Case Summary for September 18, 2002

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Case Summary for September 18, 2002

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DOCKET SUMMARIES
SUPREME COURT OF MISSOURI

Wednesday, September 18, 2002

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SC84226
Gore Enterprise Holdings, Inc. v. Director of Revenue
Cole County
Taxation of royalty income from patents

W.L. Gore & Associates, Inc. (Gore), produces expanded polytetrafluoroethylene (ePTFE), a unique polymer used for purposes such as synthetic arteries, breathable fabrics and glove liners, industrial applications, and electronic applications such as coaxial computer cables. Gore Enterprise Holdings, Inc. (Holdings), is a wholly owned subsidiary of Gore domiciled in Newark, Delaware, that shares its officers with Gore. For the tax years in question, April 1, 1993, through March 31, 1996, Holdings owned more than 300 patents, including a license to make, use and sell ePTFE. Pursuant to the licensing agreement, Gore must pay Holdings a royalty equal to 7.5 percent of the sales price of all products it manufactured with Holdings' product and process patents. None of Gore's manufacturing facilities is in Missouri. Holdings has no property, agents, offices, employees or any other business contacts with Missouri.

In October 1996, the director of revenue changed her assessment policy, publishing her intent to tax the royalty income of out-of-state patent licensors based on the use of patents to a related licensee to manufacture products outside of Missouri that are sold to Missouri customers. Even after the policy change, the director still does not tax similar income when the licensee is unrelated to the licensor. Following an audit, the director of revenue assessed Missouri income against Holdings for the tax years in question, using a modified version of the multistate three-factor apportionment formula under section 32.200, RSMo, and issued notices of deficiency. The assessment was based solely on the fact that Holdings' licensee, Gore, sold some of the products it manufactured outside Missouri to purchasers in Missouri. In January 2002, the administrative hearing commission upheld the director's assessment, finding that Holdings had a sufficient nexus under both the commerce clause and the due process clause to permit Missouri taxation. The commission also concluded its decision would apply retrospectively because the director's assessment of tax deficiencies against Holdings was not contrary to her pre-October 1996 policy.

Holdings appeals, arguing the commission erred in upholding the director's notices of deficiency against it because the commission's decision is not authorized by law and is not supported by competent and substantial evidence. Holdings contends it does not have Missouri source income under section 143.431 because its royalty income was not derived from the use of its, or anyone else's, efforts in Missouri. It claims Missouri cannot tax Holdings because it does not have a sufficient nexus with Missouri, consistent with the commerce clause, because it has no physical presence in the state. It also argues taxing it would violate the due process clause, the equal protection clause and the uniformity clause. Holdings argues such a tax imposition is not made on a similar licensor on royalty income received from unrelated licensees. It claims sales of another taxpayer may not be treated as Holdings' sales under section 32.200 and article IV, section 17. It argues neither the director nor the commission can exclude the property factor in apportioning the income of taxpayers with no or small amounts of property ownership. Holdings also contends the director cannot impose tax liability on it retroactively because to do so constitutes a change from the director's previous policy or interpretation.

The director responds that royalty income from the sale in Missouri of goods made using a company's patent is subject to Missouri income tax under section 143.071 because, consistent with A.P. Green Fire Brick Co. v. Missouri State Tax Comm'n, 277 S.W.2d 544 (Mo. 1955), the income is derived from Missouri. She argues the commerce clause, due process clause, equal protection clause and uniformity clause do not prevent Missouri from taxing Holdings' royalty income. She contends the commission chose a statutorily permissible apportionment method that fairly represents the source of Holdings' income. The director further responds that imposing existing taxes on a newly invented type of corporation does not constitute a change in policy or interpretation under section 143.903.

The council on state taxation filed a brief as amicus curiae, arguing imposition of Missouri income tax on Holdings is not permitted under the due process clause because it did not direct its activities purposefully at Missouri residents. The council contends the commerce clause does not permit taxation on Holdings because it does not have any physical presence in the state sufficient to form a nexus with Missouri and because the tax is not related to any service provided by the state to Holdings. The council further argues the commission's decision creates overbroad jurisdiction to tax and unnecessarily upset long-established expectations of taxability.

SC84225
Acme Royalty Company and Brick Investment Company v. Director of Revenue
Cole County
Taxation on royalty income on trademarks and trade names

This case is similar to SC84226, except where that case involves a foreign corporation's royalty income from patents, this case involves a foreign corporation's royalty income from trademarks and trade names.

During the tax periods of 1992 through 1996, Acme Brick Company, a Justin Boot Company subsidiary incorporated in Delaware, manufactured, distributed and sold clay face bricks and other products in Arkansas, Louisiana, Missouri, Oklahoma, Tennessee and Texas. In 1991, Justin formed Acme Royalty Company, incorporated in Delaware, and transferred to Acme Royalty all its trademarks and trade names, of which only the Acme trademark is registered in Missouri. In 1992, Acme Royalty agreed to license the trademarks to Acme Brick in exchange for a royalty payment to be determined by Ernst & Young. In December 1993, Acme Royalty contributed its trademarks to a limited partnership whose general partner was Brick Investment Company. Since 1994, Brick Investment has been responsible for the limited partnership's daily operations, while the partnership has held the trademarks and collected royalties. Acme Royalty, the limited partnership and Brick Investment never registered to do business in Missouri, owned property in Missouri, had employees or agents in Missouri, or had any other contacts with the state.

