Facts
- American Express Company, a New York joint-stock company, conducted express business in Indiana and elsewhere.
- The company owned real and personal property valued at about $22 million, but only about $8,000 of tangible property was physically located in Indiana; it paid Indiana taxes on that in-state property.
- The Indiana Board of Tax Commissioners assessed American Express using a mileage apportionment method that effectively attributed part of the company’s overall value to Indiana based on the ratio of Indiana mileage to total mileage (excluding ocean mileage).
- The assessment’s aggregate valuation was derived principally from property permanently located outside Indiana, including property not necessarily used in the company’s Indiana operations.
- James C. Fargo, on behalf of the company’s members, sought to enjoin the Indiana auditor from certifying and transmitting the assessment for county collection.
Issues
- Whether Indiana could impose an ad valorem property tax using a mileage formula when the underlying valuation was based principally on property permanently located outside Indiana and not necessarily used in Indiana operations.
- Whether the assessment, in substance, operated as an impermissible tax on interstate commerce or on property beyond Indiana’s jurisdiction.
- Whether equitable relief could issue without a prior payment or tender of tax where the taxpayer offered security for any lawful amount ultimately found due.
Decision
- The Supreme Court reversed the dismissal of Fargo’s bills and held the assessment, as made, invalid.
- Indiana may tax property permanently within its jurisdiction even if used in interstate commerce, but it may not tax the privilege of engaging in interstate commerce or tax property outside its jurisdiction.
- A mileage-based assessment is unlawful when the “total valuation” being apportioned is made up principally of out-of-state property not necessarily used in the company’s operating business within the taxing state.
- Transmission of a void assessment from a state board to county auditors for collection may be enjoined.
- No prior tender was required where the suit questioned whether any lawful assessment could be made and the complainant offered to give security for whatever sum might be adjudged due.
Legal Principles
- A state may impose property taxes on tangible property permanently located within the state, even if owned by nonresidents and used in interstate commerce.
- A state may not tax the privilege of carrying on interstate commerce, nor may it tax property located outside its territorial jurisdiction.
- Apportionment formulas (including mileage methods) cannot be used to reach out-of-state, nonlocal property by embedding such property in the valuation base that is then apportioned to the taxing state.
- Equity may enjoin enforcement steps for an assessment that is void in the manner assessed, including official transmission for local collection.
- When the challenge contests whether any valid tax can be assessed at all, an offer to provide security for any lawful amount ultimately determined due can suffice in lieu of a monetary tender.
Conclusion
The Court held that Indiana exceeded constitutional limits by apportioning and taxing a valuation derived mainly from American Express’s out-of-state property, and it permitted injunctive relief against enforcement of the void assessment without a prior tender where security was offered for any lawful tax found due.