The issue in this tax appeal is whetherthe trial court correctly determined that the impositionof Connecticut sales and use taxes on the plaintiff,SFA Folio Collections, Inc. (Folio), a mail ordercompany, was a violation of the due process and commerceclauses of the United States constitution becauseFolio lacks a sufficient nexus to the state. Thedefendant, the commissioner of revenue services(commissioner), assessed Folio with sales and use taxespursuant to General Statutes 12-406 et seq., assertingthat a sufficient nexus between the state and Folioexisted, primarily because Folio was part of an"enterprise" of other affiliated corporations, one ofwhich, Saks Fifth Avenue Stamford, Inc. (Saks-Stamford),clearly had a taxable nexus to the state. We affirm thejudgment of the trial court.
[217 Conn. 222]
In February, 1987, the commissioner informed Foliothat it was required to begin collection and remittanceof sales and use taxes because it satisfied the definitionof "[e]ngaged in business in the state" pursuantto General Statutes 12-407 (15).1 Folio hadneither applied for a permit to collect such taxes inConnecticut, nor had it ever collected such taxes on itscatalog sales to Connecticut residents. In justifyingthe imposition of the tax liability, the commissionerstated that "[t]he unitary nexus established from[Folio's] shared corporate name, logo, etc., with SaksFifth Avenue Stamford, Inc., is the basis of ourposition." The commissioner thereafter requested thatFolio register with the department of revenue servicesand begin to collect the appropriate taxes on itscatalog sales to Connecticut customers. Foliocontested, as an unconstitutional application ofConnecticut law, the imposition of a duty upon it toregister pursuant to General Statutes 12-411 (8).
The commissioner notified Folio that its registrationapplication had been processed and its tax registrationnumber assigned, although Folio had not applied forsuch a number. The commissioner then informed Folio
[217 Conn. 223]
that it would be issued an assessment of its taxliability. Thereafter, the commissioner imposed onFolio an assessment of $234,450.28, which comprised$163,052.71 in sales and use taxes, $55,072.25 ininterest, and $16,305.32 in penalty costs. Thecommissioner later issued Folio an additional assessmentof $20 for a sales and use tax license and permit.
Folio filed a petition for reassessment withthe commissioner pursuant to General Statutes 12-421,asserting that it was not "engaged in business" inConnecticut pursuant to 12-407 (15), and, therefore, couldnot constitutionally be required to collect or to payConnecticut sales and use taxes on its mail order salesto Connecticut residents. The commissioner deniedFolio's appeal, and confirmed the assessment. Folioappealed the decision to the Superior Court pursuant toGeneral Statutes 12-422. The trial court reversed thedecision of the commissioner, concluding that Folio didnot have a sufficient nexus to Connecticut to sustainthe imposition of a sales and use tax. The commissionerappealed to the Appellate Court, and we transferred thecase to ourselves pursuant to Practice Book 4023.
The facts stipulated by the parties may be summarizedas follows. Folio, a wholly owned subsidiary of Saks &Company, conducts a nationwide mail order business.Both Folio and Saks & Company are New Yorkcorporations. Folio's principal place of business isin Yonkers, New York, and Saks & Company's corporateheadquarters are in New York City. The two corporationsshare a number of common directors and officers,although each corporation maintains separate managementfor day-to-day operations. Additionally, Folio, withthe consent of Saks & Company, maintains as part ofits corporate name the "SFA" registered trademark of"Saks Fifth Avenue." This trademark, which oftenappears in Folio's catalogs, characterizes
[217 Conn. 224]
the high quality of merchandise and service traditionallyassociated with Saks & Company. To the extent thata customer associates "SFA" with Saks Fifth Avenue,Folio is benefited.
Saks & Company, in addition to owning Folio, ownsSaks-Stamford, a separate corporation that operates aretail store in Stamford, Connecticut. Folio and allSaks Fifth Avenue retail stores, including Saks-Stamford,share sales and financial data and profit andloss statements. The management groups for Folio andSaks-Stamford, however, are separate and operateautonomously. Although the corporations are independent,Folio does, through its printers,2 send extracopies of its mail order catalog by common carrier tothe Saks-Stamford general manager in order to informstore employees of fashion trends, to be used asreference guides, and to serve as merchandiseeducational tools. Folio customers may also useSaks-Stamford's tailoring services for a standard fee,but these services are also available to the public atlarge regardless of where an item was purchased. Foliosells some of the same items that are available atSaks-Stamford, but many of these items are alsoavailable at other retail stores throughout the country.
