Court Opinion

ID: 9850905
Source: CourtListenerOpinion
Date Created: 2023-09-24 05:04:04.536985+00
Date Added: 2024-06-11T09:20:45.344236
License: Public Domain

ON DENIAL OF PETITION FOR REHEARING
JOHNSON, Justice.
NONRESIDENT INDIVIDUALS AS WELL AS MULTI-STATE CORPORATIONS ARE ENTITLED TO PROTECTION OF THE NEXUS REQUIREMENT.
In its petition for rehearing the Commission contends that the concept of nexus should not be applied in the same fashion to multi-state corporations and to nonresident individuals. We are said to have erred in looking to principles of nexus developed in cases dealing with multi-state corporations in determining whether a sufficient nexus existed in this case to justify the imposition of income taxes on the train crews. This contention suggests that individuals are not entitled to the same protection of the nexus requirement as corporations are under the due process clause and the commerce clause.
Nonresident individuals do not have fewer rights than multi-state corporations do under the due process clause and the commerce clause. In Shaffer v. Carter, 252 U.S. 37, 40 S.Ct. 221, 64 L.Ed. 445 (1920), the Supreme Court evaluated the rights of an individual under the due process clause and the commerce clause. There is no indication in the opinion of the Court that the result would have been different if the taxpayer had been a corporation. In a companion case decided on the same day the Court upheld a state income tax on the income of a multi-state corporation. Travis v. Yale & Towne Mfg. Co., 252 U.S. 60, 40 S.Ct. 228, 64 L.Ed. 460 (1920). The opinion in each case referred to the other. No distinction was made between the individual nonresident in Shaffer and the corporate nonresident in Travis. The same principles were applied in determining whether the respective states could tax the incomes of the individual and the corporation.
The decisions of other states also indicate there are no fewer rights for nonresidential individuals than there are for multistate corporations in matters of taxation. In State of Alaska v. Petronia, 69 Wash.2d 460, 418 P.2d 755 (1966) and Sjong v. State, Department of Revenue, 622 P.2d 967 (Alaska 1981), both of which were cited by the Commission, the Alaska Supreme Court dealt with the rights of individual nonresident taxpayers. In neither case did the court distinguish the rights of individuals from those of corporations under the due process clause and the commerce clause. In both cases the court went through an extensive analysis of the due process clause and the commerce clause, citing many leading cases of the United States Supreme Court dealing with multistate corporations. The same is true of the *961New Mexico Supreme Court in Lung v. O’Chesky, 94 N.M. 802, 617 P.2d 1317 (1980), also cited by the Commission.
Nexus is a threshold test in due process and commerce clause state taxation cases that applies to both individuals and corporations. Our task in this case is to determine the principles that have been developed in Supreme Court cases concerning the requirement of nexus and to apply those principles to the facts here. It is not “shoehorning” to use the concept of nexus developed in the multi-state corporation cases in deciding a case that involves nonresident individuals. This is merely the necessary process of reasoning from established legal principles in deciding a case where there is no controlling precedent.
It is true that a multi-state corporation is a fictitious entity that, through its agents and employees, can be present in more than one state at a time, while an individual can be in only one state at any moment. This fact does not render inapplicable the principles developed by the Supreme Court to determine whether the nexus between the train crews and Idaho is sufficient to allow Idaho to impose an income tax on these nonresident individuals. Presence in a state is only one of the factors that the Supreme Court has weighed in determining whether a corporation is subject to state taxation. If presence alone were sufficient, the whole concept of nexus would be unnecessary. Not just any nexus (connection) is sufficient to satisfy the Court’s test. It must be a “substantial nexus.” Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 279, 97 S.Ct. 1076, 1079, 51 L.Ed. 2d 326 (1977).
