Underwood Typewriter Co. v. Chamberlain

Background

A Delaware manufacturing company that makes and sells typewriters had its main office in New York but did all manufacturing in Connecticut and kept goods in Connecticut until shipment. Connecticut’s 1915 law taxed corporations by class and imposed a two percent tax on net income earned from business carried on within the State, using a property-based apportionment when profits came from tangible property. The company reported $1,336,586.13 in net profits, said 47 percent of its property value was in Connecticut, was assessed $12,593.37, paid under protest, and sued to recover the tax on constitutional grounds.

Reasoning

The Court addressed whether the tax unlawfully burdened interstate commerce or otherwise violated the Fourteenth Amendment. It found the tax did not force the company to pay for the privilege of doing interstate business and that taxing net profits earned within the State is permissible even when some profits arise from interstate transactions. The Court accepted the State’s apportionment method as a reasonable way to allocate income to in-state activity. The company had not proved that attributing 47 percent of its net income to Connecticut was arbitrary or produced an unreasonable result. Because the record contained no showing of unfairness in this case, the Court affirmed the lower court’s judgment.

Real world impact

States may use reasonable apportionment rules to tax a share of multistate corporations’ net income tied to in-state property and activity. Manufacturers that conduct production in one State but sell elsewhere should expect apportioned state taxes under similar laws. The ruling upholds the tax as applied here.