Court Opinion

ID: 9646145
Source: CourtListenerOpinion
Date Created: 2023-08-23 12:50:27.778536+00
Date Added: 2024-06-11T13:25:31.458184
License: Public Domain

WELLIVER, Judge.
The State Tax Commission appeals a circuit court judgment reversing its decision in favor of Paul Mueller Company, the real party in interest, and reinstating an assessment by the director of revenue of additional income tax against Mueller for the years 1972 through 1975. The issue is whether Mueller may, for purposes of determining its Missouri income tax liability, apportion the income it derived from the sale of goods to out-of-state customers. The director of revenue determined, and the trial court held, that it may not. We reverse and remand.
I
Paul Mueller Company is a Missouri corporation located in Springfield, Missouri, that manufactures stainless steel products for sale throughout the United States and in a number of foreign countries. Many of its products are specially manufactured to meet customer specifications. Mueller is not domesticated in any other state, and it neither owns property nor maintains branch offices outside Missouri. It employs sales representatives who live outside the state, and the salesmen based at the Springfield office also travel extensively throughout the United States. All of the sales representatives are under the control of the Springfield office, which must approve all purchase orders and receive all payments. Negotiations with potential purchasers are often necessary after solicitation of orders when terms appearing in purchase orders are not in accord with terms proposed by Mueller. All of Mueller’s products are manufactured in Springfield, and most are shipped F.O.B. Springfield. Personnel are sent from the Springfield office whenever Mueller’s products require service or repair.
Although Mueller paid no income tax to any other state during the years in question, for 1972 it apportioned its income pursuant to the single factor formula set forth in § 143.040(2), RSMo 1969, and for 1973 through 1975 it did the same under the formula prescribed in § 143.451(2)(2)(b), RSMo 1978.1 Mueller included half its in*798come derived from sales to purchasers outside Missouri in the numerator of the single factor formula on the ground that those sales resulted from transactions that occurred partially within and partially without the state. The director of revenue, however, disallowed that calculation, ruling that the transactions occurred solely within Missouri and that all of the income derived therefrom should have been included in the computation. The State Tax Commission reversed the director’s decision, holding that a portion of the transactions occurred outside the state. The director appealed to the circuit court, which reversed the Commission’s ruling as unsupported by substantial evidence upon the whole record and reinstated the director’s determination. This appeal followed.
II
This case presents an issue of far-reaching significance to Missouri businesses engaged in interstate commerce.2 The central inquiry is the method by which the determination is to be made whether a taxpayer may for Missouri income tax purposes allocate income earned from the transaction of business in interstate commerce. In M.V. Marine Co. v. State Tax Commission, 606 S.W.2d 644, 649 (Mo. banc 1980), we said that the advent of the Multistate Tax Compact, § 32.200, “has simplified the process of determining entitlement to apportion taxes by changing the focus of the inquiry from a search for the ‘source’ of income to a simple showing of jurisdictional ‘tax liability’ in another state.” We are asked on rehearing in this case and those argued with it3 to reexamine that statement, which the prior opinion herein followed.
Missouri enacted the Compact in 1967. S.B. 3, 74th Gen.Assem., Reg.Sess., 1967 Mo. Laws 102. Article III, § 1 of the Compact provides in part that a taxpayer may elect to apportion his income pursuant to either Article IV of the Compact or state law existing independently of the Compact if that income “is subject to apportionment and allocation for tax purposes pursuant to the laws of a party state or pursuant to the laws of subdivisions in two or more party states.” Article IV, § 2 of the Compact provides in part that “[a]ny taxpayer having income from business activity which is taxable both within and without this state” shall apportion his net income as therein provided. Relying upon M.V. Marine, the director of revenue argues that the trial court’s decision should be affirmed because Paul Mueller Company paid no income tax in any other state during the years in question and has made no showing that it was subject to tax liability in any other state. The sole issue before this Court, therefore, is whether M.V. Marine’s statement of the law is correct. Upon this reexamination we conclude that it is not.
M.V. Marine involved income from the lease of barges. Those transactions were fully consummated within Missouri, and the income therefrom was properly taxable by Missouri under the applicable statutes, now § 143.451. The result in M.V. Marine was eminently correct. The question whether the lessee’s income from the use of the barges in interstate commerce was taxable in Missouri was never an issue in the case and had no bearing on whether or not consideration given for the leases was taxable *799as income earned solely in Missouri. The discussion of the Compact was unnecessary to the decision. In our preoccupation with a result so obviously correct, we unanimously failed to foresee the possible ramifications of the dictum in its application to subsequent cases.
Ill
The flaw in the M. V. Marine dictum rests upon a fundamental misinterpretation of the purpose underlying the adoption of the Compact. The Compact was never intended by anyone to be a substantive taxation statute. Instead, it was the product of a fear among the states that Congress would act to wrest from the states the authority to tax the income of businesses operating in interstate commerce. It was conceived as merely a procedural vehicle by which the states could resolve conflicts among themselves and aggrieved taxpayers concerning the proper scope of taxation authority that affected states could exercise with regard to a taxpayer subject to taxation in more than one state.
The United States Supreme Court held in Northwestern States Portland Cement Co. v. Minnesota, 358 U.S. 450, 79 S.Ct. 357, 3 L.Ed.2d 421 (1959), that states could tax the net income from the interstate operations of foreign corporations if the tax were nondiscriminatory and were fairly apportioned to local activities that constituted a sufficient nexus to support the exercise of the taxing power. Following Portland Cement, Congress acted to establish minimum standards for the exercise of that power by providing, among other things, that a state may not tax a foreign corporation on income derived from the transaction of business in interstate commerce if the corporation’s only contact with that state is the solicitation of orders for the sale of tangible personal property. Act of Sept. 14, 1959, § 101(a), Pub.L. No. 86-272, 73 Stat. 555, 555 (codified at 15 U.S.C. § 381(a) (1976)). The Compact was drafted in 1966 as a response to this and other judicial and legislative activity. See generally United States Steel Corp. v. Multistate Tax Commission, 434 U.S. 452, 454-57, 98 S.Ct. 799, 803-04, 54 L.Ed.2d 682 (1978). As the drafters of the Compact themselves explained,
