Equal protection of the laws means subjection to equal laws
applying alike to all in the same situation.
A corporation is a person within the meaning of the equal
protection provision of the Fourteenth Amendment.
A corporation which comes into a state other than that in which
it is created, pays taxes thereto and acquires property and carries
on business therein, is within the jurisdiction of that state, and,
under the Fourteenth Amendment, entitled to protection against any
statute of that state that denies to it the equal protection of the
laws.
Arbitrary selection cannot be justified by calling it
classification in the absence of real distinction on a substantial
basis, and a classification for taxation that divides corporations
doing exactly the same business with the same kind of property into
foreign and domestic is arbitrary and a denial of equal protection
of the laws.
Whatever power a state may have to exclude or determine the
terms of the admission of foreign corporations not already within
its borders, it cannot subject a foreign corporation which has
already come into the state in compliance with its laws and has
acquired property of a fixed and permanent nature to a new and
additional franchise tax for the privilege of doing business which
is not imposed upon domestic corporations. It would be an
unconstitutional denial of equal protection of the laws under the
Fourteenth Amendment, and so held as to the franchise tax on
foreign corporations of Alabama of 1907.
49 So. 404 reversed.
Action was brought in the City Court of Birmingham, Alabama, by
the Southern Railway Company to recover the sum of $22,458.36, for
so much money received by the defendant as judge of the Probate
Court of Jefferson County, Alabama, which sum the plaintiff claimed
was wrongfully exacted from
Page 216 U. S. 401
it under the provisions of the Act of March 7, 1907. This sum is
the amount taxed against the Southern Railway Company under the
said legislative act, and, under the practice in Alabama, if
illegally exacted, it may be recovered.
This act is found in the Code of Alabama of 1907, vol. 1, page
986, §§ 2391 to 2400, inclusive. It provides for the payment of an
annual franchise tax to the probate judge by every foreign
corporation authorized to do business within the state, in which it
has a resident agent, with certain exceptions, for the use of the
state, upon the actual amount of the capital stock employed by it
in the state; in the amount of $25 on the first $100, 5% on the
next $900, and one-tenth of 1% on all the remaining amount of
capital so employed.
Provision is made for the assessment of the tax by proceedings
before the probate judge, with an appeal to the circuit court in
certain cases. The statute enacts that no foreign corporation
required to pay a tax under this statute shall do any business in
the State of Alabama not constituting interstate commerce, or
maintain or commence any action in any of the courts of the state,
upon contracts made in the state other than contracts based upon
interstate commerce, unless such corporation shall have paid said
tax within sixty days after the same shall have become due. The
payment of the tax in one county shall be sufficient
notwithstanding the corporation shall do business or have a
resident agent in more than one county.
The payment of the franchise tax required by this statute does
not exempt any corporation paying the same from payment of the
regular license or privilege tax specified or required for engaging
in or carrying on business, the license for which is required from
individuals, firms, or corporations. In addition to the amount of
the franchise tax required to be paid to the state, such foreign
corporation shall pay to the county, for the use of the county, an
amount equal to one-half of the amount paid by it to the state.
Loans of money upon which a mortgage tax is paid are deducted from
capital employed
Page 216 U. S. 402
in the state upon which there shall be paid the recording
privilege tax required by law.
The complaint averred that the act is unconstitutional and void,
as it impaired the obligation of a contract between the plaintiff
and the State of Alabama, and in that it deprived the plaintiff of
its property without due process of law, and denied to it the equal
protection of the laws.
Plaintiff averred that it is a corporation created under the
laws of the State of Virginia, and as such authorized to lease,
use, operate, and acquire any railroad or transportation company,
then or thereafter incorporated by the laws of the United States,
or any of the states thereof. That it thus organized, in February,
1894, and has since carried on the business of acquiring, owning,
and operating lines of railroads in various states, and conducting
interstate and intrastate transportation of persons and property.
