Opinion
20960.
ARGUED JULY 12, 1960.
DECIDED SEPTEMBER 8, 1960. REHEARING DENIED SEPTEMBER 21, 1960 AND OCTOBER 6, 1960.
Tax refund; constitutional question. Fulton Superior Court. Before Judge Alverson. May 4, 1960.
E. Smythe Gambrell, Gambrell, Harlan, Russell, Moye Richardson, W. Glen Harlan, Terry P. McKenna, for plaintiff in error.
Eugene Cook, Attorney-General, Ben F. Johnson, Jr., Assistant Attorney-General, Robert W. Goodman, Deputy Assistant Attorney-General, contra.
This State's income-tax statute of 1931 as finally amended by the act of 1950, under which the taxes here involved were assessed and collected, does not offend the due-process clause of Georgia's Constitution of 1945, since such amended statute levies a tax only on that portion of the corporate taxpayer's net income which arises from activities or transactions it carries on within this State for the purpose of financial profit or gain, and since such activities or transactions form a sufficient "nexus" to satisfy the due-process requirements.
ARGUED JULY 12, 1960 — DECIDED SEPTEMBER 8, 1960 — REHEARING DENIED SEPTEMBER 21, 1960 AND OCTOBER 6, 1960.
The plaintiff (Owens-Illinois Glass Company, a foreign corporation) instituted this litigation against the defendant, as Revenue Commissioner of the State of Georgia, to recover $39,119.55 alleged to have been erroneously or illegally collected from it by the defendant as income taxes for the calendar years 1949. 1950, and 1951 under the following Georgia income tax statutes: Code Ann. § 92-3102, which provides that "Every domestic corporation and every foreign corporation shall pay annually an income tax equivalent to four per cent of the net income from property owned or from business done in Georgia, as is defined in section 92-3113"; and Code Ann. § 92-3113, which declares in part that "The tax imposed by this law shall apply to the entire net income, as herein defined, received by every corporation, foreign or domestic, owning property or doing business in this State. Every such corporation shall be deemed to be doing business within this State if it engages within this State in any activities or transactions for the purpose of financial profit or gain, whether or not such corporation qualifies to do business in this State and whether or not it maintains an office or place of doing business within this State, and whether or not any such activity or transaction is connected with interstate or foreign commerce."
The petition in substance alleges that the plaintiff's home office or principal place of business was, during each of the taxing years involved, located in Toledo, Ohio; that all orders received for its products were accepted at its home office in Toledo; that it shipped all products sold to customers in this State by common carrier f.o.b. its plant or warehouses outside this State; that its customers remitted all payments for products purchased from it directly to it at its Toledo office; and that title to all products sold by it to Georgia purchasers passed to and vested in them on the company's delivery of such products to common carriers at points outside of Georgia. The petition further alleges that the last-quoted sentence of Code Ann. § 92-3113. which was added thereto by an amendment approved on February 16, 1950 (Ga. L. 1950, pp. 299, 300) offends article 1, section 1, paragraph 3 of Georgia's Constitution of 1945 ( Code § 2-103), which declares that "No person shall be deprived of life, liberty, or property, except by due process of law." The facts were stipulated and by agreement no other evidence was introduced. The parties submitted the case to the trial judge without a jury, and to a judgment upholding the validity of the attacked statute and the tax imposed and collected, the plaintiff excepted and by direct bill of exceptions brought the case to this court for review.
