(266 U. S. 271)

BASS, RATCLIFF & GRETTON, Limited, v.
STATE TAX COMMISSION.

(Argued April 21, 1924. Decided Nov. 17, 1924.)

No. 10.

9-A, held not invalid merely because in preceding year the business conducted within the state yielded no net income.

5. Courts 399 (1)—Question not raised before tax commission or state courts not considered by Supreme Court on error to review state court's judgment upholding tax.

On writ of error to review judgment of court of appeals of state of New York uphold1. Taxation -Annual franchise tax on for- ing tax commission's determination as to aneign corporations held tax for privilege of do-nual franchise tax under Tax Law N. Y. art. 9-A, the Supreme Court will not consider quesing business in one year, measured by income tion not raised before tax commission or state during preceding year, and not tax on income. courts.

Annual franchise tax imposed on foreign corporations under Tax Law N. Y., art. 9-A, §§ 209, 214, 215, 219-j, according to net income for preceding year, is not a direct tax on allocated income of corporation in given year, but is tax for the privilege of doing business in one year, measured by the allocated income accruing from the business in the preceding year.

2. Constitutional law 283-Taxation 37 -Statute imposing annual franchise tax on foreign corporations measured by allocated income accruing from business in preceding year, held not denial of due process.

Mr. Justice McReynolds, dissenting.

In Error to the Supreme Court of the State of New York.

Af

Certiorari by the People, on the Relation of Bass, Ratcliff & Gretton, Limited, to review assessment by State Tax Commission of From a judgment of the franchise tax. Court of Appeals of State of New York (232 N. Y. 42, 133 N. E. 122), affirming order of Appellate Division (198 App. Div. 963, 189 N. Y. S. 952), affirming determination of Tax Law N. Y. art. 9-A, §§ 209, 214, 215, Commissioners, relator brings error. imposing annual franchise tax on foreign corpo-firmed. ration doing business within state, based on portion of net income of preceding year, determined by proportion of aggregate value of specified classes of assets within state to aggregate value of all such classes of assets wherever located, held not denial of due process, within Fourteenth Amendment, in so far as it affects foreign corporation carrying on unitary business of manufacturing, outside of state. goods sold within state and elsewhere, in absence of showing that statutory method of apportionment has produced unreasonable result.

3. Commerce

69-Statute imposing annual franchise tax on foreign corporations held not

violative of commerce clause.

Tax Law N. Y. art. 9-A, §§ 209, 214, 215, imposing annual franchise tax on foreign corporation doing business within state, based on portion of net income of preceding year, determined by proportion of aggregate value of specified classes of assets within state to aggregate value of all such classes of assets wherever located, held not to impose burden on interstate commerce in violation of commerce clause of federal Constitution, in so far as it affects foreign corporation carrying on unitary business of manufacturing, outside of state, goods sold within state and elsewhere.

4. Taxation 165 - Annual franchise tax based on corporation's allocated net income not invalid merely because business within state yielded no net income.

*272

*Messrs. James M. Beck, of Washington, D. C., and George Carlton Comstock and Robert C. Beatty, both of New York City, for plaintiff in error.

*275

*Messrs. Carl Sherman and C. T. Dawes, both of Albany, N. Y., for defendant in error.

*277

*Mr. Justice SANFORD delivered the opinion of the Court.

This case involves the constitutional valid

ity of Article 9-A of the Tax Law of New

York under consideration in Gorham Manufacturing Co. v. Tax Commission, No. 5, 45 S. Ct. 80, 69 L. Ed. just decided.

This Article1 provides that for the privilege of doing business in the State a foreign manufacturing and mercantile corporation shall pay, in advance, an annual franchise tax, to be computed by the State Tax Commission, at the rate of three per centum, upon the net income of the corporation for the preceding year. §§ 209.2 215. This net income is "presumably the same" as that upon which the corporation is required to pay a tax to the United States, section 209; but the amount thereof as returned to the United States is subject to any correction for fraud, evasion or errors, ascertained by the Commission, section 214. If the entire busi

1 Consol. Laws of 1909, c. 60, as amended by the Laws of 1917, c. 726, and the Laws of 1918, cc. 271, 276, 417. See the opinion in the Gorham Mfg. Co. Case, note. 1.

Franchise tax imposed on foreign corporation doing business within state based on portion of corporation's net income during preceding year determined by proportion of aggregate value of specified classes of assets within state to aggregate value of all such classes of assets 2 This section is entitled: "Franchise tax on corwherever located under Tax Law N. Y. art.porations based on net income."

