467 U.S. 638 (1984), 83-297, Armco, Inc. v. Hardesty

Docket Nº:No. 83-297
Citation:467 U.S. 638, 104 S.Ct. 2620, 81 L.Ed.2d 540
Party Name:Armco, Inc. v. Hardesty
Case Date:June 12, 1984
Court:United States Supreme Court

Page 638

467 U.S. 638 (1984)

104 S.Ct. 2620, 81 L.Ed.2d 540

Armco, Inc.

v.

Hardesty

No. 83-297

United States Supreme Court

June 12, 1984

Argued April 17, 1984

APPEAL FROM THE SUPREME COURT OF APPEALS OF

WEST VIRGINIA

Syllabus

West Virginia imposes a gross receipts tax on businesses selling tangible property at wholesale. Local manufacturers are exempt from the tax, but are subject to a higher manufacturing tax. Appellant is an Ohio corporation that manufactures and sells steel products and conducted business in West Virginia. It challenged the wholesale tax on the ground, inter alia, that the tax discriminated against interstate commerce because of the exemption granted to local manufacturers. Appellee State Tax Commissioner rejected the challenge. The Circuit Court reversed on other grounds, but in turn was reversed by the West Virginia Supreme Court of Appeals.

Held: The wholesale gross receipts tax unconstitutionally discriminates against interstate commerce. Pp. 642-646.

(a) Under the Commerce Clause, a State may not tax a transaction or incident more heavily when it crosses state lines than when it occurs entirely within the State. On its face, the wholesale tax has just that effect, since whether a wholesaler is subject to the tax depends upon whether it conducts manufacturing in the State or out of it. P. 642.

(b) The wholesale tax cannot be deemed a "compensating tax." Manufacturing [104 S.Ct. 2621] and wholesaling are not "substantially equivalent events" such that the higher manufacturing tax can be said to compensate for the lighter burden placed on wholesalers from out of State by the wholesale tax. Pp. 642-643.

(c) Moreover, when the two taxes are considered together, discrimination against interstate commerce persists, since, if Ohio or any other State imposes a like tax on its manufacturers, then appellant and others from out of State will pay both a manufacturing tax and a wholesale tax, while West Virginia sellers will pay only the manufacturing tax. Appellant need not prove actual discriminatory impact on it by pointing to a State that imposes a manufacturing tax that results in a total burden higher than that imposed on in-state manufacturers. Any other rule would mean that the constitutionality of West Virginia's tax laws would depend on the shifting complexities of the 49 other States' tax laws, and that the validity of the taxes imposed on each taxpayer would depend on

Page 639

the particular other States in which it operated. Cf. Container Corp. of America v. Franchise Tax Board, 463 U.S. 159. Pp. 644-645.

___ W.Va. ___, 303 S.E.2d 706, reversed.

POWELL, J., delivered the opinion of the Court, in which BURGER, C.J., and BRENNAN, WHITE, MARSHALL, BLACKMUN, STEVENS, and O'CONNOR, JJ., joined. REHNQUIST, J., filed a dissenting opinion, post, p. 646.

POWELL, J., lead opinion

JUSTICE POWELL delivered the opinion of the Court.

In this appeal, an Ohio corporation claims that West Virginia's wholesale gross receipts tax, from which local manufacturers are exempt, unconstitutionally discriminates against interstate commerce. We agree and reverse the state court's judgment upholding the tax.

I

Appellant Armco Inc. is an Ohio corporation qualified to do business in West Virginia. Its primary business is manufacturing and selling steel products. From 1970 through 1975, the time at issue here, Armco conducted business in West Virginia through five divisions or subdivisions. Two of these had facilities and employees in the State, while the other

Page 640

three sold various products to customers in the State only through franchisees or nonresident traveling salesmen.1

West Virginia imposes a gross receipts tax on persons engaged in the business of selling tangible property at wholesale. W.Va.Code § 11-13-2c (1983).2 For the years 1970 through 1975, Armco took the position that the gross receipts tax could not be imposed on the sales it made through franchisees and nonresident salesmen. In addition, because local manufacturers were exempt from the tax, see § 11-13-2,3 Armco argued that the tax discriminated [104 S.Ct. 2622] against interstate

Page 641

commerce. After a hearing, the State Tax Commissioner, who is appellee here, determined that the tax was properly assessed on the sales at issue, and that Armco had not shown the tax was discriminatory.4 The Circuit Court of Kanawha County reversed, holding that the nexus between the sales and the State was insufficient to support imposition of the tax.

