negotiations with the adjuster followed in New York City, with the broker and a New York accountant retained by Rosecliff acting for the company. The loss, when finally determined, was paid in New York to Rosecliff's broker by check on a New York bank; the broker then issued its check to Rosecliff (presumably by mail from New York to Fort Lee, but this fact is not stated). The same procedure as to payment was followed when minor losses occurred.

To deal with accidents occurring at the amusement park, Rosecliff maintains a register of each occurrence, in which it records relevant information. During the park season, a representative of the adjustment firm designated by the insurer, an independent contractor located in New York, visits the park at least once or twice a week, and copies the information set out in the register. The adjuster visits or telephones the victim of the accident at his home, and he, of course, is frequently a New Jersey resident. Many claims are settled by the adjuster directly with the claimant, some at the latter's home in New Jersey, and, in those cases, releases may be executed by the claimant at his home. Where a lawyer represents the claimant, Rosecliff turns all "lawyer letters" over to the adjuster, and the adjuster picks up the dealings with counsel. When litigation ensues, the insurer undertakes the defense of the case, through attorneys who will ordinarily be New Jersey lawyers; and the legal proceedings will take place in that State. Public liability accounts for the largest part of the premiums at issue-approximately $100,000.

Chief Justice Weintraub, one of the most highly regarded State Supreme Court judges in the country, writing for the New Jersey Supreme Court, reviewed the facts relating to the public liability policy and said:

"The insurers are obliged to investigate, to settle, to defend, and to pay. The stipulation of facts. . . reveals intensive activity in that regard. It is no answer to say, as Rosecliff does, that the insurers engage 'independent contractors' to perform contracts for them; the fact remains that the obligation is the insurer's to perform, and it is irrelevant to the subject of taxation whether they perform through employees or through individuals who, as to the insurers, have the status of contractors." 62

The other policies involved no such extensive activity on the insurer's part, but the Court noted that the adjuster came to the amusement park in connection with the fire loss, a practice which it observed would be normal, and concluded that "such acts within the State would themselves be enough to support the tax." Chief Justice Weintraub concluded:

“... Rosecliff is a New Jersey corporation, earns in this State the money with which it pays the premiums, draws its premium checks here, and . . . realistically, the policies are an integral part of the total business operation conducted in this State alone." 63

These decisions, as will be seen below when we apply the authorities to the operations of multistate banks, are among the forefront cases dealing with a business that presents many of the crucial questions involved in state taxation of banks, and they lend strong support to the constitutionality of state corporate net income and doing business taxes as applied to multistate banks.

62 245 A. 2d, at p. 325.

63 Idem, at p. 326.

2. Equipment leases as a basis for jurisdiction to levy income or ban

The ownership of real estate, inventory, or other tangible per Mat property located in a State, and used by a taxpayer in jog fender is voically made the basis for an income or brine

of ice States to tax income from real or personal movSA within their borders is well established." C

real estate located in a State, and from personal begry sinus in the State, at least if there used by the taxie tie are taxable. The conduct of a business in a State, e cÀ ship of real or personal property having a

location there, would this virrant the

business tax.

"There is nothing that this state does or provides which has a connection with that income as such and for which it can exact its tax, especially having already exacted its property tax for the protection of the plaintiff's income-producing property.

" 69

The Oregon Supreme Court rejected this view of the nexus requirement, saying:

"We cannot accept the lower court's concept of nexus necessary to sustain the constitutionality of the tax imposed upon plaintiff. We do not regard it as essential to the existence of a nexus that the taxpayer, through its agents, directly engage in some form of physical activity within the state in furtherance of a business purpose. The connection between the taxing state and the out-of-state taxpayer necessary to establish nexus is essentially an economic rather than a physical relationship.

"The nexus exists whenever the corporation takes advantage of the economic milieu within the state to realize a profit. The state is entitled to tax if the benefits it provides are a substantial economic factor in the production of the taxpayer's income. These benefits are found in the maintenance of conditions essential to the production or marketing of goods. They may be realized simply in the protection of the taxpayer's property used in the production of income.

Nexus may be found even where neither property nor personnel of the taxpayer is employed within the taxing state if it can be said that the state substantially contributes to the production of the taxpayer's income." 70

The holding of the Oregon Court that the presence of leased equipment in a State, used by the lessees in their business, affords a basis for imposing an income tax on the lessor, measured by the rentals, has the support of the Supreme Courts of Arkansas and Oklahoma," but a contrary decision has been reached in Kentucky.72 The question has not yet reached the Supreme Court of the United States.

