U.S. Supreme Court GWIN, WHITE & PRINCE v. HENNEFORD, 305 U.S. 434 (1939)

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businesses. Appellant, a Washington agent or broker selling Washington products in that State and elsewhere, can now do so freed from this business tax. Washington agents and brokers selling the same products to Washington citizens (and all other local businesses) must pay. Washington's intra-state commerce thus will 'pay its way;'2 interstate commerce need not.

In 1933, Washington's system of taxation failed to supply adequate revenue to support activities essential to the welfare of its people. Mounting delinquencies due to burdensome taxes on property led the State legislature to conclude that property taxes had to be reduced. This reduction was made. Then, forced to seek new sources of revenue,3 the State turned-as did many other States faced with similar needs4-to a general, non-discriminatory excise tax upon business carried on in Washington, measured by gross receipts. This general and non- discriminatory tax enabled 'the common schools of the state ... to operate the full school term.' [Footnote 5] While those engaged in interstate businesses have enjoyed the property tax reduction in common with all Washington businesses, the exemption from taxation here granted appellant forces intra-state businesses to bear the entire burden of the

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excise that replaced the repealed property taxes. [Footnote 6] Only intra-state business is required to contribute under this excise to the support of the State government that affords protection to both interstate and local business. [Footnote 7]

Appellant, a Washington corporation, serves-under a contract made in Washington-as sales agent for Washington apple growers. Its agents sell these Washington-grown apples in Washington and other States. The Washington excise tax is measured by appellant's gross income-received in Washington-and earned solely by selling apples grown in and shipped from that State. [Footnote 8]

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directly discriminates against interstate commerce, could not (together with Washington's tax) create a 'multiple burden.' This is so, because such a discriminatory tax law, standing alone, would be held to violate the Commerce Clause. [Footnote 11] Every State has the right to utilize gross receipts as the measure of taxes which it has the power to impose. [Footnote 12] Washington-it is admitted-had the power to tax appellant save for the possibility of 'multiple taxation.' Since 'multiple taxation' can only result if another State passes a valid, non-discriminatory tax law, two non-discriminatory State laws when combined become invalid and discriminatory under the Commerce Clause, as a result of the judgment here. This is the consequence of departing from the sound position that State laws are not invalid under the Commerce Clause unless they actually discriminate against interstate commerce or conflict with a regulation enacted by Congress.

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it within the state.' [Footnote 14] Even 'profits themselves are not susceptible of ascertainment with certainty and precision except as a result of inquiries too minute to be practicable.' [Footnote 15]

Congress might conclude that the States should not be prohibited from utilizing nondiscriminatory gross receipts taxes for State revenues, because there are 'justifications for the gross receipts tax. ... It has greater certitude and facility of administration than the net income tax, an important consideration to taxpayer and tax gatherer alike. And the volume of transactions indicated on the taxpayer's books may bear a closer relation to the cost of governmental supervision and protection than the annual profit and loss statement.' [Footnote 16]

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natory tax to the gross receipts of that business either because of its size and volume or partially to offset the tendency toward centralization of the nation's business. [Footnote 17] Congress may find that to shelter interstate commerce in a tax exempt refuge-in the manner of the judgment here-is to grant that commerce a privileged status over intra-state business, contrary to the national welfare.

It is indicated, however, that Washington might have validly apportioned its fair share of appellant's gross income for taxation. To say that a single State can-subject to supervision and approval by this Court-enact regulations apportioning its share of the taxable income from interstate commerce, is to transfer the constitutional power to regulate such commerce from Congress to the States and Federal courts to which the Constitution gives no such power. The Constitution contemplates that Congress alone shall provide for necessary national uniformity in rules governing foreign and interstate commerce. [Footnote 18] Rules to further free trade among the States by apportionment or division of taxes on such commerce, are regulations. Both the necessity for such a rule, and the determination and enactment of a regulation to put it into effect, call for facilities and powers possessed neither by a State nor by the courts. A State legislature attempting to put upon interstate business its apportioned share of

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the burden of taxation is 'faced with the impossibility of allocating specifically the profits earned by the processes conducted within' the borders of the State. [Footnote 19] If an 'apportionment' between States of taxes on interstate business is to be made, it cannot be accomplished without national inquiry and national action.

