This is an income-tax apportionment case. The Wisconsin Department of Taxation made an additional assessment of income taxes against the respondent Blatz Brewing Company, a Wisconsin corporation, for the calendar year 1945 and the fiscal years of 1946, 1947, 1948, and 1949. The amount for the 1946 fiscal year was admittedly not timely made and is not involved here. On Blatz's application for abatement, which the department partially denied, the department modified the assessment. The modified assessment was reviewed on Blatz's petition by the board of tax appeals which modified the application for abatement and claim for refund and, as modified, affirmed and denied the department's application for an additional assessment over the amount of the assessment under review. Both the department and Blatz petitioned the circuit court for review. That court reversed the board and remanded the case with instructions, from which judgment this appeal is taken by the department.

The statutes involved are secs. 71.01(1) and 71.07(2) of the statutes of 1947 and 1949. The pertinent parts of sec. 71.01(1) provide that there shall be assessed a tax on all net incomes upon every person residing within the state and by every nonresident "upon such income as is derived from property located or business transacted within the state." Sec. 71.07(2) (Stats. 1947 and 1949), provides, in part, "persons engaged in business within and without the state shall be taxed only on such income as is derived from business transacted and property located within the state."

In cases such as the instant one, where a separate accounting is not made, the statute provides that "nonapportionable" shall be subtracted from the total income which is attributed to the residence of the recipient or the situs of the property. The remaining net income or the "apportionable" net income is to be apportioned to Wisconsin on the basis of a ratio obtained by taking the arithmetical average of three underlying ratios: (1) The ratio of the property owned and used by the taxpayer in Wisconsin in connection with his business during the income year to the total of such property everywhere, (2) the ratio of the total cost of manufacturing within Wisconsin to the total cost of manufacturing everywhere, and (3) the ratio of the total sales made in Wisconsin to the total sales made everywhere.

The principal issues on appeal are: (1) Whether Blatz was engaged in business within and without the state during 1947 and 1948 (it is conceded it was so engaged in business in the years 1945 and 1949), and (2) what is the proper method of determining the property ratio for the years in which Blatz was entitled to apply the apportionment formula.

Blatz is engaged in the brewing of beer in the city of Milwaukee, Wisconsin, and in the sale of such beverage to distributors located both within and without the state and in foreign countries, and also to retailers in the city of Milwaukee and surrounding territory. In marketing the beer, Blatz used returnable containers, kegs, and bottles, to which Blatz retained title and on which deposits were required. These returnable containers went all over the United States and foreign countries and when empty were returned to Blatz and if not returned, charged to the particular distributor. The average turnover was about six to eight weeks. At any given time during a year, some of the containers were at the plant, either in warehouses or in the process of being filled, some were in transit either to or from the brewery, and others were in the possession of distributors, retailers, and consumers. Thus at all times during the year, containers were both in and out of the state. During the years involved, Blatz also owned neon signs advertising its beer, which were located throughout the United States, and also owned coolers located in places of business of various wholesalers and distributors. Blatz also owned some furniture and fixtures and automobiles which were out of the state and used by salesmen and divisional managers. The activities of these persons and for what year do not appear in the record.

Blatz filed its tax returns for the years involved on the basis of being engaged in business within and without the state and applied the apportionment formula. In its returns for the years 1945 and 1949, Blatz showed in the apportionment data, sales both within and without the state, because it had a branch office in Chicago in 1945 and one in Buffalo in 1949. For the years 1947 and 1948, all sales were shown in the tax returns as being within Wisconsin. In all years, the cost of manufacturing was allocated to Wisconsin. The returnable containers were treated as located in the state for the years 1945 and 1947 but were allocated for the years 1948 and 1949 in and out of the state by an accounting method. In all the years, neon signs, furniture and fixtures, and like property were assigned a location within and without the state by an accounting method.

