Payless Cashways, Inc. and Its Subsidiaries - Page 12

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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.                     

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