For other cases see same topic and KEY-NUMBER in all Key-Numbered Digests and Indexes

(45 S.Ct.)

ness of the corporation is not transacted | ing that for which this franchise tax was

*278

assessed, the Company, as reported to the *within the State, the tax is to be based upon United States, had no net income upon which the portion of such ascertained net income it was subject to a Federal income tax. Its determined by the proportion which the ag- total net income, however, from all its busigregate value of specified classes of the asness wherever carried on, was $2,185,600.4 sets of the corporation within the State bears The value of its segregated assets, wherever to the aggregate value of all such classes of located, was: real property, $785,675; tangiassets wherever located. The classes of as- ble personal property, $2,105,105; bills and acsets which are to enter into this ratio-here- counts, $321,625; and shares of stock of othinafter termed the segregated assets-are: er corporations, $845,195. Limiting the value Real property and tangible personal proper- of the shares of stock to ten per centum of ty; bills and accounts receivable resulting the aggregate real and tangible personal from the manufacture and sale of merchan- property, that is, to $289,078, made the agdise and services performed; and shares of gregate value of its segregated property, stock owned in other corporations, not ex- wherever located, $3,501,483. The value of ceeding ten per centum of the real and tan- its segregated assets in New York was as gible personal property, which are to be al- follows: bills and accounts, $20,449; and located according to the location of the phy- tangible personal property, $23,668. sical property representing such stock. Sec-made the aggregate value of its segregated tion 214.3 The corporation is to be exempt property in New York, $44,177. Taking the from any personal property tax. Section entire net income, $2,185,600, as the basis for 219-j. the assessment of the tax, the Commission al*280

This

Bass, Ratcliff & Gretton, Limited, is a British corporation, engaged in brewing and sell-located to New York *the proportion thereof ing Bass's ale. All its brewing is done and a large part of its sales are made in England; but it formerly imported a portion of its product into the United States which it sold

which the segregated assets in New York bore to the segregated assets wherever located, amounting to $27,537.68; and upon this sum computed the franchise tax, at the rate of three per centum, that is, $826.14.

The Company contends that this tax is not based upon any net income derived from the business which it carried on in New York but upon a portion of its net income derived

*279 through branch offices located in New York City and in Chicago. On its report to the New York Tax Commission-amended under protest-the Commission computed and assessed its franchise tax for the year comfrom business carried on outside of the Unitmencing November 1, 1918. At a hearing ed States which under the provisions of the granted on an application for revision, the statute has been arbitrarily allocated to its Commission adhered to the original assess- New York business, and that such imposition ment. The Company then paid the tax un- of the tax deprives it of its property in vioder protest. The determination of the Com-lation of the due process clause of the Fourmission was subsequently confirmed, upon a writ of certiorari, by the Appellate Division of the Supreme Court, 198 App. Div. 963, 189 N. Y. S. 952; and the order of that court was affirmed, upon appeal, by the Court of Appeals, 232 N. Y. 42, 133 N. E. 122. The record was remitted to the Supreme Court, to which this writ of error was directed. Hodges v. Snyder, 261 U. S. 600, 43 S. Ct. 435,

67 L. Ed. 819.

It is undisputed that for the year preced

The average value of the shares of stock is taken; the average monthly value of the other assets. The entire provision as to the allocation of net income, which is here broadly summarized, is set forth in the margin of the opinion in People v. Knapp, 230 N. Y. 48, 53, 129 N. E. 202.

This Article also provides that the corporation

teenth Amendment and imposes a direct burden upon its foreign commerce in violation of the commerce clause of the Constitution.

[1] 1. We see no reason to doubt the accuracy of the statement made by the Court of Appeals in the present case that the franchise tax imposed by the statute is “primarily a tax levied for the privilege of doing

business in the State." It is not a direct tax in a given year, but a tax for the privilege of upon the allocated income of the corporation doing business in one year measured by the allocated income accruing from the business in the preceding year. See New York v. Jersawit, 263 U. S. 493, 496, 44 S. Ct. 167, 68 L. Ed. 405.

