The court has sustained a state tax against Commerce Clause challenges when the tax is applied to an activity with a substantial nexus with the taxing state, is fairly apportioned, does not discriminate against interstate commerce, and is fairly related to the services provided by the state.
The transportation corporation, which transported motor vehicles from train stops in Mississippi to Mississippi car dealers, was assessed back taxes for the sales of transportation services. The taxes were imposed pursuant to Miss. Code Ann. § 10105 (1972), which imposed a "privilege of doing business" tax within the state upon activity in interstate commerce. The corporation challenged the imposition of the tax, claiming that under previous Supreme Court precedent, the "privilege" of engaging in an activity in the state could not be applied to an activity that was part of interstate commerce and that such a tax ran afoul of the Commerce Clause, U.S. Const. art. I, § 8, cl. 3.
Is the disputed tax a tax on an activity which is a part of interstate commerce and therefore unconstitutional?
The Court agreed with the Mississippi Supreme Court's finding that the tax was constitutional. In so finding, the Court overruled Spector Motor Service, Inc. v. O'Connor, 340 U.S. 602 (1951), which had held that a state tax on the "privilege of doing business" was per se unconstitutional when it was applied to interstate commerce. The Court found that the rule placed form over substance and merely served as a trap for unwary draftsmen, since an identical tax, called another name, would have been valid. Also, the application of the Mississippi tax to the taxpayer in the case at bar did not violate the commerce clause, since there was no claim that the activity taxed did not have a sufficient nexus with the state to justify a tax, or that the tax was not fairly related to benefits provided by the state to the taxpayer, or that the tax discriminated against interstate commerce, or that the tax was not fairly apportioned to local activities.