Jorgensen-Bennett Mfg. Co. v. Knight

• Decision Date: 17 March 1928
• Citation: 3 S.W.2d 668,156 Tenn. 579
• Parties: JORGENSEN-BENNETT MFG. CO. v. KNIGHT et al.
• Court: Tennessee Supreme Court

3 S.W.2d 668

156 Tenn. 579

JORGENSEN-BENNETT MFG. CO. v. KNIGHT et al.

Supreme Court of Tennessee.

March 17, 1928

Appeal from Chancery Court, Shelby County; M. C. Ketchum Chancellor.

Suit by the Jorgensen-Bennett Manufacturing Company against Will S Knight and others. Decree for defendants, and complainant appeals. Affirmed.

Brown & Waldauer and Chas. Glascock, all of Memphis, for appellant Jorgensen-Bennett Mfg. Co.

Bates Shea & Frazer, of Memphis, for defendant Knight.

CHAMBLISS J.

Complainant sues to recover excise taxes, interest, and penalties collected under chapter 21, Acts of 1923, paid under protest. The statute imposes an annual tax equal to 3 per centum of the net earnings for the preceding year on all corporations and joint-stock associations, "arising from business done wholly within the state," specifically exempting "earnings arising from interstate commerce."

Complainant is a Tennessee corporation, buying, manufacturing, and selling lumber, and its liability for the excise tax on profits thus generally earned is conceded and has been discharged. However, it is charged that it also does business as to which the exemption applies, described in the bill as follows:

"It receives lumber from various points outside of the state, which is shipped by the owners on through bills of lading to points north and east of Memphis and outside of the state of Tennessee; that much lumber is stopped in transit in the city of Memphis for the purpose of being remanufactured in the process of which it is diminished in weight and is fitted for final delivery in the shape in which it had been contracted to be delivered by the shipper; that such lumber is manufactured in Memphis, loaded upon cars, and shipped out of Memphis on the same through bill of lading upon which it originally started. The complainant avers that this business and every operation attending same is interstate commerce business, upon which the state of Tennessee has no right to impose any burden or to levy any tax for the privilege of doing such business. It avers and shows to the court that the excise tax upon the earnings made by it in this business is a burden imposed upon interstate commerce; that the imposition of such a tax by the state of Tennessee is contrary to the Constitution and statutes of the United States; and that it is also contrary to the Constitution and statutes of the state of Tennessee, and that such business is expressly exempt from excise tax under the provisions of chapter 21 of the Acts of 1923."

The insistence is that:

"In the material thus handled the complainant has no title or interest and the work upon said lumber is a part of an interstate movement of the same from the point of origin in the states of Arkansas, Louisiana and Mississippi to the point of final destination in states north and east of the state of Tennessee."

A demurrer was sustained by the chancellor, and this appeal is from his decree.

The question thus presented, as well stated by the chancellor, is:

"Whether or not the business of the complainant in kiln-drying, surfacing, and resawing lumber shipped from a point outside of Tennessee, through Tennessee, to points beyond the limits of Tennessee, on through bills of lading, and stopped in Tennessee only for this milling in transit operation, is interstate business, and the profits arising therefrom are profits arising from interstate business."

Conceding that shipments from one state to another are interstate shipments and constitute interstate commerce, the chancellor says:

"But it does not follow from this that the complainant is engaged in an interstate business or that its profits from the services rendered by it in kiln-drying, surfacing, and resawing the lumber making up such shipments are profits arising from interstate commerce; its business is done 'wholly within the state,' and its profits from said business are profits from business done "wholly within the state,' and are therefore taxable. Under the language of the act the net earnings arising from business done wholly within the state are taxable; all of complainant's business is done in this state, and the fact that this part of its business is for a milling in transit service rendered to lumber moving in interstate commerce does not alter the fact that its business is done here and that its earnings are for services rendered here. The exemption from the tax on the earnings arising from interstate commerce necessarily means earnings arising from business done in interstate commerce. The complainant's business is not an interstate business; the entire service of kiln-drying, resawing and surfacing this lumber is done here; complainant has no interest in the shipment itself, and its business for which this tax was assessed is for a service rendered here to interstate shipments of lumber, for the purpose of lessening the weight and bulk of the shipments and thereby reducing the freight cost."

We find no error in this reasoning and conclusion. It is, in effect, supported by our own decisions, those of other states and of the United States Supreme Court, although no case dealing with identical facts is cited.

Construing the act now before us, in his second opinion, pages 10, 11, in Bank v. Senter (Nashville, December term, 1925), Mr. Justice Cook said:

"The local business of a corporation, either foreign or domestic, may support an excise measured by any reasonable method, if interstate commerce, and property beyond the state is not taxed. The Legislature imposed this tax, not upon interstate commerce, nor upon business beyond the state, but upon the privilege of exercising the corporate privilege in this state, and adopted as the measure net earnings from business done in the corporate capacity, by the corporation exercising its powers in Tennessee.

The state may impose a license tax for doing domestic business within its territorial jurisdiction, although the property involved may have come from another state, or the contract relating to the business may have been made in another state, and although the business carried on within the state may involve deliveries outside of the state."

Controlling general principles have been laid down by the United States Supreme Court:

"Subject to constitutional limitations, the states have the power to regulate the doing of local business within their borders." Pullman Co. v. Kansas, 216 U.S. 56, 30 S.Ct. 232, 54 L.Ed. 378.

A state has the right to "tax property, although it is used in interstate commerce." U.S. Express Co. v Minn., 223 U.S. 335, 32 S.Ct. 211, 56 L.Ed. 459. When the business sought to be taxed "is wholly within the state," and said business "is but a mere incident to * * * interstate business, such fact" furnishes no "obstacle to the valid taxation by the state of the business * * * which is entirely local. So long as * * * regulation as to * * * license or taxation does not refer to and is not imposed upon the...