MR. JUSTICE CLARK delivered the opinion of the Court.
These cases concern the constitutionality of state net income tax laws levying taxes on that 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. 32, 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, 721, 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 them 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. 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.
No. 12.—Northwestern States Portland Cement Co. v. State of 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
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
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
Georgia levies a tax
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. . . ." Wisconsin v. J. C. Penney Co., 311 U.S. 435, 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
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, 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 v. Stone, 342 U.S. 389 (1952); Nippert v. 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, 256 (1946).
On the other hand, it has been established since 1918 that a net income tax on revenues derived from interstate
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
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, U. S. 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. While the statement of the facts in that opinion recites that "The
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
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 v. Mealey, 334 U.S. 653, 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 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
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.
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 445. It strains reality to say, in terms of our
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.
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 U. S. 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 324, 326, 327, 328, 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
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 be 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
I think that West squarely governs the two cases now before us.
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
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 here, to wit:
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
The case that argumentatively comes the closest to the situation now before the Court is West Publishing Co. v. McColgan, 328 U.S. 823.
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
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.
Second. The extensive litigation in this Court which has challenged formulas of apportionment in the case of railroads and express companies
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
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.
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";
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.
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
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.
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:
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]
So if anything is plain it is that we are not presented with cases involving the doing of any interstate 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.
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
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, 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. Joseph v. Carter & Weekes Co., 330 U.S. 422;
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. 249,256." 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 year," 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 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
The Court then says "The first case in this Court applying the doctrine [of the Lowe case] to interstate commerce was that of U. S. 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 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, 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
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, that 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
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
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 652. A Tennessee statute imposed a tax on all foreign and domestic corporations of "three per cent. of the net earnings . . . arising
It is true that Mr. Chief Justice Stone's opinion in the Beeler case contains the following language at page 656:
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 U. S. 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
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:
Is it 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, at 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.
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 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
"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.
"Rate of taxation of corporations.—Every domestic corporation and every foreign corporation shall pay annually an income tax equivalent to five and one-half per cent. 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. . . ."
Furthermore, none of the cases which the dissent relies on for the proposition that "[N]o 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, 112-113 (1943).
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 support 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.
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.