Northwestern States Portland Cement Company v. State of Minnesota Williams v. Stockham Valves and Fittings, Inc

• Citation: 79 S.Ct. 357,67 A.L.R.2d 1292,3 L.Ed.2d 421,358 U.S. 450
• Decision Date: 24 February 1959
• Docket Number: 33,Nos. 12,s. 12
• Parties: NORTHWESTERN STATES PORTLAND CEMENT COMPANY, Appellant, v. STATE OF MINNESOTA. T. V. WILLIAMS, as State Revenue Commissioner, Petitioner, v. STOCKHAM VALVES AND FITTINGS, INC
• Court: United States Supreme Court

358 U.S. 450

79 S.Ct. 357

3 L.Ed.2d 421

NORTHWESTERN STATES PORTLAND CEMENT COMPANY, Appellant,

v STATE OF MINNESOTA.

T. V. WILLIAMS, as State Revenue Commissioner,

Petitioner,

v. STOCKHAM VALVES AND FITTINGS, INC.

Nos. 12, 33.

Argued Oct. 14, 15, 1958.

Decided Feb. 24, 1959.

[Syllabus from pages 450-451 intentionally omitted] Mr. Joseph A. Maun, St. Paul, Minn., for appellant in No. 12.

Mr. Perry Voldness, St. Paul, Minn., for appellee in No. 12.

Mr. Ben F. Johnson, Atlanta, Ga., for petitioner in No. 33.

Mr. John Izard, Jr., Atlanta, Ga., for respondent in No. 33.

Mr. Justice CLARK delivered the opinion of the Court.

These cases concern the constitutionality of state net income tax laws levying taxes on the portion of a foreign corporation's net income earned from and fairly apportioned to business activities within the taxing State when those activities are exclusively in furtherance of interstate commerce. No question is raised in either case as to the reasonableness of the apportionment of net income under the State's formulas nor to the amount of the final assessment made. The Minnesota tax was upheld by its Supreme Court, 250 Minn. 35, 84 N.W.2d 373, while the Supreme Court of Georgia invalidated its statute as being violative of 'both the commerce and due-process clauses of the Federal Constitution * * *.' 213 Ga. 713, 101 S.E.2d 197, 202. The importance of the question in the field of state taxation is indicated by the fact that thirty-five States impose direct net income taxes on corporations. Therefore, we noted jurisdiction of the appeal in the Minnesota case, 1958, 355 U.S. 911, 78 S.Ct. 341, 2 L.Ed.2d 272, and granted certiorari in the other, 1958, 356 U.S. 911, 78 S.Ct. 670, 2 L.Ed.2d 585. Although the cases were separately briefed, argued, and submitted, we have, because of the similarity of the tax in each case, consolidated from for the purposes of decision. It is contended that each of the state statutes, as applied, violates both the Due Process and the Commerce Clauses of the United States Constitution. Article 1, § 8, cl. 3; Amend. 14. We conclude that net income from the interstate operations of a foreign corporation may be subjected to state taxation provided the levy is not discriminatory and is properly apportioned to local activities within the taxing State forming sufficient nexus to support the same. No. 12.—Northwestern States Portland Cement Co. v. State of Minnesota.

This is an appeal from judgments of Minnesota's courts upholding the assessment by the State of income taxes for the years 1933 through 1948 against appellant, an Iowa corporation engaged in the manufacture and sale of cement at its plant in Mason City, Iowa, some forty miles from the Minnesota border. The tax was levied under § 290.03¹ of the Minnesota statutes, which imposes an annual tax upon the taxable net income of residents and nonresidents alike. One of four classes taxed by the statute is that of 'domestic and foreign corporations * * * whose business within this state during the taxable year consists exclusively of foreign commerce, interstate commerce, or both.' Minnesota has utilized three ratios in determining the portion of net income taxable under its law.² The first is that of the taxpayer's sales assignable to Minnesota during the year to its total sales during that period made everywhere; the second, that of the taxpayer's total tangible property in Minnesota for the year to its total tangible property used in the business that year wherever situated. The third is the tax- payer's total payroll in Minnesota for the year to its total payroll for its entire business in the like period. As we have noted, appellant takes no issue with the fairness of this formula nor of the accuracy of its application here.

