Warms, Samuel J.

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Taxation of Interstate Sales-The Berwind Case

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Fordham Law Review Volume 9 Issue 2 Article 5 1940 Taxation of Interstate Sales-The Berwind Case Samuel J. Warms Follow this and additional works at: https://ir.lawnet.fordham.edu/flr  Part of the Law Commons Recommended Citation Samuel J. Warms, Taxation of Interstate Sales-The Berwind Case, 9 Fordham L. Rev. 244 (1940). Available at: https://ir.lawnet.fordham.edu/flr/vol9/iss2/5 This Article is brought to you for free and open access by FLASH: The Fordham Law Archive of Scholarship and History. It has been accepted for inclusion in Fordham Law Review by an authorized editor of FLASH: The Fordham Law Archive of Scholarship and History. For more information, please contact tmelnick@law.fordham.edu. Taxation of Interstate Sales-The Berwind Case Cover Page Footnote Member of New York Bar This article is available in Fordham Law Review: https://ir.lawnet.fordham.edu/flr/vol9/iss2/5 FORDHAM LAW REVIEWas Gould v. Godd,12 Glaser v. Glaser,13 and the Krause case, reveal that whetherthe judicial exceptions are based upon considerations of equitable preclusionor an actual change in policy, there is no longer the same demand that foreigndivorce decrees not measuring up to our standard be rejected. In a currentarticle, Professor Howe has carefully retraced the course of the New York casesto show that recent decisions of the Court of Appeals have been predicatedon theories of jurisdiction in divorce other than status and domicile.14 In thisconnection it is interesting to note that in the Krause case both parties in theinvalid Nevada divorce, which is indirectly given effect, were and continued tobe residents of the State of New York. and that the defendant in the Nevadaaction did not appear and was not personally served.Possibly very little remains of the concept of public policy that was statedin the Baker case, because the so-called mores of that day are no longer ours.The change in mores in New York may have been indicated in a more liberalrule for marriage annulments,15 in the statutory amendment which virtuallyadded incurable insanity as another ground for divorce,10 or in a certain degreeof laxity in the granting of absolute divorce on the ground of adultery. Con-cerning the failure of the New York Courts to apply the principle of comitywith respect to foreign decrees of divorce, and the consequent anomalous results,the Court of Appeals in the Baker case stated that it was"better by an adherence to the policy and law of our own jurisdiction, to make theclash the more and the earlier known and felt, so that the sooner may there be anauthoritative determination of the conflict.' 17If recent New York cases involve not merely the relaxation of the general prin-ciple, but an abandonment of the old concept of public policy, it seems thatthe "clash" and "conflict" have been given up.FREDERICK L. KANEtTAXATION OF INTERSTATE SALES-THE BERWIND CASEBroad language and well-respected dicta for many years buttressed a firmbelief that sales in interstate commerce could not be taxed by the state ofultimate delivery without violation of the commerce clause of the Constitution,'12. 235 N. Y. 14, 138 N. E. 490 (1923).13. 276 N. Y. 296, 12 N. E. (2d) 305 (1938).14. The Recognition of Foreign Divorcd Decreesi in New York State (1940) 40 CO.L. Rzv. 373. Cf. Davis v. Davis, 305 U. S. 32 (1938) discussed in Vreeland, ObligatoryInterstate Recognition of Divorce Decrees-A New Trend? (1939) 8 FoRrrA. L. Riv. 80.15. Shonfeld v. Shonfeld, 260 N. Y. 477, 184 N. E. 60 (1933).16. N. Y. Dom. REL. LAW (1928) § 7 (5).17. People v. Baker, 76 N. Y. 78, at 87.t" Professor of Law, Fordham University, School of Law.1. See Brown v. Maryland, 12 Wheat. 419, 447 (U. S. 1827); Robbins v. Shelby CountyTaxing District, 120 U. S. 489, 497 (1887); Bowman v. Continental Oil Co., 256 U. S. 642,648 (1921) ; Sonneborn v. Cureton, 262 U. S. 506, 509 (1923).[Vol. 91940] COMMENTS 245though from a technically factual point of view it was impossible to point to asingle condemnatory holding. None the less the barrier to taxation was morereal than chimerical. Recent decisions indicate a gradually accelerating processof eroding the foundations of the principle. The disintegration became completewith the Supreme Court's decision in McGoldrick v. Bcrwind-Whitc Coal MiningCo.,2 where the court upheld the taxation by the state of delivery, New York,of an interstate sale of goods of a kind obtainable only in the state of shipment.Such a tax, the Supreme Court reasoned, did not constitute an infringement ofcongressional power to regulate interstate commerce, since it neither prohibitedthe commerce nor discriminated against it in competition with intrastatecommerce. The delivery within the taxing state was said to