1. California tax on storage and use --
i.e., upon
retention and exercise of ownership -- may be applied consistently
with the commerce clause and the due process clause of the
Fourteenth Amendment to an interstate railroad company in respect
of supplies purchased outside of the State and brought in for
prompt application in the operation of its road, such as office
supplies, and rails, equipment, machinery, tools, etc., used in
replacements, repairs, and extensions, and including articles
ordered out of the State on specifications suitable only for use in
the transportation facilities and installed immediately upon
arrival at the California destination. P.
306 U. S.
172.
2. There is an interval after the articles have reached the end
of their interstate movement and before their consumption in
interstate operation has begun when the "use and storage" are
subject to local taxation.
Helson & Randolph v.
Kentucky, 279 U. S. 245,
distinguished. P.
306 U. S.
176.
23 F. Supp. 193 affirmed.
Appeal from a decree of a three-judge district court refusing a
permanent injunction and dismissing the bill in a suit to restrain
enforcement of the California Use Tax. The court below had at first
granted an interlocutory injunction,
20 F. Supp.
940.
Page 306 U. S. 170
MR. JUSTICE REED delivered the opinion of the Court.
The California Use Tax Act of 1935 [
Footnote 1] is assailed as violative of the commerce
clause and the Fourteenth Amendment, when imposed upon tangible
personal property, bought outside of the state by the Southern
Pacific Company, an interstate railroad, and installed on
importation, or kept available for use, as a part of its
transportation facilities.
The attack comes by means of a bill of the Southern Pacific
Company seeking, before a three-judge district court, [
Footnote 2] an interlocutory and final
injunction against the State Board of Equalization of California,
its members, and the Attorney General of the state, to restrain
them from enforcing the Use Tax Act. [
Footnote 3] The trial court granted
Page 306 U. S. 171
an interlocutory injunction and denied a motion to dismiss,
[
Footnote 4] but later refused
a permanent injunction and sustained the motion to dismiss.
[
Footnote 5] The case comes
here by appeal. [
Footnote
6]
The Use Tax Act is complemental to the California Retail Sales
Tax Act of 1933. [
Footnote 7]
The latter levies a tax upon the gross receipts of California
retailers from sales of tangible personal property; the former
[
Footnote 8] imposes an excise
on the consumer at the same rate for the storage, use, or other
consumption in the state of such property when purchased from any
retailer. As property covered by the sales tax is exempt under the
use tax, all tangible personalty sold or utilized in California is
taxed once for the support of the state government. Definitions in
the Use Tax Act of taxpayer, retailer, storage, and use are
designed to make the coverage complete. A retailer is "every person
engaged in the business of making sales for storage, use or other
consumption;" use is the exercise of any right or power incident to
ownership, except sale in the regular course of business; storage
is any "keeping or retention" with a similar exemption, and a
taxpayer includes everyone "storing, using or otherwise consuming"
the property subject to the use tax. [
Footnote 9]
The principle of the use tax as applied to property brought into
the state after its retail purchase for intrastate use has been
upheld in
Henneford v. Silas Mason Co., [
Footnote 10] against the charge that it was
a tax upon the operations of interstate commerce or a tax upon a
foreign
Page 306 U. S. 172
sale, violative of the Fourteenth Amendment. Under the
Washington statute there considered, discrimination against
interstate commerce arising from a second exaction for use after a
foreign tax on sale could not exist, as provision was made for a
credit against the local tax of any such foreign levy. No such
problem arises here by evidence, finding, or assignment of error,
[
Footnote 11] even though
the California Act does not have this provision. It will be time
enough to resolve that argument "when a taxpayer paying in the
state of origin is compelled to pay again in the state of
destination." [
Footnote 12]
A discrimination against goods of out-of-state origin on the face
of the sales and use acts is suggested because the local retailer
may absorb the sales tax while the consumer of an imported article
must pay the use tax. [
Footnote
13] But this is not a discrimination in the law. California's
exaction for the distribution of tangible personal property is the
same whether purchased within or without her borders or whether
paid by the retailer or consumer. There is an equal charge against
what is used, whatever its source. In this case, we have a
distinctly different application of a use tax. The tax is not
sought from personal property used in transactions entirely
disassociated from any agency connected with interstate
transportation, as builders' supplies for local work in the
Silas Mason case, but from tangible personalty purchased
out of the state for immediate or subsequent installation in an
interstate railway facility.