That, in conformity with the laws of the State of Alabama, on July
16, 1894, it filed in the office of the Secretary of State a copy
of its charter, and designated an agent upon whom service could be
made, and that at the same time, it paid to the Treasurer of the
State of Alabama the sum of $250, being the sum required as a
license fee for beginning business in the state. It avers that,
after thus complying with the laws of Alabama, it commenced
carrying on its authorized business within the state, and has
therein carried on the same business ever since; that between the
time of entering the state as aforesaid and the year 1899, it
purchased and acquired, as permitted and authorized by the laws of
Alabama, various lines of railroad and the franchises under which
they had been built and operated, which lines are connected with,
and continuous with, other lines owned by the plaintiff.
The complaint states that these lines of railroad situated in
the State of Alabama had been theretofore constructed under its
laws by duly authorized corporations, and the complaint contains a
list of such lines; that it acquired said lines, paying large sums
of money therefor, in pursuance of and reliance
Page 216 U. S. 403
upon the laws of the State of Alabama, that, since such
acquisition, it has continued to operate such lines of railroad,
transacting a large amount of business thereon, both interstate and
intrastate, and has expended large sums of money in the maintenance
and improvement thereof.
Plaintiff avers that, from time to time, ownership taxes,
similar to those assessed against other persons and corporations,
have been assessed against it, all of which the plaintiff has paid.
It has also paid from year to year the license tax exacted of it
and other persons and corporations operating railroads in the State
of Alabama under § 3489 of the Code of Alabama of 1896, under §
1128 of the Code of Alabama of 1886. It has also paid on account of
its ownership of such railroad, taxes assessed against it under the
Act of March 7, 1897, taxing the franchises or intangible property,
in the state, of every person and corporation engaged in
transporting persons or property over any railroad therein. It has
also paid the license fee, and has procured the license provided
for by the act of the Legislature of the State of Alabama, approved
March 7, 1907, entitled
"An Act to Further Regulate the Doing of Business in Alabama by
Foreign or Nonresident Corporations, or Corporations Organized
under or by Authority of the Law of Any Other state or government
than the Alabama, and to Fix a Punishment for the Violation
Thereof."
Plaintiff states that all these exactions have been made by the
State of Alabama upon corporations owning and operating railroads
in Alabama without regard to whether the corporation owning and
operating such railroad was a domestic corporation or a corporation
organized under the laws of some other state, with the sole
exception of the license fee last above mentioned, which is a
nominal amount ($10 per annum), is exacted from foreign
corporations only, for mere police purposes, in order that there
may be a registration of such foreign corporations, doing business
in Alabama, in the office of the Secretary of State. Plaintiff
avers that the legislative act of March 7, 1907, under which it was
compelled to pay the said sum of
Page 216 U. S. 404
$22,458.36, does not apply to persons or corporations of the
State of Alabama owning the same character of property and carrying
on the same kind of business as is owned and carried on by
corporations organized under the laws of other states, nor is there
any similar exaction against domestic corporations owning such
property and engaged in the same character of business.
Plaintiff recites the proceedings before the Probate Judge of
Jefferson County, resulting in the finding that the capital of the
plaintiff employed in the State of Alabama was $14,903,246, and the
assessment thereon of the tax of $22,458.36, as aforesaid, its
payment under protest, and prays judgment for its recovery. A
demurrer to the complaint was sustained and judgment rendered for
defendant. Upon appeal, the Supreme Court of Alabama affirmed the
judgment. 49 So. 404.
Page 216 U. S. 411
MR. JUSTICE DAY delivered the opinion of the Court.
The Supreme Court of Alabama placed its decision upon the ground
that the Act of March 7, 1907, should be sustained as a lawful tax,
not upon the franchises of a foreign corporation, as property, but
as a tax "to add to the license tax already required an additional
privilege tax for the continued exercise of the corporate
franchises in the state." 49 So. 408.
The errors assigned attack the validity of the Act of March 7,
1907, upon grounds, among others, that it violates the Fourteenth
Amendment of the federal Constitution in that it denies to the
plaintiff the equal protection of the laws and deprives it of its
property without due process of law.
