State ex rel. Ciba Pharmaceutical Products, Inc. v. State Tax Commission

• Decision Date: 14 September 1964
• Docket Number: No. 50015,50015
• Citation: 382 S.W.2d 645
• Parties: STATE ex rel. CIBA PHARMACEUTICAL PRODUCTS, INC., a Corporation, Respondent, v. The STATE TAX COMMISSION of the State of Missouri, Appellant.
• Court: Missouri Supreme Court

Page 645

382 S.W.2d 645

STATE ex rel. CIBA PHARMACEUTICAL PRODUCTS, INC., a Corporation, Respondent, v. The STATE TAX COMMISSION of the State of Missouri, Appellant.

No. 50015.

Supreme Court of Missouri, En Banc.

Sept. 14, 1964.

Rehearing Denied Oct. 12, 1964.

Thomas F. Eagleton, Atty. Gen., Eugene G. Bushmann, Asst. Atty. Gen., Jefferson City, for appellant.

Hendren & Andrae, by John E. Burruss, Jr., and Kenneth W. Shrum, Jefferson City, for respondent.

Walter E. Alessandroni, Atty. Gen. of Pennsylvania, Edward Friedman, George W. Keitel, Deputy Attys. Gen., Louis F. Del Duca, Asst. Atty. Gen., Richard H. Wagner, Harrisburg, Pa., Robert, Y. Thornton, Atty. Gen. of Oregon, Theodore W. de Looze, Carlisle B. Roberts, Asst. Attys. Gen., Salem, Or., Frank J. Kelley, Atty. Gen., of Michigan, Robert A. Derengoski, Sol. Gen., T. Carl Holbrook and William D. Dexter, Asst. Attys. Gen., Lansing, Mich., amici curiae.

DALTON, Judge.

This cause originally assigned to Division Two of this Court was docketed for hearing at the September Session 1963, but after briefs were filed the cause was transferred without opinion to Court en Banc, where it was subsequently argued and submitted. It is an appeal by the State Tax Commission from a judgment entered by the Circuit Court of Cole County reversing an order of the Tax Commission, which order affirmed certain State income tax assessments by the Department of Revenue against Ciba Pharmaceutical Products, Inc.

Ciba Pharmaceutical Products, Inc., a corporation, hereinafter referred to as respondent, was organized under the laws of the State of New Jersey, with its main office at Summit, New Jersey. Respondent is a pharmaceutical house which manufactures drugs and distributes them throughout the United States (into all of the fifty states). On February 2, 1961, and while respondent was authorized to transact business in the State, the Department of Revenue for the State of Missouri made certain assessments of Missouri income taxes against respondent for the tax years of 1956, 1957, 1958 and 1959, together with interest and penalties, as hereinafter set out in the Commission's Findings of Facts.

In respondent's petition for review of the several income tax assessments and decisions of the State Revenue Department with reference thereto, it was admitted that notices of the mentioned income tax assessments were duly sent to respondent on February 2, 1961; that respondent had filed petitions for the abatement of the mentioned assessments; and that the said petitions had been overruled. The said petition for review did not question the reasonableness or correctness of the amounts fixed by the several assessments of income taxes, interest and penalties for the several years under review, but based its defense solely on a particular Federal statute, to wit: Public Law 86-272, Title I, Secs. 101-104; 73 Stat. 555, 556; 15 U.S.C.A. Secs. 381-384, hereinafter referred to as P.L. 86-272, which said statute was alleged to give respondent complete income tax immunity under the facts stated in the petition for review and to prohibit the State of Missouri from imposing an income tax on respondent. Respondent was granted a hearing on its petition for review before the State Tax Commission on February 7, 1962.

At the mentioned hearing both respondent and the Department of Revenue offered oral testimony. There were no conflicts in the evidence and the State Tax Commission found the facts in conformity with this evidence. Appellant's brief correctly reviews the facts shown by the transcript of the testimony and 'respondent accepts and adopts the facts set forth in the Statement of Facts in Appellant's brief.' Instead of quoting appellant's approved statement we shall set out the State Tax Commission's Findings of Fact, which we find to be in conformity with the appellant's approved statement. It is as follows:

'CIBA Pharmaceutical Products, Inc., hereinafter referred to as CIBA, is a corporation organized and existing under the laws of the State of New Jersey. CIBA was authorized to do business in Missouri on July 23, 1959. A certificate of withdrawal was issued on December 30, 1961. During the period of registration CIBA maintained a registered agent and a registered office in Missouri. On February 2, 1961 the Department of Revenue made an assessment of Missouri income tax against CIBA for the following tax years:

