Source: https://www.law.cornell.edu/supremecourt/text/306/167
Timestamp: 2019-04-21 20:35:49+00:00

Document:
SOUTHERN PAC. CO. v. GALLAGHER et al.
Mr. Harry H. McElroy, of San Francisco, Cal., for appellant.
Mr. H. H. Linney, of San Francisco, Cal., for appellees.
The California Use Tax Act of 1935 1 is assailed as violative of the commerce clause and the Fourteenth Amendment, U.S.C.A.Const. art. 1, § 8, cl. 3; amend. 14, when imposed upon tangible personal property, bought outside of the state by the Southern Pacific Company, an interstate railroad, and installed on importation, or kept available for use, as a part of its transportation facilities.
The principle of the use tax as applied to property brought into the state after its retail purchase for intrastate use has been upheld in Henneford v. Silas Mason Co., 10 against the charge that it was a tax upon the operations of interstate commerce or a tax upon a foreign sale, violative of the Fourteenth Amendment. Under the Washington statute, there considered, discrimination against interstate commerce, arising from a second exaction for use after a foreign tax on sale, could not exist as provision was made for a credit against the local tax of any such foreign levy. No such problem arises here by evidence, finding or assignment of error 11 even though the California Act does not have this provision. It will be time enough to resolve that argument 'when a taxpayer paying in the state of origin is compelled to pay again in the state of destination.' 12 A discrimination against goods of out-of-state origin on the face of the sales and use acts is suggested because the local retailer may absorb the sales tax while the consumer of an imported article must pay the use tax. 13 But this is not a discrimination in the law. California's exaction for the distribution of tangible personal property is the same, whether purchased within or without her borders or whether paid by the retailer or consumer. There is an equal charge against what is used, whatever its source. In this case we have a distinctly different application of a use tax. The tax is not sought from personal property used in transactions entirely disassociated from any agency connected with interstate transportation, as builders' supplies for local work in the Silas Mason Case, but from tangible personalty purchased out of the state for immediate or subsequent installation in an interstate railway facility.
The appellant, the Southern Pacific Company, a Kentucky corporation, handles intrastate, interstate and foreign commerce over its railroad system which traverses a number of states and connects with the lines of carriers covering the continent. The findings and stipulation of facts show continual extrastate purchases of tangible personalty for the operation of the road; rails, equipment, machinery, tools and office supplies. Some of the purchases are used in the general offices of the corporation, located in California, for the supervision of the wide-flung activities; others are for material kept in readiness as a stand-by supply to replace or repair equipment damaged, destroyed or worn out in the operation of the road; and still others are to make improvements, replacements or extensions pursuant to previously determined plans and specifications. Few, if any, of the supplies are stored for long term needs. Storage is merely incidental to protection until use, as office supplies in a closet or an extra frog at a section tool house. For construction or reconstruction upon a large scale, special orders are given and arrangements made, so that the material is fabricated for a particular use in the transportation facilities, shipped to its California destination and installed upon arrival. To avoid delay and cost the movement from loading to final placement is as nearly continuous as managerial efficiency can contrive. While some articles are capable of general use, the major purchases of rails, repair parts and supplies for the maintenance and operation of the system are adapted only to railroad use. The purchases are paid for out of railroad operating capital and move on company material waybills, without transportation charge. All purchases may be said to be dedicated to consumption in the interstate transportation business of appellant. No new rolling stock is involved. Subsequent to repairing and reconditioning, rolling stock moves again in interstate transportation, as do cars after being stocked with supplies. The California tax on storage or use, it is said, cannot apply to these articles, as such a tax would be an unconstitutional burden upon the facilities of interstate commerce, of which the articles are a part.
Appellant selects from this line the Helson Case 25 as determinative of the contention that a tax on use of supplies or equipment is a tax on the commerce. A state tax of three cents per gallon was imposed on all gasoline 'sold at wholesale.' This phrase was defined to include gasoline bought out of the state and used within the state. There was no definition of the word use or used. The taxpayers operated an interstate ferry, purchased gasoline in Ohio and used that portion sought to be taxed in propelling their craft in the territorial waters of Kentucky. That court considered the tax on the consumption of the fas the same as a tax on the operation of the ferry boat and therefore invalid under the rule discussed in the preceding paragraph.
