1. Connecticut imposes upon the franchises of foreign
corporations, for the privilege of doing business within the State,
a tax computed at a nondiscriminatory rate on that part of the
corporation's net income which is reasonably attributable to its
business activities within the State. The tax is not levied as
compensation for the use of the highways or collected in lieu of an
property tax. It is not a fee for inspection or
a tax on sales or use.
as applied to a foreign corporation which was
engaged exclusively in interstate trucking, the tax was invalid
under the Commerce Clause of the Federal Constitution. Pp.
340 U. S.
(a) The fact that, if some intrastate commerce were involved or
if an appropriate tax were imposed as compensation for the
corporation's use of the highways, the same sum of money as is at
issue here might be lawfully collected from the corporation cannot
sustain the constitutional validity of the tax. Pp. 340 U. S.
(b) Whether a state may validly make interstate commerce pay its
way depends first of all upon the constitutional channel through
which it attempts to do so. P. 340 U. S.
(c) As construed by the state courts, this is a tax solely on
the franchise of petitioner to do a business which is exclusively
interstate, and such a tax contravenes the Commerce Clause no
matter how fairly it is apportioned to business done within the
state. Pp. 340 U. S.
2. The Federal District Court had jurisdiction of this case in
the first instance because of the uncertainty of the adequacy of a
remedy in the state courts, and it did not lose that jurisdiction
by virtue of the later clarification of the procedure in the courts
of the State. P. 340 U. S.
181 F.2d 150, reversed.
The case is stated in the opinion, pp. 340 U. S.
-605. The judgment of the Court of Appeals is
p. 340 U. S.
Page 340 U. S. 603
MR. JUSTICE BURTON delivered the opinion of the Court.
This proceeding attacks, under the Commerce Clause of the
Constitution of the United States, art. 1, § 8, cl. 3, the validity
of a state tax imposed upon the franchise of a foreign corporation
for the privilege of doing business within the State when (1) the
business consists solely of interstate commerce, and (2) the tax is
computed at a nondiscriminatory rate on that part of the
corporation's net income which is reasonably attributable to its
business activities within the State. For the reasons hereinafter
stated, we hold this application of the tax invalid.
Petitioner, Spector Motor Service, Inc., is a Missouri
corporation engaged exclusively in interstate trucking. It
instituted this action in 1942 in the United States District Court
for the District of Connecticut against the Tax Commissioner of
that State. It sought to enjoin collection of assessments and
penalties totaling $7,795.50, which had been levied against it, for
various periods between June 1, 1935, and December 31, 1940, under
the Connecticut Corporation Business Tax Act of 1935 and amendments
thereto. [Footnote 1
] It asked
also for a declaratory
Page 340 U. S. 604
judgment as to its liability, if any, under that Act. It claimed
that the tax imposed by the Act did not apply to it, and that, if
it did, such application violated both the Connecticut Constitution
and the Commerce and Due Process Clauses of the United States
Constitution, art. 1, § 8, cl. 3; Amend. 14. Finally, it alleged
that it had no plain, speedy and efficient remedy at law or in
equity in the state courts, [Footnote 2
] and that the collection of the taxes and
penalties by the means provided in the statute would cause it
irreparable injury. The District Court took jurisdiction, held that
the Act did not apply to petitioner, and granted the injunction
sought. Spector Motor Service v.
McLaughlin, 47 F. Supp.
. The Court of Appeals for the Second Circuit, one judge
dissenting, reversed. 139 F.2d 809. It held that the tax did apply
to petitioner, and was constitutional. We granted certiorari, 322
U.S. 720, but, after hearing, remanded the cause to the District
Court with directions to retain the bill pending the determination
of proceedings to be brought in the state court in conformity with
the opinion rendered, 323 U. S. 101
Page 340 U. S. 605
Petitioner thereupon sought a declaratory judgment in the
Superior Court for Hartford County, Connecticut. The Superior Court
held that the tax was applicable to petitioner, but invalid under
the Commerce Clause. 15 Conn.Supp. 205. The Supreme Court of Errors
of the Connecticut likewise held that petitioner was subject to the
tax, but it declined to pass on the effect of the Commerce Clause.
Spector Motor Co. v. Walsh,
135 Conn. 37, 70, 61 A.2d 89,
105. On a motion asking it to dissolve its original injunction, the
United States District Court declined to do so. 88 F. Supp. 711. It
reviewed the recent decisions and held that, applying the Act to
petitioner, as required by the interpretation of it by the state
courts, such application violated the Commerce Clause of the United
States Constitution. The Court of Appeals for the Second Circuit,
acting through the same majority as on the previous occasion,
reversed. One judge dissented for the reasons stated by the
district judge and by the judge who had dissented on the former
appeal. 181 F.2d 150. We granted certiorari because of the
fundamental nature of the issue and the apparent conflict between
the judgment below and previous judgments of this Court. 340 U.S.
