Case Name: STATE v. NORTHWESTERN STATES PORTLAND CEMENT COMPANY
Court: Minnesota Supreme Court
Jurisdiction: Minnesota
Decision Date: 1957-06-14
Citations: 250 Minn. 32
Docket Number: No. 36,826
Parties: STATE v. NORTHWESTERN STATES PORTLAND CEMENT COMPANY.
Judges: 
Reporter: Minnesota Reports
Volume: 250
Pages: 32–83

Head Matter:
STATE v. NORTHWESTERN STATES PORTLAND CEMENT COMPANY.
84 N. W. (2d) 373.
June 14, 1957
No. 36,826.
Joseph A. Maun, Mandt Torrison, William R. Busch, Bundlie, Kelley & Maun, and Smith & Beck, for appellant.
Miles Lord, Attorney General, Perry Voidness, Assistant Attorney General, and Arthur C. Roemer, Special Assistant Attorney General, for respondent.
Certified to United States Supreme Court September 18, 1957.

Opinion:
Matson, Justice.
Defendant taxpayer, a foreign corporation engaged exclusively in interstate commerce, appeals from a judgment in a proceeding by the State of Minnesota to collect income taxes — together with penalties and interest — upon that portion of the taxpayer's total net income which is allocable to Minnesota. The allocated tax relates to income derived solely from interstate commerce business conducted in this state.
Three questions are presented on appeal:
(1) Does the taxpayer have sufficient contact with the State of Minnesota to make it amenable to service of process and subject to the jurisdiction of the Minnesota courts?
(2) Is M. S. A. 290.03 in conflict with, and thus invalid and void under, the due process clause of U. S. Const. Amend. XIV, and Minn. Const, art. 1, § 7, insofar as it imposes a tax on that portion of the net income of a foreign corporation arising out of sales assignable to and activities conducted within Minnesota?
(3) Is § 290.03 in conflict with, and thus invalid and void under, the commerce clause, U. S. Const, art. I, § 8, clause 3, insofar as it imposes a tax on that portion allocable to the taxing state of the net income of a foreign corporation whose business within the taxing state consists exclusively of interstate commerce?
Taxpayer is an Iowa corporation engaged in the manufacture and sale of cement; its principal office and place of business is at Mason City, Iowa. Although the taxpayer maintains an office in Minneapolis and employs several representatives within the state who regularly and systematically solicit orders for the taxpayer's product, the taxpayer has never qualified under M. S. A. 303.03 as a foreign corporation authorized to transact business within this state.
Although in the course of its business in interstate commerce the taxpayer has for over 30 years systematically marketed a substantial part of its products in Minnesota, it has never filed income tax returns in this state. On refusal of the taxpayer to file income tax returns for the fiscal years 1933 through 1948 as required under § 290.03, the commissioner of taxation prepared returns on the basis of the best information available to him, filed these returns for the taxpayer, and assessed against the taxpayer the income taxes shown to be due by the returns. In the preparation of the returns, the commissioner used the three-factor formula prescribed by § 290.19 to determine what portion of the taxpayer's total net income should be allocated to Minnesota and subjected to the income tax imposed by this state. The following application of the formula defines each of the three factors and illustrates the result of their employment in determining the portion of the taxpayer's net income allocable to Minnesota for the year ending November 30, 1948:
(1) The ratio of the taxpayer's sales assignable to Minnesota to its total sales for the year wherever made 48.4493 percent
(2) The ratio of the taxpayer's total tangible property in Minnesota to its total tangible property used in the business that year wherever situated .1142 percent
(3) The ratio of the taxpayer's total payroll in Minnesota to its total payroll for the entire business 1.6484 percent
Total 50.2119 percent
Arithmetical Average 16.7373 percent
The percentages for the three factors were added together for a total of 50.2119 percent and then divided by 3 to give the final arithmetical average of 16.7373 percent which represents the percentage of taxpayer's income allocable to Minnesota for the 1948 fiscal year. The average percentage when applied to taxpayer's 1948 total net income of $852,897.74 — after first deducting therefrom $12,667.57 for non-apportionable income arising from interest and rents derived from property located outside Minnesota — shows for that year as apportionable to Minnesota a taxable net income of $140,631.84. Upon this latter sum of income, which is allocated to Minnesota pursuant to the three-factor formula, the commissioner assessed a tax of $8,370.53 plus certain penalties and interest. Total taxes, penalties, and interest assessed for the fiscal years 1933 to 1948 are $102,536.82.
I
Was Taxpayer Amenable to Jurisdiction of Minnesota Court?
