Northwestern States Portland Cement Company v. Minnesota/Dissent Frankfurter
Mr. Justice FRANKFURTER, dissenting.
By way of emphasizing my agreement with my brother WHITTAKER, I add a few observations.
The Court sustains the taxing power of the States in these two cases essentially on the basis of precedents. For me, the result of today's decisions is to break new ground. I say this because, among all the hundreds of cases dealing with the power of the States to tax commerce, there is not a single decision adjudicating the precise situation now before us. Concretely, we have never decided that a State may tax a corporation when that tax is on income related to the State by virtue of activities within it when such activities are exclusively part of the process of doing interstate commerce. That is the precise situation which the state courts found her, to wit:
'(Northwestern's) activities in this State were an integral part of its interstate activities, and all revenue received by it from customers in Minnesota resulted from its operations in interstate commerce.'
'(W)ithout dispute (Stockham) was engaged exclusively in interstate commerce insofar as its activities in Georgia are concerned.' 213 Ga. 713, 719, 101 S.E.2d 197, 201.
It is vital to realize that in no case prior to this decision in which the taxing power of a State has been upheld when applied to corporations engaged in interstate commerce, was there a total absence of activities pursued or advantages conferred within the States severable from the very process which constitutes interstate commerce.
The case that argumentatively comes the closest to the situation now before the Court is West Publishing Co. v. McColgan, 328 U.S. 823, 66 S.Ct. 1378, 90 L.Ed. 1603.  But in that case too, as the opinion of the California Supreme Court which we there summarily sustained clearly set forth, 27 Cal.2d 705, 166 P.2d 861, the West Publishing Company did not merely complete in Calfornia the business which began in Minnesota. It employed permanent workers who engaged in business activities localized in California, activities which were apart from and in addition to the purely interstate sale of law books. These activities were more than an essential part of the process of interstate commerce; they were, in legal shorthand, local California activities constituting intrastate business. In dealing with those purely local activities the State could properly exert its taxing power in relation to opportunities and advantages which it had given and which it could have withheld by simply not allowing a foreign corporation to do local business, whereas no State may withhold from a foreign corporation within its borders the right to exercise what is part of a process of exclusively interstate commerce. The State gives to a corporation so engaged nothing which it can withhold and therefore nothing for which it can charge a price, whether the price be the cost of a license to do interstate business or a tax on the profits accruing from that business.
I venture to say that every other decision-I say decision, not talk or dicta-on which reliance is placed, presented a situation where conjoined with the interstate commerce was severable local state business on the basis of which the state taxing power become constitutionally operative. The difference between those situations and this, as a matter of economics, involves the distinction between taking into account the total activity of the enterprise as a going business in determining a fairly apportioned tax based on locally derived revenues, and taxing a portion of revenue concededly produced by exclusively interstate commerce. To be sure, such a distinction is a nice one, but the last word on the necessity of nice distinctions in this area was said by Mr. Justice Holmes in Galveston, H. & S.A.R. Co. v. State of Texas, 210 U.S. 217, 225, 28 S.Ct. 638, 639, 52 L.Ed. 1031: 'It being once admitted, as of course it must be, that not every law that affects commerce * * * is a regulation of it in a constitutional sense, nice distinctions are to be expected.'
Accordingly, today's decision cannot rest on the basis of adjudicated precedents. This does not bar the making of a new precedent. The history of the Commerce Clause is the history of judicial evolution. It is one thing, however, to recognize the taxing power of the States in relation to purely interstate activities and quite another thing to say that that power has already been established by the decisions of this Court. If new ground is to be broken, the ground must be justified and not treated as though it were old ground.
I do not think we should take this new step. My objection is the policy that underlies the Commerce Clause, namely, whatever disadvantages may accrue to the separate States from making of the United States a free-trade territory are far outweighed by the advantages not only to the United States as a Nation, but to the component States. I am assuming, of course, that today's decision will stimulate, if indeed it does not compel, every State of the Union, which has not already done so, to devise a formula of apportionment to tax the income of enterprises carrying on exclusively interstate commerce. As a result, interstate commerce will be burdened not hypothetically but practically, and we have been admonished again and again that taxation is a practical matter.
