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NORTHWESTERN CEMENT CO. V. MINNESOTA, 358 U. S. 450 - Volume 358 - 1959 - Full Text - US Supreme Court Center - USSC Cases - Nolo
US Supreme Court Center > Volume 358 > NORTHWESTERN CEMENT CO. V. MINNESOTA, 358 U. S. 450 (1959) > Full Text
This is an appeal from judgments of Minnesota's courts upholding the assessment by the State of income taxes for the years 1933 through 1948 against appellant, an Iowa corporation engaged in the manufacture and sale of cement at its plant in Mason City, Iowa, some forty miles from the Minnesota border. The tax was levied under § 290.03 [Footnote 1] of the Minnesota statutes, which imposes an annual tax upon the taxable net income of residents and nonresidents alike. One of four classes taxed by the statute is that of
Minnesota has utilized three ratios in determining the portion of net income taxable under its law. [Footnote 2] The first is that of the taxpayer's sales assignable to Minnesota during the year to its total sales during that period made everywhere; the second, that of the taxpayer's total tangible property in Minnesota for the year to its total tangible property used in the business that year wherever situated. The third is the taxpayer's
Georgia levies a tax [Footnote 3] on net incomes "received by every corporation, foreign or domestic, owning property or doing
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.
That there is a "need for clearing up the tangled underbrush of past cases" with reference to the taxing power of the States is a concomitant to the negative approach resulting from a case-by-case resolution of "the extremely limited restrictions that the Constitution places upon the states. . . ." State of Wisconsin v. J. C. Penney Co., 311 U. S. 435, 311 U. S. 445 (1940). Commerce between the States having grown up like Topsy, the Congress meanwhile not having undertaken to regulate taxation of it, and the States having understandably persisted in their efforts to get some return for the substantial benefits they have afforded it, there is little wonder that there has been no end of cases testing out state tax levies. The resulting judicial application of constitutional principles to specific state statutes leaves much room for controversy and confusion, and little in the way of precise guides to the States in the exercise of their indispensable power of taxation. This Court alone has handed down some three hundred full-dress
opinions spread through slightly more than that number of our reports. As was said in Miller Bros. Co. v. Maryland, 347 U. S. 340, 347 U. S. 344 (1954), the decisions have been
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).
commerce does not offend constitutional limitations upon state interference with such commerce. The decision of Peck & Co. v. Lowe, 247 U. S. 1, pointed the way. There, the Court held that, though true it was that the Constitution provided "No Tax or Duty shall be laid on Articles exported from any State," Art. I, § 9, still a net income tax on the profits derived from such commerce was not
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.
carrying its fair share of the costs of the state government in return for the benefits it derives from within the State. The levies are not privilege taxes based on the right to carry on business in the taxing State. The States are left to collect only through ordinary means. The tax, therefore, is "not open to the objection that it compels the company to pay for the privilege of engaging in interstate commerce." Underwood Typewriter Co. v. Chamberlain, supra, at 254 U. S. 119. As was said in Wisconsin v. Minnesota Mining & Mfg. Co., 311 U. S. 452, 311 U. S. 453 (1940),
While the economic wisdom of state net income taxes is one of state policy not for our decision, one of the "realities" raised by the parties is the possibility of a multiple burden resulting from the exactions in question. The answer is that none is shown to exist here. This is not an unapportioned tax which, by its very nature, makes interstate commerce bear more than its fair share. As was said in Central Greyhound Lines of New York v. Mealey, 334 U. S. 653, 334 U. S. 661 (1948),
Id. at 334 U. S. 670. Logically it is impossible, when the tax is fairly apportioned, to have the same income taxed twice. In practical operation, however, apportionment formulas being what they are, the possibility of the contrary is not foreclosed, especially
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.
It is also contended that Spector Motor Service v. O'Connor, 340 U. S. 602 (1951), requires a contrary result. But there it was repeatedly emphasized that the tax was "imposed upon the franchise of a foreign corporation for the privilege of doing business within the State. . . ." Thus, it was invalid under a long line of precedents, some of which we have mentioned. [Footnote 7] It was not a levy on net
