1 A state tax upon the proportion of the net profits of a
sister-state corporation earned by operations conducted within the
taxing state, the enforcement of which is left to the ordinary
means of collecting taxes, does not violate Art. I, § 8, of the
federal Constitution by imposing a burden upon interstate commerce.
P. 254 U. S.
2. In considering whether a state tax, purporting to be on the
net income of a sister-state corporation earned within the taxing
state, violates the Fourteenth Amendment by reaching income earned
outside, it is not necessary to decide whether it is a direct tax
on income or an excise measured by income. P. 254 U. S.
3. A state tax upon the income of a sister-state corporation
manufacturing its product within the state but deriving the greater
part of its receipts from sales outside the state, which attributes
to processes conducted within the state the proportion of the total
net income which the value of real and tangible personal
Page 254 U. S. 114
owned by the corporation within the state bears to the value of
all its real and tangible personal property is not inherently
unreasonable and calculated to tax income earned beyond the orders
of the state, and, unless it be shown to be so in its application
to the particular case, cannot be held to violate the due process
clause of the Fourteenth Amendment. P. 254 U. S.
that the fact that the amount of net income so
allocated to the taxing state greatly exceeded in this case the
portion actually received there does not prove that income earned
outside was included in the assessment.
5. The principle discussed in Southern Ry. Co. v.
Greene, 216 U. S. 400
216 U. S. 414
respecting the right of a state under the Fourteenth Amendment to
impose discriminatory taxes on a sister-state corporation which had
made large permanent investments in railroad property in the state
before the tax law was enacted is inapplicable to this case,
involving a nondiscriminatory tax on the locally earned income of a
manufacturing corporation. P. 254 U. S. 122
94 Conn. 47 affirmed.
The case is stated in the opinion.
Page 254 U. S. 117
MR. JUSTICE BRANDEIS delivered the opinion of the Court.
This action was brought by the Underwood Typewriter Company, a
Delaware corporation, in the Superior Court for the County of
Hartford, Connecticut, to recover the amount of a tax assessed upon
it by the latter state and paid under protest. The company
contended that, as applied to it, the taxing act violated rights
guaranteed by the federal Constitution. The constitutional
questions involved were reserved by that court for consideration
and advice by the Supreme Court of Errors. The answers to these
questions being favorable to the state, 94 Conn. 47, judgment was
entered by the Superior Court confirming the validity of the tax.
The case comes here on writ of error to that court.
Connecticut established in 1915 a comprehensive system of
taxation, applicable alike to all foreign and domestic corporations
carrying on business within the state. This system prescribes
practically the only method by which such corporations are taxed,
other than the general property tax to which all property located
within the state, whether the owner be a resident or a nonresident,
an individual or a corporation, is subject. The act divides
business corporations into four classes, and the several classes
are taxed by somewhat different methods. The fourth class,
"Miscellaneous Corporations," includes, among others, manufacturing
and trading companies, and with these alone are we concerned here.
Upon their net income earned during the preceding year from
business carried on within the state, a tax of two percent is
imposed annually. The amount of the net income is ascertained by
reference to the income come upon which the corporation
Page 254 U. S. 118
is required to pay a tax to the United States. If the company
carries on business also outside the State of Connecticut, the
proportion of its net income earned from business carried on within
the state is ascertained by apportionment in the following manner:
the corporation is required to state in its annual return to the
tax commissioner from what general source its profits are
principally derived. If the company's net profits are derived
principally from ownership, sale, or rental of real property, or
from the sale or use of tangible personal property, the tax is
imposed on such proportion of the whole net income as the fair cash
value of the real and the tangible personal property within the
state bears to the fair cash value of all the real and tangible
personal property of the company. If the net profits of the company
are derived principally from intangible property, the tax is
imposed upon such proportion of the whole net income as the gross
receipts within the state bear to the total gross receipts of the
company. A corporation aggrieved because of a tax assessed upon it
may, after paying the tax, apply for relief to the Superior Court
for the County of Hartford. There it may show cause why it is not
subject to the tax, or why the tax should have been less. If the
whole tax assessed is found by the court to be proper, it enters
judgment confirming the same. If the tax is found to be for any
reason unauthorized in whole or in part, the court enters judgment
for the company in the amount with interest which it is entitled to
recover, and the state treasurer is directed to pay the same. The
decision of the Superior Court is subject to review by the Supreme
Court of Errors as in other cases. Laws of 1915, c. 292, part IV.
§§ 19-29; Underwood Typewriter Co. v. Chamberlain,
The Underwood Typewriter Company is engaged in the business of
manufacturing typewriters and kindred articles, in selling its
product, and also certain accessories and supplies, which it
purchases, and in repairing and
Page 254 U. S. 119
renting such machines. Its main office is in New York City. All
its manufacturing is done in Connecticut. It has branch offices in
other states for the sale, lease, and repair of machines and the
sale of supplies, and it has one such branch office in Connecticut.
