Source: http://supreme.nolo.com/us/266/555/case.html
Timestamp: 2019-04-26 14:35:32+00:00

Document:
1. A Missouri statute requires every corporation not organized under the laws of that state but engaged in business therein to pay an annual franchise tax equal to one-tenth of 1% of the par value of its capital stock and surplus employed in business in the state. Rev.Stats.1919, §§ 9836-9848. Held that the tax is one upon the privilege or right to do business. P. 266 U. S. 562.
2. Such a tax cannot constitutionally be exacted of a foreign corporation whose business in the taxing state consists exclusively in the operation of a pipeline for transporting petroleum through the state in interstate commerce, and in ownership of property, maintenance of its principal office, purchase of supplies, employment of labor, maintenance and operation of telephone and telegraph lines and automobiles, and other acts within the state, all exclusively for the furtherance of such interstate commerce and constituting the means and instruments by which it is conducted. P. 266 U. S. 563.
3. The facts that a foreign corporation whose business in a state is entirely interstate commerce is incorporated for local business also, and has applied for and received a local license conferring power to exercise the right of eminent domain, do not empower the state to tax its right to carry on the interstate business. P. 266 U. S. 566.
Appeal from a decree of the district court which dismissed the appellant corporation's bill in a suit to enjoin the appellees, officials of Missouri, from taking proceedings for the revocation of its license to do business in Missouri and for making the amount of an annual franchise tax, with penalties, damages, and interest a lien upon its property in that state.
prosecution of its interstate business. In compliance with the laws of Missouri applicable to corporations formed in other states desirous of transacting business in Missouri, appellant filed with the Secretary of State its articles of incorporation and amended articles showing an increase in its capital stock, paid license taxes aggregating $6,401.50, and obtained a license and authority to engage "exclusively in the business of transporting crude petroleum by pipeline." It thereby acquired the right of eminent domain under the laws of the state.
with such action and proceedings upon the ground that the statute, as applied to appellant, contravenes the commerce clause of the Constitution of the United States. After a hearing, the court below rendered a final decree against appellant dismissing its bill.
The tax is one upon the privilege or right to do business, State ex rel. v. State Tax Commission, 282 Mo. 213, and if appellant is engaged only in interstate commerce, it is conceded, as it must be, that the tax, so far as appellant is concerned, constitutionally cannot be imposed. It long has been settled that a state cannot lay a tax on interstate commerce in any form, whether on the transportation of subjects of commerce, the receipts derived therefrom, or the occupation or business of carrying it on. Leloup v. Port of Mobile, 127 U. S. 640, 127 U. S. 648; Kansas City Ry. v. Kansas, 240 U. S. 227, 240 U. S. 231, and cases cited. Plainly, the operation of appellant's pipeline is interstate commerce, and beyond the power of state taxation. Eureka Pipe Line Co. v. Hallanan, 257 U. S. 265, 257 U. S. 272; United Fuel Gas Co. v. Hallanan, 257 U. S. 277. But the contention in justification of the tax is that appellant is also engaged in doing local business, the basis of such contention being the facts concerning its ownership and use of property, other than the pipeline, and its various acts and activities within the state hereinbefore recited, and, further, that the purposes for which it is incorporated, as declared in its articles, comprehend other activities than that of transporting petroleum -- namely, the acquisition and operation of telegraph and telephone lines, dealing in and transporting merchandise, etc.
"Wherever a separation in fact exists between transportation service wholly within the state and that between the states, a like separation may be recognized between the control of the state and that of the nation. Osborne v. Florida, 164 U. S. 650; Pullman Co. v. Adams, 189 U. S. 420."
that question in the affirmative. What was the purpose of the company in establishing an office in the City of Philadelphia? Manifestly for the furtherance of its business interests in the matter of its commercial relations. . . . Again, the plaintiff in error does not exercise, or seek to exercise, in Pennsylvania any privilege or franchise not immediately connected with interstate commerce and required for the purposes thereof. Before establishing its office in Philadelphia, it obtained from the Secretary of the Commonwealth the certificate required by the act of the state legislature of 1874 enabling it to maintain an office in the state. That office was maintained because of the necessities of the interstate business of the company, and for no other purpose. A tax upon it was therefore a tax upon one of the means or instrumentalities of the company's interstate commerce, and, as such, was in violation of the commercial clause of the Constitution of the United States."
were but the performance of acts accessory to and inhering in the right to make the interstate commerce shipments, and therefore to admit the power because of their existence to burden the right to ship in interstate commerce would necessarily be to recognize the authority to directly burden such right."
The present case comes within the reasoning of the two decisions last cited. The business actually carried on by appellant was exclusively in interstate commerce. The maintenance of an office, the purchase of supplies, employment of labor, maintenance and operation of telephone and telegraph lines and automobiles, and appellant's other acts within the state were all exclusively in furtherance of its interstate business, and the property itself, however extensive or of whatever character, was likewise devoted only to that end. They were the means and instrumentalities by which that business was done, and in no proper sense constituted or contributed to the doing of a local business. The protection against imposition of burdens upon interstate commerce is practical and substantial. and extends to whatever is necessary to the complete enjoyment of the right protected. Heyman v. Hays, supra, p. 236 U. S. 186.
