{ "id": 1575612, "name": "F. W. WOOLWORTH CO., a New York Corporation, Appellant, v. BUREAU OF REVENUE, STATE OF NEW MEXICO, Appellee", "name_abbreviation": "F. W. Woolworth Co. v. Bureau of Revenue", "decision_date": "1979-12-04", "docket_number": "No. 3954", "first_page": "542", "last_page": "545", "citations": [ { "type": "official", "cite": "95 N.M. 542" }, { "type": "parallel", "cite": "624 P.2d 51" } ], "court": { "name_abbreviation": "N.M. Ct. App.", "id": 9025, "name": "Court of Appeals of New Mexico" }, "jurisdiction": { "id": 52, "name_long": "New Mexico", "name": "N.M." }, "cites_to": [ { "cite": "88 N.M. 521", "category": "reporters:state", "reporter": "N.M.", "case_ids": [ 2837656 ], "weight": 2, "pin_cites": [ { "page": "524" } ], "opinion_index": 0, "case_paths": [ "/nm/88/0521-01" ] }, { "cite": "527 P.2d 729", "category": "reporters:state_regional", "reporter": "P.2d", "case_ids": [ 2124713 ], "weight": 2, "pin_cites": [ { "page": "731" } ], "opinion_index": 0, "case_paths": [ "/or/270/0329-01" ] }, { "cite": "270 Or. 392", "category": "reporters:state", "reporter": "Or.", "opinion_index": 0 }, { "cite": "133 Vt. 93", "category": "reporters:state", "reporter": "Vt.", "case_ids": [ 4680155 ], "weight": 2, "pin_cites": [ { "page": "407" } ], "opinion_index": 0, "case_paths": [ "/vt/133/0093-01" ] }, { "cite": "284 U.S. 206", "category": "reporters:federal", "reporter": "U.S.", "case_ids": [ 5718937 ], "weight": 3, "year": 1931, "pin_cites": [ { "page": "215" }, { "page": "121" } ], "opinion_index": 0, "case_paths": [ "/us/284/0206-01" ] }, { "cite": "603 P.2d 328", "category": "reporters:state_regional", "reporter": "P.2d", "case_ids": [ 1568712 ], "opinion_index": 0, "case_paths": [ "/nm/93/0589-01" ] }, { "cite": "593 P.2d 1078", "category": "reporters:state_regional", "reporter": "P.2d", "year": 1979, "opinion_index": 0 }, { "cite": "92 N.M. 675", "category": "reporters:state", "reporter": "N.M.", "year": 1979, "opinion_index": 0 }, { "cite": "93 N.M. 22", "category": "reporters:state", "reporter": "N.M.", "case_ids": [ 1568752 ], "weight": 3, "pin_cites": [ { "page": "1218" } ], "opinion_index": 0, "case_paths": [ "/nm/93/0022-01" ] }, { "cite": "546 P.2d 70", "category": "reporters:state_regional", "reporter": "P.2d", "year": 1975, "opinion_index": 0 }, { "cite": "89 N.M. 5", "category": "reporters:state", "reporter": "N.M.", "year": 1975, "opinion_index": 0 }, { "cite": "88 N.M. 411", "category": "reporters:state", "reporter": "N.M.", "case_ids": [ 2840991 ], "weight": 7, "pin_cites": [ { "page": "418" }, { "parenthetical": "Wood, C. J." }, { "parenthetical": "Sutin, J." }, { "parenthetical": "Wood, C. J." } ], "opinion_index": 0, "case_paths": [ "/nm/88/0411-01" ] } ], "analysis": { "cardinality": 569, "char_count": 11355, "ocr_confidence": 0.819, "pagerank": { "raw": 7.396700621148574e-08, "percentile": 0.44259993536302694 }, "sha256": "7e6109e0f8b307481ecee90d94f828bca6af378e30d4dde86fa9bd3bf9c9bb11", "simhash": "1:8b084418b5e4ec62", "word_count": 1815 }, "last_updated": "2023-07-14T19:05:15.389388+00:00", "provenance": { "date_added": "2019-08-29", "source": "Harvard", "batch": "2018" }, "casebody": { "judges": [ "WOOD, C. J., and HERNANDEZ, J., concur." ], "parties": [ "F. W. WOOLWORTH CO., a New York Corporation, Appellant, v. BUREAU OF REVENUE, STATE OF NEW MEXICO, Appellee." ], "opinions": [ { "text": "OPINION\nWALTERS, Judge.\nThe Taxation and Revenue Department assessed additional corporate income taxes for taxpayer\u2019s fiscal 1976-77 year, and the taxpayer appeals. Woolworth contends that the Department\u2019s inclusion in Woolworth\u2019s base income of dividends paid to the parent company by foreign subsidiaries and foreign dividend \u201cgross-up\u201d amounts was unauthorized under New Mexico tax statutes. Those amounts, it says, do not constitute taxable business income under \u00a7 7-4-2 A, N.M.S.A. 1978, and are not apportionable under the Uniform Division of Income for Tax Purposes Act, \u201cUDITPA\u201d (\u00a7 7-4-1 through 7-4-21, N.M.S.A. 1978).