Source: https://www.legalcrystal.com/case/103769/colonial-pipeline-co-vs-traigle
Timestamp: 2019-04-25 14:27:14+00:00

Document:
Louisiana's fairly apportioned and nondiscriminatory corporation franchise tax upon the "incident" of the "qualification to carry on or do business in this state or the actual doing of business within this state in a corporate form" does not violate the Commerce Clause as applied to appellant, an interstate carrier of liquefied petroleum products incorporated in Delaware with its principal place of business in Atlanta, Georgia, which does no intrastate business in petroleum products in Louisiana, but has employees there to inspect and maintain its pipeline, pumping stations, and related facilities in that State. "[T]he decisive issue turns on the operating incidence of the tax," General Motors Corp. v. Washington, 377 U. S. 436 , 377 U. S. 441 , and "[t]he simple but controlling question is whether the state has given anything for which it can ask return," Wisconsin v. J. C. Penney Co., 311 U. S. 435 , 311 U. S. 444 . Because appellant, as a foreign corporation qualified to carry on, and carrying on, its business in Louisiana in corporate form, gained benefits and protections from that State of value and importance to its business, it can be required through the franchise tax to pay its just share. Memphis Gas Co. v. Stone, 335 U. S. 80 . Pp. 421 U. S. 108 -114. 289 So.2d 93, affirmed.
BRENNAN, J., delivered the opinion of the Court, in which BURGER, C.J., and WHITE, MARSHALL, and POWELL, JJ., joined. BLACKMUN, J., filed an opinion concurring in the judgment, in which REHNQUIST, J., joined, post, p. 421 U. S. 114 . STEWART, J., filed a dissenting opinion, post, p. 116. DOUGLAS, J., took no part in the consideration or decision of the case.
We have once again a case that presents "the perennial problem of the validity of a state tax for the privilege of carrying on, within a state, certain activities" related to a corporation's operation of an interstate business. Memphis Gas Co. v. Stone, 335 U. S. 80 , 335 U. S. 85 (1948). [ Footnote 1 ] The issue is whether Louisiana, consistent with the Commerce Clause, Art. I, § 8, cl. 3, may impose a fairly apportioned and nondiscriminatory corporation franchise tax on appellant, Colonial Pipeline Co., a corporation engaged exclusively in interstate business, upon the "incident" of its "qualification to carry on or do business in this state or the actual doing of business within this state in a corporate form." No question is raised as to the reasonableness of the apportionment of appellant's capital deemed to have been employed in Louisiana, and it is not claimed that the tax is discriminatory. The Supreme Court of Louisiana sustained the validity of the tax. 289 So.2d 93 (1974). We noted probable jurisdiction, 417 U.S. 966 (1974). We affirm.
Northeast. Appellant daily delivers more than one million gallons of petroleum products to 14 States and the District of Columbia. Approximately 258 miles of the pipeline are located in Louisiana. Over this distance within Louisiana, appellant owns and operates several pumping stations which keep the petroleum products flowing at a sustained rate, and various tank storage facilities used to inject or withdraw petroleum products into or from the line. A workforce of 25 to 30 employees -- mechanics, electricians, and other workers -- inspect and maintain the line within the State. During the tax years in question, 1970 and 1971, appellant maintained no administrative offices or personnel in Louisiana, although it had once maintained a division office in Baton Rouge. Appellant does no intrastate business in petroleum products in Louisiana.
"The tax levied herein is due and payable for the privilege of carrying on or doing business, the exercising of its charter or the continuance of its charter within this state, or owning or using any part or all of its capital or plant in this state. [ Footnote 2 ]"
were carried forward from the earlier version of the statute. [ Footnote 4 ] See n 2, supra.
change in § 601, which it construed as still imposing the tax directly upon the privilege of carrying on or doing an interstate business, and held that amended § 601 was therefore unconstitutional as applied to appellant. 275 So.2d 834 (1973).
"[t]he pertinent Constitutional question is whether, as applied to a corporation whose exclusive business carried on within the State is interstate, this statute violates the Commerce Clause of the United States Constitution."
"The thrust of the [amended] statute is to tax not the interstate business done in Louisiana by a foreign corporation, but the doing of business in Louisiana in a corporate form, including 'each and every act, power, right, privilege or immunity exercised or enjoyed in this state, as an incident to or by virtue of the powers and privileges acquired by the nature of such organizations. . . .'"
"the general privilege of doing interstate business, but simply [as a tax upon] the corporation's privilege of enjoying in a corporate capacity the ownership or use of its capital, plant or other property in this state, the corporation's privilege of exercising and continuing its corporate character in the State of Louisiana, and the corporation's use of its corporate form to do business in the State."