be a taxable event;and there are implications in the opinion3 that no other event in the interstatetransit could be so considered, thus avoiding the danger of multiple taxation.Imposition of the tax was properly said to have no different effect upon inter-state commerce from the burdens of use taxes sustained in previous decisions.4This realistic argument, by ignoring principle and viewing only result, has thepossible advantage of placing substance above form and the disadvantage, inso doing, of inviting taxation in interstate spheres not involved in the facts ofthe case at bar. Though the majority of the court insisted that the deliveryonly was the taxable event, the dissenters, led by the Chief Justice, expressed theapprehension that by permitting a tax upon one component of the interstatetransit it must logically follow on principle that the other parts, i.e., shipmentand transit, would be taxable by states in which they would take place. Whilethis argument of the dissenters is potent, it loses some of its force if theimplications of the majority opinion may be taken as a guarantee against furtherextensions of the Berwind case into other aspects of interstate commerce. More-over, it is fair to assume that the minority would join the majority in rejectingfurther encroachment by the states into the field of interstate commerce., Ofcourse, since the dissent was based upon principle rather than result, it is pos-sible that the minority in a future case may feel bound by the new principleinherent in the majority opinion to extend that principle to the spheres whichcause them concern, rather than to sacrifice the logic which they state makessuch extension imperative.2. 308 U. S. (No. 475), 60 Sup. Ct. 388 (1940). Accord: McGoldrick v. Felt & TarrantMfg. Co., 303 U. S. (Nos. 45, 474), 60 Sup. Ct. 404 (1940); McGoldrick v. A. H. DuGrenier Inc., 308 U. S. (Nos. 45, 474), 60 Sup. Ct. 404 (1940); Jagels, "A" Fuel Corp. v.McGoldrick, 308 U. S. (No. 603), 60 Sup. Ct. 469 (1940).3. See Powell, New Light on Gross Receipts Taxes-The Beraind-White Case (1940) 53HMav. L. REv. 909, 926 et seq.4. Bowman v. Continental Oil Co., 256 U. S. 642 (1921); Gregg Dyeing Co. v. Query 286U. S. 472 (1932) ; Monamotor Oil Co. v. Johnson, 292 U. S. 86 (1934) ; Henneford v. SilasMlason Co., 300 U. S. 577 (1937) ; Felt & Tarrant Mfg. Co. v. Gallagher, 306 U. S. 62 (1939);Southern Pacific Co. v. Gallagher, 306 U. S. 167 (1939).5. See Powell, loc. cit. supra note 3.6. There is substantial authority antedating the Beraind case holding unconstitutional atax by the state of shipmenf. Adams Mfg. Co. v. Storen, 304 U. S. 307 (1938); Gwin,White & Prince v. Henneford, 305 U. S. 434 (1939) (both cases involved grozs receipts ratherthan sales taxes); Adams v. Missis ' ppi Lumber Co., 84 Miss. 23, 36 So. 6S (1904).FORDHAM LAW REVIEWThe leading authority on the question of interstate commerce and sales taxa-tion prior to the Berwind case was Wiloil Corp. v. Pennsylvania.7 The casediffered somewhat from the Berwind case because the subject of sale was oil of akind obtainable in the local market; the Berwind case involved an unique kindof coal obtainable only at the seller's mine in Pennsylvania. In the Wiloil casethe court upheld a Pennsylvania tax on oil priced f.o.b. Wilmington, Delaware,and shipped from Wilmington to Pennsylvania. In so doing, the court reasonedthat since the contracts did not require an interstate shipment, they could havebeen fulfilled without breach by local shipment and that therefore any tax onthe transaction constituted a burden upon interstate commerce too remote toinfringe the constitutional prohibition. The obiter in the case clearly indicatedthat the state of delivery could tax an interstate sale so long as the interstatecommerce was not contractually mandatory, even though interstate channels werethe only practical means open for consummation. Immunity from state tax waspresaged where interstate commerce was a contractual requisite. While the caseset up an objective standard, facile of application, the employment of its dictumin a case where interstate transit was practically essential, would have borderedupon the absurd.8 Similarly, if a contract requiring interstate shipment wouldhave freed the transaction of tax, the way would have been opened forindulgence in the avoidance device of a contractual stipulation involving a slightextra-territorial deviation in the route of transit in a sale otherwise intrastate.Viewed solely on its facts, the Berwind case could have been decided withinthe framework of the Wiloil dictum, since there was no contractual requirementof interstate commerce in the former case. Yet the court preferred to state abroader rule and withhold the protection of the commerce clause even fromthose transactions where interstate commerce is required by contract. Thecourse is still open for a reversion to the Wiloil dictum without violation of therule of stare decisis, should a case involving a contractual requirement of inter-state transit arise for adjudication.While the Wiloil case must be viewed as a major assault on the state taximmunity assumed to be afforded by the commerce clause, its ratio decidendi hada basis in a previous decision.10The Berwind case has indeed rendered unnecessary the artificial distinctionsbrought forth by the Supreme Court in the past to sustain its destruction of theinterstate commerce barrier against state sales taxation. A doubt remains,7. 