The Fourteenth Amendment provides that
"No state shall make or enforce any law which shall abridge the
privileges or immunities of citizens of the United States; nor
shall any state deprive any person of life, liberty, or property,
without due process of law; nor deny to any person within its
jurisdiction the equal protection of the laws. "
Page 216 U. S. 412
The important federal question for our determination in this
case is, when a corporation of another state has come into the
taxing state, in compliance with its laws, and has therein acquired
property of a fixed and permanent nature upon which it has paid all
taxes levied by the state, is it liable to a new and additional
franchise tax for the privilege of doing business within the state,
which tax is not imposed upon domestic corporations doing business
in the state of the same character as that in which the foreign
corporation is itself engaged?
The federal Constitution, it is only elementary to say, is the
supreme law of the land, and all its applicable provisions are
binding upon all within the territory of the United States.
Whenever its protection is invoked, the courts of the United
States, both state and federal, are bound to see that rights
guaranteed by the federal Constitution are not violated by
legislation of the state. One of the provisions of the Fourteenth
Amendment thus binding upon every state of the federal Union
prevents any state from denying to any person or persons within its
jurisdiction the equal protection of the laws. If this statute, as
it is interpreted and sought to be enforced in the State of
Alabama, deprives the plaintiff of the equal protection of the
laws, it cannot stand.
The equal protection of the laws means subjection to equal laws,
applying alike to all in the same situation. If the plaintiff is a
person within the jurisdiction of the State of Alabama within the
meaning of the Fourteenth Amendment, it is entitled to stand before
the law upon equal terms, to enjoy the same rights as belong to,
and to bear the same burdens as are imposed upon, other persons in
a like situation.
That a corporation is a person within the meaning of the
Fourteenth Amendment is no longer open to discussion. This point
was decided in
Pembina Mining Co. v. Pennsylvania,
125 U. S. 181,
wherein this Court declared:
"The inhibition of the Amendment that no state shall deprive any
person within its jurisdiction of the equal protection
Page 216 U. S. 413
of the laws was designed to prevent any person or class of
persons from being singled out as a special subject for
discriminating and hostile legislation. Under the designation of
'person' there is no doubt that a private corporation is
included."
And see Gulf, Colorado & Santa Fe Ry. Co. v. Ellis,
165 U. S. 150, and
cases cited on p.
165 U. S.
154.
Is the plaintiff corporation a person within the jurisdiction of
the State of Alabama? In the present case, the plaintiff is taxed
because it is doing business within the State of Alabama. The
averments of the complaint, admitted by the demurrer, show it has
acquired a large amount of railroad property by authority of, and
in compliance with, the laws of the state; that it is subject to
the jurisdiction of the courts of the state; that it has paid taxes
upon its property, and also upon its franchises within the state;
in short, that it came into the state in compliance with its laws,
and at the time of the imposition of the tax in question, had been
for many years carrying on business therein under the laws of the
state. We can have no doubt that a corporation thus situated is
within the jurisdiction of the state.
Blake v. McClung,
172 U. S. 239.
The argument on the part of the State of Alabama places much
weight upon the cases in this Court which have sustained the right
of the state to exclude a foreign corporation from its borders and
to impose conditions upon the entry of such corporations into the
state for the purpose of carrying on business therein. That line of
cases has been so amply discussed in the opinions and concurring
opinions in the cases of
Western Union Telegraph Co. v.
Kansas and
Pullman Co. v. Kansas, decided at the
present term,
ante, pp.
216 U. S. 1,
216 U. S. 56, that
any extended discussion of them is superfluous now. It is
sufficient for the present purpose to say that we are not dealing
with a corporation seeking admission to the State of Alabama, nor
with one which has a limited license, which it seeks to renew, to
do business in that state; nor with one which has come into the
state upon conditions which it has since violated. In the case at
bar, we have a corporation which has come into and is doing
business
Page 216 U. S. 414
within the State of Alabama with the permission of the state and
under the sanction of its laws, and has established therein a
business of a permanent character, requiring for its prosecution a
large amount of fixed and permanent property, which the foreign
corporation has acquired under the permission and sanction of the
laws of the state. This feature of the case was dealt with by MR.
