The Iowa Use Tax Act, complementing a sales tax, requires every
retailer maintaining a place of business within the State, at the
time of making sales of tangible personal property for use within
the State, to collect from the purchaser the tax imposed. The
amount required to be collected is made a "debt" of the retailer to
the State. Failure to collect the tax subjects a foreign
corporation to revocation of its permit to do business within the
State.
Held that a foreign corporation which maintained
retail stores in Iowa may constitutionally be required to collect
the tax in respect of mail orders, sent by Iowa purchasers to
out-of-state branches of the corporation and filled by direct
shipment by mail or common carrier from those branches to the
purchasers,
Page 312 U. S. 360
even though such orders were not solicited or placed by any of
the corporation's agents in Iowa. Pp.
312 U. S. 361,
312 U. S.
364.
1. The collection of the tax in such case is a burden which the
State may impose on the corporation as a price for enjoying the
full benefits of its Iowa business. P.
312 U. S.
364.
2. Since the use tax and the sales tax are complementary, and
sales made wholly within the State bear the same burden as the mail
order sales, there is no discrimination against interstate
commerce. P.
312 U. S.
364.
3. That the corporation is in competition with out-of-state mail
order houses which, because they are not authorized to do business
in Iowa, need not and do not collect the tax on their sales to Iowa
purchasers does not invalidate the operation of the Act as to it.
P.
312 U. S.
365.
4. Nor is the Act invalid because of the cost or inconvenience
to the corporation of collecting the tax, nor because of losses it
may sustain in making deliveries before collecting the tax. P.
312 U. S.
365.
228 Iowa 1273. 292 N.W. 130, reversed.
Certiorari, 311 U.S. 630, to review the affirmance by the state
supreme court of a decree enjoining the enforcement against
respondent of provisions of the Iowa Use Tax Act as applied to mail
order sales.
MR. JUSTICE DOUGLAS delivered the opinion of the Court.
This case involves the constitutionality of the Iowa Use Tax,
Iowa Code 1939, §§ 6943.102-6943.125, as applied to
respondent's mail order business conducted directly between
customers in Iowa and respondent's mail order houses located
outside Iowa. The Supreme Court of Iowa, in a five to four
decision, held for respondent
Page 312 U. S. 361
on that issue.
Sears, Roebuck & Co. v. Roddewig,
228 Iowa 1273, 292 N.W. 130. We granted certiorari because of the
importance of the constitutional question presented. 311 U.S. 630.
Jud.Code § 237(b), 28 U.S.C. § 344(b).
The Iowa Use Tax is complementary to the Iowa Retail Sales Tax.
Iowa Code 1939, § 6943.074,
et seq. It is a tax on
the use in Iowa of tangible personal property at the rate of two
percent of the purchase price. [
Footnote 1] "Use," so far as material here, is defined as
"the exercise by any person of any right or power over tangible
personal property incident to the ownership of that property."
§ 6943.102. While the tax is imposed on "every person using
such property within this state until such tax has been paid,"
§ 6943.103, it is further provided, § 6943.109, that
every
"retailer maintaining a place of business in this state and
making sales of tangible personal property for use in this state .
. . shall at the time of making such sales, whether within or
without the state, collect the tax imposed by this chapter from the
purchaser. . . ."
By § 6943.112, the tax constitutes a "debt owed by the
retailer" to the state. [
Footnote
2] And if the retailer
Page 312 U. S. 362
fails to collect the tax, etc., his retailer's permit, §
6943.084, may be revoked, and in case of a foreign corporation, its
permit to do business in the state as well. § 6943.122.
Respondent is a New York corporation authorized since 1928 to do
business in Iowa. It has various retail stores there. It pays the
tax on sales made at those stores. It also pays the tax on orders
placed at those stores, though shipment is made direct of the
purchaser from one of respondent's out of state branches. But it
has refused to collect the tax on mail orders sent by Iowa
purchasers to its out of state branches and filled by direct
shipments through the mails or a common carrier from those branches
to the purchasers. [
Footnote 3]
On threat of petitioners to revoke respondent's permit because of
such refusal, respondent brought this suit for an injunction,
alleging,
inter alia, that the Act, as applied, violates
Section 8 of Article I of the Constitution and Fourteenth
Amendment.
