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U.S. Supreme Court

International Harvester Co. v. Department of Taxation, 322 U.S. 435 (1944)

International Harvester Co. v. Wisconsin Department of Taxation

No. 620

Argued April 27, 1944

Decided May 29, 1944*

322 U.S. 435


A statute of Wisconsin imposes a tax "for the privilege of declaring and receiving dividends" out of corporate income derived from property located and business transacted within the State, and requires corporations to deduct the tax from dividends distributed to both resident and nonresident stockholders. As assessed to the appellants (foreign corporations doing business within the State) the tax was measured by so much of their dividends as was derived from the portion of the corporate surplus attributed by the tax authorities to income earned in Wisconsin. Their dividends were declared at directors' meetings held outside the State, and the dividend checks were drawn on bank accounts outside the State.


1. Appellants have standing to challenge the constitutionality of the statute. P. 322 U. S. 440.

Appellants can avoid payment of the tax from their own funds only by deducting it from their stockholders' dividends. In the latter case, they would remain liable, at least to the preferred stockholders, for the amounts of the deductions if not lawfully taken. In either aspect, therefore, appellants are adversely affected by obedience to the statute, and may challenge its constitutionality.

2. The tax is within the power of the State under the Federal Constitution. P. 322 U. S. 441.

(a) In determining whether a tax is within the State's constitutional power, this Court looks to the incidence of the tax and its practical operation, and not its characterization by the state courts. P. 322 U. S. 441.

(b) So long as the earnings are actually derived from corporate activity within the State, and their withdrawal from the State and chanroblesvirtualawlibrary

Page 322 U. S. 436

ultimate distribution, in whole or in part, to stockholders are subject to some state control, the conditions of state power to tax are satisfied. P. 322 U. S. 443.

(c) There is no constitutional obstacle either to the State's distributing the burden of the tax ratably among the stockholders, as the ultimate beneficiaries of the corporation's activities within the State and of the State's relinquishment of control over the Wisconsin earnings, so as to render the tax pro tanto one on the stockholders' income, or to the State's imposing on the corporation the duty of acting as its agent for the collection of the tax, by requiring deduction of the tax from earnings distributed as dividends. P. 322 U. S. 441.

(d) The power to tax the corporation's earnings within the State includes the power to postpone the tax until the distribution of those earnings, and to measure it by the amounts distributed. P. 322 U. S. 441.

(e) Residence of stockholders within the State is not essential to the constitutional levy of a tax taken out of so much of the corporation's Wisconsin earnings as is distributed to them. P. 322 U. S. 441.

(f) The constitutional validity of the tax is unaffected by the fact that the power of the corporation to declare dividends was created and exercised outside of the State. P. 322 U. S. 443.

(g) Wisconsin's jurisdiction to impose the tax is unaffected by the fact that the stockholders are not represented in the Wisconsin legislature. P. 322 U. S. 443.

(h) Connecticut General Ins. Co. v. Johnson, 303 U. S. 77, distinguished. P. 322 U. S. 444.

(i) This Court is concerned not with the wisdom or fairness of the tax, but only with the power of the State to lay it. P. 322 U. S. 444.

3. Though the dividends were paid in part from corporate surplus earned prior to the enactment of the tax statute, the taxable event -- distribution of dividends from Wisconsin earnings -- occurred subsequently, and hence no question of retroactive application is involved. P. 322 U. S. 445.

4. Whether the formula for assessing the tax was authorized by the statute is a question the decision of which by the state court is binding here. P. 322 U. S. 445.

243 Wis.198, 211, 10 N.W.2d 169, 174, affirmed.

Appeals from the affirmance of judgments sustaining assessments of state taxes. chanroblesvirtualawlibrary

Page 322 U. S. 437

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