STATE TAX COMMISSION vs. JOHN H. BRECK, INC.

CUTTER, J. John H. Breck, Inc. (hereinafter called Breck), a Massachusetts corporation, has its principal office and factory in Springfield, where it manufactures chemical products "for sale and purchases other . . . merchandise for sale" and sells such products. Breck "from time to time ships merchandise for sale in other States from its Springfield office" and also ships goods from warehouses outside Massachusetts to points outside the Commonwealth.

Breck filed a 1953 Massachusetts corporate excise return based (so far as concerns income) on that of 1952. Thereafter it sought abatement of $7,532.93 of its 1953 excise imposed under G. L. (Ter. Ed.) c. 63, Section 32, as amended (see, infra, note 4). The application alleged that too large a part of its net income was apportioned to Massachusetts, as the measure of the portion of its 1953 excise based upon net income, because in applying the formula by which income is to be allocated as between Massachusetts and areas outside Massachusetts the "gross receipts assignable to Massachusetts . . . have been overstated by" the amount of interstate sales shipped from Massachusetts to out-of-state customers.

This application was denied by the State tax commission (hereinafter called the commission) and Breck appealed to the Appellate Tax Board, contending that if "any part of the net income [of the corporation] is allocated for taxation in Massachusetts by a formula which measures such part by gross receipts from sales in interstate commerce, the tax on net income as measured by sales in interstate commerce would be in violation of the commerce clause . . . [art. 1, Section 8] of the Constitution of the United States and a taking of property without due process of law, [Note 1] and in excess of the

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powers of the state under said Constitution." The Appellate Tax Board granted the abatement requested and made findings and a report, from which the facts herein stated have been summarized. The commission has appealed pursuant to G. L. (Ter. Ed.) c. 58A, Section 13, as appearing in St. 1933, c. 321, Section 7, as amended. [Note 2] The record includes the evidence before the board, as well as the formal documents referred to in Section 13, as amended.

The excises now [Note 3] imposed by Massachusetts on corporations are found in G. L. (Ter. Ed.) c. 63, as amended. By Section 32, as amended by St. 1939, c. 363, Section 1, [Note 4] all Massachusetts business corporations of the class to which Breck belongs are subject to an excise measured in part by "corporate excess" [Note 5] and in part by "its net income determined to be taxable in accordance with . . . this chapter." "Net income"

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is defined by Section 30, par. 5, as appearing in St. 1933, c. 327, Section 3, as "the gross income from all sources, without exclusion, for the taxable year [here 1952], less the deductions [with certain minor exceptions not here relevant] . . . allowable by the federal revenue act applicable for said taxable year." Section 37 provides that the commissioner of corporations and taxation shall determine, in the manner provided in that section and Section 38, "the part of the net income of a domestic business corporation derived from business carried on within the commonwealth." Under Section 37, certain items of income, for example, interest, dividends, and capital gains (except on tangible property situated outside Massachusetts), are to be allocated to Massachusetts. The remainder of the net income is by Section 38, pars. 2 and 3, to be allocated to Massachusetts (if the corporation carries on any business at all outside Massachusetts) by a formula [Note 6] which makes use of three fractional or percentage indices, (a) tangible property in Massachusetts related to total property wherever situated; (b) wages and compensation paid by the corporation and assignable to Massachusetts related to total wages and compensation; and (c) gross receipts (mostly sales) assignable to Massachusetts related to total gross receipts. Equal weight is given to each index

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by dividing the net income into thirds and allocating one third in accordance with each index. No tax is imposed on, or directly measured by, property, wages, or gross receipts. These items are merely used "in combination" as component parts of a single formula for the allocation of net income. See discussion by Rugg, C.J., in Alpha Portland Cement Co. v. Commonwealth, 244 Mass. 530, 554-555. Paragraph 6 of Section 38 provides in part that a "corporation's gross receipts from business assignable to this commonwealth shall be . . . its gross receipts for the taxable year from . . . sales, except those negotiated . . . in behalf of the corporation by agents . . . chiefly situated at, connected with or sent out from premises for the transaction of business owned or rented by the corporation outside the commonwealth." [Note 7]

Breck does not question the allocation of the two third parts of its 1952 net income which were allocated in proportion to tangible property and wages. It complains only of the allocation of that one third part of net income assigned under Section 38, pars. 2 (c) and 6, in accordance with gross receipts.

