Memphis Natural Gas Company v. Stone/Dissent Frankfurter
Mr. Justice FRANKFURTER, with whom The CHIEF JUSTICE, Mr. Justice JACKSON, and Mr. Justice BURTON concur, dissenting.

This litigation began before the State Tax Commission of Mississippi by a petition of the Memphis Natural Gas Company for a revision of the franchise tax assessed against that Company under the Franchise Tax Law of Mississippi. On judicial review of this administrative denial, the parties stipulated that 'all of the facts stated in said petition are true and no proof of the same shall be required in this cause.'  The decision therefore must be based on the undisputed allegations of the petition.

Petitioner, a Delaware corporation, owns and operates a pipeline for the transportation of natural gas running from the gas fields in Louisiana through Arkansas and Mississippi into Tennessee. Petitioner has conducted no intranstate business within Mississippi, nor is it qualified to do so. The Company paid Mississippi an income tax 'upon that part of its net income fairly attributable to activities in Mississippi.' It also pays ad valorem taxes to the six counties through which the Mississippi portion of its interstate pipeline-some 135 miles-runs. The o unties are: Washington, Bolivar, Sunflower, Coahoma, Tunica, and Desoto. It also pays ad valorem property taxes to the cities of Greenville (Washington), Indianola (Sunflower), and Clarksdale (Coahoma). In addition to these income and local ad valorem property taxes, not here questioned, the State Tax Commission assessed the franchise tax in controversy. This was done under an enactment of 1940, which imposed on all foreign corporations 'doing business within this state'  a 'franchise or excise tax equal to $1.50 of each $1,000.00 or fraction thereof of capital used, invested or employed within this State * * *.' Ch. 115 of the 1940 General Laws of Mississippi § 2; Miss.Code, § 9314(1942). The record is barren of any indication that 'the taxing power exerted by the state bears fiscal relation to protection, opportunities and benefits given by the state,' Wisconsin v. J.C. Penny Co., 311 U.S. 435, 444, 61 S.Ct 246, 249, 85 L.Ed. 267, 130 A.L.R. 1229, other than those for which the State, through its subordinate taxing authorities, has already made exaction, as contrasted with those which are given not by the State but by the United States and for which the State may not make exaction. Crutcher v. Kentucky, 141 U.S. 47, 11 S.Ct. 851, 35 L.Ed. 649. The record not only makes no such affirmative showing; it denies the foundation for suggesting that the State has given something for which it can exact a return. For it was stipulated between the Company and the State Tax Commission that 'Your Petitioner obtains no protection from the State of Mississippi and acquires no powers or privileges in its interstate activity other than the protection afforded your Petitioner by virtue of the payment of an ad valorem tax on the property used by the Company wholly in interstate commerce.' 

Even assuming therefore that, while Mississippi cannot impose a tax for the privilege of doing an exclusively interstate business within the State, it can cast an ad valorem property tax on the Mississippi portion of the corpus of its interstate property in a form having all the earmarks of a franchise tax, the assessment here challenged on the record before us cannot stand. And for a very simple reason.

There would hardly be disagreement, I take it, that Alabama could not constitutionally impose an ad valorem tax on these 135 miles of pipeline in Mississippi. This is so not because the pipeline does not traverse Alabama-concededly the assailed tax cannot be sustained merely because the pipeline travels through Mississippi-but because Alabama affords nothing to this petitioner for which it could ask recompense by way of a tax. We cannot know, unless we are instructed, how governmental powers are distributed in Mississippi as between its State and local governments. And the petitioner has no proof of its allegations that the nine county and city taxing authorities to which the petitioner pays approximately $85,000 a year in ad valorem taxes supply all the benefits which it enjoys from the State and that the State in seeking to enforce the franchise tax aa inst the petitioner is asking something (approximately $3,500 a year) for nothing. But 'no proof of the same shall be required in this cause,' according to the stipulation between the parties, to which the State Tax Commission has set its name. See H. Hackfeld & Co. v. United States, 197 U.S. 442, 446, 25 S.Ct. 456, 457, 49 L.Ed. 826. In holding that Mississippi is 'exacting compensation under this statute for the protection it affords the activities within its borders' to this petitioner the Court is flying in the face of the record. On the basis of that record Mississippi can no more exact this tax against this pipeline than could Alabama. For we are all agreed that where the only 'local incident' is the fact of interstate commerce-that the interstate pipeline goes through Mississippi-the tax is necessarily a tax upon the privilege of doing interstate business. The Commerce Clause put an end to the power of the States to charge for that privilege.