While some formulas for apportionment devised by States have been approved by this Court,20 others have been invalidated. [Footnote 21] A formula applied by Connecticut was held valid,22 but a similar formula was held invalid when adopted in North Carolina. [Footnote 23] The litigation which has followed in the wake of State attempts at apportionment has confirmed, in the opinion of many, the wisdom of the Founders in denying to the States and courts, and granting to the Congress, exclusive power over interstate commerce. Departures from this principle have, as here, left intra-state businesses-usually comparatively small-to bear the entire burden of taxes invalidated as to interstate businesses, while interstate businesses- usually conducted on a large scale-have been exempted. Should Washington attempt an apportionment, the fate of its formula would be uncertain until this Court passes upon its fairness. A State's inability to obtain necessary data and information as a basis of a formula for apportionment between itself and the other forty-seven States, indicates in advance that its apportionment might be invalidated. When State statutes of apportionment come

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here this Court is unable to make the broad national inquiry necessary to reach an informed conclusion on this question of economic policy.

But Congress has both the facilities for acquiring the necessary data, and the constitutional power to act upon it. 'The power over commerce ... was one of the primary objects for which the people of America adopted their government, and must have been contemplated in forming it.' [Footnote 24] The 'disastrous experiences under the Confederation, when the states vied in discriminatory measures against each other'25 united the Constitutional Convention in the conviction that some branch of the Federal government should have exclusive power to regulate commerce among the States and with foreign nations. Our Constitution adopted by that Convention divided the powers of government between three departments, Congress, the Executive and the Judiciary. It allotted to Congress alone the 'Power ... To regulate Commerce with foreign Nations, and among the several states, .... ' Congress is the only department of our government-State or Federal- vested with authority to determine whether 'multiple taxation' is injurious to the national economy; whether national regulations for division of taxes measured by interstate commerce gross receipts should or should not be adopted; and what regulations, if any, should protect interstate commerce from 'multiple taxation.' It 'is the function of this court to interpret and apply the law already en

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acted, but not, under the guise of construction, to provide a more comprehensive scheme of regulation than Congress has decided upon. Nor, in the absence of Federal action, may we deny effect to the laws of the state enacted within the field which it is entitled to occupy until its authority is limited through the exertion by Congress of its paramount constitutional power.' [Footnote 26]

Until 1936,27 this Court had never stricken down-as violating the Commerce Clause-a uniform and non-discriminatory State privilege tax measured by gross receipts, and constituting an integral element of a comprehensive State tax program. In Philadelphia & S. Mail Steamship Co. v. Pennsylvania, , 7 S.Ct. 1118, decided half a century ago and relied upon to support the judgment here, this Court did not determine that such a general business tax-applied to all businesses within a State-could not be measured by interstate commerce gross receipts. On the contrary, the Court pointed out that the invalidated tax was 'a tax on transportation only' (page 345, 7 S.Ct. page 1124), and that even one engaged in transportation could 'like any other citizen, ... be personally taxed for the amount of his property or estate, without regard to the source from which it was derived, whether from commerce or banking or any other employment.' That, as the Court made clear, was 'an entirely different thing from laying a special tax upon his receipts in a particular employment.' (page 342, 7 S.Ct. page 1123) Since the Philadelphia & S. Mail Steamship Co. Case, this Court has sustained many State taxes measured by receipts both from interstate and intra-state commerce. [Footnote 28] It was not until the decisions in the cases of Crew Levick Co. v. Pennsylvania, 245 U.S. 292, 296, 38 S.Ct. 126, 128, and United States

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and inaction by the Congress, cannot amend the Constitution by creating and establishing a new 'feature of our constitutional system.' No provision of the Constitution authorizes its amendment in this manner.

