McGoldrick v. Felt & Tarrant Mfg. Co.

Background

The cases involve two out-of-state manufacturers and New York City’s tax on sales made to city buyers. One is an Illinois company that makes adding machines and uses a New York office and agents to take orders, which are approved and filled from Illinois, shipped to the agent’s New York office, inspected there, and then delivered to the purchaser; payments are sent to Illinois. The other is a Massachusetts maker of vending machines that sells through an exclusive New York agent who takes signed orders and forwards them to Massachusetts for acceptance and shipment to buyers in the city. New York imposed a tax on sales where orders were taken in the city and possession was transferred there. State trial courts set aside the tax; the state’s highest court affirmed on the ground that the tax violated the federal commerce clause. The cases were reviewed together by the Supreme Court.

Reasoning

The central question was whether applying New York’s sales tax to these transactions unlawfully interfered with interstate commerce. The Court followed its companion decision in the Berwind-White case and concluded the city tax, as applied to these facts, did not violate the commerce clause. Because of that controlling reasoning, the Court reversed the state courts’ judgments and held that the tax could be imposed in these situations.

Real world impact

The decision means New York can collect sales tax on goods sold to city buyers when local agents take orders and possession passes in the city, affecting out-of-state manufacturers, their sales agents, and city purchasers. Businesses that use local agents to solicit orders should expect local sales taxes to apply to such transactions.

Dissents or concurrances

Three Justices dissented, referring to the grounds stated in their dissent in the companion case, disagreeing that the tax fit within the commerce clause rules.