Universal Mfg. Corp. v. Brady, 48312
| Decision Date | 06 October 1975 |
| Docket Number | No. 48312,48312 |
| Citation | 320 So.2d 784 |
| Parties | UNIVERSAL MANUFACTURING CORPORATION v. Charles R. BRADY, Jr., Chairman, and Mississippi State Tax Commission. |
| Court | Mississippi Supreme Court |
Butler, Snow, O'Mara, Stevens & Canada, D. Carl Black Jr., Alan W. Perry, Jackson, for appellant.
Joe D. Gallaspy, James H. Haddock, Wilson E. Hodge, Jackson, for appellee.
Before GILLESPIE, SMITH and ROBERTSON, JJ.
This is an appeal by Universal Manufacturing Corporation of Mississippi, a domestic corporation (the Mississippi Corporation) from a decree of the Chancery Court of Hinds County confirming an order of the State Tax Commission making an assessment of additional income taxes for the years 1969, 1970 and 1971.
All of the outstanding common stock of the Mississippi Corporation was owned by Universal Manufacturing Corporation, a New Jersey Corporation (the New Jersey Corporation) during the years involved in this case. The New Jersey Corporation was engaged in the manufacture and distribution of electrical equipment, and operated in several states. The New Jersey Corporation paid income taxes to the State of Mississippi for the years 1969, 1970 and 1971, based on a formula as provided in Regulation 1.9220-12(7)(c) of the Income Tax Law, Rules and Regulations promulgated by the State Tax Commission. This formula was promulgated under the authority of Mississippi Code Annotated section 27-7-23(1)(c) (1972). This section of the code is applicable only to foreign corporations or individuals, partnerships, trusts or estates not residents of the State of Mississippi.
The Mississippi Corporation operated only in the State of Mississippi, and its entire business consisted of assembling component parts furnished by the New Jersey Corporation into electrical ballasts, which were then transferred to the New Jersey Corporation. The ballast is one of the parts of neon lighting equipment.
The books and records of the Mississippi Corporation were kept at Paterson, New Jersey, by the New Jersey Corporation. The New Jersey Corporation exercised control over, and furnished advice and services to the Mississippi Corporation. In order to comply with the tax laws of the State of Mississippi, it was necessary for a reasonable compensation to be established for the work performed by the Mississippi Corporation. The method selected was to guarantee the Mississippi Corporation a fixed profit equal to one percent of the finished electrical units manufactured by the Mississippi Corporation, and the books and records of the two corporations were set up on this basis. The profit was used as the gross income of the Mississippi Corporation for the payment of income taxes to the State of Mississippi for the three years in question, and taxes were paid accordingly for 1969, 1970 and 1971.
The question is whether the State Tax Commission was authorized to adopt an apportionment formula in assessing the Mississippi Corporation with additional income taxes for the years 1969, 1970 and 1971.
The statute defining gross income for income tax purposes is Code section 27-7-15, entitled 'Gross Income Defined.' Subsection (a) states what items are included in the term 'gross income.' Subsection (b) is as follows:
(b) In determining gross income, as regards sales or exchanges from one to another of affiliated companies or persons or under other circumstances where the relation between the buyer and seller is such that gross proceeds from the sale or the value of the exchanges are not indicative of the true value of the subject matter of the sale or exchanges, the commissioner shall prescribe uniform and equitable rules for determining the value of the gross income, gross sales or exchanges corresponding as nearly as possible to the gross income or the gross proceeds from the sale of similar products or property of like quality or character by other taxpayers where no common interest or relationship exists between the buyer and seller, but otherwise under similar...
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