## Facts

- Arkansas sought to collect its retail sales (gross receipts) tax from two Tennessee corporations that sold machinery and mill supplies to Arkansas customers.
- The sellers were not qualified to do business in Arkansas and had no sales office, branch plant, or other place of business in Arkansas.
- Arkansas customers’ orders were solicited in Arkansas by traveling salesmen domiciled in Tennessee or were placed by mail or telephone, but every order required acceptance at the sellers’ Memphis offices.
- Upon acceptance in Tennessee, goods were shipped from Tennessee to Arkansas customers by common carrier.
- Title passed in Tennessee upon delivery of the goods to the carrier in Memphis, and collection of the sales price did not occur in Arkansas.
- The Arkansas Supreme Court construed the governing statute as imposing a sales tax (not a use tax) and dismissed the state’s tax-collection complaints as unconstitutional under the Commerce Clause.
- The U.S. Supreme Court granted review after the state court reaffirmed its earlier view that Arkansas could not apply a sales tax to these out-of-state consummated sales.

## Issues

1. Whether the Commerce Clause permits Arkansas to impose its sales tax on transactions where the contract is accepted and title passes in Tennessee, even though the goods are delivered to customers in Arkansas.
2. Whether Arkansas’s tax could be sustained by treating it as a use-tax-type levy when the state court construed it as a sales tax.

## Decision

- The Supreme Court affirmed the Arkansas Supreme Court’s dismissal of the tax-collection suits.
- Because the statute, as authoritatively construed by the state court, imposed a sales tax, Arkansas could tax only sales completed within Arkansas.
- The taxed transactions were completed in Tennessee (acceptance in Tennessee; title passed to the carrier in Memphis), so Arkansas’s attempt to tax them as sales violated the Commerce Clause.
- The Court refused to recharacterize or effectively rewrite Arkansas’s sales tax as a use tax to sustain it.
- Justice Rutledge dissented (joined by Justices Black, Douglas, and Murphy), arguing the Court should look to the practical incidence on Arkansas consumption rather than formal title-passing rules.

## Legal Principles

- A state may not impose a sales tax on interstate transactions where the sale is completed in another state and the seller lacks an in-state place of business, when the taxing statute is construed as a tax on the sale itself.
- For a sales tax, constitutional analysis turns on where the sale is completed (including acceptance and passage of title), not merely where goods are delivered.
- Sales taxes and use taxes are distinct: a sales tax burdens the purchase transaction; a use tax burdens the in-state enjoyment or consumption of goods after purchase.
- Federal courts are bound by a state supreme court’s construction of its tax statute (e.g., sales tax versus use tax) when assessing federal constitutional limits.

## Conclusion

Arkansas could not, consistent with the Commerce Clause, apply its sales tax to goods sold by Tennessee vendors where the contracts were accepted and title passed in Tennessee, even though the goods were delivered into Arkansas, because the tax reached sales beyond Arkansas’s taxing power as a sales-tax levy.


McLeod v. J.E. Dilworth Co., 322 U.S. 327 (1944)