SPECTOR MOTOR SERVICE, INC. v. O’CONNOR, TAX COMMISSIONER.
No. 132.
Argued November 29-30, 1950. — Reargued January 10, 1951.
Decided March 26, 1951.
Cyril Coleman argued the cause and filed a brief for petitioner.
Louis Weinstein, Assistant Attorney General of Connecticut, argued the cause for respondent. With him on the brief was William L. Hadden, Attorney General.
Mr. Justice Burton
delivered the opinion of the Court.
This proceeding attacks, under the Commerce Clause of the Constitution of the United States, the validity of a state tax imposed upon the franchise of a foreign corporation for the privilege of doing business within the State when (1) the business consists solely of interstate commerce, and (2) the tax is computed at a nondiscriminatory rate on that part of the corporation’s net income which is reasonably attributable to its business activities within the State. For the reasons hereinafter stated, we hold this application of the tax invalid.
Petitioner, Spector Motor Service, Inc., is a Missouri corporation engaged exclusively in interstate trucking. It instituted this action in 1942 in the United States District Court for the District of Connecticut against the Tax Commissioner of that State. It sought to enjoin collection of assessments and penalties totaling $7,795.50, which had been levied against it, for various periods between June 1, 1935, and December 31, 1940, under the Connecticut Corporation Business Tax Act of 1935 and amendments thereto. It asked also for a declaratory judgment as to its liability, if any, under that Act. It claimed that the tax imposed by the Act did not apply to it and that, if it did, such application violated both the Connecticut Constitution and the Commerce and Due Process Clauses of the United States Constitution. Finally, it alleged that it had no plain, speedy and efficient remedy at law or in equity in the state courts and that the collection of the taxes and penalties by the means provided in the statute would cause it irreparable injury. The District Court took jurisdiction, held that the Act did not apply to petitioner and granted the injunction sought. 47 F. Supp. 671. The Court of Appeals for the Second Circuit, one judge dissenting, reversed. 139 F. 2d 809. It held that the tax did apply to petitioner and was constitutional. We granted certiorari, 322 U. S. 720, but, after hearing, remanded the cause to the District Court with directions to retain the bill pending the determination of proceedings to be brought in the state court in conformity with the opinion rendered, 323 U. S. 101.
Petitioner thereupon sought a declaratory judgment in the Superior Court for Hartford County, Connecticut. The Superior Court held that the tax was applicable to petitioner but invalid under the Commerce Clause. 15 Conn. Supp. 205. The Supreme Court of Errors of the State of Connecticut likewise held that petitioner was subject to the tax but it declined to pass on the effect of the Commerce Clause. 135 Conn. 37, 70, 61 A. 2d 89, 105. On a motion asking it to dissolve its original injunction, the United States District Court declined to do so. 88 F. Supp. 711. It reviewed the recent decisions and held that, applying the Act to petitioner, as required by the interpretation of it by the state courts, such application violated the Commerce Clause of the United States Constitution. The Court of Appeals for the Second Circuit, acting through the same majority as on the previous occasion, reversed. One judge dissented for the reasons stated by the district judge and by the judge who had dissented on the former appeal. 181 F. 2d 150. We granted certiorari because of the fundamental nature of the issue and the apparent conflict between the judgment below and previous judgments of this Court. 340 U. S. 806. The case was argued twice at this term.
The United States District Court had jurisdiction over this case in the first instance because of the uncertainty of the adequacy of a remedy in the state courts, and it did not lose that jurisdiction by virtue of the later clarification of the procedure in the courts of Connecticut. American Life Ins. Co. v. Stewart, 300 U. S. 203; Dawson v. Kentucky Distilleries Co., 255 U. S. 288.
The vital issue which remains is whether the application of the tax to petitioner violates the Commerce Clause of the Federal Constitution. We come to that issue now with the benefit of a statement from the state court of final jurisdiction showing exactly what it is that the State has sought to tax. The all-important “operating incidence” of the tax is thus made clear. After full consideration and with knowledge that its statement would be made the basis of determining the validity of the application of the tax under the Commerce Clause, that court said:
“The tax is then a tax or excise upon the franchise of corporations for the privilege of carrying on or doing business in the state, whether they be domestic or foreign. Stanley Works v. Hackett, 122 Conn. 547, 551, 190 A. 743. Net earnings are used merely for the purpose of determining the amount to be paid by each corporation, a measure which, by the application of the rate charged, was intended to impose upon each corporation a share of the general tax burden as nearly as possible equivalent to that borne by other wealth in the state. As regards a corporation doing business both within and without the state, the intention was, by the use of a rather complicated formula, to measure the tax by determining as fairly as possible the proportionate amount of its business done in this state. There is no ground upon which the tax can be said to rest upon the use of highways by motor trucks . . . 135 Conn. at 56-57, 61 A. 2d at 98-99.
