Source: https://www.legalcrystal.com/case/95838/anglo-chilean-nitrate-sales-corp-vs-alabama
Timestamp: 2019-04-25 14:24:33+00:00

Document:
1. A foreign corporation whose sole business in a state consists in landing, storing and selling in the original packages goods imported by it from abroad cannot constitutionally be subjected by the state to an annual "franchise" tax on the doing of such business measured by the value of the goods on hand. Pp. 288 U. S. 221 , 288 U. S. 229 .
2. The tax is repugnant to both the imports clause and the commerce clause of the Constitution. P. 288 U. S. 225 .
3. The tax under Alabama Gen.Laws, 1917, No. 163, § 54, as construed by the supreme court of the state, is a tax on the doing of business, as distinguished from a tax on the authorization, right, or privilege to do business, and is invalid, under the above-stated principle, as applied to the facts of this case. P. 288 U. S. 223 .
4. The fact that the foreign corporation qualified to do business in Alabama does not sustain the tax. P. 288 U. S. 224 .
5. The power of a state to withhold from a foreign corporation permission to exercise its franchise to do business therein does not enable it, when granting the privilege, to burden by taxation the foreign commerce carried on by the corporation within the state. P. 288 U. S. 228 .
225 Ala. 141, 142 So. 87, reversed.
Appeal from a judgment sustaining a tax assessment, and reversing a judgment to the contrary, in a suit by the Nitrate Company to set the tax aside.
only property in Alabama on December 31, 1929, the date as of which the statute required the statement to be made, was 33,455,763 pounds of nitrate of soda which had been imported by it from Chile into Alabama and stored in the original packages, the book value of which was $712,846.72. March 31, 1930, the Commission, under § 54 of No. 163, General Acts 1927, [ Footnote 1 ] assessed against appellant for that year a franchise tax of $1,425.69, being at the rate of $2 on each $1,000 of the value so reported.
Conformably to state practice, appellant appealed to the Circuit Court of Montgomery County. The case was submitted on an agreed statement of facts, the abridged substance of which follows.
by appellant in a public warehouse and kept in the original packages until sold and delivered to the ultimate consumers. All was sold upon orders through a salesman who, paying his own expenses, was compensated by commissions on his sales. The orders were taken subject to approval, and were not effective until approved by appellant in its New York office. When so accepted, directions were given that the nitrate be forwarded to the customers. These directions were given to and carried out by the Walsh Stevedoring Company at Mobile, an independent contractor, having an arrangement with appellant to handle its importations of nitrate, store it in a public warehouse, and forward it as directed.
All transactions were for cash. The customers received the nitrate only upon payment of the purchase price when they took up the shipping documents through a bank of collection by paying the drafts attached. Such payments were sent to the Merchants' National Bank at Mobile, and by it immediately transferred to appellant in New York. Appellant had no bank account in Alabama, and paid all expenses there by remittances from New York. On the date as of which appellant's return was made, it had no accounts or bills receivable in Alabama, and had no money there at any time except during the brief intervals that the funds were being so transmitted. It did not have or employ any capital in that state unless the importation through the port of Mobile, the storage, and sale of nitrate in the manner above described constitutes capital and its employment there.
"No state shall, without the consent of the Congress, lay any imposts or duties on imports or exports except what may be absolutely necessary for executing its inspection laws,"
Art. I, § 10, cl. 2, and, "The congress shall have power . . . to regulate commerce with foreign nations, and among the several states . . ." Art. I, § 8.
"No foreign corporation shall do any business in the State without having a place of business and an authorized agent therein and without filing with the Secretary of State a certified copy of its articles of incorporation."
"The Legislature shall, by general law, provide for the payment to the State of Alabama of a franchise tax by such corporation, but such franchise tax shall be based on the actual amount of capital employed in this State."
As to the meaning and purpose of the statute, we are governed by the construction put upon it by the state supreme court.
if no corporate activity is conducted in Alabama during the period covered by the tax, the corporation does not owe a franchise tax."
