Miss. State Tax Comm'n v. Murphy Oil USA, Inc.
| Docket Number: | 2003-CA-00325-SCT Linked Case(s): 2003-CA-00325-SCT ; 2003-CA-00325-SCT ; 2003-CA-00325-SCT |
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| Supreme Court: | Opinion Link Opinion Date: 06-15-2006 Opinion Author: Smith, C.J. Holding: REVERSED AND RENDERED |
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| Additional Case Information: |
Topic: Tax assessment - Destination sales theory - Section 27-7-23(c)(3)(A)(I) - Franchise tax Judge(s) Concurring: Waller and Cobb, P.JJ., Easley, Carlson and Dickinson, JJ. Non Participating Judge(s): Diaz and Randolph, JJ. Dissenting Author : GRAVES, J. Procedural History: Bench Trial Nature of the Case: State Boards and Agencies |
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| Trial Court: |
Date of Trial Judgment: 01-21-2003 Appealed from: SIMPSON COUNTY CHANCERY COURT Judge: J. Larry Buffington Disposition: Chancellor ordered that the additional franchise tax assessment made by the commission shall not be allowed Case Number: 2001-0086 |
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| Note: | On Motion for Rehearing - Original opinion is withdrawn & this opinion is substituted therefor | |
| Party Name: | Attorney Name: | |||
| Appellant: | MISSISSIPPI STATE TAX COMMISSION |
GARY WOOD STRINGER,
SAMUEL T. POLK |
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| Appellee: | MURPHY OIL USA, INC. | CHARLES CLARK, JAMIE G. HOUSTON, III, W. TERRELL STUBBS |
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Synopsis provided by:  If you are interested in subscribing to the weekly synopses of all Mississippi Supreme Court and Court of Appeals hand downs please contact Tammy Upton in the MLI Press office. |
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| Topic: | Tax assessment - Destination sales theory - Section 27-7-23(c)(3)(A)(I) - Franchise tax |
| Summary of the Facts: | The motion for rehearing is denied, and this opinion is substituted for the original opinion. In 1999, the Mississippi State Tax Commission examined the Mississippi Combined Income and Franchise tax returns of Murphy Oil U.S.A., Inc. for the tax years of 1995, 1996, and 1997. As a result, the Commission assessed additional franchise taxes and interest against Murphy in the amount of $87,952. After two internal agency appeals, Murphy sought judicial review. The chancellor ordered that the additional franchise tax assessment made by the Commission not be allowed. The Commission appeals. |
| Summary of Opinion Analysis: | Murphy argues that the chancellor’s ruling should be affirmed because section 27-7-23(c)(3)(A)(I) provides for the application of the Destination Sales Theory to determine those “sales” assignable to Mississippi for purposes of any formula in which a sales factor is included regardless of ownership, title, control or risk of loss. In Mississippi State Tax Comm’n v. Chevron U.S.A., Inc., 650 So. 2d 1353 (Miss. 1995), the destination theory was specifically rejected by the Court as a way to account for Mississippi receipts for franchise tax purposes. Notwithstanding the over-broad nature of Chevron, because a franchise tax is based on what is being done in Mississippi, the destination theory will never be used as the sole method of determining franchise taxes, but a product’s destination may be used as a factor for franchise tax assessment. The destination of a product is only one facet of measuring what is being done in the state (the true measure of determining franchise taxes). In this case, Murphy shipped their unsold product to the storage tanks at Collins, Mississippi, where the product was held for a number of days and eventually sold from Murphy’s office in Arkansas to a buyer in an entirely different state. Moreover, Murphy did not consider these transactions as sales in any state, despite recording them as Mississippi sales in its accounting records. Thus, Murphy has effectively created “nowhere sales.” A “nowhere sale” is obviously what the language of section 27-2-23(c)(3)(A)(ii) was designed to preclude. Pursuant to section 27-2-23(c)(3)(A)(ii), in the case at bar, the product was shipped from a “place of storage in this state” (the breakout tankage), and Murphy was not taxable in the state of the purchaser. Therefore, in accordance with the statute, the product should be thrown back to Mississippi and treated as sales in this state for the purpose of calculating an applicable formula for calculating franchise taxes. Further when the pertinent facts of this case are considered in the overall scheme of the activity being conducted in this state, franchise taxes should be assessed. Murphy argues that Mississippi’s claiming these sales on the basis that the sales are not being claimed by another state violates the commerce clause. Murphy argues that the tax does not have a substantial nexus with Mississippi. In addition to being merely stored in Mississippi for periods not exceeding five days, the product was metered when it was stored in Collins, Mississippi, which was the basis for Murphy to bill its purchasers for the sale. In addition to being metered and billed in Mississippi, the transfer of title, ownership and control of the product also occurred in Collins, Mississippi. Once metered and billed in Mississippi, the purchasers took absolute control of the product, and Murphy had no knowledge of the whereabouts of the product or its ultimate destination. Therefore, Murphy did not merely store the fuel in Mississippi, and there is a substantial nexus to warrant franchise taxation. The party opposing the tax must show by clear and cogent evidence that the tax is out of proportion to the activity which takes place in Mississippi. It is proper to include these sales in the franchise tax apportionment formula because the franchise tax statute does allow Mississippi to tax these activities. If the tax causes so called ‘double taxation’ so that an interstate taxpayer is subjected to two taxes on the same income that an intrastate taxpayer would pay one tax on, then the tax is said to be discriminatory. Murphy is not subject to double taxation as a result of the franchise tax in this case, nor does the franchise tax imposed discriminate against interstate commerce in favor of intrastate commerce. Therefore, the franchise tax is not discriminatory. All of the activities mentioned above occurred in Mississippi and relate to the particular sales in question. Moreover, Murphy receives police and fire protection, use of transit in Mississippi and other advantages of civilized society. Consequently, there is a fair relationship between the services provided by Mississippi in allowing the sales to occur and the value of those sales. The franchise tax imposed by the Commission does not violate the commerce or due process clauses of the United States Constitution. |
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