West Publishing Co. v. McColgan

J.—Plaintiff, a Minnesota corporation, with its principal place of business in St. Paul, Minnesota, is engaged in the business of selling law books and other publications

The Corporation Income Tax Act is complementary to the Bank and Corporation Franchise Tax Act. (Stats. 1929, ch. 13, p. 19, as amended; Deering’s Gen. Laws, Act 8488.) The subject of the tax under the first is net income. Under the second it is the privilege of exercising corporate franchises in this state. “A franchise tax is a tax imposed upon a corporation for the right or privilege of being a corporation or doing business in a corporate capacity.” (Flint v. Stone Tracy Co., 220 U.S. 107 [ 31 S.Ct. 342 , 55 L.Ed. 389 ]; Pacific Co. Ltd. v. Johnson, 212 Cal. 148 , 154-155 [ 298 P. 489 ].) Such a tax is inapplicable to a corporation engaged exclusively in interstate commerce for “a state may not impose a charge for the enjoyment of a right granted by the federal Constitution. Thus, it may not exact a license tax for the privilege of carrying on interstate commerce . . . although it may tax the property used in, or the income derived from that commerce, so long as the taxes are not discriminatory.” (Murdoch v. Pennsylvania, 319 U.S. 105 , 113 [ 63 S.Ct. 870 , 891, 87 L.Ed. 1292 , 146 A.L.R. 81 ]; General Trading Co. v. State Tax Com., 322 U.S. 335 , 338 [ 64 S.Ct. 1028 , 1030, 88 L.Ed. 1309 , 1319]; McGoldrick v. Berwind-White Coal Mining Co., 309 U.S. 33 , 56-58 [ 60 S.Ct. 388 , 84 L.Ed. 565 , 128 A.L.R. 876 ]; Western Live Stock v. Bureau, 303 U.S. 250 [ 58 S.Ct. 546 , 82 L.Ed. 823 , 115 A.L.R. 944 ]; Alpha Portland Cement Co. v. Massachusetts, 268 U.S. 203 [ 45 S.Ct. 477 , 69 L.Ed. 916 ]; see, also, Cheney Bros. Co. v. Massachusetts, 246 U.S. 147 [ 38 S.Ct. 295 , 62 L.Ed. 632 ]; Ozark Pipe Line Co. v. Monier, 266 U.S. 555 [ 45 S.Ct. 184 , 69 L.Ed. 439 ]; Anglo-Chilean Nitrate Sales Corp. v. Alabama, 288 U.S. 218 [ 53 S.Ct. 373 , 77 L.Ed. 710 ]; Atlantic Lumber Co. v. Commissioner, 298 U.S. 553 , 555 [ 56 S.Ct. 887 , 80 L.Ed. 1328 ].)

In relying on the foregoing cases for the proposition that a foreign corporation engaged within a state solely in interstate commerce is immune from net income taxation by that state, plaintiff overlooks the distinction made by the United States Supreme Court between a tax whose subject is the privilege of engaging in interstate commerce and a tax whose subject is the net income from such commerce. It is settled by

There is no discrimination against interstate commerce in the provision of the Corporation Income Tax Act making the tax inapplicable to income that a corporation must include in the measure of the tax under the Bank and Corporation Franchise Tax Act and allowing an offset for the tax imposed on the corporation under that act. This provision precludes a double burden on corporations subject to the latter act. The tax burden imposed by the Bank and Corporation Franchise Tax Act is at least equal to that imposed by the Corporation Income Tax Act. It is settled that a tax does not discriminate against interstate commerce if other related taxes impose equal burdens on local commerce. (Gregg Dyeing Co. v. Query, 286 U.S. 472 [ 52 S.Ct. 631 , 76 L.Ed. 1232 ]; Interstate Busses Corp. v. Blodgett, 276 U.S. 245 [ 48 S.Ct. 230 , 72 L.Ed. 551 ]; Henneford v. Silas Mason Co., 300 U.S. 577 [ 57 S.Ct. 524 , 81 L.Ed. 814 ]; Southern Pacific Co. v. Gallagher, 306 U.S. 167 [ 59 S.Ct. 389 , 83 L.Ed. 586 ].)

