Looney, Attorney General of Texas v. Crane Co

Background

The Crane Company, an Illinois manufacturer of hardware and railway supplies, sold goods across state lines and maintained warehouses and real estate in Texas to support its business there. Texas enacted laws requiring foreign corporations to file charters, buy a permit to do business, and pay annual franchise taxes based on capital stock, surplus, and profits. Crane had paid earlier fees but sued in federal court before a much larger new permit charge took effect, arguing that the Texas rules unfairly taxed its interstate business and property located outside Texas.

Reasoning

The central question was whether Texas could use permit and franchise rules to tax and burden a company whose sales and shipments crossed State lines. The Court held both taxes, as applied, directly burdened interstate commerce and reached beyond Texas into property and activities outside the State, amounting to a taking without due process. The opinion relied on earlier decisions that bar States from using such taxes to exclude or tax foreign corporations for interstate activities and rejected the argument that later cases overruled that rule. Because the statutes were not limited to local business, the Court affirmed the lower court’s injunction blocking enforcement.

Real world impact

The ruling prevents Texas officials from enforcing the challenged permit and franchise charges against the company while the injunction stands, shielding out-of-state businesses that ship and sell goods across States from similar expansive state taxation. States remain able to tax and regulate genuinely local business done inside their borders, but they may not reach beyond their territory to tax interstate operations or out-of-state property in this manner. The judgment affirms limits on state power to burden interstate commerce.