A Tennessee corporation which was not qualified to do business
in Arkansas, and which had no sales office nor any other place of
business in Arkansas, made sales of goods in Tennessee for delivery
by common carrier in Arkansas. Though some orders were solicited in
Arkansas by traveling salesmen domiciled in Tennessee, all orders
were taken subject to acceptance by the corporation in Tennessee;
title to the goods passed upon delivery to the carrier in
Tennessee, and no collections were made in Arkansas.
Held that the Imposition by Arkansas of a tax on such
transactions, under a statute construed by the state court as
levying a sales tax and not a use tax (which construction is
accepted here), violated the commerce clause of the Federal
Constitution.
McGoldrick v. Berwind-White Co.,
309 U. S. 33, and
Wisconsin v. J. C. Penney Co., 311 U.
S. 435, distinguished. Pp.
322 U. S. 328,
322 U. S.
330.
205 Ark. 780, 171 S.W.2d 62, affirmed.
Certiorari, 320 U.S. 728, to review the affirmance of a judgment
dismissing the complaint in two suits (consolidated for trial) to
enforce a state tax.
MR. JUSTICE FRANKFURTER delivered the opinion of the Court.
We are asked to reverse a decision of the Supreme Court of
Arkansas holding that the Commerce Clause precludes liability for
the sales tax of that State upon the transactions to be set
forth.
Page 322 U. S. 328
We take the descriptions of these transactions from the opinion
under review. Respondents are Tennessee corporations with home
offices and places of business in Memphis, where they sell
machinery and mill supplies. They are not qualified to do business
in Arkansas, and have neither sales office, branch plant, nor any
other place of business in that State. Orders for goods come to
Tennessee through solicitation in Arkansas by traveling salesmen
domiciled in Tennessee, by mail or telephone. But no matter how an
order is placed, it requires acceptance by the Memphis office, and,
on approval, the goods are shipped from Tennessee. Title passes
upon delivery to the carrier in Memphis, and collection of the
sales price is not made in Arkansas. In short, we are here
concerned with sales made by Tennessee vendors that are consummated
in Tennessee for the delivery of goods in Arkansas.
For such sales, the Supreme Court of Arkansas had held, in 1939,
the State had no power to exact a sales tax,
Mann v.
McCarroll, 198 Ark. 628, 130 S.W.2d 721. The Arkansas
legislation then in force was Act 154 of 1937. The transactions on
which the Collector here seeks to tax extended over periods that
bring into question Act 154 (extended by Act 364 of 1939) and a new
Statute (Act 386 of 1941), known as the Gross Receipts Act. The
Arkansas Supreme Court gave the Act of 1941 the same scope and
significance as it attributed to the Act of 1937 -- that is, an act
imposing a retail sales tax, and not a use tax. In view of this
construction, it has adhered to its earlier decision in
Mann v.
McCarroll, finding nothing in our intervening decision in
McGoldrick v. Berwind-White Coal Co., 309 U. S.
33, requiring a change in its constitutional views. 205
Ark. 780, 171 S.W.2d 62. To permit further examination of the
complicated problems raised by the interplay of federal and state
powers, we brought the case here. 320 U.S. 728.
Page 322 U. S. 329
We agree with the Arkansas Supreme Court that the
Berwind-White case presented a situation different from
this case, and that this case is on the other side of the line
which marks off the limits of state power. A boundary line is none
the worse for being narrow. Once it is recognized, as it long has
been by this Court, that federal and state taxation do not move
within wholly different orbits, that there are points of
intersection between the powers of the two governments, and that
there are transactions of what colloquially may be deemed a single
process across state lines which may yet be taxed by the their
occurrence, "nice distinctions are to be expected,"
Galveston,
H. & S.A. R. Co. v. Texas, 210 U.
S. 217,
210 U. S. 225.
The differentiations made by the court below between this case and
the
Berwind-White case are relevant and controlling.
"The distinguishing point between the
Berwind-White
Coal case and the cases at bar is that, in the
Berwind-White Coal case, the corporation maintained its
sales office in New York City, took its contracts in New York City,
and made actual delivery in New York City. . . ."
205 Ark. at 786, 171 S.W.2d at 65. This, according to practical
notion of what constitutes a sale which is reflected by what the
law deems a sale, constituted a sale in New York, and accordingly
we sustained a retail sales tax by New York. Here, as the Arkansas
Supreme Court continued,
"the offices are maintained in Tennessee, the sale is made in
Tennessee, and the delivery is consummated either in Tennessee or
in interstate commerce, with no interruption from Tennessee until
delivery to the consignee essential to complete the interstate
journey."
