Ford Motor Co. v. Beauchamp, 308 U.S. 331 (1939)

Topics:  Ford Motor Company

From the U.S. Government Printing Office via GPO Access
 
Case:   FORD MOTOR CO. V. BEAUCHAMP

Case #: 308US331


NO. 17.  ARGUED OCTOBER 16, 17, 1939.  - DECIDED DECEMBER 11, 1939.  -
100 F.2D 515, AFFIRMED. 


A STATE CORPORATE FRANCHISE TAX ON THE PRIVILEGE OF DOING LOCAL
BUSINESS, MEASURED BY A CHARGE UPON SUCH PROPORTION OF THE OUTSTANDING
CAPITAL STOCK, SURPLUS, AND UNDIVIDED PROFITS OF THE CORPORATION, PLUS
ITS LONG TERM OBLIGATIONS, AS THE GROSS RECEIPTS FROM ITS LOCAL
BUSINESS BEAR TO THE GROSS RECEIPTS OF ITS ENTIRE BUSINESS, HELD
CONSTITUTIONAL.  P. 334. 

THE GROSS RECEIPTS FROM THE LOCAL BUSINESS FOR THE YEAR IN QUESTION
WERE APPROXIMATELY $34,000,000; THE TOTAL GROSS RECEIPTS ABOUT
$888,000,000; THE RATIO OF LOCAL TO TOTAL RECEIPTS, 3.85 PER CENT; THE
TOTAL TAXABLE CAPITAL $600,000,000; THE VALUE OF LOCAL ASSETS ABOUT
$3,000,000, WHILE THE VALUE OF THE CAPITAL ALLOCATED TO THE TAXING
STATE AS A BASE FOR TAXATION BY THE STATUTORY FORMULA WOULD EXCEED
$23,000,000. 

FORD MOTOR CO. V. BEAUCHAMP, SECRETARY OF STATE OF THE STATE OF TEXAS,
ET AL. 

CERTIORARI TO THE CIRCUIT COURT OF APPEALS FOR THE FIFTH CIRCUIT. 

CERTIORARI, 306 U.S. 628, TO REVIEW THE AFFIRMANCE BY THE COURT BELOW
OF A JUDGMENT SUSTAINING A STATE TAX. 

MR. JUSTICE REED DELIVERED THE OPINION OF THE COURT. 

THE QUESTION FOR DETERMINATION IN THIS PROCEEDING IS THE VALIDITY, AS
APPLIED TO THIS PETITIONER, OF A STATUTE OF THE STATE OF TEXAS LEVYING
AN ANNUAL FRANCHISE TAX ON ALL CORPORATIONS CHARTERED OR AUTHORIZED TO
DO BUSINESS IN TEXAS, MEASURED BY A GRADUATED CHARGE UPON SUCH
PROPORTION OF THE OUTSTANDING CAPITAL STOCK, SURPLUS AND UNDIVIDED
PROFITS OF THE CORPORATION, PLUS ITS LONG TERM OBLIGATIONS, AS THE
GROSS RECEIPTS OF ITS TEXAS BUSINESS BEAR TO THE TOTAL GROSS RECEIPTS
FROM ITS ENTIRE BUSINESS. 

THE COURT OF APPEALS  FN1  AFFIRMED THE JUDGMENT OF THE DISTRICT
COURT, UPHOLDING THE VALIDITY OF THE TAX.  ON ACCOUNT OF AN ALLEGED
PROBABLE CONFLICT WITH THE PRINCIPLES UNDERLYING CERTAIN DECISIONS OF
THIS COURT CERTIORARI WAS GRANTED.  FN2  THE APPLICABLE PROVISIONS OF
THE STATUTE APPEAR BELOW.  FN3 

