The Constitution of the United States of America: Analysis and Interpretation Part 21

State Taxation of the Interstate Commerce Privilege: Foreign Corporations

DOCTRINAL HISTORY

In the famous case of Paul _v._ Virginia,[623] decided in 1869, it was held that a corporation chartered by one State could enter other States only with their a.s.sent, which might "be granted upon such terms and conditions as those States may think proper to impose";[624] but along with this holding went the statement that "the power conferred upon Congress to regulate commerce includes as well commerce carried on by corporations as commerce carried on by individuals."[625] And in the State Freight Tax Case it is implied that no State can regulate or restrict the right of a "foreign" corporation--one chartered by another State--to carry on interstate commerce within its borders,[626] an implication which soon became explicit. In Leloup _v._ Port of Mobile,[627] decided in 1888, the Court had before it a license tax on a telegraph company which was engaged in both domestic and interstate business. The general nature of the exaction did not suffice to save it.

Said the Court: "The question is squarely presented to us, * * *, whether a State, as a condition of doing business within its jurisdiction, may exact a license tax from a telegraph company, a large part of whose business is the transmission of messages from one State to another and between the United States and foreign countries, and which is invested with the powers and privileges conferred by the act of Congress pa.s.sed July 24, 1866, and other acts incorporated in t.i.tle LXV of the Revised Statutes? Can a State prohibit such a company from doing such a business within its jurisdiction, unless it will pay a tax and procure a license for the privilege? If it can, it can exclude such companies, and prohibit the transaction of such business altogether. We are not prepared to say that this can be done."[628]

In Crutcher _v._ Kentucky[629] a like result was reached, without a.s.sistance from an act of Congress, with respect to a Kentucky statute which provided that the agent of an express company not incorporated by the laws of that State should not carry on business there without first obtaining a license from the State, and that, preliminary thereto, he must satisfy the auditor of the State that the company he represented was possessed of an actual capital of at least $150,000. The act was held to be a regulation of interstate commerce so far as applied to a corporation of another State in that business. "To carry on interstate commerce," said the Court, "is not a franchise or a privilege granted by the State; it is a right which every citizen of the United States is ent.i.tled to exercise under the Const.i.tution and laws of the United States; and the accession of mere corporate facilities, as a matter of convenience in carrying on their business, cannot have the effect of depriving them of such right, unless Congress should see fit to interpose some contrary regulation on the subject."[630]

LICENSE TAXES

The demand for what in effect is a license is, of course, capable of a.s.suming various guises. In Ozark Pipe Line _v._ Monier[631] an annual franchise tax on foreign corporations equal to one-tenth of one per cent of the par value of their capital stock and surplus employed in business in the State was found to be a privilege tax, and hence one which could not be exacted of a foreign corporation whose business in the taxing State consisted exclusively of the operation of a pipe line for transporting petroleum through the State in interstate commerce, and of activities the sole purpose of which was the furtherance of its interstate business. Likewise a Ma.s.sachusetts tax based on "the corporate surplus" of a foreign corporation having only an office in the State for the transaction of interstate business was held in Alpha Portland Cement Co. _v._ Ma.s.sachusetts to be virtually an attempt to license interstate commerce.[632] In the same category of unconst.i.tutional taxation of the interstate commerce privilege, the Court has also included the following: a State "franchise" tax on a foreign corporation, whose sole business in the State consisted in landing, storing and selling in the original package goods imported by it from abroad, the tax being imposed annually on the doing of such business and measured by the value of the goods on hand;[633] a State privilege or occupation tax on every corporation engaged in the business of operating and maintaining telephone lines and furnishing telephone service in the State, of so much for each telephonic instrument controlled and operated by it, as applied to a company furnishing both interstate and intrastate service, and employing the same telephones, wires, etc., in both as integrated parts of its system;[634] a State occupation tax measured by the entire gross receipts of the business of a radio broadcasting station, licensed by the Federal Communications Commission, and engaged in broadcasting advertising "programs" for customers for hire to listeners within and beyond the State, since it did not "appear that any of the taxed income ... [was] allocable to interstate commerce";[635] a State occupation tax on the business of loading and unloading vessels engaged in interstate and foreign commerce;[636] an Indiana income tax imposed on the gross receipts from commerce inasmuch as the tax reached indiscriminately and without apportionment the gross income from both interstate commerce and intrastate activities;[637] an Arkansas statute making entry into the State of motor vehicles carrying more than twenty gallons of gasoline conditional on the payment of an excise on the excess.[638]

