Meyer v. Wells, Fargo & Co.
Headline: State’s gross-receipts tax on express and public service companies is struck down for reaching interstate commerce and out-of-state income, protecting businesses from taxation on out-of-state receipts.
Holding: The Court affirmed the injunction and held that the state’s gross-receipts tax is unconstitutional because it taxes interstate commerce and out-of-state income, and it cannot be reformed by recharacterizing it as a property tax.
- Prevents states from taxing interstate business receipts under this gross-receipts scheme.
- Protects companies from being taxed on income earned entirely outside the state.
- Leaves legislatures free to rewrite narrower taxes but courts cannot rewrite the statute.
Summary
Background
The plaintiff is an express company that sued the State of Oklahoma to stop a newly enacted gross-revenue tax. The law required public service corporations to pay a percentage of their gross receipts and fixed a three percent rate for express companies. It also required sworn reports of gross receipts "from every source whatsoever." Much of the company’s money came from business moving across state lines and from investments outside Oklahoma. A three-judge federal circuit court granted an injunction against the tax, and the state appealed.
Reasoning
The central question was whether Oklahoma could tax a portion of total gross receipts when those receipts include interstate commerce and income earned outside the State. The Court said the tax was not a permissible property tax and could not be saved by calling it one. Because the statute measured the tax by total gross receipts from every source, it necessarily reached interstate commerce and out-of-state income that the State could not constitutionally tax. The Court relied on earlier decisions and concluded the statute could not be fairly construed into a lawful form, so the lower court’s injunction was affirmed.
Real world impact
The ruling prevents this form of gross-receipts taxation from being applied to companies whose revenue includes interstate business or out-of-state investments. States may need to draft narrower taxes limited to in-state receipts, but courts will not rewrite an invalid law to save it. The decision protects businesses from being taxed on receipts the State has no right to reach under the Court’s reasoning.
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