The Appellate Tax Board found that Breck's 1952 gross sales (after returns and allowances) were in effect divided into four groups:

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The commission assigned to Massachusetts the receipts listed in items (a), (b), and (c) above and treated as gross receipts from outside Massachusetts the sales listed in item (d). The fraction representing the part assigned to Massachusetts of the one third of net income allocated on the basis of gross receipts was thus equal to about 45% derived as follows:

The Appellate Tax Board found that the disputed items (b) and (c) above represented "sales in interstate commerce" and ruled that these sales "could not be used as a basis for a tax on gross receipts." This determination resulted in an assignment by the board of gross receipts to Massachusetts

producing an allocation fraction of $343,425.77 / $7,860,314.69 equal to about 4.4% for this third of net income. [Note 8]

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Except as already stated, there were no express findings by the board with respect to the extent, if any, to which the salesmen, who effected the sales involved in items (b) and (c), were chiefly connected with or sent out from corporate premises of Breck outside Massachusetts. There were board findings that the territory served by Breck involved in items (b) and (c) was outside Massachusetts; that a "part of the sales was made by salesmen resident in Massachusetts and a part by salesmen resident outside of Massachusetts"; and that the "merchandise involved in these appeals was shipped from stock in Massachusetts." There was, however, before the board an oral concession by counsel for Breck made at the hearing "that the only issue . . . is with reference to [items] . . . (b) and (c) which are the sales billed from the Massachusetts office by salesmen who if connected anywhere are connected with the Massachusetts office, but they are interstate sales" (emphasis supplied).

The commission contends that the Appellate Tax Board erred in its conclusion that the gross receipts from items (b) and (c) "are not to be included in the computation of the excise" and "in having considered the assessment . . . as a direct tax on gross receipts rather than an excise measured by applying the statutory formula . . . to a portion of the net income of" Breck. The commission concedes that the sales included in items (b) and (c) "are sales in interstate commerce."

We thus have presented these questions: (1) Does the statutory net income allocation formula (Sections 37, 38) require treating the sales included in items (b) and (c) as sales attributable to Breck's corporate existence and activity in Massachusetts by including them in the numerator of the statutory fraction; and (2) if the statutory formula requires such inclusion of these sales in the Massachusetts numerator, is this inclusion in violation of the commerce clause of the Federal Constitution (art. 1, Section 8)?

1. The tax involved is "a single excise measured by the sum of a percentage on its corporate excess added to a percentage

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on its net income as those terms are defined in the act." Originally (and until 1933) it was imposed upon "the carrying on or doing of business." Springdale Finishing Co. v. Commonwealth, 242 Mass. 37, 40-41. See Fore River Shipbuilding Corp. v. Commonwealth, 248 Mass. 137, 140-141; Frothingham Buildings v. Commonwealth, 249 Mass. 290, 292-293; Carlos Ruggles Lumber Co. v. Commonwealth, 261 Mass. 450, 452-453; Queens Run Refractories Co. Inc. v. Commonwealth, 270 Mass. 19, 23-24; Thomson Electric Welding Co. v. Commonwealth, 275 Mass. 426, 429, et seq. See also George S. Colton Elastic Web Co. v. United States, 116 Fed. (2d) 202, 204-205 (C. C. A. 1). However, by St. 1933, c. 342, Section 1, the words theretofore in Section 32 (imposing the excise on domestic corporations) "with respect to the carrying on or doing of business" were deleted with the purpose [Note 9] of changing the tax to an excise on the privilege of each domestic business corporation to engage in business based upon its corporate existence (and possession of its corporate franchise) during the taxable year, without regard to whether any business was done. In the Carlos Ruggles Lumber Co. case, at pages 452-453, it was said that the excise was "not a tax on tangible property . . . not an income tax." [Note 10]

