Source: https://supreme.justia.com/cases/federal/us/358/450/
Timestamp: 2019-04-26 05:58:34+00:00

Document:
business in this State." [Footnote 4] The Act defines the latter as including "any activities or transactions" carried on within the State "for the purpose of financial profit or gain," regardless of its connection with interstate commerce. To apportion net income, the Act applies a three-factor ratio based on inventory, wages and gross receipts. Under the Act, the State Revenue Commissioner assessed and collected a total of $1,478.31 from respondent for the taxable years 1952, 1954 and 1955, and, after claims for refund were denied, the respondent filed this suit to recover such payments. It bases its right to recover squarely upon the constitutionality of Georgia's Act under the Commerce and the Due Process Clauses of the Constitution of the United States.
It has long been established doctrine that the Commerce Clause gives exclusive power to the Congress to regulate interstate commerce, and its failure to act on the subject in the area of taxation nevertheless requires that interstate commerce shall be free from any direct restrictions or impositions by the States. Gibbons v. Ogden, 9 Wheat. 1 (1824). In keeping therewith, a State "cannot impose taxes upon persons passing through the state, or coming into it merely for a temporary purpose" such as itinerant drummers. Robbins v. Taxing District, 120 U. S. 489, 120 U. S. 493-494 (1887). Moreover, it is beyond dispute that a State may not lay a tax on the "privilege" of engaging in interstate commerce, Spector Motor Service v. O'Connor, 340 U. S. 602 (1951). Nor may a State impose a tax which discriminates against interstate commerce either by providing a direct commercial advantage to local business, Memphis Steam Laundry Cleaner v. Stone, 342 U. S. 389 (1952); Nippert v. City of Richmond, 327 U. S. 416 (1946), or by subjecting interstate commerce to the burden of "multiple taxation," Michigan-Wisconsin Pipe Line Co. v. Calvert, 347 U. S. 157 (1954); Adams Mfg. Co. v. Storen, 304 U. S. 307 (1938). Such impositions have been stricken because the States, under the Commerce Clause, are not allowed "one single tax-worth of direct interference with the free flow of commerce." Freeman v. Hewit, 329 U. S. 249, 329 U. S. 256 (1946).
Id. at 247 U. S. 174-175. The first case in this Court applying the doctrine to interstate commerce was that of United States Glue Co. v. Town of Oak Creek, 247 U. S. 321 (1918). There the Court distinguished between an invalid direct levy which placed a burden on interstate commerce and a charge by way of net income derived from profits from interstate commerce. This landmark case and those usually cited as upholding the doctrine there announced, i.e., Underwood Typewriter Co. v. Chamberlain, 254 U. S. 113 (1920), and Memphis Natural Gas Co. v. Beeler, 315 U. S. 649 (1942), dealt with corporations which were domestic to the taxing State (United States Glue Co. v. Town of Oak Creek, supra), or which had "established a commercial domicile'" there, Underwood Typewriter Co. v. Chamberlain, supra; Memphis Natural Gas Co. v. Beeler, supra.
Id. at 266 U. S. 282. Likewise, in Norfolk & W. R. Co., supra, North Carolina was permitted to tax a Virginia corporation on net income apportioned to North Carolina on the basis of mileage within the State. These cases stand for the doctrine that the entire net income of a corporation, generated by interstate, as well as intrastate, activities, may be fairly apportioned among the States for tax purposes by formulas utilizing in-state aspects of interstate affairs. In fact, in Bass, Ratcliff & Gretton, the operations in the taxing State were conducted at a loss, and still the Court allowed part of the over-all net profit of the corporation to be attributed to the State. A reading of the statute in Norfolk & W. R. Co. reveals further that one facet of the apportionment formula was specifically designed to attribute a portion of the interstate hauls to the taxing State.
by levies in domiciliary States. [Footnote 5] But that question is not before us. It was argued in Northwest Airlines v. Minnesota, 322 U. S. 292 (1944), that the taxation of the entire fleet of its airplanes in that State would result in multiple taxation, since other States levied taxes on some proportion of the full value thereof. The Court rejected this contention as being "not now before us," even though other States actually collected property taxes for the same year from Northwest upon "some proportion" of the full value of its fleet. [Footnote 6] Here the records are all to the contrary. There is nothing to show that multiple taxation is present. We cannot deal in abstractions. In this type of case, the taxpayers must show that the formula places a burden upon interstate commerce in a constitutional sense. This they have failed to do.