The Iowa Supreme Court held that, if respondent had limited its
activities to a mail order business of the kind here involved, it
would not be doing business in Iowa;
Page 312 U. S. 363
that, although technically the tax may be one the purchaser, it
must be collected when the sale is made, at which time the property
is outside the state; that these sales are separate and distinct
from respondent's activities in Iowa. It therefore concluded that
the tax as applied was unconstitutional, since Iowa has no power to
regulate respondent's activities outside the state or to regulate
such activities as a condition to respondent's right to continue to
do business in the state.
It passing on the constitutionality of a tax law, "we are
concerned only with its practical operation, not its definition or
the precise form of descriptive words which may be applied to it."
Lawrence v. State Tax Comm'n, 286 U.
S. 276,
286 U. S. 280;
Southern Pacific Co. v. Gallagher, 306 U.
S. 167,
306 U. S. 177;
Wisconsin v. J. C. Penney Co., 311 U.
S. 435. The fact that, under Iowa law, the sale is made
outside the state does not mean that the power of Iowa "has nothing
on which to operate."
Wisconsin v. J. C. Penney Co.,
supra. The purchaser is in Iowa, and the tax is upon use in
Iowa. The validity of such a tax, so far as the purchaser is
concerned, "has been withdrawn from the arena of debate."
Henneford v. Silas Mason Co., 300 U.
S. 577,
300 U. S. 583;
Southern Pacific Co. v. Gallagher, supra. It is one of the
well known functions of the integrated use and sales tax to remove
the buyers' temptation "to place their orders in other states in
the effort to escape payment of the tax on local sales."
Henneford v. Silas Mason Co., supra, p.
300 U. S. 581.
As pointed out in that case (p.
300 U. S.
582), the fact that the buyer employs agencies of
interstate commerce in order to effectuate his purchase is not
material, since the tax is "upon the privilege of use after
commerce is at an end."
And see Southern Pacific Co. v.
Gallagher, supra. Use in Iowa is what is taxed, regardless of
the time and place of passing title and regardless of the time the
tax is required to be paid.
Cf. McGoldrick v. Berwind-White
Coal Mining Co., 309 U. S. 33,
309 U. S.
49.
Page 312 U. S. 364
So the nub of the present controversy centers on the use of
respondent as the collection agent for Iowa. The imposition of such
a duty, however, was held not to be an unconstitutional burden on a
foreign corporation in
Monamotor Oil Co. v. Johnson,
292 U. S. 86, and
Felt & Tarrant Mfg. Co. v. Gallagher, 306 U. S.
62. But respondent insists that those cases involved
local activity by the foreign corporation as a result of which
property was sold to its local customers, while, in the instant
case, there is no local activity by respondent which generates or
which relates to the mail orders here involved. Yet these orders
are still a part of respondent's Iowa business. The fact that
respondent could not be reached for the tax if it were not
qualified to do business in Iowa would merely be a result of the
"impotence of state power."
Wisconsin v. J. C. Penney Co.,
supra. Since Iowa has extended to it that privilege, Iowa can
exact this burden as a price of enjoying the full benefits flowing
from its Iowa business.
Cf. Wisconsin v. J. C. Penney Co.,
supra. Respondent cannot avoid that burden though its business
is departmentalized. Whatever may be the inspiration for these mail
orders, however they may be filled, Iowa may rightly assume that
they are not unrelated to respondent's course of business in Iowa.
They are nonetheless a part of that business though none of
respondent's agents in Iowa actually solicited or placed them.
Hence, to include them in the global amount of benefits which
respondent is receiving from Iowa business is to conform to
business facts.
Nor is the mode of enforcing the tax on the privileges of these
Iowa transactions any discrimination against interstate commerce.
As we have seen, the use tax and the sales tax are complementary.
Sales made wholly within Iowa carry the same burden as these mail
order sales. A tax or other burden obviously does not discriminate
against interstate commerce where "equality
Page 312 U. S. 365
is the theme."
Henneford v. Silas Mason Co., supra, pp.
300 U. S.
583-586;
McGoldrick v. Berwind-White Coal Mining
Co., supra, pp.
309 U. S.
48-49.
