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Keywords

jurisdictioninjunctiontax lawdue process
plaintiffjurisdictionleasetax law

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Shaffer v. Carter, 252 U.S. 37, 40 S.Ct. 221, 64 L.Ed. 445, 4 A.F.T.R. 4727

Facts

Charles B. Shaffer, a nonresident of Oklahoma and a citizen of Illinois, was engaged in the oil business in Oklahoma and received a net income exceeding $1,500,000 in 1916. He was assessed an income tax exceeding $76,000 under the Oklahoma Income Tax Law, which he contested on constitutional grounds, claiming it violated his rights under the Fourteenth Amendment and the Commerce Clause. After a previous suit was dismissed due to lack of proper parties, Shaffer sought an injunction to prevent the enforcement of the tax, which was denied by the court.

Plaintiff, a nonresident of Oklahoma, being a citizen of Illinois and a resident of Chicago, in that state, was at the time of the commencement of the suit and for several years theretofore (including the years 1915 and 1916) engaged in the oil business in Oklahoma, having purchased, owned, developed and operated a number of oil and gas mining leases, and being the owner in fee of certain oil-producing land, in that state.

Issue

The main legal issues were whether the Oklahoma Income Tax Law was unconstitutional as applied to nonresidents and whether the state had the jurisdiction to impose such a tax on income derived from property and business conducted within its borders.

The Constitution of Oklahoma, besides providing for the annual taxation of all property in the state upon an ad valorem basis, authorizes (article 10, § 12) the employment of a variety of other means for raising revenue, among them income taxes.

Rule

The court applied the principle that states have the authority to impose taxes on income derived from property and business conducted within their borders, even for nonresidents, as long as it does not violate the Fourteenth Amendment or the Commerce Clause.

In our system of government the states have general dominion, and, saving as restricted by particular provisions of the federal Constitution, complete dominion over all persons, property, and business transaction within their borders; they assume and perform the duty of preserving and protecting all such persons, property, and business, and, in consequence, have the power normally pertaining to governments to resort to all reasonable forms of taxation in order to defray the governmental expenses.

Analysis

The court analyzed the Oklahoma Income Tax Law and determined that it did not violate the due process clause or the equal protection clause of the Fourteenth Amendment. It concluded that the state had jurisdiction to tax the income of nonresidents derived from activities within the state, and that the tax was not discriminatory against nonresidents compared to residents.

The contention that a state is without jurisdiction to impose a tax upon the income of nonresidents, while raised in the present case, was more emphasized in Travis, Comptroller, v. Yale & Towne Mfg. Co., 252 U. S. 60, 40 Sup. Ct. 228, 64 L. Ed. 460, decided this day, involving the Income Tax Law of the state of New York (Laws 1919, c. 627).

Conclusion

The court affirmed the dismissal of Shaffer's suit and upheld the constitutionality of the Oklahoma Income Tax Law, ruling that the state could impose income taxes on nonresidents for income earned from property and business within its jurisdiction.

The court, therefore, concluded that the Oklahoma Income Tax Law was constitutional and that the state had the authority to impose income taxes on nonresidents for income derived from property and business conducted within the state.

Who won?

The prevailing party was Frank C. Carter, the State Auditor, as the court upheld the enforcement of the income tax against Shaffer.

The court affirmed the decree, ruling that the state had the authority to impose income taxes on nonresidents for income derived from property and business conducted within the state.

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