GWIN, WHITE & PRINCE, INC. v. HENNEFORD ET AL.
No. 75
Supreme Court of the United States
Argued November 10, 1938. Decided January 3, 1939.
305 U.S. 434
Mr. R. G. Sharpe, Assistant Attorney General of Washington, with whom Mr. G. W. Hamilton, Attorney General, was on the brief, for appellees.
This appeal raises the single question whether a Washington tax measured by the gross receipts of appellant from its business of marketing fruit shipped from Washington to the places of sale in various states and in foreign countries is a burden on interstate and foreign commerce prohibited by the commerce clause of the Federal Constitution.
Appellant, a Washington corporation licensed to do business there, brought this suit in the State Superior Court to restrain appellees, comprising the State Tax Commission, from collecting the “business activities” tax laid by Chapter 180 of Washington Laws of 1935, amending Chapter 191 of Washington Laws of 1933, on the ground that it infringes the commerce clause. By stipulation after demurrer to the bill of complaint the cause was tried and decided on the merits, upon facts stated in the complaint and certain others specified in the stipulation. Judgment of the trial court for appellees was affirmed by the Supreme Court of Washington, 193 Wash. 451; 75 P. 2d 1017, and the case comes here on appeal under
Sections 4(e), 5(g), (m) of Tit. II, c. 180 of Washington Laws of 1935 lay “a tax for the act or privilege of engaging in business activities” upon every person (including corporations) “engaging within this state in any business activity,” with exceptions not now material, at the rate of one-half of 1% of the “gross income of the business.” As the record discloses, appellant has a place of business in the state of Washington from which it carries on its operations in marketing, in other states and foreign countries, apples and pears grown in Washington and Oregon. Its entire business is that of marketing agent
The entire Washington business is carried on by appellant under contract with an incorporated federation of twelve state cooperative growers’ organizations. By this contract appellant is given exclusive authority to sell all apples and pears coming into the possession and control of the federation as agent for its members and to collect the proceeds of sale. Appellant undertakes to sell these products at prices fixed by the federation, to obtain their widest possible distribution, to attend to all traffic matters pertaining to shipment and transportation of the fruit, to effect delivery to purchasers and to collect and
The Supreme Court of Washington, conceding that the shipment of the fruit from the state of origin to points outside, and its sale there, involve interstate commerce, held nevertheless that appellant‘s activities in Washington in promoting the commerce were a local business, subject to state taxation as is other business carried on in the state, and it sustained the present levy, against attack under the commerce clause, as a tax upon those activities, citing Ficklen v. Shelby County Taxing District, 145 U.S. 1, and American Manufacturing Co. v. St. Louis, 250 U.S. 459.
We need not stop to consider which, if any, of appellant‘s activities in carrying on its business are in themselves transportation of the fruit in interstate or foreign commerce. For the entire service for which the compensation is paid is in aid of the shipment and sale of merchandise in that commerce. Such services are within the protection of the commerce clause, Robbins v. Shelby County Taxing District, 120 U.S. 489; Caldwell v. North Carolina, 187 U.S. 622; Real Silk Mills v. Portland, 268 U.S. 325; and the only question is whether the taxation of appellant‘s gross receipts derived from them is such an interference with interstate commerce as to bring the tax within the constitutional prohibition.
While appellant is engaged in business within the state, and the state courts have sustained the tax as laid on its activities there, the interstate commerce service which it renders and for which the taxed compensation is paid is not wholly performed within the state. A substantial part of it is outside the state where sales are negotiated and written contracts of sale are executed, and where deliveries and collections are made. Both the compensation and the tax laid upon it are measured by the amount of the commerce—the number of boxes of fruit transported from Washington to purchasers elsewhere; so that the tax, though nominally imposed upon appellant‘s activities in Washington, by the very method of its measurement reaches the entire interstate commerce service rendered both within and without the state and burdens the commerce in direct proportion to its volume.
The constitutional effect of a tax upon gross receipts derived from participation in interstate commerce and measured by the amount or extent of the commerce itself has been so recently and fully considered by this Court that it is unnecessary now to elaborate the applicable principles. Western Live Stock v. Bureau of Revenue, 303 U.S. 250; Adams Manufacturing Co. v. Storen, 304 U.S. 307; cf. Coverdale v. Arkansas-Louisiana Pipe Line Co., 303 U.S. 604.
