State v. Northwestern Telephone Exchange Co.

• Decision Date: 26 March 1909
• Docket Number: Nos. 15,926, 15,927-(50, 51).,s. 15,926, 15,927-(50, 51).
• Citation: 107 Minn. 390
• Parties: STATE v. NORTHWESTERN TELEPHONE EXCHANGE COMPANY.<SMALL><SUP>1</SUP></SMALL>
• Court: Minnesota Supreme Court

107 Minn. 390

STATE v. NORTHWESTERN TELEPHONE EXCHANGE COMPANY.¹

Nos. 15,926, 15,927-(50, 51).

Supreme Court of Minnesota.

March 26, 1909.

Action in the district court for Hennepin county to recover $4,959.48 alleged to be due the state as part of defendant's gross earnings tax for the year 1904. The case was tried before Holt, J., who found for the state in the amount of $1,481.16. From judgment entered pursuant to the findings, both parties appealed. Affirmed on both appeals.

Edward T. Young, Attorney General, Chas. S. Jelley, Assistant Attorney General, and Geo. W. Peterson, Assistant Attorney General, for the State.

Cobb & Wheelwright, and E. A. Prendergast, for defendant.

ELLIOTT, J.

This case comes to this court upon appeals by both the plaintiff and the defendant; but the questions involved are so intimately connected that we will dispose of the appeals in one opinion.

The action was brought by the state against the Northwestern Telephone Exchange Company to recover the sum of $4,959.48, alleged to be due for taxes which were properly payable under the provisions of the gross earnings law of this state. It was alleged that the defendant was a telephone company, engaged in carrying on a general telephone business, with its principal office and place of business in the city of Minneapolis; that the company, in lieu of all other taxes and assessments upon its property held for use in and about its business, was obliged to pay into the state treasury on January first of each year three per cent. on its gross earnings; that for the purpose of ascertaining said gross earnings the company had been and is obliged, on or before December fifteenth of each year, to furnish a verified abstract of such gross earnings to the state treasury; that a statement was furnished for the year 1904, but that it was incorrect, in that the company failed to report and furnish a certain part and portion of its gross earnings, which were subject to taxation for that year; that the items thus omitted were as follows:

                                                                   Earnings    Tax at 3%
                Item 1.  Interstate toll earnings ...............  $36,252 53   $1,087 57
                Item 2.  Messenger earnings .....................   36,795 76    1,103 87
                Item 3.  * * * * * * * * * * * * * * * * * * * *
                Item 4.  Receipts from sale of material .........   33,736 22    1,012 09
                Item 5.  Rebates or charges to earnings before
                          reporting the same for taxation
                          purpose to Minnesota ..................   36,374 08    1,091 22
                Item 6.  Income other than from operation of
                          the telephone company, such as
                          dividends and interest on securities
                          owned by it ...........................   12,157 91      364 73
                Item 7.  Free telephone .........................   10,000 00      300 00
                                                                 ____________    ________
                      Total ..................................... $165,316 50   $4,959 48
                

The company refused to pay these amounts, for the reason, as it alleged, that the items were not such as were properly included within a gross earnings tax. The trial court found from the evidence and the stipulation that the business of the defendant company during the time it has been operating and carrying on a telephone system within this state consisted and consists of exchanges, all of which are connected with it by long-distance telephone lines for the transmission by the public for hire of messages by telephone; that its principal place of business has been and is in the city of Minneapolis; that in addition to its telephone system within the state of Minnesota, during all the times in question, it has been maintaining and operating similar telephone systems, exchanges, and toll lines throughout the states of North and South Dakota and Wisconsin, and toll lines within the state of Iowa, all of which said systems, exchanges, and toll lines have been operated in connection with its toll lines and exchanges in Minnesota; that it has been and now is a public carrier of messages by telephone, transacting its said business as such carrier over its various lines, wires, and systems herein referred to; that during all of said times messages by telephone have been continuously sent and are now being sent from various points within the state of Minnesota to points without said state, and from points throughout said state to points within said state, over said toll lines and systems, and that it has, during all said times, been engaged in interstate commerce, as well as intrastate commerce; that during all of said times said telephone company had traffic agreements with telephone companies operating in states other than those above enumerated, so that its patrons and subscribers within the state of Minnesota could, and in fact do, send messages by telephone to points within said state of Minnesota over the toll lines of the defendant and the lines of said other companies to other points, where telephone systems exist in the United States, east of the Missouri river; that in the same way messages by telephone have been and are now being sent over the lines aforesaid from all points where telephone service exists east of the Missouri river to points within the state of Minnesota.

