Southern Pacific Co. v. Gallagher

delivered the opinion of the Court.

The California Use Tax Act of 1935^[1] is assailed as vio-lative of the commerce clause and the Fourteenth Amendment, when imposed upon tangible personal property, bought outside of the state by the Southern Pacific Company, an interstate railroad, and installed on importation, or kept available for use, as a part of its transportation facilities.

The attack comes by means of a bill of the Southern Pacific Company seeking, before a three-judge district court,^[2] an interlocutory and final injunction against the State Board of Equalization of California, its members and the Attorney General of the state, to restrain them from enforcing the Use Tax Act.^[3] The trial court granted

The Use Tax Act is complemental to the California Retail Sales . Tax Act of 1933.^[7] The latter levies a tax upon the gross receipts of California retailers from sales of tangible personal property; the former^[8] imposes an excise on the consumer at the same rate for the storage, use or other consumption in the state of such property when purchased from any retailer. As property covered by the sales tax is exempt under the use tax, all tangible personalty sold or utilized in California is taxed once for the support of the state government. Definitions in the Use Tax Act of taxpayer, retailer, storage and use are designed to make the coverage complete. A retailer is “every person, engaged in the business of making sales for storage, use or other consumption”; use is the exercise of any right or power incident, to ownership, except sale in the regular course of business; storage is any “keeping or retention” with a similar exemption; and a taxpayer includes everyone “storing, using or otherwise consuming” the property subject to the use tax.^[9]

The principle of the use tax as applied to property brought into the state after its retail purchase for intrastate use has been upheld in Henneford v. Silas Mason Co.,^[10] against the charge that it was a tax upon the operations of interstate commerce or a tax upon a foreign

The appellant, the Southern Pacific Company, a Kentucky' corporation, handles intrastate, interstate and foreign commerce over its railroad system which traverses a number of states and connects with the lines of carriers

Two lines of authority aid in considering the effect of this tax on commerce. The first makes it quite clear that a state tax upon the privilege of operating in, or upon carrying on, interstate commerce is invalid. States cannot tax interstate telegraph messages,^[15] or freight shipments.^[16] A license tax on sales by samples burdens one selling only goods from other states.^[17] A tax act as applied to the business of interstate communication^[18] is unconstitutional. Where a similar levy by other states may be imposed, with consequent multiplicity of exaction on commerce for the same taxable event, local tax of a privilege, measured by total gross receipts from interstate transactions, is considered identical with an exaction on

Appellant selects from this line the Helson case^[25] as determinative of the contention that a tax on use of supplies or equipment is a tax on the commerce. A state tax of three cents per gallon was imposed on all gasoline “sold at wholesale.” This phrase was defined to include gasoline bought out of the state and used within the state. There was no definition of the word use or used. The taxpayers operated an interstate ferry, purchased gasoline in Ohio and used that portion sought to be taxed in propelling their craft in the territorial waters of Kentucky. The court considered the tax on the consumptr of the gas the same as a tax on the operation of the fen

The second line of authority supports the view that use and storage as defined in the California act are taxable intrastate events, separate and apart from interstate commerce. A recent discussion of the topic sets out the precedents in support of a ruling that a tax upon the production of power by the use of which compressors drove natural gas in interstate commerce is valid. Such production is a taxable event distinct from its consumption in commerce.^[26] Particular attention is called by the state to the Wallace case.^[27] There the tax was on “selling or storing or distributing gasoline.” It became due on withdrawal from storage. The tax was held applicable to gasoline, purchased out of the state and stored in the state, “when all is withdrawn and used ... as a source of motive power in interstate railway operation” and valid against the objection that “it is in effect a tax upon the use” in interstate commerce.^[28] The invalidity of such a tax arises from a levy on commerce itself or its gross receipts, not upon events prior to the commerce.^[29]

The principle illustrated by the Helson case forbids a tax upon commerce or consumption in commerce. The Wallace case, and precedents analogous to it, permit state •taxation of events preliminary to interstate commerce. The validity of any application of a taxing act depends upon a classification of the facts in the light of these theories. In the present case some of the articles were ordered out of the state under specification suitable only for utilization in the transportation facilities and installed

