Story Case

The Welke Oleomargarine Company maintained a central warehouse and office in Chicago, Illinois, and owned plants in Ontario, Canada, and Detroit, Michigan, manufacturing oleomargarine. On April first, 1915, the warehouse in Chicago contained $10,000 worth of products, prepared in ten-pound packages for sale and shipment to retail dealers. Two-thirds of this product had been shipped from Canada, and the balance from Detroit. The state tax assessor levied a tax upon the entire amount of butter, to which the Welke company objected, on the ground that the product remained interstate commerce, since it was in the original packages.

About the same time, the city of Chicago passed an ordinance prohibiting the sale of oleomargarine, unless the packages were labeled in bold letters running entirely across one side with the word "oleo." To this, the Welke Company likewise objected, maintaining that until a sale had been made by it, the product in the original package remained interstate commerce, free from any local restriction. In which contention, if any, is the company right?

Ruling Court Case. Tennessee Vs. Austin, Volume 179 United States Reports, Page 363

The legislature of the state of Tennessee passed an act providing that it should be a misdemeanor for any person, firm, or corporation to sell, offer to sell, or to bring into the state for the purpose of selling, cigarettes; and that a violation of the law should be regarded as a misdemeanor punishable by a fine of not less than $50.

Austin purchased from the American Tobacco Company, at its factory in Durham, North Carolina, a lot of cigarettes manufactured by that company. The cigarettes were in small pasteboard boxes, containing ten each. The lot of separate boxes was placed in a large basket and carried to Nashville, and a sale of a box was made. For this, Austin was indicted and convicted. He contends that his conviction is illegal. He urges that, as a person engaged in interstate commerce, he is entitled to sell any article once within any state, so long as the original package is not broken; that, so long as the article remains in the original package, the state cannot in any way regulate it until it has been once sold.

Mr. Justice Brown said: "The real question in this case is whether the size of the package in which the importation is actually made is to govern, or the size of the package in which bona fide transactions are carried on between the manufacturers and the wholesale dealers residing in different states. We hold to the latter view.

"Without undertaking to determine what is the proper size of an original package in each case, evidently the doctrine has no application when the manufacturer puts the package with the express intent of evading the laws of another state, and is enabled to carry out his purpose by the facile agency of an express company and the connivance of the consignee. The consequence of our adaption of Austin's contention would be far reaching and disastrous. For the purpose of aiding a manufacturer in evading the laws of a sister state, we should be compelled to recognize anything as an original package of beer from a hogshead to a vial; anything as a package from an importer's case to a single paper box of ten; or even a single cigarette, if imported separately and loosely; anything from a bale of merchandise to a single ribbon, provided only the dealer sees fit to purchase his stock outside the state and import it in minute quantities. If there be any original package at all in this case, we think it is the basket and not the paper box." Judgment was held that the conviction was legal.

Ruling Law. Story Case Answer

In determining the Story Case, one must take into consideration two clauses of the constitution. One: "no state, shall without the consent of Congress, lay-any imposts or duties on imports or exports;" the other: the interstate commerce clause forbidding discriminatory state taxation.

The word "imports," in the first, includes only such goods as are brought into a state from a foreign country. The second protects interstate shipments. Under the first, the importer has the right to bring an article into a state from a foreign land and sell it once in the original package before it is subject to state taxation. This clause does not cover interstate shipments. Therefore, in the Story Case, the assessor was wrong in levying a tax upon the oleomargarine brought from Canada. Also, a state may not tax an interstate shipment under the commerce clause. But the courts are not so strict in their interpretation of this law as they are the import law.

As to articles coming from another state, we have already learned that these cease to be interstate commerce, although the original package has not been broken, when the goods have reached their destination with the consignee or importer. Therefore, as to the tax assessment, the Welke company is not protected in its shipments from Detroit.

The Chicago city ordinance is a local police regulation, and as to this law, the interstate commerce provision protects the entire lot of goods. This law protects the right to send commodities into a state and sell it once in the original package before state police powers are effective. Therefore, since the product in the Story Case is all in the original package, shipped from without the state, the local ordinance is void.

This makes it necessary to determine what constitutes an original package. The case of Schollenberger vs. Pennsylvania, Volume 171 United States Reports, Page 20, involved ten-pound oleomargarine packages, and the court laid down the rule applicable: When the form, size, and weight is used by producers or shippers for the purpose of securing both convenience in handling and security in transportation of merchandise between dealers, in the ordinary course of actual commerce, and the said form, size and weight were adopted in good faith, and not for the purpose of evading state laws, the packages constitute original packages. It would seem, therefore, that the Welke company is protected as to the state tax with reference to that part of the oleomargarine brought in from Canada, and is protected as to the entire lot from the local police ordinance.