In determining whether a state tax on earnings is
constitutional, this Court is bound by the decision of the state
court as to what classes of earnings are included in estimating the
earnings to be taxed.
A state may tax property within the state although it is used in
interstate commerce.
A state may not burden interstate commerce by taxing its
commerce, but it may measure the value of property of a corporation
engaged in interstate commerce within the state by the gross
receipts, and impose a tax thereon if the same is in lieu of all
taxes upon the property of such corporation.
Oklahoma v. Wells,
Fargo & Co., ante, p.
223 U. S. 298,
distinguished.
It is difficult at times, to draw the line between state taxes
that are unconstitutional as burdening interstate commerce and a
legitimate property tax measured in part by income from interstate
commerce. While the determination by the state court that a tax so
measured is a property tax is not binding on this Court, in this
case, this Court will not say that the conclusion is not well
founded.
The Minnesota statutes, Revised Laws, 1905, Chapter 11, taxing
express companies on their property employed within the state six
percent of the gross receipts in lieu of all other taxes is an
exercise in good faith of legitimate taxing power, and is not an
unconstitutional burden upon interstate commerce.
The facts, which involve the constitutionality of a statute of
the State of Minnesota taxing express companies, are stated in the
opinion.
Page 223 U. S. 338
MR. JUSTICE DAY delivered the opinion of the Court.
This is a writ of error to the Supreme Court of the State of
Minnesota, bringing in review a judgment of that court sustaining a
tax assessed against the United States Express Company. 114 Minn.
346
The express company is an unincorporated association, with its
principal office in the State of New York, engaged in the express
business in the United States. The business is carried on under
contracts between the company and railroads for the transportation
by the railroad companies of goods forwarded by the express company
upon the payment by the express company, as compensation for such
service, of a certain percentage of the gross receipts of the
express company, derived from the business carried over the lines
of the railroads. Under such contracts, the company is engaged in
carrying on express business over many lines of railroads in the
United States, amounting in the aggregate to some 30,000 miles of
road. It carries on express business in this manner in the State of
Minnesota upon the Chicago, Rock Island & Pacific Railway,
Duluth & Iron Range Railroad, and, for a time, the Chicago,
Milwaukee & St. Paul Railway. The company has offices in many
states, the District of Columbia and Canada, and in various
European countries. It has about fifty offices in the State of
Minnesota.
The law in question (Revised Laws of Minnesota 1905, chapter 11)
provides for the taxation of express companies. Section 1013 of the
act requires every express
Page 223 U. S. 339
company doing business in the state, between January 1 and
February 1, to file with the state auditor, in such form as he may
prescribe, a statement, duly verified, showing the entire receipts,
including all sums earned or charged, whether received or not, for
business done within the state, including its proportion of gross
receipts for business done in the state by such company in
connection with other companies. The statement must further show
the amount actually paid by such express company to the railroads
within the state for the transportation of its freight for the
year, giving the amount paid to each railroad company, and also
show the entire receipts of the company for business done within
the state, including its proportion of gross receipts for business
done within the state in connection with other companies, after
deducting the amounts paid for transportation to railroads within
the state. Section 1015 provides that the auditor shall annually,
between March 1 and April 1, ascertain the gross receipts of such
company by deducting the sums thus annually paid by it for the
transportation of freight within the state from its entire receipts
for business done in the state, including its proportion for
business done within the state in connection with other
companies.
Section 1019 provides that annually, on or before March 15, the
auditor shall assess upon each company a tax of six percent upon
its gross receipts for business done in the state for the preceding
calendar year, as determined by the auditor, which shall be in lieu
of all taxes upon its property, and shall deliver to the state
treasurer for collection a draft upon the company for such sum.
The action was brought by the State of Minnesota to recover
certain items which it was claimed were omitted from the returns of
the express company, and which were properly the subject of
taxation under the statute. Under the stipulated facts, these
items, embraced in paragraph 3 of complaint, schedule No. 1,
consist of:
Page 223 U. S. 340
"Earnings of $54,209.19, constituting earnings on express
business for the years 1899 to 1908, inclusive, which express
business was made up entirely of shipments delivered by the shipper
to an express company in the State of Minnesota, consigned to an
ultimate consignee at a second point in the State of Minnesota,
which shipments were forwarded by express between the point of
origin and point of destination over lines of railroad, which lines
were partly within and partly without the State of Minnesota. That
is to say, all of these shipments necessarily passed out of the
State of Minnesota in transit. Said amount, namely, $54,209.19, is
based upon the total earnings on said shipments, and is not that
part of said earnings apportionable to the transportation which was
performed within the State of Minnesota. In arriving at said
amount, the total earnings received by the express company upon
said shipments have been taken, regardless of what proportion of
the through carry was performed within the State of Minnesota.