The appellant, the Southern Pacific Company, a Kentucky
corporation, handles intrastate, interstate and foreign commerce
over its railroad system, which traverses a number of states and
connects with the lines of carriers
Page 306 U. S. 173
covering the continent. The findings and stipulation of facts
show continual extrastate purchases of tangible personalty for the
operation of the road -- rails, equipment, machinery, tools and
office supplies. Some of the purchases are used in the general
offices of the corporation, located in California, for the
supervision of the wide-flung activities; others are for material
kept in readiness as a standby supply to replace or repair
equipment damaged, destroyed, or worn out in the operation of the
road, and still others are to make improvements, replacements, or
extensions pursuant to previously determined plans and
specifications. Few, if any, of the supplies are stored for
long-term needs. Storage is merely incidental to protection until
use, as office supplies in a closet, or an extra frog at a section
tool house. For construction or reconstruction upon a large scale,
special orders are given, and arrangements made, so that the
material is fabricated for a particular use in the transportation
facilities, shipped to its California destination, and installed
upon arrival. To avoid delay and cost, the movement from loading to
final placement is as nearly continuous as managerial efficiency
can contrive. While some articles are capable of general use, the
major purchases of rails, repair parts, and supplies for the
maintenance and operation of the system are adapted only to
railroad use. The purchases are paid for out of railroad operating
capital, and move on company material waybills, without
transportation charge. All purchases may be said to be dedicated to
consumption in the interstate transportation business of appellant.
No new rolling stock is involved. Subsequent to repairing and
reconditioning, rolling stock moves again in interstate
transportation, as do cars after being stocked with supplies. The
California tax on storage or use, it is said, cannot apply to these
articles, as such a tax would be an unconstitutional burden upon
the facilities of interstate commerce, of which the articles are a
part.
Page 306 U. S. 174
There is agreement upon the principle involved. Appellant states
that an excise tax imposed directly upon the privilege of using
instrumentalities in carrying on interstate transportation is a
direct and unconstitutional burden on commerce. Appellees do not
dispute the premise, but contend that the tax is on intrastate
storage and use. They point to the definition of use as the
exercise of a right of ownership, and of storage as any keeping or
retention. By the definitive terms themselves, it is urged, the
taxable events are retention and installation, not such storage as
warehousing connotes, or use in the sense of consumption or
operation. If we conclude retention and installation, under the
circumstances here developed, are intrastate taxable events, viewed
apart from commerce, we must still inquire whether taxes laid upon
them are not, in effect, upon commerce, and forbidden. [
Footnote 14]
Two lines of authority aid in considering the effect of this tax
on commerce. The first makes it quite clear that a state tax upon
the privilege of operating in, or upon carrying on, interstate
commerce is invalid. States cannot tax interstate telegraph
messages, [
Footnote 15] or
freight shipments. [
Footnote
16] A license tax on sales by samples burdens one selling only
goods from other states. [
Footnote 17] A tax act, as applied to the business of
interstate communication, [
Footnote 18] is unconstitutional. Where a similar levy by
other states may be imposed, with consequent multiplicity of
exaction on commerce for the same taxable event, local tax of a
privilege, measured by total gross receipts from interstate
transactions, is considered identical with an action on
Page 306 U. S. 175
the commerce itself. [
Footnote 19] This rule is applicable to a tax on gross
receipts from interstate transportation; [
Footnote 20] an occupation tax measured by gross
receipts from radio broadcasting, [
Footnote 21] and a general tax at specified rates upon
the gross income of every resident, construed as "a tax upon gross
receipts from commerce" [
Footnote 22] "without apportionment." [
Footnote 23] The measurement of a tax by
gross receipts where it cannot result in a multiplication of the
levies is upheld. [
Footnote
24]
Appellant selects from this line the
Helson case
[
Footnote 25] as
determinative of the contention that a tax on use of supplies or
equipment is a tax on the commerce. A state tax of three cents per
gallon was imposed on all gasoline "sold at wholesale." This phrase
was defined to include gasoline bought out of the state and used
within the state. There was no definition of the words "use" or
"used." The taxpayers operated an interstate ferry, purchased
gasoline in Ohio, and used that portion sought to be taxed in
propelling their craft in the territorial waters of Kentucky. That
court considered the tax on the consumption of the gas the same as
a tax on the operation of the ferry
Page 306 U. S. 176
boat, and therefore invalid under the rule discussed in the
preceding paragraph.
The second line of authority supports the view that use and
storage, as defined in the California act, are taxable intrastate
events, separate and apart from interstate commerce. A recent
discussion of the topic sets out the precedents in support of a
ruling that a tax upon the production of power by the use of which
compressors drove natural gas in interstate commerce is valid. Such
production is a taxable event distinct from its consumption in
commerce. [
Footnote 26]
Particular attention is called by the state to the
Wallace
case. [
Footnote 27] There,
the tax was on "selling or storing or distributing gasoline." It
became due on withdrawal from storage. The tax was held applicable
to gasoline, purchased out of the state and stored in the state,
when "all is withdrawn and used . . . as a source of motive power
in interstate railway operation" and valid against the objection
that "it is in effect a tax upon the use" in interstate commerce.
