Summary
The Supreme Court held that West Virginia’s wholesale gross receipts tax unconstitutionally discriminated against interstate commerce because it exempted in-state manufacturers from the wholesale tax while taxing out-of-state manufacturers selling wholesale in the State. The Court rejected treating the separate, higher manufacturing tax as a compensating tax and reversed the judgment of the Supreme Court of Appeals of West Virginia. The Court did not reach the separate nexus issue.
Topics
Practice areas
Questions Presented
- Whether West Virginia's wholesale gross receipts tax, which exempted local manufacturers but taxed wholesalers selling products manufactured outside the State, unconstitutionally discriminated against interstate commerce.
- Whether the challenged sales had sufficient nexus with West Virginia to support taxation.
Holdings
- West Virginia's wholesale gross receipts tax unconstitutionally discriminated against interstate commerce because it taxed interstate sellers on wholesale sales while exempting local manufacturers' competing wholesale sales.
- The Court did not reach whether Armco's sales through franchisees and nonresident salesmen had sufficient nexus with West Virginia to permit taxation because the tax was unconstitutional on discriminatory-commerce grounds.
Key quotations
“That is, a State may not tax a transaction or incident more heavily when it crosses state lines than when it occurs entirely within the State.” (467 U.S. at 642)
“Here, too, manufacturing and wholesaling are not "substantially equivalent events" such that the heavy tax on in-state manufacturers can be said to compensate for the admittedly lighter burden placed on wholesalers from out of State.” (467 U.S. at 643)
“This is not the test.” (467 U.S. at 644)
“We hold only that in the process of competition no State may discriminatorily tax the products manufactured or the business operations performed in any other State.” (467 U.S. at 645-646)
Factual background
Armco Inc., an Ohio corporation manufacturing and selling steel products, conducted business in West Virginia from 1970 through 1975 through five divisions. Some divisions had West Virginia facilities and employees, while others sold products through in-state franchisees or nonresident traveling salesmen. West Virginia imposed a wholesale gross receipts tax on sales of tangible property, but exempted local manufacturers from that tax while imposing a separate manufacturing tax. Armco challenged the tax both as applied to sales lacking sufficient nexus and as facially discriminatory against interstate commerce.
Procedural history
The State Tax Commissioner determined that the wholesale gross receipts tax was properly assessed on Armco's sales through franchisees and nonresident salesmen and that Armco had not shown discriminatory taxation. The Circuit Court of Kanawha County reversed, finding insufficient nexus between the sales and West Virginia. The Supreme Court of Appeals of West Virginia reversed and upheld the tax, concluding that Armco had a substantial nexus with the State and that the tax did not discriminate against interstate commerce. The United States Supreme Court noted probable jurisdiction and reversed.