U.S. Supreme Court Underwood Typewriter Co. v. Chamberlain, 254 U.S. 113 (1920)
Underwood Typewriter Company v. Chamberlain
Argued October 13, 14, 1920
Decided November 15, 1920
254 U.S. 113
ERROR TO THE SUPERIOR COURT
OF THE STATE OF CONNECTICUT
1 A state tax upon the proportion of the net profits of a sister-state corporation earned by operations conducted within the taxing state, the enforcement of which is left to the ordinary means of collecting taxes, does not violate Art. I, § 8, of the federal Constitution by imposing a burden upon interstate commerce. P. 254 U. S. 119 .
2. In considering whether a state tax, purporting to be on the net income of a sister-state corporation earned within the taxing state, violates the Fourteenth Amendment by reaching income earned outside, it is not necessary to decide whether it is a direct tax on income or an excise measured by income. P. 254 U. S. 120 .
3. A state tax upon the income of a sister-state corporation manufacturing its product within the state but deriving the greater part of its receipts from sales outside the state, which attributes to processes conducted within the state the proportion of the total net income which the value of real and tangible personal property
owned by the corporation within the state bears to the value of all its real and tangible personal property is not inherently unreasonable and calculated to tax income earned beyond the orders of the state, and, unless it be shown to be so in its application to the particular case, cannot be held to violate the due process clause of the Fourteenth Amendment. P. 254 U. S. 120 .
4. Held that the fact that the amount of net income so allocated to the taxing state greatly exceeded in this case the portion actually received there does not prove that income earned outside was included in the assessment.
5. The principle discussed in Southern Ry. Co. v. Greene, 216 U. S. 400 , 216 U. S. 414 , respecting the right of a state under the Fourteenth Amendment to impose discriminatory taxes on a sister-state corporation which had made large permanent investments in railroad property in the state before the tax law was enacted is inapplicable to this case, involving a nondiscriminatory tax on the locally earned income of a manufacturing corporation. P. 254 U. S. 122 .
94 Conn. 47 affirmed.
The case is stated in the opinion.
MR. JUSTICE BRANDEIS delivered the opinion of the Court.
This action was brought by the Underwood Typewriter Company, a Delaware corporation, in the Superior Court for the County of Hartford, Connecticut, to recover the amount of a tax assessed upon it by the latter state and paid under protest. The company contended that, as applied to it, the taxing act violated rights guaranteed by the federal Constitution. The constitutional questions involved were reserved by that court for consideration and advice by the Supreme Court of Errors. The answers to these questions being favorable to the state, 94 Conn. 47, judgment was entered by the Superior Court confirming the validity of the tax. The case comes here on writ of error to that court.
Connecticut established in 1915 a comprehensive system of taxation, applicable alike to all foreign and domestic corporations carrying on business within the state. This system prescribes practically the only method by which such corporations are taxed, other than the general property tax to which all property located within the state, whether the owner be a resident or a nonresident, an individual or a corporation, is subject. The act divides business corporations into four classes, and the several classes are taxed by somewhat different methods. The fourth class, "Miscellaneous Corporations," includes, among others, manufacturing and trading companies, and with these alone are we concerned here. Upon their net income earned during the preceding year from business carried on within the state, a tax of two percent is imposed annually. The amount of the net income is ascertained by reference to the income come upon which the corporation
is required to pay a tax to the United States. If the company carries on business also outside the State of Connecticut, the proportion of its net income earned from business carried on within the state is ascertained by apportionment in the following manner: the corporation is required to state in its annual return to the tax commissioner from what general source its profits are principally derived. If the company's net profits are derived principally from ownership, sale, or rental of real property, or from the sale or use of tangible personal property, the tax is imposed on such proportion of the whole net income as the fair cash value of the real and the tangible personal property within the state bears to the fair cash value of all the real and tangible personal property of the company. If the net profits of the company are derived principally from intangible property, the tax is imposed upon such proportion of the whole net income as the gross receipts within the state bear to the total gross receipts of the company. A corporation aggrieved because of a tax assessed upon it may, after paying the tax, apply for relief to the Superior Court for the County of Hartford. There it may show cause why it is not subject to the tax, or why the tax should have been less. If the whole tax assessed is found by the court to be proper, it enters judgment confirming the same. If the tax is found to be for any reason unauthorized in whole or in part, the court enters judgment for the company in the amount with interest which it is entitled to recover, and the state treasurer is directed to pay the same. The decision of the Superior Court is subject to review by the Supreme Court of Errors as in other cases. Laws of 1915, c. 292, part IV. §§ 19-29; Underwood Typewriter Co. v. Chamberlain, 92 Conn.199.
