Graphic Packaging Corporation v. Glenn Hegar, Comptroller of Public Accounts of the State of Texas And Ken Paxton, Attorney General of the State of Texas

ACCEPTED

03-14-00197-CV

5431694

THIRD COURT OF APPEALS

AUSTIN, TEXAS

5/27/2015 12:14:14 PM

JEFFREY D. KYLE

CLERK

NO. 03-14-00197-CV

_________________________________________

RECEIVED IN

IN THE COURT OF APPEALS 3rd COURT OF APPEALS

AUSTIN, TEXAS

THIRD JUDICIAL DISTRICT OF TEXAS5/27/2015 12:14:14 PM

AT AUSTIN JEFFREY D. KYLE

_____________________________ Clerk

GRAPHIC PACKAGING, INC.,

Appellant

v.

SUSAN COMBS, COMPTROLLER OF PUBLIC ACCOUNTS OF THE

STATE OF TEXAS; AND GREG ABBOTT, ATTORNEY GENERAL OF

THE STATE OF TEXAS,

Appellees

__________________________________________________________________

FROM THE DISTRICT COURT OF TRAVIS, 353RD JUDICIAL DISTRICT,

CAUSE NO. D-1-GN-003038,

THE HONORABLE DARLENE BYRNE PRESIDING

_________________________________________________________________

BRIEF OF AMICUS CURIAE MULTISTATE TAX COMMISSION

IN SUPPORT OF TEXAS COMPTROLLER OF PUBLIC

ACCOUNTS AND TEXAS ATTORNEY GENERAL

________________________________________________________________

Joe Huddleston

Executive Director

Sheldon Laskin

Counsel

444 N. Capitol St., N.W., Ste. 425

Washington, D.C. 20001

202-650-0300

slaskin@mtc.gov

Attorneys for Amicus Curiae

Multistate Tax Commission

TABLE OF CONTENTS

TABLE OF AUTHORITIES .................................................................................... ii

INTEREST OF THE AMICUS CURIAE ...................................................................1

INTRODUCTION .....................................................................................................4

ARGUMENT ...........................................................................................................14

I. Articles III.1 and IV of the Multistate Tax Compact do not

prevent the Texas legislature from requiring the use of a

receipts factor to apportion the franchise margin base because

the Compact is not a binding interstate compact, but is instead

an advisory compact containing a uniform law.............................................14

A. The Multistate Tax Compact has none of the indicia of a

binding interstate compact. .................................................................17

(1) The Compact does not contain a requirement of

reciprocation.

(2) The Compact does not establish a joint regulatory

body. ...........................................................................................22

(3) The Compact does not prohibit unilateral

modification or repeal. ...............................................................24

B. The Compact is an advisory compact incorporating into

Article IV, and by extension Article III.1, a uniform

law. ......................................................................................................26

II. Even if the Compact were a binding compact, its terms do not

prohibit modification of Article III.1 or IV and therefore this

Court must look to the compact member states’ course of

conduct in determining whether the Compact allows

modification of those apportionment provisions. ..........................................31

CONCLUSION ........................................................................................................37

APPENDIX

i

TABLE OF AUTHORITIES

Cases

Alabama v. North Carolina,

130 S.Ct. 2295 (2010) ................................................................................... 32, 33

Com. of Penn. v. Wheeling & Belmont Bridge Co.,

54 U.S. 518 (1851) ...............................................................................................14

Comptroller of Treasury of Md. v. Wynne,

135 S.Ct. 1787 (2015) ..........................................................................................21

Emco Enterprises, Inc. v. Dep’t of Treasury,

Case No. 12- 000152- MT (Mich. Ct. Cl. April 21, 2015) ..................................30

Ex parte Ervin,

187 SW 3d 386 (Tex. Crim. App. 2005) ..............................................................25

In re Myrick,

624 A.2d 1222 (D.C. 1993) ..................................................................................19

Ingram Micro, Inc. v. Department of Treasury,

Case No. 11- 000035- MT (Mich. Ct. Cl. December 19, 2014) ..........................30

International Shoe Co. v. Fonternot,

359 U.S. 984 (1959) ...............................................................................................7

Int’l Bus. Machines Corp. v. Dep’t of Treasury,

852 NW 2d 865 (Mich. 2014) ....................................................................... 13, 15

Lane v. Travelers Indem. Co.,

391 SW 2d 399 (Tex. 1965) .................................................................................25

McComb v. Wambaugh,

934 F.2d 474 (3d Cir. 1991) .......................................................................... 15, 19

Moorman Mfg. Co. v. Bair,

437 U.S. 267 (1978) ...................................................................................... 12, 21

ii

Nat’l R.R. Passenger Corp. v. Atchison Topeka & Santa Fe Ry. Co.,

105 S. Ct. 1441 (1985) .........................................................................................11

Northeast Bancorp, Inc. v. Bd. of Governors of Fed. Reserve Sys.,

472 U.S. 159 (1985) .................................................................................... passim

New Jersey v. Delaware,

552 U.S. 597 (2008) ...................................................................................... 20, 33

Northwestern States Portland Cement Co. v. Minnesota,

358 U.S. 450 (1959) ...............................................................................................6

Oklahoma Tax Com’n v. Jefferson Lines, Inc.,

514 U.S. 175 (1995) ...............................................................................................7

Phillips v. Com., Dept. of Transp., Bureau of Driver Licensing,

80 A.3d 561 (Pa. 2013) ........................................................................................19

Scripto, Inc. v. Carson,

362 U.S. 207 (1960) ...............................................................................................8

Seattle Master Builders Ass’n v. Pac. Nw. Elec.

Power & Conservation Planning Council,

786 F.2d 1359 (9th Cir. 1986) ..............................................................................17

Tarrant Reg’l Water Dist. v. Herrmann,

133 S.Ct. 2120 (2013) ............................................................................. 20, 26, 34

U.S. Steel Corp. v. Multistate Tax Comm’n,

434 U.S. 452 (1978) ..................................................................................... passim

Yaskawa America, Inc. v. Department of Treasury,

Case No. 11-000077-MT (Mich. Ct. Cl. December 19, 2014) ............................30

Constitutional Provisions, Statutes, and Rules

U.S. Const., art. I, § 10, cl. 3....................................................................................18

U.S. Const., art. I, § 10.............................................................................................15

iii

Tex. Const. art. I, § 16..............................................................................................15

Pub. L. No. 86-272,

73 Stat. 555 (1959) ..................................................................................... 7, 9, 10

ALA. CODE § 434 40-27-1.........................................................................................36

ARK. CODE ANN. § 26-5-101 ....................................................................................36

CAL. REV. & TAX CODE § 25128(a) .........................................................................36

COLO. REV. STAT. § 39-22-303 ................................................................................35

IDAHO CODE ANN. § 63-3027(i) ...............................................................................36

MICH. COMP. LAWS § 205.581 .................................................................................35

MINN. STAT. § 290.171 .............................................................................................35

MO. REV. STAT. § 32.200 .................................................................................. 14, 36

OR. REV. STAT. § 314.606 ........................................................................................36

TEX. BUS. & COM. CODE ANN. § 1.303 ............................................................. 32, 33

TEX. EDUC. CODE ANN. § 161.01 .............................................................................28

TEX. FAM. CODE ANN. § 162.102 .............................................................................19

TEX. HEALTH & SAFETY CODE ANN. § 612.001.......................................................19

TEX. TAX CODE ANN. § 141.001 ................................................................................1

TEX. TRANSP. CODE ANN. § 523.001 .......................................................................19

UTAH CODE ANN. § 59-1-801.IV.9 ..........................................................................36

Other Authorities

2013 Or. Laws Ch. 407 ............................................................................................13

iv

2013 Utah Laws, Ch. 462 ........................................................................................13

Brief of Multistate Tax Commission in

United States Steel Corporation v. Multistate Tax Commission,

United States Supreme Court No. 76-635, 1977 WL 189138 .............................27

Bylaws of the Multistate Tax Commission,

Bylaw 7: Hearings and Procedures for Uniformity Recommendations,

http://www.mtc.gov/The-Commission/Bylaws .....................................................3

CA Stats. 2012, c. 37 (S.B.1015), § 3 ......................................................................36

Caroline N. Broun, Michael L. Buenger, Michael H. McCabe &

Richard L. Masters,

The Evolving Use and the Changing Role of Interstate Compacts:

A Practitioner’s Guide (ABA, 2006) ................................................ 16, 26, 27, 30

Charles Conlon, The Report of the Special Subcommittee:

A Preliminary Appraisal,

Proceedings of the Fifty-Seventh Annual Conference on Taxation,

Pittsburgh: National Tax Association, 1964 ..........................................................8

Charter of the MTC Uniformity Committee,

http://www.mtc.gov/uploadedFiles/Multistate_Tax_Commission/Unifo

rmity/About_Uniformity/Charter%20for%20the%20Uniformity%20Co

mmittee.pdf...........................................................................................................12

Council on State Governments –National Center for Interstate Compacts,

Interstate Compacts vs. Uniform Laws;

http://cglg.org/media/1302/compacts_vs_uniform_laws-csgncic.pdf .................16

D.C. Act 20-130, July 30, 2013 ...............................................................................13

H.R. 11798, 89th Congress (1965) ...........................................................................10

H.R. 16491, 89th Congress (1966) ...........................................................................10

H.R. 2158, 90th Congress (1967) .............................................................................10

v

Jerome R. Hellerstein and Walter Hellerstein,

STATE TAXATION, (3d ed. 2015).........................................................................6, 8

Michael T. Fatale, Common Sense: Implicit Constitutional Limitations on

Congressional Preemptions of State Tax,

2012 Mich. St. L. Rev. 41 ....................................................................................10

Mich. Pub. Acts 2011, No. 40 (H.B. 4479) .............................................................35

Mich. Pub. Acts 2014, No. 282 (S.B. 156) ..............................................................13

Minn. Laws 2013, c. 143, art. 13, § 24 ....................................................................39

MTC Annual Report, FY 67-68,

http://www.mtc.gov/uploadedFiles/Multistate_Tax_Commission/Re

sources/Archives/Annual_Reports/FY67-68.pdf ...........................................11, 29

MTC Annual Report, FY 68-69,

http://www.mtc.gov/uploadedFiles/Multistate_Tax_Commission/Re

sources/Archives/Annual_Reports/FY68-69.pdf .................................................29

MTC Annual Report, FY 70-71,

http://www.mtc.gov/uploadedFiles/Multistate_Tax_Commission/Re

sources/Archives/Annual_Reports/FY70-71.pdf .................................................29

MTC Annual Report, FY 71-

72, http://www.mtc.gov/uploadedFiles/Multistate_Tax_Commissio

n/Resources/Archives/Annual_Reports/FY71-72.pdf .........................................29

MTC Annual Report, FY 72-73,

http://www.mtc.gov/uploadedFiles/Multistate_Tax_Commission/Re

sources/Archives/Annual_Reports/FY72-73.pdf .................................................29

MTC Annual Report, FY 73-74

http://www.mtc.gov/uploadedFiles/Multistate_Tax_Commission/Re

sources/Archives/Annual_Reports/FY73-74.pdf .................................................29

Multistate Tax Commission, Public Participation Policy,

http://www.mtc.gov/The-Commission/Public-Participation-Policy ......................3

vi

Multistate Tax Compact ................................................................................... passim

Murray Drabkin, The Report of the Special Subcommittee:

A Preliminary Appraisal,

Proceedings of the Fifty-Seventh Annual Conference on Taxation,

Pittsburgh: National Tax Association, 1964 ..........................................................9

Special Subcomm. of the House Comm. on the Judiciary,

State Taxation of Interstate Commerce,

H. Rep. No. 952, 89th Congress, 1st Sess. (1965) .................................. 7, 8, 9, 10

Texas Letter Ruling 20107003L ..............................................................................36

U.C.C. §2-208 ................................................................................................... 32, 33

Uniform Division of Income for Tax Purposes Act,

7A U.L.A. 155 (2002) .................................................................................. passim

vii

INTEREST OF THE AMICUS CURIAE

Amicus curiae Multistate Tax Commission (the Commission) respectfully

submits this brief in support of the Texas Comptroller of Public Accounts. 1

The Commission was established by the Multistate Tax Compact, the subject

of this case. 2 The Compact became effective in 1967 when the minimum number

of states (seven) enacted it by statute, 3 and the validity of the Compact was upheld

in U.S. Steel Corp. v. Multistate Tax Comm’n, 434 U.S. 452 (1978). The

Commission is uniquely qualified to speak to the Compact’s proper interpretation

and to the course of performance of its members.

The Commission is composed of one member from each state that has

enacted the Compact. 4 That member is the head of the respective state agency

charged with administration of taxes. 5 In addition to Texas, fourteen other states

and the District of Columbia are compact member states. Thirty-one other states

regularly participate in Commission activities, including in the Commission’s

Uniformity Committee, as sovereignty or associate members. 6

1

No counsel for any party authored this brief in whole or in part. Only amicus curiae Multistate

Tax Commission made any monetary contribution to the preparation or submission of this

brief. This brief is filed by the Commission, not on behalf of any member state.

2

Multistate Tax Compact, Art. X.1. See the Compact as enacted by Texas. TEX. TAX CODE ANN.

§ 141.001

3

Id. Art.VI.

4

Id. Art. VI.1.

5

Id.

6

Compact Members: Alabama, Alaska, Arkansas, Colorado, District of Columbia, Hawaii,

Idaho, Kansas, Missouri, Montana, New Mexico, North Dakota, Oregon, Texas, Utah and

The stated purposes of the Compact are to: (1) facilitate proper

determination of state and local tax liability of multistate taxpayers, including

equitable apportionment of tax bases and settlement of apportionment disputes, (2)

promote uniformity or compatibility in significant components of state tax systems,

(3) facilitate taxpayer convenience and compliance in the filing of tax returns and

in other phases of state tax administration, and (4) avoid duplicative taxation.7

Under the Compact, the Commission has the power to: (1) study state and

local tax systems and particular types of state and local taxes; (2) develop and

recommend proposals for an increase in uniformity or compatibility of state and

local tax laws with a view toward encouraging the simplification and improvement

of state and local tax law and administration; (3) compile and publish such

information as would, in its judgment, assist the party states in implementation of

the compact and taxpayers in complying with state and local tax laws; and (4) do

all things necessary and incidental to the administration of its functions pursuant to

the Compact.8

The Commission has established standing committees supporting its

programs and functions in which states, including non-compact states, may choose

Washington. Sovereignty Members: Georgia, Kentucky, Louisiana, Michigan, Minnesota, New

Jersey, and West Virginia. Associate Members: Arizona, California, Connecticut, Florida,

Illinois, Iowa, Indiana, Maine, Maryland, Massachusetts, Mississippi, Nebraska, New

Hampshire, New York, North Carolina, Ohio, Oklahoma, Pennsylvania, Rhode Island, South

Carolina, South Dakota, Tennessee, Vermont, Wisconsin, and Wyoming.