It has often been recognized that “even interstate business must pay its way” by bearing its share of local tax burdens, Postal Telegraph-Cable Co. v. Richmond, 249 U.S. 252, 259, and that in consequence not every local tax laid upon gross receipts derived from participation in interstate commerce is forbidden. See Western Live Stock v. Bureau of Revenue, supra, 254 et seq., and cases cited. But it is enough for present purposes that under the commerce clause, in the absence of Congressional action, state taxation, whatever its form, is precluded if it discriminates against interstate commerce or
Here the tax, measured by the entire volume of the interstate commerce in which appellant participates, is not apportioned to its activities within the state. If Washington is free to exact such a tax, other states to which the commerce extends may, with equal right, lay a tax similarly measured for the privilege of conducting within their respective territorial limits the activities there which contribute to the service. The present tax, though nominally local, thus in its practical operation discriminates against interstate commerce, since it imposes upon it, merely because interstate commerce is being done, the risk of a multiple burden to which local commerce is not exposed. Adams Manufacturing Co. v. Storen, supra, 310, 311; cf. Fargo v. Michigan, 121 U.S. 230; Philadelphia & Southern S. S. Co. v. Pennsylvania, 122 U.S. 326; Galveston, H. & S. A. Ry. Co. v. Texas, 210 U.S. 217, 225, 227; Meyer v. Wells, Fargo & Co., 223 U.S. 298; Crew Levick Co. v. Pennsylvania, 245 U.S. 292; Fisher‘s Blend Station v. State Tax Commission, 297 U.S. 650; see Western Live Stock v. Bureau of Revenue, supra, 260. Such a multiplication of state taxes, each measured by the volume of the commerce, would reëstablish the barriers to interstate trade which it was the object of the commerce clause to remove. Unlawfulness of the burden depends upon its nature, measured in terms of its capacity to obstruct interstate commerce, and not on the contingency that some other state may first have subjected the commerce to a like burden.
Ficklen v. Shelby County Taxing District, supra, which the Washington Supreme Court thought sustained its decision, upheld a state license tax imposed upon the privilege of doing a brokerage business within the state and measured by the gross receipts of commissions from sales of merchandise shipped into the state for delivery after the sales were made. Although the tax, measured by gross receipts, to some extent burdened the commerce, it was held that the burden did not infringe the commerce clause. Since it was apportioned exactly to the activities taxed, all of which were intrastate, the tax was fairly measured by the value of the local privilege or franchise. New York, L. E. & W. R. Co. v. Pennsylvania, 158 U.S. 431; American Manufacturing Co. v. St. Louis, supra; Utah Power & Light Co. v. Pfost, 286 U.S. 165; Coverdale v. Arkansas-Louisiana Pipe Line Co., supra. Neither the tax in the Ficklen case nor that upheld in American Manufacturing Co. v. St. Louis, supra, was open to the objection directed here to the present tax and sustained in Adams Manufacturing Co. v. Storen, supra, 311, that the tax is measured by gross receipts from activities in interstate commerce conducted both within and without the taxing state and that the exaction is of such a character that if lawful it might be laid to the fullest extent by the states in which the merchandise is sold as well as by those from which it is shipped. See Western Live Stock v. Bureau of Revenue, supra, 260.
