1. Net income from the exclusively interstate operations of a
foreign corporation may be subjected to state taxation, provided
the levy is not discriminatory and is properly apportioned to local
activities within the taxing State forming sufficient nexus to
support the same. Pp.
358 U. S.
452-465.
2. In each of these two cases, a State imposed on a foreign
corporation an income tax computed at a nondiscriminatory rate on
that portion of the net income from the corporation's interstate
business which was reasonably attributable to its business
activities within the State. In each case, the corporation had
within the taxing State an office and one or more salesmen who
actively solicited within the State orders for the purchase of the
corporation's products, which orders were accepted at, and filled
from, the corporation's head office in another State. In neither
case was any question raised as to the reasonableness of the
apportionment of net income nor as to the amount of the final
assessment made.
Held: These taxes did not violate either the Commerce
Clause or the Due Process Clause of the Federal Constitution. Pp.
358 U. S.
452-465.
(a) The entire net income of a corporation, generated by
interstate as well as intrastate activities, may be fairly
apportioned among the States for tax purposes by formulas utilizing
in-state aspects of interstate affairs. Pp.
358 U. S.
459-461.
(b) The state taxes here involved are not regulations of
interstate commerce in any sense of that term; they do not
discriminate against or subject interstate commerce to an undue
burden; and they are not levied on the privilege of engaging in
interstate commerce. Pp.
358 U. S.
461-462.
(c) There is no showing here that the formula applied by the
State in determining the portion of the taxpayer's total income
attributable to activities within the State will subject
interstate
Page 358 U. S. 451
commerce to multiple taxation or require it to bear more than
its fair share of the tax burden. Pp.
358 U. S.
462-463.
(d) Since each of the taxes here involved is based only upon the
net profits earned within the taxing State, the State has utilized
a valid "constitutional channel" to "make interstate commerce pay
its way."
Spector Motor Service v. O'Connor, 340 U.
S. 602, distinguished. Pp.
358 U. S.
463-464.
(e) The taxes here involved do not violate the Due Process
Clause, since they are levied only on that portion of the
taxpayer's net income which arises from its activities within the
taxing State and those activities form a sufficient "nexus" to
satisfy due process requirements. Pp.
358 U. S.
464-465.
Page 358 U. S. 452
250 Minn. 32, 84 N.W.2d 373, affirmed. 213 Ga. 713,
101 S.E.2d
197, reversed.
MR. JUSTICE CLARK delivered the opinion of the Court.
These cases concern the constitutionality of state net income
tax laws levying taxes on the portion of a foreign corporation's
net income earned from and fairly apportioned to business
activities within the taxing State when those activities are
exclusively in furtherance of interstate commerce. No question is
raised in either case as to the reasonableness of the apportionment
of net income under the State's formulas nor to the amount of the
final assessment made. The Minnesota tax was upheld by its Supreme
Court, 250 Minn. 35, 84 N.W.2d 373, while the Supreme Court of
Georgia invalidated its statute as being violative of "both the
commerce and due process clauses of the Federal Constitution. . .
." 213 Ga. 713,
101 S.E.2d
197, 202. The importance of the question in the field of state
taxation is indicated by the fact that thirty-five States impose
direct net income taxes on corporations. Therefore, we noted
jurisdiction of the appeal in the Minnesota case, 355 U.S. 911
(1958), and granted certiorari in the other, 356 U.S. 911 (1958).
Although the cases were separately briefed, argued, and submitted,
we have, because of the similarity of the tax in each case,
consolidated from for the purposes of decision. It is contended
that each of the state statutes, as applied, violates both the Due
Process and the Commerce Clauses of the United States Constitution.
Article 1, § 8, cl. 3; Amend. 14. We conclude that net income from
the interstate operations of a foreign corporation may be subjected
to state taxation provided the levy is not discriminatory and is
properly apportioned to local activities within the taxing State
forming sufficient nexus to support the same.
Page 358 U. S. 453
No. 12. -- Northwestern States Portland Cement
Co.
v. Minnesota
This is an appeal from judgments of Minnesota's courts upholding
the assessment by the State of income taxes for the years 1933
through 1948 against appellant, an Iowa corporation engaged in the
manufacture and sale of cement at its plant in Mason City, Iowa,
some forty miles from the Minnesota border. The tax was levied
under § 290.03 [
Footnote 1] of
the Minnesota statutes, which imposes an annual tax upon the
taxable net income of residents and nonresidents alike. One of four
classes taxed by the statute is that of
"domestic and foreign corporations . . . whose business within
this state during the taxable year consists exclusively of foreign
commerce, interstate commerce, or both."
Minnesota has utilized three ratios in determining the portion
of net income taxable under its law. [
Footnote 2] The first is that of the taxpayer's sales
assignable to Minnesota during the year to its total sales during
that period made everywhere; the second, that of the taxpayer's
total tangible property in Minnesota for the year to its total
tangible property used in the business that year wherever situated.
The third is the taxpayer's
Page 358 U. S. 454
total payroll in Minnesota for the year to its total payroll for
its entire business in the like period. As we have noted, appellant
takes no issue with the fairness of this formula nor of the
accuracy of its application here.
Appellant's activities in Minnesota consisted of a regular and
systematic course of solicitation of orders for the sale of its
products, each order being subject to acceptance, filling and
delivery by it from its plant at Mason City. It sold only to
eligible dealers, who were lumber and building material supply
houses, contractors and ready-mix companies. A list of these
eligible dealers was maintained, and sales would not be made to
those not included thereon. Forty-eight percent of appellant's
entire sales were made in this manner to such dealers in Minnesota.
For efficient handling of its activity in that State, appellant
maintained in Minneapolis a leased sales office equipped with its
own furniture and fixtures and under the supervision of an
employee-salesman known as "district manager." Two salesmen,
including this district manager, and a secretary occupied this
three-room office. Two additional salesmen used it as a clearing
house. Each employee was paid a straight salary by the appellant
direct from Mason City, and two cars were furnished by it for the
salesmen. Appellant maintained no bank account in Minnesota, owned
no real estate there, and warehoused no merchandise in the State.
All sales were made on a delivered price basis fixed by the
appellant in Mason City, and no "pick ups" were permitted at its
plant there. The salesmen, however, were authorized to quote
Minnesota customers a delivered price. Orders received by the
salesmen or at the Minneapolis office were transmitted daily to
appellant in Mason City, were approved there, and acknowledged
directly to the purchaser with copies to the salesman.
In addition to the solicitation of approved dealers, appellant's
salesmen also contacted potential customers
Page 358 U. S. 455
and users of cement products, such as builders, contractors,
architects, and state, as well as local government, purchasing
agents. Orders were solicited and received from them, on special
forms furnished by appellant, directed to an approved local dealer
who in turn would fill them by placing a like order with appellant.
Through this system, appellant's salesmen would in effect secure
orders for local dealers which, in turn, were filled by appellant
in the usual manner. Salesmen would also receive and transmit
claims against appellant for loss or damage in any shipments made
by it, informing the company of the nature thereof and requesting
instructions concerning the same.
No income tax returns were filed with the State by the
appellant. The assessments sued upon, aggregating some $102,000,
with penalties and interest, were made by the Commissioner of
Taxation on the basis of information available to him.
No. 33. -- T. V. Williams, Commissioner v.
Stockham Valves & Fittings, Inc.
The respondent here is a Delaware Corporation with its principal
office and plant in Birmingham, Alabama. It manufactures and sells
valves and pipe fittings through established local wholesalers and
jobbers who handle products other than respondent's. These dealers
were encouraged by respondent to carry a local inventory of its
products by granting to those who did so a special price
concession. However, the corporation maintained no warehouse or
storage facilities in Georgia. It did maintain a sales-service
office in Atlanta, which served five States. This office was
headquarters for one salesman who devoted about one-third of his
time to solicitation of orders in Georgia. He was paid on a "salary
plus commission" basis, while a full-time woman secretary employed
there received a regular salary only. She was "a source of
Page 358 U. S. 456
information" for respondent's products, performed stenographic
and clerical services and
"facilitated communications between the . . . home office in
Birmingham, . . . [the] sales representative . . . and customers,
prospective customers, contractors and users of [its]
products."
Respondent's salesman carried on the usual sales activities,
including regular solicitation, receipt and forwarding of orders to
the Birmingham office and the promotion of business and good will
for respondent. Orders were taken by him, as well as the
sales-service office, subject to approval of the home office, and
were shipped from Birmingham direct to the customer on an "f.o.b.
warehouse" basis. Other than office equipment, supplies,
advertising literature and the like, respondent had no property in
Georgia, deposited no funds there and stored no merchandise in the
State.
Georgia levies a tax [
Footnote
3] on net incomes "received by every corporation, foreign or
domestic, owning property or doing
Page 358 U. S. 457
business in this State." [
Footnote 4] The Act defines the latter as including "any
activities or transactions" carried on within the State "for the
purpose of financial profit or gain," regardless of its connection
with interstate commerce. To apportion net income, the Act applies
a three-factor ratio based on inventory, wages and gross receipts.
Under the Act, the State Revenue Commissioner assessed and
collected a total of $1,478.31 from respondent for the taxable
years 1952, 1954 and 1955, and, after claims for refund were
denied, the respondent filed this suit to recover such payments. It
bases its right to recover squarely upon the constitutionality of
Georgia's Act under the Commerce and the Due Process Clauses of the
Constitution of the United States.
That there is a "need for clearing up the tangled underbrush of
past cases" with reference to the taxing power of the States is a
concomitant to the negative approach resulting from a case-by-case
resolution of "the extremely limited restrictions that the
Constitution places upon the states. . . ."