7

Multistate Tax Compact, Art. I.

8

Id., Art. VI.

2

to participate. Those committees include Uniformity, Audit, Nexus, and Litigation

and are headed up by representatives from state tax agencies. 9 Meetings of the

committees — except when dealing with confidential information — are open to

the public and public participation, especially in the Uniformity Committee, is

encouraged.10

Compact members are responsible for appropriating funds for the

Commission’s budget in accordance with Article VI.4. Other states that participate

in audit or nexus programs pay fees for those programs. Representatives of the

compact member states in their role on the Commission approve certain actions of

the executive director and the standing committees. In particular, the Commission

approves any recommendations of model laws developed by the Uniformity

Committee, after those models go through a development and hearing process.11

Representatives of the compact member states may also serve on the Executive

Committee of the Commission, which has the power to oversee and direct the

activities of the executive director and the staff of the Commission and provide

oversight and direction to the standing committees. 12

9

Information on these committees and the programs they support is on the Multistate Tax

Commission’s website at: http://www.mtc.gov/Home.

10

See the Commission’s Public Participation Policy, http://www.mtc.gov/The-

Commission/Public-Participation-Policy.

11

Multistate Tax Compact, Art. VII. See also Bylaws of the Multistate Tax Commission, Bylaw

7: Hearings and Procedures for Uniformity Recommendations, http://www.mtc.gov/The-

Commission/Bylaws.

12

Multistate Tax Compact, Art. VI.2.(a).

3

INTRODUCTION

This brief addresses whether the Texas legislature was precluded by the

Multistate Tax Compact from requiring that taxpayers apportion their franchise tax

margin base using a single gross receipts apportionment formula, rather than the

formula contained in Article IV of the Multistate Tax Compact. The Commission

agrees with the Texas Comptroller that Compact Article IV and the related election

in Article III.1 (the apportionment provisions) do not apply to the Texas franchise

tax, but assumes that they do for purposes of this brief. Even if the Compact’s

apportionment provisions apply to the franchise tax, those provisions do not

preclude the legislature from requiring that taxpayers use a gross receipts-based

apportionment formula instead. The Compact and the apportionment provisions do

not create a binding interstate agreement and therefore do not restrict state

lawmakers authority to unilaterally amend, modify, or supersede those provisions,

once enacted. Even if the Compact were a binding compact, its terms do not

prohibit modification of Article III.1 or IV and the compact member states’ course

of conduct demonstrates their understanding that those provisions may be

modified. Nor is allowing those provisions to be modified inconsistent with the

Compact’s purpose of promoting uniformity or compatibility in state tax laws.

Because the Appellant in this case sets much store by the history

surrounding the Compact, this brief considers that history as well before turning to

4

our arguments. Many of the historical facts are not in dispute. There were

advocates for the Compact at the time of its original adoption who believed that it

was necessary for the states to demonstrate to Congress that they could achieve a

higher degree of uniformity in the taxation of multistate income in order to avoid

federal preemption. There were also those who believed the states would not act

and that Congress should. But the Appellant reads into this history both too much

and too little. The Appellant posits that the Compact was enacted “in response to a

demand by Congress,” and that the “party states . . . intended to satisfy the federal

government” by adopting the Compact. See Brief for Appellant, pp. 1,7 (emphasis

added). According to this theory, the history surrounding the compact proves the

subjective intent, not just of those who debated or promoted the Compact, but of

various state legislative bodies, to enter into a binding contract in satisfaction of an

unspecified demand by an entity that was not a party to that agreement, namely

Congress. This is something the history simply cannot prove. Not only were the

states slow to join the Compact (with many never joining), but as the Commission

asserts below, the Compact imposed no requirement of reciprocation under its

terms and allowed members to withdraw at any time, for any reason. If Congress’s

demand for state uniformity was as certain and serious as the Appellant portrays it,

this response would hardly have satisfied it.

5

The important historical facts can be briefly summarized. Prior to the

1960’s, states used different methods to determine their respective taxable shares

of the earnings of multistate enterprises. Some used separate geographic

accounting while others applied formulary apportionment. Formulary

apportionment uses ratios or “factors” representing the instate percentages of

certain verifiable business activities to determine the state’s share of multistate

earnings. At that time, formulas used by the states were not uniform or consistent.

In 1957, the Uniform Law Commission promulgated the model Uniform

Division of Income for Tax Purposes Act (UDITPA). 13 That model used an

apportionment formula calculated by taking the equally weighted average of three

factors—property, payroll and sales. 14 In the decade following its promulgation,

only a handful of states adopted UDITPA. See Jerome R. Hellerstein and Walter

Hellerstein, STATE TAXATION, ¶ 9.01 (3d ed. 2015).

In 1959, in Northwestern States Portland Cement Co. v. Minnesota, the U.S.

Supreme Court held that a state had jurisdiction to impose corporate income tax on

a corporation that had an office and a small sales force in the state. 358 U.S. 450

(1959). Shortly afterward, the Court refused to review a state court decision

upholding state jurisdiction to impose tax on a business that merely solicited sales

13

Uniform Division of Income for Tax Purposes Act, § 2, 7A U.L.A. 155 (2002) available at:

http://www.uniformlaws.org/Act.aspx?title=Division%20of%20Income%20for%20Tax%20Purp

oses (last visited May 25, 2015)

14

Id.

6

in the state. International Shoe Co. v. Fonternot, 359 U.S. 984 (1959), denying

cert. in 236 La. 279, 107 So. 2d 640 (1958). The Supreme Court has never

renounced the reasoning in Northwestern States.15 But within seven months,

businesses and industry groups were able to convince Congress to step in and

preempt the state’s jurisdiction to impose business income taxes where a business

limits its activities to the solicitation of sales in a state. See Pub. Law No. 86-272,

73 Stat. 555 (1959) (later codified at 15 U.S.C.A. § 318, et. seq.) (hereafter P.L.

86-272). Rather than taking any action to mandate one method of apportionment,

however, the legislation created a Special Subcommittee on State Taxation of

Interstate Commerce of the House Committee on the Judiciary — the Willis

Committee — to study the issue and make a report to Congress. P.L. 86-272 at

556.

The Willis Committee studied the matter for over three years and issued its

final report on September 2, 1965. Special Subcomm. of the House Comm. on the

Judiciary, State Taxation of Interstate Commerce, H. Rep. No. 952, 89th Congress,

1st Sess. (1965) (hereafter the Willis Report). The Willis Report analyzed state

15

See Oklahoma Tax Com’n v. Jefferson Lines, Inc., 514 U.S. 175, 183-184 (1995)(describing

the Court’s struggle with an “old absolutism that proscribed all taxation formally levied upon

interstate commerce” prior to Northwestern States, and the eventual adoption of the Complete

Auto substantial nexus standard, consistent with the holding in that case, that overturned that

older doctrine once and for all).

7

business income taxes imposed in thirty-eight states, not including Texas.16 The

Willis Report recommended federal legislation that would have required states to

use formulary apportionment and employ a formula “composed of property and

payroll factors, without the use of a sales factor.” Id., Vol. 4, p. 1144.

State tax officials criticized the Willis Report for omitting a sales factor from

its recommended apportionment formula since most states and the model UDITPA

had formulas that included a sales factor. The executive secretary of the National

Association of Tax Administrators, Charles Conlon, noted that: “The argument [in

the Willis Report] against the concept of the receipts factor is the familiar one

based on input-output analysis . . . [but] the division of the unitary income base

among the several states is an entirely different problem . . . and where the unitary

tax base is income, the source of gross receipts is a relevant factor and has widely

been accepted as such.” 17

Before, during, and after the period over which the Willis Committee was

deliberating, states were beginning to adopt the model UDITPA formula as part of

16

See the Willis Report, Vol. 1, pp. 99-103. Texas’s franchise tax was included in the Willis

Committee report’s section on Capital Stock Taxes. Id. Vol. 3, pp. 903-917. The Willis

Committee’s charge was expanded to looking at other state taxes imposed on multistate

businesses after the U.S. Supreme Court’s decision in Scripto, Inc. v. Carson, 362 U.S. 207

(1960) and the report eventually made recommendations as to other taxes besides income

taxes—including the use of a uniform apportionment formula for capital stock taxes. See the

Willis Report Vol. 1, p.9 and Vol. 4, p. 1169-1171.

17

Charles Conlon, The Report of the Special Subcommittee: A Preliminary Appraisal, pp. 537-8,

Proceedings of the Fifty-Seventh Annual Conference on Taxation, Pittsburgh: National Tax

Association, 1964.

8

their state business income tax systems. Hellerstein, supra. Some also enacted the

Multistate Tax Compact, Article IV of which incorporates the model UDITPA

nearly word for word. Id. And some did both. Id.

At the annual meeting of the National Tax Association in 1964, Murray

Drabkin, chief counsel of the Willis Committee, summarized the results and the

recommendations of the Committee and said: “[T]he conclusion is clear from the

Subcommittee’s report that Congress will be asked to act in this area. I know there

are those who will question some of the particulars of this report, but even those

people seem to be in agreement that something has to be done. The difference is

only that they say, ‘Let the states do it.’” Then, in response to those who advised

congressional restraint for that reason, the chief counsel for the Willis Committee

expressed his skepticism that the states would “do it,” and concluded that, “It

hasn’t been done and there is no reason to believe that salvation is on the way.”

The Report of the Special Subcommittee: A Preliminary Appraisal, p. 528,

Proceedings of the Fifty-Seventh Annual Conference on Taxation, Pittsburgh:

National Tax Association, 1964.

Federal legislation to mandate a standard apportionment formula was indeed

introduced at least three times after passage of P.L. 86-272, but prior to the

9

adoption of the Compact in 1967. H.R. 11798, 89th Congress (1965),18 H.R. 16491,

89th Congress (1966), H.R. 2158, 90th Congress (1967).19 But it also soon became

apparent that Congress would leave in place P.L. 86-272’s limitation on taxing

jurisdiction, first proposed as a temporary or “stop-gap” measure.20

Given this history, some state officials may have believed that, having

restricted state taxing jurisdiction under Pub. L. 86-272 (effectively reversing the

Supreme Court case that created the issue in the first place), Congress’s “demands”

were already effectively “satisfied”—or at least that Congress would not move

beyond restricting state taxation to actually regulating it. The cynical among them

might even have viewed the creation of a committee to study the problem as a sign

that there was no congressional consensus to take further action. Of course, some

state officials no doubt believed that the Willis Report‘s unfavorable description of

state taxing schemes, and the perception that the states would not act, would

compel Congress to mandate a nationwide income tax apportionment system. But

had Congress been so compelled, it is difficult to understand how it would have

been satisfied by a few states enacting a voluntary interstate compact. 21

18

This is the bill that accompanied the Willis Committee Report. H.R. Rep. No. 952, 89th Cong.,

1st Sess. (1965).

19

Congress would also fail to ratify the Compact on numerous occasions. U.S. Steel Corp. v.

Multistate Tax Commission, 434 U.S. 452 (1978), at 458 n. 8.

20

Michael T. Fatale, Common Sense: Implicit Constitutional Limitations on Congressional

Preemptions of State Tax, 2012 Mich. St. L. Rev. 41.

21

As of its initial meeting in October 1967, the Commission noted that there were ten members

of the Compact: Florida, Illinois, Kansas, Missouri, Nebraska, Nevada, New Mexico, Oregon,

10

Even if each legislature enacting the Compact in 1967 made the same

political calculation that doing so might forestall federal preemption, this cannot

form the basis for a legally-enforceable obligation. Congress was not a party to the

Compact, nor did the states obligate themselves contractually to each other or

anyone else in exchange for Congress’s agreement not to act. See, e.g., Nat’l R.R.

Passenger Corp. v. Atchison Topeka & Santa Fe Ry. Co., 105 S. Ct. 1441 at 1451

(1985) (“[T]he presumption is that ‘a law is not intended to create private

contractual or vested rights but merely declares a policy to be pursued until the

legislature shall ordain otherwise.’ … [T]he principal function of a legislature is

not to make contracts, but to make laws that establish the policy of the state.”

(Internal citations omitted.))

Nor does this suggest that states that enacted the Compact did so only on a

pretense of concern over the problems created by disuniformity. As noted above,

one of the Compact’s purposes is to “promote uniformity or compatibility in

significant components of state tax systems.” The Compact accomplishes this

purpose through Art. VII, which provides that: “Whenever any two or more party

States or subdivisions have uniform or similar provisions of law relating to an

income tax . . . the Commission may adopt uniform regulations . . .” for

Texas and Washington. MTC Annual Report, FY 67-68 (First Annual Report), p. 3. A copy of

the annual report is available on the Commission’s website, at

http://www.mtc.gov/uploadedFiles/Multistate_Tax_Commission/Resources/Archives/Annual_

Reports/FY67-68.pdf

11

consideration by the states. 22 The Executive Committee of the Commission

established the Uniformity Committee in which any state and members of the

public may participate. 23 This created a dedicated forum for the continuing study of

the kinds of multistate tax issues that had been taken up by the Uniform Law

Commission and the Willis Committee. In its 48 years, the Commission has

analyzed, developed and ultimately recommended approximately 40 model laws.24

While these models are advisory only, 25 they and the process by which they are

adopted contribute to greater uniformity and compatibility in state laws. This

approach to uniformity, unlike binding contractual obligations or federal

legislation, allows state laws to adapt as necessary, in recognition that such

adaptation will always be required.

One such adaptation that states have made involves the emphasis placed on

the sales factor in apportionment formulas used to divide multistate income. By

1978, the U.S. Supreme Court noted that the UDITPA equally-weighted formula

had become “the prevalent practice.” Moorman Mfg. Co. v. Bair, 437 U.S. 267,

279 (1978). Moorman involved the choice by Iowa lawmakers to use a single

sales-factor formula. The Court recognized that “political and economic

22

Compact, Article VII. See also Compact, Article VI (3)(b).

23

Charter of the MTC Uniformity Committee,

http://www.mtc.gov/uploadedFiles/Multistate_Tax_Commission/Uniformity/About_Uniformity/

Charter%20for%20the%20Uniformity%20Committee.pdf

24

For a compilation of the Commission’s completed model laws, see:

http://www.mtc.gov/Uniformity.aspx?id=524.

