Motion to Affirm — W. R. Arthur & Co. v. Wisconsin Department of Taxation

+} Bthce Supreme Court, U.S

ae ome meee ye a

Lie SRY.

TaN sed COURT. U. >. MAY 7 1963 |

; IN THE , : - JOHN F. DAVIS, CLERK

October Term, ope \

No..1008

-W. R. ARTHUR & CO, INC, ee

. a : ’ Appellant,

(a vs.

WISCONSIN DEPARTMENT OF TAXATION,

F Appellee.”

APPEAL FROM -THE SUPREME COURT

OF THE STATE OF WISCONSIN

MOTION OF APPELLEE TO DISMISS APPEAL

~~ (AND BRIEF" :

GEORGE THOMPSON,

_ Attorney General of Wisconsin -

- HAROLD H. PERSONS,

Assistant Attorney General

E. WESTON WOOD.

on Assistant Attorney General

} . .°. Attorneys for Appellee.

Post Office Address: =s_—.:«. eet

114-East ; os oe

State Capitol — ‘ Pail

_ Madison 2, ‘Wisconsin | (

Ceedsectetseatectiastterstereeeeeretereties

«

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i

_ TABLE OF CONTENTS

PAGE

MOTION TO Ser ninaunneceamenes eneT strate 1

‘STATEMENT OF THE II; cksichiinceccaenesticheLasecicaniaet Basen 1-2

- S SRATUTES INVOLVED, 2c einen neon

FACTS LR Ee Cn OCS RE aco 4-12

NO SUBSTANTIAL — Is INVOLVED color Qe -18 -

L Each Factor In An Apportionment ‘Formula is.

__. Reasonable If the Formula is Reasonable .......... 12-14

2. Apportionment Formula Used Was'Fair.and Rea-

~ gonable ......... Rule Se OO arene nn Sea

3. Apportionment of Unitary. Income. by q, Reason-

able Formula is Constitutional pacianeuianenianiate 17-18

4 . “ ;

AUTHORITIES CiTED : a 7

Butler Bros. v. McColgan (1942), 315 U. S. 501, 62 Sup: ;

Ct. 701, 86 L. Ed. 991 ..:.... - Sherntibeiibcshinytiligltoeses aie

Central Greyhound’ Lines v. Meiten’ (1948), 334 U. S.

| 653, 68 Sup. Ct. 1260, 92 L. Ea. ID nessa syrensgeneseneccnees 17

_ Eisner v. -MacComber (1919), 252 U. s, 189, 40 teen: Ct.

189, 64 L, WA, G08 \enzes /18

_ET & WNC Transp, C6. v. Currie (1959), 359 U. S. 28,’

79 Sup. Ct, 602, "3-L. Ed.’ (2d) 625, affg, 248 N. C.

560, 104 S. E. (24) UN gh ene 17

ae

: ; . PAGE

Hans Rees. Sons (1931), 283 U. S. 123, 51 Sup. eS. 385,

75 L. Ed. 679 Teer E SNe npechiondanetaas Sates sant cabanas ae

N. W. States Portland — Co. v. Minnesota (1959),

358 U. S. 450. 79 Sup. Ct. 357, 3 L.. Ed. (2d) 421. 17, ‘18 -*

Senet Saliceiicen LTD v. Howbert (1913) 231 U

_ S. 399, 34 Sup. Ct. 136, 58 L. Ed. 285 .. omen a

.

Williams v, Stockham Ydows & Fittings, Inc. (1959),

358 U. S. 450, 79 Sup. Ct. 357, 3 L. Ed. (2d) 421... 18

IN THE

~ SUPREME COURT of the UNIFED STATES

‘October Term, 1962 — ;

No.1008 ,

W. R. ARTHUR & CO., INC. * *

. Appellant,

vs.

"WISCONSIN DEPARTMENT OF TAXATION,

Appellee.

