Evco v. Jones

Background

Evco is a New Mexico company that hires writers and artists to create reproducible originals of books, films, and audio tapes. Evco develops instructional programs in New Mexico, then delivers the camera-ready originals to customers in other States, where those customers publish the final textbooks and manuals. New Mexico’s tax commissioner assessed the State’s Emergency School Tax and a Gross Receipts Tax on the total proceeds Evco received from these contracts for 1966–1968, and Evco challenged the taxes as an unconstitutional burden on sales across state lines.

Reasoning

The Court reviewed whether New Mexico taxed the value of services performed in the State or instead taxed receipts from sales of tangible goods sold out-of-state. The decision explained that while a State may tax services performed inside the State, it may not tax gross receipts from sales of tangible personal property made to buyers in other States. The Court accepted the lower court’s factual finding that Evco’s reproducible originals were the essential thing sold and therefore that New Mexico’s tax fell on proceeds from out-of-state sales of tangible goods, not merely on in-state services.

Real world impact

Because the Court concluded the tax targeted proceeds from goods sold to out-of-state purchasers, it reversed the lower court and barred New Mexico from collecting those taxes on Evco’s out-of-state sales. The ruling protects businesses that produce tangible originals for out-of-state publishers from that kind of state tax, while leaving intact the idea that states can tax services performed in-state when the tax actually measures the service itself.