The power of taxation is exercised upon the assumption of an
equivalent rendered in the protection of the property and person of
the taxpayer, and if such equivalent cannot possibly be rendered
because the property taxed is wholly beyond the jurisdiction of the
taxing power, the taxation thereof within the domicil of the owner
amounts to a taking of property without due process of law.
While there may be individual cases where the weight of the tax
necessarily
Page 199 U. S. 195
falls unequally on account of special circumstances, the general
rule is that, in classifying property for taxation, some benefit to
the property taxed is a controlling consideration, and a plain
abuse of the power in this respect may justify judicial
interference.
The proper use of a legal fiction is to prevent injustice and
the maxim
mobilia sequuntur personam may only be resorted
to when convenience and justice so require. That doctrine does not
apply to tangible personal property permanently located in another
state where it is employed and protected, acquires a situs, and is
subject to be there taxed irrespective of the domicil of the owner,
and an attempt on the part of the state in which the owner is
domiciled to tax such property amounts to a deprivation of property
without due process of law within the purview of the Fourteenth
Amendment.
So
held in regard to the taxation of cars owned by a
transit refrigerating company and which were permanently employed
without the state in which the company was domiciled.
This proceeding was begun by a statement filed by the revenue
agent of the commonwealth in the Jefferson County court, praying
that certain personal property belonging to the plaintiff in error
be assessed for taxation for state, county, and municipal taxes,
and be also adjudged to pay a penalty of twenty percent on the
aggregate amount of the tax.
To this statement the transit company filed certain demurrers
and answers, upon which, and upon the deposition of the comptroller
of the company in St. Louis, Missouri, the case went to a hearing,
and resulted in a finding of facts that the transit company was the
owner of two thousand cars in September, 1897, 1898, 1899, and
1900, to which years the recovery was limited, of the value of $200
each; that its cars were employed by the company by renting them to
shippers, who took possession of them from time to time at
Milwaukee, Wisconsin, and used them for the carriage of freight in
the United States, Canada, and Mexico, the company being paid by
the railroads in proportion to the mileage made over their lines;
that the correct method of ascertaining the number of cars which
should be assessed for taxation was to ascertain and list such a
proportion of its cars as, under a system of averages upon their
gross earnings, were shown to be used in the State of Kentucky
during the fiscal year, the court finding by this method that
Page 199 U. S. 196
there were subject to assessment in Kentucky twenty-eight cars
for the year 1897, twenty-nine for the year 1898, forty for the
year 1899, and sixty-seven for 1900.
The court also found that the cars other than those mentioned
were not liable to assessment.
The order of the county court was affirmed by the circuit court,
and an appeal taken to the Court of Appeals of Kentucky, which
reversed the judgment of the court below, and found that the
company was liable to taxation upon its entire number of two
thousand cars, and directed the court below to enter judgment
against it for the taxes appropriate to this number. 26 Ky. 23.
To review this judgment this writ of error was sued out.
Page 199 U. S. 201
MR. JUSTICE BROWN delivered the opinion of the Court.
In this case, the question is directly presented whether a
corporation organized under the laws of Kentucky is subject to
taxation upon its tangible personal property permanently located in
other states, and employed there in the prosecution of its
business. Such taxation is charged to be a violation of the due
process of law clause of the Fourteenth Amendment.
Section 4020 of the Kentucky statutes, under which this
assessment was made, provides that
"all real and personal estate within this state, and all
personal estate of persons residing
Page 199 U. S. 202
in this state, and of all corporations organized under the laws
of this state, whether the property be in or out of this state, . .
. shall be subject to taxation unless the same be exempt from
taxation by the Constitution, and shall be assessed at its fair
cash value, estimated at the price it would bring at a fair
voluntary sale."
That the property taxed is within this description is beyond
controversy. The constitutionality of the section was attacked not
only upon the ground that it denied to the transit company due
process of law, but also the equal protection of the laws in the
fact that railroad companies were only taxed upon the value of
their rolling stock used within the state, which was determined by
the proportion which the number of miles of the railroad in the
state bears to the whole number of miles operated by the
company.
The power of taxation, indispensable to the existence of every
civilized government, is exercised upon the assumption of an
equivalent rendered to the taxpayer in the protection of his person
and property, in adding to the value of such property, or in the
creation and maintenance of public conveniences in which he shares
-- such, for instance, as roads, bridges, sidewalks, pavements, and
schools for the education of his children. If the taxing power be
in no position to render these services, or otherwise to benefit
the person or property taxed, and such property be wholly within
the taxing power of another state, to which it may be said to owe
an allegiance, and to which it looks for protection, the taxation
of such property within the domicil of the owner partakes rather of
the nature of an extortion than a tax, and has been repeatedly held
by this Court to be beyond the power of the legislature, and a
taking of property without due process of law.