The principle illustrated by the Helson Case forbids a tax upon commerce or consumption in commerce. The Wallace Case, and precedents analogous to it, permit state taxation of events preliminary to interstate commerce. The validity of any application of a taxing act depends upon a classification of the facts in the light of these theories. In the present case some of the articles were ordered out of the state under specification suitable only for utilization in the transportation facilities and installed immediately on arrival at the California destination. If articles so handled are deemed to have reached the end of their interstate transit upon 'use or storage,' no further inquiry is necessary as to the rest of the articles which are subjected to a rentention, by comparison, farther removed from interstate commerce. We think there was a taxable moment when the former had reached the end of their interstate transportation and had not begun to be consumed in interstate operation. At that moment, the tax on storage and useretention and exercise of a right of ownership, respectively was effective. The interstate movement was complete. The interstate consumption had not begun. Champlain Realty Co. v. Brattleboro 30 and Carson Petroleum Co. v. Vial 31 are therefore inapplicable. Bacon v. Illinois, 32 where taxation of grain during stoppage in transit was validated, presents a closer analogy. 'Practical continuity' does not always make an act a part of interstate commerce. 33 This conclusion does not give preponderance to the language of the state act over its effect on commerce. State taxes upon national commerce or its incidents do not depend for their validity upon a choice of words but upon the choice of the thing taxed. It is true, the increased cost to the interstate operator from a tax on installation is the same as from a tax on consumption or operation. This is not significant. 34 The prohibited burden upon commerce between the states is created by state interference with that commerce, a matter distinct from the expense of doing business. A discrimination against it, or a tax on its operations as such, is an interference. A tax on property or upon a taxable event in the state, apart from operation, does not interfere. This is a practical adjustment of the right of the state to revenue from the instrumentalities of commerce and the obligation of the state to leave the regulation of interstate and foreign commerce to the Congress.
This Court pointed out that the corporation had a license to engage exclusively in interstate business. 41 The language just quoted shows that this Court interpreted the transactions in Missouri as merely a part of the interstate commerce and the tax on the franchise an interference therewith because a tax directly upon it. 42 '* * * nothing was done in Missouri except in furtherance of transportation.' 43 It was this conclusion of the Court on the factual situation which brought about the Ozark decision. Where there is also intrastate activity, an apportioned state franchise tax on foreign corporations doing an interstate business is upheld. 44 A franchise tax on an exclusively interstate business is a direct burden; proportioned to an intermingled business, it is valid. 45 Since the incidence of the California tax as here interpreted is upon events outside of interstate commerce, the Ozark opinion is not applicable. There the Missouri tax was upon activities found wholly interstate.
Mr. Justice ROBERTS took no part in the consideration or decision of this case.
Mr. Justice McREYNOLDS and I are of opinion that the judgment should be reversed.
The facts stated in the opinion just announced leave nothing of substance to support its conclusion that the California tax is not upon the operationmaintenance and useof appellant's railroad for interstate transportation. Discussion can neither obscure nor more plainly disclose the truth that the tax in question directly burdens commerce among the States. Concededly, that is repugnant to the commerce clause as, from the beginning, it has been construed by this Court.
Cal.Stats.1935, ch. 361, p. 1297.
Sec. 266, Jud.Code, 28 U.S.C.A. § 380.
As the bill was filed July 10, 1936, there was jurisdiction. 50 Stat. 738, 28 U.S.C.A. § 41(1, 1a).
Southern Pac. Co. v. Corbett, D.C., 20 F.Supp. 940.
Id., D.C., 23 F.Supp. 193.
Cal.Stats.1933, ch. 1020, p. 2599, as amended, Cal.Stats.1935, chs. 351, 355, 357, pp. 1225, 1252, 1256.
California Use Tax Act, supra, Section 3.
300 U.S. 577, 57 S.Ct. 524, 81 L.Ed. 814. Cf. Felt & Tarrant Mfg. Co. v. Gallagher, 306 U.S. 62, 59 S.Ct. 376, 83 L.Ed. -, decided this day.
