Puget Sound Stevedoring Co. v. State Tax Commission
Headline: Court limits Washington’s business tax, striking down taxation on stevedoring tied to loading or unloading interstate or foreign ships while allowing tax when the company merely supplied longshore labor.
Holding: In a final ruling, the Court held Washington may not tax stevedoring services that are part of loading or unloading interstate or foreign ships, but may tax the company when it only supplies labor without directing the work.
- Prevents Washington from taxing gross receipts from loading/unloading of interstate or foreign ships.
- Allows Washington to tax services that simply supply labor without directing loading work.
- Requires companies to separate taxable labor-supply contracts from nontaxable stevedoring work.
Summary
Background
The case involves a Puget Sound stevedoring company, a Washington corporation that loads and unloads cargo at Seattle and other Puget Sound ports. Washington law imposed a business privilege tax, using special percentages for some industries and a general rate of one half of one percent on gross income for other businesses. The company used two different arrangements: one where it hired, supervised, and paid longshoremen to load and unload ships itself; and a less frequent one where it simply gathered and supplied longshore workers to a vessel, advanced their pay, and billed the shipowner the payroll plus a commission. The company sued to stop state tax collectors from collecting the tax. The trial court dismissed the suit and the Washington Supreme Court affirmed, treating the company as an independent contractor doing local business.
Reasoning
The Court asked whether the tax could be applied to the company’s work. It held that when the company actually loaded or discharged cargo under its own direction, that work was part of interstate or foreign commerce and could not be taxed by the state as a percentage of gross receipts. By contrast, when the company merely supplied labor without directing the loading or unloading, that activity was a local employment service and was subject to state taxation. The Court’s decision depended on the nature of the services performed, not on the company’s label as an independent contractor.
Real world impact
Moving forward, stevedoring firms must distinguish operations that are an integral part of shipborne transportation from mere labor-supply services. Washington cannot collect a gross-receipts percentage tax on loading and unloading that is part of interstate or foreign shipping, but it can tax the company’s labor-supply arrangements. The case returns to the state court for further proceedings consistent with this ruling.
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