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U.S. Supreme Court

General Motors Corp. v. District of Columbia, 380 U.S. 553 (1965)

General Motors Corp. v. District of Columbia

No. 352

Argued March 10, 1965

Decided April 27, 1965

380 U.S. 553


The District of Columbia Income and Franchise Tax Act of 1947 imposes a franchise tax on corporations engaging in trade or business within the District, which is measured by that portion of the net income which "is fairly attributable to any trade or business carried on or engaged in within the District." The Act provides that if the corporation's trade or business is carried on both within and without the District, the net income derived therefrom shall be deemed to be income from sources within and without the District. Pursuant to statutory authority, the District Commissioners issued regulations providing that, where income is derived from the manufacture and sale of tangible personalty, the portion to be apportioned to the District shall be such percentage of the total income as the District sales are of total sales made everywhere. The petitioner, a Delaware corporation manufacturing and selling motor vehicles and parts, has manufacturing plants in Michigan, Delaware and Maryland, from which orders for car sales to dealers in the District were filled. The petitioner attacks the assessment of taxes pursuant to the regulations as unauthorized by the statute and violative of the Constitution. The Court of Appeals sustained the assessment formula.

Held: the challenged regulations exceed the statutory authority by allocating income to the District in disregard of the express restrictions of the law. Pp. 380 U. S. 555-562.

(a) With respect to that portion of petitioner's income which arises from sales within the District and manufacture outside the District, the statute requires that some part thereof be deemed to arise from sources outside the District. Pp. 380 U. S. 557-559.

(b) Since most States imposing corporate income taxes apportion corporate income by giving equal weight to geographical distribution of plant, payroll, and sales, the use of a formula based wholly on sales will result in multiple taxation and unfair allocation of corporate income. Pp. 380 U. S. 559-560.

(c) The apportionment method used should have a reasonable relation to the corporate activities within a State, and the geographic

Page 380 U. S. 554

distribution of sales, standing alone, provides a doubtful criterion of allocation. Pp. 380 U. S. 560-561.

(d) The statutory language does not allow the use of an apportionment formula utilizing only the sales factor. Pp. 380 U. S. 561-562.

118 U.S.App.D.C. 381, 336 F.2d 885, reversed and remanded.

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