As to item 1 referred to above, the court found that during the year 1904, in addition to the earnings reported from business done wholly within this state, other earnings from the system were received, and that the sum of $36,252.53, specified under such item 1, represents a proportion of such earnings, based upon the proportion of the mileage within the state of Minnesota over which said business was done to the entire mileage of the company over which said business was done, of earnings on all said interstate business for the year 1904 passing through, into, or out of said state; that prior to the commencement of this action no request had been made by the state of Minnesota upon defendant to pay a tax on any of the defendant's earnings, except those derived exclusively from telephone business beginning, continuing, and ending within the limits of the state of Minnesota, except that in the year 1898, when the defendant made its first return and abstract of earnings after the passage of chapter 314, p. 581, of the Laws of Minnesota for the year 1897, the question was taken up with the treasurer of the state of Minnesota as to whether or not the defendant should pay any tax on earnings such as those specified in item 1 of the complaint; and the letters and requests attached as exhibits to the answer, and the opinion then given by Hon. H. W. Childs, Attorney General of Minnesota, also truly set out in the exhibits attached to the answer, are all that was done by the officers of the state in regard to such claim for taxes until this present action was brought by the attorney general.

As to item 2, receipts for messenger earnings, [it was found] that $25,301.01 thereof represent amounts collected by the company from its patrons and subscribers, for other telephone companies, with whom the defendant had traffic arrangements, as connecting carriers, for terminal fees and messenger services for said companies, and for the share of said companies, for sending the messages over their respective lines, and that said amounts, and all thereof, were paid over by the defendant company to the said other companies as and for their share for sending such messages; that $6,494.75 of this item represents money charged and received for messengers not regularly in the defendant's service, but employed specially to call nonsubscribers to the telephone stations; and that $5,000, the balance of this item, has been collected from the defendant's patrons and subscribers as messenger charges actually paid to the persons in whose buildings the defendant's telephone booths were located, and also as compensation for such location.

Item 3 in the complaint was withdrawn.

As to item 4, [it was found] that the defendant, during 1904, sold to other telephone companies telephone poles and materials, for the sum of $33,736.22; that said sales were made as an accommodation to said other companies, and not for profit, nor were they made in the operation or management of the defendant's telephone system; that said materials so sold as aforesaid were never a part of the defendant's telephone system, or any part of the appurtenances or appendages thereof; nor were said materials ever held or used for, in, or about the construction, repairing, renewal, maintaining, or operating of its said telephone system or lines; nor were the receipts from said sales derived by the defendant from the owning, operating, and conducting of any of its telephones or telephone lines, or the carrying on of its said telephone business, and the giving of a general telephone service in the state of Minnesota.

As to item 5, [it was found] that the defendant received during 1904 from railway companies transportation of the value of $1,625, which is included in said item; that the balance of $34,749.08 does not represent any income to the defendant, but are rebates and discounts to customers, arising through facts such as the following: At the beginning of the month a customer is charged rental in advance at the regular rate, and in cases where the service is terminated before the expiration of the month, for which said rental is charged, a proportionate rebate or credit is entered on the books, so as to balance the charge made. Certain customers, having a number of telephones, are charged on the books with the regular price and then credited with such discount as has been agreed upon between the defendant and said customers. Rebates are also made on interrupted service, or failure to render service already charged for.

As to item 6, [it was found] that during 1904 the defendant received as interest and dividends on securities owned by it $12,157.91, but that said securities...