For more than a century, since Brown v. Maryland, 12 Wheat. 419, 445, it has been recognized that under the commerce clause, Congress not acting, some protection is afforded to interstate commerce against state taxation of the privilege of engaging in it. Webber v. Virginia, 103 U.S. 344; Telegraph Co. v. Texas, 105 U.S. 460; Robbins v. Shelby County Taxing District, supra; Leloup v. Mobile, 127 U.S. 640; Brennan v. Titusville, 153 U.S. 289; International Text Book Co. v. Pigg, 217 U.S. 91; Fisher‘s Blend Station v. State Tax Commission, supra; Adams Manufacturing Co. v. Storen, supra. For half a century, following the decision in Philadelphia & Southern S. S. Co. v. Pennsylvania, 122 U.S. 326, it has not been doubted that state taxation of local participation in interstate commerce, measured by the entire volume of the commerce, is likewise foreclosed. During that period Congress has not seen fit to exercise its constitutional power to alter or abolish the rules thus judicially established. Instead, it has left them undisturbed, doubtless because it has appreciated the destructive consequences to the commerce of the nation if their protection were withdrawn. Meanwhile Congress has accommodated its legislation, as have the states, to these rules as an established feature of our constitutional system. There has been left to the states wide scope for taxation of those engaged in interstate commerce, extending to the instruments of that commerce, to net income derived from it, and to other forms of taxation not destructive of it. See Western Live Stock v. Bureau of Revenue, supra, 254 et seq., and cases cited.
Reversed.
MR. JUSTICE BUTLER, concurring.
MR. JUSTICE MCREYNOLDS and I concur in the result.
Appellant is engaged exclusively in interstate commerce, a part of which is carried on in the State of Washington.
MR. JUSTICE BLACK, dissenting.
“Equality is the theme that runs through all the sections of the statute”1 of the State of Washington here considered. The statute imposes a general, non-discriminatory tax—measured by gross receipts—upon all businesses operating in that State. The intended equality of the statute will become unequality by the judgment of this Court here, because appellant and all other businesses in Washington that receive income for selling Washington products in that and other States, are exempted from the tax. Appellant is exempted from past, present and future payments of this tax. Not so, however, as to past, present, or future payments by Washington businesses selling only to citizens of that State. They must bear the entire burden of the tax. Thus the judgment here, framed to prevent conjectured future, possible—not present and actual—discrimination against interstate commerce, makes of this statute with equality as its theme, an instrument of discrimination against Washington intra-state
In 1933, Washington‘s system of taxation failed to supply adequate revenue to support activities essential to the welfare of its people. Mounting delinquencies due to burdensome taxes on property led the state legislature to conclude that property taxes had to be reduced. This reduction was made. Then, forced to seek new sources of revenue,3 the State turned—as did many other States faced with similar needs4—to a general, non-discriminatory excise tax upon business carried on in Washington, measured by gross receipts. This general and non-discriminatory tax enabled “the common schools of the state . . . to operate the full school term.”5 While those engaged in interstate businesses have enjoyed the property tax reduction in common with all Washington businesses, the exemption from taxation here granted appellant forces intra-state businesses to bear the entire burden of the
Appellant, a Washington corporation, serves—under a contract made in Washington—as sales agent for Washington apple growers. Its agents sell these Washington grown apples in Washington and other States. The Washington excise tax is measured by appellant‘s gross income—received in Washington—and earned solely by selling apples grown in and shipped from that State.8
No other State in which appellant‘s agents perform sales services has imposed a similar tax upon appellant measured by any part of its gross receipts. Such an eventuality—if it should occur—is given the title of “multiple taxation.” And such conjectured “multiple taxation” would be—it is said—a violation of that Clause of the Constitution which gives Congress power to regulate commerce among the States. Thus far, Congress has not deemed it necessary to prohibit the States from
“A state, for many purposes, is to be reckoned as a self-contained unit, which may frame its own system of burdens and exemptions without heeding systems elsewhere. If there are limits to that power, there is no need to mark them now. It will be time enough to mark them when a taxpayer paying in the state of origin is compelled to pay again in the state of destination.”
So here, if national regulation to prevent “multiple taxation” is within the constitutional power of this Court, it would seem to be time enough to consider it when appellant or some other taxpayer is actually subjected to “multiple taxation.”