25

Compact, Articles VI.3(b) and VII.

12

considerations vary from state to state” and might impact a state’s choice of

apportionment methods. Id. The Court concluded that the constitution permits

states to apply different apportionment formulas. Id., 281. While a number of states

have moved away from requiring an equally-weighted three-factor formula since

1978, they have consistently moved in the same direction—toward formulas that

emphasize the sales or receipts factor.

Today, 38 of the 47 states with some form of apportioned business tax use a

formula that gives at least double-weighting to the sales factor when used in

combination with property and payroll factors. 26 Only nine states exclusively

require an equally-weighted three-factor formula. 27 Among Compact members, the

movement is the same. Of the sixteen compact member states, only six continue to

require the equally-weighted three-factor apportionment formula. 28 Eight members

require at least a double-weighted sales factor. 29 None of these eight permits the

26

See Attachment A, State Apportionment of Corporate Income

27

Id.

28

Id. Alaska, Hawaii, Kansas, Montana, New Mexico, and North Dakota.

29

Id. Alabama, Arkansas, Colorado, Dist. of Columbia, Idaho, Oregon, Texas, and Utah. In

2013, Utah, Oregon, and the District of Columbia each repealed the Compact and enacted a

version without Articles III.1 and IV. 2013 Utah Laws, Ch. 462; 2013 Or. Laws Ch. 407 (SB

307); D.C. Act 20-130, July 30, 2013. Michigan repealed the Compact in its entirety in 2014.

Mich. Pub. Acts 2014, No. 282 (S.B. 156), retroactive to January 1, 2008. Both prior and

subsequent to the repeal, Michigan required taxpayers to apply a single sales factor

apportionment formula. Int’l Bus. Machines Corp. v. Dep’t of Treasury, 852 NW 2d 865

(Mich. 2014).

13

apportionment election of Article III.1. 30 Only one Compact member explicitly

allows the election in Article III. 31

As their course of performance indicates, the Compact members do not

interpret the Multistate Tax Compact as prohibiting their state legislatures from

requiring heavier-weighted or single-sales-factor apportionment formulas for

apportioning income. As the Commission argues below, this interpretation and

course of performance is consistent also with the laws of statutory and contract

construction and is supported by the conclusions of the U.S. Supreme Court in U.S.

Steel. Further, this interpretation is consistent with the purposes of the Compact.

ARGUMENT

I. Articles III.1 and IV of the Multistate Tax Compact do not prevent the

Texas legislature from requiring the use of a receipts factor to apportion

the franchise margin base because the Compact is not a binding

interstate compact, but is instead an advisory compact containing a

uniform law.

Before analyzing whether the Multistate Tax Compact is a binding compact

or contains provisions that cannot be unilaterally modified, we would remind the

Court that the Compact was never approved by Congress. U.S. Steel, at 454.

Therefore, it does not have the force of federal law so as to require congressional

approval of any modifications. Com. of Penn. v. Wheeling & Belmont Bridge Co.,

30

Supra, n. 26.

31

MO. REV. STAT. § 32.200. Note, Colorado recognized the election until passage of H.B. 08-

1380, signed May 20, 2008, effective for tax years commencing on or after Jan. 1, 2009.

14

54 U.S. 518 (1851). The Court must therefore treat with great caution any cases

relied upon by the Appellant in support of its challenge which hold that a

Congressionally approved compact may not be modified unilaterally by state law

or that the provisions of such compacts take precedence over conflicting state law.

Moreover, whether there are “binding” compacts, outside those approved by

Congress, is debatable, 32 although the Commission does not assert that there are

none. Because it is clear that the Multistate Tax Compact does not have the

characteristics of a binding interstate agreement, this brief argues that this Court

may properly find for the Comptroller on that basis.

The Appellant recognizes that the Compact was not approved by Congress

but nevertheless claims that Articles III.1 and IV of the Compact cannot be

unilaterally modified. Brief for Appellant, p. 29. The Appellant also claims it is a

violation of the contracts clauses of both the federal and state constitutions 33 for

Texas to refuse to allow a taxpayer to elect the apportionment formula of Compact

Article IV. Id. at 46. Because the Appellant cannot rely on Congressional approval

32

The Michigan Supreme Court recently decided a case similar to this. There, a plurality made

its holding without reaching the question of whether the Compact was binding. Three justices,

however, would have reached that question. Writing for those three, Justice McCormack rejected

the contention that the Compact was binding and noted that a case relied upon by the taxpayer

there, as well as the Appellant here, “did not cite any authority for the above emphasized rule—

that compacts without congressional approval cannot be unilaterally amended and must take

precedent over conflicting state law—and I have found none.” Int’l Bus. Machines Corp. v.

Dep’t of Treasury, 852 N.W.2d at 887 (McCormack, J. dissenting, referring to McComb v.

Wambaugh, 934 F.2d 474 (3d Cir. 1991)).

33

U.S. Const., art. I, §10, Tex. Const. art. 1, §16.

15

for its challenge, it must show that the Compact has elements of a binding

interstate agreement. But the Compact lacks these elements. Instead, it is an

advisory compact containing a uniform law.

Interstate agreements may take different forms. Some are binding, in the

sense that some or all of their provisions may not be unilaterally modified. 34 Many,

however, are not binding—but may be advisory in nature, and do not prevent

unilateral modification of their terms. 35 States may also adopt model laws that

contain uniform language but lack any element of an agreement to maintain

uniform provisions. 36 Neither a model law nor an advisory compact constitutes a

contract. Both may be unilaterally modified. 37 Labels are not controlling and the

fact that something is labeled a “compact” does not determine whether its

provisions create binding obligations.

In analyzing whether the provisions of the Multistate Tax Compact are

binding, this Court should apply the “classic indicia of a compact” as set out by the

U.S. Supreme Court in Northeast Bancorp, Inc. v. Bd. of Governors of Fed.

Reserve Sys., 472 U.S. 159 (1985), and applied by 9th Circuit Court of Appeals’

34

Council on State Governments –National Center for Interstate Compacts, Interstate Compacts

vs. Uniform Laws

http://cglg.org/media/1302/compacts_vs_uniform_laws-csgncic.pdf (last visited May 25, 2015)

35

Caroline N. Broun, Michael L. Buenger, Michael H. McCabe & Richard L. Masters, The

Evolving Use and the Changing Role of Interstate Compacts: A Practitioner’s Guide 12, 14

(ABA, 2006).

36

Id.

37

Id., p. 17

16

analysis in Seattle Master Builders Ass’n v. Pac. Nw. Elec. Power & Conservation

Planning Council, 786 F.2d 1359 (9th Cir. 1986).

The three “classic indicia” in Northeast Bancorp (slightly restated in Seattle

Master Builders) may be summarized as:

(1) the requirement of reciprocation,

(2) the establishment of a joint regulatory body, and

(3) the prohibition of unilateral modification or repeal. 38

A. The Multistate Tax Compact has none of the indicia of a binding

interstate compact.

(1) The Compact does not contain a requirement of

reciprocation.

The requirement of reciprocation is the sine qua non of a binding interstate

compact as well as any binding provision of a compact. The U.S. Supreme Court

recognized this in Northeast Bancorp. In that case, federal law permitted states to

regulate in-state bank acquisitions by companies domiciled outside the state. A

group of states had enacted similar statutes allowing acquisitions on a reciprocal

basis. The statutes also imposed a regional limitation, which the Appellants in the

case claimed created an unconstitutional interstate compact, bringing challenges to

the statutes in two states. The Court observed:

38

Northeast Bancorp, supra, 472 U.S. at 175. Accord, Seattle Master Builders, supra, 786 F.2d

at p. 1363.

17

“Appellants maintain that the Massachusetts and Connecticut statutes

constitute a compact to exclude non-New England banking organizations

which violates the Compact Clause, U.S. Const., Art. I, § 10, cl. 3, because

Congress has not specifically approved it. We have some doubt as to

whether there is an agreement amounting to a compact. The two statutes are

similar in that they both require reciprocity and impose a regional limitation,

both legislatures favor the establishment of regional banking in New

England, and there is evidence of cooperation among legislators, officials,

bankers, and others in the two States in studying the idea and lobbying for

the statutes. But several of the classic indicia of a compact are missing. No

joint organization or body has been established to regulate regional banking

or for any other purpose. Neither statute is conditioned on action by the

other State, and each State is free to modify or repeal its law unilaterally.

Most importantly, neither statute requires a reciprocation of the regional

limitation. Bank holding companies based in Maine, which has no regional

limitation, and Rhode Island, which will drop the regional limitation in

1986, are permitted by the two statutes to acquire Massachusetts and

Connecticut banks. These two States are included in the ostensible compact

under Appellants’ theory, yet one does not impose the exclusion to which

Appellants so strenuously object and the other plans to drop it after two

years.”

472 at 175 (emphasis added).

While the issue in Bancorp ultimately did not turn on whether there was a

compact, the Court is clear that a uniform law is not sufficient, nor is an agreement

to cooperate in studying an issue or lobbying for the uniform provisions to be

enacted. Rather, the most important indicia of a compact is a requirement of

reciprocation. Such a requirement may be explicit or implicit.

In addition to citing cases involving compacts that have been

Congressionally approved, interstate compacts cited by the Appellant in support of

its case may be read as creating a requirement of reciprocation. For example:

18

• The Interstate Compact on the Placement of Children, TEX. FAM. CODE ANN.

§162.102 et. seq. Allows the authority of participating states to be extended

beyond their borders and provides procedures for the interstate placement of

children for foster care or as a preliminary to a possible adoption. After a

placement has been made, the sending state continues to have financial

responsibility for support and retains jurisdiction over the child. Also

provides: “No sending agency shall send, bring or cause to be sent or

brought into any other party state, any child for placement in foster care or

as a preliminary to a possible adoption unless the sending agency shall

comply with each and every requirement set forth in this article.” See

McComb v. Wambaugh, 934 F.2d at 480.

• The Drivers’ License Compact, TEX. TRANSP. CODE ANN. §523.001 et seq.

Requires reciprocal licenses suspension by member states. Members must

report driving offenses to other member states and suspend driving

privileges for offenses committed in another state. See Phillips v. Com.,

Dept. of Transp., Bureau of Driver Licensing, 80 A.3d 561, 567 (Pa. 2013).

• The Interstate Compact on Mental Health, TEX. HEALTH & SAFETY CODE

ANN. §612.001 et. seq. Among other things, ensures that a member may not

avoid financial responsibility by sending a mentally ill person to another

state without first obtaining the consent of the receiving state to accept that

patient. See In re Myrick, 624 A.2d 1222, 1226 (D.C. 1993).

States that enter into these kinds of compacts expect to derive a benefit not

just from sharing resources or from collective effort, but from the requirement of

reciprocation itself. They will only derive that benefit, however, if the reciprocal

requirement is respected by the other members. Compact provisions that depend on

reciprocation are obviously not susceptible to unilateral modification.

Compacts may contain requirements of reciprocation that mandate or

prohibit actions. For example, the Red River Compact, considered by the U.S.

Supreme Court in June 2013, established a detailed regulatory scheme for use of

19

water from the Red River which barred any member state from taking or diverting

water from within another state’s borders. Tarrant Reg’l Water Dist. v. Herrmann,

133 S.Ct. 2120 (2013). Similarly, the Compact of 1905 governing riparian rights

on the Delaware River bars any member from exercising exclusive jurisdiction

over those rights. New Jersey v. Delaware, 552 U.S. 597 (2008). Whether the

requirement is to do something, or not do something, cases that have held that

interstate compacts could not be unilaterally altered (apart from the requirement for

Congressional approval) have turned on the fact that the parties undertook mutual

obligations that were critical for the proper functioning of the compact.

In contrast, the Multistate Tax Compact imposes no requirement of

reciprocation on its members. Nor do the benefits of membership in the Compact

depend on reciprocation of the members. The Multistate Tax Compact allows each

Compact member state to fully exercise its sovereign power to tax independently

of any requirement of concurrence by the other members and with no delegation of

power to the Commission to bind the members. U.S. Steel, at 473. The

apportionment provisions of Articles III.1 and IV are no exception. No Compact

member state has a right to nor has any ever attempted to require another Compact

member state to refrain from modifying Article III.1 or Article IV of the Compact,

nor is it clear how a state might hope to benefit from doing so. Each state’s own

law determines the portion of multistate income subject to tax in that state. Even

20

assuming that one state’s law could control the portion of multistate income

taxable in another state, this would not benefit the first state. The portion of

income subject to tax in the first state is not determined by reference to what

portion any other state taxes. The Compact does not alter this reality nor is there

any indication the states ever intended it to do so.

That one state’s determination of the taxable share of multistate income does

not depend upon any other state’s determination of its taxable share has long been

recognized as a feature of our federal system of government. Moorman

Manufacturing Co. v. Bair, 437 U.S. at 274. This fundamental principle was very

recently affirmed by the U.S. Supreme Court. In Comptroller of Treasury of

Maryland v. Wynne, 135 S.Ct. 1787 (2015), 2015 WL 2340843, the Court held that

a state’s law taxing a share of interstate income is to be evaluated solely on the

“internal consistency” of that law. Specifically, the Court noted that it had chosen

to “distinguish between (1) tax schemes that inherently discriminate against

interstate commerce without regard to the tax policies of other States, and (2) tax

schemes that create disparate incentives . . . only as a result of the interaction of

two different but nondiscriminatory and internally consistent schemes … [because]

[t]he first category of taxes is typically unconstitutional; the second is not.” Wynne

at *13 (emphasis added).

21

Nor does any other provision of the Compact require or implicate this kind

of reciprocation with respect to application of the state apportionment rules in

Article III.1 and IV. For example, member states, acting in their role in the

Commission, may freely choose to vote for or against recommended uniform or

model regulations interpreting Article IV (or may even abstain from voting to

make such recommendations). Nor are the member states required to adopt any

recommended regulations or even to refrain from applying a contradictory

regulation or interpretation.

(2) The Compact does not establish a joint regulatory body.

The precise nature of the joint regulatory body to which the U.S. Supreme

Court referred in Northeast Bancorp is best understood in the context of the

particular requirement of reciprocation the Court was searching for in that case. As

noted, the challengers in that case took issue with the regional limitation. The U.S.

Supreme Court therefore questioned whether, in the statutes creating that

limitation, a “joint organization or body has been established to regulate regional

banking or for any other purpose.” 472 U.S. at 175.

The Multistate Tax Commission is not a regulatory body in that sense.

Indeed, that was one of the primary reasons the U.S. Supreme Court ruled that the

Compact did not require Congressional approval under the Compact Clause.