The excise imposed by Section 32 is not a tax upon or measured by gross receipts. So far as its net income measure is concerned, the tax under Section 32 will be zero (a) unless a domestic

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corporation subject to Section 32 has a net income, in the sense that its gross income exceeds the expenses (with minor exceptions) allowed as deductions under the Federal income tax law, and (b) unless some of that net income, if there is a net income, is allocable to Massachusetts under the apportionment formula found in Sections 37 and 38. [Note 11]

The purpose of the formula (Sections 37 and 38) is, of course, to limit the net income measure of the excise to that reasonably attributable to activities within or closely associated with Massachusetts, so as fairly to reflect the annual benefit to the taxed corporation of its corporate privileges (including their exercise, if exercised) under Massachusetts law. In giving equal weight to percentage factors of (a) tangible property, (b) wages and other compensation paid, and (c) gross receipts, the Massachusetts formula is similar to formulae in use in various other States. [Note 12]

With respect to the one-third weight given to gross receipts, gross receipts from sales are not to be allocated outside of Massachusetts (as by statutes of certain other States) except where the sales are clearly indentifiable with corporate sales offices in other States through having been "negotiated . . . by [corporate] agents . . . connected with or sent out from premises . . . owned or rented by the corporation outside the commonwealth." The statutory language of Section 38, par. 6, is explicit and must be applied in accordance with its natural meaning (see Carlos Ruggles Lumber Co. v. Commonwealth, 261 Mass. 450, 455) to the extent that constitutional considerations permit.

Few court decisions have discussed the allocation formula since its enactment thirty-eight years ago. In Carlos

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Ruggles Lumber Co. v. Commonwealth, 261 Mass. 450, 454-456, this court passed upon a 1924 excise on a domestic corporation doing some intrastate business in Massachusetts and apparently a volume of business, largely in interstate commerce, [Note 13] in other States. This court (at page 455) said, "It is not essential to interstate commerce that persons engaged in it have established places of business in the several States or in more than a single State" and held that the petitioner "was subject to . . . [a Massachusetts] excise tax but was entitled to have that tax allocated on the basis of carrying on business both inside and outside of this Commonwealth," obviously because it conducted interstate commerce outside Massachusetts. No consideration was given to the details of the allocating method prescribed in Section 38. In Alpha Portland Cement Co. v. Commonwealth, 244 Mass. 530, 555, [Note 14] it was said that, in considering the effect of the tripartite formula based upon property, wages, and gross receipts, the question "is not whether a subsidiary percentage standing alone may impinge upon property outside the Commonwealth, but whether the use of all the percentages makes the final result a tax which violates constitutional guarantees" (emphasis supplied).

Breck relies principally upon Commissioner of Corporations & Taxation v. Ford Motor Co. 308 Mass. 558, where this court considered the minimum excise on each of a class of foreign business corporations, imposed by G. L. (Ter. Ed.) c. 63, Section 39C, [Note 15] amounting to "one twentieth of one per cent

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of . . . gross receipts from business assignable to this commonwealth as defined in" Section 38, par. 6. Such gross receipts assignable to Massachusetts are thus used in the Ford case directly as the measure of the excise imposed by Section 39C rather than as a means of allocation of net income as in the case of the excises imposed by Section 32 and Section 39. [Note 16] To have construed Section 38, par. 6, as including (for the purpose of Section 39C), as receipts assignable to Massachusetts, gross receipts from interstate sales negotiated through a Massachusetts office would have involved measuring directly by gross receipts from interstate commerce an excise on a foreign corporation, for the privilege of doing intrastate business in Massachusetts. This court, in the Ford case, held (at page 568) that "a State may not put a direct and immediate burden upon interstate commerce in the form of a tax, without apportionment, upon the gross proceeds derived from such commerce" and (at page 569) "may not exact an excise not apportioned to intrastate activities but measured by a percentage of the entire gross receipts derived from commercial activities extending beyond the boundaries of the taxing State" (emphasis supplied). The decision thus held that Section 38, par. 6, could not be applied, to the full extent warranted by its language, to bring any interstate business within the Ford company's gross receipts assignable to Massachusetts for the purposes of the minimum excise imposed

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by Section 39C, because cases decided by the Supreme Court of the United States (see pages 568-569) determined that a tax like that in Section 39C, directly measured by gross receipts, would impose an unconstitutional burden on interstate commerce. This court in the Ford case did not pass upon the validity of assigning to Massachusetts, in accordance with the plain language of Section 38, par. 6, gross receipts from sales negotiated through a Massachusetts office for the wholly different purpose of allocating a fair proportion of net income to Massachusetts as a measure of an excise under Section 32 upon a domestic [Note 17] corporation.