State of Wisconsin
v. J. C. Penney Co., 311 U. S. 435,
311 U. S. 445
(1940). Commerce between the States having grown up like Topsy, the
Congress meanwhile not having undertaken to regulate taxation of
it, and the States having understandably persisted in their efforts
to get some return for the substantial benefits they have afforded
it, there is little wonder that there has been no end of cases
testing out state tax levies. The resulting judicial application of
constitutional principles to specific state statutes leaves much
room for controversy and confusion, and little in the way of
precise guides to the States in the exercise of their indispensable
power of taxation. This Court alone has handed down some three
hundred full-dress
Page 358 U. S. 458
opinions spread through slightly more than that number of our
reports. As was said in
Miller Bros. Co. v. Maryland,
347 U. S. 340,
347 U. S. 344
(1954), the decisions have been
"not always clear . . . , consistent, or reconcilable. A few
have been specifically overruled, while others no longer fully
represent the present state of the law."
From the quagmire there emerge, however, some firm peaks of
decision which remain unquestioned.
It has long been established doctrine that the Commerce Clause
gives exclusive power to the Congress to regulate interstate
commerce, and its failure to act on the subject in the area of
taxation nevertheless requires that interstate commerce shall be
free from any direct restrictions or impositions by the States.
Gibbons v.
Ogden, 9 Wheat. 1 (1824). In keeping therewith, a
State "cannot impose taxes upon persons passing through the state,
or coming into it merely for a temporary purpose" such as itinerant
drummers.
Robbins v. Taxing District, 120 U.
S. 489,
120 U. S.
493-494 (1887). Moreover, it is beyond dispute that a
State may not lay a tax on the "privilege" of engaging in
interstate commerce,
Spector Motor Service v. O'Connor,
340 U. S. 602
(1951). Nor may a State impose a tax which discriminates against
interstate commerce either by providing a direct commercial
advantage to local business,
Memphis Steam Laundry Cleaner v.
Stone, 342 U. S. 389
(1952);
Nippert v. City of Richmond, 327 U.
S. 416 (1946), or by subjecting interstate commerce to
the burden of "multiple taxation,"
Michigan-Wisconsin Pipe Line
Co. v. Calvert, 347 U. S. 157
(1954);
Adams Mfg. Co. v. Storen, 304 U.
S. 307 (1938). Such impositions have been stricken
because the States, under the Commerce Clause, are not allowed "one
single tax-worth of direct interference with the free flow of
commerce."
Freeman v. Hewit, 329 U.
S. 249,
329 U. S. 256
(1946).
On the other hand, it has been established since 1918 that a net
income tax on revenues derived from interstate
Page 358 U. S. 459
commerce does not offend constitutional limitations upon state
interference with such commerce. The decision of
Peck & Co.
v. Lowe, 247 U. S. 1, pointed
the way. There, the Court held that, though true it was that the
Constitution provided "No Tax or Duty shall be laid on Articles
exported from any State," Art. I, § 9, still a net income tax on
the profits derived from such commerce was not
"laid on articles in course of exportation or on anything which
inherently or by the usages of commerce is embraced in exportation
or any of its processes. . . . At most, exportation is affected
only indirectly and remotely."
Id. at
247 U. S.
174-175. The first case in this Court applying the
doctrine to interstate commerce was that of
United States Glue
Co. v. Town of Oak Creek, 247 U. S. 321
(1918). There the Court distinguished between an invalid direct
levy which placed a burden on interstate commerce and a charge by
way of net income derived from profits from interstate commerce.
This landmark case and those usually cited as upholding the
doctrine there announced,
i.e., Underwood Typewriter Co. v.
Chamberlain, 254 U. S. 113
(1920), and
Memphis Natural Gas Co. v. Beeler,
315 U. S. 649
(1942), dealt with corporations which were domestic to the taxing
State (
United States Glue Co. v. Town of Oak Creek,
supra), or which had "established a
commercial domicile'"
there, Underwood Typewriter Co. v. Chamberlain, supra; Memphis
Natural Gas Co. v. Beeler, supra.
But that the presence of such a circumstance is not controlling
is shown by the cases of
Bass, Ratcliff & Gretton, Ltd. v.
State Tax Commission, 266 U. S. 271
(1924), and
Norfolk & W. R. Co. v. North Carolina,
297 U. S. 682
(1936). In neither of these cases was the taxpayer a domiciliary of
the taxing State, incorporated or with its principal place of
business there, though each carried on substantial local
activities. Permitting the assessment of New York's franchise tax
measured on a proportional formula against a British corporation
selling ale in New
Page 358 U. S. 460
York State, the Court held in
Bass, Ratcliff & Gretton,
Ltd., supra, that
"the Company carried on the unitary business of manufacturing
and selling ale, in which its profits were earned by a series of
transactions beginning with the manufacture in England and ending
in sales in New York and other places -- the process of
manufacturing resulting in no profits until it ends in sales -- the
State was justified in attributing to New York a just proportion of
the profits earned by the Company from such unitary business."
Id. at
266 U. S. 282.
Likewise, in
Norfolk & W. R. Co., supra, North
Carolina was permitted to tax a Virginia corporation on net income
apportioned to North Carolina on the basis of mileage within the
State. These cases stand for the doctrine that the entire net
income of a corporation, generated by interstate, as well as
intrastate, activities, may be fairly apportioned among the States
for tax purposes by formulas utilizing in-state aspects of
interstate affairs. In fact, in
Bass, Ratcliff &
Gretton, the operations in the taxing State were conducted at
a loss, and still the Court allowed part of the over-all net profit
of the corporation to be attributed to the State. A reading of the
statute in
Norfolk & W. R. Co. reveals further that
one facet of the apportionment formula was specifically designed to
attribute a portion of the interstate hauls to the taxing
State.
Any doubt as to the validity of our position here was entirely
dispelled four years after
Beeler, in a unanimous per
curiam in
West Publishing Co. v. McColgan, 328 U.S. 823,
citing the four cases of
Beeler, United States Glue Co.,
both
supra, Interstate Busses Corp. v. Blodgett,
276 U. S. 245
(1928), and
International Shoe Co. v. Washington,
326 U. S. 310
(1945). The case involved the validity of California's tax on the
apportioned net income of West Publishing Company, whose business
was exclusively interstate.
See 27 Cal. 2d
705, 166 P.2d 861, 862. While the statement of the facts in
that opinion recites that "The
Page 358 U. S. 461
employees were given space in the offices of attorneys in return
for the use of plaintiff's books stored in such offices," it is
significant to note that West had not qualified to do business in
California and the State's statute itself declared that the tax was
levied on income derived from interstate commerce within the State,
as well as any arising intrastate. The opinion was not grounded on
the triviality that office space was given West's soliciters by
attorneys in exchange for the chanceful use of what books they may
have had on hand for their sales activities. Rather, it recognized
that the income taxes arose from a purely interstate operation.
"In relying on the foregoing cases for the proposition that a
foreign corporation engaged within a state solely in interstate
commerce is immune from net income taxation by that state,
plaintiff (West Publishing Co.) overlooks the distinction made by
the United States Supreme Court between a tax whose subject is the
privilege of engaging in interstate commerce and a tax whose
subject is the net income from such commerce. It is settled by
decisions of the United States Supreme Court that a tax on net
income from interstate commerce, as distinguished from a tax on the
privilege of engaging in interstate commerce, does not conflict
with the commerce clause."
27 Cal. 2d
705, 708-709, 166 P.2d 861, 863. (Citations omitted.)
We believe that the rationale of these cases, involving income
levies by States, controls the issues here. The taxes are not
regulations in any sense of that term. Admittedly they do not
discriminate against nor subject either corporation to an undue
burden. While it is true that a State may not erect a wall around
its borders preventing commerce an entry, it is axiomatic that the
founders did not intend to immunize such commerce from
Page 358 U. S. 462
carrying its fair share of the costs of the state government in
return for the benefits it derives from within the State. The
levies are not privilege taxes based on the right to carry on
business in the taxing State. The States are left to collect only
through ordinary means. The tax, therefore, is "not open to the
objection that it compels the company to pay for the privilege of
engaging in interstate commerce."
Underwood Typewriter Co. v.
Chamberlain, supra, at
254 U. S. 119.
As was said in
Wisconsin v. Minnesota Mining & Mfg.
Co., 311 U. S. 452,
311 U. S. 453
(1940),
"it is too late in the day to find offense to that [Commerce]
Clause because a state tax is imposed on corporate net income of an
interstate enterprise which is attributable to earnings within the
taxing state. . . ."
While the economic wisdom of state net income taxes is one of
state policy not for our decision, one of the "realities" raised by
the parties is the possibility of a multiple burden resulting from
the exactions in question. The answer is that none is shown to
exist here. This is not an unapportioned tax which, by its very
nature, makes interstate commerce bear more than its fair share. As
was said in
Central Greyhound Lines of New York v. Mealey,
334 U. S. 653,
334 U. S. 661
(1948),
"it is interstate commerce which the State is seeking to reach
and . . . the real question [is] whether what the State is exacting
is a constitutionally fair demand by the State for that aspect of
the interstate commerce to which the State bears a special
relation."
The apportioned tax is designed to meet this very requirement
and
"to prevent the levying of such taxes as will discriminate
against or prohibit the interstate activities or will place the
interstate commerce at a disadvantage relative to local
commerce."
Id. at
334 U. S. 670.
Logically it is impossible, when the tax is fairly apportioned, to
have the same income taxed twice. In practical operation, however,
apportionment formulas being what they are, the possibility of the
contrary is not foreclosed, especially
Page 358 U. S. 463
by levies in domiciliary States. [
Footnote 5] But that question is not before us. It was
argued in
Northwest Airlines v. Minnesota, 322 U.
S. 292 (1944), that the taxation of the entire fleet of
its airplanes in that State would result in multiple taxation,
since other States levied taxes on some proportion of the full
value thereof. The Court rejected this contention as being "not now
before us," even though other States actually collected property
taxes for the same year from Northwest upon "some proportion" of
the full value of its fleet. [
Footnote 6] Here the records are all to the contrary.
There is nothing to show that multiple taxation is present. We
cannot deal in abstractions. In this type of case, the taxpayers
must show that the formula places a burden upon interstate commerce
in a constitutional sense. This they have failed to do.
It is also contended that
Spector Motor Service v.