In auditing the tax returns, an additional income tax was assessed as a result of the department's assigning for the purpose of the property ratio all the returnable containers entirely to the state of Wisconsin. On Blatz's application for an abatement and a refund, it contended that the containers for all years should be allocated in and out of the state by its accounting method of determining their location. This request was denied but the department modified the assessment by assigning the containers on the basis of the sales ratio reported in each year. The effect of this was to give Blatz a credit in 1945 and in 1949, but did not change the additional assessment for the years 1947 and 1948 because in those years, all sales were reported by the taxpayer as within Wisconsin.

Blatz petitioned the board of tax appeals for a review of the action of the department, renewing its contentions that for all the years the containers should be allocated on a physical-situs basis determined by its accounting method used in its 1948 and 1949 returns, and on this theory, it had a refund coming for the years 1945 and 1947. The department contended the claimed refund for 1945 was not timely and advanced the new argument that Blatz was not doing business in and out of the state during the years 1947 and 1948 and, therefore, was not entitled to apportion its business income for those years. The department also changed its position and claimed that for the years 1945 and 1949 when apportionment was admittedly proper, the returnable containers should be apportioned in and out of the state on the basis of 50 per cent by the use of the manufacturing ratio and 50 per cent by the sales ratio, and the neon signs and similar property should be apportioned on the basis of the sales ratio alone. The result of these contentions would be to increase the tax.

The board decided that Blatz during 1947 and 1948 was doing business solely within Wisconsin and could not apportion its income, and for the years 1945 and 1949 was doing business within and without Wisconsin. However, for these two years, the board considered the personal property should be apportioned upon the percentage of sales in and out of the state as determined by the department in its modified assessment. The board also held that it had no power to increase the assessment.

Both the department and Blatz filed petitions in the circuit court to review the action of the board. The contentions of the parties before the circuit court were substantially the same as before the board. The circuit court held that Blatz was doing business in and out of the state in all the years under review and was entitled to apportion its income for those years. In apportioning the income, the court decided the allocation of the containers on the accounting basis claimed by Blatz was proper, the neon signs and other property were to be apportioned on the basis of situs as reported in the tax returns by Blatz, and that the refund for 1945 was not timely. The matter was sent back to the board for further action in accordance with the court's opinion and a judgment was entered to that effect, from which the department appealed.

HALLOWS, J.

The first question is whether Blatz is "engaged in business" within and without the state within the meaning of sec. 71.07(2), Stats., for 1945 and 1947. The department contends this means "doing business" and the apportionment of income can only apply between the particular states in which the taxpayer is "doing business" to exempt from the Wisconsin income tax that portion of the net income which is derived from business conducted outside the state. Blatz contends this concept of "doing business" is too narrow a construction of the statute and it is doing business in a tax sense by its activities outside the state under the rule of the companion cases, Northwestern States Portland Cement Co. v. Minnesota and Williams v. Stockham Valves Fittings, Inc. (1959), 358 U.S. 450, 79 Sup.Ct. 357, 3 L.Ed.2d 421, and specifically the statute only requires, for the application of the apportionment rule, some property physically located outside the state. The department relies on several Wisconsin cases and contends they impliedly hold personal property outside the state does not constitute being engaged in business there.

In Trane Co. v. Tax Comm. (1940), 235 Wis. 516, 524, 292 N.W. 897, this court held, relying on United States Glue Co. v. Oak Creek (1915), 161 Wis. 211, 153 N.W. 241, the taxpayer was not engaged in business outside the state, as the sales made outside the state resulted in income which was "derived from business transacted and property located within the state," and there could be no apportionment dependent on sales. This case and the United States Glue Case represent the older and traditional concept of doing business and of the necessity of assigning a situs or source to business income.

Witness the statement in 161 Wis. at page 218:

"The plaintiff, as recipient of its corporate income, whatever its source, has a domicile in this state, and the principal part of its property and its business which is employed in the transactions out of which the income issues is located in this state. The statute seeks to tax the part of this income which has its source in this state. The fact that the business so conducted may involve transactions in interstate commerce cannot affect the situs of the income. Nor does the fact that goods manufactured at Carrollville are sold without the state affect the source of the income. The income so derived is the result of the business carried on at Carrollville in this state. The place of sale of such products does not change the place of business from this to the state where the goods are sold."

