"MULTIPLE TAXATION" TEST
That the Depression—allowing for the customary judicial lag—greatly altered the Court's conception of Congress's powers under the commerce clause, was pointed out earlier.[694] To a less, but appreciable degree, it also affected its views as to the allowable scope under the clause of the taxing power of the States, a majority of which were on the verge of bankruptcy. The more evident proofs of this fact occurred in relation to State taxation of the subject matter of interstate commerce, as is indicated above.[695] But a certain revision of doctrine, apparently temporary in nature, however, is to be seen in the connection with State taxes impinging on property engaged in interstate commerce and the revenues from such commerce, the principal manifestation of which is to be seen in the emphasis which was for a time given the "multiple taxation" test. Thus in his opinion in the Western Live Stock Case,[696] cited above, Justice Stone seems to be engaged in an endeavor to erect this into an almost exclusive test of the validity, or invalidity of State taxation affecting interstate commerce. "It was not," he there remarks, "the purpose of the commerce clause to relieve those engaged in interstate commerce from their just share of State tax burden even though it increases the cost of doing the business. 'Even interstate business must pay its way,' * * * and the bare fact that one is carrying on interstate commerce does not relieve him from many forms of State taxation which add to the cost of his business."[697] Then citing cases, he continues: "All of these taxes in one way or another add to the expense of carrying on interstate commerce, and in that sense burden it; but they are not for that reason prohibited. On the other hand, local taxes, measured by gross receipts from interstate commerce, have often been pronounced unconstitutional. The vice characteristic of those which have been held invalid is that they have placed on the commerce burdens of such a nature as to be capable, in point of substance, of being imposed * * * [or added to] with equal right by every State which the commerce touches, merely because interstate commerce is being done, so that without the protection of the commerce clause it would bear cumulative burdens not imposed on local commerce. * * * The multiplication of State taxes measured by the gross receipts from interstate transactions would spell the destruction of interstate commerce and renew the barriers to interstate trade which it was the object of the commerce clause to remove," citing cases, most of which have been discussed above.[698] And speaking again for the Court eleven months later, in Gwin, White and Prince v. Henneford,[699] Justice Stone applied the test to invalidate a State of Washington tax. "Such a tax," said he, "at least when not apportioned to the activities carried on within the State, * * * would, if sustained, expose it [interstate commerce] to multiple tax burdens, each measured by the entire amount of the commerce, to which local commerce is not subject." The tax thus discriminated against interstate commerce; and threatened to "reestablish the barriers to interstate trade which it was the object of the commerce clause to remove."[700]
The adoption by the Court of the multiple taxation principle as an exclusive test of State taxing power in relation to interstate commerce would have enlarged the former; but this was not the sole reason for its temporary vogue with the Court, or at least a section of it. Discontent with the difficulties and uncertainties of the apportionment rule also played a great part. Thus in his concurring opinion in the Gwin case, Justice Butler, speaking for himself and Justice McReynolds after showing the instability of decisions in this area of Constitutional Law, contend that "the problems of conjectured 'multiple taxation' or 'apportionment'" should be left to Congress,[701] a suggestion which Justice Black, speaking also for Justices Frankfurter and Douglas a year later, made the basis of a dissenting opinion,[702] from the doctrines of which, however, Justice Frankfurter appears since to have recanted.[703]
RECENT CASES
In Freedman v. Hewit,[704] decided in 1946, the Court held void as an "unconstitutional burden on interstate commerce" an Indiana gross income tax of the proceeds from certain securities sent outside the State to be sold. Justice Frankfurter spoke for the Court; Justice Rutledge concurred in an opinion deploring the majority's failure to employ the multiple taxation test;[705] three Justices dissented.[706] In Joseph v. Carter and Weekes Stevedoring Co.,[707] also decided in 1947, the Court, reaffirming an earlier ruling, held void the application of a Washington gross receipts tax to the receipts of a stevedoring company from loading and unloading vessels employed in interstate and foreign commerce, or to the privilege of engaging in such business measured by their receipts. Said Justice Reed for the Court: "Although State laws do not discriminate against interstate commerce or * * * subject it to the cumulative burden of multiple levies, those laws may be unconstitutional because they burden or interfere with [interstate] commerce."[708] This time Justice Rutledge was among the dissenters so far as interstate commerce was concerned.