[
Footnote 28] The invalidity
of such a tax arises from a levy on commerce itself or its gross
receipts, not upon events prior to the commerce. [
Footnote 29]
The principle illustrated by the
Helson case forbids a
tax upon commerce or consumption in commerce. The
Wallace
case, and precedents analogous to it, permit state taxation of
events preliminary to interstate commerce. The validity of any
application of a taxing act depends upon a classification of the
facts in the light of these theories. In the present case, some of
the articles were ordered out of the state under specification
suitable only for utilization in the transportation facilities and
installed
Page 306 U. S. 177
immediately on arrival at the California destination. If
articles so handled are deemed to have reached the end of their
interstate transit upon "use or storage," no further inquiry is
necessary as to the rest of the articles which are subjected to a
retention, by comparison, farther removed from interstate commerce.
We think there was a taxable moment when the former had reached the
end of their interstate transportation and had not begun to be
consumed in interstate operation. At that moment, the tax on
storage and use retention and exercise of a right of ownership,
respectively, was effective. The interstate movement was complete.
The interstate consumption had not begun.
Champlain Realty Co.
v. Brattleboro [
Footnote
30] and
Carson Petroleum Co. v. Vial [
Footnote 31] are therefore inapplicable.
Bacon v. Illinois, [
Footnote 32] where taxation of grain during stoppage in
transit was validated, presents a closer analogy. "Practical
continuity" does not always make an act a part of interstate
commerce. [
Footnote 33] This
conclusion does not give preponderance to the language of the state
act over its effect on commerce. State taxes upon national commerce
or its incidents do not depend for their validity upon a choice of
words ,but upon the choice of the thing taxed. It is true, the
increased cost to the interstate operator from a tax on
installation is the same as from a tax on consumption or operation.
This is not significant. [
Footnote 34] The prohibited burden upon commerce between
the states is created by state interference with that commerce, a
matter distinct from the expense of doing
Page 306 U. S. 178
business. A discrimination against it, or a tax on its
operations as such, is an interference. A tax on property or upon a
taxable event in the state, apart from operation, does not
interfere. This is a practical adjustment of the right of the state
to revenue from the instrumentalities of commerce and the
obligation of the state to leave the regulation of interstate and
foreign commerce to the Congress.
But it is urged by the appellant that our former opinions make
this conclusion a departure from precedent; the events are so close
to or so inseparably intertwined with interstate commerce as to be
a part of it. [
Footnote 35]
Cooney v. Mountain States Telephone Co. [
Footnote 36] is cited to show that a
"state excise tax cannot be validly applied indiscriminately and
without apportionment to an instrumentality common to interstate
and intrastate commerce."
The Telephone Company was taxed a sum on each telephone in use.
As the instrument was employed part of the time in interstate
commerce, this Court held the tax to be upon that commerce, and
invalid. Since there was no apportionment, the entire tax fell.
Unless the taxable events here, all of which are intrastate, are in
effect a part of interstate commerce, our previous discussion of
their separable character would render the
Cooney case
inapplicable. For this point, we are referred to
Puget Sound
Co. v. Tax Commission [
Footnote 37] and
Ozark Pipe Line Corp. v.
Monier. [
Footnote
38]
In the former case, the distinction in the opinion between
stevedoring in loading and unloading interstate cargoes, held
nontaxable as a burden upon commerce, and the business of supplying
longshoremen for others to load and unload, held taxable as a local
business, is
Page 306 U. S. 179
applicable here. The invalid tax in the
Puget Sound
case was on the business of stevedoring, measured by a percentage
of gross receipts from interstate activity. The valid tax was a
similar percentage on the local activity as an employment agency.
Here, under our analysis, we find only intrastate events taxed.
[
Footnote 39]
In the
Ozark case, Missouri sought to justify a
franchise tax on a company engaged in the operation of an
interstate pipeline by suggesting the tax was upon certain
intrastate events, such as operation of communications, repair, and
purchase of supplies. The tax was forbidden because on the
privilege of doing an exclusively interstate business. The opinion
is to be read in the light of the statement by the Court of its
interpretation of the facts and legal deductions which control its
decision. The Missouri Act called for a franchise tax of a
percentage of the par of its stock, apportioned to its assets in
that state. This Court said that "the tax is one upon the privilege
or right to do business," and, as the taxpayer "is engaged only in
interstate commerce," the tax "constitutionally cannot be imposed."