"The corporation, including the foreign corporation doing only interstate business in Louisiana, enjoys under our laws many privileges separate and apart from simply doing business, such for instance as the legal status to sue and be sued in the Courts of our State, continuity of business without interruption by death or dissolution, transfer of property interests by the disposition of shares of stock, advantages of business controlled and managed by corporate directors, and the general absence of individual liability, among others."
"The fact that the corporate form of doing business is inextricably interwoven in a foreign corporation's doing interstate business in the State does not, in our view, detract from the fact that the local incident taxed is the form of doing business, rather than the business done by that corporation. And it is our view that the local incident is real and sufficiently distinguishable so that taxation thereof does not, under the controlling decisions of the United States Supreme Court, violate the Commerce Clause."
"The statute does not discriminate between foreign and local corporations, being applicable, as it is, to both. Nor do we believe that the State's exercise of its power by this taxing statute is out of proportion to Colonial's activities within the state and their consequent enjoyment of the opportunities and protection which the state has afforded them."
something for which it can ask return. The return, tax levy in this case, is an exaction which the State of Louisiana requires as a recompense for its protection of lawful activities carried on in this state by Colonial, activities which are incidental to the powers and privileges possessed by it by the nature of its organization, here, . . . the local activities in maintaining, keeping in repair, and otherwise in manning the facilities of their pipeline system throughout the 258 miles of its pipeline in the State of Louisiana."
This Court is, of course, not bound by the state court's determination that the challenged tax is not a tax on interstate commerce.
itself the operating incidence of its tax. But it is for this Court to determine whether the tax, as construed by the highest court of the State, is or is not 'a tax on interstate commerce.'"
Memphis Steam Laundry v. Stone, 342 U. S. 389 , 342 U. S. 392 (1952). We therefore turn to the question whether the tax imposed upon appellant under amended § 601, as construed by the Louisiana Supreme Court, is or is not a tax on interstate commerce.
It is a truism that the mere act of carrying on business in interstate commerce does not exempt a corporation from state taxation.
"It was not the purpose of the commerce clause to relieve those engaged in interstate commerce from their just share of state tax burden even though it increases the cost of doing the business."
State is exacting a constitutionally fair demand for that aspect of interstate commerce to which it bears a special relation. For our purposes, the decisive issue turns on the operating incidence of the tax. In other words, the question is whether the State has exerted its power in proper proportion to appellant's activities within the State and to appellant's consequent enjoyment of the opportunities and protections which the State has afforded. . . . As was said in Wisconsin v. J. C. Penney Co., 311 U. S. 435 , 311 U. S. 444 (1940), '[t]he simple but controlling question is whether the state has given anything for which it can ask return.'"
377 U.S. at 377 U. S. 440 -441. Amended § 601, as applied to appellant, satisfies this test. First, the Supreme Court of Louisiana held that the operating incidences of the franchise tax are the three localized alternative incidences provided in § 601: (1) doing business in Louisiana in the corporate form; (2) the exercise of a corporation's charter or the continuance of its charter within the State; and (3) the owning or using any part of its capital, plant, or other property in Louisiana in a corporate capacity. We necessarily accept this construction of amended § 601 by Louisiana's highest court. 289 So.2d at 97. Second, the court found that the powers, privileges, and benefits Louisiana bestows incident to these activities were sufficient to support a tax on doing business in the corporate form in that State. We perceive no basis upon which we can say that this is not, in fact, the case. Our pertinent precedents therefore require affirmance of the State Supreme Court's judgment.
Memphis Gas Co. v. Stone, supra, sustained a similar franchise tax imposed by Mississippi on a foreign pipeline corporation engaged exclusively in an interstate business even though the company had not qualified in Mississippi.
"[to] mean and [to] include each and every act, power or privilege exercised or enjoyed in this State, as an incident to, or by virtue of the powers and privileges acquired by the nature of such organization."
335 U.S. at 335 U. S. 84 . In affirming the judgment of that court, Mr. Justice Reed, in a plurality opinion, said:"
"We think that the state is within its constitutional rights in exacting compensation under this statute for the protection it affords the activities within its borders. Of course, the interstate commerce could not be conducted without these local activities. But that fact is not conclusive. These are events apart from the flow of commerce. This is a tax on activities for which the state, not the United States, gives protection, and the state is entitled to compensation when its tax cannot be said to be an unreasonable burden or a toll on the interstate business."
Id. at 335 U. S. 96 .
"the legal status to sue and be sued in the Courts of our State, continuity of business without interruption by death or dissolution, transfer of property interests by the disposition of shares of stock, advantages of business controlled and managed by corporate directors, and the general absence of individual liability. . . ."
