Shafer v. Farmers Grain Co. of Embden, 268 U.S. 189 (1925)
Case details
Citation
268 U.S. 189
Full caption
SHAFER, AS ATTORNEY GENERAL OF THE STATE OF NORTH DAKOTA, ET AL. v. FARMERS GRAIN COMPANY OF EMBDEN, ET AL.
Country
United States
Jurisdiction
Federal
Court
Supreme Court of the United States
Decided
May 4, 1925
Majority
Mc Reynolds (Justice)
SHAFER, AS ATTORNEY GENERAL OF THE STATE OF NORTH DAKOTA, ET AL. v. FARMERS GRAIN COMPANY OF EMBDEN, ET AL.
APPEAL FROM THE DISTRICT COURT OF THE UNITED STATES FOR THE DISTRICT OF NORTH DAKOTA.
No. 34. Argued May 4, 1923. Reargued March 2, 3, 1925.—Decided May 4. 1925.
1. The right to buy wheat with or without dockage, for shipment, and to ship it, in interstate commerce is a common right, the regulation of which is committed to Congress and denied to the States by the Commerce Clause of the Constitution. P. 198.
2. The North Dakota Grain Grading Act, N. Dak. Ls. 1923, 549, assuming control over wheat buying in the State, of which 90% is for interstate shipment, provides, inter alia: That grain bought by grade (the established practice) must be graded by licensed inspectors; that (contrary to the general practice) the buyer must separate the dockage and return it to the producer, unless distinctly valued and paid for; that buyers having and operating grain elevators must give bond to the State, if buying on credit, must keep records of all wheat bought, showing grade given and price paid at the elevator and grade fixed and price paid at terminal market (outside the State), and must furnish such data to a state supervisor when requested; that the supervisor shall in a general way investigate and supervise the marketing of the grain with a view to preventing various things deemed unjust or fraudulent, including unreasonable margins of profit and confiscation of dockage; and shall have authority to make and enforce
such orders, rules and regulations as may be necessary to carry out all the provisions of the Act. Held a direct interference with and burden upon interstate commerce, and an attempt by the State to prescribe rules under which an important part of such commerce shall be conducted. P. 199. 3. The act cannot be supported as an attempt, through inspection regulations, to assist in carrying out the purposes of the United States Grain Standards Act. P. 202. Affirmed.
Appeal from an interlocutory decree of the District Court enjoining officials of the State of North Dakota from enforcing provisions of the State Grain Grading Act against the plaintiffs who were numerous owners and operators of county elevators within the State, including some farmers’ cooperative companies, and engaged in the business of buying grain from the farmers for shipment to markets in other States.
Mr. Seth W. Richardson, Special Assistant to the Attorney General of North Dakota, with whom Mr. George F. Shafer, Attorney General, was on the brief, for appellant.
The North Dakota Grain Grading Act is a police measure, enacted by the State for the protection of the welfare, happiness and prosperity of its citizens. It places upon interstate commerce no real or substantial burden or interference.
The act is intended to be cooperative with the Federal Grain Standards Act, by effectuating the establishment and promulgation of the grades and standards thereof, at the local elevator point—an evil at present not covered by the administration of the federal act, but one which is left to the local or state authorities.
Properly construed, the North Dakota act does not conflict with the federal act, but is harmonious and cooperative.
The provision of the state law requiring a license to grade grain, to be issued by either the federal government p. 191or the state government, operates and takes effect while the grain is wholly within the domain of state authority, and prior to the inception of interstate commerce.
Mr. David F. Simpson, with whom Messrs. H. A. Libby, John Junell, James E. Dorsey, Egbert S. Oakley, Robert Driscoll and William A. Lancaster were on the briefs, for appellees.
Mr . Justic e Van Devant er delivered the opinion of the Court.
This is a suit to restrain the enforcement of the North Dakota Grain Grading Act, an initiated measure approved at a state election November 7, 1922. North Dakota Laws 1923, p. 549. The plaintiffs own and operate country elevators within the State, at which they buy wheat from farmers for shipment to markets in other States; and the defendants are officers of the State, who are charged by the Act with the duty of enforcing it. The plaintiffs challenge the validity of the Act under the Constitution of the United States on the grounds, first, that it interferes with and burdens interstate commerce, and, secondly, that it conflicts with the United States Grain Standards Act, c. 313, 39 Stat. 482. An injunction preventing its enforcement pending the suit was granted by the District Court-, three judges sitting; and that interloctory decree is here for review under section 266 of the Judicial Code, as amended March 4, 1913, c. 160, 37 Stat. 1013.
A prior statute concededly “ having the same general purpose” was adopted by the state legislature in 1919 and held invalid by this Court in Lemke v. Farmers Grain Company, 258 U. S. 50, as an interference with interstate commerce. There are differences between that statute and the present one, of which the parties take divergent views. It would serve no purpose to take up p. 192these differences in detail. We shall describe the situation to which the present Act is intended to apply, state its material provisions, and then come to its operation on interstate commerce.
Wheat is the chief product of the farms of North Dakota, the annual crop approximating 150,000,000 bushels. About 10 per cent, is used and consumed locally, and about 90 per cent, is sold within the State to buyers who purchase for shipment, and ship, to terminal markets outside the State. Most of the sales are made at country elevators to which the farmers haul ’the grain when harvested and threshed. These elevators are maintained and operated by the buyers as facilities for receiving the grain from the farmers’ wagons and loading it into railroad cars. The loading usually proceeds as rapidly as grain of any grade is accumulated in carload lots and cars can be obtained. When a car is loaded it is sent promptly to a terminal market and the grain is there sold. This is the usual and recognized course of buying and shipment. Occasionally a farmer has his grain stored in the country elevator, or shipped to a terminal elevator for storage, and awaits a possible increase in price; but even in such instances he usually sells to the buyer operating the country elevator, and the latter then sends the grain to the terminal market if it has not already gone there.
The price paid at the country elevators rises and falls with the price at the terminal markets, but is sufficiently below the latter to enable the country buyer to pay for the intermediate transportation and have a margin of profit. All transactions at the terminal markets, including the price, are based on the grade of the wheat, and by reason of this all buying at the country elevators is by grade.