In this state of the authorities, we construe Section 38, par. 6 (as applied, for purposes of the excise imposed by Section 32, to the allocation to Massachusetts of a share of the net income of a domestic corporation), first, to require including in "gross receipts . . . assignable to" Massachusetts under paragraph 6 the gross receipts from all sales which are not attributable to efforts closely associated with a corporate sales office outside of Massachusetts, and, second, to attribute receipts from sales, in either interstate or intrastate commerce, to the sales offices with which the salesmen effecting them are affiliated. Of course, if Section 38, par. 6, thus construed, will operate to impose an unconstitutional burden in a particular case, it can be given only the maximum scope which will still leave its application within constitutional limits, but we think that the legislative intention was to apply the section literally to the full extent permitted by constitutional principles. See W. & J. Sloane v. Commonwealth, 253 Mass. 529, 534; Dexter v. Commissioner of Corporations & Taxation, 316 Mass. 31, 70.

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Upon this construction of the allocation formula, the question of fact under the statute to be determined by the Appellate Tax Board was whether the gross receipts from sales (in amount [b] $155,289.87 and [c] $3,101,533.66), which Breck contends were wrongly assigned under Section 38, par. 6, to Massachusetts, were negotiated by agents "chiefly situated at, connected with or sent out from [corporate] premises . . . outside" Massachusetts. The board has not made express findings on this matter. However, in the absence of anything contrary to the concession of counsel on this matter, it is apparent that the board acted upon the basis that the sales involved in items (b) and (c) were made by salesmen who (in the language of the concession of counsel) "if connected anywhere are connected with the Massachusetts office." No other conclusion would be warranted by the evidence, which showed, among other things, that, with respect to the disputed sales, reports which were necessary were made by the salesmen to the Massachusetts office, which in turn gave them necessary instructions. Accordingly, we deal with the case as one in which Breck has not sustained the burden resting upon it of showing that the disputed sales in items (b) and (c) were negotiated by salesmen chiefly connected with a sales office outside Massachusetts.

2. We must also pass upon the constitutional issues raised by Breck in view of the fact that the Appellate Tax Board has ruled that no gross receipts from interstate sales carried out by shipments originating in Massachusetts may be allocated to Massachusetts for the purposes of the formula for the apportionment of net income contained in Sections 37 and 38. If this ruling is correct, the decision of the board must be sustained.

Under the decisions of the Supreme Court of the United States, real doubt [Note 18] continues to exist about the limits of

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proper State taxation of corporations engaged in both intrastate and interstate commerce. See Freeman v. Hewit, 329 U.S. 249, 252. Compare Opinion of the Justices, 332 Mass. 785, 789. However, certain principles have been established which are binding upon us.

(A) A State may not impose an excise (even one which does not discriminate against interstate commerce), at least upon a foreign corporation, [Note 19] for the privilege of doing exclusively an interstate business within its borders. Cheney Brothers Co. v. Massachusetts, 246 U.S. 147, 153. Alpha Portland Cement Co. v. Massachusetts, 268 U.S. 203. Spector Motor Service, Inc. v. O'Connor, 340 U.S. 602, 609. [Note 20] See also Crew Levick Co. v. Pennsylvania, 245 U.S. 292; Ozark Pipe Line Corp. v. Monier, 266 U.S. 555. This principle does not apply to the present case because Breck (1) is a Massachusetts corporation maintaining its corporate existence here; (2) does all its manufacturing in Massachusetts as an intrastate activity; and (3) carries on substantial intrastate sales in Massachusetts, as well as many important functions of a local character in administering all its sales operations.