Railroad
Company v. Jackson, 7 Wall. 262;
State Tax
on Foreign-Held Bonds, 15 Wall. 300;
Tappan v. Merchants' National
Bank, 19 Wall. 490,
86 U. S. 499;
Delaware &c. R. Co. v. Pennsylvania, 198 U.
S. 341,
198 U. S. 358.
In
Chicago &c. R. Co. v. Chicago, 166 U.
S. 226, it was held, after full consideration, that the
taking of private property
Page 199 U. S. 203
without compensation was a denial of due process within the
Fourteenth Amendment.
See also Davidson v. New Orleans,
96 U. S. 97,
96 U. S. 102;
Missouri Pacific Railway v. Nebraska, 164 U.
S. 403,
164 U. S. 417;
Mt. Hope Cemetery v. Boston, 158 Mass. 509, 519.
Most modern legislation upon this subject has been directed (1)
to the requirement that every citizen shall disclose the amount of
his property subject to taxation, and shall contribute in
proportion to such amount, and (2) to the avoidance of double
taxation. As said by Adam Smith in his Wealth of Nations, Book V.
Ch. 2, Pt. 2, p. 371:
"The subjects of every state ought to contribute towards the
support of the government as nearly as possible in proportion to
their respective abilities -- that is, in proportion to the revenue
which they respectively enjoy under the protection of the state.
The expense of government to the individuals of a great nation is
like the expense of management to the joint tenants of a great
estate, who are all obliged to contribute in proportion to their
respective interests in the estate. In the observation or neglect
of this maxim consists what is called the equality or inequality of
taxation."
But notwithstanding the rule of uniformity lying at the basis of
every just system of taxation, there are doubtless many individual
cases where the weight of a tax falls unequally upon the owners of
the property taxed. This is almost unavoidable under every system
of direct taxation. But the tax is not rendered illegal by such
discrimination. Thus, every citizen is bound to pay his proportion
of a school tax, though he have no children; of a police tax,
though he have no buildings or personal property to be guarded; or
of a road tax, though he never use the road. In other words, a
general tax cannot be dissected to show that, as to certain
constituent parts, the taxpayer receives no benefit. Even in case
of special assessments imposed for the improvement of property
within certain limits, the fact that it is extremely doubtful
whether a particular lot can receive any benefit from the
improvement does not invalidate the tax with respect to such lot.
Kelly v.
Pittsburgh,
Page 199 U. S. 204
104 U. S. 78;
Amesbury Nail Factory Co. v. Weed, 17 Mass. 53;
Thomas
v. Gay, 169 U. S. 264;
Louisville &c. R. Co. v. Barber Asphalt Paving Co.,
197 U. S. 430.
Subject to these individual exceptions, the rule is that, in
classifying property for taxation, some benefit to the property
taxed is a controlling consideration, and a plain abuse of this
power will sometimes justify a judicial interference.
Norwood
v. Baker, 172 U. S. 269. It
is often said protection and payment of taxes are correlative
obligations.
It is also essential to the validity of a tax that the property
shall be within the territorial jurisdiction of the taxing power.
Not only is the operation of state laws limited to persons and
property within the boundaries of the state, but property which is
wholly and exclusively within the jurisdiction of another state
receives none of the protection for which the tax is supposed to be
the compensation. This rule receives its most familiar illustration
in the cases of land, which, to be taxable, must be within the
limits of the state. Indeed, we know of no case where a legislature
has assumed to impose a tax upon land within the jurisdiction of
another state -- much less where such action has been defended by
any court. It is said by this Court in the
State Tax
on Foreign-Held Bonds Case, 15 Wall. 300,
82 U. S. 319,
that no adjudication should be necessary to establish so obvious a
proposition as that property lying beyond the jurisdiction of a
state is not a subject upon which her taxing power can be
legitimately exercised.
The argument against the taxability of land within the
jurisdiction of another state applies with equal cogency to
tangible personal property beyond the jurisdiction. It is not only
beyond the sovereignty of the taxing state, but does not and cannot
receive protection under its laws. True, a resident owner may
receive an income from such property, but the same may be said of
real estate within a foreign jurisdiction. Whatever be the rights
of the state with respect to the taxation of such income, it is
clearly beyond its power to tax the land from which the income is
derived. As we said in
Louisville
Page 199 U. S. 205
& J. Ferry Co. v. Kentucky, 188 U.