Nor is there any merit to the contention that the act discriminates against interstate commerce on the ground that it subjects part of plaintiff’s income to double taxation, given the taxability of plaintiff’s entire net income in the state of its domicile. Taxation in one state is not an immunization against taxation in other states. (State Tax Com. v. Aldrich,

Plaintiff contends that the tax is void on the ground that it was imposed on the gross receipts from its business in interstate commerce. Section 18(a) of the act provides: “If any taxpayer, upon notice and demand by the commissioner, fails or refuses to make and file a return required by this act, the commissioner is authorized to make an estimate of the net income and to compute and levy the amount of the tax due under this act from any available information.” Plain-the assessment but refused to do so. The record discloses that tiff was repeatedly requested to furnish information before the commissioner’s only information as to plaintiff’s income from California sources related to its gross sales to California customers. This information was not furnished in any return made by the taxpayer. It was acquired by the commissioner from the State Board of Equalization, which had been informed by plaintiff’s accountants that its gross revenue from California sources averaged $160,000 a year. To cover the possibility that the actual amount of its gross income attributable to California that would have been revealed on a return would be higher than this amount, the commissioner estimated that $200,000 represented such income. Net income is defined by the act as gross income less the deductions allowed. The commissioner estimated that plaintiff’s deductions would amount to 80 per cent of its gross income and computed the tax on an estimated net income of $40,000. There is no proof that these estimates were too high, and there is nothing in the record to discount the possibility that they might even be too low. No question was raised either in the claim for refund filed with the commissioner or in the pleadings filed in

Plaintiff contends that it has no income from sources in California within the meaning of the act on the ground that income derived from activities in furtherance of a purely interstate business does not have a source within this state. This conclusion is contrary to the express provision of the act that “income from sources within this state includes . . . income from any activities carried on in this state, regard

Plaintiff contends that the tax violates the due process clause of the Fourteenth Amendment of the Constitution of the United States on the grounds that the state is without jurisdiction of the person, property, or business of the plaintiff, and that it gives plaintiff no protection, opportunities, or benefits that would justify a tax. The record shows without conflict that plaintiff engages in substantial income-producing activities in California. It has local offices here as well as employees who devote their entire time to soliciting orders, receiving payments, adjusting complaints, collecting delinquent accounts, and performing other services for plaintiff. This state provides a market in which plaintiff operates in competition with local law-book publishers. Plaintiff’s agents receive the same protection and other benefits from the state as agents carrying on business activities for a principal engaged in intrastate business. The state protects plaintiff’s business transactions within its borders and maintains courts in which plaintiff enforces payment for the sale of its publications. In West Publishing Co. v. Superior Court, 20 Cal. 2d 720 [ 128 P.2d 777 ]; cert. den. 317 U.S. 700 [ 63 S.Ct. 524 , 87 L.Ed. 559 ], it was held that by virtue of these activities plaintiff is present in this state and subject to the jurisdiction of its courts. (See, also, Frene v. Louisville Cement Co., 134 F.2d 511 .) “The activities which establish its ‘presence’ subject it alike to taxation by the state and to suit to recover the tax.” (International Shoe Co. v. Washington, —U.S. —[ 66 S.Ct. 154 , 161, 90 L.Ed.—].)

The International Shoe case, supra, settles any doubt as to the validity of the tax in question under the due process clause. That case held that a Delaware corporation was subject to suit in the courts of the State of Washington and was

The judgment is affirmed.

Gibson, C. J., Shenk, J., Edmonds, J., Carter, J., and Spence, J., concurred.

Appellant’s petition for a rehearing was denied March 28, 1946.