In conducting its business, Folio distributes mailorder catalogs3 and flyers to Connecticut residentsand receives orders either by mail or by telephone. Customerspay for their orders by credit card or check,4
[217 Conn. 225]
and Folio fills them in Yonkers, New York. Customersmay use their Saks & Company charge card when makingpurchases from Folio, as well as when buying items atSaks-Stamford. Folio often includes advertising forFolio in the form of "bill inserts" in the charge cardbill received by the customer from Saks & Company.Folio does, however, pay for the customer's returnenvelope accompanying the billing statement. Foliodelivers purchases to Connecticut buyers either throughthe mails or by common carrier, with the customerspaying for the shipping, handling, and transportationof their orders. Folio refers its customers to its Yonkersoffice for customer assistance, merchandise returnor exchange, and other services.
Folio does not operate retail stores, and does notmaintain under its corporate name any store, office,distribution house, sales house, sample room, warehouse,or other place of business in Connecticut. Foliodoes not have any solicitors, canvassers, salespersons, authorized agents, or representatives inConnecticut. Folio is not licensed to do business inConnecticut, and has no inventory or merchandise in thestate. Folio does not maintain a phone number inConnecticut; all customer contact is through the use ofa toll free "800" number. Folio has no bank accounts inConnecticut, does not retain security interests in anygoods sold to Connecticut residents, and does notinvestigate credit or collect accounts in Connecticut.
The commissioner first claims that the trial courtincorrectly determined that there was such an absenceof the requisite nexus between Folio and Connecticutthat the imposition of the sales and use taxes violatedthe due process and commerce clauses of the federalconstitution. While the commissioner asserts that Folio,independently, has a sufficient nexus to Connecticut, hisprimary claim in this regard is that, under an enterprise
[217 Conn. 226]
theory, the presence in Connecticut of anaffiliated corporation, namely, Saks-Stamford, suppliesFolio with a sufficient nexus to sustain the impositionof sales and use taxes. Secondly, the commissionerclaims that, in light of the developments in "thejudicial analysis of due process and the mail-orderindustry," the due process standard applicable topersonal jurisdiction claims should be employed so thatan "economic presence" in Connecticut satisfies thenexus requirement for state taxation. We disagree.
This appeal is governed by the United States SupremeCourt decision in National Bellas Hess, Inc. v.Department of Revenue, 386 U.S. 753, 87 S.Ct. 1389, 18L.Ed.2d 505 (1967), and our recent decision in CallyCurtis Co. v. Groppo, 214 Conn. 292, 572 A.2d 302,cert. denied, 498 U.S. 824, 111 S.Ct. 77, 112 L.Ed.2d50 (1990). In National Bellas Hess, Inc., the UnitedStates Supreme Court determined that constitutionalconstraints limit the authority of a state to imposesales and use tax liability upon an out-of-stateseller. National Bellas Hess, Inc. v. Departmentof Revenue, supra, 756; Cally Curtis Co. v. Groppo,supra, 297. "Such a collection burden when placed uponan out-of-state seller triggers due process concerns aswell as imposes a restraint upon interstate commerce."Cally Curtis Co. v. Groppo, supra; see also NationalBellas Hess, Inc. v. Department of Revenue, supra; L.L.Bean, Inc. v. Department of Revenue, 516 A.2d 820, 824(Pa. Commw. 1986). In Cally Curtis Co., we reaffirmedthe applicability of National Bellas Hess, Inc., to aclaim of taxability like that asserted in this case,and held that where the only nexus between Connecticutand the corporation was the in-state presence for threedays of video tapes leased by the out-of-statecorporation to its in-state customers, an insufficientnexus existed to warrant the imposition of the Connecticutuse tax. Catty Curtis Co. v. Groppo, supra, 301.
[217 Conn. 227]
In determining whether a state tax conforms withconstitutional due process requirements, the UnitedStates Supreme Court has held that the "`simple butcontrolling question is whether the state has givenanything for which it can ask return.'" National BellasHess, Inc. v. Department of Revenue, supra, quotingWisconsin v. J. C. Penney Co., 311 U.S. 435, 444, 61S.Ct. 246, 85 L.Ed. 267 (1940). Because Congress hasthe exclusive authority to regulate interstate commerce,"`[s]tate taxation falling on interstate commerce . . .can only be justified as designed to makesuch commerce bear a fair share of the cost of thelocal government whose protection it enjoys.'"National Bellas Hess, Inc. v. Department of Revenue,supra, 756, quoting Freeman v. Hewit, 329 U.S. 249,253, 67 S.Ct. 274, 91 L.Ed. 265 (1946); see alsoCally Curtis Co. v. Groppo, supra, 298. Therefore,the relevant legal inquiry in reviewing theconstitutionality of imposing the duty of collection ofsuch a tax upon an out-of-state seller is whether thereexists "`some definite link, some minimum connection,between a state and the person, property or transactionit seeks to tax.'" National Bellas Hess, Inc. v.Department of Revenue, supra, quoting Miller Bros. Co. v.Maryland, 347 U.S. 340, 344-45, 74 S.Ct. 535, 98 L.Ed.744 (1954); see also Cally Curtis Co. v. Groppo, supra."The existence of such a link or nexus will turn uponthe individual facts of each case." Cally Curtis Co. v.Groppo, supra.
