International Elevator Co. v. Thoresen

[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] *Page 778 The plaintiff, a foreign corporation licensed to do business in North Dakota, paid certain income taxes for the fiscal years ending July 1, 1924, 1925, and 1926. Subsequently, in March and October, 1927, it presented successively two sets of amended returns and applied to the tax commissioner for revision of the tax according to such returns. The tax commissioner revised the assessment for the years ending July 1, 1925, and July 1, 1926, acting upon the second amended return, but declined to revise the assessment for 1924 on the ground that the two-year limitation contained in § 38 of chapter 312 of the Session Laws of 1923 had run. Within thirty days after the notice of redetermination the plaintiff served a summons and complaint upon the defendant as tax commissioner, complaining of the failure of the defendant to refund the entire income taxes assessed for the years *Page 779 in question, the proceeding obviously resorted to being what is denominated in the statute, § 39 of chapter 312, Session Laws of 1923, an appeal for judicial review of the proceedings. After a hearing in the district court of Burleigh county, a judgment of dismissal was entered in favor of the defendant and from this judgment the plaintiff appeals to this court. In the complaint the plaintiff alleges that it is a Minnesota corporation engaged principally in the buying and selling of grain, buying the same in the states of North Dakota, Minnesota, and elsewhere and selling it outside of North Dakota, principally on the grain exchanges in Minneapolis, St. Paul and Duluth. It alleges the payment under protest for the years mentioned of sums aggregating $5,499.14 and that it made timely demand upon the tax commissioner for revision and refund of amounts exacted from it for each of these years, supplementing its demand with a showing in writing; that the tax commissioner made certain refunds for the years involved amounting to $1,047.96, but denied the plaintiff's demand as to the balance claimed in the sum of $4,452.08. It alleges that it has been compelled to submit to the defendant a report showing its gross and net annual income from its business both within and without the state and the allocation of the same on a property and business basis; that it has been denied the right to segregate its North Dakota business and have the tax computed upon its North Dakota business; that the statutes under which the defendant has exacted payments from the plaintiff are unconstitutional and void in that they deprive the plaintiff of property without due process of law and that imposts and duties are levied contrary to § 10 of the Constitution of the United States; that the statutes, as construed and enforced by the defendant, deprive the plaintiff of equal protection of the laws; that in computing the taxable net income in the manner alleged the defendant has discriminated between lessees of grain elevators within and without the state and the owners of such elevators within and without the state, denying to the plaintiff the equal protection of the laws; that the taxes constitute an unlawful burden and charge upon interstate commerce; that the various provisions of chapter 312 of the Laws of 1923 — in particular § 8 of said act — pertaining to "allocation in special cases" are unconstitutional in that they involve a redelegation *Page 780 to the defendant of legislative power which under the state constitution is vested solely in the legislative assembly. The answer alleges substantially the filing of the annual returns for each of the years in question by the plaintiff and the payment concurrently therewith of the amount of the tax as shown by the return to be owing; that the payments were voluntarily made without protest; that the returns did not comply with chapter 312 of the Session Laws of 1923; that on March 21, 1927, the plaintiff filed with the defendant amended returns for each of the years in question and an application for refund of all money previously paid; that such amended returns did not comply with the provisions of the law; that on October 10, 1927, further amended returns were filed which complied with the provisions of chapter 312, Session Laws of 1923; that in acting thereon the defendant ascertained that the plaintiff was entitled to have refunded certain amounts for the years ending July 1, 1925, and July 1, 1926, aggregating $1,047.96, which refund the plaintiff accepted and received; that the defendant rejected the application for refund or revision of the tax for the year ending July 1, 1924, for the reason that the same was not made before the expiration of two years from the date of the filing of the original return. The cause was submitted on the amended returns and stipulated facts. The facts so stipulated are that the plaintiff, a foreign corporation, operates a line of elevators about half of which are in the state of Montana and the other half in North Dakota; that its income is derived chiefly from the