People of State of New York v. Kleinert, 268 U.S. 646, 651, 45 S.Ct. 618, 619, 69 L.Ed. 1135.
Henneford v. Silas Mason Co., 300 U.S. 577, 587, 57 S.Ct. 524, 529, 81 L.Ed. 814.
National Ice & Cold Storage Co. v. Pacific Fruit Express Co., Cal.Sup., 79 P.2d 380.
Cf. Ozark Pipe Line Corp. v. Monier, 266 U.S. 555, 45 S.Ct. 184, 69 L.Ed. 439.
Western Union Telegraph Company v. Texas, 105 U.S. 460, 26 L.Ed. 1067.
Case of the State Freight Tax, 15 Wall. 232, 21 L.Ed. 146.
Robbins v. Shelby County Taxing District, 120 U.S. 489, 496, 497, 7 S.Ct. 592, 30 L.Ed. 694; Brennan v. Titusville, 153 U.S. 289, 14 S.Ct. 829, 38 L.Ed. 719.
Leloup v. Port of Mobile, 127 U.S. 640, 8 S.Ct. 1380, 32 L.Ed. 311.
See the discussion in Gwin, White & Prince, Inc. v. Henneford, 305 U.S. 434, 59 S.Ct. 325, 83 L.Ed. 272, decided January 3, 1939.
Philadelphia & S. Mail Steamship Co. v. Pennsylvania, 122 U.S. 326, 336, 7 S.Ct. 1118, 1119, 30 L.Ed. 1200.
Fisher's Blend Station v. Tax Comm., 297 U.S. 650, 56 S.Ct. 608, 80 L.Ed. 956.
Adams Mfg. Co. v. Storen, 304 U.S. 307, 311, 58 S.Ct. 913, 915, 82 L.Ed. 1365, 117 A.L.R. 429.
For comparison with sovereign immunity rule and reason for variation, see James v. Dravo Contracting Co., 302 U.S. 134, 157, 158, 58 S.Ct. 208, 219, 82 L.Ed. 155, 114 A.L.R. 318.
Western Life Stock v. Bureau of Revenue, 303 U.S. 250, 256, 58 S.Ct. 546, 549, 82 L.Ed. 823, 115 A.L.R. 944, and cases cited. Coverdale v. Arkansas-Louisiana Pipe Line Co., 303 U.S. 604, 612, 58 S.Ct. 736, 740, 82 L.Ed. 1043; Ficklen v. Shelby County Taxing District, 145 U.S. 1, 12 S.Ct. 810, 36 L.Ed. 601; and American Mfg. Co. v. St. Louis, 250 U.S. 459, 39 S.Ct. 522, 63 L.Ed. 1084, as explained in Gwin, White & Prince, Inc. v. Henneford, supra, and Adams Mfg. Co. v. Storen, supra, page 312, 58 S.Ct. page 916.
Helson & Randolph v. Kentucky, 279 U.S. 245, 49 S.Ct. 279, 73 L.Ed. 683; see also Bingaman v. Golden Eagle Lines, 297 U.S. 626, 56 S.Ct. 624, 80 L.Ed. 928.
Coverdale v. Pipe Line Co., 303 U.S. 604, 609, 58 S.Ct. 736, 738, 82 L.Ed. 1043.
Nashville, C. & St. L. Ry. Co. v. Wallace, 288 U.S. 249, 53 S.Ct. 345, 349, 77 L.Ed. 730, 87 A.L.R. 1191.
Id., pages 265, 266, 53 S.Ct. page 349; see Edelman v. Boeing Air Transport, 289 U.S. 249, 252, 53 S.Ct. 591, 592, 77 L.Ed. 1155; Gregg Dyeing Co. v. Query, 286 U.S. 472, 479, 52 S.Ct. 631, 634, 76 L.Ed. 1232, 84 A.L.R. 831.
Id., page 267, 53 S.Ct. page 349.