"The defendant duly qualified as a foreign corporation to do business in this state, appointed a resident agent, and that it actually engaged in business in Alabama by selling its nitrate through a salesman both within and without the state appears as an uncontroverted fact. It seeks to be relieved from this franchise tax solely upon the theory the imported nitrate, the sale of which constituted its business, was immune from state taxation. . . . The statute here under review has no reference to imports, but is merely of a general character relating to the fixation of the amount of a franchise tax upon foreign corporations doing business in this state."
142 So. 87, 89. And, after referring to the manner of appellant's acceptance of orders and the collections and remittances, the court said: "These details go to show the corporation was actually engaged in business in this state. . . ." 142 So. 87, 91. As appellant did no local business in the state, that decision plainly rests upon the assumption that Alabama had power to tax appellant's sales in original packages of the nitrate it imported into that state only for sale and that such sales constituted a business that is taxable under § 54. The Alabama statute is unlike that of Michigan examined here in Detroit International Bridge Co. v. Michigan, 287 U. S. 295 , and Michigan v. Michigan Trust Co., 286 U. S. 334 , 286 U. S. 342 . There, the tax upon a domestic corporation was imposed for the mere right to transact business.
The fact that appellant qualified to do business in Alabama was not, and rightly cannot be, held to sustain the tax. In Ozark Pipe Line v. Monier, 266 U. S. 555 , we condemned as repugnant to the commerce clause a Missouri statute that required every foreign corporation engaged in business in that state to pay an annual franchise tax upon the privilege or right to do business.
"The state has no such power even in the case of domestic corporations. See Philadelphia Steamship Co. v. Pennsylvania, 122 U. S. 326 , 122 U. S. 342 ."
The question whether, consistently with the imports and commerce clauses, the Alabama statute may be construed to require appellant to pay the specified franchise tax is dual in form, but single in substance, for, upon the facts of this case, it is clear that, if the exaction is a tax on imports, it necessarily burdens foreign commerce. Crew Levick Co. v. Pennsylvania, 245 U. S. 292 , 245 U. S. 295 .
"All must perceive that a tax on the sale of an article imported only for sale, is a tax on the article itself. . . . A tax on the occupation of an importer is . . . a tax on importation. It must add to the price of the article, and be paid by the consumer or by the importer himself in like manner as a direct duty on the article itself would be made. This the state has not a right to do, because it is prohibited by the Constitution."
only extends to a tax upon the act of importing, but also to one upon the occupation of the importer or upon the articles imported. A tax on the sale of an article imported only for sale is a tax on the article itself. Brown v. Maryland, 12 Wheat. 419, 25 U. S. 444 ."
And see 65 U. S. California, 24 How. 169; Fairbank v. United States, 181 U. S. 283 ; Selliger v. Kentucky, 213 U. S. 200 ; United States v. Hvoslef, 237 U. S. 1 ; Thames & Mersey Ins. Co. v. United States, 237 U. S. 1 9; Crew Levick Co. v. Pennsylvania, supra; Sonneborn Bros. v. Cureton, 262 U. S. 506 , 262 U. S. 509 . The constitutional protection extends to corporations, as well as to individuals. Crutcher v. Kentucky, 141 U. S. 47 , 141 U. S. 57 ; International Text-Book Co. v. Pigg, 217 U. S. 91 , 217 U. S. 108 .
the privileges and immunities clause, Art. IV, § 2, and held that the business was "not interstate commerce, which will prevent the corporation carrying it on from being taxed. . . ." 91 Hun, 158, 162, 36 N.Y.S. 368, 371. No other federal question was considered. The court of appeals affirmed without opinion. In this Court, the corporation's principal insistence was that the statute was repugnant to the equal protection clause of the Fourteenth Amendment in that it exempted domestic corporations manufacturing and selling in New York while imposing upon the Michigan corporation a discriminatory tax for selling in New York in original packages products manufactured in its Detroit factory. The Court overruled that contention. The opinion shows that, as to the amount of its capital employed in New York, no federal question was presented. And, as admittedly the corporation did a local business in that state -- i.e., business not included in interstate or foreign commerce (171 U.S. 659, 91 Hun, 160, 36 N.Y.S. 368), that case is essentially different from this one.
v. Crane Co., 245 U. S. 178 , 245 U. S. 188 ; Western Union Telegraph Co. v. Foster, 247 U. S. 105 , 247 U. S. 114 ."