About 91 percent of the mileage under this item is within
Minnesota."
Alleged omitted earnings on which back taxes were claimed under
paragraph 3 of complaint, schedule No. 2, such omitted earnings
amounting to $9,702.89, on which back taxes were claimed of
$504.47, were made up as follows:
"Earnings derived by the company from the following express
shipments: (a) Shipments received by an express company from a
shipper at a point of origin outside of the State of Minnesota,
addressed to and destined to a consignee within the State of
Minnesota; or (b) shipments delivered to an express company by a
shipper in the State of Minnesota and addressed to and destined to
a consignee without the State of Minnesota; or (c) shipments
delivered to an express company by a shipper without the State of
Minnesota and addressed to and destined to a consignee without the
State of Minnesota, passing through the
Page 223 U. S. 341
state of Minnesota in transit, as to all of which said
shipments, either in class a, class b, or class c, the defendant
received said shipments at a point in the State of Minnesota and
forwarded them over its lines to a second point within the State of
Minnesota, the transportation while in the hands of the defendant
being performed wholly within the State of Minnesota. The
transportation in connection with such shipments outside of the
State of Minnesota was performed by connecting companies other than
the defendant. Each of said shipments which constituted said amount
of $9,702.89 in schedule No. 2 of paragraph 3 of complaint was made
upon a through rate and a through waybill and bill of lading,
showing the origin and ultimate destination thereof, and consisted
of a single transportation transaction, commencing with the
delivery by the shipper to an express company, and continuing until
and not ending before, the delivery of the shipment to the
consignee at the point of ultimate destination to which the
shipment was addressed."
Taxes are not claimed or collected upon shipments of express
matter in the classes named where the same express company performs
the transportation service both within and without the State of
Minnesota.
A question was also made as to the constitutional validity of
the tax upon money orders issued by the express company, but that
objection has not been pressed in argument here.
The plaintiff in error contends that the assessment of the tax
upon its earnings from shipments by a consignor in the State of
Minnesota to an ultimate consignee within the state, which
shipments were forwarded by express between the points of origin
and destination, over railroads partly within and partly without
the State of Minnesota (paragraph III, Schedule No. 1), is an
unconstitutional exaction, in that it is an attempt of the state to
regulate interstate commerce, and is without due process of
law.
Page 223 U. S. 342
As to such shipments, the supreme court held that nine percent
of the taxes claimed on this class of earnings should be deducted
from the amount of the recovery allowed in the court of original
jurisdiction, since it was disclosed that only 91 percent of the
mileage was within the state. For this part of the decision, the
Minnesota court relied upon
Lehigh Valley R. Co. v.
Pennsylvania, 145 U. S. 192. An
examination of that case shows that it is decisive of the present
one on this point, and we need not further discuss this feature of
the case.
As to the transportation described in paragraph III, Schedule
No. 2, from points within the state to points without the state,
from points without the state to points within the state, and from
points without the state to points without the state, passing
through the state, the transportation outside of the state being
performed by connecting companies, the Supreme Court of Minnesota
held that it was the intention of the legislature, in the statute
under consideration, to include the earnings from these classes
within the state in the gross receipts upon which the tax is based.
This construction of the statute is binding upon us.
The transportation was made upon a through rate and through bill
of lading, and, it is stipulated, consisted of a single
transportation transaction, commencing with the delivery by the
shipper to the express company, and continuing until the delivery
of the shipment to the consignee at the ultimate destination. This
was clearly interstate commerce, and the federal question made in
this connection is: is this tax a burden upon interstate commerce,
and therefore an infraction of the exclusive power of Congress
under the Constitution to regulate commerce among the states?
It is thoroughly well settled in this Court that state laws may
not burden interstate commerce. As one form of burden may exist in
taxing the conduct of interstate
Page 223 U. S. 343
commerce, such taxation has been uniformly condemned. Examples
of cases of that character may be found in
Fargo v.