From the stipulation of facts it appears that, on December 2, 1952, the State Revenue Commissioner of Georgia collected from the plaintiff (Owens-Illinois Glass Company) the amount sued for in this litigation, which the State claimed the company was due it for the calendar years 1949, 1950, and 1951. On November 28, 1955, the company filed with the commissioner its claim for a refund of the amount collected and here sued for, and such claim was denied by him on or about January 13, 1956. Such income taxes were ascertained and computed from the company's returns for the three years involved by using the formula set out in Code § 92-3113(4). The correctness of the company's returns, the amount of its net income for each of the taxing years, the apportionments made on the basis of the company's returns, and the amount of taxes paid, including interest, are not disputed; but the company denies any liability to the State of Georgia for any amount of income taxes for the years involved or any one of them. During such years, the company maintained its Southeastern Regional Office and also a branch office in Atlanta, which were operated as a single office employing 10 full-time employees (1 regional manager, 1 branch manager, 3 branch sales representatives, and 5 secretary-stenographers). The company's southeastern region consisted of North Carolina, South Carolina, Georgia, Florida, Alabama, Tennessee, Arkansas, and parts of Mississippi, Kentucky, Missouri and Illinois. Its southeastern regional office for the taxing period involved was in charge of and directed by a manager, who also supervised the work of the branch offices of the company's southeastern region and the sales representative employed in such branch offices. The company's regional office and its branch office in Atlanta consisted of approximately 2,000 square feet of leased office space. During the taxing period involved, competition in such region was such that it was important for and advantageous to the company to have sales representatives out in the field and for them to be in close and constant contact with its customers as well as with prospective customers. Purchase orders for the company's products were regularly and systematically solicited from customers and prospective customers located within Georgia by the company's sales representatives, and they regularly and systematically called on customers and prospective customers to solicit orders and convince them of the superiority of the company's products, check their needs for its products, express appreciation for past patronage, encourage future orders, and otherwise promote good will between such customers, as well as prospective customers, and the company. Orders were also received at the company's Atlanta branch office from these customers by mail. All purchase orders from customers located in Georgia, whether received from personal solicitation or by mail, were sent to the company's Atlanta branch office initially. The company maintained and operated no manufacturing plant, warehouse, stock of goods, or storage rooms during said years at any place in Georgia. When a customer's purchase order was received at the company's Atlanta branch office, it was there translated and transcribed, from the customer's purchase order to a form prescribed by the company into terms, specifications, and language consistent with and used in the company's policies and practices. Where a customer's purchase order was a repeat order, the matter of translating and transcribing it was more or less a matter of copying the translation and transcription of a prior order, but where it was a new order, such as new or different designs, prices, sizes, weights, terms, delivery, dates, etc., the translation and transcription usually required the judgment and experience of the branch manager and branch sales representative handling the account, and each branch office was at all times in direct telephone and teletype communication with the company's home office in Toledo, and decisions on production capabilities, scheduling, delivery dates, etc., were tentatively determined by means of this, or other, direct communication at the time a customer's purchase order was being translated and transcribed on the company's order form. All customers' orders were received by the company's regional or branch managers or branch sales representatives subject to acceptance at the company's home office in Toledo; no regional or branch manager or branch sales representative at any office had any authority to, or did, accept a customer's order under any circumstances. All credit decisions were made at the company's home office in Toledo, and no regional or branch manager or branch sales representative of the company had any authority to, or did, accept a customer's order under any circumstances. All credit decisions were also made at the company's home office in Toledo. After a customer's order had been translated and transcribed, an "Order Acknowledgment" was mailed from the branch office to the customer, containing in part the following: ". . . Unless you advise this Branch Office to the contrary immediately this order is to be considered correct. This order shall not be binding upon this company until approved and accepted by it at its General Office in Toledo, Ohio. This order shall be deemed to be accepted by our General Office in Toledo unless you are advised to the contrary within fifteen days." It was the company's policy and practice to deal with its customers only through its regional or branch offices or its sales representatives, except in matters of invoicing, statements, remittances, claims, complaints, and collections, which were handled directly between the customer and the company's home office. Customers' correspondence was directed to the branch office and answered by branch office personnel after clearance, if necessary, with the Toledo office. Customers' complaints concerning shortages, breakages, and discolorations, directed to the branch office, were investigated by the branch office personnel, and forwarded to the company's home office in Toledo together with the recommendations of the branch office personnel, and any adjustments were made by the Toledo office directly with the customer. Branch sales representatives, working out of branch offices, including the one in Atlanta, were also frequently used to investigate delinquent accounts and facilitate their collection. During none of the tax years in question did the company qualify to do business in the State of Georgia; and no officer or director of the company was a resident of or maintained an office in Georgia, although the personnel employed in the Atlanta office were residents of Georgia.