S. 385,
188 U. S.
396:
"While the mode, form, and extent of taxation are, speaking
generally, limited only by the wisdom of the legislature, that
power is limited by principle inhering in the very nature of
constitutional government -- namely, that the taxation imposed must
have relation to a subject within the jurisdiction of the taxing
government."
See also M'Culloch v.
Maryland, 4 Wheat. 316,
17 U. S. 429;
Hays v. Pacific Mail S.S.
Co., 17 How. 596,
58 U. S. 599;
St. Louis v. Wiggins Ferry
Co., 11 Wall. 423,
78 U. S. 429,
78 U. S. 431;
Morgan v.
Parham, 16 Wall. 471,
83 U. S.
476.
Respecting this, there is an obvious distinction between
tangible and intangible property in the fact that the latter is
held its existence or ownership can be ascertained its existence or
ownership can be ascertained in the state of its situs except,
perhaps, in the case of mortgages or shares of stock. So if the
owner be discovered, there is no way by which he can be reached by
process in a state other than that of his domicil, or the
collection of the tax otherwise enforced. In this class of cases,
the tendency of modern authorities is to apply the maxim
mobilia sequuntur personam and to hold that the property
may be taxed at the domicil of the owner as the real situs of the
debt, and also, more particularly in the case of mortgages, in the
state where the property is retained. Such have been the repeated
rulings of this Court.
Tappan v. Merchants' National
Bank, 19 Wall. 490;
Kirtland v. Hotchkiss,
100 U. S. 491;
Bonaparte v. Appeal Tax Court, 104 U.
S. 592;
Sturges v. Carter, 114 U.
S. 511;
Kidd v. Alabama, 188 U.
S. 730;
Blackstone v. Miller, 188 U.
S. 189.
If this occasionally results in double taxation, it much oftener
happens that this class of property escapes altogether. In the case
of intangible property, the law does not look for absolute
equality, but to the much more practical consideration of
collecting the tax upon such property either in the state of the
domicil or the situs. Of course, we do not enter into a
consideration of the question, so much discussed by political
economists, of the double taxation involved in taxing the property
from
Page 199 U. S. 206
which these securities arise, and also the burdens upon such
property, such as mortgages, shares of stock, and the like -- the
securities themselves.
The arguments in favor of the taxation of intangible property at
the domicil of the owner have no application to tangible property.
The fact that such property is visible, easily found, and difficult
to conceal, and the tax readily collectible is so cogent an
argument for its taxation at its situs that of late there is a
general consensus of opinion that it is taxable in the state where
it is permanently located and employed, and where it receives its
entire protection, irrespective of the domicil of the owner. We
have, ourselves, held in a number of cases that such property,
permanently located in a state other than that of its owner, is
taxable there.
Brown v. Houston, 114 U.
S. 622;
Coe v. Errol, 116 U.
S. 517;
Pullman's Car Co. v. Pennsylvania,
141 U. S. 18;
Western Union Telegraph Co. v. Massachusetts, 125 U.
S. 530;
Railroad Company v.
Peniston, 18 Wall. 5;
American Refrigerator
Transit Co. v. Hall, 174 U. S. 70;
Pittsburg Coal Co. v. Bates, 156 U.
S. 577;
Old Dominion Steamship Company v.
Virginia, 198 U. S. 299. We
have also held that if a corporation be engaged in running railroad
cars into, through, and out of the state, and having at all times a
large number of cars within the state, it may be taxed by taking as
the basis of assessment such proportion of its capital stock as the
number of miles of railroad over which its cars are run within the
state bears to the whole number of miles in all the states over
which its cars are run.
Pullman's Car Co. v. Pennsylvania,
141 U. S. 18.
There are doubtless cases in the state reports announcing the
principal that the ancient maxim of
mobilia sequuntur
personam still applies to personal property, and that it may
be taxed at the domicil of the owner, but upon examination they
all, or nearly all, relate to intangible property, such as stocks,
bonds, notes, and other choses in action. We are cited to none
applying this rule to tangible property, and, after a careful
examination, have not been able to find any wherein the
question
Page 199 U. S. 207
is squarely presented, unless it be that of
Wheaton v.
