Brief for the Respondent in Opposition — Holland Furnace Co. v. Department of Treasury

Hewry F.

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INDEX

Page

Summary Statement of Matters Involved........................ 1

NN isc lgsstcs selscricsocd Saas ascaeos 1

iain lid ci canicesebellstint nideiecabtioonieshieiacsiinapeinetniiniinidontiass 2

I iirscsaaesihiecbiinticpaaanecnnencalietontentensiniedelnsinloniiepnetesiickinsimasiiten 2

I I i csscsintsconisbigiaiesionshneninet-viomestadsninehiion 3

NI kiran Lelishanraicin duane anata lalbmaasiiasenwnsenconcnnon 4

I. The levy of the tax does not violate the Com-

SN I Sadaiictba cdiun cacesstrnciinrdeteisainintniadehaentbe 5

II. The levy of the taxes here is not prohibited by

the Fourteenth Amendment and is proper

here under the terms of the taxing act........ 12

III. Petitioner taxpayer was properly taxable at

CHD TOGO OL CUO TOE COU anancscsessccccesecneseseesess 18

EASINESS ORO MST eee 21

i

CITATIONS

Page

Cases:

Adams Manufacturing Company v. Storen (1988),

212 Ind. 343, 7 N. E. (2d) 941, 304 U. S. 307.......... 8,19

Allied Mills, Ine. v. Department of Treasury, — Ind.

—, 42 N. E. (2d) 34, 63 S. Ct. 666, 87 L. ed. 514....9, 11

Banker Bros. v. Pennsylvania, 222 U. S. 210.0000... 9, 10

Clark’s Laundry & Dry Cleaning’ Company v. De-

partment of Treasury (1937), 103 Ind. App. 359,

Re, iat ches scaneninentitinig csnennaiditcpassanignglinclaschanati 19

Connecticut General Life Insurance Company vy.

a NE las IN cheatin consis ccna sit ggoebdecas 17

Dahnke-Walker Milling Company v. Bondurant, 257

A I MUR tis aelea'cantn dh shseeinlicbrientecicocetsene atone tevcsdeemensoleeciociiiedaa 7

Department of Treasury v. International Harvester

Company, — Ind. —, 47 N. E. (2d) 150.000... 11

Department of Treasury v. Ridgely (1936), 211 Ind.

Fae Re DO iiss hen eseabatec uc cic cocaaepscbcssghuhenccdt 19

Department of Treasury v. Wood Preserving Corpora-

MO CTE, ee, Wh iia cscs sestesseresnerecnic 18

Dravo Contracting Company v. James, 114 Fed. (2d)

242 at 246 cert. den, 312 U.S. 678, 61S. Ct. 450........ 15

Graybar Electric Company v. Curry, — Ala. —, 189

sey Oe Ml 5 Fs ei is isssientdnainicbcahamnktancnerisnincnaacin

Hans Rees’ Sons v. North Carolina, 283 U. 8. 123

Hinson v. Lott, 8 Wall. 148

Page

Indiana Farmers Guide v. Department, ete. (1940),

SOT Tbe. Gal, TP DR. Bh TER) Fein cceindinegnce 9, 16

In re Kansas City Star, 346 Mo. 658, 142 8S. W. (2d)

I vanes testes ita cereal seninincomatinahtticnh chathcakscpnpclindalilinih 17

Jackling v. State Tax Commission, 40 N. M. 241, 58

iy CIE) RIE arcs cscs snssnivancnisisiniit vienchevaienindioatvimemnivhesevinns 17

James v. Dravo Contracting Co., 302 U.S. 184.......... 7,16

McGoldrick v. Berwind-White Coal Mining Company

4 ME eS EY eee emer mentrom eee 9

Miles v. Department of Treasury of Indiana (1935),

OD TA, Be, OO Bc Tile eB aancectirinncessinsciynsvetnrnineearnins 10, 14

Nelson v. Sears, Roebuck & Company (1941), 312

By Wk. Se cicecititsamesneieteacaiinhdhaaceeaabocingihevedliannina mccniabed 9,18

Oster v. Department of Treasury (1941), 219 Ind.

BEB, a ei Bic Lh Ici ctertsnitetonseinchaessnnecetesites 18

Paul v. Virginia (1869), 8 Wall. 168............................. 9

Sonneborn Bros. v. Cureton, 262 U.S. 506................ 8, 9, 17

South Carolina Power Company v. South Carolina,

Oe eek, CO) BUG, BOO Ty. Wes BIG aac cocescecnesrcscpeecincees 16

Stone v. York Ice Machinery Corp. (Miss.), 10 So.

