1. A state may not impose upon a foreign corporation which
transacts only interstate business within her borders an excise tax
measured by a combination of the total value of capital shares
attributed to transactions therein and the proportion of net income
attributed to such transactions. Mass.Gen.Ls. c. 63. P.
268 U. S.
216.
Page 268 U. S. 204
2. Any excise laid on account of interstate commerce is invalid,
without regard to measure or amount. P.
268 U. S.
217.
3. Under the Commerce Clause and the Fourteenth Amendment, a
state may not burden interstate commerce or tax property beyond her
borders under the guise of regulating or taxing intrastate
business; the amount demanded is unimportant, and payment as a
condition precedent to doing business is not a controlling element.
Baltic Mining Co. v. Massachusetts, 231 U. S.
68,
231 U. S. 87, in
part disapproved. P.
268 U. S.
218.
248 Mass. 156, 244
id. 530, reversed.
Error to judgments of the Supreme Judicial Court of
Massachusetts sustaining excise taxes imposed on the plaintiff in
error corporation.
Page 268 U. S. 206
MR. JUSTICE McREYNOLDS delivered the opinion of the Court.
Plaintiff in error claims that the commonwealth illegally
exacted of it $800.45 as an excise tax for the year 1921, and
$567.57 plus $22.97 interest for 1922. The court below upheld the
tax, and definitely ruled that it was not repugnant to the
Fourteenth Amendment or the commerce clause of the federal
Constitution. 244 Mass. 530,
Page 268 U. S. 207
248 Mass. 156. With negligible exceptions, the assessments
followed the Corporation Tax Law (Gen.Acts 1919, c. 355), now
codified in Gen.Laws, c. 63. Chapters 361 and 493, Gen. Acts 1921,
are subsidiary, and demand no particular notice. Record No. 327
discloses how the assessments were calculated, also the essential
facts hereinafter stated. The opinion in No. 103 discusses the
fundamental questions of law; the later one is supplementary and
explanatory.
The statute provides that
"every foreign corporation shall pay annually, with respect to
the carrying on or doing of business by it within the commonwealth,
an excise equal to the sum of . . . five dollars per thousand upon
the value of the corporate excess employed by it within the
commonwealth"
and "two and one-half percent of that part of its net income . .
. which is derived from business carried on within the
commonwealth," provided that the total tax shall be not less than
an amount equal to one-twentieth of one percent of such proportion
of the fair cash value of its capital stock as its assets employed
within the state shall bear to the total assets. Annual returns,
and additional information when demanded, must be filed with the
commissioner. He is empowered to determine, under prescribed rules,
the net portion of income from business within the state, but, if
dissatisfied, any corporation may file
"a statement in such detail as the commissioner shall require
showing the amount of its annual net income derived from business
carried on within the commonwealth."
Section 42. Credit for 5 percent of dividends paid to
inhabitants of the state is authorized. Pertinent portions of the
general statute are in the margin.
*
Page 268 U. S. 208
We accept the following statements in the opinion below:
"The petitioner is a corporation organized under the laws of New
Jersey. Its business is the manufacture and sale of cement. Its
principal office is at Easton, Pennsylvania. Its mills are located
in several other states outside of Massachusetts, from which
shipments are made to various parts of the United States and to
foreign countries. It maintains an office in Boston in charge of a
district sales manager, with a clerk, where its correspondence and
other natural business activities in connection with the receipt of
orders and shipments of goods for the New England states are
conducted. The
Page 268 U. S. 209
office is used as headquarters for traveling salesmen, who
solicit orders in Massachusetts and the other New England states.
Orders so taken are transmitted at the Boston office by mail to the
principal office at Easton, Pennsylvania, where exclusively they
are passed upon, and, if accepted, the goods are shipped and
invoices sent directly to the customer. Remittances usually are
made to the petitioner at Easton, though in exceptional instances
prepayments or collections are made by the salesmen and immediately
transmitted to Easton. No samples or other merchandise are kept in
this commonwealth.