This pact does not purport to authorize the member States to exercise

any powers they could not exercise in its absence. Nor is there any

22

delegation of sovereign power to the Commission; each State retains

complete freedom to adopt or reject the rules and regulations of the

Commission.39

Further,

[I]ndividual member States retain complete control over all legislation

and administrative action affecting the rate of tax, the composition of

the tax base (including the determination of the components of taxable

income), and the means and methods of determining tax liability and

collecting any taxes determined to be due. 40

As the U.S. Supreme Court recognizes, the Commission was delegated no

sovereign power and cannot impose requirements on its member states to adopt or

apply regulations. In enacting the Compact, the members did not surrender any

aspect of state sovereignty. The Court’s descriptions of the powers of the

Commission confirm that they are strictly limited to an advisory and informational

role. 41

While the Commission, with the support of its staff, cooperates through its

various programs and activities and while the members benefit from those actions,

this is not enough to create a binding compact. If it were, then every organization

or association with state governmental members might be deemed to establish a

binding compact.

39

U.S. Steel Corp., supra, 434 U.S. at 473 (emphasis added).

40

Id. at 457.

41

In U.S. Steel, the U.S. Supreme Court described the powers of the Commission at 456-457.

23

For example, the Appellant notes that the Commission provides audit

services to compact member states and to other states that wish to contract with the

Commission for that purpose. U.S. Steel, of course was a challenge to the

Commission’s audits, and this did not alter the U.S. Supreme Court’s views of the

Commission’s authority. But it may also be useful to note that no Compact

member state is obligated to use the Commission’s audit services. And Texas does

not. 42 The audit program is overseen by the states that participate in it and the

Commission is authorized by each state that wishes to engage in a particular joint

audit to perform that audit on behalf of those states. The participating states select

taxpayers for audit and receive a report as a result of the audit with recommended

adjustments. It is up to each state whether or not to make any adjustments

recommended as a result of the audit, which are made based on each states’ own

laws, using that state’s own assessment procedures. 43

(3) The Compact does not prohibit unilateral modification or

repeal.

The third of the classic indicia of a compact noted by the Supreme Court in

Northeast Bancorp is whether the agreement prohibits unilateral modification or

repeal. The Multistate Tax Compact prohibits neither. It explicitly permits

42

See a list of states that participate in the Commission’s audit program at:

http://www.mtc.gov/Audit-Program/Member-States.

43

See information on the Commission’s audit program at: http://www.mtc.gov/Audit-Program.

24

unconditional, unilateral repeal. 44 The Compact is silent as to modification. But

where an interstate agreement creates neither any reciprocal obligations nor a

regulatory agency to enforce those obligations, and where that agreement also

provides for unilateral and unconditional repeal, without notice or delay, it is

difficult to understand in what way the agreement could possibly be “binding” so

that provisions might not be modified by its members. 45 Accordingly, it is not

determinative that the agreement does not explicitly address unilateral

modification. To hold otherwise would be a strained reading whether the

Compact is analyzed as a contract or as a statute. 46 Lane v. Travelers Indem. Co.,

391 SW 2d 399, 402 (Tex. 1965); Ex parte Ervin, 187 SW 3d 386, 388 (Tex.

Crim. App. 2005).

Nor can silence be construed against the compact member states in

determining whether they are precluded from modifying its provisions where

those provisions would otherwise constrain their ability to establish the states’

own tax rules. As pointed out recently by the U.S. Supreme Court, “States rarely

relinquish their sovereign powers, so when they do we would expect a clear

44

Multistate Tax Compact, Art. X.2.

45

Article X’s withdrawal provision is not “similar” to the withdrawal provisions cited in the

Brief for Appellant, at footnote 6. All those compacts require a state to give advance notice,

either to the other member states or to an interstate regulatory body, of its intent to withdraw as

much as two years before the withdrawal takes effect. All a member state need do to withdraw

from the Multistate Tax Compact is repeal it, without any advance notice to the other members.

This distinction underscores the binding nature of the compacts cited by The Appellant and the

advisory nature of the Multistate Tax Compact.

25

indication of such devolution, not inscrutable silence.” Tarrant Reg’l Water Dist.

v. Herrmann , 133 S Ct 2120 at 2133.

B. The Compact is an advisory compact incorporating into Article

IV, and by extension Article III.1, a uniform law.

The Multistate Tax Compact is not a binding interstate agreement requiring

reciprocation nor does anything in the Compact prohibit the unilateral modification

of the apportionment provisions of Article III.1 and IV. This conclusion puts to rest

the Appellant’s claims that the Texas legislature was precluded by the Compact

from requiring that franchise taxpayers use a single sales factor apportionment

formula. Implicit in the Appellant’s arguments, however, is the contention that the

Compact must be a binding interstate compact since it cannot be characterized as

anything else. We reject this contention, relying as it must on labels rather than

substance. To the extent is it necessary to label it, the Commission believes that the

Compact can best be described as an advisory compact, Articles III.1 and IV of

which are in the nature of uniform laws.

Advisory compacts are characterized as “lack[ing] formal enforcement

mechanisms and are designed not to actually resolve an interstate matter, but

simply to study such matters.” 47 In The Evolving Use and the Changing Role of

Interstate Compacts, the authors explain that “[b]y their very terms, advisory

47

Broun et al., supra n. 35, at 13 (citing the Delmarva Peninsula Advisory Council Compact as

an example of such a compact).

26

compacts cede no state sovereignty nor delegate any governing authority to a

compact-created agency.” 48 The Commission characterized the Compact in exactly

this way before the U.S. Supreme Court thirty-eight years ago, saying:

[The Compact] consists solely of uniform laws, an advisory

mechanism for the uniform interpretation and application of those

laws, and an advisory mechanism for otherwise developing uniformity

and compatibility in state and local taxation of multistate businesses.

Brief of Multistate Tax Commission in United States Steel Corporation v.

Multistate Tax Commission, U.S. Supreme Court No. 76-635, 1977 WL

189138 at *12.

The Court agreed, first citing the powers of the Commission as described in

Section 3 of Art. VI:

(i) to study state and local tax systems; (ii) to develop and recommend

proposals for an increase in uniformity and compatibility of state and

local tax laws in order to encourage simplicity and improvement in

state and local tax law and administration; (iii) to compile and publish

information that may assist member States in implementing the

Compact and taxpayers in complying with the tax laws; and (iv) to do

all things necessary and incidental to the administration of its

functions pursuant to the Compact.

U.S. Steel, 434 U.S. at 456-457, citing to Compact Art. VI. After which, the Court

discussed Articles VII and VIII, detailing more specific functions of the

48

Broun et al., supra n. 35, at 14. In view of Broun‘s clear description of advisory compacts as

“lack[ing] formal enforcement mechanisms” and that they “are not designed to actually resolve

an interstate matter, but simply to study such matters,” Appellant’s assertion that an advisory

compact is nevertheless binding is simply ignores everything except the Compact’s label.

Appellant’s Reply Brief at 13.

27

Commission. The Court’s description recognized that these functions do not

represent the exercise of any delegated sovereign authority:

Under Art. VII, the Commission may adopt uniform administrative

regulations in the event that two or more States have uniform

provisions relating to specified types of taxes. These regulations are

advisory only. Each member State has the power to reject, disregard,

amend, or modify any rules or regulations promulgated by the

Commission. They have no force in any member State until adopted

by that State in accordance with its own law. Article VIII applies only

in those States that specifically adopt it by statute. It authorizes any

member State or its subdivision to request that the Commission

perform an audit on its behalf. The Commission, as the State’s

auditing agent, may seek compulsory process in aid of its auditing

power in the courts of any State that has adopted Art. VIII.

Information obtained by the audit may be disclosed only in

accordance with the laws of the requesting State.

Id., at 457.

That state governments might enter into agreements to cooperate or to create

a joint organization to serve an advisory function (that is, advisory compacts), is

not a novel idea. Nor is it unheard of for those agreements to be labeled

“compacts.” For example, the Compact for Education 49 appears to be very similar

to the Multistate Tax Compact. It establishes an Educational Commission of the

states whose purpose and function is serve as a clearinghouse to exchange

information on best educational practices, to conduct research into improving those

practices and to recommend educational policies to further those best practices.

49

TEX. EDUC. CODE ANN. §161.01 et seq.

28

In addition to creating a means by which states could cooperate and engage

in collective study and analysis of tax matters, the Compact includes the model

UDITPA, promulgated by the Uniform Law Commission, in Article IV. Therefore,

Article IV, and by extension Article III.1, can best be described as the enactment of

uniform law. This has been the Multistate Tax Commission’s understanding of the

substance of the Compact since its beginning, more than forty years ago. The

Commission’s early annual reports regularly included a list of the states in which

“the Multistate Tax Compact has been enacted as a uniform law …” 50 And as far

back as thirty-eight years ago, in U.S. Steel, the Commission informed the U.S.

Supreme Court that both Article IV and Article III.1 are essentially uniform acts

that “could be adopted by any state independently of any compact ….” MTC U.S.

Steel Brief, pp. 8 and 12.

50

See MTC Annual Report, FY 67-68, p. 12,

http://www.mtc.gov/uploadedFiles/Multistate_Tax_Commission/Resources/Archives/Annual_

Reports/FY67-68.pdf (last visited May 25, 2015)

MTC Annual Report, FY 68-69, p. 25,

http://www.mtc.gov/uploadedFiles/Multistate_Tax_Commission/Resources/Archives/Annual_

Reports/FY68-69.pdf (last visited May 25, 2015)

MTC Annual Report, FY 70-71, p. 13,

http://www.mtc.gov/uploadedFiles/Multistate_Tax_Commission/Resources/Archives/Annual_

Reports/FY70-71.pdf (last visited May 25, 2015)

MTC Annual Report, FY 71-72, p. 14,

http://www.mtc.gov/uploadedFiles/Multistate_Tax_Commission/Resources/Archives/Annual_

Reports/FY71-72.pdf (last visited May 25, 2015)

MTC Annual Report, FY 72-73, p. 8,

http://www.mtc.gov/uploadedFiles/Multistate_Tax_Commission/Resources/Archives/Annual_

Reports/FY72-73.pdf (last visited May 25, 2015)

MTC Annual Report, FY 73-74, p. 26,

http://www.mtc.gov/uploadedFiles/Multistate_Tax_Commission/Resources/Archives/Annual_

Reports/FY73-74.pdf (last visited May 25, 2015) (emphasis added).

29

Of course, uniform laws may be unilaterally modified. As the Broun treatise

on compacts explains, model uniform laws do not constitute a contract between the

states and thus, unlike contracts, are not binding:

Although legislatures are urged to adopt model uniform laws as

written, they are not required to do so and may make changes to fit

individual state needs. Uniform acts do not constitute a contract

between the states, even if adopted by all states in the same form, and

thus, unlike contracts, are not binding upon or enforceable against the

states. Each state retains complete authority to unilaterally amend or

change such codes to meet its unique circumstances. There is no

prohibition in uniform acts limiting the ability of state legislatures to

alter particular provisions as times change or to address the peculiar

domestic political circumstances in a state. 51

That the Compact has been properly viewed by its members as an advisory

compact or agreement incorporating in its apportionment provisions (Articles III.1

and IV) a uniform law is evident 52 As will be explained below, the members have

treated the apportionment provisions as subject to unilateral modification,

consistent with this view. Not only does this further demonstrate the understanding

of the members as to the fundamental nature of the Compact, but as the

Commission argues below, it establishes a course of conduct or performance that

this Court must consider in determining whether, even if the Compact is itself

51

Broun et al., supra n. 35, at 16.

52

Recently, the Michigan Court of Claims has held that the Multistate Tax Compact is an

advisory compact and not binding on its members. Yaskawa America, Inc. v. Department of

Treasury, Mich. Ct. Cl. Case No. 11 – 000077-MT (December 19, 2014); Ingram Micro, Inc. v.

Department of Treasury, Mich. Ct. Cl. Case No. 11 – 000035 – MT (December 19, 2014); Emco

Enterprises, Inc. v. Department of Treasury, Mich. Ct. Cl. Case No. 12 – 000152 – MT (April

21, 2015).Copies of Emco and Yaskawa are attached as C and D in the Appendix.

30

deemed to be a binding compact, the provisions at issue may nevertheless be

modified by state law.

II. Even if the Compact were a binding compact, its terms do not prohibit

modification of Article III.1 or IV and therefore this Court must look to

the compact member states’ course of conduct in determining whether

the Compact allows modification of those apportionment provisions.

The Commission asserts that the Multistate Tax Compact is not a binding

interstate compact. It imposes no requirement of reciprocity on its members, nor is

any such requirement embodied in Articles III.1 and IV. Consistent with this lack

of any requirement for reciprocity, it gives the members no grounds or procedures

for disputing unilateral modifications of its provisions. The organization created by

the Compact was not delegated any sovereign authority and cannot require the

compact member states to take any particular action related to taxation.

The provision at issue here is the incorporation of a uniform law and a

related election, and it is clear that uniform laws are, by their nature, subject to

unilateral modification. The Compact itself allows unconditional, unilateral

withdrawal by state enactment alone and it contains no explicit prohibition against

unilateral modification of any provision. Moreover, if any of its provisions were

found to violate a particular state’s constitution or were otherwise held invalid, that

31

Compact state’s membership is not voided but the invalid provision is deemed

severed. 53

These facts are sufficient to reject the Appellant’s claims that Texas cannot

require a different apportionment formula. But if this Court were to conclude that

the Compact is, in any way, a binding interstate agreement, then the fact that it is

silent with respect to the ability of states to modify the apportionment provisions of

Articles III.1 and IV would require this Court to consider the course of conduct or

performance of the compact member states.

In interpreting the obligations of the parties to a compact, courts have long

recognized that, as with contracts generally, the actual performance of a compact

by the parties has high probative value in determining the scope of those

obligations: “In determining [the meaning of a compact] the parties’ course of

conduct under the Compact is highly significant.” Alabama v. North Carolina, 130

S.Ct. 2295, 2309 (2010).

A basic premise of contract law, recognized as part of the Uniform

Commercial Code (UCC) is that “the parties [to the contract] themselves know

best what they have meant by their words of agreement and their action under that

agreement is the best indication of what that meaning was.”54 For instance, Section

53

Multistate Tax Compact, Article XII.

54

U.C.C. §2-208 cmt. 1. Section 2-208 of the U.C.C. is codified, without substantive change, at

TEX. CODE ANN. BUS. & COM. § 1.303.