See Ozark Pipe Line v. Monier, supra; Alpha Cement Co. v. Massachusetts, 268 U. S. 203 ; Frost Trucking Co. v. Railroad Comm'n, 271 U. S. 583 , 271 U. S. 593 , et seq. Sprout v. South Bend 277 U. S. 163 , 277 U. S. 170 -171; New Jersey Tel. Co. v. Tax Board, 280 U. S. 338 , 280 U. S. 346 ; East Ohio Gas Co. v. Tax Comm'n, 283 U. S. 465 , 283 U. S. 470 .
"That every corporation organized under the laws of any other state, nation, or territory and doing business in this state, except strictly benevolent, educational, or religious corporations, shall pay annually to the state an annual franchise tax of Two Dollars ($2.00) on each One Thousand Dollars of the actual amount of capital employed in this state. In ascertaining the annual franchise tax which shall be paid by any foreign corporation doing business in this state under this section, there shall be deducted from the amount of the capital employed by such corporation in this state the aggregate amount of loans of money made by such corporations in this state, and which shall be secured by existing mortgage or mortgages to it on real estate in this state, and upon which mortgages there shall have been paid the recording privilege tax provided by law."
For the derivation of this section, see § 16 of Act No. 464, General Acts 1915, p. 397; § 16 of Act No. 328, General Acts 1919, p. 291; § 11 of Act No. 172, General Acts 1923, p. 164, as amended by Act No. 263, General Acts 1923, p. 267.
Cf. Austin v. Tennessee, 179 U. S. 343 , 179 U. S. 359 ; Cook v. Marshall County, 196 U. S. 261 , 196 U. S. 270 ; Kirmeyer v. Kansas, 236 U. S. 568 , 236 U. S. 573 ; Price v. Illinois, 238 U. S. 446 , 238 U. S. 454 ; Hebe Co. v. Shaw, 248 U. S. 297 , 248 U. S. 304 .
"without having at least one known place of business and an authorized agent or agents therein, and without filing with the secretary of state a certified copy of its articles of incorporation or association."
It is this section that the courts of Alabama have adjudged to be inapplicable to interstate business. See cases, supra. If that is the construction to be given to the command whereby the legislature was to establish a franchise tax and measure it in a certain way, there can be no doubt that the same construction must be given to the statute passed thereafter to give effect to the command. The power abjured in one breath was not exerted in the next.
"the purpose of registration and to prevent the duplication of names and in order to secure for the public record, for taxation, and for other purposes, the names and addresses of the said corporations,"
and its officers (Act No. 163, p. 171, § 42). True also that, for such a permit, there is to be paid an annual tax varying from $5, the minimum, to $100, the maximum. The statute provides, however, that the tax imposed by that section shall be "in addition to other license and privilege taxes required to be paid by law." There is thus a tax in the nature of a fee to be paid in installments as compensation for the permit, and another tax, measured by the capital in use within the state, upon the underlying franchise. The fee for the permit does not rebut the inference that there is not to be a tax upon the franchise unless user is a privilege that issues from the state. Doubt, if there is any, will be resolved in favor of the construction that keeps the act alive.