(B) A State occupation tax measured directly by the gross receipts from interstate commerce, unapportioned, is invalid, at least where the privilege of engaging in the occupation,

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including interstate commerce, is the subject of the tax. Fisher's Blend Station, Inc. v. State Tax Commission, 297 U.S. 650. Puget Sound Stevedoring Co. v. State Tax Commission, 302 U.S. 90, 92-94 (but compare pages 94-95). [Note 21] Michigan-Wisconsin Pipe Line Co. v. Calvert, 347 U.S. 157, 166 (tax at a fixed rate per unit of gas on the occupation of "gathering gas" for the purpose of immediate interstate shipment held invalid). See Memphis Steam Laundry Cleaner, Inc. v. Stone, 342 U.S. 389, 392-393. See also Nippert v. Richmond, 327 U.S. 416. Compare Memphis Natural Gas Co. v. Stone, 335 U.S. 80, 89. Compare also American Manuf. Co. v. St. Louis, 250 U.S. 459, 463 (sustaining a license tax on manufacturing in St. Louis measured by value of manufactured goods sold, payable after value established by sale).

(C) A State may not tax directly sales or the gross receipts from sales in interstate commerce, at least without apportionment, or unless the taxable event is one which is adequately separated from the actual movement in interstate commerce. Freeman v. Hewit, 329 U.S. 249 [Note 22] (where the court held that an Indiana tax on gross income could not be imposed upon the gross proceeds of the sale of securities in New York). Compare International Harvester Co. v. Department of Treasury, 322 U.S. 340, 348 (Indiana gross income tax upheld with respect to proceeds of certain sales having important incidents in Indiana). In the present

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case the excise is not imposed with respect to any activity which is part of the stream of interstate commerce, but rather is laid on the existence of the corporate privileges. Also, as has already been said, the Massachusetts excise on Breck is measured by net income, not gross income. Accordingly the principles mentioned in this paragraph (C) and in paragraph (B) above are not applicable here.

(D) A State tax which discriminates against interstate commerce is invalid. Memphis Steam Laundry Cleaner, Inc. v. Stone, 342 U.S. 389, 394-395. West Point Wholesale Grocery Co. v. Opelika, 354 U.S. 390. Compare, however, Interstate Busses Corp. v. Blodgett, 276 U.S. 245, 251 (holding that a taxpayer complaining of discrimination against it and against interstate commerce must show "that in actual practice the tax of which it complains" in fact is discriminatory in economic effect). In the present case there is no indication whatsoever of discrimination against interstate commerce.

The commission relies upon those decisions of the Supreme Court of the United States in which it has been stated consistently, in substance, that a State tax (a) upon corporate net income or (b) upon a privilege granted by the taxing State, measured by corporate net income, reasonably apportioned to activities of the taxpayer within the taxing State, will not impose a direct or constitutionally objectionable burden upon interstate commerce even if income from interstate commerce is taken into account. In United States Glue Co. v. Oak Creek, 247 U.S. 321, the court considered a Wisconsin general income tax upon a Wisconsin corporation's net income including that derived from business transacted within Wisconsin, determined by an allocation formula (page 324). Within income assigned to Wisconsin were included (page 325) the taxpayer's receipts from goods sold to customers outside Wisconsin from its Wisconsin factory and from goods manufactured in Wisconsin shipped to sales branches outside Wisconsin and there sold, all presumably interstate commerce. The court said (at page 329) that the tax "can not be deemed to be so

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direct a burden upon plaintiff's . . . business as to amount to an unconstitutional interference with . . . commerce among the States. It was measured not by the gross receipts, but by the net proceeds from this part of plaintiff's business, along with a like imposition upon its income derived from other sources, and in the same way that other corporations doing business within the State are taxed upon that proportion of their income derived from business transacted and property located within the State, whatever the nature of their business." In distinguishing the Crew Levick case (245 U.S. 292) the court said (at pages 328-329), "The difference in effect between a tax measured by gross receipts and one measured by net income, recognized by our decisions, is . . . substantial, and it affords a . . . workable basis of distinction between a direct and immediate burden upon the business affected and a charge that is only indirect and incidental. A tax upon gross receipts affects each transaction in proportion to its magnitude and irrespective of whether it is profitable or otherwise. . . . A tax upon the net profits . . . does not arise at all unless a gain is shown over and above expenses and losses . . .."