The grading at the terminal markets is done by inspectors licensed under the United States Grain p. 193Standards Act, who are required to apply to all interstate shipments the grading standards promulgated under that Act by the Secretary of Agriculture., -There are no inspectors licensed under that Act at the country elevators; and so the grading is done there unofficially by the buyers or their agents as an incident and part of the buying.
Grading includes an ascertainment of the proportions of clean wheat and of dockage in each lot of grain and an ascertainment of the quality of the wheat. Dockage consists of separable foreign material, such as dirt, pieces of straw, chaff, weed stems, weed seeds and grain other than wheat. Its proportion varies in different lots, but generally is less than five per cent. When not separated it causes the grain to bring a lower price per bushel than clean wheat would bring. When separated it has a value for poultry and stock feed which usually is in excess of the cost of separation. Occasionally the farmer separates it at the farm and sells only the clean wheat, and occasionally the buyer separates it at the country elevator, charges the farmer for that service, and buys and ships only the clean wheat; but generally the grain is sold by the farmer and shipped by the country buyer with the dockage included. The influence of dockage on the value of the grain and the current modes of handling it are shown in publications of the Agricultural Department of the United States, pertinent excerpts from which are set out in the margin.1
1
Extracts from Farmers’ Bulletin No. 1118, United States Department of Agriculture, pp. 5, 21: “ The foreign material in wheat may seriously affect its value in that it often increases the cost of milling, and causes injury to the baking qualities of flour. Therefore, that factor is considered in the inspecting and grading of wheat. The amount of dockage present has a bearing upon the commercial value of a lot of wheat. Especially when present in large amounts, it is a factor of considerable importance to the parties interested in the marketing or storage of grain.” 55627°—25----- 13 ---------- the seller on the- -basis of the grade of the clean wheat, and the dockage is retained by the elevator or mill, and if the value of the dockage separated exceeds the cost of separation, payment is made for it. 5. The wheat containing the dockage is consigned to the large market by the country mill or elevator, where the dockage is separated and its value is taken into consideration in connection with the price, paid for the entire carload of dockage-free wheat. In some localities it is the practice to make a small charge for such services, while in other localities the services are performed without cost.
As many as 2,200 country elevators are operated within the State in the business here described—generally two or more by competing buyers at each station. Some of the buyers are individuals and others are corporations. A large number are farmers’ cooperative companies, which buy grain grown by their stockholders and others in the vicinity of their elevators, ship and sell the same, and distribute as patronage dividends the surplus arising from such transactions—no profit being retained by the companies.
The plaintiffs comprise many buyers, individual and corporate, including 11 farmers’ cooperative companies. In the aggregate they own and operate several hundred country elevators, widely distributed over the State, and buy and ship about 30,000,000 bushels of wheat a year. They carry on the business severally, each buying and
“All of the following methods of handling dockage are employed in normal times and all are generally found to be satisfactory:
1. The wheat is cleaned on the farm and only the clean wheat is hauled to market.
2. The wheat delivered by the farmer is run over the proper cleaning machinery at the country elevator or mill, and the dockage is separated and returned to the farmer.
3. The wheat is screened by the local buyer, payment is made to the seller on the basis of the grade of the clean wheat only, and the dockage is retained by the elevator or mill as compensation for services in removing it.
4. The wheat is screened by the local buyer, payment is made to p. 195shipping independently of the others. All buy with the purpose of shipping to and selling in terminal markets outside the State and carry out this purpose in the manner already described.
The North Dakota Act in terms covers all farm products, but as it is chiefly aimed at dealings in wheat and the parties have discussed it on that basis, our statement of its provisions will be shortened by treating them as if relating only to wheat.
The title to the Act describes it as one whereby the State undertakes (a) “ to supervise and regulate the marketing ” of wheat, (b) to prevent “ unjust discrimination, fraud and extortion in the marketing ” of such grain, and (c) to establish “ a system of grading, weighing and measuring ” it. The first section declares the purpose of the State to encourage, promote and safeguard the pro-
6. The wheat containing the dockage is sold to a local buyer, who in turn consigns it to the terminal market with the understanding that the price secured will be based upon the commercial value of both the wheat and the dockage.
The first two methods mentioned, in which only the screened wheat is delivered to the local buyer, tend to minimize the differences of opinion with regard to the grade of wheat delivered and therefore establish greater confidence in the grades given by the local buyer. Furthermore, these methods enable the farmer to utilize the foreign material for feed or to sell it locally.”
Extracts from Farmers’ Bulletin No. 1287, United States Department of Agriculture, pp. 5, 21:
“ The benefits derived from clean wheat are shared by the farmer and the country elevator. If the farmer cleans his wheat before delivering it to the elevator he saves the cost of hauling the dockage to market, and he may be able to use it to advantage for feed, and make a saving in his feed bill. In many cases these savings will repay the farmer for the time and trouble required to clean his wheat. The contention as to the amount of dockage in the wheat which frequently arises between the farmer and the elevator operator will be avoided if clean wheat is delivered. The price paid for clean wheat at the elevator is usually more per bushel than the' price paid for unclean wheat, because the elevator operator p. 196duction of wheat and commerce therein by establishing a uniform system of grades, weights and measures. The second and third sections provide for a State Supervisor of Grades, Weights and Measures and give him authority to make and enforce necessary orders, rules and regulations to carry out the provisions of the Act.
The fourth section provides that the Supervisor shall establish a system of grades, weights and measures for wheat “ and shall in a general way investigate and supervise the marketing of same with a view of preventing unjust discrimination, unreasonable margins of profit, confiscation of valuable dockage, fraud and other unlawful practices ”; declares that whenever grades, weights and measures for wheat are established by the Secretary of Agriculture under the United States Grain Standards Act they shall become the grades, weights and measures of
must consider either the cost of removing the dockage or the freight charges on it to the terminal market.”
“ The farm is the logical place to clean wheat, preferably as part of the thrashing operation, because the necessary power is available and later handling is avoided. Since satisfactory cleaning is not always possible under present conditions at thrashing time, other means of cleaning must be used.
The fanning mill is the most practical cleaning machine for farm use, and if properly adjusted and operated will clean wheat satisfactorily for commercial purposes with but little loss of wheat in the screenings.”
