Court Opinion

ID: 9691047
Source: CourtListenerOpinion
Date Created: 2023-08-24 20:05:35.695838+00
Date Added: 2024-06-11T18:19:09.672364
License: Public Domain

Frank T. Gallagher, Justice
(dissenting).
In the instant case the trial court found that the defendant corporation’s “activities in this state were an integral part of its interstate activities, and all revenue received by it from customers in Minnesota resulted from its operations in interstate commerce.”
In its memorandum made a part of the decision the court said: “Obviously this tax is a tax upon the net income of a foreign corporation whose business is exclusively that of foreign commerce or interstate commerce or both.” There was evidence to sustain suqh a finding and statement.
The majority appear to take the position, however, that the business which defendant did in Minnesota is large enough that it has become in effect a local business. It seems to me that the fact that the shipments into this state are extensive cannot change the nature of the business from that of interstate commerce, as found by the trial court, to intrastate commerce and thus form the basis of a finding of local activities upon which to sustain this tax.
In determining the constitutionality of a state tax on a foreign corporation’s net income, it is necessary to distinguish those situations where the corporation is carrying on both intrastate or local business and inter*81state commerce in the taxing state from those situations where the corporation does only interstate business and all of its activities in the taxing state are therefore an integral part of interstate commerce.
From the holding in Spector Motor Service v. O’Connor, 340 U. S. 602, 71 S. Ct. 508, 95 L. ed. 573, a state tax, if reasonably measured, would be valid where the foreign corporation is engaged in both interstate and intrastate commerce in the taxing state but would be void as violating the commerce clause where such a corporation does purely an interstate business and all of its activities in the taxing state are an integral part of interstate commerce. Here we have a situation where it is undisputed from the court’s findings that the activities of the defendant corporation in Minnesota are an integral part of its interstate activities; where all its revenue from Minnesota customers resulted from its operations in interstate commerce; and where, according to the court’s memorandum, the tax is on the net income from business exclusively that of interstate commerce.
In Cheney Brothers Co. v. Massachusetts, 246 U. S. 147, 38 S. Ct. 295, 62 L. ed. 632, and Alpha Portland Cement Co. v. Massachusetts, 268 U. S. 203, 45 S. Ct. 477, 69 L. ed. 916, decided prior to the Spector case, the United States Supreme Court held invalid a Massachusetts tax on the net income of foreign corporations which were engaged only in interstate commerce in that state. As I see it, the Spector case reaffirmed the principle laid down in the Alpha and Cheney cases that a state cannot tax the net income produced by a corporation engaged solely in interstate commerce.
In view of the trial court’s findings in the instant case and the holdings in the Spector, Alpha, and Cheney cases, I cannot agree with the majority that the attempted imposition of the tax here can be sustained. It seems to me that both the facts and taxing statutes involved in the Alpha case bear a close resemblance to the one before us. In that case the State of Massachusetts attempted to impose a 2 1/2-percent tax on that part of the company’s net income derived from the business carried on in that state, not less than a tax of .05 percent on the corporation’s net worth allocable to Massachusetts. In holding the tax invalid under the commerce clause, the United States Supreme Court said (268 U. S. 217, 45 S. Ct. 480, 69 L. ed. 923): “Here also the excise was *82demanded on account of interstate business. A new method for measuring the tax had been prescribed, but that cannot save the exaction. Any such excise burdens interstate commerce and is therefore invalid without regard to measure or amount.”
It appears to me that McGoldrick v. Berwind-White Co. 309 U. S. 33, 60 S. Ct. 388, 84 L. ed. 565, is distinguishable from the case at bar. That was a proceeding to review a determination of the comptroller of New York City assessing a New York City retail sales tax deficiency against a Pennsylvania corporation. The question for consideration there was whether the New York City tax laid upon sales of goods for consumption as applied to the company infringed the commerce clause of the Federal Constitution. As I see it, that case involved only a tax on sales of goods for consumption imposed by New York City where the merchandise was to be used and is not the same situation as here.
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, also is distinguishable. While the facts in that case are not set forth in the per curiam opinion of the United States Supreme Court, the California Supreme Court based its decision upon the finding that there were local activities. In that case the West Publishing Company maintained a stock of merchandise within the State of California. Its salesmen had authority to make and did make adjustments and collect delinquent accounts. With reference to its local activities the California Supreme Court had this to say (27 Cal. [2d] 707, 166 P. [2d] 862):
«* * * During this time it had four regularly employed solicitors in this state who devoted their entire time to plaintiff’s business. Its California employees were authorized to receive payments on orders taken by them, to collect delinquent accounts, and to make adjustments in case of complaints by customers. The employees were given space in the offices of attorneys in return for the use of plaintiff’s books stored in such offices.”
No such local incidents are present here as the defendant company kept no stock of merchandise in Minnesota. All orders were sent directly to the foreign office and all orders were approved and collections and adjustments made out of that office. Rather it appears to me that de*83fendant here has operated along the methods found in the Alpha and Cheney cases where the attempted tax was invalidated because of lack of local activities.
In conclusion, it is my opinion, under the record here, that the activities of the defendant company in Minnesota were an integral part of its interstate commerce; that its Minnesota revenues resulted from its operation in interstate commerce; and that the attempted tax is on the net income of a business exclusively engaged in interstate commerce and therefore cannot stand.
For the reasons set forth I respectfully concur in the dissent of Mr. Justice Nelson.