289 So.2d at 100. These privileges obviously enhance the value to appellant of its activities within Louisiana. See Southern Gas Corp. v. Alabama, 301 U. S. 148 , 301 U. S. 153 (1937); Stone v. Interstate Natural Gas Co., 103 F.2d 544 (CA5), aff'd, 308 U.S. 522 (1939). Cf. Railway Express Agency v. Virginia (Railway Express II), 358 U. S. 434 (1959).
"The incidence of the tax provides the answer. . . . The State is not precluded from imposing taxes upon other activities or aspects of this business which, unlike the privilege of doing interstate business, are subject to the sovereign power of the State."
the impost to one related to appellant's activities within the State in the corporate form. Since appellant, a foreign corporation qualified to carry on its business in corporate form and doing business in Louisiana in the corporate form, thereby gained benefits and protections from Louisiana of value and importance to its business, the application of that State's fairly apportioned and nondiscriminatory levy to appellant does not offend the Commerce Clause. The tax cannot be said to be imposed upon appellant merely or solely for the privilege of doing interstate business in Louisiana. It is, rather, a fairly apportioned and nondiscriminatory means of requiring appellant to pay its just share of the cost of state government upon which appellant necessarily relies and by which it is furnished protection and benefits.
"This Court alone has handed down some three hundred full-dress opinions spread through slightly more than that number of our reports. . . . [T]he decisions have been 'not always clear . . . , consistent, or reconcilable.'"
Northwestern Cement Co. v. Minnesota, 358 U. S. 450 , 358 U. S. 457 -458 (1959).
"Every domestic corporation and every foreign corporation, exercising its charter, authorized to do or doing business in this state, or owning or using any part or all of its capital or plant in this state, subject to compliance with all other provisions of law, except as otherwise provided for in this chapter, shall pay a tax at the rate of one dollar and 50/100 ($1.50) for each one thousand dollars ($1,000.00), or major fraction thereof on the amount of its capital stock, surplus, undivided profits, and borrowed capital, determined as hereinafter provided; the minimum tax shall not be less than ten dollars ($10.00) in any case. The tax levied herein is due and payable for the privilege of carrying on or doing business, the exercising of its charter or the continuance of its charter within this state, or owning or using any part or all of its capital or plant in this state."
"This Court's refusal in 1969 to grant writs upon application by the State in that earlier case, while normally persuasive, does not carry the same weight as a precedent as it would had that case been decided by this Court after the granting of a writ. . . . This Court is not bound by its refusal of writs, to adopt law expressed in appellate court opinions."
289 So.2d 93, 96 (1974).
"§ 601. Imposition of tax"
"Every domestic corporation and every foreign corporation, exercising its charter, or qualified to do business or actually doing business in this state, or owning or using any part or all of its capital, plant or any other property in this state, subject to compliance with all other provisions of law, except as otherwise provided for in this Chapter shall pay an annual tax at the rate of $1.50 for each $1,00.00, or major fraction thereof on the amount of its capital stock, surplus, undivided profits, and borrowed capital, determined as hereinafter provided; the minimum tax shall not be less than $10.00 per year in any case. The tax levied herein is due and payable on any one or all of the following alternative incidents:"
"(1) The qualification to carry on or do business in this state or the actual doing of business within this state in a corporate form. The term 'doing business' as used herein shall mean and include each and every act, power, right, privilege, or immunity exercised or enjoyed in this state, as an incident to or by virtue of the powers and privileges acquired by the nature of such organizations, as well as the buying, selling or procuring of services or property."
"(2) The exercising of a corporation's charter or the continuance of its charter within this state."
"(3) The owning or using any part or all of its capital, plant or other property in this state in a corporate capacity."
"It being the purpose of this section to require the payment of this tax to the State of Louisiana by domestic corporations for the right granted by the laws of this state to exist as such an organization, and by both domestic and foreign corporations for the enjoyment, under the protection of the laws of this state, of the powers, rights, privileges and immunities derived by reason of the corporate form of existence and operation. The tax hereby imposed shall be in addition to all other taxes levied by any other statute."
"For the purpose of ascertaining the tax imposed in this Chapter, every corporation subject to the tax is deemed to have employed in this state the proportion of its entire issued and outstanding capital stock, surplus, undivided profits and borrowed capital, computed on the basis of the ratio obtained by taking the arithmetical average of the following ratios:"
"(1). . . . "
"(2) The ratio that the value of all of the taxpayer's property and assets situated or used in Louisiana bears to the value of all of its property and assets wherever situated or used. . . ."
The State Supreme Court found that appellant was liable only for the minimum amount specified in amended § 601 for 1970, and reduced the tax for that year to $10. The levy for 1971 was sustained in the full amount, 289 So.2d at 101.