JUSTICE BREWER, then a circuit judge, in the case of
Ames v.
Union Pacific R. Co., 64 F. 165, 177, wherein he said:
"It must always be borne in mind that property put into railroad
transportation is put there permanently. It cannot be withdrawn at
the pleasure of the investors. Railroads are not like stages or
steamboats, which, if furnishing no profit at one place, and under
one prescribed rate of transportation, can be taken elsewhere and
put to use at other places and under other circumstances. The
railroad must stay, and, as a permanent investment, its value to
its owners may not be destroyed. The protection of property implies
the protection of its value."
Notwithstanding the ample discussion of the questions involved
in the case of
Western Union Telegraph Co. v. Kansas and
Pullman Co. v. Kansas, to which we have already referred,
we deem it only fair to the learned counsel for the State of
Alabama to notice some of the cases which it is insisted have
disposed of the question herein involved, and maintained the right
of the state to impose a tax upon a foreign corporation, lawfully
within the state, for the privilege of doing business in the state,
when no such tax, or one less burdensome, is imposed upon domestic
corporations engaged in the same business. The first case referred
to is
Ducat v.
Chicago, 10 Wall. 410, in which a tax was sustained
upon a foreign insurance company which had come into the state upon
complying with certain terms prescribed by the state, and was
thereafter subjected to a tax on all their premiums, the statute
declaring it unlawful in the companies otherwise to do business in
the state. It is sufficient to say of that case
Page 216 U. S. 415
that it arose before the Fourteenth Amendment had become part of
the federal Constitution, and that no reference is made in the
opinion of the court to the Fourteenth Amendment, although the case
was decided after that Amendment went into effect.
In
New York v. Roberts, 171
U. S. 662, a tax was imposed upon the franchises or
business of corporations, with certain exceptions, computed upon
the amount of capital stock employed within the state. It was
pointed out by Mr. Justice Shiras, who delivered the opinion of the
Court, that the tax was imposed as well for New York corporations
as for those of other states, and he said:
"So that it is apparent that there is no purpose disclosed in
the statute either to distinguish between New York corporations and
those of other states, to the detriment of the latter, or to
subject property out of the state to taxation."
In
Horn Silver Mining Company v. New York, 143 U.
S. 305, the tax imposed was applicable alike to
corporations doing business in New York, whether organized in that
state or not, and, in the course of the opinion in the case, Mr.
Justice Field, speaking for the Court, said: "It does not lie in
any foreign corporation to complain that it is subjected to the
same law with the domestic corporation."
In
Fire Association v. New York, 119 U.
S. 110, a Pennsylvania corporation which was taxed in
the State of New York was subjected to a license fee, which license
ran for a period of a year, and it was held that the state had the
power to change the conditions of admission to the state, and to
impose as a condition of doing business in the state at any time or
for the future, the payment of a new or further tax. Mr. Justice
Blatchford, speaking for the Court, said:
"If it imposes such license fee as a prerequisite for the
future, the foreign corporation, until it pays such license fee, is
not admitted within the state, or within its jurisdiction. It is
outside at the threshold, seeking admission, with consent not yet
given."
We have adverted to these cases with a view of showing that
Page 216 U. S. 416
the precise point involved herein is not concluded by any of
them. It would not be frank to say that there is not much said in
the opinions in those cases which justifies the argument that the
power of the state to exclude a foreign corporation, not engaged in
interstate commerce, authorizes the imposition of special and
peculiar taxation upon such corporations as a condition of doing
business within the state. But none of the cases relied upon
presents the question under the conditions obtaining in the case at
bar. We have here a foreign corporation within a state, in
compliance with the laws of the state, which has lawfully acquired
a large amount of permanent and valuable property therein, and
which is taxed by a discriminating method, not employed as to
domestic corporations of the same kind, carrying on a precisely
similar business.
