Court Opinion

ID: 9569636
Source: CourtListenerOpinion
Date Created: 2023-08-21 20:15:56.967799+00
Date Added: 2024-06-11T12:03:41.087161
License: Public Domain

WOOD, Chief Judge (specially concurring). I do not join in Judge Sutin’s remarks concerning Champion’s presentation at the administrative hearing. I do not join in the references to I.T. Regulation 17(b) because that regulation does not apply to the tax year in question. One issue in this case is whether income from investments, rentals and sale of logs was business income. Under § 72-15 A-17(A), supra, it was business income if it arose in the regular course of Champion’s business. I do not agree that “regular course” of business is to be determined by whether the business is “unitary” or “one integral business”. Such an approach ignores the wording of the statute. Thus, I do not join in Part A of Judge Sutin’s opinion. My approach to the meaning of “regular course” of “trade or business” differs somewhat from the approach taken by Judge Sutin in Part B of his opinion. The taxpayer’s evidence makes it clear that the contested income was acquired in the “regular course” of Champion’s activities. I do not understand Champion to contend otherwise. Champion’s contention is that the contested income was not acquired in the regular course of trade or business. Champion takes a narrow view of the meaning of trade or business. It would limit the meaning of trade or business to the main course of its business which it asserts is “manufacturing and selling finished products”. It contends it is not in the business of investments, of renting property or making occasional sales of logs for use as telephone poles. Support for its view is found in Peters, “The Distinction Between Business Income and Nonbusiness Income”, 25 S.Cal.Law Center Tax Institute 251 (1973). The narrow view urged by Champion is not supported by the wording of UDITPA. Statutes are to be given effect as written. Keller v. City of Albuquerque, 85 N.M. 134, 509 P.2d 1329 (1973). Section 72-15A-17(A), supra, makes no reference to “main business” or “main course of business”. As I read § 72-15A-17(A), supra, it makes no difference whether the income derives from the main business, the principal business, the occasional business or the subordinate business so long as the income arises from the “regular course” of business. Peters, supra, at 278 states: “Although one may quibble with the propriety of referring to income realized by a business organization as nonbusiness income, it is utterly ridiculous to assume that its meaning is limited to gifts or other receipts having no connection with a profit motive.” I agree. In Sperry and Hutchinson Co. v. Department of Revenue, supra, interest on long-term and short-term securities held for investment were non-business income because the interest did not arise from transactions in the regular course of business. In Western Natural Gas Company v. McDonald, supra, income from a liquidation sale of oil and gas leases was nonbusiness income because the sale was not made in the regular course of business. Thus, all income of a business organization is not “business income”; business income must arise from the regular course of business. Pertinent in determining whether income arises from transactions in the regular course of business is “the nature of the particular transaction” and “former practices” of the business entity. Western Natural Gas Company v. McDonald, supra. Also pertinent is how the income is used. Sperry and Hutchinson Co. v. Department of Revenue, supra. Judge Sutin’s opinion reviews the evidence. That evidence supports the Commissioner’s conclusion that interest income from short-term investments, income from renting surplus property, and income from sale of logs was income arising in the regular course of Champion’s business. Thus, I concur in the result reached as to these items. I join in that part of Judge Sutin’s opinion holding the gain on cut but unsold timber was apportionable as business income because that gain was reported as federal taxable income for the year in question. LOPEZ, Judge (specially concurring). I agree with Part A of Judge Sutin’s opinion and with the conclusion of Part (B)(2)(a) that the § 631(a) gain reported by the taxpayer was properly taxed by New Mexico. I do not agree with the reasoning employed in Part B of Judge Su-tin’s opinion, nor with the reasoning employed in Chief Judge Wood’s concurring opinion. My reasons for preferring the approach of Part A of Judge Sutin’s opinion will be outlined below. It is my belief that UDITPA does not require that all income of a multiform business be included in the business income from which a state takes its apportioned share. The issue might best be presented by the example of a corporation which manufactures and distributes shoes in New Mexico, Texas, and Colorado. In addition to this business, the corporation also makes a sizable profit from1 office buildings which it owns and operates for rental purposes in New York. One approach New Mexico could take to the rent received would be to ask whether it was customary for the corporation to rent apartments. On finding that it was customary, the rental income would be classified as business income from which New Mexico would take its proportional share. This would appear to be Judge Sutin’s approach. Chief Judge Wood looks instead to the “regular course” of the taxpayer’s business; since the corporation regularly rents apartments, the same result would be reached. My approach would be to determine whether the business of renting offices in New York is “independent” of the business of selling shoes. Guidance for the meaning of “independent” should be sought in the law which has developed around the unitary business concept. See e.g., Commonwealth v. ACF Industries, Inc., 441 Pa. 129, 271 A.2d 273 (1970) and Keesling & Warren, The Unitary Concept in the Allocation of Income, 12 Hast.L.J. 42 (1960). I find support for the position I have taken in the Oregon case of Sperry and Hutchinson v. Department of Revenue, 527 P.2d 729 (Or.1974). In deciding how interest from investments was to be classified, the court did not dispute that the taxpayer’s “customary” and “regular” practice was to make these investments, but rather examined the relationship of these investments to the business that the taxpayer conducted in Oregon. The proposition that businesses are indivisible, and hence that all income from them is business income, goes far beyond the position taken by the Bureau in this case, and in its regulations. For example, at the hearing below, in response to a question from the taxpayer’s representative as to what nonbusiness income was, the Bureau’s representative stated : “Well, if you took that money out and invested in yachts for an unrelated purpose or bought property not related to your business of logging or whatever it is and you derived income from it, then it would be non-business income.” More significantly, the Bureau’s regulations, and the examples illustrating them, indicate that there comes a point where the Bureau feels corporate activity is divisible. Thus, in discussing when rental income is business income the Bureau uses the following example: “Example (iv): The Taxpayer operates a multistate chain of grocery stores. It purchases as an investment an office building in another state with surplus funds and leases the entire building to others. The net rental income is not business income of the grocery store trade or business. Therefore, the net rental income is nonbusiness income.” I.T. Regulation 17(b)(1). Finally, constitutional issues of due process come into play when the abolition of the distinction between unitary and multiform businesses is proposed. Those Supreme Court cases which have upheld for-mulary apportionment have done so on the basis that the business taxed was a unitary business. Rudolph, State Taxation of Interstate Business: The Unitary Business Concept and Affiliated Corporate Groups, 25 Tax L.Rev. 171, 183-84, (1970); see, e. g., Butler Brothers v. McColgan, 315 U.S. 501, 62 S.Ct. 701, 86 L.Ed. 991 (1942). Although I have found no Supreme Court cases stating that the multiform concept must be respected by state taxing authorities (there are state court cases so holding; see, e.g., Hamilton Management Corporation v. State Tax Commission, 253 Or. 602, 457 P.2d 486 (1969) ). I think that a serious constitutional problem is presented by the failure to distinguish between that income of a business, originating in the taxing state, and that income which has no real relationship to that state. Judge Sutin correctly states that we simply cannot tell from the record before us which of the contested items have no connection with New Mexico. Therefore, although my different interpretation of UDITPA may lead to disagreement in future cases, I have no quarrel with the result reached today.