Fulton Corp. v. Faulkner, 516 U.S. 325 (1996)

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OCTOBER TERM, 1995

Syllabus

FULTON CORP. v. FAULKNER, SECRETARY OF REVENUE OF NORTH CAROLINA

certiorari to the supreme court of north carolina

No. 94-1239. Argued October 31, 1995—Decided February 21, 1996

During the period in question here, North Carolina levied an "intangibles tax" on a fraction of the value of corporate stock owned by state residents inversely proportional to the corporation's exposure to the State's income tax. Petitioner Fulton Corporation, a North Carolina company, filed a state-court action against respondent State Secretary of Revenue, seeking a declaratory judgment that this tax violated the Commerce Clause and a refund of the 1990 tax it had paid on stock it owned in out-of-state corporations that did only part or none of their business in the State. The trial court ruled for the Secretary, but the Court of Appeals reversed. In reversing the Court of Appeals, the North Carolina Supreme Court found that the State's scheme imposed a valid compensatory tax under Darnell v. Indiana, 226 U. S. 390. It thus rejected Fulton's contention that Darnell had been overruled by this Court's more recent decisions and found that the intangibles tax imposed less of a burden on interstate commerce than the corporate income tax placed on intrastate commerce.

Held: North Carolina's intangibles tax discriminates against interstate commerce in violation of the dormant Commerce Clause. Pp. 330-347. (a) State laws discriminating against interstate commerce on their face are "virtually per se invalid." Oregon Waste Systems, Inc. v. Department of Environmental Quality of Ore., 511 U. S. 93, 99. However, a facially discriminatory tax may survive Commerce Clause scrutiny if it is a truly " 'compensatory tax' designed simply to make interstate commerce bear a burden already borne by intrastate commerce." Associated Industries of Mo. v. Lohman, 511 U. S. 641, 647. The tax at issue is clearly facially discriminatory, and therefore it must meet three conditions to be considered a valid compensatory tax, see Oregon Waste, supra, at 103. The Secretary has failed to show that the tax satisfies any of the requirements. Pp. 330-334. (b) To meet the first condition, a State must identify the intrastate tax burden for which it is attempting to compensate, Oregon Waste, supra, at 103, and the intrastate tax must serve some purpose for which the State may otherwise impose a burden on interstate commerce. See Maryland v. Louisiana, 451 U. S. 725, 759. The Secretary claims that the intangibles tax compensates for the burden of the general corporate

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