APPEAL FROM THE SUPREME Court’

_ OF THE STATE OF WISCONSIN

- MOTION TO DISMISS

Pursuant to Rule 16. of the Revised Rules the appellee,

Wisconsin, Department of Taxation, moves.this court to *

‘dismiss with costs the appeal faken herein to this court

by W. R. McArthur ‘& vere Inc., upon ithe following

ground:

1. No substantia] Fedéral question is presented.

Co : ,

STATEMENT OF THE CASE ©

This is a state income tax apportionment case. The

appellant, W. R. Arthur & Co., Inc., is a corporation,.incor- -

_ porated in IIlinois, but having its office and place of business

at Janesville, Wisconsin. It is engaged in a unitary, multi-

state business of transporting new Chevrolet automobiles

and trucks from the manufacturer’s assembly ‘plant at

Janesville, Wisconsin. to the dealers in the midwest. It

seeks a review of the judgment of the Supreme ‘Court of

Wisconsin which affirmed an assessment of Wisconsin in-

come taxes against the appellant on the part of the net

income of the appellarit in the years 1953 through 1956

attributable to business transacted within the State of Wis-

consin. The amount of its total net income in each of the-

- years so attributed to business transacted. within Wisconsin.

and subjected to Wisconsin income taxation was calculated,

"pursuant to sec. 71.07 (2). Wisconsin Statutes, by the appli-

‘ eation-of an apportionment formula composed . of three

factors:‘ (1) revenue miles, (2): payroll, [non-driver pay-

roll assigned a situs where headquartered. and driver pay- ©

"roll assigned a situs on basis of revenue miles], and, (3)

originating revenue [assigned a situs at place of receipt]. -

STATUTES INVOLVED

Sec: 73.02, Wisconsin Statutes, alin the" ai

Wisconsin Department of Taxation, as a department of ©

. State government of the State of Wisconsin. The duties of

said department as set out in sec. 73.03, Wisconsin Statutes,

include the general supervision of the administration and

enforcement of the state income tax imposed by ch. 71, of

the Wisconsin Statutes. It is the governmental agency or

subdivision by which the State of Wisconsin administers

its income tax laws. The Wisconsin Department of. Taxa-

tion is fully authorized by the Wisconsin Statutes to make

s >)

3 :

the additional assessment involved. Aso question is raised

in respect thereto the statutory — for it to so act.

: is not set out.

The prov isions of the Wisconsin ree Tax Law. are

in ch. 71 of the Wisconsin Statutés. So far-as relevant here .

they are set forth at pages 4, 5 and 6 of the Appellant's

Jurisdictional Statement. It_j vided in sec. 71.07(2),

that the amount of incor of of pyrsans | includes corporas

- tions by express definition sec. 71.02(1)], engaged in busi-

" ness within and without the State of Wisconsi: shall be

taxed only on ‘such income as is derived from business

transacted within the state; that if the’ business transgcted

_ in the state is not part of a unitary business the amount

of income attributable to Wisconsiri may be determined by

/separate accounting; but where the business is unitary

then the amount of Wisconsin taxable income is to be de

~ termined by a three factor formula composed of (a) tangi

ble property, (b) cost’ of manufacturing, and (c) sales.

It is then provided in sec. 71.07 (3); that if the use of any |

of the three factors produces an unreasonable or -unequit-

able result stieh factor or factors may be omitted from

the formu!z Then sec. 71.07 (5), provides that if, by | any

‘of the foregoing, the income properly assignable can not |

be ascertained, then the income: shall be apportioned -and

allocated upon such basis as the Wisconsin Department

of. Taxation may, in accordance with its rules and regula-.

tions, prescribe. Because the use of the. three-factor for-

_youla was inappropriate to the taxpayer’s business and as

dropping out factors therein did not provide a reasonable

method for apportionment, the Wisconsin Department of

Taxation applied an. apportionment formula consisting of:

revenue miles, payroll and an revenue as deemed

/

4

to be an apportionment formulua which fairly and reason-

ably apportioried. to Wisconsin that portion of the net busi-

ness income of the appellant as, Was attributable to business

conducted within Wisconsin. “This was in accordance with

. place of business at Janesville, Wisconsin, adjacent-to the -

the promulgated formal published rule of the Wisconsin

Department of Taxation, designated Tax 2.45, as set forth ©

at page 6 of Appellant's Jurisdictional Statement.

