Page images
PDF
EPUB

21. Taxation of the Privilege of Engaging in Interstate Commerce

2

No state can constitutionally prohibit the carrying on of foreign or interstate commerce within its limits or impose an excise upon the privilege of engaging in such commerce. Thus a state cannot impose a license tax on the occupation of importing foreign goods,3 or of selling goods brought in from another state. There is no doubt that a state may tax the occupation of a peddler, that is a person travelling from place to place selling goods which he carries with him, although the goods are manufactured in another state and the peddler is really the agent of a dealer located in another state, but a travelling salesman who takes orders in one state for goods to be shipped from another is so closely identified with interstate commerce that his occupation cannot be taxed by the state. A privilege tax on all

5

1 Pembina eto, Mining Co. v. Pennsylvania, 125 U. S. 186 (1888); Horn Silver Mining Co. v. New York, 143 U. S. 314 (1892); Hooper v. California, 155 U. S. 653 (1895).

2 Thus a state cannot require a license for vessels engaging in the coasting trade betwen ports in different states, Sinnot v. Davenport, 22 How. 239 (1859); or of an interstate ferry line, Gloucester Ferry Co. v. Pennsylvania, 114 U. S. 196 (1885); St. Clair County v. Interstate etc. Transfer Co., 192 U. S. 454 (1904); or for towing vessels engaged in interstate commerce, Moran v. New Orleans, 112 U. S. 69 (1884); or for carrying on an interstate express business, Osborne v. Mobile, 16 Wall. 33 (1871); Crutcher v. Kentucky, 141 U. S. 47 (1891); or for running sleeping cars through a state, Pickard v. Pullman Southern Car Co., 117 U. S. 46 (1886); or for maintaining an interstate telegraph line, Leloup v. Mobile, 127 U. S. 645 (1888).

3 Brown v. Maryland, 12 Wheat. 419 (1827).

4 Low v. Austin, 13 Wall. 33 (1871). A tax on dealers in a certain commodity is unconstitutional as to dealers who sell the commodity only in original packages brought in from another state; and the same is true of a tax on sales of such a commodity, Standard Oil Co v. Graves, 249 U. S. 389 (1919); but as to sales not in the original package the tax is valid. Whether an act imposing a tax of this kind which covers all dealers and all sales is unconstitutional depends upon the question whether the act is separable and is capable of being sustained as a tax upon business legitimately taxable. Askren v. Continental Oil Co., 252 U. S. 444 (1920). With respect to a tax on the sale or use of a commodity the tax is separable and may be enforced with respect to the sale or use of the commodity so far as such sale or use is not in the original package; but a license tax on dealers which makes no exception in favor of interstate commerce is not separable and is wholly void. Bowman v. Continental Oil Co., (1921).

U. S.

5 Howe Machine Co. v. Cage, 100 U. S. 676 (1879); Emert v. Missouri, 156 U. S. 311 (1895); Wagner v. Covington, 251 U. S. 95 (1919).

6 Robbins v. Shelby County Taxing District, 120 U. S. 493 (1887); Brennan v. Titusville, 153 U. S. 297 (1894); Caldwell v. North Carolina, 187 U. S. 622 (1902); Norfolk etc. R. R. Co. v. Sims, 191 U. S. 451 (1903). A tax on travelling salesmen is bad, although the goods are shipped to the salesman

dealers may however be collected from one whose principal business is in soliciting orders for manufacturers outside the state."

With respect to maintaining branch stores or agencies in another state, if a manufacturer merely places his goods in the hands of retail dealers in another state, or sends goods on consignment to purchasers in another state, or even maintains a local office in another state as a headquarters for his salesmen and for the storage and display of samples,1o he cannot be subjected to an excise or license tax by such other state. It is only when he maintains a store for local business that he can be subjected to such a tax.11

A tax on passengers coming from foreign ports or from the ports of other states is unconstitutional under whatever guise;12 but a reasonable quarantine fee covering only the cost of inspection is not objectionable as a tax on passengers.13

22. Taxation of Domestic Corporations Engaged in
Interstate Commerce

The plenary power of a state over corporations of its own creation is still universally recognized, and the state, which may grant or withhold a franchise as it may elect, may impose as a condition upon the grant the payment of such a tax as the legislature sees fit to impose. It is well settled that a tax may be levied upon the franchise of a corporation measured by the value of its capital stock, even if part of the capital of the corporation is invested in property which the state has no power to tax,1

in bulk and assorted by him for the respective purchasers, Kehrer v. Stewart, 197 U. S. 60 (1905); Rearick v. Pennsylvania, 203 U. S. 507 (1906). The fact that the salesman is a resident of the state imposing the tax does not make it valid, if he is acting for a non-resident principal. Stockard v. Morgan, 185 U. S. 37 (1902).