We turn to the first issue to ascertain whether the taxpayer was juridically present in this state as to be amenable to the jurisdiction of our courts. Whether a foreign corporation domiciled in another state is jurisdictionally present so as to be subject to the jurisdiction of the Minnesota courts depends in each case upon the quality and nature of the activities which it carries on within our state. What activity or combination of activities are necessary to constitute jurisdictional presence of a foreign corporation domiciled elsewhere, in order to comply with the due process clause of Amend. XIV, cannot be summarized so as to provide an arbitrary test for all cases. Each case must be determined on its own peculiar facts to ascertain whether the corporation has carried on activities of such a quality and nature that it can be said that it has, as a matter of due process, established contacts, ties, or relations within the forum which give rise to privileges and obligations which reasonably obligate it to respond to any suit brought within the forum.
Whether regular and systematic solicitation of business within the state — which results in a continuous flow of the corporation's products into the state through the channels of interstate commerce — alone and of itself — constitutes jurisdictional presence we need not here determine. It is clear, in any event, however, that such regular and systematic solicitation, when corroborated by other and additional corporate acts or manifestations within the forum, does establish jurisdictional presence in compliance with the requirements of the due process clause. We need not here attempt to define what other acts are sufficient to furnish corroboration since in the present case the corroborative acts are both abundant and jurisdictionally significant. The taxpayer herein not only has regularly and systematically solicited business which has brought through the channels of interstate commerce a continuous flow into this state of its products, but as a further indication of its presence it has systematically carried on many additional activities and services which are summarized in the following four paragraphs.
Factual Summary of Taxpayer's Activities in Minnesota
We turn to the facts as found by the trial court and as sustained by the evidence. For the convenience of its salesmen and customers, the taxpayer rents and maintains in Minneapolis an office which is used to some extent as a central office and serves as a clearinghouse for orders and complaints. A full-time secretary is employed in this office; two telephone lines are maintained; and it is listed in both telephone (alphabetical and classified indexes) and city directories. One of the district representatives is in charge of this office and, with the taxpayer's knowledge, holds himself out as district manager. In addition to office equipment, goodwill advertising and other material, taxpayer owns the automobiles driven by its Minnesota salesmen.
Taxpayer employs five sales representatives in Minnesota, two of whom work out of the Minneapolis office. The salesmen regularly and systematically solicit orders from eligible purchasers — building supply dealers, ready-mix operators, and large contractors. In addition, the salesmen regularly and systematically contact potential customers and users of cement products (inclusive of architects and building and road contractors) to induce them to buy from taxpayer's established local outlets and dealers, promote goodwill and furnish advertising materials to customers, entertain customers, and occasionally receive and forward complaints. The flow of taxpayer's products into Minnesota constitutes about 48 percent of its sales volume.
All taxpayer's Minnesota employees are hired by supervisory personnel from its Mason City office, and no Minnesota employee has authority to hire or fire. Salesmen's territories are assigned by the Mason City office, and vacation schedules are established there. All or ders are subject to acceptance by the office in Mason City, and credit extensions and collections are handled there, the salesmen having no authority to accept orders or extend credit.
The price of taxpayer's cement products is the delivered price to the customer, the sum of the base price plus the freight plus the package. Accordingly, the products are invoiced f. o. b. destination. Freight is prepaid by the taxpayer, and in no case can the customer purchase cement from taxpayer except at a delivered price nor, since taxpayer has no facilities for loading trucks, can the customer pick up cement at taxpayer's plant. Quotations giving both base and delivered price are sent directly to the customer from the Mason City office. Although the salesmen have no authority to give the customer a quotation, they do carry a rate book from which they regularly compute the delivered price to the customer without a quotation. On the request of one of taxpayer's dealers, quotations for specific projects are sent from Mason City to the contractor. Such a quotation cites the dealer's price (f. o. b. dealer's warehouse) to the contractor.
II
Tax Does Not Violate Due Process Clause
The imposition of a net-income tax under § 290.03 upon that portion of the taxpayer's net income which is allocated to Minnesota under the three-factor formula of § 290.19 is not unconstitutional as violating the due process clause of U. S. Const. Amend. XIV, or that of Minn. Const, art. 1, § 7. A nondiscriminatory state tax upon the net income of a foreign corporation engaged solely in interstate business, which is fairly apportioned to and measured by that part of the net income which is derived from business done within the state, contravenes neither the due process clause nor the commerce clause, where the incidence or subject' of the tax is not the privilege of either engaging in, or continuing to engage in, interstate commerce, but is instead those income-producing activities and transactions which, though indirectly related to interstate commerce, have become separated from the flow of that commerce and have become so localized within the state as to compete with, and enjoy the benefits and advantages of, a local business, and which as localized commerce ought to pay their own way and not place other local business at a competitive disadvantage.
