In this case, the Supreme Court struck down, under the Commerce Clause, Alabama’s franchise tax on foreign corporations. Under Alabama law, domestic corporations were required to pay tax equal to 1% of the par value of their stock, while foreign corporations were required to pay 0.3% of the value of "the actual amount of capital employed in Alabama."
As Alabama admitted, domestic corporations could set par value at whatever level they choose, thereby minimizing their tax liability, while foreign corporations were unable to do so because "the actual amount of capital employed in Alabama" included the value of various accounting items, such as long-term debt surplus, that had to be valued in accordance with generally accepted accounting principles. Consequently, it was undisputed that the average domestic corporation paid only one-fifth the franchise tax that would be assessed against a similarly situated foreign corporation.
Alabama argued that domestic corporations were also required to pay a property tax on shares of domestic stock, but the Court found that this tax was very different in nature from the franchise tax and that even with the addition of this tax, foreign corporations were still required to pay far more than domestic corporations. Consequently, the franchise tax discriminated against interstate commerce and was unconstitutional.