At the outset, the commissioner claims that Folio'scontacts with Connecticut are greater than those of thetaxpayers in National Bellas Hess, Inc., and CallyCurtis Co. These alleged contacts consist of the largenumber of catalogs Folio mails to Connecticut residents,5
[217 Conn. 228]
the operation of a toll-free "800" number for customeruse, the placement of advertisements in magazines thatultimately reach Connecticut residents, and the extracopies of its catalogs that Folio sends to Saks-Stamford'sgeneral manager for business use. The trial court,in examining this claim of nexus, however, found"the facts of National Bellas Hess, Inc., and CallyCurtis Co. indistinguishable from the facts of this case."
In reviewing the trial court's determination, in thiscontext, "the effect of admitted facts is a question oflaw." Nelson v. Montgomery Ward & Co., 312 U.S. 373,376, 61 S.Ct. 593, 85 L.Ed 897 (1941). Therefore, therelevant inquiry is whether any of the assertedcontacts establish some definite link or some minimumconnection between Folio and Connecticut. NationalBellas Hess, Inc. v. Department of Revenue, supra.
The commissioner's claim of nexus based upon thecatalogs ignores the fact that the catalogs, oncedelivered to Connecticut residents, are the property ofthe residents, not Folio.6 Such activity, therefore,does not establish a taxable link between Folio and thestate. The use of a toll-free "800" number forConnecticut residents to place orders likewise does notdemonstrate a sufficient link to Connecticut. L.L.Bean, Inc. v. Department of Revenue, supra, 825.Additionally, the advertisements for Folio that appearin magazines are not created or placed in magazines inConnecticut. The fact that the magazines eventually aresold in Connecticut does not establish a nexus betweenFolio and the state. Finally, the catalogs sent by Folio'sprinters to Saks-Stamford do not establish a link to Connecticutbecause these catalogs are used for employee training
[217 Conn. 229]
and reference purposes, not for the purpose of havingthe Saks-Stamford employees solicit Folio sales fromConnecticut residents. Compare Scripto, Inc. v. Carson,362 U.S. 207, 80 S.Ct. 619, 4 L.Ed.2d 660 (1960).
On the facts of this case, we can discern no greaternexus between Connecticut and Folio than existedbetween Connecticut and the out-of-state corporationin Cally Curtis Co. We conclude, therefore, that Folio,viewed independently, does not have a nexus toConnecticut sufficient to support the imposition ofsales and use taxes.
We turn, therefore, to the commissioner's primaryclaim, namely, that because Folio is part of a largerenterprise of affiliated corporations, Folio should bedeemed to share the nexus that Saks-Stamford has withConnecticut. We are not persuaded.
The parties do not contest that Saks-Stamfordis a Connecticut corporation responsible for payingConnecticut sales and use taxes because it has localretail stores in the state. Nelson v. Sears, Roebuck &Co., 312 U.S. 359, 61 S.Ct. 586, 85 L.Ed. 888 (1941).The parties disagree, however, about the implicationsto be drawn from the connections between theseaffiliated but independent corporations when the issueis the sufficiency of Folio's nexus to Connecticut forsales and use tax purposes.
Significantly, the commissioner does not assert thatwe should find a nexus pursuant to a "piercing the corporateveil"7 or "alter ego"8 theory. The commissioner
[217 Conn. 230]
does not dispute the trial court's factual finding thatFolio and Saks-Stamford are "distinct corporateentities." Rather, the commissioner claims that becausethese separate entities are linked by their commoncorporate parent, Saks & Company, their separate corporateexistence should be disregarded and they should betreated as one enterprise for the purposes ofestablishing a nexus for taxation.9 Should sucha determination be made, Folio would be subject tosales and use tax liability, despite the lack of anindependent nexus with Connecticut, because it would be"plainly accorded the protection and services of thetaxing State"; National Bellas Hess, Inc. v. Departmentof Revenue, supra, 757; as a result of the presence ofthe Saks-Stamford retail store in Connecticut. Nelsonv. Montgomery Ward & Co., supra; Nelson v. Sears,Roebuck & Co., supra.