[2, 3] 2. The question of the constitutionshall make a report to the Commission showing its ality of this tax as applied in the present

net income as returned to the United States and the matters which are to enter into the allocation of the net income; that the Commission shall state the account and compute the tax; and that, if an application for revision is made, the Commission shall grant a hearing, upon evidence, and adjust

the tax, "according to law and the facts." And it further provides for a review of the determination of the Commission, upon certiorari by the Supreme Court, both upon the law and the facts; and for an appeal from the Supreme Court to the Court of Appeals. These various provisions are set forth in the opinion in the Gorham Mfg. Co. Case.

case is controlled, in its essential aspects, by
the decision in Underwood Typewriter Co. v.
Chamberlain, 254 U. S. 113, 120, 41 S. Ct. 45,
There the Connecticut stat-
65 L. Ed. 165.
ute imposed upon foreign corporations doing
business partly within and partly without the

If the corporation is organized under the laws of another country it is required to state its entire net income. Section 211.

*281

State an annual tax of two per cent upon the manufacture in England and ending in sales net income earned during the preceding year in New York and other places-the process on business carried on within the State, as- of manufacturing resulting in no profits until certained by taking such proportion of the it ends in sales-the State was justified in whole net income on which the corporation attributing to New York a just proportion of the profits earned by the Company from such was required to pay a tax to the United unitary business. In Wallace v. Hines, 253 States as the value of its real and tangible U. S. 66, 69, 40 S. Ct. 435, 436 (64 L. Ed. 782) personal property within the State bore to it was recognized that a State in imposing the value of all of its real and tangible per- an excise tax upon foreign corporations in sonal property. The Underwood Typewriter respect to doing business within the State, Co., a Delaware corporation, was engaged in may look to the property of such corporamanufacturing and selling typewriters and tions beyond its borders to "get the true valsupplies. All its manufacturing was done in ue of the things within it, when they are Connecticut, but the greater part of its sales part of an organic system of wide extent," was made from branch offices in other States. giving the local property a value above that It contended that the tax was an unconstitu- which it would otherwise possess, and may tional burden on interstate commerce; and therefore take into account property situated that it violated the Fourteenth Amendment elsewhere when it "can be seen in some plain in that it imposed, directly or indirectly, a and fairly intelligible way that it adds to the tax on income arising from business conduct- value of the [property] and the rights exered outside of the State. In support of the cised in the State." This is directly applilatter objection it showed that while 47 per cable to the carrying on of a unitary busicent. of its real estate and tangible personal ness of manufacture and sale partly within property was located in Connecticut, result- and partly without the State. ing, under the method of apportionment of the net income required by the statute, in attributing 47 per cent. of its total net income to the operations in Connecticut, in fact about $1,300,000 of its net profits were received in other States and only about $43,000 in Connecticut. The court, in sustaining the valid ity of the tax, said:

Nor do we find that the method of apportioning the net income on the basis of the

*283

ratio of the segregated *assets located in New York and elsewhere, was inherently arbitrary or a mere effort to reach profits earned elsewhere under the guise of legitimate taxation. The principal factors entering into the real and tangible personal property of this allocation are, as in the Underwood Case, the corporation. We see nothing arbitrary in also including bills and accounts receivable resulting from the manufacture and sale of merchandise and services performed, or in taking average monthly values as the measure of all the segregated assets except shares of stock. And in the present case the inclusion of a portion of the shares of stock in other corporations-none of which were allocated to New York-resulted in the Company's favor, and reduced the income allocated to New York to less than it otherwise would have been.

"But this showing wholly fails to sustain the objection. The profits of the corporation were largely earned by a series of transactions beginning with manufacture in Connecticut and ending with sale in other States. In this it was typical of a large part of the manufacturing business conducted in the State. The legislature in attempting to put upon this business its fair share of the burden of taxation was faced with the impossibility of allocating specifically the profits earned by the processes conducted within its borders. It, therefore, adopted a method of apportionment which, for all that appears in the record, reached, and was meant to reach, only the profits earned within the State. "The plaintiff's argument on this branch of the case,' as stated by the Supreme Court of Errors, 'carries the burden of showing that 47 per cent. of its net income is not reason*ably attrib-application of the statutory method of aputable, for purposes of taxation, to the manu- portionment has produced an unreasonable facture of products from the sale of which 80 result. The fact that the Company may not per cent. of its gross earnings was derived after have had any net income upon which it was paying manufacturing costs.' The corporation subject to payment of income tax to the Fedhas not even attempted to show this; and for eral Government, obviously does not show aught that appears the percentage of net prof-that it received no net income from the busiits earned in Connecticut may have been much larger than 47 per cent. There is, consequently, nothing in this record to show that the method of apportionment adopted by the State was inherently arbitrary, or that its application to this corporation produced an unreasonable result."

