Underwood Typewriter Co. v. Chamberlain - 254 U.S. 113, 41 S. Ct. 45 (1920)

Rule:

Payment of the corporate tax established by the State of Connecticut in 1915 is not made a condition precedent to the right of the corporation to carry on business, including interstate business. Its enforcement is left to the ordinary means of collecting taxes. The statute is not open to the objection that it compels the company to pay for the privilege of engaging in interstate commerce. A tax is not obnoxious to the commerce clause merely because imposed upon property used in interstate commerce, even if it takes the form of a tax for the privilege of exercising its franchise within the state. This tax is based upon the net profits earned within the state. That a tax measured by net profits is valid, although these profits are derived in part, or indeed mainly, from interstate commerce is settled. Whether it is deemed a property tax or a franchise tax, it is not obnoxious to the commerce clause.

Facts:

This action was brought by the Underwood Typewriter Company, a Delaware corporation, in the Superior Court for the County of Hartford, Connecticut, to recover the amount of a tax assessed upon it by the latter State and paid under protest. The company contended that as applied to it the taxing act violated rights guaranteed by the Federal Constitution. The constitutional questions involved were reserved by that court for consideration and advice by the Supreme Court of Errors. The answers to these questions being favorable to the State, 94 Connecticut, 47, judgment was entered by the Superior Court confirming the validity of the tax. The case came to the U.S. Supreme Court on writ of error.

Issue:

Was the contention that the tax burdens interstate commerce and hence void under § 8 of Article I of the Federal Constitution meritorious?

Answer:

No.

Conclusion:

The Court held that payment of the tax is not made a condition precedent to the right of the corporation to carry on business, including interstate business. Its enforcement is left to the ordinary means of collecting taxes. Whether it be deemed a property tax or a franchise tax, it is not obnoxious to the commerce clause. The Court found that the taxpayer's manufacturing was done in Connecticut and that all articles made by it were stored in Connecticut at least temporarily. The Court determined that there was nothing inherently arbitrary in the method of apportionment of corporate income adopted by the state for corporations with business activity in Connecticut and other states as well. The Court ruled that, as to the taxpayer, the tax did not produce an unreasonable result. The taxpayer's claim that the tax was void under the Fourteenth Amendment was found by the Court to be clearly unsound. The Court affirmed the state court orders.