Taxpayer's Localized Activities and Transactions Within State Satisfy Requirements of Due Process
We can only conclude that the taxpayer has sufficient factual connections with localized activities and transactions within the state to comply with the requirements of due process. As already noted, the taxpayer maintains within the state several resident representatives who regularly and systematically solicit orders which are forwarded to the corporation's principal business office in the adjoining state for acceptance or rejection. These representatives, in addition to soliciting orders, entertain customers and furnish them with information, receive and forward their complaints, and furthermore, contact prospective users of cement (inclusive of architects and building and road contractors) to induce them to buy cement through and from the taxpayer's established local outlets or dealers. In addition, the taxpayer maintains a local service office, permits its office manager and representative to hold himself out as its district representative, and otherwise engages in the many additional local activities hereinbefore enumerated in a factual summary of taxpayer's activities in Minnesota.
Taxpayer Receives Extensive Benefits of State Governmental Services and Enjoys the Protection of the State Courts
Clearly, this is not a case where a state reaches beyond its borders and fastens its tax talons upon an event having no factual connection with transactions within its borders whereby it is unable to confer anything in return for the exaction. Here instead the taxpayer is present through its extensive localized activities and enjoys, in return for any taxes exacted, the opportunities, protection, and benefits of a modern community serviced by a state government which maintains courts, police, roads, and other services of distinct advantage to the building and maintenance of the taxpayer's tremendous sales volume (48 percent of its total sales volume) through business outlets within the state. It is not amiss to observe that the taxpayer, or its immediate predecessor under a prior incorporation, has already had occasion to seek the benefit and protection of our courts.
Ill
Final Issue — Not in Contravention of Commerce Clause
The tax imposed under § 290.03 not only complies with the requirements of due process but is also not in contravention of the commerce clause since it does not impose a burden upon, or discriminate against, interstate commerce. Tax enactments violate the commerce clause when they either profess to regulate interstate commerce, or affect it so directly as to amount to a regulation, or discriminate against it so as to place it at a disadvantage with intrastate commerce. In the present case we have a net-income tax, limited and apportioned to the income earned from and within the state, which neither burdens nor discriminates against the free flow of interstate commerce. It is purely a general income tax which is not used as a measure or as a substitute for any other tax. It cannot by dictionary definition, legislative intent, or by operative effect be construed or classified as an excise, franchise, or privilege tax. It is not a tax imposed as a condition precedent to the exercise of the privilege of engaging in interstate commerce. Failure to pay the tax does not work a forfeiture of any right to continue to engage in interstate commerce. It is collectible only by resort to the ordinary means of collecting taxes. In this respect it involves no regulation of, or burden upon, interstate commerce.
Statutory Language Precludes an Intent to Impose an Excise Tax or Privilege Tax
A comparison of § 290.02 with the section with which we are here directly concerned, namely § 290.03, is enlightening in disclosing the true nature of the tax An examination of these sections discloses a clear distinction between the excise tax imposed on domestic and foreign corporations for the privilege of transacting business within the state and the income tax imposed under § 290.03. First, the arrangement of the statute is indicative of the legislature's intention to differentiate between these two types of taxes: § 290.02 imposes an excise tax, but § 290.03 imposes purely an income tax. That the annual tax imposed by § 290.03 upon the taxable net income is not an excise or privilege tax measured by net income, but purely a net-income tax wholly unrelated to the privilege of engaging in interstate commerce, becomes clear when we consider the character of the specifically designated types of taxpayers to which it equally and uniformly applies. Clearly, paragraphs (1), (2), (3), and (4) of § 290.03 must be construed together since they relate to the imposition of the same kind of tax on four different classes of taxpayers, namely, on domestic and foreign corporations engaged exclusively in foreign or interstate commerce under paragraph (1); on resident and nonresident individuals under paragraph (2); on estates of decedents dying domiciled within or without the state under paragraph (3); and on trusts created by resident or nonresident persons or by domestic or foreign corporations under paragraph (4). Since the annual net-income tax imposed on individuals under paragraph (2) cannot by any legal legerdemain be construed as an excise or privilege tax, the same yardstick of meaning must be applied to the tax imposed under paragraph (1) upon foreign corporations engaged exclusively in interstate commerce. A similar comparison of paragraphs (3) and (4) with paragraph (1) corroborates this conclusion.
Secondly, the distinction in the nature of these taxes is further emphasized by the provisions of § 290.04, subd. 1, which establishes that liability for the excise tax — although measured by income — arises on the first day of the taxable year, while liability for the income tax arises concurrently with the receipt or accrual of income during the taxable year.
