Virginia Foods of Bluefield, Virginia, Inc. v. Dailey
| Decision Date | 20 December 1977 |
| Docket Number | No. 13766,13766 |
| Citation | 161 W.Va. 94,239 S.E.2d 770 |
| Parties | VIRGINIA FOODS OF BLUEFIELD, VIRGINIA, INC. v. Richard L. DAILEY, etc. |
| Court | West Virginia Supreme Court |
Syllabus by the Court
1. Whether a person, firm or corporation is engaging or continuing within this state in any business or calling under our Business and Occupation Tax statute depends upon the facts and circumstances of each case.
2. A foreign corporation owning no property and having no place of business in this state, which engages in substantial business activities in this state which are essential to the establishment and maintenance of sales and which make possible the continuance of valuable contractual relationships is subject to this state's Business and Occupation Tax consistent with the Commerce Clause.
3. A taxpayer making a claim of multiple or cumulative taxation bears the burden of proving that it will be required to pay taxes on the same gross receipts by two or more states.
Jackson, Kelly, Holt & O'Farrell, Thomas N. Chambers and Louis S. Southworth, II, Charleston, Kwass, Stone & McGhee, Sidney J. Kwass, Bluefield, for appellant.
Chauncey H. Browning, Jr., Atty. Gen., Clovis D. Kuhn, Asst. Atty. Gen., Charleston, for appellee.
This case is before this Court on appeal from a final judgment of the Circuit Court of Mercer County by which that court sustained the State Tax Commissioner's assessment of Business and Occupation Taxes against Virginia Foods of Bluefield, Virginia, Inc., for the tax years 1968-72, inclusive, levied pursuant to W.Va.Code § 11-13-2 and W.Va.Code § 11-13-2c, 1 amounting to $44,809.22, based on a finding that the in-state activities of Virginia Foods were substantial with relation to the establishment and maintenance of sales and were such as to provide a sufficient nexus for the levy of Business and Occupation Taxes.
This litigation brings here two important questions under West Virginia's Business and Occupation Tax statute which arose as a result of an audit conducted by an examiner of the Business Tax Division of the State Tax Department.
The issues as agreed on by the parties, are: (1) whether a foreign corporation having no warehouse, stock of goods, office or property located in West Virginia is liable for the West Virginia Business and Occupation Tax on gross receipts on all sales made by it which were solicited in West Virginia by salesmen working out of Virginia, accepted in Virginia, filled with a stock of goods in Virginia and subsequently delivered into West Virginia, and (2) if so, whether the taxation of such sales in interstate commerce is prohibited by the Commerce Clause of the United States Constitution.
Virginia Foods, a Virginia corporation, (hereinafter referred to as company or taxpayer, is a distributor or wholesaler of groceries and related products customarily marketed in grocery stores with its sole place of business in Tazewell, Virginia, near the town of Bluefield, Virginia, with customers located in portions of West Virginia, Virginia and Kentucky. The company has no warehouse or stock of goods, maintains no office or records, and is not qualified to do business in the State of West Virginia. It was agreed by taxpayer and the tax department, during the course of the audit, that out of the total sales made each tax year in West Virginia and Virginia, 46.8% were attributable to sales in this state.
Taxpayer solicits sales of food products in West Virginia through three sales representatives who work out of the Virginia home office. Orders for food items are sometimes made by use of a catalogue furnished monthly to each customer and updated with revisions on a weekly basis. Each catalogue contains the customer's name, an index, instructions for ordering and numerous perforated "tear sheets." Customers normally order food items once a week by tearing out and mailing the "tear sheets" to taxpayer's home office in pre-addressed envelopes supplied with each catalogue. Sometimes food orders are given to the sales representative for delivery to the home office, when the sales representative is in the customer's store on the date the order is ready to be sent.
Upon receipt of the order by taxpayer, it is either accepted or rejected based on whether the customer has paid his bills for the previous week or has a good credit rating. Food items so ordered are then loaded on company-owned trucks at the company's warehouse in Virginia, and the trucks are then dispatched from the warehouse for delivery to the customer in West Virginia.
