340 U.S. 602 (1951), 132, Spector Motor Service, Inc. v. O'Connor

Docket Nº:No. 132
Citation:340 U.S. 602, 71 S.Ct. 508, 95 L.Ed. 573
Party Name:Spector Motor Service, Inc. v. O'Connor
Case Date:March 26, 1951
Court:United States Supreme Court
 
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Page 602

340 U.S. 602 (1951)

71 S.Ct. 508, 95 L.Ed. 573

Spector Motor Service, Inc.

v.

O'Connor

No. 132

United States Supreme Court

March 26, 1951

Argued November 29-30, 1950

Reargued January 10, 1951

CERTIORARI TO THE UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

Syllabus

1. Connecticut imposes upon the franchises of foreign corporations, for the privilege of doing business within the State, a tax 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. The tax is not levied as compensation for the use of the highways or collected in lieu of an ad valorem property tax. It is not a fee for inspection or a tax on sales or use.

Held: as applied to a foreign corporation which was engaged exclusively in interstate trucking, the tax was invalid under the Commerce Clause of the Federal Constitution. Pp. 603-610.

(a) The fact that, if some intrastate commerce were involved or if an appropriate tax were imposed as compensation for the corporation's use of the highways, the same sum of money as is at issue here might be lawfully collected from the corporation cannot sustain the constitutional validity of the tax. Pp. 607-608.

(b) 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. P. 608.

(c) As construed by the state courts, this is a tax solely on the franchise of petitioner to do a business which is exclusively interstate, and such a tax contravenes the Commerce Clause no matter how fairly it is apportioned to business done within the state. Pp. 608-610.

2. The Federal District Court had jurisdiction of 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 the State. P. 605.

181 F.2d 150, reversed.

The case is stated in the opinion, pp. 603-605. The judgment of the Court of Appeals is reversed, p. 610.

Page 603

BURTON, J., lead opinion

MR. JUSTICE BURTON delivered the opinion of the Court.

This proceeding attacks, under the Commerce Clause of the Constitution of the United States, art. 1, § 8, cl. 3, 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.1 It asked also for a declaratory

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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, art. 1, § 8, cl. 3; Amend. 14. Finally, it alleged that it had no plain, speedy and efficient remedy at law or in equity in the state courts,2 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. Spector Motor Service v. McLaughlin, 47 F.Supp. 671. The Court of Appeals for the Second Circuit, one judge dissenting, reversed. [71 S.Ct. 510] 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.

Page 605

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 Connecticut likewise held that petitioner was subject to the tax, but it declined to pass on the effect of the Commerce Clause. Spector Motor Co. v. Walsh, 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 & Warehouse 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"

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of the tax is thus made clear.3 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, [71 S.Ct. 511] and by the Connecticut Public Utilities Commission to do part of such interstate trucking in Connecticut. Petitioner has filed with the Secretary of Connecticut a certificate of its incorporation in Missouri, has designated an agent in Connecticut for service

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of process and has paid the state fee required in that connection. It has not been authorized by the 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 highways4 or collected in lieu of an ad valorem property tax.5 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

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"tax or excise" placed unequivocally upon...

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