The cases from other states dealing with taxation of nonresident individuals indicate that substantial nexus is a threshold test that is to be applied to individuals as well as to corporations. In Petronia, the Alaska court accepted the principle that before a state may levy a personal income tax upon a nonresident there must be “minimum connections between the nonresident and the taxing authority.” 418 P.2d at 758. In doing so the court referred to the decisions of the Supreme Court in Northwestern States Portland Cement Co. v. Minnesota, 358 U.S. 450, 79 S.Ct. 357, 3 L.Ed.2d 421 (1959) and Wisconsin v. J.C. Penney Co., 311 U.S. 435, 61 S.Ct. 246, 85 L.Ed. 267 (1941). These were both cases involving multi-state corporations. After acknowledging the applicability of the minimum connections test to individuals, the Alaska court concluded that the wages earned by individual seamen while they were in Alaskan waters was the most significant benefit they received from the state. The court pointed out:
The business productivity generated by Alaska was accountable for the wages earned by the [seamen] when they were in Alaskan waters____ We find no distinction between business generated by the economic activities of Alaska accountable for the employment of nonresidents whether it be on land or on the water within the Alaskan boundaries. We are satisfied that the benefits of employment afforded by this economic activity of the state of Alaska constituted minimum connections within the rule to avoid a denial of due process under the Fourteenth Amendment to the United States Constitution.
418 P.2d at 758-59 (Emphasis added).
If the presence of the seamen without more would have satisfied the minimum connections requirement, the Alaska court would not have found it necessary to find another connection. If the earning of wages alone would have satisfied the minimum connections requirement, the Alaska court would not have found it necessary to have tied those wages to the “business generated by the economic activities of Alaska” and the “benefits of employment afforded by this economic activity of the state of Alaska.”
In Sjong, the Alaska court dealt with a ease in which Alaska had asserted an income tax against a nonresident individual who caught crabs outside of Alaska in international waters and then sold the crabs in Alaska. After recognizing the applicability of the minimum connections or substantial nexus requirement, the court concluded that “even though Sjong fishes in international waters, the activities of the *962state have a substantial effect on his activities” and that the crab industry “has been fostered by the policies of the state and protected by its various police powers.” 622 P.2d at 971. If mere presence in the state were sufficient, these additional rationales would not have been necessary to support a finding of the required minimum connections or substantial nexus.
PUSHING AND PULLING A THROTTLE DOES NOT CREATE A SUBSTANTIAL NEXUS.
In his opinion on denial of petition for rehearing, Justice Huntley poses the conundrum that the physical phenomenon of an engineer pushing and pulling a train’s throttle while the train is traveling through Idaho cannot truly be transformed into “throttle pushing and pulling” in Washington or Montana. The implication is that the majority opinion ignores the “substantial nexus” of an engineer’s pushing and pulling a throttle in Idaho and attempts to transmigrate this activity to our sister states. The answer to this purported puzzle is that it depends upon the circumstances in which the engineer is pushing or pulling the throttle whether it will be deemed to be a “substantial nexus,” subjecting the engineer’s income for doing so to tax in Idaho. If the engineer were a resident of Idaho or were pushing or pulling the throttle while involved in employment that was generated by the economic activity of Idaho, a substantial nexus would exist. When the engineer is a nonresident and pushes or pulls the throttle while driving a transcontinental train across Idaho without engaging in any activity generated by the economy of Idaho, there is not a substantial nexus. Other factual situations will require further interpretations of what constitutes substantial nexus. It is not appropriate for us to prejudge those cases here. It is sufficient for us to decide this case and to state our rationale.
The Commission argues that while the train crews are working in Idaho they are receiving the benefits of Idaho’s organized society and should therefore be subject to Idaho income taxes. The Commission cites Justice Huntley’s dissent for the contentions that the train crews are provided the benefits of Idaho’s state and local governmental structures and the opportunity to exercise their intelligence, skill and labor while performing work for their employer within Idaho. It is these “fruits of civilization,” the Commission argues, that make it possible for BN to operate its trains in Idaho, thus giving rise to the employment of the train crews.
