Dalton Adding Mach. Co v. Commonwealth

• Decision Date: 16 March 1916
• Citation: 88 S.E. 167
• Court: Virginia Supreme Court
• Parties: DALTON ADDING MACH. CO. v. COMMONWEALTH.

88 S.E. 167

DALTON ADDING MACH. CO.

v.COMMONWEALTH.

Supreme Court of Appeals of Virginia.

March 16, 1916.

[88 S.E. 108]

Appeal from State Corporation Commission.

The Dalton Adding Machine Company was fined $1,000 by order of the State Corporation Commission, and appeals. Affirmed.

Harold S. Bloomberg, of Richmond, for appellant.

John Garland Pollard, Atty. Gen., for the Commonwealth.

KELLY, J. This is an appeal from an order of the State Corporation Commission, by which the Dalton Adding Machine Company, a foreign corporation, was assessed with a fine of $1,000 upon a charge of transacting business in this state without first obtaining the certificate of authority as provided for in section 1104 of the Code of Virginia.

It is not denied that this company is, and has been for several years, doing an extensive business in this state, but the contention on its behalf is that this business has been of such a character and so conducted in all respects as to bring it within the meaning and consequent protection of the commerce clause of the federal Constitution.

The first impression obtained from reading the record is that the company's purpose has been to avoid, not to say evade, the license tax provided for by section 1104 of the Code; and, upon a more mature consideration this impression becomes an abiding conviction that the method of transacting a substantial part of the business in question is, as found by the Corporation Commission, "a mere de vice for the purpose of avoiding the state statutes."

A foreign corporation has the unquestionable right to so limit and conduct its business in this state as to keep the same strictly within the accepted meaning of interstate commerce, and, when it does so, no license tax can be imposed upon it. But it seems to us in this case that the effort to escape the tax has been such a conspicuous and dominant feature in the course of business, and so plainly marked by irregular and unusual practices, explainable only on the theory that they were intended to place an artificial interstate aspect on a portion of the business, that the corporation has not only laid itself liable to a just suspicion, but has thereby created a presumption, not rebutted by any evidence, against the good faith of its claim to immunity.

The opinion of the chairman of the State Corporation Commission, which is a part of the record, appears to us to correctly and satisfactorily dispose of this controversy, and is hereby adopted as the opinion of this court. It is as follows:

"This proceeding is the sequel of the case of Dalton Adding Machine Company v. State Corporation Commission of Virginia (D. C.) 213 Fed. 889, which was affirmed 236 U. S. 699, 35 Sup. Ct. 480, 59 L. Ed. 797.

"The Dalton Adding Machine Company, now an Ohio corporation, is charged with violating section 1104 of the Code of Virginia, requiring foreign corporations, as a prerequisite to doing business in the state, to 'present to the State Corporation Commission (a) a written power of attorney, executed in duplicate, appointing some person residing in this state its agent, upon whom all legal process against the corporation may bo served, and who shall be authorized to enter an appearance in its behalf; (b) two duly authenticated copies of the charter of the corporation; and (c) a certificate of the auditor of public accounts, showing the payment into the treasury of the fee required by law to be paid by such corporation; and shall obtain from the said Corporation Commission a certificate of authority to transact business in the state.'

"Section 1105 provides that any foreign corporation which shall transact business in this state without first obtaining such certificate of authority shall be fined 'not less than ten dollars nor more than one thousand dollars, such fine to be imposed by the State Corporation Commission, whose duty it shall be to see that the provisions of the preceding section are complied with.'

"The facts are that the Dalton Adding Machine Company is a manufacturer of, and dealer in, adding, listing and calculating machines, which it formerly manufactured at Poplar Bluff, Missouri, but since June, 1914, at Cincinnati, Ohio, and distributes through its salesmen to its customers wherever they can be found. Its authorized capital is $2,750, 000, and its business in Virginia since 1912 has amounted to more than $18,000 a year.