“ The operators of country elevators are beginning to realize more keenly each year that it pays to clean wheat before shipping it to the terminal markets. Many of the country elevators not only clean wheat for themselves but for the farmers as well. The latter is known as ‘ custom cleaning,’ for which country elevators located in the central Northwest ordinarily charge from 2 to 3 cents per bushel, based on the gross weight of the grain before cleaning. A higher charge is made for cleaning the grain for seed purposes. The shrinkage in the weight of the grain is borne by the owner, but the screenings may be returned to him. The returns from custom cleaning add a considerable amount to the income of some country elevators during the year.”
the State; and concludes by saying, “ In establishing such grades, weights and measures, the value of dockage shall be considered, and the buyer shall not be permitted to retain the same without just compensation. He shall pay the fair market value for same or separate it and return it to the producer.” The fifth section provides that no person shall buy any wheat “ by grade ”—excepting where one producer buys from another producer—unless it has been inspected and graded by a licensed inspector under the provisions of the Act, or those of the United States Grain Standards Act, and is bought by a grade fixed and recognized thereunder.
The sixth section provides for the issue, by the Supervisor, of licenses to grade to persons engaged in buying, weighing and grading wheat—including buyers and agents at country elevators—where they pass a satisfactory examination. Each license is to be held on condition that the licensee shall honestly and correctly determine the grades and dockage and shall likewise weigh the grain. The seventh section authorizes the Supervisor to suspend or revoke any such license where, after investigation, he finds that the licensee is incompetent, knowingly or carelessly has graded grain improperly, has short-weighed it, has taken valuable dockage without compensation, or has violated any provision of the Act or of the United States Grain Standards Act.
The eighth section requires every buyer operating an elevator to obtain from the Supervisor a yearly license, the fee for which is to be adjusted by the Supervisor to the capacity of the elevator at not exceeding $1.00 for each 1,000 bushels. The ninth section requires every elevator operator or individual “ buying or shipping for profit,” who does not pay cash in advance, to file with the Supervisor a sufficient bond, running to the State, to secure payment for all wheat bought on credit. The tenth section requires every buyer operating an elevator to p. 198keep a record of the wheat bought at the elevator and to show therein the price paid and grades given, and “ the price received and the grades received at the terminal markets;” and further requires him to furnish this information to the Supervisor when requested. The twelfth section makes it unlawful for any person to grade wheat who does not have a license therefor under the Act or under the United States Grain Standards Act. And other sections make every violation of the Act a misdemeanor and charge the Attorney General of the State and its other law officers with the duty of prosecuting such violations.
The Act dispenses with grading where the buying is by sample, by type or by certain designations; but this has no bearing here, for the buying for interstate shipment is all by grade. The Act also dispenses with grading by an inspector licensed thereunder, if the grain be graded by an inspector licensed under the United States Grain Standards Act; but this is an idle provision, for there are in North Dakota no inspectors licensed under that Act. Such inspectors are found only at terminal markets, and there is no terminal market in North Dakota.
This statement of the provisions of the Act discloses its full purposes and scope; but some of its features, of special importance here, will be noticed again as we proceed.
Buying for shipment, and shipping, to markets in other States when conducted as before shown constitutes interstate commerce—the buying being as much a part of it as the shipping. We so held in Lemke n . Farmers9 Grain Company, supra, following and applying the principle of prior cases. Later cases have given effect to the same principle. Stafford v. Wallace, 258 U. S. 495, 516; Binderup n . Pathe Exchange, 263 U. S. 291, 309.
Wheat—both with and without dockage—is a legitimate article of commerce and the subject of dealings that are nation-wide. The right to buy it for shipment, and p. 199to ship it, in interstate commerce is not a privilege derived from state laws and which they may fetter with conditions, but is a common right, the regulation of which is committed to Congress and denied to the States by the commerce clause of the Constitution.2
The decisions of this Court respecting the validity of state laws challenged under the commerce clause have established many rules covering various situations. Two of these rules are specially invoked here—one that a state statute enacted for admissible state purposes and which affects interstate commerce only incidentally and remotely is not a prohibited state regulation in the sense of that clause;3 and the other that a state statute which by its necessary operation directly interferes with or burdens such commerce is a prohibited regulation and invalid, regardless of the purpose with which it was enacted.4 These rules, although readily understood and entirely consistent, are occasionally difficult of application, as where a state statute closely approaches the line which separates one rule from the other. As might be expected, the decisions dealing with such exceptional situations have not been in full accord. Otherwise the course of adjudication has been consistent and uniform.
In our opinion the North Dakota Act falls certainly within the second of the two rules just stated. By it that
2 Crutcher v. Kentucky, 141 U. S. 47, 57; Western Union Telegraph Co. v. Kansas, 216 U. S. 1, 21; Oklahoma v. Kansas Natural Gas Co., 221 IT .8. 229, 260; Buck Stove Co. v. Vickers, 226 IT. S. 205, 215; Adams Express Co. v. New York, 232 IT. S. 14, 31; Dahnke-Walker Co. v. Bondurant, 257 IT. 8. 282, 291, 292.
8 Sherlock v. Alling, 93 IT. S. 99, 102-104; Kidd v. Pearson, 128 U. S. 1, 22 et seq.; Geer v. Connecticut, 161 U. S. 519, 532; Sligh v. Kirkwood, 237 IT. S. 52, 59-61.
4 Crutcher v. Kentucky, 141 IT. S. 47, 56, 58; Western Union Telegraph Co. v. Kansas, 216 IT. S. 1, 27; International Paper Co. v. Massachusetts, 246 U. S. 135, 141; Western Union Telegraph Co. v. Foster, 247 U. 8. 105, 114; Pennsylvania v. West Virginia, 262 IT. S. 553, 596; Air-Way Corporation v. Day, 266 IT. S. 71, 81.
State attempts to exercise a large measure of control over all wheat buying within her limits. About 90 per cent, of the buying is in interstate commerce. Through this buying and the shipping in connection with which it is conducted the wheat which North Dakota produces in excess of local needs—more than 125,000,000 bushels a year—finds a market and is made available for consumption in other States where the local needs greatly exceed the production. Obviously therefore the control of this buying is of concern to the people of other States as well as to those of North Dakota.
