Hump Hairpin Manufacturing Co. v. Emmerson
Headline: Court upholds Illinois privilege fee on a West Virginia manufacturing company, finding the charge does not directly burden interstate commerce even though some sales went to out-of-state customers.
Holding:
- Allows states to charge reasonable privilege fees to foreign corporations doing business in-state.
- Permits using in-state property and in-state business to measure tax liability.
- Limits challenges by treating incidental taxes as not automatically unconstitutional.
Summary
Background
A West Virginia manufacturing corporation that kept all its factories and tangible property in Illinois was assessed a $6,045 fee in 1918 by the Illinois Secretary of State for the privilege of doing business. The company sent salesmen into several States to solicit orders, but orders were approved and filled at its Chicago office. The company reported $5,500,000 of issued capital stock, valued intangibles in Illinois at about $5.12 million, tangible property at about $416,629, and total 1917 sales of $263,334.96, of which $25,814 were to Illinois residents. Illinois law required averaging the percentage of business transacted in Illinois with the percentage of tangible property located there to decide how much capital stock was “represented” in the State.
Reasoning
The main question was whether using the company’s out-of-state sales in that averaging process made the fee an unconstitutional burden on interstate commerce. The Court held it did not. It emphasized that the statute aimed to separate in-state business from interstate business and to tax only the former. Even if the Secretary or the state court mistakenly treated some interstate sales as in-state business, that would be an error of calculation, not proof that the law was a covert effort to regulate commerce between the States. Given that all manufacturing and tangible property were in Illinois, and that the fee was reasonable and not imposed directly on interstate receipts, any effect on interstate commerce was incidental and remote.
Real world impact
States may charge reasonable privilege fees to foreign corporations that carry on substantial business and keep property in the State. Businesses with interstate sales cannot automatically block such fees by asserting a constitutional burden on interstate commerce. The decision treats incidental impacts on interstate commerce as insufficient alone to invalidate a state tax.
Dissents or concurrances
Justice Van Devanter dissented; Justice McReynolds concurred in the result.
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