BASS, ETC., LTD. v. Tax Comm.

Background

A British brewing company that made ale in England and sold some product in the United States through branch offices in New York and Chicago was assessed a New York franchise tax. New York’s Article 9‑A required foreign corporations to pay a yearly three percent tax measured by the prior year’s net income, with the share taxed to New York determined by the ratio of certain in‑state assets to the same assets everywhere. The company reported no net income for federal tax purposes, but its worldwide net income was $2,185,600; the State allocated $27,537.68 to New York and assessed a $826.14 tax.

Reasoning

The Court treated the levy as a tax for the privilege of doing business in the State and relied on earlier decisions allowing asset‑based apportionment for unitary businesses. It found the statutory method — using real and tangible property, bills and accounts, and a limited share of stocks to make the in‑state ratio — was not shown to be arbitrary or unreasonable on this record. The Court noted the company carried on a unitary manufacturing‑and‑sale business that began with manufacture abroad and ended with sales in New York, so New York could fairly attribute a portion of total profits to its local activity. The Court also held that lack of federal taxable income for the prior year did not automatically invalidate the State’s privilege tax. A separate argument about counting all stock value was not reviewed because it was not raised in the state courts.

Real world impact

States may use similar asset‑based formulas to tax parts of a multinational or foreign company’s business conducted in‑state. Companies doing unitary business that begins abroad but ends in U.S. sales should expect allocation and state franchise taxes. The stock‑valuation question was left for another day because it was not properly raised here.

Dissents or concurrances

Justice McReynolds dissented; the opinion does not detail his reasons in this summary.