Tax is Nondiscriminatory and Subject to Judicial Review
The tax is also nondiscriminatory. It applies equally to all taxpayers, resident or nonresident, and whether they are engaged in either interstate or intrastate commerce. Significantly Minnesota, in dealing with resident and domestic taxpayers located within its borders and doing business partly within and partly without the state, imposes the tax only on that portion of the income allocable to earnings produced within this state. As applied to nonresident taxpayers engaged in interstate commerce, it is confined to that portion of their income earned from business activities which are fairly apportioned to, and localized within, the state. It is not an arbitrary imposition since the taxpayer has the opportunity of voluntarily preparing and filing his own tax return according to the information which he himself possesses. If any error is thought to occur in the levy, measure, or the amount of the tax as based on his own return, or upon a return prepared for him by the tax commissioner, he may, like any resident taxpayer, petition the state Board of Tax Appeals for relief and after that he has a further right of appeal to this court.
Tax is Fairly Apportioned to Intrastate Net-income Sources and Does Not Impose a Multiple Tax Burden on Interstate Commerce
Taxpayer contends that the tax before us is invalid for the reason that it imposes a multiple tax burden upon its interstate business. Although a tax imposed upon gross receipts or other incidents may be invalid for this reason where not fairly apportioned, such a tax is not invalid if it is fairly apportioned to the commerce carried on within the taxing state. Western Live Stock v. Bureau of Revenue, 303 U. S. 250, 58 S. Ct. 546, 82 L. ed. 823. Likewise, a tax imposed upon net income, if fairly apportioned to sources derived from within the taxing state, does not contravene the requirement of due process even though the taxpayer may be domiciled in another state. Moreover, as hereinafter shown, such a tax does not violate the commerce clause although the income or a part of the income taxed is derived from interstate commerce. The tax before us now is a tax upon net income and it is fairly apportioned to the net profit derived from taxpayer's business activities carried on in this state. It is therefore not invalid as imposing a multiple burden upon taxpayer's interstate business.
Mere Possibility That Iowa May Attempt to Tax Entire Income of Taxpayer Does Not Invalidate Minnesota Tax
We have, however, the suggestion, although there is no support for it in the record, that Iowa, as the domiciliary state, may attempt to impose a tax upon taxpayer's entire net income wherever earned. Most states, including Minnesota, however, permit their domiciliaries to apportion the net income derived from sources within the state and thereby excuse payment of a tax on net income derived from out-of-state sources. Where, however, a domiciliary state does not voluntarily permit the apportionment of the total net income of the taxpayer, the United States Supreme Court has, by its treatment of a potential double tax burden in another situation, indicated that it may require the domiciliary state to permit apportionment. In the analogous situation the court, in dealing with an ad valorem tax, has held that a state other than the corporate domicile may impose a tax on the taxpayer's instrumentalities utilized in interstate commerce. Where, however, a tax is imposed by two or more states on an apportionment basis, the court declared that the domiciliary state is precluded from taxing all of taxpayer's property. If the domiciliary state is required to apportion in the case of an ad valorem tax, there is no reason why it may not be required to do so with respect to a tax imposed upon taxpayer's net income.
A Net-income Tax is Not a Burden on Interstate Commerce
Clearly, a net-income tax places no burden upon interstate commerce. The tax is levied after the interstate commerce transactions localized within the state have been completed, and after all expenses are paid and losses adjusted, and after the taxpayer, as the recipient of the remaining net income, is free to use it as he chooses. Thus the tax is exacted only after the stream of income-producing inter state commerce has ceased to flow. See, Peck & Co. v. Lowe, 247 U. S. 165, 175, 38 S. Ct. 432, 434, 62 L. ed. 1049, 1052. No longer may it be doubted that a tax may be levied on net income derived wholly from operations in interstate commerce, although a tax on that commerce is forbidden.
In McGoldrick v. Berwind-White Co. 309 U. S. 33, 46, 60 S. Ct. 388, 392, 84 L. ed. 565, 570, 128 A. L. R. 876, 880, the court said:
" Not all state taxation is to be condemned because, in some manner, it has an effect upon commerce between the states, and there are many forms of tax whose burdens, when distributed through the play of economic forces, affect interstate commerce, which nevertheless fall short of the regulation of the commerce which the Constitution leaves to Congress. A tax may be levied on net income wholly derived from interstate commerce. Non-discriminatory taxation of the instru-mentalities of interstate commerce is not prohibited. The like taxation of property, shipped interstate, before its movement begins, or after it ends, is not a forbidden regulation."