There was then added this paragraph:
"The maintenance of an office, the purchase of supplies,
employment of labor, maintenance and operation of telephone and
telegraph lines and automobiles, and appellant's other acts within
the state were all exclusively in furtherance of its interstate
business, and the property itself, however extensive or of whatever
character, was likewise devoted only to that end. They were the
means and instrumentalities by which that business was done, and in
no proper sense constituted, or contributed
Page 306 U. S. 180
to, the doing of a local business. The protection against
imposition of burdens upon interstate commerce is practical and
substantial, and extends to whatever is necessary to the complete
enjoyment of the right protected. [
Footnote 40]"
This Court pointed out that the corporation had a license to
engage exclusively in interstate business. [
Footnote 41] The language just quoted shows that
this Court interpreted the transactions in Missouri as merely a
part of the interstate commerce, and the tax on the franchise an
interference therewith because a tax directly upon it. [
Footnote 42] " . . . [N]othing was
done in Missouri except in furtherance of transportation."
[
Footnote 43] It was this
conclusion of the Court on the factual situation which brought
about the
Ozark decision. Where there is also intrastate
activity, an apportioned state franchise tax on foreign
corporations doing an interstate business is upheld. [
Footnote 44] A franchise tax on an
exclusively interstate business is a direct burden; proportioned to
an intermingled business, it is valid. [
Footnote 45] Since the incidence of the California tax
as here interpreted is upon events outside of interstate commerce,
the
Ozark opinion is not applicable. There, the Missouri
tax was upon activities found wholly interstate.
Finally, appellants urge that the tax violates the due process
clause of the Fourteenth Amendment because exacted for consumption
of office and car supplies outside the state upon their
appropriation in California by the general office to the use of the
whole system. [
Footnote 46]
This contention
Page 306 U. S. 181
falls with the determination that the taxable event is the
exercise of the property right in California. This Court declined
to accept a similar argument in the
Silas Mason Company
case. [
Footnote 47]
Affirmed.
MR. JUSTICE BLACK concurs in the result.
MR. JUSTICE ROBERTS took no part in the consideration or
decision of this case.
[
Footnote 1]
Cal.Stats.1935, ch. 361, p. 1297.
[
Footnote 2]
§ 266, Jud.Code, 28 U.S.C. § 380.
[
Footnote 3]
As the bill was filed July 10, 1936, there was jurisdiction. 50
Stat. 738.
[
Footnote 4]
Southern Pac. Co. v. Corbett, 20 F. Supp.
940.
[
Footnote 5]
Id., 23 F. Supp. 193.
[
Footnote 6]
§ 266, Jud.Code, 28 U.S.C. § 380.
[
Footnote 7]
Cal.Stats.1933, ch. 1020, p. 2599, as amended, Cal.Stats.1935,
chs. 351, 355, 357, pp. 1225, 1252, 1256.
[
Footnote 8]
California Use Tax Act,
supra, § 3.
[
Footnote 9]
Id., §§ 2, 3.
[
Footnote 10]
300 U. S. 300 U.S.
577.
Cf. Felt & Tarrant Mfg. Co. v. Gallagher, ante,
p.
306 U. S. 62.
[
Footnote 11]
New York v. Kleinert, 268 U. S. 646,
268 U. S.
651.
[
Footnote 12]
Henneford v. Silas Mason Co., 300 U.
S. 577,
300 U. S.
587.
[
Footnote 13]
National Ice & Cold Storage Co. v. Pacific Fruit Express
Co., 95 Cal.Dec. 442, 445-448,
11 Cal. 2d
283, 79 P.2d 380.
[
Footnote 14]
Cf. Ozark Pipe Line Corp. v. Monier, 266 U.
S. 555.
[
Footnote 15]
Telegraph Co. v. Texas, 105 U.
S. 460.
[
Footnote 16]
Case of the State Freight
Tax, 15 Wall. 232.
[
Footnote 17]
Robbins v. Shelby County Taxing District, 120 U.
S. 489,
120 U. S.
496-497;
Brennan v. Titusville, 153 U.
S. 289.
[
Footnote 18]
Leloup v. Port of Mobile, 127 U.
S. 640.
[
Footnote 19]
See the discussion in
Gwin, White & Prince,
Inc. v. Henneford, 305 U. S. 434.
[
Footnote 20]
Philadelphia Steamship Co. v. Pennsylvania,
122 U. S. 326.
[
Footnote 21]
Fisher's Blend Station v. Tax Comm'n, 297 U.