DOCTRINE OF WESTERN UNION TELEGRAPH _v._ KANSAS EX REL. COLEMAN

One of the most striking concessions ever made by the Court to the interstate commercial interest at the expense of the State's taxing power was that which appeared originally in 1910, in Western Union Telegraph. Co. _v._ Kansas ex rel. Coleman,[639] which involved a percentage tax upon the total capitalization of all foreign corporations doing or seeking to do a local business in the State. The Court p.r.o.nounced the tax, as to the Western Union, a burden upon the company's interstate business and upon its property located and used outside the State, and hence void under both the commerce clause and the due process of law clause of the Fourteenth Amendment. The decision was substantially aided by the fact that the company had been doing a general telegraphic business within the State for more than fifty years without having been subjected to such an exaction.[640]

SPREAD OF THE DOCTRINE

The doctrine of the case, however, soon cast off these initial limitations. In Looney _v._ Crane Company[641] a similar tax by the State of Texas was disallowed as to an Illinois corporation, engaged in its home State in the manufacture of hardware, but maintaining in Texas depots and warehouses from which orders were filled and sales made, likewise, in International Paper Company _v._ Ma.s.sachusetts,[642] it was clearly stated that "the immunity of interstate commerce from State taxation" is not confined to what is done by carriers in such commerce, but "is universal and covers every cla.s.s of ... [interstate] commerce, including that conducted by merchants and trading companies." On the same occasion the general proposition was laid down that "the power of a State to regulate the transaction of a local business within its borders by a foreign corporation, ... is not unrestricted or absolute, but must be exerted in subordination to the limitations which the Const.i.tution places on State action."[643]

STATUS OF THE DOCTRINE TODAY

The precise standing of this doctrine is, nevertheless, seriously clouded by certain more recent holdings. In Sprout _v._ South Bend,[644]

decided in 1928, the doctrine was still applied, to disallow a license tax on concerns operating a bus interstate. Pointing to the fact that the ordinance made no distinction between busses engaged exclusively interstate and those engaged intrastate or both interstate and intrastate, the Court said: "In order that the fee or tax shall be valid, it must appear that it is imposed solely on account of the intrastate business; that the amount exacted is not increased because of the interstate business done; that one engaged exclusively in interstate commerce would not be subject to the imposition; and that the person taxed could discontinue the intrastate business without withdrawing also from the interstate business."[645] Likewise, in c.o.o.ney _v._ Mountain States Telephone and Telegraph Co., the Court a.s.serted that to sustain a State occupation tax on one whose business is both interstate and intrastate, "it must appear * * *, and that the one [who is] taxed could discontinue the intrastate business without [also] withdrawing from the interstate business."[646] A year later, nevertheless, Justice Brandeis, speaking for the Court in Pacific Telephone and Telegraph Co. _v._ Tax Commission,[647] a.s.serted flatly: "No decision of this Court lends support to the proposition that an occupation tax upon local business, otherwise valid, must be held void merely because the local and interstate branches are for some reason inseparable."[648] An occupation tax, like other taxes and expenses, lessens the benefit derived by interstate commerce from the joint operation with it of the intrastate business of the carrier; but it is not an undue burden on interstate commerce where, as in this case, the advantage to the carrier, and to the interstate commerce, of continuing the intrastate business is greatly in excess of the tax. And subsequent holdings in cases involving foreign corporations doing a mixed business, comprising both interstate and intrastate elements, have tended on the whole to restore the rule stated in Paul _v._ Virginia[649] shortly after the Civil War, that the Const.i.tution does not confer upon a foreign corporation the right to engage in local business in a State without its a.s.sent, which it may give on such terms as it chooses.[650]

