The state of Washington laid upon practically all persons engaged in intrastate business an occupation tax effective August 1, 1933, to continue for twenty-four months. The tax is measured by a percentage of the gross income solely of that business; and, as construed, purports not to tax the privilege of doing interstate business. The rate for telephone companies is 3 per cent.; for railroads, 1 1/2 per cent. Laws of Washington 1933, c. 191, p. 869. No. 544 is a suit by Pacific Telephone & Telegraph Company against the tax commission to enjoin proceedings to enforce the tax. No. 573 is an action by the state against Great Northern Railway to collect the tax for the period ending December 31, 1933. No. 529 is a like action against Northern Pacific Railway. Each company is a foreign corporation. The cases are here on appeals from the Supreme Court of the state and were argued together. Each presents the question whether the statute, as applied, is obnoxious to the commerce clause of the Federal Constitution (Const. art. 1, § 8, cl. 3). The railroads claim also that the statute violates the due process clause by taxing income earned outside the state. In each case the trial court held the statute void. The Supreme Court sustained its validity in all the cases. 48 P.(2d) 931; 48 P.(2d) 938.
None of the companies rests its challenge of the statute primarily upon proof that the tax, in fact, burdens interstate commerce. The telephone company relies wholly, and the railroads mainly, upon an alleged rule of law-the proposition that, when a foreign corporation engages within a state in both local and interstate commerce, an occupation tax laid upon the local business is necessarily void, unless the corporation is free in law and in fact to withdraw therefrom without discontinuing its interstate business. They urge that the alleged rule applies to them, claiming that inability to abandon the local business without also discontinuing the interstate is imposed by state and federal law, and arises also from practical considerations. They insist that the rule applies although the tax is not such in character or amount as to induce withdrawal from the local business. The railroads contend further that the tax, in fact, burdens interstate commerce.
The trial court found, and the Supreme Court assumed, that practical considerations would prevent either of the railroads from abandoning its intrastate business without also withdrawing from the interstate. And this was assumed to be true of the telephone company. The operations of the two classes of business are inextricably intertwined. In the main, they are carried on at the same time, by the same employees, with the same plant, equipment, and facilities. The interstate business is found profitable when carried on in connection with the local, because the expenses of the joint operation are, under applicable accounting rules, apportioned between the two branches of the business. Withdrawal from local business would reduce by but a small percentage each company's cost of operation. The remaining unavoidable exp nse would be heavier than the interstate business could bear under the existing rates or under any conceivable increase. Moreover, the trial court ruled, and the Supreme Court assumed, that the governing law would not permit these corporations to withdraw from local business without discontinuing also the interstate.
The state denies the existence of the alleged rule of law that an occupation tax upon intrastate business is necessarily void, if the corporation is not free to withdraw from the local business without discontinuing also the interstate. There is no denial that a tax upon the privilege of engaging in the local business is void if, by reason of its character or amount, it, in fact, imposes a direct burden upon interstate commerce. The state insists that this tax does not do so.