Norton Co. v. Department of Revenue of Ill.

Background

Petitioner is a Massachusetts company that makes abrasive machines and keeps a Chicago branch and warehouse to sell and serve Illinois customers. Illinois assessed an occupation tax on the company’s gross receipts from Illinois sales. The company paid under protest, arguing some sales were interstate and therefore exempt, because orders were accepted and goods shipped from its Worcester plant in Massachusetts.

Reasoning

The Court asked whether the State overstepped by taxing all Illinois-derived income. It explained that a company that chooses to do local business accepts the State’s power to tax local sales, and the burden is on the company to prove particular transactions are purely interstate. The Court found the Chicago office performed real local functions—selling from local stock, receiving and forwarding orders, breaking carloads, and reducing freight—that tied most sales to the local business, so Illinois could attribute those receipts to the Chicago branch.

Real world impact

As a result, businesses operating local outlets risk state taxation of sales that use those local services, even if some orders are handled from another state. Only sales where the customer both orders and receives shipment directly from Massachusetts—without using the Chicago office—are protected from the tax. The Court vacated the Illinois decision and sent the case back for further proceedings consistent with this rule.

Dissents or concurrances

Two Justices disagreed in part. Justice Reed would have barred Illinois from taxing sales that were accepted and shipped entirely from Massachusetts, while Justice Clark believed all Illinois sales could be taxed because the Chicago office created a local market.