S. 650.
[
Footnote 22]
Adams Mfg. Co. v. Storen, 304 U.
S. 307,
304 U. S.
311.
[
Footnote 23]
For comparison with sovereign immunity rule and reason for
variation,
see James v. Dravo Contracting Co.,
302 U. S. 134,
302 U. S.
157-158.
[
Footnote 24]
Western Life Stock v. Bureau of Revenue, 303 U.
S. 250,
303 U. S. 256,
and cases cited.
Coverdale v. Arkansas-Louisiana Pipe Line
Co., 303 U. S. 604,
303 U. S. 612;
Ficklen v. Shelby County Taxing District, 145 U. S.
1, and
American Mfg. Co. v. St. Louis,
250 U. S. 459, as
explained in
Gwin, White & Prince, Inc. v. Henneford,
supra, and
Adams Mfg. Co. v. Storen, supra,
304 U. S.
312.
[
Footnote 25]
Helson & Randolph v. Kentucky, 279 U.
S. 245;
see also Bingaman v. Golden Eagle
Lines, 297 U. S. 626.
[
Footnote 26]
Coverdale v. Pipe Line Co., 303 U.
S. 604,
303 U. S.
609.
[
Footnote 27]
Nashville, C. & St.L. Ry. Co. v. Wallace,
288 U. S. 249.
[
Footnote 28]
Id., 288 U. S.
265-266;
see Edelman v. Boeing Air Transport,
289 U. S. 249,
289 U. S. 252;
Gregg Dyeing Co. v. Query, 286 U.
S. 472,
286 U. S.
479.
[
Footnote 29]
Id., 288 U. S.
267.
[
Footnote 30]
260 U. S. 260 U.S.
366.
[
Footnote 31]
279 U. S. 279 U.S.
95.
[
Footnote 32]
227 U. S. 227 U.S.
504.
[
Footnote 33]
Oliver Iron Mining Co. v. Lord, 262 U.
S. 172;
Hope Natural Gas Co. v. Hall,
274 U. S. 284;
Utah Power & L. Co. v. Pfost, 286 U.
S. 165.
[
Footnote 34]
Western Live Stock v. Bureau of Revenue, 303 U.
S. 250,
303 U. S. 254,
and cases cited.
[
Footnote 35]
Cf. Henneford v. Silas Mason Co., 300 U.
S. 577,
300 U. S.
583.
[
Footnote 36]
294 U. S. 294 U.S.
384.
[
Footnote 37]
302 U. S. 302 U.S.
90.
[
Footnote 38]
266 U. S. 266 U.S.
555.
[
Footnote 39]
Under the commerce clause, the regulatory power of the Congress
is customarily exercised on transactions taken place within the
state on the principle that such acts are an essential part of
interstate commerce.
See Currin v. Wallace, ante, p.
306 U. S. 1.
Cf.
Townsend v. Yeomans, 301 U. S. 441.
[
Footnote 40]
266 U. S. 266 U.S.
555,
266 U. S.
565.
[
Footnote 41]
Id., 266 U. S.
567.
[
Footnote 42]
Anglo-Chilean Corp. v. Alabama, 288 U.
S. 218,
288 U. S. 224;
id., minority,
288 U. S. 236;
Virginia v. Imperial Coal Co., 293 U. S.
15,
293 U. S.
20.
[
Footnote 43]
Southern Natural Gas Corp. v. Alabama, 301 U.
S. 148,
301 U. S.
155.
[
Footnote 44]
Id., 301 U. S.
156.
[
Footnote 45]
See also Atlantic Lumber Co. v. Commissioner,
298 U. S. 553,
298 U. S.
556.
[
Footnote 46]
James v. Dravo Contracting Co., 302 U.
S. 134;
Connecticut Gen. Life Ins. Co. v.
Johnson, 303 U. S. 77;
Frick v. Pennsylvania, 268 U. S. 473;
Great Atlantic & Pacific Tea Company v. Grosjean,
301 U. S. 412;
International Paper Co. v. Massachusetts, 246 U.
S. 135.
[
Footnote 47]
Henneford v. Silas Mason Co., 300 U.
S. 577,
300 U. S.
578.
MR. JUSTICE BUTLER.
MR. JUSTICE McREYNOLDS and I are of opinion that the judgment
should be reversed.
The facts stated in the opinion just announced leave nothing of
substance to support its conclusion that the California tax is not
upon the operation -- maintenance and use -- of appellant's
railroad for interstate transportation. Discussion can neither
obscure nor more plainly disclose the truth that the tax in
question directly burdens commerce among the States. Concededly,
that is repugnant to the commerce clause as, from the beginning, it
has been construed by this Court.