\nThe resolution of the appeal lies in determining whether either item, gross-up or foreign dividends, is business income. Only if both categories fit the description of \u201cbusiness income\u201d may they be assessed for state tax purposes.\nThe statutory definition of business income was discussed in Champion Int\u2019l Corp. v. Bureau of Revenue, 88 N.M. 411, 540 P.2d 1300 (Ct.App.), cert. den., 89 N.M. 5, 546 P.2d 70 (1975), and recently in Tipperary Corp. v. New Mexico Bureau of Revenue, 93 N.M. 22, 595 P.2d 1212 (Ct.App.), cert. den., 92 N.M. 675, 593 P.2d 1078 (1979). Section 7-4-2 A requires a supportable finding, to classify income as \u201cbusiness income,\u201d that the income arose (1) from transactions and activity in the regular course of the taxpayer\u2019s trade or business, or (2) from situations where the acquisition, management and disposition of the property constitute integral parts of the taxpayer\u2019s regular trade or business operations.\nIn a special concurrence in Champion, supra, Chief Judge Wood said:\nPertinent in determining whether income arises from transactions in the regular course of business is \u201cthe nature of the particular transaction\u201d and \u201cformer practices\u201d of the business entity. [Citation omitted.] Also pertinent is how the income is used. [Citation omitted.]\nTaxpayer is a corporation having its principal place of business in New York. It receives dividend income from four foreign subsidiaries. \u201cGross-up\u201d is the term applied to foreign taxes paid by the foreign subsidiaries which under Internal Revenue Code \u00a7 78 taxpayer is \u201cdeemed\u201d to receive, and is reportable as dividend income if the taxpayer elects to claim a foreign tax credit on its federal return as permitted by Internal Revenue Code \u00a7 902.\n1. Inclusion of gross-up as New Mexico business income.\nThe State urges that taxpayer must include gross-up in its apportionable New Mexico base income because the state income tax forms prescribed by the Director of the Department of Revenue and Taxation instruct the taxpayer to report \u201cFederal Taxable Income as shown on Federal Form 1120, Line 30 * * *\u201d and because \u00a7 7-2-2(S) defines base income as \u201cfederal taxable income and upon which the federal income tax is calculated.\u201d\nLine 30 of the federal tax return is not exclusively determinative of what is federal taxable income. Getty Oil Company v. Taxation and Revenue Dept., 603 P.2d 328 (Ct.App.), 1979. The gross-up figure included as dividend income in the federal return is reported only because the foreign taxes paid from those \u201cdeemed\u201d dividends are later allowed to be deducted as a credit in computing taxes payable to the federal government. If the foreign tax credit were not claimed, the gross-up would not be \u201cdeemed\u201d income and would not be reportable.\nThe definition of \u00a7 7-2-2(S) contended for by the Department ignores the portion of subsection (S) referring to the amount \u201cupon which the tax is calculated.\u201d The calculation of federal tax does not rest solely on the amount shown at Line 30 of Form 1120; it is calculated upon that figure less certain credits shown at lines 10(a), (b) and (c), and plus other amounts shown at lines 13, 14, 15, and 16, all in Schedule \u201cJ\u201d of the federal return. The foreign tax credit, which is not reflected in Line 30 is one of the amounts affecting calculation of the federal income tax.\nThe rigid insistence of the Department which requires the taxpayer to use only the Line 30 figure in reporting New Mexico income is a refusal to recognize an obviously fictitious income figure, made artificial by the federal reporting requirements for a specific purpose, and denies the taxpayer the right to show the true federal taxable income \u201cno matter where * * * [it] might be found in its consolidated federal return.