Underwood Typewriter Co. v. Chamberlain, 254 U.S. 113, 118, involved a Connecticut tax upon or measured by the net income of domestic and foreign corporations earned from business carried on within Connecticut, ascertained by apportionment to determine "such proportion of the whole net income, as the . . . value of the . . . tangible . . . property within the State bears to the . . . value of all the . . . tangible . . . property of the company." The tax (at pages 119-120) was sustained although the taxpayer's "profits may have been derived in part, or indeed mainly, from interstate commerce."

In Hump Hairpin Manuf. Co. v. Emmerson, 258 U.S. 290, 292-296, the court sustained a capital stock tax computed on the basis of "the proportion of capital stock . . . represented by property located and business transacted in . . . Illinois, which proportion shall be determined by averaging the percentage of the total business . . . transacted

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in Illinois with the percentage of the total tangible property" in Illinois, essentially two of the three allocation factors, namely property and gross receipts, used in the Massachusetts excise (Sections 32, 37, 38) here in issue. Interstate sales (see pages 292, 294) through salesmen working out of an Illinois sales office were included in Illinois business for the purpose of the allocation formula. See, to the same effect, International Shoe Co. v. Shartel, 279 U.S. 429, 433; Western Cartridge Co. v. Emmerson, 281 U.S. 511, 514-515. See also West Publishing Co. v. McColgan, 27 Cal. (2d) 705, affirmed 328 U.S. 823, rehearing denied 329 U.S. 822.

Bass, Ratcliff & Gretton, Ltd. v. State Tax Commission, 266 U.S. 271, applied a New York franchise tax, "levied for the privilege of doing business in" New York, and measured by net income, to a British corporation selling ale through branch offices in New York. Under the taxing statute a part of total net income was to be apportioned to New York in accordance with stated criteria, including (among others) tangible property and accounts receivable. The tax was sustained largely upon the authority of the Underwood Typewriter case. The court (at page 282) pointed out that the taxpayer "carried on the unitary business of manufacturing and selling . . . in which its profits were earned by a series of transactions beginning with the manufacture in England and ending in sales in New York and other places -- the process of manufacturing resulting in no profits until it ends in sales" and indicated that New York was justified in attributing (through the operation of the allocation formula) to itself "a just proportion of the profits . . . from such unitary business." See John Deere Plow Co. of Moline v. Franchise Tax Board, 38 Cal. (2d) 214, 221-225, 229-230, appeal dismissed for want of a substantial Federal question, 343 U.S. 939; North American Cement Corp. v. Graves, 269 N. Y. 507, affirmed 299 U.S. 517.

As has been stated, Alpha Portland Cement Co. v. Massachusetts, 268 U.S. 203, condemned the Massachusetts excise imposed on foreign corporations by Section 39, as applied to a foreign corporation engaged exclusively in interstate commerce

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here. However (at page 218) the court said, "The local business of a foreign corporation may support an excise measured in any reasonable way [emphasis supplied], if neither interstate commerce nor property beyond the State is taxed," and referred to the Underwood Typewriter case with apparent approval.

Matson Navigation Co. v. State Board of Equalization, 297 U.S. 441, 444, involved a California excise on each business corporation "for the privilege of exercising its corporate franchises within" California "measured by its net income" which had been applied to a California corporation engaged in intrastate, interstate, and foreign business. The court held that "net income justly attributable to all classes of business done within the State may be used as the measure of a tax imposed to pay the State for the use therein of the corporate franchises granted by it" (emphasis supplied). [Note 23] A similar result was reached in Memphis Natural Gas Co. v. Beeler, 315 U.S. 649, 656, dealing with an excise, measured "by the net earnings of the business as well as by the capital employed," imposed by Tennessee upon a foreign gas transmission company, viewed by the court as doing a partly intrastate business in Tennessee (see note 20, supra). See also Butler Brothers v. McColgan, 315 U.S. 501, 506-508, approving an allocation formula, much like that used in Massachusetts, under the due process clause of the Fourteenth Amendment.

