International Paper Co. v. Commonwealth of Massachusetts

Background

A New York paper company paid an annual excise tax in Massachusetts for 1915 and sued to get the money back. The company has $45,000,000 authorized capital, about $39–40 million in total assets, and not more than 1% of its assets or investments are in Massachusetts. It runs 23 mills (one in Massachusetts and 22 elsewhere), keeps executive offices in New York, and maintains a small Massachusetts sales office with two salesmen. The company also paid $8,118 in local property tax on Massachusetts property assessed at $472,000; the excise at issue was $5,500 and was paid under protest. The Massachusetts courts upheld the tax under statutes from 1909 and 1914 that together taxed the entire authorized capital at two tiered rates.

Reasoning

The Court addressed whether Massachusetts could impose an excise measured on the company’s entire authorized capital when most of the company’s business and property lay outside the State. Drawing on prior decisions, the Court explained that a tax that in substance falls on the whole business or on property beyond the State’s borders burdens interstate commerce and violates the Fourteenth Amendment’s protection against taxing property outside the State’s jurisdiction. Because the 1914 change removed the earlier statutory cap and made the tax operate on the whole authorized capital, the statute resembled earlier laws this Court had already found unconstitutional. The Court held the tax unconstitutional and reversed the state-court judgment.

Real world impact

The decision prevents Massachusetts from enforcing the excise against this company and limits states’ ability to impose similar capital-based excises on out-of-state firms whose business and property are largely beyond the State. It requires states to avoid taxes that in practice reach interstate commerce or property outside their borders.