Because the relevant factors in the two cases decided together
with the
Berwind-White case were the same as those in
Berwind-White, the decision in that case controlled the
two other cases.
"In both cases, the tax was imposed on all the sales of
merchandise for which orders were taken
Page 322 U. S. 330
within the city and possession of which was transferred to the
purchaser there. Decision in both is controlled by our decision in
the
Berwind-White Company case."
McGoldrick v. Felt & Tarrant Mfg. Co., 309 U. S.
70,
309 U. S. 77. In
Berwind-White, the Pennsylvania seller completed his sales
in New York; in this case, the Tennessee seller was through selling
in Tennessee. We would have to destroy both business and legal
notions to deny that, under these circumstances, the sale -- the
transfer of ownership -- was made in Tennessee. For Arkansas to
impose a tax on such transactions would be to project its powers
beyond its boundaries and to tax an interstate transaction.
It is suggested, however, that Arkansas could have levied a tax
of the same amount on the use of these goods in Arkansas by the
Arkansas buyers, and that such a use tax would not exceed the
limits upon state power derived from the United States
Constitution. Whatever might be the fate of such a tax were it
before us, the not too short answer is that Arkansas has chosen not
to impose such a use tax, as its Supreme Court so emphatically
found. A sale tax and a use tax in many instances may bring about
the same result. But they are different in conception, are
assessments upon different transactions, and, in the interlacings
of the two legislative authorities within our federation, may have
to justify themselves on different constitutional grounds. A sales
tax is a tax on the freedom of purchase -- a freedom which wartime
restrictions serve to emphasize. A use tax is a tax on the
enjoyment of that which was purchased. In view of the differences
in the basis of these two taxes and the differences in the relation
of the taxing state to them, a tax on an interstate sale like the
one before us, and unlike the tax on the enjoyment of the goods
sold, involves an assumption of power by a State which the Commerce
Clause was meant to end. The very purpose of the Commerce Clause
was to create an area of free trade among the several States.
Page 322 U. S. 331
That clause vested the power of taxing a transaction forming an
unbroken process of interstate commerce in the Congress, not in the
States.
The difference in substance between a sales and a use tax was
adverted to in the leading case sustaining a tax on the use after a
sale had spent its interstate character:
"A tax upon a use so closely connected with delivery as to be in
substance a part thereof might be subject to the same objections
that would be applicable to a tax upon the sale itself."
Henneford v. Silas Mason Co., 300 U.
S. 577,
300 U. S. 583.
Thus, we are not dealing with matters of nomenclature, even though
they be matters of nicety.
"The state court could not render valid, by misdescribing it, a
tax law which in substance and effect was repugnant to the federal
Constitution; neither can it render unconstitutional a tax that, in
its actual effect, violates no constitutional provision by
inaccurately defining it."
Wagner v. City of Covington, 251 U. S.
95,
251 U. S. 102.
Though sales and use taxes may secure the same revenues and serve
complementary purposes, they are, as we have indicated, taxes on
different transactions, and for different opportunities afforded by
a State.
A very different situation underlay
Wisconsin v. J. C.
Penney Co., 311 U. S. 435. The
Wisconsin Supreme Court and this Court were concerned with an
exaction on a transaction which the Wisconsin Court described one
way and we another. We looked behind the labels to the thing
described, and the thing -- taxation of the distribution of income
earned in Wisconsin -- did not offend the Federal Constitution.
That case affords no ground for rejecting the deliberate choice of
a State to impose a tax on a transfer of ownership, and sustaining
it where the transfer was made beyond the state limits, as a use
tax on that property because the State might, so far as the Federal
Constitution is concerned, have enacted a use tax, and such a use
tax might have been collected on the
Page 322 U. S. 332
enjoyment of the goods so sold. Such a mode of adjudication
would imply a duty of excessive astuteness on our part to contract
the area of free trade among the States.
Judgment affirmed.
MR. JUSTICE DOUGLAS, with whom MR. JUSTICE BLACK and MR. JUSTICE
MURPHY concur, dissenting.
The present decision marks a retreat from the philosophy of the
Berwind-White case,
309 U. S. 33. It
draws a distinction between the use tax (
Felt & Tarrant
Mfg. Co. v. Gallagher, 306 U. S. 62) and
the sales tax which, on the facts of this case, seems irrelevant to
the power of Arkansas to tax. And it is squarely opposed to
McGoldrick v. Felt & Tarrant Mfg. Co., 309 U. S.
70, which should be overruled if the present decision
goes down.