806. The case was argued twice at this term.
The United States District Court had jurisdiction over this case
in the first instance because of the uncertainty of the adequacy of
a remedy in the state courts, and it did not lose that jurisdiction
by virtue of the later clarification of the procedure in the courts
of Connecticut. American Life Ins. Co. v. Stewart,
300 U. S. 203
Dawson v. Kentucky Distilleries & Warehouse Co.,
255 U. S. 288
The vital issue which remains is whether the application of the
tax to petitioner violates the Commerce Clause of the Federal
Constitution. We come to that issue now with the benefit of a
statement from the state court of final jurisdiction showing
exactly what it is that the State has sought to tax. The
all-important "operating incidence"
Page 340 U. S. 606
of the tax is thus made clear. [Footnote 3
] After full consideration and with knowledge
that its statement would be made the basis of determining the
validity of the application of the tax under the Commerce Clause,
that court said:
"The tax is then a tax or excise upon the franchise of
corporations for the privilege of carrying on or doing business in
the state, whether they be domestic or foreign. Stanley Works
122 Conn. 547, 551, 190 A. 743. Net earnings are
used merely for the purpose of determining the amount to be paid by
each corporation, a measure which, by the application of the rate
charged, was intended to impose upon each corporation a share of
the general tax burden as nearly as possible equivalent to that
borne by other wealth in the state. As regards a corporation doing
business both within and without the state, the intention was, by
the use of a rather complicated formula, to measure the tax by
determining as fairly as possible the proportionate amount of its
business done in this state. There is no ground upon which the tax
can be said to rest upon the use of highways by motor trucks. . .
135 Conn. at 56-57, 61 A.2d at 98-99.
The incidence of the tax is upon no intrastate commerce
activities, because there are none. Petitioner is engaged only in
interstate transportation. Its principal place of business is in
Illinois. It is authorized by the Interstate Commerce Commission to
do certain interstate trucking, and by the Connecticut Public
Utilities Commission to do part of such interstate trucking in
Connecticut. Petitioner has filed with the Secretary of Connecticut
a certificate of its incorporation in Missouri, has designated an
agent in Connecticut for service
Page 340 U. S. 607
of process and has paid the state fee required in that
connection. It has not been authorized by the Connecticut to do
intrastate trucking, and does not engage in it. See Terminal
Taxicab Co. v. District of Columbia, 241 U.
, 241 U. S.
Petitioner's business is the interstate transportation of
freight by motor truck between east and west. When a full truckload
is to be shipped to or from any customer in Connecticut,
petitioner's over the road trucks go directly to the customer's
place of business. In the case of less than truckload shipments,
pickup trucks operated by petitioner gather the freight from
customers for assembly into full truckloads at either of two
terminals maintained within the State. "The pickup trucks merely
act as a part of the interstate transportation of the freight." 135
Conn. at 44, 61 A.2d at 93.
The tax does not discriminate between interstate and intrastate
commerce. Neither the amount of the tax nor its computation need be
considered by us in view of our disposition of the case. The
objection to its validity does not rest on a claim that it places
an unduly heavy burden on interstate commerce in return for
protection given by the State. The tax is not levied as
compensation for the use of highways [Footnote 4
] or collected in lieu of an ad valorem
property tax. [Footnote 5
Those bases of taxation have been disclaimed by the highest court
of the taxing State. It is not a fee for an inspection or a tax on
sales or use. It is a
Page 340 U. S. 608
"tax or excise" placed unequivocally upon the corporation's
franchise for the privilege of carrying on exclusively interstate
transportation in the State. It serves no purpose for the State Tax
Commissioner to suggest that, if there were some intrastate
commerce involved, or if an appropriate tax were imposed as
compensation for petitioner's use of the highways, the same sum of
money as is at issue here might be collected lawfully from
petitioner. Even though the financial burden on interstate commerce
might be the same, the question whether a state may validly make
interstate commerce pay its way depends first of all upon the
constitutional channel through which it attempts to do so.
Freeman v. Hewit, 329 U. S. 249
McLeod v. J. E. Dilworth Co., 322 U.
