Cheney Bros Company v. Massachusetts/Opinion of the Court

We here are concerned with an excise tax imposed by Massachusetts in 1913 on each of seven foreign corporations on the ground that each was doing a local business in the state. Objections to the tax based on the commerce clause of the Constitution (article 1, § 8, cl. 3), and the due process and equal protection clauses of the Fourteenth Amendment were overruled by the state court. 218 Mass. 558, 106 N. E. 310. The tax was imposed under St. 1909, c. 490. pt. 3, § 56, before the maximum limit was removed by St. 1914, c. 724, § 1, and in that respect the case is like Baltic Mining Co. v. Massachusetts, 231 U.S. 68, 34 Sup. Ct. 15, 58 L. Ed. 127, and unlike International Paper Co. v. Massachusetts, 246 U.S. 135, 38 Sup. Ct. 292, 62 L. Ed. --. Whether in other respects it is like Baltic Mining Co. v. Massachusetts is the matter to be determined, and this requires that the business done by each of the seven corporations be considered.

Cheney Brothers Company.

This is a Connecticut corporation whose general business is manufacturing and selling silk fabrics. It maintains in Boston a selling office with one office salesman and four other salesmen who travel through New England. The salesmen solicit and take orders, subject to approval by the home office in Connecticut, and it ships directly to the purchasers. No stock of goods is kept in the Boston office, but only samples used in soliciting and taking orders. Copies and records of orders are retained, but no bookkeeping is done, and the office makes no collections. The salesmen and the office rent are paid directly from Connecticut and the other expenses of the office are paid from a small deposit kept in Boston for the purpose. No other business is done in the state.

We do not perceive anything in this that can be regarded as a local business as distinguished from interstate commerce. The maintenance of the Boston office and the display therein of a supply of samples are in furtherance of the company's interstate business and have no other purpose. Like the employment of the salesmen, they are among the means by which that business is carried on and share its immunity from state taxation. McCall v. California, 136 U.S. 104, 10 Sup. Ct. 881, 34 L. Ed. 391; Norfolk & Western R. R. Co. v. Pennsylvania, 136 U.S. 114, 10 Sup. Ct. 958, 34 L. Ed. 394; Crenshaw v. Arkansas, 227 U.S. 389, 33 Sup. Ct. 294, 57 L. Ed. 565; Rogers v. Arkansas, 227 U.S. 401, 33 Sup. Ct. 298, 57 L. Ed. 569. Nor is the situation changed by inferring, as the state court did, that orders from customers in Connecticut sometimes are taken by salesmen connected with the Boston office and, after transmission to and approval by the home office, are filled by shipments from the company's mill in Connecticut to such customers. In such cases it doubtless is true that the resulting sale is local to Connecticut, but the action of the Boston office in receiving the order and transmitting it to the home office partakes more of the nature of interstate intercourse than of business local to Massachusetts and affords no basis for an excise tax in that state. International Text Book Co. v. Pigg, 217 U.S. 91, 106, 107, 30 Sup. Ct. 481, 54 L. Ed. 678, 27 L. . A. (N. S.) 493, 18 Ann. Cas. 1103. We think the tax on this company was essentially a tax on doing an interstate business and therefore repugnant to the commerce clause.

Lanston Monotype Company.

This is a Virginia corporation which makes typesetting machines in Philadelphia and sells them in interstate commerce. It has a place of business in Massachusetts where it keeps on hand a stock of the several parts of its machines likely to be required for purposes of repair. The stock is replenished weekly and the parts are sold extensively to those who use the machines in that and adjacent states.

It is apparent, as we think, that a considerable portion of the business of selling and supplying the repair parts is purely local and subject to local taxation.

Locomobile Company of America.

This West Virginia corporation conducts an automobile factory in Connecticut and sells its automobiles in interstate commerce. It does an extensive local business in Massachusetts in repairing cars of its own make after they are sold and in use, and also in selling secondhand cars taken in partial exchange for new ones. This local business has some influence on the volume of interstate business done by the company in the state, and its abandonment would tend to reduce the purchases there of the company's automobiles. But this does not make it any the less a local business. It must be judged by what it is rather than by its influence on another business. See Delaware, Lackawanna & Western R. R. Co. v. Yurkonis, 238 U.S. 439, 444, 445, 35 Sup. Ct. 902, 59 L. Ed. 1397.

Northwestern Consolidated Milling Company.

