Syllabus. INTERNATIONAL HARVESTER CO. v. WISCONSIN DEPARTMENT OF TAXATION. NO. 620. APPEAL FROM THE SUPREME COURT OF Argued April 27, 1944.-Decided May 29, 1944. A statute of Wisconsin imposes a tax "for the privilege of declaring and receiving dividends" out of corporate income derived from property located and business transacted within the State, and requires corporations to deduct the tax from dividends distributed to both resident and nonresident stockholders. As assessed to the appellants (foreign corporations doing business within the State) the tax was measured by so much of their dividends as was derived from the portion of the corporate surplus attributed by the tax authorities to income earned in Wisconsin. Their dividends were declared at directors' meetings held outside the State, and the dividend checks were drawn on bank accounts outside the State. Held: 1. Appellants have standing to challenge the constitutionality of the statute. P. 440. Appellants can avoid payment of the tax from their own funds only by deducting it from their stockholders' dividends. In the latter case, they would remain liable, at least to the preferred stockholders, for the amounts of the deductions if not lawfully taken. In either aspect, therefore, appellants are adversely affected by obedience to the statute, and may challenge its constitutionality. 2. The tax is within the power of the State under the Federal Constitution. P. 441. (a) In determining whether a tax is within the State's constitutional power, this Court looks to the incidence of the tax and its practical operation, and not its characterization by the state courts. P. 441. (b) So long as the earnings are actually derived from corporate activity within the State, and their withdrawal from the State and *Together with No. 621, Minnesota Mining & Manufacturing Co. v. Wisconsin Department of Taxation, also on appeal from the Supreme Court of Wisconsin. Statement of the Case. 322 U.S. ultimate distribution, in whole or in part, to stockholders are subject to some state control, the conditions of state power to tax are satisfied. P. 443. (c) There is no constitutional obstacle either to the State's distributing the burden of the tax ratably among the stockholders, as the ultimate beneficiaries of the corporation's activities within the State and of the State's relinquishment of control over the Wisconsin earnings, so as to render the tax pro tanto one on the stockholders' income; or to the State's imposing on the corporation the duty of acting as its agent for the collection of the tax, by requiring deduction of the tax from earnings distributed as dividends. P. 441. (d) The power to tax the corporation's earnings within the State includes the power to postpone the tax until the distribution of those earnings, and to measure it by the amounts distributed. P. 441. (e) Residence of stockholders within the State is not essential to the constitutional levy of a tax taken out of so much of the corporation's Wisconsin earnings as is distributed to them. P. 441. (f) The constitutional validity of the tax is unaffected by the fact that the power of the corporation to declare dividends was created and exercised outside of the State. P. 443. (g) Wisconsin's jurisdiction to impose the tax is unaffected by the fact that the stockholders are not represented in the Wisconsin legislature. P. 443. (h) Connecticut General Ins. Co. v. Johnson, 303 U. S. 77, distinguished. P. 444. (i) This Court is concerned not with the wisdom or fairness of the tax but only with the power of the State to lay it. P. 444. 3. Though the dividends were paid in part from corporate surplus earned prior to the enactment of the tax statute, the taxable event-distribution of dividends from Wisconsin earnings occurred subsequently, and hence no question of retroactive application is involved. P. 445. 4. Whether the formula for assessing the tax was authorized by the statute is a question the decision of which by the state court is binding here. P. 445. 243 Wis. 198, 211, 10 N. W. 2d 169, 174, affirmed. APPEALS from the affirmance of judgments sustaining assessments of state taxes. 435 Opinion of the Court. Messrs. Ray M. Stroud and Edward R. Lewis, with whom Mr. John A. Kratz was on the brief, for appellant in No. 620; and Mr. G. Burgess Ela, with whom Mr. John L. Connolly was on the brief, for appellant in No. 621. Mr. Harold H. Persons, Assistant Attorney General of Wisconsin, with whom Mr. John E. Martin, Attorney General, and Mr. James Ward Rector, Deputy Attorney General, were on the brief, for appellee. MR. CHIEF JUSTICE STONE delivered the opinion of the Court. These cases come here on appeal under § 237 (a) of the Judicial Code, 28 U. S. C. § 344 (a), from judgments of the Supreme Court of Wisconsin, reviewing and sustaining assessments by appellee, the Wisconsin Department of Taxation, of the Wisconsin Privilege Dividend Tax imposed with respect to appellants, which are foreign corporations doing business in Wisconsin. 243 Wis. 198, 211. The appellants present again, but in a new aspect, the substance of the question decided in Wisconsin v. J. C. Penney Co., 311 U. S. 435. In that case we sustained the constitutionality, under the due process clause of the Fourteenth Amendment, of the Wisconsin Privilege Dividend Tax, § 3 of Ch. 505 of Wisconsin Laws of 1935 as amended by Ch. 552, Wisconsin Laws of 1935.1 The tax is imposed with respect to both foreign and domestic corporations doing business within the state "for the privilege of declaring and receiving dividends" out of income derived from property located and business transacted in the state. The payor corporation is required to deduct the tax from the dividends payable to both resident and nonresident stockholders. 1 The statute was re-enacted by § 3 of ch. 309 of Wis. Laws of 1937; § 1 of ch. 198 of Wis. Laws of 1939; § 3 of ch. 63 of Wis. Laws of 1941; and § 2 of ch. 367 of Wis. Laws of 1943. 435 Opinion of the Court. Wisconsin constitution, the state has no power to lay an income tax on citizens of other states, who are not doing business in Wisconsin, and that the tax is not on the income of the corporation. And in Wisconsin Gas Co. v. Department of Taxation, 243 Wis. 216, 10 N. W. 2d 140; cf. Blied v. Wisconsin Foundry Co., 243 Wis. 221, 10 N. W. 2d 142, the Court held that the burden of the tax is imposed upon the stockholders so that the corporation is not entitled to deduct the privilege tax from gross income as a business expense, in arriving at net taxable income under the state's income tax law. In the Wisconsin Gas Company case, supra, the Court said, at p. 220-1: "We are certain of three things: (1) That the burden of the tax is specifically laid upon the stockholder; (2) that the corporation declaring the dividend must deduct the tax from the dividend and may not under any circumstances treat the tax as a necessary expense of doing business [for state income tax purposes]; (3) that the power to levy the tax so construed was authoritatively established in the Penney case." From this, appellants argue that the state court has now conclusively declared that the tax is not on income of the corporation, but only on the stockholders' privilege of receiving dividends, and that it must be deducted from the dividends before their payment to the stockholders. Appellants renew the contentions urged in the Penney case that since the declarations of the dividends here in question were made outside the state and the non-resident stockholders received their dividends outside the state, the taxing statute as applied in these cases infringes due process by imposing the tax on stockholders and on activities and objects outside the territory of the State of Wisconsin, and consequently outside its legislative jurisdiction. Compare Connecticut General Ins. Co. v. Johnson, 303 U. S. 77. To this is added the further argument, not presented in the Penney case, that the tax violates the Four |