The Underwood Typewriter Company is engaged in the business of manufacturing typewriters and kindred articles, in selling its product, and also certain accessories and supplies, which it purchases, and in repairing and
renting such machines. Its main office is in New York City. All its manufacturing is done in Connecticut. It has branch offices in other states for the sale, lease, and repair of machines and the sale of supplies, and it has one such branch office in Connecticut. All articles made by it-, and some which it purchases, are stored in Connecticut until shipped direct to the branch offices, purchasers, or lessees. In its return to the tax commissioner of Connecticut, made in 1916 under the above law, the company declared that its net profits during the preceding year had been derived principally from tangible personal property; that these profits amounted to $1,336,586.13; that the fair cash value of the real estate and tangible personal property in Connecticut was $2,977,827.67, and the fair cash value of the real estate and tangible personal property outside that state was $3,343,155.11. The proportion of the real estate and tangible personal property within the state was thus 47 percent. The tax commissioner apportioned that percentage of the net profits, namely $629,668.50, as having been earned from the business done within the state, and assessed thereon a tax of $12,593.37, being at the rate of two percent. The company, having paid the tax under protest, brought this action in the Superior Court for the County of Hartford to recover the whole amount.
First. It is contended that the tax burdens interstate commerce, and hence is void, under § 8 of Article I of the federal Constitution. Payment of the tax is not made a condition precedent to the right of the corporation to carry on business, including interstate business. Its enforcement is left to the ordinary means of collecting taxes. St. Louis Southwestern Ry. Co. v. Arkansas, 235 U. S. 350 , 235 U. S. 36 ; Atlantic & Pacific Telegraph Co. v. Philadelphia, 190 U. S. 160 , 190 U. S. 163 . The statute is therefore not open to the objection that it compels the company to pay for the privileges of engaging in interstate commerce. A
tax is not obnoxious to the commerce clause merely because imposed upon property used in interstate commerce, even if it takes the form of a tax for the privilege of exercising its franchise within the state. Postal Telegraph Cable Co. v. Adams, 155 U. S. 688 , 155 U. S. 695 . 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 indeed mainly, from interstate commerce, is settled. U.S. Glue Co. v. 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 . Whether it be deemed a property tax or a franchise tax, it is not obnoxious to the commerce clause.
Second. It is contended that the tax violates the Fourteenth Amendment because, directly or indirectly, it is imposed on income arising from business conducted beyond the boundaries of the state. In considering this objection, we may lay on one side the question whether this is an excise tax, purporting to be measured by the income accruing from business within the state, or a direct tax upon that income, for
"this argument, upon analysis, resolves itself into a mere question of definitions, and has no legitimate bearing upon any question raised under the federal Constitution."
Shaffer v. Carter, 252 U. S. 37 , 252 U. S. 55 . In support of its objection that business outside the state is taxed, plaintiff rests solely upon the showing that, of its net profits, $1,293,643.95 was received in other states and $42,942.18 in Connecticut, while, under the method of apportionment of net income required by the statute, 47 percent of its net income is attributable to operations in Connecticut. But this showing wholly fails to sustain the objection. 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. "The plaintiff's argument on this branch of the case," as stated by the Supreme Court of Errors,
"carries the burden of showing that 47 percent of its net income is not reasonably attributable, for purposes of taxation, to the manufacture of products from the sale of which 80 percent of its gross earnings was derived after paying manufacturing costs."
The corporation has not even attempted to show this, and, for aught that appears, the percentage of net profits earned in Connecticut may have been much larger than 47 percent. There is consequently nothing in this record to show that the method of apportionment adopted by the state was inherently arbitrary, * or that its application to this corporation produced an unreasonable result.
We have no occasion to consider whether the rule prescribed, if applied under different conditions, might be obnoxious to the Constitution. Adams Express Co. v. Ohio, 166 U. S. 185 , 166 U. S. 222 . Nor need we consider the contention, made on behalf of the state, that the statute is necessarily valid, because the prescribed rule of apportionment is not rigid, and provision is made for rectifying by proceedings in the Superior Court any injustice resulting from its application.
Third. It is stated in the brief, doubtless inadvertently, that the assignment of errors includes the objection that the tax was void under the Fourteenth Amendment also on the ground that the company, a foreign corporation, had made large permanent investments in Connecticut before the statute of 1915 was enacted. No such error appears to have been specifically assigned, and the objection was not pressed in brief or oral argument. It is clearly unsound. To the facts presented here, the principle discussed in Southern Railway Co. v. Greene, 216 U. S. 400 , 216 U. S. 414 , has no application.
Compare Western Union Telegraph Co. v. Massachusetts,
125 U. S. 530
25 U. S. 552
Pittsburg, etc., Railway Co. v. Backus,
154 U. S. 421
154 U. S. 430
Cleveland, etc., Ry. Co. v. Backus,
154 U. S. 439
154 U. S. 445
Western Union Telegraph Co. v. Taggard,
163 U. S. 1
163 U. S. 14
Adams Express Co. v. Ohio,
165 U. S. 194
165 U. S. 221
166 U. S. 166
American Refrigerator Transit Co. v. Hall,
174 U. S. 70
174 U. S. 75
Union Refrigerator Transit Co. v. Lynch,
177 U. S. 149
177 U. S. 152
St. Louis S.W. Ry. v. Arkansas,
235 U. S. 350
235 U. S. 365