Standard Oil Co. v. Thoresen

• Decision Date: 17 November 1928
• Docket Number: No. 8107.,8107.
• Parties: STANDARD OIL CO., INDIANA, v. THORESEN, Tax Commissioner of North Dakota, et al.
• Court: U.S. Court of Appeals — Eighth Circuit

29 F.2d 708 (1928)

STANDARD OIL CO., INDIANA, v. THORESEN, Tax Commissioner of North Dakota, et al.

No. 8107.

Circuit Court of Appeals, Eighth Circuit.

November 17, 1928.

E. B. Cox, of Bismarck, N. D. (C. W. Martyn and F. E. Packard, both of Chicago, Ill., and O'Hare, Cox & Cox, of Bismarck, N. D., on the brief), for appellant.

C. J. Lynch, of Bismarck, N. D. (T. H. H. Thoresen, of Bismarck, N. D., on the brief), for appellees.

Before BOOTH, Circuit Judge, and POLLOCK and DEWEY, District Judges.

POLLOCK, District Judge.

This is a tax case from the state of North Dakota. That state enacted a tax law in the year 1923, which, in so far as here material, provides (chapter 312, Session Laws North Dakota 1923) as follows:

"There shall be levied, collected and paid for the year ending December 31, 1923, and annually thereafter, upon the net income of every domestic and every foreign corporation received from such sources as are described in article II, sections 7 and 8, a tax equivalent to three per cent. (3%) of such net income." Section 26.

Section 7 of the act, providing for allocation by apportionment of income of corporations, which is involved in this suit, reads, as follows:

"Where income is derived from the manufacture or sale of tangible personal property, the portion thereof attributable to business within the state shall be taken to be such percentage of the total of such income as the tangible property and business within the state bear to the total tangible property and total business, the percentage of tangible property and of business being separately determined as hereinafter provided, and the two percentages averaged.

"For the purpose of the foregoing computation, the value of the tangible property shall be taken to be average value of the tangible property held and owned by the corporations in connection with such business during the year for which the income is returned, excluding any property the income of which is not taxable or separately allocated under the foregoing provisions of this act.

"The business of the corporation shall be measured by the amount which the corporation has paid out during the year for which the income is returned for wages, salaries, or other compensation to employees and for the purchase of goods, materials and supplies consumed or sold in the regular course of business, plus the amount of all receipts during the year from sales and other sources connected with said business, excluding however, receipts from the sale of capital assets and property not sold in the regular course of business and also receipts from interest, dividends, rents and royalties separately allocated as above provided.

"Accounts payable for compensation and purchases and accounts receivable from sales and other sources arising from business during the year, shall be included in the formula if the corporation's return is made on the accrued basis.

"For the purpose of this subdivision, payments of wages, salaries, and other compensation shall be assigned to the office, agency or place of business of the corporation at which the employee chiefly works, or from which he is sent out or with which he is chiefly connected.

"Payments for purchases shall be assigned to the office, agency or place of business of the corporation at or from which such purchases are chiefly handled and attended to with respect to the negotiation and execution.

"Receipts from sales and other sources shall be assigned to the office, agency, or place of business of the corporation at or from which the transactions giving rise to such receipts are chiefly handled and attended to with respect to the negotiation and execution.

"For the purposes of this section, the word `sale' shall include all exchange, and the word `manufacture' shall include the extraction and recovery of natural resources and all processes of fabricating and curing."

Section 8 of the act makes plain to our minds the intent of the Legislature in the enactment of this statute. It reads, as follows:

"If any corporation believes that the method of allocation and apportionment hereinbefore prescribed as administered by the tax commissioner and applied to their business has operated or will so operate as to subject them to taxation on a greater portion of their net income than is reasonably attributable to business or sources within the state, they shall be entitled to file with the commissioner a statement of their objections and of such alternative method of allocation and apportionment as they believe to be proper under the circumstances with such detail and proof and within such time as the tax commissioner may reasonably prescribe; and if the tax commissioner shall conclude that the method of allocation and apportionment theretofore employed is in fact inapplicable and inequitable, he shall redetermine the taxable income of such other method of allocation and apportionment as seems best calculated to assign to the state for taxation the portion of the income reasonably attributable to business and sources within the state, not exceeding, however, the amount which would be arrived at by application of the statutory rules for apportionment."

The Standard Oil Company of Indiana, herein appellant, made return of its property for the purpose of income taxes for the year 1923, as follows:

"That for the year 1923 the plaintiff duly reported and filed with the tax commissioner of the state of North Dakota a report and statement of the business of the plaintiff in connection with the sale and distribution of its products within the state of North Dakota, this being plaintiff's interpretation of the application of chapter 312 of the Session Laws of North Dakota for the year 1923, and in said report plaintiff did include its entire gross income derived from the sale and distribution of its products and by-products both within and without the state of North Dakota, and deducted therefrom the expenses incurred in connection with said business and authorized as deductions from gross income under section nineteen of chapter 312 of the Session Laws of 1923, and reported a total net income derived from its business of selling and distributing petroleum products of twelve million, six hundred one thousand, five hundred fifty-seven and 27/100 dollars ($12,601,557.27); that in accordance with the provisions of section 7 of said act, the plaintiff company reported to the tax commissioner the total...