Great Atlantic & Pacific Tea Co. v. Grosjean

delivered the opinion of the Court.

This cause presents the questions whether the method prescribed by a chain store tax act for ascertaining the

If the competitive advantages of a chain increase with the number of its component links, it is hard to see how these advantages cease at the state boundary. Under the findings a store belonging to a chain of one hundred, all located in Louisiana, has not the same competitive advantages as one of one hundred Louisiana stores belonging to a national chain of one thousand. The appellants lean heavily on the findings of the court respecting the relative business in New Orleans of the Great Atlantic and Pacific Company and the H. G. Hill Stores, Inc., a Louisiana corporation. The court found that the operations of the two are generally of the same character; the former conducts one hundred and six stores in the state, sixty-two of which are in the city of New Orleans; the latter ninety-two in the state, of which eighty-seven are in the city. Each concern conducts grocery and meat stores with substan

The court’s findings are supported by evidence bearing upon a variety of advantages enjoyed by large chains which are unavailable to smaller chains. One striking illustration is furnished by the uncontradicted proof that the Atlantic and Pacific Company received, in the year 1934, from its vendors, secret rebates, allowances, and brokerage fees amounting to $8,105,000 which were demanded by the company as a condition of purchasing from the vendors in question. The leverage which accomplished this was the enormous purchasing power of the company. The amount thus obtained equals $530 for each of the Atlantic and Pacific Company’s stores or nearly the amount of the tax exacted by the statute. The

The appellants urge that the Act arbitrarily discriminates in favor of local chains because it is inconceivable that a chain operating wholly within the state would have five hundred stores, not to mention upwards of fifteen thousand, the number maintained by the Atlantic and Pacific. The argument is inconsistent with the finding that additional units, wherever situate, increase the advantages and economic effects of the chain as a whole and of each unit; and ignores the possibility that a chain-store company of national scope might well be incorporated in Louisiana, whose stores in that state would be rated for taxation according to its total stores within and without the state.

Other instances of the working- of the Act are cited to show that it arbitrarily discriminates against national chains and in favor of local ones solely because they are such. Thus, it is said, if a national chain owning 501 stores in other states, establishes a single store in: a Louisiana city where there is a local chain of two or three like establishments, the national concern must pay a license of $550 for its one store while the stores of the local chain are taxed but $10 each. The appellees retort that since the earlier law imposed a tax of $15 on each store in the local chain and none upon the one Louisiana store of the national chain it was more vulnerable to the

The act under review is to be distinguished from the Florida statute considered in Liggett Co. v. Lee, supra, which increased the tax if the chain happened to have stores in two counties of the state rather than in one. The increase of rate was held arbitrary because it was unrelated to the size or character of the chain and was conditioned solely upon the location of one or more of its units. The Louisiana act adopts no such basis of classification. A small chain of three stores, one of which is in Louisiana and two in Mississippi, will pay exactly the same tax as a similar organization having the same number of stores all in Louisiana. A concern having ninety-two stores scattered over ten states, seven of which are in Louisiana, will pay exactly the same tax per Louisiana store as the H. G. Hill Stores, Inc., all of whose ninety-two stores are in Louisiana. Thus it appears that the classification is not based upon the location of the stores within or without the state but upon the type of business conducted, the scale of that business, its accompanying competitive advantages and economic results.

Finally, since the court below found that the sales and earnings of the individual stores of a chain differ in various portions of the country and those of the Louisiana, stores have been below the average for all stores of many of the appellants, the claim is that the statute, by taking into account all units indiscriminately in fixing the rate,

Third. Montgomery Ward & Company, one of the appellants, filed a bill of intervention. In addition to the objections already considered it contends that, as applied to its business, the act of 1934 constitutes an interference with and a regulation of interstate commerce forbidden by Art. I, § 8 of the Constitution. The allegation is that

The trial court found the facts as follows:

“Montgomery Ward & Company, an Illinois corporation, operates 9 mail order establishments engaged in filling orders received from points in the United States and foreign countries through the mail. None of these mail order establishments are situated in Louisiana. The Company also has 19 mail order offices, none of which are situated in Louisiana; 17 Class A department stores carrying a complete line of general merchandise, none of which are situated in Louisiana; 456 Class B retail stores of. limited size and carrying a limited line of merchandise, of which 5 are located in Louisiana; and 16 Class C stores

devoted exclusively to the sale of hardware, household appliances, automobile tires and tubes, of which none are located in Louisiana. The 5 Louisiana Class B stores take orders to be filled by mail from the Company’s mail order establishment located at Forth Worth, in addition to selling merchandise at retail at its place of business to the public.”