O'Connor, 340 U. S. 602
(1951), requires a contrary result. But there it was repeatedly
emphasized that the tax was "imposed upon the franchise of a
foreign corporation for the privilege of doing business within the
State. . . ." Thus, it was invalid under a long line of precedents,
some of which we have mentioned. [
Footnote 7] It was not a levy on net
Page 358 U. S. 464
income, but an excise or tax placed on the franchise of a
foreign corporation engaged "exclusively" in interstate operations.
Therefore, with the exception of
Beeler, heretofore
mentioned, the Court made no reference to the net income tax cases
which control here. We do not construe that reference as intended
to impair the validity of the
Beeler opinion. Nor does it
reach our problem. The taxes here, like that in
West Publishing
Co. v. McColgan, supra, are based only upon the net profits
earned in the taxing State. That incidence of the tax affords a
valid "constitutional channel" which the States have utilized to
"make interstate commerce pay its way." In
Spector, the
incidence was the privilege of doing business, and that avenue of
approach had long been declared unavailable under the Commerce
Clause. As was said in
Spector,
"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 [are] nondiscriminatory."
340 U.S. at
340 U. S. 609.
We find that the statutes here meet these tests.
Nor will the argument that the exactions contravene the Due
Process Clause bear scrutiny. The taxes imposed are levied only on
that portion of the taxpayer's net income which arises from its
activities within the taxing State. These activities form a
sufficient "nexus between such a tax and transactions within a
state for which the tax is an exaction."
Wisconsin v. J. C.
Penney Co., supra, at
311 U. S. 445. It strains reality to say, in terms of
our
Page 358 U. S. 465
decisions, that each of the corporations here was not
sufficiently involved in local events to forge "some definite link,
some minimum connection" sufficient to satisfy due process
requirements.
Miller Bros. Co. v. Maryland, 347 U.
S. 340,
347 U. S.
344-345 (1954).
See also Ott v. Miss. Valley Barge
Line Co., 336 U. S. 169
(1949);
International Shoe Co. v. Washington, 326 U.
S. 310 (1945), and
West Publishing Co. v. McColgan,
supra. The record is without conflict that both corporations
engage in substantial income-producing activity in the taxing
States. In fact, in No. 12, almost half of the corporation's income
is derived from the taxing State's sales which are shown to be
promoted by vigorous and continuous sales campaigns run through a
central office located in the State. While, in No. 33, the percent
of sales is not available, the course of conduct was largely
identical. As was said in
Wisconsin v. J. C. Penney Co.,
supra, the "controlling question is whether the state has
given anything for which it can ask return." Since, by
"the practical operation of [the] tax, the state has exerted its
power in relation to opportunities which it has given, to
protection which it has afforded, to benefits which it has
conferred . . . ,"
it "is free to pursue its own fiscal policies, unembarrassed by
the Constitution. . . ."
Id. at
311 U. S.
444.
No. 12 --
Affirmed.
No. 33 --
Reversed.
* Together with No. 33,
Williams, State Revenue Commissioner
v. Stockham Valves & Fittings, Inc., on certiorari to the
Supreme Court of Georgia, argued October 14-15, 1958.
[
Footnote 1]
§ 290.03:
"Classes of taxpayers. An annual tax for each taxable year,
computed in the manner and at the rates hereinafter provided, is
hereby imposed upon the taxable net income for such year of the
following classes of taxpayers:"
"(1) Domestic and foreign corporations not taxable under section
290.02 which own property within this state or whose business
within this state during the taxable year consists exclusively of
foreign commerce, interstate commerce, or both;"
"Business within the state shall not be deemed to include
transportation in interstate or foreign commerce, or both, by means
of ships navigating within or through waters which are made
international for navigation purposes by any treaty or agreement to
which the United States is a party;. . . ."
Minn.Stat.1945, § 290.03, M.S.A.
[
Footnote 2]
Minn.Stat. (1945) § 290.19, M.S.A.
[
Footnote 3]
Ga.Code Ann. (1937), § 92-3102.
"Rate of taxation of corporations. -- Every domestic corporation
and every foreign corporation shall pay annually an income tax
equivalent to five and one-half percent of the net income from
property owned or from business done in Georgia, as is defined in
section 92-3113: . . ."
Ga.Code Ann. (1937), § 92-3113.
"Corporations, allocation and apportionment of income. -- The
tax imposed by this law shall apply to the entire net income, as
herein defined, received by every corporation, foreign or domestic,
owning property or doing business in this State. Every such
corporation shall be deemed to be doing business within this State
if it engages within this State in any activities or transactions
for the purpose of financial profit or gain, whether or not such
corporation qualifies to do business in this State, and whether or
not it maintains an office or place of doing business within this
State, and whether or not any such activity or transaction is
connected with interstate or foreign commerce. . . ."
[
Footnote 4]
The tax on corporations is part of a general scheme of income
taxation which Georgia imposes on individuals (§ 92-3101),
corporations (§ 92-3102), and fiduciaries (§ 92-3103).
[
Footnote 5]
In
Standard Oil Co. v. Peck, 342 U.
S. 382 (1952), we struck down Ohio's
ad valorem
property tax on vessels domiciled there but plying in interstate
trade because it was not apportioned.
[
Footnote 6]
The Court nevertheless pointed out that such payments did "not
abridge the power of taxation of . . . the home State." 322 U.S. at
322 U. S.
295.
[
Footnote 7]
See also Alpha Portland Cement Co. v. Massachusetts,
268 U. S. 203, 216
(1925), where this Court, striking down a Massachusetts excise tax
on a foreign corporation engaged exclusively in interstate
commerce, noted that "[t]he right to lay taxes on tangible property
or on income is not involved; . . . "
Furthermore, none of the cases which the dissent relies on for
the proposition that "no State has the right to lay a tax on
interstate commerce in any form . . . " was a net income tax case.
In fact, all involved taxes levied upon corporations for the
privilege of engaging in interstate commerce. This Court has
consistently held that the "privilege" of engaging in interstate
commerce cannot be granted or withheld by a State, and that the
assertion of state power to tax the "privilege" is, therefore, a
forbidden attempt to "regulate" interstate commerce.
Cf.
Murdock v. Pennsylvania, 319 U. S. 105,
319 U. S.
112-113 (1943).
MR. JUSTICE HARLAN, concurring.
In joining the opinion of the Court, I deem it appropriate to
make some further comments as to the issues in these cases because
of the strongly held contrary views manifested in the dissenting
opinions of MR. JUSTICE FRANKFURTER and MR. JUSTICE WHITTAKER. I
preface what follows by saying that in my view the past decisions
of this Court clearly point to, if indeed they do not compel, the
sustaining of these two state taxing measures.
Page 358 U. S. 466
Since
United States Glue Co. v. Town of Oak Creek,
247 U. S. 321,
decided in 1918, this Court has uniformly held that a State, in
applying a net income tax of general impact to a corporation doing
business within its borders, may reach income derived from
interstate commerce to the extent that such income is fairly
related to corporate activities within the State.
See, e.g.,
Shaffer v. Carter, 252 U. S. 37,
252 U. S. 57;
Atlantic Coast Line R. Co. v. Daughton, 262 U.
S. 413,
262 U. S. 416.
See also Underwood Typewriter Co. v. Chamberlain,
254 U. S. 113,
254 U. S.
119-120;
Bass, Ratcliff & Gretton, Ltd. v. State
Tax Commission, 266 U. S. 271;
Norfolk & W. R. Co. v. North Carolina, 297 U.
S. 682.
As I read the cases, the existence of some income from
intrastate business on the part of the taxed corporation, while
sometimes adverted to, has never been considered essential to the
valid taxation of such "interstate" income. The cases upholding
taxes of this kind cannot, in my opinion, properly be said to rest
on the theory that the income earned from the carrying on of
interstate commerce was not in fact being taxed, but rather was
being utilized simply to measure the income derived from some
separate, but unidentified, intrastate commerce, which income was
in truth the subject of the tax. That this is so seems to me
apparent from
United States Glue itself. There, the Court
explicitly recognized that the question before it was whether net
income from exclusively interstate commerce could be taxed by a
State on an apportioned basis together with other income of a
corporation. The careful distinction, drawn more than once in the
course of the opinion, between gross receipts from interstate
commerce, assumed to be immune from state taxation, and net income
therefrom, 247 U.S. at
247 U. S. 324,
247 U. S.
326-329, would be altogether meaningless if the case is
to be explained on the basis suggested by my dissenting brethren,
for if all that was in fact being taxed was income from intrastate
commerce there is no reason why gross receipts
Page 358 U. S. 467
as well as net income could not have been reached by the State.
[
Footnote 2/1]
Surely any possible doubt on this score is removed by
West
Publishing Co. v. McColgan, 328 U.S. 823, where this Court
unanimously affirmed, without oral argument, a decision of the
California Supreme Court upholding the validity of a statute taxing
"income from any activities carried on in this State, regardless of
whether carried on in intrastate, interstate or foreign commerce"
as applied to reach a portion of the net income of a Minnesota
corporation not qualified to do intrastate business in California
and assumed by the California court to the deriving income in
California entirely "from activities in furtherance of a purely
interstate business. . . ."
27 Cal. 2d
705, 712, 166 P.2d 861, 865.
It is suggested that the Court's summary affirmance in the
West case went on the ground that the taxpayer there was
found by the state court to have been engaged in intrastate
commerce in California, and that it was only the income earned from
such commerce that had in truth been taxed by the State. In my
view, this explanation
Page 358 U. S. 468
of
West is unacceptable. Apart from the fact that the
California Supreme Court did not proceed on any such basis (
see
especially the quotation from the state court's opinion set
forth at p.
358 U. S. 461
of this Court's opinion), the only facts elucidated in support of
this view of the
West cast are that employees of the
taxpayer solicited business in California, that they were
authorized to receive payments on orders taken by them, to collect
delinquent accounts, and to adjust complaints, and that they were
given space in California lawyers' offices in return for the use of
the taxpayer's books there stored, which locations were also
advertised as the taxpayer's local offices. It is said that these
are "the usual criteria which this Court has consistently held to
constitute the doing of intrastate commerce" and that "California
determined and taxed only the amount of that intrastate commerce."