It is undisputed that in Connecticut a court willdisregard the corporate structure and pierce thecorporate veil "`only under exceptional circumstances,for example, where the corporation is a mere shell,serving no legitimate purpose, and used primarily as anintermediary to perpetuate fraud or promote injustice.'"Angelo Tomasso, Inc. v. Armor Construction & Paving, Inc.,
[217 Conn. 231]
187 Conn. 544, 557, 447 A.2d 406 (1982). Nevertheless,the commissioner seeks to have this court abandon ourtraditional notions of corporate law and ignore Folio'sseparate corporate existence under an enterprise theory.In support of this legal proposition, the commissionerrelies on three authorities: (1) the "unitarybusiness" principle articulated in Container Corporationof America v. Franchise Tax Board, 463 U.S. 159,103 S.Ct. 2933, 77 L.Ed.2d 545, reh. denied, 464 U.S. 909,104 S.Ct. 265, 78 L.Ed.2d 248 (1983); (2) DeanPhillip I. Blumberg's four volume treatise, The Law ofCorporate Groups; and (3) the Connecticut SuperiorCourt case of Hartford Steam Services Co. v. Sullivan,26 Conn. Sup. 277, 220 A.2d 772 (1966).
First, the commissioner cites Container Corporationof America v. Franchise Tax Board, supra, as support forthe proposition that "[w]here a group of corporationsare formed and operated as a unitary enterprise, thereis no constitutional barrier to the group being viewedas a unitary enterprise and taxed as such." Thecommissioner fails to recognize, however, that the"unitary business principle" is a statutorily createdsystem of calculating corporate income tax "by firstdefining the scope of the `unitary business' of whichthe taxed enterprise's activities in the taxingjurisdiction form one part, and then apportioning thetotal income of that unitary business between thetaxing jurisdiction and the rest of the world on thebasis of a formula taking into account objectivemeasures of the corporation's activities within andwithout the jurisdiction." Id., 165. Clearly, there isno statute within the Connecticut sales and use taxchapter; General Statutes 12-406 et seq.; that allowsthe commissioner to treat separate corporations as partof one enterprise for the purpose of imposing salesand use tax liability, and the commissioner doesnot make such a claim. Absent such statutory
[217 Conn. 232]
authority, the line of cases pursuant to the "unitarybusiness principle" are inapplicable.
Second, the commissioner cites as support for theenterprise theory Dean Phillip I. Blumberg's fourvolume treatise on The Law of Corporate Groups, supra.Without determining whether the commissioner's generalreference to the multivolume treatise constitutesadequate briefing of the issue, we find no legalsupport therein for the commissioner's conclusion that"[s]imply stated, the fact that the Saks-Stamford storeand Folio are wholly-owned affiliated corporationsrather than divisions of the same corporation iswithout constitutional significance and not controlling."
To the contrary, it is a fundamental principle ofcorporate law that "the parent corporation and itssubsidiary are treated as separate and distinct legalpersons even though the parent owns all the shares inthe subsidiary and the two enterprises have identicaldirectors and officers. Such control, after all, is nomore than a normal consequence of controlling shareownership." H. Henn & J. Alexander, Laws ofCorporations (3d Ed. 1983) 148, p. 355. Furthermore,the separate corporate entities or personalities ofaffiliated corporations will be recognized, absentillegitimate purposes, unless: "(a) the businesstransactions, property, employees, bank and otheraccounts and records are intermingled; (b) theformalities of separate corporate procedures for eachcorporation are not observed . . . (c) the corporationis inadequately financed as a separate unit from thepoint of view of meeting its normal obligations . . .(d) the respective enterprises are not held out to thepublic as separate enterprises; (e) the policies ofthe corporation are not directed to its own interestsprimarily but rather to those of the other
[217 Conn. 233]
corporation." H. Henn & J. Alexander, supra, 149, pp. 355-56;see also Hammond v. United States, 764 F.2d 88,100 (2d Cir. 1985).10
This is not a situation where the corporate assetshave been intermingled, where the formalities of separatecorporate procedure have been ignored, or where thecorporation is inadequately financed. Additionally, asdetermined by the trial court,11 the corporations are
[217 Conn. 234]
not held out to the public as one entity. Because weconclude that the finding of fact that Folio is a separatecorporate entity was not clearly erroneous; Frenchv. Clinton, 215 Conn. 197, 205, 575 A.2d 686 (1990); wewould not be justified in disregarding Folio's separateidentity for tax purposes. Angelo Tomasso, Inc. v.Armor Construction & Paving, Inc., supra, 557.
