Source: https://supreme.justia.com/cases/federal/us/312/359/case.html
Timestamp: 2016-10-28 16:05:32
Document Index: 314836637

Matched Legal Cases: ['§ 6943', '§ 237', '§ 344', '§ 6943', '§ 6943', '§ 6943']

Nelson v. Sears, Roebuck & Co. (full text) :: 312 U.S. 359 (1941) :: Justia U.S. Supreme Court Center Log In
› Nelson v. Sears, Roebuck & Co.
Nelson v. Sears, Roebuck & Co. 312 U.S. 359 (1941)
U.S. Supreme CourtNelson v. Sears, Roebuck & Co., 312 U.S. 359 (1941)Nelson v. Sears, Roebuck & Co.No. 255Argued January 13, 14, 1941Decided February 17, 1941312 U.S. 359CERTIORARI TO THE SUPREME COURT OF IOWA
The Iowa Use Tax Act, complementing a sales tax, requires every retailer maintaining a place of business within the State, at the time of making sales of tangible personal property for use within the State, to collect from the purchaser the tax imposed. The amount required to be collected is made a "debt" of the retailer to the State. Failure to collect the tax subjects a foreign corporation to revocation of its permit to do business within the State. Held that a foreign corporation which maintained retail stores in Iowa may constitutionally be required to collect the tax in respect of mail orders, sent by Iowa purchasers to out-of-state branches of the corporation and filled by direct shipment by mail or common carrier from those branches to the purchasers, Page 312 U. S. 360 even though such orders were not solicited or placed by any of the corporation's agents in Iowa. Pp. 312 U. S. 361, 312 U. S. 364.
This case involves the constitutionality of the Iowa Use Tax, Iowa Code 1939, §§ 6943.102-6943.125, as applied to respondent's mail order business conducted directly between customers in Iowa and respondent's mail order houses located outside Iowa. The Supreme Court of Iowa, in a five to four decision, held for respondent Page 312 U. S. 361 on that issue. Sears, Roebuck & Co. v. Roddewig, 228 Iowa 1273, 292 N.W. 130. We granted certiorari because of the importance of the constitutional question presented. 311 U.S. 630. Jud.Code § 237(b), 28 U.S.C. § 344(b).
By § 6943.112, the tax constitutes a "debt owed by the retailer" to the state. [Footnote 2] And if the retailer Page 312 U. S. 362 fails to collect the tax, etc., his retailer's permit, § 6943.084, may be revoked, and in case of a foreign corporation, its permit to do business in the state as well. § 6943.122.
The Iowa Supreme Court held that, if respondent had limited its activities to a mail order business of the kind here involved, it would not be doing business in Iowa; Page 312 U. S. 363 that, although technically the tax may be one the purchaser, it must be collected when the sale is made, at which time the property is outside the state; that these sales are separate and distinct from respondent's activities in Iowa. It therefore concluded that the tax as applied was unconstitutional, since Iowa has no power to regulate respondent's activities outside the state or to regulate such activities as a condition to respondent's right to continue to do business in the state.
It passing on the constitutionality of a tax law, "we are concerned only with its practical operation, not its definition or the precise form of descriptive words which may be applied to it." Lawrence v. State Tax Comm'n, 286 U. S. 276, 286 U. S. 280; Southern Pacific Co. v. Gallagher, 306 U. S. 167, 306 U. S. 177; Wisconsin v. J. C. Penney Co., 311 U. S. 435. The fact that, under Iowa law, the sale is made outside the state does not mean that the power of Iowa "has nothing on which to operate." Wisconsin v. J. C. Penney Co., supra. The purchaser is in Iowa, and the tax is upon use in Iowa. The validity of such a tax, so far as the purchaser is concerned, "has been withdrawn from the arena of debate." Henneford v. Silas Mason Co., 300 U. S. 577, 300 U. S. 583; Southern Pacific Co. v. Gallagher, supra. It is one of the well known functions of the integrated use and sales tax to remove the buyers' temptation "to place their orders in other states in the effort to escape payment of the tax on local sales." Henneford v. Silas Mason Co., supra, p. 300 U. S. 581. As pointed out in that case (p. 300 U. S. 582), the fact that the buyer employs agencies of interstate commerce in order to effectuate his purchase is not material, since the tax is "upon the privilege of use after commerce is at an end." And see Southern Pacific Co. v. Gallagher, supra. Use in Iowa is what is taxed, regardless of the time and place of passing title and regardless of the time the tax is required to be paid. Cf. McGoldrick v. Berwind-White Coal Mining Co., 309 U. S. 33, 309 U. S. 49. Page 312 U. S. 364
Nor is the mode of enforcing the tax on the privileges of these Iowa transactions any discrimination against interstate commerce. As we have seen, the use tax and the sales tax are complementary. Sales made wholly within Iowa carry the same burden as these mail order sales. A tax or other burden obviously does not discriminate against interstate commerce where "equality Page 312 U. S. 365 is the theme." Henneford v. Silas Mason Co., supra, pp. 300 U. S. 583-586; McGoldrick v. Berwind-White Coal Mining Co., supra, pp. 309 U. S. 48-49.