As a conclusion of law the court held “The claim [of the intervenor] does not merit serious consideration. The statute by its express terms applies only ‘where goods, wares, merchandise or commodities of every description whatsoever are sold or offered for sale at retail.’ ”

Error is assigned to the District Court’s conclusion and the appellant insists that the statute is bad because it imposes a single and indivisible tax for the privilege of conducting a business both interstate and intrastate, partly measured by interstate operations wholly extrastate.

As respects the regulation of interstate commerce the intervenor’s bill is premature and without equity. The statute was approved July 12, 1934, and became effective for the calendar year 1935 and subsequent years.' February 27, 1935, both the bill of the Great Atlantic & Pacific Tea Company and Montgomery Ward & Company’s intervening bill were filed. The record discloses no rules or regulations promulgated by the appellee Supervisor of Public Accounts and no ruling by any responsible state official as to which of Montgomery Ward & Company’s establishments are to be included in reckoning the total of its retail stores. For all that appears neither its mail order houses, nor its order stations, nor its department stores, will be included in the computation.

It is manifest that Montgomery Ward & Company cannot upon mere supposition that the Act will be unconstitutionally construed and applied in respect of its five stores in Louisiana obtain an advisory decree that the

We thought the classification in the Jackson case, although confined to stores within the state, was so arbitrary as to render the tax invalid under the equal protection clause of the Fourteenth Amendment, and, together with Mr. Justice Van Devanter, who takes no part in this case, set forth our views at length in a dissenting opinion. 283 U. S. 543 et seq. We rest upon what was there said, without repeating it, not for the purpose of again challenging the decision in the Jackson case, but because what we said applies more plainly to the variant facts of the case now under consideration. We thought then that the Jackson case was wrongly decided, but, accepting it as authoritative, it seems to us certain that it goes to the extreme verge of the law, and, for the reasons given in our dissenting opinion, equally certain that the present decision goes far beyond the verge. We add a few words in support of that view.

The Indiana law effected a discrimination between two classes — namely, operators of chain stores and operators of independent stores within the boundaries of the state, without reference to any stores outside. The Louisiana law effects a discrimination between two members of the same class — namely, chain-store operators within the state, where the only difference between them is that one also operates stores in other states and in Canada, while the other does not. Thus, for illustration, if A operates eleven stores in Louisiana, doing a business of $10,000,000 per year, and has none outside, he pays $15 for each store, or a total of $165, while if B operates eleven stores in Louisiana, and happens to have 490 stores distributed among the remaining 47 states of the Union and foreign countries, doing a total business of $5,000,000 per year, he is compelled to pay $550 upon

Moreover, if the Louisiana statute be valid, other states in the Union may pass similar acts; and it is not improbable that they will. And if they do so, a remarkable situation will be brought about. Let us suppose, for example, that ten additional states, ranging from Maine to California, adopt the Louisiana form of legislation. In each of the states, including Louisiana, a given operator has ten stores, making 110 in all. In that case he will pay in each state a tax based not upon the operation of ten stores, but on the operation of 110. Instead, therefore, of paying in each state $100 upon the basis of $10 for each of the ten stores, he will pay $500 upon the basis of $50 for each of the ten stores. If he should then put into operation sixteen additional stores, let us say in Canada or Norway, he would immediately bring himself into the bracket where the tax upon each store is fixed at $100 — thus increasing his total taxation in the eleven states from $5,500 to $11,000, in virtue of these comparatively small operations in a foreign country, the effect of which, if any, in respect of competitive advantages in any one of the eleven states could hardly be described otherwise than as purely speculative.

The exaction here involved is not a tax upon Louisiana property or business, but is essentially a penalty imposed upon an operator of business wholly beyond the reach of the law of that state. We are not able to concede that it lies within the province of one state to thus indirectly

The sole fact that a Louisiana operator has opened additional stores in other states or in Canada or Norway, affords, we think, no valid basis for imposing upon him an enormously-increased tax from which his competitors, similarly circumstanced in all other respects, are exempt. The claim that thereby the balance of competitive advantage has been disturbed, is so fanciful as to furnish no basis for such legislation grounded in any policy or object of state taxation. The court below thought that to consider the number of stores outside the state was competent for the purpose of determining the value of the privilege of operating each store within the state. But the fallacy of that view as applied to the present case is demonstrated by the facts as found by that. court— namely, that operations of chain stores “vary greatly from section to section and from state to state because of differences in local conditions, economic and otherwise, freight rates added to cost, remoteness from headquarters and executive management, increase in difficulty of supervision, local competition and other factors. Conditions as to sales and profits vary greatly in all classes of stores according to the section of the country in which they are located.” An attempt to fix the extent of the competitive advantage which will inure in favor of a business in Louisiana or the value of the privilege of operating it upon a basis so shifting and uncertain, seems to us an utterly futile undertaking. It is nothing more than an effort to reach a conclusion upon an assumed major premise, where the minor premise is unknown.

These observations apply to the case in hand; for although the taxes imposed by the statutes involved are different, the vices are the same.