In further support of his contention that thiscourt should apply an economic enterprise theory, thecommissioner argues that if we recognize a constitutionaldistinction between affiliated corporations, such as inthis case, and divisions of the same company; Nelson v.Sears, Roebuck & Co., supra; the result would be that"any retailer with an out-of-state mail order componentcould avoid collecting sales and use tax simply byseparately incorporating the retail and mail orderbusinesses." While we agree with the commissioner'sassertion, we conclude that it does not support hisclaim for rejecting Folio's corporate entity andapplying the enterprise theory.
The commissioner's argument demonstrates amisunderstanding of a fundamental principle underlyingour system of taxation, namely, that "`taxpayersmay arrange their affairs to minimize their taxliabilities. Unlike tax evasion, tax avoidance throughcareful planning of both transactions and corporatestructure is a legitimate right of every taxpayer.'"Jurinski, "Agency Relationships in Determining Nexus:Groping for a Solution," 7 Journal of Taxation 321, 321(1989). Furthermore, the commissioner ignores the fact thata business that is incorporated separately from a parentor affiliated corporation incurs additional burdens bythe very fact of its separate corporate existence. Indeed
[217 Conn. 235]
as Folio argues, because of its separate corporateexistence it must register with the secretary of thestate, qualify to do business, hold a corporatecharter, issue stock, maintain corporate minute books,file corporate income tax returns, and remit payrolland unemployment taxes. Folio is also subject to suitfor contractual and other obligations that stem fromthe conduct of its business. Even as a part of adeliberate tax-avoidance strategy, the fact that Foliois incorporated as an entity separate from Saks-Stamfordand Saks & Company does not, standing alone, permit ataxing authority to disregard Folio's corporate identity.
The commissioner also relies upon the decision of theSuperior Court in Hartford Steam Services Co. v. Sullivan,supra, to support the application of the enterprisetheory to Folio for state tax purposes. Indescribing the economic enterprise theory, the court,Parskey, J., stated that "[t]his is not the negativeconcept variously described as `piercing the corporateveil' or `disregarding the corporate fiction,' aconcept based on equitable principles and designed tofrustrate fraud, misrepresentation or illegality. Itis, rather, a positive principle, the effect of whichis to remove judicial blinders so as to enable thecourt to see things as they really are." Id., 281.Thus, "where the economic enterprise is one, thecorporate forms being largely paper arrangements thatdo not reflect the business realities, the court shoulddeal with the realities." Id. That case is neithercontrolling on us nor persuasive because here, unlikethe facts of that case, the business reality is thatFolio is not a paper arrangement but a separate andindependently functioning corporation.
The commissioner's second claim is that, in light ofdevelopments in due process analysis and in the mail-orderindustry, the nexus requirement of the due process
[217 Conn. 236]
clause is satisfied where an out-of-state corporation,such as Folio, has an "economic presence" in thestate. This argument, at its roots, seeks to adopt theminimum contacts standard of personal jurisdictionanalysis for state taxation on an out-of-state mailorder company by dispelling the need for the company tohave some physical connection12 with the statebeyond the use of the United States mail or a commoncarrier. We decline to adopt such an analysis.
The commissioner bases his argument on developmentsin due process case law for personal jurisdiction
[217 Conn. 237]
purposes, claiming that because commercial activity ina state is often sufficient for a state to exertpersonal jurisdiction over an out-of-state company;Asahi Metal Industry Co. v. Superior Courtof California, 480 U.S. 102, 112, 107 S.Ct. 1026, 94L.Ed.2d 92 (1987); such contacts should be sufficientto support state taxation on an out-of-state mail ordercompany whose only contacts with the state are throughthe United States mail and common carriers.13 Thecommissioner ignores, however, the general principlethat "[i]t is the nature of the state's action thatdetermines the kind and degree of activity in the statenecessary for satisfying the requirements of due process."Travelers Health Assn. v. Virginia, 339 U.S. 643, 653, 70S.Ct. 927, 94 L.Ed. 1154 (1949) (Douglas, J., concurring); seealso Kulick v. Department of Revenue, 624 P.2d 93, 97 (Or.