State Taxation of Property Engaged in, and of the Proceeds From, Interstate Commerce

GENERAL ISSUE

In this area of Const.i.tutional Law the principle a.s.serted in the State Freight Tax Case,[651] that a State may not tax interstate commerce, is confronted with the principle that a State may tax all purely domestic business within its borders and all property "within its jurisdiction."

Inasmuch as most large concerns prosecute both an interstate and a domestic business, while the instrumentalities of interstate commerce and the pecuniary returns from such commerce are ordinarily property within the jurisdiction of some State or other, the task before the Court in drawing the line between the immunity claimed by interstate business on the one hand and the prerogatives claimed by local power on the other has at times involved it in self-contradiction, as successive developments have brought into prominence novel aspects of its complex problem or have altered the perspective in which the interests competing for its protection have appeared. In this field words of the late Justice Rutledge, spoken in 1946, are especially applicable: "For cleanly as the commerce clause has worked affirmatively on the whole, its implied negative operation on State power has been uneven, at times highly variable. * * * Into what is thus left open for inference to fill, divergent ideas of meaning may be read much more readily than into what has been made explicit by affirmation. That possibility is broadened immeasurably when not logic alone, but large choices of policy, affected in this instance by evolving experience of federalism, control in giving content to the implied negation."[652]

DEVELOPMENT OF THE APPORTIONMENT RULE

At the outset the Court appears to have thought that it could solve all difficulties by the simple device of falling back on Marshall's opinion in Brown _v._ Maryland;[653] and on the same day that it set aside Pennsylvania's freight tax by appeal to that transcendent precedent, it sustained, by reference to the same authority, a Pennsylvania tax on the gross receipts of all railroads chartered by it, the theory being that such receipts had, by tax time, become "part of the ma.s.s of property of the State."[654] This precedent stood fourteen years, being at last superseded by a ruling in which substantially the same tax was held void as to a Pennsylvania chartered steamship company.[655] A year later the Court sustained Ma.s.sachusetts in levying a tax on Western Union, a New York corporation, on account of property owned and used by it in the State, taking as the basis of the a.s.sessment such proportion of the value of its capital stock as the length of its lines within the State bore to their entire length throughout the country.[656] The tax was characterized by the Court as an attempt by Ma.s.sachusetts "to ascertain the just amount which any corporation engaged in business within its limits shall pay as a contribution to the support of its government upon the amount and value of the capital so employed by it therein."[657] And drawing on certain decisions in which it had sought to limit the principle of tax exemption as applied in the case of railroads chartered by the United States, it expressed concern that "the necessary powers of the States" should not be destroyed or "their efficient exercise" be prevented.[658] Three years later Pennsylvania, still in quest of revenue, was sustained in applying the Ma.s.sachusetts idea to Pullman's Palace Car Company, a "foreign" corporation.[659] Pointing to the fact that the company had at all times substantially the same number of cars within the State and continuously and constantly used there a portion of its property, the Court commended the State for taking "as a basis of a.s.sessment such proportion of the capital stock of the company as the number of miles over which it ran cars within the State bore to the whole number of miles, in that and other States, * * *" This, said the Court, was "a just and equitable method of a.s.sessment;" one which, "if it were adopted by all the States through which these cars ran, the company would be a.s.sessed upon the whole value of its capital stock, and no more."[660]

THE UNIT RULE

And pursuing the same course of thought, the Court, in Adams Express Company _v._ Ohio,[661] decided in 1897, sustained that State in taxing property worth less than $70,000.00 at a valuation of more than half a million, on the ground that the latter figure did not exceed, in relation to the total capital value of the company, the proportion borne by the railway mileage which the company covered in Ohio to the total mileage which it covered in all States. To the objection that "the intangible values" reached by the tax were derived from interstate commerce, the Court replied with the "cardinal rule * * * that whatever property is worth for purposes of income and sale it is also worth for purposes of taxation,"[662] which obviously does not meet the issue.