BY ARTICLE 7057B OF THE REVISED CIVIL STATUTES OF TEXAS ANY
CORPORATION WHICH MAY BE REQUIRED TO PAY ANY FRANCHISE OR OTHER
PRIVILEGE TAX MAY PAY IT UNDER WRITTEN PROTEST AND BRING SUIT WITHIN A
LIMITED TIME THEREAFTER IN ANY COURT OF COMPETENT JURISDICTION IN
TRAVIS COUNTY, TEXAS, AGAINST THE PUBLIC OFFICIAL CHARGED WITH THE DUTY
OF COLLECTING SUCH TAX, THE STATE TREASURER AND THE ATTORNEY GENERAL,
FOR ITS RECOVERY.  THIS SUIT WAS INSTITUTED IN THE DISTRICT COURT OF
THE UNITED STATES, WESTERN DISTRICT, AUSTIN DIVISION, AGAINST THE STATE
OFFICIALS AUTHORIZED TO BE MADE DEFENDANTS.  DEFENDANTS JOINED IN A
DEMURRER ON THE GROUND THAT NO CAUSE OF ACTION WAS SET OUT IN THE
PETITION. 

PETITIONER OWNS AND OPERATES A LARGE MANUFACTORY OF MOTOR VEHICLES IN
MICHIGAN AND ASSEMBLY PLANTS IN TEXAS.  NO PARTS FOR THE AUTOMOBILES
PRODUCED BY PETITIONER ARE MANUFACTURED AT ANY POINT WITHIN TEXAS.  THE
MANUFACTURED PARTS ARE SHIPPED TO PETITIONER'S ASSEMBLY PLANTS IN TEXAS
AND ARE THERE ASSEMBLED.  THE ASSEMBLED VEHICLES ARE SOLD IN INTRASTATE
COMMERCE TO VARIOUS DEALERS WHO IN TURN SELL THE VEHICLES TO THE
PUBLIC.  A RELATIVELY SMALL NUMBER OF COMPLETED VEHICLES ARE SHIPPED
INTO TEXAS AND LATER SOLD IN INTRASTATE COMMERCE ALONG WITH LARGE
QUANTITIES OF MOTOR PARTS AND ACCESSORIES.  WITHOUT UNDERTAKING TO BE
PRECISE, THE GROSS RECEIPTS FROM BUSINESS DONE IN TEXAS FOR THE YEAR IN
QUESTION AMOUNTED TO APPROXIMATELY $34,000,000.  PETITIONER'S TOTAL
GROSS RECEIPTS WERE ABOUT $888,000,000.  THE RATIO OF TEXAS RECEIPTS TO
TOTAL RECEIPTS WAS 3.85  PER CENT.  PETITIONER'S TOTAL TAXABLE CAPITAL
WAS $600,000,000 .  THE VALUE OF ALL ASSETS LOCATED IN TEXAS WAS
SOMEWHAT OVER $3,000,000, WHILE THE VALUE OF THE CAPITAL ALLOCATED TO
TEXAS AS A BASE FOR TAXATION BY THE STATUTORY FORMULA WOULD BE IN
EXCESS OF $23,000,000. 

FOR THE TAXABLE YEAR BEGINNING MAY 1, 1936, A FRANCHISE TAX WAS
TENDERED TEXAS IN THE SUM OF $1,224, COMPUTED ON THE ACTUAL NET BOOK
VALUE OF ALL OF PETITIONER'S ASSETS IN TEXAS.  ON DEMAND AND UNDER
PROTEST AN ADDITIONAL FRANCHISE TAX AND PENALTY WAS PAID IN THE SUM OF
$7,529, BASED ON THE ALLOCATION TO TEXAS OF CAPITAL AS CALCULATED BY
THE STATUTORY FORMULA.  THIS SUIT WAS BROUGHT TO RECOVER THE ALLEGED
UNLAWFUL EXACTION. 