it became free, at its unfettered will, to sell at wholesale or at retail, in the original packages or in others, unhampered by the restrictions that would have limited its capacity if it had been there as an importer and with the powers of an importer only. This franchise or privilege -- this grant of benefits beyond any conferred by the federal Constitution -- the State of Alabama was competent to tax. Home Life Ins. Co. v. New York, 134 U. S. 594 ; Ashley v. Ryan, 153 U. S. 436 , 153 U. S. 440 ; Kansas City Ry. v. Kansas, 240 U. S. 227 ; Lusk v. Botkin, 240 U. S. 236 ; St. Louis, S.W. Ry. Co. v. Arkansas, 235 U. S. 350 ; Kansas City Ry. v. Stiles, 242 U. S. 111 , 242 U. S. 117 ; Flint v. Stone Tracy Co., 220 U. S. 107 ; Educational Films Corp. v. Ward, 282 U. S. 379 ; Pacific Co. v. Johnson, 285 U. S. 480 , 285 U. S. 489 ; Detroit International Bridge Co. v. Corp. Tax Appeal Board, 287 U. S. 295 . There being competence to tax, there was competence to measure the burden of the payment by capital employed, irrespective of the use to which employment is directed. Educational Films Corp. v. Ward, supra; Pacific Co. v. Johnson, supra; Flint v. Stone Tracy Co., supra; Home Ins. Co. v. N.Y. supra. There may be a wrong to the taxpayer if the standard of measurement is oppressive and unreasonable. Western Union v. Kansas, 216 U. S. 1 . There is none where the standard bears a fair and natural relation, in its normal or average workings, to the privilege conferred.
supra; Louisville & N. R. Co. v. Alabama, 248 U.S. 533; 201 Ala. 317 (involving a statute of Alabama similar to this one); Kansas City, M, & B. R. Co. v. Stiles, 242 U. S. 111 , aff'g 182 Ala. 138, 62 So. 734; Flint v. Stone Tracy Co., 220 U. S. 107 , 220 U. S. 145 -146. Thus, in Home Life Ins. Co. v. N.Y. supra, a statute provided that every corporation then or thereafter incorporated under any law of the state or of any other state or country, "and doing business in the state," should be subject to a tax "upon its corporate franchise or business," measured by its dividends. The Court held that the tax was one upon the privilege "of doing business in a corporate capacity," and not upon the business or activities that were the outcome of the privilege. Cf. Flint v. Stone Tracy Co., supra, pp. 220 U. S. 145 -146; Michigan v. Michigan Trust Co., 286 U. S. 334 ; Detroit International Bridge Co. v. Tax Appeal Board, supra. There would be greater force in the appellant's argument if its construction of the tax as one upon the activity or the business had support in anything decided by the courts of Alabama. To the contrary, the highest court of the state has put that meaning aside by its opinion in this very case. Adopting the reasoning of this Court in Flint v. Stone Tracy Co., supra, it has said that "the tax is an excise upon the particular privilege of doing business in a corporate capacity, and with the advantages derived therefrom." State v. Anglo-Chilean Nitrate Sales Corp., 142 So. 87, 91; cf. Louisville & N. R. Co. v. State, 201 Ala. 317, 318, 78 So. 93; Ellis v. Handley Mfg. Co., 214 Ala. 539, 108 So. 343; Kansas City Ry. Co. v. Stiles, 182 Ala. 138, 62 So. 734. True indeed it is that the corporation will be relieved of the burden if no business is transacted and no capital employed ( State v. National Cash Credit Association, 224 Ala. 629, 141 So. 541), but so was the corporation in the Home Insurance case, and so also were the corporations in many other cases. Flint v. Stone Tracy Co., St. Louis, S.W.
Ry. Co. v. Arkansas, Louisville & N. R. Co. v. Alabama, Kansas City Ry. Co. v. Stiles, supra. If the state has conferred a privilege which it is competent to tax, the competence is not lost, and the validity of the tax destroyed, because the privilege is to be free when the corporation is inactive. There is a requirement in the Alabama Constitution, repeated in the statute, that the tax upon the franchise shall be measured by the capital employed within the state, a measure obviously inapplicable to dormant corporations. In such circumstances, activity is an event that conditions liability, but the privilege, not the event, is still the subject of the burden. To resume the matter in a few words: the tax is not imposed upon those capacities and privileges that emanate by implication from the power of the nation. The tax is laid upon those privileges, and those only, that emanate either expressly or by implication from the power of the state. Business, it is true, must have been done, for without the doing of business there can be no capital employed. Even so, capital and business are byproducts and incidents, like dividends or income. Flint v. Stone Tracy Co. They are the yardstick by which the state measures the value of the privilege. They are not the privilege itself.