Page 268 U. S. 210
The only property of the petitioner in Massachusetts is its
office furniture, valued at $573. It maintains no bank account
here, its salaries and office rent being paid from its principal
office. Incidental expenses are paid from an account not exceeding
$1,000 kept by the district sales manager in his own name. No
corporate books, records, or meetings are in Massachusetts. There
is no controversy as to the facts, valuations, or computation of
the tax. The issues between the parties relate solely to the
correct interpretation of our corporate tax law as to foreign
corporations and to the constitutionality of that
Page 268 U. S. 211
law in its application to the petitioner. . . . It is rightly
conceded by the Attorney General that the petitioner was engaged in
this commonwealth exclusively in interstate commerce."
Having ascertained the necessary items, the comptroller made the
calculations indicated below. The corporation's total net income
returned for federal taxation, after allowances, amounted to
$707,577.98; $7,602,090.21 (although not quite accurate) was
treated as the total value of intangible assets.
Page 268 U. S. 212
Amount of Tax Measured by Net Income
Average value of tangible property in
Massachusetts, $573. Divide this by
average value all tangible property
$16,992,355.22; multiply resulting
fraction by $235,859.33 (1/3 of
$707,577.98,
supra) . . . . . . . . . = $ 8.02
Wages, salaries, etc., assignable to
Massachusetts, $11,493.38. Divide
this by amount of all wages, salaries,
etc., $1,650,614.73: multiply
resulting fraction by $235,859.33
(one-third of $707,577.98,
supra) . . = 1,642.29
Gross receipts assignable to
Massachusetts, $343,204.60. Divide
this by gross receipts from all
business, $10,717,546.43; multiply
resulting fraction by $235,859.33
(one-third of $707,577.98,
supra) . . = $7,552.22
---------
Net income . . . . . . . . . . . . . $9,202.53
2 1/2% of $9,202.53. . . . . . . $230.06
Less 5% of dividends paid
Massachusetts inhabitants . . . . 42.15
-------
Total according to income . . . . . . $ 187.91
Amount of Tax Measured by Corporate Excess
Income assigned to Massachusetts, as above shown $9,202.53.
Divide this by $707,577.98 (entire apportionable net income);
multiply resulting fraction by $7,602,090.21 (used for total
intangible assets). This yields $98,827.17, which was taken as the
value of intangible assets assignable to Massachusetts. The
tangible assets, $573, were added, and $99,400 became the total
accepted value of assets assignable to the state.
Cash value of the company's capital stock was fixed at
$16,352,162; all assets, $21,406,098. Divide $99,400 by
Page 268 U. S. 213
$21,406,098; multiply resulting fraction by $16,352,162; the
result is $75,932.08 -- the "corporate excess." Five dollars per
thousand upon this is $379.66.
Total assessment for 1922 ($187.91 plus $379.66), $567.57.
In the course of its opinion, the court below said:
"This tax law, placing as it does both domestic and foreign
corporations on common ground as to taxation except so far as
essential differences require different treatment in details,
follows the policy established in this commonwealth for many years
of levying an excise instead of a property tax on corporate
franchises and corporate transaction of business.
Eaton, Crane
& Pike Co. v. Commonwealth, 237 Mass. 523."