RE IU Aisi catiicasihceovichens cated eniat ascbennessoamasaeaiaiioiaet 7,16

Suabedissen-Wittner Dairy, Inc. v. Department of

Treasury (1938), 105 Ind. App. 626, 16 N. E. (2d)

PRR SAFER UN Yse DOO NEE EN UL BI DERE ae Kein Pinan EEE 19

Pawan WU. B. CHGOG), BOG a Bi on asses ssiessciitcssinaees 9

Ware & Leland v. Mobile County (1908), 209 U. S.

405

—_—

Page

Western Live Stock v. Bureau of Revenue (1938),

PE SA MD ctetinckciniesns a itedinicagelsniinatenatooiate Chie ....9, 10

Wiloil Corporation v. Pennsylvania, 294 U. 8S. 169... 9

Wisconsin v. J. C. Penney Company (1940), 311

Statutes:

See. 1 (f), Chap. 50, Acts of General Assembly of

Indiana of 1933, p. 389: Sec. 64-2601 (f) Burns’

Fa, TOO. TARE Be Wi Sct is 14, 21

See. 1 (m), Chap. 117, Acts of General Assembly of

Indiana of 1937, p. 606: Sec. 64-2601 (m), Burns’

Ind. Stat. Ann. 1933 ed., Pocket Suppl............... 14, 15, 22

See. 2, Chap. 50, Acts of General Assembly of Ind-

iana of 1933, p. 390: Sec. 64-2602 Burns’ Ind. Stat.

ADU: IAP A ciceth tcshapcsbncsiepatntonsihonicaninitn 10, 11, 13, 18, 21

See. 2, Chap. 117, Acts of General Assembly of Indi-

ana of 1937, p. 611: See. 64-2602, Burns’ Ind. Stat.

Ann. 1933 ed., Pocket Suppl.............................. 10, 18, 23

See. 3 (a), Chap. 50, Acts of General Assembly of In-

diana of 1933, p. 391: See. 64-2603 (a) Burns’ Ind.

RPMs. PEI TY Wcasstaceehnichicnecentaci centr sdecieiiialatate 19, 22

Sec. 3 (f), Chap. 50, Acts of General Assembly of In-

diana of 1933, p. 392: Sec. 64-2603 (f) Burns’ Ind.

Rs SA TI A ccacinncick eeiens tans ida ds pati coniescndetin 22

iv

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1943

Houzanp Furnace Company, a Corporation,

Petitioner,

v.

DEPARTMENT OF TREASURY OF THE STATE OF INDIANA,

Henry F. Scuricker, JAMES Givens, AND Rici-

arp I. James, as and Constituting the Board of

the Department of Treasury of the State of

Indiana,

L No. 164

Respondents.

RESPONDENTS’ BRIEF IN OPPOSITION TO

PETITION FOR WRIT OF CERTIORARI

A.

SUMMARY STATEMENT OF MATTERS INVOLVED.

The Facts.

Petitioner’s statement of the facts is substantially cor-

rect. However, petitioner’s statement contains certain con-

clusions of petitioner.

With respect to petitioner’s offer to apportion, referred

to by petitioner at page 4 of its petition herein, the

Record shows the following:

aN 6utrsie Ge! «Ayalon OR

2

“Said defendant Department of Treasury, by

letter dated October 27, 1941, refused to consider

any apportionment of the receipts in this matter.

‘The Department took the view that the activity

of the plaintiff was that of a contractor performing

a contract within the State of Indiana and as such

did not come within the purview of the commerce

clause; that the gross income tax law of Indiana

with respect to tax upon gross receipts derived from

the performance of contracts within the confines of

the State of Indiana, did not, in the opinion of the

Department, permit an apportionment of the tax,

and such prohibition did not conflict with the due

process clause; it concluded that the weight of

authority seemed to justify the assumption that the

state in which the contract was fulfilled was entitled

to use the entire gross receipts from such a source

measuring the tax to be imposed upon activities

within the taxing state.’’

Finding X, Record, pp. 28-30.

The Issues.

Petitioner’s statement of the issues and questions pre-

sented is substantially correct.

Statutes.

Pertinent sections of the Indiana Gross Income Tax

Act of 1933, and that Act, as amended, are set out in full

in Appendix, infra, pp. 21-23.

