S. SUGAR CORPORATION, )
vs. ) CASE NO. 77-2304
Respondents. )
Pursuant to notice, the Division of Administrative Hearings, by its duly designated Hearing Officer, K. N. Ayers, held a public hearing in the above- styled case on November 21, 1978, in Tallahassee, Florida. This case was consolidated for hearing with case No. 78-1891R, in which Petitioner, pursuant to Section 120.56, Florida Statutes, challenged Respondent's interpretation of Section 214.71(3)(a), Florida Statutes, as a rule. The decision in that case was handed down 20 December, 1978.
For the Petitioner: K. Lawrence Gragg, Esquire
For the Respondent: Cecil L. Davis, Jr., Esquire
By this Petition U.S. Sugar Corporation, Petitioner, seeks a refund of corporate income taxes from Respondent, Department of Banking and Finance, which it paid for the taxable years ended October 31, 1972 through 1974, and protests the Department of Revenue's, Respondent, assessment of certain corporate income taxes for subsequent years. As grounds therefor, it challenges the determination of Respondent regarding the sale of cattle to out-of-state buyers who had the cattle picked up by commercial contract carriers at Clewiston, Florida, and transported forthwith to their out-of-state destination.
Petitioner contends that these sales should be treated as out-of-state sales in computing the apportionment factor to arrive at the percentage of Petitioner's income for Federal tax that is taxable by Florida. Part IV of Chapter 214 sets forth the methods of determining the extent of taxpayers base attributable to Florida. Section 214.71, as modified by Section 220.15, sets forth the general method of apportionment except as otherwise provided in
Sections 214.72 and 214.73, and includes a three-factor formula. It is only the sales factor portion of this formula that is here involved.
The facts are not disputed. By a Joint Pre-hearing Stipulation attached to the record as Addendum "A", the parties stipulated to the dates on which cattle was purchased, the name of the purchaser, the amount of the purchase, the state to which the cattle was transported, and that the transportation was provided by commercial contract carriers who contracted with the purchasers of the cattle for the transportation from Clewiston to destination. Thereafter, one witness was called by Petitioner, one witness was called by the Respondent and three exhibits were admitted into evidence.
Petitioner is engaged in the cattle business and sells its cattle to buyers from Florida and from outside Florida. All cattle are sold f.o.b. Clewiston and transportation to destination is paid for by the purchaser. It is the treatment of the sales as instate sales of cattle sold and transported to other states by contract carrier that is the issue in these proceedings.
Respondent contends that these sales are instate sales but Petitioner contends that these sales are out-of-state sales for the purpose of computing the income derived from Florida operations pursuant to the provisions of Sections 214.71, 214.72 aud 214.73, Florida Statutes.
Had the cattle been picked up by a common carrier for shipment outside Florida, Respondent could have held the sale to be an out-of-state sale for the purpose of computing the Petitioner's income tax. Because the cattle were picked up by contract carrier, Respondent determined the sale to be instate and directed its auditors to so conclude on all audits. This directive was determined to be a rule in case No. 78-1891R and invalid because not promulgated pursuant to the requirements of Chapter 210, Florida Statutes.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the parties and the subject matter of these proceedings.
The statutory provisions relating to instate sales for income tax purposes are contained in Section 214.71(3)(a), Florida Statutes, which provides:
Sales of tangible personal property are in this state if the property is delivered or shipped to a purchaser within this state, regardless of the f.o.b. point or other conditions of the sale.
The statute contains only two tests for apportioning the sales as instate or otherwise, viz., whether the property was delivered to a purchaser within this State or shipped to a purchaser within this State.
Both parties acknowledged that the legislature adopted a destination test in determining whether the sales are instate sales. Both parties also appeared to take the position that the legislature contemplated out-of-state sales to occur if the property is shipped or delivered to a purchaser outside
Florida. The basic, if not only, difference between their position is that Respondent considers "ship" to mean only shipment by common carrier.
Here the cattle were sold to the purchaser at Clewiston, Florida, and at this point the seller has done everything necessary to put the cattle completely and unconditionally at the buyer's disposal. When the carrier, who is the agent for the buyer, picks up the cattle they are "delivered" to the buyer. This is true whether the carrier for this out-of-state shipment is a contract carrier or a common carrier. The fact that the carrier is an independent contractor for liability purposes does not preclude him from also being the shipper's agent.