"The general scheme of this tax law is that an excise is levied
on both domestic and foreign business corporations doing business
in this commonwealth. Real estate and machinery used in manufacture
by such corporations alone are subject to a local property tax in
the city or town where situated. All other personal property,
whether tangible or intangible, is exempt from direct or local
taxation. The amount of the excise tax is measured as to a foreign
corporation (§ 39) by the sum of 'an amount equal to five dollars
per thousand upon the value of the corporate excess employed by it
within the commonwealth,' and 'an amount equal to 2 1/2 percent of
that part of its net income, as defined in § thirty and in this
section, which is derived from business carried on within this
commonwealth,' with a further provision that a minimum tax of not
less than one-twentieth of one percent of such proportion of the
fair cash value of its shares of capital stock as its assets
employed in business in this commonwealth bear to its total assets
employed in business. . . . "
Page 268 U. S. 214
"The statute is an attempt to measure the excise on foreign
corporations solely by the property and net income fairly
attributable to the business done within this commonwealth. This
excise tax is in place of any other tax on personal property within
the commonwealth from which, except as to machinery used in
manufacture or in supplying and distributing water, foreign
corporations (and also domestic corporations) are expressly
exempted by G.L. c. 59, § 5, cl. 16. . . ."
"The present tax act imposes the excise with respect to the
carrying on of business by foreign corporations within the
commonwealth. It is an excise for the privilege of having a place
of business under the protection of our laws and with the
financial, commercial and other advantages flowing therefrom,
measured solely by the property and net income fairly attributable
to the business done here by a foreign corporation. The excise is
measured by two factors: (1) the value of the corporate excess
employed within the commonwealth, and (2) the net income derived
from business within the commonwealth."
"1. The value of the corporate excess employed in the
commonwealth as a factor of the tax is not measured by the capital
stock of the corporation. If it were, it would be invalid.
International Paper Co. v. Massachusetts, 246 U. S.
135. It is measured by the value of the property of the
foreign corporation, including its franchise, employed in the
commonwealth, after certain deductions are made. It seems to us
that this factor of the tax stands under the protection of several
decisions of the Supreme Court of the United States. . . ."
"It is manifest as matter of common business knowledge that
commerce within this commonwealth yielding to the petitioner annual
gross receipts of $424,982.70 must have involved credits, bills
receivable, and obligations to it of considerable amounts. No
contention to the contrary
Page 268 U. S. 215
has been urged by the petitioner. Such credits, bills
receivable, and obligations might be made subject to direct
taxation within the commonwealth by appropriate legislation under
numerous decisions of the United States Supreme Court. Such
credits, bills receivable, and obligations constitute a part of
'the value of the assets' of the petitioner 'employed in . . .
[its] business within the commonwealth' used as the basis of
ascertaining 'the corporate excess' of the petitioner 'employed
within the commonwealth' upon which this factor of the excise is
calculated. . . ."
"2. The tax, as measured by the net income from business
transacted in Massachusetts as a factor, is dependent upon net
profits derived solely from interstate commerce. But there is no
discrimination in the statute against interstate commerce. This net
income is used as a measure applicable to all corporations alike.
While not an income tax according to strict definition, in
substance, it affects net income alone, is measured by net income
alone, is reasonable in amount and incidence, and is payable out of
net income. . . ."
"The tax, considered as a whole, with both its main factors, is
general in nature and reasonable in amount. The tax upon the
petitioner, in substance and effect, so far as concerns the factor
of its corporate excess employed within the commonwealth, is levied
upon its tangible personal property within the commonwealth, upon
the credits due it from debtors within this commonwealth, and upon
the exercise of its franchise within this commonwealth, and, so far
as concerns the factor of its income, upon the net income derived
from business in this commonwealth after all losses and expenses
have been paid. It is not directed against interstate commerce or
property outside the state, but is confined to business done,
property located, capital employed, and net income earned within
the commonwealth. It affects interstate
Page 268 U. S. 216
commerce indirectly, and is not an immediate burden upon it. It
affords to the state only a fair and reasonable revenue for the
maintenance of the government, the benefits from the protection of
which the petitioner enjoys. Our conclusion is that the law, thus
construed, as applying to a foreign corporation using a part of its
property exclusively for interstate commerce within the
commonwealth, violates no guaranty established by the Constitution
of the United States. The tax statute therefore is interpreted as
applying to a corporation engaged in business within the
commonwealth as is the petitioner."