What the case indubitably establishes is that a State may tax property within its limits "as part of a going concern" and hence "at its value as it is in its organic relations," although those relations const.i.tute interstate commerce.[663] In short, values created by interstate commerce _are_ taxed.

Thus emerged the concept of an "apportioned" tax, or as it is called when applied to the problem of property valuation, the "unit rule,"

which till 1938 afforded the Court its chief reliance in the field of Const.i.tutional Law now under review. The theory underlying the concept appears to be that it is always possible for a State to devise a formula whereby it may a.s.sign to the property employed in interstate commerce within its limits, or to the proceeds from such commerce, a value which it may tax or by which it may "measure" a tax, without unconst.i.tutionally burdening or interfering with interstate commerce, while at the same time exacting from it a fair return for the protection which the State gives it. The question in each case is, of course, whether the State has guessed right.

APPORTIONED PROPERTY TAXES

In reliance on the apportionment concept the Court has at various times sustained, in the case of a sleeping car company, as we have seen, a valuation based on the ratio of the miles of track over which the company runs within the State to the whole track mileage over which it runs;[664] in the case of a railroad company, a valuation based on the ratio of its mileage within the State to its total mileage;[665] in the case of a telegraph company, a valuation based upon the ratio of its length of line within the State to its total length;[666] in the case of an express company, as we have just seen, a valuation based upon the ratio of miles covered by it in the State to the mileage covered by it in all States.[667] Also, a tax has been upheld as to a railroad line whose princ.i.p.al business was hauling ore from mines in the taxing State to terminal docks outside the State, where the line and the docks were treated by the railway as a unit, the charge for the dock service being absorbed in the charge per ton transported; and where the evidence did not show that the mileage value of the part of the line outside of the taxing State, with the docks included, was greater than the mileage value of part within it.[668] Nor does the commerce clause preclude the a.s.sessment of an interstate railway within a State by taking such part of the value of the railroad's entire system, less the value of its localized property, such as terminal buildings, shops and nonoperating real estate, as is represented by the ratio which the railroad's mileage within the State bears to its total mileage.[669] To the objection that the mileage formula was inapplicable in this instance because of the disparity of the revenue-producing capacity between the lines in and out of the State, the Court answered that mathematical exact.i.tude in making an apportionment had never been a const.i.tutional requirement.

"Wherever," it explained, "the State's taxing authorities have been held to have intruded upon the protected domain of interstate commerce in their use of a mileage formula, the special circ.u.mstances of the particular situation, in the view which this Court took of them, precluded a defensible utilization of the mileage basis."[670] The principle of apportionment is, moreover, applicable to the intangible property of a company engaged in both interstate and local commerce, as well as to its tangible property.[671]

APPORTIONED GROSS RECEIPTS TAXES

The first State to attempt to employ the apportionment device in order to tax the gross receipts of companies engaged in interstate commerce was Maine, in connection with a so-called "franchise tax," which was levied on such proportion of the revenues of railroads operating in the State as their mileage there bore to their total mileage. In Maine _v._ Grand Trunk Railway Company,[672] a sharply divided Court upheld the tax on the basis of its designation, giving scant attention to its apportionment feature. Said Justice Field for the majority: "The privilege of exercising the franchises of a corporation within a State is generally one of value, and often of great value, and the subject of earnest contention. It is natural, therefore, that the corporation should be made to bear some proportion of the burdens of government. As the granting of the privilege rests entirely in the discretion of the State, whether the corporation be of domestic or foreign origin, it may be conferred upon such conditions, pecuniary or otherwise, as the State in its judgment may deem most conducive to its interests or policy."[673] Four Justices, speaking by Justice Bradley, protested forcefully that the decision directly contradicted a whole series of decisions holding that the States are without power to tax interstate commerce;[674] and seventeen years later another sharply divided Court endorsed this contention when it overturned a Texas gross receipts tax drawn on the lines of the earlier Maine statute.[675] The Maine tax, however, the later Court suggested, had been in the nature of a commutation tax in lieu of all taxes, which the Texas tax was not.[676]

