# Opposition Brief — Quaker Oats Co. v. Pennsylvania > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385610_0134%3A3 ## Record - **Collection:** Supreme Court brief - **Document type:** Opposition Brief - **Published:** January 1, 1945 - **Citation:** 324 U.S. 827 ## Text Office - Sunreme Oourt, U. & File JAN 26 1945 SUPREME COURT OF THE Nite StS yet OCTOBER TERM, 1944 No. 873 THE QUAKER OATS COMPANY, Appellant, vs. COMMONWEALTH OF PENNSYLVANIA APPEAL FROM THE SUPREME COURT OF THE STATE OF PEN NSYLVANLA STATEMENT OPPOSING JURISDICTION AND MOTION TO DISMISS OR AFFIRM / H. F. Stramsaven, Special Counsel; James H. Durr, Attorney General; Counsel for Appellee. INDEX Supsect INDEX Page Statement opposing jurisdiction..................... 1 Nature of the Pennsylvania Franchise Tax on foreign corporations. .............cceseeeeee. 1 Nature of appellant’s business.................. 3 The Pennsylvania Franchise Tax imposed by the Act of 1935 is a tax upon the privilege of doing business in that State and not a tax on property. . 5 The method of allocation provided in the Act of 1935 is not arbitrary or unreasonable........ 10 Neither the Franchise Tax Act of 1935 nor the * method of allocation used in this case imposes a tax upon property located outside of Pennsyl- a Uwussedebetetstivisvecdvecesenedese 13 Appellant’s analysis of Ford Motor Co. v. Beau- Ee A ESS) ba po edseccoccnescess 17 The Act of 1935 and the tax imposed on appellant thereunder do not deny to it the equal protection RS ied ected brug da tdeaaedasa be a 17 Neither the Act of 1905 nor the assessment of tax against the appellant thereunder impairs the opligation of comtract.... 666 ccccceccccccess 22 The Act of 1935, as construed by the State Courts, does not unlawfully burden interstate com- iri. tases sah k $e e6 we bae-e a0 6b. 34 Motion to dismiss or affirm......................... 39 TABLE oF Cases CITED EE i) Allantic Refining Co. v. Virginia, 302 U. 8. 22........ 14 Baltic Mining Co. v. Mass., 231 U.S. 68............. 37 Bass, Ratcliff and Gretton v. State Tax Commission, cin cbs cou Neb uededesseenne cs 15 Butler Bros. v. McColgan, 315 U. S. 501........... 10,11,13 Cheney Brothers Company v. Massachusetts, 246 U. 8. CURT knds Cela rerccebiedencr cheese? 18, 20,21 Colgate v. Harvey, 206 U. 8. 404..............600055. Commonwealth v. The American Gas Co., 54 Daup. 115. . 23 Commonwealth v. Columbia Gas and Electric Corp., I .> *”* In Ford Motor Company v. Oklahoma Tax Commission, 188 Okla. 78, 106 Pac. (2d) 803 (1940), an assessment was upheld which was made under an Oklahoma statute which imposed a franchise tax upon the proportion of the capital stock which property owned and business done in Oklahoma bore to total property owned and business done, 13 Appellant also relies much upon the ruling in People ex Rel. Alpka Portland Cement Co. v. Knapp, 230 N. Y. 48, 129 N. E. 202 (1920), certiorari denied 256 U. S. 702. In this case three judges concurred in the opinion, one judge concurred in the result and three judges dissented in this case. The statute in this case imposed a tax upon the proportion of income determined by the ratio of specified assets within the state to the aggregate of such assets every- where. Bonds were not included in these assets, but the interest from the bonds was included in the income taxed. This decision, we submit, is directly contrary to the ruling of this court in Butler Bros. v. McColgan, 315 U. S. 501. This court has frequently held that it is no objection that the measure of taxation is found in income produced, in part, from property, which in itself, is nontaxable, or from the receipts from interstate commerce which may not be taxed as such. (See Flint v. Stone Tracy Co., 220 U.S. 107, 165; Educational Films Corp. v. Ward, 282 U. S. 379, 389.) Appellant’s objection that the gross receipts fraction in- cludes receipts from interstate transactions, will be con- sidered under point (g) hereof. (ce) Neither the Franchise Tax Act of 1935 nor the method of allocation used in this cree :nposes a tax upon property located outside of Pennsylvania. As already shown, the Supreme Court of Pennsylvania has held that the Act of 1935 does not impose a tax upon property whose situs is beyond the limits of the State. Thus in Commonwealth v. Columbia Gas and Electric Cor- poration, 536 Pa. 209 (1939), Chief Justice Kephart said: ““# * * These fractions, as stated above, concern corporate activity. While they bear some relation to capital stock value, intrinsically they determine the tax- 3b 14 able value of the corporate activity within this State rather than of the property located here. * * * It does not ascertain physical worth of assets located in this State, but arrives at a value which the functional or operating organic unit within this State possesses. It represents what the right to do business is worth. It must follow that the tax is not levied on property but on the franchise to do business measured by a taxable value secured through the application of the factors of gross receipts, tangibles and payrolls to the capital stock value. It is representative of the value of that very franchise.’’ (221-222) This court has frequently held that while a state may not tax property beyond its borders, it may measure a tax by capital stock which, in part, represents property outside the state. Thus in Kansas City, Memphis, & Birmingham Railroad Company v. Stiles, 242 U. 8. 