Hans Rees’ Sons, Inc. v. North Carolina, 283 U.S. 123 (1931)

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Hans Rees’ Sons, Inc. v. North Carolina

No. 334

Argued March 18, 1931
Decided April 13, 1931
283 U.S. 123

APPEAL FROM THE SUPREME COURT OF NORTH CAROLINA

Syllabus

1. The state Supreme Court approved a ruling striking out evidence offered to prove a tax unconstitutional, but adjudged that, even if the evidence were deemed competent, the tax was valid. Held that the case may be viewed as though the evidence had been received and held to have no bearing on the validity of the taxing statute. P. 126.

2. The method of allocating, for taxation, to a state that part of the net income of a foreign corporation which bears the same ratio to its entire net income as the value of its tangible property within that state bears to the value of all its tangible property works an unconstitutional result if, in the particular case, the part of the income thus attributed to the state is out of all appropriate proportion to the business there transacted by the corporation. Pp. 129, 135.

So held in the case of a North Carolina tax on income of a New York corporation which bought leather, manufactured it in North Carolina, and sold its products at wholesale and retail in New York. Underwood Typewriter Co. v. Chamberlin, 254 U.S. 113; Bass, Ratclilf & Gretton v. Tax Commission, 266 U.S. 271, and National Leather Co. v. Massachusetts, 277 U.S. 413, distinguished.

3. The fact that a corporate enterprise is a unitary one, in the sense that the ultimate gain is derived from the entire business, does not mean that, for the purpose of taxation, the activities which are conducted in different jurisdictions are to be regarded as "component parts of a single unit" so that the entire net income may be taxed in one state regardless of the extent to which it may be derived from the conduct of the enterprise in another state. P. 133.

4. When there are different taxing jurisdictions, each competent to lay a tax with respect to what lies within, and is done within, its own borders, and the question is necessarily one of apportionment, evidence may always be received which tends to show that a state has applied a method, which, albeit fair on its face, operates so as to reach profits which are in no sense attributable to transactions within its jurisdiction. P. 134.

199 N.C. 42, 153 S.E. 850, reversed.

Appeal from a judgment sustaining the dismissal of proceedings for readjustment of a state income tax assessment.