340 U.S. at 340 U. S. 609. We find that the statutes here meet these tests.
Nor will the argument that the exactions contravene the Due Process Clause bear scrutiny. The taxes imposed are levied only on that portion of the taxpayer's net income which arises from its activities within the taxing State. These activities form a sufficient "nexus between such a tax and transactions within a state for which the tax is an exaction." Wisconsin v. J. C. Penney Co., supra, at 311 U. S. 445. It strains reality to say, in terms of our
decisions, that each of the corporations here was not sufficiently involved in local events to forge "some definite link, some minimum connection" sufficient to satisfy due process requirements. Miller Bros. Co. v. Maryland, 347 U. S. 340, 347 U. S. 344-345 (1954). See also Ott v. Miss. Valley Barge Line Co., 336 U. S. 169 (1949); International Shoe Co. v. Washington, 326 U. S. 310 (1945), and West Publishing Co. v. McColgan, supra. The record is without conflict that both corporations engage in substantial income-producing activity in the taxing States. In fact, in No. 12, almost half of the corporation's income is derived from the taxing State's sales which are shown to be promoted by vigorous and continuous sales campaigns run through a central office located in the State. While, in No. 33, the percent of sales is not available, the course of conduct was largely identical. As was said in Wisconsin v. J. C. Penney Co., supra, the "controlling question is whether the state has given anything for which it can ask return." Since, by
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.
As I read the cases, the existence of some income from intrastate business on the part of the taxed corporation, while sometimes adverted to, has never been considered essential to the valid taxation of such "interstate" income. The cases upholding taxes of this kind cannot, in my opinion, properly be said to rest on the theory that the income earned from the carrying on of interstate commerce was not in fact being taxed, but rather was being utilized simply to measure the income derived from some separate, but unidentified, intrastate commerce, which income was in truth the subject of the tax. That this is so seems to me apparent from United States Glue itself. There, the Court explicitly recognized that the question before it was whether net income from exclusively interstate commerce could be taxed by a State on an apportioned basis together with other income of a corporation. The careful distinction, drawn more than once in the course of the opinion, between gross receipts from interstate commerce, assumed to be immune from state taxation, and net income therefrom, 247 U.S. at 247 U. S. 324, 247 U. S. 326-329, would be altogether meaningless if the case is to be explained on the basis suggested by my dissenting brethren, for if all that was in fact being taxed was income from intrastate commerce there is no reason why gross receipts
as well as net income could not have been reached by the State. [Footnote 2/1]
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.
I think that West squarely governs the two cases now before us. [Footnote 2/2]
I think it no more a "regulation of," "burden on," or "interference with" interstate commerce to permit a State within whose borders a foreign corporation engages solely in activities in aid of that commerce to tax the net income derived therefrom on a properly apportioned basis than to permit the same State to impose a nondiscriminatory net income tax of general application on a corporation engaging in both interstate and intrastate commerce therein and to take into account income from both categories. Cf. Peck & Co. v. Lowe, 247 U. S. 165. In each case, the amount of the tax will increase as the profitability of the interstate business done increases. This Court has
As early as 1919, such a discriminating commentator as the late Thomas Reed Powell had this to say, in commenting on the decisions of this Court in Peck & Co. v. Lowe, 247 U. S. 165, and United States Glue Co. v. Town of Oak Creek, supra:
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.
Apart from the considerations discussed in the text of this opinion, it is noteworthy that the Court in West, in relying on Memphis Natural Gas Co. v. Beeler, 315 U. S. 649, cited directly to page " 315 U. S. 656" of the Beeler opinion, where it was said:
"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 case that argumentatively comes the closest to the situation now before the Court is West Publishing Co. v. McColgan, 328 U.S. 823. [Footnote 3/1] But in that case too, as the
I venture to say that every other decision -- I say decision, not talk or dicta -- on which reliance is placed, presented a situation where conjoined with the interstate commerce was severable local state business on the basis of which the state taxing power become constitutionally operative. The difference between those situations and this, as a matter of economics, involves the distinction between taking into account the total activity of the enterprise as a going business in determining a fairly apportioned tax based on locally derived revenues, and taxing a portion of revenue concededly produced by exclusively interstate commerce. To be sure, such a distinction is a nice one, but the last word on the necessity of nice distinctions in this area was said by Mr. Justice Holmes in Galveston, H. & S.A. R. Co. v. Texas, 210 U. S. 217, 210 U. S. 225:
First. It will not, I believe, be gainsaid that there are thousands of relatively small or moderate size corporations doing exclusively interstate business spread over several States. To subject these corporations to a separate income tax in each of these States means that they will have to keep books, make returns, store records, and engage legal counsel, all to meet the divers and variegated tax laws of forty-nine States, with their different times for filing returns, different tax structures, different modes for determining "net income," and different, often conflicting, formulas of apportionment. This will involve large increases in bookkeeping, accounting, and legal paraphernalia to meet these new demands. the cost of such a far-flung scheme for complying with the taxing requirements of the different States may well exceed the burden of the taxes themselves, especially in the case of small companies doing a small volume of business in several States. [Footnote 3/2]
Second. The extensive litigation in this Court which has challenged formulas of apportionment in the case of railroads and express companies [Footnote 3/3] -- challenges addressed
The problem calls for solution by devising a congressional policy. Congress alone can provide for a full and thorough canvassing of the multitudinous and intricate factors which compose the problem of the taxing freedom of the States and the needed limits on such state taxing power. [Footnote 3/4] Congressional committees can make
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.