Felt & Tarrant Mfg. Co. v. Gallagher involved a use
tax. The the buyer (California) was allowed to exact the tax from
the Illinois seller for goods sold to California buyers though the
seller's activities in California were not different in quality and
hardly more numerous than the Arkansas activities of the Tennessee
sellers in the present case. Though in some cases deliveries were
made by the local agent for Felt & Tarrant, in others,
shipments were made by it from Illinois direct to the buyers in
California. And in that case, as in the present case, the orders
were accepted outside the State of the buyer and remittances were
made direct to the out-of-state seller.
In
McGoldrick v. Felt & Tarrant Mfg. Co., we
allowed New York City to collect its sales tax on sales which Felt
& Tarrant made to New York purchasers under substantially the
same course of dealing as obtained in case of the California use
tax. Moreover, there were other transactions in
McGoldrick v.
Felt & Tarrant Mfg. Co. which were even closer to the
sales in the present case. I refer to the sales to New York City
buyers by a Massachusetts corporation
Page 322 U. S. 333
(Du Grenier, Inc.) which was not authorized to do business in
New York and which had no employee there. Another company, Stewart
& McGuire, Inc., acted as its exclusive agent and solicited
orders in New York City. The orders were forwarded to
Massachusetts, where they were accepted. Shipments were made by
rail or truck (F.O.B. Haverhill, Mass.) to the purchaser in New
York City, who paid the freight. Yet we allowed New York City to
collect its sales tax on those transactions.
If the federal Constitution does not prohibit New York City from
levying its sales tax on the proceeds of those interstate
transactions or California from exacting its use tax at the final
stage of an interstate movement of goods, I fail to see why
Arkansas should be prohibited from collecting the present tax.
It is not enough to say that the use tax and the sales tax are
different. A use tax may, of course, have a wider range of
application than a sales tax.
Henneford v. Silas Mason
Co., 300 U. S. 577. But
a use tax and a sales tax applied at the very end of an interstate
transaction have precisely the same economic incidence. Their
effect on interstate commerce is identical. We stated as much in
the
Berwind-White case, where, in speaking of the sales
tax, we said (p.
309 U. S.
49):
"It does not aim at or discriminate against interstate commerce.
It is laid upon every purchaser, within the state, of goods for
consumption, regardless of whether they have been transported in
interstate commerce. Its only relation to the commerce arises from
the fact that, immediately preceding transfer of possession to the
purchaser within the state, which is the taxable event regardless
of the time and place of passing title, the merchandise has been
transported in interstate commerce and brought to its journey's
end. Such a tax has no different effect upon interstate commerce
than a tax on the 'use' of property which has just been moved
Page 322 U. S. 334
in interstate commerce,"
citing use tax cases including
Henneford v. Silas Mason
Co. and
Felt & Tarrant Mfg. Co. v. Gallagher.
The sales tax and the use tax are, to be sure, taxes on
different phases of the interstate transaction. We may agree that
the use tax is a tax "on the enjoyment of that which was
purchased." But realistically, the sales tax is a tax on the
receipt of that which was purchased. For, as we said in the excerpt
from the
Berwind-White case quoted above, it is the
"transfer of possession to the purchaser within the state" which is
the "taxable event regardless of the time and place of passing
title." And
McGoldrick v. Felt & Tarrant Mfg. Co.
makes plain that the transfer of possession need not be by the
seller, for, in that case, as in the present one, deliveries were
made by common carriers which accepted the goods F.O.B. at points
outside the State. In terms of state power, receipt of goods within
the the State of the buyer is as adequate a basis for the exercise
of the taxing power as use within the State. And there should be no
difference in result under the Commerce Clause where, as here, the
practical impact on the interstate transaction is the same.
It is no answer to say that the Arkansas sales tax may not be
imposed because the out-of-state seller was "through selling" when
the tax was incurred. That was likewise true of both the use tax
cases, including
General Trading Co. v. State Tax
Commission, 322 U. S. 335, and
the sales tax decision in
McGoldrick v. Felt & Tarrant Mfg.
Co. The question is whether there is a phase of the interstate
transaction on which the the buyer can lay hold without placing
interstate commerce at a disadvantage. There is no showing that
Tennessee was exacting from these vendors a tax on these same
transactions, or that Arkansas discriminated against them. I can
see no warrant for an interpretation of the Commerce Clause
which
Page 322 U. S. 335
puts local industry at a competitive disadvantage with
interstate business. If there is a taxable event within the the
buyer, I would make the result under the Commerce Clause turn on
practical considerations and business realities, rather than on
dialectics. If that is not done, I think we should retreat from the
view that interstate commerce should carry its fair share of the
costs of government in the localities where it finds its markets,
and adopt the views expressed in the dissent in the
Berwind-White case.