In 1949 the company's sales to customers within Georgia through the activities of its Atlanta office and its Georgia sales representatives amounted to about 4 1/2 million dollars, and sales and wages paid by the company to its Atlanta personnel amounted to $81,000; in 1950 such sales amounted to nearly 5 million dollars, with a payroll in this State of $98,000; and in 1951 such sales amounted to nearly 6 million dollars and its payroll to its Georgia personnel was $108,000.
This court has for the past several years frequently had occasion to review cases respecting the right of this State or its subdivisions to tax the income or the intangibles (notes and accounts) of foreign corporations. In this case it will be neither practical nor worthwhile for us to discuss many of those cases, as the right of the State or of its subdivisions to impose and collect such taxes depended on an application of the facts of each particular case to our taxing statutes as they then existed. This case, as our statement of it shows, goes to the State's right or power to tax the net income of a foreign corporation which it claims was, during the taxing period, doing business within this State as the term "doing business within this State" was defined and is deemed to mean by the 1950 amendment to Chapter 92-31 of the Code of 1933 and particularly to annotated § 92-3113 thereof (Ga. L. 1950, p. 299). Here, the plaintiff predicates its right to recover the amount of income taxes it paid to the State for the calendar years 1949, 1950, and 1951 wholly on the proposition that it was not legally liable for any part of the amount so collected for those years or any one of them; and, in thus asserting its claim to a refund of the amount so paid, it contends that the quoted portion of the 1950 amendment to our income-tax statute offends the due-process clause of Georgia's Constitution of 1945. To this contention we do not agree, and the Supreme Court of the United States in Williams v. Stockham Valves Fittings, Inc., 358 U.S. 450 ( 79 S. Ct. 357, 3 L. Ed. 2d 421), where the facts were in all material respects substantially like those of the instant case, has very recently held that out income-tax statute, as amended by the act of 1950, does not offend the due-process clause of the Federal Constitution or the commerce clause thereof. In Miller Bros. Co. v. Maryland, 347 U.S. 340 ( 74 S. Ct. 535, 98 L. Ed. 744), it was said: "Due process requires some definite link, some minimum connection, between a State and the person, property or transaction it seeks to tax." And in the Stockham case, supra (p. 464), the Supreme Court of the United States said: "Nor will the argument that the exactions [imposed by Georgia's income tax statute] contravene the Due Process clause bear scrutiny. The taxes imposed are levied only on that portion of the taxpayer's net income which arises from its activities within the taxing state. These activities form a sufficient nexus between such a tax and transactions within a state for which the tax is an exaction." And in the same case it was held that Stockham was sufficiently involved in Georgia activities or transactions to forge "some definite link, some minimum connection" sufficient to satisfy due-process requirements. Professor Paul Hartman, author of the book "State Taxation of Interstate Commerce," writing in 13 Vanderbilt Law Review, 21, 32, summarized the rule of Federal Due Process as follows: "The exploitation of the market for the capture of profits, along with the protection afforded by the state of the market during the process, were enough for the state to demand something in return, thus satisfying the requirements of due process." The right to impose an income tax is an inherent right of the people and there is nothing in the Constitution of this State which denies to the legislature the power to impose an income tax if it is levied without infringing some provision of that instrument. Featherstone v. Norman, 170 Ga. 370 (1) ( 153 S.E. 58, 70 A.L.R. 449). "Income taxes are a recognized method of distributing the burdens of government, favored because requiring contributions from those who realize current pecuniary benefits under the protection of the government, and because the tax may be readily proportioned to their ability to pay." Shaffer v. Carter, 252 U.S. 37, 51 ( 40 S. Ct. 221, 64 L. Ed. 445). This State's income-tax statute which was enacted in 1931 (Ga. L. 1931, Ex. Sess., p. 24), and as several times subsequently amended, levies a tax on the net income "received by every corporation, foreign or domestic, owing property or doing business within this State" and such statute as amended in 1950 (Ga. L. 1950, p. 299) declares that every corporation, foreign or domestic, "shall be deemed to be doing business within this State if it engages, within this State in any activities or transactions for the purpose of