Taxing power is inherent in sovereign states, yet the states of
the United States have divided their taxing power between the
Federal Government and themselves. They delegated to the United
States the exclusive power to tax the privilege to engage in
interstate commerce when they gave Congress the power "[t]o
regulate Commerce with foreign Nations, and among the several
States. . . ." U.S.Const. Art. I, § 8, cl. 3. While the reach of
the reserved taxing power of a state is great, the constitutional
separation of the federal and state powers makes it essential that
no state be permitted to exercise, without authority from Congress,
those functions which it has delegated exclusively to Congress.
Another example of this basic separation of powers is the inability
of the states to tax the agencies through which the United States
exercises its sovereign powers. See
4 Wheat. 316, 17 U. S.
-437; Brown v.
12 Wheat. 419, 25 U. S.
-449; Mayo v. United States, 319 U.
The answer in the instant case has been made clear by the courts
of Connecticut. It is not a matter of labels. The incidence of the
tax provides the answer. The
Page 340 U. S. 609
courts of Connecticut have held that the tax before us attaches
solely to the franchise of petitioner to do interstate business.
The State is not precluded from imposing taxes upon other
activities or aspects of this business which, unlike the privilege
of doing interstate business, are subject to the sovereign power of
the State. Those taxes may be imposed although their payment may
come out of the funds derived from petitioner's interstate
business, provided the taxes are so imposed that their burden will
be reasonably related to the powers of the State and
This Court heretofore has struck down, under the Commerce
Clause, state taxes upon the privilege of carrying on a business
that was exclusively interstate in character. The constitutional
infirmity of such a tax persists no matter how fairly it is
apportioned to business done within the state. Alpha Portland
Cement Co. v. Massachusetts, 268 U. S. 203
(measured by percentages of "corporate excess" and net income);
Ozark Pipe Line Corp. v. Monier, 266 U.
(measured by percentage of capital stock and
surplus). See Interstate Oil Pipe Line Co. v. Stone,
337 U. S. 662
337 U. S. 669
(dissenting opinion which discusses the issue on
the assumption that the activities were in interstate commerce);
Joseph v. Carter & Weekes Stevedoring Co.,
330 U. S. 422
Freeman v. Hewit, supra.
Our conclusion is not in conflict with the principle that, where
a taxpayer is engaged both in intrastate and interstate commerce, a
state may tax the privilege of carrying
Page 340 U. S. 610
on intrastate business and, within reasonable limits, [Footnote 7
] may compute the amount of
the charge by applying the tax rate to a fair proportion of the
taxpayer's business done within the state, including both
interstate and intrastate. Interstate Oil Pipe Line Co. v.
Stone, supra; International Harvester Co. v. Evatt,
329 U. S. 416
Atlantic Lumber Co. v. Comm'r of Corporations and
Taxation, 298 U. S. 553
same is true where the taxpayer's business activity is local in
nature, such as the transportation of passengers between points
within the same state, although including interstate travel,
Central Greyhound Lines v. Mealey, 334 U.
, or the publication of a newspaper, Western
Live Stock v. Bureau of Revenue, 303 U.
. See also Memphis Natural Gas Co. v.
Stone, 335 U. S. 80
In this field, there is not only reason but long established
precedent for keeping the federal privilege of carrying on
exclusively interstate commerce free from state taxation. To do so
gives lateral support to one of the cornerstones of our
constitutional law -- McCulloch v. Maryland, supra.
The judgment of the Court of Appeals, which reversed that of the
District Court, is accordingly
"SEC. 418c. IMPOSITION OF TAX. Every mutual savings bank,
savings and loan association and building and loan association
doing business in this state, and every other corporation or
association carrying on business in this state which is required to
report to the collector of internal revenue
for the district
in which such corporation or association has its principal place of
business for the purpose of assessment, collection, and payment of
an income tax [with exceptions not material here] . . . shall
pay, annually, a tax or excise upon its franchise for the privilege
of carrying on or doing business within the state,
such tax to
be measured by the entire net income as herein defined received by
such corporation or association from business transacted within the
state during the income year and to be assessed at the rate of two
percent. . . ."
(Emphasis supplied.) Conn.Gen.Stat.Cum.Supp. 1935.
This section was amended in 1937 by inserting in the first
italicized clause, after the words "every other corporation or
association carrying on,
" the words "or having the right
to carry on.
" Conn.Gen.Stat.Cum.Supp. 1939, § 354e. Our
conclusion is the same as to the assessments levied before and
those levied after the amendment.
The current revision of the statute, as subsequently amended,
appears in Conn.Gen.Stat. 1949, §§ 1896-1921.