Taxpayer also employs one non-food representative who works exclusively in this state, and a second non-food representative who works in portions of West Virginia and portions of Virginia. These representatives periodically visit grocery stores in West Virginia, inventory the non-food items on the customer's shelves, such as, non-prescription drugs and toilet articles, and they generally make out an order form for authorization by the management of the store. *
Orders for non-food items are handled in a manner quite similar to orders of food items, since all orders for non-food items are subject to approval by the home office in Virginia, and all goods are delivered from taxpayer's warehouse in Virginia by company-owned and maintained trucks. Non-food items are sometimes delivered along with the food items, and on other occasions separately and in separate vehicles. Taxpayer remains responsible for all goods until delivery is made and accepted, at which time title to such goods passes to the buyer.
Taxpayer is also a distributor and franchising agent for a grocer's alliance or cooperative known as the Independent Grocer's Alliance, commonly referred to as I.G.A., which has its headquarters in Chicago, Illinois. The taxpayer solicits and issues franchises to individual store owners in West Virginia. 2 When an existing or prospective independent grocer is interested in possible I.G.A. membership, he is invited to taxpayer's Virginia offices for a complete explanation and orientation as to the benefits and advantages of affiliation, as well as for an explanation of the standards and requirements governing the operation of any I.G.A. franchise.
If after this initial meeting the potential I.G.A. store owner is still interested in affiliation, then petitioner arranges for a meeting with representatives of large food manufacturers who assist the potential store owner in setting up his I.G.A. store. These meetings also occur in Virginia.
If affiliation is desired, taxpayer prepares at its Virginia offices instruction plans for the future store showing various product locations and the like. Representatives of taxpayer generally will go to the place where the business will be opening and assist the local merchant in establishing the business. If the grocer operates an existing established business, taxpayer provides store layout plans and other materials necessary for a conversion to an I.G.A. store. After a franchise is established, taxpayer may provide counseling service as to the management and operation of the store. As a part of the franchise, member stores are provided promotional material, such as, signs advertising specials and display items of various types. Additionally, members are leased I.G.A. store signs which, although paid for by the individual grocer, remain the property of I.G.A. In this regard, taxpayer makes collections for the I.G.A. home office. And as a franchisee, the customer is entitled to order I.G.A. brand name items from taxpayer.
This Court's pronouncement in Baton Coal Company v. Battle, 151 W.Va. 519, 153 S.E.2d 522 (1967) established that a person or corporation is not per se exempt from taxation under the West Virginia Business and Occupation Tax by virtue of the fact that its offices and principal place of business are not located in this state.
As Baton was a case of first impression involving the application of the Business and Occupation Tax to a foreign corporation with no place of business or office in this state, we refrained from attempting to formulate any inflexible rule. Rather, we simply held that whether a person is engaging in business within this state "depends on the facts and circumstances," of each particular case. Id. at 524, 153 S.E.2d at 525.
The taxpayer in Baton had its principal office and place of business in Pittsburgh, Pennsylvania and was engaged in the business of providing managerial services and advice to coal mining companies in Pennsylvania and West Virginia. During the tax years in question, it managed the operations of one company in West Virginia pursuant to written contract. In the performance of its contractual obligations, the corporation's representatives, none of whom were West Virginia residents, spent only 15 percent of their working days in this state. On these facts this Court held:
A Pennsylvania corporation, engaged in the business of furnishing managerial services and advice to coal mining companies from its offices and place of business in Pittsburgh, which owns no property and has no place of business in West Virginia, but which, pursuant to a contract, furnishes managerial services and advice to a company engaged in the operation of a coal mine in West Virginia, is not engaging or continuing in business "within this State" within the purview of Code, 1931, 11-13-2 and 11-13-2h, as amended, and is not subject to taxation under that statute, notwithstanding the fact that some of its officers and agents, all residents of Pennsylvania, come into this state from time to time as an incident of furnishing the managerial services and advice, where it appears that the activities of such officers and agents while physically present within this state constitute a relatively minor part of the overall managerial services and advice furnished to the West Virginia coal mining company.
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We merely decide that, in view of the...
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