Respondent, however, insists that the duty of tax collection
placed on it constitutes a regulation of and substantial burden
upon interstate commerce, and results in an impairment of the free
flow of such commerce. It points to the fact that, in its mail
order business, it is in competition with out of state mail order
houses which need not and do not collect the tax on their Iowa
sales. But those other concerns are not doing business in the state
as foreign corporations. Hence, unlike respondent, they are not
receiving benefits from Iowa for which it has the power to exact a
price. Respondent further stresses the cost to it of making these
collections and its probable loss as a result of its inability to
collect the tax on all sales. [
Footnote 4] But cost and inconvenience inhered in the same
duty imposed on the foreign corporations in the
Monamotor
and
Felt & Tarrant cases. And, so far
Page 312 U. S. 366
as assumed losses on tax collections are concerned, respondent
is in no position to found a constitutional right on the practical
opportunities for tax avoidance which its method of doing business
affords Iowa residents, or to claim a constitutional immunity
because it may elect to deliver the goods before the tax is
paid.
Prohibited discriminatory burdens on interstate commerce are not
to be determined by abstractions. Particular facts of specific
cases determine whether a given tax prohibitively discriminates
against interstate commerce. Hence, a review of prior adjudications
based on widely disparate facts, howsoever embedded in general
propositions, does not facilitate an answer to the present
problem.
The judgment is reversed, and the cause is remanded to the Iowa
Supreme Court for proceedings not inconsistent with this
opinion.
Reversed.
MR. JUSTICE STONE took no part in the consideration or
disposition of this case.
[
Footnote 1]
The Use Tax Act provides, in § 6943.103,
"An excise tax is hereby imposed on the use in this state of
tangible personal property purchased on or after the effective date
of this chapter (April 16, 1937) for use in this state at the rate
of two percent of the purchase price of such property. Said tax is
hereby 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 as hereinafter
provided."
The sales tax is a two percent tax on gross receipts from sales
of tangible personal property sold at retail in the state to
consumers or users. § 6943.075. So far as material here, the
Use Tax need not be paid on property where a tax is required to be
paid under the Sales Tax Act. § 6943.104.
[
Footnote 2]
The retailer must also make quarterly returns. § 6943.113.
Penalties are imposed for delay in filing returns, § 6943.118,
for failure to do so or for failure to furnish data required by the
commission. § 6943.120.
[
Footnote 3]
In 1937, respondent mailed to residents of Iowa about 600,000
small catalogues and 427,000 large ones. Respondent maintains 12
retail stores in Iowa, its investment therein exceeding $500,000.
The aggregate sales of the retail stores in Iowa for 1936 amounted
to $5,080,000; for 1937, $5,600,000. Its mail order sales in Iowa
for 1936 aggregated about $5,900,000; for 1937, about $5,400,000.
It estimates that it has some 300,000 Iowa customers of its mail
order houses and that, in 1937, there were about 1,200,000 orders
received from Iowa customers.
One of respondent's witnesses testified that the catalogues and
bulletins mailed out were "out sole means of securing" the mail
order business. But he also testified,
"If a customer inquired from a clerk in the store as to whether
or not he would have to pay a use tax upon an order, I believe the
clerk would inform him that, if he himself mailed the order, that
there would be no sales tax or use tax charged."
[
Footnote 4]
In Illinois, respondent undertakes to collect the sales tax on
mail orders from its Illinois customers. A notice and schedule of
the tax for various amounts of orders are contained in the Illinois
catalogue. It asserts that approximately 65% of those orders
include an allowance for the tax. Where the orders are not
accompanied by an amount covering the Illinois sales tax,
respondent does not hold up the order, but fills it and sends the
customer a bill for the difference. It says that it collects
approximately 36% of those deficiencies where the amount is less
than 25�; 70% to 75%, where the amount is more. On the
assumption that, on sales to Iowa purchasers, the use tax would
amount to $100,000 a year, respondent asserts that, based on its
Illinois experience, the maximum that would be collected would be
$68,000. To do that, it says, would entail a direct cost to it of
approximately $13,700 a year. Those calculations are on the
assumption that respondent would put a notice in its Iowa
catalogues similar to the one used in Illinois. If such a notice
were not given, it asserts that collections of the Iowa use tax
would not exceed $35,000 (out of an assumed $100,000), and that its
cost would be approximately $18,000.
MR. JUSTICE ROBERTS, dissenting.