Only by disregarding the nature of this business and neglecting important features of the Act can it be said to affect interstate commerce only incidentally and remotely. That it is designed to reach and cover buying for interstate shipment is not only plain but conceded. To conform to recognized commercial practices such buying must be by grade, and it is so conducted. The Act prevents buying by grade, unless the buyer secures from the State a grading license for himself or his agent. The general practice is to buy and ship without separating the dockage from the wheat, the price paid carrying a right to both. The Act requires the buyer to separate the dockage and return it to the producer, unless it be distinctly valued and paid for. A failure to comply with this or any other requirement of the Act is made cause for revoking the grading license. It is practically essential that the buyers have and operate elevators as facilities for handling and loading the wheat. The act requires every such buyer to give to the State, if he buys on credit, a bond securing payment for all wheat so purchased; to keep a record of all wheat bought, showing the grade given and price paid at his elevator and the grade fixed and price received at the terminal market; and to furnish such data to the State Supervisor when requested. The Act also intends and declares that the State Supervisor
“ shall in a general way investigate and supervise the marketing ” of the grain with a view of “ preventing ” various things deemed unjust or fraudulent, including “ unreasonable margins of profit ” and “ confiscation of valuable dockage;” and, to the end that this and other provisions may be made effective, the Act invests him with authority to make and enforce such orders, rules and regulations as may be necessary to carry out all of its provisions.
We think it plain that, in subjecting the buying for interstate shipment to the conditions and measure of control just shown, the Act directly interferes with and burdens interstate commerce, and is an attempt by the State to prescribe rules under which an important part of such commerce shall be conducted. This no State can do consistently with the commerce clause.
The defendants cite several cases as making for a different conclusion, but we do not so read them. In some the commerce clause was in no way involved, and those in which it was involved give no support to what is attempted in the Act now before us. In Munn v. Illinois, 94 U. S. 113, 123, 135, the question was whether, as respects an elevator devoted to storing grain for hire, the State could regulate the storage charge where part of the grain reached the elevator, or was destined to leave it, through the channels of interstate commerce. The Court held such a regulation admissible because of the public character of the elevator and because interstate commerce was affected only incidentally and remotely. No restriction on buying or shipping was involved. In Cargill Co. v. Minnesota, 180 U. S. 452, the Court had before it a state statute, much of which had been pronounced unconstitutional by the state court. In sustaining a provision which remained, the Court said, p. 470: “ The statute puts no obstacle in the way of the purchase by the defendant company of grain in the State or the ship-
Opinion of the Court. 268 U. S.'
ment out of the State of such grain as it purchased.” Plainly the case is not in point here. In Merchants Exchange v. Missouri, 248 U. S. 365, the statute involved required that public weighers appointed for the purpose should do the weighing and issue weight certificates at elevators used for storing or transferring grain for hire, and prohibited any other person from issuing weight certificates at an elevator where a public weigher was stationed. Objection was made to the prohibition on the ground that as applied to grain received from or shipped to points without the State it burdened interstate commerce. Of course the objection was overruled, the statute being an admissible regulation of the business of conducting an elevator for hire, like the statute considered in Munn n . Illinois.
The defendants make the contention that we should assume the existence of evils justifying the people of the State in adopting the Act. The answer is that there can be no justification for the exercise of a power that is not possessed. If the evils suggested are real, the power of correction does not rest with North Dakota but with Congress, where the Constitution intends that it shall be exercised with impartial regard for the interests of the people of all the States that are affected.
The defendants further contend that the Act is simply an attempt on the part of the State, through inspection regulations, to assist in carrying out the purposes of the United States Grain Standards Act. We think the Act discloses an attempt to do much more. To require that dockage be separated by the buyer and be returned to the producer unless it be distinctly valued and paid for is not inspection. Nor does the federal Act contain or give support to such a requirement. To exclude one from buying by grade unless he secures a grading license for himself or his agent is apart from what usually is comprehended in inspection. Nothing like this is found in the federal Act. p. 203189 Syllabus.
On the contrary, it declares that persons licensed to grade under it shall not be interested in any grain elevator or in buying or selling grain, or be in the employ of any owner or operator of a grain elevator. Equally unrelated to inspection are the provisions exacting a bond to pay for all wheat bought on credit; requiring that a record be kept of the price paid in buying at the local elevator and the price received in selling at the terminal market; and authorizing the State Supervisor to investigate and supervise the marketing with a view to preventing unreasonable margins of profit. None of these finds any example in the federal Act; and their presence in the state Act makes it a very different measure from what it would be without them. Aside from the adoption of the grades established and promulgated under the federal Act, we find little in the state Act to support and much to refute the assertion that it is merely an attempt to carry out the purposes of the federal Act.
For the reasons here given we hold that the Act is a direct regulation of the buying of grain in interstate commerce, and therefore invalid, and that the District Court rightly granted the injunction.
Decree affirmed.
Mr . Justice Brandeis dissents.
ALPHA PORTLAND CEMENT COMPANY v. COMMONWEALTH OF MASSACHUSETTS.
ERROR TO THE SUPREME JUDICIAL COURT OF THE STATE OF MASSACHUSETTS.
Nos. 103 and 327. Argued October 23, 1924.—Decided May 4, 1925.
1
A State may not impose upon a foreign corporation which transacts only interstate business within her borders an excise tax measured by a combination of the total value of capital shares attributed to transactions therein, and the proportion of net income attributed to such transactions. Mass. Gen. Ls. c. 63. P. 216.
Argument for Massachusetts. 268 U. S.
2. Any excise laid on account of interstate commerce is invalid, without regard to measure or amount. P. 217. 3. Under the Commerce Clause and the Fourteenth Amendment, a State may not burden interstate commerce or tax property beyond her borders under the guise of regulating or taxing intrastate business; the amount demanded is unimportant, and payment as a condition precedent to doing business is not a controlling element. Baltic Mining Co. v. Massachusetts 231 U. S. 68, 87, in part disapproved. P. 218. 248 Mass. 156; 244 Id. 530, reversed.
Error to judgments of the Supreme Judicial Court of Massachusetts sustaining excise taxes imposed on the plaintiff in error corporation.
