GENERAL TRADING CO. v. TAX COMM'N

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Docket Number

No. 441.

Attorney(S)

Mr. Edward S. Stringer, with whom Mr. A.B. Howland was on the brief, for petitioner. Mr. Jens Grothe, Special Assistant Attorney General of Iowa, with whom Mr. John M. Rankin, Attorney General, was on the brief, for respondent.

Judges

Felix Frankfurter
Robert Houghwout Jackson

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Smart Summary

Factual and Procedural Background

General Trading Company, a Minnesota corporation that had not qualified to do business in Iowa and maintained no office, branch, or warehouse there, sold goods in Minnesota which were shipped by common carrier or mail to purchasers in Iowa. Orders were solicited in Iowa by traveling salesmen but were subject to acceptance in Minnesota. The State Tax Commission of Iowa sought to collect use taxes under the Iowa Use Tax Law on these goods used in Iowa. A lower court ruled in favor of the Tax Commission, and the Iowa Supreme Court affirmed that judgment. The case was brought to the United States Supreme Court by certiorari to review the constitutionality of Iowa’s imposition and collection of the use tax in this context.

Legal Issues Presented

Whether Iowa may constitutionally impose a use tax on tangible personal property purchased from an out-of-state retailer and used within Iowa.
Whether Iowa may require an out-of-state corporation, which has not qualified to do business in Iowa and maintains no physical presence there, to collect and remit the use tax on sales made from outside the State.

Arguments of the Parties

Petitioner (General Trading Company)

The Company had not qualified to do business in Iowa and had no physical presence there, thus it should not be subject to Iowa’s taxing authority.
The transaction of sale occurred outside Iowa and involved interstate commerce, which is not taxable by the State.
It is unconstitutional for Iowa to compel an out-of-state corporation to act as a tax collector when it has not submitted to Iowa’s jurisdiction.

Respondent (State Tax Commission of Iowa)

The Iowa Use Tax Law imposes a tax on the use within Iowa of tangible personal property purchased for use in the State.
The use tax is designed to complement the sales tax and applies to property used in Iowa regardless of where the sale occurred.
The out-of-state corporation is considered a "retailer maintaining a place of business" for purposes of the statute because it solicits orders in Iowa and ships goods there, thus it may be required to collect the tax.
The tax is non-discriminatory and does not violate the Commerce Clause because it targets the in-state use of property, not the interstate commerce itself.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Felt Tarrant Co. v. Gallagher, 306 U.S. 62	Established that states may impose use taxes on goods used within their borders, and require out-of-state sellers to collect such taxes when they have sufficient contacts.	The Court found this case indistinguishable and controlling, supporting Iowa’s use tax collection from the out-of-state retailer.
Nelson v. Sears, Roebuck Co., 312 U.S. 359	Upheld the constitutionality of a state use tax applied to mail order sales from an out-of-state retailer with retail stores in the taxing state.	Used to support the validity of Iowa’s tax despite differences in the presence of retail stores.
Nelson v. Montgomery Ward Co., 312 U.S. 373	Similar to Sears, Roebuck, confirming use tax collection on mail order goods used in the state.	Reinforced the principle that presence of retail stores is not constitutionally required for use tax collection.
Monamotor Oil Co. v. Johnson, 292 U.S. 86	Recognized the legitimacy of making retailers the tax collectors for the state.	Supported Iowa’s practice of requiring the out-of-state company to collect and remit the use tax.
Western Live Stock v. Bureau, 303 U.S. 250	Confirmed that states cannot tax the privilege of doing interstate business.	Distinguished from the present case because the use tax targets consumption, not the privilege of interstate commerce.
Best Co. v. Maxwell, 311 U.S. 454	Prohibited legislation that is hostile or discriminatory toward interstate commerce.	The Court found Iowa’s tax non-discriminatory and consistent with Commerce Clause protections.
McLeod v. Dilworth Co., ante p. 327 (cited in dissent)	Interstate commerce sales are not taxable by the state where the seller is located.	Referenced by dissent to argue that the transaction is interstate commerce and not taxable by Iowa.

Court's Reasoning and Analysis

The Court began by outlining the Iowa Use Tax Law, which imposes a tax on the use within Iowa of tangible personal property purchased for use in the state. The tax complements the sales tax, applying where sales tax does not reach. The Court accepted the Iowa Supreme Court’s factual findings that General Trading Company did not qualify to do business in Iowa nor maintain a physical presence, but that it solicited orders in Iowa via traveling salesmen, with orders accepted and goods shipped from Minnesota.

