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    U.S. Supreme Court


    268 U.S. 203


    Nos. 103, 327.
    Argued Oct. 23, 1924.
    Decided May 4, 1925.

    [268 U.S. 203, 204]   Messrs. Louis H. Porter and F. Carroll Taylor, both of New York City, and John G. Palfrey, of Boston, Mass., for plaintiff in error.

    Messrs. Alexander Lincoln and Jay R. Benton, both of Boston, Mass., for the Commonwealth of Massachusetts.

    [268 U.S. 203, 206]  

    Mr. Justice McREYNOLDS delivered the opinion of the Court.

    Plaintiff in error claims that the commonwealth illegally exacted of it $800.45 as an excise tax for the year 1921, and $567.57 plus $22.97 interest for 1922. The court below upheld the tax and definitely ruled that it was not repugnant to the Fourteenth Amendment or the commerce clause of the federal Constitution (article 1, 8, cl. 3). 244 Mass. 530, 139 N. E. 158; [268 U.S. 203, 207]   248 Mass. 156, 142 N. E. 762. With negligible exceptions the assessments followed the Corporation Tax Law (Gen. Acts 1919, c. 355), now codified in Gen. Laws, c. 63. Chapters 361 and 493, Gen. Acts 1921, are subsidiary and demand no particular notice. Record No. 327 discloses how the assessments were calculated; also the essential facts hereinafter stated. The opinion in No. 103 discusses the fundamental questions of law; the later one is supplementary and explanatory.

    The statute (G. L. Mass. c. 63, 39) provides that 'every foreign corporation shall pay annually, with respect to the carrying on or doing of business by it within the commonwealth, an excise equal to the sum of ... five dollars per thousand upon the value of the corporate excess employed by it within the commonwealth' and 'two and one-half per cent. of that part of its net income ... which is derived from business carried on within the commonwealth:' Provided that the total tax shall be not less than an amount equal to one-twentieth of 1 per cent. of such proportion of the fair cash value of its capital stock as its assets employed within the state shall bear to the total assets. Annual returns, and additional information when demanded, must be filed with the commissioner. He is empowered to determine, under prescribed rules, the net portion of income from business within the state; but if dissatisfied any corporation may file 'a statement in such detail as the commissioner shall require, showing the amount of its annual net income derived from business carried on within the commonwealth.' Section 42. Credit for 5 per cent. of dividends paid to inhabitants of the state is authorized. Pertinent portions of the general statute (G. L. Mass. c. 63) are in the margin. 1   [268 U.S. 203, 208]   We accept the following statements in the opinion below:

    Having ascertained the necessary items, the comptroller made the calculations indicated below. The corporation's total net income returned for federal taxation, after allowances, amounted to $707,577.98; $7,602, 090.21 (although not quite accurate) was treated as the total value of intangible assets. [268 U.S. 203, 212]   Amount of Tax Measured by Net Income.

    Average value of tangible property in Massachusetts, $573. Divide this by average value all tangible property $16,992,355.22; multiply resulting fraction by $235,859.33 (one-third of $707,577.98, supra) equals $ 8.02 Wages, salaries, etc., assignable to Massachusetts, $11,493.38. Divide this by amount of all wages, salaries, etc., $1,650,614.73: multiply resulting fraction by $235,859.33 (one-third of $707,577.98, supra) equals 1,642.29 Gross receipts assignable to Massachusetts, $343,204.60. Divide this by gross receipts from all business, $10,717,546.43; multiply resulting fraction by $235,859.33 (one-third of$707,577.98, supra) equals 7,552.22 ___

    Net income $9,202.53 2 1/2 per cent. of $9,202.53 $230.06 Less 5 per cent. of dividends paid Massachusetts inhabitants 42.15 ___ Total according to income $187.91 Amount of Tax Measured by Corporate Excess.

    Amount of Tax Measured by Corporate Excess.

    Income assigned to Massachusetts, as above shown $9,202.53. Divide this by $707,577.98 (entire apportionable net income); multiply resulting fraction by $7,602,090.21 (used for total intangible assets ). This yields $98,827.17, which was taken as the value of intangible assets assignable to Massachusetts. The tangible assets, $573, were added and $99,400 became the total accepted value of assets assignable to the state.

    Cash value of the company's capital stock was fixed at $16,352,162; all assets, $21,406,098. Divide $99,400 by [268 U.S. 203, 213]   $21,406,098; multiply resulting fraction by $16,352,162; the result is $75,932.08-the 'corporate excess.' Five dollars per thousand upon this is $379.66.

    Total assessment for 1922 ($187.91 plus $379.66), $567.57.

    In the course of its opinion the court below said:

    Counsel for the commonwealth assert:

    See Judson Freight Forwarding Co. v. Commonwealth, 242 Mass. 47, 136 N. E. 375, 27 A. L. R. 1131

    This view of the nature of the exaction was adopted by the court below, and we think it is the correct one. The right to lay taxes on tangible property or on income is not involved; and the inquiry comes to this: May a state impose upon a foreign corporation which transacts only interstate business within her borders an excise tax measured by a combination of two factors-the proportion of the total value of capital shares attributed to [268 U.S. 203, 217]   transactions therein, and the proportion of net income attributed to such transactions?