B.

SUMMARY OF ARGUMENT.

One.

The levy of the tax here does not violate the Commerce

Clause.

The State of Indiana is not prohibited by the Commerce

Clause of the Federal Constitution from levying the local

tax involved herein, measured by the gross receipts of peti-

tioner from the performance of contracts for the perform-

ance of work and installation of heating and air condition-

ing equipment within the State of Indiana. (Argument,

imfra, pp. 5-12.)

Two.

The levy of the tax is not prohibited by the Fourteenth

Amendment and is proper under the terms of the state

taxing act.

No portion of the transactions taxed occurred outside

Indiana. The gross receipts of petitioner from the per-

formance of its contracts within Indiana were from purely

local sources, and, therefore, the taxes herein were properly

paid and collected. (Argument, infra, pp. 12-18.)

Three.

The tax at the rate of one per cent. is proper.

Petitioner’s receipts prior to April 1, 1937 (under the

original Gross Income Tax Act of Indiana, Chapter 50,

Acts of 1933, p. 389, Section 64-2601 et seq., Burns’ Ind.

Stat. Ann. 1933 ed.), properly were taxable at the rate of

one per cent. (Argument, infra, pp. 18-20.)

ARGUMENT.

The Nature of the Case.

Petitioner brought this action in the District Court to

recover taxes paid by it under the provisions of the Indiana

Gross Income Tax Act of 1933 and that Act as amended.

Chapter 50, Acts of the General Assembly of 1933, p. 389;

Chapter 117, Acts of the General Assembly of 1937, p. 606:

Sec. 64-2601 et seq. Burns’ Ind. Stat. Ann. 1933 ed. and

Pocket Suppl.

The District Court referred the case to a Special Master

and in due course the Master reported findings of fact and

conclusions of law in this case which were adopted by the

Court. The conclusions of law were in favor of defendants

(respondents) and judgment was rendered accordingly.

The Cireuit Court of Appeals for the Seventh Cireuit

affirmed the decision of the District Court. 133 Fed. (2d)

212.

The petitioner, Holland Furnace Company, is a Mich-

igan corporation admitted and qualified to do business in

Indiana. It maintained sales offices at various Indiana

cities and towns. It manufactured heating and air condi-

tioning equipment and supplies outside Indiana.

All of the gross income which formed the measure of

the taxes in controversy consisted of total amounts specified

in contracts entered into through petitioner’s Indiana

branches direct with its Indiana customer, no contracts

having been made with or sales having been made to dealers

or jobbers.

The contracts solicited by petitioner’s employees or

agents within Indiana were in the form set out in full in

the Record. Finding IV, Record, pp. 23-25.

All emphasis is that of respondents, unless otherwise stated.

—

4)

It is the position of the State that the gross receipts of

petitioner from the performance of its contracts in Indiana

were the proper measure of the state tax involved.

One.

The levy of the tax does not violate the Commerce

Clause.

A. THE GROSS RECEIPTS OF PETITIONER WERE

FROM LOCAL ACTIVITIES.

The respondents insist that there is no serious question

of interstate commerce involved here. The gross receipts

of the Holland Furnace Company, derived in the manner

described in the findings of the Court below, properly may

be the measure of this state privilege tax, inasmuch as all

of said receipts were derived from the performance of

work and labor and the furnishing of materials within

Indiana. :

There is a real and substantial difference between a

‘contract for work, labor and-materials’’ and a ‘‘contract

of sale.’’ The Holland Furnace Company sends its prop-

erty into the State of Indiana and reserves title thereto

until it is fully paid for, the time of such payments not

being definitely shown but in contemplation extends over a

period of at least several months. All of this time its

property is protected by Indiana laws. Protection against

default by its purchasers must be obtained from Indiana

courts—its property has fully come to rest in Indiana and

is under the protection of the state. The contract between

petitioner and its customers clearly contemplates that the

property definitely comes to rest in Indiana.

6

The fact is that the State of Indiana has and should

have the right to apply its gross income tax to business

actually transacted within the state, notwithstanding the

fact that ‘‘interstate’? commerce may have intervened at

some point in the transaction, as an incident, and the addi-

tional fact that the taxpayer may have incurred expenses

in some other state preparatory to the performance of its

contracts in Indiana with its Indiana customers.

