Opinion ID: 1325000
Heading Depth: 1
Heading Rank: 3

Heading: richardson, gordon & associates

Text: In this case, an engineering partnership resists the imposition of the business and occupation tax on gross income arising from services, W.Va.Code, 11-13-2h. The majority opinion notes that despite rather substantial contacts with this State, including a field office in Wheeling, the taxpayer seeks to avoid the tax on the ground that 95% of its engineering work is performed at its home office in Pittsburgh, Pennsylvania. The 95% figure is the taxpayer's estimate, which was arrived at by its determination that the bulk of the work done in West Virginia is not chargeable under its contract. The factual parallelism with Baton Coal Co. v. Battle, 151 W.Va. 519, 153 S.E.2d 522 (1967), is obvious, and the refusal of the majority to consider this decision is dismaying. Baton involved a Pennsylvania corporation which furnished managerial services and advice to a West Virginia coal mining company. The West Virginia Tax Commissioner sought to collect the service business and occupation tax on the gross receipts obtained under its management contract. This Court held that the company's activity in West Virginia was not sufficient to constitute doing business within this State in order to subject it to the tax. It is obvious that Baton's definition of what standard constitutes doing business within a state must be altered in view of the more liberal concepts found in General Motors Corp. v. Washington, 377 U.S. 436, 84 S.Ct. 1564, 12 L.Ed.2d 430 (1964), and Standard Pressed Steel Co. v. Washington Department of Revenue, 419 U.S. 560, 95 S.Ct. 706, 42 L.Ed.2d 719 (1975). I recognize that it is not a simple task to determine what are sufficient local contacts to cause a service business to be subject to the business and occupation tax. It will often be true, as is the case here, that the local transactions are rather insubstantial when compared to the service provided, but I do not believe that this type of comparison is a viable test under recent standards set by the United States Supreme Court. In Standard Pressed Steel, the value of the local services performed by its lone employee in the State of Washington and the company's occasional expense of sending its consulting engineers to the Boeing plant were obviously rather miniscule, when compared to the total value of the product sold in the State of Washington. [7] The same is true of the cost of services performed by General Motors personnel in General Motors Corp. v. Washington, supra , who had engaged in rather meager sales and product service activities with dealers. Yet, these activities were sufficient to permit the state to tax the entire wholesale value of all cars and parts shipped to Washington auto dealers by General Motors. Those states having a business and occupation tax [8] which have had occasion in recent years to consider analogous factual situations, have rather uniformly upheld the tax. In Ramsay Travel, Inc. v. Kondo, 53 Haw. 419, 495 P.2d 1172 (1972), travel agents operating in Hawaii were taxed on income derived from commissions on ticket sales for transportation, lodging and sightseeing tours in other states and foreign countries. The taxpayer contended that the tax should be apportioned, since much of the services which generated revenues upon which the tax was levied were performed outside Hawaii. In rejecting this contention, the court stated: [T]hey [taxpayers] would have to show that the state has failed to exert its power of taxation in proper proportion to their activities within the state and to their `consequent enjoyment of the opportunities and protections which the state has afforded.' General Motors Corporation v. Washington, supra, 377 U.S. at 441, 84 S.Ct. at 1568. The taxpayers have failed to make any such showing. [53 Haw. at 425, 495 P.2d at 1177] Much the same result was achieved in McKinnis Travel Service, Inc. v. State, 78 Wash.2d 229, 472 P.2d 392 (1970), and Pan American World Airways, Inc. v. Virgin Islands, 459 F.2d 387 (3d Cir. 1972). In Matter of Heftel Broadcasting Honolulu, Inc., 57 Haw. 175, 554 P.2d 242 (1976), cert. denied, 429 U.S. 1073, 97 S.Ct. 811, 50 L.Ed.2d 791 (1977), the issue was taxation of the income of an out-of-State lessor derived from the leasing of television and film rights to local television stations. The taxpayer contended that all of the products covered by the license agreement were made out of state, but the court found that the license agreement gave the out-of-State lessor local dominion over the telecast which provided a sufficient nexus to permit the entire revenue from the license agreement to be subject to the Hawaii business and occupation tax. It is obvious from these decisions, as well as from General Motors Corp. and Standard Pressed Steel, that a state tax cannot be defeated on Commerce or Due Process Clause grounds merely because the value of out-of-state activity as it relates to the subject of the tax, whether the subject be products or services, is substantially greater than the value of in-state activity. The conclusion that must be reached is that as long as the out-of-state taxpayer is conducting relevant business activities within this State, it may be subject to a business and occupation tax on the receipts derived from the local transaction, regardless of whether those receipts substantially exceed the value of the local transactions performed by the taxpayer in this State. The taxpayer's final point is that the City of Pittsburgh has imposed a similar tax and that the West Virginia tax thus creates a multiple burden on interstate commerce. The only pertinent evidence in the record is a statement by a partner of the taxpayer that income from West Virginia is reported to the City of Pittsburgh and that it is not possible to determine whether the tax is on income or gross receipts. Clearly, since the decisions in General Motors Corp. and Standard Pressed Steel, if not as early as North-western States Portland Cement Co. v. Minnesota, 358 U.S. 450, 79 S.Ct. 357, 3 L.Ed.2d 421 (1959), the taxpayer cannot abstractly raise the issue of multiple taxation, but has the burden of showing how a multiple tax arises in a constitutional sense. [9] Here, there was no attempt to detail the precise nature of the out-of-state tax and its particular bearing on the transaction taxed by this State. General Motors Corp. v. Washington, supra . Because the taxpayer failed to establish the precise nature and effect of the City of Pittsburgh tax, and thus did not meet its evidentiary burden, I would decline to resolve the issue on this ground.