Opinion
No. 40698.
January 13, 1958.
1. Taxation — constitutional law — income taxes — foreign corporations — assessment of income taxes based on percentage of its income attributable to State — not unconstitutional.
Assessment of income taxes on a foreign corporation, based on a percentage of its income attributable to the State, was not unconstitutional.
2. Income tax — constitutional law — income tax law not unconstitutional where foreign corporation was not permitted to deduct from its gross income federal taxes paid by it.
Income tax law was not unconstitutional even though under it a foreign corporation was not permitted to deduct from its gross income federal taxes paid by it, in view of fact income tax law made no provision for such a deduction by anyone, and all individuals and corporations in the State were subject to the same law.
3. Income taxes — foreign corporations — evidence insufficient to establish that formula of apportionment applied by State resulted in extraterritorial values being taxed.
In action by foreign corporation for recovery of income taxes, evidence was insufficient to establish that formula of apportionment applied by State resulted in extraterritorial values being taxed.
4. Appeal — income taxes — corporation could not contend on appeal that taxes were assessed under invalid regulations — where question not in anywise raised in Trial Court.
In such case, where corporation did not raise question as to whether certain regulations under which taxes were assessed had been approved by the Governor either by its pleadings or otherwise, and did not offer any proof whatsoever thereon, corporation could not contend on appeal that taxes were assessed under invalid regulations.
ON MOTION TO CORRECT JUDGMENTMarch 24, 1958 101 So.2d 359
5. Appeal — statutory damages on affirmance.
In action by foreign corporation to recover income taxes, where judgment adverse to corporation was affirmed on appeal, corporation was liable for statutory damages at the rate of 5 per cent on amount awarded in view of fact judgment appealed from was for a specified sum of money. Sec. 1971, Code 1942.
Headnotes as approved by Hall, J.
APPEAL from the Chancery Court of Hinds County; L. ARNOLD PYLE, Chancellor.
Tighe Tighe, Jackson, for appellant.
I. Under income tax statute providing that in the case of foreign corporations when gross income is derived from sources partly within and partly without the State the net income may first be computed by deducting the expenses, losses, or other deductions apportioned or allocated thereto, and a ratable part of any expenses, losses or other deductions which cannot definitely be allocated to some item or class of gross income; and the portion of such taxable income attributable to sources within the State may be determined by processes or formulas of general apportionment prescribed by the Commissioner with the approval of the Governor, Comissioner is not authorized to determine income tax liability of foreign corporation taxpayer by use of formula which has not been promulgated as a regulation of the State Tax Commission by first being prescribed by the Commissioner and approved by the Governor, in a manner of some formality, so that the taxpayer may be informed of such regulation, and further that the act of Commissioner in determining the income tax liability of appellant by use of a formula which has not been so promulgated as a regulation of the State Tax Commission, results in a denial of due process of law to appellant and is further violative of Article I, Section 8, Clause 3, Constitution of the United States, and Section 1 of the Fourteenth Amendment thereof.
II. Where income tax regulation, as applying to income taxation of foreign corporation taxpayer created under the laws of another state, and owning property within this state and also without this state but whose system of accounts will not clearly and accurately reflect the true net income within the State of Mississippi, and which foreign corporation taxpayer is engaged in manufacturing, has been promulgated as outlined by the tax statutes of the State of Mississippi, commissioner in determining taxpayer's net taxable income for purposes of further determining taxpayer's income tax liability to the State of Mississippi is only authorized to apply an apportionment formula comprised of the factors of property, expenditures for labor, and sales as defined in such income tax regulation, and is not authorized to apply any other formula which has not been promulgated as outlined by the said tax statutes, and further that the act of the commissioner in determining appellant's net taxable income, for purposes of further determining appellant's income tax liability to the State of Mississippi, by the use of a formula other than the apportionment formula, comprised of factors of property, expenditures for labor, and sales, results in an extra-territorial taxation of income of appellant and is violative of Article I, Section 8, Clause 3, Constitution of the United States, and Section 1 of the Fourteenth Amendment thereof.