                Year    Tax     Interest  Penalty   Total
                ----  --------  --------  -------  --------
                1956  $1658.40   $373.14  $414.60  $2446.14
                1957   1658.40    273.64   414.60   2346.64
                1958   1554.93    163.27   388.73   2106.93
                1959   1576.53     70.94   394.13   2041.60
                

'CIBA sells pharmaceutical products to Missouri retail druggists and wholesale pharmaceutical companies. It employs 'professional service representatives' to solicit orders from Missouri druggists. These orders are filled out by the representative and sent to CIBA's home office in Summit, New Jersey, for approval or disapproval. If an order is approved then it is completed by the shipment into Missouri of goods which are stored at Chicago, Illinois. While soliciting the retail druggist, CIBA's representatives frequently leave brochures and sometimes assist the pharmacist in taking inventory. CIBA has about twelve representatives in Missouri, each of who has an assigned territory. The representative who testified in this case stated that he was a life-long Missouri resident. He presently lives in Missouri. He also owns property in Missouri. CIBA supplies him with an automobile and reimburses him for his expenses. The automobile stays in Missouri at all times.

'The representatives operate from their homes in Missouri, CIBA has no sales office or warehouse in Missouri. The representatives in the St. Louis area assemble periodically for sales meetings. These meetings are called by the district manager, also a representative, and are held in St. Louis, usually in motel rooms. These meetings are of an educational nature. Representatives acquire information on particular products to be sold and also are instructed on company policy.

'CIBA's representatives also visit pharmacists at hospitals located in their assigned area. The procedure followed with hospital pharmacists is comparable with the solicitation made from retail druggists. The representatives also visit or 'detail' the doctors in their territory. The representatives explain the therapeutic value of CIBA's products to the doctors. They tell what the product is, what it will do, what dosage is desirable and what its side effects might be. Literature is left with the doctor along with samples of CIBA's products. The main object in 'detailing' the doctors is to persuade him to write prescriptions for CIBA's products when prescribing medicines for his patients.'

As stated, respondent defended this case before the State Tax Commission solely on the basis of the testimony claimed to bring respondent within the income tax immunity provisions of what is referred to as Public Law 86-272 (15 U.S.C.A. Sec. 381). The applicable part of the Federal statute is as follows:

'Sec. 381. Imposition of net income tax--Minimum standards

'(a) No State, or political subdivision thereof, shall have power to impose, for any taxable year ending after September 14, 1959, a net income tax on the income derived within such State by any person from interstate commerce if the only business activities within such State by or on behalf of such person during such taxable year are either, or both, of the following:

'(1) the solicitation of orders by such person, or his representative, in such State for sales of tangible personal property, which orders are sent outside the State for approval or rejection, and, if approved, are filled by shipment or delivery from a point outside the State; and

'(2) the solicitation of orders by such person, or his representative, in such State in the name of or for the benefit of a prospective customer of such person, if orders by such customer to such person to enable such customer to fill orders resulting from such solicitation are orders described in paragraph (1). * * *

'(b) The provisions of subsection (a) of this section shall not apply to the imposition of a net income tax by any State, or political subdivision thereof, with respect to----

'(1) any corporation which is incorporated under the laws of such State; or

'(2) any individual who, under the laws of such State, is domiciled in, or a resident of, such State. * * *' 'Sec. 382. Assessment of net income taxes; limitations; collection

'(a) No State, or political subdivision thereof, shall have power to assess, after September 14, 1959, any net income tax which was imposed by such State or political subdivision, as the case may be, for any taxable year ending on or before such date, on the income derived within such State by any person from interstate commerce, of the imposition of such tax for a taxable year ending after such date is prohibited by section 381 of this title.

'(b) The provisions of subsection (a) of this section shall not be construed--(1) to invalidate the collection, on or before September 14, 1959, of any net income tax imposed for a taxable year ending on or before such date, or (2) to prohibit the collection, after September 14, 1959, of any net income tax which was assessed on or before such date for a taxable year ending on or before such date.'

Since the 'Conclusions of Law' reached by the State Tax Commission conform in material respects to its theory on this appeal and conflict with the circuit court's decision from which the State Tax Commission took its appeal to this Court, we shall set out appellant's Conclusions of Law, based upon the admitted facts as found by appellant.

'CIBA seeks to be excluded from the imposition of the Missouri income tax law by the protection granted to foreign corporations whose income in Missouri is earned while engaging in interstate...