1. An attack upon a state tax upon the ground that it infringes
a taxpayer's federal rights, privileges, and immunities, but
without drawing in question the validity of a state statute, will
not sustain an appeal under Jud.Code § 237(a). P. 315 U. S.
2. A challenge of the validity of a state statute, first made in
a brief filed in the highest state court and certified to this
Court as part of the record, will not support an appeal to this
Court from a judgment of the state court upholding the statute if
the appellant fails to show that, under the state practice, such a
contention can be availed of when advanced for the first time in
the appellate court. P. 315 U. S.
3. A corporation is subject to be taxed on its intangible
property by a State, not of its origin, in which it has its
commercial domicile if the tax does not infringe the commerce
clause. P. 315 U. S.
4. A decision of the state supreme court based upon a nonfederal
ground is reexaminable by this Court only to make certain that the
ground is not so colorable or unsubstantial as to be in effect an
evasion of a constitutional issue. P. 315 U. S.
5. Natural gas was piped into a State by a pipeline corporation,
delivered to a local distributing corporation, and sold by the
latter to local consumers under an arrangement making the two
companies partners or joint enterprises sharing the profits.
that it was competent for the state to levy a tax on
the pipeline company measured by the net profits it so derived. P.
315 U. S.
6. A nondiscriminatory state tax upon the net income of a
foreign corporation engaged solely in interstate commerce is not
forbidden by the commerce clause when the corporation is
commercially domiciled in the taxing State and the income is
derived from within the State and attributable to business done
there. P. 315 U. S.
Appeal from a judgment of the Supreme Court of Tennessee, which
sustained a tax and reversed a decree of the Tennessee Chancery
Court enjoining its collection. The appeal was dismissed for want
of jurisdiction, but the writ of certiorari was granted.
Page 315 U. S. 650
MR. CHIEF JUSTICE STONE delivered the opinion of the Court.
The question for decision is whether a tax laid pursuant to §§
1316-1318 of the Tennessee Code of 1932 upon the Memphis Natural
Gas Company's net income derived from sales of natural gas in
Tennessee, during the years 1932 to 1935, violates the commerce
clause, Const. U.S. art. 1, § 8, cl. 3.
The case comes here by appeal from a judgment of the Supreme
Court of Tennessee, which sustained the tax and reversed a decree
of the Tennessee chancery court enjoining its collection. Appellant
contends that the case is properly an appeal, under section 237(a)
of the Judicial Code as amended, 28 U.S.C. § 344(a), because the
validity of the Tennessee statute as applied to the facts of this
case has been drawn in question. Cf. Dahnke-Walker Milling Co.
v. Bondurant, 257 U. S. 282
appellant's bill of complaint, filed in the chancery court, alleged
only that the assessment of the tax and the threatened levy
violated its rights under the commerce clause. Our decisions have
long since established that an attack upon a tax assessment or
levy, on the ground that it infringes a taxpayer's federal rights,
privileges, or immunities, will not sustain an appeal under section
237(a). Jett Bros. Distilling Co. v. City of Carrollton,
252 U. S. 1
Miller v. City of Denver,
290 U.S. 586; Baltimore
National Bank v. State Tax Comm'n,
296 U.S. 538; Irvine v.
314 U.S. 575. It is not enough that an appellant could
have launched his attack upon the validity of the statute itself as
applied; if he has
Page 315 U. S. 651
failed to do so, we are without jurisdiction over the appeal.
The Judicial Code was intended to restrict our obligatory appellate
jurisdiction to a narrow class of cases, and to foreclose an appeal
as of right whenever the prescribed conditions have not been
It is true that, when this case reached the Supreme Court of
Tennessee, the appellant included in its brief, which has been
certified as part of the record here, a statement of its legal
position which might serve as a challenge to the validity of the
statute. But appellant has failed to establish that, under
Tennessee practice such a contention can be availed of if advanced
for the first time in the appellate court, cf. Pennsylvania R.
Co. v. Illinois Brick Co., 297 U. S. 447
297 U. S.
-463; Jacobi v. Alabama, 187 U.
, 187 U. S.
-136; Mutual Life Ins. Co. v. McGrew,
188 U. S. 291
appellant's burden is to show affirmatively that we have
jurisdiction. Chicago, I. & L. Ry. Co. v. McGuire,
196 U. S. 128
196 U. S. 132
cf. Lynch v. New York, 293 U. S. 52
293 U. S. 54
Enriquez v. Enriquez (No. 2), 222 U.