III. Under income tax statutes defining gross income of non-resident foreign corporation taxpayers and enumerating deductions allowable therefrom in computing net income for state income tax purposes, Commissioner is not authorized to disallow to such taxpayer federal income taxes and income taxes to other states paid by taxpayer, as a deduction from gross income in computing such taxpayer's net income for the purpose of determining taxpayer's income tax liability to the State of Mississippi, and further that the act of Commissioner in disallowing such deduction to appellant in this case results in an extra territorial taxation of income of appellant and is violative of Article I, Section 8, Clause 3, Constitution of the United States, and Section 1 of the Fourteenth Amendment thereof.
IV. If, as under the holding of the lower court, appellee is authorized under the income tax statutes here involved to employ the method of taxation and method of determination of appellant's net income in the State of Mississippi, which was used in making the assessment against appellant complained of in this case by appellant, said tax statutes are unconstitutional in that they operate to deny to appellant due process of law, and result in extra-territorial taxation of the income of the appellant, the same being violative of Article I, Section 8, Clause 3, Constitution of the United States and Section 1 of the Fourteenth Amendment thereof.
V. That the findings of the lower court are contrary to the law and the facts as stipulated between appellant and appellee and are manifestly wrong.
Collation of authorities: Bass, Ratcliff Gretton v. State Tax Commission, 266 U.S. 271, 69 L.Ed. 282, 45 S.Ct. 82; Butler Bros. v. McColgan, 315 U.S. 501, 86 L.Ed. 991, 62 S.Ct. 701; General Box Co. v. Shurlock (Ark.), 272 S.W.2d 678; Maxwell v. Kent Coffey Mfg. Co., 204 N.C. 365, 168 S.E. 397, affirmed, 291 U.S. 642, 54 S.Ct. 437, 78 L.Ed. 1040; Hans Rees' Sons v. North Carolina, 283 U.S. 133, 75 L.Ed. 904, 51 S.Ct. 385; Stone v. Stapling Machines Co., 221 Miss. 555, 73 So.2d 123; Tri State Transit Co. v. Stone, 196 Miss. 23, 16 So.2d 35, 782; Twentieth Century-Fox Film Corp. v. Phillips (Ga.), 47 S.E.2d 183.
John E. Stone, Henry A. Fly, Jackson, for appellee.
I. Appellant has failed to prove that the income tax formula applied to it is unlawful.
A. Under the statutes and regulations the Tax Commission was justified in following the method used. Stone v. Stapling Machines Co., 220 Miss. 470, 71 So.2d 123; Stone v. Stapling Machines Co., 221 Miss. 555, 73 So.2d 123.
B. Appellant may not assign as error matters which were not raised in the Court below. Alexander v. Hancock, 174 Miss. 482, 164 So. 772, 165 So. 126; Beard v. Stanley, 205 Miss. 723, 39 So.2d 317; City of Biloxi v. Lowery, 179 Miss. 364, 175 So. 200; Early v. Board of Supervisors, 182 Miss. 363, 181 So. 132; General Box Co. v. Shurlock, 272 S.W.2d 678; McLendon v. Ravesies, 178 Miss. 428, 173 So. 303; Rigby v. Stone, 194 Miss. 792, 13 So.2d 230; Stone v. Stapling Machines Co., supra; Terry v. Mayo, Supt of Education, 211 Miss. 462, 52 So.2d 13; Virden Lumber Co., Inc. v. Stone, 203 Miss. 251, 33 So.2d 841.
C. One attacking a tax formula has the burden of proving its unlawfulness. Butler Bros. v. McColgan, 315 U.S. 501, 62 S.Ct. 704, 86 L.Ed. 991; Norfolk W.R. Co. v. State of North Carolina, ex rel. A.J. Maxwell, 297 U.S. 682, 80 L.Ed. 977; State of North Carolina ex rel. A.J. Maxwell v. Kent-Coffey Mfg. Co., 90 A.L.R. 476.
