Section 9 Summary: Circumstances Requiring or Permitting Apportionment
Library | Tax Law 2009 |
The single-factor apportionment cases suggest some guidelines as to business contacts and activities that permit apportionment of income, if they occur outside Missouri or, conversely, require apportionment of income to Missouri, if they occur within Missouri.
(1) (§8.10) Solicitation of Orders and Negotiation of Terms
The solicitation of orders and negotiation of terms outside Missouri, whether performed on behalf of the taxpayer by employee salespeople or independent contractors, constitute the employment of labor by the taxpayer outside Missouri permitting election of single-factor apportionment and inclusion of only 50% of receipts from resulting sales in the numerator of the apportionment fraction. See:
- Artophone Corp. v. Coale, 133 S.W.2d 343 (Mo. 1939) (traveling salesmen directed and controlled from taxpayer’s only office in Missouri)
- Goldberg v. State Tax Comm’n, 639 S.W.2d 796 (Mo. banc 1982) (same; solicitation of orders and negotiation of terms are “integral components of the . . . transaction,” even if they are “protected” activities under Public Law No. 86-272)
- Int’l Travel Advisors, Inc. v. State Tax Comm’n, 567 S.W.2d 650 (Mo. banc 1978) (taxpayer’s employees traveled throughout the country persuading organizations to “sponsor” group charter tours of foreign countries packaged and conducted by taxpayer)
- Dick Proctor Imports, Inc. v. Dir. of Revenue, 746 S.W.2d 571 (Mo. banc 1988) (manufacturers’ representatives solicited orders and negotiated cooperative advertising arrangements)
- Milliken Publ’g Co. v. Dir. of Revenue State of Mo., No. RI-85-0807, 1987 WL 51152 (Mo. Admin. Hearing Comm’n, July 2, 1987) (employee salesmen and independent sales representatives solicited orders and negotiated price, credit, and shipment terms)
In some cases, if the sales force is dispatched from an out-of-state office and directed and controlled from that office, the resulting sales may be treated as transactions wholly outside Missouri, and receipts from these sales may be excluded from the numerator of the apportionment fraction. F. Burkhart Mfg. Co. v. Coale, 139 S.W.2d 502 (Mo. 1940); State ex rel. River Corp. v. State Tax Comm’n, 492 S.W.2d 821 (Mo. 1973), overruled by Int’l Travel Advisors, 567 S.W.2d 650 (but result endorsed). But see §8.11 below for a discussion of the role of “headquarters” activities.
A transaction that involves no expenditure of labor outside Missouri nonetheless may be properly characterized as only partly within Missouri if it “rest[s] on a foundation of labor performed outside Missouri.” Dick Proctor Imports, 746 S.W.2d at 574. Thus, sales concluded with out-of-state customers at the taxpayer’s main office in St. Louis during new product previews were partly outside Missouri because the sales “would not have come to fruition had not the sales representatives been in regular contact with the customers at their places of business.” Id. A similar result was reached with respect to orders phoned in to the main office by out-of-state customers. Id. The converse, however, also is true. Thus, sales to Missouri customers concluded at out-of-state trade shows were wholly within Missouri when the trade show was incidental and the sale occurred mainly because of contacts between the customer and the taxpayer’s representative at the customer’s place of business in Missouri. Id. at 575.
Neither direct mail advertising nor advertising in print or electronic media, without more, is considered the employment of labor or capital. Bass Pro Shops, Inc. v. Dir. of Revenue, 746 S.W.2d 97 (Mo. banc 1988); Milliken Publ’g, No. RI-85-0807, 1987 WL 51152. The AHC has also found that a taxpayer’s use of an out-of-state management company did not constitute the employment of labor or capital outside Missouri when all the taxpayer’s property and employees were located in Missouri and the taxpayer did not transact any business in another state. Moberly Reg’l Ctr. v. Dir. of Revenue, No. 07-0283 RI (Mo. Admin. Hearing Comm’n, Oct. 6, 2008). See also Jay Wolfe Imports Mo., Inc. v. Dir. of Revenue, No. 07-0032 RI, 2008 WL 4301929 (Mo. Admin Hearing Comm’n, Aug. 7, 2008) (car dealer...
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