While the state may not directly tax imported goods or the right
to sell them, or impose license fees upon importers for the
privilege of selling, so long as the goods remain in the original
packages and are unincorporated into the general property,
Brown v.
Maryland, 12 Wheat. 419, when the article has lost
its distinctive character as an import and been mingled with other
property, it becomes subject to the taxing power of the state.
May v. New Orleans, 178 U. S. 496.
When a foreign manufacturer establishes a permanent place of
business in this country for the sale of imported articles,
although the bulk of the proceeds may be sent abroad, such proceeds
as are retained here as cash in bank and notes receivable, and are
used in connection with the business, lose the distinctive
character which protects them under the federal Constitution and
become capital invested in business in the state and carried on
under it protection, and are subject to taxation by the laws of
that state.
Whether this rule applies to open accounts for goods sold not
decided, the state court not having passed on that question.
184 N.Y. 275 affirmed.
This is a writ of error to the Supreme Court of the State of New
York to review the judgment rendered upon a remittitur from the
Court of Appeals of the same state wherein an assessment of taxes
against the plaintiff in error, imposed by the Board of Taxes and
Assessments of the City of New York, who are the defendants in
error, was affirmed. The taxes were for the year 1903, and were
imposed under the statutes of the State of New York taxing
nonresidents of the state doing business in the state on the
capital invested in such business, as personal property at the
place where such business is carried on, to the same extent as if
they were residents of the state. N.Y. General Tax Law, c. 908,
Laws of 1896, § 7.
The respondents, in the return to the writ of certiorari
issued
Page 208 U. S. 15
by the Supreme Court of New York, stated that the method by
which the assessment for the year 1903 was arrived at was as
follows:
"On the statement submitted to us (schedule A), it appeared that
the relator was a corporation organized under the laws of the
Kingdom of Great Britain and Ireland, that it had procured a
certificate authorizing it to do business in this state, that the
business of the corporation proposed to be carried on within this
state, stated in its application under the provisions of chapter
687 of the Laws of 1892, was importers, that the place within the
state named in said application as its principal place of business
was 409 West Fourteenth Street, that the company transacted
business within this state at No. 409 West Fourteenth Street, in
the City of New York, Borough of Manhattan, and that the company
was assessed by the State Comptroller for $124,000."
"It further appeared that the relator kept a wareroom and
offices in the Borough of Manhattan to which it sent its products
from Ireland in unbroken original packages to be sold; that on all
these goods it paid duties to the United States; that the proceeds
of the goods were at once remitted to the main office in Dublin,
after reserving the necessary amount for paying the expenses of the
business conducted in the City of New York; that the value of the
goods on hand, as shown in the statement, was about the average
amount of the goods usually kept here for sale, that the greater
part of the cash on hand and in bank was in process of transmission
to the main office; that the bank account was, to a very large
extent, kept to cover the payment of duties on the goods shipped
here for sale; and that the entire amount of bills receivable
resulted from the sales of imported goods in unbroken original
packages, as did the cash on hand and in bank."
The amount receivable on notes and open accounts
was stated to be . . . . . . . . . . . . . . . . . .
$111,751.53
The value of goods, wares, and merchandise in
this state . . . . . . . . . . . . . . . . . . . . .
45,841.21
Page 208 U. S. 16
The value of safes, fixtures, and furniture in
this state . . . . . . . . . . . . . . . . . . . . . 797.68
Cash on hand and in bank . . . . . . . . . . . . . . .
6,122.63
Cost price of imported goods on hand in unbroken
original packages. . . . . . . . . . . . . . . . . .
45,841.21
Amount of bills and accounts payable incurred for
items included in the sales and assets enumerated. .
24,053.91
"It was admitted that the amount invested in business in this
state was $797.68, which was the value of the relator's safes,
fixtures, and furniture in this state."
"From all this evidence we determined that the relator had, on
the second Monday of January, 1903, established and was conducting
a permanent and continuous business in this state."
"We further determined that the amount receivable on notes and
open accounts, and the cash on hand and in bank, constituted
capital of the relator invested in its business in this state, and
that such items were properly assessable by us. We accordingly
fixed the assessment against the relator for the year 1903 for
capital invested in business in this state at the sum of $94,600,
which amount was approximately the aggregate value of the amount
receivable on notes and open accounts, the safes, fixtures, and
furniture in this state, and the cash on hand and in bank, less the
amount of bills and accounts payable incurred for the items
included in the sales and assets enumerated in said statement"
The assessment was confirmed when brought for review upon
certiorari before the New York supreme court, which judgment was
affirmed in the appellate division, and the latter judgment was
affirmed by the Court of Appeals (184 N.Y. 275), from which
judgment, upon remittitur, the judgment was rendered in the supreme
court, to which this writ of error is prosecuted.