3. The exploitation of a local market as a jurisdictional basis for imposing an income tax on an out-of-state corporation

The opinion in the Oregon case gives credence to the view that the exploitation of a local market by a corporation, not doing business in the State, establishes the constitutional power to impose an income tax, regardless of the presence or absence of employees, agents or property within the State. This general approach is likewise given some support by the opinions in the insurance premium tax cases. How far has the Supreme Court gone to accept or reject this viewpoint?

66

69 395 P. 2d, at pp. 129-130.

70 395 P. 2d, at pp. 130-131. The Court evoked the following comments from Professor Paul Hartman: Should not the exploitation of a state's markets for the capture of profits be enough for that state to demand something in return, thus satisfying the requisites of the due process clause? Several hundred travelling salesmen, no matter how avidly they hawk their wares, are not nearly as effective a 'nexus' for an exploitation or invasion of a consumer market as a Dinah Shore or a Pat Boone as they croon their sponsor's products into the hands of thousands of purchasers on interstate television and radio. Is the state of market to be denied a tax from either the out-of-state seller or the broadcasting company because the contacts of such out-of-state sellers and broadcasters are ethereal only? Or, should a well-known milk company be permitted to milk the consumer market with the sonorous singing of ballads by hillfolk and western singers without paying its tithe to the state of market on the ground that the interstate radio and television milking process is too ethereal?" Hartman, "State Taxation of Corporate Income from a Multistate Business", 13 Vanderbilt Law Review 21, 43 (1959).

71 Commissioner of Revenue v. Pacific Fruit Express Co., 227 Ark. 8, 296 S.W. 2d 676 (1957); Oklahoma Tax Comm. v. American Refrigerator Transit Co., 349 P. 2d 746 (Okla., 1960).

72 Kentucky Tax Comm. v. American Refrigerator Transit Co., 294 S.W. 2d 554 (Ky., 1956). The Georgia Court held the rentals not taxable on statutory grounds in Williams v. American Refrigerator Transit Co., 91 Ga. App. 522, 86 S.E. 2d 336 (1955).

The Court has had to deal with this general contention in a different tax area from that here under consideration-the duty of the interstate merchant to collect use taxes on sales made to persons residing in the taxing state. In National Bellas Hess v. Department of Revenue, a direct mail order merchandise house, a Delaware corporation, with its principal place of business in Kansas City, Missouri, solicited sales of its wares by catalogues and fliers sent by mail to residents of Illinois. It maintained no office, warehouse, or other place of business in Illinois, and owned no property there; it had no salesmen, representatives or other agents or employees in that State. All goods are mailed or sent by common carrier to the customer in Illinois from outside the State; all payments are made directly to National at its office in Kansas City. In considering National's contention that the imposition of the duty to collect the use tax would violate the Interstate Commerce or the Due Process Clause, the Court began by observing that the two claims are closely related " It pointed out that the earlier decisions sustaining the power of the States to make an interstate seller a use tax collecting agent had been cases in which the sales were arranged by local agents in the taxing State, or in which a mail order seller maintained local retail stores in the State. In those cases, said the Court, "the out-of-state seller was plainly accorded the protection and services of the taxing state." The farthest constitutional reach that the Court had approved up to that point was in Scripto, Inc. v. Carson, where independent contractors, as distinguished from employees there were 10 wholesalers, jobbers or salesmen-conducted continuous solicitation of orders within the State. To extend this duty to collect use taxes to the mail order business, in the absence of such employees or agents, or retail stores in the State, would, the Court held, unduly burden interstate commerce. It stated that the “resulting impediments upon the free conduct of interstate business would neither be imaginary nor remote," referring to the numerous local taxes, the variations in rates and exemptions, and the bookkeeping and filing of returns that would be required, which:

77

*** could entangle National's interstate business in a virtual welter of complicated obligations to local jurisdictions with no legitimate claim to impose ‘a fair share of the costs of the local government'. "The very purpose of the Commerce Clause was to ensure a national economy free from such unjustifiable local entanglements." 79

Using this Commerce Clause language, the Court held that the imposition of the duty to collect the tax was beyond the power of the State.

