National Paper & Type Co. v. Bowers

Background

A New Jersey corporation doing export business in New York bought goods inside the United States and sold them abroad. Under the Revenue Act of 1921 the company had to pay income tax on its earnings, while foreign corporations doing the same buying-and-exporting business were expressly exempt under §§ 217 and 233. In March 1922 the Collector demanded $4,203.91 for a quarterly tax; the company paid under protest to avoid seizure of its property and later filed a written refund claim that went unpaid, then sued the Collector seeking repayment.

Reasoning

The Court considered whether treating domestic and foreign corporations differently violated the Fifth Amendment’s due process protection or the constitutional rule against taxes on exports. The Court held Congress may treat the two kinds of corporations differently because foreign corporations earn profits under the protection of their home governments, while domestic corporations receive the protection of U.S. laws and therefore may be taxed on income earned under that protection. The opinion also rejected the argument that the tax was an unlawful tax on exports, citing earlier authority.

Real world impact

The District Court’s dismissal of the company’s refund claim was affirmed, so the company loses its repayment action. The decision confirms Congress can design tax rules that favor foreign corporate exporters in respect to foreign-source profits. That policy choice makes it harder for U.S. exporters in similar situations to challenge such differential tax treatment.