[217 Conn. 238]
1981). The degree of due process required for exercisingpersonal jurisdiction is not necessarily the same as thatrequired to justify a state tax on an out-of-stateseller. Kulick v. Department of Revenue, supra.14
Indeed, in National Bellas Hess, Inc. v. Departmentof Revenue, supra, 758, the United States Supreme Courtexplicitly recognized that a "sharp distinction" exists"between mail order sellers with retail outlets, solicitors,or property within a State, and those who do no more thancommunicate with customers in the State by mail orcommon carrier as part of a general interstate business."The commissioner's claim ignores the interestsof the commerce clause, specifically discussed inNational Bellas Hess, Inc. v. Department of Revenue,supra, which provide that "`state taxation falling oninterstate commerce . . . can only be justified asdesigned to make such commerce bear a fair share of thecost of the local government whose protection itenjoys.'" Id., 756, quoting Freeman v. Hewit, 329 U.S. 249,253, 67 S.Ct. 274, 91 L.Ed. 265 (1946). Thecommissioner's bald assertion that "Folio has purposelyavailed itself of the privilege of conducting activitiesin Connecticut, thus invoking the benefits and protectionof its laws," fails to clarify how Folio is benefited
[217 Conn. 239]
by local government when its contacts to Connecticutare solely through the United States mail and commoncarriers. Compare D.H. Holmes Co. v. McNamara,486 U.S. 24, 108 S.Ct. 1619, 100 L.Ed.2d 21 (1988)(presence of retail stores in state); NationalGeographic Society v. California Board of Equalization,430 U.S. 359, 97 S.Ct. 1386, 51 L.Ed.2d 631 (1977)(presence of two offices that solicited advertisementsin state); Scripto, Inc. v. Carson, 362 U.S. 207, 80S.Ct. 619, 4 L.Ed.2d 660 (1959) (presence of solicitorsin state).
The commissioner's argument that we should adopt an"economic presence" analysis in essence parallels thereasoning of the dissent in National Bellas Hess, Inc.v. Department of Revenue, supra. Justice Fortas arguedthat the imposition of the sales and use tax on themail order company was proper, stating that "large-scale,systematic continuous solicitation and exploitationof the Illinois consumer market is a sufficient `nexus'to require Bellas Hess to collect from Illinoiscustomers . . . ." Id., 761. Furthermore, JusticeFortas would have found sufficient nexus to support theapplication of a tax where National Bellas Hess, Inc.,"regularly and continuously engaged in `exploitation ofthe consumer market' . . . by soliciting residents ofIllinois who live and work there and have homes andbanking connections there . . ." Id., 762. Thisview, however, has not been adopted by the UnitedStates Supreme Court, despite its recent review of theissue in D.H. Holmes Co. Ltd. v. McNamara, supra. Inthat case, the United States Supreme Court reaffirmedits adherence to National Bellas Hess, Inc., and tothe rule of constitutional law that a state may notcollect sales and use taxes from a mail order companywhere its only contacts are through the mail or commoncarriers. We therefore reject the commissioner's claimthat would have us dispense with the constitutionalsafeguards of
[217 Conn. 240]
the commerce clause and the due process clause. CallyCurtis Co. v. Groppo, supra.
The judgment is affirmed.
In this opinion the other justices concurred.
1. General Statutes 12-407 (15) provides: "`Engagedin business in the state' means selling in this state, orany activity in this state in connection with sellingin this state, tangible personal property for use,storage or consumption within the state or engaging inthe transfer for a consideration of the occupancy ofany room or rooms in a hotel or lodging house for aperiod of thirty consecutive calendar days or less, orrendering in this state any service described in any ofthe subdivisions of subsection (2) of this section. Theterm shall include but shall not be limited to thefollowing acts or methods of transacting business: (a)Maintaining, occupying or using, permanently ortemporarily, directly or indirectly, through asubsidiary or agent, by whatever name called, of anyoffice, place of distribution, sales or sample room orplace, warehouse or storage point or other place ofbusiness or (b) having any representative, agent,salesman, canvasser or solicitor operating in this statefor the purpose of selling, delivering or taking orders."
2. Folio's printers are located outside ofConnecticut.
3. Folio does not design, prepare, print, publish ormail its catalogs in or from Connecticut.
4. Folio does not fill any order that is paid bycheck until the check has been cleared by the bank,thereby eliminating the need to use the Connecticut courtsystem in order to collect bad debts. Additionally,Folio does not bear the risk of loss for any purchasesby credit card, as such risk falls upon the credit cardCompany, further eliminating any claim that Folioderives benefits from the Connecticut court system.
