Court Opinion

ID: 9856050
Source: CourtListenerOpinion
Date Created: 2023-09-24 06:37:01.849448+00
Date Added: 2024-06-11T09:25:57.065933
License: Public Domain

JOHNSON, Justice, joined by TROUT, Justice,
dissenting.
I respectfully dissent from the Court’s opinion. In my view, the Idaho corporate income tax statutes make TTX liable for income tax based on the income from the lease of the rail cars that are used in Idaho. In my view, taxing TTX on this income does not violate the Due Process Clause of the Fourteenth Amendment. Based on the evidence presented in support of TTX’s motion for summary judgment, there is no basis for a ruling that taxing TTX on this income violates the Commerce Clause of the U.S. Constitution.
THE IDAHO INCOME TAX STATUTE APPLIES TO TTX.
In order for income to be classified as “business income,” there must be a direct relationship between the income-generating asset and the taxpayer’s business or trade. American Smelting v. Tax Comm’n, 99 Idaho 924, 933, 592 P.2d 39, 48 (1979). Because TTX’s operations consist almost entirely of the acquisition and disposition of interests in rail cars, the income TTX derives from renting the rail cars is “business income” within the meaning of I.C. § 62-3027(a)(l).
In my view, the Court incorrectly relies on dicta from American Smelting in reaching a contrary conclusion. The Court cites American Smelting as authority for the following principle: “In order to be taxable in this state, some portion of the ‘income arising from transactions and activities’ must arise from transactions and activities conducted in this state.” I first note that this statement is dicta because there was no question in American Smelting about the taxpayer having income from transactions and activities in Idaho. More importantly, the Court attenuates the quotation from American Smelting, and thereby deprives the statement of its true meaning. The full statement from American Smelting reads:
First, the income referred to in [I.C. § 63-3027(a)(l) ] is income arising from the taxpayer’s trade or business which is conducted, in part at least, in this state. Some corporations, particularly large conglomerates, may be engaged in several separate and distinct trades or businesses. The state may include as business income only the taxpayer’s income arising from a trade or business conducted in this state and is not entitled to apportion income arising from a trade or business having no connection with this state.
99 Idaho at 931, 592 P.2d at 46.
It is clear to me that the reference to the state including as business income only the taxpayer’s income arising from a trade or business conducted in this state refers to the *488circumstance stated in the immediately prior sentence: a corporation that engages in several separate and distinct trades or businesses. The reference was not intended to be to a trade or business which is conducted, in part at least, in this state.
I conclude that TTX derived some business income from sources attributable to this state, and would then determine what portion of TTX’s income was “Idaho taxable income” under I.C. § 63-3027(i), which provides:
All business income ... shall be apportioned to this state by multiplying the income by a fraction, the numerator of which is the property factor plus the payroll factor plus the sales factor, and the denominator of which is three (3).
I.C. § 63-3027G).
The property, payroll, and sales factors, defined in I.C. §§ 63-3027(j)-(o), are the ratios between the corporation’s total property, payroll, and sales during the tax period, and that portion of these factors in Idaho during the tax period.
TTX admits to having property in this state during the relevant tax periods, and the tax commission admits that TTX paid no payroll and had no sales in this state during these periods. The tax commission therefore correctly computed the portion of TTX’s taxable income attributable to this state by applying the formula for computing business income set out in I.C. § 63-3027.
TAXING TTX ON INCOME IT RECEIVED FROM PROPERTY IN IDAHO DOES NOT VIOLATE THE DUE PROCESS CLAUSE.
In Blangers v. Dept. of Revenue & Taxation, 114 Idaho 944, 763 P.2d 1052 (1988), cert. denied, 489 U.S. 1090, 109 S.Ct. 1557, 103 L.Ed.2d 860 (1989), this Court reviewed at length the substantial nexus requirement of both the Due Process Clause and the Commerce Clause where a state attempts to impose income tax on nonresidents. Four years later, in Quill Corp. v. North Dakota, 504 U.S. 298, 112 S.Ct. 1904, 119 L.Ed.2d 91 (1992), a state use tax case, the Supreme Court reiterated established concepts it has employed in measuring whether a state tax imposed on a multi-state corporation passes muster under the Due Process Clause:
The Due Process Clause “requires some definite link, some minimum connection, between a state and the person, property or transaction it seeks to tax,” Miller Bros. Co. v. Maryland, 347 U.S. 340, 344-345, 74 S.Ct. 535, 539, 98 L.Ed. 744 (1954), and that the “income attributed to the State for tax purposes must be rationally related to Values connected with the taxing State.’ ” Moorman Mfg. Co. v. Bair, 437 U.S. 267, 273, 98 S.Ct. 2340, 2344, 57 L.Ed.2d 197 (1978).
Id. at 306, 112 S.Ct. at 1909-10.
The Supreme Court then traced the development of due process jurisprudence in the area of judicial jurisdiction and concluded:
Comparable reasoning justifies the imposition of the collection duty on a mail-order house that is engaged in continuous and widespread solicitation of business within a State. Such a corporation clearly has “fair warning that [its] activity may subject [it] to the jurisdiction of a foreign sovereign.” ... Thus, to the extent that our decisions have indicated that the Due Process Clause requires physical presence in a State for the imposition of duty to collect a use tax, we overrule those holdings as superseded by developments in the law of due process.
Id. at 308, 112 S.Ct. at 1911 (citation omitted).