THIS EXACTION, PETITIONER PLEADS, IS CALCULATED FROM A FORMULA THAT
RESULTS IN THE LEVY OF A TAX ON ASSETS USED IN PETITIONER'S INTERSTATE
BUSINESS IN VIOLATION OF ARTICLE I, SEC. 8, OF THE CONSTITUTION.  IT IS
FURTHER ALLEGED THAT THE TAX OPERATES TO DEPRIVE PETITIONER OF ITS
PROPERTY WITHOUT DUE PROCESS OF LAW IN VIOLATION OF THE FOURTEENTH
AMENDMENT BECAUSE IT MUST PAY A TAX ON PROPERTY NEITHER LOCATED NOR
USED WITHIN THE STATE OF TEXAS AND ON ACTIVITIES BEYOND THE BORDERS OF
TEXAS. 

THE STATUTE CALLS THE EXCISE A FRANCHISE TAX.  IT IS OBVIOUSLY
PAYMENT FOR THE PRIVILEGE OF CARRYING ON BUSINESS IN TEXAS.  FN4  THERE
IS NO QUESTION BUT THAT THE STATE HAS THE POWER TO MAKE A CHARGE
AGAINST DOMESTIC OR FOREIGN CORPORATIONS FOR THE OPPORTUNITY TO
TRANSACT THIS INTRASTATE BUSINESS.  FN5  THE EXPLOITATION BY FOREIGN
CORPORATIONS OF INTRASTATE OPPORTUNITIES UNDER THE PROTECTION AND
ENCOURAGEMENT OF LOCAL GOVERNMENT OFFERS A BASIS FOR TAXATION AS
UNRESTRICTED AS THAT FOR DOMESTIC CORPORATIONS.  IN LAYING A LOCAL
PRIVILEGE TAX, THE STATE SOVEREIGNTY MAY PLACE A CHARGE UPON THAT
PRIVILEGE FOR THE PROTECTION AFFORDED.  WHEN THAT CHARGE, AS HERE, IS
BASED UPON THE PROPORTION OF THE CAPITAL EMPLOYED IN TEXAS, CALCULATED
BY THE PERCENTAGE OF SALES WHICH ARE WITHIN THE STATE, NO PROVISION OF
THE FEDERAL CONSTITUTION IS VIOLATED. 

THE MOTOR VEHICLES FOR THE MARKETING OF WHICH THE PRIVILEGE IS USED
ARE CONCEDEDLY SOLD IN INTRASTATE COMMERCE.  THE TAX HERE LEVIED IS NOT
FOR THE PRIVILEGE OF ENGAGING IN ANY TRANSACTION ACROSS STATE LINES OR
ACTIVITY CARRIED ON IN ANOTHER STATE.  IT IS MUCH LIKE THAT UPHELD IN
BASS, RATCLIFF & GRETTON V. TAX COMMISSION.  FN6  IN THAT CASE A TAX
WAS LAID FOR THE PRIVILEGE OF DOING BUSINESS IN NEW YORK DETERMINED,
FOR CORPORATIONS WHICH DID NOT TRANSACT ALL THEIR BUSINESS WITHIN THAT
STATE, BY A PERCENTAGE OF THAT PART OF THE NET INCOME WHICH IS
CALCULATED BY THE PROPORTION WHICH THE AGGREGATE OF SPECIFIED CLASSES
OF PROPERTY WITHIN THE STATE BEARS TO ALL THE PROPERTY OF THE
CORPORATION.  FN7 