The contract to purchase provides for a price f.o.b. Clewiston. This merely establishes a price which seller is apparently offering to any buyer with the buyer thereafter paying the shipping costs which would vary depending on the distance involved in the shipment. The buyer in such a situation can select the carrier, request the seller to select a specified carrier, or request the seller to select a carrier at seller's discretion. In any case the buyer has control over the shipment and may, if he can contact the carrier once shipment has commenced, divert the shipment to a different destination than originally intended.
Section 214.71(3)(a) defines an instate shipment as one where the personal property is delivered to the buyer in this state. Under the stipulated facts in this case the cattle were delivered to the buyer at Clewiston, Florida and qualify as an instate sale.
However, Petitioner contends that the legislature, in adopting the three-factor apportionment formula, intended to benefit the domestic corporations with substantial assets and payroll in this state, vis-a-vis their foreign competitioner by making the sales factor twice that of the other factors used in apportionment. To support this position Petitioner cites an article by the special tax counsel for the legislature which enacted the corporate income tax act. Therein it is stated:
For general corporate businesses the "standard" three-factor formula, which assigns net income among jurisdictions in terms of proportions of sales, payroll, and property, was adopted. The legislature, however, took cognizance of Florida's role as a consumer state. After adopting a pure
"destination" test for determining the source of sales, the legislature weighted the
three-factor formula by assigning fifty percent of the apportionment factor to sales and twenty-five percent each to payroll and property. The effect of this variation on the conventional multistate tax practice of assigning each fraction an equal one-third weight is twofold. First, foreign (non- Florida) corporations that sell to Florida's consumer population without locating signi- ficant facilities or personnel in Florida will be taxed at a slightly higher level than in other states. Secondly, local corporate businesses that have a substantial physical
presence in Florida and have a national market will be subject to a smaller home state tax burden than their counterparts in other jurisdictions. AN INTRODUCTION TO FLORIDA CORPORATION INCOME TAXATION, A.
England, Background Scope and Analysis
14-15 (Special Publication of the Florida State L. Rev. 1972).
This explanation supports Petitioner's position that the intent of the legislature was to define out-of-state sales as:
Sales of tangible personal property are out of this state if the property is delivered or shipped to a purchaser outside this state, regardless of the f.o.b. point or other conditions of the sale.
Respondent, by taking the position that when cattle are delivered to a common carrier for shipment out of Florida an out-of-state shipment occurs, appears to concur with this interpretation. Accordingly, the sales here involved are out-of-state sales if shipped to an out-of-state destination regardless of the f.o.b. point or other conditions of the sale.
If the tables were turned with the buyer from Florida and the cattle shipped by contract carrier to the buyer in Florida would this be treated as an instate sale by Respondent? It is suggested that Respondent would consider this to be a shipment to a buyer in Florida.
Here the statute makes no distinction as to mode of shipment. In this respect it is noted that in providing for sales taxes on transactions within this state the legislature was careful to avoid any constitutional infirmities that could result if taxes were imposed upon interstate commerce. Accordingly Section 212.06(5)(a), Florida Statutes, provides in pertinent part:
It is not the intent of this chapter to levy a tax upon tangible personal property imported, produced or manufactured in this state for export, provided the tangible personal property shall not be considered as being imported, produced or manufactured for export unless the importer, producer or manufacturer delivers the same to a licensed exporter for exporting, or to a common carrier for shipment outside the state or mails the same by United States mail to a destination outside the state....
The above provision is quoted to show that the legislature was aware that various means of shipment are available and if it intended to limit "shipment" as used in Section 214.71(3)(a) to include only shipment by common carrier, as contended by Respondent, it could certainly have used those words of limitation.
It thus appears that the sales here involved would be out-of-state sales whether the cattle were shipped by common carrier or by contract carrier. This is particularly true when it is doubtful that there are any common carriers
of cattle in Florida other than the railroads and none of the sales here contested involved shipment by rail.