The Holland Furnace Company’s contract obviously is

not a contract for the sale of a thing, but by all the ordinary

rules of construction must be properly recognized to be a

contract to perform certain work and labor and furnish

certain materials at a specified place in Indiana, i. ¢., locally.

As a matter of fact, what the petitioner agreed to do,

and that for which it was compensated, was to furnish its

Indiana customers with heating plants installed within their

Indiana premises. With respect to the receipts involved

here petitioner performed no gross income-produeing

activities outside Indiana.

The tax is purely and simply upon the Indiana activities

of petitioner. It could have manufactured millions of fur-

naces at Holland, Michigan, and brought them into Indiana

and yet never have been liable for one cent of gross income

tax. But—if it obtained contracts in Indiana, maintained

numerous sales offices in Indiana, and performed its con-

tracts in Indiana by furnishing and installing such furnaces

and other equipment, and received gross receipts therefor,

this petitioner, exactly the same as any other contractor,

engaged in Indiana in a peculiarly local business, is and

should be subject to this state tax.

Petitioner’s contract provides striking proof of the cor-

rectness of our contentions. Petitioner agreed to and did

7

perform in Indiana the contract which was the source of

the gross receipts which formed the measure of the tax:

‘‘We, Holland Furnace Co. (seller), propose and agree to

furnish and install furnaces at .’ (Always

an Indiana location.) (Finding IV, Record, p. 23.)

Petitioner’s gross receipts involved here accrued directly

as the result of the activities which it performed in Indiana:

furnishing materials installed in Indiana structures. Cer-

tainly, by no stretch of the imagination, could such trans-

actions be considered outside the scope of the state’s power

to tax. The full measure of the Indiana tax is based upon

Indiana activities—not upon anything done by petitioner

outside the state, or upon the basis of any of its dealings

outside the state. Cf. Stone v. York Ice Machinery Corp.

(Miss.), 10 So. (2d) 380; James v. Dravo Contracting Co.,

302 U.S. 134.

Petitioner cites several cases to support its proposition

that the receipts of Holland Furnace Company were from

the interstate sale of goods.

All of these cases are conditioned upon the theory that

a state cannot require a corporation doing business having

multistate characteristics to acquire a license in order to

carry on a portion of its business within the state or make

an enforceable contract within the state without first obtain-

ing a license. None of such cases cited are tax cases, and

they should not be controlling here.

An outstanding example of the type of cases cited by

petitioner, although not herein cited, is the case of Dahnke-

Walker Milling Co. v. Bondurant, 257 U. S. 282. However,

holding that a corporation may solicit and perform con-

tracts within a state without leave of the state is far from

holding that a state may not levy a general, non-discrimina-

8

tory tax, measured by gross receipts from transactions like

those now before the Court.

The Court has had this to say with reference to the

Dahnke-Walker case:

‘*But that case was not concerned with the power

to tax, but rather with the power of a state to pre-

vent an engagement in interstate commerce within

her limits, except by her leave.’’

Sonneborn Bros. v. Cureton, 262 U.S. 506,

514.

In the instant case, all of the work for which, payment

was received was done in Indiana by Hollanda&Furnace

Company.

B. THIS INDIANA TAX, MEASURED BY PETITION-

ER’S GROSS RECEIPTS, IS NOT PROHIBITED

BY THE COMMERCE CLAUSE.

While respondents earnestly contend in this case that

the gross receipts of petitioner are from activities strictly

local in character, if the transactions are found to have

any ‘‘in-erstate’’ characteristics respondents submit that

petitioner is not engaged in such commerce as Indiana is

prohibited from taxing by reason of the Commerce Clause

of the Federal Constitution.

The case of Adams Manufacturing Company v. Storen

(1938), 304 U. S. 307, does not prohibit the application of

the Indiana tax measured by petitioner’s gross receipts

from contracts performed within Indiana. In that case,

this same tax was held to be invalid when laid by the State

of Indiana upon receipts from sales of goods manufactured

in Indiana and sold in other states.

9

The Adams case establishes the principle that the

seller’s state is prohibited by the Commerce Clause from

imposing a tax upon the gross receipts from sales of goods

in another state. McGoldrick v. Berwind-White Coal Min-

ing Company (1940), 309 U. S. 33, 57.

It is a proposition of law no longer questioned that the

mere formation of a contract between persons in different

states does not make the contract a subject of protection

of the Commerce Clause, at least in the absence of con-

eressional action, when, as is the case here, the contract is

to be performed wholly within the borders of one state.