Counsel for the commonwealth assert:
"The present tax law imposes an excise on foreign corporations
for the privilege of doing business in Massachusetts under the
protection of its laws and with the financial, commercial, and
other advantages flowing therefrom, measured solely by the property
and net income fairly attributable to the business done within the
state. Payment of the tax is not made a condition precedent to the
doing of business. Collection of the tax is to be made by ordinary
methods. There is no discrimination either against foreign
corporations or against interstate commerce. . . . The taxes
complained of were excises, and not property taxes. . . . Being
excises, these taxes are not taxes on property or net income, but
taxes measured by property and net income, used in or derived from
business done in Massachusetts."
See Judson Freight Forwarding Co. v. Commonwealth, 242
Mass. 47.
This view of the nature of the exaction was adopted by the court
below, and we think it is the correct one. The right to lay taxes
on tangible property or on income is not involved, and the inquiry
comes to this: may a state impose upon a foreign corporation which
transacts only interstate business within her borders an excise tax
measured by a combination of two factors -- the proportion of the
total value of capital shares attributed to
Page 268 U. S. 217
transactions therein and the proportion of net income attributed
to such transactions?
Cheney Bros. Co. v. Massachusetts, 246 U.
S. 147,
246 U. S.
153-154, necessitates a negative reply. Under St.1909,
c. 490, pt. 3, § 56, the state demanded an excise of a foreign
corporation which transacted therein only interstate business. The
excise was laid upon the corporation, and the basis of it the same
as in the present cause. This Court said: "We think the tax on this
company was essentially a tax on doing an interstate business, and
therefore repugnant to the commerce clause." Here also, the excise
was demanded 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.
Looney
v. Crane Co., 245 U. S. 178,
245 U. S. 190;
International Paper Co. v. Massachusetts, 246 U.
S. 135,
246 U. S. 142;
Heisler v. Thomas Colliery Co., 260 U.
S. 245,
260 U. S. 259;
Texas Transport & Terminal Co. v. New Orleans,
264 U. S. 150.
International Paper Co. v. Massachusetts considered an
excise upon a corporation doing both local and interstate business,
measured by its capital stock. St.1909, c. 490; St.1914, c. 724.
Pertinent cases were cited and discussed, and the tax declared
"unconstitutional and void as placing a prohibited burden on
interstate commerce and laid on property of a foreign corporation
located and used beyond the jurisdiction of the state."
Payment as a condition precedent to the doing of any business
was not a controlling circumstance. The opinion recognizes the
state's right to demand excises of foreign corporations in respect
of intrastate business unless the exaction is really as tax on
interstate business or property beyond the state. Under this
principle, certain of the complaining corporations in
Cheney
Bros. Co. v. Massachusetts, supra, were properly taxed.
Plaintiff in
Page 268 U. S. 218
error did no local business, and there was no proper foundation
for the excise.
It must now be regarded as settled that a state may not burden
interstate commerce or tax property beyond her borders under the
guise of regulating or taxing intrastate business. So to burden
interstate commerce is prohibited by the commerce clause, and the
Fourteenth Amendment does not permit taxation of property beyond
the state's jurisdiction. The amount demanded is unimportant when
there is no legitimate basis for the tax. So far as the language of
Baltic Mining Co. v. Massachusetts, 231 U. S.
68,
231 U. S. 87,
tends to support a different view, it conflicts with conclusions
reached in later opinions, and is now definitely disapproved.
Union Tank Line Co. v. Wright, 249 U.
S. 275,
249 U. S. 282
et seq., pointed out the limitations which must be
observed when property used in interstate commerce is valued for
purposes of taxation by a state. We there declined to follow the
rule applied in
Pullman's Palace Car Co. v. Pennsylvania,
141 U. S. 18,
141 U. S. 26,
and held that determination of real value with fair accuracy is
essential. Many methods adapted to that end have been accepted, but
this does not tend to support an excise laid upon a foreign
corporation on account of interstate transactions.