The West Virginia Supreme Court of Appeals reversed the Circuit Court and upheld the tax. ___W.Va. ___, 303 S.E.2d 706 (1983). Viewing all of Armco's activities in the State as a "unitary business," the court held that the taxpayer had a substantial nexus with the State, and that the taxpayer's total tax was fairly related to the services and benefits provided to Armco by the State. Id. at ___, ___, 303 S.E.2d at 714, 716. It also held that the tax did not discriminate against interstate commerce; while local manufacturers making sales in the State were exempt from the gross receipts tax, they paid a much higher manufacturing tax.5 Id. at ___, ___, 303 S.E.2d at 716-717.

We noted probable jurisdiction, 464 U.S. 1016 (1983), and now reverse. Since we hold that West Virginia's tax does discriminate unconstitutionally against interstate commerce, we do not reach Armco's argument that there was not a sufficient nexus between the State and the sales at issue here to permit taxation of them.

Page 642

II

It long has been established that the Commerce Clause, of its own force, protects free trade among the States. Boston Stock Exchange v. State Tax Comm'n, 429 U.S. 318, 328 (1977); Freeman v. Hewit, 329 U.S. 249, 252 (1946). One aspect of this protection is that a State "may not discriminate between transactions on the basis of some interstate element." Boston Stock Exchange, supra, at 332, n. 12. That is, a State may not tax a transaction or incident more heavily when it crosses state lines than when it occurs entirely within the State.

On its face, the gross receipts tax at issue here appears to have just this effect. The tax provides that two companies selling tangible property at wholesale in West Virginia will be treated differently depending on whether the taxpayer conducts manufacturing in the State or out of it. Thus, if the property was manufactured in the State, no tax on the sale is imposed. If the property was manufactured out of the State and imported for sale, a tax of 0.27% is imposed on the sale price. See General Motors Corp. v. Washington, 377 U.S. 436, 459 (1964) (Goldberg, J., dissenting) (similar provision in Washington, "on its face, discriminated against interstate wholesale sales to Washington purchasers for it exempted the intrastate sales of locally made products while taxing the competing sales of interstate sellers"); Columbia Steel Co. v. State, 30 Wash.2d 658, 664, 192 P.2d 976, 979 (1948) (invalidating Washington tax).

The court below was of the view that no such discrimination in favor of local, intrastate commerce occurred, because taxpayers manufacturing in the State were subject to a far higher tax of 0.88% of the sale price. This view is mistaken. The gross sales tax imposed on Armco cannot be deemed a "compensating tax" for the manufacturing [104 S.Ct. 2623] tax imposed on its West Virginia competitors. In Maryland v. Louisiana, 451 U.S. 725, 758-759 (1981), the Court refused to consider a tax on the first use in Louisiana of gas brought in from out of

Page 643

State to be a complement of a severance tax in the same amount imposed on gas produced in the State. Severance and first use or processing were not "substantially equivalent event[s]" on which compensating taxes might be imposed. Id. at 759. Here, too, manufacturing and wholesaling are not "substantially equivalent events" such that the heavy tax on in-state manufacturers can be said to compensate for the admittedly lighter burden placed on wholesalers from out of State. Manufacturing frequently entails selling in the State, but we cannot say which portion of the manufacturing tax is attributable to manufacturing, and which portion to sales.6 The fact that the manufacturing tax is not reduced when a West Virginia manufacturer sells its goods out of State, and that it is reduced when part of the manufacturing takes place out of State, makes clear that the manufacturing tax is just that, and not in part a proxy for the gross receipts tax imposed on Armco and other sellers from other States.7

Page 644

Moreover, when the two taxes are considered together, discrimination against interstate commerce persists. If Ohio or any of the other 48 States imposes a like tax on its manufacturers -- which they have every right to do -- then Armco and others from out of State will pay both a manufacturing tax and a wholesale tax, while sellers resident in West Virginia will pay only the manufacturing tax. For example, if Ohio were to adopt the precise scheme here, then an interstate seller would pay the manufacturing tax of 0.88% and the gross receipts tax of 0.27%; a purely intrastate seller would pay only the manufacturing tax of 0.88%, and would be exempt from the gross receipts tax.

Appellee suggests that we should require Armco to prove actual discriminatory impact on it by pointing to a State that imposes a manufacturing tax that results in a total burden higher than that imposed on Armco's competitors in West Virginia. This is not the test. In Container Corp. of America v. Franchise Tax Board, 463 U.S. 159, 169 (1983), the Court noted that a tax must have "what might be called internal consistency -- that is the [tax] must be such that, if applied by every jurisdiction," there would be no impermissible interference with free trade. In that case, the Court was discussing the requirement that a tax be fairly apportioned to reflect the business...

