Freeman v. Hewit/Dissent Douglas

by Felix Frankfurter

United States Supreme Court

329 U.S. 249

Freeman  v.  Hewit

 Argued: Oct. 14, 1946. --- Decided: Dec 16, 1946

Mr. Justice DOUGLAS, with whom Mr. Justice MURPHY concurs, dissenting.

I think the Court confuses a gross receipts tax on the Indiana broker with a gross receipts tax on his Indiana customer. Gwin, White & Prince, Inc. v. Henneford, 305 U.S. 434, 59 S.Ct. 325, 83 L.Ed. 272, would hold invalid a gross receipts tax, unapportioned, on the broker. In that case, the taxpayer was a marketing agent for fruit growers in the State of Washington. The agent made sales and deliveries of the fruit in other States and in foreign countries, collected the sales prices, and remitted the proceeds, less charges, to the customers. The Court held that the gross receipts tax, being unapportioned, was invalid. There are two reasons why that result followed. In the first place, as the Court stated 305 U.S. at page 437, 59 S.Ct. at page 327, 83 L.Ed. 272, 'The entire service for which the compensation is paid is in aid of the shipment and sale of merchandise' in interstate or foreign commerce. 'Such services are within the protection of the commerce clause'. In the second place, as the Court stated 305 U.S. at page 439, 59 S.Ct. at page 328, 83 L.Ed. 272, 'If Washington is free to exact such a tax, other states to which the commerce xtends may, with equal right, lay a tax similarly measured for the privilege of conducting within their respective territorial limits the activities there which contribute to the service. The present tax, though nominally local, thus in its practical operation discriminates against interstate commerce, since it imposes upon it, merely because interstate commerce is being done, the risk of a multiple burden to which local commerce is not exposed.'

Under that view a tax on the commissions of the Indiana broker would be invalid. But I see no more reason for giving the customer immunity than I would for giving immunity to the fruit growers who sold their fruit through the broker in Gwin, White & Prince Inc. v. Henneford, supra.

Concededly almost any local activity could, if integrated with earlier or subsequent transactions, be treated as parts of an interstate whole. In that view American Mfg. Co. v. City of St. Louis, 250 U.S. 459, 39 S.Ct. 522, 63 L.Ed. 1084, would find survival difficult. For in that case a state tax on a manufacturer was upheld though the tax was measured by the value of the goods manufactured within the State and thereafter sold in interstate commerce. In Western Live Stock v. Bureau of Revenue, 303 U.S. 250, 58 S.Ct. 546, 82 L.Ed. 823, 115 A.L.R. 944, a tax laid on the gross receipts of a trade journal published in New Mexico was sustained although out-of-state advertisements were included in the journal and there was interstate distribution of it. The Court treated the local business as separate and distinct from the transportation and intercourse which are interstate commerce and which were employed to conduct the business.

I think the least that can be said is that the local transactions or activities of this taxpayer can be as easily untangled from the interstate activities of his broker.

Any receipt of income in Indiana from out-of-state sources involves, of course, the use of interstate agencies of communication. That alone, however, is no barrier to its taxation by Indiana. Western Live Stock v. Bureau of Revenue, supra. Cf. People of State of New York et rel. Cohn v. Graves, 300 U.S. 308, 57 S.Ct. 466, 81 L.Ed. 666, 108 A.L.R. 721. The receipt of income in Indiana, like the delivery of property there, International Harvester Co. v. Dept. of Treasury, 322 U.S. 340, 64 S.Ct. 1030, 88 L.Ed. 1313, is a local transaction which constitutionally can be made a taxable event. For a local activity which is separate and distinct from interstate commerce may be taxed though interstate activity is induced or occasioned by it. Western Live Stock v. Bureau of Revenue supra, 303 U.S. at page 253, 58 S.Ct. at page 547, 82 L.Ed. 823, 115 A.L.R. 944. The management of an investment portfolio with income from out-of-state sources is as much a local activity as the manufacture of goods destined for interstate commerce, American Mfg. Co. v. City of St. Louis, supra, the publication of a trade journal with interstate revenues, Western Live Stock v. Bureau of Revenue, supra, or the growing of fruit for interstate markets, Gwin, White & Prince Inc. v. Henneford, supra. All such taxes affect in some measure interstate commerce or increase the cost, of doing it. But, as we pointed out in McGoldrick v. Berwind-White Coal Mining Co., 309 U.S. 33, 48, 60 S.Ct. 388, 393, 84 L.Ed. 565, 128 A.L.R. 876, that is no constitutional obstacle.

Adams Mfg. Co. v. Storen, 304 U.S. 307, 58 S.Ct. 913, 82 L.Ed. 1365, 117 A.L.R. 429, is different. In that case the taxpayer had its factory and place of business in Indiana and sold its products in other States on orders taken subject to approval at the home office. The Court thought the risk of multiple taxation was real, because of the interstate reach of the taxpayer's business activities. The fact is that the incidence of that tax was comparable to the incidence of an unapportioned tax on interstate freight revenues.

The present tax is not aimed at interstate commerce and does not discriminate agains it. It is not imposed as a levy for the privilege of doing it. It is not a tax on interstate transportation or communication. It is not an exaction on property in its interstate journey. It is not a tax on interstate selling. The tax is on the proceeds of the sales less the brokerage commissions and therefore does not reach the revenues from the only interstate activities involved in these transactions. It is therefore essentially no different, so far as the Commerce Clause is concerned from a tax by Indiana on the proceeds of the sale of a farm or other property in New York where the mails are used to authorize it, to transmit the deed, and to receive the proceeds.

I would adhere to the philosophy of our recent cases ^[1] and affirm the judgment below.

Notes

1. Of which Gwin, White & Prince, Inc. v. Henneford, supra, Western Live Stock v. Bureau of Revenue, supra, and McGoldrick v. Berwind-White Coal Mining Co., supra, are illustrative.