I think that the judgment should be affirmed.
The respondent, a New York corporation, conducts an interstate
mail order business. It has also established retail stores
throughout the country. In 1928, to secure the privilege of
conducting stores in Iowa as a foreign corporation, it obtained a
permit which has been kept in force by payment of the fees
prescribed by the State. No question arises with respect to the
collection by the respondent of the tax on sales made in stores in
Iowa or on sales based upon orders taken in those stores but filled
by forwarding articles from a warehouse in another state.
The controversy arises only over pure mail order sales. These
are consummated in the following manner: the respondent forwards to
persons in Iowa catalogues detailing
Page 312 U. S. 367
the articles it has for sale, the prices, and the cost of
transporting them. A person in Iowa forwards his written order to
one of the respondent's mail order houses located outside Iowa for
the purchase of tangible personal property as listed and priced in
respondent's catalogue, the order being accompanied by a remittance
of the purchase price, plus transportation charges, and usually
specifying the method of transportation desired by the purchaser.
The order is accepted or rejected at the place where it is
received, and, if accepted, is filled by delivery to the post
office or to a carrier for direct shipment from the extra-state
mail order house to the purchaser in Iowa.
This mail order branch of respondent's business is separate and
distinct from any activity conducted at its stores in Iowa. In
conducting it, the respondent is in direct competition with other
mail order houses which conduct their business in exactly similar
fashion but have no stores in Iowa and are not therein registered
as foreign corporations.
The method necessarily pursued in the respondent's mail order
business makes it a certainty that it will be unable, by whatever
practical efforts it may put forth, to collect the amount of the
use tax on all its mail order sales made to persons in Iowa. In
1937, the number of its mail order transactions with some 300,000
persons in Iowa was approximately 1,200,000. Under the statute as
attempted to be enforced against its mail order business, if, in
1937, the respondent had failed to collect from each customer the
sum involved as tax, it would have been liable to Iowa in the
aggregate for two percent on approximately $5,400,000 -- the volume
of its Iowa mail order business in that year. If it had made the
effort to collect the tax, the cost of so doing would have been
approximately eighteen percent of the total tax on the mail order
sales made to persons in Iowa and, in addition to that cost, the
respondent would have been liable
Page 312 U. S. 368
for approximately $38,000 of tax uncollected from purchasers. In
addition, as a result of the exaction, the respondent's mail order
business will be placed at a serious disadvantage in competition
with other mail order concerns which have no retail stores in Iowa,
and so have a price advantage of two percent. of sales price as
against respondent.
The penalty for failing to collect the tax as agent for the
State, or to pay the sum not susceptible of collection from
purchasers, as required by the State, will be the revocation of
respondent's permit for the conduct of its stores in Iowa, which
represent a large expenditure for furniture, fixtures, appliances,
and stock, and will entail loss of rental values under long-term
leases.
I am of opinion that the attempted enforcement of the statute in
the manner proposed by the taxing authorities of the State violates
both the commerce clause and the Fourteenth Amendment of the
Constitution.
First. The respondent's mail order business is
interstate commerce, [
Footnote 2/1]
and Iowa may not prohibit the respondent from conducting that
business with her citizens. [
Footnote
2/2] To attempt so to do would be a violation of the commerce
clause of the Constitution.
Not only so, but Iowa may not directly burden such commerce.
Therefore, she may not tax the privilege of engaging in it,
regulate or license its pursuit, [
Footnote 2/3] or tax the
Page 312 U. S. 369
gross income derived from it. [
Footnote 2/4] And even if the respondent maintained a
force of agents in Iowa soliciting orders to be shipped in
interstate commerce, that fact would not render it amenable to the
regulation or taxation of its mail order business. [
Footnote 2/5]
Thus, Iowa may not lawfully license or regulate the business of
agents soliciting orders to be shipped in interstate commerce,
[
Footnote 2/6] or limit or
condition the right to enforce mail order contracts in Iowa courts.