With deference, this seems to me to be both novel doctrine and
unreal analysis; novel doctrine because this Court has never held
that activities of this kind, performed solely in aid of interstate
sales, are intrastate commerce; unreal analysis because it is
surely stretching things too far to say that California was seeking
to measure and tax office renting and complaint adjusting, rather
than part of the income from concededly interstate sales
transactions.
I think that
West squarely governs the two cases now
before us. [
Footnote 2/2]
Page 358 U. S. 469
It is said that the taxes presently at issue were "laid on
income from [interstate commerce] because of its source." If this
were so, I should, of course, vote to strike down their application
here as unconstitutionally discriminatory against interstate
commerce. But this seems to me plainly not such a case. As the
opinion of the Court demonstrates, the Minnesota and Georgia taxes
are each part of a general scheme of state income taxation,
reaching all individual, corporate, and other net income. The
taxing statutes are not sought to be applied to portions of the net
income of Northwestern and Stockham
because of the source
of that income -- interstate commerce -- but rather
despite that source. The thrust of these statutes is not
hostile discrimination against interstate commerce, but rather a
seeking of some compensation for facilities and benefits afforded
by the taxing States to income-producing activities therein,
whether those activities be altogether local or in furtherance of
interstate commerce. The past decisions of this Court establish
that such compensation may be had by the States consistent with the
Commerce Clause.
I think it no more a "regulation of," "burden on," or
"interference with" interstate commerce to permit a State within
whose borders a foreign corporation engages solely in activities in
aid of that commerce to tax the net income derived therefrom on a
properly apportioned basis than to permit the same State to impose
a nondiscriminatory net income tax of general application on a
corporation engaging in both interstate and intrastate commerce
therein and to take into account income from both categories.
Cf. Peck & Co. v. Lowe, 247 U.
S. 165. In each case, the amount of the tax will
increase as the profitability of the interstate business done
increases. This Court has
Page 358 U. S. 470
consistently upheld state net income taxes of general
application so applied as to reach that portion of the profits of
interstate business enterprises fairly allocable to activities
within the State's borders. We do no more today.
[
Footnote 2/1]
As early as 1919, such a discriminating commentator as the late
Thomas Reed Powell had this to say, in commenting on the decisions
of this Court in
Peck & Co. v. Lowe, 247 U.
S. 165, and
United States Glue Co. v. Town of Oak
Creek, supra:
"We may take it for granted, then, that the legal character of
the recipient and the nature of the business in which the recipient
is engaged are immaterial elements in considering the
constitutionality of a state-wide, all-inclusive general tax on net
income from business done within the state. The recipient may be an
individual, a partnership, a domestic or a foreign corporation. The
business may be exclusively interstate."
Indirect Encroachment on Federal Authority by the Taxing Powers
of the States. VII, 32 Harv.L.Rev. 634, 639. That nothing in
United States Glue turned on the fact that the taxpayer
there happened to be a domestic corporation is shown by the line of
cases following it where the taxpayers were foreign corporations
doing an interstate business.
See cases cited
ante, p.
358 U. S.
466.
[
Footnote 2/2]
Apart from the considerations discussed in the text of this
opinion, it is noteworthy that the Court in
West, in
relying on
Memphis Natural Gas Co. v. Beeler, 315 U.
S. 649, cited directly to page "
315 U. S. 656"
of the
Beeler opinion, where it was said:
"In any case, even if taxpayer's business were
wholly
interstate commerce [italics supplied], a nondiscriminatory
tax by Tennessee upon the net income of a foreign corporation
having a commercial domicile there [citation], or upon net income
derived from within the state [citations], is not prohibited by the
Commerce Clause on which the taxpayer alone relies [citing, among
other cases,
United States Glue Co. v. Town of Oak Creek,
supra]. There is no contention or showing here that the tax
assessed is not upon net earnings justly attributable to Tennessee
[citations]."
MR. JUSTICE FRANKFURTER, dissenting.
By way of emphasizing my agreement with my brother WHITTAKER, I
add a few observations.
The Court sustains the taxing power of the States in these two
cases essentially on the basis of precedents. For me, the result of
today's decisions is to break new ground. I say this because, among
all the hundreds of cases dealing with the power of the States to
tax commerce, there is not a single decision adjudicating the
precise situation now before us. Concretely, we have never decided
that a State may tax a corporation when that tax is on income
related to the State by virtue of activities within it when such
activities are exclusively part of the process of doing interstate
commerce. That is the precise situation which the state courts
found her, to-wit:
"[Northwestern's] activities in this State were an integral part
of its interstate activities, and all revenue received by it from
customers in Minnesota resulted from its operations in interstate
commerce."
and,
"[W]ithout dispute, [Stockham] was engaged exclusively in
interstate commerce insofar as its activities in Georgia are
concerned."
213 Ga. 713, 719,
101 S.E.2d
197, 201. It is vital to realize that in no case prior to this
decision in which the taxing power of a State has been upheld when
applied to corporations engaged in interstate commerce, was there a
total absence of activities pursued or
Page 358 U. S. 471
advantages conferred within the States severable from the very
process which constitutes interstate commerce.
The case that argumentatively comes the closest to the situation
now before the Court is
West Publishing Co. v. McColgan,
328 U.S. 823. [
Footnote 3/1] But in
that case too, as the
Page 358 U. S. 472
opinion of the California Supreme Court which we there summarily
sustained clearly set forth,
27 Cal. 2d
705, 166 P.2d 861, the West Publishing Company did not merely
complete in California the business which began in Minnesota. It
employed permanent workers who engaged in business activities
localized in California, activities which were apart from and in
addition to the purely interstate sale of law books. These
activities were more than an essential part of the process of
interstate commerce; they were, in legal shorthand, local
California activities constituting intrastate business. In dealing
with those purely local activities, the State could properly exert
its taxing power in relation to opportunities and advantages which
it had given and which it could have withheld by simply not
allowing a foreign corporation to do local business, whereas no
State may withhold from a foreign corporation within its borders
the right to exercise what is part of a process of exclusively
interstate commerce. The State gives to a corporation so engaged
nothing which it can withhold and therefore nothing for which it
can charge a price, whether the price be the cost of a license to
do interstate business or a tax on the profits accruing from that
business.
Page 358 U. S. 473
I venture to say that every other decision -- I say decision,
not talk or dicta -- on which reliance is placed, presented a
situation where conjoined with the interstate commerce was
severable local state business on the basis of which the state
taxing power become constitutionally operative. The difference
between those situations and this, as a matter of economics,
involves the distinction between taking into account the total
activity of the enterprise as a going business in determining a
fairly apportioned tax based on locally derived revenues, and
taxing a portion of revenue concededly produced by exclusively
interstate commerce. To be sure, such a distinction is a nice one,
but the last word on the necessity of nice distinctions in this
area was said by Mr. Justice Holmes in
Galveston, H. & S.A.
R. Co. v. Texas, 210 U. S. 217,
210 U. S.
225:
"It being once admitted, as of course it must be, that not every
law that affects commerce . . . is a regulation of it in a
constitutional sense, nice distinctions are to be expected."
Accordingly, today's decision cannot rest on the basis of
adjudicated precedents. This does not bar the making of a new
precedent. The history of the Commerce Clause is the history of
judicial evolution. It is one thing, however, to recognize the
taxing power of the States in relation to purely interstate
activities, and quite another thing to say that that power has
already been established by the decisions of this Court. If new
ground is to be broken, the ground must be justified and not
treated as though it were old ground.
I do not think we should take this new step. My objection is the
policy that underlies the Commerce Clause, namely, whatever
disadvantages may accrue to the separate States from making of the
United States a free-trade territory are far outweighed by the
advantages not only to the United States as a Nation, but to the
component States. I am assuming, of course, that today's
decision
Page 358 U. S. 474
will stimulate, if indeed it does not compel, every State of the
Union which has not already done so to devise a formula of
apportionment to tax the income of enterprises carrying on
exclusively interstate commerce. As a result, interstate commerce
will be burdened not hypothetically, but practically, and we have
been admonished again and again that taxation is a practical
matter.
I think that interstate commerce will be not merely
argumentatively, but actively, burdened for two reasons:
First. It will not, I believe, be gainsaid that there
are thousands of relatively small or moderate size corporations
doing exclusively interstate business spread over several States.
To subject these corporations to a separate income tax in each of
these States means that they will have to keep books, make returns,
store records, and engage legal counsel, all to meet the divers and
variegated tax laws of forty-nine States, with their different
times for filing returns, different tax structures, different modes
for determining "net income," and different, often conflicting,
formulas of apportionment. This will involve large increases in
bookkeeping, accounting, and legal paraphernalia to meet these new
demands. the cost of such a far-flung scheme for complying with the
taxing requirements of the different States may well exceed the
burden of the taxes themselves, especially in the case of small
companies doing a small volume of business in several States.
[
Footnote 3/2]
Second. The extensive litigation in this Court which
has challenged formulas of apportionment in the case of railroads
and express companies [
Footnote
3/3] -- challenges addressed
Page 358 U. S. 475
to the natural temptation of the States to absorb more than
their fair share of interstate revenue -- will be multiplied many
times when such formulas are applied to the infinitely larger
number of other businesses which are engaged in exclusively
interstate commerce. The division in this Court on these railroad
apportionment cases is a good index of what might reasonably be
expected when cases involving the more numerous non-transportation
industries come before the Court. This is not a suggestion that the
convenience of the Court should determine our construction of the
Commerce Clause, although it is important in balancing the
considerations relevant to the Commerce Clause against the claims
of state power that this Court should be mindful of the kind of
questions it will be called upon to adjudicate and its special
competence for adjudicating them. Wholly apart from that, the
necessity for litigation based on these elusive and essentially
non-legal questions casts a burden on businesses, and consequently
on interstate commerce itself, which should not be imposed.