This company was incorporated under the laws of Minnesota, operates flour mills there, and sells the flour to wholesale dealers throughout the county. It has an office in Massachusetts where it employs several salesmen for the purpose of inducing local tradesmen to carry and deal in its flour. These salesmen solicit and take orders from retail dealers and turn the same over to the nearest wholesale dealer, who fills the order and is paid by the retailer. Thus the salesman, although not in the employ of the wholesaler, is selling flour for him. Of course this is a domestic business-inducing one local merchant to buy a particular class of goods from another-and may be taxed by the state, regardless of the motive with which it is conducted.

Copper Range Company.

This is a Michigan corporation whose articles of association contemplate that it shall have an office in Boston. It is a holding company and owns various corporate stocks and bonds and certain mineral lands in Michigan. Its activities in Massachusetts consist in holding stockholders' and directors' meetings, keeping corporate records and financial books of account, receiving monthly dividends from its holdings of stock, depositing the money in Boston banks and paying the same out, less salaries and expenses, as dividends to its stockholders three or four times a year. The exaction of a tax for the exercise of such corporate faculties is within the power of the state. Interstate commerce is not affected.

Champion Copper Company.

This is another Michigan corporation which maintains an office in Boston pursuant to a provision in its articles of association. It deposits the proceeds of its mining and smelting business in Michigan in Boston banks and, after paying salaries and expenses, distributes the balance in dividends from its Boston office. The management of its mine is under the control of a general manager in Michigan and he in turn is under the control of the company's directors. The meetings of the latter, which occur several times in a year, are held in the Boston office. At these meetings the directors receive reports from the treasurer and general manager, vote dividends, elect officers, and authorize the execution of deeds and the like for lands in Michigan. These corporate activities in Massachusetts are not interstate commerce and may be made the basis of an excise tax by that state.

White Com any.

This is an Ohio corporation which is conducting a business, conceded to be local, in Massachusetts. On being admitted to do business therein it acquired two pieces of land in Boston and at large cost specially improved and adapted them for use, the one as an automobile service station and the other as a garage. A subsequent change in the statute made the excise tax more onerous than before, without, as it is said, any corresponding change being made in the law relating to domestic corporations. In these circumstances the company insists that by the imposition of the tax, as defined in the statute of 1909, it is denied the equal protection of the laws, and it relies on Southern Ry. Co. v. Greene, 216 U.S. 400, 30 Sup. Ct. 287, 54 L. Ed. 536, 17 Ann. Cas. 1247. In overruling this objection the state court said (218 Mass. 579, 106 N. E. 319):

'The real estate acquired by this petitioner is of a kind     adapted to a very considerable and increasing business, in      which there is general competition. The storage and care of     automobiles and the performance of necessary service for      their repair, maintenance and operation is a widespread      business in which large amounts of capital are invested and considerable numbers of persons are engaged. Such establishments are frequent subjects for lease and sale. There is nothing to indicate or to warrant the inference that     the petitioner's investment in real estate is not readily      salable at reasonable prices. It is not property of a nature     irretrievably devoted to a limited and monopolistic use, and      not readily availably either for other valuable uses or to      other persons ready to devote it to the same uses at prices      fairly equivalent, subject to the general vicissitudes of      business conditions, to the original investment. The Greene     Case related to railroad property, which is not susceptible      of use for any other purpose without great loss. In that     opinion it was said: 'It must always be borne in mind that      property put into railroad transportation is put there      permanently. It cannot be withdrawn at the pleasure of the     investors. * *  * The railroad must stay, and, as a permanent      investment, its value to its owners may not be destroyed."

Assenting, as we do, to what was thus said, it suffices to add, first, that a state does not surrender or abridge its power to change and revise its taxing system and tax rates by merely licensing or permitting a foreign corporation to engage in local business and acquire property within its limits, and, second, that 'a state may impose a different rate of taxation upon a foreign corporation for the privilege of doing business within the state than it applies to its own corporations upon the franchise which the state grants in creating them.' Kansas City, Memphis & Birmingham R. R. Co. v. Stiles, 242 U.S. 111, 118, 37 Sup. Ct. 58, 61 (61 L. Ed. 176).

Bearing in mind that the tax of which these corporations are now complaining was imposed under the statute as it stood in 1913, which was before the maximum limit was removed, it follows from our decision in Baltic Mining Co. v. Massachusetts that the several objections based on the Constitution of the United States are all untenable, save in the instance of the Cheney Bros. Company. The tax on that company, as before indicated, was a tax on interstate business and therefore void under the commerce clause.

Judgment reversed as to Cheney Bros. Company and affirmed as to the other plaintiffs in error.