But it is urged by the appellant that our former opinions make this conclusion a departure from precedent; the events are so close to or so inseparably intertwined with interstate commerce, as to be a part of it.^[35] Cooney v. Mountain States Telephone Co.^[36] is cited to show that a “state excise tax cannot be validly applied indiscriminately and without apportionment to an instrumentality common to interstate and intrastate commerce.” The Telephone Company was taxed a sum on each telephone in use. • As the instrument was employed part' of the time in interstate commerce, this Court held the tax to be upon that commerce and invalid. Since there was' no apportionment the entire tax fell. Unless the taxable events here, all of which are intrastate, are in effect a-part of interstate commerce, our previous discussion of their separable character would render the Cooney case inapplicable. For this point we are referred to Puget Sound Co. v. Tax Commission^[37] and Ozark Pipe Line Corp. v. Monier.^[38]

In the former case, the distinction in the opinion between stevedoring in loading and unloading interstate cargoes, held non-taxable as a burden upon commerce, and the business of supplying longshoremen for others to load and unload, held taxable as a local business, is

In the Ozark case, Missouri sought-to justify a franchise tax on a company engaged in the operation of an interstate pipe line by suggesting the tax was upon certain intrastate events, such as operation of communications, repair and purchase of supplies. The tax was forbidden because on the privilege of doing an exclusively interstate business. The opinion is to be read in the light of the statement by the Court of its interpretation of the facts and legal deductions which control its decision. The Missouri Act called for a franchise tax of a percentage of the par of its stock, apportioned to its assets in that state. This Court said that “the tax is one-upon the privilege or right to do business,” and as the taxpayer “is engaged only in interstate commerce” the tax “constitutionally cannot be imposed.” There was then added this paragraph:

“The maintenance of an office, the purchase of supplies, employment of labor, maintenance and operation of telephone and telegraph lines and automobiles, and appellant’s other acts within the State, were all exclusively in furtherance of its interstate business; and the property itself, however extensive or of whatever character, was likewise devoted only to that end. They were the means and instrumentalities by which that business was done and in no proper sense constituted,, or con

tributed to, the doing of a local business. The protection against imposition of burdens upon interstate commerce is practical and substantial and extends to whatever is necessary to the complete enjoyment of the right protected.”^[40]

This Court pointed out that the corporation had a license to-engage exclusively in interstate business.^[41] The language just quoted shows that this Court interpreted the transactions in Missouri as merely a part of the interstate commerce and the tax on the franchise an interference therewith because a tax directly upon it.^[42] “. . . nothing was done in Missouri except in furtherance of transportation.”^[43] It was this conclusion of the Court on the factual situation which brought about the Ozark decision. Where there is also intrastate activity, an apportioned state franchise tax on foreign corporations .doing an interstate business is upheld.^[44] A franchise tax ■on an exclusively interstate business is a direct burden; proportioned to an intermingled business, it is valid.^[45] Since the incidence of the California tax as here interpreted is upon events outside of interstate commerce, the Ozark opinion is not applicable. There the Missouri tax was upon activities found'wholly interstate.

Finally, appellants urge that the tax violates the due process clause of the Fourteenth Amendment because exacted for consumption of office and car supplies‘outside the state, upon their appropriation in California by the general office to the use of the whole system.^[46] This con

Affirmed.

Me. Justice Black concurs in the result.

Mr. Justice Roberts took no part in the consideration or decision of this case.

Mr. Justice McReynolds and I are of opinion that the judgment should be reversed.

The facts stated in the opinion just announced leave nothing of substance to support its conclusion that the California tax is not upon the operation — maintenance and use — of appellant’s railroad for interstate transportation. Discussion can neither obscure nor more plainly disclose the truth that the tax in question directly burdens commerce among the States. Concededly, that is repugnant to the commerce clause as, from the beginning, it has-been construed by this Court.