Page 208 U. S. 19
MR. JUSTICE DAY delivered the opinion of the Court.
It is the contention of the plaintiff in error that the
assessment upon $94,617.93, made upon office furniture, cash on
hand and in bank, and the amount receivable upon bills and accounts
payable, is void, except as to the item of office furniture,
because of the protection afforded by the Constitution of the
United States against taxes by states upon imports.
As to the open accounts which might be included in the bills
receivable, the Court of Appeals declined to pass upon the
Page 208 U. S. 20
validity of the taxes on them, as, according to the practice in
that state, it was incumbent upon the relator to point out what
part on the bills receivable were of that class, but did hold that
the cash, and the notes which, it was admitted, were held in New
York until maturity, although the proceeds of sale of goods
imported and sold in the original packages, were properly within
the taxing power of the State of New York under the section of the
statute referred to, and that such exercise of power did not
violate the Constitution of the United States.
The section of the Constitution relied upon by the plaintiff in
error in the argument in this Court is Article I, § 10, which
provides:
"No state shall, without the consent of the Congress, lay any
imposts or duties on imports or exports, except what may be
absolutely necessary for executing its inspection laws, and the net
produce of all duties and imposts laid by any state on imports or
exports shall be for the use of the Treasury of the United States,
and all such laws shall be subject to the revision and control of
the Congress."
The contention of the learned counsel for plaintiff in error is
succinctly stated in his brief as follows:
"The ground taken by the plaintiff in error is that the tax on
the proceeds of the goods in original packages in the course of
transmission to the owner abroad is, in essence and effect, a tax
upon the sale of said goods, and therefore a tax upon imports and a
violation of the Constitution under the principle laid down in
Brown v.
Maryland, 12 Wheat. 419, and the cases following
that decision."
The case referred to (
Brown v. Maryland) is the leading
one upon this subject, and has been cited perhaps as often as any
of the great decisions of Chief Justice Marshall, and not attempted
to be modified in the subsequent decisions of this Court. In that
case, this section, as well as Article I, § 8, the commerce clause
of the Constitution, were given consideration by the Court. It was
held that an act of the State of Maryland
Page 208 U. S. 21
which required an importer of foreign merchandise, under certain
penalties, to take out a license from the state, for which he
should be taxed $50, before he should be authorized to sell the
imported articles in the original packages was in violation of the
commerce clause of the Constitution and within the prohibition on
the states of the right to levy duty on importations. And in this
connection, the Chief Justice discussed and laid down certain
general principles by which to determine whether an act of the
legislature does interfere with the paramount purpose of the
Constitution in these respects.
In a late case in this Court,
Brown v. Maryland is
fully considered, and the following propositions are said to be
established in that case:
"1. That the payment of duties to the United States gives the
right to sell the thing imported, and that such right to sell
cannot be forbidden or impaired by a state."
"2. That a tax upon the thing imported during the time it
retains its character as an import and remains the property of the
importer, 'in his warehouse, in the original form or package in
which it was imported,' is a duty on imports within the meaning of
the Constitution; and"
"3. That a state cannot, in the form of a license or otherwise,
tax the right of the importer to sell; but when the importer has so
acted upon the goods imported that they have become incorporated or
mixed with the general mass of property in the state, such goods
have then lost their distinctive character as imports, and have
become from that time subject to state taxation not because they
are the products of other countries, but because they are property
within the state in like condition with other property that should
contribute, in the way of taxation, to the support of the
government which protects the owner in his person and estate."
May v. New Orleans, 178 U. S. 496,
178 U. S.
507.
In
Cook v. Pennsylvania, 97 U. S.
566, it was held that the tax by the state on the amount
of sales of goods made by sales by an auctioneer of imported goods,
before incorporation into
Page 208 U. S. 22
the general property in the state, was a tax on the goods
themselves. Previous cases were reviewed by Mr. Justice Miller, and
the result of them stated to be:
"The tax on sales made by an auctioneer is a tax on the goods
sold within the terms of this last decision, and, indeed, within
all the cases cited, and, when applied to foreign goods sold in the
original packages of the importer, before they have become
incorporated into the general property of the country, the law
imposing such tax is void as laying a duty on imports."
And in the late case of
American Steel & Wire Co. v.
Speed, 192 U. S. 518,
the distinction was pointed out between taxes upon goods imported
from abroad -- imported in the legal sense -- and those sent from
another state, as to which latter class of merchandise the states
have the power, after the goods reach their destination and are
held for sale, to tax them, whereas, following
Brown v.