As we have already indicated, the discussion of the question
herein involved has largely been anticipated in the recent cases
from Kansas, involving the right to tax the Western Union Telegraph
Company and the Pullman Company. Those cases are the latest
declaration of this Court upon the subject, and in one aspect of
them really involve the determination of the case at bar. In the
Western Union Telegraph case, it was held that a state could not
impose a tax upon an interstate commerce corporation as a condition
of its right to do domestic business within the state, which tax
included within its scope the entire capital of the corporation,
without as well as within the borders of the state. The Kansas tax
was sought to be sustained as a legal exaction for the privilege of
doing domestic business within the state. It was held invalid
because it violated the right secured by the Constitution of the
United States, giving to Congress the exclusive power to regulate
interstate commerce, and because it violated the due process clause
of the federal Constitution in undertaking to make the payment of a
tax upon property beyond the borders of the state a condition of
doing domestic business within the state. In that case, the
Fourteenth Amendment was directly applied in the due process
feature. In this case, we have an
Page 216 U. S. 417
application of the same Amendment, asserting the equal
protection of the laws.
We therefore reach the conclusion that the corporation
plaintiff, under the conditions which we have detailed, is, within
the meaning of the Fourteenth Amendment, a person within the
jurisdiction of the State of Alabama, and entitled to be protected
against any statute of the state which deprives it of the equal
protection of the laws.
It remains to consider the argument made on behalf of the State
of Alabama that the statute is justified as an exercise of the
right of classification of the subjects of taxation, which has been
held to be entirely consistent with the equal protection of the
laws guaranteed by the Fourteenth Amendment. It is argued that the
imposition of special taxes upon foreign corporations for the
privilege of doing business within the state is sufficient to
justify such different taxation because the tax imposed is
different, in that the one imposed on the domestic corporation is
for the privilege of being a corporation, whereas the one on the
foreign corporation is for the privilege of such corporation to do
business within the state. While reasonable classification is
permitted, without doing violence to the equal protection of the
laws, such classification must be based upon some real and
substantial distinction, bearing a reasonable and just relation to
the things in respect to which such classification is imposed, and
classification cannot be arbitrarily made without any substantial
basis. Arbitrary selection, it has been said, cannot be justified
by calling it classification.
Gulf, Colorado & Santa Fe Ry.
Co. v. Ellis, 165 U. S. 150,
165 U. S. 155,
165 U. S. 165;
Cotting v. Kansas City Stock Yards Co., 183 U. S.
79;
Connolly v. Union Sewer Pipe Co.,
184 U. S. 540,
184 U. S.
559.
It is averred in the complaint, and must be taken as admitted,
that there are other corporations of a domestic character in
Alabama, carrying on the railroad business in precisely the same
way as the plaintiff. It would be a fanciful distinction to say
that there is any real difference in the burden imposed because the
one is taxed for the privilege of a foreign
Page 216 U. S. 418
corporation to do business in the state, and the other for the
right to be a corporation. The fact is that both corporations do
the same business in character and kind, and under the statute in
question a foreign corporation may be taxed many thousands of
dollars for the privilege of doing, within the state, exactly the
same business as the domestic corporation is permitted to do by a
tax upon its privilege, amounting to only a few hundred dollars. We
hold, therefore, that to tax the foreign corporation for carrying
on business under the circumstances shown, by a different and much
more onerous rule than is used in taxing domestic corporations for
the same privilege, is a denial of the equal protection of the
laws, and the plaintiff being in position to invoke the protection
of the Fourteenth Amendment, that such attempted taxation under a
statute of the state does violence to the federal Constitution.
The judgment of the Supreme Court of Alabama is therefore
reversed, and the case remanded to that court for further
proceedings not inconsistent with this opinion.
Reversed.
Dissenting: THE CHIEF JUSTICE, MR. JUSTICE McKENNA, and MR.
JUSTICE HOLMES.