32

2-208 of the UCC provides that “course of performance” is relevant even if the

express terms of the contract seem clear on their face. The course of performance

doctrine has two material elements, both of which have been satisfied in this case.

As defined under the Uniform Commercial Code:

(a) A “course of performance” is a sequence of conduct between the parties

to a particular transaction that exists if:

(1) the agreement of the parties with respect to the transaction involves

repeated occasions for performance by a party; and

(2) the other party, with knowledge of the nature of the performance and

opportunity for objection to it, accepts the performance or acquiesces in it

without objection.55

The course of performance doctrine in interpreting modern compacts is

demonstrated by the U.S. Supreme Court’s reliance on the actions of the

compacting parties taken years or even decades after the compacts became

effective in order to ascertain the original understanding of those parties in entering

into the compact. For example, in New Jersey v. Delaware, 552 U.S. 597 (2008),

the Court relied on the parties’ course of performance which began more than 60

years after the compact was enacted to demonstrate that the parties to the compact

never intended either party to exercise exclusive jurisdiction over riparian rights on

the Delaware River.

In Alabama v. North Carolina, in concluding that no member state of the

Southeast Interstate Low-Level Radioactive Waste Management Commission was

55

TEX. CODE ANN. BUS. & COM. § 1.303.

33

obligated to continue meeting its licensing obligations under the compact if the

costs of doing so became prohibitively expensive, the Court relied on the parties’

course of performance over the eleven year period after Congress approved of the

interstate compact providing for the disposal of low-level radioactive waste.

In Tarrant Reg’l Water Dist. v. Herrmann, 133 S.Ct. 2120 (2013), the Water

District’s actions starting twenty-two years after Congress ratified the Red River

Compact in 1980 established that the compacting parties did not authorize any

member of the Compact to take or divert water from within another member’s

borders.

The members of the Multistate Tax Compact have demonstrated that a state

may unilaterally modify the apportionment provisions at issue. In 1971, the Florida

legislature: (1) repealed Articles III and IV of the Compact, (2) reenacted the

apportionment provisions of Article IV (§214.71, the “general method” of

apportionment) and (3) amended their business income tax to provide that: “In lieu

of the equally weighted three factor apportionment formula ... described in

§214.71, there shall be used for purposes of the tax imposed by this code [the

corporate income tax] an apportionment fraction composed of a sales factor

representing 50 percent of the fraction, a property factor representing 25% of the

fraction, and a payroll factor representing 25% of the fraction.”56 This change

56

See copies of the session laws attached to this brief.

34

became effective in January 1972, only five years after the Compact was initially

adopted.

At the Commission’s annual meeting that year, the compact member states,

acting through their representatives, unanimously passed a resolution upholding

Florida’s continued membership in the Compact and the Commission

notwithstanding that state’s unilateral repeal of Articles III and IV of the Compact

and its adoption of a mandatory double-weighting of the sales factor. Texas, a

member of the Compact since 1967, attended the meeting at which the resolution

was passed and voted in favor of Florida’s continued membership. 57

Other present or former compact members have varied from the

apportionment provisions in Article III. 1 and IV by some action modifying,

amending, repealing or otherwise superseding some or all of the formula or the

election set out in those provisions. The Appellant may take issue with the ability

of these states to do so, but there is no serious dispute that the states themselves

take the position that these changes were effective. Three present or former

Compact members eliminated or limited the election directly. 58 Three others

amended Article IV to be consistent with their statutory apportionment formula

57

A copy of the minutes of the Commission’s meeting of December 1, 1972 is appended to this

brief as Section B.

58

Colorado (COLO. REV. STAT. §§ 39-22-303.5 and 39-22-303.7), Michigan (as applied to the

Michigan Business Tax after January 1, 2008; (MICH. COMP. LAWS § 205.581); see also Mich.

Pub. Acts 2011, No. 40 (H.B. 4479)), Minnesota (MINN. STAT. § 290.171). Minnesota repealed

its version of the compact entirely in 2013. MN Laws 2013, c. 143, art. 13, § 24. Michigan did

so in 2014 Mich. Pub. Acts 2014, No. 282 (S.B. 156), retroactive to January 1, 2008.

35

that emphasizes the sales factor.59 And three states in addition to Texas indicated

by separate statute or other guidance that the compact election does not apply to

factor-weighting.60 Only one Compact member explicitly recognizes the election. 61

The remaining members require an equal-weighted formula, identical to Article IV

of their respective enacted compacts, such that the election is of no consequence

with respect to factor-weighting.62

The course of performance of the compact member states over a more than

forty-year period demonstrates that the apportionment provisions of Articles III.1

and IV are subject to unilateral modification. Nor is this inconsistent with the

Compact’s purpose of promoting “uniformity or compatibility in significant

components of state tax systems.” 63 The apportionment provisions contained in

Article IV are much more comprehensive than just the weighting given to the sales

factor. It would not have been reasonable to expect that that such a comprehensive

system of uniform apportionment rules enacted in 1967 would permanently

represent the policy views of state lawmakers or be responsive to an evolving

59

Alabama (ALA. CODE § 434 40-27-1), Arkansas (ARK. CODE ANN. § 26-5-101), Utah (UTAH

CODE ANN. § 59-1-801.IV.9). In 2013 Utah repealed the Compact and enacted a version that

does not contain either Articles III.1 or IV (Utah Senate Bill 247, effective June 30, 2013).

60

California (CAL. REV. & TAX CODE §25128(a)), Idaho (IDAHO CODE ANN. § 63-3027(i)),

Oregon (OR. REV. STAT. § 314.606). In 2013 Oregon repealed the Compact and enacted a

version that does not contain either Articles III.1 or IV. 2013 Oregon Laws Ch. 407 (S.B.

307).Texas (letter ruling 201007003L). California repealed its version of the compact entirely

in 2012. CA Stats. 2012, c. 37 (S.B.1015), § 3.

61

MO. REV. STAT. § 32.200.

62

Alaska, Hawaii, Kansas, Montana, New Mexico, North Dakota.

63

Multistate Tax Compact, Art. I.

36

economy or to the changing needs of the states. Nor has that been the case. Policies

have evolved. And it is clear that a number of states have felt the specific need to

modify the Compact’s apportionment provisions in a particular way—to give more

emphasis to the sales factor of the apportionment formula, and to make that

heavier-weighted sales factor formula the standard formula by which taxpayers

will apportion their income.

Had it been necessary for these states to withdraw from the Compact in

order to give effect to this particular change in policy, or had they been prevented

from joining the Compact on this account, there would have been much less reason

for them to adopt or maintain the other elements of the UDITPA formula which

help to create a more uniform system of state taxation. Had it been necessary for

all of the compact member states to agree on any changes to the standard

apportionment formula, a number of states would inevitably have had to withdraw.

CONCLUSION

The Commission urges this Court to respect the decision of the Texas

legislature, which is also in keeping with the legislative bodies in a number of

states, that Texas may be a member of the Multistate Tax Compact without ceding

authority over its own tax laws. The Commission maintains that it has always been

the case that state legislative bodies retained the authority to vary their tax rules

without fear that the Compact could impose some superior law that could not be

37

changed without the collective agreement of the Compact members—or without

the requirement that those members abandon the Compact and its worthwhile

purposes. This conclusion is in keeping with the plenary authority of legislatures

when it comes to taxes and with the legislative prerogative generally—and it

should not be contested without more compelling grounds than exist here. That the

questions at issue have only recently arisen is one more indication that they are not

well-founded. The Commission therefore believes that the right resolution is to

find that the Compact is not a binding interstate agreement, and that any question

as to whether states may modify its apportionment provisions should be resolved

on the basis of its members’ course of conduct.

Respectfully submitted this 26th day of May, 2015.

/s/ Joe Huddleston

Joe Huddleston

Executive Director

Sheldon Laskin

Counsel

444 N. Capitol St., N.W., Ste. 425

Washington, D.C. 20001

202-650-0300

slaskin@mtc.gov

Attorneys for Amicus Curiae

Multistate Tax Commission

38

CERTIFICATE OF COMPLIANCE

This brief complies with the typeface requirements Texas Rule of Appellate

Procedure 9.4(e) because it has been prepared in a conventional typeface no

smaller than 14-point for text and 12-point for footnotes. This document also

complies with the word-count limitation of Texas Rule of Appellate Procedure

9.4(i)(2)(B) because it contains 9,694 words, excluding the parts of the brief

exempted by Rule 9.4(i)(1).

/s/ Lila Disque

Lila Disque

39

CERTIFICATE OF SERVICE

I certify that the foregoing Brief of Amicus Curiae Multistate Tax Commission

In Support of Texas Comptroller of Public Accounts and Texas Attorney

General was electronically filed with the Clerk of the Court using the electronic

case filing system of the Court. I also certify that a true and correct copy of the

foregoing was served via e-service or e-mail on the following counsel of record on

May 26, 2015.

James F. Martens Rance Craft

jmartens@textaxlaw.com Assistant Solicitor General

Amanda G. Taylor Rance.craft@texasttorneygeneral.gov

ataylor@textaxlaw.com Cynthia A. Morales,

Lacy L. Leonard Assistant Attorney General

lleonard@textaxlaw.com Cynthia.morales@texasattorneygeneral.gov

Danielle Ahlrich OFFICE OF THE ATTORNEY

dahlrich@textaxlaw.com GENERAL

MARTENS, TODD, LEONARD & P.O. Box 12548 (MC 059)

TAYLOR Austin, Texas 78711-2548

301 Congress Avenue, Suite 1950 Tele: (512) 936-2872

Austin, Texas 78701 Fax: (512) 474-2697

Counsel for Appellant Counsel for Appellees

Amy L. Silverstein

asilverstein@sptaxlaw.com

SILVERSTEIN & POMERANTZ

LLP

12 Gough Street, Second Floor

San Francisco, California 94103

Counsel for Appellant

/s/ Lila Disque

Lila Disque

40

APPENDIX

APPENDIX TABLE OF CONTENTS

A. State Apportionment of Corporate Income

B. Minutes of MTC General Session, Dec. 1, 1972

C. Florida Session Laws, 1971

D. Emco Enterprises, Inc. v. Dep’t of Treasury,

Case No. 12- 000152- MT (Mich. Ct. Cl. April 21, 2015)

E. Yaskawa America, Inc. v. Department of Treasury,

Case No. 11-000077-MT (Mich. Ct. Cl. December 19, 2014)

2

A

3

STATE APPORTIONMENT OF

CORPORATE INCOME

(Formulas for tax year 2014 -- as of January 1, 2014)

ALABAMA * Double wtd Sales NEBRASKA Sales

ALASKA* 3 Factor NEVADA No State Income Tax

ARIZONA * Double wtd Sales/85% Sales, NEW HAMPSHIRE Double wtd Sales

7.5% Property & 7.5% Payroll NEW JERSEY Sales

ARKANSAS * Double wtd Sales NEW MEXICO * 3 Factor/Double wtd Sales (4)

CALIFORNIA * Sales NEW YORK Sales

COLORADO * Sales NORTH CAROLINA * Double wtd Sales

CONNECTICUT Double wtd Sales/Sales NORTH DAKOTA * 3 Factor

DELAWARE 3 Factor OHIO N/A (3)

FLORIDA Double wtd Sales OKLAHOMA 3 Factor

GEORGIA Sales OREGON Sales

HAWAII * 3 Factor PENNSYLVANIA Sales

IDAHO * Double wtd Sales RHODE ISLAND 3 Factor

ILLINOIS * Sales SOUTH CAROLINA Sales

INDIANA Sales SOUTH DAKOTA No State Income Tax

IOWA Sales TENNESSEE Double wtd Sales

KANSAS * 3 Factor TEXAS Sales

KENTUCKY * Double wtd Sales UTAH Sales

LOUISIANA 3 Factor VERMONT Double wtd Sales

MAINE * Sales VIRGINIA Double wtd Sales/Quadruple

MARYLAND Sales/Double wtd Sales wtd Sales (1)

MASSACHUSETTS Sales/Double wtd Sales WASHINGTON No State Income Tax

MICHIGAN Sales WEST VIRGINIA * Double wtd Sales

MINNESOTA Sales WISCONSIN * Sales

MISSISSIPPI Sales/Other (2) WYOMING No State Income Tax

MISSOURI * 3 Factor DIST. OF COLUMBIA Double wtd Sales

MONTANA * 3 Factor

Source: Compiled by FTA from state sources.

Notes:

The formulas listed are for general manufacturing businesses. Some industries have a special formula different

from the one shown.

* State has adopted substantial portions of the UDITPA (Uniform Division of Income Tax Purposes Act).

Slash (/) separating two formulas indicates taxpayer option or specified by state rules.

3 Factor = sales, property, and payroll equally weighted.

Double wtd Sales = 3 factors with sales double-weighted

Sales = single sales factor

(1) Virignia ( certain manufactures) are phasing in a single sales factor which will reach 100% for tax years

beginning after 7/1/2014.

(2) Mississippi provides different apportionment formulas based on specific type of business. A single sales factor

formula is

required if no specific business formula is specified.

(3) Ohio Tax Department publishes specific rules for situs of receipts under the CAT tax.

(4) New Mexcio is phasing in a single sales factor for manufacture business through 1/1/2018.

FEDERATION OF TAX ADMINISTRATORS -- JANUARY 2014

4

B

C

ADDENDUM

to

VOLUME 1

of

FLORIDA STATUTES, 1971

The Florida Legislature met in special session between November 29 and Decem,

her 9, 1971, and enacted a number of measures appropriate for inclusion in the

Florida Statutes. However, the printing of this 1971 edition had by then proceeded

too far to permit incorporation of these measures at th e appropriate places in

these volumes. Therefore, it has been decided to publish the product of the special

session as Addenda to volumes 1 and 2. However, entries reflecting the special

session have been inserted at the proper places in the tables of section changes,

tracing table, and alphabetical index.

The format is the same as that used for the Supplement to the Florida Statutes,

1969. The full text of each section amended during the special session is published

in the Addendum to the volume in which it would otherwise have appeared.

Repealed sections are identified by catchline and bracketed note only. In order

to make the Addenda more noticeable, colored paper has been used.

