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Butler Brothers v. McColgan, 315 U.S. 501 (1942)

Butler Brothers v. McColgan

No. 283

Argued February 12, 1942

Decided March 2, 1942

315 U.S. 501


1. In the application of a state statute imposing on corporations doing business within and without the State a franchise tax measured by a percentage of the net income derived from business within the State, a formula which is "fairly calculated" to allocate to the State that portion of the net income "reasonably attributable" to the business done there satisfies the requirements of the Fourteenth Amendment. P. 315 U. S. 506.

2. One who attacks a formula for determining, under a taxing statute, the amount of net income allocable to the State has the burden of showing by clear and cogent evidence that it results in extraterritorial values' being taxed. P. 315 U. S. 507.

3. A wholesale merchandise corporation operated, as a unitary business, stores in several States, including one in California. It maintained a central buying division which served all the stores.

Page 315 U. S. 502

In 1935, it had a substantial profit, although the California store, on a separate accounting basis, showed a loss. The tax commissioner of California allocated to that State a percentage of the net income, and based thereon a tax under the state Bank and Corporation Franchise Tax Act. That percentage was determined by averaging the percentages which (a) value of real and tangible personal property, (b) wages, salaries, commissions and other compensation of employees, and (c) gross sales, less returns and allowances, attributable to the California store bore to the corresponding items of all the stores.


(1) That the formula of apportionment did not violate the Fourteenth Amendment. P. 315 U. S. 506.

(2) The fact that the accounting system of the California branch attributed no net income to that State did not prove that the tax was on extraterritorial values, since accounting practices for income statements may vary considerably according to the problem at hand, and a particular accounting system, though useful or necessary as a business aid, may not fit the different requirements when a State seeks to tax values created by business within its borders. P. 315 U. S. 507.

4. The ruling in Saunders v. Shaw, 244 U. S. 317, relative to lack of due process where a state supreme court finally disposed of a case on a new point against which the defeated party had had no opportunity or occasion to make defense held inapplicable to the situation in the case at bar, in which it was claimed that the appellate court departed from provisions of the stipulation of fact upon which the case was tried. P. 315 U. S. 510.

17 Cal.2d 664, 111 P.2d 334, affirmed.

Appeal from the affirmance of a judgment against the appellant in a suit to recover the amount of a state tax.

Page 315 U. S. 503

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