The dissent by Justice Fortas, joined in by Justices Black and Douglas, reflects the general point of view of the Oregon court and of

3356 U.S. 753 (1967).

***For the test whether a particular state exaction is such as to invade the exclusive authority of Congress to regulate trade between the States, and the test for a State's compliance with the requirements of due proeess in this area are similar. . . . As to the former, the Court has held that 'State taxation falling on interstate commerce... can only be justified as designed to make such commerce bear a fair share of the cost of the local government whose protection it enjoys'. Freeman v. Hewit. 32 U.S. 249, 253.... And in determining whether a state tax falls within the confines of the Due Process Clause, the Court has said that the 'simple but controling question is whether the state has given anything for which it can ask return'. Wisconsin v. J. C. Penney Co., 311 U.S. 435, 444". Compare Mr. Justice Rutledge's comments on the interrelations of the Commerce and Due Process clauses in International Harvester Co. v. Department of Treasury, 322 U.S. 340, 353 1044).

*General Trading Co. v. Tax Commission. 322 U.S. 335 (1944)

* Nelson v. Sears Roebuck & Co., 312 U.S. 35o (1941).

3 C.S.. at p. 757.

362 U.S. 207 (1960).

*386 U.S., at pp. 759-760.

80

some commentators, that the "large-scale, systematic, continuous. solicitation and exploitation of the consumer market is a sufficient 'nexus' " to permit a State to impose the duty to collect a use tax, and to warrant the levy of a tax on the income derived from the State in such market exploitation; and that neither the Commerce Clause nor the Due Process Clause debars that result.81

D. THE CONTOURS OF "INTRASTATE BUSINESS", THE JURISDICTIONAL

FOUNDATION FOR A DOING BUSINESS TAX

In the insurance premium and interstate selling cases considered above, the question as to whether the business being conducted within the taxing State was interstate or intrastate was not a central issue. The issue was whether there was a sufficient nexus to the State to satisfy the Due Process Clause.

We must now come to grips with the delimitation of the scope of interstate, as compared with intrastate, business. This distinction is of particular importance in the taxation of banks, because of its bearing on the taxation of income from Federal securities and the use of the securities themselves in the tax base.

The problem arises out of another conceptual distinction-some commentators have categorized it as "metaphysical"-between the subject and the measure of taxes. The States are debarred by the intergovernmental immunity doctrine and by Federal statute from applying their income taxes to the interest on Federal securities or from subjecting the securities to an ad valorem tax. 82 Nevertheless, the States may include in a net income measure of an excise, such as a doing business tax, the interest that Federal securities throw off, or, in a capital stock measure, the securities themselves.83

Because "banks hold a large proportion of their total assets in federal, state and local government bonds, the base of a direct income tax on banks is probably less than half as large as that of an excise tax on net earnings from all sources". 84 The result is that most States that tax banks with respect to their net income use excise taxes.5 Unless Congress should modify the existing rules of immunity, the question as to whether a multistate bank is doing an intrastate business within the taxing State can have a very significant effect on both State revenues from banks and the magnitude of the liability of individual multistate banks.

We therefore consider the scope of the "intrastate business" as it relates to banking activities. In approaching this matter, the conclusion reached above becomes relevant, namely, that once a foreign corporation is found to be engaging in a locally taxable activity, the tax

0 386 U.S., at pp. 760-766.

$1 See Hartman, op. cit., supra, Note 70.

82 Weston v. Charleston, 2 Pet. 449 (1829); 31 U.S.C. Sec. 742; see Pollock v. Farmers' Loan & Trust Co., 157 U.S. 429, 524 (1895); Thomas Reed Powell, "The Waning of Intergovernmental Tax Immunities", 58 Harvard Law Review 633 (1945), and "The Remnant of Intergovernmental Immunities", id., at p. 757 (1945).

83 Flint v. Stone Tracy Co., 220 U.S. 108 (1911); Plummer v. Cole, 178 U.S. 115 (1900); see Helvering v. Gerhardt, 304 U.S. 405, 418-419 (1938). For a list of States that currently impose taxes on, or measured by, net income, see Sally Hey, "Information and Opinions Supplied by State Bank Tax Administrators' Part III, Report of the Bank Tax Study, appendix 4, at pp. 74-89, 126, and 127.

84 See Samuel B. Chase, Jr., "State Taxation of Banks," 32 Law and Contemporary Problems (Winter 1967). Symposium on Banking: Part II. Developments in Banking, 149, 157; also the paper by Harvey E. Brazer and Marjorie C. Brazer, appendix 9, at pp. 399-414, supra.

85 See Chase, Note 84, supra, at p. 155.