The argument is made that "capital employed" is an illegal and arbitrary measure because the appellant has made no use of the taxable franchise emanating from the state, but has confined its activities to interstate or foreign commerce. What has been said in recent cases ( Educational Films Corp. v. Ward, supra, and Pacific Co. v. Johnson, supra ) goes far to give the answer. There was no attempt here as there was in Western Union Telegraph Co. v. Kansas, supra, or in Looney v. Crane Co., 245 U. S. 178 , or in International Paper Co. v. Massachusetts, 246 U. S. 135 , or in other cases of that type, to burden a local privilege in close association with one not local by a levy upon values beyond the confines of the state.
courts of the state may speak the final word. All that concerns us here is capacity or power. Here was no covert effort by the state to extend its taxing jurisdiction into an area denied to it. The burden upon interstate business in Western Union v. Kansas and the other cases cited was an outcome inherent in the statutory scheme; it was the very event intended. The burden here, if there was any, was unforeseen and adventitious. Cf. Plummer v. Coler, 178 U. S. 115 , Kansas City Ry. Co. v. Stiles, supra.
tax for the reason that it read the statute as designed to lay a burden on the franchise to do business as an interstate carrier. The imputation of that design was borne out in a measure by the remedy, for the state had brought a suit not only to impress a lien upon the property, but to revoke the license altogether (p. 266 U. S. 561 ), limited though it was. Cf. Underwood Typewriter Co. v. Chamberlain, 254 U. S. 113 , 254 U. S. 119 ; Southern Ry. Co. v. Watts, 260 U. S. 519 , 260 U. S. 530 . If there had been decisions in Missouri, as there are in Alabama, disclaiming a purpose to affect the federal privilege, and if the state and federal privileges had varied substantially from each other in meaning and in function, the parallel would be closer between the Ozark case and this. But if those conditions had been present, the result must have been changed.
Crew Levick Co. v. Pennsylvania, 245 U. S. 292 , brought before us a tax upon the business of foreign commerce, whether conducted by natural persons or by corporations. Its measure was the gross receipts.
"It bears no semblance of a property tax, or a franchise tax in the proper sense; nor is it an occupation tax, except as it is imposed upon the very carrying on of the business of exporting merchandise."
245 U.S. 245 U. S. 297 . Cf. Phila. & Sou. S.S. Co. v. Pennsylvania, 122 U. S. 326 . The conclusion would have been different if net income, and not gross, had been adopted as the measure. United States Glue Co. v. Oak Creek, 247 U. S. 321 , 247 U. S. 328 ; Peck & Co. v. Lowe, 247 U. S. 165 ; Shaffer v. Carter, 252 U. S. 37 , 252 U. S. 52 . The case has no relation to the validity of a tax to be measured by local capital and imposed upon a privilege.
form from this, and interpreted as one laid directly upon the operations of the business. Cf. Gloucester Ferry Co. v. Pennsylvania, 114 U. S. 196 . No license or franchise to engage in a local business had been granted by the state.
Brown v. Maryland, 12 Wheat. 419, was a case of a discriminatory tax upon the business of importers, and Cook v. Pennsylvania, 97 U. S. 566 , a case of a discriminatory tax upon an auctioneer selling for importers. In neither was there a franchise, or a tax upon a franchise, or a reference to capital as a standard of measurement. In each, the presence of imported packages to be subjected to a burden was an event considered and intended, not an adventitious circumstance developing unexpectedly in the application of the tax to one taxpayer out of many.
The tax imposed by this statute does not discriminate between domestic and foreign corporations to the prejudice of the latter. Domestic corporations pay a franchise tax that is measured by their whole capital; foreign corporations one that is measured by "the actual amount of capital employed" within the state. It does not discriminate between foreign corporations engaged in interstate or foreign commerce and other foreign corporations. It lays a burden on all impartially. Finally, it is not oppressive in amount, nor framed in such a form as to suggest a furtive purpose to stifle activities not covered by its terms. The tax is $2 per thousand dollars until 1932, and $1 per thousand afterwards. General Acts of Alabama, 1927, § 56, p. 177.

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