The incidence of the tax is upon no intrastate commerce activities because there are none. Petitioner is engaged only in interstate transportation. Its principal place of business is in Illinois. It is authorized by the Interstate Commerce Commission to do certain interstate trucking and by the Connecticut Public Utilities Commission to do part of such interstate trucking in Connecticut. Petitioner has filed with the Secretary of State of Connecticut a certificate of its incorporation in Missouri, has designated an agent in Connecticut for service of process and has paid the state fee required in that connection. It has not been authorized by the State of Connecticut to do intrastate trucking and does not engage in it. See Terminal Taxicab Co. v. District of Columbia, 241 U. S. 252, 253-254.
Petitioner’s business is the interstate transportation of freight by motor truck between east and west. When a full truckload is to be shipped to or from any customer in Connecticut, petitioner’s over-the-road trucks go directly to the customer’s place of business. In the case of less-than-truckload shipments, pickup trucks operated by petitioner gather the freight from customers for assembly into full truckloads at either of two terminals maintained within the State. “The pickup trucks merely act as a part of the interstate transportation of the freight.” 135 Conn. at 44, 61 A. 2d at 93.
The tax does not discriminate between interstate and intrastate commerce. Neither the amount of the tax nor its computation need be considered by us in view of our disposition of the case. The objection to its validity does not rest on a claim that it places an unduly heavy burden on interstate commerce in return for protection given by the State. The tax is not levied as compensation for the use of highways or collected in lieu of an ad valorem property tax. Those bases of taxation have been disclaimed by the highest court of the taxing State. It is not a fee for an inspection or a tax on sales or use. It is a “tax or excise” placed unequivocally upon the corporation’s franchise for the privilege of carrying on exclusively interstate transportation in the State. It serves no purpose for the State Tax Commissioner to suggest that, if there were some intrastate commerce involved or if an appropriate tax were imposed as compensation for petitioner’s use of the highways, the same sum of money as is at issue here might be collected lawfully from petitioner. Even though the financial burden on interstate commerce might be the same, the question whether a state may validly make interstate commerce pay its way depends first of all upon the constitutional channel through which it attempts to do so. Freeman v. Hewit, 329 U. S. 249; McLeod v. Dilworth Co., 322 U. S. 327.
Taxing power is inherent in sovereign states, yet the states of the United States have divided their taxing power between the Federal Government and themselves. They delegated to the United States the exclusive power to tax the privilege to engage in interstate commerce when they gave Congress the power “To regulate Commerce with foreign Nations, and among the several States . . . .” U. S. Const., Art. I, § 8, cl. 3. While the reach of the reserved taxing power of a state is great, the constitutional separation of the federal and state powers makes it essential that no state be permitted to exercise, without authority from Congress, those functions which it has delegated exclusively to Congress. Another example of this basic separation of powers is the inability of the states to tax the agencies through which the United States exercises its sovereign powers. See M’Culloch v. Maryland, 4 Wheat. 316, 425-437; Brown v. Maryland, 12 Wheat. 419, 445-449; Mayo v. United States, 319 U. S. 441.
The answer in the instant case has been made clear by the courts of Connecticut. It is not a matter of labels. The incidence of the tax provides the answer. The courts of Connecticut have held that the tax before us attaches solely to the franchise of petitioner to do interstate business. The State is not precluded from imposing taxes upon other activities or aspects of this business which, unlike the privilege of doing interstate business, are subject to the sovereign power of the State. Those taxes may be imposed although their payment may come out of the funds derived from petitioner’s interstate business, provided the taxes are so imposed that their burden will be reasonably related to the powers of the State and nondiscriminatory.
This Court heretofore has struck down, under the Commerce Clause, state taxes upon the privilege of carrying on a business that was exclusively interstate in character. The constitutional infirmity of such a tax persists no matter how fairly it is apportioned to business done within the state. Alpha Portland Cement Co. v. Massachusetts, 268 U. S. 203 (measured by percentages of “corporate excess” and net income); Ozark Pipe Line Corp. v. Monier, 266 U. S. 555 (measured by percentage of capital stock and surplus). See Interstate Pipe Line Co.v. Stone, 337 U. S. 662, 669, et seq. (dissenting opinion which discusses the issue on the assumption that the activities were in interstate commerce); Joseph v. Carter & Weekes Co., 330 U. S. 422; Freeman v. Hewit, supra.
