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Jurisdiction to Tax

The operation of the Due Process Clause as a limitation on the taxing power of the states has been an issue in a variety of different contexts, but most involve one of the other of two basic issues, first, the relationship between the state exercising taxing power and the object of that exercise of power, and second, whether the degree of contact is sufficient to justify the state’s imposition of a particular obligation. Often these issues arise in conjunction with claims that the state’s actions are also violative of the Commerce Clause. Illustrative of the factual settings in which such issues arise are 1), determining the scope of the business activity of a multijurisdictional entity that is subject to a state’s taxing power, 2) application of wealth transfer taxes to gifts or bequests of nonresidents, 3) allocation of the income of multijurisdictional entities for tax purposes, 4) the scope of state authority to tax the income of nonresidents, and 5) collection of state use taxes.

The Court’s opinions in these cases have often discussed due process and Commerce Clause issues as if they were indistinguishable. The recent decision in Quill Corp. v. North Dakota,39 however, utilized a two–tier analysis that found sufficient contact to satisfy due process but not Commerce Clause requirements. Quill may be read as implying that the more stringent Commerce Clause standard subsumes due process jurisdictional issues, and that consequently these due process issues need no longer be separately considered. This interpretation has yet to be confirmed, however, and a detailed review of due process precedents may prove useful.


Sales/Use Taxes.—In Quill Corp. v. North Dakota,40 the Court struck down a state statute requiring an out–of–state mail order company with neither outlets nor sales representatives in the state to collect and transmit use taxes on sales to state residents, but did so on Commerce Clause rather than due process grounds. Taxation of an interstate business does not offend due process, the Court held, if that business “purposefully avails itself of the benefits of an economic market in the [taxing] State . . . even if it has no physical presence in the State.”41 A physical presence within the state is necessary, however, under Commerce Clause analysis applicable to taxation of mail order sales.42

Land.—Even prior to the ratification of the Fourteenth Amendment, it was a settled principle that a State could not tax land situated beyond its limits; subsequently elaborating upon that principle the Court has said that, “we know of no case where a legislature has assumed to impose a tax upon land within the jurisdiction of another State, much less where such action has been defended by a court.”43 Insofar as a tax payment may be viewed as an exaction for the maintenance of government in consideration of protection afforded, the logic sustaining this rule is self–evident.

Tangible Personalty.—As long as tangible personal property has a situs within its borders, a State validly may tax the same, whether directly through an ad valorem tax or indirectly through death taxes, irrespective of the residence of the owner.44 By the same token, if tangible personal property makes only occasional incursions into other States, its permanent situs remains in the State[p.1644]of origin, and, subject to certain exceptions, is taxable only by the latter.45 The ancient maxim, mobilia sequuntur personam, which had its origin when personal property consisted in the main of articles appertaining to the person of the owner, yielded in modern times to the “law of the place where the property is kept and used.” The tendency has been to treat tangible personal property as “having a situs of its own for the purpose of taxation, and correlatively to . . . exempt [it] at the domicile of its owner.”46 When rolling stock is permanently located and employed in the prosecution of a business outside the boundaries of a domiciliary State, the latter has no jurisdiction to tax it.47 Vessels, however, inasmuch as they merely touch briefly at numerous ports, never acquire a taxable situs at any one of them, and are taxable by the domicile of their owners or not at all,48 unless of course, the ships operate wholly on the waters within one State, in which event they are taxable there and not at the domicile of the owners.49 Airplanes have been treated in a similar manner for tax purposes. Noting that the entire fleet of airplanes of an interstate carrier were “never continuously without the [domiciliary] State during the whole tax year,” that such airplanes also had their “home port” in the domiciliary State, and that the company maintained its principal office therein, the Court sustained a personal property tax applied by the domiciliary State to all the airplanes owned by the taxpayer. No other State was deemed able to accord the same protection and benefits as the taxing State in which the taxpayer had both its domicile and its business situs; the doctrines of Union Transit Co. v. Kentucky,50 as to the taxability of permanently located tangibles, and that of[p.1645]apportionment, for instrumentalities engaged in interstate commerce51 were held to be inapplicable.52

Conversely, a nondomiciliary State, although it may not tax property belonging to a foreign corporation which has never come within its borders, may levy on movables which are regularly and habitually used and employed therein. Thus, while the fact that cars are loaded and reloaded at a refinery in a State outside the owner’s domicile does not fix the situs of the entire fleet in that State, the latter may nevertheless tax the number of cars which on the average are found to be present within its borders.53 Moreover, in assessing that part of a railroad within its limits, a State need not treat it as an independent line, disconnected from the part without, and place upon the property within the State only a value which could be given to it if operated separately from the balance of the road. The State may ascertain the value of the whole line as a single property and then determine the value of the part within on a mileage basis, unless there be special circumstances which distinguish between conditions in the several States.54 But no property of an interstate carrier can be taken into account unless it can be seen in some plain and fairly intelligible way that it adds to the value of the road and the rights exercised in the State.55 Also, a state property tax on railroads, which is measured by gross earnings apportioned to mileage, is not unconstitutional in the absence of proof that it exceeds what would be legitimate as an ordinary tax on the property valued as part of a going concern or that it is relatively higher than taxes on other kinds of property.56 The tax reaches only revenues derived from local operations, and the fact that the apportionment formula does not result in mathematical exactitude is not a constitutional defect.57