In October 1996, the director of revenue changed her assessment policy, publishing her intent to tax the royalty income of out-of-state trademark licensors based on the licensee's business in Missouri that contributed to the licensee's obligation to pay royalties to the licensor to which it is related. Even after the policy change, the director still does not tax similar income when the licensee is unrelated to the licensor. Following an audit, the director of revenue assessed Missouri income tax against Acme Royalty and Brick Investment, using a modified formula of the multistate three-factor apportionment formula under section 32.200, RSMo. She also issued notices of deficiency. The tax years applicable to Acme Royalty were 1992 through 1996 and to Brick Investment were 1994 through 1996. The assessment was based on the director's determination that all royalty payments made by Acme Brick based on its sales in Missouri constituted income to Acme Royalty and Brick Investment. In January 2002, the administrative hearing commission upheld the director's assessment, finding that such an assessment was constitutional. The commission also concluded that the director's assessment of tax deficiencies against Acme Royalty and Brick Investment was not contrary to her pre-October 1996 policy. Acme Royalty and Brick Investment appeal.

The parties make the same basic arguments here as were made in SC84226 (see above), except Acme Royalty and Brick Investment do not make the due process argument that Gore Enterprise Holdings did.

SC84315
State of Missouri v. Patrice Seibert
Pulaski County
Appeal of murder conviction and life sentence

Patrice Seibert lived in a trailer home in Rolla with her five sons and Donald Rector, a friend of her 17-year-old son Darian. Another of her sons, 12-year-old Jonathon, had cerebral palsy, had a seizure disorder, was blind, and could not walk, talk or feed himself. In February 1997, Seibert found Jonathon had died in his sleep. When Darian returned home, he told his mother she should call the police, and he returned to the trailer of some friends with whom he had spent the previous night. When Darian returned to his home with his friends, Seibert told him she had not called the police because she was afraid they would think she had neglected Jonathon. The next evening, Darian and one of his friends came over, hit Rector and poured gasoline throughout the trailer. Ultimately, the trailer caught fire, and Darian suffered serious burns on his face as he fled the trailer. Rector's body was found in one bedroom, with a penetrating wound on the back of his skull. He died from asphyxiation secondary to burning. Jonathon's body was found in a bed at the opposite end of the trailer. Seibert was arrested a few days later and, during interrogation but before she was given her Miranda rights, told police she knew the trailer was to be burned and that Rector was to die in his sleep. She later confirmed these confessions after waiving her Miranda rights. The state charged her with first-degree murder for Rector's death, and it sought the death penalty. At trial, Seibert moved to suppress the statements, but the court admitted the post-Miranda confession into evidence. The jury found Seibert guilty of the lesser-included offense of second-degree murder, and she was sentenced to life imprisonment.

Seibert appeals, arguing the court clearly erred in overruling her motion to suppress, and in admitting at trial, her statements to the police. She contends the police elicited these statements using an unconstitutional "two-stage" interrogation technique whereby the police first withheld the Miranda warnings, believing she would confess, and immediately after she confessed, advised her of her rights and had her confirm her incriminating statements on tape. She claims this purposeful end-run of Miranda is unconstitutional and that admitting the statements was not harmless. Seibert also argues the court should not have instructed the jury on second-degree murder, even though her attorney did not object to it, because the evidence did not support such an instruction.

The state responds that the court properly admitted Seibert's post-Miranda statement. It argues Seibert voluntarily gave her pre-Miranda statement and that she knowingly waived her Miranda rights and voluntarily gave her recorded confession. The state further responds that there was sufficient evidence that Seibert was an accomplice to second-degree murder to support instructing the jury on second-degree murder.

SC84643
State of Missouri ex rel. Christopher Barton v. The Honorable Carol Kennedy Bader, Judge, Twenty-Second Judicial Circuit
St. Louis city
Change of judge request in termination of parental rights case

Christopher Barton is the father of three minor children. In early February 2002, the division of family services (DFS) took the children into temporary protective custody and the juvenile officer filed a petition for corrective treatment. The next month, the juvenile officer filed a petition to terminate the parental rights of both Barton and the children's mother. In April, the court's juvenile division granted Barton's request for a trial on the corrective treatment petition. Two months later, the juvenile division granted Barton's request for a trial on the termination of parental rights petition, but it denied his application for a change of judge as being untimely because it had prior and continuing jurisdiction over the juveniles. At an August 2002 hearing on the first petition, the juvenile division gave legal custody of Barton's to DFS, which placed them in foster care Barton now seeks a writ of prohibition from this Court.

Barton argues the judge of the juvenile division should be prohibited from taking any further action in his children's cases except to vacate her order denying his request for a change of judge and to grant the change of judge. He contends Rule 126.01 requires that the change of judge request be granted because he filed his application within five days after the juvenile division set a trial date for the petition to terminate his parental rights. He claims the petitions to terminate parental rights are separate actions from the protective and temporary custody hearings on the petition for corrective treatment.

The juvenile officer responds that the juvenile division properly denied Barton's application for a change of judge because this action was not in excess of or an abuse of its discretion. He argues that the juvenile division here had prior and continuing jurisdiction over the children under section 211.031.1(1), and that the petition for termination of parental rights that was filed should not be construed as an independent civil action from the continuing case. The juvenile officer contends, therefore, that there is no right under Rule 126.01 for a peremptory change of judge.