I think that interstate commerce will be not merely argumentatively but actively burdened for two reasons:
First. It will not, I believe, be gainsaid that there are thousands of relatively small or moderate size corporations doing exclusively interstate business spread over several States. To subject these corporations to a separate income tax in each of these States means that they will have to keep books, make returns, store records, and engage legal counsel, all to meet the divers and variegated tax laws of forty-nine States, with their different times for filing returns, different tax structures, different modes for determining 'net income,' and different, often conflicting, formulas of apportionment. This will involve large increases in bookkeeping, accounting, and legal paraphernalia to meet these new demands. the cost of such a far-flung scheme for complying with the taxing requirements of the different States may well exceed the burden of the taxes themselves, especially in the case of small companies doing a small volume of business in several States. 
Second. The extensive litigation in this Court which has challenged formulas of apportionment in the case of railroads and express companies -challenges addressed to the natural temptation of the States to absorb more than their fair share of interstate revenue-will be multiplied many times when such formulas are applied to the infinitely larger number of other businesses which are engaged in exclusively interstate commerce. The division in this Court on these railroad apportionment cases is a good index of what might reasonably be expected when cases involving the more numerous non-transportation industries come before the Court. This is not a suggestion that the convenience of the Court should determine our construction of the Commerce Clause, although it is important in balancing the considerations relevant to the Commerce Clause against the claims of state power that this Court should be mindful of the kind of questions it will be called upon to adjudicate and its special competence for adjudicating them. Wholly apart from that, the necessity for litigation based on these elusive and essentially non-legal questions casts a burden on businesses, and consequently on interstate commerce itself, which should not be imposed.
These considerations do not at all lead to the conclusion that the vast amount of business carried on throughout all the States as part of what is exclusively interstate commerce should not be made to contribute to the cost of maintaining state governments which, as a practical matter, necessarily contribute to the conduct of that commerce by the mere fact of their existence as governments. The question is not whether a fair share of the profits derived from the carrying on of exclusively interstate commerce should contribute to the cost of the state governments. The question is whether the answer to this problem rests with this Court or with Congress.
I am not unmindful of the extent to which federal taxes absorb the taxable resources of the Nation, while at the same time the fiscal demands of the States are on the increase. These conditions present far-reaching problems of accommodating federal-state fiscal policy. But a determination of who is to get how much out of the common fund can hardly be made wisely and smoothly through the adjudicatory process. In fact, relying on the courts to solve these problems only aggravates the difficulties and retards proper legislative solution.
At best, this Court can only act negatively; it can determine whether a specific state tax is imposed in violation of the Commerce Clause. Such decisions must necessarily depend on the application of routh and ready legal concepts. We cannot make a detailed inquiry into the incidence of diverse economic burdens in order to determine the extent to which such burdens conflict with the necessities of national economic life. Neither can we devise appropriate standards for dividing up national revenue on the basis of more or less abstract principles of constitutional law, which cannot be responsive to the subtleties of the interrelated economies of Nation and State.
The problem calls for solution by devising a congressional policy. Congress alone can provide for a full and thorough canvassing of the multitudinous and intricate factors which compose the problem of the taxing freedom of the States and the needed limits on such state taxing power.  Congressional committees can make studies and give the claims of the individual States adequate hearing before the ultimate legislative formulation of policy is made by the representatives of all the States. The solution to these problems ought not to rest on the self-serving determination of the States of what they are entitled to out of the Nation's resources. Congress alone can formulate policies founded upon economic realties, perhaps to be applied to the myriad situation involved by a properly constituted and duly informed administrative agency.
^1 The West case was a per curiam affirmance without opinion. The Court cited four cases in support: United States Glue Co. v. Town of Oak Creek, 247 U.S. 321, 38 S.Ct. 499, 62 L.Ed. 1135; Interstate Busses Corp. v. Blodgett, 276 U.S. 245, 48 S.Ct. 230, 72 L.Ed.551; Memphis Natural Gas Co. v. Beeler, 315 U.S. 649, 656, 62 S.Ct. 857, 862, 86 L.Ed. 1090; International Shoe Co. v. State of Washington, 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95. Not one of these cases presented the issue now here; in none had the Court to sustain a state net income tax on a business whose revenue derived solely from interstate commerce.
