DISSENTING OPINION. I concur with the first two holdings of the Court, namely (1) that that part of appellee's gross income which is received from sales to the ultimate users of appellee's products is taxable at one per cent, and (2) that the imposition of a gross income tax on interest derived from tax exempt bonds of municipal corporations does not impair the obligation of contract. I dissent from the holding and the reasoning supporting it, that a tax imposed upon gross income of appellee derived from interstate and foreign commerce, is not repugnant to the commerce provision of Article 1, Section 8 of the Constitution of the United States under the law as announced by the Supreme Court of the United States.
In appraising the reasoning and decisions of the Supreme Court of the United States on this question, it is *Page 368 necessary to keep in view a few fundamental, and guiding rules which the Supreme Court of the United States has consistently applied when considering the question of whether a particular tax law, or tax scheme, of a state violates the interstate commerce clause of the Federal Constitution. It is obvious at the outset that no state tax law ever purports to regulate commerce among the states. Consequently it is the effect of the imposition of the tax burden which determines whether the particular tax law is such that it can be said to constitute a regulation of commerce among the states. No state, under our Federal Constitution, has the power to regulate commerce among the states, and, consequently, if the actual effect of the imposition of a particular tax burden constitutes a regulation of interstate commerce, the statute imposing the burden is invalid. On the other hand the Supreme Court of the United States consistently has recognized that if it is within the power of a state to impose a tax burden upon a particular subject of taxation, the imposition of such a tax burden is not obnoxious to the interstate commerce clause simply because there may be some indirect burden falling upon transactions which fall within the category of commerce among the states.
In determining whether or not the burden imposed by a state tax law constitutes a regulation of interstate commerce the Supreme Court of the United States has held undeviatingly that it is a regulation of commerce if it imposes a direct burden upon such commerce; and has repeatedly stated that a tax measured by the gross receipts, arising from interstate business, is such a burden as it is "by its necessary effect a tax upon such commerce, and therefore a regulation of it."1 In so holding the Supreme Court has taken the view that any action *Page 369 by a state which directly interferes with free flow of commerce among the states by obstructing or burdening such flow of commerce is in legal contemplation a regulation of it. Consistently with that view the rule frequently has been stated that a tax upon gross receipts from interstate commerce is in violation of the commerce clause.
On the other hand the United States Supreme Court has held consistently that if a tax imposed is upon a subject of taxation, in respect to the taxing of which the state has untrammeled power, such tax does not offend against the commerce clause even though the effect upon the business of particular individuals or corporations may be such as to ultimately and indirectly affect their interstate transactions. In accordance with the latter view excise taxes, or taxes upon property, have been held not to violate the commerce clause even though the gross income of individuals and corporations derived from interstate transactions is used as one of the elements in determining the value of the privilege or the property which is subjected to the tax.
Appellant relies strongly upon the case of AmericanManufacturing Company v. City of St. Louis.2 The tax in that case was held to be an excise tax upon the privilege of engaging in the business of manufacturing; and it was pointed out that gross income or receipts served as a measure of value of the privilege which was subjected to the excise tax. The tax had been imposed by the City of St. Louis under an act of the Missouri Legislature which authorized that city to "license, tax and regulate . . . the occupation of merchants and manufacturers, and to graduate the amount of annual license imposed upon them in proportion to the sales made by such merchant or manufacturer during the year next preceding any fixed date." *Page 370
To bring the instant case within the holding in the AmericanManufacturing Company v. City of St. Louis it would be necessary to construe the Gross Income Tax Act as imposing a privilege tax upon the occupation of manufacturing. It is clear that the General Assembly, in the exercise of the taxing power of Indiana, can impose such a tax. But I am convinced that appellee is correct in its contention that our present Gross Income Act does not impose a tax upon the privilege of engaging in the business of manufacturing. In so far as the tax in question may be considered a privilege tax, it must be treated as a tax upon the privilege of receiving gross income. In the title of the Act the tax which is being imposed is called "A tax upon the receipt of gross income;" and in Section 2 it is declared that the tax imposed is to be "measured by the amount or volume of gross income"; and that "such tax shall be levied upon the entire gross income of all residents . . ." It was stated by this Court inMiles v. Department of Treasury,3 "that the tax in question is an excise, levied upon those domiciled within the state or who derive income from sources within the state, upon the basis of the privilege of domicile or the privilege of transacting business within the state, and that burden may reasonably be measured by the amount of income."
Appellant relies upon Section 1-f of the Gross Income Tax Act to support his contention that the tax is "not only upon a privilege exercised wholly within the State of Indiana, but this privilege is measured by the value of the articles manufactured." The particular provision relied upon is as follows: "That the term gross income shall not include cash discounts allowed or taken on sales. Nor freight prepaid by the taxpayer and repaid to him by the purchaser . . ." Appellant urges that by the foregoing provision the words "gross income" *Page 371 are, in effect, defined to mean the value of the manufactured products at the plant. I cannot attach any such significance to the provision quoted. I think the plain intent of the language quoted from Section 1-f is to prevent the inclusion in gross income of certain items which in reality form no part of one's gross income. This is more apparent when one reads all of Section 1-f.
