No petition for rehearing filed.
This action was commenced by the appellee in the Marion Circuit Court to recover certain gross income and veterans' bonus taxes for the years 1953 through 1958.
Appellee's complaint was filed in the trial court on June 12, 1961, alleging, substantially, that the taxes complained of were illegally collected in that they were imposed on income derived from sales made in interstate commerce, and thus in violation of Ind. Ann. Stat. § 64-2606 (a) (1961). On January 31, 1967, the trial court entered its findings of fact and conclusions of law, and rendered judgment for the appellee. The judgment reads as follows:
On February 20, 1967, appellant filed its Motion for a New Trial, which reads, in pertinent part, as follows:
The motion was not accompanied by a memorandum pointing out wherein the evidence is insufficient, or the decision contrary to law. On October 3, 1967, the trial court overruled appellant's motion.
On appeal, appellant's sole assignment of error is that the trial court erred in overruling the Motion for a New Trial.
Appellee contends that the only question presented is the claim that the decision of the trial court is contrary to law. It argues that appellant failed to preserve the question of sufficiency of the evidence for the reason that appellant did not challenge, in its Motion for a New Trial and Assignment of Errors, the sufficiency of the evidence as to specific findings of fact and conclusions of law made by the trial court.
In support of this proposition, appellee cites Edwards v. Wyllie (1964), 246 Ind. 261, 203 N.E.2d 200, and Fagel v. Fagel (1968), 250 Ind. 27, 234 N.E.2d 628. In Edwards v. Wyllie, supra, the appellant's motion for a new trial stated only two grounds: 1. The decision of the court was not sustained by sufficient evidence; 2. The decision of the court was contrary to law. However, the assignment of errors alleged not only that the trial court erred in overruling the motion for a new trial, but also that the trial court erred in making several conclusions of law. This Court held that errors in conclusions of law must be made a part of the motion for a new trial, and may not be independently assigned on appeal. This ruling was in accordance with Supreme Court Rule 2-6, which reads as follows:
However, Edwards v. Wyllie, supra, does not stand for the proposition that, where findings of fact are entered by the trial court, an allegation in the motion for a new trial that the decision of the trial court is not supported by sufficient evidence must be directed to specific findings of fact. The reason given by the court in Edwards v. Wyllie, supra, for not considering the sufficiency of the evidence was not that the appellant failed to allege, in his motion for a new trial and assignment of errors, that the trial court erred in a specific finding of fact, but that the appellant waived the question of sufficiency of the evidence by stating in his reply brief that he accepted the court's findings as correct for the purpose of the appeal.
In Fagel v. Fagel, supra, the appellant-respondent's motion for a new trial alleged only that the decision of the trial court
In affirming the judgment of the trial court, we went on to say that:
The distinction between Fagel v. Fagel, supra, and the case at bar is that the appellant-respondent in Fagel attempted to challenge, on appeal, specific findings of fact and conclusions of law without first assigning them as error in the motion for a new trial and assignment of errors. In the case at bar, however, appellant does not challenge specific findings of fact and conclusions of law, but, instead, challenges the sufficiency of the evidence as a whole to support the ultimate determination of the trial court.
Thus, although we are precluded from considering possible errors in specific findings of fact and conclusions of law, the alleged errors assigned in the motion for a new trial have been validly preserved and are properly before this Court.
Further, inasmuch as appellant's motion for a new trial was filed prior to the effective date of Supreme Court Rule 1-14B, a memorandum accompanying the motion for a new trial is not required.
Appellant contends that the decision of the trial court is not sustained by sufficient evidence. In determining questions of this nature, this Court, as a court of appeals, will not weigh the evidence. Spitler v. Schell (1964), 246 Ind. 409, 205 N.E.2d 155; J.I. Case Co. v. Sandefur (1964), 245 Ind. 213, 197 N.E.2d 519; Fair Share Organization v. Mitnick (1964), 245 Ind. 324, 198 N.E.2d 765.
