Bass, Ratcliff Gretton v. State Tax Commission

• Decision Date: 17 November 1924
• Docket Number: No. 10,10
• Citation: 266 U.S. 271,45 S.Ct. 82,69 L.Ed. 282
• Parties: BASS, RATCLIFF & GRETTON, Limited, v. STATE TAX COMMISSION
• Court: U.S. Supreme Court

266 U.S. 271

45 S.Ct. 82

69 L.Ed. 282

BASS, RATCLIFF & GRETTON, Limited,

v STATE TAX COMMISSION.

No. 10.

Argued April 21, 1924.

Decided Nov. 17, 1924.

Messrs. James M. Beck, of Washington, D. C., and George Carlton Comstock and Robert C. Beatty, both of New York City, for plaintiff in error.

[Argument of Counsel from pages 272-274 intentionally omitted] Messrs. Carl Sherman and C. T. Dawes, both of Albany, N. Y., for defendant in error.

[Argument of Counsel from pages 275-277 intentionally omitted] Mr. Justice SANFORD delivered the opinion of the Court.

This cases involves the constitutional validity of Article 9-A of the Tax Law of New York under consideration in Gorham Manufacturing Co. v. Tax Commission, No. 5, 45 S. Ct. 80, 69 L. Ed. ——, just decided.

This Article¹ provides that for the privilege of doing business in the State a foreign manufacturing and mercantile corporation shall pay, in advance, an annual franchise tax, to be computed by the State Tax Commission, at the rate of three per centum, upon the net income of the corporation for the preceding year. §§ 209,² 215. This net income is 'presumably the same' as that upon which the corporation is required to pay a tax to the United States, section 209; but the amount thereof as returned to the United States is subject to any correction for fraud, evasion or errors, ascertained by the Commission, section 214. If the entire business of the corporation is not transacted within the State, the tax is to be based upon the portion of such ascertained net income determined by the proportion which the aggregate value of specified classes of the assets of the corporation within the State bears to the aggregate value of all such classes of assets wherever located. The classes of assets which are to enter into this ratio—hereinafter termed the segregated assets—are: Real property and tangible personal property; bills and accounts receivable resulting from the manufacture and sale of merchandise and services performed; and shares of stock owned in other corporations, not exceeding ten per centum of the real and tangible personal property, which are to be allocated according to the location of the physical property representing such stock. Section 214.³ The corporation is to be exempt from any personal property tax. Section 219-j.

Bass, Ratcliff & Gretton, Limited, is a British corporation, engaged in brewing and selling Bass's ale. All its brewing is done and a large part of its sales are made in England; but it formerly imported a portion of its product into the United States which it sold through branch offices located in New York City and in Chicago. On its report to the New York Tax Commission—amended under protest—the Commission computed and assessed its franchise tax for the year commencing November 1, 1918. At a hearing granted on an application for revision, the Commission adhered to the original assessment. The Company then paid the tax under protest. The determination of the Commission was subsequently confirmed, upon a writ of certiorari, by the Appellate Division of the certiorari, by the Appellate Division 189 N. Y. S. 952; and the order of that court was affirmed, upon appeal, by the Court of Appeals, 232 N. Y. 42, 133 N. E. 122. The record was remitted to the Supreme Court, to which this writ of error was directed. Hodges v. Snyder, 261 U. S. 600, 43 S. Ct. 435, 67 L. Ed. 819.

It is undisputed that for the year preceding that for which this franchise tax was assessed, the Company, as reported to the United States, had no net income upon which it was subject to a Federal income tax. Its total net income, however, from all its business wherever carried on, was $2,185,600.⁴ The value of its segregated assets, wherever located, was: real property, $785,675; tangible personal property, $2,105,105; bills and accounts, $321,625; and shares of stock of other corporations, $845,195. Limiting the value of the shares of stock to ten per centum of the aggregate real and tangible personal property, that is, to $289,078, made the aggregate value of its segregated property, wherever located, $3,501,483. The value of its segregated assets in New York was as follows: bills and accounts, $20,449; and tangible personal property, $23,668. This made the aggregate value of its segregated property in New York, $44,177. Taking the entire net income, $2,185,600, as the basis for the assessment of the tax, the Commission allocated to New York the proportion thereof which the segregated assets in New York bore to the segregated assets wherever located, amounting to $27,537.68; and upon this sum computed the franchise tax, at the rate of three per centum, that is, $826.14.

The Company contends that this tax is not based upon any net income derived from the business which it carried on in New York but upon a portion of its net income derived from business carried on outside of the United States which under the provisions of the statute has been arbitrarily allocated to its New York business, and that such imposition of the tax deprives it of its property in violation of the due process clause of the Fourteenth Amendment and imposes a direct burden upon its foreign commerce in violation of the commerce clause of the Constitution.

1. We see no reason to doubt the accuracy of the statement made by the Court of Appeals in the present case that the franchise tax imposed by the statute is 'primarily a tax levied for the privilege of doing business in the State.' It is not a direct tax upon the allocated income of the corporation in a given year, but a tax for the privilege of doing business in one year measured by the allocated income accruing from the business in the preceding year. See New York v. Jersawit, 263 U. S. 493, 496, 44 S. Ct. 167, 68 L. Ed. 405.

2. The question of the constitutionality of this tax as applied in the present case is controlled, in its essential aspects, by the decision in Underwood Typewriter Co. v. Chamberlain, 254 U. S. 113, 120, 41 S. Ct. 45, 65 L. Ed. 165. There the Connecticut statute imposed upon foreign corporations doing business partly within and partly without the State an annual tax of two per cent upon the net income earned during the preceding year on business carried on within the State, ascertained by taking such proportion of the whole net income on which the corporation was required to pay a tax to the United States as the value of its real and tangible personal property within the State bore to the value of all of its real and tangible personal property. The Underwood Typewriter Co., a Delaware corporation, was engaged in manufacturing and selling typewriters and supplies. All its manufacturing was done in Connecticut, but the greater part of its sales was made from branch offices in other States. It contended that the tax was an unconstitutional burden on interstate commerce; and that it violated the Fourteenth Amendment in that it imposed, directly or indirectly, a tax on income arising from business conducted outside of the State. In support of the latter objection it showed that while 47 per cent. of its real estate and tangible personal property was located in Connecticut, resutling, under the method of apportionment of the net income required by the statute, in attributing 47 per cent. of its total net income...