111 (1916), Mr. Justice Day said: ‘«# * * while the state could not tax property be- yond its borders, it might measure a tax within its authority by capital stock which in part represented property without the taxing power of the state. * * °”’ (119) In Atlantic Refining Company v. Virginia, 302 U. 8S. 22 (1937), Mr. Justice Brandeis said: ‘e* * * The value of the privilege acquired is obviously dependent upon the financial resources of the corporation. * * * Obviously, the power inherent in the possession of large financial resources is not dependent upon, or confined to, the place where the assets are located. Compare Great Atlantic & P. Tea Co. v. Grosjean, 301, U. S. 412, 81 L. ed. 1193, 57 S. Ct. 735, 112 A. L. R. 293. Great power may be exerted by the company in Virginia although it has little property located there. * * °”’ 15 In Ford Motor Co. v. Beauchamp, 308 U. S. 331 (1940), Mr. Justice Reed said: ‘‘In a unitary enterprise, property outside the state, when correlated in use with property within the state, necessarily affects the worth of the privilege within the state. Financial power inherent in the possession of assets may be applied, with flexibility, at whatever point within or without the state the managers of the business may determine. For this reason it is held that an entrance fee may be properly measured by capital wherever located. The weight, in determining the value of the intrastate privilege, given the property be- yond the state boundaries is but a recognition of the very real effect its existence has upon the value of the privilege granted within the taxing state. * * *” (336) Other decisions to the same effect are: Great Atlantic & Pacific Tea Company v. Grosjean, 301 U. S. 412, 424-425 (1937); Underwood Typewriter Co. v. Chamberlain, 254 U. 8. 113 (1920) ; Bass, Ratcliff and Gretton v. State Taa Commission, 266 U. S. 271, 282 (1924). Counsel for appellant repeatedly argues that the in- tangible assets included in the value of the capital stock have a business situs outside of Pennsylvania. It is fundamental, however, that the business or commer- cial situs of intangible assets is irrelevant in applying the formula to determine the value of the franchise of a foreign corporation to do business in the taxing state. The question as to the intangibles is not, where is their business situs, but whether they contribute to the activity carried on in the taxing state. In Ford Motor Co. v. Clark, 100 F. 2d 515 (1938), the same stocks and government securities, as are involved in 16 this case, were held to be properly included in assessment of franchise tax. Cireuit Judge Sibley, for the Circuit Court of Appeals for the Fifth Circuit, said: ‘It is further argued that the United States bonds and stocks in foreign corporations owned by the tax- payer cannot reasonably be included in capital con- tributing to sales in Texas. The presumption is that all the property of a business corporation is useful in its business. It should not have it otherwise. The Ford Motor Company has no business except the mak- ing and selling of cars. The securities can readily be used as a means of raising cash for working capital. * * *%? (518) (Italics ours). This decision was affirmed by the Supreme Court under the title of Ford Motor Co. v. Beauchamp, 308 U. 8S. 331 (1940). In National Leather Co. v. Massachusetts, 277 U.S. 413 (1928), Mr. Justice Sanford said: ‘*For present purposes it may be assumed that the capital stocks of the two subsidiary companies had no situs in Massachusetts which brought them within the jurisdiction of that state for the purpose of imposing a direct property tax. * * * But here the statute does not impose any direct tax upon these stocks and, as construed by the Massachusetts court, merely treats them as assets employed by the petitioner in its busi- ness within the state, and therefore requires that they be included when the total assets so employed by it are computed for the purpose of arriving at the propor- tionate part of the value of its own capital shares— deterfnined by comparing the assets employed in busi- ness within the state with the total assets wheresoever employed or located—on which the excise for the privilege of carrying on its business within the State is imposed.’’ (422-423) 17 This last decision was cited with approval by Mr. Justice Reed in Ford Motor Co. v. Beauchamp, 308 U. 8S. 331, 335- 336 (1940). (d) Appellant’s analysis of Ford Motor Co. v. Beauchamp, 308 U. 8. 331. Appellant’s analysis of this decision deals with accidents and not the essentials of this case. Appellant does not suggest how the particulars of the Texas statute as recited by it, affect the principles laid down by this Court in the Beauchamp case. The tax in Texas, as well as in this State, was a franchise tax for the privilege of doing business in the State. The principles by which the tax base was determined in the Beauchamp case are applicable to the case at bar, regard- less of the rate of the tax or the duration of the right to do business. (e) The Act of 1935 and the tax imposed on appellant there- under do not deny to it the equal protection of the laws. No discrimination has been shown in either the purpose or the effect of the Act of 1935. The Legislature did not enact the statute for the purpose of discriminating against foreign corporations. No one contends that they did. On the contrary, the purpose was to remove the discrimi- nation against domestic corporations, which had previously existed. This purpose was recognized and expressed by the court in Commonwealth v. Columbia Gas and Electric Corpora- tion, 336 Pa. 209 (1939). Referring to the capital stock tax law, that court said: ‘“* * * Under this