Our conclusion is not in conflict with the principle that, where a taxpayer is engaged both in intrastate and interstate commerce, a state may tax the privilege of carrying on intrastate business and, within reasonable limits, may compute the amount of the charge by applying the tax rate to a fair proportion of the taxpayer’s business done within the state, including both interstate and intrastate. Interstate Pipe Line Co. v. Stone, supra; International Harvester Co. v. Evatt, 329 U. S. 416; Atlantic Lumber Co. v. Comm’r of Corporations and Taxation, 298 U. S. 553. The same is true where the taxpayer’s business activity is local in nature, such as the transportation of passengers between points within the same state, although including interstate travel, Central Greyhound Lines v. Medley, 334 U. S. 653, or the publication of a newspaper, Western Live Stock v. Bureau of Revenue, 303 U. S. 250. See also, Memphis Gas Co. v. Stone, 335 U. S. 80.
In this field there is not only reason but long-established precedent for keeping the federal privilege of carrying on exclusively interstate commerce free from state taxation. To do so gives lateral support to one of the cornerstones of our constitutional law — M’Culloch v. Maryland, supra.
The judgment of the Court of Appeals, which reversed that of the District Court, is accordingly
Reversed.
“Sec. 418c. Imposition op tax. Every mutual savings bank, savings and loan association and building and loan association doing business in this state, and every other corporation or association carrying on business in this state which is required to report to the collector of internal revenue for the district in which such corporation or association has its principal place of business for the purpose of assessment, collection and payment of an income tax [with exceptions not material here] . . . shall pay, annually, a tax or excise upon its franchise for the privilege of carrying on or doing business within the state, such tax to be measured by the entire net income as herein defined received by such corporation or association from business transacted within the state during the income year and to be assessed at the rate of two per cent; . . . .” (Emphasis supplied.) Conn. Gen. Stat. Cum. Supp. 1935.
This section was amended in 1937 by inserting in the first italicized clause, after the words “every other corporation or association carrying on,” the words “or having the right to carry on.” Conn. Gen. Stat. Cum. Supp. 1939, § 354e. Our conclusion is the same as to the assessments levied before and those levied after the amendment.
The current revision of the statute, as subsequently amended, appears in Conn. Gen. Stat., 1949, §§ 1896-1921.
“. . .no [United States] district court shall have jurisdiction of any suit to enjoin, suspend, or restrain the assessment, levy, or collection of any tax imposed by or pursuant to the laws of any State where a plain, speedy, and efficient remedy may be had at law or in equity in the courts of such State.” 50 Stat. 738, 28 U. S. C. (1940 ed.) § 41 (1). See 28 U. S. C. (1946 ed., Supp. Ill) § 1341.
Wisconsin v. Penney Co., 311 U. S. 435, 444.
See Capitol Greyhound Lines v. Brice, 339 U. S. 542; Aero Transit Co. v. Board of Comm’rs, 332 U. S. 495; Interstate Busses Corp. v. Blodgett, 276 U. S. 245 (Conn. excise tax on the use of the highways). Cf. Memphis Gas Co. v. Stone, 335 U. S. 80; McCarroll v. Dixie Lines, 309 U. S. 176.
See Interstate Pipe Line Co. v. Stone, 337 U. S. 662, 679; Cudahy Packing Co. v. Minnesota, 246 U. S. 450; Old Dominion S. S. Co. v. Virginia, 198 U. S. 299; Postal Telegraph Cable Co. v. Adams, 155 U. S. 688.
The decision in Memphis Gas Co. v. Beeler, 315 U. S. 649, upheld a Tennessee tax on earnings of the taxpayer within that State where the earnings were derived from the intrastate distribution of gas by the taxpayer in a joint enterprise with the Memphis Power & Light Company. Any suggestion in that opinion as to the possible validity of such a tax if applied to earnings derived wholly from interstate commerce is not essential to the decision in the case.