Mr. Louis H. Porter, with whom Messrs. F. Carroll Taylor and John G. Palfrey were on the brief, for plaintiff in error.
Mr. Alexander Lincoln, Assistant Attorney General of Massachusetts, with whom Mr. Jay R. Benton, Attorney General, was on the brief, for the defendant in error.
The tax, so far as measured by the value of the corporate excess employed within the Commonwealth, is valid as to foreign corporations engaged solely in interstate commerce. It is well established that property of a non-resident located within a State is subject to taxation by it, although the property is used exclusively in interstate commerce, except when it is actually in the course of an interstate journey, if the tax is laid without discrimination. Apparently the petitioner concedes the application of this rule to' tangible personal property, but contends that the rule is otherwise with respect to intangible assets such as a corporate franchise and credits due from residents. So far as the franchise is concerned, the point seems to be concluded by the decisions of this court. Atlantic & Pac. Tel. Co. v. Philadelphia, 190 U. S. 160; Horn Silver Mining Co. v. New York, 143 p. 205203 Argument for Massachusetts.
The objection to a tax on credits due from residents to non-residents may be based upon the contention either that intangible property is not subject to the foregoing rule or that a tax on such credits is in violation of the Fourteenth Amendment. As to the second point it is submitted that the petitioner is concluded by numerous decisions sustaining state taxation of credits due to non-residents. New Orleans v. Stempel, 175 U. S. 309; Bristol v. Washington County, 177 U. S. 133; Board of Assessors v. Comptoir National D’Escompte, 191 U. S. 388; Metropolitan Life Ins. Co. v. New Orleans, 205 U. S. 395; Liverpool, etc., Ins. Co. v. Orleans Assessors, 221 U. S. 346, 354; Shaffer v. Carter, 252 U. S. 37, 52.
The fact that such credits arise from and are used exclusively in interstate commerce, it is submitted, makes no difference. The rule with respect to the taxation of property used in interstate commerce does not distinguish between tangible and intangible property. The validity of the tax does not depend on the connection of the property with some local business but on the remoteness of any burden or effect upon interstate commerce. See Western Union Tel. Co. v. Massachusetts, 125 U. S. 530; Postal Telegraph Cable Co. n . Adams, 155 U. S. 688; Adams Express Co. n . Ohio State Auditor, 165 U. S. 194, 222; Cudahy Packing Co. v. Minnesota, 246 U. S. 450, 456; Pullman Co. v. Richardson, 261 U. S. 330.
If a tax on tangible and intangible assets, including the corporate franchise of a foreign corporation, employed in a State, although employed exclusively in interstate commerce, is valid, an excise tax measured by such property should also be valid. A tax measured by property may be valid when a tax on the property itself would be invalid. Flint v. Stone Tracy Co. 220 U. S. 107, 165; Baltic Mining Co. v. Massachusetts, 231 U. S. 68, 87. But the p. 206converse is not true. This Court has on several occasions held that such a tax is in effect a tax on property and therefore in no respect repugnant to the Federal Constitution. Western Union Tel. Co. v. Massachusetts, supra.
The tax, so far as measured by net income derived from business within the Commonwealth, is valid as to foreign corporations engaged solely in interstate commerce. The income of a non-resident is subject to taxation within the State where it was earned or accrued. Shaffer v. Carter, 252 U. S. 37; Travis v. Yale & Towne Mjg. Co. 252 U. S. 60. Such a tax does not constitute a direct interference with interstate commerce. Peck v. Lowe, 247 U. S. 165, 174, 175; United States Glue Co. n . Oak Creek, 247 U. S. 321, 326-329; Shaffer v. Carter, supra; Underwood Typewriter Co. v. Chamberlain, 254 U. S. 113, 119, 120; Atlantic Coast Line v. Daughton, 262 U. S. 413, 416, 420. See also Schwab v. Richardson, 263 U. S. 88; Transport & Terminal Co. v. New Orleans, 264 U. S. 150, dissent; 32 Harv. L. R. 634-640, 646-649: 12 Calif. L. R. 39-44. Cf Knowlton x. Moore, 178 U. S. 41, 59.
The taxes assessed were measured by the value of property used and net income earned within the Commonwealth.
Mr. Basil Robillard filed a brief as amicus curiae, by special leave of Court.
Mr . Justice Mc Reynolds delivered the opinion of the Court.
Plaintiff in error claims that the Commonwealth illegally exacted of it $800.45 as an excise tax for the year 1921, and $567.57 plus $22.97 interest for 1922. The court below upheld the tax and definitely ruled that it was not repugnant to the Fourteenth Amendment or the Commerce Clause of the federal Constitution. 244 Mass. 530;
248 Mass. 156. With negligible exceptions the assessments followed the Corporation Tax Law (Gen. Acts 1919, c. 355), now codified in Gen. Laws, c. 63. Chapters 361 and 493, Gen. Acts 1921, are subsidiary and demand no particular notice. Record No. 327 discloses how the assessments were calculated; also the essential facts hereinafter stated. The opinion in No. 103 discusses the fundamental questions of law; the later one is supplementary and explanatory.