FACTS

While the appellant, W. R. Arthur & Co.” Inc, is a cor-

poration incorporated in Ilinois, it has its general office and

‘Chevrolet automobile assembly, plant of General Motors

Corporation. The sole business of the appellant is the trans-

porting of new Chev rolet automobiles and trucks from

said assembly plant,*to dealers in Wisconsin, Illinois, Indi- —

ana, lowa, upper Michigan, Minnesota, Missouri, Montana, *

Nebraska and North and South Dakota. Other than a gar-

‘age relay station which is owned at Black River Falls, Wis-

consin, a-minor relay station rented at Manchester, Iowa

* and an experiméntal. operation cgnducted out of mote?

locations in Minnesota, the W. R. Arthur & Co., Inc., had no

. Office or facility other than its office and receiving and dis-

the manufacturer’s assembly plant to the dealer. in such,

patching terminal facility at Janesville,” Wisconsin. -

Taxpayer's. business’ was entirely the hauling of one

commodity, new Chevrolet automobiles arid trucks from

new vehicles. It had only. one customer, the Chevrolet

-division’ of General Motors Corporation at its assembly

- plant at Janesville, Wisconsin: The new at. smobiles and

ro /

, =F

8

- trucks, were moved by appellant by two methods. 96%

were moved by the “haulaway,” also known as the “truck-

away,” method and 4°. were hauled or transported by be- ’

ing driven under their. own ‘power by employees of. the

‘taxpayer, which is known as the ° ‘driveaway” method. The

“haulaway” method consisted of ‘the transportation of the

new vehicles upon specifically designed semi-trailers carry-

ing either four new Chevrolet automobiles or three new —

Chevrolet trucks, drawn or pulled by ets units,—heavy ~

duty trucks known as truck- tractors.

All of the transportation actually ini at ei

Chevrolet plant at Janesville, Wiscgnsin. Beyond question,

88°. of the hauling of new vehicles was started at the

Janesville plant. Such other hauling as was done was nom- ~

inal in amount and insigniticant. It involved ‘the movement .

of new. vehicles between auto shows at the start of a model

year, some readjusting of inventory between dealers at the

"end of a model year, the return of new cars from Chevrolet *

dealers to the factory ‘at Janesville, and the movement of

_ some new trucks from Streeter, Illinois, after the installa-

. tion of special dump boxes there, which trucks had been

‘initially transported ‘by the taxpayer from the Janesville

plant to Streeter, Illinois for such installation. All of the

hauling, regardless of where the haul at the time originated, -

was for the Chev roléet division of General Motors Corpora-

tion and was performed under tariffs negotiated by the -

taxpayer's officers headquartered at Janesville, Wisconsin. —

The taxpayer's revenue’ was entirely from the Chevre-

let-plant at Janesville for which all of such transportation

service was performed. Taxpayer was a contract carrier . -

and the Chevrolet division of the General. Motors Corpora-. -

’

.

tion was its only customer’ and the only | 6éne for which .

taxpayer was authorized to perform transportation serv-

ices. All billing by the taxpayer was to said Chevrolet divi- |

sion of the/General Motors Corporation.. Taxpayer took

possession bf the new Chevrolet augfomobiles and trucks

at the factory gate at Janesville, stored them at its facilities

at Janesville, loaded them onto trailers, | transported them

» Ly said truck and seini-trailers or.drove them to. the speci-

fied Chevrolet dealers to whem they were ‘consigned by

the Chevrolet factory, and thereon unloaded and delivered

them. For this service, it was compensated under agree-

_ ments with the Chevrolet division pursuant to which the

W. R. Arthur & Co., Inc., received a certain amount for

actual-miles transported plus surcharges for other services,

plus allowances for extra drivér expense on lorig hauls

(driver lodging) and extra driver expense of unloading

“LTL shipments—shipments where the load: goes to more

than one dealer. The basis for the compensation from Jan-

uary 1, 1953 to 1995 was nine cents.per mile for each veni- -

cle transported, plus a ‘surcharge of three dollars per car,

plus a further surcharge of seventy-five cents per car for .

each 150 miles after the first 150 miles. If alf of the vehicles

on the load were not consigned to a'single destination, the -

- taxpayer received an additional $1.50 for each vehicle on

that load. _ Subsequent to June 20, 1955, and during the

remainder of the period invdited, the rates were scaled

upward slightly, but on this. same’ scheme or pattern.