See International Harvester Co. v. Evatt, 329 U. S. 416; Butler Bros. v. McColgan, 315 U. S. 501; Department of Treasury v. Wood Preserving Corp., 313 U. S. 62; Ford Motor Co. v. Beauchamp, 308 U. S. 331; Connecticut General Life Ins. Co. v. Johnson, 303 U. S. 77; Hans Rees’ Sons v. North Carolina, 283 U. S. 123; Underwood Typewriter Co. v. Chamberlain, 254 U. S. 113.
U.S. Court of Customs and Patent Appeals U.S. Court of International Trade U.S. Court of Claims, Court of Federal Claims U.S. Court of Military Appeals, renamed as Court of Appeals for the Armed Forces U.S. Court of Military Review U.S. Court of Veterans Appeals U.S. Customs Court U.S. Court of Appeals, Federal Circuit U.S. Tax Court Temporary Emergency U.S. Court of Appeals U.S. Court for China U.S. Consular Courts U.S. Commerce Court Territorial Supreme Court Territorial Appellate Court Territorial Trial Court Emergency Court of Appeals Supreme Court of the District of Columbia Bankruptcy Court U.S. Court of Appeals, First Circuit U.S. Court of Appeals, Second Circuit U.S. Court of Appeals, Third Circuit U.S. Court of Appeals, Fourth Circuit U.S. Court of Appeals, Fifth Circuit U.S. Court of Appeals, Sixth Circuit U.S. Court of Appeals, Seventh Circuit U.S. Court of Appeals, Eighth Circuit U.S. Court of Appeals, Ninth Circuit U.S. Court of Appeals, Tenth Circuit U.S. Court of Appeals, Eleventh Circuit U.S. Court of Appeals, District of Columbia Circuit (includes the Court of Appeals for the District of Columbia but not the District of Columbia Court of Appeals, which has local jurisdiction) Alabama Middle U.S. District Court Alabama Northern U.S. District Court Alabama Southern U.S. District Court Alaska U.S. District Court Arizona U.S. District Court Arkansas Eastern U.S. District Court Arkansas Western U.S. District Court California Central U.S. District Court California Eastern U.S. District Court California Northern U.S. District Court California Southern U.S. District Court Colorado U.S. District Court Connecticut U.S. District Court Delaware U.S. District Court District Of Columbia U.S. District Court Florida Middle U.S. District Court Florida Northern U.S. District Court Florida Southern U.S. District Court Georgia Middle U.S. District Court Georgia Northern U.S. District Court Georgia Southern U.S. District Court Guam U.S. District Court Hawaii U.S. District Court Idaho U.S. District Court Illinois Central U.S. District Court Illinois Northern U.S. District Court Illinois Southern U.S. District Court Indiana Northern U.S. District Court Indiana Southern U.S. District Court Iowa Northern U.S. District Court Iowa Southern U.S. District Court Kansas U.S. District Court Kentucky Eastern U.S. District Court Kentucky Western U.S. District Court Louisiana Eastern U.S. District Court Louisiana Middle U.S. District Court Louisiana Western U.S. District Court Maine U.S. District Court Maryland U.S. District Court Massachusetts U.S. District Court Michigan Eastern U.S. District Court Michigan Western U.S. District Court Minnesota U.S. District Court Mississippi Northern U.S. District Court Mississippi Southern U.S. District Court Missouri Eastern U.S. District Court Missouri Western U.S. District Court Montana U.S. District Court Nebraska U.S. District Court Nevada U.S. District Court New Hampshire U.S. District Court New Jersey U.S. District Court New Mexico U.S. District Court New York Eastern U.S. District Court New York Northern U.S. District Court New York Southern U.S. District Court New York Western U.S. District Court North Carolina Eastern U.S. District Court North Carolina Middle U.S. District Court North Carolina Western U.S. District Court North Dakota U.S. District Court Northern Mariana Islands U.S. District Court Ohio Northern U.S. District Court Ohio Southern U.S. District Court Oklahoma Eastern U.S. District Court Oklahoma Northern U.S. District Court Oklahoma Western U.S. District Court Oregon U.S. District Court Pennsylvania Eastern U.S. District Court Pennsylvania Middle U.S. District Court Pennsylvania Western U.S. District Court Puerto Rico U.S. District Court Rhode Island U.S. District Court South Carolina U.S. District Court South Dakota U.S. District Court Tennessee Eastern U.S. District Court Tennessee Middle U.S. District Court Tennessee Western U.S. District Court Texas Eastern U.S. District Court Texas Northern U.S. District Court Texas Southern U.S. District