, 222 U. S. 130
Brady v. Terminal Railroad Assn.,
302 U.S. 678.
The first opinion rendered by the Supreme Court of Tennessee
made no mention of any federal question, and, in a supplemental
opinion, the court stated only that "the claim of federally
protected right was decided adversely to complainant." Since it
does not appear that the validity of the statute was either drawn
in question or passed upon in the trial court or deemed by the
state supreme court to be in issue, we must dismiss the appeal for
want of jurisdiction. Treating the papers on which the appeal was
allowed as a petition for writ of certiorari, as required by
section 237(c) of the Judicial Code as amended, 28 U.S.C. § 344(c),
certiorari is granted and we proceed to consider the merits of the
Taxpayer, a Delaware corporation, was engaged during the period
in question in the business of purchasing natural gas in Louisiana
and transporting it through its
Page 315 U. S. 652
pipeline to points in Tennessee, where it delivered the gas into
the pipelines of two distributing companies -- Memphis Power &
Light Co. and West Tennessee Power & Light Co. -- which sold
the gas to local consumers. Taxpayer sells some of its gas in other
states, but in Tennessee it sells from 1 to 2% of its output to the
West Tennessee Power & Light Co. and delivers 80% or more to
the Memphis company. That company distributes it to consumers under
a contract with taxpayer which the Supreme Court of Tennessee has
found to be a joint undertaking of the two companies whereby
taxpayer furnishes gas from its pipeline, the Memphis company
furnishes facilities and service for distribution and sale to
consumers, and the proceeds of the sale, after deduction of
specified costs and expenses, are divided between the two
Taxpayer is licensed by the Tennessee to do business there. It
maintains a statutory office in Delaware and a stock transfer
office in New York City, but conducts no business at either. It
manages its business from its office in Memphis, Tennessee, where
it keeps its accounts, provides for the payroll of employees on its
line in Tennessee and other states, and prepares and sends out
bills for gas delivered in Tennessee and other states. It has thus
established a commercial domicile in Tennessee by virtue of which
it is subject to taxation there upon its intangibles, unless such
taxation infringes the commerce clause. Wheeling Steel Corp. v.
Fox, 298 U. S. 193
Section 1316 of the Tennessee Code of 1932 imposes on all
foreign and domestic corporations doing business for profit in the
state an annual excise tax of
"three percent. of the net earnings for their preceding fiscal
year . . . arising from business done wholly within the state,
excluding earnings arising from interstate commerce."
The Supreme Court of Tennessee sustained the tax on the
Page 315 U. S. 653
that it was laid on appellant's net earnings from the
distribution of gas under its contract with the Memphis company,
which distribution it held not to be interstate commerce within the
meaning of the statute. It decided that, by virtue of their
contract, the companies became, in effect, partners or joint
enterprisers in the distribution and sale of the gas to Tennessee
consumers, the net earnings from which are taxable under the
On petition for rehearing, taxpayer asked a modification of the
decree on the ground that included in the measure of the tax were
profits derived from sales of gas to the West Tennessee Power &
Light Co. and from certain other sales to the Memphis company, not
under the joint adventure agreement, which, it was insisted, were
concededly sales in interstate commerce. The court rejected this
contention upon the adequate state ground, not challenged here,
that taxpayer had failed to show what portion, if any, of the taxed
profits was derived from such sales, and consequently had laid no
basis for an injunction restraining collection of that part of the
This Court has often had occasion to rule that the retail sale
of gas at the burner tips by one who pipes the gas into the state
or by a local distributor acquiring the gas from another who has
similarly brought it into the state is subject to state taxation
and regulation. Public Utilities Comm'n v. Landon,
249 U. S. 236
East Ohio Gas Co. v. Tax Comm'n, 283 U.
; Southern Natural Gas Corp. v. Alabama,
301 U. S. 148
301 U. S. 154
cf. Missouri v. Kansas Natural Gas Co., 265 U.
, 265 U. S. 309
Illinois Natural Gas Co. v. Central Illinois Public Service
Co., 314 U. S. 498
follows that, if the Supreme Court of Tennessee correctly construed
taxpayer's contract with the Memphis company as establishing a
profit-sharing joint adventure in the distribution of gas to
Tennessee consumers, the
Page 315 U. S. 654
taxpayer's net earnings under the contract were subject to local
The meaning and effect of the contract, so far as they establish
taxpayer's participation in and ownership of profits derived from
the retail sale of the gas, are local questions conclusively
settled by the decision of the state court save only as this Court,
in the performance of its duty to safeguard an asserted
constitutional right, may inquire whether the decision of the state
question rests upon a fair or substantial basis. See Board
River Power Co. v. South Carolina, 281 U.
, and cases cited. We examine the contract only to
make certain that the nonfederal ground of decision is not so
colorable or unsubstantial as to be, in effect, an evasion of the
The contract was entered into as a preliminary to the award by
the City of Memphis to the Memphis company of its franchise to
distribute gas to consumers, and execution of the contract was a
condition of the grant of the franchise. By the contract, the
Memphis company undertook to establish its distribution system.