While these cases may, by implication, deny income can have a contributing source in a broad sense in property located outside the state, that point was not expressly decided. In the Trane Case, although there was property outside the state, the taxpayer allocated it all to Wisconsin and thus the question was not presented.

Again in American Stores Dairy Co. v. Department of Taxation (1945), 246 Wis. 396, 17 N.W.2d 596, this court held all the taxpayer's income was due to business transacted in Wisconsin, although the taxpayer, a subsidiary corporation, engaged in manufacturing evaporated milk in Wisconsin, maintained its business office in Illinois where sales were made to the taxpayer's parent corporation and other office work done. The decision does not discuss the property ratio. The other cases cited by the appellant all express the older idea that in a manufacturing business, sales are of lesser importance than production and do not determine the source of income or where the business is transacted, or they are decided on other grounds. See Redwine v. Dan River Mills, Inc. (1950), 207 Ga. 381, 61 S.E.2d 771; People ex rel. Brighton Mills v. Knapp (1920), 192 App. Div. 740, 183 N.Y. Supp. 480; Irvine Co. v. McColgan (1945), 26 Cal.2d 160, 157 P.2d 847.

Business, in the sense of income tax laws, is produced by a successful combination of elements, among which are capital, labor, management, property, skill, and good judgment. Business transacted is a complex concept. A manufacturing plant with the best product needs a sales force and the best sales organization needs a product. Transacting business is an activity, some of which is vital to the production of income and the rest of varying degrees of importance. The modern concept of transacting business in a tax sense includes most of the activities and elements contributing to the profit or loss of the business. The apportionment rule is an attempt to take into account these activities and elements in allocating income. Although "engaged in business" means something less than the standard which requires a license to do business in a state, still not every "activity" out of the state constitutes engaging in business there within the meaning of sec. 71.07(2), Stats.

Blatz urges that "engaged in business" means any activity outside the state which would come within the rule of the Northwestern and Stockham Cases, wherein the United States supreme court found Minnesota and Georgia could tax income derived from interstate-commerce activities within the state. In the Northwestern Case, an Iowa corporation with its main office and plant in Iowa, maintained an office in Minnesota with a secretary and salesmen. All orders received were subject to acceptance in Iowa. In the Stockham Case, a Delaware corporation had its main office and plant in Alabama and maintained a sales office in Atlanta, Georgia, with a secretary and a part-time salesman. All orders were subject to approval in Alabama. The court thought there was sufficient "nexus" between the activities in Minnesota and Georgia to allow those states to tax income under their statutes on an apportionment basis. In International Shoe Co. v. Fontenot (1958), 236 La. 279, 107 So.2d 640, a foreign corporation was held subject to income tax on the ground its sole activity was the presence of 15 salesmen engaged in solicitation of orders. In Brown-Forman Distillers Corp. v. Collector of Revenue (1958), 234 La. 651, 101 So.2d 70, the activity was conducted through "missionary men" who took orders from wholesalers but not retailers. In these cases, the mere presence of salesmen or solicitors in the state without property therein was sufficient "nexus" for the state to tax income on apportionment basis. However, these cases do not determine the meaning of the statutes of Wisconsin, the domiciliary state.

In the instant case, it is conceded when Blatz maintained branch offices out of the state and made sales therefrom in 1945 and 1949, it was entitled to prorate its business because it was engaged in business within and without the state. All the record shows for 1947 and 1948 is that all sales and manufacturing were in Wisconsin, that Blatz had returnable containers flowing in and out of Wisconsin and located temporarily in Wisconsin and other states, and had neon signs, coolers, and other property outside of Wisconsin. No reliance is placed by Blatz on activities, if any, by so-called salesmen or divisional managers outside the state, nor does the record show what these activities were. Can it be said that because of the nature of this property out of the state, Blatz was "engaged in business" outside the state? We think not, even in a tax sense.

