Underwood Typewriter Co. v. Chamberlain
| Decision Date | 16 July 1919 |
| Citation | 108 A. 154,94 Conn. 47 |
| Court | Connecticut Supreme Court |
| Parties | UNDERWOOD TYPEWRITER CO. v. CHAMBERLAIN, State Treasurer. |
Case Reserved from Superior Court, Hartfod County; William S Case, Judge.
Action by the Underwood Typewriter Company against Ferderick S Chamberlain, State Treasurer, for an order directing defendant to repay to plaintiff the amount of a tax paid under protest. On reservation on an agreed statement of facts for the advice of the Supreme Court of Errors. Jugment advised for defendant.
The tax in question was assessed against the plaintiff in respect of its operations within this state for the year 1915, pursuant to sections 19 to 23, inclusive, of part 4 of chapter 292 of the Public Acts of 1915, which are printed in the margin.[1] Part 4 of the act deals with miscellaneous corporations, defined as all corporations required to report to the collector of internal revenue under the income tax law of the United States, except insurance banking, transportation, and public service corporations. It provides for the payment by every such corporation carrying on business in this state of an annual tax of 2 per cent. on the net income upon which it is required to pay a tax to the United States, and in case such corporation also carries on business outside of the State, it provides for the payment of a like tax upon a part only of its net income, apportioned in the manner specified in section 22. No distinction is made in the Act between domestic and foreign corporations.
The plaintiff is a Delaware corporation deriving profits principally from the manufacture, sale, and repair of so-called Underwood typewriters. Its only manufacturing plant is in Hartford, Conn. It also sells and rents adding machines made in Connecticut by other manufacturers, rents slot machines made by it in Connecticut, and sells desks and other typewriting supplies not manufactured in this state. The plaintiff's gross profits from its sales and its receipts from all other sources within and without the State were as follows for the year 1915:
| Gross profits from sales of company's typewriter products manufactured in Connecticut | $6,209,316 40 |
| Receipts from rentals of slot machines manufactured by the plaintiff in Connecticut | 191,368 58 |
| Receipts from rentals of company's products, typewriters manufactured in Connecticut | 435,645 80 |
| Receipts from sale of adding machines manufactured in Connecticut by a third party | 31,186 21 |
| Dividends | 8,288 19 |
| Discounts | 14,627 13 |
| Interest | 29,456 00 |
| Receipts from sale of desks, furniture and other accessories not manufactured in Connecticut | 162,548 43 |
| Rental of Connecticut real estate | 44,400 00 |
The plaintiff's expenses other than manufacturing costs were $6,249,961.42, and its net income on which a tax was payable to the United States was $1,336,586.13. The term " gross profits" in the above tabulation means receipts less manufacturing costs. General administrative expense, including salaries, selling expenses, and other similar charges, are included in the amount deducted from gross receipts to ascertain net income. The fair cash value of the plaintiff's real estate and tangible personal property located within the state of Connecticut on January 1, 1916, was $2,977,827.67, and the fair cash value of its real estate and tangible personal property located without the State of Connecticut was $3,343.155.11.
The plaintiff made and filed with the tax commissioner of Connecticut a return under protest, showing the net income on which it was required to pay a tax to the United States. The tax commissioner apportioned the sum of $629,658.50 as the portion of its net income on which the plaintiff was required to pay a tax of 2 per cent. in the state of Connecticut, and the plaintiff subsequently paid to the state treasurer the assessed tax of $12,593.37 under protest, claiming that part 4 of chapter 292 of the Public Acts of 1915 was, as against the plaintiff, void as an attempted restraint on interstate commerce, and because it violated the Fourteenth Amendment to the federal Constitution.
The cause came before us on an agreed statement of facts, including those above outlined, and others stated in the opinion. Our advice is asked on the following questions:
(1) Whether or not, under said pleadings and said agreed finding of facts, and in respect to the Underwood Typewriter Company, the portion of the statute providing for the return and tax and the assessment and apportionment thereof under and in accordance with sections 19 to 23, inclusive, of chapter 292, Public Acts of 1915, is in violation of the provisions of the Constitution of the United States, in that it constitutes a tax or burden on interstate commerce, contrary to section 8 of article 1, and upon the net income of business and sales made outside the State contrary to the Fourteenth Amendment to said Constitution.