These considerations do not at all lead to the conclusion that
the vast amount of business carried on throughout all the States as
part of what is exclusively interstate commerce should not be made
to contribute to the cost of maintaining state governments which,
as a practical matter, necessarily contribute to the conduct of
that commerce by the mere fact of their existence as governments.
The question is not whether a fair share of the profits derived
from the carrying on of exclusively interstate commerce should
contribute to the cost of the state governments. The question is
whether the answer to this problem rests with this Court or with
Congress.
I am not unmindful of the extent to which federal taxes absorb
the taxable resources of the Nation, while at the same time the
fiscal demands of the States are on the increase. These conditions
present far-reaching problems
Page 358 U. S. 476
of accommodating federal-state fiscal policy. But a
determination of who is to get how much out of the common fund can
hardly be made wisely and smoothly through the adjudicatory
process. In fact, relying on the courts to solve these problems
only aggravates the difficulties and retards proper legislative
solution.
At best, this Court can only act negatively; it can determine
whether a specific state tax is imposed in violation of the
Commerce Clause. Such decisions must necessarily depend on the
application of rough and ready legal concepts. We cannot make a
detailed inquiry into the incidence of diverse economic burdens in
order to determine the extent to which such burdens conflict with
the necessities of national economic life. Neither can we devise
appropriate standards for dividing up national revenue on the basis
of more or less abstract principles of constitutional law, which
cannot be responsive to the subtleties of the interrelated
economies of Nation and State.
The problem calls for solution by devising a congressional
policy. Congress alone can provide for a full and thorough
canvassing of the multitudinous and intricate factors which compose
the problem of the taxing freedom of the States and the needed
limits on such state taxing power. [
Footnote 3/4] Congressional committees can make
Page 358 U. S. 477
studies and give the claims of the individual States adequate
hearing before the ultimate legislative formulation of policy is
made by the representatives of all the States. The solution to
these problems ought not to rest on the self-serving determination
of the States of what they are entitled to out of the Nation's
resources. Congress alone can formulate policies founded upon
economic realties, perhaps to be applied to the myriad situation
involved by a properly constituted and duly informed administrative
agency.
[
Footnote 3/1]
The
West case was a per curiam affirmance without
opinion. The Court cited four cases in support:
United States
Glue Co. v. Town of Oak Creek, 247 U.
S. 321;
Interstate Busses Corp. v. Blodgett,
276 U. S. 245;
Memphis Natural Gas Co. v. Beeler, 315 U.
S. 649,
315 U. S. 656;
International Shoe Co. v. Washington, 326 U.
S. 310. Not one of these cases presented the issue now
here; in none had the Court to sustain a state net income tax on a
business whose revenue derived solely from interstate commerce.
In
United States Glue Co. v. Town of Oak Creek, supra,
this Court upheld an apportioned net income tax levied by the State
of Wisconsin on a Wisconsin corporation having its principal office
and manufacturing establishment in that State. A substantial part
of the corporation's business was intrastate. The only issue before
the Court was the power of the State to include interstate income
in its apportionment computation.
Interstate Busses Corp. v. Blodgett, supra, decided
that appellant had not sustained the burden of showing that an
excise tax of one cent per mile levied by Connecticut on motor
vehicles using its highways in interstate commerce fell with
discriminating weight on interstate commerce when the tax was
viewed as part of the State's entire taxing scheme. Aside from this
issue of discrimination, the case was merely another instance of a
State charging for the use of its highways.
The Court in
Memphis Natural Gas Co. v. Beeler, supra,
upheld a net income tax imposed by the State of Tennessee on
revenues earned by the Memphis Gas Company from shipping gas into
the State and selling it, together with another company, to retail
consumers in that State. The decision was explicitly based on a
determination that the revenue was, in fact, derived from
intrastate, rather than interstate, commerce. In addition the
Memphis Company was licensed to do business in Tennessee,
maintained its principal place of business there, and sold much of
its gas in that State. It is true that, on the page cited in
Beeler, the opinion indulged in a dictum that net income
from interstate commerce was taxable. But this was an almost
by-the-way observation, itself relying on citations which do not
support it, by a writer prone to uttering dicta.
International Shoe Co. v. Washington, supra, decided
that the Due Process Clause of the Fourteenth Amendment did not
prohibit the State of Washington from exercising jurisdiction over
the International Shoe Co., in the light of the frequency and
extent of the company's business contacts within the State. There
was no doubt that the unemployment compensation contributions
exacted by Washington were entirely consistent with the Commerce
Clause, since Congress had explicitly authorized such levies.
Thus, none of the cases cited in
West supports an
interpretation of that decision which goes beyond the actual
situation of severable local activities presented in that case. Nor
do they support the present taxes levied on exclusively interstate
business.
[
Footnote 3/2]
For a detailed exposition of the manifold difficulties in
complying with the diverse and complex taxing systems of the
States,
see Cohen, State Tax Allocations and Formulas
which Affect Management Operating Decisions, 1 Jour.Taxation, No. 2
(July 1954), p. 2.
[
Footnote 3/3]
See, e.g., Wallace v. Hines, 253 U. S.
66,
253 U. S. 67;
Pullman's Palace Car Co. v. Pennsylvania, 141 U. S.
18;
Adams Express Co. v. Ohio State Auditor,
165 U. S. 194;
id., 166 U. S. 166 U.S.
185 (opinion denying rehearing).
[
Footnote 3/4]
See Northwest Airlines, Inc., v. Minnesota,
322 U. S. 292. In
Northwest, we pointed to the desirability of congressional
action to formulate uniform standards for state taxation of the
rapidly expanding airline industry. Following our decision,
Congress directed the Civil Aeronautics Board to study and report
to Congress methods of eliminating burdensome, multiple state
taxation of airlines.
See H.R.Doc.No.141, 79th Cong., 1st
Sess. This report of the Board was a 158-page document whose length
and complex economic content in dealing with only a single subject
of state taxation, illustrate the difficulties and nonjudicial
nature of the problem. Following the presentation of this extensive
report, several bills were introduced into Congress providing for a
single uniform apportionment formula to be used by the States in
taxing airlines. H.R. 1241, 80th Cong., 1st Sess.; S. 2453, 80th
Cong., 2d Sess.; S. 420, 81st Cong., 1st Sess. None of these bills
was enacted.
Australia has resolved the problem of conflicting and burdensome
state taxation of commerce by a national arrangement whereby taxes
are collected by the Commonwealth and from these revenues
appropriate allocations are made annually to the States through the
mechanism of a Premiers' Conference -- the Prime Minister of the
Commonwealth and the Premiers of the several States.
MR. JUSTICE WHITTAKER, with whom MR. JUSTICE FRANKFURTER and MR.
JUSTICE STEWART join, dissenting.
I respectfully dissent. My disagreement with the Court is over
what I think are constitutional fundamentals. I think that the
Commerce Clause of the Constitution, Art. I, § 8, cl. 3, as
consistently interpreted by this Court until today, precludes the
States from laying taxes directly on, and thereby regulating,
"exclusively interstate commerce." But the Court's decision today
holds that the States may do so.
The statutes, facts and findings involved are clear, sharp and
undisputed. There is no room to doubt that the statutes involved
were designed to tax income derived "exclusively [from] interstate
commerce"; that the courts of the States concerned have found that
the income involved derived "exclusively [from] interstate
commerce";
Page 358 U. S. 478
and that the taxes in question were laid directly on that
interstate commerce.
Northwestern States Portland Cement Company, an Iowa corporation
maintaining its principal office and only manufacturing plant in
Mason City in that State, has for many years sold its cement
locally in Iowa and, in interstate commerce, to dealers in
neighboring States, including Minnesota. Although the "exclusively"
interstate character of the commerce done by Northwestern in
Minnesota is not disputed, the course of its conduct in that State
is summarized in the margin. [
Footnote
4/1] In 1950, Minnesota,
Page 358 U. S. 479
acting under its statutory "three factor formula" now contained
in Minnesota Statutes 1957, § 290.19, M.S.A., [
Footnote 4/2] apportioned and allocated to
Minnesota a substantial part of Northwestern's net income for each
of the years 1933 through 1948. Upon the amount of net income so
allocated, Minnesota assessed a tax against Northwestern for each
of those years under what is now Minnesota Statutes 1957, § 290.03,
M.S.A. which, in pertinent part, provides:
"290.03. . . . Classes of taxpayers. An annual tax for each
taxable year, computed in the manner and at the rates hereinafter
provided, is hereby imposed upon the taxable net income for such
year of the following classes of taxpayers:"
"(1) Domestic and foreign corporations . . . whose business
within this state during the taxable year consists exclusively of .
. . interstate commerce. . . ."
Upon Northwestern's refusal to pay those taxes, Minnesota
brought this action in its own court to recover them. Northwestern
defended upon the grounds (1) that
Page 358 U. S. 480
§ 290.03, as applied, imposed the taxes directly upon interstate
commerce and, hence, regulated it in violation of the Commerce
Clause of the Constitution, Art. I, § 8, cl. 3, and (2) that the
income involved was not subject to Minnesota's jurisdiction and its
action in taxing it violated the Due Process Clause of the
Fourteenth Amendment. At the conclusion of the trial, the court
made formal findings of fact, including the following:
"[Northwestern's] activities in this state were an integral part
of its interstate activities, and all revenue received by it from
customers in Minnesota resulted from its operations in interstate
commerce."
But the trial court, nevertheless, sustained the tax and entered
judgment for the State. Northwestern appealed to the Supreme Court
of Minnesota which, without challenging the finding of fact
above-quoted, affirmed, 250 Minn. 32, 84 N.W.2d 373, and the case
is here on Northwestern's appeal. 355 U.S. 911.