arrangement foreign cor- porations, transacting a large part of their business 18 here, escaped their fair share of the tax burden. The assets of foreign corporations, so far as they were com- prised of intangibles, were wholly free of tax notwith- standing that they have played an important part in the conduct of the company’s local business. The old tax did not even reach all the tangible property of the enterprise located in this State. It made no attempt to value foreign corporations either as going concerns within this State, or as parts of going concerns which the foreign corporations had created through opera- tions in this and other states. The discrimination under the old tax law was not only unfair, but operated unjustly in favor of foreign corporations and against domestic corporations, even though they might be similarly situated. * * ‘*The legislature sought to remedy this condition by amending the law so that foreign corporations would pay substantially the same amount of tax as domestic corporations though the amount of the tax was arrived at by a different method. The new tax is more in keep- ing with the benefits received from this State. The tax base represents the value of their right to do business in this State.’’ (215-216) That no discrimination was made, follows from principles well settled by the decisions of this Court: (1) A State may place a foreign corporation in a differ- ent class from domestic corporations for the purpose of taxation, and impose a different rate of tax upon the foreign corporation for the privilege of doing business within its territory: Kansas City, Memphis, € Birmingham Railroad Com- pany v. Stiles, 242 U. S. 111, 118 (1916); Madden v. Kentucky, 309 U. S. 83, 87-88 (1940) ; Concordia Fire Insurance Company v. Illinois, 292 U. S. 535, 547-548 (1934) ; Kidd v. Alabama, 188 U. S. 730, 732 (1903) ; Cheney Brothers Company v. Massachusetts, 246 U. 8. 147, 157 (1918). 19 (2) The burden is on the party attacking the classifica- tion to negative every conceivable basis which might sup- port it: Madden v. Kentucky, 309 U. S. 84 (1940). (3) Mathematical equivalence, or exact identity are not necessary : Concordia Fire Insurance Company v. Illinois, 292 U. 8. 535, 547-548 (1934). (4) Only clear and hostile discriminations against par- ticular persons or classes are prohibited: Heisler v. Thomas Colliery Co., 260 U. 8S. 245, 255 (1922) ; Colgate v. Harvey, 296 U. S. 404, 436-437 (1935), overruled on other grounds in Madden v. Kentucky, 309 U. S. 83, 93 (1940). (5) The absence of discrimination is conclusively shown by the fact that if appellant were incorporated under the laws of Pennsylvania, its tax to this Commonwealth would amount to more than fourteen times the assessment made in this case. This comparison is calculated in the opinion of the trial court as follows: ‘© * © * Pomestie corporations are taxed at the rate of 5 mills upon the value of the capital stock. The foreign franchise tax imposes the same rate upon the privilege of doing business in the State. If the defendant had been a domestic corporation the capital stock tax would have been figured approximately as follows : 35,766,852 ————_ x_ $75,000,000 60,821,913 which would result in a tax of $220,521.99."’ (243a) The assessment as recalculated in the judgment of the court below was $16,637.38 (253a). 20 In Madden v. Kentucky, 309 U. S. 83, 88 (1940), Mr. Justice Reed said: ‘««* * © Since the members of a legislature neces- sarily enjoy a familiarity with local conditions which this Court cannot have, the presumption of constitu- tionality can be overcome only by the most explicit demonstration that a classification is a hostile and oppressive discrimination against particular persons and classes. The burden is on the one attacking the legislative arrangement to negative every conceivable basis which might support it.’’ (6) The cases of Southern Railway Company v. Greene, 216 U.S. 400 (1910) and Hanover Fire Insurance Company v. Carr, 272 U. S. 494 (1926), cited by the appellant, are elearly distinguishable in the case at bar, because — (a) In each of these cases the tax imposed upon the foreign corporation amounted to a clear discrimination. In the Southern Railway Company case domestic and foreign corporations had been subject to a franchise tax at the same rate, and then the Legislature provided for an additional annual franchise tax by foreign corporations only. In the Hanover Fire Insurance Company case the domestic insurance corporation paid a tax on the assess- ment of personal property at a valuation reduced to one- half of 60% of the value of the property, whereas the foreign insurance corporation was re jyuired to pay a tax at the same rate but imposed upon 100% of its net receipts. (b) In each case the foreign corporation had invested a large amount of money in property devoted to a limited and special use and not readily available for other uses. In the Southern Railway Company case the company had purchased and built and improved lines of railroad which connected with other lines owned by it. This case is dis- tinguished in Cheney Brothers Company v. Massachusetts, 21 246 U. S. 147, 157 (1918), and in Northwestern Mutual Life Insurance Company v. Wisconsin, 247 U. S. 132, 140 (1918). In this last case this court said: «ce ¢ * In that case we laid stress upon the fact that the tax related to railroad property not susceptible of other uses, which, placed in the state, had to remain there permanently, and could not be withdrawn at the pleasure of its owners. Under such circumstances, and