United States Glue Co. v. Town of Oak Creek
Headline: Wisconsin's general income tax upheld against Commerce Clause challenge, allowing the state to tax a Wisconsin manufacturer's net income including earnings from interstate sales, making state taxation harder to avoid.
Holding:
- Allows states to tax proportional in-state net income of domestic corporations.
- Distinguishes net-income taxes from gross-receipts taxes as permissible indirect burdens.
- Makes gross-receipts taxes more vulnerable as direct burdens on commerce.
Summary
Background
A Wisconsin-based manufacturing corporation paid $2,835.38 under protest as part of an income tax for 1911 under a state law. The law defined income broadly and used a formula to apportion income from multistate business by comparing in-state business and property values to totals. The company had its main factory in Oak Creek and reported about $124,000 net business income from various in-state and out-of-state sales and branch transactions.
Reasoning
The legal question was whether Wisconsin could include net income from interstate business when computing a general tax on a domestic corporation's gains without violating the Commerce Clause. The Court reviewed prior decisions and drew a line between direct taxes on commerce (for example, taxes measured on gross receipts or duties on exports) and indirect burdens. It explained that a general income tax measured on net profits and applied uniformly, without discrimination, operates only indirectly on interstate commerce. Applying that principle, the Court held the Wisconsin tax, measured on net income and apportioned under the statute, did not directly burden interstate commerce.
Real world impact
This decision means states may tax a proportionate share of a domestic corporation’s net income that is attributed to in-state business, even when some sales cross state lines, so long as the tax is nondiscriminatory and based on net income, not gross receipts. Corporations doing business in multiple states will be taxed on the in-state portion determined by the statute’s apportionment formula. The ruling affirmed the state court’s judgment and left the tax enforceable against the company.
Dissents or concurrances
Mr. Chief Justice White concurs in the result.
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