This is true although the contract incidentally may affect

interstate trade. McGoldrick v. Berwind-White Coal Min-

ing Company (1940), 309 U. S. 33; Western Live Stock v.

Bureau of Revenue (1938), 303 U. S. 250, 251; Ware &

Leland v. Mobile County (1908), 209 U. 8. 405, 409; Paul v.

Virginia (1869), 8 Wall. 168; Indiana Farmers Guide v.

Department (1940), 217 Ind. 627, 29 N. E. (2d) 781, 784.

The Commerce Clause does not in terms prohibit state

taxes. Swift v. U. S. (1905), 196 U. 8. 375, 399; Western

Live Stock v. Bureau of Revenue (1938), 303 U.S. 250, 254.

State taxes, measured by gross receipts, have been uni-

formly upheld where there has been no possibility, as here,

that the transaction taxed could bear any greater burden

than transactions having absolutely no extrastate charac-

teristics.?

1 Woodruff v. Parham, 8 Wall. 123; Hinson v. Lott, 8 Wall. 148; Banker

Brothers v. Pennsylvania, 222 U. S. 210; Wiloil Corporation v. Pennsylvania,

294 U. S. 169; Sonneborn Brothers v. Cureton, 262 U. S. 506, 514; Graybar

Electric Company v. Curry, — Ala. —, 189 So. 186, 308 U. 8. 513; McGoldrick

v. Berwind-White Coal Mining Company, 309 U. S. 33; Department of Treasury

v. Allied Mills, Inc., — Ind. —, 42 N. E. (2d) 34, 63 S. Ct. 666. Cf. Wisconsin

v. J. C. Penney Company, 311 U. 8. 435; Nelson v. Sears, Roebuck § Company,

312 U. S. 359.

10

It is the effect of a local tax upon commerce in which

the court has been interested and, in the past when the

possible effect of a state tax has been to place so-called

‘‘interstate’’ commerce at a disadvantage, competitively,

with purely local trade, the mere fact that the tax was

conditioned on a local event did not save it. Contrarywise,

where the effect of the tax has been to place transactions

having incidental extrastate elements on an equal basis,

taxwise, with purely local trade, the tax has been sustained.

The tax here is valid and withstands all of the tests pre-

scribed by the Court.

Obviously, the tax in this case is ‘‘conditioned upon a

local event.’’ Miles v. Department of Treasury of Indiana,

et al. (1935), 209 Ind. 172, 199 N. E. 372.2 See also: Sec. 2,

Chap. 117, Acts of the General Assembly of Indiana of 1937,

p. 611: Sec. 64-2602, Burns’ Ind. Stat. Ann. 1933 ed. Pocket

Suppl.; Sec. 2, Chap. 50, Acts of the General Assembly of

Indiana of 1933, p. 390: Sec. 64-2602, Burns’ Ind. Stat.

Ann. 1933 ed.; Department of Treasury v. Allied Mills, Inc.

(1942), — Ind. —, 42 N. FE. (2d) 34; Western Live Stock v.

Bureau of Revenue (1938), 303 U. S. 250, 254.

The matter which the statute authorizes as the taxable

activity is a thing which occurs in Indiana, either doing

2 In the Miles ease, supra, the Supreme Court of Indiana said:

“We conclude 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 the burden

may reasonably be measured by the amount of income. The reasoning

which justifies a tax upon the basis of domicile as readily supports

and justifies a tax upon the basis of the right to receive income

within, or transact business under the protection of, the state.”

(199 N. E. at 379.) Without any question, the gross receipts of

petitioner from performing its contracts in Indiana were from Indiana

sources, and in fulfilling its contracts petitioner was unquestionably

transacting business within Indiana.

—_

11

business within the state or deriving income from sources

within the state.

The Indiana statutes involved herein levy a tax

‘‘measured by the amount or volume of gross in-

come * * *. Such tax shall be levied * * * upon

the gross income derived from sources within the

State of Indiana of all persons and/or companies,

including banks, who are not residents of the State

of Indiana, but are engaged in business in this

state, or who derive gross income from sources

within this state, * * *.’’ Sec. 2, Chap. 50, Acts

of 1933, p. 890: Sec. 64-2602, Burns’ Ind. Stat. Ann.

1933 ed.

The 1937 amendment does not change the nature of the

tax. (See Appendix, ifra, p. 23.)