All articles made by it-, and some which it purchases, are stored
in Connecticut until shipped direct to the branch offices,
purchasers, or lessees. In its return to the tax commissioner of
Connecticut, made in 1916 under the above law, the company declared
that its net profits during the preceding year had been derived
principally from tangible personal property; that these profits
amounted to $1,336,586.13; that the fair cash value of the real
estate and tangible personal property in Connecticut was
$2,977,827.67, and the fair cash value of the real estate and
tangible personal property outside that state was $3,343,155.11.
The proportion of the real estate and tangible personal property
within the state was thus 47 percent. The tax commissioner
apportioned that percentage of the net profits, namely $629,668.50,
as having been earned from the business done within the state, and
assessed thereon a tax of $12,593.37, being at the rate of two
percent. The company, having paid the tax under protest, brought
this action in the Superior Court for the County of Hartford to
recover the whole amount.
It is contended that the tax burdens interstate
commerce, and hence is void, under § 8 of Article I of the federal
Constitution. Payment of the tax is not made a condition precedent
to the right of the corporation to carry on business, including
interstate business. Its enforcement is left to the ordinary means
of collecting taxes. St. Louis Southwestern Ry. Co. v.
Arkansas, 235 U. S. 350
235 U. S. 36
Atlantic & Pacific Telegraph Co. v. Philadelphia,
190 U. S. 160
190 U. S. 163
The statute is therefore not open to the objection that it compels
the company to pay for the privileges of engaging in interstate
Page 254 U. S. 120
tax is not obnoxious to the commerce clause merely because
imposed upon property used in interstate commerce, even if it takes
the form of a tax for the privilege of exercising its franchise
within the state. Postal Telegraph Cable Co. v. Adams,
155 U. S. 688
155 U. S. 695
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. U.S. Glue Co. v. Oak
Creek, 247 U. S. 321
Shaffer v. Carter, 252 U. S. 37
252 U. S. 57
compare Peck & Co. v. Lowe, 247 U.
. Whether it be deemed a property tax or a
franchise tax, it is not obnoxious to the commerce clause.
It is contended that the tax violates the
Fourteenth Amendment because, directly or indirectly, it is imposed
on income arising from business conducted beyond the boundaries of
the state. In considering this objection, we may lay on one side
the question whether this is an excise tax, purporting to be
measured by the income accruing from business within the state, or
a direct tax upon that income, for
"this argument, upon analysis, resolves itself into a mere
question of definitions, and has no legitimate bearing upon any
question raised under the federal Constitution."
Shaffer v. Carter, 252 U. S. 37
252 U. S. 55
support of its objection that business outside the state is taxed,
plaintiff rests solely upon the showing that, of its net profits,
$1,293,643.95 was received in other states and $42,942.18 in
Connecticut, while, under the method of apportionment of net income
required by the statute, 47 percent of its net income is
attributable to operations in Connecticut. But this showing wholly
fails to sustain the objection. 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
Page 254 U. S. 121
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. "The plaintiff's
argument on this branch of the case," as stated by the Supreme
Court of Errors,
"carries the burden of showing that 47 percent of its net income
is not reasonably attributable, for purposes of taxation, to the
manufacture of products from the sale of which 80 percent of its
gross earnings was derived after paying manufacturing costs."
The corporation has not even attempted to show this, and, for
aught that appears, the percentage of net profits earned in
Connecticut may have been much larger than 47 percent. There is
consequently nothing in this record to show that the method of
apportionment adopted by the state was inherently arbitrary,
or that its
application to this corporation produced an unreasonable
We have no occasion to consider whether the rule prescribed, if
applied under different conditions, might be obnoxious to the
Constitution. Adams Express Co. v. Ohio, 166 U.
, 166 U. S. 222
Nor need we consider the contention, made on behalf of the state,
that the statute is necessarily valid, because the prescribed rule
of apportionment is not rigid, and provision is made for rectifying
by proceedings in the Superior Court any injustice resulting from
Page 254 U. S. 122
It is stated in the brief, doubtless
inadvertently, that the assignment of errors includes the objection
that the tax was void under the Fourteenth Amendment also on the
ground that the company, a foreign corporation, had made large
permanent investments in Connecticut before the statute of 1915 was
enacted. No such error appears to have been specifically assigned,
and the objection was not pressed in brief or oral argument. It is
clearly unsound. To the facts presented here, the principle
discussed in Southern Railway Co. v. Greene, 216 U.
, 216 U. S. 414
has no application.
* Compare Western Union Telegraph Co. v. Massachusetts,
125 U. S. 530
25 U. S. 552
Pittsburg, etc., Railway Co. v. Backus, 154 U.
, 154 U. S. 430
Cleveland, etc., Ry. Co. v. Backus, 154 U.
, 154 U. S. 445
Western Union Telegraph Co. v. Taggard, 163 U. S.
, 163 U. S. 14
Adams Express Co. v. Ohio, 165 U.
, 165 U. S. 221
166 U. S. 166
185; American Refrigerator Transit Co. v. Hall,
174 U. S. 70
174 U. S. 75
Union Refrigerator Transit Co. v. Lynch, 177 U.
, 177 U. S. 152
St. Louis S.W. Ry. v. Arkansas, 235 U.
, 235 U. S.