Stockham Valves & Fittings, Inc., is a Delaware corporation
maintaining its principal office and only manufacturing plant in
Birmingham, Alabama. It makes valves and pipefittings which it
sells locally in Alabama and, in interstate commerce, to
wholesalers and jobbers in Georgia as well as in all other States
of the Union. Although the facts are stipulated and the
"exclusively" interstate character of the commerce done by Stockham
in Georgia is not in dispute, the course of its conduct in that
State is summarized in the margin. [
Footnote 4/3] Petitioner, as
Page 358 U. S. 481
State Revenue Commissioner of Georgia, acting under the "Three
Factor Ratio" of the Code of Georgia, 1933, as amended, §
92-3113(4), [
Footnote 4/4]
apportioned and allocated to Georgia a part of Stockham's net
income for each of the years 1952, 1954, and 1955. Upon the amounts
of net income so allocated, petitioner assessed a tax against
Stockham for each of those years under the Code of
Page 358 U. S. 482
Georgia of 1933, as amended, § 92-3113, which, in pertinent
part, provides:
"Corporations, allocation and apportionment of income. -- The
tax imposed by this law shall apply to the entire net income, as
herein defined, received by every corporation, foreign or domestic,
owning property or doing business in this State. Every such
corporation shall be deemed to be doing business within this State
if it engages within this State in any activities or transactions
for the purpose of financial profit or gain, . . .
whether or
not any such activity or transaction is connected with interstate
or foreign commerce."
(Emphasis added.)
Upon demand, Stockham paid the taxes and, after denial of timely
claim for refund, brought this suit to recover the amount paid,
contending (1) that § 92-3113, as applied, imposed the taxes
directly upon interstate commerce and, hence, regulated it in
violation of the Commerce Clause of the Constitution, and (2) that
the income involved was not subject to Georgia's jurisdiction, and
its action in taxing it violated the Due Process Clause of the
Fourteenth Amendment. The trial court sustained the tax. Stockham
appealed to the Supreme Court of Georgia. It found that:
"[W]ithout dispute, [Stockham] was engaged exclusively in
interstate commerce insofar as its activities in Georgia are
concerned. . . ."
213 Ga. 713, 719,
101 S.E.2d
197, 201. And it held that § 92-3113, as applied, violated the
Commerce Clause of the Constitution. It thereupon reversed the
judgment, 213 Ga. 713,
101 S.E.2d
197, and we granted Georgia's petition for certiorari. 356 U.S.
911.
I submit that these simple recitals clearly show (1) that the
Minnesota and Georgia statutes, in plain terms, purport to tax
income derived "exclusively [from]
Page 358 U. S. 483
interstate commerce," (2) that the Minnesota and Georgia courts
have found that the income involved was derived "exclusively [from]
interstate commerce," and (3) that the taxes were laid directly on
that interstate commerce. There is no room to dispute these
admitted facts. Yet, I believe, the Court does not squarely face
them, but veiledly treats the cases as though intrastate commerce
were to some extent involved. It says, referring to the Minnesota
case, (a) that one of the salesmen was known as "district manager,"
(b) that the Minneapolis sales office was used "as a clearing
house," (c) that
"Orders were solicited and received from [builders, contractors
and architects], on special forms furnished by appellant, directed
to an approved local dealer who in turn would fill them by placing
a like order with appellant, [and that] [t]hrough this system,
appellant's salesmen would, in effect, secure orders for local
dealers which, in turn, were filled by appellant in the usual
manner,"
and (d) that
"[s]alesmen would also receive and transmit claims against
appellant for loss or damage in any shipments made by it, informing
the company of the nature thereof and requesting instructions
concerning the same."
These recitals, if found true, might very well have supported a
finding, had there been one, that the taxpayer was engaged in
intrastate commerce in Minnesota. Particularly might the statement
about the salesmen taking orders from builders, contractors and
architects for local dealers have done so, for it was expressly
held in
Cheney Brothers Co. v. Massachusetts, 246 U.
S. 147,
246 U. S. 155,
that such conduct amounted to engaging in the local business of
selling products for such dealers. But no such finding was made by
the Minnesota courts. And there is more than colorable basis for
believing that Minnesota did not desire such a finding, as any such
practice could easily be ended by Northwestern, and Minnesota's
purpose was not to rest on such a basis but to obtain an
adjudication that
Page 358 U. S. 484
its statute, § 290.03, constitutionally imposed a tax upon the
taxpayer's net income from Minnesota customers though derived
"exclusively [from] interstate commerce." Nor can the Court's
seeming disdain of the word "commerce" and its frequent use,
instead, of "activities" obscure the fact that it was "exclusively
interstate commerce" that was taxed. The abstract use of the word
"activities," as applied to a commerce question and distinguished
from a due process one, has no legal significance. What is of legal
consequence is whether the "activities" were in intrastate or in
interstate commerce. Here, the Minnesota and Georgia courts have
found that the income which was taxed had derived "exclusively
[from] interstate commerce."
So, if anything is plain, it is that we are not presented with
cases involving the doing of any intrastate commerce in Minnesota
or Georgia by the taxpayers. The courts of those States have
expressly found that there was none. Therefore, we do not have a
situation where a taxpayer was doing both intrastate and interstate
commerce within the taxing State, thus to invoke application of the
State's apportionment statute in order to determine how much of the
total income of the taxpayer had derived from intrastate commerce
in the taxing State, and was, therefore, subject to its taxing
power. Instead, we have here only interstate commerce, which the
States are prohibited from regulating, by direct taxation or
otherwise, by the Commerce Clause of the Constitution.
Yet the Court
"conclude[s] that net income from the interstate operations of a
foreign corporation may be subjected to state taxation provided the
levy is not discriminatory, and is properly apportioned to local
activities within the taxing State forming sufficient
nexus to support the same."
(Emphasis added.) I respectfully submit that this is novel
doctrine, and that this Court has never before so held.
Page 358 U. S. 485
The Court refers to our past opinions in this field as creating
a "quagmire," and says "there is a
need for clearing up the
tangled underbrush of past cases' with reference to the taxing
power of the States. . . ." I respectfully submit that this Court's
past opinions, rightly understood and aligned in their proper
categories, are remarkably consistent in a field so varied and
complex, and that they do not deserve the characterizations given
them. It is quite true in this field -- as I think is the case in
almost every field -- that loose statements can be found in some of
the opinions which, when considered in isolation, and certainly
when taken out of context, are seemingly outside the line of the
law. But I think it is entirely fair to say that such confusion as
exists is mainly due to a failure properly to analyze, understand,
categorize, and apply the decisions.
In applying the Court's opinions in the field of state income
taxation of commerce, it is at least necessary sharply to discern
(1) whether the tax was laid upon the general income of a resident
or domiciliary of the taxing State, (2) whether the taxpayer's
production, manufacturing, distribution or management facilities,
or some of them, were located in the taxing State, (3) whether the
taxpayer conducted both intrastate and interstate commerce in the
taxing State, and, if so, (4) whether the tax was directly laid on
income derived from interstate commerce, or -- what is the
equivalent -- on the whole of the income, or whether the whole of
the income was used as one of the several factors in an
apportionment formula merely for the purpose of fairly measuring
the uncertain percentage or proportion of the total income that was
earned within the taxing State.
Let us start our consideration with fundamentals. Of course, the
foundation is the Commerce Clause itself. It provides: "The
Congress shall have Power . . . To regulate Commerce with foreign
Nations, and among the several
Page 358 U. S. 486
States, and with the Indian Tribes. . . ." U.S.Const. Art. I, §
8, cl. 3. That clause, "by its own force, created an area of trade
free from interference by the States."
Freeman v. Hewit,
329 U. S. 249,
329 U. S.
252.
"[N]o state has the right to lay a tax on interstate commerce in
any form. . . . [T]he reason is that such taxation is a burden on
that commerce, and amounts to a regulation of it, which belongs
solely to congress."
Leloup v. Port of Mobile, 127 U.
S. 640,
127 U. S. 648.
And see the thirteen cases in this Court there cited in
support of the quoted text. Mr. Justice Brandeis, speaking for the
Court in
Sprout v. South Bend, 277 U.
S. 163,
277 U. S. 171,
declared that,
"in order that [a State] fee or tax shall be valid, it must
appear that it is imposed solely on account of the intrastate
business; that the amount exacted is not increased because of the
interstate business done;
that one engaged exclusively in
interstate commerce would not be subject to the imposition;
and that the person taxed could discontinue the intrastate business
without withdrawing also from the interstate business."
(Emphasis added.) The same declaration was made for the Court by
Mr. Justice Butler in
East Ohio Gas Co. v. Tax Commission,
283 U. S. 465,
283 U. S. 470,
and again by Mr. Chief Justice Hughes in
Cooney v. Mountain
States Tel. Co., 294 U. S. 384,
294 U. S.
393.
From this alone, it would seem necessarily to follow that the
taxes here challenged, which were laid by the States directly on
"exclusively interstate commerce," burdened that commerce, and,
hence, regulated it in violation of the Commerce Clause of the
Constitution. But there is more. This Court has consistently struck
down state taxes which were laid on business that was exclusively
interstate in character.
Cheney Brothers Co. v.
Massachusetts, 246 U. S. 147,
246 U. S. 153;
Alpha Portland Cement Co. v. Massachusetts, 268 U.
S. 203;
Ozark Pipe Line Corp. v. Monier,
266 U. S. 555;
Spector Motor Service v. O'Connor, 340 U.
S. 602.
Cf. 330 U. S. Carter
& Weekes Stevedoring Co., 330
Page 358 U. S. 487
U.S. 422;
Freeman v. Hewit, supra. Neither the Court
nor counsel have cited, and our research has not disclosed, a
single opinion by this Court that has upheld a state tax laid on
"exclusively interstate commerce," and we are confident none
exists.
The Court recognizes that "the States, under the Commerce
Clause, are not allowed
one single tax-worth of direct
interference with the free flow of commerce.' Freeman v.
Hewit, 329 U. S. 249,
329 U. S.
256." It then says,
"On the other hand, it has been established since 1918 that a
net income tax on revenues derived from interstate commerce does
not offend constitutional limitations upon state interference with
such commerce. The decision of
Peck & Co. v. Lowe,
247 U. S.
165, pointed the way."