\u201d Getty, supra. \u201cThat which is not in fact the taxpayer\u2019s income cannot be made such by calling it income.\u201d Hoeper v. Tax Commission of Wisconsin, 284 U.S. 206, 215, 52 S.Ct. 120, 121, 76 L.Ed. 248 (1931).\n\u201cGross-up\u201d in fact represents income to taxpayer\u2019s foreign subsidiaries which is paid out in taxes to foreign governments. The record does not support the decision of the Director of the Revenue Division that the foreign subsidiaries use \u201ca part of the taxpayer\u2019s dividends to pay taxes on behalf of the parent.\u201d The taxes paid are from income of the subsidiaries on behalf of the subsidiaries. \u201cGross-up\u201d is not in fact dividend income to the taxpayer; ergo, it cannot be classified as \u201cbusiness\u201d income, and it need not be included in taxpayer\u2019s New Mexico tax return. Sections 7-4-2 A, D, N.M.S.A. 1978. See. F. W. Woolworth Co. v. Comm\u2019r of Taxes, 133 Vt. 93, 328 A.2d 402, 407 (Larrow, J. dissenting).\n2. Inclusion of dividends from foreign subsidiaries.\nThe department also determined that $39,881,161 received by taxpayer in actual cash dividends from its foreign subsidiaries and excluded by the taxpayer from apportionable income subject to New Mexico tax, were derived from \u201can integral part of the corporation\u2019s operations.\u201d As such, they were assessed as business income, and a portion of the total amount was allocated as New Mexico\u2019s apportionable share for taxpayer\u2019s New Mexico operations.\nWoolworth contends that its domestic operations constitute a unitary business of which the foreign subsidiaries are no part, and to which the foreign activities contribute nothing in the production of domestic income. Paragraphs 6 through 15 of the Department\u2019s Decision and Order support taxpayer\u2019s argument that unity of business operation among the domestic parent and the foreign subsidiaries is missing. The Department agrees that taxpayer operates a unitary business in the United States, phrasing the argument on the question of foreign dividends as taxable business income in this fashion:\nThe issue is whether the dividend income of a concededly unitary domestic corporation from substantial investment in its foreign subsidiaries is business income to be apportioned along with all other business income of the unitary business.\nThe Department relies in part on Paragraph 16 of the Director\u2019s decision which recites that the dividends are \u201cplaced in the general funds of the taxpayer and used for general corporate operating expenses.\u201d This reliance goes, of course, to the pertinency of use in determining whether such income was business income. See Champion, 88 N.M. at 418, 540 P.2d 1300; Tipperary, supra, 595 P.2d at 1218. The evidence does support a finding that the dividends were deposited to taxpayer\u2019s general treasury; there is no evidence that the money was used for \u201cgeneral corporate operating expenses.\u201d As appellant taxpayer points out, the total cash dividends under discussion amounted to $39,881,161. During the same tax year, Woolworth paid out $39,-986,308 in dividends to its United States shareholders. It is more reasonable to regard the dividend income as merely passing through the general treasury to stockholders than to declare, without any evidence in support, that it is used for operating expenses of the corporation.