Mickel, 63 N.J.L. 525, where a resident of New Jersey was
taxed for certain coastwise and seagoing vessels located in
Pennsylvania. It did not appear, however, that they were
permanently located there. The case turned upon the construction of
a state statute, and the question of constitutionality was not
raised. If there are any other cases holding that the maxim applies
to tangible personal property, they are wholly exceptional, and
were decided at a time when personal property was comparatively of
small amount, and consisted principally of stocks in trade, horses,
cattle, vehicles, and vessels engaged in navigation. But, in view
of the enormous increase of such property since the introduction of
railways and the growth of manufactures, the tendency has been in
recent years to treat it as having a situs of its own for the
purpose of taxation, and correlatively to exempt at the domicil of
its owner. The cases in the state reports upon this subject usually
turn upon the construction of local statutes granting or
withholding the right to tax extraterritorial property, and do not
involve the constitutional principle here invoked. Many of them,
such, for instance, as
Blood v. Sayre, 17 Vt. 609;
Preston v. Boston, 12 Pick. 12;
Pease v. Whitney,
8 Mass. 93;
Gray v. Kettell, 12 Mass. 161, turn upon the
taxability of property where the owner is located in one, and the
property in another, of two jurisdictions within the same state,
sometimes even involving double taxation, and are not in point
here.
One of the most valuable of the state cases is that of
Hoyt
v. Commissioners of Taxes, 23 N.Y. 224, where, under the New
York statute, it was held that the tangible property of a resident
actually situated in another state or county was not to be included
in the assessment against him. The statute declared that "all lands
and all personal estate within this state" were liable for
taxation, and it was said in a most instructive opinion by Chief
Judge Comstock that the language could not be obscured by the
introduction of a legal fiction about the
Page 199 U. S. 208
situs of personal estate. It was said that this fiction involved
the necessary consequence that "goods and chattels actually within
this state are not here in any legal sense, or for any legal
purpose, if the owner resides abroad," and that the maxim
mobilia sequuntur personam may only be resorted to when
convenience and justice so require. The proper use of legal fiction
is to prevent injustice, according to the maxim "
in fictione
juris semper aequitas existit."
See Eidman v.
Martinez, 184 U. S. 581;
Blackstone v. Miller, 188 U. S. 189,
188 U. S. 206.
"No fiction," says Blackstone,
"shall extend to work an injury; its proper operation being to
prevent a mischief or remedy an inconvenience, that might result
from the general rule of law."
The opinion argues with great force against the injustice of
taxing extraterritorial property when it is also taxable in the
state where it is located. Similar cases to the same effect are
People v. Smith, 88 N.Y. 585;
New Albany v.
Meekin, 3 Ind. 481;
Wilkey v. Pekin, 19 Ill. 160;
Johnson v. Lexington, 14 B. Monroe 648;
Catlin v.
Nashua, 46 N.H. 389.
Bank v. Nashua, 46 N.H. 389.
In
Weaver v. State, 110 Ia. 328, it was held by the
Supreme Court of Iowa that a herd of cattle within the State of
Missouri, belonging to a resident of Iowa, was not subject to an
inheritance tax upon his decease. In
Commonwealth v. American
Dredging Company, 122 Pa. 386, it was held that a Pennsylvania
corporation was taxable in respect to certain dredges and other
similar vessels which were built, but not permanently retained,
outside of the state. It was said that the nontaxability of
tangible personal property located permanently outside of the state
was not
"because of the technical principle that the situs of personal
property is where the domicil of the owner is found. This rule is
doubtless true as to intangible property such as bonds, mortgages,
and other evidences of debt. But the better opinion seems to be
that it does not hold in the case of visible tangible personal
property permanently located in another state. In such cases, it is
taxable within the jurisdiction where found, and is exempt
Page 199 U. S. 209
at the domicil of the owner."
The property in that case, however, was held not to be
permanently outside of the state, and therefore not exempt from
taxation. The rule, however, seems to be well settled in
Pennsylvania that so much of the tangible property of a corporation
as is situated in another state, and there employed in its
corporate business, is not taxable in Pennsylvania.
Commonwealth v. Montgomery &c. Mining Co., 5 Pa.Co.Ct.
89;
Commonwealth v. Railroad Co., 145 Pa. 96;
Commonwealth v. Westinghouse Electric Mfg. Co., 151 Pa.
265;
Commonwealth v. Standard Oil Co., 101 Pa. 119. The
rule is the same in New York.
Pacific Steamship Company v.