[
Footnote 2/7] The power to exclude
foreign corporations altogether from doing a local business does
not enable the State to impose burdens upon the transaction of
interstate commerce by a foreign corporation registered in the
State, and registration by a foreign corporation in order to do
business within the State does not constitute a waiver of the
corporation's right to transact interstate business free from the
burdens of state regulation or taxation. [
Footnote 2/8]
Iowa may not abuse its conceded power to tax or regulate the
respondent's activities within the State by attempting to compel
compliance by the respondent with unconstitutional efforts to tax
or burden its interstate commerce. [
Footnote 2/9] And Iowa may not forfeit, as it proposes
to do, the right to conduct a domestic business by reason of the
refusal of the respondent to submit to a burden upon its interstate
business. [
Footnote 2/10]
Page 312 U. S. 370
Clearly, in this instance, the effort is directly and
substantially to burden the transaction of an interstate business
with the state's citizens, in violation of the commerce clause, by
the threat of penalizing disobedience by the forfeiture of the
right to transact, within Iowa, an independent business which the
respondent conducts in accordance with all existing laws, including
the law requiring it to deduct and pay over the amount of the Iowa
sales tax. Upon reason, as well as upon the unbroken current of
authority in this court, Iowa has no such power to burden
interstate commerce.
Monamotor Oil Co. v. Johnson, 292 U. S.
86, and
Felt & Tarrant Mfg. Co. v.
Gallagher, 306 U. S. 62,
relied upon by the petitioners, are not in point.
The first is not apposite because there, the company was engaged
in the distribution of gasoline in the Iowa. This was the only
activity drawn in question. The statute merely required the
company, in distributing gasoline to users, to add the tax to its
sales price and report and return the amount of tax thus withheld.
In the second, the collection of the use tax was imposed with
respect to property sold by the corporation through its general
agents, who were doing business in the California and were handling
articles sold for delivery in that State. As an incident of such
sales, the seller was required to add the tax and make return of it
to the State. [
Footnote 2/11]
In justification of the exaction, it is said that the purchaser
is in Iowa and the tax is on the purchaser's use in that State.
But, if these facts were determinative, they would justify the
imposition of a tax or burden, by the
Page 312 U. S. 371
state of the purchaser's residence, on every transaction in
which goods are sold in interstate commerce. Attention is also
called to the fact that Iowa cannot effectively reach its own
citizens in order to enforce the use tax on them. This cannot,
however, justify the state's attempt to save itself trouble by
placing an unconstitutional burden upon interstate commerce
conducted by a citizen of another state. Reference is made to the
circumstance that, as a similar tax is laid on local sales in Iowa,
there is no discrimination in imposing the tax or its collection
upon the respondent, but the argument will not serve to legalize
the tax. A state cannot justify a burden on interstate commerce by
laying a similar burden on local commerce. [
Footnote 2/12]
Second. So far as the Fourteenth Amendment is
concerned, Iowa may lay a tax on any activity of the respondent
which it pursues within the State, but plainly, upon the facts
disclosed, there is, in the conduct of respondent's mail order
business, no such local activity. The Supreme Court of the State,
292 N.W. 130, 135, correctly found:
"The sales are consummated outside the Iowa in each instance.
They are separate and distinct from plaintiff's activities in Iowa.
The statute here challenged seeks to impose upon plaintiff the
obligation that it 'shall, at the time of making such sales,
whether within or without the state, collect the tax imposed by
this chapter from the purchaser.' The sales are made outside of
Iowa, and the statute requires plaintiff to collect the tax at the
time the sales are made. It clearly seeks to regulate activities of
plaintiff outside the state. . . . Under repeated pronouncements of
the Supreme Court of the United States, hereinbefore reviewed and
quoted from, the Iowa has no such right. "
Page 312 U. S. 372
Delivery to a designated carrier is delivery to the customer
[
Footnote 2/13] and, in this
case, is completed outside Iowa. The attempt, therefore, to impose
a burden upon such delivery or to regulate the transaction is but
an effort on the part of Iowa to regulate or tax an event which
occurs outside her borders and over which she has no jurisdiction.
[
Footnote 2/14] This court has
recently enforced this principle in a case on its merits more
favorable to the State's contention than the present. [
Footnote 2/15] There, it was said:
"It follows that such a tax, otherwise unconstitutional, is not
converted into a valid exaction merely because the corporation
enjoys outside the state economic benefits from transactions within
it, which the state might but does not tax, or because the state
might tax the transactions which the corporation carries on outside
the state if it were induced to carry them on within."