In Quill, the Supreme Court then distinguished the due process “minimum contacts” test from the Commerce Clause “substantial nexus” test:
Despite the similarity in phrasing, the nexus requirements of the Due Process and Commerce Clauses are not identical. The two standards are animated by different constitutional concerns and policies.
Due process centrally concerns the fundamental fairness of governmental activity. Thus, at the most general level, the due process nexus analysis requires that we ask whether an individual’s connections with a State are substantial enough to legitimate the State’s exercise of power over him. We have, therefore, often iden*489tified “notice” or “fair warning” as the analytic touchstone of due process nexus analysis.
Id. at 312, 112 S.Ct. at 1913.
In Allied-Signal, Inc. v. Director, Div. of Taxation, 504 U.S. 768, 112 S.Ct. 2251, 119 L.Ed.2d 533 (1992), a state income tax case, the Supreme Court clarified its intent in Quill concerning the necessary minimum connection to satisfy the Due Process Clause:
Although our modem due process jurisprudence rejects a rigid, formalistic definition of minimum connection, [citing Quill ], we have not abandoned the requirement that, in the ease of a tax on an activity, there must be a connection to the activity itself, rather than a connection only to the actor the State seeks to tax.
Id. at 778, 112 S.Ct. at 2258.
The activity that was the subject of the tax in this case was the lease of rail cars by TTX to railroad companies that operated the cars in Idaho. As evidenced by the “standing ear count,” at least some of the rail cars stopped in Idaho. TTX received lease income based on the presence and use of the rail cars while they were in Idaho. Although TTX did not direct the rail cars to Idaho, it did not prohibit the lessor railroad companies from bringing the ears here. The fact that TTX paid property taxes on the rail cars in Idaho indicates TTX’s knowledge of the presence of the cars here and its responsibility for the ownership of the cars while they were in this state.
These circumstances are a sufficient connection of this state with the lease income received by TTX for the use of rail cars in Idaho to satisfy the minimum contacts requirement of the Due Process Clause.
THERE IS INADEQUATE EVIDENCE TO GRANT TTX SUMMARY JUDGMENT ON THE COMMERCE CLAUSE ISSUE.
In Quill, the Supreme Court reaffirmed the Commerce Clause test established in Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 279, 97 S.Ct. 1076, 1079, 51 L.Ed.2d 326 (1977):
Under Complete Auto’s four-part test, we will sustain a tax against a Commerce Clause challenge so long as the “tax [1] is applied to an activity with a substantial nexus with the taxing State, [2] is fairly apportioned, [3] does not discriminate against interstate commerce, and [4] is fairly related to the services provided by the State.”
Quill, 504 U.S. at 311, 112 S.Ct. at 1912.
In Quill, the Supreme Court stated that the second and third parts of the test “require fair apportionment and non-discrimination, prohibit taxes that pass an unfair share of the tax burden onto interstate commerce.” Id. at 313, 112 S.Ct. at 1913.
The real focus of TTX’s Commerce Clause challenge is the first and fourth parts of the Complete Auto test. In Quill, the Supreme Court described these two parts of the test, and focused on the effect of the first part:
The first and fourth prongs, which require a substantial nexus and a relationship between the tax and State-provided services, limit the reach of State taxing authority so as to ensure that State taxation does not unduly burden interstate commerce.
Thus, the “substantial-nexus” requirement is not, like due process’ “minimum-contacts” requirement a proxy for notice, but rather a means for limiting state burdens on interstate commerce.
Accordingly, contrary to the State’s suggestion, a corporation may have the “minimum contacts” with a taxing State as required by the Due Process Clause, and yet lack the “substantial nexus” with that State as required by the Commerce Clause.
Id. at 313, 112 S.Ct. at 1913-914.
In Blangers, this Court analyzed the substantial nexus requirement in great detail. 114 Idaho at 947-52, 763 P.2d at 1055-60. Because we did not have the clarification of Quill concerning the difference in the nexus requirements of the Due Process Clause and the Commerce Clause, we did not appreciate the less stringent standard the Supreme Court would apply for nexus (minimum contacts) under the Due Process Clause. Nevertheless, our analysis of substantial nexus in *490Blangers remains applicable to the Commerce Clause.
In rejecting the presence of substantial nexus in Blangers, we focused on whether the income which the state was attempting to subject to a tax was attributable to any economic activity within Idaho, and whether Idaho markets and commerce affected the income in any degree. Id. at 951, 763 P.2d at 1059. Because the evidence presented to the trial court indicated that wages of the train crews that passed through the state without stopping were not attributable to any economic activity within Idaho and were not affected by Idaho markets and commerce, we concluded there was no substantial nexus. In this case, so far as the evidence presented in support of TTX’s motion for summary judgment discloses, we do not have a similar situation.
The burden was on TTX to present admissible evidence in support of its motion for summary judgment that would establish a basis for granting summary judgment to TTX on the Commerce Clause issue. Thompson v. Pike, 122 Idaho 690, 698, 838 P.2d 293, 301 (1992). TTX did not present any evidence in support of its motion for summary judgment indicating that none of the income TTX received from the lease of the rail cars was attributable to economic activity within Idaho or was affected by Idaho markets and commerce. TTX did not present any evidence that the presence of the rail cars in Idaho was only for transit across the state or for storage, not to transport goods into or out of the state. Therefore, we have no basis for applying Blangers to TTX’s Commerce Clause claim on summary judgment. I would vacate the summary judgment and remand the case to the trial court for further proceedings concerning the Commerce Clause issue.