Foodways Nat'l v. Crystal

Foodways Nat'l v. Crystal

Opinion

 [**1229]  [*326]   PETERS, C. J. In this tax appeal, the dispositive issue is whether, pursuant to General Statutes (Rev. to 1993) § 12-218 (b), ¹ [***3]  a multistate corporation's payments  [*327]  for warehouse space should be taken into account in determining the fraction of corporate net income apportioned to Connecticut. The plaintiff, Foodways National, Inc. (Foodways), appealed to the Superior [***2]  Court, pursuant to General Statutes (Rev. to 1989) § 12-237, ² from a  [**1230]  decision of the defendant, Allan A. Crystal, the commissioner of revenue services (commissioner), in which the commissioner had assessed an additional corporate business tax against Foodways for  [*328]  the tax years 1985 and 1986. The trial court rendered judgment for the commissioner. Foodways then filed an appeal with the Appellate Court, which we transferred to this court pursuant to Practice Book § 4023 and General Statutes § 51-199 (c). We reverse the judgment of the trial court.

 [***4]  The parties stipulated to the relevant facts. Foodways is a multistate corporation that is incorporated in Delaware and has its principal place of business in Idaho. It is engaged in the business of processing and distributing prepared frozen food products throughout the country. It entered into contracts for warehouse space with public refrigerated warehouses around the country in order to preserve its products while making them available for distribution. ³

The warehouse storage contracts did not afford Foodways control over any specific part of the warehouse premises but instead entitled it to a stated number [***5]  of cubic feet of storage space. In return for Foodways' promise to maintain a certain average monthly level of inventory of its products in storage at the warehouse, the warehouse agreed to reserve the necessary floor space. Foodways paid a stated "rate" per gross hundredweight of the products that it had stored in the warehouse. In addition, Foodways paid the warehouse separate fees for handling, including a commitment by the warehouse to load rail cars and trucks in accordance with schedules provided by Foodways.

During the tax years 1985 and 1986, Foodways conducted sufficient business in Connecticut to be subject to the Connecticut corporation business tax. In filing  [*329]  its tax returns, Foodways calculated the amount of its income to be allocated to Connecticut pursuant to § 12-218 (b) by including, as "gross rents," the amounts it had paid for warehouse fees but not the amounts it had paid for handling costs. The commissioner issued a corporate business tax assessment against Foodways, which, after Foodways' unsuccessful protest of the assessment, was found to be $ 124,199.26 plus interest of $ 106,793.08 for a total amount of $ 230,992.34. With regard to all Connecticut [***6]  taxpayers, the commissioner has consistently taken the position that "warehouse storage fees are not considered a rent expense under the definition of [§ 12-218]."

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