The statute provides that “ every foreign corporation shall pay annually, with respect to the carrying on or doing of business by it within the Commonwealth, an excise equal to the sum of . . . five dollars per thousand upon the value of the corporate excess employed by it within the Commonwealth ” and “ two and one-half per cent, of that part of its net income . . . which is derived from business carried on within the Commonwealth;” provided that the total tax shall be not less than an amount equal to one-twentieth of one per cent, of such proportion pf the fair cash value of its capital stock as its assets employed within the State shall bear to the total assets. Annual returns, and additional information when demanded, must be filed with the Commissioner. He is empowered to determine, under prescribed rules, the net portion of income from business within the State. But if dissatisfied any corporation may file “ a statement in such detail as the Commissioner shall require, showing the amount of its annual net income derived from business carried on within the Commonwealth.” Credit for five per cent, of dividends paid to inhabitants of the State is authorized. Pertinent portions of the general statute are in the margin.*
*
“ Section 39. Every foreign corporation shall pay annually, with respect to the carrying on or doing of business by it within the commonwealth, an excise equal to the sum of the following, pro-five is due as the value of the assets, both real and personal, employed in any business within the commonwealth on that date, bears to the value of- the total assets of the corporation on said date. . . . “ ‘ Net income,’ . . . [shall mean] the net income for the taxable year as required to be returned by the corporation to the federal government under the federal revenue act of nineteen hundred and eighteen,” less interest on obligations of the United States. “ Section 41. The commissioner shall determine in the manner provided in this section the part of the net income of a foreign corpora-property wherever situated. “(b) Of another third, such portion shall be attributed to business carried on within the commonwealth as shall be found by multiplying said third by a fraction whose numerator is the expenditure of the corporation for wages, salaries, commissions or other compensation to its employees, and assignable to this commonwealth as hereinafter provided, and whose denominator is the total expenditure of the corporation for wages, salaries, commissions or other compensation to all its employees. “(c) Of the remaining third, such portion shall be attributed to business carried on within the commonwealth as shall be found 55627°—25----- 14
We accept the following statements in the opinion below: “The petitioner is a corporation organized under the laws of New Jersey. Its business is the manufacture and sale of cement. Its principal office is at Easton, Pennsylvania. Its mills are located in several other States outside of Massachusetts, from which shipments are made to various parts of the United States and to foreign countries. It maintains an office in Boston in charge of a district sales manager, with a clerk, where its correspondence and other natural business activities in connection with the receipt of orders and shipments of goods for the New England States are conducted. The
vided that every such corporation shall pay annually a total excise not less in amount than one twentieth of one per cent of such proportion of the fair cash value of all the shares constituting its capital stock as the assets, both real and personal, employed in any business within the commonwealth on April first following the close of the taxable year, bear to the total assets of the corporation employed in business on said date:
“(1) An amount equal to five dollars per thousand upon the value of the corporate excess employed by it within the commonwealth.
“(2) An amount equal to two and one half per cent of that part of its net income, as defined in section thirty and in this section, which is derived from business carried on within the commonwealth. . . .” ' .
“ Section 30. ... ‘ Corporate excess employed within the commonwealth ’ by a foreign corporation, [shall mean] such proportion of the fair cash value of all the shares constituting the capital stock on the first day of April when the return called for by section thirty- p. 209office is used as headquarters for travelling salesmen, who solicit orders in Massachusetts and the other New England States. Orders so taken are transmitted at the Boston office by mail to the principal office at Easton, Pennsylvania, where exclusively they are passed upon, and if accepted, the goods are shipped and invoices sent directly to the customer. Remittances usually are made to the petitioner at Easton, though in exceptional instances prepayments or collections are made by the salesmen and immediately transmitted to Easton. No samples or other merchandise are kept in this Commonwealth,
tion derived from business carried on within the commonwealth. . . . The net income as defined in section thirty [less certain credits not here involved] shall be allocated as follows: If a foreign business corporation carries on no business outside, this commonwealth, the whole of said remainder shall be allocated to this commonwealth. If a foreign business corporation carries on any business outside this commonwealth, the net income taxable under this chapter shall be determined as provided in section thirty-eight.”
“ Section 38. . . . 2. If the corporation carries on any business outside the commonwealth, the said remainder shall be divided into three equal parts:
“(a) Of one third, such portion shall be attributed to business carried on within the commonwealth as shall be found by multiplying said third by a fraction whose numerator is the value of the corporation’s tangible property situated within the commonwealth and whose denominator is the value of all the corporation’s tangible p. 210The only property of the petitioner in Massachusetts is its office furniture, valued at $573. It maintains no bank account here, its salaries and office rent being paid from its principal office. Incidental expenses are paid from an account not exceeding $1,000 kept by the district sales manager in his own name. No corporate books, records, or meetings are in Massachusetts. There is no controversy as to the facts, valuations or computation of the tax. The issues between the parties relate solely to the correct interpretation of our corporate tax law as to foreign corporations and to the constitutionality of that
by multiplying said third by a fraction whose numerator is the amount of the corporation’s gross receipts from business assignable to this commonwealth as hereinafter provided, and whose denominator is the amount of the corporation’s gross receipts from all its business.
“3. In a case where only two of the foregoing three rules are applicable, the said remainder of net income of the corporation shall be divided into two equal parts only, each of which shall be apportioned in accordance with one of the remaining two rules. If only one of the three rules is applicable, the part of the net income received from business carried on within the commonwealth shall be determined solely by that rule.
“ 4. The value of the corporation’s tangible property for the purposes of this section shall be the average value of such property during the taxable year.
“ 5. The amount assignable to this commonwealth of expenditure of the corporation for wages, salaries, commissions or other compensation to its employees shall be such expenditure for the taxable year as represents the compensation of employees not chiefly situated at, connected with or sent out from premises for the transaction of business owned or rented by the corporation outside the commonwealth.
“ 6. The amount of the corporation’s gross receipts from business assignable to this commonwealth shall be the amount of its gross receipts for the taxable year from (a) sales, except those negotiated or effected in behalf of the corporation by agents or agencies chiefly situated at, connected with or sent out from premises for the transaction of business owned or rented by the corporation outside the p. 211law in its application to the petitioner. ... It is rightly • conceded by the Attorney General that the petitioner was engaged in this Commonwealth exclusively in interstate commerce.”
Having ascertained the necessary items, the Comptroller made the calculations indicated below. The corporation’s total net income returned for federal taxation, after allowances, amounted to $707,577.98; $7,602,090.21 (although not quite accurate) was treated as the total value of intangible assets.
commonwealth and sales otherwise determined by the commissioner to be attributable to the business conducted on such premises, (b) rentals or royalties from property situated, or from the use of patents, within the commonwealth; provided, that upon application by a corporation which owns or controls substantially all the capital stock of another corporation, or by the corporation so owned or controlled, the commissioner may impose the tax provided for by this chapter upon the income of the two corporations jointly in the same manner as though they were a single corporation, or may, in such other manner as he shall determine, equitably adjust the tax of the applying corporation. . . .
“9. A rule shall not be deemed to be inapplicable merely because all the tangible property or the expenditure of a corporation for wages, salaries, commissions or other compensation, or the gross receipts of the corporation, are found to be situated, incurred, or received without the commonwealth.”
