Court Opinion

ID: 9450286
Source: CourtListenerOpinion
Date Created: 2023-08-04 16:41:19.104078+00
Date Added: 2024-06-11T17:32:14.469493
License: Public Domain

DANAHER, Circuit Judge
(dissenting) :
This court in Smoot Sand and Gravel Corp. v. District of Columbia1 was urged to consider a three-factor formula consisting of manufacturing costs, business property located in the District and sales made here. But the opinion noted that no evidence had been offered to compel acceptance of that formula. Moreover, the petitioner had failed to show that an arbitrary and unreasonable result flowed from the regulation which directed the apportionment of net income by considering only sales. Thus we refused to say that the assessments were invalid and erroneous.
Here the Tax Court, after noting that most of the facts and the evidence based upon exhibits had been stipulated, further found:
“5. The segment of petitioner’s business which was conducted both within and without the District of Columbia consisted of the manufacture of a certain number of automobiles and kindred products without the District and the sale thereof to customers within the District. The net income from this segment of petitioner’s business was earned by a series of transactions beginning with the manufacture of products in several states and ending with the sale to customers in the District. While the net income was not realized until sale, it was earned in part by manufacture of the products sold, including in addition to actual manufacture, procurement of material, financing, use of property and administration.
*903“6. The method used by the assessing authority of the District attributed to the District 100 per cen-tum of the net income derived by the petitioner from that segment of its business which consisted of the manufacture without, and sale of the products within the District. The percentage thus determined was out of all reasonable proportion to the trade or business carried on or engaged in by petitioner within the District.”
With Smoot Sand and Gravel before it, the Tax Court expressly found that the District’s use of the single-factor sales formula had allocated to the District all of the petitioner’s income, earned at all stages, although only certain final sales had occurred in the District. Thus the sales formula failed to apportion petitioner’s income as the Code commanded where income from a sale within the District was actually earned “partly within and partly without” the District.
“If the trade or business of any corporation * * * is carried on or engaged in both within and without the District, the net income derived therefrom [that is, from business so carried on or engaged in both within and without the District] shall * * be deemed to be income from sources within and without the District.” D. C.CODE § 47-1580a (1961). (Emphasis added.)
The same section next provides that where net income is so derived, the portion subject to tax shall be determined under regulations prescribed by the Commissioners. Clearly the purpose of the statute is to reach only a “proper” — i. e., an equitable and just — “portion” which shall be subject to tax. To that end, the Code authorized the Assessor to employ “any formula or formulas” provided by regulation “which, in his opinion, should be applied in order to properly determine the net income * * * subject to tax.” (Emphasis added.) The language speaks in terms of what is right and reasonable and just and equitable according to the facts. At least that much is required to save the tax from becoming an invalid imposition. The Assessor is not empowered broadly to utilize “any formula,” but only one which “should” be utilized that the amount of tax be “properly” determined. And we have so held:
“It seems clear from the statutory provisions considered as a whole that the Assessor is vested with discretion to select the most appropriate formula from among those set out in the regulations. Where no appropriate formula appears in the regulations, we think he has authority to devise one which in his judgment will properly determine the net income subject to tax and the correct amount of the tax. His determination is of course subject to review in the courts.” District of Columbia v. Gallant Incorporated, 110 U.S.App.D.C. 202, 204-205, 290 F.2d 745, 747-748, (1961).
Even if the Assessor shall have failed so to act, the Tax Court itself can not be precluded for lack of a regulatory formula, from determining the income which is fairly apportionable to the District, we said. Accordingly, we remanded the case to the Tax Court, thus:
“The Tax Court is directed to determine the amount of the income which is fairly attributable to the District by applying the August 6,1953, regulations, including if necessary the use of such formula or formulae as the Tax Court deems best suited for determination of that question in this case.” 110 U.S.App.D.C. at 205, 290 F.2d at 748.
It does not do for the majority simply to say that as to some corporations and in some situations a single-factor formula may validly be utilized.2 Nor is it an *904answer to this taxpayer’s contentions that the records in some cases have shown no more than that the single-factor formula has not resulted inequitably. We are here dealing with a record which overwhelmingly sustains the Tax Court’s findings. I deem its conclusion inescapable that the single-factor sales formula utilized by the Assessor was here proved to be arbitrary and inequitable in its result, and therefore not consistent with the requirement of the Code. Having reached that conclusion, the Tax Court did precisely what we said should be done to determine an equitable tax. Agreeably to the Gallant directive, supra, the Tax Court applied “such formula or for-mulae as the Tax Court deems best suited for determination of [the petitioner’s net income] in this case.”
Consistently with what we had said was its duty to use the formula best suited to the determination required by the Code, the Tax Court turned to the three-factor formula substantially as set forth in the Uniform Division of Income for Tax Purposes Act.3 The Tax Court’s decision noted that the parties had stipulated facts sufficient for the application of that formula. A study of the findings not only bears out that conclusion, but in my view, necessarily impels a rejection of the single-factor sales formula as here applied. I would affirm the Tax Court’s decision.4
WILBUR K. MILLER and BASTIAN, Circuit Judges, concur in the foregoing dissenting opinion.

. 104 U.S.App.D.C. 292, 298, 261 F.2d 758, 764 (1958), cert. denied, 359 U.S. 968, 79 S.Ct. 876, 3 L.Ed.2d 834 (1959).

. See, e. g., District of Columbia v. Gallant Incorporated, 113 U.S.App.D.C. 92, 305 F.2d 761 (1962). After our remand in the first Gallant case, text supra, the Tax Court found the sales formula best suited in the circumstances. We affirmed the result as just and reasonable even as we observed that the sales test is not the only *904or necessarily the best test. Other factors may be equally or even more relevant, we noted.

. Approved 1957, by the National Conference of Commissioners on Uniform State Laws and by the American Bar Association; and see State Taxation of Net Income Derived from Interstate Commerce, 48 A.B.A.J. 1133 (December 1962).

. The Finance Officer on March 22, 1961 recommended that the Commissioners adopt the three-factor formula as “the most accurate and equitable method yet devised for apportioning among the States the taxable net income of corporations operating in a number of States.” The Commissioners on March 28, 1961 approved the proposed amendments to the regulations with such amendments as might appear necessary after public hearing, all to become effective as of January 1, 1962. With this case impending, final action seems to have been postponed.