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Keywords

burden of proofcorporation

corporationrespondent

Related Cases

Norton Co. v. Department of Revenue of State of Ill., 340 U.S. 534, 71 S.Ct. 377, 95 L.Ed. 517

Facts

Norton Company operates a branch office and warehouse in Chicago, Illinois, where it sells abrasive machines and supplies. The company is subject to the Illinois Occupation Tax on its retail sales, but it argued that not all sales to Illinois customers should be taxed, particularly those that were interstate in nature. The Illinois Department of Revenue collected taxes on the company's entire gross income from sales to Illinois residents, leading to the legal dispute over the extent of the state's taxing authority.

Petitioner, a Massachusetts corporation, manufactures and sells abrasive machines and supplies. Under consent from the State of Illinois to do business therein, it operates a branch office and warehouse in Chicago from which it makes local sales at retail.

Issue

Whether the State of Illinois exceeded its constitutional taxing power by taxing all of Norton Company's income derived from sales to Illinois customers, including those sales that were interstate in character.

The question is whether the State has exceeded the constitutional range of its taxing power by taxing all of petitioner's Illinois derived income.

Rule

A state can impose a tax on a corporation engaged in local business, but it cannot tax income from transactions that are purely interstate in nature. The burden of proof lies with the taxpayer to demonstrate that specific transactions are exempt from taxation.

The general rule, applicable here, is that a taxpayer claiming immunity from a tax has the burden of establishing his exemption.

Analysis

The court determined that Norton Company had sufficiently localized its business in Illinois by operating a branch office that facilitated local sales and customer relationships. The presence of the Chicago branch allowed the state to attribute income from all sales utilizing that branch to local business activities, thus making them subject to Illinois taxation. The court found that the company had not adequately demonstrated that certain sales were dissociated from its local business.

We conclude that, in the light of all the evidence, the judgment attributing to the Chicago branch income from all sales that utilized it either in receiving the orders or distributing the goods was within the realm of permissible judgment.

Conclusion

The U.S. Supreme Court vacated the judgment of the Illinois Supreme Court and remanded the case for further proceedings, affirming that the Illinois Department of Revenue could tax income from sales made through the Chicago branch, while also recognizing that some sales were interstate and not subject to the tax.

The judgment below is vacated and the cause remanded for further proceedings not inconsistent herewith.

Who won?

The State of Illinois prevailed in the case, as the court upheld the imposition of the occupation tax on Norton Company's income derived from sales through its Chicago branch, finding that the company had not met its burden of proving that certain transactions were exempt from taxation.

I believe the respondent reasonably attributed all of the proceeds of petitioner's sales in Illinois to the company's local activities.

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