The general offices were located at Janesville, Wiscon-

. - sin in a 40x60. feet two story building known as the Cherry

Street office owned by it, upon leased land. The officers.

of the corporation with an executive payroll of. $100,000

a year headquartered there. The off cers were responsible |

:

-for the conduct of the business, including the negotiations

with General Motors Corporation relative’ to the retention

of business and the detérmination of terms; the purchase -

_ of trucks and trailers from General Motors Corporation;

the negotiation of union contracts; and the negotiation with

state and federal regulatory agencies. In addition, this

office housed the claims department, the safety, and per-

sonnel division, the accounting personnel, and’ a number

of other office work , Altogether there were fr om twenty .

to twenty-four office, workers employed in various capaci-

ties, including the settlement of-claims and driver training.

The general corporate records were maintained there. The

principal dispatchers were headquartered at J anesville. In

the latter part of 1956 taxpayer constructed a new 40x70

feet offtce building on what i$ known as the Kellogg Street

. lot which it ‘used for dispatching.

In addition to its offices, appellant inatiee the years

involved, operaied two large garages at Janesville, a large

parking lot at Janesville and had a eee garage at Black

; River Falls, Wisconsin. .

The two Janesville garages were located on State

* Street’ and Academy Street respectivély. The State Street

garage was a 200 foot by 60-70 foot building on land owned

by the taxpayer. It had drive-through bays with electrically —

-operated overhead doors that could accommodate loaded

tractors and trailer units. It was used for greasing, painting,

| welding, tire‘repair, brake repair and other like and heavy

maintenance of taxpayer’ Ss equipment, ough as removal and

repair and: replacement of motors, tear epds and transmis-

gions, and making structural alterations on: trailers to

accommodate new model Chevrolet automobiles and trucks. . | F

\

"There, was a stock room -for replacement parts ‘for equip- “

8°

‘ment. ‘The Academy Street, garage was a two story 100 by

70 feet cement block building arid was owned by the tax-

payer at a cost of $70,000. Except for brake work and

_ painting it performed the same functions as the State Street

garage and similarly had a parts room for storage of tires,

motors and ‘Tepair parts.

Forty to forty-five men worked in these two garages ,

and included shop supervisors, foremen, greasers, tire i >

_ welders, brake men, mechanics and janitors.

_ “Taxpayer took pa@ession of: ‘the new Cheveollt ‘auto-

- mobiles and trucks at the factory gates at Jane; ville and

_assumed the risk of loss or damage from that point. About

twenty persons were employed by taxpayer to drive rew -

cars from the factory gates to its parking area. Prior to

1956 taxpayer parked the new vehicles on land owned by

. the Chevrolet division adjacent to the taxpayer’s office. In

1956 taxpayer began the development of the Kellogg Street __

parking area-riear the factory on eighty acres developed '

in 1956 for parking purposes and built upon it the 40 feet

by 70 feet building used for dispatching purposes. It had —

_ also started construction on a large: garage to. replace the

Acade.ny Street garage: .

<

At that time it was using loading docks it had construct- Es

-ed at a cost of $15,000. It had installed. a c¥clone fence

‘and lighting around the parking area and in the loading -

area. By the end of 1956 the parking area had been devel-

oped to accommodate 2,000 new vehicles. Taxpayer's

watchmen checked the area with a twenty-four hour a day

wateh service. The loading took place at parking areas at

all hours of the day and night. and in all kinds of weather.

; Dispatchers were on ‘duty . on a twenty-four hour a day

&

9

~~ . | ‘

basis. In view of the fact that the Chevrolet cars and trucks

were manufactured ‘against specific orders from dealers and

identified with serial numbers, the dispatchers at Janesville

had to have the cars loaded so’ as to get the correct cars to

| the correct dealer and in correct sequence relative to un-

loading.