5. Folio mailed to Connecticut residents 649,000catalogs in 1986 and 733,000 catalogs in 1987.
6. The commissioner's argument that Folioderives benefit from Connecticut by virtue of the statedisposing of the catalogs as paper trash is likewisewithout merit. Because the catalogs are the property ofthe Connecticut residents, it is axiomatic that it isthe resident who is deriving the benefit from the stateand who must contribute to the cost of the disposal.
7. The disregard of a technically correct corporation"in terms of a metaphor, is often called `piercing thecorporate veil.'" H. Henn & J. Alexander, Laws ofCorporations (3d Ed. 1983) 146, p. 344. "The concept[of corporateness] will be sustained only so long as itis invoked and employed for legitimate purposes.Perversion of the concept to improper uses anddishonest ends (e.g., to perpetuate fraud, to evade thelaw, to escape obligations), on the other hand, willnot be countenanced." Id., 146, p. 346.
8. "A conventional statement of [the `alter ego'doctrine] declares that `piercing the veil' is properwhen (1) such unity of ownership and interestexists that the two affiliated Corporations have ceasedto be separate and the subsidiary has, been relegatedto the status of the `alter ego' of the parent; and (2)where recognition of them as separate entities wouldsanction fraud or lead to an inequitable result." P.Blumberg, The Law of Corporate Groups, StatutoryLaw - General (1987) 2.02.2, p. 37.
9. "Traditionally, the law has viewed eachCorporation as a separate legal entity, with separate rightsand obligations. For legal purposes, a bright line ofdistinction was drawn between the corporation and itsshareholders." P. Blumberg, The Law of CorporateGroups, Procedural Law (1983) 1.01.1, p. 1. The"[e]ntity theory" of corporate law is the premise "thata corporation is a fictitious, artificial, legal personor juristic entity . . . . [On the other hand,] [t]he`enterprise theory' stresses the underlying commercialenterprise, without emphasis on the entity-aggregatedistinction of the components." H. Henn & J. Alexander,Laws of Corporations (3d Ed. 1983) 78, pp. 145-46.
10. In Hammond v. United States, 764 F.2d 88,100 (2d Cir. 1988), the Court of Appeals for the SecondCircuit, in reviewing a decision of the United StatesDistrict Court for the District of Connecticut, notedthat "at times, both state law and the [InternalRevenue Code] abandon the notion of the separateidentity of corporations for narrow purposes and inlimited situations[;] see, e.g. United States v.Reading Co., 253 U.S. 26, 62-63, 40 S.Ct. 425, 434, 64L.Ed. 760 (1920) (where subsidiary is mere agent orinstrumentality of parent, separate corporate existenceof subsidiary may be ignored); Weisser v. Mursam ShoeCorp., 127 F.2d 344, 348 (2d Cir. 1942) (same); N.Y.Bus. Corp. Law 630 (McKinney 1963) (largestshareholders liable for wage debt of insolventcorporations); IRC 951(a), 26 U.S.C. § 951 (a) (1982)(income of controlled foreign corporation deemed to beincome of corporation's shareholder); IRC 481,26 U.S.C. § 481 (1982) (authorizing IRS to reallocate incomeamong commonly-held businesses so as to prevent taxevasion) . . . ." Similarly, the Court of Appeals for theTenth Circuit has recently held that "[w]e believe thatthe separate treatment for tax purposes of parent andwholly-owned subsidiary should not be extended when wecan see no business purpose beyond an opportunity tomanipulate for tax purposes." Marathon Oil Co. v.Commissioner of Internal Revenue, 838 F.2d 1114, 1120(10th Cir. 1987). While these decisions are not binding precedent onthis court, Hammond and Marathon Oil Co. lend furthersupport to our conclusion that it is not the place ofthis court to ignore the separate entity of acorporation absent a fraudulent, evasive, ormanipulative purpose in forming or maintaining thecorporation. The commissioner has made no claim thatFolio was incorporated or maintained for the purpose ofevading sales and use taxes, and no such claim would becredible based upon the evidence presented at trial.Compare Hartford Steam Services Co. v. Sullivan,26 Conn. Sup. 277, 220 A.2d 772 (1966) (subsidiary merepaper corporation).
11. The trial court concluded that "[a]lthough[Folio and Saks-Stamford] have some common directors andofficers, are affiliates of the same parent company,use the same trademarks and logos, sell similarmerchandise and share financial and market information,they are distinct corporate entities. Saks-Stamford isnot Folio's retail store, agent instrumentality,or alter ego. The finding of the Commissioner's unitchief that Folio is engaged in business in Connecticutbecause a `unitary nexus' was established by its `sharedcorporate name, logo, etc., with Saks Fifth AvenueStamford Inc.' has no basis in the evidence or the law."