39 112 Ct. 1904 (1992).
40 112 Ct. 1904 (1992).
41 The Court had previously held that the requirement in terms of a benefit is minimal. Commonwealth Edison Co. v. Montana, 453 U.S. 609, 622–23 (1982) , (quoting Carmichael v. Southern Coal & Coke Co., 301 U.S. 495, 521–23 (1937) ). It is satisfied by a “minimal connection” between the interstate activities and the taxing State and a rational relationship between the income attributed to the State and the intrastate values of the enterprise. Mobil Oil Corp. v. Commissioner of Taxes, 445 U.S. 425, 436–37 (1980) ; Moorman Mfg. Co. v. Bair, 437 U.S. 267, 272–73 (1978) . See especially Standard Pressed Steel Co. v. Department of Revenue, 419 U.S. 560, 562 (1975) ; National Geographic Society v. California Bd. of Equalization, 430 U.S. 551 (1977) .
42 Quill Corp. v. North Dakota, 112 S. Ct. at 1911–16 (refusing to overrule the Commerce Clause ruling in National Bellas Hess v. Department of Revenue, 386 U.S. 753, 756 (1967) ). See also Trinova Corp. v. Michigan Dep’t of Treasury, 498 U.S. 358 (1991) (neither the Commerce Clause nor the Due Process Clause is violated by application of a business tax, measured on a value added basis, to a company that manufactures goods in another state, but that operates a sales office and conducts sales within state).
43 Union Transit Co. v. Kentucky, 199 U.S. 194, 204 (1905) . See also Louisville & Jeffersonville Ferry Co. v. Kentucky, 188 U.S. 385 (1903) .
44 Carstairs v. Cochran, 193 U.S. 10 (1904) ; Hannis Distilling Co. v. Baltimore, 216 U.S. 285 (1910) ; Frick v. Pennsylvania, 268 U.S. 473 (1925) ; Blodgett v. Silberman, 277 U.S. 1 (1928) .
45 New York ex rel. New York Cent. R.R. v. Miller, 202 U.S. 584 (1906) . As to the competence of States to tax equipment of foreign carriers which enter their jurisdiction intermittently, see supra, pp. 227–33.
46 Wheeling Steel Corp. v. Fox, 298 U.S. 193, 209–10 (1936) ; Union Transit Co. v. Kentucky, 199 U.S. 194, 207 (1905) ; Johnson Oil Co. v. Oklahoma, 290 U.S. 158 (1933) .
47 Union Transit Co. v. Kentucky, 199 U.S. 194 (1905) . Justice Black, in Central R.R. v. Pennsylvania, 370 U.S. 607, 619–21 (1962) , had his “doubts about the use of the Due Process Clause to . . . [invalidate State taxes]. The modern use of due process to invalidate State taxes rests on two doctrines: (1) that a State is without ‘jurisdiction to tax’ property beyond its boundaries, and (2) that multiple taxation of the same property by different States is prohibited. Nothing in the language or the history of the Fourteenth Amendment, however, indicates any intention to establish either of these two doctrines . . . And in the first case [Railroad Co. v. Jackson, 74 U.S. (7 Wall.) 262 (1869)] striking down a State tax for lack of judisdiction to tax after the passage of that Amendment, neither the Amendment nor its Due Process Clause . . . was ever mentioned.” He also maintained that Justice Holmes shared this view in Union Transit Co. v. Kentucky, supra, at 211.
48 Southern Pacific Co. v. Kentucky, 222 U.S. 63 (1911) .
49 Old Dominion Steamship Co. v. Virginia, 198 U.S. 299 (1905) .
50 199 U.S. 194 (1905) . See also Central R.R. v. Pennsylvania, 370 U.S. 607, 611–17 (1962) .
51 Pullman’s Car Co. v. Pennsylvania, 141 U.S. 18 (1891) .
52 Northwest Airlines v. Minnesota, 322 U.S. 292, 294–97, 307 (1944) . The case was said to be governed by New York ex rel. New York Cent. R.R. v. Miller, 202 U.S. 584, 596 (1906) . As to the problem of multiple taxation of such airplanes, which had in fact been taxed proportionately by other States, the Court declared that the “taxability of any part of this fleet by any other State, than Minnesota, in view of the taxability of the entire fleet by that State, is not now before us.” Justice Jackson, in a concurring opinion, would treat Minnesota’s right to tax as exclusively of any similar right elsewhere.
53 Johnson Oil Co. v. Oklahoma, 290 U.S. 158 (1933) .
54 Pittsburgh C.C. & St. L. Ry. v. Backus, 154 U.S. 421 (1894) .
55 Wallace v. Hines, 253 U.S. 66 (1920) . For example, the ratio of track mileage within the taxing State to total track mileage cannot be employed in evaluating that portion of total railway property found in the State when the cost of the lines in the taxing State was much less than in other States and the most valuable terminals of the railroad were located in other States. See also Fargo v. Hart, 193 U.S. 490 (1904) ; Union Tank Line Co. v. Wright, 249 U.S. 275 (1919) .
56 Great Northern Ry. v. Minnesota, 278 U.S. 503 (1929) .
57 Illinois Cent. R.R. v. Minnesota, 309 U.S. 157 (1940) .
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