the basic justification for the Multistate Tax Compact is that the States themselves are the most appropriate instruments for the determination of their own tax laws and policies. The Compact is a means by which the States can cooperatively work out any problems which may exist, or which may arise in the future, because businesses function in more than one State. Further, the record of activity in Congress over the past few years appears to make it likely that if the States do not take cooperative action to deal with the problems alleged to exist, Federal legislation restricting the jurisdiction of the States and their local governments to tax will ensue. This may be true whether or not allegations that serious problems and inequities exist are actually covered.
In 1959, the United States Supreme Court decided the Northwest Portland Cement and Stockham Valve cases. The net effect of these decisions, and of that in the Scripto case of 1961, was to make it absolutely clear that State and local jurisdiction to tax could rest on sales activity of the taxpayer within the jurisdiction, even if the taxpayer had no physical property or fulltime employees within the jurisdiction. . . . [T]he final judicial determination that such was the case led some elements of the multistate business community to press for Federal legislation that would establish a contrary result. Within months of the Northwest and Stockham decisions, this pressure succeeded in securing enactment of Public Law 86-272, a statute which removed many sales activities of out-of-state firms from State and local taxing jurisdiction. . . .
Also authorized by Public Law 86-272 and amendments to it was a study of State and local taxation of multistate businesses. On the last day of the first session of the 89th Congress, the Willis Subcommittee presented its bill, H.R. 11798. Briefly stated, H.R. 11798 would *800have limited drastically the jurisdiction of State and local governments in the fields of income, sales and use, gross receipts and capital stock taxation. It would have injected the Federal Government into the administration of State and local tax laws and adjudication of tax disputes. Finally, it would have prohibited certain practices complained of.
The several more recent Congressional bills, like H.R. 11798, prevent overlapping or nonuniform State and local taxation by the simple expedient of exempting certain multistate businesses from such taxation. Obviously, this would relieve the favored taxpayers of any compliance burdens or from any concern with nonu-niformity of State and local laws. But it would do so at the expense of State and local revenue raising capacity, and without attempting to determine whether the favored taxpayers actually do owe any obligation of support to the jurisdictions affected.
Multistate Tax Commission, Suggested State Legislation and Enabling Act, at C-8 to C 4 (emphasis added), reprinted in 23 Committee of State Officials on Suggested State Legislation, Council of State Governments, Suggested State Legislation, at C-3 to C-4 (1968).
In short, the Compact represents an effort by the states to devise some method by which they could settle disputes among themselves and aggrieved taxpayers regarding the taxation of the income of businesses operating in interstate commerce. It provides the vehicle that allows the states to avoid a confrontation with the federal government by settling their own disputes and, at the same time, permits them to continue to take a bite of the income earned by businesses in interstate commerce. The purpose clauses of Article I and the arbitration provisions of Article IX confirm this interpretation. Only through a cooperative effort such as the Compact could the states forestall the threat that Congress might take from them the authority to tax any part of income earned from business conducted in interstate commerce. The drafters of the Compact and those states that adopted it never intended for it to have a substantive effect on taxation. That was not its purpose.
IV
Any reasonable reading of the evidence before us compels the conclusion that neither the Multistate Tax Commission, which was established pursuant to Article VI of the Compact, nor the Missouri legislature ever intended that the Compact have the effect that M.V. Marine would give it.
The issue in this case is not whether a taxpayer may elect to apportion its income under either the Compact or § 143.451, but whether apportionment will be allowed at all. The Multistate Tax Commission, in its memorandum filed as amicus curiae, argues that M.V. Marine’s dictum is a correct statement of the law and that a “proper interpretation of the Missouri Income Tax Statutes,” including the Compact, would be that a “taxpayer is entitled to apportion and allocate its income only when it is subject to an income tax or other tax on its business activities by another state or country.” Oddly enough, however, the Commission’s own regulations contradict that position. Multistate Tax Commission Regulation III.1.(A) provides:
Reg. III.l.(A). Taxpayer option, state and local taxes; state apportionment and allocation. — This option is available to taxpayers whose income is subject to apportionment and allocation for tax purposes pursuant to the laws of the party state. The provisions of this compact are a part of the law of a compact state. To qualify for election, therefore, the taxpayer’s income must be subject to apportionment and allocation either (1) under the income tax laws of the party state, other than by reason of Article IV, or (2) under Article IV.
All St. Tax Guide (P-H) ¶612 (1977).4 From this regulation it is clear that the *801adoption of the Compact was not intended to foreclose the use of the “income tax laws of a party state” that exist independently of the Compact for making the determination whether a taxpayer is entitled to apportion. Under longstanding construction of Missouri law, that determination is made with reference to the “source of income” test of § 143.451 and its predecessors. See International Travel Advisors, Inc. v. State Tax Commission, 567 S.W.2d 650 (Mo. banc 1978); State ex rel. River Corp. v. State Tax Commission, 492 S.W.2d 821 (Mo.1973), overruled on other grounds, International Travel Advisors, Inc.; A.P. Green Fire Brick Co. v. Missouri State Tax Commission, 277 S.W.2d 544 (Mo.1955); In re Union Electric Co., 349 Mo. 73, 161 S.W.2d 968 (banc 1942); Union Electric Co. v. Coale, 347 Mo. 175, 146 S.W.2d 631 (1940); In re Kansas City Star Co., 346 Mo. 658, 142 S.W.2d 1029 (banc 1940); F. Burkhart Mfg. Co. v. Coale, 345 Mo. 1131, 139 S.W.2d 502 (1940); Artophone Corp. v. Coale, 345 Mo. 344, 133 S.W.2d 343 (1939).
The Compact on its face recognizes the existence and applicability of state laws independent of the Compact. Article III, § 1 provides that
[a]ny taxpayer subject to an income tax whose income is subject to apportionment and allocation for tax purposes pursuant to the laws of a party state or pursuant to the laws of subdivisions in in or more party states may elect to apportion and allocate his income in the manner provided by the laws of such state or by the laws of such states and subdivisions without reference to this compact, or may elect to apportion and allocate in accordance with article IV.