Northwestern States Portland Cement Company, an Iowa corporation maintaining its principal office and only manufacturing plant in Mason City in that State, has for many years sold its cement locally in Iowa and, in interstate commerce, to dealers in neighboring States, including Minnesota. Although the "exclusively" interstate character of the commerce done by Northwestern in Minnesota is not disputed, the course of its conduct in that State is summarized in the margin. [Footnote 4/1] In 1950, Minnesota,
acting under its statutory "three factor formula" now contained in Minnesota Statutes 1957, § 290.19, M.S.A., [Footnote 4/2] apportioned and allocated to Minnesota a substantial part of Northwestern's net income for each of the years 1933 through 1948. Upon the amount of net income so allocated, Minnesota assessed a tax against Northwestern for each of those years under what is now Minnesota Statutes 1957, § 290.03, M.S.A. which, in pertinent part, provides:
Stockham Valves & Fittings, Inc., is a Delaware corporation maintaining its principal office and only manufacturing plant in Birmingham, Alabama. It makes valves and pipefittings which it sells locally in Alabama and, in interstate commerce, to wholesalers and jobbers in Georgia as well as in all other States of the Union. Although the facts are stipulated and the "exclusively" interstate character of the commerce done by Stockham in Georgia is not in dispute, the course of its conduct in that State is summarized in the margin. [Footnote 4/3] Petitioner, as
State Revenue Commissioner of Georgia, acting under the "Three Factor Ratio" of the Code of Georgia, 1933, as amended, § 92-3113(4), [Footnote 4/4] apportioned and allocated to Georgia a part of Stockham's net income for each of the years 1952, 1954, and 1955. Upon the amounts of net income so allocated, petitioner assessed a tax against Stockham for each of those years under the Code of
"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."
These recitals, if found true, might very well have supported a finding, had there been one, that the taxpayer was engaged in intrastate commerce in Minnesota. Particularly might the statement about the salesmen taking orders from builders, contractors and architects for local dealers have done so, for it was expressly held in Cheney Brothers Co. v. Massachusetts, 246 U. S. 147, 246 U. S. 155, that such conduct amounted to engaging in the local business of selling products for such dealers. But no such finding was made by the Minnesota courts. And there is more than colorable basis for believing that Minnesota did not desire such a finding, as any such practice could easily be ended by Northwestern, and Minnesota's purpose was not to rest on such a basis but to obtain an adjudication that
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.
Leloup v. Port of Mobile, 127 U. S. 640, 127 U. S. 648. And see the thirteen cases in this Court there cited in support of the quoted text. Mr. Justice Brandeis, speaking for the Court in Sprout v. South Bend, 277 U. S. 163, 277 U. S. 171, declared that,
(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.
From this alone, it would seem necessarily to follow that the taxes here challenged, which were laid by the States directly on "exclusively interstate commerce," burdened that commerce, and, hence, regulated it in violation of the Commerce Clause of the Constitution. But there is more. This Court has consistently struck down state taxes which were laid on business that was exclusively interstate in character. Cheney Brothers Co. v. Massachusetts, 246 U. S. 147, 246 U. S. 153; Alpha Portland Cement Co. v. Massachusetts, 268 U. S. 203; Ozark Pipe Line Corp. v. Monier, 266 U. S. 555; Spector Motor Service v. O'Connor, 340 U. S. 602. Cf. 330 U. S. Carter & Weekes Stevedoring Co., 330
The Court recognizes that "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." It then says,
"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."