IN NATIONAL LEATHER CO. V. MASSACHUSETTS  FN8  THIS COURT UPHELD A
TAX FOR THE PRIVILEGE OF DOING BUSINESS IN A STATE BY A CORPORATION OF
AN AMOUNT "EQUAL TO FIVE DOLLARS PER THOUSAND UPON THE VALUE OF THE
CORPORATE EXCESS EMPLOYED BY IT WITHIN THE COMMONWEALTH."  THIS EXCESS
WAS DEFINED AS "SUCH PROPORTION OF THE FAIR CASH VALUE OF ALL THE
SHARES CONSTITUTING THE CAPITAL STOCK  ..  ASS THE VALUE OF THE ASSETS,
BOTH REAL AND PERSONAL, EMPLOYED IN ANY BUSINESS WITHIN THE
COMMONWEALTH  ..  BEEARS TO THE VALUE OF THE TOTAL ASSETS OF THE
CORPORATION."  THE NATIONAL LEATHER COMPANY, A MAINE CORPORATION, OWNED
THE STOCK OF TWO OTHER MAINE CORPORATIONS.  THEIR PLANTS WERE IN
MASSACHUSETTS.  ON THE ASSUMPTION THAT THE SITUS OF THE STOCK FOLLOWED
THE DOMICILE OF THE OWNER, THE TAXPAYER CHALLENGED THE INCLUSION OF THE
MAINE STOCK IN THE BASIS FOR THE LOCAL TAX.  THIS COURT HELD THAT
MASSACHUSETTS WAS FREE TO USE THE STOCK FOR THE CALCULATION OF THE
LOCAL TAX.  SIMILAR METHODS OF DETERMINING PRIVILEGE TAXES WERE LEFT TO
THE STATES IN INTERNATIONAL SHOE CO. V. SHARTEL  FN9  AND NEW YORK V.
LATROBE.  FN10  THE CONSTITUTION RECOGNIZES THE DUAL INTERESTS OF THE
NATIONAL AND STATE GOVERNMENTS AND PERMITS TAXES FOR LOCAL PRIVILEGES
UPON THE INTRASTATE ACTIVITIES OF THE FARFLUNG ENTERPRISES WHICH GAIN
LARGE BENEFITS FROM THE NATIONWIDE MARKET, PROTECTED BY THE COMMERCE
CLAUSE.  WE REJECT PETITIONER'S CONTENTION THAT CONSTITUTIONALITY OF
STATE TAXATION TURNS ON SO NARROW AN ISSUE AS WHETHER LOCAL ASSETS
RATHER THAN LOCAL GROSS RECEIPTS ARE USED IN A TAXING FORMULA. 

IN A UNITARY ENTERPRISE, PROPERTY OUTSIDE THE STATE, WHEN CORRELATED
IN USE WITH PROPERTY WITHIN THE STATE, NECESSARILY AFFECTS THE WORTH OF
THE PRIVILEGE WITHIN THE STATE.  FINANCIAL POWER INHERENT IN THE
POSSESSION OF ASSETS MAY BE APPLIED, WITH FLEXIBILITY, AT WHATEVER
POINT WITHIN OR WITHOUT THE STATE THE MANAGERS OF THE BUSINESS MAY
DETERMINE.  FOR THIS REASON IT IS HELD THAT AN ENTRANCE FEE MAY BE
PROPERLY MEASURED BY CAPITAL WHEREVER LOCATED.  FN11  THE WEIGHT, IN
DETERMINING THE VALUE OF THE INTRASTATE PRIVILEGE, GIVEN THE PROPERTY
BEYOND THE STATE BOUNDARIES IS BUT A RECOGNITION OF THE VERY REAL
EFFECT ITS EXISTENCE HAS UPON THE VALUE OF THE PRIVILEGE GRANTED WITHIN
THE TAXING STATE.  THIS WAS RECOGNIZED BY THIS COURT IN ATLANTIC &
PACIFIC TEA CO. V. GROSJEAN  FN12  WHERE AN OCCUPATION OR LICENSE TAX
ON CHAIN STORES WAS GRADUATED "ON THE NUMBER OF STORES OR MERCANTILE
ESTABLISHMENTS" INCLUDED UNDER THE SAME MANAGEMENT "WHETHER OPERATED IN
THIS STATE OR NOT."  WE SAID:  "THE LAW RATES THE PRIVILEGE ENJOYED IN
LOUISIANA ACCORDING TO THE NATURE AND EXTENT OF THAT PRIVILEGE IN THE
LIGHT OF THE ADVANTAGES, THE CAPACITY, AND THE COMPETITIVE ABILITY OF
THE CHAIN'S STORES IN LOUISIANA CONSIDERED NOT BY THEMSELVES, AS IF
THEY CONSTITUTED THE WHOLE ORGANIZATION, BUT IN THEIR SETTING AS
INTEGRAL PARTS OF A MUCH LARGER ORGANIZATION."  FN13  THIS SAME RULE
APPLIES HERE.  JAMES V. DRAVO CONTRACTING CO. FN14  CONTAINS NOTHING
CONTRARY TO THIS VIEW.  THE STATUTE UNDER CONSIDERATION THERE LEVIED A
PRIVILEGE TAX "EQUAL TO TWO PER CENT. OF THE GROSS INCOME OF THE
BUSINESS."  IN SO FAR AS IT WAS UPON RECEIPTS IN OTHER STATES FOR WORK
DONE IN OTHER STATES, IT WAS CONCEDED TO BE OUTSIDE OF THE TAXING POWER
OF THE STATUTE.  AFFIRMED. 