dealing with that character of property, we held that the particular tax constituted such discrimination as ‘ to deny to the company the equal protection of the ae. Cae In the Hanover Fire Insurance Company case the com- pany had done business in Illinois for a number of years and had built up a large business and good will and had many agents and extensive records there. In this last case, however, Chief Justice Taft said: “eo 6°) * 6 We have said in Cheney Bros. Co. v. Massachusetts, 246 U. S. 147, 62 L. ed. 632, 38 Sup. Ct. Rep. 295, and in Kansas City, M. & B. R. Co. v. Stiles, 242 U. S. 111, 118, 61 L. ed. 176, 187, 37 Sup. Ct. Rep. 58, that a state does not surrender or abridge its power to change and revise its taxing system and tax rates by merely licensing or permitting a foreign corporation to engage in local business and acquire property within its limits, and that a state may impose a different rate of taxation upon a foreign corporation for the privilege of doing business within the state than it applies to its own corporations upon the fran- chise which the state grants them; * * *’’ (514-515) In the Cheney Bros. Co. case, the fact that the foreign corporation had made a very substantial investment — $175,000—in lands and buildings for an auto service sta- tion and garage did not prevent the State of Massachusetts from increasing its annual license fee. (f) Neither the Act of 1905 nor the assessment of tax against the appellant thereunder impairs the obligation of contract. Appellant contends that a contract was created between itself and the Commonwealth of Pennsylvania by Section 1010 of the Pennsylvania Business Corporation Law of May 5, 1933, P. L. 364, 15 P. S., Section 2852-1010, which provides as follows: ‘*A foreign business corporation which shall have received a certificate of authority under this act, so long as such certificate of authority shali not be revoked or cancelled, shall enjoy the same rights and privileges as a domestic business corporation, but no more, and, except as in this act otherwise provided, shall be sub- ject to the same liabilities, restrictions, duties and penalties now in force or hereafter imposed upon domestic business corporations, to the same extent as if it had been organized under this act to transact the business set forth in its certificate of authority.” (Italics ours.) Our position is that no impairment of the obligation of contract has resulted, because — (1) Section 1010, above quoted, even if it embodies a contract between the appellant and the Commonwealth, does not confer the same rights or impose the same liabili- ties on a foreign corporation in the matter of taxation: The peculiar wording of this section distinguishes it from analogous clauses which have been employed in statutes or constitutions of other states. What is peculiar is the language: o * * to the same extent as if it had been organized wnder this act to transact the business sel forth im its certificate of authority.’’ (Italics ours.) 23 These words, we submit, define what is meant by the ‘same rights and privileges’’ and the ‘‘same liabilities.’’ The language means the rights and liabilities which would be conferred if the foreign corporation had been organized ~ under this act, namely, the Business Corporation Code. It means the rights conferred and liabilities imposed by this elaborate Business Corporation Code itself. The language does not mean every right or liability which might be created under any existing law of the Common- wealth. This, we submit, is what Section 1010 means, and is all that it means. Section 1010 does not mean that the foreign corporation must be subject to the same identical liabilities as the domestic corporation in the matter of taxation, be- cause the problem of the state in taxing a foreign corpora- tion is very different from the problem of taxing a domestic corporation. This has been recognized in many decisions of the Supreme Court of this State and also by the Supreme Court of the United States, which hold that a state may place the domestic and foreign corporations in different classes for the purpose of taxation. In Commonwealth v. The American Gas Company, 54 Dauph. 115 (1943), Judge Hargest of the Common Pleas of Dauphin County said: “The Business Corporation Law is a regulatory Act; it is not a taxing statute; and we are of opinion that the words ‘liabilities, restrictions, duties and penalties’ in that act have no reference to taxation.’’ (152) In the opinion of the court of Common Pleas, in this case, Judge Hargest also said: ‘*We do not understand that the Business Corpora- tion Law deprives the State of its well-recognized power to differently classify foreign and domestic cor- 24 porations for taxation, provided there is no arbitrary discrimination against one class or the other. * ° *” (243a) Section 1010 of the Business Corporation Code does not say that the rate of taxation shall not be changed or be identical with the rate charged to domestic corporations, but only that the foreign corporation shall enjoy the same rights and privileges as a domestic corporation. Hence, so long as the foreign corporation does not pay higher taxes than does the domestic corporation, the for- eign corporation had no ground for complaint. If this interpretation is correct, there has been no im- pairment of the obligation of the alleged contract sought to be derived from Section 1010 and the record presents no Federal question of impairment of obligation of con- tract. (2) The alleged contract would not be impaired because the tax liability