It is my opinion that the tax imposed by our Gross Income Act is a tax upon gross income or gross receipts. And consequently, appellants' third proposition reduces itself to the question of whether that part of appellee's gross income which is derived from the sale of its products in interstate and foreign commerce is taxable under the Constitution of the United States of America. And if such part of appellee's gross income is not taxable under the Constitution of the United States, then it is not taxable by our Gross Income Tax Act which expressly exempts "so much of such gross income as is derived from business conducted in commerce between this State and foreign countries, to the extent to which the State of Indiana is prohibited from taxing under the Constitution of the United States of America."4 Therefore, the answer to the third question as presented by this appeal must be found in the decisions of the Supreme Court of the United States.
By Article 1, Sec. 9 of the United States Constitution Congress is denied the power to levy any tax or duty "on articles exported from any state." And in the case of Peck Co. v. Lowe,5 the Supreme Court was required to determine whether Section 9 was violated by a congressional act which levied a tax upon the net income derived from export sales. In reaching the conclusion that Section 9 was not violated the Supreme Court emphasized *Page 372 the fact that the tax was levied upon net income. The thought of the Court is expressed in the following: "The words of the act are `net income arising or accruing from all sources.' There is no discrimination. At most, exportation is affected only indirectly and remotely. The tax is levied after exportation is completed, after all expenses are paid and losses adjusted, and after the recipient of the income is free to use it as he chooses. Thus what is taxed — the net income — is as far removed from exportation as are articles intended for export before exportation begins. If articles manufactured and intended for export are subject to taxation under general laws up to the time they are put in course of exportation, as we have seen they are, the conclusion is unavoidable that the net income from the venture when completed that is to say, after the exportation and sale are fully consummated, is likewise subject to taxation under general laws. In that respect the status of the income is not different from that of the exported articles prior to the exportation."
In Crew Levick Co. v. Pennsylvania,6 the United States Supreme Court had before it "the bare question . . . whether a state tax imposed upon the business of selling goods in foreign commerce, in so far as it is measured by the gross receipts from merchandise shipped to foreign countries, is in effect a regulation of foreign commerce or an impost upon exports, within the meaning of the pertinent clauses of the Federal Constitution." The Court concluded, p. 295-96, that the "imposition of a percentage upon each dollar of the gross transactions in foreign commerce" was "by its necessary effect a tax upon such commerce, and therefore a regulation of it; and, for the same reason" was "in effect an impost or duty upon its exports."
The two foregoing cases furnished the grounds of decision *Page 373 for the United States Supreme Court in the later case of UnitedStates Glue Co. v. Oak Creek.7 The question before the Court in that case was "whether a State, in levying a general income tax upon the gains and profits of a domestic corporation, may include in the computation the net income derived from transactions in interstate commerce without contravening the commerce clause of the Constitution of the United States." The Supreme Court assumed that the answer to the question depended upon whether the tax in question imposed a direct or indirect burden upon interstate commerce; and found the correct line of distinction illustrated in Crew Levick Co. v. Pennsylvania and Peck Co. v. Lowe, supra. The following excerpts are from the opinion in U.S. Glue Co. v. Oak Creek, supra, pp. 328, 329.
"The difference in effect between a tax measured by gross receipts and one measured by net income, recognized by our decisions, is manifest and substantial, and it affords a convenient and workable basis of distinction between a direct and immediate burden upon the business affected and a charge that is only indirect and incidental. A tax upon gross receipts affects each transaction in proportion to its magnitude and irrespective of whether it is profitable or otherwise. Conceivably it may be sufficient to make the difference between profit and loss, or to so diminish the profit as to impede or discourage the conduct of the commerce. A tax upon the net profits has not the same deterrent effect, since it does not arise at all unless a gain is shown over and above expenses and losses, and the tax cannot be heavy unless the profits are large."
. . .
"And so we hold that the Wisconsin income tax law, as applied to the plaintiff in the case before us can not be deemed to be so direct a burden upon plaintiff's interstate business as to amount to an unconstitutional interference with or regulation of commerce among the States. It was measured not *Page 374 by the gross receipts, but by the net proceeds from this part of plaintiff's business, along with a like imposition upon its income derived from other sources, and in the same way that other corporations doing business within the State are taxed upon that proportion of their income derived from business transacted and property located within the State, whatever the nature of their business."
Under the holding in Crew Levick Company v. Pennsylvania,supra, and the reasoning in the two cases of U.S. Glue Company v. Oak Creek and Peck Co. v. Lowe, supra, it must be concluded that part of appellee's income which is received from its sales in interstate and foreign commerce would constitute a direct burden upon interstate and foreign commerce, and that such a tax would violate the interstate and foreign provision of the United States Constitution as construed by the Supreme Court of the United States. And consequently it is my opinion that the legislative intent, as clearly expressed in Section 6 (a) of the Gross Income Tax Act, is not to impose a tax upon that part of appellee's gross income which is derived from sales transactions in interstate and foreign commerce.
It is my opinion that the trial court was not in error in deciding that the Gross Income Tax Act does not impost a tax upon that part of appellee's gross income which is derived from sales in interstate and foreign commerce.
1 Crew Levick Co. v. Pennsylvania (1917), 245 U.S. 292, 38 S. Ct. 126.
2 1918), 250 U.S. 459, 39 S. Ct. 522.
3 1935), 209 Ind. 172, 199 N.E. 372, 374.
4 Sec. 6 (a) Gross Income Tax Act 1933, Ch. 50.
5 (1917), 247 U.S. 165, 174-75, 38 S. Ct. 432.
6 (1917), 245 U.S. 292, 295, 38 S. Ct. 126.
7 (1918), 247 U.S. 321, p. 326, 38 S. Ct. 499. *Page 375