Wisconsin v. J. C. Penney Co. - 311 U.S. 435, 61 S. Ct. 246 (1940)

Rule:

The guiding formulation for adjudicating a tax measure on its constitutionality, the Court is concerned only with its practical operation, not its definition or the precise form of descriptive words which may be applied to it.

Facts:

Petitioner State of Wisconsin levied a tax on the corporation, which was based in New York, where the incidence of the tax was on the receipt of corporate dividends, and not upon the earning of income. Because the process for declaring dividends and the details attending their distribution among the stockholders transpired outside the state, although the exaction was apportioned to the earnings derived from the state, the state supreme court concluded that the tax was an attempt by the state to levy an exaction on transactions beyond the state's borders, and thus, violated the Due Process Clause. The state petitioned for a writ of certiorari.

Issue:

Was the tax invalid? 

Answer:

No.

Conclusion:

The judgment finding the state tax statute was invalid was reversed and remanded for the determination on certain claims that related to the application of the statute to the specific dividends involved. The court found that the substantial privilege of carrying on business in the state, which was given, clearly supported the tax, and the state had not given the less merely because it had conditioned the demand of the exaction upon happenings outside its own borders. The court held that the fact that a tax was contingent upon events brought to pass without the state did not destroy the nexus between such a tax and transactions within the state for which the tax was an exaction. The court ruled that the incidence of the tax as well as its measure was tied to the earnings that the state had made possible.