"About two-thirds of its gross sales in Virginia are consummated as follows:

"The agent exhibits a sample machine to the customer, and if the customer desires to buy he signs an order for a machine, describing its accessories accurately, addressed to the Dalton Adding Machine Company at its home office; if satisfactory to the company, a machine is shipped from the factory either to the customer orto the agent in Virginia, to be delivered to the customer.

"As to this part of the business there is no difference of opinion. It is strictly interstate commerce, protected by the commerce clause of the Constitution, and the state can impose no condition, license tax, or any other burden whatever, upon such business.

"The other one-third of the business, however, is the cause of this controversy, and is thus transacted:

"The machine is left with the desired customer for trial for a reasonable time, and afterwards, if he concludes to buy, he signs an order for that identical machine, which had been previously put in his possession, which order is sent to the Dalton Adding Machine Company at its home office, now in Ohio, and the sale is then said to be consummated with the approval of the company.

"It is contended by the commonwealth that this business is intrastate business, and constitutes transacting business in the state of Virginia, in vioiation of the statute referred to.

"In addition to this the sales agent of the Dalton Adding Machine Company keeps on hand in his office in the city of Richmond a stock of paper and ribbons, suitable for use upon the machines, and from time to time supplies the customers of the company with ribbons and paper from this stock so held in the city of Richmond. Such sales are reported to the home office in Ohio, but require no previous or subsequent approval, the agent in Virginia having authority to consummate such sales.

"In addition to this, the company has been entering into contracts to keep in repair for two years all of the machines sold to its Virginia customers. This time has now been shortened, and the company when making sales only agrees to keep the machines in repair for one year from the date of sale.

"In addition to this, after the expiration of the time during which the company is thus under contract to keep the machines in repair, the company enters into what is called a repair contract, and, for $10 a year, undertakes to keep such machines in good repair. The agent of the company also keeps in stock at his office in Richmond certain parts, which are supplied to the users of the machines and charged for by the company. In order to make these repairs the company regularly employs a mechanic in this state, whose duty it is as the representative of the company to comply with these repair contracts. This mechanic also makes additional repairs in Virginia upon the demand of the customers who have no such repair contracts—the time of the mechanic being reported to the home office—and bills are made out in the name of the company for such repairs and collected of the Virginia customer.

"In addition to this, the company rents its machines to persons in Virginia, delivers the machines to the renter and collects rent for the use thereof, which rents, in case the renter subsequently decides to buy that particular machine, are credited on the purchase price, the company reserving the right to resume possession of the machine in case of violation of the rental contract, or upon its expiration.

"It also, in making sales, sometimes receives machines made by other manufacturers in exchange for its machines, which machines so received in exchange it disposes of as best it can.

"It is earnestly contended for the defendant company that because the salesman in Virginia is denied express authority to transfer title to the machines which are sold, and that in every instance the contracts provide that the order is subject to the approval of the Dalton Adding Machine Company at its home office, now in Ohio, and the transaction is between citizens of different states, that therefore the business is interstate commerce.

[3, 4J "A number of quotations from decisions are made to the effect that interstate commerce consists of transactions between 'citizens of different states, ' and great emphasis is laid upon this precise language. We think, however, that the decisions do not justify this emphasis, and that no case can be found in which the character of the commerce is made to depend upon the citizenship of the parties or the place of final ratification of the contract. The true test is not the citizenship of the parties, but the essential character of the transaction. In this case counsel seems to be conscious of this doctrine, and so has introduced a new term, and calls the transaction on 'interstate contract, ' apparently concluding that if the contract be 'interstate' the commerce is interstate. In this connection he says: This distinguishes this case from all the other cases that we have been able to find in the Supreme and circuit courts, and serves, as we think, to stamp the transactions of the defendant with the characteristics and indicia of interstate business, protected by the commerce clause of the Constitution.'

"This is the gist of the contention here, and the defendant's case depends upon the ability to establish this proposition.

"If it be true that because, at some stage of a commercial transaction, it is necessary to have the approval of the seller, who is a citizen of a different state and located in that other state at the time the contract is said to be...