of the appellant im this case is far less than it would have been if it had been organized under this Business Corporation Law of 1933. The contract right ‘‘to the same liabilities’’ as if appel- lant ‘‘had been organized under this act’’ would not be violated by the assessment made in this case, which was less than one-fourteenth of the assessment that would have been made against the appellant if it had been organized under the Pennsylvania Code. See the calculations above under (5) of point (e) and page 253a of the printed record in the Supreme Court of Pennsylvania. (3) Section 1010 did not create a contract between the appellant and the Commonwealth. (a) The certificate of authority issued to the appellant under Section 1010 conferred only a revocable license: 25 Connecticut Mutual Life Insurance Company v. Sprat- ley, 172 U. 8. 602, 620 (1899) ; Doyle v. Continental Insurance Company, 94 U. 8S. 535, 540-541 (1877); Home Insurance Company of New York v. Augusta, Georgia, 93 U. 8. 116, 120, 122 (1876) ; Commonwealth ex rel. Baldrige v. Sun Oil Co., 294 Pa. 99, 105 (1928) ; Rule v. Price, 323 Pa. 139, 143-144 (1936). (b) The right or license which appellant secured under Section 1010 was made expressly revocable. The right was to continue only ‘‘so long as the certificate of authority shal) not be revoked or canceled.”’ Section 1010 states unqualifiedly that the certificate of authority is to continue only so long as it shall not be re- voked or canceled. The Commonwealth, which granted the license, has the sole power to ‘‘revoke’’ or ‘‘cancel’’ the license. This provision is wholly inconsistent with the existence of a contract. (c) It is an elementary rule of the law of contracts that if one party reserves the right to cancel, the proposed agree- ment is void for lack of mutuality. Thus in 1 Williston on Contracts, Section 105, page 365, the author states: ‘“e * * As has been seen an agreement which the party reserves the right to cancel at his pleasure can- not create a contract.’’ In Ellis v. Dodge Bros., 237 F. 860, 867 (1916), a con- tract by a manufacturer granted a license to a dealer to sell cars, but provided that the contract might be cancelled by either party at any time upon fifteen days’ notice. The court held that the dealer’s administrator could not recover at all on the contract, saying: “e ¢ * Even if there were an agreement here on the part of the Dodge Bros. to deliver the cars, this right to cancel would seem to nullify any such agree- ment. To agree to do something and reserve the right ‘to cancel the agreement at will is no agreement at all.” Other decisions to the same effect are: Interstate Iron & Steel Co. v. Northwestern Bridge é Tron Co., 278 F. 50 (1922); Velie Motor Car Co. v. Kopmeier Motor Car Co., 194 F. 324 (1912); City of Pocatello v. Fidelity & Deposit Co. of Mary- land, 267 F. 181 (9th C.C.A. 1920) ; Williston on Contracts (Rev. ed.), Section 43, page 126. Any right which appellant could obtain under Section 1010 would be revocable under the reserved power con- tained in the Pennsylvania Constitution. Section 1010 confers upon a foreign corporation— “e * * the same rights and privileges as a domestic business corporation, butno more * * *°.” Therefore, if a domestic corporation could only secure a revocable right to do business in this State, the same must be true of a foreign corporation registering under Section 1010. The license or right of a domestic corporation and there- fore of a foreign corporation, was subject to the right of the General Assembly to alter, revoke or annul under Article XVI, Section 10 of the Pennsylvania Constitution. Article XVI, Section 10 provides: ‘The General Assembly shall have the power to alter, revoke or annul any charter of incorporation 27 now existing and revocable at the adoption of this Constitution, or any that may hereafter be created, whenever in their opinion it may be injurious to the citizens of this Commonwealth, in such manner, how- ever, that no injustice shall be done to the cor- porators. . . * The domestic corporation has only a revocable right to do business, and the foreign corporation is expressly given the same right, but no more. Clearly the right of a foreign corporation to do business in this state is thereby made revocable at any time. Again, the foreign corporation— * * shall be subject to the same liabilities, restrictions, duties, * ° *°’’ ete. imposed upon domestic business corporations, to the same extent as if the foreign corporation had been organized under the Business Corporation Code. The franchise of a domestic corporation is subject to the definite ‘‘restriction’’ that it may be revoked at any time by the Legislature. The foreign corporation is ex- pressly made subject to the same restriction as a domestic corporation. To make the language more certain, Section 1010 expressly declares that the foreign corporation shall be subject to the same restrictions, etc., ‘‘as if it had been organized under this act,’’ as a domestic corporation. As the contract right asserted by appellant may be re- voked by the Legislature at any time, such right does not amount to a contract at all. In Hammond Packing Company v. Arkansas, 212 U. 8. 322 (1909) (quoted in appellee’s brief, page 80), the Arkansas constitution (Article 12, Section 111) authorized foreign corporations to do business in the State, subject to the same reg#%ations and with the same rights as those enjoyed by domestic corporations. Article 12, Section 16 of the same constitution contained a provision similar to Article XVI, Section 1010 of the Pennsylvania Constitution, authorizing the Legislature to repeal charters provided that ‘‘no injustice shall be done to incorporators.”’ The Supreme Court of the United States held that in view of this clause a foreign corporation obtained no con- tract right. Mr. Justice White said: se * * The claim of an irrepealable contract cannot be predicated upon a contract which is repeal- able. * * *’’ (345-346) (Italics ours.) The Legislature of Pennsylvania did not intend that a foreign corporation should have a better right and pay less taxes in proportion than a Pennsylvania corporation. (d) The reserved power to revoke may be exercised by any general law amending or changing Section 1010, and without first enacting a statute expressly revoking the li- cense or charter. Hammond Packing Company v. Arkansas, 212 U. S. 322, 345-346 (1909) ; Phillips Petroleum Co. v. Jenkins, 297 U. S. 629, 635 (1936) ; Wagner Free Institute v. Philadelphia, 132 Pa. 612 (1890) ; The Iron City Bank v. The City of Pittsburgh, 37 Pa. 340 (1860). In Town of Southington v. Southington Water Co., 8 Conn. 646, 69 Atl. 1023 (1908), the Supreme Court of Con- necticut said: sc* * * Amendmeats or alterations of charters may result from the operation of general laws, as well as from special legislation addressed to the corporation in question. * * *’’ (1026) The courts have held that the mere passage of a later statute inconsistent with the charter is sufficient act of revocation, without any notice. The State need not first give some notice or form of revocation. The later tax or other statute need not refer to the charter at all. (e) The power of the Commonwealth to revoke a certifi- cate or authority of a foreign corporation under the lan- guage of Section 1010—‘‘so long as such certificate of au- thority shall not be revoked or cancelled’’—is not limited or restricted by Section 1013 of the Business Corporation Code. Section 1013 provides: ‘‘Whenever the Department of State shall find that a foreign business corporation, authorized by a certifi- cate of authority to do business in this Commonwealth, is engaged in this Commonwealth in any business which it is not authorized to transact by its tertificate of au- thority or by any amended certificate of authority, or has changed its name or the location of its registered office without first securing an amended certificate of authority, as required by this act, or is violating any of the laws of this Commonwealth, the Department of State shall give notice by registered mail to such corpo- ration that such default exists and that its certificate of authority, including any amendments thereto, will be revoked and cancelled unless such default shall be cured within thirty days after the mailing of such no- tice. If such default shall not be cured within such period of thirty days, the Department of State shall revoke and cancel the certificate of authority of such foreign corporation, including any amendments thereto. * * *)9) 30 That Section 1013 does not limit or restrict the authority to revoke in Section 1010 is shown by the following: (1) The power to revoke conferred in Section 1013 is only the power which is given to the Department of State. Nothing is said about the power of the Legislature to revoke or amend. (2) The purpose of Section 1013 is to provide for an administrative supervision of a foreign corporation to keep it within the bounds of its certificate of authority and within the laws of this Commonwealth. Section 1013 permits a revocation by the Department of State only in cases where the foreign corporation (1) en- gages in a business not authorized by its certificate, or (2) changes its name or location without first securing an amended certificate, or (3) violates a law of the Common- wealth. These few cases, however, do not constitute an exhaustive enumeration of the causes of revocation. There is no inten- tion shown that these causes are the sole and exclusive causes for revocation. If they were such, the Common- wealth could not revoke a certificate of authority if a corpo- ration should cease to do business or become defunct, or be unable to pay or defaulted in paying its Pennsylvania corporation taxes. These and numerous other grounds still exist for the revocation of a certificate of authority. (3) Section 1013 does not, in terms or in reason, limit the reserve power of the Legislature ‘‘to alter, revoke or annul.’’ Nothing in the section shows any intention to deprive the Legislature of this essential power. In fact, this reserved power of the Legislature is created by the Constitution and could not be limited by the Legislature. Even without the language in Section 1010, appellant’s certificate of authority is revocable, 31 (4) Section 1010 does not in any way refer to Section 1013, and therefore is not limited by it. Section 1010 does not say ‘‘so long as not revoked or eancelled’’-— by the Department of State or as provided in Section 1013 for causes herein or in this Act provided. (f) Nothing in Section 1010 or in the Business Corpo- ration Code generally, was intended to deprive the Legis- lature of its well-recognized power to place foreign and domestic corporations im classes for the purpose of taxation. Section 1010 does not mention taxation at all. Its lan- guage is not sufficient to confer upon foreign corporations an exemption or a more favorable return of taxation than domestic corporations enjoy. We repeat, Section 1010 gives a foreign corporation ‘‘the same rights and privileges as a domestic corporation, but no more.”’ (4) The failure to deduct from the multiplicand or cap- ital stock value of foreign corporations certain intangible assets which are deducted from the appraised value of the capital stock of domestic corporations, does not impair the obligation of contract or deny the equal protection of the laws. Section 1 of the Act of June 22, 1931, P. L. 687, 72 P. 8. Section 1894 (Pocket Part), provides: ‘‘Whenever any corporation, limited partnership, joint-stock association, or company, incorporated or formed under the laws of this Commonwealth, and liable to the payment of tax upon its capital stock, or 32 specifically exempted therefrom under the laws of this Commonwealth, shall own, either directly, or through subsidiary or sub-subsidiary corporations, a majority of the total issued and outstanding shares of voting stock of any corporation, iimited partnership, joint- stock association or company, then, in such eases, so much of the value of all shares of stock, so owned in such other corporation, limited partnership, joint-stock association, or company, as represents property or assets located or having a legal situs without this Com- monwealth, shall not be liable to taxation, under the laws of this Commonwealth providing for the taxation of capital stock of corporations, limited partnerships, joint-stock associations, and companies, but shall be excluded in determining the value of the capital stock of such owning company for purposes of taxation.’’ This provision as to domestic corporations, however, does not violate the requirement of equality, because— (1) It is well established hy decisions of this court and of the Supreme Court of the United States that the Legis- lature may place foreign corporations in a different class from domestic corporations for the purpose of taxation. (2) As the Legislature may so classify them differently, it may also impose upon foreign corporations a different tax from that imposed upoa domestic corporations, pro- vided no unreasonable discrimination results against the foreign corporations. See Kidd v. Alabama, 188 U.S. 730 (1903). Furthermore, the reason for granting a deduction or exemption of certain government securities and stocks of subsidiaries in taxing a domestic corporation, did not apply to a franchise tax upon foreign corporations. The Pennsylvania Capital Stock Tax was a tax upon property and ould not have been applied to the govern- ment securities. Further, only such proportion, not all, of 33 the value of stocks of subsidiary companies as represents assets located without the Commonwealth, is deducted under the Capital Stock Tax Law. The franchise tax, however, is not a tax upon property, and would not be imposed upon such government securities, or stocks of subsidiaries, as such, but such securities and stocks were considered only along with all other assets of the foreign corporation in determining the value of a fran- chise or privilege to do business in Pennsylvania. The same reasons which support the consideration of the value of tangible property outside of Pennsylvania in the for- mula to determine the value of the franchise, also justify the consideration of the government securities and the stocks, instead of deducting or exempting the same. The capital stock tax is imposed upon all of the assets of a domestic corporation, including intangibles, excepting the intangibles deducted in accordance with the Act of June 22, 1931, and tangible property outside of the State. The franchise tax upon foreign corporations. sowever, is im- posed only upon a proportion or percentuge—4.4% in the case of appellant—of the value of the tota: capital stock. The average percentage resulting from the three allocat- ing fractions amounts to .044434. (162a) A foreign corporation unquestionably has still, in spite of the franchise tax amendment of 1935, a comparative advantage over domestic corporations in the matter of tax- ation, because its tax is calculated upon 4.4% only of the capital stock value. As stated in the decisions of this court, the burden was upon appellant to prove that a greater tax burden in fact was imposed upon a foreign corporation than upon a do- mestic corporation. This it has wholly failed to do. (g) 34 (g) The Act of 1935, as construed by the State courts, does not unlawfully burden interstate commerce. Appellant contends that of the $7,224,347 of sales, $7,052,- 574 were made in interstate commerce and should have been excluded from the numerator of the third fraction which represents gross receipts. Section 21 (b) of the Act of May 16, 1935, P. L. 184, 72 P. 8. Section 1871 (Pocket Part), defines ‘‘ gross receipts” as follows: ‘‘The amount of the taxpayer’s gross receipts from business assignable to this Commonwealth shall be the amount of its gross receipts for the taxable year from, (1) sales, except those negotiated or effected in behalf of the taxpayer by agents or agencies chiefly situated at, connected with, or sent out from premises for the transaction of business owned or rented by the tax- payer outside the Commonwealth, and sales otherwise Getermined, by the Department of Revenue, to be at- tributable to the business conducted on such premises * . @ The Court of Common Pleas (Pa. Rec. 234-237) and the Supreme Court (350 Pa. at page 259) found that all of the sales in question were included within the term ‘‘gross receipts’’ in the statute quoted. It is, therefore, unnecessary to recite the particulars of appellant’s business, except as they bear upon the question of a possible violation of the Commerce Clause. The total sales were made up as