340 U.S. at 340 U. S. 609. We find that the statutes here meet these tests.
it "is free to pursue its own fiscal policies, unembarrassed by the Constitution. . . ." Id. at 311 U. S. 444.
The Court nevertheless pointed out that such payments did "not abridge the power of taxation of . . . the home State." 322 U.S. at 322 U. S. 295.
See also Alpha Portland Cement Co. v. Massachusetts, 268 U. S. 203, 216 (1925), where this Court, striking down a Massachusetts excise tax on a foreign corporation engaged exclusively in interstate commerce, noted that "[t]he right to lay taxes on tangible property or on income is not involved; . . . "
Furthermore, none of the cases which the dissent relies on for the proposition that "no State has the right to lay a tax on interstate commerce in any form . . . " was a net income tax case. In fact, all involved taxes levied upon corporations for the privilege of engaging in interstate commerce. This Court has consistently held that the "privilege" of engaging in interstate commerce cannot be granted or withheld by a State, and that the assertion of state power to tax the "privilege" is, therefore, a forbidden attempt to "regulate" interstate commerce. Cf. Murdock v. Pennsylvania, 319 U. S. 105, 319 U. S. 112-113 (1943).
Since United States Glue Co. v. Town of Oak Creek, 247 U. S. 321, decided in 1918, this Court has uniformly held that a State, in applying a net income tax of general impact to a corporation doing business within its borders, may reach income derived from interstate commerce to the extent that such income is fairly related to corporate activities within the State. See, e.g., Shaffer v. Carter, 252 U. S. 37, 252 U. S. 57; Atlantic Coast Line R. Co. v. Daughton, 262 U. S. 413, 262 U. S. 416. See also Underwood Typewriter Co. v. Chamberlain, 254 U. S. 113, 254 U. S. 119-120; Bass, Ratcliff & Gretton, Ltd. v. State Tax Commission, 266 U. S. 271; Norfolk & W. R. Co. v. North Carolina, 297 U. S. 682.
of West is unacceptable. Apart from the fact that the California Supreme Court did not proceed on any such basis (see especially the quotation from the state court's opinion set forth at p. 358 U. S. 461 of this Court's opinion), the only facts elucidated in support of this view of the West cast are that employees of the taxpayer solicited business in California, that they were authorized to receive payments on orders taken by them, to collect delinquent accounts, and to adjust complaints, and that they were given space in California lawyers' offices in return for the use of the taxpayer's books there stored, which locations were also advertised as the taxpayer's local offices. It is said that these are "the usual criteria which this Court has consistently held to constitute the doing of intrastate commerce" and that "California determined and taxed only the amount of that intrastate commerce." With deference, this seems to me to be both novel doctrine and unreal analysis; novel doctrine because this Court has never held that activities of this kind, performed solely in aid of interstate sales, are intrastate commerce; unreal analysis because it is surely stretching things too far to say that California was seeking to measure and tax office renting and complaint adjusting, rather than part of the income from concededly interstate sales transactions.
Indirect Encroachment on Federal Authority by the Taxing Powers of the States. VII, 32 Harv.L.Rev. 634, 639. That nothing in United States Glue turned on the fact that the taxpayer there happened to be a domestic corporation is shown by the line of cases following it where the taxpayers were foreign corporations doing an interstate business. See cases cited ante, p. 358 U. S. 466.