(Emphasis added.) At the time Missouri adopted the Compact in 1967, the “source of income” test embodied in present § 143.451 was effective and therefore was recognized as controlling under Article III, § 1 of the Compact. The dictum of M.V. Marine purported to hold that Article IV of the Compact, which in § 2 adopts the jurisdictional standard, effectively abrogated the § 143.-451 “source of income” test. Such a construction is impermissible. The question in this case is how the taxpayer is to make the threshold determination whether his income is “subject to apportionment and allocation for tax purposes.” Article III, § 1 of the Compact requires the taxpayer to look “to the laws of a party state or ... to the laws of subdivisions in two or more party states.” The drafters of the Compact, or the members of the Missouri legislature in adopting it, easily could have provided that the taxpayer must look to the jurisdictional test of Article IV, § 2, but they chose instead to allow the determination whether income can be apportioned to be made with reference to existing state laws other than the Compact itself.
The Multistate Tax Commission as ami-cus curiae points out that Article IV of the Compact comprises the Uniform Division of Income for Tax Purposes Act, 7A U.L.A. 91-108 (1978), which was first approved by the National Conference of Commissioners on Uniform State Laws in 1957. Section 21 of the uniform act provides for the repeal of “acts and parts of acts.” The Missouri legislature did not adopt that section of the act, and thus repealed no laws, when it adopted Article IV as a part of the Compact. It is clear, therefore, that the legislature did not intend by the adoption of the Compact to vitiate the “source of income” test of § 143.451.
Evidence exists that is even more affirmative. First, the legislature has specifically refused to enact three bills that would abolish the “source of income” test in favor of the Compact’s jurisdictional test. H.B. 507, 80th Gen.Assem., 1st Reg.Sess. (1979); S.B. 566, 79th Gen.Assem., 2d Reg. Sess. (1978); H.B. 1682, 79th Gen.Assem., 2d Reg.Sess. (1978). Two other bills that would have altered or abolished the single factor formula of § 143.451 in favor of the three factor formula embodied in the Compact also failed of adoption. H.B. 1522, 80th Gen.Assem., 2d Reg.Sess. (1980); S.B. 471, 79th Gen.Assem., 1st Reg.Sess. (1978). In those the legislature made no attempt at *802all to abolish the “source of income” test. Second, after adoption of the Compact in 1967, the legislature, fully aware of our cases interpreting § 143.451 and its predecessors, reenacted the section in the general revisions of 1969 and 1978 and specifically reenacted it in the income tax revision of 1972,5 see S.B. 549, 76th Gen.Assem., 2d Reg.Sess., 1972 Mo.Laws 698, 713-15. Finally, the legislature has twice taken pains in § 144.010(1)(7), RSMo Supp.1981, to define specifically for purposes of Chapter 143 what is meant by “ ‘wholly within this state’ and not ‘in commerce’ ” and “ ‘partly within this state and partly without this state’ and ‘in commerce.’ ” The definition states:
(7) ... For the purposes of taxation under chapter 143, RSMo, a transaction involving the sale of tangible property is:
(a) “Wholly in this state” and not “in commerce” if both the seller’s shipping point and the purchaser’s destination point are in this state;
(b) “Partly within this state and partly without this state” and “in commerce” if: (i) the seller’s shipping point is in this state and the purchaser’s destination point is outside this state, or (ii) the seller’s shipping point is outside this state and the purchaser’s destination point is in this state. The purchaser’s destination point shall be determined without regard to the F.O.B. point or other conditions of the sale.
S.B. 200, 81st Gen.Assem., 1st Reg.Sess., 1981 Mo.Laws 232, 234; C.C.S.H.C.S.S.C.S. S.B. 218, 235, 298, 340 & 398, 80th Gen.As-sem., 1st Reg.Sess., 1979 Mo.Laws 331, 333-32.
“This Court’s primary responsibility is to ascertain the intent of the general assembly from the language used, and to give effect to that intent.” Goldberg v. Administrative Hearing Commission, 609 S.W.2d 140, 144 (Mo. banc 1980). It takes no strained interpretation to make that determination. The English language need only be read sequentially: Article IV of the Compact must be read as following Article III. Rarely has this Court been presented with more positive proof of legislative intent. We should heed that directive. The application of the dictum in M.V. Marine would produce a result in direct opposition to the clearly expressed intent of the legislature. It is the function of the legislature, and not that of this Court, to impose taxes.
V
The assumption that the legislature intended to tax all income of corporations doing business in interstate commerce, which both M.V. Marine and the opinion before rehearing made, flies squarely in the face of the long-established rule that taxation statutes must be construed strictly against the taxing authority absent a clearly expressed contrary legislative intent. This Court said in Artophone, which considered the same statute involved in the present case, that
[generally it may be said that taxing statutes are to be strictly construed in favor of the taxpayer and the fact that a particular subject of taxation, claimed to be taxed, is within the purview and in-tendment of the taxing statute must clearly appear from the statute so to be. “It is well established that the right of the taxing authority to levy a particular tax must be clearly authorized by the statute, and that all such laws are to be construed strictly against such taxing authority.”
Artophone Corp. v. Coale, 345 Mo. at 353, 133 S.W.2d at 347. That principle remains *803unquestioned. We hold that the determination whether a taxpayer may elect to apportion income derived from the transaction of business in interstate commerce should be based upon the “source of income” test of § 143.451 and its predecessors and the longstanding judicial interpretation thereof. Language in M.V. Marine to the 'contrary should not be followed.
The circuit court found after reviewing the record that Mueller’s only activities outside Missouri were the “mere solicitation of orders” to be approved by the home office, and it concluded that in situation the entire transaction occurs within Missouri. The record shows, however, that negotiation over the terms of a contract often occurs after the solicitation of orders but before acceptance of the purchase orders by Mueller. This Court has said that “[t]he word ‘transaction’ as frequently used in the singular and plural, is practically all inclusive, and signifies any business activity productive of income.” In re Kansas City Star Co., 346 Mo. at 672, 142 S.W.2d at 1037. It “is a word of flexible meaning” and “may comprehend a series of many occurrences, depending not so much upon the immediateness of their connection as upon their logical relationship.” Artophone Corp. v. Coale, 345 Mo. at 355, 133 S.W.2d at 348. In this case both the solicitation of orders outside the state6 and any negotiation necessary before consummation of the contract were integral components of the entire transaction, and they should have been considered. We held in International Travel Advisors that the statute imposes a tax on income derived from “transactions,” which encompasses more than “sales.” 567 S.W.2d at 654. The trial court ignored those portions of the transactions occurring outside of Missouri7 and in essence applied a “sales,” rather than a “transactions,” test.
The judgment of the circuit court is reversed, and the cause is remanded for entry of judgment affirming the decision of the State Tax Commission.
DONNELLY, C.J., and SEILER and BARDGETT, JJ., concur.
HIGGINS, J., dissents in separate dissenting opinion filed.
RENDLEN and MORGAN, JJ., dissent and concur in separate dissenting opinion of HIGGINS, J.