The concept that taxes are what we pay for the fruits of civilization has been attributed to Justice Oliver Wendell Holmes. Wisconsin v. J.C. Penney, 311 U.S. at 446, 61 S.Ct. at 250. What Justice Holmes said was: “Taxes are what we pay for civilized society,____” Compania General de Tabacos de Filipinas v. Collector of Internal Revenue, 275 U.S. 87, 100, 48 S.Ct. 100, 105, 72 L.Ed. 177 (1927) (Holmes, dissenting). In that case Holmes said that he could see no ground for denying the right of the Philippine Islands to tax insurance premiums paid by a Spanish company to a London insurer to insure merchandise stored in the Philippines, “unless it can be shown that it has conferred no benefit of a kind that would justify the tax.” Id. He then pointed out that “the government of the Islands was protecting the property at the very moment in respect of which it levied the tax.” Id. at 101, 48 S.Ct. at 105. This makes it clear that Holmes did not rely on a nebulous concept of “fruits of civilization,” but rather embodied in that concept the idea that the taxpayer must have received some benefit from the governmental unit imposing the tax.
In J. C. Penney, the Supreme Court in upholding a corporate income tax on earnings attributable to activities in Wisconsin pointed out that “the incidence of the tax as well as its measure is tied to the earnings which the State of Wisconsin has made possible, insofar as government is the prerequisite for the fruits of civilization.” 311 U.S. at 446, 61 S.Ct. at 250. The fruits of civilization in that case included the permission of Wisconsin for J.C. Penney Co., a Delaware corporation having its principal offices in New York, to carry *963on business in Wisconsin. Here there is no comparable situation. The train crews did not have to obtain permission of Idaho to be employed by BN on the through transcontinental trains passing through Idaho. Saying that the train crews benefited from the fruits of civilization in Idaho when they were passing through amounts to nothing more than saying that they were present here. Mere presence in a state does not fulfill the requirement of substantial nexus.
In Lung v. O’Chesky, the New Mexico Supreme Court upheld the power of the state to tax income of Texas residents who were employed on the White Sands Missile Range, a federal enclave. The court noted that the power to tax rests on the benefits of the “fruits of society” and the “opportunity to exercise ‘intelligence, skill, and labor while employed in the State of New Mexico.’ ” 617 P.2d at 1319. It is apparent that the employees of the missile range traveled from Texas to New Mexico and remained there to carry out their work. They were, not merely passing through the state as the train crews were in this case. In any event, to the extent that Lung is contrary to our decision here, we decline to accept its logic.
The Commission argues that if BN were unable to operate its trains in Idaho, it would be unable to provide the jobs from which the trains crews receive their wages. It is the opportunity to be employed, says the Commission, that constitutes sufficient nexus for the state to tax the wages of the train crews. This opportunity is apparently the “fruit of civilization” in Idaho that the train crews are asserted to enjoy while passing through the state. This argument overlooks the fact that the train crews did not obtain their employment in Idaho, but ■in Washington. Their opportunity for employment arose there. They entered upon their employment in Washington and traveled between Washington and Montana in the course of their employment. The fact that in the course of their employment they traveled through Idaho is purely coincidental. Nothing in Idaho provided them with the opportunity for their employment. Their only connection with this state is that the trains on which they were employed traveled through the state. Neither BN nor the train crews transacted any business in Idaho during these trips. The relationship of the train crews was with BN, not with Idaho. The fact that they were paid for duties they performed on the trains while the trains were traveling through Idaho does not amount to their benefiting from the fruits of civilization in Idaho. Idaho did not provide them with the opportunity for employment; only BN provided them with that opportunity.
One can imagine a number of circumstances in which nonresident individuals who have been employed outside the state travel across Idaho during the course of their employment. For example, a bank executive from Denver may fly regularly between Denver and Seattle, passing over Idaho on each trip. By the logic of the Commission, this executive would be required to pay Idaho income tax while traveling across Idaho. Idaho would apparently have provided this executive with the fruits of its civilization for which it was entitled to payment. No case has been cited that would subject this banker to income taxation by Idaho, merely because of invasion of our air space. There is no authority for doing so. If the Denver executive traveling to Seattle by airplane is not subject to Idaho income tax, should the same executive be subject to Idaho income tax because he chooses to travel through Idaho by train, by bus, or by private automobile instead of by airplane. If the Denver executive is not subject to Idaho income tax while traveling through Idaho, the Commission does not offer any rationale why the train crews should be subject to income tax while traveling through Idaho. Perhaps it is because throttle pushing and pulling is not as exempt from taxation as pencil pushing and pulling. I am not prepared to premise a constitutional distinction on such an anti-egalitarian construct.