260 U.S. 366, 43 S.Ct. 146, 67 L.Ed. 309, 25 A.L.R. 1195.
279 U.S. 95, 49 S.Ct. 292, 73 L.Ed. 626.
227 U.S. 504, 33 S.Ct. 299, 57 L.Ed. 615.
Oliver Iron Mining Co. v. Lord, 262 U.S. 172, 43 S.Ct. 526, 67 L.Ed. 929; Hope Natural Gas Co. v. Hall, 274 U.S. 284, 47 S.Ct. 639, 71 L.Ed. 1049; Utah Power & L. Co. v. Pfost, 286 U.S. 165, 52 S.Ct. 548, 76 L.Ed. 1038.
Western Live Stock v. Bureau of Revenue, 303 U.S. 250, 254, 58 S.Ct. 546, 548, 82 L.Ed. 823, 115 A.L.R. 944, and cases cited.
Cf. Henneford v. Silas Mason Co., 300 U.S. 577, 583, 57 S.Ct. 524, 527, 81 L.Ed. 814.
294 U.S. 384, 55 S.Ct. 477, 79 L.Ed. 934.
302 U.S. 90, 58 S.Ct. 72, 82 L.Ed. 68.
266 U.S. 555, 45 S.Ct. 184, 69 L.Ed. 439.
Under the commerce clause the regulatory power of the Congress is customarily exercised on transactions taken place within the state on the principle that such acts are an essential part of interstate commerce. See Currin v. Wallace, 306 U.S. 1, 59 S.Ct. 379, 83 L.Ed. -, decided this day, and cases cited. Cf. Townsend v. Yeomans, 301 U.S. 441, 57 S.Ct. 842, 81 L.Ed. 1210.
266 U.S. 555, 565, 45 S.Ct. 184, 186, 69 L.Ed. 439.
Id., page 567, 45 S.Ct. page 187.
Anglo-Chilean Corp. v. Alabama, 288 U.S. 218, 224, 53 S.Ct. 373, 374, 77 L.Ed. 710; Id., minority, page 236, 53 S.Ct. page 379; Virginia v. Imperial Coal Co., 293 U.S. 15, 20, 55 S.Ct. 12, 14, 79 L.Ed. 171.
Southern Natural Gas Corp. v. Alabama, 301 U.S. 148, 155, 57 S.Ct. 696, 699, 81 L.Ed. 970.
Id., page 156, 57 S.Ct. page 699.
See also Atlantic Lumber Co. v. Com'r, 298 U.S. 553, 556, 56 S.Ct. 887, 888, 80 L.Ed. 1328.
James v. Dravo Contracting Company, 302 U.S. 134, 58 S.Ct. 208, 82 L.Ed. 155, 114 A.L.R. 318; Connecticut Gen. Life Ins. Co. v. Johnson, 303 U.S. 77, 58 S.Ct. 436, 82 L.Ed. 673; Frick v. Pennsylvania, 268 U.S. 473, 45 S.Ct. 603, 69 L.Ed. 1058, 42 A.L.R. 316; Great Atlantic & Pacific Tea Company v. Grosjean, 301 U.S. 412, 57 S.Ct. 772, 81 L.Ed. 1193, 112 A.L.R. 293; International Paper Co. v. Massachusetts, 246 U.S. 135, 38 S.Ct. 292, 62 L.Ed. 624, Ann.Cas.1918C, 617.
Henneford v. Silas Mason Co., 300 U.S. 577, 578, 57 S.Ct. 524, 81 L.Ed. 814.
Norman WILLIAMS and Susan Levine, Appellants v. VERMONT et al.
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McGOLDRICK, City Comptroller, v. BERWIND-WHITE COAL MINING CO.
NELSON, Chairman of State Tax Commission et al. v. SEARS, ROEBUCK & CO.
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STANDARD DREDGING CORPORATION v. MURPHY, Acting Industrial Commissioner of State of New York. INTERNATIONAL ELEVATING CO. v. SAME.
FLOURNOY, Sheriff and Ex Officio Tax Collector, v. WIENER et al.
MILLER BROS. CO. v. STATE OF MARYLAND.
BARROWS et al. v. JACKSON.
NIPPERT v. CITY OF RICHMOND.
CENTRAL HUDSON GAS & ELECTRIC CORPORATION, Appellant, v. PUBLIC SERVICE COMMISSION OF NEW YORK.
Bernard CAREY, etc., Appellant, v. Roy BROWN et al.

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