The local business of a foreign corporation may support an
excise measured in any reasonable way if neither interstate
commerce nor property beyond the state is taxed.
Underwood
Typewriter Co. v. Chamberlain, 254 U.
S. 113, approved such an excise measured by income
reasonably attributed to intrastate business, but nothing there
said was intended to modify well established principles. It must be
read with the essential facts in mind. Local business was a
sufficient basis for the excise, and there was no taxation of
interstate commerce or property beyond the state. Of course, the
opinion does not support the suggestion that the present statute is
free from
Page 268 U. S. 219
the fatal objections, to the former one because payment of the
tax is no longer a condition precedent to carrying on any business.
It cites approvingly
St. Louis S.W. Ry. v. Arkansas,
235 U. S. 350,
235 U. S. 364,
and there this Court said:
"So far as the commerce clause is concerned, it seems to us that
the principles upon whose application the present decision must
depend are those set forth in
Postal Tel. Cable Co. v.
Adams, 155 U. S. 688,
155 U. S.
695, where the Court, by Mr. Chief Justice Fuller,
said:"
"It is settled that where, by way of duties laid on the
transportation of the subjects of interstate commerce, or on the
receipts derived therefrom, or on the occupation or business of
carrying it on, a tax is levied by a state on interstate commerce,
such taxation amounts to a regulation of such commerce and cannot
be sustained. But property in a state belonging to a corporation,
whether foreign or domestic, engaged in foreign or interstate
commerce may be taxed, or a tax may be imposed on the corporation
on account of its property within a state, and may take the form of
a tax for the privilege of exercising its franchises within the
state, if the ascertainment of the amount is made dependent in fact
on the value of its property situated within the state (the
exaction therefore not being susceptible of exceeding the sum which
might be leviable directly thereon), and if payment be not made a
condition precedent to the right to carry on the business, but its
enforcement left to the ordinary means devised for the collection
of taxes."
The excise challenged by plaintiff in error is not materially
different from the one declared unconstitutional in
Cheney
Bros. Co. v. Massachusetts, and cannot be enforced against a
foreign corporation which does nothing but interstate business
within the state. The introduction of an extremely complicated
method for calculating the amount of the exaction does not change
its nature, or mitigate the burden.
Page 268 U. S. 220
The decrees of the court below must be reversed, and the causes
remanded for further proceedings not inconsistent with this
opinion.
MR. JUSTICE BRANDEIS dissents.
*
"Section 39. Every foreign corporation shall pay annually, with
respect to the carrying on or doing of business by it within the
commonwealth, an excise equal to the sum of the following, provided
that every such corporation shall pay annually a total excise not
less in amount than one-twentieth of one percent of such proportion
of the fair cash value of all the shares constituting its capital
stock as the assets, both real and personal, employed in any
business within the commonwealth on April first following the close
of the taxable year, bear to the total assets of the corporation
employed in business on said date:"
"(1) An amount equal to five dollars per thousand upon the value
of the corporate excess employed by it within the
commonwealth."
"(2) An amount equal to two and one-half percent of that part of
its net income, as defined in section thirty and in this section,
which is derived from business carried on within the commonwealth.
. . ."
"Section 30. . . . 'Corporate excess employed within the
commonwealth' by a foreign corporation [shall mean] such proportion
of the fair cash value of all the shares constituting the capital
stock on the first day of April when the return called for by
section thirty-five is due as the value of the assets, both real
and personal, employed in any business within the commonwealth on
that date, bears to the value of the total assets of the
corporation on said date. . . ."
"'Net income' . . . [shall mean] the net income for the taxable
year as required to be returned by the corporation to the federal
government under the federal revenue act of nineteen hundred and
eighteen less interest on obligations of the United States."