Court Texas Western U.S. District Court Utah U.S. District Court Vermont U.S. District Court Virgin Islands U.S. District Court Virginia Eastern U.S. District Court Virginia Western U.S. District Court Washington Eastern U.S. District Court Washington Western U.S. District Court West Virginia Northern U.S. District Court West Virginia Southern U.S. District Court Wisconsin Eastern U.S. District Court Wisconsin Western U.S. District Court Wyoming U.S. District Court Louisiana U.S. District Court Washington U.S. District Court West Virginia U.S. District Court Illinois Eastern U.S. District Court South Carolina Eastern U.S. District Court South Carolina Western U.S. District Court Alabama U.S. District Court U.S. District Court for the Canal Zone Georgia U.S. District Court Illinois U.S. District Court Indiana U.S. District Court Iowa U.S. District Court Michigan U.S. District Court Mississippi U.S. District Court Missouri U.S. District Court New Jersey Eastern U.S. District Court (East Jersey U.S. District Court) New Jersey Western U.S. District Court (West Jersey U.S. District Court) New York U.S. District Court North Carolina U.S. District Court Ohio U.S. District Court Pennsylvania U.S. District Court Tennessee U.S. District Court Texas U.S. District Court Virginia U.S. District Court Norfolk U.S. District Court Wisconsin U.S. District Court Kentucky U.S. Distrcrict Court New Jersey U.S. District Court California U.S. District Court Florida U.S. District Court Arkansas U.S. District Court District of Orleans U.S. District Court State Supreme Court State Appellate Court State Trial Court Eastern Circuit (of the United States) Middle Circuit (of the United States) Southern Circuit (of the United States) Alabama U.S. Circuit Court for (all) District(s) of Alabama Arkansas U.S. Circuit Court for (all) District(s) of Arkansas California U.S. Circuit for (all) District(s) of California Connecticut U.S. Circuit for the District of Connecticut Delaware U.S. Circuit for the District of Delaware Florida U.S. Circuit for (all) District(s) of Florida Georgia U.S. Circuit for (all) District(s) of Georgia Illinois U.S. Circuit for (all) District(s) of Illinois Indiana U.S. Circuit for (all) District(s) of Indiana Iowa U.S. Circuit for (all) District(s) of Iowa Kansas U.S. Circuit for the District of Kansas Kentucky U.S. Circuit for (all) District(s) of Kentucky Louisiana U.S. Circuit for (all) District(s) of Louisiana Maine U.S. Circuit for the District of Maine Maryland U.S. Circuit for the District of Maryland Massachusetts U.S. Circuit for the District of Massachusetts Michigan U.S. Circuit for (all) District(s) of Michigan Minnesota U.S. Circuit for the District of Minnesota Mississippi U.S. Circuit for (all) District(s) of Mississippi Missouri U.S. Circuit for (all) District(s) of Missouri Nevada U.S. Circuit for the District of Nevada New Hampshire U.S. Circuit for the District of New Hampshire New Jersey U.S. Circuit for (all) District(s) of New Jersey New York U.S. Circuit for (all) District(s) of New York North Carolina U.S. Circuit for (all) District(s) of North Carolina Ohio U.S. Circuit for (all) District(s) of Ohio Oregon U.S. Circuit for the District of Oregon Pennsylvania U.S. Circuit for (all) District(s) of Pennsylvania Rhode Island U.S. Circuit for the District of Rhode Island South Carolina U.S. Circuit for the District of South Carolina Tennessee U.S. Circuit for (all) District(s) of Tennessee Texas U.S. Circuit for (all) District(s) of Texas Vermont U.S. Circuit for the District of Vermont Virginia U.S. Circuit for (all) District(s) of Virginia West Virginia U.S. Circuit for (all) District(s) of West Virginia Wisconsin U.S. Circuit for (all) District(s) of Wisconsin Wyoming U.S. Circuit for the District of Wyoming Circuit Court of the District of Columbia Nebraska U.S. Circuit for the District of Nebraska Colorado U.S. Circuit for the District of Colorado Washington U.S. Circuit for (all) District(s) of Washington Idaho U.S. Circuit Court for (all) District(s) of Idaho Montana U.S. Circuit Court for (all) District(s) of Montana Utah U.S. Circuit Court for (all) District(s) of Utah South Dakota U.S. Circuit Court for (all) District(s) of South Dakota North Dakota U.S. Circuit Court for (all) District(s) of North Dakota Oklahoma U.S. Circuit Court for (all) District(s) of Oklahoma Court of Private Land Claims United States Supreme Court