Court Opinion

ID: 5861934
Source: CourtListenerOpinion
Date Created: 2022-01-13 01:21:27.96336+00
Date Added: 2024-06-11T08:44:27.542554
License: Public Domain

Kane, J. P.,
dissents and votes to annul in the following memorandum. Kane, J. P., (dissenting). I am unable to agree with the majority that petitioner’s relationship with the State of New York was sufficient to warrant imposition upon it of a use tax collection liability during the period preceding its merger with Sloves. During the audit period herein, petitioner had some contact with New York State. Petitioner contracted with representatives who made appearances at coin shows in New York State for petitioner. There is no evidence in the record about how often these representatives appeared at coin shows in New York State for petitioner. These representatives, however, did not solicit or take orders for petitioner’s products (cf. Scripto v Carson, 362 US 207) and it is not disputed that all of petitioner’s sales were made through the mail. Petitioner advertised in New York State newspapers, but such is an insufficient contact (see Miller Bros. Co. v Maryland, 347 US 340). Petitioner registered with the Sales Tax Bureau to collect sales and use taxes in 1970, but such registration would not require the collection and remittance of said taxes if the taxes were unconstitutional as applied to petitioner (cf. National Geographic v California Equalization Bd., 430 US 551; Miller Bros. Co. v Maryland, supra, pp 342-345). Franklin Mint Corporation, a Delaware corporation and wholly owned subsidiary of petitioner, was authorized to do business in New York. However, it is undisputed that this Franklin Mint Corporation existed only to protect the “Franklin Mint” name and in actuality conducted no business within New York State. This being the case, the issue distills to a consideration of whether Sloves, a wholly owned subsidiary of petitioner, which was doing business in New York, provides the requisite nexus within New York State to warrant imposition upon petitioner of a use tax collection liability. I think not. In a somewhat different, but nonetheless analogous, due process context, it is well settled that personal jurisdiction cannot be exercised *880over a foreign corporation through the presence of a wholly owned subsidiary in New York State unless “[t]he control over the subsidiary’s activities [is] so complete that the subsidiary is, in fact, merely a department of the parent” (Delagi v Volkswagenwerk AG of Wolfsburg, Germany, 29 NY2d 426, 432; see, also, 1 Weinstein-Korn-Miller, NY Civ Prac, par 301.16, pp 3-37 — 3-38, nn 62-63). Thus, in at least some due process contexts, a distinction is recognized between the contacts a nonresident parent company has with New York State through a wholly owned subsidiary controlled by said parent and the contacts a nonresident parent company has with New York State through a wholly owned subsidiary operated distinct from said parent. Such a distinction should be recognized in the present due process context.* The United States Supreme Court’s pronouncement that something more than the “slightest presence” must be maintained in the taxing State by an out-of-State party before said party becomes liable under the taxing State’s use tax provisions (National Geographic v California Equalization Bd., 430 US 551, 556, supra) permits an out-of-State party some indirect contact with or presence in the taxing State without becoming liable for collection of the tax. The presence of a wholly owned subsidiary which operates as a distinct business enterprise in the taxing State is such an indirect contact or presence. Thus, in this case, where there is no evidence in the record to dispute petitioner’s verified allegations that from its purchase, of Sloves until their merger in December, 1974, Sieves operated without any change in operation, business management or employees and without engaging in the sale of petitioner’s products, petitioner’s contact with New York State prior to said merger was through a wholly owned subsidiary which operated as a distinct business enterprise. This indirect contact during the audit period was constitutionally insufficient to hold petitioner liable for the use taxes in issue. The determination should be annulled.

 In fact, the rule enunciated in National Geographic v California Equalization Bd. (supra) has been applied in the context of due process jurisdictional constraints (see, e.g., Gold Kist v Baskin-Robbins Ice Cream Co., 623 F2d 375, 378, n 2; Wilkerson v Fortuna Corp., 554 F2d 745, 749-750, cert den 434 US 939).