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Keywords

plaintiffliabilitycorporationdue process

plaintiffcorporationdue processlevy

Related Cases

Scott & Williams, Inc. v. Board of Taxation, 117 N.H. 189, 372 A.2d 1305

Facts

The plaintiff, a Delaware corporation manufacturing knitting machines, has its principal office and manufacturing plant in Laconia, New Hampshire, and sales offices in New York City and North Carolina. During the tax years in question, the plaintiff made sales both domestically and internationally, including to foreign countries through a subsidiary in Belgium. The parties agreed on the facts, and the primary legal question was the constitutionality of the sales 'throwback rule' under New Hampshire law.

Plaintiff manufactures and sells knitting machines. It is a Delaware corporation qualified to do business in New Hampshire. Its principal business office and sole manufacturing plant are located in Laconia, New Hampshire. Plaintiff also has a sales office in New York City and a sales office and warehouse in High Point, North Carolina. Plaintiff is also qualified to do business in, and makes regular sales of its machinery and parts in Georgia, Massachusetts, New York, and North Carolina. During the tax years in question plaintiff also made sales to other states. During this period plaintiff also made sales to foreign countries, either directly or through a wholly owned subsidiary corporation located in Belgium.

Issue

Is the sales 'throwback rule' under RSA 77-A:3 III (Supp.1975) unconstitutional as it results in taxation of extraterritorial values and violates due process and equal protection clauses?

The primary issue raised in this case is the constitutionality of the sales ‘throwback rule’ contained in RSA 77-A:3 III (Supp.1975) which sets forth the income apportionment formula for business organizations doing business in this state and in one or more other states.

Rule

The 'throwback rule' allows for the allocation of sales delivered outside New Hampshire to be taxed in New Hampshire if those sales are not taxable in the state of the purchaser. The court applied constitutional standards for taxation and income apportionment.

Under the apportionment formula three factors are used to measure the proportion of business activity within New Hampshire. The first two factors, the New Hampshire percentage of the total payroll and property of the business, are not disputed. Under the third factor, sales, those sales which are delivered outside of New Hampshire, but which are not ‘taxable’ in the state of the purchaser, are allocated to New Hampshire.

Analysis

The court determined that the 'throwback rule' does not constitute taxation of extraterritorial values, as it allocates sales to the state that provided the benefits and protections necessary for the business to operate. The court emphasized that the rule is designed to ensure that states receive tax revenues in proportion to the business activities conducted within their borders, and it does not violate constitutional protections.

Allocation of such sales to New Hampshire, the state of shipment, under the ‘throwback rule’ therefore does not constitute taxation of extraterritorial values. Rather, it is an allocation of those sales to the state most entitled to levy a tax in return for the opportunities, protections and benefits which it has afforded the taxpayer.

Conclusion

The Supreme Court upheld the constitutionality of the 'throwback rule' and remanded the case for further determination of the taxpayer's tax liability in relation to its sales activities.

We hold that RSA 77-A:3 III (Supp.1975) does not deprive plaintiff of its property without due process, is not an undue burden on interstate commerce, does not violate the equal protection clause, and its ‘throwback rule’ is not unconstitutionally vague.

Who won?

The Board of Taxation prevailed as the court upheld the constitutionality of the 'throwback rule' and rejected the taxpayer's claims against it.

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