Unless we presuppose that the conjectured tax on appellant‘s gross income by another State would be valid, appellant has not even shown a hypothetical possibility of injury. Certainly, Washington‘s law, enjoying a strong presumption of constitutionality, would not be invalidated because of apprehension that another State might lay a tax on appellant‘s income which is invalid and unenforceable. Any other state‘s tax on appellant which
Appellant is here specifically exempted from Washington‘s non-discriminatory “tax for the act or privilege of engaging in business activities” in Washington because of conjectured similar taxation of appellant in other States. However, the principles announced in the first three cases relied on by the majority13 would constitute authority for exempting appellant‘s agents from a tax on the privilege of engaging in the business of selling and delivering apples “in other States to which [appellant‘s] commerce extends.” These principles were there applied by this Court to invalidate taxes on the privilege of negotiating interstate sales, levied by States in which the purchasers resided. In one of the cases (Caldwell v. North
A business engaging in activities in two or more States should bear its part of the tax burdens of each. If valid, non-discriminatory taxes imposed in these States create “multiple” burdens, such “burdens” result from the political subdivisions created by our form of government. They are the price paid for governmental protection and maintenance in all States where the taxpayer does business. A State‘s taxes are not discriminatory if the State treats those engaged in interstate and intra-state business with equality and justice. If the combined valid and non-discriminatory taxes of many States raise a problem, only Congress has power to consider that problem and to regulate with respect to it. Neither a State, nor a State with the approval of this Court, has the constitutional power to enact rules to adjust and govern conflicting state interests in interstate commerce.
Legislative inquiry might disclose to Congress that the speculative danger of injury to interstate commerce is more than offset by the certain injury to result from depriving States of a practical method of taxation. It might appear to Congress that the adoption of a rule against state taxes measured by interstate commerce gross receipts would deprive the States of a potent weapon useful in preventing evasion of state taxes.
This Court‘s rule would permit Washington to tax appellant‘s net income. But determination and collection of taxes on net incomes are often very difficult because corporate profits and income may be isolated or hidden by accounting methods, holding companies and intercorporate dealings. A substantial portion of the nation‘s commerce is carried on by corporations with far-flung business activities in many States. Inter-corporate relations may assume “their rather cumbersome and involved nature for the purpose of evading [a State] . . . tax” on income and to “remove income from the state though still creating
Congress might conclude that the States should not be prohibited from utilizing non-discriminatory gross receipts taxes for state revenues, because there are “justifications for the gross receipts tax. . . . it has greater certitude and facility of administration than the net income tax, an important consideration to taxpayer and tax gatherer alike. And the volume of transactions indicated on the taxpayer‘s books may bear a closer relation to the cost of governmental supervision and protection than the annual profit and loss statement.”16
Only a comprehensive survey and investigation of the entire national economy—which Congress alone has power and facilities to make—can indicate the need for, as well as justify, restricting the taxing power of a State so as to provide against conjectured taxation by more than one State on identical income. A broad and deliberate legislative investigation—which no Court can make—may indicate to Congress that a wise policy for the national economy demands that each State in which an interstate business operates be permitted to apply a non-discrimi-
It is indicated, however, that Washington might have validly apportioned its fair share of appellant‘s gross income for taxation. To say that a single State can—subject to supervision and approval by this Court—enact regulations apportioning its share of the taxable income from interstate commerce, is to transfer the constitutional power to regulate such commerce from Congress to the States and federal courts to which the Constitution gives no such power. The Constitution contemplates that Congress alone shall provide for necessary national uniformity in rules governing foreign and interstate commerce.18 Rules to further free trade among the States by apportionment or division of taxes on such commerce, are regulations. Both the necessity for such a rule, and the determination and enactment of a regulation to put it into effect, call for facilities and powers possessed neither by a State nor by the courts. A state legislature attempting to put upon interstate business its apportioned share of
While some formulas for apportionment devised by States have been approved by this Court,20 others have been invalidated.21 A formula applied by Connecticut was held valid,22 but a similar formula was held invalid when adopted in North Carolina.23 The litigation which has followed in the wake of state attempts at apportionment has confirmed, in the opinion of many, the wisdom of the Founders in denying to the States and courts, and granting to the Congress, exclusive power over interstate commerce. Departures from this principle have, as here, left intra-state businesses—usually comparatively small—to bear the entire burden of taxes invalidated as to interstate businesses, while interstate businesses—usually conducted on a large scale—have been exempted. Should Washington attempt an apportionment, the fate of its formula would be uncertain until this Court passes upon its fairness. A state‘s inability to obtain necessary data and information as a basis of a formula for apportionment between itself and the other forty-seven States, indicates in advance that its apportionment might be invalidated. When state statutes of apportionment come
