New York v. Latrobe

Background

A Delaware corporation that went bankrupt began doing business in New York and was assessed a $15,000 license tax based on 250,000 issued shares without par value at 6 cents per share. The State’s law imposed this one-time fee on foreign corporations for the privilege of doing business during their first year, measured by the shares actually used in the state and apportioned to in-state assets. The bankruptcy referee and the District Court struck the tax claim as violating the Fourteenth Amendment’s equal protection guarantee, and the Court of Appeals affirmed.

Reasoning

The central question was whether a flat per-share tax on issued non-par stock, apportioned to business and property used in the state, unlawfully discriminates against some corporations. The Court distinguished an earlier case that struck down taxes based on merely authorized but unissued shares. Here the tax is measured by shares actually issued and used in New York and is apportioned to in-state property. The Court found real differences between par and non-par stock that justify treating them differently for tax purposes. It concluded the classification is not arbitrary and that New York may impose a similar franchise or license tax without violating equal protection.

Real world impact

The decision allows New York to enforce its flat per-share license fee against foreign corporations that use issued shares in the state and supports similar taxation schemes that apportion tax to in-state business. Foreign corporations with non-par stock may be taxed differently than those with par stock because of real differences in those share types.

Dissents or concurrances

Two Justices (McReynolds and Butler) concurred in the result; no dissenting opinion is reported in the text.