International Harvester Co. v. Evatt, 329 U.S. 416, involved an Ohio franchise tax for the "privilege of doing business" in Ohio, as applied to a foreign corporation (see page 418) there operating two large factories, warehouses and retail stores, as well as factories, warehouses and stores in other States. The tax was measured by the value of the taxpayer's

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capital stock. One half was apportioned on the basis of a fraction (at pages 419-420) "the numerator of which is the value of all the taxpayer's Ohio property, and the denominator of which is the total value of all its property . . .. The other half is multiplied by another fraction whose numerator is the total value of the `business done' in the State and whose denominator is country-wide business. . . . In the `business done' numerator . . . [Ohio] included as a part of Ohio business an amount equal to the sales proceeds of a large part of the goods manufactured at . . . [the] Ohio plants, no matter where the goods had been sold or delivered. A part of the measure of the tax is consequently an amount equal to the sales price of Ohio manufactured goods sold and delivered to customers in other states." [Note 24] The court (at pages 420-423) upheld the excise, under both the commerce clause (art. 1, Section 8) and the due process clause (Fourteenth Amendment) of the Federal Constitution, as a tax on intrastate activities legitimately measured by the value of the goods produced by the Ohio factories, saying (at page 421), "Nor does the fact that a computation such as that under Ohio's law includes receipts from interstate sales affect the validity of a fair apportionment [citing, among others, the Hump Hairpin and Underwood Typewriter cases]." The court went on to say (pages 421-422) that "it clearly appears . . . that the whole purpose of the . . . formula was to arrive, without undue complication, at a fair conclusion as to what was the value of the intrastate business for which its franchise was granted. . . . Plainly Ohio sought to tax only what she was entitled to tax, and there is nothing about application of the formula in this case that indicates a potentially unfair result under any circumstances. . . . [T]his Court has long realized the practical impossibility of a state's achieving

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a perfect apportionment of expansive, complex business activities . . . and has declared that `rough approximation rather than precision' is sufficient." In the Spector case (340 U.S. 602, 609-610. See note 20, supra), although holding that a Connecticut excise could not be imposed on a foreign corporation with respect to the privilege of doing an exclusively interstate business in Connecticut, the court said, "Our conclusion is not in conflict with the principle that, where a taxpayer is engaged both in intrastate and interstate commerce, a state may tax the privilege of carrying on intrastate business and, within reasonable limits, may compute the amount of the charge by applying the tax rate to a fair proportion of the taxpayer's business done within the state, including both interstate and intrastate [citing the International Harvester case, 329 U.S. 416, and the Atlantic Lumber case, 298 U.S. 553, involving the Massachusetts corporation excise]."

In Commonwealth v. Bayuk Cigars, Inc. 345 Pa. 348, affirmed per curiam sub nomine Bayuk Cigars, Inc. v. Pennsylvania, 318 U.S. 746, the courts approved a Pennsylvania excise based upon a net income allocation formula bearing close resemblance to that contained in Section 38, pars. 2, 6, under which gross receipts from sales were not to be allocated to another State, absent the existence and use (in negotiating the sales) of a formal out-of-State corporate office. The sales in issue in the Bayuk case (see 345 Pa. at pages 356-357) were made by salesmen "supervised, directed and controlled by the home office in Philadelphia, from which . . . they received their instructions . . . [T]heir orders were . . . shipped from . . . Pennsylvania . . . [T]he itinerant nature of their employment required them to be `constantly traveling . . .' and . . . they must be regarded as `not chiefly situated at, connected with, or sent out from, premises . . . owned or rented by the corporation outside the Commonwealth'." Compare Commonwealth v. Continental Rubber Works, 347 Pa. 514. The Bayuk case (which wholly supports the excise upon Breck in the present case) establishes that, in a formula designed to allocate net