Michigan, 121 U. S. 230;
Philadelphia & Southern Steamship Co. v. Pennsylvania,
122 U. S. 326;
Ratterman v. Western Union Telegraph Co., 127 U.
S. 411;
Leloup v. Mobile, 127 U.
S. 640;
Western Union Telegraph Co. v.
Pennsylvania, 128 U. S. 39;
Western Union Telegraph Co. v. Alabama, 132 U.
S. 472;
Galveston, Harrisburg & San Antonio Ry.
Co. v. Texas, 210 U. S. 217.
While we have no disposition to detract from the authority of
these decisions, this Court has had also to consider and determine
the effect of statutes which undertake to measure a tax within the
legitimate power of the state by receipts which came in part from
business of an interstate character. In that class of cases, a
distinction was drawn between laws burdening interstate commerce
and laws where the measure of a legitimate tax consists in part of
the avails or income from the conduct of such commerce.
In
Maine v. Grand Trunk Ry. Co., 142 U.
S. 217, this Court sustained a tax which required every
railroad operated within the state to pay an annual tax for the
privilege of exercising its franchises therein, determined upon a
proportion of gross transportation receipts, which in that case
were shown to be those of a railroad partly within and partly
without the state, such gross receipts being derived from its
entire business, state and interstate. The resort to the gross
receipts, in the opinion of the Court, was merely a means of
ascertaining the business done by the corporation, and thus
measuring the tax, which was held to be within the power of the
state.
In
Wisconsin & Michigan Railway Co. v. Powers,
191 U. S. 379, a
tax was sustained which made the income of the railway company
within the state, including interstate earnings, the
prima
facie measure of the value of the property within the state
for the purpose of taxation. In the course of the opinion, this
Court said (p.
191 U. S.
387):
Page 223 U. S. 344
"In form, the tax is a tax on 'the property and business of such
railroad corporation operated within the state,' computed upon
certain percentages of gross income. The
prima facie
measure of the plaintiff's gross income is substantially that which
was approved in
Maine v. Grand Trunk Railway Co.,
142 U. S.
217,
142 U. S. 228."
A question in principle not unlike the one here presented, came
before this Court in
Flint v. Stone Tracy Co.,
220 U. S. 107. In
that case, it was contended that the income of the corporations
sought to be taxed under the federal law included, as to some of
the companies, large investments in municipal bonds and other
securities beyond the federal power of taxation. It was held, after
a review of some of the previous cases in this Court, that, where
the tax was within the legitimate authority of the federal
government, it might be measured, in part, by the income from
property not in itself taxable, and the distinction was undertaken
to be pointed out between an attempt to tax property beyond the
reach of the taxing power, and to measure a legitimate tax by
income derived, in part at least, from the use of such property.
Flint v. Stone Tracy Co. supra, 220 U. S.
162-165.
The right of the state to tax property although it is used in
interstate commerce is thoroughly well settled.
Postal
Telegraph Co. v. Adams, 155 U. S. 688;
Pullman's Palace Car Co. v. Pennsylvania, 141 U. S.
18;
Ficklen v. Shelby County, 145 U. S.
1,
145 U. S. 22. The
difficulty has been, and is, to distinguish between legitimate
attempts to exert the taxing power of the state and those laws
which, though in the guise of taxation, impose real burdens upon
interstate commerce as such. This difficulty was recognized in
Galveston, Harrisburg & San Antonio Ry. Co. v. Texas,
210 U. S. 217,
wherein the possible differences between the decisions in
Philadelphia Steamship Co. v. Pennsylvania, 122 U.
S. 326, and
Maine v. Grand Trunk Ry. Co. supra,
were commented upon and explained.
Page 223 U. S. 345
MR. JUSTICE HOLMES, speaking for the Court, said:
"By whatever name the exaction may be called, if it amounts to
no more than the ordinary tax upon property, or a just equivalent
therefor, ascertained by reference thereto, it is not open to
attack as inconsistent with the Constitution."
Postal Telegraph Cable Co. v. Adams, 155 U.
S. 688,
155 U. S. 697.
See New York, Lake Erie & Western R. Co. v.