§199.032 ADDENDUM §212.02

CHAPTER 199 or tra iler ca mps, as herein after defined in this

INTANGIBLE PERSONAL PROPERTY cha pter;

TAX ACT (c) The prod ucing, f ab ri cating, processing,

printing or imprinting of t a ngi ble perso nal

PART I p rope rty for a co ns iderati on f or co ns umers who

GENERAL PROVISIONS furni sh eith er direc tly or indirectl y th e ma-

te ri a ls use d in the produ cing, fabri cating, pro-

199.032 Levy . cess ing, printin g or imprinting ; a nd

*199.032 Lev;r.-There is hereby levied, to (d ) The furni shin g, preparing or serving

be assessed and collected as provided by this f or a cons ide ration of a ny t a ngible personal

chapter: property for consu mption on or off the prem-

ises of the per son furni shing, prepa ring, or

(1) An annual tax of one mill on the dollar serving s uch ta ng ible perso na l property w hich

of the just valua tion of a ll intangible personal in cludes the sa le of mea ls or prepared food by

property except money a s defined in §199.023 a n employe r t o hi s empl oyees .

(1)(a ), and except notes, bonds, and other

obligations for payment of money which are (e) A transaction whereby the possession of

secured by mortgage, deed of trust, or other property is tran sferred but th e sell er retains

tit!~ as security fo r the payment of the price.

lien upon real property situated in the sta te;

(2) A nonrecurring tax of two mills on the ( 3 ) (a ) " Retail sa le" or a "sale at r etail"

dollar of the just valuation of all notes, bonds, mea ns a sale t o a cons umer or to any person

and other obligations for payment of money, for any purpose other th a n for resale in the

which are secured by mortgage, deed of trust, or form of tangible personal property, and shall

other lien upon real property situated in the mea n a nd in clude a ll s uch tra nsactions that

state. may be ma de in li eu of reta il sales or sales at

r eta il. A re sa le mu st be in strict compliance

History.- §1, ch: 71-134 ; §1, ch. 71-987.

•Note.- Section , as amended, effective July 1, 1972. with rules a nd regulati ons a nd any dealer mak-

ing a sale f or re sa le whi ch is not in strict com-

pliance with rules a nd regulations shall him-

self be liable f or and pay the tax.

(b ) The terms "x:etail sales," "sales at re-

tail," "use," "storage," and "cons umption" shall

CHAPTER 212 include the sa le, use, storage or consumption

TAX ON SALES, of all tangible advertising materials imported

USE AND OTHER TRANSACTIONS or caused to be imported into this state.

Tangible advertising material shall include

212.02 Definitions. displays, display containers, brochures, cata-

212.03 Transient rentals tax; rate, procedure, logs, price lists, point of sale advertising and

enforcement, etc. technical manuals or any t a ngible personal

212.031 Lease or rental of real property. property whi ch does not accompany the prod-

212.08 Sales, rental, storage, use tax; specified uct t o the ultimate consumer.

(c) The terms "retail sales," "sale at retail,"

exemptions. " use," "storage," and "consumption" &hall not

include materials, containers, labels, sacks, or

212.02 Definitions.- The following terms bags intended to be used one time only for pack-

and phrases when used in this chapter, shall aging tangible personal property for sale, and

have the meaning ascribed to them in this shall not include the sale, use, storage, or con-

section, except where the context dearly indi- sumption of industrial materials for future pro-

cates a different meaning: cessing, manufacture, or conversion into articles

(1) "Person" includes any individual, firm, of tangible personal property for resale when

copartnership, joint adventure, association, cor- such industrial materials become a component

poration, estate, tru st, business trust, receiver, or ingredient of the finished product. However,

syndicate, or other group or combination acting said terms shall include the sale, use, storage, or

as a unit, and shall include any political sub- consumption of tangible personal property, in-

division, municipality, state agency, bureau or cluding fuels. used and dissipated in fabricat-

department, and the plural as well as the singu- ing, converting, or processing tangible personal

lar number. property for sale.

(2) "Sale" means and includes: (d ) The term "gross sales" means the sum

(a) Any transfer of title or possession, or total of all retail sales of tangible personal

both, exchange, barter, lease or rental , condi- property as defined herein, without any deduc-

tional or otherwise, in any manner or by any tion whatsoever of any kind or character, ex-

means whatsoever of tangible personal prop- cept as provided in this chapter.

erty for a consideration; (4) "Sales price" means the total amount

(b ) The r enta l of living quarters, sleeping paid f or tangible personal property, including

or hous ekeeping accommoda ti ons in hot els, any services that are a part of the sale, valued

apa rtment houses or r ooming houses, t our ist in money, whether pa id in mon ey or otherwise,

1966

§212.02 ADDENDUM §212.02

and includes any amount for which credit is (f) A "trailer camp" is a place where space

given to the purchaser by the seller, without is offered, with or without service facilities, by

any deduction therefrom on account of the cost any persons or municipality to the public for

of the property sold, the cost of materials used, the parking and accommodation of two or more

labor or service cost, interest charged, losses automobile trailers which are used for lodging,

or any other expense whatsoever. Sales price for either a direct money consideration or an

also includes the consideration for a transac- indirect benefit to the lessor or owner in con-

tion which requires both labor and material to nection with a related business, such space

alter, remodel, maintain, adjust or repair tan- being hereby defined as living quarters, and

gible personal property. Trade-ins or discounts the rental price thereof shall include all service

allowed and taken at the time of sale shall not charges paid to the lessor.

be included within the purview of this sub- (g) "Lease," "let" or "rental" also means

section. the leasing or rental of tangible personal prop-

(5) "Cost price" means the actual cost of

articles of tangible personal property without erty and the possession or use thereof by the

any deductions therefrom on account of the cost lessee or rentee for a consideration, without

of materials used, labor or service costs, trans- transfer of the title of such property, except

portation charges, or any expenses ·whatsoever. as expressly provided to the contrary herein.

(6) "Lease," "let," or "rental" means leas- Provided that, where two taxpayers, in con-

ing or renting of living quarters, sleeping or nection with the interchange of facilities, rent

housekeeping accommodations in hotels, apart- or lease property, each to the other, for use

ment houses, rooming houses, tourist or trailer in providing or furnishing any of the services

camps and real property, the same being de- mentioned in §167.431, the term lease or rental

fined as follows: shall mean only the net amount of rental in-

volved.

(a) Every building or other structure kept,

used, maintained, advertised as or held out to *(h) "Real property" means any interest in

the public to be a place where sleeping accom- the surface of real property unless said prop-

modations are supplied for pay to transient or erty is:

permanent guests or tenants, in which ten or 1. Assessed as agricultural property under

more rooms are furnished for the accommoda- ~ 193.461.

tion of s·uch guests, and having one or more 2. Used exclusively as dwelling units.

dining rooms or cafes where meals or lunches 3. Property subject to tax on parking,

are served to such transient or permanent docking or storage spaces under §212.03 ( 6).

guests, such sleeping accommodations and din- (7) "Storage" mear.s and includes any keep-

ing rooms or cafes being conducted in the· same ing or retention in this state of tangible per-

building or buildings in connection therewith, sonal property for use or consumption in this

shall, for the purpose of this chapter, be state, or for any purpose other than sale at re-

deemed a hotel. tail in the regular course of business.

(b) Any building or part thereof, where (8) "Use" means and includes the exercise

separate accommodations for two or more fam- of any right or power over tangible personal

ilies living independently of each other are property incident to the ownership thereof, or

supplied to transient or permanent guests or interest therein, except that it shall not include

tenants, shall for the purpose of this chapter the sale at retail of that property in the regular

be deemed an apartment house. course of business.

(c) Every house, boat, vehicle, motor court, (9) "Business" means any activity engaged

trailer court or other structure or any place or in by any person, or caused to be engaged in

location kept, used, maintained, advertised or by him, with the object of private or public

held out to the public to be a place where living gain, benefit, or advantage, either direct or in-

quarters, sleeping or housekeeping, accommo- direct. Except for sales of motor vehicles, the

dations are supplied for pay to transient or term "business" shall not be construed in this

permanent guests or tenants, whether in one chapter to include occasional or isolated sales

or adjoining buildings, shall for the purpose of or transactions involving tangible personal prop-

this chapter be deemed a rooming house. erty by a person who does not hold himself out

as engaged in business, but shall include other

(d) In all hotels, apartment houses and charges for the sale or rental of tangible per-

rooming houses within the meaning of this sonal property, sales of or charges of admis-

chapter, the parlor, dining room, sleeping sion, communication services, all rentals and

porches, kitchen, office and sample rooms shall leases of living quarters, other than low rent

be construed to mean rooms. housing operated under chapter 421, sleeping or

(e) A "tourist camp" is a place where housekeeping accommodations in hotels, apart-

two or more tents, tent houses, or camp cot- ment houses, rooming houses, tourist or trailer

tages are located and offered by a person or camps, and all rentals of real property, other

municipality for sleeping or eating accommoda- than low rent housing operated under chapter

tions, most generally to the transient public 421, all leases or rentals of parking lots or ga-

for either a direct money consideration or an rages for motor vehicles, docking or storage

indirect benefit to the lessor or owner in con- spaces for boats in boat docks or marinas as de-

nection with a related business. fined in this chapter and made subject to a tax

1967

§212.02 ADDENDUM §212.03

imposed by this chapter. Any tax on such sales, (17) "In this state" or "in the state" means

charges, rentals, admissions, or other transac- within the exterior limits of Florida and in-

tions made subject to the tax imposed by this cludes all territory within these limits owned

chapter shaH be collected by the state, county, by or ceded to the United States .

municipality, any political subdivision, agency, Hlstory.-f2, ch. 26318, IU4U ; Ul-3, ch. 26871, IUS!; fl, ch.

bureau or department or other state or local gov- 28883, 1855; !13, ch . SU-1 ; Ul-4, ch. 58-288; 13. ch. 61-274;

! 1, ch. 63 -526; !7, ch. 63-253 ; !11-3. ch. 65-328 ; §5, ch. 65-371;

ernmental instrumentality in the same manner 12. ch . 65-420 ; 11. ch . 67-180 ; If! , 2, ch . 68-27; 11. ch. 68-IIU;

as other dealers, unless specifically exempted by §§21, 35, eli . 69-106; §§1·3, ch. 69-222; §1, ch. 70·206; §1, ch. 71·360;

§47, ch . 71-377; §2, ch. 71·986.

this chapter. •Note.-Paragraph (h), as am ended, effective March 1, 1972.

(10 ) "Retailer" means and includes every

perso n engaged in the bu siness of making sales 212.03 Transient rentals tax; rate, pro-

at retail, or for distribution, or use, or con- cedure, enforcement, etc.-

sumption, or storage to be used or consumed in

this state. (1) It is hereby declared to be the legisla-

tive intent that every person is exercising a

(11) The term "department" means the taxable privilege who engages in the business

department of revenue. of renting, leasing or letting any living quar-

(12) " Tangible personal property" means ters, sleeping or housekeeping accommodations

and includes personal property which may be in, from, or a part of, or in connection with

seen, weighed, measured, or touched or is in any hotel, apartment house, rooming house,

any manner perceptible to the senses, including tourist or trailer camp, as hereinbefore defined

electric power or energy, boats, motor vehicles in this chapter. For the . exercise of said priv-

as defined in §320.01(1), aircraft as defined in ilege a tax is hereby levied as follows: in the

§330.01, and all other types of vehicles. The amount equal to four per cent of and on the

term "tangible personal property" shall not in- total rental charged for such living quarters,

clude stocks, bonds, notes, insurance, or other sleeping or housekeeping accommodations by

obligations or securities; intangibles as defined the person charging or collecting the rental;

by the intangible tax law of the state; or pari- provided that such tax shall apply to hotels,

mutuel tickets sold or issued under the racing apartment houses, rooming houses, tourist or

laws of the state. trailer camps, as hereinbefore defined in this

(13) The term "use tax" referred to in this chapter, whether or not there be in connection

chapter includes the use, the consumption, the with any of the same, any dining rooms, cafes

distribution, and the storage as herein defined. or other places where meals or lunches are sold

(14) The term "intoxicating" or "alcoholic or served to guests.

beverages" referred to in this chapter includes (2) The tax provided for herein shall be in

all such beverages as are so defined or may be addition to the total amount of the rental and

hereafter defined by the laws of the state. shall be charged by the lessor or person receiv-

(15 ) The terms "cigarettes" or "tobacco" ing the rent in and by said rental arrangement

or "tobacco products" referred to in this chap- to the lessee or person paying the rental, and

ter inc! ude all such products as are defined or shall be due and payable at the time of the re-

may be hereafter defined by the laws of the ceipt of such rental payment by the lessor or

state. person, as defined in this chapter, who receives

said rental or payment. The owner, lessor or

(16) The term "admissions" means and in- person receiving the rent shall remit the tax to

cludes the net sum of money after deduction the department at the times and in the manner

of any federal taxes for admitting a person hereinafter provided for dealers to remit taxes

or vehicle or persons to any place of amuse- under this chapter. The same duties imposed

ment, sport, or recreation or for the privilege by this chapter upon dealers in tangible per-

of entering or staying in any place of amuse- sonal property respecting the collection and re-

ment, sport or recreation, including but not mission of the tax, the making of returns, the

limited to theaters, outdoor theaters, shows, keeping of books, records and accounts and the

exhibitions, games, races or any place where compliance with the rules and regulations of

charge is made by way of sale of tickets, gate the department in the administration of this

charges, seat charges, box charges, season chapter shall apply to and be binding upon all

pass charges, cover charges, greens fees, par- persons who manage or operate hotels, apart-

ticipation fees, entrance fees or other fees or ment houses, rooming houses, tourist and

receipts of anything of value measured on an trailer camps, and to all persons who collect or

admission or entrance or length of stay or seat receive such rents on behalf of such owner or

box accommodations in any place where there lessor taxable under this chapter.

is any exhibition, entertainment, including

admissions to performances of philharmonic (3) Where rentals are received by way of

associations, opera guilds, little theaters, and property, goods, wares, merchandise, services

similar organizations, amusement, sport or or other things of value, the tax shall be at

recreation, and all dues paid to private clubs the rate of four per cent of the value of said

providing recreational facilities, including but property, services or other things of value.

not limited to golf, tennis, swimming, yachting ( 4) The tax levied by this section shall not

and boating facilities. apply to, be imposed upon, or collected from

1968

§212.03 ADDENDUM §212.031

any person who shall reside continuously longer 212.031 Lease or rental of real property.-

than twelve months . at any one hotel, apartment (l)*(a) It is declared to be the legislative

house, rooming house, tourist or trailer camp, intent that every person is exercising a taxable

and shall have paid the tax levied by this privilege who engages in the business of rent-

section for twelve months of residence in any ing, leasing, or letting any real property unless

on~ hotel, rooming house, apartment house,

such property is:

tourist or trailer camp. Notwithstanding other

provisions of this chapter, no tax shall be im- 1. Assessed as agricultural property under

posed upon rooms provided guests when there § 193.461.

is no consideration involved between guest and 2. Used exclusively as dwelling units.