Our sole function in this respect in civil cases is to review the record to determine if there is evidence from which the trial court could have made its determination. Bassemier v. Sartore (1964), 246 Ind. 365, 205 N.E.2d 160; DeSchamps v. Board of Zoning Appeals (1961), 241 Ind. 615, 174 N.E.2d 581.
Moreover, we will consider only that evidence which tends to support the findings of the trial court together with all inferences which may be reasonably and logically drawn therefrom. Southport Bd. of Zoning App. v. Southside Ready Mix Concrete et al. (1961), 242 Ind. 133, 176 N.E.2d 112; Watson v. Watson (1952), 231 Ind. 385, 108 N.E.2d 893.
The statute under which the taxes in issue were assessed is Ind. Ann. Stat. § 64-2602 (1961), which reads as follows:
The statute under which appellee claims exemption is Ind. Ann. Stat. § 64-2606 (a), supra, which reads in pertinent part as follows:
For the purposes of this appeal, therefore, we must look to the evidence most favorable to the appellee to determine if there is evidence from which the trial court could have reasonably concluded that the taxes in dispute were imposed, to an extent prohibited by the Constitution of the United States, on income derived from business conducted in interstate commerce.
The disputed tax was levied on income from sales of appellee's products to National Homes Corporation of Lafayette, Indiana, from 1953 through 1958, as well as on sales to various other customers from June 2, 1958, until the end of that year.
From the record, it appears that during the period in question appellee maintained three offices in Indiana. One office, located in Indianapolis, consisted of approximately six hunhundred square feet of office space, and was furnished with several desks and chairs, and was equipped with telephone service and some files. The other two offices, located in Fort Wayne and Evansville, consisted of an answering service and a desk. Working out of the Indianapolis office were a branch manager, one or two other men, and an office girl. The other
According to appellee's former Indianapolis branch manager, he and the other men working out of the Indianapolis office were not engaged in sales, but were engaged in sales promotion. Sales promotion entailed contacting various customers and potential customers in order to generate interest in appellee's products. They also called on various people and businesses to attempt to induce them to buy and use appellee's products. The job also entailed setting up exhibits and displays at product shows and conventions, as well as assisting appellee's distributors during advertising and promotional campaigns. Once a customer purchased appellee's products, the sales promotion personnel visited the customer periodically to assist with any problems that might arise with the product. Although the sales promotion men did not actually write up customer orders, they did, occasionally, pick up purchase orders from customers and forward them to the appropriate office or manufacturing plant.
Prior to June 2, 1958, all orders from appellee's Indiana customers, with the exception of National Homes, were sent to the Indianapolis office. Here they were processed and sent to the various offices and manufacturing plants outside the state. After June 1, 1958, all orders, again with the exception of National Homes' orders, were sent directly to appellee's communications center located in Cincinnati, Ohio. From June 2, 1958, on, the Indianapolis office had nothing to do with processing and servicing customer orders. All pricing, shipping, and other pertinent order information was handled solely by the Cincinnati center. After orders were placed with the Cincinnati center the Indianapolis office received a copy of the acknowledgment sent out by appellee to the customer, and the Indianapolis office also received a copy of the invoice
During the period in question, the National Homes account was treated specially, and was denominated a "House Account." Sales to National Homes were handled exclusively by a vice-president of appellee who worked out of the corporation's main offices in Toledo, Ohio. He negotiated the sales with the president of National Homes. The negotiations were held in Lafayette, Indiana, and occurred annually from August through September. Although a representative from the Indianapolis office was present during the negotiations, he did not participate in them. The purpose of these sales negotiations was to establish prices and product specifications. Some time subsequent to the negotiations, appellee's Toledo office would send to National Homes a schedule of the agreed upon prices.
The actual ordering of appellee's products by National Homes was done through a type of blanket order. The primary reason for this procedure was to facilitate requirements of the National Homes' accounting department. The blanket order reflected the material specifications, the quantity desired, the territory, and the requested shipping date. The orders did not, however, reflect a price. Shipments against these orders were released one month in advance of the desired shipping date. All inquiries concerning the orders were handled directly between National Homes and appellee's manufacturing plant in Newark, Ohio. The shipments were made by boxcar f.o.b. Newark. Although the blanket orders were sent by National Homes to the Indianapolis office, the sole function of the office with respect to these orders was to forward them to the appropriate out of state facility.