Respondent's position that these sales are instate sales because the cattle were shipped out of state by contract carrier in lieu of common carrier is not well taken. In defining common carrier Respondent's witness stated the common law definition of common carrier was used rather than the definition of the regulatory agencies such as the Interstate Commerce Commission (ICC) and the Public Service Commission (PSC).
The common law carrier was defined in Ruke Transport Line, Inc. v. Green, 156 So.2d 176, 178 (Fla. 1st DCA 1963) as follows:
A common carrier has been generally defined as "one who holds himself out to the public as engaged in business of transporting persons or property from place to place, for compensation, offering his services to the public generally***
The distinctive characteristics of a common carrier is that he undertakes to carry for all people indifferently, and hence he is regarded, in some respects, as a public servant. The dominant and controlling factor in determining the status of one as a common carrier is his public profession or holding out, by words or by a course of conduct, as to the services offered or performed
To constitute a public conveyance a common carrier, it is not necessary that it come within the definition of a public utility so as to be subject to the rules and regulations of a public utility commission." (citation omitted)
The transportation of livestock is exempt from regulation by the PSC and ICC regarding routes, tariffs, and schedules. However, the applicant to be a contract carrier, after showing good cause, is issued a permit authorizing interstate carriage; this permit is subject to revocation or suspension by the regulatory agencies; and the carrier is required to file schedules and rules affecting rates. 49 USC Section 309 et seq.
In many respects contract carriers of exempt commodities are very similar to the common law common carriers as modified by today's business practices regarding the carrier's liability as a bailee of the chattels carried. Although no evidence was presented regarding their methods of operation, it would not be surprising if most of these carriers of livestock from Clewiston to destinations outside Florida held themselves out as ready and willing to transport livestock for anyone wanting to engage their services at a price computed on a mileage basis which is the same for all shippers.
To hold that delivery of these cattle to the buyer at Clewiston thereby created an instate sale completely ignores the limitation in Section 214.71(3)(a) contained in the words "regardless of the f.o.b. point or other conditions of the sale." Rules of statutory construction requires these words
also be given effect in determining the intent of the statute. They clearly say that in determining whether the sale is an instate sale the f.o.b. point is to be disregarded as well as other provisions of the contract. Thus if the contract provides that the buyer assumes all liability for transportation of the cattle to destination this factor too is to be disregarded.
If Respondent's position in this case is accepted that the situs of the sale is determined when the goods are delivered to the buyer, then all sales
f.o.b. Florida would be instate sales whether transported immediately out of state by common carrier or contract carrier. Yet Respondent has clearly taken the position that if the cattle had been delivered to a common carrier for shipment outside Florida the sale would have been treated as an out-of-state sale.
Respondent cites Department of Treasury of the State of Indiana v. Wood Preserving Corporations, 313 U.S. 62 (1941) to support its position that delivery occurred at Clewiston before the cattle were shipped interstate. In Wood Preserving the court was presented with the taxability of gross income derived from sales of railroad ties which foreign taxpayer purchased in Indiana and sold to the railroad at a profit concurrently with its purchase. The railroad then transported the ties to taxpayer's out-of-state plant where the ties were creosoted and shipped to railroad's storage site. The court held the foreign taxpayer was liable for the Indiana gross income tax levied because the entire transaction which formed the basis for the income occurred in Indiana when taxpayer, through its agent, took possession of ties which it immediately sold to the railroad.
If the legislature intended to treat as instate sales those transactions where the buyer took possession of the cattle in Florida pursuant to the contract, Wood Preserving supports the authority of the legislature to do so. However that is not the question at issue. Here we are concerned with the intent of the legislature; not the power of the legislature.
From the foregoing it is concluded that the legislature intended to treat sales for income tax apportionment purposes as instate sales if the property is shipped to a buyer in this state regardless of the method of shipment. It is further concluded that the legislature intended that sales made by a domestic corporation to an out-of-state buyer to be an out-of-state sale whether shipped to the buyer by common carrier or contract carrier. Since all of the sales here involved were shipped out of state by contract carriers they were all out-of-state sales for the purpose of determining the sales factor apportionment. It is therefore,
