GOVERNMENT: Victory for the States

In the field of state taxation, U.S. courts have gradually recognized that the states need revenue from whatever place they can get it. Last week, in two major decisions, the U.S. Supreme Court affirmed the broad power of states in taxing business enterprises. The court ruled that a state may:

¶ Tax an out-of-state corporation on the portion of its income earned within the state, even though the corporation's activities are exclusively "interstate commerce."

¶Levy a property tax on raw materials imported from foreign countries by a manufacturer and stored for immediate use.

The ruling means that such states as Georgia and Minnesota are within their rights in taxing companies that sell in the state, even though they have no plant or payroll in the state. Income taxes in these states are generally figured on the per centage of the company's sales within the state. Of the 35 states that tax corporation income, 24 already tax interstate corporations on the basis of their business within the state, using a formula of payroll, property and sales within the state. What the court's ruling does is affirm the trend, pointing up the need for a single state-tax formula for interstate corporations.