the public lodging establishment. 3. Property subject to tax on parking, dock-

(5.) The tax imposed by this section shall ing or storage spaces under §212.03(6).

constitute a lien on the property of the lessee *(b) When a lease involves multiple use of

or rentee of any sleeping accommodations in the real property wherein a part of the real prop-

same manner as and shall be collectible as are erty is subject to the commercial rental tax

liens authorized and imposed by §§713.68 and herein, and a part of the property would be

713.69. excluded from the tax under subparagraphs

(6) It is the legislative intent that every 1., 2., qr 3. of this subsection, the depart-

person is engaging in a taxable privilege who ment shall determine from the lease and such

leases or rents parking or storage spaces for other information as may be available, that

motor vehicles in parking lots or garages or portion of the total rental charge which is

who leases or rents docking or storage spaces exempt from the tax imposed by this section.

for boats in boat docks or marinas. For the (c) For the exercise of such privilege a

exercise of this privilege a tax is hereby levied tax is levied in the amount equal to four per

at the rate of four per cent on the total rental cent of and on the total rent charged for such

charged. real property by the person charging or col-

*(7)(a) The tax levied by this section shall lecting the rental.

not apply to or be imposed upon or collected (d) Where the rental of any such real

on the basis of rentals to any person who resides property is paid by way of property, goods,

in any building or group of buildings intended wares, merchandise, services or other thing of

primarily for lease or rent to persons as their value, the tax shall be at the rate of four

permanent or principal place of residence. per cent of the value of the property, servi'ces

(b) It is the intent of the legislature that this or other things of value.

subsection provide tax relief for persons who (2) (a) The tenant actually occupying, using

rent living accommodations rather than own or entitled to the use of any property the

their homes, while still providing a tax on the rental from which is subject to taxation under

rental of lodging facilities that primarily serve this section shall pay the tax to his immediate

transient guests. landlord or other person granting the right

(c) The rental of facilities, including to such tenant to occupy or use such real

trailer lots, which are intended primarily for property.

rental as a principal or permanent place of (b) It is the further intent of this legis-

residence is exempt from the tax imposed by lature that only one tax be collected on the

this chapter. The rental of facilities that pri- rental payable for the occupancy or use of

marily serve transient guests is not exempt by any such property and that the tax so col-

this subsection. In the application of this law, or lected shall not be pyramided by a progression

in making any determination against the of transactions and further that the amount

exemption, the department shall consider and of the tax due the state shall not be decreased

be guided by, among other things: by any such progression of transactions.

1. Whether or not a facility caters pri- (3) The tax imposed by this section shall

marily to the traveling public; be in addition to the total amount of the rental

2. Whether less than half of its tenants and shall be charged by the lessor or person

have a continuous residence in excess of three receiving the rent in and by a rental arrange-

months; and ment with the lessee or person paying the

rental and shall be due and payable at the

3. The nature of the advertising of the time of the receipt of such rental payment by

facility involved. the lessor or other person who receives said

(d) The provisions of this subsection shall rental or payment. The owner, lessor or person

become effective March 1, 1972, but shall not receiving the rent shall remit the tax to the

be construed to exempt taxes on rentals paid, department at the times and in the manner

or for services received, prior to March 1, 1972. hereinafter provided for dealers to remit taxes

Hlstory.-§3. ch. 2631D, 194D; H. ch. 26871, 1951; 1§2, 3, ch.

under this chapter. The same duties imposed

29883, 1955; §§2, 7, ch. 63-526; 17. ch. 63-253; §5, ch. 65-371; 12. by this chapter upon dealers in tangible per-

ch. 65-420; §3, ch. 68-27; §2. ch . 68-119; §§4, 5, ch. 69-222; §15, ch . sonal property respecting the collection and

69-353; §§21, 35, ch . 69-106; §1 , ch. 71 -986.

•Note.-Effective Mar. 1, 1972. remission of the tax, the making of returns,

cf. -Ch. 85 Enforcement of statutory liens. the keeping of books, records and accounts

1969

§212.031 ADDENDUM §212.08

and the compliance with the rules and regula- and funerals. Funeral directors shall pay tax

tions of the department in the administration on all tangible personal property used by them

of this chapter shall apply to and be binding in their business. This subsection shall be

upon all persons who manage any leases or strictly construed and enforced.

operate real property, hotels, apartment houses, (3) EXEMPTIONS, PARTIAL; CERTAIN

rooming houses, tourist and trailer camps, and FARM EQUIPMENT.-There shall be taxable

to all persons who collect or receive such rents at the rate of three percent the sale, use, con-

on behalf of such owner or lessor taxable sumption, or storage for use in this state of

under this chapter. self-propelled or power-drawn farm equipment

(4) The tax imposed by this section shall used exclusively by a farmer on a farm owned,

constitute a lien on the property of the lessee leased, or sharecropped by him in plowing,

of any real estate in the same manner as, and planting, cultivating, or harvesting crops. The

shall be collectible as are liens authorized and rental of self-propelled or power-drawn farm

imposed by §§713.68 and 713.69. equipment shall be taxed at the rate of four

History.-§6, ch. 69-222; §§2I, 35, ch. 69-Hl6; §3, ch. 71-986.

*Note.-As amended, paragraphs (a) and (b) of subsection (I) percent.

are effective March I , I972. (4) EXEMPTIONS, ITEMS BEARING

OTHER EXCISE TAXES, ETC.-Also ~xempt

212.08 Sales, rental, storage, use tax; speci- are water (not exempting mineral water or

fied exemptions.-The sale at retail, the rental, carbonated water); all fuels used by a public or

the use, the consumption, the distribution and private utility, including municipal corporations

the storage to be used or consumed in this and rural electric cooperative associations, in the

state, of the following tangible personal prop- generation of electric power or energy for sale;

erty, are hereby specifically exempt from the and motor fuels and special fuels on which a

tax imposed by this chapter. tax is imposed by ·chapter 206. All other fuels

(1) EXEMPTIONS; GENERAL GROCER- are taxable, except th~t those used to transport

IES.-There shall be exempt from the tax im- persons or property in interstate or foreign

posed by this chapter foods and drinks for human commerce are taxable only to the extent provid-

consumption and candy, but only when the price ed herein. The basis of the tax shall be the ratio

at which said candy is sold is twenty-five cents or of intrastate mileage to interstate or foreign

less. Unless the exemption provided by sub- mileage traveled by the carrier, during the pre-

section (7)(b) for school lunches pertains, none vious fiscal year of the carrier, such ratio to be

of such items of food and drink shall mean: determined at the close of the carrier's fiscal

(a) Foods and drinks served, prepared, or year. This ratio shall be applied each month to

sold in or by restaurants, drugstores, lunch the total purchases made in this state by the

counters, cafeterias, hotels, or other like places carrier of gasoline and other fuels to establish

of business or by any business or place required that portion of the total used and consumed in

by law to be licensed by the division of hotels and intrastate movement and subject to tax under

restaurants of the department of business this chapter. Alcoholic beverages and malt bev-

regulation; erages are not exempt. The terms "alcoholic bev-

(b) Foods and drinks sold ready for im- erages" and "malt beverages" as used in this

mediate consumption from *vending machines, subsection shall have the same meaning ascribed

pushcarts, motor vehicles, or any other form to them in §561.01(3) and (7), respectively. It is

of vehicle; determined by the legislature that the classifica-

(c) Soft drinks; or tion of alcoholic beverages made in this sub-

(d) Foods cooked and prepare~ on .the section for the purpose of extending the tax im-

seller's premises and sold ready for Imme~Iate posed by this chapter is reasonable and just, and

consumption either on or off the premises. it is intended that such tax be separate from,

(2) EXEMPTIONS, MEDICAL.-There shall and in addition to, any other tax imposed on a!

be exempt from the tax imposed by this chap- coholic beverages.

ter medicine compounded in a retail establish- (5) EXEMPTIONS; ACCOUNT OF USE.-

ment by a pharmacist licensed by the state There shall be exempt from the tax imposed

according to a n indiYidual prescription or pre- by this chapter nets designed and used exclu-

scriptions written by a practitioner of the sively by commercial fisheries; feeds for rais-

healing arts licensed by the state, and common ing poultry and livestock on farms and for

hou sehold remedies recommended and gener- feeding dairy cows; fertilizers, insecticides and

ally sold for the relief of pain, ailments, dis- fungicides used for application on crops or

tress or disorders of the human body, accord- groves; portable containers used for processing

ing to a list prescribed and approved by the farm products; field and garden seeds; nurs-

division of health of the department of health ery stock, seedlings, cuttings or other pro-

and rehabilitative services, which said list shall pagative material purchased for growing on

be certified to the department of revenue from or growing stock; cloth, plastic, and other

time to time and be included in the rules pro- similar materials used for shade, mulch, pro-

mulgated by the department; artifi~ial eyes tection from frost or insects on a farm; pro-

and limbs, eyeglasses, dentures, ~eanng_ aids, vided that such exemption shall not be allowed

crutches, prosthetic and orthopedic apphances unless the purchaser or lessee signs a certifi-

1970

§212.08 ADDENDUM §212.08

cate stating that the item to be exempted is 2. Educational institutions shall mean state

for the exclusive use designated herein. tax supported or parochial, church and non-

(6) EXEMPTIONS; POLITICAL SUBDI-

profit private schools, colleges or universities

conducting regular classes and courses of study

VISIONS, COMMUNICATIONS.-There shall required for accreditation by or membership

also be exempt from the tax imposed by this in the southern association of colleges and sec-

chapter sales made to the United States gov- ondary schools, department of education or

ernment, the state, or any county, municipality or the Florida council of independent schools.

political subdivision of this state; provided this Nonprofit libraries, art galleries and museums

exemption shall not include sales of tangible open to the public are defined as educational

personal property made to contractors employed institutions and eligible for exemption.

either directly or· as agents of any such govern- 3. Charitable institutions shall mean only

ment or political subdivision thereof when such nonprofit corporations operating physical fa-

tangible personal property goes into or becomes cilities in Florida at which are provided char-

a part of public works owned by such govern- itable services, a reasonable percentage of

ment or politicru subdivision thereof, except which shall be without cost to those unable to

public works in progress or for which bonds or pay.

revenue certificates have been validated on or (d) Hospital meals and room.s.-Aiso ex-

before August 1, 1959; and further provided this empt from payment of the tax imposed by

exemption shall not include sales, rental, use, this chapter on rentals and meals are patients

consumption, or storage for use in any political and inmates of any hospital or other physical

subdivision or municipality in this state of ma- plant or facility designed and operated pri-

chines and equipment and parts and accessories marily for the care of persons who are ill,

therefor used in the generation, transmission, or aged, infirm, mentally or physically incapaci-

distribution of electrical energy by systems tated or otherwise dependent on special care

owned and operated by a political subdivision in or attention.

this state except sales, rental, use, consumption (e) P1·ojessional services.-

or storage for which bonds or revenue certifi- 1. Also exempted are professional, insurance

cates are validated on or before January 1, 1973, or personal service transactions which involve

for transmission or distribution expansion. Like- sales as inconsequential elements for which no

wise exempt are newspapers, film rentals, when separate charges are made.

an admission is charged for viewing such film, 2. The above exempted personal service

and charges for services rendered by radio and transactions do not exempt the sale of infor-

television stations, including line charges, talent mation services involving the furnishii1g of

fees or license fees and charges for films, video printed, mimeographed, multigraphed matter

tapes, and transcriptions used in producing radio or matter duplicating written or printed matter

or television broadcasts. in any other manner, other than professional

(7) MISCELLANEOUS EXEMPTJONS.- services and services of employees, agents or

(a) Religious, charitable and educational.- other persons acting in a representative or fidu-

There shall be exempt from the tax imposed by ciary capacity or information services furnished

this chapter articles of tangible personal prop- to newspapers and radio and television sta-

erty sold or leased direct to or by churches or tions. Information services shall mean and in-

sold or leased to, nonprofit religious, nonprofit clude the services of collecting, compiling or

educational, or nonprofit charitable institutions analyzing information of any kind or nature

and used by such institutions in carrying on and furnishing reports thereof to other

their customary nonprofit religious, nonprofit persons.

educational, or nonprofit charitable activities, (f) Magazines.-There shall likewise be ex-

including church cemeteries. empt from the tax imposed by this chapter sub-

tb) School books and school lunches.-This scriptions to magazines entered as second class

exemption shall apply to school books used in mail sold for an annual or longer period of

regularly prescribed courses of study, and school time.

lunches served to students, in public, parochial (g) Volunteer fire; departments.-Also ex-

or nonprofit schools operated for and attended empt are fire fighting and rescue service

by pupils of grades one through twelve. School equipment and supplies purchased by volunteer

books and food sold or served at junior colleges fire departments, duly chartered under the

and other institutions of higher learning are Florida Statutes as corporations not for profit.

taxable. (h) Guide dogs for the blind.-Also exempt

(c) Restrictive definitions.-The provisions are the sale or rental of guide dogs for the blind,

of this section authorizing exemptions from tax commonly referred to as "seeing-eye dogs,"

shall be strictly define<.i, limited and applied in and the sale of food or other items for said guide

each category as follows: dogs or for consumption or use by such dogs.

1. Religious institutions shall mean churches **(i) Also exempt from payment of the tax

and established physical places for worship in imposed by this chapter are sales of utilities

this state at which nonprofit religious services to residential households in this state by utility

and activities are re,crularly conducted and car- companies who pay the gross receipts tax

ried on. imposed under §203.01.

1971

§212.08 ADDENDUM §214.71

(8) PARTIAL EXEMPTIONS, VESSELS §§12-1 6, 19, ch. 69-222; §§2, 3, ch. 70-206; §2, ch. 70-373; §7, ch. 71-360;

§1 , ch. 71-985.

ENGAGED IN INTERSTATE OR FOREIGN •Note.-Th e tax on vending machin es ta kes effect October 1, 1971.

COMMERCE.-All vessels and parts thereof ••Note.- Effective March 1, 1972.

used to transport persons or property in inter-

state or foreign commerce shall be subject to

the taxes imposed in this chapter only to the

extent provided herein. The basis of the tax

shall be the ratio of intrastate mileage to in-

terstate or foreign mileage traveled by the CHAPTER 213

carrier during the previous fis cal year. The

ratio would be determined at the close of the STATE REVENUE LAWS; GENERALLY

carrier's fiscal year. This r ati o applied to the

total purchases by the carriers of vessels and PART II

parts thereof each month to establish that por- MULTISTATE TAX COMPACT

tion of the total used and co ns umed in intra-

state movement and subject to t ax at the 213.15 Multistate tax compact.

applicable rate. Vessels and parts thereof used

to transport persons or property in interstate

and foreign commerce are hereby determin ed 213.15 Multistate tax compact.-[Articles

to be susceptible to a distinct and sepa rate III and IV of compact repealed by §1 , ch. 71-980.]

classification for taxation under the provisions

of this chapter.