sale outside of North Dakota of grain purchased at its elevators in both states; that there are some receipts derived from storage and elevator charges and from the sale of coal and some other incidental sources as shown by the returns; that returns and amended returns or reports were submitted and payments and refunds made as above indicated; that the defendant notified the plaintiff that the amended returns filed in March, 1927, did not comply with the statute and that no determination of the tax could be made therefrom; that in July, 1927, a conference was held as to the manner of report by the plaintiff at which the defendant informed the plaintiff that the original returns were incomplete and that a request for a refund (except as to the year 1924) would be entertained when the statute was strictly complied with as to the manner of filing returns, and that in *Page 781 accordance with these suggestions the plaintiff filed its second amended return on October 10, 1927; that on December 14, 1927, the defendant gave notice to the plaintiff of the making of an order denying a refund in any amount for the year 1924, denying a refund for the year 1925 except as to the sum of $907.62, denying a refund for the year 1926 except as to the sum of $140.34, which refunds aggregated $1,047.96, and which amount was found due the plaintiff on the second amended return; that the total amount paid for the years 1924, 1925, and 1926 was $5,499.14; that the amount of the refund to the plaintiff was paid and not accepted by the plaintiff as a settlement in full of its demands; that twenty-seven days after notice of defendant's order the plaintiff served the summons and complaint in the instant action. It is further stipulated that at least 90 per cent of the plaintiff's gross sales in each of the years 1924, 1925 and 1926 was made in states other than North Dakota. In addition to the stipulated facts the returns were offered in evidence. The objections urged to the tax may be better understood upon a partial analysis of these returns. For purposes of illustration, we use the returns for the fiscal year ending in July, 1925. The gross income of the corporation was placed at $7,152,656.66. During the year it had purchased merchandise for sale at $6,334,812.64. There was another inventory item of $6,798.53. After subtracting its inventory from its gross sales, it showed a gross profit of $805,765.63. Other small items brought its gross income to $808,619.72. From this there was subtracted for various expenses and depreciation the sum of $559,104.61, leaving a net income subject to apportionment of $249,515.11. This was apportioned on the basis of the ownership of tangible property owned in connection with the business both within and without North Dakota. The schedule showed a total value of this property of a little over $502,000. It showed a little more than half of the property in value to be located in North Dakota and 50 per cent of the income was accordingly apportioned to this state, there being no computation based upon wages, salaries, amounts paid for the purchase of goods and receipts from sales and other business sources, such as the statute directs to be taken into consideration. The tax as so computed and paid was $3,545.60. The first amended return filed in March, 1927, did not show the gross income of the taxpayer. It showed only gross profits and *Page 782 income received from sales at North Dakota elevators, storage, elevator charges, interest and rents, a total of $15,564.36. There were listed for deduction various expenses including agents' salaries and expenses of stations, aggregating $101,441.02. According to this showing the company had a deficit of $85,876.66 and, consequently, no net income subject to tax in North Dakota. Upon the tax commissioner declining to redetermine the tax according to this return, there was filed on October 10, 1927, a return showing the same net business income subject to apportionment, as was shown by the first return filed, $249,515.11. The apportionment schedule showed about the same proportionate ownership of property used in connection with the business within and without the state as was shown by the first return, the ratio being 49.46 per cent in North Dakota. In round numbers wages and salaries paid in North Dakota were $51,000 and without North Dakota $72,000; amounts paid for purchases of goods in North Dakota $3,000,000 and without North Dakota $3,000,000; receipts from sales and other business sources in North Dakota $83,000 and without North Dakota $6,800,000. The ratio of the combined items of wages, etc., amounts paid for purchase of goods, etc., receipts from sales, etc., within North Dakota to the total was 24.13 per cent. The average of the two ratios was 36.79 per cent. According to this the net income was apportioned to the state, making a tax of $2,937.98, the difference between the tax computed according to this return and the first return being $607.62. (The tax commissioner, whether through error does not appear, granted a refund of $907.62.) Opinion.