“ Section 75. In addition to the methods provided by sections seventy-two and seventy-three [distraint or action in contract], taxes under this chapter, except section sixty-two [not here involved] , may be collected by an information brought in the Supreme Judicial Court by the attorney general at the relation of the state treasurer. The Court may issue an injunction upon such information, restraining the further prosecution of the business of the company, association or corporation until such taxes, with interest and costs thereon, have been paid; but no telegraph company accepting the provisions of section fifty-two hundred and sixty-three of the Revised Statutes of the United States shall be enjoined from constructing, maintaining or operating a telegraph line over and along any of the military or post roads of the United States within this commonwealth.”
Amount of tax measured by net income.
Average value of tangible property in Mass., $573. Divide this by average value all tangible property, $16,992,355.22; multiply resulting fraction by $235,859.33 (i/3 of $707,577.98, supra}....................................................................= $8.02
Wages, salaries, etc., assignable to Mass., $11,493.38. Divide this by amount of all wages, salaries, etc., $1,650,614.73; multiply resulting fraction by $235,859.33 (^ of $707,577.98, supra}.............................................=1,642.29 Gross receipts assignable to Mass., $343,- 204.60. Divide this by gross receipts from all business, $10,717,546.43; multiply resulting fraction by $235,859.33 (V3 of $707,577.98, supra}...................................=7, 552.22
Net income...................................................... $9, 202.53 2y2% of $9,202.53............................ $230.06 Less 5% of dividends paid Mass.
inhabitants.................................. 42.15
Total according to income............................ $187.91
Amount of tax measured by corporate excess.
Income assigned to Massachusetts, as above shown, $9,202.53. Divide this by $707,577.98 (entire apportionable net income); multiply resulting fraction by $7,602,- 090.21 (used for total intangible assets). This yields $98,827.17, which was taken as the value of intangible assets assignable to Massachusetts. The tangible assets, $573, were added and $99,400 became the total accepted value of assets assignable to the State.
Cash value of the company’s capital stock was fixed at $16,352,162; all assets $21,406,098. Divide $99,400 by
$21,406,098; multiply resulting fraction by $16,352,162; the result is $75,932.08—the “ corporate excess.” Five dollars per thousand upon this is $379.66.
Total Assessment for 1922 ($187.91 plus $379.66), $567.57.
In the course of its opinion the court below said—“This tax law, placing as it does both domestic and foreign corporations on common ground as to taxation except so far as essential differences require different treatment in details, follows the policy established in this Commonwealth for many years of levying an excise instead of a property tax on corporate franchises and corporate transaction of business. Eaton, Crane & Pike Co. v. Commonwealth, 237 Mass. 523.
“ The general scheme of this tax law is that an excise is levied on both domestic and foreign business corporations doing business in this Commonwealth. Real estate and machinery used in manufacture by such corporations alone are subject to a local property tax in the city or town where situated. All other personal property, whether tangible or intangible' is exempt -from direct or local taxation. The amount of the excise tax is measured as to a foreign corporation, § 39, by the sum of ‘An amount equal to five dollars per thousand upon the value of the corporate excess employed by it within the Commonwealth/ and ‘An amount equal to two and one half per cent of that part of its net income, as defined in section thirty and in this section, which is derived from business carried on within this Commonwealth/ with a further provision that a minimum tax [shall be paid] of not less than one twentieth of one per cent of such proportion of the fair cash value of its shares of capital stock as its assets employed in business in this Commonwealth bear to its total assets employed in business. . .
“ The statute is an attempt to measure the excise on foreign corporations solely by the property and net income fairly attributable to the business done within this Commonwealth. This excise tax is in place of any other tax on personal property within the Commonwealth from which, except as to machinery used in manufacture or in supplying and distributing water, foreign corporations (and also domestic corporations) are expressly exempted by G. L. c. 59, § 5, cl. 16. . . .
“The present tax act imposes the excise with respect to the carrying on of business by foreign corporations-within the Commonwealth. It is an excise for the privilege of having a place of business under the protection of our laws and with the financial, commercial and other advantages flowing therefrom, measured solely by the property and net income fairly attributable to the business done here by a foreign corporation. The excise is measured by two factors, (1) the value of the corporate excess employed within the Commonwealth, and (2) the net income derived from business within the Commonwealth.
“ 1. The value of the corporate excess employed in the Commonwealth as a factor of the tax is not measured by the capital stock of the corporation. If it were, it would be invalid. International Paper Co. v. Massachusetts, 246 U. S. 135. It is measured by the value of the property of the foreign corporation, including its franchise, employed in the Commonwealth, after certain deductions are made. It seems to us that this factor of the tax stands under the protection of several decisions of the Supreme Court of the United States. . . .
“ It is manifest as matter of common business knowledge that commerce within this Commonwealth yielding to the petitioner annual gross receipts of $424,982.70 must have involved credits, bills receivable and obligations to it of considerable amounts. No contention to the p. 215contrary has been urged by the petitioner. Such credits, bills receivable and obligations might be made subject to direct taxation within the Commonwealth by appropriate legislation under numerous decisions of the United States Supreme Court. Such credits, bills receivable and obligations constitute a part of 1 the value of the assets ’ of the petitioner ‘ employed in . . . [its] business within the Commonwealth ’ used as the basis of ascertaining ‘ the corporate excess ’ of the petitioner ‘ employed within the Commonwealth ’ upon which this factor of the excise is calculated. . . .
“ 2. The tax, as measured by the net income from business transacted in Massachusetts as a factor, is dependent upon net profits derived solely from interstate commerce. But there is no discrimination in the statute against interstate commerce. This net income is used as a measure applicable to all corporations alike. While not an income tax according to strict definition, in substance it affects net income alone, is measured by net income alone, is reasonable in amount and incidence, and is payable out of net income. . . .