All of petitioner’s gross receipts were derived from the

performance of its contracts within Indiana. (Finding IV,

Record, pp. 22-26.) Therefore, Petitioner was plainly sub-

ject to the acts because it was engaged in business within the

state and derived gross income from Indiana sources (7. e.,

from the performance of its contracts). The taxes here,

levied pursuant to ample state power and not prohibited

by any constitutional provisions sought to be invoked by

petitioner, were properly paid and collected.

The case of Allied Mills, Inc. v. Department of Treasury,

— Ind. —, 42 N. E. (2d) 34, 63 S. Ct. 666, 87 L. ed. 514,

supports the position of respondents, and is of no aid to

petitioner.

The case of Department of Treasury v. International

Harvester Company, — Ind. —, 47 N. E. (2d) 150, does not

support the position of petitioner. The Indiana Supreme

Court described Class A Sales as

an

‘Sales by branches located outside Indiana to

dealers and users located in Indiana. These sales

were made on orders solicited in Indiana by repre-

sentatives of out-of-state branches, or upon mail

orders sent from Indiana to out-of-state branches,

The orders were accepted by the outside state branch

offices and the purchase money paid to them. With-

out direction from the purchasers, the goods were

shipped to them in Indiana from branches, ware-

houses or factories located outside Indiana.”’

This is the class of sale in the cited case about which

the Indiana Supreme Court said merely: ‘‘We cannot say

that income so received by appellees was derived from

sources within the State of Indiana.’’

Here, the factual situation is substantially different.

The taxpayer installs equipment which it manufectured

outside Indiana in the buildings of its Indiana customers

in Indiana. Its entire gross receipts are received from

the performance of work and labor and the furnishing of

materials incident thereto in Indiana. So far as petitioner’s

contracts are concerned, nothing is required of it by such

contracts that petitioner does not do in Indiana. Because

of the difference in the factual situations in the Interna-

tional Harvester Company case and here, the case cited by

petitioner is neither applicable nor controlling in this case.

Two.

The levy of the taxes here is not prohibited by the

Fourteenth Amendment and is proper here under the terms

of the Taxing Act.

The Gross Income Tax Act levies ‘‘a tax, measured by

* * * gross income * * * derived from sources within

13

the State of Indiana of all persons and/or companies

who are not residents of the State of Indiana, but ar?

engaged in business within the state, or who derive gross

income from sources within this state * * *.’’ Sec. 2,

Chap. 50, Acts of General Assembly of 1933, Sec. 64-2602

Burns’ Ind. Stat. Ann. 1933 ed. (The 1937 Act, Chap. 117,

Acts of the General Assembly of 1937, is substantially the

same. Appendix, mfra, p. 23.)

Petitioner contends that Michigan was the source of

part of its receipts. That is not the case, for that merely.

was where this petitioner incurred certain expenses. For

example, it would be well to exainine the various items of

expense contained in the findings of the Court below. In

Finding XI, Record, p. 30, there is an analysis of peti-

tioner’s receipts. Each item contained in the analysis is

an expense item, with the exception of the item of ‘‘profit

and miscellaneous.’’ It is obvious that petitioner is not

here seeking to show, nor is it shown by the schedule, that

any of petitioner’s receipts are from sources outside

Indiana. What petitioner has shown and all that it has

shown, is that it has incurred certain expenses outside

Indiana, which it is now seeking to deduct.

We feel it necessary to point out here that the Indiana

tax is upon a privilege measured by gross receipts, and

the General Assembly, in levying the tax, possessed ample

power to establish the measure thereof. The Act spe-

cifically states:

‘“‘The term ‘gross income’ * * * means the

gross receipts of the taxpayer * * * without any

deductions on account of the return of capital in-

vested, the cost of the property sold, the cost of

materials used, labor cost, interest, discount or com-

14

missions paid or credited and without any dedue-

tions on account of losses, and without deductions

of any kind or character *°* *.’’ Section 1 (m),

Chap. 117, Acts of General Assembly of 1937. See.

64-2601 (m), Burns’ Ind, Stat. Ann. 1933 ed., Pocket

Suppl. (The 1933 Act contains substantially the

same clause.)

The petitioner has lost sight of the nature of the Indiana

tax. It is a privilege tax upon the receipt of income. Miles

v. Department of Treasury (1935), 209 Ind. 172, 199 N. B,

372.