[709] In Central Greyhound Lines, Inc. v. Mealey,[710] decided in 1948, five members of the Court ruled that a New York tax on the gross income of public utilities doing business in the State could not be constitutionally imposed on a carrier's unapportioned receipts from continuous transportation between termini in the State over a route a material part of which passes through other States. Justice Frankfurter, speaking for the Court, held, however, that the tax was sustainable as to receipts apportioned as to the mileage within the State.[711] Justice Rutledge concurred without opinion. Justice Murphy, for himself and Justices Black and Douglas, thought the tax was on an essentially local activity and that the transportation through other States was "a mere geographic incident," conceding at the same time, that this view invited the other States involved to levy similar taxes and exposed the company to the danger of multiple taxation. In Memphis Natural Gas Co. v. Stone,[712] also of the 1948 grist, a Mississippi franchise tax, measured by the value of capital invested or employed in the State, was sustained in the case of a gas pipeline company a portion of whose line passed through the State but which did no local business there. Three Justices, speaking by Justice Reed, held that the tax was on the intrastate activities of the company in maintaining its facilities there, and was no more burdensome than the concededly valid ad valorem tax on the company's property in the State. Justice Rutledge held that the tax was valid because it did not discriminate against interstate commerce nor invite multiple taxation, while Justice Black concurred without opinion. Four Justices, speaking by Justice Frankfurter, contended that the pipeline already paid the ad valorem tax to which Justice Reed had adverted, and that the franchise tax must therefore be regarded as being on the interstate commerce privilege.
This survey of recent cases leaves the impression that the Court is at loose ends for intermediate guiding principles in this field of Constitutional Law. The "leave it to Congress" formula is evidently in the discard, although Justice Black's successive dissents without opinion may indicate that he still thinks it sound. The multiple tax test seems to be in an equally bad way, with both Chief Justice Stone and Justice Rutledge in the grave. The concept of an apportioned tax still has some vitality however, although just how much is difficult to assess. Thus in Interstate Oil Pipe Line Co. v. Stone,[713] which was decided in 1949, we find Justice Rutledge, speaking for himself and Justices Black, Douglas, and Murphy, endorsing the view that Mississippi was within her rights in imposing on a Delaware corporation, as a condition of doing a local business, a "privilege" tax equal to two per cent of its intrastate business even though the exaction amounted to "a 'direct' tax on the 'privilege' of engaging in interstate commerce," an assertion which was countered by one just as positive, and also endorsed by four Justices, that no State may "levy privilege, excise or franchise taxes on a foreign corporation for the privilege of carrying on or the actual doing of solely interstate business," even though the tax is not discriminatory and is fairly apportioned between the corporation's intrastate and interstate business. The tax in controversy was sustained by the vote of the ninth Justice, who construed it as being levied only on the privilege of engaging in intrastate commerce, a conclusion which obviously ignores the question of the tax's actual impact on interstate commerce, the precise question on which many previous decisions have turned.[714]
TAXES ON NET INCOME
The leading case under this caption is United States Glue Co. v. Oak Creek[715] where it was held that the State of Wisconsin, in laying a general income tax upon the gains and profits of a domestic corporation, was entitled to include in the computation the net income derived from transportations in interstate commerce. Pointing out the difference between such a tax and one on gross receipts, the Court said the latter "affects each transaction in proportion to its magnitude and irrespective of whether it is profitable or otherwise. Conceivably it may be sufficient to make the difference between profit and loss, or to so diminish the profit as to impede or discourage the conduct of the commerce. A tax upon the net profits has not the same deterrent effect, since it does not arise at all unless a gain is shown over and above expenses and losses, and the tax cannot be heavy unless the profits are large." Such a tax "constitutes one of the ordinary and general burdens of government, from which persons and corporations otherwise subject to the jurisdiction of the States are not exempted * * * because they happen to be engaged in commerce among the States."[716]
Adhering to this precedent, the Court has held that a tax upon the net income of a nonresident from business carried on by him in the State is not a burden on interstate commerce merely because the products of the business are shipped out of the State;[717] also that a tax which is levied upon the proportion of the net profits of a foreign corporation earned by operations conducted within the taxing State is valid, if the method of allocation employed be not arbitrary or unreasonable.[718] Where, however, the method of allocating the net income of a foreign corporation attributed to the State an amount of income out of all proportion to the business there transacted by the corporation, it was held void.[719]