". . . no [United States] district court shall have jurisdiction
of any suit to enjoin, suspend, or restrain the assessment, levy,
or collection of any tax imposed by or pursuant to the laws of any
State where a plain, speedy, and efficient remedy may be had at law
or in equity in the courts of such State."
50 Stat. 738, 28 U.S.C. (1940 ed.) § 41(1). See
U.S.C. (1946 ed., Supp. III) § 1341.
Wisconsin v. J. C. Penney Co., 311 U.
, 311 U. S.
See Capitol Greyhound Lines v. Brice, 339 U.
; Aero Mayflower Transit Co. v. Board of R.R.
Comm'rs, 332 U. S. 495
Interstate Busses Corp. v. Blodgett, 276 U.
(Conn. excise tax on the use of the highways).
Cf. Memphis Natural Gas Co. v. Stone, 335 U. S.
; McCarroll v. Dixie Greyhound Lines,
309 U. S. 176
See Interstate Oil Pipe Line Co. v. Stone, 337 U.
, 337 U. S. 679
Cudahy Packing Co. v. Minnesota, 246 U.
; Old Dominion S.S. Co. Virginia,
198 U. S. 299
Postal Telegraph Cable Co. v. Adams, 155 U.
The decision in Memphis Natural Gas Co. v. Beeler,
315 U. S. 649
upheld a Tennessee tax on earnings of the taxpayer within that
State where the earnings were derived from the intrastate
distribution of gas by the taxpayer in a joint enterprise with the
Memphis Power & Light Company. Any suggestion in that opinion
as to the possible validity of such a tax if applied to earnings
derived wholly from interstate commerce is not essential to the
decision in the case.
See International Harvester Co. v. Evatt, 329 U.
; Butler Bros. v. McColgan, 315 U.
; Department of Treasury v. Wood Preserving
Corp., 313 U. S. 62
Ford Motor Co. v. Beauchamp, 308 U.
; Connecticut General Life Ins. Co. v.
Johnson, 303 U. S. 77
Hans Rees' Sons v. North Carolina, 283 U.
; Underwood Typewriter Co. v.
Chamberlain, 254 U. S. 113
MR. JUSTICE CLARK, with whom MR. JUSTICE BLACK and MR. JUSTICE
DOUGLAS join, dissenting.
The Court assumes, and I think it has been clearly demonstrated,
that the tax under challenge is nondiscriminatory, fairly
apportioned, and not an undue burden on interstate commerce. Hence,
if an appellant had been
Page 340 U. S. 611
engaged in an iota of activity which the Court would be willing
to call "intrastate," Connecticut could have applied its tax to the
company's interstate business in the precise form which it now
seeks to employ -- a tax on the privilege of doing business in
Connecticut measured by the entire net income attributable to the
State, even though derived from interstate commerce.
But solely because Spector engages in what the Court calls
"exclusively interstate" business, a different standard is applied.
The Court does not ask whether the State is merely asking
interstate commerce to pay its way, or whether the State in fact,
provides protection and services for which such commerce may fairly
be charged. Nor is the Court concerned whether the tax puts
interstate business at a competitive disadvantage, or is likely to
do so. Instead, the tax is declared invalid simply because the
State has verbally characterized it as a levy on the privilege of
doing business within its borders. The Court concedes, or at least
appears to concede, that, if the Connecticut legislature or highest
court had described the tax as one for the use of highways or in
lieu of an ad valorem
property tax, Spector would have had
to pay the same amount, calculated in the same way, as is sought to
be collected here. In acknowledging this, the Court's own opinion
totally refutes its protestation that the standard employed to
strike down Connecticut's tax is more than a matter of labels.
Spector remains free -- as it has since the tax law was adopted in
1935 -- from paying any share of the State's expenses, and its
tax-free status continues until Connecticut renames or reshuffles
Neither such a standard nor such a result persuades me. I agree
with the well reasoned opinions of the court below that the cases
upholding fairly apportioned taxes on mixed intrastate and
interstate business, and recognizing the right of states to make
interstate commerce pay its
Page 340 U. S. 612
way, have enfeebled -- and justifiably so -- the precedents
which today's decision restores to full vigor. In the not too
distant past, this seemed to be quite clear. In Memphis Natural
Gas Co. v. Beeler, 315 U. S. 649
(1942), a tax was upheld as being reasonably attributable to
intrastate activities. But Chief Justice Stone, speaking for a
unanimous Court, went further to state:
"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 . . .
or upon net income derived from within the state . . . is not
prohibited by the commerce clause. . . ."
