322 U.S. 340 (1944), 355, International Harvester v. Department of Treasury

Docket Nº:No. 355
Citation:322 U.S. 340, 64 S.Ct. 1019, 88 L.Ed. 1313
Party Name:International Harvester v. Department of Treasury
Case Date:May 15, 1944
Court:United States Supreme Court

Page 340

322 U.S. 340 (1944)

64 S.Ct. 1019, 88 L.Ed. 1313

International Harvester


Department of Treasury

No. 355

United States Supreme Court

May 15, 1944

Argued February 29, 1944



1. An Indiana tax upon gross income, as applied to receipts from the following classes of sales by a foreign corporation authorized to do business in Indiana, was not precluded by the Commerce Clause or the Fourteenth Amendment: (1) sales by out-of-State branches to Indiana dealers and users where delivery is taken at plants of the corporation in Indiana; (2) sales to out-of-State buyers who come to Indiana, take delivery there, and transport the goods to another State; (3) sales in Indiana to Indiana buyers where the goods are shipped from out-of-State points to the buyer. Pp. 344-346.

2. Neither the Commerce Clause nor the Fourteenth Amendment precludes the imposition of a state tax on receipts from an intrastate transaction, even though the total activities from which

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the local transaction derives may have incidental interstate attributes. P. 344.

3. A State constitutionally may tax gross receipts from interstate transactions consummated within its borders where it treats wholly local transactions similarly. P. 348.

221 Ind. 416, 47 N.E.2d 150, affirmed.

Appeal from a judgment sustaining as to certain transactions of the appellants a state tax on gross receipts.

DOUGLAS, J., lead opinion

MR. JUSTICE DOUGLAS delivered the opinion of the Court.

This case raises questions concerning the constitutionality of the Indiana Gross Income Tax Act of 1933 (L.1933, p. 388, Burns' Ind.Stats.Ann. § 64-2601) as construed and applied to certain business transactions of appellant companies. The suit was brought by appellants to recover gross income taxes paid to Indiana during the years 1935 and 1936. The Indiana Supreme Court sustained objections to the [64 S.Ct. 1020] imposition of the tax on certain sales, but allowed the tax to be imposed on other types of transactions. 221 Ind. 416, 47 N.E.2d 150. The correctness of the latter ruling is challenged by the appeal which brings the case here. Judicial Code § 237(a), 28 U.S.C. § 344(a), 28 U.S.C. § 861a.

Appellants are corporations authorized to do business in Indiana but incorporated under the laws of other States. They manufacture farm implements and motor trucks, and sell those articles both at wholesale and retail. During the period here in question, they maintained manufacturing

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plants at Richmond and Fort Wayne, Indiana, and selling branches at Indianapolis, Terre Haute, Fort Wayne, and Evansville, Indiana. They also had manufacturing plants and sales branches in adjoining States and elsewhere. Each branch had an assigned territory. In some instances, parts of Indiana were within the exclusive jurisdiction of branch offices which were located outside the State. The transactions which Indiana says may be taxed without infringement of the federal Constitution are described by the Indiana Supreme Court as follows:

Class C: Sales by branches located outside Indiana to dealers and users residing in Indiana. The orders were solicited in Indiana and the customers took delivery to themselves at the factories in Indiana to save time and expense of shipping.1

Class D: Sales by branches located in Indiana to dealers and users residing outside of Indiana, in which the customers came to Indiana and accepted delivery to themselves in this state.2

Class E: Sales by branches located in Indiana to dealers and users residing in Indiana, in which the

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goods were shipped from points outside Indiana to customers in Indiana, pursuant to contracts so providing.3

The gross income tax4 collected on those transactions is the same one [64 S.Ct. 1021] which was before this Court in Department

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of Treasury v. Wood Preserving Corp., 313 U.S. 62, and Adams Mfg. Co. v. Storen, 304 U.S. 307. The tax was described in the Storen case as "a privilege tax upon the receipt of gross income." 304 U.S. at 311. In that case, an Indiana corporation which manufactured products and maintained its home office, principal place of business, and factory in Indiana sold those products to customers in other States and foreign countries upon orders taken subject to approval at the home office. It was held that the Commerce Clause (Art. I, Sec. 8 of the Constitution) was a barrier to the imposition of the tax on the gross receipts from such sales. But, as we held in the Wood Preserving Corp. case, neither the Commerce Clause nor the Fourteenth Amendment prevents the imposition of the tax on receipts from an intrastate transaction, even though the total activities from which the local transaction derives may have incidental interstate attributes.

