Equal treatment for in-state and out-of-state taxpayers similarly situated is a condition precedent for a valid use tax on goods imported from out-of-state.
The court consolidated like cases to determine whether a state's manufacturing tax violated the Commerce Clause of the Constitution because it only taxed those items that were sold to out-of-state buyers. Appellant companies filed an action against appellee, a state department of revenue, claiming that Washington's manufacturing tax violated the Commerce Clause of the Constitution because it is assessed only on those products manufactured within Washington that were sold to out-of-state purchasers. The Supreme Court of Washington found that the tax was not facially discriminatory. The companies sought review. The court vacated the judgments, partially invalidated the taxation statute, and remanded for further proceedings.
Did the state's manufacturing tax violate the Commerce Clause?
The court said that the state's manufacturing tax violated the Commerce Clause of the Constitution because it is assessed only on those products manufactured within the state that were sold to out-of-state purchasers, which was discriminatory in nature. However, the court also found that taxation imposed on out-of-state companies who sold their products in the state were subject the state's taxing jurisdiction so long as the taxes were fairly apportioned. The court reasoned that because out-of-state companies availed themselves of intrastate resources, and customers, taxation was proper. The court said multiple activities exemptions were invalid because they placed tax burdens upon manufacturers in the state engaged in interstate commerce from which local manufacturers selling locally were exempt.