Also, appellee's branch manager from Indianapolis paid almost weekly visits to National Homes. These visits were in
During the period involved, appellee did not maintain a manufacturing plant in Indiana. Further, all billing, payment and credit matters were handled outside of Indiana. This was true for the National Homes' account as well as all other Indiana customers.
The mere fact that a business is engaged in interstate commerce does not of itself afford immunity from state taxation. General Motors Corp. v. Washington (1964), 377 U.S. 436; Western Livestock v. Bureau of Revenue (1938), 303 U.S. 250; Postal Telegraph Cable Co. v. City of Richmond (1919), 249 U.S. 252. However, for a tax on income derived from business conducted in interstate commerce to be valid there must be a sufficient "nexus between such a tax and transactions within a state for which the tax is an exaction." Wisconsin v. J.C. Penney Co. (1940), 311 U.S. 435, 445. It is because the validity of such a tax depends on the degree of activity carried on within the taxing state that taxes levied on the gross receipts from interstate sales have been highly suspect. General Motors Corp. v. Washington, supra. This type of tax, of which Indiana's is one, poses the threat of cumulative burdens being placed on interstate commerce since every state has an equal right to tax the commerce that it touches, General Motors Corp. v. Washington, supra; Michigan-Wisconsin Pipe Line Co. v. Calvert (1954), 347 U.S. 157; thus renewing the barriers to interstate trade that the commerce clause, U.S. Constitution, Art. 1, § 8, sought to remove. General Motors Corp. v. Washington, supra; Western Livestock v. Bureau of Revenue, supra; McLeod v. Dilworth Co. (1944), 322 U.S. 327. Therefore, for such a tax on gross
However, the burden of establishing immunity from a tax is on the taxpayer claiming the exemption. General Motors Corp. v. Washington, supra; Norton Co. v. Department of Revenue (1951), 340 U.S. 534. As was said in Norton Co. v. Department of Revenue, supra:
In the case at bar then, we must determine whether the gross receipts sought to be taxed are fairly related to appellee's business activities within the State.
As to those sales subsequent to June 1, 1958, which were channeled through appellee's communications center in Cincinnati, Ohio, there exists a sufficient nexus between the sales and appellee's intrastate business activities to justify imposition of the taxes in question.
In making this determination, we are guided by the substantial and extensive activities of appellee's sales representatives who resided in Indiana and who worked out of offices located in Indiana. We recognize that the actual consummation of the sales contracts did not take place in Indiana. However, when faced, as here, with such substantial intrastate activities, the mere mechanical process of order entry is not controlling. Although appellee's Indianapolis branch manager termed his work "sales promotion," we must look to the substance and not the form. Appellee's Indiana representatives were purely and simply salesmen. They called on prospective
The following excerpt is illustrative of the type of customer service performed by appellee's resident agents:
Perhaps the duties of appellee's Indiana representatives is best summed up by the project manager for the establishment of appellee's communications centers:
In addition to the activities of the sales promotion personnel, appellee maintained three offices in Indiana, and also maintained inventory in warehouses in South Bend, Richmond and Evansvilile.
The case at bar is analogous to General Motors Corp. v. Washington, supra. In that case, district managers for General Motors worked out of their homes and essentially carried on the business of the corporation in the State of Washington. These district managers advised the automobile dealers under their supervision on such matters as sales organizations, advertising and promotional campaigns. They participated in the training of the dealers' sales forces, and functioned as the direct contact between the dealers and the zone managers located in Oregon. They also assisted the dealers in estimating future order requirements which were filed with the zone manager by either the district manager or the dealer. In addition to the district managers, the corporation also maintained service representatives in the State who assisted the dealers with their service departments, conducted service clinics, and checked to see that the dealers were honoring their contracts with the corporation. Finally, a parts warehouse was also maintained in the State.