Early in 1954 taxpayer finished construction of a two

story 100x70 feet garage at Black River Falls, Wisconsin,

similar’ in size and construction to the Academy ‘Street

garage at Janesville, which it used for the balance of the

period involved. “About five to” seven shop personnel were —

there, ‘such as shop supervisors, mechanics, grease and tire

. men,-utility men and clerk. This garage served as a relay

point for the changing of drivers and tractors. It was also °

used to service and inspect equipment, make major and

minor repairs to equipment, dispatch equipment and driv-

ers, handle complaints , from dealers and hold safety meet-- i

ings. A-full supply of parts, tires and gasolitie ‘was kept

there. On the relay of a load of riew cars and trucks the

. trailer was detached from the power unit (the tractor- -

truck), and a new power unit was attached and the: load.

’ then continued with.a fresh driver.

Sometime in 1953 appellant experimefited with the a

establishment of a relay point in the Cedar Rapids, Towa °

area and sometime in 1954 established a minor relay opera-

tion at Manchester, Iowa in a rented garage building large

enough to service three tractors. or power units, which had

a wash space, parts and supply storage area and a drivers’

room. The personnel there consisted of a-supervisor, a tire

* and grease man, three. mechanics, a handy man and a clerk.

There was a parking space of about four: acres for the

s

tractors and trailers. The fact that the non-driver payroll ,

ots outside of Wisconsin in 1953 was only. $2000 and in 1 D4

only $6000 indicates that the operation was nominal in those): *

: --years. With the possible exception of some power unit

| appellant owned no tangible property in Iowa in 1953, 19

or 1955. In 1955 it had about 30 power units stationed. se) .

Manchester, Iowa and in 1956 37 2 38.

. ‘In 1958, 1954 and 1955, and: during most of + 1956, tax-

f payer had novrelay facility in Minnesota. In the latter part -

of 1956 it began experimenting with the establishment of

a relay facility in that. state and had an individual on a

temporary basis who was headquaxteréd at Black River

Falls, working out of a motel there, but seeking a relay

point convenient for hauling from Black River Falls to the

Dakotas and Montana. There. were 9 to 15 power units in-

- volved. It was not until April, 1957 that .a relay facility

;. Was established at Anoka, Minnesota.

”*. At the Iowa and Minnesota relay vont and at the

Black River Falls garage, the’ tractor-traile units would be

inspected and serviced, the cargo checked, ~~ a new trae-

tor hooked on and thé ‘unit. dispatched with another ‘driver. -

Personnel at these rélay. <dgeea: ‘sometimes investigate

complaints and traced loads.

Of its power units about 200 were stationed at Janes-

‘ ville, about 60:at Black me Falls, about 30 at the Iowa

terminal and in the Jatter part of 1956 from 5 to 15 at the

experimental telay point in Minnesota. Except for some

minor maintenance. iin 1955 and 1956 at Ma hester, Iowa,

TR all the tractors and gemi-trailers were mr and repaired

in ‘the taxpayer’ s ‘two garages in Janesville, Wisconsin and

in its Black River Falls, Wisconsin garage. 2

ela

2)

11

(Except for its rofling stock which operated within and

without Wisconsin, and only a small amount of tools, parts,,

- tires and gasoline in Iowa in the latter part of the period *

involved, the taxpayer owned no. — a outside

of Wisconsin. “e . ‘ tas a Aa

3

Taxpayer filed Whesnneii income ‘tax returns for each

' of the four years involved as a unitary business and therein

apportioned its net business income to within and without

Wisconsin using the single line-haul factor of revenue miles.

Following an audit and a hearing, the Wisconsin: Board of

Tax Appeals affirmed an additional assessment which ap)-

. portioned a part of the taxpayer’s net income in each of the

years to Wisconsin by using a three-factor formula of: (1)

, révenue miles [line-haul], (2) originating revenue [ter-

minal], and (3) payroll—with non-driver payroll. -assigned

to work headquarters and driver payroll spread on revenue

miles basis [neutral’or mixed Jine-haul and terminal].