294 U. S. 169 (1935).8. See Warren and Schlesinger, Sales and Use Taxes: Interstate Commerce Pays its Way(1938) 38 CoL. L. Ray. 49, 59.9. That one deliberately plans his actions to avoid taxation has been said to be im-material as a determinant of taxability. See Bullen v. Wisconsin, 240 U. S. 625, 630, 631(1916) ; Superior Oil Co. v. Mississippi, 280 U. S. 390, 399, 396 (1930).10. Ware & Leland v. Mobile County, 209 U. S. 405 (1908) (license tax on dealers incotton futures valid because seller was at liberty to acquire cotton in market where deliverywas required though some was obtained out of state). The principle hd been rejectedpreviously in Rearick v. Pennsylvania, 203 U. S. 507 (1906) (ordinance requiring salesmento be licensed voided as to one engaged in solicitation of orders fulfilled by out of stateshipment, though contracts silent as to such requirement).[Vol. 9COMMENTSwhich must be clarified by future decisions of the Supreme Court, whether theBerwind case opens up the possibility of multiple-state taxation of interstatesales."SAM UL J. WArmstA RE-EX.AMINATION OF THE WINKFIELD CASEThe Winkfield' case established the modern rule declaring the respective rightsand liabilities existing within the legal triangle involving a bailor, the bailee anda third party who damages or converts the bailor's property while in the bailee'spossession. A collision between the steamships Mexican and Winh fidld hadresulted in the loss of the Mexican with some of the mail she was carrying.The owners of the Winkfield paid a certain amount into court to cover the loss.The issue framed was whether the British Postmaster-General might recoverout of that sum the full value of the letters, etc., in his possession as bailee,which had been lost through the collision. The Probate Court, relying on theauthority of Claridge v. South Staffordshire Tramway Co.,, decided that sincethe Postmaster-General, as representative of the crown, was not under anyliability to the parties interested in the lost letters, etc., he was precluded fromrecovering for their value. The Court of Appeal reversed this holding, anddecided that " . . in an action against a stranger for loss of goods caused byhis negligence, the bailee in possession can recover the value of the goods, thoughhe would have had a good answer to an action by the bailor for damages for theloss of the thing bailed."13  The court herein expressly overruled the Claridgecase, declaring the position taken by that tribunal to be untenable.4 That casehad decided that a bailee who was under no liability to his bailor for any damageto the property bailed could not recover for the value of the property.511. See Powell, loc. cit. supra note 3.t Member of New York Bar.1. [1902] P. 42 (C. A.). See (1902) 15 RRv. L. Rnv. 58S; (1900) 13 H,%%,. L. REv. 411.2. [1892] 1 Q. B. 422, later criticized in Meux v. Great Eastern Ry., [1895] 2 Q. B. 387,394. See (1892) 6 HARv. L. RE%,. 156.3. The Wnkfield, [19021 P. 42, 54 (C. A.). Accord: Chamberlain v. West, 37 Minn.54, 33 N. W. 114 (1887). See also Russel v. Butterfield, 21 Wend. 300, 303 (N. Y. 1839);Mechanics Bank v. National Bank, 60 N. Y. 40, 52 (1875).4. The Winkfield, [1902] P. 42, 54 (C. A.).5. Formerly, in cases of bailments, it was explained that the bailee's right to recoverthe full amount was predicated on his liability over to the bailor. 2 BL. CoM-. * 395; 2K.,., Coatas. (14th ed. 1896) 585; HoLmrErs, Tn Coi.mo,. LAw (18S1) 167. Judge Storyhad expressed the opinion that a gratuitous bailee could maintain an action of trespass ortrover against a wrongdoer if the bailee would be liable over to the bailor. Srowy B,%n-=rTs (9th ed. 1878) 248. See also Rooth v. Wilson, 1 Barn. & Aid. 59, 105 Eng. Reprints22 (1817) (requiring that bailee be liable over to bailor before he could recover); Barkerv. Miller, 6 Johns. 195 (N. Y. 1810). This notion of liability over was manifest as lateas the Claridge case. The bailee, under the circumstances, was not liable to the ownCr;therefore, the court held he could recover only for the value of his interest.The Claridge case also argued that a bailee in possession having suffered no losz, could not19401

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Taxation of Interstate Sales-The Berwind Case

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