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Complete Auto Transit, Inc. v. Brady

Supreme Court of the United States · Constitutional Law

Constitutional LawCommerce ClauseState Taxation of Interstate CommerceCommerce Clausestate taxinterstate commerceprivilege taxsubstantial nexus

Facts

Mississippi imposed a tax on the privilege of doing business within the State, including a 5% tax on the gross income of transportation businesses transporting persons or property for hire between points within Mississippi. Complete Auto Transit, a Michigan corporation, transported General Motors vehicles from a railhead in Jackson, Mississippi, to Mississippi dealers, and was paid on a contract basis for that in-state leg. Mississippi assessed taxes and interest for the period from August 1, 1968, through July 31, 1972, and Complete Auto paid under protest and sued for a refund. For purposes of the case, the Court assumed that Complete Auto's transportation was part of interstate commerce, and Complete Auto did not claim lack of nexus, unfair apportionment, discrimination, or lack of relation to state-provided services.

Issue

Whether the Commerce Clause bars Mississippi from applying a tax labeled as a tax on the 'privilege of doing business' to activity that is part of interstate commerce, when no claim is made that the tax lacks substantial nexus, is unfairly apportioned, discriminates against interstate commerce, or is unrelated to state-provided services.

Rule

A state tax affecting interstate commerce is valid under the Commerce Clause when the tax is applied to an activity with a substantial nexus with the taxing State, is fairly apportioned, does not discriminate against interstate commerce, and is fairly related to the services provided by the State. A tax is not per se unconstitutional merely because it is labeled a tax on the 'privilege of doing business' and is applied to interstate commerce.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

North Carolina imposes a 4% tax on the "privilege of doing business" on freight companies for compensation earned transporting machinery between Charlotte and Raleigh. Blue Valley Hauling, incorporated in Tennessee, performs only that in-state leg of shipments that originate in Kentucky and does not dispute nexus, apportionment, discrimination, or relation to state services.

Blue Valley argues the tax is unconstitutional solely because the statute calls it a tax on the "privilege of doing business" and its hauling is part of interstate commerce. How should a court rule?

Explanation. The majority rejected the old per se rule that a tax on the "privilege of doing business" is automatically unconstitutional when applied to interstate commerce. The controlling inquiry is practical, not semantic: whether the tax is applied to an activity with substantial nexus, is fairly apportioned, does not discriminate against interstate commerce, and is fairly related to state services. Because Blue Valley challenges only the label, the tax should be upheld. (Derived from Complete Auto Transit, Inc. v. Brady (n.d.).)