Appellant's activities in Minnesota consisted of a regular and systematic course of solicitation of orders for the sale of its products, each order being subject to acceptance, filling and delivery by it from its plant at Mason City. It sold only to eligible dealers, who were lumber and building material supply houses, contractors and ready-mix companies. A list of these eligible dealers was maintained and sales would not be made to those not included thereon. Forty-eight percent of appellant's entire sales were made in this manner to such dealers in Minnesota. For efficient handling of its activity in that State, appellant maintained in Minneapolis a leased sales office equipped with its own furniture and fixtures and under the supervision of an employee-salesman known as 'district manager.' Two salesmen, including this district manager, and a secretary occupied this three-room office. Two additional salesmen used it as a clearing house. Each employee was paid a straight salary by the appellant direct from Mason City and two cars were furnished by it for the salesmen. Appellant maintained no bank account in Minnesota, owned no real estate there, and warehoused no merchandise in the State. All sales were made on a delivered price basis fixed by the appellant in Mason City and no 'pick ups' were permitted at its plant there. The salesmen, however, were authorized to quote Minnesota customers a delivered price. Orders received by the salesmen or at the Minneapolis office were transmitted daily to appellant in Mason City, were approved there, and acknowledged directly to the purchaser with copies to the salesman.

In addition to the solicitation of approved dealers, appellant's salesmen also contacted potential customers and users of cement products, such as builders, contractors, architects, and state, as well as local government purchasing agents. Orders were solicited and received from them, on special forms furnished by appellant, directed to an approved local dealer who in turn would fill them by placing a like order with appellant. Through this system appellant's salesmen would in effect secure orders for local dealers which in turn were filled by appellant in the usual manner. Salesmen would also receive and transmit claims against appellant for loss or damage in any shipments made by it, informing the company of the nature thereof and requesting instructions concerning the same.

No income tax returns were filed with the State by the appellant. The assessments sued upon, aggregating some $102,000, with penalties and interest, were made by the Commissioner of Taxation on the basis of information available to him.

No. 33.—T. V. Williams, Commissioner v. Stockham Valves & Fittings, Inc.

The respondent here is a Delaware Corporation with its principal office and plant in Birmingham, Alabama. It manufactures and sells valves and pipe fittings through established local wholesalers and jobbers who handle products other than respondent's. These dealers were encouraged by respondent to carry a local inventory of its products by granting to those who did so a special price concession. However, the corporation maintained no warehouse or storage facilities in Georgia. It did maintain a sales-service office in Atlanta, which served five States. This office was headquarters for one salesman who devoted about one-third of his time to solicitation of orders in Georgia. He was paid on a salary-plus-commission basis while a full-time woman secretary employed there received a regular salary only. She was 'a source of information' for respondent's products, performed stenographic and clerical services and 'facilitated communications between the * * * home office in Birmingham, * * * (the) sales representative * * * and customers, prospective customers, contractors and users of (its) products.' Respondent's salesman carried on the usual sales activities, including regular solicitation, receipt and forwarding of orders to the Birmingham office and the promotion of business and good will for respondent. Orders were taken by him, as well as the sales-service office, subject to approval of the home office and were shipped from Birmingham direct to the customer on an 'f.o.b. warehouse' basis. Other than office equipment, supplies, advertising literature and the like, respondent had no property in Georgia, deposited no funds there and stored no merchandise in the State.

Georgia levies a tax³ on net incomes 'received by every corporation, foreign or domestic, owning property or doing business in this State.'⁴ The Act defines the latter as including 'any activities or transactions' carried on within the State 'for the purpose of financial profit or gain' regardless of its connection with interstate commerce. To apportion net income, the Act applies a three-factor ratio based on inventory, wages and gross receipts. Under the Act the State Revenue Commissioner assessed and collected a total of $1,478.31 from respondent for the taxable years 1952, 1954 and 1955, and after claims for refund were denied the respondent filed this suit to recover such payments. It bases its right to recover squarely upon the constitutionality of Georgia's Act under the Commerce and the Due Process Clauses of the Constitution of the United States.

That there is a 'need for clearing up the tangled underbrush of past cases' with reference to the taxing power of the States is a concomitant to the negative approach resulting from a case-by-case resolution of 'the extremely limited restrictions that the Constitution places upon the states. * * *' State of Wisconsin v. J. C. Penney Co., 1940, 311 U.S. 435, 445, 61 S.Ct. 246, 250, 85 L.Ed. 267. Commerce between the States having grown up like Topsy, the Congress meanwhile not having undertaken to regulate taxation of it, and the States having understandably persisted in their efforts to get some return for the substantial benefits they have afforded it, there is little wonder that there has been no end of cases testing out state tax levies. The resulting judicial application of constitutional principles to specific state statutes leaves much room for controversy and confusion and...