Appellant also pays ad valorem taxes to Louisiana and 10 of its parishes, as well as state income taxes. For the years 1970 and 1971, ad valorem taxes totaled $743,561.34 and income taxes totaled $196,621.
"A state is free to pursue its own fiscal policies, unembarrassed by the Constitution, if, by the practical operation of a tax, the state has exerted its power in relation to opportunities which it has given, to protection which it has afforded, to benefits which it has conferred by the fact of being an orderly, civilized society."
Wisconsin v. J. C. Penney Co., 311 U. S. 435 , 311 U. S. 444 (1940).
"It being the purpose of this section to require the payment to the state of Mississippi, this tax for the right granted by the laws of this state to exist as such organization, and enjoy, under the protection of the laws of this state, the powers, rights, privileges and immunities derived from the state by the form of such existence."
"carry on interstate commerce is not a franchise or a privilege granted by the State. . . . We have repeatedly decided that a state law is unconstitutional and void which requires a party to take out a license for carrying on interstate commerce, no matter how specious the pretext may be for imposing it."
Id. at 141 U. S. 57 -58. See Graham Mfg. Co. v. Rolland, 191 La. 757, 186 So. 93 (1939); State v. American. Railway Express Co., 159 La. 1001, 106 So. 544 (1924). An important consequence of qualification, of course, is the facilitation of the assessment and collection of state franchise taxes. Comment, Foreign Corporation State Boundaries for National Business, 59 Yale L.J. 737, 746 (1950).
Nor is this tax on carrying on business in the corporate form a "local obstruction to the flow of interstate commerce that cannot stand under the Commerce Clause." Memphis Steam Laundry v. Stone, 342 U. S. 389 , 342 U. S. 395 (1952). Unlike the situation in Memphis Steam Laundry, Louisiana did not "carve out" an "incident from the integral economic process of interstate commerce," id. at 342 U. S. 393 , and then proceed to tax that incident. There was and is no requirement that appellant assume the corporate form to do interstate business in Louisiana, and, indeed, state law specifically exempts foreign corporations engaging in interstate commerce from the certificate requirement. See n 8, supra.
MR. JUSTICE BLACKMUN, with whom MR. JUSTICE REHNQUIST joins, concurring in the judgment.
I share the misgivings that are suggested by MR. JUSTICE STEWART in his dissent, but I join the judgment of the Court.
State's courts have done in Colonial's 1969 case and in the present one -- then, for me, the legal distinctions this Court and the Louisiana courts (under the compulsion of our decisions) have drawn are too fine-spun and far too gossamer. They fail to provide what taxpayers and the lawyers who advise them have a right to expect, namely, a firm and solid basis of differentiation between that which runs afoul of the Commerce Clause and that which is consistent with that Clause. It makes little constitutional sense -- and certainly no practical sense -- to say that a State may not impose a fairly apportioned, nondiscriminatory franchise tax with an adequate nexus upon the conduct of business in interstate commerce, but that it may impose that same tax upon the conduct of business in interstate commerce "in a corporate form" or, for that matter, in partnership or individual form. Tr. of Oral Arg. 28-31. Certainly to the lay mind, or to any mind other than the purely legal, these are distinctions with little substantive difference and this is taxation by semantics.
absence of congressional proscription. On this record, Louisiana's corporation franchise tax meets that standard.
* Younger v. Harris, 401 U. S. 37 , 401 U. S. 44 (1971).
All agree that the appellant is engaged exclusively in interstate commerce. Yet the Court says that Louisiana can nonetheless impose this franchise tax upon the appellant because it is for the privilege of engaging in interstate commerce "in [the] corporate form." * Under this reasoning, the State could impose a like franchise tax for the privilege of carrying on an exclusively interstate business "in the partnership form" -- or, for that matter, in the form of an individual proprietorship. For whatever its form, the exclusively interstate business would still be "owning or using [a] part of its capital, plant or other property in Louisiana," ante at 421 U. S. 109 , and would still be "furnished" equivalent "protection and benefits" by the State, ante at 421 U. S. 114 .
The fact is that Louisiana has imposed a franchise tax upon the appellant for the privilege of carrying on an exclusively interstate business. Under our established precedents, such a tax is constitutionally impermissible. Spector Motor Service v. O'Connor, 340 U. S. 602 ; Railway Express Agency v. Virginia, 347 U. S. 359 . I could understand if the Court today were forthrightly to overrule these precedents and hold that a state franchise tax upon interstate commerce is constitutionally valid, so long as it is not discriminatory. But I cannot understand how the Court can embrace the wholly specious reasoning of the Supreme Court of Louisiana in this case.
* The appellant is not, of course, incorporated in Louisiana.

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