Virginia v. Imperial Coal Sales Co.

Background

A Virginia sales agency that sold coal for foreign mining companies had its main office in Lynchburg and a branch in Cincinnati. The company managed shipments, collected sales money, and deposited proceeds in Lynchburg banks. Virginia assessed an ad valorem “capital” tax on the company’s money and the excess of its accounts receivable over accounts payable. The company challenged both the income and capital taxes; the state courts struck them down, and the case reached this Court.

Reasoning

The Court treated the income tax issue as resolved on state law and did not decide it on federal grounds. For the capital tax, the Court considered whether intangible assets located in Virginia could be taxed without violating rules about interstate commerce. The Court held that the company’s money and receivables were located in Virginia because they were collected and deposited there. The tax was an ordinary ad valorem property tax, not a fee for the privilege of doing business. Because the tax was non-discriminatory and based on property located in the State, any effect on interstate commerce was indirect and incidental, and therefore constitutionally permissible.

Real world impact

The decision means states can tax intangible property like cash and accounts when those items are situated in the state, even if the business’s sales cross state lines. The ruling distinguishes such property taxes from fees or excise taxes that directly target the right to do interstate business. The case was reversed and sent back for further proceedings consistent with this opinion.