United States Glue Co v. Town of Oak Creek

• Decision Date: 03 June 1918
• Docket Number: No. 233,233
• Citation: 62 L.Ed. 1135,247 U.S. 321,38 S.Ct. 499
• Parties: UNITED STATES GLUE CO. v. TOWN OF OAK CREEK
• Court: U.S. Supreme Court

247 U.S. 321

38 S.Ct. 499

62 L.Ed. 1135

UNITED STATES GLUE CO.

v TOWN OF OAK CREEK.

No. 233.

Argued March 21, 1918.

Decided June 3, 1918.

Messrs. George Lines, Willet M. Spooner, and Louis Quarles, all of Milwaukee, Wis., for plaintiff in error.

Messrs. H. J. Killilea and Walter Drew, both of Milwaukee, Wis., for defendant in error.

[Argument of Counsel intentionally omitted] Mr. Justice PITNEY delivered the opinion of the Court.

The judgment brought up by this writ of error was entered by the circuit court of Milwaukee county upon the mandate of the Supreme Court of the state of Wisconsin issued on reversal of a previous judgment of the circuit court in an action brought by plaintiff in error to recover the sum of $2,835.38, paid under protest as part of a tax assessed and levied by the taxing authorities of the state upon plaintiff's income for the year 1911, under chapter 658, Wisconsin Laws 1911. The Supreme Court overruled plaintiff's contention that the portion of the tax that was in controversy, having been imposed upon income derived by plaintiff from interstate commerce, amounted to a burden upon that commerce, contravening the commerce clause of section 8 of article 1 of the Constitution of the United States. 161 Wis. 211, 153 N. W. 241, Ann. Cas. 1918A, 421. And this is the sole question presented for our consideration.

The act, which was passed under the authority of an amendment to the state Constitution (Income Tax Cases, 148 Wis. 456, 134 N. W. 673, 135 N. W. 164), imposes a tax upon incomes received during the year ending December 31, 1911, and annually thereafter; defines the term 'income' as including (a) rent of real estate; (b) interest derived from money loaned or invested in notes, mortgages, bonds, or other evidences of debt; (c) wages, salaries, and the like; (d) dividends or profits derived from stock, or from the purchase and sale of property acquired within three years previous, or from any business whatever; (e) royalties derived from the possession or use of franchises or legalized privileges; and (f) all other income derived from any source, except such as is exempted. There is a provision 'that any person engaged in business within and without the state shall, with respect to income other than that derived from rentals, stocks, bonds, securities or evidences of indebtedness, be taxed only upon that proportion of such income as is derived from business transacted and property located within the state,' which is to be determined in a particular manner specified in section 1770b, as far as applicable.

Corporations are allowed to make certain deductions from gross income, including amounts paid for personal services of officers and employes and other ordinary expenses paid out of income in the maintenance and operation of business and property, including a reasonable allowance for depreciation, losses not compensated for by insurance or otherwise, taxes, etc. These need not be further mentioned, beyond saying that the intent and necessary effect of the act is to tax not gross receipts but net income; that from the stipulated facts it appears that the tax in question was imposed upon plaintiff's net income; and that this is in accord with the construction of the act adopted by the Supreme Court of the state in this and other cases. State ex rel. Manitowoc Gas Co. v. Wisconsin Tax Commission, 161 Wis. 111, 116, 152 N. W. 848; United States Glue Co. v. Oak Creek (the present case) 161 Wis. 211, 221, 153 N. W. 241, Ann. Cas. 1918A, 421; State ex rel. Bundy v. Nygaard, 163 Wis. 307, 310, 158 N. W. 87, L. R. A. 1917E, 563.

In order to determine what part of the income of a corporation engaged in business within and without the state (other than that derived from rentals, stocks, bonds, securities, etc.) is to be taxed as derived from business transacted and property located within the state, reference is had to a formula prescribed by another statute (section 1770b, subsec. 7, par. [e] of Wisconsin Stats. for apportioning the capital stock of foreign corporations, under which the gross business in dollars of the corporation in the state, added to the value in dollars of its property in the state, is made the numerator of a fraction of which the denominator consists of the total gross business in dollars of the corporation both within and wit out the state, added to the value in dollars of its property within and without the state. The resulting fraction is taken by the income tax law as representing the proportion of the income which is deemed to be derived from business transacted and property located within the state. This formula was applied in apportioning plaintiff's net 'business income' for the year 1911, and upon the portion thus attributed to the state, plus the income from rentals, stocks, bonds, etc., the tax in question was levied.

Plaintiff was and is a corporation organized under the laws of the state of Wisconsin, having its principal office and place of business in the town of Oak Creek, where it conducted an extensive manufacturing plant, selling its products throughout the state and in other states and foreign countries. Its net 'business income' in the year 1911, exclusive of that derived from rentals, stocks, bonds, etc., and after making the deductions allowed by the act, amounted to about $124,000, derived from the following sources: (a) About $16,000 from goods sold to customers within the state and delivered from its factory; (b) about $65,000 from goods sold to customers outside of the state and delivered from its factory; (c) about $31,000 from goods sold to customers outside of the state, the sales having been made and goods shipped from plaintiff's branches in other states, and the goods having been manufactured at plaintiff's factory and shipped before sale to said branches; (d) about $7,000 from goods sold to customers outside of the state, the sales having been made and goods shipped from plaintiff's branches without the state, these goods having been purchased by plaintiff outside of the state and shipped to plaintiff's factory in the state, and thence shipped before sale from the factory to the branches; (e) about $5,000 from goods sold outside of the state, the sales having been made and goods shipped from said branches, and the goods having been purchased by plaintiff outside of the state and shipped from the points of purchase to the branches...