McGoldrick v. Berwind-White Coal Mining Co.,
309 U. S. 33, is
distinguishable from the instant case, for there, the decision was
grounded on the fact that the transfer of title and consummation of
sale depended upon delivery by the seller in the taxing state.
In this aspect also, the power of the State does not extend to
measures which condition respondent's privilege to do business in
another state free from the regulation or taxation of Iowa.
[
Footnote 2/16]
THE CHIEF JUSTICE joins in this opinion.
[
Footnote 2/1]
Heyman v. Hays, 236 U. S. 178,
236 U. S.
186.
[
Footnote 2/2]
Bowman v. Chicago & N.W. R. Co., 125 U.
S. 465;
Leisy v. Hardin, 135 U.
S. 100;
Schollenberger v. Pennsylvania,
171 U. S. 1;
West v. Kansas Natural Gas Co., 221 U.
S. 229,
221 U. S. 250,
221 U. S. 262;
Louisville & N. R. Co. v. Cook Brewing Co.,
223 U. S. 70,
223 U. S. 82;
The Minnesota Rate Cases, 230 U.
S. 352,
230 U. S.
401.
[
Footnote 2/3]
International Textbook Co. v. Pigg, 217 U. S.
91,
217 U. S. 105,
217 U. S. 108;
Buck Stove & Range Co. v. Vickers, 226 U.
S. 205,
226 U. S. 215;
Sault Ste. Marie v. International Transit Co.,
234 U. S. 333,
234 U. S. 340;
Lemke v. Farmers' Grain Co., 258 U. S.
50;
Puget Sound Stevedoring Co. v. Tax
Commission, 302 U. S. 90,
302 U. S.
94.
[
Footnote 2/4]
Fisher's Blend Station v. Tax Commission, 297 U.
S. 650,
297 U. S. 655;
Adams Manufacturing Co. v. Storen, 304 U.
S. 307.
[
Footnote 2/5]
Crutcher v. Kentucky, 141 U. S. 47;
International Textbook Co. v. Pigg, supra.
[
Footnote 2/6]
Brennan v. Titusville, 153 U.
S. 289;
Crenshaw v. Arkansas, 227 U.
S. 389.
[
Footnote 2/7]
Sioux Remedy Co. v. Cope, 235 U.
S. 197,
235 U. S. 201;
Furst v. Brewster, 282 U. S. 493.
[
Footnote 2/8]
Fidelity & Deposit Co. v. Tafoya, 270 U.
S. 426,
270 U. S. 434;
Hanover Fire Ins. Co. v. Harding, 272 U.
S. 494,
272 U. S. 507,
272 U. S. 517.
[
Footnote 2/9]
Looney v. Crane Co., 245 U. S. 178,
245 U. S.
187.
[
Footnote 2/10]
Western Union Telegraph Co. v. Kansas, 216 U. S.
1,
216 U. S. 34;
Pullman Co. v. Kansas, 216 U. S. 56;
Atchison, T. & S.F. Ry. Co. v. O'Connor, 223 U.
S. 280,
223 U. S. 285;
Western Union Tel. Co. v. Foster, 247 U.
S. 105,
247 U. S. 114;
Frost & Frost Trucking Co. v. Railroad Commission,
271 U. S. 583,
271 U. S.
593.
[
Footnote 2/11]
Compare Wiloil Corp. v. Pennsylvania, 294 U.
S. 169;
Graybar Electric Company v. Curry, 308
U.S. 513.
[
Footnote 2/12]
Western Union Telegraph Co. v. Kansas, supra; Crew Levick
Co. v. Pennsylvania, 245 U. S. 292.
[
Footnote 2/13]
United States v. R. P. Andrews & Co., 207 U.
S. 229;
compare Garretson v. Selby, 37 Iowa
529.
[
Footnote 2/14]
St. Louis Cotton Compress Co. v. Arkansas, 260 U.
S. 346.
[
Footnote 2/15]
Connecticut General Life Ins. Co. v. Johnson,
303 U. S. 77.
[
Footnote 2/16]
New York Life Ins. Co. v. Dodge, 246 U.
S. 357,
246 U. S. 375;
Home Insurance Co. v. Dick, 281 U.
S. 397,
281 U. S. 407;
James v. Dravo Contracting Co., 302 U.
S. 134,
302 U. S.
139.