Worrall v. Kroger Co.

• Decision Date: 17 January 1977
• Citation: 545 S.W.2d 736
• Parties: R. E. WORRALL, County Court Clerk for Davidson County, Tennessee, et al., Appellants, v. The KROGER CO., an Ohio Corporation, Appellee.
• Court: Tennessee Supreme Court

Page 736

545 S.W.2d 736

R. E. WORRALL, County Court Clerk for Davidson County Tennessee, et al., Appellants, v. The KROGER CO., an Ohio Corporation, Appellee.

Supreme Court of Tennessee.

Jan. 17, 1977.

Robert W. Rutherford, Dept. of Law of Metropolitan Government, William J. Haynes, Jr., Asst. Gen., Brooks McLemore, Jr., Atty. Gen., Nashville, for appellants.

W. W. Berry, James C. Gooch, Nashville, for appellee.

OPINION

COOPER, Chief Justice.

This appeal is from a decree of the Chancery Court of Davidson County that the Kroger Company can offset All personal property taxes paid the Metropolitan Government of Nashville and Davidson County against the gross receipts tax owed by Kroger to Metro under the Business Tax Act.

The Kroger Company filed this action against R. E. Worrall, the County Court Clerk of Davidson County, seeking a refund of gross receipts taxes assessed under the 'Business Tax Act' and paid under protest.

The taxpayer, the Kroger Company, is engaged in the business of operating retail grocery stores. During the tax year involved, Kroger operated thirteen such stores in Davidson County. In addition, Kroger operated a distribution center located on Elm Hill Pike in Nashville, Tennessee. The function of the distribution center was to provide a central office and warehouse for Kroger's retail outlets. Kroger's business records were maintained at the distribution center, and merchandise was collected there and then distributed to the various retail outlets. No sales were made from the distribution center, other than dispositions of damaged merchandise and waste materials. Merchandise was transferred at cost from the distribution center to the Farmer's Market Warehouse Store, a wholly owned subsidiary of the Kroger Company.

For the tax year ending November 30, 1974, Kroger filed a consolidated business tax return, covering its places of business in Davidson County, and tendered payment of $240.50, which was the amount of the minimum tax due for the retail outlets after taking credit for personal property taxes paid Metro.

Mr. Worrall refused to accept the payment, advising Kroger's that it could not take credit for personal property taxes attributable to its distribution center, and demanded payment of $19,918.40. Kroger's paid this sum under protest, and then filed suit for the recovery of $19,677.90, being the amount of taxes paid under protest less the minimum tax of $240.50 conceded by Kroger's to be due.

The Commissioner of Revenue for the State of Tennessee was permitted to intervene as a defendant, since a part of the gross receipts tax paid by Kroger's ultimately would be paid to the state.

On trial of the cause, the chancellor concluded, among other things, that:

'2. The Business Tax Act allows credit on business tax for all personal property tax paid under T.C.A. § 67--601, Et seq., to the government to which it owes business tax. T.C.A. § 67--5814(c).

'3. The statute contains no limit or qualification to each location or outlet as claimed by defendant. The only limit is that a taxpayer, in computing its business tax to a governmental entity, can only take credit for personal property tax paid to that governmental entity. T.C.A. § 67--5814(d).

'4. The plaintiff's Distribution Center is not a separate place of business from the retail outlets, therefore, even if defendant's construction of the statute was correct, plaintiff would still be entitled to credit for all the personal property taxes paid to defendant.'

The chancellor then entered a decree holding that Kroger's was entitled to recover the business tax paid under protest, plus interest from the date of payment.

Appellants insist that the chancellor erred in interpreting the provisions of the Business Tax Act so as to allow plaintiff to interchange tax credits among its various business locations in computing its business tax liability. Appellants also assign as error the finding by the chancellor that Kroger's distribution center was not a separate place of business.

The Business Tax Act, enacted in 1971, is set forth in T.C.A. §§ 67--5801--67--5829. By it, the legislature undertook to create a system of state and local taxation upon the privilege of engaging in certain types of business activities, replacing certain parts of the privilege tax law of the state and providing for a classification of businesses for the state and local administration of the system of taxation established in the Act. The legislature expressly stated that it intended the taxes imposed by the Act to be 'in lieu of any or all ad valorem taxes on the inventories of merchandise held for sale or exchange by persons taxable' under the Act. T.C.A. § 67--5801.

Section 67--5805 sets forth various classifications of businesses, and Kroger comes within classification 1, which includes persons engaged in the business of selling food.

Section 67--5806 requires each taxpayer to pay a minimum tax of $15.00 for 'each place, location or outlet from which business is carried on'. In addition to the minimum tax, each taxpayer is required to pay a tax on its gross recepits according to the taxpayer's dominant business activity. The percentage rate of taxation for businesses in Kroger's classification is 1/15 of 1% Of retail sales.

Section 67--5807 provides for the filing of tax returns for...