THE “DE MINIMIS” PROVISIONS OF I.C. §§ 63-3030 AND 63-3023B ARE IRRELEVANT TO THE ISSUE OF NEXUS IN THIS CASE.
The Commission argues that I.C. Sec. 63-3030 establishes a “de minimis’’ provi*964sion that removes any perceived unconstitutionality of the tax on the income of the train crews earned while they are traveling through Idaho. This statute currently provides that a nonresident individual is not required to file an income tax return in Idaho unless the gross income of the individual from Idaho sources exceeds (1) $3,300, if unmarried and not a surviving spouse, (2) $4,400, if a surviving spouse, or (3) $5,400, if entitled to make a joint, return. The Commission also invokes the 1988 enactment of the Idaho legislature now codified in I.C. Sec. 63-3023B, effective retroactively to January 1,1988. This new statute exempts a nonresident individual from filing an Idaho income tax return or paying Idaho income taxes, if the individual:
(a) Is an employee of a railroad or motor carrier; and
(b) Performs regularly assigned duties in the course of such employment aboard a train or motor vehicle in this state and at least one (1) other state of the United States; and
(c) Earns less than one-half (V2) of his income from employment aboard a train or motor vehicle as a result of activities in this state; and
(d) Earns no other income from sources within this state; and
(e) Is, during the entire taxable year, a resident of a state which does not impose on individuals a tax, measured by net income, or which grants to Idaho residents an exemption from tax similar to that granted in this section.
I.C. Sec. 63-3023B (1988).
De minimis is a concept derived from the legal maxim, “De minimis non curat lex" (the law does not concern itself with trifles). Crosby v. Rowand Machinery Co., 111 Idaho 939, 944, 729 P.2d 414, 419 (Idaho App.1986). What is a “trifle” is apparently a very flexible concept in the view of the Commission. When I.C. Sec. 63-3030 was enacted in 1959, it was $600. More recently, it has been $3,300, $4,400, or $5,400, depending on the status of the individual. For transportation workers traveling through Idaho it may now be up to one-half of the income they earn during their sojourn through the state. Tomorrow it may be some other amount, or zero, depending on the policy enacted by the legislature.
None of these formulations is relevant to the determination of whether there is substantial nexus as required by the due process clause and the commerce clause. Nexus is concerned primarily with the quality of the connections an individual or business entity has with a state, not with the quantity of the individual’s or entity’s income. “Minimum connections” does not mean minimum income.
THE COMMERCE CLAUSE PROTECTS INDIVIDUALS WHO ENGAGE IN OCCUPATIONS THAT CAUSE THEM TO CROSS STATE BOUNDARIES.
The Commission contends that the commerce clause is not applicable to this case because there is no sale of goods or transportation services. The Commission would restrict “commerce” to transactions involving sales. This concept of commerce is archaic. As the Supreme Court said in Jordan v. Tashiro, 278 U.S. 123,127-28, 49 S.Ct. 47, 48, 73 L.Ed. 214 (1928):
While in a narrow and restricted sense the terms “commerce,” or “commercial,” and “trade” may be limited to the purchase and sale or exchange of goods and commodities, they may connote, as well, other occupations and other recognized forms of business enterprise which do not necessarily involve trading in merchandise. [Citation omitted.] And although commerce includes traffic in this narrower sense, for more than a century it has been judicially recognized that in a broad sense it embraces every phase of commercial and business activity and intercourse. See Gibbons v. Ogden, 9 Wheat. 1, 6 L.Ed. 23.
The train crews worked across state boundaries and were involved in interstate commerce. They are entitled to the protection of the commerce clause, the same as if they sold goods or transportation services.
SHEPARD, C.J. and BAKES, J., concur.