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headquarters”. Payless principally relies on three international
activities: The purchase of merchandise from foreign
manufacturers and vendors for domestic sale; the use of foreign
capital markets; and participation in an incorporated joint
venture in Mexico in 1993-95.
In the year in issue, Payless made foreign merchandise
purchases of $24,924,968 from 28 manufacturers and vendors
located in Taiwan. During that year, Payless had a total cost of
merchandise sold of $1,041,678,000. Payless’ cost of goods sold
from foreign vendors and manufacturers was less than 2.4 percent
of the total cost of goods sold in 1986. In 1985, goods
purchased from foreign manufacturers and vendors accounted for
less than 1.3 percent of Payless’ total cost of goods sold.
During Payless’ 1987 and 1988 tax years, this percentage was 2.1
percent of the total cost of goods sold.6 We do not think that
the mere purchasing of foreign-made goods directly from a foreign
6Payless stipulated the number of foreign manufacturers and
vendors from whom it purchased merchandise, the countries in
which these manufacturers and vendors were located, and the total
amounts of foreign merchandise purchases per year. Nevertheless,
at trial some of Payless’ witnesses testified that other foreign
source merchandise was purchased, such as lumber from Canada. No
documentation of those purchases is in evidence, and the
testimony is vague as to years and amounts. However, it appears
that these items were purchased from sellers who were doing
business in the United States and had offices and distribution
facilities within the United States. Such purchases within the
United States would not transform an otherwise domestic retail
operation into a worldwide business whose headquarters would be
its “world headquarters” within the meaning of TRA sec.
204(a)(7).
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Last modified: May 25, 2011