Henneford v. Silas Mason Co.
1937 U.S. LEXIS 82, 57 S. Ct. 524, 300 U.S. 577 (1937)
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Rule of Law:
A state may impose a non-discriminatory tax on the local use of chattels purchased in another state, as long as the tax is complementary to the state's sales tax and does not place a greater burden on interstate commerce than on intrastate commerce.
Facts:
- Plaintiffs were contractors and subcontractors engaged in the construction of the Grand Coulee Dam on the Columbia River in Washington.
- In the course of their work, they purchased machinery, materials, and supplies, such as locomotives and cars, at retail in states other than Washington.
- The total cost of these articles, including transportation, was $921,189.34.
- Plaintiffs brought these items into Washington for the purpose of using them in the construction project.
- A Washington state law imposed a 2% tax on retail sales within the state.
- The same law imposed a 2% 'compensating tax' on the use of tangible personal property purchased out-of-state.
- The law provided an offset or credit for any sales or use tax that had already been paid on the item in another state.
Procedural Posture:
- The Tax Commission of Washington gave notice to the plaintiffs that they were subject to a use tax of $18,423.78 and demanded payment.
- Plaintiffs filed suit in the United States District Court, challenging the tax as unconstitutional.
- A three-judge panel of the District Court adjudged the Washington statute void and granted an interlocutory injunction preventing the tax collection.
- The Tax Commission of Washington (appellants) appealed the District Court's decision directly to the Supreme Court of the United States.
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Issue:
Does a state's 'compensating tax' on the in-state use of goods purchased out-of-state violate the Commerce Clause when it is designed to be equal to the state's sales tax on goods purchased in-state?
Opinions:
Majority - Justice Cardozo
No, the state's compensating tax does not violate the Commerce Clause. The tax is not levied on the operations of interstate commerce itself, but upon the local privilege of use after the item has come to rest within the state and commerce is at an end. The statute's central theme is equality; it ensures that goods purchased out-of-state and used in Washington bear an equal tax burden to goods purchased and used within Washington. The sales tax and the use tax are complementary components of a single tax scheme, designed to prevent discrimination against local retailers and to avoid a drain on state revenues. When the burdens are balanced, 'the stranger from afar is subject to no greater burdens... than the dweller within the gates,' thereby avoiding any unconstitutional discrimination against interstate commerce.
Dissenting - Justice McReynolds and Justice Butler
No written opinion was provided, but Justices McReynolds and Butler dissented from the majority's conclusion.
Analysis:
This landmark decision validated the constitutionality of the 'compensating use tax,' a critical fiscal tool for states with sales taxes. It established the 'complementary tax' doctrine, which holds that a tax on out-of-state goods is not discriminatory if it merely offsets an equivalent tax on in-state goods, thereby creating a level playing field. This ruling allows states to protect their sales tax base from erosion by residents making out-of-state purchases to avoid tax. The decision solidified the principle that states can tax local events, like 'use,' that follow the conclusion of an interstate transaction, so long as the tax is non-discriminatory in its practical effect.