\nTurning to the \u201cregular course of business\u201d analysis set out by Judge Wood in the Champion special concurrence, we note that the taxpayer\u2019s initial and only investment in the English subsidiary was $64,000 in 1911. When the German facilities were demolished during World War II, taxpayer contributed $400,000 to its rebuilding. The Mexican and Canadian corporations are wholly owned subsidiaries. None of them are presently in debt to the parent company, and all of the subsidiaries have grown on their own reinvestments. The dividend income from the foreign corporations is declared by the taxpayer as income to the parent allocable only to the state of domicile, New York, since the taxpayer contends that it is non-business income. Sections 7 \u2014 4-2 A, D, N.M.S.A. 1978.\nThe facts here are close to those of Sperry & Hutchinson Co. v. Department of Revenue, 270 Or. 392, 527 P.2d 729 (Or.1974). Like Woolworth, Sperry & Hutchinson (S & H) did business in forty-eight states and was domiciled in New York. Its primary and only business in Oregon was sale of a trading stamp promotional service to retailers. From its revenues, S & H invested in short-term securities held to satisfy its needs for liquid capital in the stamp business; short-term securities held pending acquisition of other companies or favorable development in the long-term money market, and long-term securities held as an investment. The Oregon Supreme Court ruled, under a statute virtually identical to \u00a7 7 \u2014 4r-2 A, N.M.S.A. 1978, that only the short-term investments which provided capital needed to meet business obligations during periods of cash flow deficits constituted \u201cbusiness income \u2018arising from transactions and activity in the regular course of the taxpayer\u2019s trade or business\u2019 * * (527 P.2d at 731.)\nThe other investments, it said, were \u201cnot apportionable to Oregon because neither the capital invested nor the income derived therefrom are a part of the * * * business conducted in this state,\u201d and there was no showing that the interest on those investments was held for use in its Oregon business. That is also the state of the record presently before this court. There is no indication that the income from Woolworth\u2019s long-standing investments was used either in taxpayer\u2019s unitary domestic business, or in its business conducted in New Mexico, Champion, supra (Wood, C. J.); Sperry & Hutchinson v. Bureau of Revenue, supra. Nor was there evidence (1) that the investments were \u201c[bjusiness deals [or] the performance of a specific function in the normal, typical, customary or accustomed policy or procedure of the taxpayer\u2019s trade or business,\u201d Champion, supra (Sutin, J.); (2) that the interest arose \u201cfrom transactions in the regular course of [taxpayer\u2019s] business,\u201d Champion, supra (Wood, C. J.); (3) that there was any \u201crelationship of the income source to the [regular] business activities of the taxpayer,\u201d Tipperary, supra (Lopez, J.); or (4) that investing in foreign corporations was \u201can integral part of the regular trade or business operations of taxpayer,\u201d McVean & Barlow, Inc. v. New Mexico Bureau of Revenue, 88 N.M. 521, 524, 543 P.2d 489 (App.1975).\nAccordingly, we reverse the decision and order of the Department insofar as it includes those gross-up and dividend income amounts in taxpayer\u2019s 1976-77 taxable income.\nIT IS SO ORDERED.\nWOOD, C. J., and HERNANDEZ, J., concur.", "type": "majority", "author": "WALTERS, Judge." } ], "attorneys": [ "John P. Dwyer, Albuquerque, for appellant.", "Jeff Bingaman, Atty. Gen., Sarah Bennett, Sp. Asst. Atty. Gen., Santa Fe, for appellee." ], "corrections": "", "head_matter": "624 P.2d 51\nF. W. WOOLWORTH CO., a New York Corporation, Appellant, v. BUREAU OF REVENUE, STATE OF NEW MEXICO, Appellee.\nNo. 3954.\nCourt of Appeals of New Mexico.\nDec. 4, 1979.\nJohn P. Dwyer, Albuquerque, for appellant.\nJeff Bingaman, Atty. Gen., Sarah Bennett, Sp. Asst. Atty. Gen., Santa Fe, for appellee." }, "file_name": "0542-01", "first_page_order": 574, "last_page_order": 577 }