constitute 'transacting business' or 'business transacted".

In view of the principles of law laid down in the above cited decisions of the United States Supreme Court and the wording of the quoted and cited statutes, supra, protestant's position can only be said to have merit if it is based solely on protestant's contention to the effect that the absence of local or intrastate business (other than its domestication owning, operating and maintaining its electrical transmission line in this state) and the absence of the direct capturing of income within this State serves to distinguish this case from those which we have cited.

The Protestant, during the years in controversy, was qualified to do business in Oklahoma entitling it to the protection and benefits conferred under its laws as a domesticated foreign corporate unitary business and it carried on in this state a substantial part of its ordinary business of owning transmission lines and transmitting electric current for sale at wholesale and retail. The value of that portion of its line in Oklahoma was approximately $800,000, and while the value of the electric current transmitted in Oklahoma is not shown, it must be assumed that the value thereof was fairly substantial. In view of the facts, the Protestant must be held to have been doing business here. In 20 C.J.S., Corporations, § 1829, p. 46, the following rule is stated:

'The general rule is that, when a foreign corporation transacts some substantial part of its ordinary business in a state, continuous in character, it is doing, transacting, carrying on, or engaging in business...