#282

It is not shown in the present case, any more than in the Underwood Case, that this

ness which it carried on in New York. There is no evidence in the record as to whether the Company received any net income from its New York business, or the amount of the profit and loss on that business, if any, either considered separately or in connection with the manufacturing business car

So in the present case we are of opin-ried on in Great Britain.5 ion that as the Company carried on the unitary business of manufacturing and selling ale, in which its profits were earned by a series of transactions beginning with the

The statement in the opinion of the Court of Appeals that the Company's "net income from the New York business was nothing," was apparently made inadvertently. There is no showing except as

*284

(45 S.Ct.)

(266 U. S. 113)

[4] 3. *Furthermore, the statutory method TOD, Commissioner of Immigration, v. WALD

of apportionment not being shown to be arbitrary or unreasonable, we think that the

MAN et al.

1924.)

No. 95.

1. Habeas corpus 109—Order of release improper, where right of entry undetermined and immigrants should be remanded to immigration authorities.

Court of Appeals rightly held that the tax (Argued Oct. 20, 21, 1924. Decided Nov. 17, imposed for the carrying on of the business in New York is not invalid merely because in the preceding year the business conducted in New York may have yielded no net income. There is no sufficient reason why a foreign corporation desiring to continue the carrying on of business in the State for another year-from which it expects to derive a benefit-should be relieved of a privilege tax because it did not happen to have made any profit during the preceding year. This is especially true where, as in the present case, the corporation is entirely relieved of any personal property tax. See U. S. Ex-deportation. press Co. v. Minnesota, 223 U. S. 335, 346, 32 S. Ct. 211, 56 L. Ed. 459.

[5] 4. The Company furthermore urges that in any event it should have been permitted to include in the statutory ratio the entire value of the stocks which it owned in other corporations. This contention is based upon the fact that in the previous case of People v. Knapp, 230 N. Y. 48, 129 N. E. 202, it had been held that in so far as the statute provided that in the allocation of income the value of stocks of other corporations should not be taken into consideration beyond ten per cent. of the real and tangible personal property, although the entire dividend from such stocks was included in the net income which was the basis of the allocation, the statute was unconstitutional, and that the taxpayer in such case should be permitted to include in the statutory allocation the entire value of the stocks which it owned in other corporations. As to this matter it is sufficient to say that it does not appear from the record in the present case that the shares of stock which the Company owned in other corporations had yielded any dividends which were included in its total net income; and further, that this ques

A determination that aliens have not been given fair opportunity to appeal to Secretary of Labor from order of deportation, does not warrant their discharge, in view of R. S. § 761 (Comp. St. § 1289), but petitioners should be remanded to custody of immigration authorities to await result of appeal from order of

2. Habeas corpus 109-Remand to immigration authorities rather than to District Court for determination of right of entry ordered.

A court not being as well qualified to consider and determine the educational qualification of an alien immigrant and probable effect of a physical defect on a child's liability to become a public charge, on reversal of a judgment dismissing habeas corpus, case will not be remanded to District Court for its decision, but to the immigration authorities for their determination.

3. Habeas corpus 75-Return in immigration case should state details of literacy test and detailed findings.

The return as to the literacy test of an alien which does not set out details of the test applied in the examination, and does not show definite rulings of the commissioner or the board of inquiry on issues made by the alien in her evidence is insufficient.

On Writ of Certiorari to the United States Circuit Court of Appeals for the Second Circuit.

Habeas corpus, on the relation of Szejwa Waldman and her three minor children, Zenia, Bessie, and Sophia, against Robert E. Tod, Commissioner of Immigration at the Port of New York. An order dismissing the writ was reversed by the Circuit Court of Appeals (289 Fed. 761), and the Commissioner of Immigration brings certiorari. Reversed and modified, with instructions.

*114

*This is a certiorari to a judgment of the Circuit Court of Appeals for the Second Circuit, discharging Mrs. Szejwa Waldman and her three minor children as relators in a writ of habeas corpus. The writ was issued by the District Court for the Southern District of New York, to Robert E. Tod, Commissioner of Immigration at Ellis Island. That court dismissed the petition and remanded the relators. Mrs. Waldman and her children, reaching New York from Europe, were, after examination, detained at Ellis Island on August 28, 1922, for deportation, on the ground that they were liable to become public charges if admitted to the