322 U.S.

327
64 S.Ct. 1023
88 L.Ed. 1304

McLEOD, Commissioner of Revenues of Arkansas,

v.
J. E. DILWORTH CO. et al.
No. 311.
Argued Feb. 4, 1944.
Decided May 15, 1944.

Mr. Leffel Gentry, of Little Rock, Ark., for petitioner.

Mr. J. Fred Brown, of Memphis, Tenn., for respondent J. E. Dilworth Co.
Mr. William H. Daggett, of Marianna, Ark., for respondent ReichmanCrosby Co.
Mr. Justice FRANKFURTER delivered the opinion of the Court.

We are asked to reverse a decision of the Supreme Court of Arkansas holding

that the Commerce Clause precludes liability for the sales tax of that State upon
the transactions to be set forth.

We take the descriptions of these transactions from the opinion under review.
Respondents are Tennessee corporations with home offices and places of
business in Memphis where they sell machinery and mill supplies. They are not
qualified to do business in Arkansas and have neither sales office, branch plant
nor any other place of business in that State. Orders for goods come to
Tennessee through solicitation in Arkansas by traveling salesmen domiciled in
Tennessee, by mail or telephone. But no matter how an order is placed it
requires acceptance by the Memphis office, and on approval the goods are
shipped from Tennessee. Title passes upon delivery to the carrier in Memphis,
and collection of the sales price is not made in Arkansas. In short, we are here
concerned with sales made by Tennessee vendors that are consummated in
Tennessee for the delivery of goods in Arkansas.

For such sales, the Supreme Court of Arkansas had held, in 1939, the State had
no power to exact a sales tax, Mann v. McCarroll, 198 Ark. 628, 130 S.W.2d
721. The Arkansas legislation then in force was Act 154 of 1937. The
transactions on which the Collector here seeks to tax extended over periods that
bring into question Act 154 (extended by Act 364 of 1939) and a new Statute
(Act 386 of 1941), known as the Gross Receipts Act. The Arkansas Supreme
Court gave the Act of 1941 the same scope and significance as it attributed to
the Act of 1937, that is, an act imposing a retail sales tax and not a use tax. In
view of this construction, it has adhered to its earlier decision in Mann v.
McCarroll, finding nothing in our intervening decision in McGoldrick v.
Berwind-White Coal Co., 309 U.S. 33, 60 S.Ct. 388, 84 L.Ed. 565, 128 A.L.R.
876, requiring a change in its constitutional views. 205 Ark. 780, 171 S.W.2d
62. To permit further examination of the complicated problems raised by the
interplay of federal and state powers we brought the case here. 320 U.S. 728,
64 S.Ct. 87.

We agree with the Arkansas Supreme Court that the Berwind-White case
presented a situation different from this case and that this case is on the other
side of the line which marks off the limits of state power. A boundary line is
none the worse for being narrow. Once it is recognized, as it long has been by
this Court, that federal and state taxation do not move within wholly different
orbits, that there are points of intersection between the powers of the two
governments, and that there are transactions of what colloquially may be
deemed a single process across state lines which may yet be taxed by the State
of their occurrence, 'nice distinctions are to be expected', Galveston,
Harrisburg, etc., R. Co. v. State of Texas, 210 U.S. 217, 225, 28 S.Ct. 638, 639,
52 L.Ed. 1031. The differentiations made by the court below between this case
and the Berwind-White case are relevant and controlling. 'The distinguishing
point between the Berwind-White Coal case and the cases at bar is that in the
Berwind-White Coal case the corporation maintained its sales office in New
York City, took its contracts in New York City and made actual delivery in
New York City * * *.' 205 Ark. at page 786, 171 S.W.2d at page 65. This,
according to practical notions of what constitutes a sale which is reflected by
what the law deems a sale, constituted a sale in New York and accordingly we
sustained a retail sales tax by New York. Here, as the Arkansas Supreme Court
continued, 'the offices are maintained in Tennessee, the sale is made in
Tennessee, and the delivery is consummated either in Tennessee or in interstate
commerce with no interruption from Tennessee until delivery to the consignee
essential to complete the interstate journey.' Because the relevant factors in the
two cases decided together with the Berwind-White case were the same as
those in Berwind-White, the decision in that case controlled the two other
cases. 'In both cases the tax was imposed on all the sales of merchandise for

which orders were taken within the city and possession of which was
transferred to the purchaser there. Decision in both is controlled by our decision
in the Berwind-White Company case.' McGoldrick v. Felt & Tarrant Mfg. Co.,
309 U.S. 70, 77, 60 S.Ct. 404, 405, 84 L.Ed. 584. In Berwind-White the
Pennsylvania seller completed his sales in New York; in this case the
Tennessee seller was through selling in Tennessee. We would have to destroy
both business and legal notions to deny that under these circumstances the sale
the transfer of ownershipwas made in Tennessee. For Arkansas to impose
a tax on such transactions would be to project its powers beyond its boundaries
and to tax an interstate transaction.
5