. Section 143.451(2)(2)(b), RSMo 1978, provides:
The amount of sales which are transactions wholly in this state shall be added to one-half of the amount of sales which are transactions partly within this state and partly without this state, and the amount thus obtained shall be divided by the total sales or in cases where sales do not express the volume of business, the amount of business transacted wholly in this state shall be added to one-half of the amount of business transacted partly in this state and partly outside this state and the amount thus obtained shall be divided by the total amount of business transacted, and the net income shall be multiplied by the fraction thus obtained, to determine the proportion of income to be used to arrive at the amount of Missouri taxable income. The investment or reinvestment of its own funds, or *798sale of any such investment or reinvestment, shall not be considered as sales or other business transacted for the determination of said fraction.
That section was enacted as a part of the income tax revision of 1972. S.B. 549, 76th Gen. Assem., 2d Reg.Sess., 1972 Mo.Laws 698, 713-14. The single factor formula of § 143.-451(2)(2)(b), RSMo 1978, is identical in relevant'respects to its predecessor statute, § 143.-040(2), RSMo 1969.
Henceforth all statutory references are to RSMo 1978 unless otherwise indicated.

. The following filed briefs as amici curiae in addition to the briefs filed by the parties: Associated Industries of Missouri; Checker Food Products Co. and Swing-A-Way Manufacturing Co.; Continental Disc Corp., Mid-Western Machinery Co., Russell Stover Candies, Inc., and Rival Manufacturing Co.; and the Multistate Tax Commission. The Missouri Chamber of Commerce also appeared as amicus curiae.