Commissioners, 46 How.Pr. 315.
But there are two recent cases in this Court which we think
completely cover the question under consideration, and require the
reversal of the judgment of the state court. The first of these is
that of the
Louisville &c. Ferry Co. v. Kentucky,
188 U. S. 385.
That was an action to recover certain taxes imposed upon the
corporate franchise of the defendant company, which was organized
to establish and maintain a ferry between Kentucky and Indiana. The
defendant was also licensed by the State of Indiana. We held that
the fact that such franchise had been granted by the Commonwealth
of Kentucky did not bring within the jurisdiction of Kentucky, for
the purpose of taxation, the franchise granted to the same company
by Indiana, and which we held to be an incorporeal hereditament,
derived from and having its legal situs in that state. It was
adjudged that such taxation amounted to a deprivation of property
without due process of law in violation of the Fourteenth Amendment
-- as much so as if the state taxed the land owned by that company
-- and that the officers of the state had exceeded their power in
taxing the whole franchise without making a deduction for that
obtained from Indiana, the two being distinct, "although the
enjoyment of both are essential to a complete ferry right for the
transportation of persons and property across the river both
ways."
The other and more recent case is that of the
Delaware
&c.
Page 199 U. S. 210
Railroad Co. v. Pennsylvania, 198 U.
S. 341. That was an assessment upon the capital stock of
the railroad company, wherein it was contended that the assessor
should have deducted from the value of such stock certain coal
mined in Pennsylvania and owned by it, but stored in New York,
there awaiting sale, and beyond the jurisdiction of the
commonwealth at the time appraisement was made. This coal was
taxable, and in fact was taxed, in the state where it rested for
the purposes of sale at the time when the appraisement in question
was made. Both this Court and the Supreme Court of Pennsylvania had
held that a tax on the corporate stock is a tax on the assets of
the corporation issuing such stock. The two courts agreed in the
general proposition that tangible property permanently outside of
the state, and having no situs within the state, could not be
taxed. But they differed upon the question whether the coal
involved was permanently outside of the state. In delivering the
opinion, it was said:
"However temporary the stay of the coal might be in the
particular foreign states where it was resting at the time of the
appraisement, it was definitely and forever beyond the jurisdiction
of Pennsylvania. And it was within the jurisdiction of the foreign
states for purposes of taxation, and, in truth, it was there taxed.
We regard this tax as, in substance and in fact, though not in
form, a tax specifically levied upon the property of the
corporation, and part of that property is outside and beyond the
jurisdiction of the state which thus assumes to tax it."
The decision in that case was really broader than the exigencies
of the case under consideration required, as the tax was not upon
the personal property itself, but upon the capital stock of a
Pennsylvania corporation, a part of which stock was represented by
the coal, the value of which was held should have been
deducted.
The adoption of a general rule that tangible personal property
in other states may be taxed at the domicil of the owner involves
possibilities of an extremely serious character. Not only would it
authorize the taxation of furniture and other
Page 199 U. S. 211
property kept at country houses in other states or even in
foreign countries, of stocks of goods and merchandise kept at
branch establishments, when already taxed at the state of their
situs, but of that enormous mass of personal property belonging to
railways and other corporations, which might be taxed in the state
where they are incorporated, though their charter contemplated the
construction and operation of roads wholly outside the state, and
sometimes across the continent, and when in no other particular
they are subject to its laws and entitled to its protection. The
propriety of such incorporations, where no business is done within
the state, is open to grave doubt, but it is possible that
legislation alone can furnish a remedy.
Our conclusion upon this branch of the case renders it
unnecessary to decide the second question --
viz., whether
the transit company was denied the equal protection of the
laws.
It is unnecessary to say that this case does not involve the
question of the taxation of intangible personal property, or of
inheritance or succession taxes, or of questions arising between
different municipalities or taxing districts within the same state,
which are controlled by different considerations.
We are of opinion that the cars in question, so far as they were
located and employed in other states than Kentucky, were not
subject to the taxing power of that commonwealth, and that the
judgment of the Court of Appeals must be reversed, and the case
remanded to that court for further proceedings not inconsistent
with this opinion.
MR. JUSTICE WHITE concurred in the result.
MR. JUSTICE HOLMES:
It seems to me that the result reached by the Court probably is
a desirable one, but I hardly understand how it can be deduced from
the Fourteenth Amendment, and as the CHIEF JUSTICE feels the same
difficulty, I think it proper to say that my doubt has not been
removed.