To continue reading

FREE SIGN UP
204 practice notes
  • Business subsidies and the dormant commerce clause.
    • United States
    • Yale Law Journal Vol. 107 Nbr. 4, January 1998
    • 1 Enero 1998
    ...found to discriminate against out-of-state commerce, it is typically struck down without further inquiry"); Armco Inc. v. Hardesty, 467 U.S. 638, 642 (1984) (reiterating that a state may not use an "interstate element" as a basis for discrimination); City of Philadelphia v. N......
  • Apportionment apoplexy: throwback, throwout, or just throw up your hands.
    • United States
    • Tax Executive Vol. 57 Nbr. 4, July 2005
    • 1 Julio 2005
    ...(9) Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 279 (1977). (10) Container Corp., 463 U.S. at 169. (11) Armco, Inc. v. Hardesty, 467 U.S. 638, 644-45 (1984). (12) Tyler Pipe Indus. v. Washington Department of Revenue, 483 U.S. 232 (1987). (13) American Trucking Association v. Schein......
  • 468 P.3d 1056 (Wash. 2020), 97557-4, PeaceHealth St. Joseph Medical Center v. State
    • United States
    • Washington Supreme Court of Washington
    • 6 Agosto 2020
    ...when it crosses Page 1062 state lines than when it occurs entirely within the State.'" Id. (quoting Armco Inc. v. Hardesty, 467 U.S. 638, 642, 104 S.Ct. 2620, 81 L.Ed.2d 540 (1984)). "That the tax discrimination comes in the form of a deprivation of a generally......
  • Beam resolves taxpayer claims under Davis but Quill raises new prospectivity issue.
    • United States
    • Tax Executive Vol. 43 Nbr. 5, September 1991
    • 1 Septiembre 1991
    ...and in National Mills v. Caryl, 111 L.E.2d 740 (1990), the Supreme Court ruled, per curiam, that its decision in Armco, Inc. v. Hardesty, 467 U.S. 638 (1984), should be applied retroactively because it was "clearly foreshadowed" by earlier Supreme Court decisions. It is also notew......
  • Free signup to view additional results
180 cases
  • 468 P.3d 1056 (Wash. 2020), 97557-4, PeaceHealth St. Joseph Medical Center v. State
    • United States
    • Washington Supreme Court of Washington
    • 6 Agosto 2020
    ...when it crosses Page 1062 state lines than when it occurs entirely within the State.'" Id. (quoting Armco Inc. v. Hardesty, 467 U.S. 638, 642, 104 S.Ct. 2620, 81 L.Ed.2d 540 (1984)). "That the tax discrimination comes in the form of a deprivation of a generally......
  • 174 F.Supp.3d 585 (D. Puerto Rico 2016), Civ. 3:15-CV-03018 (JAF), Wal-Mart Puerto Rico, Inc. v. Juan C. Zaragoza-Gomez
    • United States
    • Federal Cases United States District Courts 1st Circuit District of Puerto Rico
    • 28 Marzo 2016
    ...when it occurs entirely within the State.’ ” Wynne, 135 S.Ct. at 1794 (quoting Armco Inc. v. Hardesty, 467 U.S. 638, 642, 104 S.Ct. 2620, 81 L.Ed.2d 540 (1984)). “ Nor may a State impose a tax which discriminates against interstate commerce either by providing a dir......
  • Wal-Mart Puerto Rico, Inc. v. Zaragoza-Gomez, 032816 DPUR, 3:15-CV-03018 (JAF)
    • United States
    • Federal Cases United States District Courts 1st Circuit District of Puerto Rico
    • 28 Marzo 2016
    ...when it crosses state lines than when it occurs entirely within the State.’” Wynne, 135 S.Ct. at 1794 (quoting Armco Inc. v. Hardesty, 467 U.S. 638, 642 (1984)). “Nor may a State impose a tax which discriminates against interstate commerce either by providing a direct commercial advantage t......
  • 481 U.S. 221 (1987), 85-1370, Arkansas Writers' Project v. Ragland
    • United States
    • Federal Cases United States Supreme Court
    • 22 Abril 1987
    ...similarly situated were exempt from the operation of a state law adversely affecting the claimant. See, e.g., Armco Inc. v. Hardesty, 467 U.S. 638 (1984); Carey v. Brown, 447 U.S. 455 (1980); Police Dept. of Chicago v. Mosley, 408 U.S. 92 (1972). Contrary to the Commissioner's assertion, ap......
  • Free signup to view additional results
10 firm's commentaries
12 books & journal articles