Ford Motor Co. v. Clark

• Decision Date: 15 December 1938
• Docket Number: No. 8664.,8664.
• Citation: 100 F.2d 515
• Parties: FORD MOTOR CO. v. CLARK, Secretary of State of State of Texas et al.
• Court: U.S. Court of Appeals — Fifth Circuit

100 F.2d 515 (1938)

FORD MOTOR CO. v. CLARK, Secretary of State of State of Texas et al.

No. 8664.

Circuit Court of Appeals, Fifth Circuit.

December 15, 1938.

Gaius G. Gannon, of Houston, Tex., for appellant.

Wm. McCraw, Earl Street, and Llewellyn B. Duke, all of Austin, Tex., for appellees.

Before SIBLEY, HUTCHESON, and HOLMES, Circuit Judges.

SIBLEY, Circuit Judge.

This appeal is from the dismissal on demurrer of an action by Ford Motor Company against officers of the State of Texas to recover certain State franchise taxes for the year 1936 paid under protest. The contention is that in the amount sued for the exaction violated the interstate commerce clause of the federal Constitution, U.S.C.A.Const. art. 1, § 8, cl. 3, in that it burdened the interstate business of the taxpayer, and the due process clause of the Fourteenth Amendment, U.S.C.A.Const. Amend. 14, by taxing property outside the State of Texas.

The franchise tax law, Revised Statutes of 1925, Arts. 7084, 7085, as amended, Vernon's Ann.Civ.St.Tex. art. 7084, lays a tax on domestic and foreign corporations chartered or authorized to do business in Texas, payable each year in advance and graduated according to the amount of capital stock, surplus and undivided profits, plus outstanding notes and bonds running for more than a year; or when business is done also in other States, on that proportion of the capital, etc., which the gross receipts from business done in Texas the previous year bears to the gross receipts from the entire business of the corporation. The calculation is made from a return under oath by the taxpayer. The law was analyzed and its general constitutionality as against the commerce clause and the Fourteenth Amendment declared in Southern Realty Corp. v. McCallum, 5 Cir., 65 F.2d 934, and its application to the circumstances of the eighteen complainants in that case was upheld. Certiorari was refused, Southern Realty Corp. v. Heath, 290 U.S. 692, 54 S.Ct. 127, 78 L.Ed. 596, and our interpretation of the law was indorsed by the State Court of Civil Appeals in United North & South Development Co. v. Heath, 78 S.W.2d 650. We said page 935: "The tax is not laid on property or income, though both are regarded in measuring it. It is laid on the privilege granted to the corporation, whether domestic or foreign, to do business for one year in Texas with the capital set-up which it has chosen to use. The tax for this opportunity to do the year's business is directly measured by the business capital about to be used rather than by the income which it may afterwards appear was realized. The origin, form, and location of that capital, whether in or out of the state, is unimportant, provided it is to contribute to the corporation's business power within the state. When the corporation is to do business in other states also, avoidance of a trespass on interstate commerce or on that done beyond the territorial jurisdiction of the taxing state is secured by apportioning the business potency of the corporation represented by its business capital according to the business actually done during the preceding calendar year in the taxing state as indicated by gross receipts, compared with all its business everywhere." To this exposition of the law we adhere.

The appellant's real contention is that because it both manufactures and sells automobiles, the principal manufacturing activity and the capital necessary for it being in Michigan, gross income from sales is an arbitrary basis of apportionment in its case; and because the proportion of its capital investments located in Texas is far less than the proportion of its income there received, there is in effect a taxing of investments outside that State; and since the capital and investments outside the State are used largely in interstate business there is a burden on interstate commerce.

The facts pleaded are, broadly stated, that Ford Motor Company, a Delaware corporation, was engaged in manufacturing automobiles and tractors and the parts thereof principally in Michigan, its business domicile, where its largest investments in plant were and where its owned securities are said to be taxable, altogether about $500,000,000 worth out of a total of about $600,000,000. It sold some of its product in Michigan, and some of it in interstate and foreign commerce, but in large measure the parts for the machines were shipped to assembling plants in other States, and there put together, finished and tested, and sold locally. This was done in Texas. In 1935 the machines there finished and sold produced a gross income of $34,272,887. The receipts of the Company everywhere were $888,344,975. The Texas business was thus 3.858% of the whole. The Company's total capital set-up as defined by the statute was returned as $600,242,151, but the return stated: "Total capital actually...