315 U.S. at 315 U. S. 656
In light of the apparent need for clearing up the tangled
underbrush of past cases, it appears that this view was delivered
advisedly. Nor do I understand it to have been upset by Freeman
v. Hewit, 329 U. S. 249
(1946), or Joseph v. Carter & Weekes Co., 330 U.
. The former involved a gross receipts tax capable
of duplication by another state; the latter involved a gross
receipts tax, rather than a net income tax, and the opinion in each
case was written by a member of the Court who joined in the
But, in any event, I would confine those decisions to their
"special facts." Freeman v. Hewit, supra,
at 329 U. S. 252
The Connecticut tax meets every practical test of fairness and
propriety enunciated in cases upholding privilege taxes on
corporations doing a mixed intrastate and interstate business.
These cases should govern here, for there is no apparent difference
between an "exclusively interstate" business and a "mixed" business
which would warrant different constitutional regard. There is
nothing spiritual about interstate commerce. It is rarely devoid of
significant contacts with the several states. Hence,
Page 340 U. S. 613
this Court has long treated the problems in this field with a
flexibility which the competing demands of federal and state
governmental spheres have required. In the absence of federal
action, this Court has been quick to recognize legitimate local
interests and uphold state regulations of activities which
admittedly form a part of, or impinge on, interstate commerce.
See, e.g., South Carolina State Highway Dept. v. Barnwell
Bros., 303 U. S. 177
(1938). The same approach is hardly foreign to the field of state
". . . [W]hen accommodation must be made between state and
national interests, manufacture within a State, though destined for
shipment outside, is not a seamless web so as to prevent a State
from giving the manufacturing part detached relevance for purposes
of local taxation."
Freeman v. Hewit, supra,
at 329 U. S.
A similar recognition of facts is no less suited to this case.
Spector qualified to do business in the State on June 11, 1934, by
filing the necessary papers with the Secretary of State. It leases
and utilizes terminals in Connecticut. It employs twenty-seven
full-time workers in Connecticut, the payroll at New Britain
amounting to $1,200 per week. It owns pickup trucks which are
registered in its name with the State Motor Vehicle Department and
which ply the streets of Connecticut cities. It uses heavy trucks
which grind over Connecticut highways. As pointed out by the
Connecticut Supreme Court of Errors, its leaseholds
". . . were the means adopted by it for the successful operation
of its business in this state, and no doubt they were of material
service in producing the large proportion of the plaintiff's
business which is attributable to Connecticut."
Spector Motor Service, Inc. v. Walsh,
135 Conn. 37, 50,
61 A.2d 89, 96 (1948).
Page 340 U. S. 614
To be sure, the company does not make intrastate deliveries. But
if it did, its activities would differ only in that its trucks
might use different streets and highways and make different stops;
the protection and services rendered by the State would be the
same. The local aspects of Spector's business, even though it might
technically be "exclusively interstate," are easily as substantial
as those which this Court recently found adequate to uphold parts
of the Illinois occupation tax, Norton Co. v. Department of
Revenue, 340 U. S. 534
(1951). They are at least as extensive as those which validated a
"privilege" tax in Memphis Natural Gas Co. v. Stone,
335 U. S. 80
It has taken eight years and eight courts to bring this battered
litigation to an end. The taxes involved go back thirteen years. It
is therefore no answer to Connecticut and some thirty other states
who have similar tax measures that they can now collect the same
revenues by enacting laws more felicitously drafted. Because of its
failure to use the right tag, Connecticut cannot collect from
Spector for the years 1937 to date, and it and other states may
well have past collections taken away and turned into taxpayer
bonanzas by suits for refund not barred by the respective statutes
Nor can the states be entirely certain that statutes recast in
the light of this decision will be immune from later constitutional
attack. It is at least doubtful that this statute is the only kind
of measure which the Court might think would impose a tax "on the
privilege of doing interstate business." But even assuming that the
Court has promulgated a sure guide for states to follow in future
enactments, the fact remains that there is no reasonable warrant
for cloaking a purely verbal standard with constitutional dignity.
"Exclusively interstate commerce" receives adequate protection when
state levies are fairly
Page 340 U. S. 615
apportioned and nondiscriminatory. See
Justice Rutledge in Interstate Oil Pipe Line Co. v. Stone,
337 U. S. 662
(1949). The "protection" bestowed by today's decision is neither
substantial nor deserved.
Objections to the fairness of Connecticut's apportionment
formula have been correctly disposed of by the Court of Appeals. I
would affirm its judgment.