312 U.S. 359 (1941), 255, Nelson v. Sears, Roebuck & Co.

Docket Nº:No. 255
Citation:312 U.S. 359, 61 S.Ct. 586, 85 L.Ed. 888
Party Name:Nelson v. Sears, Roebuck & Co.
Case Date:February 17, 1941
Court:United States Supreme Court

Page 359

312 U.S. 359 (1941)

61 S.Ct. 586, 85 L.Ed. 888



Sears, Roebuck & Co.

No. 255

United States Supreme Court

Feb. 17, 1941

Argued January 13, 14, 1941



The Iowa Use Tax Act, complementing a sales tax, requires every retailer maintaining a place of business within the State, at the time of making sales of tangible personal property for use within the State, to collect from the purchaser the tax imposed. The amount required to be collected is made a "debt" of the retailer to the State. Failure to collect the tax subjects a foreign corporation to revocation of its permit to do business within the State. Held that a foreign corporation which maintained retail stores in Iowa may constitutionally be required to collect the tax in respect of mail orders, sent by Iowa purchasers to out-of-state branches of the corporation and filled by direct shipment by mail or common carrier from those branches to the purchasers,

Page 360

even though such orders were not solicited or placed by any of the corporation's agents in Iowa. Pp. 361, 364.

1. The collection of the tax in such case is a burden which the State may impose on the corporation as a price for enjoying the full benefits of its Iowa business. P. 364.

2. Since the use tax and the sales tax are complementary, and sales made wholly within the State bear the same burden as the mail order sales, there is no discrimination against interstate commerce. P. 364.

3. That the corporation is in competition with out-of-state mail order houses which, because they are not authorized to do business in Iowa, need not and do not collect the tax on their sales to Iowa purchasers does not invalidate the operation of the Act as to it. P. 365.

4. Nor is the Act invalid because of the cost or inconvenience to the corporation of collecting the tax, nor because of losses it may sustain in making deliveries before collecting the tax. P. 365.

228 Iowa 1273. 292 N.W. 130, reversed.

Certiorari, 311 U.S. 630, to review the affirmance by the state supreme court of a decree enjoining the enforcement against respondent of provisions of the Iowa Use Tax Act as applied to mail order sales.

DOUGLAS, J., lead opinion

MR. JUSTICE DOUGLAS delivered the opinion of the Court.

This case involves the constitutionality of the Iowa Use Tax, Iowa Code 1939, §§ 6943.102-6943.125, as applied to respondent's mail order business conducted directly between customers in Iowa and respondent's mail order houses located outside Iowa. The Supreme Court of Iowa, in a five to four decision, held for respondent

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on that issue. Sears, Roebuck & Co. v. Roddewig, 228 Iowa 1273, 292 N.W. 130. We granted certiorari because of the importance of the constitutional question presented. 311 U.S. 630. Jud.Code § 237(b), 28 U.S.C. § 344(b).

The Iowa Use Tax is complementary to the Iowa Retail Sales Tax. Iowa Code 1939, § 6943.074, et seq. It is a tax on the use in Iowa of tangible personal property at the rate of two percent of the purchase price.1 "Use," so far as material here, is defined as "the exercise by any person of any right or power over tangible personal property incident to the ownership of that property." § 6943.102. While the tax is imposed on "every person using such property within this state until such tax has been paid," § 6943.103, it is further provided, § 6943.109, that every

retailer maintaining a place of business in this state and making sales of tangible personal property for use in this state . . . shall at the time of making such sales, whether within or without the state, collect the tax imposed by this chapter from the purchaser. . . .

By § 6943.112, the tax constitutes a "debt owed by the retailer" to the state.2 And if the retailer

Page 362

fails to collect the tax, etc., his retailer's permit, § 6943.084, may be revoked, and in case of a foreign corporation, its permit to do business in the state as well. § 6943.122.

Respondent is a New York corporation authorized since 1928 to do business in Iowa. It has various retail stores there. It pays the tax on sales made at those stores. It also pays the tax on orders placed at those stores, though shipment is made direct of the purchaser from one of respondent's out of state branches. But it has refused to collect the tax on mail orders sent by Iowa purchasers to its out of state branches and filled by direct shipments through the mails or a common carrier from those branches to the purchasers.3 On threat of petitioners to revoke respondent's permit because of such refusal, respondent brought this suit for an [61 S.Ct. 588] injunction, alleging, inter alia, that the Act, as applied, violates Section 8 of Article I of the Constitution and Fourteenth Amendment.

The Iowa Supreme Court held that, if respondent had limited its activities to a mail order business of the kind here involved, it would not be doing business in Iowa;

Page 363

that, although technically the tax may be one the purchaser, it must be collected when the sale is made, at which time the property is outside the state; that these sales are separate and distinct from respondent's activities in Iowa. It therefore concluded that the tax as applied was unconstitutional, since Iowa has no power to regulate respondent's activities outside the state or to regulate such activities as a condition to respondent's right to continue to do business in the state.

It passing on the constitutionality of a tax law, "we are concerned only with its practical operation, not its definition or the precise form of descriptive words which may be applied to it." Lawrence v. State Tax Comm'n, 286 U.S. 276, 280; Southern Pacific Co. v. Gallagher, 306 U.S. 167, 177; Wisconsin v. J. C. Penney Co., 311 U.S. 435. The fact that, under Iowa law, the sale is made outside the state does not mean that the power of Iowa "has nothing on which to operate." Wisconsin v. J. C. Penney Co., supra. The purchaser is in Iowa, and the tax is upon use in Iowa. The validity of such a tax, so far as the purchaser is concerned, "has been withdrawn from the arena of debate." Henneford v. Silas Mason Co., 300 U.S. 577, 583; Southern Pacific Co. v. Gallagher, supra. It is one of the well known functions of the integrated use and sales tax to remove the buyers' temptation "to place their orders in other states in the effort to escape payment of the tax on local sales." Henneford v. Silas Mason Co., supra, p. 581. As pointed out in that case (p. 582), the fact that the buyer employs agencies of interstate commerce in order to effectuate his purchase is not material, since the tax is "upon the privilege of use after commerce is at an end." And see Southern Pacific Co. v. Gallagher, supra. Use in Iowa is what is taxed, regardless of the time and place of passing title and regardless of the time the tax is required to be paid. Cf. McGoldrick v. Berwind-White Coal Mining Co., 309 U.S. 33, 49.

Page 364

So the nub of the present controversy centers on the use of respondent as the collection agent for Iowa. The imposition of such a duty, however, was held not to be an unconstitutional burden on a foreign corporation in Monamotor Oil Co. v. Johnson, 292 U.S. 86, and Felt & Tarrant Mfg. Co. v. Gallagher, 306 U.S. 62. But respondent insists that those cases involved local activity by the foreign corporation as a result of which property was sold to its local customers, while, in the instant case, there is no local activity by respondent which generates or which relates to the mail orders here involved. Yet these orders are still a part of respondent's Iowa business. The fact that respondent could not be reached for the tax if it were not qualified to do business in Iowa would merely be a result of the "impotence of state power."...

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