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income approximately, it is reasonable for a Legislature to assign gross receipts from sales to the formal corporate office having supervision over the salesmen who effect the sales. [Note 25]

These decisions of the Supreme Court of the United States, as we understand them, sustain the constitutionality under the commerce clause of a State excise (like that in the present case) on a domestic corporation for possessing or exercising its corporate privileges, if measured by net income, apportioned, as in the present case, in a practical way (which need not by any means be precise) to give a reasonable and rough approximation of values attributable to the taxing State granting the privileges. The fact that net income from interstate transactions (and the value given to intrastate privileges by them) may be taken into account reasonably in the tax computations is immaterial. Accordingly, we hold that the Appellate Tax Board erred (a) in treating the tax complained of as in effect a tax measured by gross receipts from interstate commerce rather than as an excise using, as one of its measures, a part of the taxpayer's net income apportioned to Massachusetts on a basis which takes into account fairly the sales here in dispute, admittedly interstate transactions, and (b) in holding that gross receipts from interstate sales (not assignable to non-Massachusetts sales offices under Section 38, par. 6) should not be taken into the Massachusetts numerator of the allocation fraction under Section 38, par. 2 (c).

Breck argues that the aggregate effect of the excise as assessed by the commission is so unreasonable, as applied to it, as to come within the principle of Hans Rees' Sons, Inc. v. North Carolina, 283 U.S. 123, 134, which held that in a particular instance North Carolina had applied a formula method, "which, albeit fair on its face, operates so as to

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reach profits . . . in no just sense attributable to transactions within" North Carolina's jurisdiction. [Note 26] No such showing of fact has been made here by Breck. Indeed, if the gross receipts from the disputed sales were to be excluded from the formula computation, it would result only in a reduction of the portion of Breck's 1952 net income assigned to Massachusetts from 71% to 57% (see note 8, supra). There are no findings of fact by the Appellate Tax Board and no evidence on which could be based a ruling that an allocation to Massachusetts of 71% of net income (as required by the total effect of the statutory formula which must be viewed as a whole) necessarily resulted in overvaluation, by fourteen percentage points, of the aggregate intrastate privileges (including basic corporate existence and authority to do business, manufacture, home office supervision, maintenance of local sales office, supervision of salesmen, warehousing, shipping, and so forth) subject to tax. The burden is clearly on Breck to establish facts which show the impropriety of the statutory formula. See Butler Brothers v. McColgan, 315 U.S. 501, 506-508.

Breck contends also that the assignment of the disputed sales to Massachusetts for the purposes of Section 38, par. 6, will involve risk of double taxation of those sales, because under pertinent Supreme Court decisions (see, for example, McGoldrick v. Berwind-White Coal Mining Co. 309 U.S. 33; General Trading Co. v. State Tax Commission, 322 U.S. 335) the States of destination of the goods sold might be able to impose taxes upon their sale or use. The tax imposed by Section 32 is not a sales tax or a use tax based upon gross receipts but an excise on corporate privileges based on a net income measure designed to reflect solely Massachusetts values. No other State can impose a tax on those privileges or values. See Western Live Stock v. Bureau of Revenue, 303 U.S. 250, 260. See also Memphis Natural Gas Co. v.

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Stone, 335 U.S. 80, 93-94, 96-97. Any minor overlapping of measures of net income, if any other State should impose a similar excise on comparable privileges of Breck to do business in that State, using a somewhat different (but similarly reasonable) net income apportionment formula, would be at most an inconsequential result of the "honest state efforts to make apportionments" of Massachusetts and such other State, intended to reach a fair approximation of the value of the respective privileges subjected to tax. Any inaccuracy would be well within the limits of action permitted to the States. International Harvester Co. v. Evatt, 329 U.S. 416, 422-423. Here there is no evidence of any potential duplication of tax burden which could raise doubt about the propriety of the excise.

3. Breck is not entitled to have any abatement of that part of its 1953 corporate excise measured by net income. The decision of the Appellate Tax Board is reversed and a decision for the State tax commission is to be entered. The State tax commission is to have costs of the appeal to this court.

So ordered.