Vanderbilt Law Review


John S. Bryant

First Page



Expanding concepts of the services that state governments should perform for their citizens have prompted within recent years entry by the states into fields of endeavor formerly left to private enterprise. Coupled with the upward spiral of the cost of goods and services, expanded responsibilities undertaken by the states have increased greatly the pressure on state taxing authorities to produce revenues sufficient to cover expenses of government. Beset by fiscal problems, the states have attempted to take maximum advantage of existing revenue sources and to tap new ones. Although sales and use taxes have been the primary source of state tax revenue in recent years,' the corporate income tax imposed by the majority of states' is supplying an increasingly significant annual contribution to governmental coffers. Characteristically, a state corporate income tax is a direct levy on net income derived from activities of the corporation within the taxing state. A state's right to impose such a tax on a domestic corporation traditionally has been based upon the rationale that the state has provided the corporate entity rights and privileges for which it rightfully may ask compensation. Problems have arisen, however, when states have attempted to extend their taxing jurisdictions beyond their physical boundaries, and a "tangled underbrush" of case law has addressed the question whether a state may impose a tax upon a foreign corporation engaged solely in interstate commerce within the taxing state.' The right of a state to impose a tax on income generated exclusively in interstate commerce accentuates a conflict fundamental in a federal system-the states' need to secure tax revenue is juxtaposed to the national interest in free trade and the absence of commercial barriers between the states.' Although taxing power is inherent in sovereign bodies, the states of the United States have divided their taxing power between the federal government and themselves. They delegated to the federal government the exclusive power to control interstate commerce when they gave Congress the right "[to regulate Commerce with foreign Nations, and among the several States ... .