What way did it point? There, the 1913 federal income tax Act,
imposing a tax upon the "entire net income arising or accruing from
all sources during the preceding calendar years," was applied by
the Federal Government to the whole net income of one who derived
about three-fifths of it from "buying goods in the several states,
shipping them to foreign countries and there selling them." The
question was whether such a tax validly could be imposed in the
light of Art. I, § 9, cl. 5 of the Constitution, which provides
that "No Tax or Duty shall be laid on Articles exported from any
State." This Court held that the export clause only precluded
taxation of "articles in course of exportation," and did not
prohibit federal taxation of general income of the taxpayer "from
all sources," and that the tax was "not laid on income from
exportation because of its source," but upon general income "from
all sources," and was, therefore, within the
federal power
to levy. 247 U.S. at
247 U. S. 174.
But here, the States of Minnesota and Georgia "laid [the taxes
directly] on income from [exclusively interstate commerce] because
of its source." They do not contend that they were laid on
any intrastate commerce, but admit
Page 358 U. S. 488
there was none. I submit that the Lowe case does not in any
sense "point the way" for direct taxation by a State of that which
it finds and admits to be "exclusively interstate commerce."
The Court then says
"The first case in this Court applying the doctrine (of the
Lowe case) to interstate commerce was that of
United
States Glue Co. v. Town of Oak Creek, 247 U. S.
321."
I submit that nothing in that case is authority for the
proposition that a State may tax "exclusively interstate commerce."
Exactly to the contrary, it sustained a tax only on "that
proportion of [the taxpayer's] income derived from business
transacted . . . within the state. . . ." 247 U.S. at
247 U. S. 329.
That was the whole point of the case. There, the Glue Company, a
Wisconsin corporation, maintained its principal office and its only
manufacturing plant in the town of Oak Creek in that State. It also
maintained stocks in branches in other States. It sold its products
both locally in Wisconsin and in other States in interstate
commerce, shipping either directly from its plant in Wisconsin or
from one of its branches in another State. In the year involved,
about one-seventh of its sales were made locally in Wisconsin,
four-sevenths of them were made, and the goods shipped from its
factory directly to customers in, other States in interstate
commerce, and two-sevenths of them were made from stocks in its
branches in other States. Wisconsin's income tax statutes provided,
in pertinent part, Laws 1911, c. 658, that
"any person engaged in business within and without the state
shall . . . be taxed only upon that proportion of such income as is
derived from business transacted . . . within the state. . . .
In order to determine what part of the income of a corporation
engaged in business within and without the state . . . is to be
taxed as derived from business transacted . . . within the state,
reference is had to a formula prescribed by another
statute,"
which employed the total income of the taxpayer
Page 358 U. S. 489
as one of its several factors. "This formula was applied in
apportioning [the taxpayer's] net
business income' for the
year" involved, which produced an amount substantially exceeding
one-seventh of its total income -- the amount of its local sales.
"[U]pon the portion thus attributed to the State . . . the tax in
question was levied." 247 U.S. at 247 U. S.
323-325. The Glue Company resisted the tax, contending
that it was imposed directly upon interstate commerce in violation
of the Commerce Clause of the Constitution, and, failing of relief
in the Supreme Court of the State, it brought the case here on writ
of error. This Court affirmed, concluding that the tax was
"measured . . . by the net proceeds from this part of
plaintiff's business, along with a like imposition upon its income
derived from other sources, and in the same way that other
corporations
doing business within the State are taxed
upon that proportion of their income derived from business
transacted . . . within the State. . . ."
247 U.S. at
247 U. S. 329.
(Emphasis added.)
It would seem too obvious for debate that, if a taxpayer
maintains its factory and produces all its goods in one State, but
sells the whole in other States in interstate commerce, it has
derived some portion of its income in the State of manufacture or
production. It should be obvious, too, that, where such a
manufacturer has sold some of its products locally and others of
them in interstate commerce, the mere ratio of intrastate sales to
interstate ones well might not constitute a fair basis for
determining what part of the net income was derived from intrastate
commerce, on the one hand, and interstate commerce, on the other.
Inasmuch as it has always been thought by American lawyers that the
States cannot tax interstate commerce, but may tax intrastate
commerce, it has been deemed necessary for the State to determine
what portion of the total income of the taxpayer was derived from
intrastate commerce done within its borders,
Page 358 U. S. 490
and is therefore subject to its taxing power. To accomplish that
purpose, most States, like Wisconsin in the
United States
Glue case, and like Minnesota and Georgia in the cases here,
have adopted apportionment statutes, applicable to situations where
the taxpayer is doing business both within and without the State,
which use, as one of the several factors, the total income of the
taxpayer in
measuring the part of the income that was
derived from within the taxing State. Those were the principles
applied in the
United States Glue case.
Those principles were again made unmistakably clear, and were
applied, by Mr. Justice Brandeis, in
Underwood Typewriter Co.
v. Chamberlain, 254 U. S. 113,
next relied on by the Court. That case does not hold that
"exclusively interstate commerce" may be taxed by a State. It holds
just the contrary. There, Underwood Typewriter Company, though a
Delaware corporation, had become a domiciliary of Connecticut, and
manufactured all of its machines at its factory in that State. It
sold them both locally in Connecticut and in other States in
interstate commerce. In the year involved, about 33 percent of its
dollar volume of sales was made in Connecticut, and the remainder
in other States in interstate commerce. To determine the amount of
Underwood's net income derived from intrastate commerce,
Connecticut applied the formula prescribed by its apportionment
statute. This resulted in a determination that 47 percent of
Underwood's net income had been derived from intrastate commerce in
Connecticut. Upon that amount it computed and assessed its 2
percent net income tax. This Court, in sustaining the tax over
Underwood's objection that it violated the Commerce Clause of the
Constitution, said:
"
This tax is based upon the net profits earned within the
State. That a tax
measured by net profits is valid,
although these profits may have been derived in part, or
Page 358 U. S. 491
indeed mainly, from interstate commerce is settled.
United
States Glue Co. v. Town of Oak Creek, 247 U. S.
321;
Shaffer v. Carter, 252 U. S.
37,
252 U. S. 57.
Compare Peck
& Co. v. Lowe, 247 U. S. 165. . . . The profits
of the corporation were largely earned by a series of transactions
beginning with manufacture in Connecticut and ending with sale in
other States. In this, it was typical of a large part of the
manufacturing business conducted in the State. The Legislature, in
attempting to put upon this business its fair share of the burden
of taxation, was faced with the
impossibility of allocating
specifically the profits earned by the processes conducted
within its borders. It therefore adopted a method of apportionment
which, for all that appears in this record, reached, and was
meant to reach, only the profits earned within the State."
254 U.S. at
254 U. S.
120-121. (Emphasis added.)
The Court next takes up the case of
Memphis Natural Gas Co.
v. Beeler, 315 U. S. 649.
That case does not at all hold that "exclusively interstate
commerce" may be taxed by a State. It, too, holds just the
contrary. There, Memphis Natural Gas Company purchased gas in
Louisiana which it transported through its interstate pipe line to
Tennessee, where it sold 20 percent of it in interstate commerce,
but it delivered 80 percent of it to Memphis Power & Light
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 companies."
315 U.S. at
315 U. S. 652.
A Tennessee statute imposed a tax on all foreign and domestic
corporations of
"three per cent. of the net earnings . . . arising
Page 358 U. S. 492
from business done
wholly within the state, excluding
earnings arising from interstate commerce."
Ibid. Acting under that statute, a tax "was laid on
[the taxpayer's] net earnings from the distribution of gas
under its contract with the Memphis company." 315 U.S. at
315 U. S. 653.
This Court said 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 taxpayer's net earnings
under the
contract were subject to local taxation."
315 U.S. at
315 U. S.
653-654. (Emphasis added.) This Court then found that
the Supreme Court of Tennessee had correctly construed the
contract, and that the taxpayer's activities "constituted
participation in the business of distributing the gas to consumers
after its delivery into the service pipes of the Memphis company,"
and sustained the tax, concluding: "There is no contention or
showing here that the tax assessed is not
upon net earnings
justly attributable to Tennessee." 315 U.S. at
315 U. S.
656-657. (Emphasis added.)
It is true that Mr. Chief Justice Stone's opinion in the
Beeler case contains the following language at page
315 U. S.
656:
"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, 298 U. S.
193, 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. S. 452;
cf. New York
ex rel. Cohn v. Graves, 300 U. S. 308, is not prohibited
by the commerce clause on which alone taxpayer relies.
United
States Glue Co. v. Town of Oak Creek, 247 U. S.
321;
Underwood Typewriter Co. v. Chamberlain,
254 U. S.
113,
254 U. S. 119-120. . .
."
(Emphasis added.)
Page 358 U. S. 493
The first sentence of that quotation caused Mr. Justice Burton
to say, in
Spector Motor Service v. O'Connor, 340 U.
S. 602,
340 U. S. 609,
note 6, that the statement was "not essential to the decision in
the case." But it is a mistake to say that Mr. Chief Justice
Stone's language even comes near holding that exclusively
interstate commerce may be taxed by a State. Note that he spoke of
a foreign corporation "having a commercial domicile" in the taxing
State. That connotes the conduct of intrastate commerce in the
taxing State, such as was involved in the
Fox case which
he cited,
i.e., the maintenance in the taxing State of the
taxpayer's "principal office" in which its principal officers were
located and conducted their business, and where a duplicate stock
ledger and the records of capital stock transactions of the
taxpayer were continuously kept. Of course, that conduct amounted
to the doing of intrastate commerce, and naturally the State could
tax that intrastate commerce. And that's all the State did in
Fox. Interstate commerce was not taxed either in
Beeler or in
Fox.
The Court then cites
Bass, Ratcliff & Gretton, Ltd. v.
State Tax Commission, 266 U. S. 271, and
Norfolk & W. R. Co. v. North Carolina, 297 U.
S. 682. But, from the Court's own recitals respecting
those cases, it appears that the taxpayers there "carried on
substantial local activities" within the taxing States, which
permitted the States to lay taxes on that intrastate commerce,
"measured on a proportional formula." Those cases are exactly in
line with the
United States Glue, Underwood, and
Beeler cases. They did not sustain a state tax on
exclusively interstate commerce.