follows: (21st Find, 221a) — (1) Sales to Pa. Customers on orders filled from stocks in Pa. (2) Sales to Pa. customers on orders filled from stocks outside of Pa. (3) Sales to customers outside of Pa. de- livered from stocks in Pa. 35 (4) Sales to customers outside of Pa. de- livered from stocks outside of Pa. 1,710,769 The above description of these four classes, however, does not indicate the full extent of the activity in Penn- sylvania. The trial court found, and appellant does not deny, that all of these sales ‘‘were negotiated by Pennsylvania agents’? (235a). The order for all of these sales were secured by salesmen working out of the two offices which appellant maintained in Pennsylvania. In addition, all of these sales were closed in Pennsylvania and the sales price was collected by the offices in Penn- sylvania and deposited in Pennsylvania banks to the credit of appellant (236a, 99a). Sales were of two kinds: package sales and bulk sales. In negotiating package sales the salesman secures an order from the customer and this order is forwarded to the Chicago office. There the credit department may either approve or reject the credit of the customer. Then the sales department approves or disapproves the price. If the Pittsburgh office does not hear from Chicago within two days, it is entitled to treat the order as accepted. Only ‘‘a very small percentage’’ of such orders were disapproved or rejected by the Chicago office (89a-90a). When an order for bulk goods is secured from a customer this order blank is sent to the Chicago office and if the Pittsburgh branch receives confirmation of the order a formal contract is prepared by the office in Pennsylvania and executed there. Only a ‘‘comparatively small’’ percentage of the total orders sent to Chicago are contract orders (10la), and only a ‘‘small percentage’ of contract orders are not ap- proved (95a). In the exceptional case where the credit department or 36 the sales department disapproves an order, it merely ex- ercises a power of veto. The credit department consults its filesand ascertains the credit standing of the customer. The sales department checks the price and the time of delivery. None of these activities has anything to do with the contacting of the customer or securing the order or the closing of the sale. A credit manager and the sales man- ager in Chicago might function perpetually, but they would never sell a pound of goods. It is the Pennsylvania office which gets the business and closes the business. The action in Chicago was purely negative. The only affirmative activity throughout the whole business of selling is that of the agents of the Pennsylvania office. They are the pro- curing cause of the sale. Appellant did not offer proof to show what proportion of its sales were package sales or bulk sales. Therefore, if either package or bulk sales were properly included in the computation, the assessment should be sustained. The first class— sales to Pennsylvania customers on orders filled from stocks in Pennsylvania — were intrastate sales. The second class — sales to Pennsylvania customers on orders filled from stocks outside of Pennsylvania — seems to be identical with the class of sales which were held properly subject to a gross receipts tax in Department of Treasury of State of Indiana v. Allied Mills, 220 Ind. 340, 42 N. E. (2d) 34, affirmed per curiam in 318 U. S. 340, and followed in International Harvester Co. v. De- partment of Treasury, 322 U. S. 340, 346 (1944). However, the Pennsylvania tax is not a tax upon gross receipts, but is a franchise tax upon the privilege of doing business in that state. Under the decisions of this court it is clear, we submit, that all four classes of these sales in interstate commerce 37 were properly included and used as a measure in com- puting the franchise tax. Not all, but only part of the gross receipts, used in the computation were receipts from interstate commerce. Furthermore, gross receipts from interstate commerce are used as a measure only in one of three fractions in computing the amount of the tax. No tax is imposed upon gross receipts from interstate commerce as such. The applicable rule will be found in such decisions as: International Shoe Company v. Stratton Shartel, 279 U. 8. 429 (1929) ; Hump Hairpin Manufacturing Company v. Emmerson, 258 U. S. 290 (1922) ; Baltic Mining Company v. Massachusetts, 231 U. 8. 68 (1913) ; Western Cartridge Co. v. Emmerson, 281 U. 8. 511 (1930) ; Western Live Stock v. Bureau of Revenue, 303 U. 8. 250 (1938). Harry F. Stampaven, Special Counsel. James H. Durr, Attorney General. SUPREME COURT OF THE UNITED STATES OCTOBER TERM, 1944 No. 873 THE QUAKER OATS COMPANY, vs. COMMONWEALTH OF PENNSYLVANIA. Appellant, APPEAL FROM THE SUPREME COURT OF PENNSYLVANIA MOTION TO DISMISS OR AFFIRM Now comes the appellee, the Commonwealth of Penn- sylvania and moves that the appeal in the above case be dismissed on the ground that the case presents no sub- stantial Federal question, and it further moves that, if the motion to dismiss be not granted, this court affirm the decision of the Supreme Court of Pennsylvania on the ground that the questions on which the decision of this cause depends, are so unsubstantial as not to need further argument. In support of this motion the appellee advances the reasons set forth in the statement opposing jurisdiction filed in connection with this appeal. H. F. Stamsaven, Special Counsel. James H. Durr, Attorney General. --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385610_0134%3A3. Public record. Not legal advice.