FN1  FORD MOTOR CO. V. CLARK, 100 F.2D 515. 

FN2  306 U.S. 628. 

FN3  "ARTICLE 7084.  AMOUNT OF TAX.   - (A) EXCEPT AS HEREIN
PROVIDED, EVERY DOMESTIC AND FOREIGN CORPORATION HERETOFORE OR
HEREAFTER CHARTERED OR AUTHORIZED TO DO BUSINESS IN TEXAS, SHALL,  ..
EACCH YEAR, PAY  .. A FFRANCHISE TAX  ..  ,  BASED UPON THAT PROPORTION
OF THE OUTSTANDING CAPITAL STOCK, SURPLUS AND UNDIVIDED PROFITS, PLUS
THE AMOUNT OF OUTSTANDING BONDS, NOTES AND DEBENTURES, OTHER THAN THOSE
MATURING IN LESS THAN A YEAR FROM DATE OF ISSUE, AS THE GROSS RECEIPTS
FROM ITS BUSINESS DONE IN TEXAS BEARS TO THE TOTAL GROSS RECEIPTS OF
THE CORPORATION FROM ITS ENTIRE BUSINESS, WHICH TAX SHALL BE COMPUTED
AT THE FOLLOWING RATES FOR EACH ONE THOUSAND DOLLARS ($1,000.00) OR
FRACTIONAL PART THEREOF; ONE DOLLAR ($1.00) TO ONE MILLION DOLLARS
($1,000,000.00), SIXTY CENTS (60[)  ..  "  

FN4  INVESTMENT SECURITIES CO. V. MEHARG, 115 TEXAS 441; 282 S.W.
802; UNITED NORTH & SOUTH DEVELOPMENT CO. V. HEATH, 78 S.W.2D 650(TEX. 
CIV.  APP.). 

FN5  FICKLEN V. SHELBY COUNTY TAXING DISTRICT, 145 U.S. 1, 21;
AMERICAN MFG. CO. V. ST. LOUIS, 250 U.S. 459; MATSON NAV. CO. V. STATE
BOARD, 297 U.S. 441; WESTERN LIVE STOCK V. BUREAU, 303 U.S. 250;
COVERDALE V. PIPE LINE CO., 303 U.S. 604, 608. 

FN6  266 U.S. 271. 

FN7  CF. UNDERWOOD TYPEWRITER CO. V. CHAMBERLAIN, 254 U.S. 113, 120. 

FN8  277 U.S. 413. 

FN9  279 U.S. 429. 

FN10  279 U.S. 421. 

FN11  ATLANTIC REFINING CO. V. VIRGINIA, 302 U.S. 22, 29; CF. KANSAS
CITY, F.S. & M. RY. CO. V. BOTKIN, 240 U.S. 227, 235. 

FN12  301 U.S. 412, 424-425. 

FN13  301 U.S. 425. 

FN14  302 U.S. 134, 139. 

MR. JUSTICE MCREYNOLDS IS OF OPINION THAT THE JUDGMENT COMPLAINED OF
SHOULD BE REVERSED. 

MR. JUSTICE BLACK AND MR. JUSTICE DOUGLAS CONCUR IN THE RESULT.