It is as essential today, as at the time of the adoption of the Constitution, that commerce among the States and with foreign nations be left free from discriminatory and retaliatory burdens imposed by the States. It is of equal importance, however, that the judicial department of our government scrupulously observe its constitutional limitations and that Congress alone should adopt a broad national policy of regulation-if otherwise valid State laws combine to hamper the free flow of commerce. Doubtless, much confusion would be avoided if the courts would refrain from restricting the enforcement of valid, nondiscriminatory State tax laws. Any belief that Congress has failed to take cognizance of the problems of conjectured 'multiple taxation' or 'apportionment' by exerting its exclusive power over interstate commerce, is an inadequate reason for the judicial branch of government-without constitutional power-to attempt to perform the duty constitutionally reposed in Congress. I would return to the rule that-except for State acts designed to impose discriminatory burdens on interstate commerce because it is interstate-Congress alone must 'determine how far (interstate commerce) ... shall be free and untrammelled, how far it shall be burdened by duties and imposts, and how far it shall be prohibited.' [Footnote 30]

For these and other reasons set out elsewhere31 I believe the judgment of the Supreme Court of Washington should be affirmed. Footnotes

Footnote 1 Henneford v. Silas Mason Co., 300 U.S. 577, 583, 57 S.Ct. 524, 527.

Footnote 2 Cf. Postal Tel.-Cable Co. v. Richmond, 249 U.S. 252, 259, 39 S.Ct. 265, 266.

Footnote 3 Fifth Biennial Report, Tax Commission of Washington; 'The Sales Tax in the American States,' Haig & Shoup (1934), p. 309 et seq.

Footnote 4 At least eleven States-most of them recently-have imposed gross income or gross sales taxes upon the privilege of doing business within their respective borders. See, 'Tax Systems of the World,' 7th Ed. (CCH), pp. 153 to 156. While these laws vary in application, several may be generally characterized as similar to the Washington tax. See, 'State Law Index' No. 5, p. 673 (Legislative Reference Service, Library of Congress); Fifth Biennial Report, supra; dissent, Adams Manufacturing Co. v. Storen, 304 U.S. 307, 317, 58 S.Ct. 913, 918, 117 A.L.R. 429, footnote 4.

Footnote 5 Fifth Biennial Report, supra, p. 8.

Footnote 6 Cf. Cudahy Packing Co. v. Minnesota, 246 U.S. 450, 453, 454 S., 38 S. Ct. 373, 374; United States Express Co. v. Minnesota, 223 U.S. 335, 345, 347 S., 32 S.Ct. 211, 215.

Footnote 7 Woodruff v. Parham, 8 Wall. 123, 137.

Footnote 8 While about 25% of appellant's business relates to the sale of Oregon-grown apples, the State of Washington made no contention that it could under its statute impose a tax upon appellant's receipts from the sale of Oregon-grown apples. The judgment of the State court from which appeal was taken expressly states: 'the court ... considered ... the stipulation between the parties that the State makes no claim to the tax upon the Oregon business of ... (appellant) even though it clears through ... (appellant's) Seattle office,' and was 'of the opinion that the business of ... (appellant), originating in the State of Washington is taxable.' (Italics supplied.) In affirming this judgment the Supreme Court of Washington pointed out (page 1018) that appellant was denying 'the state tax commission's claim of a tax liability on the total commissions appellant receives from the growers for Washington-grown food sold and shipped to parts within and without this state ....' (Italics supplied.)

Footnote 9 Welton v. State of Missouri, ; Walling v. Michigan, 116 U.S. 446, 6 S.Ct. 454; Darnell & Son Co. v. Memphis, 208 U.S. 113, 28 S.Ct. 247; cf. Philadelphia & S. Mail Steamship Co. v. Pennsylvania, 122 U.S. 326, 342, 344 S., 345, 7 S.Ct. 1118, 1124.

Footnote 10 Henneford v. Silas Mason Co., supra, at page 587, 57 S.Ct. at page 529.

Footnote 11 See Note 9, supra; cf. Sonneborn Bros. v. Cureton, 262 U.S. 506, 516, 43 S.Ct. 643, 646; Pacific Co. v. Johnson, 285 U.S. 480, 493, 52 S.Ct. 424, 427.

Footnote 12 New York Rapid Transit Corp. v. New York, 303 U.S. 573, 582, 58 S. Ct. 721, 726.

Footnote 13 Robbins v. Shelby County Taxing District, , 7 S.Ct. 592; Caldwell v. North Carolina, 187 U.S. 622, 23 S.Ct. 229; Real Silk Hosiery Mills v. Portland, 268 U.S. 325, 45 S.Ct. 525.

