ET & WNC Transp. Co. v. Currie

• Decision Date: 30 June 1958
• Docket Number: No. 451,451
• Citation: 104 S.E.2d 403,248 N.C. 560
• Court: North Carolina Supreme Court
• Parties: ET & WNC TRANSPORTATION COMPANY, a corporation, v. James S. CURRIE, Commissioner of Revenue of the State of North Carolina.

Page 403

104 S.E.2d 403

248 N.C. 560

ET & WNC TRANSPORTATION COMPANY, a corporation, v. James S. CURRIE, Commissioner of Revenue of the State of North Carolina.

No. 451

Supreme Court of North Carolina.

June 30, 1958

Harkins, Van Winkle, Walton & Buck, Asheville, and Cox, Epps, Powell & Weller, Johnson City, Tenn., for plaintiff, appellant.

George B. Patton, Atty. Gen., and Basil L. Sherrill, Asst. Atty. Gen., for defendant, appellee.

PARKER, Justice.

Plaintiff has adopted the proper procedure to have determined the validity of the taxes assessed against it, which it paid. G.S. § 105-267; Buchan v. Shaw, 238 N.C. 522, 78 S.E. 2d 317.

According to the agreed stipulation of facts, the taxes, which are the subject of this suit, were imposed and collected under the provisions of G.S. § 105-134 and G.S. § 105-136, which sections appear under Chapter 105 of the General Statutes, Article 4, 'Schedule D. Income Taxes,' as said sections were in full force and effect prior to the amendments and supplements to The Revenue Act enacted at the 1957 Session of the General Assembly. Session Laws of North Carolina 1957, Chapter 1340.

Chapter 105 of the General Statutes is designated 'Taxation.' Of this Chapter, Article 1, is designated 'Schedule A. Inheritance Tax'; Article 2, 'Schedule B. License Taxes'; Article 3, 'Schedule C. Franchise Tax'; Article 4, 'Schedule D. Income Tax'; Article 5, 'Schedule E. Sales Tax'; Article 6, 'Schedule G. Gift Taxes'; Article 7, 'Schedule H. Intangible Personal Property.'

While the towns, cities and counties in North Carolina impose ad valorem taxes on real and personal property of individuals, firms and corporations, the State of North Carolina does not.

The general purpose of Chapter 105, Article 4, 'Schedule D. Income Tax,' is expressed in G.S. § 105-131, as follows: 'To impose a tax for the use of the State government upon the net income in excess of the exemption herein allowed * * * (a) Of every resident of the State. (b) Of every domestic corporation. (c) Of every foreign corporation and of every nonresident individual having a business or agency in this State or income from property owned, and from every business, trade, profession or occupation carried on in this State.'

G.S. § 105-134, subd. II. Foreign Corporations, provides: 'Every foreign corporation doing business in this State shall pay annually an income tax equivalent to six per cent of a proportion of its entire net income, to be determined according to the following rules.' The rule followed by the defendant here is set forth in paragraph 3 of G.S. § 105-134, and provides that 'the total income of such corporation shall be apportioned to North Carolina on the basis of the ratio of its gross receipts in this State during the income year to its gross receipts for such year within and without the State,' and G.S. § 105-134, subd. II, par. 3, (a), further provides that 'the words 'gross receipts' as used in this subsection shall be taken to mean and include the entire receipts for business done by such company.'

G.S. § 105-136 provides a basis for ascertaining the not income of every corporation engaged in the business of operating a steam, electric railroad, express service, telephone or telegraph business, or other form of public service, when such company is required by the Interstate Commerce Commission to keep records according to its standard classification of accounting. This statute further provides how the net revenue within this State of such a corporation from operations shall be ascertained, when the business of such a corporation is in part within and in part without the State. It also provides that from the net operating income thus ascertained shall be deducted uncollectible revenue, and taxes paid in this State for the income year other than income taxes. G.S. § 105-136 further provides: 'For the purposes of this section the words 'interstate business' shall mean, as to transportation companies, operating revenue earned within the State by reason of the interstate transportation of persons or property into, out of, or through this State. * * *'

The appellant makes no contention that the amounts of the income taxes assessed against it, which it paid, are incorrect. It contends that these income taxes were not lawfully assessed and collected from it on two grounds. One. The statutes under which these income taxes were assessed and collected from it constitute a burden on interstate commerce, and violate the Commerce Clause of the Federal Constitution. Two. The collection of such income taxes violates the due process phrase of the 14th amendment to the Federal Constitution, and also Art. I, Section 17, of the North Carolina Constitution.