The percentages produced by the use of such factors _

and the average thereof in the formula were as follows ar

- each of the years:

1953 es - 1954 1955 «1956

Payroll .....%...... 69:445% 64.560% 64.225% | 64.545%

Revenue Miles 97767 -49:977% © 51.214% —50.858%

Originating |

“Revenue ...100. % 100. % 100. % 100. %

"Divided by 3 ....225.221% 214.537% 215.442% 215.403 %

Average -

. (Wis! %) ”.. 75.074% | 71.512% "71.814% —71.801% -

ee

12 eae aes

The payroll factor was determined by allocating to Se erate!

Wisconsin “all non-driver personnel. whose headquarters

, were in Wisconsin, and _by dividing driver personnel pay-

‘roll between Wisconsin and other states’ on thé basis of rev-

enue miles within and without the state. ‘The revenue miles

factor was simply the percentage which the taxpayer’s rev- F

enue miles in Wisconsin bore to total revenue miles. The ,

originating - revenue factor was 100% Wisconsin because

all “of taxpayer’s revenue was received at the Janesville

main office as a result of contracts. enterud into by said

main omer personnel. ; ,

It is this assessment of additional Wisconsin income

taxes, for these years which was affirmed by the Supreme

Court: of the State of Wisconsin by the judgment herein

sought to be reviewed. _ of oe

NO SUBSTANTIAL FEDERAL QUESTION IS

PRESENTED.

9 1.- Each dadter in an apportion: nent formula is rea-

. sonable if the formula is reasonable.

The sole basis asserted by the appellant in‘support of . :

this appeal is*that the use of originating revenue as one of cas

the three factors in the formula used in making the appor-

tionment of the appellant’s net business income makes the~

tax one on gross receipts and therefore renders the use of

such apportionment formula invalid. It makes this asser- —

tion notwithstanding that originating revenue is only one

of three factors in the formula and that appellant acknowl-

edges that its income attributable to Wisconsin must’ be

determined by an apportionment formula.

13 —

It is evident that it takes this position due to the fact

‘ that originating revenue is 100° ‘Wisconsin because the

"entire revenue of the appellant in ch of the years was.

_ received at its main office and plant at@Wanesville. In sub-—

_ stance, thi ‘is the same position that the appellant took

‘ before the Supreme Court of the State of Wisconsin, which

was that each factor in an upportionment formula standing

by itself and used alone, must be a reasonable basis for

apportionment of the net. income. This obviously is a falla-.

_cious position, ; ‘

Sa

In this case the origiiniind revenue is the gross're- ~

ceipts and is used the same as sales in the three-factor statu-_

tory: formula that would be applied if. appellant were'a |

_ manufacturing concern. The Supreme Court. of Wisconsin °

addressed itself to the appellant’s contention and said that

the use of the originating revenue or gross rec receipts factor

‘did not make the formula arbitrary or render the appor-

tionment unfair. It said that: inclusion of originating rev-

enue as one of. the factors in the three-factor formula con-

stituted ‘a reasonable means of reflecting the taxpayer’s in- ;

.. come attributable: to business done in Wisconsin. It said —

the formula took into consideration the peculiar nature. of ©

the taxpayer’s business activity and that it had only one

_ customer and im was in Wisconsin and that the — was

or in Wisconsin.

The Supreme Court of Wisconsin recognized, as does

appellee, that, used asa single factor for apportioning multi-

state income, gross: receipts would result in all of the tax-

payer’s income being taxed in Wisconsin and that, this ob-

viously would make the tax unfair and illegal. It said, how-

ever, that when it is used in conjunction with two other

14

ih

factors, itvdoes not mabe the formula arbitrary or result

in an unfair apportionment of the income.