"The maintenance of the Boston office and the display therein of a supply of samples are in furtherance of the company's interstate business, and have no other purpose. Like the employment of the salesmen, they are among the means by which that business is carried on, and share its immunity from state taxation."
It will thus be seen that there is nothing in this decision upon which the decree under review can properly rest. Its effect is entirely the other way.
far as this case is concerned, the power to tax depends upon what was done, and not upon what might have been done. Moreover, the license issued by the state authorized appellant to engage "exclusively in the business of transporting crude petroleum by pipeline."
Nor is it material that appellant applied for and received a Missouri license, or that it had the power thereunder to exercise the right of eminent domain. These facts could not have the effect of conferring upon the state an authority, denied by the federal Constitution, to regulate interstate commerce. 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 statute as applied to appellant is unconstitutional.
The Court assumes without discussion that, if, in Missouri, the company is engaged exclusively in interstate commerce, the tax assessed upon the Ozark Company is bad. It concludes upon discussion that the business actually done by the company within that state is exclusively interstate commerce because the article with which it deals in not produced within Missouri and the physical operations of the company within the state relate directly or indirectly to transporting the article through it. Under the rule applied, every tax laid by any state upon the corporate franchise (properly so called) of every corporation, domestic or foreign, must be void, in the absence of congressional authorization, where the corporation is actually engaged exclusively in what is deemed interstate commerce. I find in the Constitution no warrant for the assumption which leads to such a result.
Orleans, 264 U. S. 150. Nor is the tax laid upon the privilege of doing business. It is laid upon the privilege of carrying on business in corporate form, of doing so with a usual place of business within the state, and with power to exercise for that purpose the right to eminent domain. The office within the state is the corporation's main office. The property physically located within the state constitutes more than half of all its property. The operations actually performed within the state include, among others, mechanical operations indispensable to the conduct of the business, and extensive auxiliary activities. The business which the company sought and obtained leave to do in corporate form is intrastate or interstate, or both. The broad powers sought and granted it still possesses and seeks to retain.
Can it be said that this tax directly burdens interstate commerce? A tax is a direct burden if laid upon the operation or act of interstate commerce. Thus, a tax is a direct burden where it is upon property moving in interstate commerce, Champlain Realty Co. v. Brattleboro, 260 U. S. 366; Eureka Pipe Line Co. v. Hallanan, 257 U. S. 265; United Fuel Gas Co. v. Hallanan, 257 U. S. 277; or where, like a gross receipts tax, it lays a burden upon every transaction in such commerce, Crew Levick Co. v. Pennsylvania, 245 U. S. 292, 245 U. S. 297. But a tax is not a direct burden merely because it is laid upon an indispensable instrumentality of such commerce, or because it arises exclusively from transactions in interstate commerce. Thus, a tax is valid although imposed upon property used exclusively in interstate commerce, Transportation Co. v. Wheeling, 99 U. S. 273, 99 U. S. 284; Old Dominion S.S. Co. v. Virginia, 198 U. S. 299, 198 U. S. 306; or although laid upon net income derived exclusively from interstate commerce, United States Glue Co. v. Oak Creek, 247 U. S. 321; Shaffer v. Carter, 252 U. S. 37, 252 U. S. 57. Compare Peck & Co. v. Lowe, 247 U. S. 165; Wagner v.
City of Covington, 251 U. S. 95. These taxes were held valid because, unlike a gross receipts tax, they do not withhold, "for the use of a state, a part of every dollar received in such transactions." See Crew Levick Co. v. Pennsylvania, 245 U. S. 297. Surely the tax upon the corporate franchise is as indirect as the tax upon the pipeline.
I find in the commerce clause no warrant for thus putting a state to the choice of either abandoning the corporate franchise tax or discriminating against intrastate commerce, [Footnote 4] nor for denying to a state the right to encourage the conduct of business by natural persons through imposing, for the enjoyment of the corporate privilege, an annual tax so small that it cannot conceivably be deemed an obstruction of interstate commerce.
It is now one-twentieth of 1 percent of that fraction of the whole capital stock and surplus which is proportionate to the fraction in value of the total assets of the corporation which are located within the state. The question of a limit upon the amount of the tax discussed in Baltic Mining Co. v. Massachusetts, 231 U. S. 68, 231 U. S. 87, and International Paper Co. v. Massachusetts, 246 U. S. 135, 246 U. S. 140, is not material here.
If the tax assessed is held void, the statute will in fact discriminate against intrastate commerce, for the tax is confessedly valid as applied to all corporations which do not engage exclusively in interstate commerce.
It applies also to corporations organized under the laws of a foreign country.
See the discussion of Adams Express Co. v. Ohio state Auditor, 165 U. S. 194, by Thomas Reed Powell, 32 Harv.Law Rev. 251, 261, 262.

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