(2) Whether or not the amount assessed upon the Underwood Typewriter Company under said sections of chapter 292 of the Public Acts of 1915 is illegal and excessive, for the reason that it is based, not only upon the net income of the corporation from its business within the state of Connecticut, but upon the net income of the corporation from its business both within and without the State.
(3) Whether or not that portion of the statute providing for a disclosure by the Underwood Typewriter Company to the officials of Connecticut of its report made to the federal government, on which an income tax is assessed by said government, is in violation of section 2 of article 4 of the Constitution of the United States, and contrary to the Fourth, Fifth, and Fourteenth Amendments, or any of them.
Arthur L. Shipman and Josiah H. Peck, both of Hartford, for plaintiff.
George E. Hinman, of Willimantic, James E. Cooper, of New Britain, and Frank E. Healy, Atty. Gen., of Windsor Lock, for defendant.
Arthur M. Marsh, of Bridgeport, amicus curiae.
It is necessary in the first place to determine the nature of the tax complained of. The state contends that it is in the nature of an excise tax, the plaintiff that it is a tax on property, and the brief filed by the amicus curiae that it is an income tax. We think the state is right in its characterization of the tax. It is not a tax on property. The plaintiff pays a separate local tax on its property. This tax falls on income, and not on property. If the plaintiff had made no net income for the year 1915, it would have escaped this tax altogether, although its taxable property in Connecticut on July 1, 1915, remained the same as before.
It is not an income tax as such because it is assessed only if and when the corporation does business within the state, and in the case of domestic corporations doing business in this and other states there is no attempt to assert personal jurisdiction for the purpose of taxing their entire income. Foreign and domestic corporations are treated alike, and the entire income is not taxed, unless the entire business of the corporation is done within the state. It is apparent, therefore, that the basis of the tax is not jurisdiction over the property or over the person of the corporation, but jurisdiction over its business, and that it is a tax in the nature of an excise tax levied against domestic and foreign corporations alike for the privilege of doing business in a corporate capacity within this state.
In 1917 the General Assembly (chapter 298, § 6) characterized the tax as follows:
" The tax *** shall be in lieu of all other taxes upon the franchises of the domestic corporations included in the companies defined in said part IV, except the tax on capital stock provided by section 61 of chapter 194 of the Public Acts of 1903, and shall be in lieu of all other taxes on the privilege of doing business within this state upon the foreign corporations included in the companies defined in said part IV."
The legislative construction thus put upon part 4 of the act, although not in itself conclusive, is consistent with its practical consequences, and accords with the conclusion already stated. The fact that the tax is measured by a percentage of net income, or in the case of a corporation engaged in interstate commerce by a percentage of a part of its net income proportioned to the amount of its tangible property in this State, does not, of course, prevent it from being an excise or privilege tax.
The next question is whether the tax, regarded as an excise or privilege tax, is, in its application to the plaintiff corporation, an unlawful restraint on interstate commerce. This question appears to us to have been answered in the negative by the recent case of United States Glue Co. v. Oak Creek, 247 U.S. 321, 38 Sup.Ct. 499, 62 L.Ed. 1135, Ann. Cas. 1918E, 748, wherein the Supreme Court took occasion to point out some of the things which a state might lawfully do in levying taxes on the net incomes of corporation engaged in interstate commerce. We quote from page 326 of 247 U.S. (38 Sup.Ct. 500, 62 L.Ed. 1135, Ann. Cas. 1918E, 748):
" But property in a state belonging to a corporation, whether foreign or domestic, engaged in foreign or interstate commerce, may be taxed, or a tax may be imposed on the corporation on account of its property within a state, and may take the form of a tax for the privilege of exercising its franchises within the state, if the ascertainment of the amount is made dependent in fact on the value of its property situated within the state (the exaction, therefore, not being susceptible of exceeding the sum which might be leviable directly thereon), and if payment be not made a...
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