. Langley v. Robert Baskowitz Enterprises, No. 62541; Montgomery Ward & Co. v. State Tax Comm’n, No. 62476.

., Part of the confusion leading to our error in M.V. Marine may have arisen out of the fact that the Missouri Department- of Revenue *801adopted only suggested Regulation IV and not suggested Regulation III.

. Section 32.210 does not, as the director of revenue argues, negate this inference of legislative intent. That section provides that “[t]he provisions of the compact shall apply to any tax levied by the state of Missouri or its political subdivisions.” The original version of that statute provided only for application of the Compact to income and earnings taxes, see § 32.210, RSMo 1969, and was amended to its present form in 1974, see H.B. 1291, 77th Gen. Assem., 2d Reg.Sess., 1974 Mo.Laws 712. In view of the purpose of the Compact and the clear legislative intent, it is obvious that § 32.-210 was meant to do nothing more than apply the Compact’s dispute resolution mechanism to all forms of disputed taxation, including corporate franchise and stock taxes, and not merely income taxes. It does not abrogate § 143.451.

. As noted above, federal law prohibits a state from taxing the income of a foreign corporation when the corporation’s only contact with that state is the solicitation of orders for the sale of tangible personal property. 15 U.S.C. § 381(a) (1976). That law, however, has no bearing on this case. In view of our rejection of M.V. Marine’s jurisdictional “tax liability” test, whether Mueller paid tax or was subject to taxation in another state is irrelevant for purposes of determining whether it may apportion its income for Missouri income tax purposes.

. The dispute in this case arose before the legislature enacted § 144.010(1)(7), RSMo Supp.1981, quoted above, which defines the situations in which a transaction occurs partially within and partially without the state. Under that statute there would be no question that the transactions involved here are partially within and partially without the state, because “the seller’s shipping point is in this state and the purchaser’s destination point is outside this state.”