What way did it point? There, the 1913 federal income tax Act, imposing a tax upon the "entire net income arising or accruing from all sources during the preceding calendar years," was applied by the Federal Government to the whole net income of one who derived about three-fifths of it from "buying goods in the several states, shipping them to foreign countries and there selling them." The question was whether such a tax validly could be imposed in the light of Art. I, § 9, cl. 5 of the Constitution, which provides that "No Tax or Duty shall be laid on Articles exported from any State." This Court held that the export clause only precluded taxation of "articles in course of exportation," and did not prohibit federal taxation of general income of the taxpayer "from all sources," and that the tax was "not laid on income from exportation because of its source," but upon general income "from all sources," and was, therefore, within the federal power to levy. 247 U.S. at 247 U. S. 174. But here, the States of Minnesota and Georgia "laid [the taxes directly] on income from [exclusively interstate commerce] because of its source." They do not contend that they were laid on any intrastate commerce, but admit
"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."
I submit that nothing in that case is authority for the proposition that a State may tax "exclusively interstate commerce." Exactly to the contrary, it sustained a tax only on "that proportion of [the taxpayer's] income derived from business transacted . . . within the state. . . ." 247 U.S. at 247 U. S. 329. That was the whole point of the case. There, the Glue Company, a Wisconsin corporation, maintained its principal office and its only manufacturing plant in the town of Oak Creek in that State. It also maintained stocks in branches in other States. It sold its products both locally in Wisconsin and in other States in interstate commerce, shipping either directly from its plant in Wisconsin or from one of its branches in another State. In the year involved, about one-seventh of its sales were made locally in Wisconsin, four-sevenths of them were made, and the goods shipped from its factory directly to customers in, other States in interstate commerce, and two-sevenths of them were made from stocks in its branches in other States. Wisconsin's income tax statutes provided, in pertinent part, Laws 1911, c. 658, that
"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,"
as one of its several factors. "This formula was applied in apportioning [the taxpayer's] net business income' for the year" involved, which produced an amount substantially exceeding one-seventh of its total income -- the amount of its local sales. "[U]pon the portion thus attributed to the State . . . the tax in question was levied." 247 U.S. at 247 U. S. 323-325. The Glue Company resisted the tax, contending that it was imposed directly upon interstate commerce in violation of the Commerce Clause of the Constitution, and, failing of relief in the Supreme Court of the State, it brought the case here on writ of error. This Court affirmed, concluding that the tax was
247 U.S. at 247 U. S. 329. (Emphasis added.)
Those principles were again made unmistakably clear, and were applied, by Mr. Justice Brandeis, in Underwood Typewriter Co. v. Chamberlain, 254 U. S. 113, next relied on by the Court. That case does not hold that "exclusively interstate commerce" may be taxed by a State. It holds just the contrary. There, Underwood Typewriter Company, though a Delaware corporation, had become a domiciliary of Connecticut, and manufactured all of its machines at its factory in that State. It sold them both locally in Connecticut and in other States in interstate commerce. In the year involved, about 33 percent of its dollar volume of sales was made in Connecticut, and the remainder in other States in interstate commerce. To determine the amount of Underwood's net income derived from intrastate commerce, Connecticut applied the formula prescribed by its apportionment statute. This resulted in a determination that 47 percent of Underwood's net income had been derived from intrastate commerce in Connecticut. Upon that amount it computed and assessed its 2 percent net income tax. This Court, in sustaining the tax over Underwood's objection that it violated the Commerce Clause of the Constitution, said:
"This tax is based upon the net profits earned within the State. That a tax measured by net profits is valid, although these profits may have been derived in part, or
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."
254 U.S. at 254 U. S. 120-121. (Emphasis added.)
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.
315 U.S. at 315 U. S. 652. A Tennessee statute imposed a tax on all foreign and domestic corporations of
from business done wholly within the state, excluding earnings arising from interstate commerce."
Ibid. Acting under that statute, a tax "was laid on [the taxpayer's] net earnings from the distribution of gas under its contract with the Memphis company." 315 U.S. at 315 U. S. 653. This Court said that
315 U.S. at 315 U. S. 653-654. (Emphasis added.) This Court then found that the Supreme Court of Tennessee had correctly construed the contract, and that the taxpayer's activities "constituted participation in the business of distributing the gas to consumers after its delivery into the service pipes of the Memphis company," and sustained the tax, concluding: "There is no contention or showing here that the tax assessed is not upon net earnings justly attributable to Tennessee." 315 U.S. at 315 U. S. 656-657. (Emphasis added.)
It is true that Mr. Chief Justice Stone's opinion in the Beeler case contains the following language at page 315 U. S. 656:
"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. . . ."
Spector Motor Service v. O'Connor, 340 U. S. 602, is quite consistent with the prior cases. There, by a process of elimination, the Court determined what the tax was not in arriving at what it was, and concluded that it was a tax which attached "solely to the franchise of petitioner to do interstate business." The Court then said:
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."