Here, the measure of the tax is the gross receipts from

contracts completely performed within Indiana. The fact

that petitioner incurred certain expenses outside Indiana

does not entitle it to deduct from its gross receipts the

amounts of such expenses in determining its tax. As a

matter of fact, under the Indiana statute it would not be

permitted ‘to deduct from its gross receipts its expenses,

even if incurred within Indiana, in determining its tax.

Petitioner is taxable under the plain terms of the Act.

The original Gross income Tax Act provided that:

‘‘The term ‘gross income’ * * * means the

gross receipts of the taxpayer received in compen-

sation for personal services and the gross receipts

of the taxpayer derived from trades, businesses or

commerce, and the gross receipts from the sale of

property, tangible or intangible, real or personal,

and service, or any or all of the foregoing * * *.”

Sec. 1 (f), Chap. 50, Acts of General Assem-

bly of 1933, 11 Burns’ Ind. Stat. Ann.,

1933 ed., See. 64-2601 (f).

15

The amended Act provides:

‘“‘The term ‘gross income’ means the gross re-

ceipts of the taxpayer received as compensation for

personal services * * * and the gross receipts of

the taxpayer received from trades, businesses or

commerce * * * all receipts from the performance

of contracts * * *.”’

See. 1 (m), Chap. 117, Acts of General As-

sembly of 1937, 11 Burns’ Ind. Stat.

Ann., 1933 ed., Pocket Suppl., See.

64-2601 (m).

It is obvious that petitioner comes within the terms of

the Acts.

Petitioner cites the case of Hans Rees’ Sons v. North

Carolina, 283 U. S. 123, involving net income taxes. In

the case of Dravo Contracting Company v. James, 114 Fed.

(2d) 242 at 246, cert. den. 312 U. S. 678, 61 S. Ct. 450, the

Court had this to say with reference to the Hans Rees’

Sons case:

“Tt constitutes no authority for the proposition

that the state may not impose a tax on the basis of

income received from payments made upon the de-

livery or construction within the state because work

may have been done in other states upon the mate-

rials prior to their delivery. The holding in the

Hans Rees’ ease is that a state income tax, if upon

a unitary enterprise conducted in several states, is

void if it allocates an unreasonable portion of the

income to the taxing state. The tax here is not

upon a unitary enterprise conducted in several

states, but upon the business of contracting within

West Virginia, and income derived from that busi-

ness is properly subject to taxation by the state.’’

ADP IIS oi aia Vint Os Sia EAT CR

16

In discussing the case of South Carolina Power Co, y.

South Carolina, 52 Fed. (2d) 515, 288 U. S. 178, the same

Court went on to say in that case at p. 247:

‘Just as it was there held that a state may tax

what is carried on within its borders, although this

may be dependent upon transactions extending be-

yond them, so also the power to tax income derived

from contracting within the state is not affected by

the fact that materials may have been brought from

without the state, or that they may have been pre-

pared without the state by the contractor for use

under the contract. Only where income arising from

a contract performed within the state accrues upon

a separable out-of-state transaction should it be ex.

cluded as not being income arising from contracting

within the state.’’

Cf. Indiana Farmers’ Guide v. Department

of Treasury, 217 Ind. 627, 639, 29 N. B,

(2d) 781.

Respondents submit that no portion of the activities

taxed occurred outside the jurisdiction of the State of

Indiana, and therefore, that the tax in each case was prop-

erly collected.®

The petitioner cites, in support of its proposition that

the instant taxes are not proper because of the due process

clause of the Fourteenth Amendment to the Constitution,

several cases which may be divided into two groups: first,

those in which the tax being considered was a net income

tax, and, second, those in which the levy being considered

was a corporate franchise levy. It is the position of re-

spondents here that neither class of authority should con-

3 Cf. James v. Dravo Contracting Co., 302 U. 8. 134; Stone v. York Ice

Machinery Corp. (Miss.), 10 So. (2d) 380.

a

a)

trol these actions involving a state privilege tax measured

by gross receipts.*

The case of Jackling v. State Taa Commission, 40 N. M.

241, 58 P. (2d) 1167, cited in petitioner’s brief, for the

purpose of defining ‘‘source,’’ contains the following lan-

guage which perfectly describes petitioner’s receipts here

as being from Indiana sources:

‘*A place where something is found or whence it

is taken or derived.”’

(58 P. (2d) at 1171.)

Certainly, petitioner’s receipts are not ‘‘found’’ or

“taken’’ or ‘*derived’’ in Michigan but in Indiana.