"In any case, even if taxpayer's business were wholly interstate commerce [italics supplied], a nondiscriminatory tax by Tennessee upon the net income of a foreign corporation having a commercial domicile there [citation], or upon net income derived from within the state [citations], is not prohibited by the Commerce Clause on which the taxpayer alone relies [citing, among other cases, United States Glue Co. v. Town of Oak Creek, supra]. There is no contention or showing here that the tax assessed is not upon net earnings justly attributable to Tennessee [citations]."
The West case was a per curiam affirmance without opinion. The Court cited four cases in support: United States Glue Co. v. Town of Oak Creek, 247 U. S. 321; Interstate Busses Corp. v. Blodgett, 276 U. S. 245; Memphis Natural Gas Co. v. Beeler, 315 U. S. 649, 315 U. S. 656; International Shoe Co. v. Washington, 326 U. S. 310. Not one of these cases presented the issue now here; in none had the Court to sustain a state net income tax on a business whose revenue derived solely from interstate commerce.
See, e.g., Wallace v. Hines, 253 U. S. 66, 253 U. S. 67; Pullman's Palace Car Co. v. Pennsylvania, 141 U. S. 18; Adams Express Co. v. Ohio State Auditor, 165 U. S. 194; id., 166 U. S. 166 U.S. 185 (opinion denying rehearing).
See Northwest Airlines, Inc., v. Minnesota, 322 U. S. 292. In Northwest, we pointed to the desirability of congressional action to formulate uniform standards for state taxation of the rapidly expanding airline industry. Following our decision, Congress directed the Civil Aeronautics Board to study and report to Congress methods of eliminating burdensome, multiple state taxation of airlines. See H.R.Doc.No.141, 79th Cong., 1st Sess. This report of the Board was a 158-page document whose length and complex economic content in dealing with only a single subject of state taxation, illustrate the difficulties and nonjudicial nature of the problem. Following the presentation of this extensive report, several bills were introduced into Congress providing for a single uniform apportionment formula to be used by the States in taxing airlines. H.R. 1241, 80th Cong., 1st Sess.; S. 2453, 80th Cong., 2d Sess.; S. 420, 81st Cong., 1st Sess. None of these bills was enacted.
"Corporations, allocation and apportionment of income. -- The tax imposed by this law shall apply to the entire net income, as herein defined, received by every corporation, foreign or domestic, owning property or doing business in this State. Every such corporation shall be deemed to be doing business within this State if it engages within this State in any activities or transactions for the purpose of financial profit or gain, . . . whether or not any such activity or transaction is connected with interstate or foreign commerce."
States, and with the Indian Tribes. . . ." U.S.Const. Art. I, § 8, cl. 3. That clause, "by its own force, created an area of trade free from interference by the States." Freeman v. Hewit, 329 U. S. 249, 329 U. S. 252.
(Emphasis added.) The same declaration was made for the Court by Mr. Justice Butler in East Ohio Gas Co. v. Tax Commission, 283 U. S. 465, 283 U. S. 470, and again by Mr. Chief Justice Hughes in Cooney v. Mountain States Tel. Co., 294 U. S. 384, 294 U. S. 393.
"On the other hand, it has been established since 1918 that a net income tax on revenues derived from interstate commerce does not offend constitutional limitations upon state interference with such commerce. The decision of Peck & Co. v. Lowe, 247 U. S. 165, pointed the way."
"The first case in this Court applying the doctrine (of the Lowe case) to interstate commerce was that of United States Glue Co. v. Town of Oak Creek, 247 U. S. 321."