It is suggested, however, that Arkansas could have levied a tax of the same
amount on the use of these goods in Arkansas by the Arkansas buyers, and that
such a use tax would not exceed the limits upon state power derived from the
United States Constitution. Whatever might be the fate of such a tax were it
before us, the not too short answer is that Arkansas has chosen not to impose
such a use tax, as its Supreme Court so emphatically found. A sale tax and a use
tax in many instances may bring about the same result. But they are different in
conception, are assessments upon different transactions, and in the interlacings
of the two legislative authorities within our federation may have to justify
themselves on different constitutional grounds. A sales tax is a tax on the
freedom of purchasea freedom which wartime restrictions serve to
emphasize. A use tax is a tax on the enjoyment of that which was purchased. In
view of the differences in the basis of these two taxes and the differences in the
relation of the taxing state to them, a tax on an interstate sale like the one
before us and unlike the tax on the enjoyment of the goods sold, involves an
assumption of power by a State which the Commerce Clause was meant to end.
The very purpose of the Commerce Clause was to create an area of free trade
among the several States. That clause vested the power of taxing a transaction
forming an unbroken process of interstate commerce in the Congress, not in the
States.

The difference in substance between a sales and a use tax was adverted to in the
leading case sustaining a tax on the use after a sale had spent its interstate
character: 'A tax upon a use so closely connected with delivery as to be in
substance a part thereof might be subject to the same objections that would be
applicable to a tax upon the sale itself.' Henneford v. Silas Mason Co., 300 U.S.
577, 583, 57 S.Ct. 524, 527, 81 L.Ed. 814. Thus we are not dealing with
matters of nomenclature even though they be matters of nicety. 'The state court
could not render valid, by misdescribing it, a tax law which in substance and
effect was repugnant to the federal Constitution; neither can it render
unconstitutional a tax, that in its actual effect violates no constitutional

provision, by inaccurately defining it.' Wagner v. City of Covington, 251 U.S.

95, 102, 104, 40 S.Ct. 93, 94, 64 L.Ed. 157, 168. Though sales and use taxes
may secure the same revenues and serve complementary purposes, they are, as
we have indicated, taxes on different transactions and for different
opportunities afforded by a State.
7

A very different situation underlay State of Wisconsin v. J. C. Penney Co., 311

U.S. 435, 61 S.Ct. 246, 85 L.Ed. 267, 130 A.L.R. 1229. The Wisconsin
Supreme Court and this Court were concerned with an exaction on a transaction
which the Wisconsin Court described one way and we another. We looked
behind the labels to the thing described, and the thingtaxation of the
distribution of income earned in Wisconsindid not offend the Federal
Constitution. That case affords no ground for rejecting the deliberate choice of
a State to impose a tax on a transfer of ownership and sustaining it, where the
transfer was made beyond the state limits, as a use tax on that property because
the State might, so far as the Federal Constitution is concerned, have enacted a
use tax and such a use tax might have been collected on the enjoyment of the
goods so sold. Such a mode of adjudication would imply a duty of excessive
astuteness on our part to contract the area of free trade among the States.

Judgment affirmed.

Mr. Justice DOUGLAS, with whom Mr. Justice BLACK and Mr. Justice
MURPHY concur, dissenting.

10

The present decision marks a retreat from the philosophy of the Berwind-White
case, 309 U.S. 33, 60 S.Ct. 388, 84 L.Ed. 565, 128 A.L.R. 876. It draws a
distinction between the use tax (Felt & Tarrant Mfg. Co. v. Gallagher, 306 U.S.
62, 59 S.Ct. 376, 83 L.Ed. 488) and the sales tax which on the facts of this case
seems irrelevant to the power of Arkansas to tax. And it is squarely opposed to
McGoldrick v. Felt & Tarrant Mfg. Co., 309 U.S. 70, 60 S.Ct. 404, 84 L.Ed.
584, which should be overruled if the present decision goes down.

