Summary
The Supreme Court upheld Missouri's franchise tax as applied to International Shoe Company's non-par stock. The Court held that the tax did not violate equal protection or the Commerce Clause because it was apportioned to the corporation's in-state property and business and operated as a privilege tax rather than a property tax. The Court also rejected a challenge under the Missouri Constitution's single-subject and title requirements.
Topics
Practice areas
Questions Presented
- Whether Missouri's franchise tax, as applied to International Shoe's non-par stock, violated the Equal Protection Clause of the Fourteenth Amendment.
- Whether the tax had an impermissible extraterritorial effect by taxing property or business outside Missouri.
- Whether the franchise tax violated the Commerce Clause because International Shoe engaged in interstate commerce.
- Whether Missouri's 1921 Stock Corporation Act violated Article IV, § 28 of the Missouri Constitution because its title did not clearly express the Act's subject.
Holdings
- Missouri's franchise tax, including its method of assigning a specified value to non-par stock, did not violate the Equal Protection Clause of the Fourteenth Amendment.
- The tax did not impermissibly tax property or business outside Missouri because the tax base was apportioned to the corporation's property and assets employed within the state.
- A properly apportioned franchise tax imposed for the privilege of conducting local business in Missouri was not invalid under the Commerce Clause merely because part of the corporation's property or capital was used in interstate commerce.
- The title of Missouri's 1921 Stock Corporation Act sufficiently expressed its subject and therefore complied with Article IV, § 28 of the Missouri Constitution.
Key quotations
“The tax is a privilege and not a property tax.” (432-433)
“The mere fact that a corporation is engaged in interstate commerce does not relieve it of local tax burdens in respect of its property within the state or its intrastate business.” (433)
“The purpose of the constitutional provision is "to prevent the inclusion of incongruous and unrelated matters in the same measure and to guard against inadvertence, stealth and fraud in legislation,"” (435)
“The title of the present act satisfies these requirements.” (435)
Factual background
International Shoe manufactured and sold shoes in both intrastate and interstate commerce, with approximately 54 percent of its more than $97 million in gross assets located in Missouri. Missouri imposed an annual franchise tax based on the proportion of a corporation's capital stock and surplus employed in the state. After Missouri's non-par-stock statute was applied, the company's non-par shares were assigned a value of $376 million, increasing its annual franchise tax from approximately $25,000 to more than $100,000.
Procedural history
International Shoe sought to enjoin Missouri tax officials from collecting franchise taxes assessed under Missouri's Corporation Annual Franchise Tax. The three-judge District Court for the Western District of Missouri denied an interlocutory injunction. The Supreme Court affirmed.