The Court found that the use tax is constitutionally permissible because it is a non-discriminatory excise tax on the consumption of property within Iowa, not a tax on interstate commerce itself. The tax is imposed on the ultimate consumer, an Iowa resident, who benefits from state services and is thus subject to taxation. The requirement that the out-of-state retailer collect the tax is a well-established and accepted administrative device.

The Court relied heavily on prior decisions—Felt Tarrant Co. v. Gallagher, Nelson v. Sears, Roebuck Co., and Nelson v. Montgomery Ward Co.—which collectively uphold the power of states to impose use taxes on goods brought into the state for use and to require out-of-state sellers with sufficient contacts to collect such taxes. The absence of retail stores or a qualified business presence in Iowa does not render the tax unconstitutional.

The Court distinguished the tax from impermissible state attempts to tax the privilege of interstate commerce, reaffirming that while interstate business itself is protected under the Commerce Clause, the use of property within a state is subject to fair taxation. The tax was found not to be hostile or discriminatory toward interstate commerce.

Holding and Implications

Affirmed.

The Court upheld the Iowa Supreme Court’s judgment affirming the imposition of the use tax on goods purchased from an out-of-state retailer and used in Iowa, and the requirement that the retailer collect and remit the tax. This decision confirms that states may constitutionally impose use taxes on tangible personal property used within their borders and may require out-of-state sellers who solicit orders and ship goods into the state to serve as tax collectors, even if they have not qualified to do business or maintain a physical presence in the state.

No new precedent was created beyond affirming and applying established principles regarding state use taxes and the Commerce Clause.

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GENERAL TRADING CO., DOING BUSINESS AS MINNEAPOLIS IRON STORE, v. STATE TAX COMMISSION OF THE STATE OF IOWA.

A Minnesota corporation which had not qualified to do business in Iowa, and which maintained no office or other place of business in Iowa, made sales of goods in Minnesota which were sent by common carrier or by mail to purchasers in Iowa. Orders, solicited in Iowa by salesmen from headquarters in Minnesota, were taken subject to acceptance in Minnesota. Held that the tax imposed by the Iowa Use Tax Act upon the use of such goods in Iowa, and the requirement that the corporation collect the tax and pay it to the State, did not violate the Federal Constitution. Following Felt Tarrant Co. v. Gallagher, 306 U.S. 62; Nelson v. Sears, Roebuck Co., 312 U.S. 359, and Nelson v. Montgomery Ward Co., 312 U.S. 373. Pp. 336, 338. 233 Iowa 877, 10 N.W.2d 659, affirmed.

MR. JUSTICE FRANKFURTER delivered the opinion of the Court.

The State Tax Commission of Iowa brought this suit under the authority of the Iowa Use Tax Law which was recently here in Nelson v. Sears, Roebuck Co., 312 U.S. 359, and Nelson v. Montgomery Ward Co., 312 U.S. 373. The question now presented is, in short, whether Iowa may collect, in the circumstances of this case, such a use tax from General Trading Company, a Minnesota corporation, on the basis of property bought from Trading Company and sent by it from Minnesota to purchasers in Iowa for use and enjoyment there.

By the Iowa Use Tax Law a tax is "imposed on the use in this state of tangible personal property purchased . . . for use in this state at the rate of two percent of the purchase price of such property. Said tax is . . . imposed upon every person using such property within this state until such tax has been paid directly to the county treasurer, to a retailer, or to the commission. . . ." § 6943.103, Code of Iowa 1939. The use of property the sale of which is subject to Iowa's sales tax is exempted from the use tax (§ 6943.104(1)), but the sales tax can be laid only on sales at retail within the State. § 6943.075. The use tax constitutes a debt owed by the retailer to the State. § 6943.112. But "Every retailer maintaining a place of business" in Iowa must collect this tax from the purchaser (§ 6943.109), and may not advertise that he will himself absorb the tax. § 6943.111. Finally an offsetting credit (see Henneford v. Silas Mason Co., 300 U.S. 577, 584, 586-7) if another use or sales tax has been paid for the same thing elsewhere is allowed, and if the tax "imposed in such other state is two percent or more, then no tax shall be due on such articles." § 6943.125.

A judgment in favor of the Tax Commission by one of the lower courts was affirmed by the Supreme Court of Iowa, 233 Iowa 877; 10 N.W.2d 659. The application by that Court of its local laws and the facts on which it founded its judgment are of course controlling here. From these it appears that General Trading Company had never qualified to do business as a foreign corporation in Iowa nor does it maintain there any office, branch or warehouse. The property on which the use tax was laid was sent to Iowa as a result of orders solicited by traveling salesmen sent into Iowa from their Minnesota headquarters. The orders were always subject to acceptance in Minnesota whence the goods were shipped into Iowa by common carriers or the post. Upon these facts and its holding that Trading Company was a "retailer maintaining a place of business in this state" within the meaning of the Iowa statute, the Iowa Supreme Court held that Iowa had not exceeded its powers in the imposition of this use tax on Iowa purchasers, and that collection could validly be made through the Trading Company.