The Court next cites this Court's per curiam in
West
Publishing Co. v. McColgan, 328 U.S. 823, and quotes from the
California opinion, which was there affirmed, only the following:
"The employees were given space in the offices of attorneys in
return for the use of plaintiff's
Page 358 U. S. 494
books stored in such offices." It will be seen by reference to
the California opinion that the California court had found
considerably more intrastate commerce. It had found that the
taxpayer
"regularly employed solicitors in [that] state who . . . were
authorized to receive payments on orders taken by them, to collect
delinquent accounts, and to make adjustments in case of complaints
by customers, [and who] were given space in the offices of
attorneys in return for the use of [the taxpayer's] books stored in
such offices, [which were] advertised as its local offices. . .
."
27 Cal. 2d
705, 707, 166 P.2d 861, 862. That finding established the usual
criteria which this Court has consistently held to constitute the
doing of intrastate commerce. California determined and taxed only
the amount of that intrastate commerce. It did not tax any
interstate commerce. This Court, in its per curiam affirmance,
cited the landmark Commerce Clause cases of
United States Glue
Co. v. Town of Oak Creek, supra; Memphis Natural Gas Co. v. Beeler,
supra, and the landmark Due Process Clause case of
International Shoe Co. v. Washington, 326 U.
S. 310. Surely this makes it clear that at least this
Court did not sustain any tax on interstate commerce.
The Court's quotation from
Wisconsin v. Minnesota Mining
& Manufacturing Co., 311 U. S. 452,
shows on its face that Wisconsin there taxed only income
"attributable to earnings within the taxing state. . . ."
Spector Motor Service v. O'Connor, 340 U.
S. 602, is quite consistent with the prior cases. There,
by a process of elimination, the Court determined what the tax was
not in arriving at what it was, and concluded that it was a tax
which attached "solely to the franchise of petitioner to do
interstate business." The Court then said:
"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
Page 358 U. S. 495
tax persists no matter how fairly it is apportioned to business
done within the state."
Citing
Alpha Portland Cement Co. v. Massachusetts,
268 U. S. 203;
Ozark Pipe Line Corp. v. Monier, 266 U.
S. 555, and referring, for comparison, to
Interstate
Oil Pipe Line Co. v. Stone, 337 U. S. 662,
337 U. S. 669;
Joseph v. Carter & Weekes Stevedoring Co.,
330 U. S. 422;
Freeman v. Hewit, 329 U. S. 249.
"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 on intrastate
business and, within reasonable limits, 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. . . ."
340 U.S. at
340 U. S.
609-610. It is not plain that this recent case holds
that "exclusively" interstate commerce may not be taxed by a
State?
With this demonstration of the holdings in the commerce cases
relied upon by the Court, surely we can repeat, with the conviction
of demonstrated truth, our statement that none of the cases relied
on by the Court supports its holding
"that net income from the interstate operations of a foreign
corporation may be subjected to state taxation provided the levy is
not discriminatory and is properly apportioned to local activities
within the taxing State. . . ."
The fact that such taxes may be fairly or "properly apportioned"
is without legal consequence, for "The constitutional infirmity of
such a tax persists no matter how fairly it is apportioned to
business done within the state."
Spector Motor Service v.
O'Connor, supra, 340 U.S. at
340 U. S. 609.
That this Court has always sustained state taxes on fairly
determined amounts of intrastate income should be evident enough
from the shown fact that it has struck them down only when there
was none.
Page 358 U. S. 496
The Court says, "We believe that the rationale of these cases,
involving income levies by States, controls the issues here." I
agree that the rationale of those cases controls the issues here.
But I cannot agree that those cases involved
like "income
levies by States." They involved levies of income taxes on
intrastate commerce, not on "exclusively interstate commerce."
Whereas here, both the Minnesota and Georgia courts have found that
the income taxed by those States had derived "exclusively [from]
interstate commerce," and that the tax was not levied upon any
intrastate commerce for there was none.
In these circumstances, I submit it is idle to say that the
taxes were not laid "on" interstate commerce, but on the taxpayer's
general income after all commerce had ended, and, therefore, did
not burden, nor hence regulate, interstate commerce. For, in
addition to the plainness of the fact, the courts of Minnesota and
Georgia have explicitly held in these cases that the income
involved was derived "exclusively [from] interstate commerce," and
that the taxes were laid on that income. The taxes do not purport
to have been, and could not have been, laid on any income derived
from intrastate commerce in those States, for there was none. It
necessarily follows that the taxes were "laid on income from
[interstate commerce] because of its source,"
Peck & Co. v.
Lowe, supra, at
247 U. S. 174,
just as in
Spector Motor Service v. O'Connor, supra.
The Commerce Clause denies state power to regulate interstate
commerce. It vests that power exclusively in Congress. Direct
taxation of "exclusively interstate commerce" is a substantial
regulation of it, and therefore, in the absence of congressional
consent, the States may not directly tax it. This Court has so held
every time the question has been presented here until today.
Without congressional consent, the States of Minnesota and Georgia
have laid taxes directly on what they admit was
Page 358 U. S. 497
"exclusively interstate commerce." Hence, in my view, those
levies plainly violated the Commerce Clause of the Constitution,
and cannot stand consistently therewith and with our prior cases. I
would therefore reverse the judgment of the Supreme Court of
Minnesota in No. 12 and affirm the judgment of the Supreme Court of
Georgia in No. 33.
[
Footnote 4/1]
Northwestern did not qualify, under Minnesota laws, to do
business in that State. During the years involved, it maintained a
small sales office in Minneapolis where it employed two salesmen
and a secretary. Her duties were wholly clerical. It also employed
from two to three salesmen at other points in Minnesota who worked
out of their homes. Apart from a small amount of furniture in its
Minneapolis office and two salesmen's automobiles, it owned no
property within the State, nor did it have a bank account therein,
and all salaries and reimbursable expenses of the salesmen and the
secretary, office rent, telephone bills and all other expenses of
the Minneapolis office, were paid directly from the home office.
The salesmen solicited and took orders from dealers, but they were
not authorized to accept orders or make contracts for the company,
nor were they authorized to receive payments, collect accounts or
adjust claims. Orders which they received were mailed to the home
office for approval of credit and for acceptance or rejection. The
orders were acknowledged and accepted or rejected in writing,
mailed from the home office directly to the purchasers. Accepted
orders were filled by delivery of the cement to a rail carrier,
f.o.b. plant at Mason City, and consigned to the purchasers. Sales
invoices were prepared in and mailed from the home office directly
to the purchasers, who made payment directly to the company at its
home office. The salesmen also called on contractors and other
users of cement, not to solicit orders, but for the purpose of
acquainting them with the merits of Northwestern's product and of
advising them of the names of the local dealers where it might be
purchased. There was evidence which might have supported a finding
that these salesmen sometimes, in effect, took orders from
contractors for, and delivered them to, local dealers who stocked
Northwestern's cement, and thus were engaged in the local business
of selling cement for such dealers.
Cheney Brothers Co. v.
Massachusetts, 246 U. S. 147,
246 U. S. 155.
But no such finding was made, and there is more than colorable
basis for believing that Minnesota did not press for such a
finding, as any such practice could easily be ended by Northwestern
and Minnesota's evident object was not to rest on such a basis, but
to obtain an adjudication that its statute, § 290.03, validly
imposed a tax upon Northwestern's net income from Minnesota
customers though derived "exclusively [from] interstate
commerce."
[
Footnote 4/2]
Minnesota Statutes 1957, § 290.19, M.S.A., provides, in
substance, that where business is done "partly within and partly
without this state," there shall be apportioned and allocated to
Minnesota, as income derived from the intrastate commerce done in
that State, an amount equal to the ratio which the taxpayer's (a)
sales made within that State, (b) tangible property owned or used
in that State, and (c) total payrolls paid in that State bear to
the taxpayer's totals of those factors.
[
Footnote 4/3]
To facilitate the conduct of its commerce, Stockham keeps a
stock of its products in public warehouses in Birmingham, Chicago,
Houston and Vernon (California), and maintains in each of those
cities, and in each of 8 other widely separated industrial centers,
including Atlanta, a small sales office. It has not qualified,
under Georgia laws, to do business in that State. Its Atlanta
office, which is listed in the Atlanta telephone and city
directories, is staffed with one salesman and a secretary. Her
duties are entirely clerical. The salesman spends about one-third
of his working time in Georgia, and the remainder in four other
southeastern States, calling on persons who are in position to
recommend or specify the use of particular building supplies in
construction work, such as architects, engineers and contractors,
and on independent wholesalers and jobbers, endeavoring to impress
them with the merits of, and to induce them to specify or recommend
the use of, Stockham's products. Although he has no authority to
accept orders or to make contracts for the company, he solicits
orders from wholesalers and jobbers, and transmits such as he
receives to the home office for approval of credit and acceptance
or rejection, but, "for the most part," orders are mailed directly
by the purchasers to the home office in Birmingham. Accepted orders
are filled by delivery of the goods to the purchasers, or to a
common carrier consigned to the purchasers, at the Birmingham
plant. Sales invoices are prepared and mailed by the home office
directly to the purchasers, who remit to the home office. The
salesman does not receive payments, collect accounts, or adjust
claims. Except for the small amount of office furniture in its
Atlanta sales office, the company has no property in Georgia, nor
does it have a bank account there, and the salaries of the salesman
and secretary and their reimbursable expenses, the office rent,
telephone bills and all other expenses of the Atlanta office are
paid directly from the home office.
[
Footnote 4/4]
Code of Georgia, 1933, as amended, § 92-3113(4) provides
that,
"Where income is derived from the manufacture, production, or
sale of tangible personal property, the portion of the net income
therefrom attributable to property owned or business done within
this State shall be taken to be the portion arrived at by"
the arithmetical average which the ratios of the taxpayer's (a)
inventories of products held in the State, (b) compensation paid or
incurred in the State, and (c) gross receipts from business done
within the State bear to the taxpayer's totals of those
factors.