(9 ) PARTIAL EXEMPTIONS, VEHICLES

ENGAGED IN INTERSTATE OR FOREIGN

COMMERCE.-Vehicles and parts thereof used

to transport persons or property in interstate

or foreign commerce are subje ct to tax im-

posed in this chapter only to the extent pro-

vided herein. The basis of the tax shall be CHAPTER 214

the ratio of intrastate mileage to intersta te ADMINISTRATION OF DESIGNATED

or foreign mileage trav eled by the carrier NONPROPERTY TAXES

during the previous fiscal year of the carrier,

such ratio to be determined at the cl ose of PART IV

the carrier's fiscal year. This ratio shall be APPORTIONMENT

applied each month t o the total purchases by

the carriers of vehicles and parts thereof 214.71 Apportionment; general method.

which are used in Florida to establish tha t

portion of the total used and consumed in

intrastate movement and subject to tax under 214.71 Apportionment; general method.-

this chapter. Except as otherwise provided in §§214.72

(10 ) No transa ctions shall be exempt from and 214.73, the base upon which any tax made

the tax imposed by this chapter except those applicable to this chapter shall be apportioned

expressly exempted herein. Except for §423.02, shall be .d etermined by multiplying same by a

all special or general laws granting tax ex- fraction the numerator of which is the sum of the

emptions, t o the extent they may be incon- property factor , the payroll factor, and the sales

sistent or in conflict with t his chapter, includ- factor and the denominator of which is three. In

ing but not limited to the following designated the event any of the factors described in sub-

laws, shall yield to and be superseded by the sections (1), (2), or (3) has a denominator which

provisions of this subsection: §§153.76, 183.14, is zero or is determined by the department to be

184.17, 258.14, 315.11, 323.15 ( 6) ' 340.20, 348.122, insignificant, the denominator of the apportion-

348.65, 348.762, 349.13, 374.132, 616.07, 623.09, ment fraction shall be reduced by the number of

637.131, 637.151 , 637.291, and 637.311 and the such factors.

following Laws of Florida, acts of the yea r (1) The property factor is a fraction the

indicated: §31, ch. 30843, 1955; §19, ch. 30845, numerator of which is the average value of the

1955; §12, ch. 30927, 1955; §8, ch. 31179, 1955; taxpayer's real and tangible personal property

§15, ch. 31263, 1955; §13, ch. 31343, 1955; owned or rented and used in this state during

§16, ch. 59-1653; §13, ch. 59-1356; §12, ch. 61- the taxable year or period and the denominator

2261; §19, ch. 61 -2754; §10, ch. 61-2686; §11, of which is the average value of such property

ch. 63-1643; §11, ch. 65-1274; §16, ch. 67-1446;

and ~ 10, ch. 67-1681. owned or rented and used everywhere.

(a) Real and tangible personal property

Hlstory .-!8. ch. 26319, 1949; 1§1. 2, ch. 26323. 1949 ; §9, ch .

26871 . 19S1 ; 11, ch . 28082, 19S3 ; 1§ 7, 33, ch . 2961S, 19SS ; §1 6- 8,

owned by the taxpayer shall be valued at original

ch. 29883 , 19SS ; §1 , ch. S7-76; §1, ch. 57-398; §1, ch. 57-821; cost. Real and tangible personal property rented

§1. ch. 57-1968; §1, ch. 57-1971 ; §1, ch. 59-287; !1§1 , 2, ch.

59-402 ; §§1, 2 , ch . 59-448 ; 11. ch . 61 - 464 ; §2, ch. 61-276 ; §1,

by the taxpayer shall be valued at eight times

ch. 61 - 274 ; §7, ch. 63-2S3 ; i§ S, 6, ch. 63 -S26; fl, ch. 63 - S6S; the net annual rental rate paid by the taxpayer

!6, ch . 6S-190 ; §1, ch . 6S-3S8 ; 1§7-9, ch. 6S-329 ; 11. ch. 6S-331; less any annual rental rate received from sub-

§S, ch . 6S-371 ; ! 2. ch . 6S-420 ; ! 4, ch . 67- 180 ; U 8- 12, IS , ch .

68-27 ; §1 , ch . 69- 99 ; H I S, 16, 19, 21 , 24 , 3S, ch . 69-1 06; rentals.

1972

§214.71 ADDENDUM §220.02

(b) The average value of real and tangible without deduction of any costs incurred in carry-

personal property shall be determined by averag- ing such accounts; and

ing the value at the beginning and the end of the 5. Any other gross income resulting from

taxable year or period, unless the department the operation as a financial organization with

determines that an averaging of monthly values this state.

during the taxable year or period is reasonably (c) In computing the amounts referred to in

required to reflect properly the average value of this subsection, any amount received by a

the taxpayer's real and tangible personal prop- member of an affiliated group (determined

erty. under §1504(a) of the Internal Revenue Code,

(2) The payroll factor is a fraction the but without reference to whether any such cor-

numerator of which is the total amount paid in poration is an "includable corporation" under

this state during the taxable year or period by the §1504(b) of the Internal Revenue Code) from

taxpayer for compensation and the denominator another member of such group shall be included

of which is the total compensation paid every- only to the extent such amount exceeds ex-

where during the taxable year or period. penses of the recipient directly related thereto.

History.-§19, ch. 71-359; §2, ch . 71-980.

(a) The term "compensation" shall mean •Note.-Paragraph (a), as amended, effective Janua ry I , 1972.

wages, salaries, commissions, and any other

form of remuneration paid to employees for

personal services.

(b) Compensation is paid in this state if:

1. The employee's service is performed CHAPrER 220

entirely within the state; or

2. The employee's service is performed both INCOME TAX CODE

within and without the state, but the service per-

formed without the state is incidental to the

employee's service within the state; or PART I TITLE; DECLARATIONS OF

3. Some of the employee's service is per- INTENT; DEFINITIONS (§§220.01-220.03)

formed in the state and

a . The base of operations or, if there is no PART II TAX IMPOSED; APPORTION-

base of operations, the place from which the MENT (§§220.11-220.15)

service is directed or controlled is in the state, or

b. The base of operations or the place from PART III RETURNS; DECLARATIONS;

which the service is directed or controlled is not RECORDS (§§220.21-220.242)

in any state in which some part of the service is

performed and the employee's residence is in this PART IV PAYMENTS (§§220.31-220.34)

state.

PART V ACCOUNTING (§§220.41-220.44)

(3) The sales factor is a fraction the numer~­

tor of which is the total sales of the taxpayer m PART VI MISCELLANEOUS (§§220.51-

this state during the taxable year or period and 220.53)

the denominator of which is the total sales of the

taxpayer everywhere during the taxable year or

period. PART I

"'(a) Sales of tangible personal property are

in this state if the property is delivered or TITLE; DECLARATIONS OF INTENT;

shipped to a purchaser within this state, regard- DEFINITIONS

less of the f.o.b. point or other conditions of

the sale.

(b) Sales of a financial organization, in- 220.01 Short title. .

cluding, but not limited to, banking and savings 220.02 Legislative intent.

institutions, investment companies, real estate 220.03 Definitions.

investment trusts, and brokerage companies,

shall be in this state if derived from: 220.01 Short title.-This chapter shall be

1. Fees, commissions, or other compensa- known and may be cited as the "Florida Income

tion for financial services rendered within this Tax Code."

state; History.- §!, ch. 71-984.

2. Gross profits from trading in stocks,

bonds, or other securities managed within this 220.02 Legislative intent.-

state; (1) It is the intent of the legislature in

3. Interest and dividends received within enacting this code to impose a tax upon all

this state; corporations, organizations, associations , and

4. Interest charged to customers at places other artificial entities which derive from this

of business maintained within this state for state or from any other jurisdiction permanent

carrying debit balances of margin accounts , and inherent attributes not inherent in or avail-

1973

§220.02 ADDENDUM §220.03

able to natural persons, such as perpetual life, tax purposes after November 2, 1971 shall be

transferable ownership represented by shares or subject to taxation in full by this state and

certificates, and limited liability for all owners. It shall be taxed in the manner and to the extent

is the intent of the legislature to subject such provided in this code.

corporations and other entities to taxation here- History.-§!, ch. 71·984.

under for the privilege of conducting business,

deriving income, or existing within the state. 220.03 Definitions.-

This code is not intended to tax, and shall not be (!) SPECIFIC TERMS.-When used in this

construed so as to tax, natural persons who code, and when not otherwise distinctly ex-

engage in a trade or business or profession in this pressed or manifestly incompatible with the

state under their own or any fictitious name, intent thereof, the following terms shall have the

whether individually as proprietorships or in following meanings:

partnerships with others, estates of decedents or (a) "Affiliated group of corporations"

incompetents, or testamentary trusts. However, means two or more corporations which constitute

corporations or other taxable entities which are an affiliated group of corporations as defined in

or which become partners with one or more section 1504(a) of the Internal Revenue Code.

natural persons shall not, merely by reason of (b) "Corporation" includes all domestic

being a partner, exclude from their net income corporations; foreign corporations qualified to

subject to tax their respective share of partner- do business in this state or actually doing

ship net income. This statement of intent shall be business in this state; joint-stock companies;

given preeminent consideration in any construc- common law declarations of trust, under chapter

tion or interpretation of this code in order to 609; corporations not for profit, under chapter

avoid any conflict between this code and the 617; agricultural cooperative marketing as-

mandate in art. VII, §5 of the state constitution sociations, under chapter 618; professional

that no income tax shall be levied upon natural service corporations, under chapter 621; foreign

persons who are residents and citizens of this unincorporated associations, under chapter 622;

state. private school corporations, under chapter 623;

(2) It is the intent of the legislature that foreign corporations not for profit which are

the tax levied by this code shall be construed to carrying on their activities in this state; and all

be an excise or privilege tax measured by net other organizations, associations, legal entities,

income, and that said tax shall not be deemed or and artificial persons which are created by or

construed to be a property tax or a tax on pursuant to the statutes of this state, the United

property or a tax measured by the value of States, or any other state, territory, possession,

property for any purpose. or jurisdiction. The term "corporation" shall

(3) It is the intent of the legislature that not include proprietorships, even if using a ficti-

the income tax imposed by this code shall tious name; partnerships of any type, as such;

utilize, to the greatest extent possible, concepts state or public fairs or expositions, under

of law which have been developed in connection chapters 615 and 616; estates of decedents or

with the income tax laws of the United States, incompetents; testamentary trusts; or private

in order to: trusts.

(a) Minimize the expenses of the depart- (c) "Department" means the department of

ment of revenue and difficulties in administering revenue of this state.

this code; (d) "Director" means the executive director

(b) Minimize the costs and difficulties of of the department of revenue and, when there

taxpayer compliance; and has been an appropriate delegation of authority,

(c) Maximize, for both revenue and statisti- his delegate.

cal purposes, the sharing of information between (e) "Earned," "accrued," "paid," and

the state and the federal government.

(4) It is the intent of the legislature that "incurred" shall be construed according to the

the tax imposed by this code shall be prospective method of accounting upon the basis of which a

in effect only. Consistent with this intention and taxpayer's income is computed under this code.

the intent expressed in subsection (3), it is hereby (f) "Fiscal year" means an accounting

declared to be the intent of the legislature that: period of 12 months or less ending on the last

(a) "Income," for purposes of this code, day of any month other than December or, in

including gains from the sale, exchange, or other the case of a taxpayer with an annual accounting

disposition of property, shall be deemed to be period of 52-53 weeks under subsection 441(f)

created for Florida income tax purposes at such of the Internal Revenue Code, the period de-

time as said income is realized for federal income termined under that subsection.

tax purposes; (g) "Includes" and "including," when used

(b) No accretion of value, no accrual of in a definition contained in this code, shall not be

gain, and no acquisition of a right to receive or deemed to exclude other things otherwise within

accrue income which has occurred or been the meaning of the term defined.

generated prior to November 2, 1971 shall be (h) "Internal Revenue Code" means the

deemed to be "property," or an interest in United States Internal Revenue Code of 1954 as

property, for any purpose under this code; and amended and in effect on November 2, 1971,

(c) All income realized for federal income except as provided in subsection (3).

1974

§220.03 ADDENDUM §220.12

(i) "Partnership" includes a syndicate, PART II

group, pool, joint venture, or other unin-

corporated organization through or by means of TAX IMPOSED, APPORTIONMENT

which any business, financial operation, or

venture is carried on, including limited partner- 220.11 Tax imposed.

ships; and the term "partner" includes a 220.12 Net income defined.

member having a capital or a profits interest in a 220.13 Adjusted federal income defined.

partnership. 220.131Adjusted federal income; affiliated

(j) "Regulations" includes rules promul- groups.

gated, and forms prescribed, by the department. 220.14 Exemption.

(k) "Returns'' includes declarations of 220.15 Apportionment of adjusted federal m-

estimated tax required under this code. come.

(l) " State," when applied to a jurisdiction 220.11 Tax imposed.-

other than Florida, means any state of the (1) A tax measured by net income is hereby

United States, the District of Columbia, the imposed on every taxpayer for each taxable

Commonwealth of Puerto Rico, any territory or year commencing on or after January 1, 1972,

possession of the United States, or any political and for each taxable year which begins before

subdivision of any of the foregoing. and ends after January 1, 1972, for the privilege

(m) "Taxable year" means the calendar or of conducting business, earning or receiving

fiscal year upon the basis of which net income income in this state, or being a resident or

is computed under this code, including, in the citizen of this state. Such tax shall be in addition

case of a return made for a fractional part of a to all other occupation, excise, privilege, and

year, the period for which such return is made. property taxes imposed by this state or by any

(n) "Taxpayer" means any corporation sub- political subdivision thereof, including any

ject to the tax imposed by this code, and shall municipality or other district, jurisdiction, or

include all corporations for which a consolidated authority of this state.

return is filed under §220.131. (2) The tax imposed by this section shall be

(2) DEFINITIONAL RULES.-When used an amount equal to 5 percent of the taxpayer's

in this code and neither otherwise distinctly net income for the taxable year.

History.-§1, ch . 71-984.

expressed nor manifestly incompatible with the

intent thereof:

(a) The word "corporation" or "taxpayer" 220.12 Net income defined.-

shall be deemed to include the words "and its

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