Facts
- Washington imposed a business and occupation (B&O) tax on gross receipts from services performed within the state.
- Stevedoring companies loaded and unloaded cargo at Washington ports, including goods moving in interstate and foreign commerce and import/export shipments.
- The Department of Revenue applied the B&O tax to compensation received for stevedoring and related in-state services.
- Stevedores and related associations challenged the tax as applied to their activities involving interstate commerce and imports/exports.
- Washington trial and appellate courts held the tax unconstitutional under the Commerce Clause and the Import–Export Clause.
Issues
- Whether Washington’s B&O tax on gross receipts from stevedoring services performed wholly within the state violates the Commerce Clause when the services relate to interstate and foreign commerce.
- Whether applying the B&O tax to stevedoring services involving imports and exports is an “Impost or Duty” prohibited by the Import–Export Clause.
Decision
- The Supreme Court reversed the state court judgment and upheld the tax as applied to stevedoring.
- Under the Commerce Clause, the tax was valid because it satisfied the four-part test for state taxation of interstate commerce.
- The Court overruled prior decisions that had barred similar taxes on stevedoring based on formal labels (including “privilege tax” reasoning).
- Under the Import–Export Clause, the tax was not an impermissible “Impost or Duty” because it did not threaten the clause’s core purposes and functioned as a general, nondiscriminatory tax tied to in-state activity.
Legal Principles
- A state tax affecting interstate commerce is constitutional if it (1) applies to activity with a substantial nexus to the state, (2) is fairly apportioned, (3) does not discriminate against interstate commerce, and (4) is fairly related to services provided by the state.
- A state may, under appropriate conditions, tax the privilege of conducting interstate business when the tax satisfies the above criteria.
- A general business tax imposed on in-state services connected to imports/exports is not barred by the Import–Export Clause if it does not interfere with federal foreign policy, does not impair federal customs revenue, and does not create interstate trade barriers; these concerns are addressed when the tax meets nexus, apportionment, nondiscrimination, and fair-relation requirements.
- Earlier formalistic restrictions on taxing stevedoring were rejected in favor of practical Commerce Clause analysis.
Conclusion
The Court held that Washington could apply its general gross-receipts B&O tax to stevedoring services performed within the state, even when the services relate to interstate and foreign commerce and to imports and exports, because the tax met modern Commerce Clause standards and did not operate as a forbidden “Impost or Duty” under the Import–Export Clause.