In United States Glue Co. v. Town of Oak Creek, supra, this Court upheld an apportioned net income tax levied by the State of Wisconsin on a Wisconsin corporation having its principal office and manufacturing establishment in that State. A substantial part of the corporation's business was intrastate. The only issue before the Court was the power of the State to include interstate income in its apportionment computation.
Interstate Busses Corp. v. Blodgett, supra, decided that appellant had not sustained the burden of showing that an excise tax of one cent per mile levied by Connecticut on motor vehicles using its highways in interstate commerce fell with discriminating weight on interstate commerce when the tax was viewed as part of the State's entire taxing scheme. Aside from this issue of discrimination, the case was merely another instance of a State charging for the use of its highways.
The Court in Memphis Natural Gas Co. v. Beeler, supra, upheld a net income tax imposed by the State of Tennessee on revenues earned by the Memphis Gas Company from shipping gas into the State and selling it, together with another company, to retail consumers in that State. The decision was explicitly based on a determination that the revenue was, in fact, derived from intrastate tather than interstate commerce. In addition the Memphis Company was licensed to do business in Tennessee, maintained its principal place of business there, and sold much of its gas in that State. It is true that on the page cited in Beeler the opinion indulged in a dictum that net income from interstate commerce was taxable. But this was an almost by-the-way observation, itself relying on citations which do not support it, by a writer prone to uttering dicta.
International Shoe Co. v. State of Washington, supra, decided that the Due Process Clause of the Fourteenth Amendment did not prohibit the State of Washington from exercising jurisdiction over the International Shoe Co., in the light of the frequency and extent of the company's business contacts within the State. There was no doubt that the unemployment compensation contributions exacted by Washington were entirely consistent with the Commerce Clause, since Congress had explicitly authorized such levies.
Thus none of the cases cited in West support an interpretation of that decision which goes beyond the actual situation of severable local activities presented in that case. Nor do they support the present taxes levied on exclusively interstate business.
^2 For a detailed exposition of the manifold difficulties in complying with the diverse and complex taxing systems of the States, see Cohen, State Tax Allocations and Formulas which Affect Management Operating Decisions, 1 Jour.Taxation, No. 2 (July 1954), p. 2.
^3 See, e.g., Wallace v. Hines, 253 U.S. 66, 67, 40 S.Ct. 435, 436, 64 L.Ed. 782; Pullman's Palace Car Co. v. Commonwealth of Pennsylvania, 141 U.S. 18, 11 S.Ct. 876, 35 L.Ed. 613; Adams Express Co. v. Ohio State Auditor, 165 U.S. 194, 17 S.Ct. 305, 41 L.Ed. 683; Id., 166 U.S. 185, 17 S.Ct. 604, 41 L.Ed. 965 (opinion denying rehearing).
^4 See Northwest Airlines, Inc., v. State of Minnesota, 322 U.S. 292, 64 S.Ct. 950, 88 L.Ed. 1283. In Northwest we pointed to the desirability of congressional action to formulate uniform standards for state taxation of the rapidly expanding airline industry. Following our decision Congress directed the Civil Aeronautics Board to study and report to Congress methods of eliminating burdensome, multiple state taxation of airlines. See H.R.Doc.No.141, 79th Cong., 1st Sess. This report of the Board was a 158-page document whose length and complex economic content in dealing with only a single subject of state taxation, illustrate the difficulties and nonjudicial nature of the problem. Following the presentation of this extensive report, several bills were introduced into Congress providing for a single uniform apportionment formula to be used by the States in taxing airlines. H.R. 1241, 80th Cong., 1st Sess.; S. 2453, 80th Cong., 2d Sess.; S. 420, 81st Cong., 1st Sess. None of these bills was enacted.
Australia has resolved the problem of conflicting and burdensome state taxation of commerce by a national arrangement whereby taxes are collected by the Commonwealth and from these revenues appropriate allocations are made annually to the States through the mechanism of a Premiers' Conference-the Prime Minister of the Commonwealth and the Premiers of the several States.