If the position’ ‘of the: ‘appellant were sound, then all

that would be needed in an apportionment formula is only .

ofie factor. But, the use of a formula composed of more

than one factor is due to the very fact that the end result »

produced by the formula cannot be achieved by using only |

one factor. This is inherent in the use of a formula to spread

income territorily between states. There are a number of

factors which, if applied alone, would produce absurd and.

erroneous results. Yet, when used with other factors, they

would result in achieving a proper apportionment. If the

result of the formula is reasonable, then the factors in it

are all reasonable.- one

As the Supreme Court of Wisconsin said in ‘its opinion:

. If one of several factors is challenged, it must be

iain by the court not only upon its own merits

but also in relation: to the ‘other factors, as well as in

relation to the total composite result. Thus, the court

- mus7look not only at the individual factors but also at

the final formula. We believe that in contest with each

of the other factors inclyded in the formula adopted

by the. board of tax appeals in caadie instant case, the .

factors are all reasonable.

“When a multi-factor formiula is used, each factor must

7 bear a reasonable relationship to the taxpayer’s busi- ©

ness and to the other. factors of the formula; it must

also produce a fair apportionment when set in combi ina=?

tion with other germane factors. The test is not wheth-

er, standing alone, a given factor produces a fair appor-

nae. ~

\

7

2. Apportionment formula used was fair and rea-

sonable. ,

It ig related'to the unique or peculiar type of business _

of the appellant. The appellant is engaged in the. business

of transportation of freight. Traditionally and actually the

transportation business is.récognized, even by. itself, as hav-

ing two major aspects or facets of its operation which con-

tribute to the success of the sntire business, to wit: the

terminal activities andthe line-haul activities. A fair and

»reasonable apportionment formula must thus be composed

of elements which give effect to the contribution of these _

two distinct segments of the operation. If these features

of the trucking business are to be recognized and used to

apportion net income of a multi-state truck operation the —

- apportionment formula must include factors that take cog-

nizance. of them. -.

’ The line-haul part is the actual movement. over: the

highways of the vehicles in carrying the freight. The ter- .

minal portion isavery important and necessary ‘part of the

businéss and includes the contribution of the general office

in obtaining, managing and keeping the business. There is.

nothing to suggest that the line-haul predominates over

«

terminal in contributing to the net inceme from the entire .

operation. Therefore, it is reasonable that they are assumed

to be equal in such contribution ‘and being equal it is only —-

reasonable to give them equal weight in the end-result for-

mula used. The three-factor formula used here of revenue

- miles, payroll and originating revenue attributes to each |

«" of the major elements—line-haul and terminal—and to the

labor and capital employed in each, an equal contribution

to the net income from the entire operation of the business.

16.

> é '

The revenue miles, factor is, entirely line-haul-in na-

ture. Ordinarily ton-miles would ‘be used but here revenue

miles were used as the taxpayer used tevenue n ns ei in fil- |

ing its returns and no records for computation of ton- miles.

~ were available. Revenue miles reflects*the . contribution of

both’ the labor and: capital involved in the actual ,hauling

- and assigns them to where the hauling is done.

ae The originating revenue factor is terminal, and is com- -

; parable to and takes the place of, the sales factor that would

“be used in the statutory formula which would be applicable

the taxpayer were a manufacturer. Originating revenue

reflects the contribution. of labor and capital involved in

the functioning of the general office and operating terminal

(including the garages, etc.). at Janesville, Wisconsin and

the fact.that all of the services were supervised and directed’

at such home office and originating’ terminal. _

The payroll factor ‘is neytral, or rather both line-haul’

4 and terminal in character, an Revés t to balance or coordin-

ate the other two factors. In computing. the payroll factor

the non-drivers were allocated on the basis of the location

of their headquarters and the drivers were allocated on the

basis of revenue miles. Thus, the payroll reflects labor and

capital contributions to the line-haul movement and also

-thé labor and capital contributions to the terminal activity,

including. the minor relay operations outside of Wisconsin,

at the place where those contributions are made. It also.

_ réflects the contribution of labor and capital involved in ‘the -

functioning of the general office and the originating ter- :

minal including the garages, etc., at J anesville, Wisconsin

and the fact that all of the hauling-service ‘was sold, con-

tracted for and generally implemented, directed and inal

-vised_by sich home office. 7

_

ey >.