Footnote 14 Palmolive Co. v. Conway, D.C., 43 F.2d 226, 230, certiorari denied 287 U.S. 601, 53 S.Ct. 8; see, Magill 'Allocation of Income by Corporate Contract,' 44 Harvard Law Review 935; 'Interstate Allocation of Corporate Income for Taxing Purposes' (note) XL Yale Law Review 1273; Huston 'Allocation of Corporate Net Income for Purposes of Taxation,' XXVI Ill.Law Review 725; Breckenridge, 'Tax Escape by Manipulations of Holding Company,' 9 No.Car.Law Review 189; Berle and Means, 'The Modern Corporation and Private Property' (1934), p. 202 et seq.

Footnote 15 Cardozo, J., dissenting, Stewart Dry Goods Co. v. Lewis, 294 U.S. 550, 576, 55 S.Ct. 525, 536.

Footnote 16 New York Rapid Transit Corporation v. New York, supra, pages 582, 583, 58 S.Ct. page 726.

Footnote 17 Cf. Brandeis, J., dissenting, Liggett Co. v. Lee, 288 U.S. 517, 574, 53 S.Ct. 481, 499, 85 A.L.R. 699: 'Businesses may become as harmful to the community by excessive size, as by monopoly or the commonly recognized restraints of trade. If the state should conclude that bigness in retail merchandising as manifested in corporate chain stores menaces the public welfare, it might prohibit the excessive size or extent of that business. ... It was said in United States v. U.S. Steel Corp., 251 U.S. 417, 451, 40 S.Ct. 293, 299, 8 A.L.R. 1121, that the Sherman Anti-Trust Act (15 U.S.C.A. 1-7, 15 note) did not forbid large aggregations; but the power of Congress to prohibit corporations of a size deemed excessive from engaging in interstate commerce was not questioned.'

Footnote 18 Welton v. State of Missouri, supra, 91 U.S. pages 279, 280.

Footnote 19 Underwood Typewriter Co. v. Chamberlain, 254 U.S. 113, 121, 41 S. Ct. 45, 47.

Footnote 20 Underwood Typewriter Co. v. Chamberlain, supra; Bass, etc., Ltd. v. State Tax Comm., , 45 S.Ct. 82; cf. Nat. Leather Co. v. Massachusetts, 277 U.S. 413, 48 S.Ct. 534.

Footnote 21 Hans Rees' sons v. North Carolina, 283 U.S. 123, 51 S.Ct. 385; cf. Wallace v. Hines, 253 U.S. 66, 40 S.Ct. 435; Alpha Portland Cement Co. v. Massachusetts, 268 U.S. 203, 45 S.Ct. 477, 44 A.L.R. 1219.

Footnote 22 Underwood Case, supra.

Footnote 23 Rees' Case, supra.

Footnote 24 Gibbons v. Ogden, 9 Wheat. 1, 190.

Footnote 25 The Minnesota Rate Cases, 230 U.S. 352, 398, 33 S.Ct. 729, 739, 48 L.R.A.,N.S., 1151, Ann.Cas.1916A, 18. See also, Houston, E . & W. & Texas Ry. Co. v. United States, The Shreveport Case, 234 U.S. 342, 350, 34 S.Ct. 833, 835. 'The power to regulate commerce among the several States was vested in Congress in order to secure equality and freedom in commercial intercourse against discriminating State legislation ....' Dubuque & S. C. Railroad Co. v. Richmond, 19 Wall. 584, 589. See also, County of Mobile v. Kimball, , 697.

Footnote 26 The Minnesota Rate Cases, supra, page 433, 33 S.Ct. page 754.

Footnote 27 Fisher's Blend Station v. Tax Comm., 297 U.S. 650, 56 S.Ct. 608; see Adams Manufacturing Co. v. Storen, 304 U.S. 307, 58 S.Ct. 913,

Footnote 28 See notes 17, 18 and 19, dissent, Adams Manufacturing Co. v. Storen, supra, page 329, 58 S.Ct. page 924.

Footnote 29 Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 114 A.L.R. 1487.

Footnote 30 Welton v. State of Missouri, supra, 91 U.S. at page 280.

Footnote 31 See dissent, Adams Mfg. Co. v. Storen, 304 U.S. 307, 316, 58 S.Ct. 913, 918, 117 A.L.R. 429.