Spector Motor Service Decision Distinguished
Taxpayer contends, however, that since the rendition of the decision in Spector Motor Service v. O'Connor, 340 U. S. 602, 71 S. Ct. 508, 95 L. ed. 573, no tax, even though it be fairly apportioned and nondiscriminatory, may be levied on the net income of a foreign corporation engaged exclusively in interstate commerce. It is the position of the taxpayer that such a tax may be levied only in those cases where the foreign corporation is engaged in both intrastate and interstate commerce. We cannot agree with this interpretation of the Spector case. The Spector case did not turn on the fact that the foreign corporation was solely engaged in interstate commerce. The nub of the decision is that a net-income tax, even though it be fairly apportioned and nondiscriminatory, may not be imposed on the privilege of engaging in business that is exclusively interstate in character. The Connecticut Supreme Court construed its statute as involving a direct imposition of the tax upon the franchise or privilege of engaging in interstate commerce. The United States Supreme Court clearly accepted this construction as controlling its interpretation. This is not unusual. In Memphis Natural Gas Co. v. Stone, 335 U. S. 80, 84, 85, 68 S. Ct. 1475, 1477, 92 L. ed. 1832, 1838, the court expressly declared that it was bound by the construction of a state statute by the state court. Although the United States Supreme Court has on occasion looked behind a state court's holding that a tax is not a burden upon interstate commerce, it has not done so where the state court has by its construction admitted or declared the tax to be a burden upon that commerce. Since the incidence of the tax in the Spector case was the privilege itself of engaging in interstate commerce, it fell before the commerce clause. The court carefully distinguished those cases in which, as an exception to the general rule that no tax may be levied upon the privilege of engaging in interstate commerce, a state, where a taxpayer is engaged in both intrastate and interstate commerce, is permitted to tax the privilege of carrying on intrastate business and, within reasonable limits, is permitted to apply a fair proportion of the tax to the taxpayer's business which is done within the state. The court refused to extend the application of these hybrid cases to a taxpayer, like Spector, who is engaged exclusively in interstate commerce. The majority expressly stated that (340 U. S. 610, 71 S. Ct 513, 95 L. ed. 579) "the federal privilege of carrying on exclusively interstate commerce" must be kept "free from state taxation." (Italics supplied.)
The court, in the Spector case, carefully pointed out that whether a state may validly make interstate commerce pay its own way depends first of all upon the constitutional channel through which it attempts to do so, citing Freeman v. Hewit, 329 U. S. 249, 67 S. Ct. 274, 91 L. ed. 265, and McLeod v. Dilworth Co. 322 U. S. 327, 64 S. Ct. 1023, 88 L. ed. 1304. Apparently in an effort to prevent misunderstanding of the rule of its holding, and for the purpose of indicating that a constitutional channel is available to the states, the court said (340 U. S. 609, 71 S. Ct. 512, 95 L. ed. 578):
« 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. Those taxes may be imposed although their payment may come out of the funds derived from petitioner's interstate business, provided the taxes are so imposed that their burden will be reasonably related to the powers of the State and nondiscriminatory." (Italics supplied.)
It follows that the Spector decision makes it reasonably clear that there is a constitutional channel for making interstate commerce pay its own way and that this channel gives the state a right to impose taxes upon other activities and aspects of the interstate commerce business which, unlike the privilege of doing interstate business, are subject to the sovereign power of the state despite the fact that such taxes may be derived out of income from interstate business.
Alpha. Portland Cement Co. Decision Distinguished
The Spector decision, in support of its holding that a state may not tax the privilege of carrying on a business that is exclusively interstate in character, cites Alpha Portland Cement Co. v. Massachusetts, 268 U. S. 203, 45 S. Ct. 477, 69 L. ed. 916, wherein an attempt was made to impose an excise tax upon the privilege of engaging in a business solely interstate in character. The Alpha case does nothing more than emphasize the rule that taxes upon the privilege of doing interstate business violate the commerce clause.
Cheney Brothers Co. v. Massachusetts Supports Validity of Tax Herein
In Cheney Brothers Co. v. Massachusetts, 246 U. S. 147, 38 S. Ct. 295, 62 L. ed. 632 (cited in the Alpha case), involving consideration of the validity of an excise tax imposed upon seven foreign corporations, each differently situated, we have a good illustration of the principle that a state may impose a valid tax if the proper constitutional channel is selected. One of the foreign corporations involved therein was the Northwestern Consolidated Milling Company, which, like the instant taxpayer, had localized its business within the state. In uphold ing the validity of the tax upon this corporation, the court said (246 U. S. 155, 38 S. Ct. 297, 62 L. ed. 637):
"This company was incorporated under the laws of Minnesota, operates flour mills there, and sells the flour to wholesale dealers throughout the country. It has an office in Massachusetts where it employs several salesmen for the purpose of inducing local tradesmen to carry and deal in its flour. These salesmen solicit and take orders from retail dealers and turn the same over to the nearest wholesale dealer, who fills the order and is paid by the retailer. Thus the salesman, although not in the employ of the wholesaler, is selling flour for him. Of course this is a domestic business, — inducing one local merchant to buy a particular class of goods from another, — and may be taxed by the State, regardless of the motive with which it is conducted." (Italics supplied.)