"any person engaged in business within and without the state shall . . . be taxed only upon that proportion of such income as is derived from business transacted . . . within the state. . . . In order to determine what part of the income of a corporation engaged in business within and without the state . . . is to be taxed as derived from business transacted . . . within the state, reference is had to a formula prescribed by another statute,"
indeed mainly, from interstate commerce is settled. United States Glue Co. v. Town of 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. . . . The profits of the corporation were largely earned by a series of transactions beginning with manufacture in Connecticut and ending with sale in other States. In this, it was typical of a large part of the manufacturing business conducted in the State. The Legislature, in attempting to put upon this business its fair share of the burden of taxation, was faced with the impossibility of allocating specifically the profits earned by the processes conducted within its borders. It therefore adopted a method of apportionment which, for all that appears in this record, reached, and was meant to reach, only the profits earned within the State."
The Court next takes up the case of Memphis Natural Gas Co. v. Beeler, 315 U. S. 649. That case does not at all hold that "exclusively interstate commerce" may be taxed by a State. It, too, holds just the contrary. There, Memphis Natural Gas Company purchased gas in Louisiana which it transported through its interstate pipe line to Tennessee, where it sold 20 percent of it in interstate commerce, but it delivered 80 percent of it to Memphis Power & Light Company.
from business done wholly within the state, excluding earnings arising from interstate commerce."
"In any case, even if taxpayer's business were wholly interstate commerce, a nondiscriminatory tax by Tennessee upon the net income of a foreign corporation having a commercial domicile there, cf. Wheeling Steel Corp. v. Fox, 298 U. S. 193, or upon net income derived from within the state, Shaffer v. Carter, 252 U. S. 37, 252 U. S. 57; Wisconsin v. Minnesota Mining & Mfg. Co., 311 U. S. 452; cf. New York ex rel. Cohn v. Graves, 300 U. S. 308, is not prohibited by the commerce clause on which alone taxpayer relies. United States Glue Co. v. Town of Oak Creek, 247 U. S. 321; Underwood Typewriter Co. v. Chamberlain, 254 U. S. 113, 254 U. S. 119-120. . . ."
The first sentence of that quotation caused Mr. Justice Burton to say, in Spector Motor Service v. O'Connor, 340 U. S. 602, 340 U. S. 609, note 6, that the statement was "not essential to the decision in the case." But it is a mistake to say that Mr. Chief Justice Stone's language even comes near holding that exclusively interstate commerce may be taxed by a State. Note that he spoke of a foreign corporation "having a commercial domicile" in the taxing State. That connotes the conduct of intrastate commerce in the taxing State, such as was involved in the Fox case which he cited, i.e., the maintenance in the taxing State of the taxpayer's "principal office" in which its principal officers were located and conducted their business, and where a duplicate stock ledger and the records of capital stock transactions of the taxpayer were continuously kept. Of course, that conduct amounted to the doing of intrastate commerce, and naturally the State could tax that intrastate commerce. And that's all the State did in Fox. Interstate commerce was not taxed either in Beeler or in Fox.
The Court then cites Bass, Ratcliff & Gretton, Ltd. v. State Tax Commission, 266 U. S. 271, and Norfolk & W. R. Co. v. North Carolina, 297 U. S. 682. But, from the Court's own recitals respecting those cases, it appears that the taxpayers there "carried on substantial local activities" within the taxing States, which permitted the States to lay taxes on that intrastate commerce, "measured on a proportional formula." Those cases are exactly in line with the United States Glue, Underwood, and Beeler cases. They did not sustain a state tax on exclusively interstate commerce.
27 Cal.2d 705, 707, 166 P.2d 861, 862. That finding established the usual criteria which this Court has consistently held to constitute the doing of intrastate commerce. California determined and taxed only the amount of that intrastate commerce. It did not tax any interstate commerce. This Court, in its per curiam affirmance, cited the landmark Commerce Clause cases of United States Glue Co. v. Town of Oak Creek, supra; Memphis Natural Gas Co. v. Beeler, supra, and the landmark Due Process Clause case of International Shoe Co. v. Washington, 326 U. S. 310. Surely this makes it clear that at least this Court did not sustain any tax on interstate commerce.