    Cheney Bros. Co. v. Massachusetts, 246 U.S. 147, 153 , 154 S., 38 S. Ct. 295, necessitates a negative reply. Under St. 1909, c. 490, pt. 3, 56, the state demanded an excise of a foreign corporation which transacted therein only interstate business. The excise was laid upon the corporation and the basis of it the same as in the present cause. This court said:

    Here also the excise was demanded on account of interstate business. A new method for measuring the tax had been prescribed, but that cannot save the exaction. Any such excise burdens interstate commerce and is therefore invalid without regard to measure or amount. Looney v. Crane Co., 245 U.S. 178, 190 , 38 S. Ct. 85; International Paper Co. v. Massachusetts, 246 U.S. 135, 142 , 38 S. Ct. 292, Ann. Cas. 1918C, 617; Heisler v. Thomas Colliery Co., 260 U.S. 245, 259 , 43 S. Ct. 83; Texas Transport & Terminal Co. v. New Orleans, 264 U.S. 150 , 44 S. Ct. 242, 34 A. L. R. 907.

    International Paper Co. v. Massachusetts considered an excise upon a corporation doing both local and interstate business, measured by its capital stock. St. 1909, c. 490; St. 1914, c. 724. Pertinent cases were cited and discussed and the tax declared 'unconstitutional and void as placing a prohibited burden on interstate commerce and laid on property of a foreign corporation located and used beyond the jurisdiction of the state.' Payment as a condition precedent to the doing of any business was not a controlling circumstance. The opinion recognizes the state's right to demand excises of foreign corporations in respect of intrastate business unless the exaction is really as tax on interstate business or property beyond the state. Under this principle certain of the complaining corporations in Cheney Bros. Co. v. Massachusetts, supra, were properly taxed. Plaintiff in [268 U.S. 203, 218]   error did no local business, and there was no proper foundation for the excise.

    It must now be regarded as settled that a state may not burden interstate commerce or tax property beyond her borders under the guise of regulating or taxing intrastate business. So to burden interstate commerce is prohibited by the commerce clause, and the Fourteenth Amendment does not permit taxation of property beyond the state's jurisdiction. The amount demanded is unimportant when there is no legitimate basis for the tax. So far as the language of Baltic Mining Co. v. Massachusetts, 231 U.S. 68, 87 , 34 S. Ct. 15, tends to support a different view it conflicts with conclusions reached in later opinions and is now definitely disapproved.

    Union Tank Line Co. v. Wright, 249 U.S. 275 , 282, et seq., 39 S. Ct. 276, pointed out the limitations which must be observed when property used in interstate commerce is valued for purposes of taxation by a state. We there declined to follow the rule applied in Pullman's Palace Car Co. v. Pennsylvania, 141 U.S. 18, 26 , 11 S. Ct. 876, and held that determination of real value with fair accuracy is essential. Many methods adapted to that end have been accepted, but this does not tend to support an excise laid upon a foreign corporation on account of interstate transactions.

    The local business of a foreign corporation may support an excise measured in any reasonable way, if neither interstate commerce nor property beyond the state is taxed. Underwood Typewriter Co. v. Chamberlain, 254 U.S. 113 , 41 S. Ct. 45, approved such an excise measured by income reasonably attributed to intrastate business; but nothing there said was intended to modify well-established principles. It must be read with the essential facts in mind. Local business was a sufficient basis for the excise, and there was no taxation of interstate commerce or property beyond the state. Of course, the opinion does not support the suggestion that the present statute is free from [268 U.S. 203, 219]   the fatal objections, to the former one because payment of the tax is no longer a condition precedent to carrying on any business. It cites approvingly St. Louis S. W. Ry. v. Arkansas, 235 U.S. 350, 364 , 35 S. Ct. 99, 59, L. Ed. 265, and there this court said:

    The excise challenged by plaintiff in error is not materially different from the one declared unconstitutional in Cheney Bros. Co. v. Massachusetts, and cannot be enforced against a foreign corporation which does nothing but interstate business within the state. The introduction of an extremely complicated method for calculating the amount of the exaction does not change its nature or mitigate the burden. [268 U.S. 203, 220]   The decrees of the court below must be reversed and the causes remanded for further proceedings not inconsistent with this opinion.

    Mr. Justice BRANDEIS dissents.


    [ Footnote 1 ] 'Section 39. Every foreign corporation shall pay annually, with respect to the carrying on or doing of business by it within the commonwealth, an excise equal to the sum of the following, pro-

    vided that every such corporation shall pay annually a total excise not less in amount than one-twentieth of one per cent. of such proportion of the fair cash value of all the shares constituting its capital stock as the assets, both real and personal, employed in any business within the commonwealth on April first following the close of the taxable year, bear to the total assets of the corporation employed in business on said date:

    tion derived from business carried on within the commonwealth. ... The net income as defined in section thirty [less certain credits not here involved] shall be allocated as follows: If a foreign business corporation carries on no business outside this commonwealth, the whole of said remainder shall be allocated to this commonwealth. If a foreign business corporation carries on any business outside this commonwealth, the net income taxable under this chapter shall be determined as provided in section thirty-eight.'

    by multiplying said third by a fraction whose numerator is the amount of the corporation's gross receipts from business assignable to this commonwealth as hereinafter provided, and whose denominator is the amount of the corporation's gross receipts from all its business.

    commonwealth and sales otherwise determined by the commissioner to be attributable to the business conducted on such premises, (b) rentals or royalties from property situated, or from the use of patents, within the commonwealth: Provided, that upon application by a corporation which owns or controls substantially all the capital stock of another corporation, or by the corporation so owned or controlled, the commissioner may impose the tax provided for by this chapter upon the income of the two corporations jointly in the same manner as though they were a single corporation, or may, in such other manner as he shall determine, equitably adjust the tax of the applying corporation. ...

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