Chapter 105, Article 3, is designated 'Schedule C. Franchise Tax.' Section 105-114 of this article explicitly states the nature of this tax: 'The taxes levied in this article upon persons and partnerships are for the privilege of engaging in business or doing the act named. The taxes levied in this article upon corporations are privilege or excise taxes levied upon: * * * (2) corporations not organized under the laws of this State for doing business in this State and for the benefit and protection which such corporations receive from the government and laws of this State in doing business in this State.'

A comparison of Chapter 105, Article 3, 'Schedule C. Franchise Tax,' and Chapter 105, Article 4, 'Schedule D. Income Tax' indicates a clear legislative intent to differentiate between these two types of taxes, for a clear distinction has been made by the General Assembly of this State between an excise tax imposed on domestic and foreign corporations for the privilege of transacting business within the State, and an income tax on net corporate income, which is based on a past fact of earned net profits. The agreed stipulation of facts clearly shows that the taxes assessed and paid in the instant case were imposed on that part of plaintiff's net income earned within North Carolina by reason of its interstate business, and fairly attributable to its interstate business done or performed within the borders of the State of North Carolina. The statutes under which these taxes were assessed against plaintiff in precise words preclude a contention that it was the legislative intent that the taxes assessed and paid here were excise or privilege taxes.

When we consider a claim of immunity from taxation, we must come to grips with realities, not shadows. The taxes assessed and collected in the instant case are not in form nor in substance taxes on interstate commerce; nor are they taxes on gross income, nor are they franchise taxes. The taxes here assessed at a non-discriminatory rate, and paid, were imposed upon that part of plaintiff's net income earned within North Carolina by reason of its interstate business, and reasonably attributable to its interstate business done or performed within the borders of the State of North Carolina. If plaintiff should have no net income earned within North Carolina by reason of its interstate business, and reasonably attributable to its interstate business done or performed within the borders of the State of North Carolina, it could not be required to pay income tax to the State of North Carolina.

In discussing the Commerce Clause of the Federal Constitution, Article I, section 8, cl. 3, we deem this language in Freeman v. Hewit, 329 U.S. 249, 67 S.Ct. 274, 276, 91 L.Ed. 265, pertinent: 'The power of the States to tax and the limitations upon that power imposed by the Commerce Clause have necessitated a long, continuous process of judicial adjustment. The need for such adjustment is inherent in a federal government like ours, where the same transaction has aspects that may concern the interests and involve the authority of both the central government and the constituent States. The history of this problem is spread over hundreds of volumes of our Reports. To attempt to harmonize all that has been said in the past would neither clarify what has gone before nor guide the future. Suffice it to say that especially in this field opinions must be read in the setting of the particular cases and as the product of pre-occupation with their special facts.'

In considering the question before us for decision, we must remember that when Chief Justice Marshall presided over the United States Supreme Court, there was no such thing in this nation as an income tax.

We find this language in United States Glue Co. v. Town of Oak Creek, 247 U.S 321, 38 S.Ct. 499, 501, 62 L.Ed. 1135: '* * * in Peck & Co. v. Lowe, (decided May 20th last) 247 U.S. 165, 38 S.Ct. 432, 62 L.Ed. 1049, we held that the Income Tax Act of October 3, 1913, c. 16, 38 Stat. 166, 172, when carried into effect by imposing an assessment upon the entire net income of a corporation, approximately three-fourths of which was derived from the export of goods to foreign countries, did not amount to laying a tax or duty on articles exported within the meaning of article 1, § 9, cl. 5 of the Constitution. The distinction between a direct and an indirect burden by way of tax or duty was developed, and it was shown that an income tax laid generally on net incomes, not on income from exportation because of its source or in the way of discrimination, but just as it was laid on other income, and affecting only the net receipts from exportation after all expenses were paid and losses adjusted and the recipient of the income was free to use it as he chose, was only an indirect burden. * * * A tax upon the ner profits has not the same deterrent effect, since it does not arise at all unless a gain is shown over and above expenses and losses, and the tax cannot be heavy unless the profits are large. Such a tax, when imposed upon net incomes from whatever source arising, is but a method of distributing the cost of government, like a tax upon property, or upon franchises treated as property; and...