FRANCHISE TAXES

Today the term, franchise tax, possesses no specific saving quality of its own. If the tax is merely a "just equivalent" of other taxes it is valid however calculated.[677] Conversely, when such taxes are in addition to other taxes then their fate will be determined by the same rules as would apply had the label been omitted.[678] More precisely, the rule governing this species of tax is ordinarily the apportionment concept, and if the basis of apportionment adopted by the taxing State is deemed by the Court to be a fair and reasonable one, the tax will be sustained; otherwise, not.

Thus a franchise tax may be measured by such proportion of the company's net income as its capital invested in the taxing State and its business carried on there bear to its total capital and business;[679] also by the net income justly attributable to business done within the State although a part of this was derived from foreign or interstate commerce;[680] also by such proportion of the company's outstanding capital stock, surplus and undivided profits, plus its long-term obligations, as the gross receipts of its local business bear to its total gross receipts from its entire business;[681] also by such proportion of the company's total capital stock as the value of its property in the taxing State and of the business done there bears to the total value of its property and of its business.[682] On the other hand, a "franchise" tax on the unapportioned gross receipts of railroad companies engaged in interstate commerce, was, as we saw above, held void;[683] as was also one which was measured by a.s.signing to the company's property in the State the same proportion of the total value of its stocks and bonds as its mileage in the State bore to its total mileage, no account being taken of the greater cost of construction of the company's lines in other States or of its valuable terminals elsewhere.[684] Other examples were given earlier.[685]

GROSS RECEIPTS TAXES, CLa.s.sES OF

The late Justice Rutledge cla.s.sified gross receipts taxes which have been sustained by the Court as follows: (a) those which were judged to be fairly apportioned;[686] (b) those which were justified on a "local incidence" theory, or the burden of which on interstate commerce was held to be "remote";[687] (c) those which were justified as not inviting the danger of multiple taxation of interstate commerce.[688] Gross receipts taxes which, on the other hand, have been invalidated under the commerce clause he placed in the following groups: (a) those which were held not to be fairly apportioned;[689] (b) those which were not apportioned at all and were bound to subject interstate commerce to the risk of multiple taxation;[690] (c) those in which a discriminatory element was detected in that they were directed exclusively at transportation or communication;[691] (d) those in which there was no discrimination but a possible multiple burden;[692] and, of course, any tax which it disallows the Court is always free to stigmatize as an unconst.i.tutional attempt to tax or license the interstate commerce privilege.[693]

"MULTIPLE TAXATION" TEST

That the Depression--allowing for the customary judicial lag--greatly altered the Court's conception of Congress's powers under the commerce clause, was pointed out earlier.[694] To a less, but appreciable degree, it also affected its views as to the allowable scope under the clause of the taxing power of the States, a majority of which were on the verge of bankruptcy. The more evident proofs of this fact occurred in relation to State taxation of the subject matter of interstate commerce, as is indicated above.[695] But a certain revision of doctrine, apparently temporary in nature, however, is to be seen in the connection with State taxes impinging on property engaged in interstate commerce and the revenues from such commerce, the princ.i.p.al manifestation of which is to be seen in the emphasis which was for a time given the "multiple taxation" test. Thus in his opinion in the Western Live Stock Case,[696]

