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Southwestern Bell Tel. Co. v. Director of Revenue

Supreme Court of Missouri, En Banc

January 13, 2015

SOUTHWESTERN BELL TELEPHONE COMPANY AS SUCCESSOR IN INTEREST TO SOUTHWESTERN BELL TEXAS HOLDINGS, INC., Respondent,
v.
DIRECTOR OF REVENUE, Appellant

Argued and Submitted September 24, 2014

PETITION FOR REVIEW OF A DECISION OF THE ADMINISTRATIVE HEARING COMMISSION. The Honorable Karen A. Winn, Commissioner.

The director was represented by Solicitor General James R. Layton of the attorney general's office in Jefferson City.

The director, Southwestern Bell was represented by B. Derek Rose of Bryan Cave LLP in St. Louis.

The director, Edward F. Downey of Bryan Cave LLP in Jefferson City.

Paul C. Wilson, Judge.

OPINION

Paul C. Wilson, Judge.

The Director of Revenue (" Director" ) assessed franchise taxes under section 147.010[1] against Southwestern Bell Texas Holdings, Inc. (" Holdings" ),[2] a Delaware corporation, for the years 2003, 2004, and 2005. Holdings appealed this decision to the Administrative Hearing Commission (" AHC" ) pursuant to section 621.050, and the AHC determined that Holdings was not subject to Missouri franchise taxes for this period. The Director now petitions for judicial review of the AHC's decision under section 621.189. This Court has exclusive jurisdiction for this review. Mo. Const. art. V, § 3.

Page 872

The principal issue in this case is whether a foreign corporation that has been engaged in business in this state and paying Missouri franchise taxes for decades can escape all liability for such taxes -- even though it continues to be engaged in the same business in the same locations using the same assets -- merely by inserting a wholly owned limited partnership to own and operate those assets. The AHC, reluctantly, concluded that it can. This Court disagrees.

It is immaterial, for purposes of franchise tax liability under section 147.010.1, whether a foreign corporation engaged in business in Missouri does so directly or indirectly through a wholly owned limited partnership. In the former, the corporation employs tangible assets (i.e., the bricks and mortar of the business) to engage in business in this state. In the latter, it employs intangible assets (i.e., its ownership of a limited partnership) to engage in business in this state. In both, however, the corporation is engaged in business in this state, and that is the only prerequisite for franchise tax liability under section 147.010.1. Accordingly, the AHC's determination is vacated, and this matter is remanded for further proceedings.

Background

In 2001, Southwestern Bell Telephone Company (" SWBT" ) and related entities sought -- and received -- permission fro the Missouri Public Service Commission to undergo a corporate restructuring. First, SWBT created Southwestern Bell Texas Holdings, Inc., a new Delaware corporation. Holdings then created (and became the sole member and 100 percent owner of) Southwestern Bell Telephone Texas LLC (" LLC" ). Finally, SWBT converted[3] to a Texas limited partnership named Southwestern Bell Telephone LP (" LP" ). Holdings is the sole limited partner (and 99 percent owner) of LP, and LLC is the sole general partner (and 1 percent owner) of LP. Accordingly, Holdings is the sole owner of LP, owning 99 percent directly and the remaining 1 percent indirectly through LLC.

In 2007, the Director of Revenue conducted an audit and determined that Holdings was " engaged in business in Missouri in 2003, 2004 and 2005, through its interest in [LP]." Pursuant to section 147.010, therefore, Holdings was assessed franchise taxes for those years. Holdings appealed the Director's decision to the AHC under section 621.050. The facts were not in dispute and, on cross-motions for summary disposition (i.e., the administrative equivalent of ...


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