In upholding the tax levied by Washington, the Supreme Court said:
Appellee contends, however, that imposition of the taxes in dispute amounts to multiple taxation of interstate commerce in that its sales to Indiana customers are included in computing the Ohio franchise tax. This is a tax on the privilege of doing business in Ohio, and is based on the net worth of appellee's business that is done in Ohio. The Supreme Court of the United States, however, has previously determined that the Ohio franchise tax does not tax interstate commerce, but is only a tax on intrastate business activity. In deciding that the Ohio tax does not reach interstate business, the Court in International Harvester Co. v. Evatt (1947), 329 U.S. 416, said:
In discussing the tax in relation to income generated from activities by intrastate sales facilities the Court went on to say:
Finally, the Court stated that apportionment is not invalidated merely because receipts from interstate sales are included in the computation of the tax liability. Thus, the Ohio tax is purely a tax on the privilege of transacting intrastate business in Ohio. It does not tax interstate sales.
The burden of proof is on the taxpayer to establish the existence of multiple taxation. General Motors Corp. v. Washington, supra; Portland Cement Co. v. Minnesota, supra. To do so, the taxpayer must demonstrate that a definite burden on interstate commerce exists. General Motors Corp. v. Washington, supra; Portland Cement Co. v. Minnesota, supra.
As was said in Portland Cement Co. v. Minnesota, supra, at page 463:
In the case at bar, appellee attempted to demonstrate the existence of multiple taxation by establishing that the State
As concerns the sales to National Homes during the period in question, we are of the opinion that these sales were clearly interstate in character and thus immune from state taxation under § 64-2606 (a) supra. Unlike the sales to appellee's other Indiana customers, solicitation and order servicing of the National Homes account was done almost entirely by appellee's personnel and offices located in Ohio. As was mentioned above, a vice president of appellee, who was located in Ohio, negotiated the basic sales agreement with the president of National Homes. The negotiations took place annually, and were held in Lafayette, Indiana. All order inquiries were handled directly between National Homes and appellee's manufacturing plant located in Newark, Ohio. Essentially, the only contact between National Homes and appellee's Indiana personnel were the periodic courtesy calls that appellee's Indianapolis branch manager paid on National Homes. The only function that appellee's Indianapolis office performed with respect to the National Homes' orders was to merely forward them to the appropriate out of state facility. Thus, we cannot say that appellee's sales to National Homes were so clearly a product of appellee's intrastate activities so as to allow imposition of the disputed taxes. There does not exist a sufficient nexus between the tax and appellee's business transactions within Indiana, for which the tax is an exaction, to justify levying the tax on the income from sales to National Homes.
The facts concerning the sales to National Homes are somewhat analgous to the so-called "drummer" cases. Those cases involve non-resident salesmen going into a state to solicit orders for goods which are to be manufactured and shipped from another state; the sole contact with the taxing state
As the transactions with National Homes involved essentially interstate solicitation of orders, with very minimal intrastate activity, the State could not constitutionally tax the income produced by the sales to National Homes.
That there is a fundamental difference between the sales to National Homes and appellee's other customers is, we think, quite clear. Appellee's Indiana agents had almost nothing to do with acquiring and maintaining the National Homes account. Rather, that account was acquired and serviced almost entirely by appellee's employees located outside of Indiana. The resident agents did, however, actively attempt to acquire business from appellee's other customers in Indiana. In the name of sales promotion, they called on prospective customers to attempt to induce them to use appellee's products; they showed samples of the products to these potential customers; they discussed product specifications with these potential customers;
Therefore, the judgment of the trial court is affirmed as to those taxes levied on the income from the sales to National Homes. However, the judgment of the trial court is reversed as to those taxes levied on the sales to other Indiana customers and the cause is remanded to the trial court for further proceedings not inconsistent with this opinion.
Hunter, J., concurs; DeBruler, C.J., concurs in result; Arterburn, J., dissents with statement in which Givan, J., concurs with partial dissent.
NOTE. — Reported in 251 N.E.2d 818.
I dissent in part on the ground that I feel that the tax should be applicable to the sales made by National Homes also.