financial profit or gain, whether or not such corporation qualifies to do business in this State, and whether or not it maintains an office or place of doing business within this State, and whether or not any such activity or transaction is connected with interstate or foreign commerce." By the 1950 amendment to our income-tax statute, the legislature clearly and plainly showed its intention to tax the activities or transactions which every corporation carries on within this State for the purpose of financial profit or gain. To apportion the net income earned in this State and elsewhere by a corporation, domestic or foreign, the statute as amended by the 1950 act applies a three-factor ratio based on inventory, wages, and gross receipts, the gross-receipts factor having been substituted by the 1950 amendment for the sales ratio which a 1937 amendment to the statute provided for (Ga. L. 1937, p. 109). See, in this connection Oxford v. Nehi Corporation, 215 Ga. 74 ( 109 S.E.2d 329). In the instant case, the stipulated facts show without any conflict that the plaintiff — a foreign corporation — during the taxing years involved, engaged in and carried on substantial income-producing activities or transactions in this State. And as we view this case, the simple but controlling question is whether the State has given anything for which it can ask return. Our reply to this is that the State has exerted its power in relation to opportunities given, to protection afforded, and to benefits conferred, including those accorded while its sales representatives were regularly exploiting the markets of this State for the purpose of capturing corporate profits; and having accepted and utilized those valuable State services, the plaintiff cannot consistently contend or successfully assert under the facts of this case that its property (the taxes collected) has been taken from it in violation of the due-process clause of Georgia's Constitution of 1945. Stated differently, a foreign corporation, under our income-tax statute, is not permitted to engage in income-producing activities of transactions within this State in competition with domestic corporations and at the same time escape payment of income tax to the very government which makes it possible for it to earn from such activities or transactions corporate profits, which in this case, as the record shows, were rather substantial in amount for each of the years involved. The rulings in Redwine v. Dan River Mills, Inc., 207 Ga. 381 ( 61 S.E.2d 771); Redwine v. United States Tobacco Co., 209 Ga. 725 ( 75 S.E.2d 556); and Redwine v. Schenley Industries, Inc., 210 Ga. 769 ( 83 S.E.2d 16), are not here controlling, since each involved an assessment by this State for income taxes for calendar years prior to the effective date of the 1950 amendment to Chapter 32-31 of the Code of 1933, and particularly Code Ann. § 92-3113, which specifically and expressly supplied a legislative definition and meaning of the term "doing business in this State," and eliminated the word "sales" as used in the section in connection with the term "doing business in this State" or "business done in this State"; and for the same reason the ruling in Suttles v. Owens-Illinois Glass Co., 206 Ga. 849 ( 59 S.E.2d 392), where the plaintiff (Owens-Illinois Glass Company, a non-resident corporation) sought to enjoin the defendant (Suttles, as tax collector of Fulton County), from collecting 1941 State and county taxes assessed against its accounts receivable, is likewise not controlling. The material distinction between those four cases and the present one lies in the fact that there this court judicially determined, without being restricted by legislative definition, what facts constituted doing business in this State sufficient to place a tax suits here, while in this case the legislature by the 1950 amendment to Chapter 92-31 of the Code, and particularly Code Ann. § 92-3113, has fixed a legislative definition of what constitutes a basis for assessing income taxes against corporations, foreign or domestic, which engage in any activities or transactions in this State for the purpose of financial profit or gain. Hence, we now hold that such 1950 amendment had the legal effect of shifting the operation of such section from the "closed transaction" test, which the courts of this State had previously applied to it, to the activities or transactions test, which the amendment established as the criterion to be used thereafter in determining an income-tax liability to this State of a corporation, foreign or domestic, which engages in any activities or transactions in this State for the purpose of financial profit or gain. Hence, the trial judge correctly found and held that the plaintiff was not entitled to recover the amount of income taxes it paid to the State for the calendar years involved.
Judgment affirmed. All the Justices concur.