We brought the case here, 320 U.S. 731, to meet the claim that there was need for further precision regarding the scope of our previous rulings on the power of States to levy use taxes. In view, however, of the clear understanding by the court below that the facts we have summarized bring the transaction within the taxing power of Iowa, there is little need for elaboration. We agree with the Iowa Supreme Court that Felt Tarrant Co. v. Gallagher, 306 U.S. 62; Nelson v. Sears, Roebuck Co., supra; and Nelson v. Montgomery Ward Co., supra, are controlling. The Gallagher case is indistinguishable — certainly nothing can turn on the more elaborate arrangements for soliciting orders for an intricate machine for shipment from without a State as in the Gallagher case, compared with the apparently simpler needs for soliciting business in this case. And the fact that in the Sears Roebuck and Montgomery Ward cases the interstate vendor also had retail stores in Iowa, whose sales were appropriately subjected to the sales tax, is constitutionally irrelevant to the right of Iowa sustained in those cases to exact a use tax from purchasers on mail order goods forwarded into Iowa from without the State. All these differentiations are without constitutional significance. Of course, no State can tax the privilege of doing interstate business. See Western Live Stock v. Bureau, 303 U.S. 250. That is within the protection of the Commerce Clause and subject to the power of Congress. On the other hand, the mere fact that property is used for interstate commerce or has come into an owner's possession as a result of interstate commerce does not diminish the protection which he may draw from a State to the upkeep of which he may be asked to bear his fair share. But a fair share precludes legislation obviously hostile or practically discriminatory toward interstate commerce. See Best Co. v. Maxwell, 311 U.S. 454.

None of these infirmities affects the tax in this case any more than it did in the other cases with which it forms a group. The tax is what it professes to be — a non-discriminatory excise laid on all personal property consumed in Iowa. The property is enjoyed by an Iowa resident partly because the opportunity is given by Iowa to enjoy property no matter whence acquired. The exaction is made against the ultimate consumer — the Iowa resident who is paying taxes to sustain his own state government. To make the distributor the tax collector for the State is a familiar and sanctioned device. Monamotor Oil Co. v. Johnson, 292 U.S. 86, 93-94; Felt Tarrant Co. v. Gallagher, supra.

Affirmed.

MR. JUSTICE RUTLEDGE concurs. For his opinion, see post, p. 349.

MR. JUSTICE JACKSON, dissenting:

This decision authorizes in my opinion an unwarranted extension of the power of a state to subject persons to its taxing power who are not within its jurisdiction and have not in any manner submitted themselves to it. The General Trading Company is, in the language of the opinion, made "the tax collector for the State." We have heretofore held, and I think properly, that the state may make tax collectors of those who come in and do business within its jurisdiction, for thereby they submit themselves to its power. Such was the situation in both Monamotor Oil Co. v. Johnson, 292 U.S. 86, and Felt Tarrant Mfg. Co. v. Gallagher, 306 U.S. 62. These are the only authorities cited by the Court on this point, and they clearly are not precedents to support this decision.

In this case, as the opinion points out, the General Trading Company never qualified in Iowa and has no office, branch, warehouse, or general agent in the State. From Minnesota it ships goods ordered from salesmen by purchasers in Iowa. Orders are accepted only in Minnesota. The transaction of sale is not taxed and, being clearly interstate commerce, is not taxable. McLeod v. Dilworth Co., ante, p. 327. So we are holding that a state has power to make a tax collector of one whom it has no power to tax. Certainly no state has a constitutional warrant for making a tax collector of one as the price of the privilege of doing interstate commerce. He does not get the right from the state, and the state cannot qualify it. I can imagine no principle of states' rights or state comity which can justify what is done here. Nor does the practice seem conducive to good order in the federal system. The power of Iowa to enforce collection in other states is certainly very limited and the effort to do so on any wide scale is unlikely either to be systematically pursued or successfully executed.

I recognize the pressure to uphold all manner of efforts to collect tax moneys. But this decision, by which one may not ship goods from anywhere in the United States to a purchaser in Iowa without becoming a nonresident tax collector, exceeds everything so far done by this Court. In my opinion the statute is an effort to exert extraterritorial control beyond any which a state could exert if there were no Constitution at all. I can think of nothing in or out of the Constitution which warrants this effort to reach beyond the State's own border to make out-of-state merchants tax collectors because they engage in interstate commerce with the State's citizens.

MR. JUSTICE ROBERTS joins in this opinion.