7 Ficklen v. Shelby County Taxing District, 145 U. S. 21 (1892).

8 Lyng v. Michigan, 135 U. S. 161 (1870).

9 Norfolk etc. R. R. Co. v. Sims, 191 U. S. 441 (1903); Dozier v. 'Alabama, 218 U. S. 124 (1910).

10 Cheney Bros. Co. v. Massachusetts, 246 U. S. 147 (1918); Marconi Wireless Tel. Co. v. Commonwealth, 218 Mass. 558 (1914).

11 Infra § 24.

12 Smith v Turner, 7 How. 412 (1849); Henderson v. Mayor of New York, 92 U. S. 259 (1875); People v. Compagnie Générale Transatlantique, 107 U. S. 60 (1882).

13 Morgan's Steamship Co. v. Louisiana Board of Health, 118 U. S. 465 (1886). See also Norris v. Boston, 4 Met. 282 (1842).

1 Society for Savings v. Coite, 6 Wall. 594 (1867); Home Insurance Co. v. New York, 134 U. S. 594 (1890); Flint v. Stone Tracy Co., 220 U. S. 107 (1911); Kansas City etc. R. R. Co. v. Botkin, 240 U. S. 227 (1916).

and it necessarily follows that a state may levy an excise on the franchise of corporations established under its laws graded in proportion to the value of the capital stock, which may constitutionally be applied to corporations engaged in interstate commerce. The tax in such a case is not a tax on the privilege of engaging in interstate commerce but on the privilege of existing as a corporation, which is derived from the state and not from the constitution of the United States. For similar reasons a state may levy a franchise tax based on the entire capital stock of a consolidated corporation which so far as it does business within the limits of such state is incorporated under its laws.3

4

A state may not constitutionally tax the gross receipts of a domestic corporation derived from interstate commerce and what it cannot do directly it cannot do indirectly by imposing a tax on the franchise of a domestic corporation engaged in interstate commerce equal to a fixed proportion of its gross receipts, in addition to the taxes on its property; but since the corporation can be taxed as a going concern and the extent of business done indicates the value of its property, the gross receipts may be used as the measure of the tax on its property and franchise when such a tax is not additional to a tax on its property valued in some other way."

A state has no power to tax such property of a domestic corporation as is permanently located in another state; and when the capital stock of a domestic corporation is taxed, the value of the tangible property of the corporation permanently located outside the state must be deducted. Since however in imposing

2 Delaware Railroad Tax, 18 Wall. 206 (1873); Wiggins Ferry Co. v. East St. Louis, 107 U. S. 365 (1882); Henderson Bridge Co. v. Kentucky, 166 U. S. 150 (1897); Kansas City etc. R. R. Co. v. Botkin, 240 U. S. 227 (1916).

3 Ashley v. Ryan, 153 U. S. 436 (1894); Keokuk etc. Bridge Co. v. Illinois, 175 U. S. 626 (1900).

4 Philadelphia etc. Steamship Co. v. Pennsylvania, 122 U. S. 326 (1887); Crew Levick Co. v. Pennsylvania, 245 U. S. 292 (1917).

5 Galveston etc. R. R. Co. v. Texas, 210 U. S. 217 (1908).

6 Maine v. Grand Trunk R. R. Co. 142 U. S. 217 (1891); United States Express Co. v. Minnesota, 223 U. S. 335 (1912); Cudahy Packing Co. v. Minnesota, 246 U. S. 450 (1918).

7 Union Refrigerator Transit Co. v. Kentucky, 199 U. S. 194 (1905).

8 Delaware etc. R. R. Co. v. Pennsylvania, 198 U. S. 341 (1905). Since however intangible personal property has its situs at the domicile of the owner, a state may tax a domestic corporation on the aggregate value of its capital stock in excess of its debts, real estate and tangible personal property although it owns no property and does no business in such state. Cream of Wheat Co. v. Grand Forks, 253 U. S. 325 (1920).

an excise on the franchise of a domestic corporation property which the state has no power to tax directly may be considered," it would seem that a domestic corporation has no constitutional right to have the value of property permanently located outside the state deducted when an excise on its franchise based on the aggregate value of its capital stock is assessed.10

23. Excise Taxes upon Foreign Corporations

The limitations imposed by the federal constitution upon the power of a state to levy excise taxes upon corporations organized under the laws of other states for the privilege of doing business within the limits of the state imposing the tax are not easy to define accurately, because, as the supreme court of the United States has itself said, there has been at times some diversity of opinion among the members of the court upon this subject and some of the decisions have not been in full accord with others.1 The general principles which govern have however become well established; the difficulty is in applying them to particular facts.