Maryland, where goods are imported in the strict sense, they
preserve their character as imports so long as they are not sold in
the original packages in which they are imported or by the act of
the importer incorporated into the general property of the
state.
It may be stated as the result of the decision that, as to
imported goods, the state may not impose taxes directly upon the
goods or upon the right to sell them, or impose license fees upon
importers for the privilege of selling, so long as the goods remain
in the original package unincorporated into the general property.
All such attempts at taxation are in violation of the Constitution,
and void.
But in
Brown v. Maryland and in subsequent cases in
this Court, the principle is recognized, as was stated by Chief
Justice Marshall in the original case, that this prohibition in the
Constitution should be carried "no further than to prevent the
states from doing that which it was the great object of the
Constitution to prevent" -- which was interference with either the
collection of duties upon imports or the right of the importer, who
has paid duty, to sell the imported goods in the unbroken packages
in which they were imported.
Page 208 U. S. 23
The Chief Justice instanced the case of the peddler who carried
goods unpacked from the original packages for sale through the
country, and the case of the importer of plate for his own use,
whose privileges did not extend beyond the protection of the right
of the importer to sell in the original packages, and whose conduct
in reference to the goods had been such as to destroy their
character as original packages and mingle them with the goods and
property of the country, and thus, notwithstanding their
importation, to make them, for the purpose of taxation, part of the
general property of the country and liable to contribute, in
consideration of the protection received, to the general welfare,
by way of taxes levied for public purposes. This right of taxation
by the state was distinctly recognized in
May v. New Orleans,
supra, where the goods imported in the original packages were
separated therefrom and placed on the shelves and counters of the
importing merchant.
The exact question in this case is has a condition of facts
arisen which renders applicable the principle that the thing taxed
has lost its distinctive character as an import in such sense that
it has become subject to the taxing power of the state?
The power of the State of New York to impose a tax upon the cash
and these notes as capital employed in a business within the state,
laying aside for the moment the question as to their character as
proceeds of the sale of imports, cannot be doubted in view of the
previous decisions of this Court. Particularly, the recent case of
Metropolitan Life Insurance Co. of New York v. City of New
Orleans, decided at the last term,
205 U.
S. 395, wherein it was held that those engaged in the
business of lending money in a state, being nonresidents of the
same, might be taxed upon the capital employed in such business
precisely as the state could tax the capital of its own
citizens.
The constitutional protection, as we have seen, is intended to
secure the right to bring in, and to sell in the original
packages,
Page 208 U. S. 24
the goods imported; and, that this right may not be impaired,
direct taxes upon goods or license taxes for the privilege of sale
cannot be levied, and the decision in
Brown v. Maryland
recognizes that the importer may lose this right of protection by
mingling such goods with other property, and altering their
character as importations in original packages, and making them by
his conduct subject to the taxing power of the state. And we think
the same principle may be applied to the proceeds of the sale of
the goods, which, while not directly taxable as such, any more than
the goods themselves, may be dealt with by the owner in such wise
as to become subject to taxation as other property.
And we think such a case is presented in the facts now before
us. The plaintiffs in error have established a warehouse and place
of business in the State of New York for the sale of their imported
goods. This business is of a permanent character; the goods are
constantly received and sold and replaced by other goods. Cash is
deposited in bank in New York, and is subject to use as the needs
of the business may require. In this business, it takes notes for
sales of such goods. These notes are not directly transmitted to
its home office in Dublin, but are held for collection in
connection with the business in New York, and while the bulk of the
proceeds may be sent abroad, sufficient sums are retained to meet
the expenses of the business and pay duties on subsequent
importations of goods.
We think the constitutional protection afforded the importer
against state action does not require the property thus held and
used to be exempted from state taxation. While it is true that a
large proportion of proceeds of the notes after collection are sent
to the home office of the plaintiffs in error, they are not taxed
in transit as the proceeds of sale of imported goods, for the notes
are held in New York for collection, and, when paid, a part of the
proceeds are held for other purposes in connection with the
business, and the balance remitted to the home office.
Page 208 U. S. 25
By reason of this course of conduct, we think these proceeds
have lost that distinctive character which would give them the
right to the protection of the federal Constitution under the
clause invoked, and the cash taxed and the amount of these notes
have become capital invested in business in the State of New York,
which business is carried on under the protection of the laws of
that state, and, so far as the capital is invested in it, is
subject to taxation by the laws of the state.
We think the Court of Appeals did not err, and the judgment of
the Supreme Court rendered upon remittitur from the Court of
Appeals is
Affirmed.