11

Felt & Tarrant Mfg. Co. v. Gallagher involved a use tax. The State of the buyer
(California) was allowed to exact the tax from the Illinois seller for goods sold
to California buyers though the seller's activities in California were not
different in quality and hardly more numerous than the Arkansas activities of
the Tennessee sellers in the present case. Though in some cases deliveries were
made by the local agent for Felt & Tarrant, in others shipments were made by it
from Illinois direct to the buyers in California. And in that case, as in the
present case, the orders were accepted outside the State of the buyer and

remittances were made direct to the out-of-state seller.

12

In McGoldrick v. Felt & Tarrant Mfg. Co. we allowed New York City to
collect its sales tax on sales which Felt & Tarrant made to New York
purchasers under substantially the same course of dealing as obtained in case of
the California use tax. Moreover, there were other transactions in McGoldrick
v. Felt & Tarrant Mfg. Co. which were even closer to the sales in the present
case. I refer to the sales to New York City buyers by a Massachusetts
corporation (Du Grenier, Inc.) which was not authorized to do business in New
York and which had no employee there. Another company, Stewart &
McGuire, Inc., acted as its exclusive agent and solicited orders in New York
City. The orders were forwarded to Massachusetts where they were accepted.
Shipments were made by rail or truck (F.O.B. Haverhill, Mass.) to the
purchaser in New York City, who paid the freight. Yet we allowed New York
City to collect its sales tax on those transactions.

13

If the federal Constitution does not prohibit New York City from levying its
sales tax on the proceeds of those interstate transactions or California from
exacting its use tax at the final stage of an interstate movement of goods, I fail
to see why Arkansas should be prohibited from collecting the present tax.

14

It is not enough to say that the use tax and the sales tax are different. A use tax
may of course have a wider range of application than a sales tax. Henneford v.
Silas Mason Co., 300 U.S. 577, 57 S.Ct. 524, 81 L.Ed. 814. But a use tax and a
sales tax applied at the very end of an interstate transaction have precisely the
same economic incidence. Their effect on interstate commerce is identical. We
stated as much in the Berwind-White case where, in speaking of the sales tax,
we said (309 U.S. at page 49, 60 S.Ct. at page 393, 84 L.Ed. 565, 128 A.L.R.
876): 'It does not aim at or discriminate against interstate commerce. It is laid
upon every purchaser, within the state, of goods for consumption, regardless of
whether they have been transported in interstate commerce. Its only relation to
the commerce arises from the fact that immediately preceding transfer of
possession to the purchaser within the state, which is the taxable event
regardless of the time and place of passing title, the merchandise has been
transported in interstate commerce and brought to its journey's end. Such a tax
has no different effect upon interstate commerce than a tax on the 'use' of
property which has just been moved in interstate commerce', citing use tax
cases including Henneford v. Silas Mason Co. and Felt & Tarrant Mfg. Co. v.
Gallagher.

15

The sales tax and the use tax are, to be sure, taxes on different phases of the
interstate transaction. We may agree that the use tax is a tax 'on the enjoyment

of that which was purchased.' But realistically the sales tax is a tax on the
receipt of that which was purchased. For as we said in the excerpt from the
Berwind-White case quoted above, it is the 'transfer of possession to the
purchaser within the state' which is the 'taxable event regardless of the time and
place of passing title.' And McGoldrick v. Felt & Tarrant Mfg. Co. makes plain
that the transfer of possession need not be by the seller, for in that case, as in
the present one, deliveries were made by common carriers which accepted the
goods F.O.B. at points outside the State. In terms of state power, receipt of
goods within the State of the buyer is as adequate a basis for the exercise of the
taxing power as use within the State. And there should be no difference in
result under the Commerce Clause where, as here, the practical impact on the
interstate transaction is the same.
16

It is no answer to say that the Arkansas sales tax may not be imposed because
the out-of-state seller was 'through selling' when the tax was incurred. That was
likewise true of both the use tax cases, including General Trading Co. v. State
Tax Commission, 322 U.S. 335, 64 S.Ct. 1028, and the sales tax decision in
McGoldrick v. Felt & Tarrant Mfg. Co. The question is whether there is a
phase of the interstate transaction on which the State of the buyer can lay hold
without placing interstate commerce at a disadvantage. There is no showing
that Tennessee was exacting from these vendors a tax on these same
transactions or that Arkansas discriminated against them. I can see no warrant
for an interpretation of the Commerce Clause which puts local industry at a
competitive disadvantage with interstate business. If there is a taxable event
within the State of the buyer, I would make the result under the Commerce
Clause turn on practical considerations and business realities rather than on
dialectics. If that is not done, I think we should retreat from the view that
interstate commerce should carry its fair share of the costs of government in the
localities where it finds its markets and adopt the views expressed in the dissent
in the Berwind-White case.