In the case at bar we also have salesmen who call upon the users of cement to induce them to give their business to the local dealers who handle the taxpayer's product.
West Publishing Co. v. McColgan Similarly Distinguishes Spector and Alpha Cases and Supports Validity of Income Tax on Foreign Corporations Where Net Income is the Subject as Well as the Measure of the Tax
That our interpretation of the Spector and the Alpha cases is correct is further illustrated by a comparatively recent decision involving facts substantially similar to those of the case at bar, namely, West Publishing Co. v. McColgan, 328 U. S. 823, 66 S. Ct. 1378, 90 L. ed. 1603, affirming 27 Cal. (2d) 705, 166 P. (2d) 861. The West case has been well summarized as follows:
" this company was in the law book publishing business, á Minnesota corporation. The company shipped books and other publications into California pursuant to orders taken by its salesmen who devoted their full time to their jobs in California. These employees had space in lawyers' offices in exchange for the use of books stored there. The California employees were authorized to and did receive payments on orders, collected deliquent [sic] accounts and made adjustments on complaints of customers.
"The State of California cognizant of the fact that a state may not exact a tax for the privilege of doing an exclusively interstate business, imposed an income tax on those corporations not subject to its franchise tax. It made net income the subject as well as the measure of its Corporation Income Tax. It limited the measure of the tax to income from California sources which was understood to mean income from sources of books and periodicals delivered in California. The California Supreme Court sustained the assessment holding that 'a tax on net income from interstate commerce as distinguished from a tax on the privilege of engaging in interstate commerce does not conflict with the commerce clause.' The U. S. Supreme Court unanimously affirmed this decision by a per curiam opinion." (Italics supplied.)
Comparison of West With Spector and Alpha Decisions
In the Spector and Alpha cases, both involving foreign corporations engaged exclusively in interstate commerce, the tax was held invalid because it was imposed directly on the privilege of doing that business. In the West case, however, the tax was valid because it was a tax on the net income from business localized within the state and not a tax on the privilege of engaging in interstate commerce. In connection with the West case, it is significant to note that the California statutory scheme of taxation is similar to that of Minnesota. See Appendix at the end of this opinion.
In the light of the intent, as well as the carefully restricted impact, of our state statutes, as applied to taxpayer's extensive localized activities within Minnesota, we can only conclude that the net-income tax imposed under § 290.03, pursuant to the decisions of the United States Supreme Court, does not contravene the due process clauses of either the Federal or the State Constitutions and does not conflict with the commerce clause.
The trial court is affirmed.
Affirmed.
Appendix to Opinion
In connection with the West decision, it is interesting to note that California's statutory scheme of taxation under its Corporation Income Tax Act of 1937 and Bank and Corporation Franchise Tax Act is very similar to Minnesota's. The California statute provides:
"There shall be levied, collected and paid for each taxable year, a tax upon the net income of every corporation derived from sources within this State . Income from sources within this State includes income from tangible or intangible property located or having a situs in this State and income from any activities carried on in this State, regardless of whether carried on in intrastate, interstate or foreign commerce." Calif. Stat. 1937, c. 765, § 3.
The act excepts from its provision any income included in the measure of the corporate excise tax. The California Supreme Court's determination that the tax as valid was affirmed by the Supreme Court of the United States. West Publishing Co. v. McColgan, 27 Cal. (2d) 705, 166 P. (2d) 861, affirmed, 328 U. S. 823, 66 S. Ct. 1378, 90 L. ed. 1603.
On the other hand, Spector Motor Service v. O'Connor, 340 U. S. 602, 71 S. Ct. 508, 95 L. ed. 573, was concerned with the construction of a statute which, on its face, professed to impose an excise tax for the privilege of transacting business within the state. The Connecticut Corporation Business Tax Act of 1935 imposed, with certain exceptions not involved here, on every corporation carrying on business within the state—
" a tax or excise upon its franchise for the privilege of carrying on or doing business within the state, such tax to be measured by the entire net income received by such corporation from business transacted within the state Conn. Cum. Supp. to Gen. Stat. 1935, § 418c.
This decision comes to the writer by reassignment.