“The tax considered as a whole with both its main factors is general in nature and reasonable in amount. The tax upon the petitioner in substance and effect, so far as concerns the factor of its corporate excess employed within the Commonwealth, is levied upon its tangible personal property within the Commonwealth, upon the credits due it from debtors within this Commonwealth, and upon the exercise of its franchise within this Commonwealth, and, so far as concerns the factor of its income, upon the net income derived from business in this Commonwealth after all losses and expenses have been paid. It is not directed against interstate commerce or property outside the State but is confined to business done, property located, capital employed and net income earned within the Commonwealth. It affects interstate p. 216commerce indirectly and is not an immediate burden upon it. It affords to the State only a fair and reasonable revenue for the maintenance of the government, the benefits from the protection of which the petitioner enjoys. Our conclusion is that the law thus construed, as applying to a foreign corporation using a part of its property exclusively for interstate commerce within the Commonwealth, violates no guaranty established by the Constitution of the United States. The tax statute, therefore, is interpreted as applying to a corporation engaged in business within the Commonwealth as is the petitioner.”
Counsel for the Commonwealth assert: 11 The present tax law imposes an excise on foreign corporations for the privilege of doing business in Massachusetts under the protection of its laws and with the financial, commercial and other advantages flowing therefrom, measured solely by the property and net income fairly attributable to the business done within the State. Payment of the tax is not made a condition precedent to the doing of business. Collection of the tax is to be made by ordinary methods. There is no discrimination either against foreign corporations or against interstate commerce.” “ The taxes complained of were excises and not property taxes.” “ Being excises these taxes are not taxes on property or net income, but taxes measured by property and net income, used in or derived from business done in Massachusetts.” See Judson Freight Forwarding Co. v. Commonwealth, 242 Mass. 47.
This view of the nature of the exaction was adopted by the court below, and we think it is the correct one. The right to lay taxes on tangible property or on income is not involved; and the inquiry comes to this: May a State impose upon a foreign corporation which transacts only interstate business within her borders an excise tax measured by a combination of two factors—the proportion of the total value of capital shares attributed to p. 217transactions therein, and the proportion of net income attributed to such transactions?
Cheney Brothers Co. v. Massachusetts, 246 U. S. 147, 153, 154, necessitates a negative reply. Under St. 1909, c. 490, Part III, § 56, the State demanded an excise of a foreign corporation which transacted therein only interstate business. The excise was laid upon the corporation and the basis of it the same as in the present cause. This court said: “We think the tax on this company was essentially a tax on doing an interstate business and therefore repugnant to the commerce clause.” Here also the excise was demanded on account of interstate business. A new method for measuring the tax had been prescribed, but that cannot save the exaction. Any such excise burdens interstate commerce and is therefore invalid without regard to measure or amount. Looney n . Crane, 245 U. S. 178, 190; International Paper Co. v. Massachusetts, 246 U. S. 135, 142; Heisler v. Thomas Colliery Co., 260 U. S. 245, 259; Texas Transport & Terminal Co. v. New Orleans, 264 U. S. 150.
International Paper Co. v. Massachusetts considered an excise upon a corporation doing both local and interstate business, measured by its capital stock. St. 1909, c. 490; St. 1914, c. 724. Pertinent cases were cited and discussed and the tax declared 11 unconstitutional and void as placing a prohibited burden on interstate commerce and laid on property of a foreign corporation located and used beyond the jurisdiction of the State.” Payment as a condition precedent to the doing of any business was not a controlling circumstance. The opinion recognizes the State’s right to demand excises of foreign corporations in respect of intrastate business unless the exaction is really a tax on interstate business or property beyond the State. Under this principle certain of the complaining corporations in Cheney Brothers Co. n . Massachusetts, supra, were properly taxed. Plaintiff in p. 218error did no local business, and there was no proper foundation for the excise.
It must now be regarded as settled that a State may not burden interstate commerce or tax property beyond her borders under the guise of regulating or taxing intrastate business. So to burden interstate commerce is prohibited by the Commerce Clause; and the Fourteenth Amendment does not permit taxation of property beyond the State’s jurisdiction. The amount demanded is unimportant when there is no legitimate basis for the tax. So far as the language of Baltic Mining Co. v. Massachusetts, 231 U. S. 68, 87, tends to support a different view it conflicts with conclusions reached in later opinions and is now definitely disapproved.
Union Tank Line Co. n . Wright, 249 U. S. 275, 282, et seq., pointed out the limitations which must be observed when property used in interstate commerce is valued for purposes of taxation by a State. We there declined to follow the rule applied in Pullman’s Palace Car Co. v. Pennsylvania, 141 U. S. 18, 26, and held that determination of real value with fair accuracy is essential. Many methods adapted to that end have been accepted, but this does not tend to support an excise laid upon a foreign corporation on account of interstate transactions.
The local business of a foreign corporation may support an excise measured in any reasonable way, if neither interstate commerce nor property beyond the State is taxed. Underwood Typewriter Co. v. Chamberlain, 254 U. S. 113, approved such an excise measured by income reasonably attributed to intrastate business; but nothing there said was intended to modify well established principles. It must be read with the essential facts in mind. Local business was a sufficient basis for the excise, and there was no taxation of interstate commerce or property beyond the State. Of course, the opinion does not support the suggestion that the present statute is free from p. 219the fatal objections to the former one because payment of the tax is no longer a condition precedent to carrying on any business. It cites approvingly St. Louis S. W. Ry. v. Arkansas, 235 U. S. 350, 364; and there this court said—
“ So far as the commerce -clause is concerned, it seems to us that the principles upon whose application the present decision must depend are those set forth in Postal Tel. Cable Co. v. Adams, 155 U. S. 688, 695, where the court, by Mr. Chief Justice Fuller, said: ‘It is settled that where by way of duties laid on the transportation of the subjects of interstate commerce, or on the receipts derived therefrom, or on the occupation or business of carrying it on, a tax is levied by a State on interstate commerce, such taxation amounts to a regulation of such commerce and cannot be sustained. 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 condition precedent to the right to carry on the business, but its enforcement left to the ordinary means devised for the collection of taxes.’ ”
The excise challenged by plaintiff in error is not materially different from the one declared unconstitutional in Cheney Brothers Co. v. Massachusetts, and cannot be enforced against a foreign corporation which does nothing but interstate business within the State. The introduction of an extremely complicated method for calculating the amount of the exaction does not change its nature or mitigate the burden.
The decrees of the court below must be reversed and the causes remanded for further proceedings not inconsistent with this opinion.
Reversed.
Mr . Justice Brandeis dissents.