Court Opinion

ID: 4498732
Source: CourtListenerOpinion
Date Created: 2020-01-23 18:16:06.132078+00
Date Added: 2024-06-11T14:54:16.513544
License: Public Domain

Kern,
dissenting: I respectfully dissent from the reasoning and conclusion of the majority opinion. That conclusion may be paraphrased as follows: For a foreign corporation to become a resident corporation within the meaning of section 231 (b) of the Revenue Act of 1936, it is necessary that it either engage in trade or business within the United States, or have “an office or place of business” within the United States which is used or established for the purpose of being used in the conduct, within the United States, of the corporation’s activities which are a part of its engagement in business therein. *251Tims, according to the rationale of the majority opinion, when a foreign corporation carries on no trade or business here, and has nc intent to do so, it can not be said to have “an office or place of business” within the United States.
*250“The corporation [petitioner] states its representative is vested with no authority to conduct business or engage in business activities of any character on behalf of the corporation and ‘she has not done so’; that during the taxable year the only activities of the corporation in the United States consisted of the receiving of dividends * * *.
“Although the corporation has on various occasions made purchases of United States products for use in its foreign business from several sources within the United States, and has made sales of its products in Sweden for shipment to the United States, all of such purchases and sales have been made and carried out by correspondence at its Stockholm office and ‘none of them through its New York office’.”
The further statement by respondent in that letter that petitioner “became a resident foreign corporation” must be either an inadvertent acceptance of petitioner’s own representations or a misconstruction of the applicable law as treated in the present opinion, by which this Board can not consider itself bound. See footnote 5.
*251The attempt, in the majority opinion, to identify the maintenance of an office with the carrying on of trade in this country disregards a distinction clearly made by the statute. Congress sets up two categories in the act and we are not to confuse the two. Concededly here the petitioner was not engaged in trade in America, but that is no reason to assert that it did not have an office. The disjunctive use of. the two phrases “engaged in trade or business” and “having an office or place of business” in the United States occurs not only in the statute but in the reports of both houses of Congress on the revenue bill, House Rept. 2475, 74th Cong., p. 9, et seq.; Sen. Rept. 2156, 74th Cong., p. 21, et seq., and clearly indicates, by all canons of construction, see Crooks v. Harrelson, 282 U. S. 55, that two different situations were contemplated by Congress. Section 148 which deals with the withholding of tax of nonresident alien corporations, also uses the same phrases here in question and uses them disjunctively. We see no ground for supposing that such careful repetition of alternative conditions was meaningless.
When legislation is unambiguous, resort to legislative intent in the proceedings of Congress is unnecessary. However, if we do look to the Congressional reports, loc. cit. supra, we find that the provision was introduced in the 1936 Revenue Act for administrative convenience and was thought by the House Ways and Means Committee to be “productive of substantial amounts of additional revenue, since it replaces a theoretical system impractical of administration in a great number of cases.” Foreign corporations not engaged in trade in the United States or not having an “office or place of business” were taxed at 15 percent of gross income and collection, as the report of each House mentions, and this tax was to be withheld at the source under section 143. Foreign corporations engaged in trade or having an office or place of business in the United States, on the other hand, were to be taxed at a higher rate, 22 percent, but on net, not gross, income. There was some difference between the Houses on the rate, but none on the principle applicable, which obviously differentiated between resident and nonresident foreign corporations on the simple and sound administrative ground of collectibility and ease in administration of the tax, the lower rate being applied when withholding at the source was necessary, and the higher rate when the presence of the corporation in the country through trade carried on here or by the maintenance of a business headquarters with a responsible agent would enable the Treasury to collect directly from the corporation or its agent. *252Likewise, the difference in rate between the two classes was sought to be equalized by allowing the resident foreign corporation the benefit of deductions, the maintenance of proper books at an “office or place of business” within the country making the determination of income received from American sources and of deductions in respect of such income (and by express provision so limited) feasible.
When the statutory phrase now in question is read in the light of the statutory purpose which we have set out, two significant things appear: First, that the whole provision as to foreign corporations was one of administrative convenience in collecting the tax laid, and, consequently, was not the conference of an exemption or other special benefit on the foreign corporation claiming residence which must be construed strictly in a tax act; and, second, that the test of residence is the practical one of the collector finding a properly authorized agent of the corporation at a fixed office or place where adequate records of the corporation’s American income may be found, and where control over that income is retained, and where an agent may always be found by the Government in the event of differences in taxes paid and claimed. These are all practical tests; and too meticulous consideration of the physical aspects of the “office”, on the one hand, or speculation on the metaphysical concept of the maintenance of an office for some future conduct of business in the United States, on the other hand, are alike wide of the mark in reaching a sound conclusion as to whether the particular foreign corporation is taxable as a resident or not.
My opinion that the taxpayer here was a resident foreign corporation having the requisite American “office” does not require the disapproval of Commissioner’s Regulations 94 and 101, art. 231-1, where the term is said to imply “a place for the regular transaction of business and does not include a place where casual or incidental transactions might be, or are, effected.” I can not believe, however, that its meaning should be restricted by the same criteria as those applied to the doing of business within the country. Doing business and maintaining an office are two different things, and whatever deference should be paid to administrative construction, it can not be allowed to alter the clear meaning of the statute. I think that the business purpose for which the New York office, in the instant case, was used, the collection of petitioner’s revenue from American corporations, was a “regular” business within the meaning of the regulations and not “incidental” or “casual”; and, as such, complies with them as well as with the statute.
Leech and Mellott agree with this dissent.