The Court's quotation from Wisconsin v. Minnesota Mining & Manufacturing Co., 311 U. S. 452, shows on its face that Wisconsin there taxed only income "attributable to earnings within the taxing state. . . ."
Citing Alpha Portland Cement Co. v. Massachusetts, 268 U. S. 203; Ozark Pipe Line Corp. v. Monier, 266 U. S. 555, and referring, for comparison, to Interstate Oil Pipe Line Co. v. Stone, 337 U. S. 662, 337 U. S. 669; Joseph v. Carter & Weekes Stevedoring Co., 330 U. S. 422; Freeman v. Hewit, 329 U. S. 249.
340 U.S. at 340 U. S. 609-610. It is not plain that this recent case holds that "exclusively" interstate commerce may not be taxed by a State?
The fact that such taxes may be fairly or "properly apportioned" is without legal consequence, for "The constitutional infirmity of such a tax persists no matter how fairly it is apportioned to business done within the state." Spector Motor Service v. O'Connor, supra, 340 U.S. at 340 U. S. 609. That this Court has always sustained state taxes on fairly determined amounts of intrastate income should be evident enough from the shown fact that it has struck them down only when there was none.
In these circumstances, I submit it is idle to say that the taxes were not laid "on" interstate commerce, but on the taxpayer's general income after all commerce had ended, and, therefore, did not burden, nor hence regulate, interstate commerce. For, in addition to the plainness of the fact, the courts of Minnesota and Georgia have explicitly held in these cases that the income involved was derived "exclusively [from] interstate commerce," and that the taxes were laid on that income. The taxes do not purport to have been, and could not have been, laid on any income derived from intrastate commerce in those States, for there was none. It necessarily follows that the taxes were "laid on income from [interstate commerce] because of its source," Peck & Co. v. Lowe, supra, at 247 U. S. 174, just as in Spector Motor Service v. O'Connor, supra.
Northwestern did not qualify, under Minnesota laws, to do business in that State. During the years involved, it maintained a small sales office in Minneapolis where it employed two salesmen and a secretary. Her duties were wholly clerical. It also employed from two to three salesmen at other points in Minnesota who worked out of their homes. Apart from a small amount of furniture in its Minneapolis office and two salesmen's automobiles, it owned no property within the State, nor did it have a bank account therein, and all salaries and reimbursable expenses of the salesmen and the secretary, office rent, telephone bills and all other expenses of the Minneapolis office, were paid directly from the home office. The salesmen solicited and took orders from dealers, but they were not authorized to accept orders or make contracts for the company, nor were they authorized to receive payments, collect accounts or adjust claims. Orders which they received were mailed to the home office for approval of credit and for acceptance or rejection. The orders were acknowledged and accepted or rejected in writing, mailed from the home office directly to the purchasers. Accepted orders were filled by delivery of the cement to a rail carrier, f.o.b. plant at Mason City, and consigned to the purchasers. Sales invoices were prepared in and mailed from the home office directly to the purchasers, who made payment directly to the company at its home office. The salesmen also called on contractors and other users of cement, not to solicit orders, but for the purpose of acquainting them with the merits of Northwestern's product and of advising them of the names of the local dealers where it might be purchased. There was evidence which might have supported a finding that these salesmen sometimes, in effect, took orders from contractors for, and delivered them to, local dealers who stocked Northwestern's cement, and thus were engaged in the local business of selling cement for such dealers. Cheney Brothers Co. v. Massachusetts, 246 U. S. 147, 246 U. S. 155. But no such finding was made, and there is more than colorable basis for believing that Minnesota did not press for such a finding, as any such practice could easily be ended by Northwestern and Minnesota's evident object was not to rest on such a basis, but to obtain an adjudication that its statute, § 290.03, validly imposed a tax upon Northwestern's net income from Minnesota customers though derived "exclusively [from] interstate commerce."

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