Court Opinion

ID: 9549434
Source: CourtListenerOpinion
Date Created: 2023-08-07 18:18:31.489481+00
Date Added: 2024-06-11T15:20:19.234557
License: Public Domain

PETERS, P. J.
I concur.
I agree with all portions of the majority opinion except that portion which holds that the commissioner should have included in his formula sums paid to out-of-state independent *106contractors for repair of the cars. In my opinion, the commissioner correctly excluded that item.
As the majority opinion clearly and correctly points out, the statute confers discretionary powers upon the commissioner in drafting a formula. The purpose of the formula is to ascertain, within reasonable limits, the portion of the net income which is derived from doing business in this state. The purpose of the formula is not to ascertain what the net income is, but what portion of the total net income is reasonably attributable to business done in this state. The majority opinion states that the out-of-state expenses “were necessary to the operation of plaintiff’s business, and that being so, it would seem that plaintiff was entitled to an allowance thereof, irrespective of whether the labor was performed by its own employees within the state or by others, under contract, out of the state.” In my opinion that holding indicates a confusion of thought as to the issue involved. If we were considering what the net income of this company was, of course,.the sums paid to the out-of-state independent contractors would constitute a deductible expense. But that is not the issue. Here there is no dispute over the amount of net income. The dispute is over whether the formula adopted is reasonably designed to allocate to California that portion of the total net income “which is derived from business done within this State” as provided in section 10 of the act. The commissioner decided that that result could be achieved by a three-factor formula. He determined that that result could be reasonably achieved by considering the property, the payroll, and the mileage of this concern. There were many other factors he could have considered, including sales and purchases, and. other factors. He believed that these factors would not help in ascertaining the proportion of this company’s income derived from business done in this state. In considering the payroll factor he considered every cent paid to any employee of the company in all the states where this company operates. But, say the majority, he should, in addition, • have included sums paid not to employees but to independent contractors. What that amounts to is saying that the three-factor formula was unsound and that this fourth factor should have been included. This fourth factor is completely independent of any of the three factors used by the commissioner. It differs in no respect from any other purchase made by the company. Yet purchases were' not included. If the commissioner had *107failed to include an item within any of the three factors he used, there would be merit in the contentions of appellant. But the sums.paid to independent contractors have no necessary relation to the business done by this company in this or any other state, any more than other purchases made by the company would necessarily have reflected the amount of business done. The necessary implication of the majority opinion is that the three-factor formula used was improper and that this fourth factor, as a matter of law, should have been included. If sums paid to independent contractors must be included as a fourth factor, why should not all purchases be included?
I believe the three-factor formula used was admirably adapted to ascertain the only question then before the commissioner—i.e., what proportion of the net income was derived from business done within this state—and that the factor of sums paid to independent contractors for repairs introduces a totally false issue into the case.
With this exception I heartily concur in the reasoning and holding of the majority opinion.
On December 30, 1944, the opinion was modified to read as above and a petition for modification was denied. Peters, P. J., voted for modification.