II. The one-factor formula in this case does not result in taxation of income earned outside the State of Mississippi. Bass, Ratcliff Gretton, Ltd. v. State Tax Comm., 266 U.S. 271, 69 L.Ed. 282, 45 S.Ct. 82; Butler Bros. v. McColgan, supra; McWilliams Dredging Co. v. McKeigney, 227 Miss. 730, 86 So.2d 672; Hans Rees' Sons, Inc. v. North Carolina, 283 U.S. 123, 51 S.Ct. 385, 75 L.Ed. 879; Stone v. Stapling Machines Co., supra; Twentieth Century Fox Film Corp. v. Phillips (Ga.), 47 S.E.2d 183; Underwood Typewriter Co. v. Chamberlain, 254 U.S. 113, 41 S.Ct. 45, 65 L.Ed. 165.
III. Appellant is not entitled to deduct either State or Federal income taxes in determining its net income. Adams County v. National Box Co., 125 Miss. 598, 88 So. 168; Colonial Ice Co. v. Helvering, 292 U.S. 435, 78 L.Ed. 1348; Fulton Bag Cotton Mills v. Williams, 95 S.E.2d 848; Leaf Hotel Corp. v. City of Hattiesburg, 168 Miss. 304, 150 So. 779; New Standard Club v. McGowen, 111 Miss. 92, 71 So. 298; State v. Wisconsin Tax Commission, 175 N.W. 931; State Revenue Comm. v. National Biscuit Co., 175 S.E. 368; Tri-State Transit Co. of Louisiana v. Stone, 196 Miss. 23, 16 So.2d 35, 782.
IV. The assessment against appellant violates neither the due process nor commerce clause of the United States Constitution. McGoldrick v. Berwind-White Coal Mining Co., 309 U.S. 33, 60 S.Ct. 388, 84 L.Ed. 565; Stone v. Stapling Machines Co., supra; Stone v. York Ice Machinery Corp., 193 Miss. 638, 10 So.2d 380.
V. The decree of the Lower Court is not contrary to the law and the facts.
This case is a suit for recovery of income taxes paid by the appellant to the State Tax Commission for the years 1951, 1952 and 1953, which was decided by the lower court adversely to the appellant.
(Hn 1) The appellant attacks the constitutionality of the assessment against it and we do not use much time in saying that the identical questions as to constitutionality were passed upon by this Court in the case of Stone v. Stapling Machines Company, 220 Miss. 470, 71 So.2d 205, appeal dismissed by the Supreme Court of the United States on October 14, 1954, 348 U.S. 802, and in Stone v. Stapling Machines Company, 221 Miss. 555, 73 So.2d 123, the appeal having been dismissed by the Supreme Court of the United States January 10, 1955, 348 U.S. 907. The case first mentioned involved the liability of appellant for sales tax, and the case second mentioned involved the liability of appellant for 1950 income tax. The facts involved in the present case, except as to amount, are identical with those involved in 221 Miss. 555, with the additional feature that since that decision the appellant has entered the State of Mississippi and now employs in this State regularly men who are engaged in the repair of its machines and the replacement of parts needed in connection therewith.
(Hn 2) The appellant complains that it was not permitted to deduct from its gross income the federal taxes paid by it. Our income tax law makes no provision for such a deduction by anyone. All individuals and corporations in this State are subject to the same law.
(Hn 3) The appellant also complains that the State Tax Commission did not use the formula which it desired in determining the amount of its income tax. Appellant works out an apportionment ratio which it says should be used since it is engaged in business and has income from many other states and keeps only a unitary system of books. It contends that there should be taken the ratio of the Mississippi receipts to the total unitary receipts, together with the ratio of the Mississippi tangible property to the total unitary tangible property and that there should be taken the ratio of the salaries and wages paid in Mississippi to the total salaries and wages paid everywhere. The appellant works out these three items to be a total of 27.64016% and then contends that the apportionment ratio for Mississippi is one-third of this amount or 9.21339%, and in connection with its contention the appellant has introduced into the record the state income tax law pamphlet including regulations no. 9 published in 1949, and the state income tax law pamphlet including regulations no. 10 published in 1952. Article 247 of the regulations divides foreign corporations into three different classes, and the third class is divided into three identifications, (A) manufacturing, (B) trading, and (C) personal service and special cases. The 1949 regulations and the 1952 regulations are substantially the same in this regard and appellant seeks to come under the ratio prescribed for manufacturing corporations. However, it will be noted from the statement of facts that the appellant does not qualify as a manufacturing corporation. The appellant earned all of its profits from the leasing of machines, — not from the manufacture thereof. It appears that the appellant does not sell and will not sell a single one of its machines. Any person using its machines is required to first execute a lease thereof and to make a down payment equal to the cost of the machine and then to regularly pay rent for the use of the machine. The appellant is certainly not a trading corporation under Article 247 of the regulations because it is not engaged in trading anything. The Tax Commission therefore placed the appellant in Class C, which is personal service and special cases. The Commission had worked out a formula of its own for the calculation of the taxes due and it is strange to note that under the formula worked out by the Commission the appellant's income taxes were almost identically the same as they would have been if the Commission had applied the formula for which appellant contends.