Applying the Northwestern doctrine would not have subjected Blatz to income taxes in any other state in 1947 and 1948. The Minnesota statute levied a net income tax on corporations "`whose business within this state . . . consists exclusively of foreign commerce, interstate commerce, or both.'" The activities of the Iowa corporation consisted of a regular and systematic course of solicitation of orders subject to home-office approval. To handle its activity, the corporation maintained a leased sales office equipped with its own furniture and fixtures, but the case did not turn on the presence of this personal property in Minnesota. In Stockham, the foreign corporation had a sales-service office in Georgia for a salesman and a secretary who was the liaison between the home office and the salesman and customers. The salesman carried on the usual solicitation of orders. Other than office equipment, supplies, and advertising literature, the taxpayer had no property in Georgia. The Georgia statute taxed net income of corporations owning property or doing business in the state which was defined in the act as including "any activities or transactions" carried on in the state "for the purpose of financial profit or gain." The Northwestern Case held that the tax by Minnesota and Georgia under these statutes was not an interference with the federal commerce power or a violation of the due-process clause, as it imposed a tax under an apportionment formula on that portion of the taxpayer's net income which arose from its activities within the taxing state.

Applying this more-modern concept to the Glue, Trane, and Dairy Cases, one questions the soundness of these decisions if multiple taxation is to be avoided. However, the Minnesota and Georgia statutes are not the same as Wisconsin's and these cases are not counterpart situations.

The Northwestern decision caused apprehension in business circles of more-widespread and increased-tax burdens. Three states, eager for more income, revised their tax laws to conform to the type of law upheld. Representatives of both large and small business appealed to the congress for relief from the impact of the decision, and the congress enacted Public Law 86-272, 73 U.S. Stat. at L., p. 555. This act, which became effective September 14, 1959, imposed certain restrictions on the type of selling activities of foreign corporations which can be the subject of an income tax, and attempted to provide a definition for the court's term "nexus." It would seem, under this new law, neither Northwestern nor Stockham would have been liable for state taxes. On this problem, see note, Taxation, State Taxation of Interstate Commerce, 1960 Wisconsin Law Review, 171.

Nor is there merit in the argument that because property out of the state is an element of the apportionment formula that, therefore, the presence of such property out of the state constitutes "engaging in business" there. The presence of the type of property which Blatz had out of the state in 1947 and 1948, did not constitute "engaged in business" outside Wisconsin within the meaning of sec. 71.07(2), Stats.

On the second question, the department contends the formula in sec. 71.07(2), Stats., intended to allocate the business income among the sum of the states in which business was done. We do not so construe the statute. Once a taxpayer is "engaged in business" within and without this state, entitling the taxpayer to use the apportionment formula, Wisconsin is restricted to taxing "only on such income as is derived from business transacted and property located within the state." It is no concern of Wisconsin that some of the net business income may be allocated out of the state where, because of different taxing laws or the absence of them, it is not taxed. Nor is there any requirement the taxpayer in using the apportionment formula, must assign income only to those states in which it is doing business, in the general business sense used by the department. Apportionment does not give the department the right to collect the most tax but only the fairest share and that share to be derived from business transacted and property in this state. Standard Oil Co. v. Wisconsin Tax Comm. (1929), 197 Wis. 630, 223 N.W. 85.