Section 290.03 reads as follows:
"An annual tax for each taxable year, computed in the manner and at the rates hereinafter provided, is hereby imposed upon the taxable net income for such year of the following classes of taxpayers:
"(1) Domestic and foreign corporations not taxable under section 290.02 which own property within this state or whose business within this state during the taxable year consists exclusively of foreign commerce, interstate commerce, or both;
"Business within the state shall not be deemed to include transportation in interstate or foreign commerce, or both, by means of ships navigating within or through waters which are made international for navigation purposes by any treaty or agreement to which the United States is a party;
"(2) Resident and non-resident individuals, except that no non-resident individual shall be taxed on his income from compensation for labor or personal services within this state during any taxable year unless he shall have been engaged in work within this state for more than 150 working days during such taxable year;
"(3) Estates of decedents, dying domiciled within or without this state; and,
"(4) Trusts (except those taxable as corporations) however created by residents or non-residents or by domestic or foreign corporations."
For convenience in comparing § 290.03 with § 290.02, the latter section is set forth below:
"An annual tax is hereby imposed upon every domestic corporation, except those included within section 290.03, for the privilege of existing as a coiporation during any part of its taxable year, and upon every foreign corporation, except those included within section 290.03, for the grant to it of the privilege of transacting or for the actual transaction by it of any local business within this state during any part of its taxable year, in corporate or organized form.
"The tax so imposed shall be measured by such corporations' taxable net income for the taxable year for which the tax is imposed, and computed in the manner and at the rates provided in this chapter."
The 1948 fiscal year represents the year ending November 30, 1948.
See, Schilling v. Roux Distributing Co. Inc. 240 Minn. 71, 59 N. W. (2d) 907; Hartmon v. National Heater Co. 240 Minn. 264, 60 N. W. (2d) 804; Continental C. & S. Management, Inc. v. American Broadcasting Co. 230 Minn. 217, 41 N. W. (2d) 263; Dahl v. Collette, 202 Minn. 544, 279 N. W. 561; Hutchinson v. Chase & Gilbert (2 Cir.) 45 F. (2d) 139.
The symbolic terms present and presence as applied to a foreign corporation in ascertaining if state courts have jurisdiction have been ably discussed in Hutchinson v. Chase & Gilbert, supra, and in Schilling v. Roux Distributing Co. Inc. supra, and, therefore, need no discussion here.
See, United States Glue Co. v. Town of Oak Creek, 247 U. S. 321, 328, 38 S. Ct. 499, 501, 62 L. ed. 1135, 1141, Ann. Cas. 1918E, 748, 750; Memphis Natural Gas Co. v. Stone, 335 U. S. 80, 87, 88, 68 S. Ct. 1475, 1478, 1479, 92 L. ed. 1832, 1839, 1840; Peck & Co. v. Lowe, 247 U. S. 165, 174, 175, 38 S. Ct. 432, 434, 62 L. ed. 1049, 1052; Atlantic Coast Line R. Co. v. Daughton, 262 U. S. 413, 422, 43 S. Ct. 620, 623, 67 L. ed. 1051, 1060; 1953 Wash. U. L. Q. 233, 255.
See, Shaffer v. Carter, 252 U. S. 37, 40 S. Ct. 221, 64 L. ed. 445; Underwood Typewriter Co. v. Chamberlain, 254 U. S. 113, 41 S. Ct. 45, 65 L. ed. 165; United States Glue Co. v. Town of Oak Creek, 247 U. S. 321, 329, 38 S. Ct. 499, 501, 62 L. ed. 1135, 1141, Ann. Cas. 1918E, 748, 750.
See, Western Live Stock v. Bureau of Revenue, 303 U. S. 250, 256, 58 S. Ct. 546, 549, 82 L. ed. 823, 828.
See, Atlantic Coast Line R. Co. v. Daughton, 262 U. S. 413, 422, 43 S. Ct. 620, 623, 67 L. ed. 1051, 1060; West Publishing Co. v. McColgan, 328 U. S. 823, 66 S. Ct. 1378, 90 L. ed. 1603, affirming 27 Cal. (2d) 705, 166 P. (2d) 861; Cheney Brothers Co. v. Massachusetts, 246 U. S. 147, 155, 38 S. Ct. 295, 297, 62 L. ed. 632, 637.
See, International Harvester Co. v. Dept. of Treasury, 322 U. S. 340, 349, 64 S. Ct. 1019, 1023, 88 L. ed. 1313, 1319; Gwin, White & Prince, Inc. v. Henneford, 305 U. S. 434, 59 S. Ct. 325, 83 L. ed. 272; Western Live Stock v. Bureau of Revenue, 303 U. S. 250, 259, 58 S. Ct. 546, 550, 82 L. ed. 823, 830; 1953 Wash. U. L. Q. 233, 242, 243, 253; 56 Dickinson L. Rev. 107, 109, 110; McGoldrick v. Berwind-White Co. 309 U. S. 33, 60 S. Ct. 388, 84 L. ed. 565, 128 A. L. R. 876.