17 Ss, e

Thus, the apportionment formula used in the case was

eminently fair and reasonable as, calculated to attribute to

Wisconsin only that portion of the total net income of the

" taxpayer as was derived from that part offhe business which

was transacted and carried on in Wisconsin. Being fairly .

apportioned by such a formula, the assessment was proper

and the taxes invelved are valid. =

fs ' ae

3. Apportionment of unitary income by a reason-

able formula is constitutional. . :

It is well established that the net income of a corpora- ~ .

tion generated by interstate as well as intrastate activities,

may be fairly apportioned for tax purposes by a formula 3

utilizing in-state aspects of interstate affairs. Butler Bros.

v. McColgan (1942), 315 U. S. 501, 62 Sup. Ct. 701, 86 L. Ed.

991; ET&WNC Transp. Co. v. Currie (1959), 359 U. S. 28,

79 Sup. Ct. 602, 3 L) Ed_(2d) 626; affirming 248 N. C. 560,

104 S. E. (2d) 403;'N.\W. States Portland Cement Co. v.

Minnesota (1959), 358 U. S. 450, 79 Sup. Ct. 357, 3 L. Ed.

(2d) 421.

Appellant reliie upon Copal Greyhound: Lines v.

Mealey (1948), 334 U. S. 653, 68 Sup. Ct. 1260, 92 L. Ed.

1633. That case is in no way pertinent for two reasons. In

the first place, it was a gross receipts tax and, this court has

clearly distinguished between a gross-receipts tax. and a net.

income tax. Secondly, the tax there was an unapportioned

tax which by its very nature makes interstate activjty bear

‘ more than its fair share. N.-W. States. Portland Cement :

-v, Minnesota (1959), 358 U. S. 450, 79 Sup. Ct..357,-3 L. Ed.

(2d) 421. However,-in the instant case, the tax is laid on.

an amount that is very carefully apportioned ‘so as to limit

‘

—_

*.

—

the tax.to the amount of net income that is reasonably

- attributable to business done in Wisconsin.

Hans Rees Sons v. N. C. (1931), 283 W. S: 123, 51 inn.

Ct. 385, 75 a. Ed, 879, is not similar to the instant case. -It

involved a single factor apportionment formula—a property

factor. The tax was unreasonable on its face if, as this court

has held; net income derives from both capital and labor.

Stratton’s Independent LTD v: Howbert (1913), 231\U. S.

399, 34 Sup. Ct. 136, 58 L. Ed. 285; ;Eisner v. MacComber

(1919), 252: U. S. 189, 40 Sup. Ct. 189, 64 L. Ed. 521. There -

- the State of North Carolina overtaxed. because it had most

of the property and under its formula nearly all of the in-

come, although there was substantial labor that was em-

ployed elsewhere. —

The case of N. W. States Portland Conant Co. v. eae

* sota (1959) ,.358 U- S. 450, 79 Sup. Ct. 357, 3 L. Ed. (2d) 421, .

“furnishes no. support, to the xppellant. It and the compan-

ion case, Williams v. Stockham Vales & Fittings, Inc. did

not involve how much either Minnesota or Georgia could <

- tax, but only whether they ‘could tax at all.

Here, concededly, the State of Wisconsin has power to.

tax some part of the appellant’s net i from its entire

business a fsy is exclusively over how much

ef that income is “to ‘be apportioned : to Wisconsin. The

apportionment formula used here is reasonable and fair.

\ e

-As the assessments here involved itnpose the Wiscon-

sin income tax upon only that portion of the net business

income of appellant which is reasonably attributable to the ©

19 -

tindinees done in Wisconsin, Pa constitutional question is

presented as to the validity théreef under the 14th @mend-

_ ment. Therefore the judgment of: the Supreme Court .of

Wisconsin was correct and the motion to dismiss the appeal

should be granted.

Respectfully submitted,

GEORGE THOMPSON,

rane, | Attorney General of Wisconsin

‘ HAROLD: H. PERSONS,

Assistant Attorney General °.

E. ‘WESTON WOOD” }

Assistant Attorney General

Attorneys for Appellee.

P. O. Address:

(114 East, State Capitol, em

~ Madison 2, Wisconsin “| ooh en