But Congress has both the facilities for acquiring the necessary data, and the constitutional power to act upon it. “The power over commerce . . . was one of the primary objects for which the people of America adopted their government, and must have been contemplated in forming it.”24 The “disastrous experiences under the Confederation when the States vied in discriminatory measures against each other”25 united the Constitutional Convention in the conviction that some branch of the Federal Government should have exclusive power to regulate commerce among the States and with foreign nations. Our Constitution adopted by that Convention divided the powers of government between three departments, Congress, the Executive and the Judiciary. It allotted to Congress alone the “Power . . . to regulate Commerce with foreign Nations, and among the several States, . . .” Congress is the only department of our government—state or federal—vested with authority to determine whether “multiple taxation” is injurious to the national economy; whether national regulations for division of taxes measured by interstate commerce gross receipts should or should not be adopted; and what regulations, if any, should protect interstate commerce from “multiple taxation.” It “is the function of this court to interpret and apply the law already en-
Until 1936,27 this Court had never stricken down—as violating the Commerce Clause—a uniform and non-discriminatory state privilege tax measured by gross receipts, and constituting an integral element of a comprehensive state tax program. In Philadelphia & Southern S. S. Co. v. Pennsylvania, 122 U.S. 326, decided half a century ago and relied upon to support the judgment here, this Court did not determine that such a general business tax—applied to all businesses within a State—could not be measured by interstate commerce gross receipts. On the contrary, the Court pointed out that the invalidated tax was “a tax on transportation only” (p. 345), and that even one engaged in transportation could “like any other citizen, . . . be personally taxed for the amount of his property or estate, without regard to the source from which it was derived, whether from commerce, or banking, or any other employment.” That, as the Court made clear, was “an entirely different thing from laying a special tax upon his receipts in a particular employment.” (p. 342.) Since the Philadelphia S. S. Co. case, this Court has sustained many state taxes measured by receipts both from interstate and intra-state commerce.28 It was not until the decisions in the cases of Crew Levick Co. v. Pennsylvania, 245 U.S. 292, 296, and United States
Since the Constitution grants sole and exclusive power to Congress to regulate commerce among the States, repeated assumption of this power by the courts—even over a long period of years—could not make this assumption of power constitutional. April 25, 1938, this Court overruled and renounced an unconstitutional assumption of power by the federal courts based on a doctrine extending back through an unbroken line of authority to 1842.29 In overruling, it was said: “We merely declare that in applying the doctrine [declared unconstitutional] this Court and the lower courts have invaded rights which in our opinion are reserved by the Constitution to the several States.” (at page 80.) A century old rule had produced “injustice and confusion” and “the unconstitutionality of the course pursued . . . [had become] clear . . .” (pp. 77, 78.) That decision rested upon the sound principle that the rule of stare decisis cannot confer powers upon the courts which the inexorable command of the Constitution says they shall not have. State obedience to an unconstitutional assumption of power by the judicial branch of government,
It is essential today, as at the time of the adoption of the Constitution, that commerce among the States and with foreign nations be left free from discriminatory and retaliatory burdens imposed by the States. It is of equal importance, however, that the judicial department of our government scrupulously observe its constitutional limitations and that Congress alone should adopt a broad national policy of regulation—if otherwise valid state laws combine to hamper the free flow of commerce. Doubtless, much confusion would be avoided if the courts would refrain from restricting the enforcement of valid, non-discriminatory state tax laws. Any belief that Congress has failed to take cognizance of the problems of conjectured “multiple taxation” or “apportionment” by exerting its exclusive power over interstate commerce, is an inadequate reason for the judicial branch of government—without constitutional power—to attempt to perform the duty constitutionally reposed in Congress. I would return to the rule that—except for state acts designed to impose discriminatory burdens on interstate commerce because it is interstate—Congress alone must “determine how far [interstate commerce] . . . shall be free and untrammelled, how far it shall be burdened by duties and imposts, and how far it shall be prohibited.”30
For these and other reasons set out elsewhere31 I believe the judgment of the Supreme Court of Washington should be affirmed.