LOCATION: Rhode Island General Assembly
DOCKET NO.: 94-1239
DECIDED BY: Rehnquist Court (1986-2005)
LOWER COURT: North Carolina Supreme Court
CITATION: 516 US 325 (1996)
ARGUED: Oct 31, 1995
DECIDED: Feb 21, 1996
Charles Rothfeld - for respondent
Charles A. Rothfeld - Argued the cause for the respondent
Jasper L. Cummings, Jr. - Argued the cause for the petitioner
Facts of the case
After North Carolina levied an "intangibles tax" on a fraction of the value of corporate stock owned by state residents inversely proportional to the corporation's exposure to the State's income tax, the Fulton Corporation, a North Carolina company, filed a state-court action against the State Secretary of Revenue, seeking judgment that the tax violated the Federal Commerce Clause by discriminating against interstate commerce. The trial court ruled for the Secretary, but North Carolina's Court of Appeals reversed, holding that the taxable percentage deduction violated the Commerce Clause. In reversing, the North Carolina Supreme Court found that the State's scheme imposed a valid compensatory tax and that the intangibles tax imposed less of a burden on interstate commerce than the corporate income tax placed on intrastate commerce.
Does North Carolina's "intangibles tax" on a fraction of the value of corporate stock owned by North Carolina residents inversely proportional to the corporation's exposure to the State's income tax violate the Federal Commerce Clause?
Media for Fulton Corporation v. FaulknerAudio Transcription for Oral Argument - October 31, 1995 in Fulton Corporation v. Faulkner
Audio Transcription for Opinion Announcement - February 21, 1996 in Fulton Corporation v. Faulkner
William H. Rehnquist:
The opinion of the Court in No. 94-1239, Fulton Corporation against Faulkner will be announced by Justice Souter.
David H. Souter:
This case comes to us on writ of certiorari to the Supreme Court of North Carolina.
The issue before us is the validity of what is called there an intangibles tax which is levied by the State of North Carolina on corporate stock owned by its residents.
The state taxes are fraction of the value of that stock which is in inversely proportional to the extent of the issuing corporation’s business done within North Carolina.
Under this regime, therefore shareholder taxes increase to the extent of the corporations in which they invest to do business outside the State.
The petitioner, Fulton Corporation, a North Carolina corporation which owns stock in corporations doing business out of state challenged this tax in the State Court System.
Fulton argued that that the tax violated the Commerce Clause of the Federal Constitution by discriminating against interstate commerce.
The State Supreme Court rejected this argument finding that the intangibles tax was valid compensatory tax which work to equalize the burdens on inter and intrastate commerce.
In an opinion filed today with the Clerk of the Court, we reverse the judgment of the North Carolina Supreme Court and hold that the State’s intangibles tax discriminates against interstate commerce in violation of the Commerce Clause.
Although we acknowledge that certain taxes that facially discriminate against interstate commerce, as this one does, may nonetheless be part of a valid compensating tax regime, we have solely replied this exception in practice outside the limited field of sales and used taxes.
North Carolina’s tax meets none of the criteria established in our cases for a valid compensatory tax and accordingly it cannot stand.
We therefore remand the case to the Supreme Court of North Carolina to determine the appropriate remedy for this constitutional violation.
Although the Chief Justice has filed a concurring statement, the opinion of the Court is unanimous.