The accounting method used by Blatz to determine the physical situs of the returnable containers within Wisconsin was, as the trial court said, a "factual and sound equitable basis upon which to allocate." Exact precision in the apportioning of income is not required. Armour Co. v. Department of Taxation (1948), 252 Wis. 468, 32 N.W.2d 324. The averaging method applied to property which moves in and out of a state has been approved to determine its location for the purpose of taxation. American Refrigerator Transit Co. v. Hall (1899), 174 U.S. 70, 19 Sup.Ct. 599, 43 L.Ed. 899; Johnson Oil Refining Co. v. Oklahoma ex rel. Mitchell (1933), 290 U.S. 158, 54 Sup.Ct. 152, 78 L.Ed. 238. The action of the board of tax appeals, in holding that in the absence of definite proof, the property factor should be based on sales, was arbitrary and capricious. It follows that the allocation of these containers on sales alone, as was done in the modified additional assessment and approved by the board, or on the basis of 50 per cent to sales and 50 per cent to manufacturing, as now contended by the department, cannot be sustained, because those contentions are based on an erroneous theory and ignore the weight of the property factor in the formula. Such contentions reduce the three-factor formula to a two-factor formula in this case. The department is bound to use the statutory method even though another method may appear more convenient or expedient to it. Northern States Power Co. v. Tax Comm. (1941), 237 Wis. 433, 297 N.W. 578. Likewise, the neon signs, coolers, and other personal property should not be apportioned on sales but on their physical location by the method used and as reported by Blatz in its returns. The department's argument that elements in the formula may be changed to fit the concept of "engaged in business," like the taxpayer's argument that "engaged in business" is determined by any element of the formula, is without merit.

The question of whether Blatz's claim for a return for the calendar year of 1945 was timely made was not argued in the briefs. We presume Blatz has accepted the circuit court's decision as it asks this court to affirm the trial court's judgment.

The last question presented is whether the board of tax appeals has the power to increase an assessment over that appealed from. The department contends the general powers of the board, set forth in sec. 73.01(5)(a), Stats., when read with the first sentence of sec. 71.11(19), evinces a legislative intent to grant the board power to determine additional tax liability upon the evidence before the board greater than the amount set forth in the notice of assessment appealed from. We think not. The question before the board is not how much additional income tax is owed by the taxpayer for the years under review, but whether the particular assessment made by the department and appealed from is correct. The board, being of statutory creation, has no powers not granted it by the legislature. Certainly sec. 73.01(5)(a) does not grant the powers contended for, nor does the history of sec. 71.11(19) indicate such an intent. This section, prior to the creation of the board as a separate agency by ch. 412, Laws of 1939, provided that if the tax was increased, the commission shall proceed to collect it. At that time, the tax commission was both the assessing and reviewing authority. We believe the power to increase the tax by the commission was in its capacity as an assessing authority. The section was put in its proper place in the statute by the revision of ch. 71, Stats., by ch. 318, Laws of 1947. This section refers not to the power of the board but to the power of the department to increase taxes by the method of audits.

Under sec. 73.01(6)(a), Stats., the petition filed with the board in income matters is "for review of the action of the department or assessor." The section does not contemplate the department, in denying such application for the abatement or claim for refund, can change its position and assert different or new items of additional tax before the board and the board can reassess an additional tax. The proper procedure for this is an audit by the department if the year is still open. The board is reviewing the action of the department or assessor, not performing their functions.

The functions and powers of the board are discussed in Kaukauna v. Department of Taxation (1947), 250 Wis. 196, 26 N.W.2d 637, and limited by sec. 73.01(6), Stats., to specific types of taxes and then only by and when the procedure therein specified is followed. To allow the board to assess, as urged by the department in this case, would not be following the procedure therein. The application for review by the board of an income-tax assessment does not allow the department to open "Pandora's box."

While sec. 76.13(3), Stats., expressly grants the board the power to increase taxes of railways and public utilities over the amount fixed by the department, no comparable provision is found in the income tax law. In Department Taxation v. Ansul Chemical Co. (1951), 260 Wis. 96, 49 N.W.2d 893, concurring opinion, the department's contention was rejected on the ground there was no statutory authority for the contention. We now hold the board of tax appeals has no power to increase an income-tax assessment over the amount determined by the department in the notice of assessment appealed from.

This opinion requires reversal of only that part of the judgment of the circuit court based on its decision that Blatz was doing business outside the state for the years 1947 and 1948, and the affirmance of the other matters decided.

By the Court. — That part of the judgment of the circuit court adjudging the taxpayer respondent was engaged in business within and without Wisconsin for the years 1947 and 1948 is reversed. The rest of the judgment is affirmed. The circuit court is directed to so modify its judgment and refer the record back to the board of tax appeals for further proceeding consistent with this opinion.