"Section 41. The commissioner shall determine in the manner
provided in this section the part of the net income of a foreign
corporation derived from business carried on within the
commonwealth. . . . The net income as defined in section thirty
[less certain credits not here involved] shall be allocated as
follows: if a foreign business corporation carries on no business
outside this commonwealth, the whole of said remainder shall be
allocated to this commonwealth. If a foreign business corporation
carries on any business outside this commonwealth, the net income
taxable under this chapter shall be determined as provided in
section thirty-eight."
"Section 38."
"
* * * *"
"2. If the corporation carries on any business outside the
commonwealth, the said remainder shall be divided into three equal
parts:"
"(a) Of one third, such portion shall be attributed to business
carried on within the commonwealth as shall be found by multiplying
said third by a fraction whose numerator is the value of the
corporation's tangible property situated within the commonwealth
and whose denominator is the value of all the corporation's
tangible property wherever situated."
"(b) Of another third, such portion shall be attributed to
business carried on within the commonwealth as shall be found by
multiplying said third by a fraction whose numerator is the
expenditure of the corporation for wages, salaries, commissions or
other compensation to its employees, and assignable to this
commonwealth as hereinafter provided, and whose denominator is the
total expenditure of the corporation for wages, salaries,
commissions or other compensation to all its employees."
"(c) Of the remaining third, such portion shall be attributed to
business carried on within the commonwealth as shall be found by
multiplying said third by a fraction whose numerator is the amount
of the corporation's gross receipts from business assignable to
this commonwealth as hereinafter provided and whose denominator is
the amount of the corporation's gross receipts from all its
business."
"3. In a case where only two of the foregoing three rules are
applicable, the said remainder of net income of the corporation
shall be divided into two equal parts only, each of which shall be
apportioned in accordance with one of the remaining two rules. If
only one of the three rules is applicable, the part of the net
income received from business carried on within the commonwealth
shall be determined solely by that rule."
"4. The value of the corporation's tangible property for the
purposes of this § shall be the average value of such property
during the taxable year."
"5. The amount assignable to this commonwealth of expenditure of
the corporation for wages, salaries, commissions, or other
compensation to its employees shall be such expenditure for the
taxable year as represents the compensation of employees not
chiefly situated at, connected with or sent out from premises for
the transaction of business owned or rented by the corporation
outside the commonwealth."
"6. The amount of the corporation's gross receipts from business
assignable to this commonwealth shall be the amount of its gross
receipts for the taxable year from (a) sales, except those
negotiated or effected in behalf of the corporation by agents or
agencies chiefly situated at, connected with, or sent out from
premises for the transaction of business owned or rented by the
corporation outside the commonwealth and sales otherwise determined
by the commissioner to be attributable to the business conducted on
such premises, (b) rentals or royalties from property situated, or
from the use of patents, within the commonwealth, provided, that,
upon application by a corporation which owns or controls
substantially all the capital stock of another corporation, or by
the corporation so owned or controlled, the commissioner may impose
the tax provided for by this chapter upon the income of the two
corporations jointly in the same manner as though they were a
single corporation, or may, in such other manner as he shall
determine, equitably adjust the tax of the applying
corporation."
"
* * * *"
"9. A rule shall not be deemed to be inapplicable merely because
all the tangible property or the expenditure of a corporation for
wages, salaries, commissions, or other compensation, or the gross
receipts of the corporation, are found to be situated, incurred, or
received without the commonwealth."
"Section 75. In addition to the methods provided by sections
seventy-two and seventy-three [distraint or action in contract],
taxes under this chapter, except section sixty-two [not involved],
may be collected by an information brought in the Supreme Judicial
Court by the attorney general at the relation of the state
treasurer. The court may issue an injunction upon such information
restraining the further prosecution of the business of the company,
association, or corporation until such taxes, with interest and
costs thereon, have been paid, but no telegraph company accepting
the provisions of section fifty-two hundred and sixty-three of the
Revised Statutes of the United States shall be enjoined from
constructing, maintaining or operating a telegraph line over and
along any of the military or post roads of the United States within
this commonwealth."