In the case of Butler v. McColgan as Franchise Tax Commissioner of the State of California, the Supreme Court of the United States in 315 U.S. 501-510, 86 L.Ed. 991-997, held that 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, and in the same case the Supreme Court of the United States discussed at length the question of the correct apportionment formula and held that if the statute as calling for a method of allocation which is fairly calculated to assign to California that part of the net income reasonably attributable to the business done there, any constitutional question arising from the Fourteenth Amendment is at an end.
(Hn 4) The appellant argues that the regulations above-mentioned have never been approved by the Governor of Mississippi. This is a matter which was not raised in the pleadings and was not presented to the lower court. By stipulation the appellant introduced the 1949 regulations and the 1952 regulations in printed form. On page 155 of the 1949 regulations it is plainly stated that the same were approved by Fielding L. Wright, Governor, on February 19, 1949, and we take judicial notice of the fact that he was the Governor of Mississippi at that time. On page 158 of the 1952 regulations approved October 1, 1952, it is plainly stated in the printed form that the same were approved by Hugh L. White, Governor, and we take judicial notice of the fact that he was the Governor of Mississippi at that time. Moreover, the appellant did not raise the question in the court below, either by the pleadings or otherwise, and did not offer any proof whatsoever thereon, and so far as the record before us is concerned, it plainly appears that the regulations for 1949 and 1952 were approved by the Governors of Mississippi in the years mentioned. Furthermore, these regulations provide in the concluding paragraph of Article 247 that the Commissioner may, in his discretion, add or change such additional elements or factors as may be determined necessary in arriving at a formula as set out in this article, and may revise any formula as set out in these regulations, as will, in the opinion of the Commissioner, properly reflect the income of such taxpayer.
The judgment of the lower court, being correct, is hereby affirmed.
Affirmed.
Roberds, P.J., and Lee, Holmes and Ethridge, JJ., concur.
ON MOTION TO CORRECT JUDGMENT
The appellee has filed a motion to correct the judgment entered on the Supreme Court minutes in this case by allowing the statutory five percent damages under the provisions of Section 1971, Miss. Code of 1942, such damages to be calculated upon the monetary judgment of the chancery court in the amount of $20,335.17.
(Hn 5) The statute clearly provides that for an unsuccessful appeal the appellant shall be assessed at the rate of five per centum upon the amount awarded by the lower court, but in entering the judgment in this case the clerk inadvertently omitted to include the statutory five percent damages.
Counsel for the appellant have filed a brief opposing the award of damages and relies upon two cases namely, Vicksburg Bank v. Adams, 74 Miss. 179, 21 So. 401, and McArdle's Estate v. City of Jackson, 215 Miss. 571, 61 So.2d 400, 63 So.2d 101. The decree appealed from in the two cases cited by appellant did not award a monetary judgment. In the Vicksburg Bank case there was involved the assessment of the bank. How much taxes may have been due on that assessment was not in issue and was not included in the judgment appealed from. In the McArdle's Estate case there was involved only an ad valorem assessment on said property and the judgment of the lower court merely fixed the assessment without awarding any judgment for the amount of money which the assessment fixed might bring. Neither of the cases mentioned involved a monetary judgment, but both of them merely involved the amount of an assessment on which taxes were to be collected.
The judgment in the case at bar is for a specific sum of money, to-wit $20,335.17, as fixed by the State Tax Commission, plus interest from September 15, 1956, and it is clearly subject to the five percent damages.
Motion to correct judgment sustained.
Roberds, P.J., and Lee, Holmes and Ethridge, JJ., concur.