Court Opinion

ID: 9727020
Source: CourtListenerOpinion
Date Created: 2023-08-26 13:17:31.596573+00
Date Added: 2024-06-11T18:25:32.925554
License: Public Domain

Fairchild, J.
(dissenting). The taxpayer carries on a profitable newspaper publishing business. Its activities occur principally in Missouri, but in the years in question, it used raw materials which it had produced in Wisconsin. The problem is to allocate some portion of its net income to business transacted and property located within Wisconsin. The parties agree that the separate accounting method was to be used, and thus one of the determining factors in the allocation will be the “price” at which newsprint produced in Wisconsin and used in Missouri was reflected in the separate accounting. The principle relied upon by the majority *455is that if a Wisconsin operation be credited with the fair market value of the goods which a taxpayer produces here, but uses in another state, a fair allocation of the taxpayer’s net income to business activity in Wisconsin will result. It seems clear, however, that in the situation before us, the use of the “prevailing” price does not produce a fair allocation. It results in too much income being allocated to the business in Missouri, and too little to the business in Wisconsin.
This is not to criticize the principle above referred to, but to state that the principle cannot be applied where the conditions of the market are such as described in this record. It appears that during the particular years those newsprint producers who wished to remain in that business and who sold newsprint upon the basis of the long-term contracts were willing to sell at the “prevailing” prices. There were other producers who were willing to do business on a short-run basis and not willing to give price consideration to customers in order to maintain the relationship during future years when supply might be in better balance with demand. These producers made sales at the so-called “gray market” prices, ranging much higher than the “prevailing” prices. Under the market conditions described, it seems to me to be impossible to determine a market price which would be useful in solving the problem before us. Evidently, a producer was a willing seller at the “prevailing” price if he wished to play the game on a long-term customer-relationship basis, but was not a willing seller at that price if he was not interested in the continuation of the business relationship. The transaction described in the majority opinion, where M. & O. charged the Star a $20 per ton premium in 1948 for 10,000 tons, provides an illustration of a situation where a premium above prevailing price was necessary in order to induce a producer to sell where, as an alternative, he could have sold a different product to another customer on a more-profitable basis. If the Flambeau mill were not owned by the Star, it *456presumably would not have been selling newsprint to anyone because it would have produced more high-grade paper.
It appears that the Star chose to produce newsprint at its Wisconsin mill only under the impetus of the shortage conditions, and considered this of sufficient advantage to it under those conditions to warrant foregoing the opportunity of producing high-grade paper for profitable sale. It seems to me that this is a type of situation where too many fictions are involved in the application of the fair-market-value principle, and that the department adopted a method of allocation of the taxpayer’s income to the Wisconsin operation which was not unreasonable.