12. A review of United States Supreme Court caselaw in the area of state imposition of sales and use taxesdemonstrates that some degree of physical presence, whetherby the presence of a retail store, offices, local agents,solicitors, or local advertising, is constitutionallyrequired to support such a burden: "`Case law hasestablished that a sufficient nexus is found to existwhere local agents of the seller are present in thetaxing state. Felt & Tarrant Manufacturing Co. v.Gallagher, 306 U.S. 62, 59 S.Ct. 376, 83 L.Ed. 488(1939); General Trading Co. v. State Tax Commission ofthe State of Iowa, 322 U.S. 335, 64 S.Ct. 1028, 88L.Ed. 1309 (1944). A similar result has been reachedwhere the seller has local retail stores which arepresent in the taxing state. Nelson v. Sears, Roebuck &Co., 312 U.S. 359, 61 S.Ct. 586, 85 L.Ed. 888(1941) . . . . And in National Geographic Society [v.California Equalization Board, 430 U.S. 551, 97 S.Ct.1386, 51 L.Ed.2d 631 (1977)], the presence in thetaxing state of two offices which solicitedadvertisements and received the benefit of municipalprotection (fire, police, etc.) was held a sufficientnexus.'" Cally Curtis Co. v. Groppo, 214 Conn. 292,298-99, 572 A.2d 302 (1990), quoting L.L. Bean, Inc. v.Department of Revenue, 516 A.2d 820, 824-25 (Pa. Commw. 1986). "In Miller Brothers Co. v. Maryland, [347 U.S. 340, 74S.Ct. 535, 98 L.Ed. 744 (1954)], however, the UnitedStates Supreme Court held that Maryland `could notconstitutionally impose upon a Delaware seller anobligation to collect use taxes where the Delaware firmhad no retail outlets or sales solicitors in Maryland,despite the presence of advertising in Maryland whichresulted in substantial sales and the delivery of goodsinto Maryland by the seller using its own trucks anddrivers.' L.L. Bean, Inc. v. Department of Revenue,supra, 825. Furthermore, in National Bellas Hess, Inc.v. Department of Revenue, [386 U.S. 753, 87 S.Ct. 1389,18 L.Ed.2d 505 (1967)], the United States Supreme Courtfound an insufficient nexus where the only contactsbetween the seller and the taxing state were throughthe United States mail or common carrier." Catty CurtisCo. v. Groppo, supra, 299.
13. The commissioner asserts that more recent caselaw has focused on the "totality [of circumstances] ofthe business activities in a particular state" indetermining whether a nexus exists to support statetaxation. The cases cited, however, do not support thecommissioner's argument that minimum contacts or economicpresence alone should be the applicable standard. In National Geographic Society v. California Boardof Equalization, 430 U.S. 551, 97 S.Ct. 1386, 51 L.Ed.2d631 (1977), the United States Supreme Court upheld theimposition of sales and use taxes where the corporationhad present in the taxing state two offices thatsolicited advertisements and received the benefit ofmunicipal protection. Likewise, in Reader's DigestAssn. v. Mahin, 44 Ill.2d 354, 255 N.E.2d 458 (1970),the Illinois Supreme Court upheld the imposition ofsales and use taxes because the corporation used localadvertising and resident solicitors. In Cooey-Bentz Co.v. Lindley, 66 Ohio St.2d 54, 419 N.E.2d 1087 (1981),the court cited advertising directed at Ohio residents,as well as deliveries, installations, and repairs madein Ohio by the defendant West Virginia retailer tojustify applying a use tax. Lastly, in Franklin MintCo. v. Tully, 94 App. Div.2d 877, 463 N.Y.S.2d 566(1983), aff'd, 61 N.Y.2d 980, 463 N.E.2d 621,475 N.Y.S.2d 280 (1984), the corporation engaged in localadvertising, as well as delivery, installation, andservice of goods located in New York. A review of these cases demonstrates that a degree ofphysical connection to the taxing state, beyond the useof the mails or common carrier, existed in each case.In this case, Folio did not engage in any local advertisingor local delivery, servicing or installation aspart of its own corporate activities.
14. In Kulick v. Department of Revenue, 624 P.2d 93,97 (Or. 1981), the Oregon Supreme Court analyzed theapplicability of the minimum contacts standard to acase involving a challenge to the imposition of a taxon nonresident shareholders of a Subchapter Scorporation. That court noted that "[w]hen [theassertion of person[al] jurisdiction is challenged, thedue process issue concerns not the nonresident'ssubstantive obligation, which theoretically should bethe same in whatever