In Wisconsin v. J. C. Penney Co., 311 U.S. 435, 444 (1940), the U.S. Supreme Court upheld a broad power of States to tax, emphasizing that the power to tax is basic to the power of the State to exist.
This case concerned whether the tax imposed by ยง 3 of Chapter 505 of the Wisconsin Laws of 1935 may apply to a foreign corporation licensed to do business in Wisconsin without offending the Fourteenth Amendment of the Constitution. When this question originally came before the Supreme Court of Wisconsin it found no constitutional [*441] infirmity in such an exaction. State ex rel. Froedtert G. & M. Co. v. Tax Commission, 221 Wis. 225; 265 N. W. 672; 267 N. W. 52. But deeming itself constrained by its reading of this Court's decision in Connecticut General Co. v. Johnson, 303 U.S. 77, the Wisconsin Supreme Court in the present case found that the statute ran afoul the Due Process Clause insofar as it covered locally licensed foreign corporations. 233 Wis. 286; 289 N. W. 677. Inasmuch as important issues affecting the exertion of the taxing power of the states are involved, the Court took this case (and a companion case) and upheld a broad power of the State to tax:
- A state is free to pursue its own fiscal policies, unembarrassed by the Constitution, if by the practical operation of a tax the state has exerted its power in relation to opportunities which it has given, to protection which it has afforded, to benefits which it has conferred by the fact of being an orderly, civilized society.
Justice Felix Frankfurter wrote the opinion for the 5-4 Court.
Justice Owen Roberts dissented, joined by the Chief Justice Harlan Fiske Stone and Justice James McReynolds and Stanley Reed:
- I assume that the principle still holds good that a state, a member of the sisterhood of states in the Republic, cannot extend her sovereignty by legislation so as to prohibit, to regulate, or to tax property or transactions of citizens of other sovereign states lying outside her boundaries and regulated by the law of the state of domicile or residence. I assume also that, where a state has, by law, fixed the conditions upon which a corporate citizen of another state may enter to transact business, she may not thereafter extend her sovereignty to matters not within her competence, in the guise of annexing other and further conditions or burdens upon the transaction of the corporation's business within her borders. Those activities which have a real and substantial relation to the business transacted by the citizen of another state within her confines are, of course, subject to regulation and to taxation. It would be mere affectation to cite the adjudications of this court which are founded upon these propositions. I have thought that these principles were of the very warp and woof of the constitutional system which binds the states together in a federal union. Attempted transgressions of these limits of state sovereignty have time and again run afoul of the Fourteenth Amendment.