A state cannot prohibit an individual citizen of another state from doing business within its limits, or impose a tax upon him for the privilege of doing such business more onerous than is imposed upon residents of the state, even if his business is carried on wholly within the limits of the state imposing the tax. The lack of power of the state in this particular arises from the clause in Article IV, Section 2 of the constitution of the United States, which provides that the citizens of each state shall be entitled to all privileges and immunities of citizens in the several states.2 Further, a state cannot prohibit any person, or any corporation which it has not itself established, from carrying on interstate commerce within its limits, or impose a tax for the privilege of carrying on such commerce. The lack of power of the state in

9 See infra § 27.

10

(1866).

3

See Commonwealth v. New England Slate & Tile Co., 13 Allen 391

1 Van Devanter J. in International Paper Co. v. Massachusetts, 246 U. S. 135, 141 (1918).

2 Supra § 17. See also Corfield v. Coryell, 4 Wash. 371 (1823); Slaughter House Cases, 16 Wall. 97 (1872).

3 Gloucester Ferry Co. v. Pennsylvania, 114 U. S. 196 (1885); Pickard v. Pullman Southern Car Co., 117 U. S. 34 (1886); Pembina etc. Mining Co. v. Pennsylvania, 125 U. S. 181 (1888); Leloup v. Mobile, 127 U. S. 640 (1888); Nor

this particular arises from the clause in Article I, Section 8 of the constitution of the United States which provides that Congress shall have power to regulate commerce among the several states and which indirectly prohibits the several states from interfering with such commerce. But the provisions of Article IV, Section 2 which prohibit discrimination against citizens of other states do not apply to corporations; and a state may wholly exclude a corporation organized under the laws of another state from carrying on business within its limits, unless its business constitutes interstate commerce or in some other way is beyond the control of the state; and having

folk etc. R. R. Co. v. Pennsylvania, 136 U. S. 114 (1890); Horn Silver Mining Co. v. New York, 143 U. S. 305 (1892); Postal Tel. Cable Co. v. Charleston, 153 U. S. 692 (1894); Hooper v. California, 155 U. S. 648 (1895); Western Union Tel. Co. v. Kansas, 216 U. S. 1 (1900); International Text-Book Co. v. Pigg, 217 U. S. 91 (1910); Sault Ste. Marie v. International Transit Co. 234 U. S. 333 (1914); Looney v. Crane Co., 245 U. S. 178 (1917); Cheney Bros. Co. v. Massachusetts, 246 U. S. 147 (1918). A statute imposing in general terms an excise tax on corporations doing business within a state will ordinarily be construed by the state courts as not applicable to corporations doing only an interstate business, and so construed is constitutional. Kehrer v. Stewart, 197 U. S. 60 (1905); Armour Packing Co. v. Lacy, 200 U. S. 226 (1906); Attorney General v. Electric Storage Battery Co., 188 Mass. 239 (1905); Marconi Wireless Tel. Co. v. Commonwealth, 218 Mass. 558 (1914). What constitutes a local business carried on by a foreign corporation within a state as distinguished from an interstate business is not always easy to define. A foreign manufacturing corporation clearly is not doing a local business in a state merely because it places its goods in the hands of retail dealers therein, Lyng v. Michigan, 135 U. S. 161 (1890). So also sending agents or commercial travellers into a state to take orders for goods which are shipped from another state is clearly not engaging in a local business, Robbins v. Shelby County Taxing District, 120 U. S. 493 (1887); Brennan v. Titusville, 153 U. S. 297 (1894); Caldwell v. North Carolina, 187 U. S. 622 (1902); Norfolk etc. R. R. Co. v. Sims, 191 U. S. 451 (1903); Dozier v. Alabama, 218 U. S. 124 (1910); Crenshaw v. Arkansas, 227 U. S. 389 (1913); and it can make no difference that the agent is a resident of the state in which he does business, Stockard v. Morgan, 185 U. S. 37 (1902); or that the goods are shipped to the agent in bulk and are assorted by him for the respective purchasers, Kehrer v. Stewart, 197 U. S. 60 (1905); or that the corporation maintains an office as a local headquarters for its salesmen, Marconi Wireless Tel. Co. v. Commonwealth, 218 Mass. 558 (1914); even if the office is also used for the storage and display of samples of its products, Cheney Bros. Co. v. Massachusetts, 246 U. S. 147 (1918). But when a foreign corporation ships its products into a state and stores them there in charge of a local agent who makes delivery in the original packages as subsequently directed, it is transacting a local business, American Steel etc. Co. v. Speed, 192 U. S. 500 (1904); Armour v. Virginia, 246 U. S. 1 (1918). Where a corporation maintains its fiscal officers in a state other than that in which it was incorporated, it is doing a local business. Old Dominion Co. v. Commonwealth, 237 Mass. 269 (1921). For the application of the principle to a number of different sets of facts, see the decisions reported under the name of Marconi Wireless Tel. Co. v. Commonwealth, 218 Mass. 558 (1914) and Cheney Bros. Co. v. Massachusetts, 246 U. S. 147 (1918).

« PreviousContinue »