cited above, Justice Stone seems to be engaged in an endeavor to erect this into an almost exclusive test of the validity, or invalidity of State taxation affecting interstate commerce. "It was not," he there remarks, "the purpose of the commerce clause to relieve those engaged in interstate commerce from their just share of State tax burden even though it increases the cost of doing the business. 'Even interstate business must pay its way,' * * * and the bare fact that one is carrying on interstate commerce does not relieve him from many forms of State taxation which add to the cost of his business."[697] Then citing cases, he continues: "All of these taxes in one way or another add to the expense of carrying on interstate commerce, and in that sense burden it; but they are not for that reason prohibited. On the other hand, local taxes, measured by gross receipts from interstate commerce, have often been p.r.o.nounced unconst.i.tutional. The vice characteristic of those which have been held invalid is that they have placed on the commerce burdens of such a nature as to be capable, in point of substance, of being imposed * * * [or added to] with equal right by every State which the commerce touches, merely because interstate commerce is being done, so that without the protection of the commerce clause it would bear c.u.mulative burdens not imposed on local commerce. * * * The multiplication of State taxes measured by the gross receipts from interstate transactions would spell the destruction of interstate commerce and renew the barriers to interstate trade which it was the object of the commerce clause to remove," citing cases, most of which have been discussed above.[698] And speaking again for the Court eleven months later, in Gwin, White and Prince _v._ Henneford,[699] Justice Stone applied the test to invalidate a State of Washington tax. "Such a tax," said he, "at least when not apportioned to the activities carried on within the State, * * * would, if sustained, expose it [interstate commerce] to multiple tax burdens, each measured by the entire amount of the commerce, to which local commerce is not subject." The tax thus discriminated against interstate commerce; and threatened to "reestablish the barriers to interstate trade which it was the object of the commerce clause to remove."[700]

The adoption by the Court of the multiple taxation principle as an exclusive test of State taxing power in relation to interstate commerce would have enlarged the former; but this was not the sole reason for its temporary vogue with the Court, or at least a section of it. Discontent with the difficulties and uncertainties of the apportionment rule also played a great part. Thus in his concurring opinion in the Gwin case, Justice Butler, speaking for himself and Justice McReynolds after showing the instability of decisions in this area of Const.i.tutional Law, contend that "the problems of conjectured 'multiple taxation' or 'apportionment'" should be left to Congress,[701] a suggestion which Justice Black, speaking also for Justices Frankfurter and Douglas a year later, made the basis of a dissenting opinion,[702] from the doctrines of which, however, Justice Frankfurter appears since to have recanted.[703]

RECENT CASES

In Freedman _v._ Hewit,[704] decided in 1946, the Court held void as an "unconst.i.tutional burden on interstate commerce" an Indiana gross income tax of the proceeds from certain securities sent outside the State to be sold. Justice Frankfurter spoke for the Court; Justice Rutledge concurred in an opinion deploring the majority's failure to employ the multiple taxation test;[705] three Justices dissented.[706] In Joseph _v._ Carter and Weekes Stevedoring Co.,[707] also decided in 1947, the Court, reaffirming an earlier ruling, held void the application of a Washington gross receipts tax to the receipts of a stevedoring company from loading and unloading vessels employed in interstate and foreign commerce, or to the privilege of engaging in such business measured by their receipts. Said Justice Reed for the Court: "Although State laws do not discriminate against interstate commerce or * * * subject it to the c.u.mulative burden of multiple levies, those laws may be unconst.i.tutional because they burden or interfere with [interstate] commerce."[708] This time Justice Rutledge was among the dissenters so far as interstate commerce was concerned.[709] In Central Greyhound Lines, Inc. _v._ Mealey,[710] decided in 1948, five members of the Court ruled that a New York tax on the gross income of public utilities doing business in the State could not be const.i.tutionally imposed on a carrier's unapportioned receipts from continuous transportation between termini in the State over a route a material part of which pa.s.ses through other States.