Taxpayer undertook to construct its pipeline with facilities,
including measuring stations at a delivery point, for supplying the
Memphis company with a varying flow of gas into the service pipes
as and when required by the Memphis company for consumer needs. The
amount so furnished, less certain deductions covered by a separate
contract not now material, was to be divided into five classes,
according to the use made of the gas by consumers, and was to be
billed by taxpayer to the Memphis company at five different
specified rates. The amount of gas allocated to each class was to
be in proportion to the amount of that class of gas sold by the
Memphis company for like use during the preceding month.
At the end of each year, the combined net surplus or deficit of
the two companies was to be divided between
Page 315 U. S. 655
them by a cash settlement. The surplus or deficit of each was to
be arrived at by deducting from its gross revenues the operating
costs, costs of property restorations and replacements, taxes,
amortization of investment, and 6% upon investment. After all net
deficits of both parties had been made up and the Memphis company
had received from the combined net surpluses 1 1/2% of its total
investment annually, any additional combined net income was to be
paid to or retained by taxpayer.
The contract provided for readjustment from time to time of the
billing price of the gas supplied by taxpayer so as to admit of
reduction in the rates to consumers, after first allowing "a
reasonable return" on taxpayer's investment. The contract contains
the usual provisions for inspection of books by the parties and the
city, and a clause requiring all notices to be given to taxpayer at
its Memphis office.
The Supreme Court of Tennessee held that the city was a party to
the contract entitled to the benefits of its provisions for rate
reductions. It held that the circumstance that taxpayer and the
Memphis company were designated by the contract as "seller" and
"buyer" did not alter or obscure the fact that taxpayer was a
participant in the profits derived from the joint undertaking and
that the precise time when the title to the gas passed, if it
passed before distribution to consumers, was immaterial. In any
case it thought that the tentative amounts to be paid by the
Memphis company for the gas in the first instance were to be
determined after delivery by the use made of it by consumers.
We cannot say that there is not a substantial basis for the
state court's conclusion that in substance the contract called for
the contribution of the services and facilities of the companies to
a joint enterprise, the taxpayer's delivery of gas into the mains
of the Memphis company for distribution to consumers, and a
division between the
Page 315 U. S. 656
two companies of the operating profits after providing for
certain agreed initial costs and expenses. Nor can we say that, by
this participation, the taxpayer did not do such a business in the
state as to be taxable there, or that the profits derived from it
are not an appropriate measure of the tax.
Taxpayer's contribution to the joint undertaking with the
Memphis company for the distribution of gas to local consumers, and
its activities at its Memphis general office in supplying gas to be
distributed for the joint account as required by the Memphis
company and in safeguarding and securing payment of its share of
the profits, went beyond the mere sale, to a distributor, of gas in
interstate commerce. It also constituted participation in the
business of distributing the gas to consumers after its delivery
into the service pipes of the Memphis company. Cheney Bros. Co.
v. Massachusetts, 246 U. S. 147
246 U. S.
-156; Atlantic Lumber Co. v. Commissioner,
298 U. S. 553
Southern Natural Gas Corp. v. Alabama, supra.
Since it was
competent for the state to tax such business done within it, it was
competent to measure the tax by the net earnings of the business as
well as by the capital employed. See Southern Natural Gas Corp.
v. Alabama, supra, 301 U. S.
In any case, even if taxpayer's business were wholly interstate
commerce, a nondiscriminatory tax by Tennessee upon the net income
of a foreign corporation having a commercial domicile there,
cf. Wheeling Steel Corp. v. Fox, supra,
or upon net income
derived from within the state, Shaffer v. Carter,
252 U. S. 37
252 U. S. 57
Wisconsin v. Minnesota Mining & Mfg. Co., 311 U.
; cf. New York ex rel. Cohn v. Graves,
300 U. S. 308
not prohibited by the commerce clause on which alone taxpayer
relies. United States Glue Co. v. Oak Creek, 247 U.
; Underwood Typewriter Co. v.
Chamberlain, 254 U. S. 113
254 U. S. 119
cf. Bass, Ratcliff & Gretton, Ltd. v. Tax Comm'n,
266 U. S. 271
Page 315 U. S. 657
Western Live Stock v. Bureau, 303 U.
, 303 U. S. 255
There is no contention or showing here that the tax assessed is not
upon net earnings justly attributable to Tennessee. Underwood
Typewriter Co. v. Chamberlain, supra; cf. Bass, Ratcliff &
Gretton, Ltd. v. Tax Comm'n, supra; Butler Bros. v. McColgan,
p. 315 U. S. 501
does not appear that, upon any theory, the tax can be deemed to
infringe the commerce clause.
Appeal dismissed for want of jurisdiction. Certiorari granted
and judgment affirmed.
MR. JUSTICE ROBERTS took no part in the consideration or
decision of this case.