Respondent, however, insists that the duty of tax collection placed on it constitutes a regulation of and substantial burden upon interstate commerce, and results in an impairment of the free flow of such commerce. It points to the fact that, in its mail order business, it is in competition with out of state mail order houses which need not and do not collect the tax on their Iowa sales. But those other concerns are not doing business in the state as foreign corporations. Hence, unlike respondent, they are not receiving benefits from Iowa for which it has the power to exact a price. Respondent further stresses the cost to it of making these collections and its probable loss as a result of its inability to collect the tax on all sales. [Footnote 4] But cost and inconvenience inhered in the same duty imposed on the foreign corporations in the Monamotor and Felt & Tarrant cases. And, so far Page 312 U. S. 366 as assumed losses on tax collections are concerned, respondent is in no position to found a constitutional right on the practical opportunities for tax avoidance which its method of doing business affords Iowa residents, or to claim a constitutional immunity because it may elect to deliver the goods before the tax is paid.
The controversy arises only over pure mail order sales. These are consummated in the following manner: the respondent forwards to persons in Iowa catalogues detailing Page 312 U. S. 367 the articles it has for sale, the prices, and the cost of transporting them. A person in Iowa forwards his written order to one of the respondent's mail order houses located outside Iowa for the purchase of tangible personal property as listed and priced in respondent's catalogue, the order being accompanied by a remittance of the purchase price, plus transportation charges, and usually specifying the method of transportation desired by the purchaser. The order is accepted or rejected at the place where it is received, and, if accepted, is filled by delivery to the post office or to a carrier for direct shipment from the extra-state mail order house to the purchaser in Iowa.
The method necessarily pursued in the respondent's mail order business makes it a certainty that it will be unable, by whatever practical efforts it may put forth, to collect the amount of the use tax on all its mail order sales made to persons in Iowa. In 1937, the number of its mail order transactions with some 300,000 persons in Iowa was approximately 1,200,000. Under the statute as attempted to be enforced against its mail order business, if, in 1937, the respondent had failed to collect from each customer the sum involved as tax, it would have been liable to Iowa in the aggregate for two percent on approximately $5,400,000 -- the volume of its Iowa mail order business in that year. If it had made the effort to collect the tax, the cost of so doing would have been approximately eighteen percent of the total tax on the mail order sales made to persons in Iowa and, in addition to that cost, the respondent would have been liable Page 312 U. S. 368 for approximately $38,000 of tax uncollected from purchasers. In addition, as a result of the exaction, the respondent's mail order business will be placed at a serious disadvantage in competition with other mail order concerns which have no retail stores in Iowa, and so have a price advantage of two percent. of sales price as against respondent.
Not only so, but Iowa may not directly burden such commerce. Therefore, she may not tax the privilege of engaging in it, regulate or license its pursuit, [Footnote 2/3] or tax the Page 312 U. S. 369 gross income derived from it. [Footnote 2/4] And even if the respondent maintained a force of agents in Iowa soliciting orders to be shipped in interstate commerce, that fact would not render it amenable to the regulation or taxation of its mail order business. [Footnote 2/5]
Iowa may not abuse its conceded power to tax or regulate the respondent's activities within the State by attempting to compel compliance by the respondent with unconstitutional efforts to tax or burden its interstate commerce. [Footnote 2/9] And Iowa may not forfeit, as it proposes to do, the right to conduct a domestic business by reason of the refusal of the respondent to submit to a burden upon its interstate business. [Footnote 2/10] Page 312 U. S. 370
In justification of the exaction, it is said that the purchaser is in Iowa and the tax is on the purchaser's use in that State. But, if these facts were determinative, they would justify the imposition of a tax or burden, by the Page 312 U. S. 371 state of the purchaser's residence, on every transaction in which goods are sold in interstate commerce. Attention is also called to the fact that Iowa cannot effectively reach its own citizens in order to enforce the use tax on them. This cannot, however, justify the state's attempt to save itself trouble by placing an unconstitutional burden upon interstate commerce conducted by a citizen of another state. Reference is made to the circumstance that, as a similar tax is laid on local sales in Iowa, there is no discrimination in imposing the tax or its collection upon the respondent, but the argument will not serve to legalize the tax. A state cannot justify a burden on interstate commerce by laying a similar burden on local commerce. [Footnote 2/12]
"The sales are consummated outside the Iowa in each instance. They are separate and distinct from plaintiff's activities in Iowa. The statute here challenged seeks to impose upon plaintiff the obligation that it 'shall, at the time of making such sales, whether within or without the state, collect the tax imposed by this chapter from the purchaser.' The sales are made outside of Iowa, and the statute requires plaintiff to collect the tax at the time the sales are made. It clearly seeks to regulate activities of plaintiff outside the state. . . . Under repeated pronouncements of the Supreme Court of the United States, hereinbefore reviewed and quoted from, the Iowa has no such right. "Page 312 U. S. 372