Virginia Electric & Power Co. v. Currie, 459
| Decision Date | 03 February 1961 |
| Docket Number | No. 459,459 |
| Citation | 118 S.E.2d 155,254 N.C. 17 |
| Court | North Carolina Supreme Court |
| Parties | VIRGINIA ELECTRIC AND POWER COMPANY v. James S. CURRIE, Commissioner of Revenue of the State of North Carolina. |
W. T. Joyner, W. T. Joyner, Jr., Raleigh, John W. Riely, Richmond, Va., Joyner & Howison, Raleigh, Hunton, Williams, Gay, Powell & Gibson, Richmond, Va., for plaintiff, appellant.
T. W. Bruton, Atty. Gen., Peyton B. Abbott, Asst. Atty. Gen., Lucius W. Pullen, Asst. Atty. Gen., and Thomas L. Young, Asst. Atty. Gen., for the State.
The standard to be applied in a suit to recover a state tax paid under protest is set forth in G.S. § 105-267. The relevant part of the statute is: 'If upon the trial it shall be determined that such tax or any part thereof * * *, was for any reason invalid or excessive, judgment shall be rendered therefor, with interest, and the same shall be collected as in other cases.'
G.S. § 105-134 in effect during the year 1953 is applicable here, not G.S. § 105-134 as it now appears due to changes made in later years by the Legislature. VEPCO'S brief is based on G.S. § 105-134 in force for the year 1953.
Since VEPCO operates in three States, its net income must be allocated to North Carolina. A state in attempting to put upon a business extending into several states 'its fair share of the burden of taxation' is 'faced with the impossibility of allocating specifically the profits earned by the processes conducted within its borders,' Underwood Typewriter Co. v. Chamberlain, 254 U.S. 113, 41 S.Ct. 45, 47, 65 L.Ed. 165, and as a matter of practical tax administration it has been 'declared that 'rough approximation rather than precision' is sufficient,' International Harvester Co. v. Evatt, 329 U.S. 416, 422, 67 S.Ct. 444, 447, 91 L.Ed. 390, 395.
The statutory allocation formula applicable to VEPCO for the year 1953 is set forth in G.S. 105-134-II-3, in force in 1953 as follows: 'The total income of such corporation shall be apportioned to North Carolina on the basis of the ratio of its gross receipts in this state during the income year to its gross receipts for such year within and without the state.'
For the year 1953 VEPCO filed a state income tax return in accord with the above statutory allocation formula showing tax due at 6% (G.S. 105-134-II-3) in the amount of $77,574.66. It did not pay this tax. The State Tax Review Board, after considering VEPCO'S petition for review of apportionment of net income for the year 1953, in accordance with the powers vested in it by G.S. 105-134-II-4, upheld its contention that the statutory allocation formula, G.S. 105-134-II-3, has operated and will operate so as to subject VEPCO to taxation on a greater portion of its net income than is reasonably attributable to its business or earnings within the State. Whereupon, the State Board of Tax Review, acting pursuant to the powers vested in it, held that the allocation of VEPCO'S net income to North Carolina on the basis of the arithmetical average of the gross receipts ratio and the salaries and wages ratio, as requested by VEPCO in its petition to the State Board of Tax Review in one of its prayers for alternative relief, and which would show a tax due to North Carolina in the sum of $65,548.27, more accurately reflects VEPCO'S net income reasonably attributable to North Carolina than does the statutory allocation formula required by G.S. 105-134-II-3, and more accurately reflects VEPCO'S net income reasonably attributable to this State than would the substitution of the salaries and wages factor as authorized by G.S. 105-134-II-4. Defendant assessed VEPCO with an income tax of $65,548.27, less the amount of $19,078.97 it had already paid on one of the income tax returns it filed, for the year 1953, in accordance with the allocation formula based on the gross receipts ratio and the salaries and wages ratio. It is to be noted that VEPCO in its petition, above set forth, states in respect to the allocation formula of its net income to North Carolina on the basis of the arithmetical average of the gross receipts and the salaries and wages ratio: 'While the allocation on this basis is not as just, fair or proper as the separate accounting method or as equitable as the use of the wage factor alone it is, nonetheless more equitable than allocation by use of the gross receipts factor alone.' VEPCO in this petition does not state, nor even intimate, that a State income tax levied in accord with this allocation formula would be excessive, or levied in accord with this allocation formula would be on a greater portion of its net income than is reasonably attributable to its business or earnings within this State.
VEPCO in its brief states two questions are presented for decision: One, was not the income tax exacted by defendant for the year 1953 excessive? Two, was not the exaction of the tax a deprivation of VEPCO'S property without due process of law and an unconstitutional burden on interstate commerce?
Norfolk & W. R. Co. v. State of North Carolina, 297 U.S. 682, 56 S.Ct. 625, 628, 80 L.Ed. 977, was an action to recover back the amount of a state income tax paid by an interstate railroad company as having been improperly assessed. The Court said: 'We must bear in mind steadily that the burden is on the taxpayer to make oppression manifest by clear and cogent evidence.'
Butler Brothers v. McColgan, 315 U.S. 501, 62 S.Ct. 701, 704, 86 L.Ed. 991, was a suit to recover back a corporate franchise tax. In that case the Court says: 'One who attacks a formula of apportionment carries a distinct burden of showing by 'clear and cogent evidence' that it results in extraterritorial values being taxed.'
VEPCO contends that the tax assessed under the allocation formula of the gross receipts ratio and the salaries and wages ratio is shown by its evidence to be excessive. Its evidence falls into two categories.
First. Its territory in northeastern North Carolina is largely agricultural and thinly settled. Its territory in Virginia includes the largest metropolitan areas. Its rates everywhere are the same. There are 24 customers per mile outside of North Carolina, and 10 in North Carolina. Investment in distribution facilities per customer is $401 in North Carolina, and $266 elsewhere. Each added dollar of investment means more taxes and depreciation, which must be deducted to reach net income. Revenue per kilowatt hour was $1.50 in North Carolina and $1.96 elsewhere. Taxes are heavier in North Carolina. Practically all of its generating facilities are in Virginia.
Second. VEPCO maintains in its books of account a detailed allocation of receipts and expenditures attributable to its North Carolina operations, which shows a net income of $317,114, and an income tax due to North Carolina for 1953 of $19,026.84.
A. M. Clement, assistant treasurer of VEPCO, testified that VEPCO keeps a detailed allocation of receipts and expenses which shows the income attributable to its business in North Carolina, and that the State Utilities Commission considered the earnings of VEPCO thus shown in the rate case in which increases were granted in June 1954. That the test used in the rate case was the 12 months ended 30 September 1953. The data presented in the rate case were prepared on the same separate accounting basis for 1953. The rate of return is based on investment of VEPCO, and not on reproduction cost. The witness was asked a number of other questions in respect to whether the State Utilities Commission accepted these figures, but the judge sustained objections to the questions, though he permitted the witness to put his answers in the record. VEPCO excepted to the judge's rulings, but did not bring forward the exceptions, and discuss them in its brief. Under our rules such exceptions are deemed abandoned. Rule 28, Rules of Practice in the Supreme Court, 221 N.C. 544, 563; Waddell v. Carson, 245 N.C. 669, 97 S.E.2d 222.
Robert S. Boyd, manager of the appraisal division of Stone...
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