The objections under the Commerce Clause and the Fourteenth Amendment to the tax on the receipts from the three classes of sales involved here are equally without merit.

In the Wood Preserving Corp. case, contracts were made outside Indiana for the sale of railroad ties. The respondent seller, a Delaware corporation with its principal place of business in Pennsylvania, obtained the ties from producers in Indiana and delivered them to the buyer (Baltimore & Ohio Railroad Co.) in Indiana, which immediately loaded them on cars and shipped them out of the State. Payments for the ties were made to the seller in Pennsylvania. We held that Indiana did not exceed its constitutional authority when it laid the tax on the receipts from those sales.

We see no difference between the sales in the Wood Preserving Corp. case and the Class C sales in the present one which is translatable into a difference in Indiana's

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power to tax. The fact that the sales in Class C are made by an out-of-state seller, and that the contracts were made outside the State, is not controlling. Here, as in the Wood Preserving Corp. case, delivery of the goods in Indiana is an adequate taxable event. When Indiana lays hold of that transaction and levies a tax on the receipts which accrue from it, Indiana is asserting authority over the fruits of a transaction consummated within its borders. These sales, moreover, are sales of Indiana goods to Indiana purchasers. While the contracts were made outside the State, the goods were neither just completing nor just starting an interstate journey. It could hardly be maintained that Indiana could not impose a sales tax or a use tax on these transactions. But, as we shall see, if that is the case, there is no constitutional objection to the imposition of a gross receipts tax by the the buyer.

The Class D sales are sales by an Indiana seller of Indiana goods to an out-of-state buyer who comes to Indiana, takes delivery there and transports the goods to another State. The Wood Preserving Corp. case indicates that it is immaterial to the present issue that the goods are to be transported out of Indiana immediately on delivery. Moreover, both the agreement to sell and the delivery took place in [64 S.Ct. 1022] Indiana. Those events would be adequate to sustain a sales tax by Indiana. In McGoldrick v. Berwind-White Coal Co., 309 U.S. 33, we had before us a question of the constitutionality of a New York City sales tax as applied to purchases from out-of-state sellers. The tax was "laid upon the buyer, for consumption, of tangible personal property, and measured by the sales price." Id., p. 43. And it was "conditioned upon events occurring" within New York -- i.e., the "transfer of title or possession of the purchased property." Id., p. 43. Under the principle of that case, a buyer who accepted delivery in New York would not be exempt from the sales tax because he came from without the State and intended to return to

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his home with the goods. The present tax, to be sure, is on the seller. But, in each, a local transaction is made the taxable event, and that event is separate and distinct from the transportation or intercourse which is interstate commerce. In neither does the tax aim at or discriminate against interstate commerce. The operation of the tax and its effect on interstate commerce seem no more severe in the one case than in the other. Indeed, if we are to remain concerned with the practical operation of these states taxes, rather than with their descriptive labels ( Nelson v. Sears, Roebuck & Co., 312 U.S. 359, 363), we must acknowledge that the sales tax sustained in the Berwind-White case "was, in form, imposed upon the gross receipts from an interstate sale." Lockhart, Gross Receipts Taxes on Interstate Transportation and Communication, 57 Harv.L.Rev. 40, 87. But that case did no more than to hold that those in interstate trade could not complain if interstate commerce carried its share of the burdens of local government which helped sustain it. And there was no showing that more than that was being exacted.

The sales in Class E embrace those by an Indiana seller to an Indiana buyer where the goods are shipped from points outside the State to the buyer. The validity of the tax on receipts from such sales would seem to follow a fortiori from our recent affirmance per curiam (318 U.S. 740) of Department of Treasury v. Allied Mills, Inc., 220 Ind. 340, 42 N.E.2d 34. In that case, an Indiana corporation had one factory in Indiana and two in Illinois. Each factory was given a specified part of Indiana to service -- a method of distribution adopted to take advantage of favorable freight rates, not to evade taxes. The issue in the case was whether the Indiana gross income tax could be applied to receipts from sales to resident customers in Indiana to whom deliveries were made from the plants in Illinois pursuant to orders taken in Indiana and accepted in Illinois. The...

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