But it is suggested that we are barred from reaching this conclusion, though the record compels it, because it deals with an issue not before us. Let us see. The petition for certiorari presented this question: 'Admittedly petitioner is engaged in Mississippi solely in interstate commerce. It pays to Mississippi ad valorem and income taxes and thus contributes materially to the cost of local government. An undomesticated foreign corporation has the right to engage in Mississippi in interstate commerce without paying for the privilege as the privilege flows from the Commerce Clause of the Federal Constitution and may not be directly burdened by the imposition of a local 'franchise or excise tax."

By this statement the petitioner clearly asserted that insofar as Mississippi has power to tax this interstate business for the protection accorded the 'local incidents' of that business, the taxes levied by the State through its local taxing authorities exhausted the power. To tax beyond that is bald tax on the privilege of doing interstate commerce. If we were precluded from deciding a case otherwise than by the precise course of argument presented by counsel, many of our opinions would have to be deleted from the United States Reports.

The Court however attempts to deal with the contention. As I understand the Court's opinion, it argues that even if it be true that this tax does not recompense the State for the local protection accorded the petitioner's activities, this is wholly immaterial as the Supreme Court of Mississippi has given the tax a contrary interpretation. The opinion offers the extraordinary suggestion that although the State Tax Commission on behalf of the State conceded that the exaction as a matter of fact afforded no protection, the State Supreme Court may disregard such a concession of fact, having all the force of proof, and hold as a matter of law that protection beyond that for which taxes were already imposed was enjoyed by the interstate business.

In the first place the Supreme Court of Mississippi purported to do no such thing. On the contrary, its opinion concluded as follows: 'Does the franchise tax here demanded amount to enough to have any substantial effect to block or impede the free flow of commerce, or is it at all out of reasonable proportion to the services and protection which must be furnished by the State in and about the stated local activities? The franchise tax demanded is approximately $3,400 per annum, whereas the ad valorem taxes are approximately $82,000 a year, whence the obvious answer to this last question must be in the negative.' Miss., 29 So.2d 268, 271.

Of course, a State tax on interstate commerce does not become a valid one merely because 'it's only a little one.' And even in thise days, an unconstitutional exaction by a State of $3,400 is not de minimis.

But even if the State court's opinion were susceptible of the construction accorded it by this Court, its ipse dixit in applying the Commerce Clause would not be i nding on this Court. Of course the construction of a statute is for the State court. But the construction of the statute which the Court now attributes to the State Supreme Court whereby the tax is imposed not for any 'local incidents'-because these have already been fully taxed-makes clear beyond peradventure that it is a tax on the privilege of engaging in the doing of interstate business within the State, and such a tax is, of course, invalid under the Commerce Clause.

It is a novel abdication of this Court's function that we are bound by a State court's views of the constitutional significance of a State tax on interstate business, but are not bound by an unambiguous stipulation by the State that no protection was afforded by the State to the taxable local incidents of the interstate business beyond that for which the State, through its local agencies, has already levied the tax.

A State may of course increase the rate of a properly apportioned ad valorem tax of an interstate business. Compare Wallace v. Hines, 253 U.S. 66, 40 S.Ct. 435, 64 L.Ed. 782. But it can do so only by increasing the rate. The mere fact that the same number of dollars could have been exacted by the State in a constitutional way cannot legalize every tax, 'as though the ad valorem rate had been increased.' Because a State could obtain twice the amount of revenue that it gets from an interstate business by increasing the ad valorem rate does not constitutionally justify a tax which, by virtue of a stipulation having the force of truth is not referable to any protection which the State accords.

These are not abstract objections against disregarding the tax which the State has in fact levied and treating it as though it levied some other tax. Practical considerations preclude such a patent endeavor to circumvent the restrictions that the Commerce Clause places upon the taxing powers of the States. A State legislature may be ready to levy a tax for the privilege of doing interstate business within the State-as legislatures have again and again attempted to do-and not be prepared to increase outright the ad valorem rate.

The suggestion that an otherwise unconstitutional tax may be treated 'as though the ad valorem rate had been increased' is an easy way of sustaining almost every tax that would otherwise fall under the ban of the Commerce Clause by transmuting it into an assumed increase in the rate of an ad valorem tax. The suggestion has the merit of inventiveness. In the competition for revenue among the States, it is an inventiveness that subjects the hitherto great boon of free trade across State lines to the bane of multitudinous local tariffs.

The judgment should be reversed. 

Notes