Justice Frankfurter, speaking for the Court, held, however, that the tax was sustainable as to receipts apportioned as to the mileage within the State.[711] Justice Rutledge concurred without opinion. Justice Murphy, for himself and Justices Black and Douglas, thought the tax was on an essentially local activity and that the transportation through other States was "a mere geographic incident," conceding at the same time, that this view invited the other States involved to levy similar taxes and exposed the company to the danger of multiple taxation. In Memphis Natural Gas Co. _v._ Stone,[712] also of the 1948 grist, a Mississippi franchise tax, measured by the value of capital invested or employed in the State, was sustained in the case of a gas pipeline company a portion of whose line pa.s.sed through the State but which did no local business there. Three Justices, speaking by Justice Reed, held that the tax was on the intrastate activities of the company in maintaining its facilities there, and was no more burdensome than the concededly valid _ad valorem_ tax on the company's property in the State. Justice Rutledge held that the tax was valid because it did not discriminate against interstate commerce nor invite multiple taxation, while Justice Black concurred without opinion. Four Justices, speaking by Justice Frankfurter, contended that the pipeline already paid the _ad valorem_ tax to which Justice Reed had adverted, and that the franchise tax must therefore be regarded as being on the interstate commerce privilege.

This survey of recent cases leaves the impression that the Court is at loose ends for intermediate guiding principles in this field of Const.i.tutional Law. The "leave it to Congress" formula is evidently in the discard, although Justice Black's successive dissents without opinion may indicate that he still thinks it sound. The multiple tax test seems to be in an equally bad way, with both Chief Justice Stone and Justice Rutledge in the grave. The concept of an apportioned tax still has some vitality however, although just how much is difficult to a.s.sess. Thus in Interstate Oil Pipe Line Co. _v._ Stone,[713] which was decided in 1949, we find Justice Rutledge, speaking for himself and Justices Black, Douglas, and Murphy, endorsing the view that Mississippi was within her rights in imposing on a Delaware corporation, as a condition of doing a local business, a "privilege" tax equal to two per cent of its intrastate business even though the exaction amounted to "a 'direct' tax on the 'privilege' of engaging in interstate commerce," an a.s.sertion which was countered by one just as positive, and also endorsed by four Justices, that no State may "levy privilege, excise or franchise taxes on a foreign corporation for the privilege of carrying on or the actual doing of solely interstate business," even though the tax is not discriminatory and is fairly apportioned between the corporation's intrastate and interstate business. The tax in controversy was sustained by the vote of the ninth Justice, who construed it as being levied only on the privilege of engaging in intrastate commerce, a conclusion which obviously ignores the question of the tax's actual impact on interstate commerce, the precise question on which many previous decisions have turned.[714]

TAXES ON NET INCOME

The leading case under this caption is United States Glue Co. _v._ Oak Creek[715] where it was held that the State of Wisconsin, in laying a general income tax upon the gains and profits of a domestic corporation, was ent.i.tled to include in the computation the net income derived from transportations in interstate commerce. Pointing out the difference between such a tax and one on gross receipts, the Court said the latter "affects each transaction in proportion to its magnitude and irrespective of whether it is profitable or otherwise. Conceivably it may be sufficient to make the difference between profit and loss, or to so diminish the profit as to impede or discourage the conduct of the commerce. A tax upon the net profits has not the same deterrent effect, since it does not arise at all unless a gain is shown over and above expenses and losses, and the tax cannot be heavy unless the profits are large." Such a tax "const.i.tutes one of the ordinary and general burdens of government, from which persons and corporations otherwise subject to the jurisdiction of the States are not exempted * * * because they happen to be engaged in commerce among the States."[716]

Adhering to this precedent, the Court has held that a tax upon the net income of a nonresident from business carried on by him in the State is not a burden on interstate commerce merely because the products of the business are shipped out of the State;[717] also that a tax which is levied upon the proportion of the net profits of a foreign corporation earned by operations conducted within the taxing State is valid, if the method of allocation employed be not arbitrary or unreasonable.[718]

Where, however, the method of allocating the net income of a foreign corporation attributed to the State an amount of income out of all proportion to the business there transacted by the corporation, it was held void.[719]