The case of Connecticut General Life Insurance Com-

pany V. Johnson, 303 U. 8. 77, cited by petitioner involved

a situation where nothing whatever was in the taxing juris-

diction and, hence, there was no local privilege exercised

for which a tax might lawfully have been exacted.

As the Court there said:

‘¢ 4ll that appellant did in effecting the reinsur-

ance was done outside the state and for its trans-

action no privilege or license by California was

needful. ’’

Upon the basis of the authorities cited the writ should

be denied, the state being free to pursue its own fiscal

policies, unembarrassed by the constitutional limitations

herein sought to be invoked because it has here exerted

its power in relation to opportunities which it has given

4In re Kansas City Star, 346 Mo. 658, 142 8S. W. (2d) 1029 at 1037;

Sonneborn Bros. v. Cureton, 262 U. 8. 506, at 514; Swift v. U. S., 196 U.S. 375.

18

and to protection which it has afforded. Wisconsin v. J. C.

Penney Co. (1940), 311 U. S. 435, 444; Nelson v. Sears,

Roebuck & Co. (1941), 312 U. 8. 359, 364.

The thing which the statute authorizes as the taxable

event is the event which occurs within Indiana in one of

two things, either doing business within the state or deriv-

ing income from a source within the state. Sec. 64-2602,

Burns’ Ind. Stat. Ann. 1933 ed., and Pocket Supp. Both of

these things this petitioner did.

And, the fact that physical receipt of the income may

have occurred without Indiana does not permit petitioner

to avoid this tax. Department of Treasury v. Wood Pre-

serving Corporation (1941), 313 U. S. 62, 67.

Three.

Petitioner taxpayer was properly taxable at the rate

of one per cent.

Petitioner errs in supposing that the case of Oster v.

Department of Treasury (1941), 219 Ind. 313, 37 N. BE. (2d)

528, has any application here. The facts there were that

the taxpayer was engaged in fashioning coats and cloaks

and other products out of materials which belonged to a

Chicago concern, which concern was engaged in the busi-

ness of selling such finished products. The receipts of the

taxpayer were derived from processing of materials which

did not belong to him. There was never any transfer of

title or ownership of any of the materials, and the work

done by Oster was admittedly in the nature of manufac-

turing.

However, here petitioner is engaged in Indiana in doing

certain specified work and furnishing certain specified mate-

19

rials. Its gross income is derived directly from the per-

formance of its contracts in Indiana. Its activities in that

regard are not within the ordinary meaning of ‘‘manufac-

turing’’ and, if there is a sale of the materials involved

there is no question but that the sale is to the ultimate

and final consumer, and, as such, a retail sale under this

statute (Adams Mfg. Co. v. Storen, 212 Ind, 343, 7 N. E.

(2d) 941, reversed on another point: 304 U. S. 307). Such

receipts are properly taxable at the basic rate of one per

cent.

Section 3 (a) of the original Gross Income Tax Act

(Chap. 50, Acts of General Assembly of 1933, p. 391) does

not apply, for petitioner is not engaged in nor does it derive

receipts from any business described therein.

The section of the Act relied upon by petitioner has

been construed, administratively and judicially, to include

only ‘‘manufacturing.’’ It has never been construed to

include such receipts as are involved herein.®

Under the tax statute, one per cent is the general and

basic rate. Certain enumerated types of receipts are tax-

able at a lesser rate. Petitioner comes within no exception

from the basic rate and is, therefore, properly taxable at

the one per cent rate.

5Cf. Department of Treasury v. Ridgely, 1936, 211 Ind. 9, 4 N. E. (2d)

557; Clark’s Laundry § Dry Cleaning Co. v. Department of Treasury, 1937,

103 Ind. App. 359, 5 N. E. (2d) 683; Suabedissen-Wittner Dairy, Ine. v.

Department of Treasury, 1938, 105 Ind. App. 626, 16 N. E. (2d) 964.

20

The petition for a writ of certiorari should be denied.

Respectfully submitted,

James A. EMMERT,

Attorney General of Indiana,

JosepH W. HutcHInson,

Deputy Attorney General of Indiana,

Davin I. Day Jr.,

Deputy Attorney General of Indiana,

Indianapolis, Indiana,

Attorneys for Respondents.

Byron B. EMswILer,

Deputy Attorney General cf Indiana,

Winstow Van Horne,

Deputy Attorney General of Indiana,

Of Counsel.