Opinion ID: 1325000
Heading Depth: 1
Heading Rank: 2

Heading: pittsburgh-des moines steel co.

Text: The taxpayer, Pittsburgh-Des Moines Steel Company, presents a rather limited case involving the business and occupation taxation on its contracting work performed in West Virginia. Its principal contention for avoiding the tax rests upon the theory that many of the steel tanks erected by the company in this State are partially fabricated out of State. Also, in some instances its West Virginia customer prepares the pad on which the metal tank is erected. There appears to be no claim, however, that the taxpayer is not engaged in the contracting business as distinguished from the mere selling of tangible property. Although the taxpayer maintains no office within the State, it has qualified to do business in this State and admits to hiring local welders to erect its tanks in West Virginia. Its employees also inspect and test the completed structures and are covered by various State programs, such as Workmen's Compensation and Employment Security. The primary argument of Pittsburgh-Des Moines centers upon the claim that an earlier case decided by the Circuit Court of Kanawha County found that a taxpayer involved in a similar activity was not subject to the tax. This Court, of course, is not compelled to follow that decision. The specific question of whether a business and occupation tax can be imposed on the gross receipts of a contracting business if some of the contracting material is fabricated out of state was answered in Dravo Contracting Co. v. James, 114 F.2d 242 (4th Cir. 1940), cert. denied, 312 U.S. 678, 61 S.Ct. 450, 85 L.Ed. 1117 (1941). There, a dam contractor contended that certain fabricating work was completed in Pennsylvania before the material was brought into West Virginia, and therefore that he was not subject to the West Virginia tax. The Court, however, held that the out-of-state fabrication was not a sufficient reason to escape the tax: The tax here is not upon a unitary enterprise conducted in several states, but upon the business of contracting conducted in West Virginia, and income derived from that business is properly subject to taxation by that state. . . . The fact that the contractor may have prepared materials in other states for use under the contract is immaterial, if they were used in the performance of the contract in West Virginia and payments made the contractor were dependent upon such use. [114 F.2d at 246]. Thus, partial fabrication of the product outside this State does not preclude the State from imposing a contractor's business and occupation tax on the entire contract, so long as the product is incorporated into the contract work and is a part of the total contract price. Cf. Department of Treasury v. Wood Preserving Corp., 313 U.S. 62, 61 S.Ct. 885, 85 L.Ed. 1188 (1941); [6] see, e. g., Republic Steel Corp. v. McCastlain, 240 Ark. 979, 403 S.W.2d 90 (1966); Chicago Bridge & Iron Co. v. Johnson, 19 Cal.2d 162, 119 P.2d 945 (1941). I do not think that the majority's application of Complete Auto and Standard Pressed Steel is appropriate to the facts of this case. Taxpayer admits that he has qualified to do business in this State and has employees engaged in the erection of steel tanks in this State. Obviously, once the taxpayer has admitted to construction contract work within the State, a claim that there is not sufficient nexus must fail. I do not understand the majority's citation of Boston Stock Exchange v. State Tax Commission, 429 U.S. 318, 97 S.Ct. 599, 50 L.Ed.2d 514 (1977). Boston involved a discriminatory tax on interstate commerce. Here, the taxpayer's claim is that the tax is not fairly apportioned. As I note in Penney, this claim is judged by the amount of the taxpayer's local activities and consequent benefits and opportunities that the taxpayer receives in this State. Certainly the taxpayer, having qualified to do business in this State and concededly erecting steel tanks herein, gains every benefit and protection afforded a local contractor, including those of State Workmen's Compensation and Employment Security and other State services. As I pointed out in Penney, the business and occupation tax is basically assessed upon the activity the company conducts in this State. In the case of Pittsburgh-Des Moines, the tax is applied to gross income from the contracting work performed in this State. The tax is fairly apportioned because it is based on the value of the contract work performed in West Virginia.