[304 U.S. 307, 308] Messrs. Frederick E. Matson and Harry T. Ice, both of Indianapolis, Ind., for appellant.
Messrs. A. J. Stevenson, Asst. Atty. Gen., and Joseph P. McNamara, Deputy Atty. Gen., for appellees.
Mr. Justice ROBERTS delivered the opinion of the Court.
In this case we are called upon to determine whether the Indiana Gross Income Tax Act of 1933,1 as construed and applied, burdens interstate commerce and impairs the obligation of contract in contravention of article 1, sections 8 and 10, of the Constitutio o f the United States.
Section 1 declares that the phrase 'gross income' as used in the Act means, inter alia, gross receipts derived from trades, businesses, or commerce, and receipts from investment of capital, including interest. Section 2 imposes a tax ascertained by the application of specified rates to the gross income of every resident of the State and the gross income of every nonresident derived from sources within the State. Section 6 exempts 'So much of such gross income as is derived from business conducted in commerce between this state and other states of the United States, or between this state and foreign countries, to the extent to which the State of Indiana is prohibited from taxing under the Constitution of the United States of America.'
The appellant, an Indiana corporation, manufactures road machinery and equipment and maintains its home office, principal place of business, and factory in the State. It sells 80 per cent. of its products to customers [304 U.S. 307, 309] in other states and foreign countries upon orders taken subject to approval at the home office. Shipments are made from the factory and payments are remitted to the home office. Pursuant to a practice of investing surplus funds not immediately required in its business, the appellant owns and receives interest upon bonds and notes of Indiana municipal corporations which, at the time they were issued, were declared by statute to be exempt from taxation.
Upon the adoption of the Act, the appellant filed a petition in a State circuit court in which, after reciting these facts, it alleged that the appellees were demanding that it report and pay taxes upon income received in interstate and foreign commerce and income received as interest upon securities exempted from taxation by the State law and that these demands, together with penalties specified in the statute for failure to make return and pay the tax, would be enforced unless prevented by the judgment of the court. The prayer was for a declaratory judgment that the Act, as construed and applied by the appellees, is unconstitutional. After issue joined the facts were stipulated and the court made findings and entered a judgment in favor of the appellant. The Supreme Court of Indiana reversed the judgment holding that the tax demanded does not unconstitutionally burden the interstate commerce in which appellant is engaged and does not impair the obligation of any contract of the State exempting municipal securities from taxation. 2
1. Will the threatened imposition of the tax on the gross income from the appellant's sales in interstate commerce contravene article 1, section 8, of the Constitution, which reposes in Congress power to regulate interstate and foreign commerce?
The title of the Act declares that it is a revenue measure imposing a tax upon 'the receipt of gross income.' [304 U.S. 307, 310] The statute defines gross income as meaning the gross receipts derived from trades, businesses, or commerce. The Supreme Court of Indiana in its opinion states: 'The statute here under consideration levies a tax upon all who are domiciled within the state, based upon the privilege of domicile, and transacting business, and receiving gross income, within the state, and measured by the amount of gross income.' 3
The tax is not an excise for the privilege of domicile alone, since it is levied upon the gross income of nonresidents from sources within the State. Nor is it for the transaction of business since in many instances it hits the receipt of income by one who conducts no business. It is not a charter fee or a franchise fee measured by the value of goods manufactured or the amount of sales such as the State would be competent to demand from domestic or foreign corporations for the privilege conferred. 4 It is not an excise upon the privieg e of producing or manufacturing within the State, measured by volume of production or the amount of sales. 5 It is not a tax in lieu of ad valorem taxes upon property, which would be inoffensive to the commerce clause,6 since the appellant pays local and state taxes upon its property within the State and it appears that these, as respects appellant and others similarly situated, have not been reduced. The Act, moreover, is silent as to the tax being in lieu of property taxes. The opinion of the Supreme Court suggests that the [304 U.S. 307, 311] statute was adopted as part of a scheme for the reduction of local property taxes and the substitution of a gross income tax but, as appellant points out, provision for reduction of property taxes was made by legislation passed in 1932.7
The regulations issued by the Department of the Treasury, pursuant to authority granted by the Act, treat the exaction as a gross receipts tax;8 and the Attorney General says in his brief that it is a privilege tax upon the receipt of gross income. We think this a correct description.
We conclude that the tax is what it purports to be-a tax upon gross receipts from commerce. Appellant's sales to customers in other states and abroad are interstate and foreign commerce. The Act, as construed, imposes a tax of one per cent. on every dollar received from these sales.
The vice of the statute as applied to receipts from interstate sales is that the tax includes in its measure, without apportionment, receipts derived from activities in interstate commerce; and that the exaction is of such a character that if lawful it may in substance be laid to the fullest extent by states in which the goods are sold as well as those in which they are manufactured. Interstate commerce would thus be subjected to the risk of a double tax burden to which intrastate commerce is not exposed, and which the commerce clause forbids. 9 We have repeatedly held that such a tax is a regulation of, and a burden upon, interstate commerce prohibited by article 1, section 8, of the [304 U.S. 307, 312] Constitution. 10 The opinion of the State Supreme Court stresses the generality and nondiscriminatory character of the exaction but it is settled that this will not save the tax if it directly burdens interstate commerce.