See, Norton Co. v. Dept. of Revenue, 340 U. S. 534, 539, 71 S. Ct. 377, 381, 95 L. ed. 517, 521. An analogous situation arose with respect to the Northwestern Consolidated Milling Company in Cheney Brothers Co. v. Massachusetts, 246 U. S. 147, 155, 38 S. Ct. 295, 297, 62 L. ed. 632, 637.
See, Hartman, State Taxation of Interstate Commerce, p. 117.
See, McGoldrick v. Berwind-White Co. 309 U. S. 33, 60 S. Ct. 388, 84 L. ed. 565.
Altman & Keesling, Allocation of Income in State Taxation, p. 29.
Underwood Typewriter Co. v. Chamberlain, 254 U. S. 113, 41 S. Ct. 45, 65 L. ed. 165.
For convenience in making a comparison, the two sections, § 290.02 and 290.03, are set forth in full in footnotes 2 and 3.
Adams Mfg. Co. v. Storen, 304 U. S. 307, 58 S. Ct. 913, 82 L. ed. 1365; Gwin, White & Prince, Inc. v. Henneford, 305 U. S. 434, 59 S. Ct. 325, 83 L. ed. 272; Case of State Freight Tax, 82 U. S. (15 Wall.) 232, 21 L. ed. 146; Michigan-Wisconsin Pipe Line Co. v. Calvert, 347 U. S. 157, 74 S. Ct. 396, 98 L. ed. 583; Western Live Stock v. Bureau of Revenue, 303 U. S. 250, 58 S. Ct. 546, 82 L. ed. 823.
Shaffer v. Carter, 252 U. S. 37, 40 S. Ct. 221, 64 L. ed. 445; Underwood Typewriter Co. v. Chamberlain, 254 U. S. 113, 41 S. Ct. 45, 65 L. ed. 165; New York ex rel. Whitney v. Graves, 299 U. S. 366, 57 S. Ct. 237, 81 L. ed. 285; Altman & Keesling, Allocation of Income in State Taxation, p. 29.
United States Glue Co. v. Town of Oak Creek, 247 U. S. 321, 38 S. Ct. 499, 62 L. ed. 1135, Ann. Cas. 1918E, 748; Underwood Typewriter Co. v. Chamberlain, 254 U. S. 113, 41 S. Ct. 45, 65 L. ed. 165; Shaffer v. Carter, 252 U. S. 37, 40 S. Ct. 221, 64 L. ed. 445; Altman & Keesling, Allocation of Income in State Taxation, p. 29.
Altman & Keesling, Allocation of Income in State Taxation, p. 31; M. S. A. 290.19.
Standard Oil Co. v. Peck, 342 U. S. 382, 72 S. Ct. 309, 96 L. ed. 427; Braniff Airways v. Nebraska Board, 347 U. S. 590, 74 S. Ct. 757, 98 L. ed. 967.
United States Glue Co. v. Town of Oak Creek, 247 U. S. 321, 38 S. Ct. 499, 62 L. ed. 1135, Ann. Cas. 1918E, 748; Shaffer v. Carter, 252 U. S. 37, 57, 40 S. Ct. 221, 227, 64 L. ed. 445, 459; see, McGoldrick v. Berwind-White Co. 309 U. S. 33, 47, 60 S. Ct. 388, 392, 84 L. ed. 565, 570, 128 A L. R. 876, 880; Memphis Natural Gas Co. v. Beeler, 315 U. S. 649, 656, 62 S. Ct. 857, 862, 86 L. ed. 1090, 1097; West Publishing Co. v. McColgan, 328 U. S. 823, 66 S. Ct. 1378, 90 L. ed. 1603, affirming 27 Cal. (2d) 705, 166 P. (2d) 861.
Kraus, The Implications of the Spector Motor Service Case, 56 Dickinson L. Rev. 107, 112.
The relatively recent Pennsylvania Supreme Court decision in Com monwealth v. Eastman Kodak Co. 385 Pa. 607, 124 A. (2d) 100, is neither controlling nor in point. In that case the incidence of the tax was held to be the franchise or privilege of doing interstate commerce.The Kodak Company did not maintain a service office within Pennsylvania for the convenience of its customers and salesmen. Furthermore, the Kodak Company did not have a local manager; did not contact prospective users of its products to persuade them to patronize its local dealers; and did not, in any material degree, carry on the systematic local activities characteristic of the taxpayer herein. In the instant case the taxpayer is present in Minnesota through its extensively localized activities and these activities — unlike those in the Pennsylvania case — provide the necessary incidence for the tax.