General Trading Co. v. State Tax Commission of Iowa

1944-06-12

Headline: Upheld Iowa’s right to collect a two percent use tax from buyers and to require out-of-state sellers to collect it, affecting mail-order sales sent into Iowa and Iowa purchasers.

Holding: In this case the Court affirmed that Iowa may impose its two percent use tax on goods for use in the State and require an out-of-state seller to collect it under the case’s stated facts.

Real World Impact:

Requires some out-of-state sellers to collect Iowa’s two percent use tax on shipped goods.
Makes Iowa buyers liable for a two percent use tax on goods used in Iowa.
Affirms that states may use distributors as tax collectors for non-discriminatory consumption taxes.

Topics: use tax, state sales tax, interstate commerce, mail-order sales, out-of-state sellers

Summary

Background

A Minnesota mail-order company shipped goods into Iowa after orders solicited by traveling salesmen who worked from the company’s Minnesota headquarters. The company never qualified to do business in Iowa and had no office, branch, warehouse, or general agent in the State. Iowa’s law imposed a two percent use tax on tangible property used in Iowa and allowed the State to require retailers maintaining a place of business in Iowa to collect the tax.

Reasoning

The Court addressed whether Iowa could collect the use tax from Iowa buyers by making the out-of-state seller act as the State’s tax collector under the facts presented. Relying on earlier cases (Felt & Tarrant, Nelson v. Sears, and Nelson v. Montgomery Ward), the majority found the tax to be a non-discriminatory excise on property consumed in Iowa and therefore valid. The Court said it is constitutionally permissible to require a distributor to collect such a tax and that the statutory scheme did not unlawfully burden interstate commerce in these circumstances. The Iowa Supreme Court’s judgment was affirmed.

Real world impact

The decision means some out-of-state sellers who send goods into Iowa may be required to collect the two percent use tax for Iowa buyers, and Iowa residents remain liable for the tax on property used in the State. The ruling treats the tax as aimed at the ultimate consumer and upholds the familiar practice of using distributors as tax collectors for non-discriminatory state consumption taxes.

Dissents or concurrances

Justice Jackson (joined by Justice Roberts) dissented, warning the decision extends state power to reach persons outside the State who had not submitted to Iowa’s jurisdiction and could improperly make out-of-state merchants into tax collectors for interstate commerce.