Pennsylvania, 158 U. S. 431,
158 U. S.
438-439. The question is whether this is such a tax. It
appears sufficiently, perhaps, from what has been said that we are
to look for a practical, rather than a logical or philosophical,
distinction. The state must be allowed to tax the property, and to
tax it at its actual value as a going concern. On the other hand,
the state cannot tax the interstate business. The two necessities
hardly admit of an absolute logical reconciliation. Yet the
distinction is not without sense. When a legislature is trying
simply to value property, it is less likely to attempt to or effect
injurious regulation than when it is aiming directly at the
receipts from interstate commerce. A practical line can be drawn by
taking the whole scheme of taxation into account. That must be done
by this Court as best it can.
In that case, the statute of Texas was condemned because it
appeared to the Court to be an attempt to reach the receipts from
interstate commerce by a tax of one percent, or what was equal to
the same thing, on gross receipts arising from such commerce when
it appeared from the judgment of the state court and the argument
on behalf of the state that another tax on the property had already
been levied, covering its full value as a going concern. The tax
under consideration was held to be merely an effort to reach the
gross receipts, not disguised by the name of an occupation tax, or
in any way helped by the words "equal to."
Upon like reasoning, the statute of Oklahoma was condemned
Page 223 U. S. 346
in the case of
Meyer v. Wells, Fargo & Co., decided
today,
ante, p.
223 U. S. 298.
Appreciating the difficulty emphasized in the
Galveston
case of drawing the line between taxes that burden interstate
commerce and those whereby the legislature is simply undertaking to
impose a property tax within its legitimate power measured in part
by the income from interstate commerce transactions, how does the
present case stand? The Supreme Court of Minnesota construed the
tax to be a property tax, measured by the gross earnings within the
state, which, under their construction of the tax, included the
earnings here in question. That court held that the statute was
part of a system long in force in Minnesota, passed under the
authority of the state constitution, and was intended to afford a
means of valuing the property of express companies within the
state. While the determination that the tax is a property tax
measured by gross receipts is not binding upon this Court, we are
not prepared to say that this conclusion is not well founded in
view of the provisions and purposes of the law.
The statute itself provides that the assessments under it "shall
be in lieu of all taxes upon its property." In other words, this is
the only mode prescribed in Minnesota for exercising the recognized
authority of the state to tax the property of express companies as
going concerns within its jurisdiction. If not taxed by this
method, the property is not taxed at all. In this connection, the
language of Mr. Justice Peckham in
McHenry v. Alford,
168 U. S. 651,
while it was not necessary to the decision of the case, is
nevertheless opposite:
"When it is said, as it is in this act, that the tax collected
by this method shall be in lieu of all other taxes whatever, it
would seem that it might be claimed with great plausibility that a
tax levied under such circumstances and by such methods was not in
reality a tax upon
Page 223 U. S. 347
the gross earnings, but was a tax upon the lands and other
property of the company, and that the method adopted of arriving at
the sum which the company should pay as taxes upon its property was
by taking a percentage of its gross earnings."
The tax in the present case is not like those held invalid in
the
Galveston case and the
Oklahoma case, being
in addition to other state taxation reaching the property of all
kinds of the express company. The tax to be collected in part from
the earnings of interstate commerce was part of a scheme of
taxation seeking to reach the value of the property of such
companies in the state, measured by the receipts from business done
within the state. The statute was not aimed exclusively at the
avails of interstate commerce (
Philadelphia Steamship Co. v.
Pennsylvania, supra), but, as in the
Maine case, was
an attempt to measure the amount of tax within the admitted power
of the state by income derived, in part, from the conduct of
interstate commerce. The property of express companies, being much
of it of an intangible character, is difficult to reach and
properly assess for taxation. This difficulty led this Court in
Adams Express Co. v. Ohio, 165 U.
S. 194,
s.c., 166 U. S. 166 U.S.
185, to sustain a tax upon the property of an express company,
which property was considered a part of one money-earning
organization extending through many states.
As this Court said in
Postal Tel. Co. v. Adams,
155 U. S. 688-696,
155 U. S.
697:
"Doubtless no state could add to the taxation of property
according to the rule of ordinary property taxation the burden of a
license or other tax on the privilege of using, constructing, or
operating an instrumentality of interstate or international
commerce, or for the carrying on of such commerce; but the value of
property results from the use to which it is put, and varies with
the profitableness of that use, and by whatever name the
exaction
Page 223 U. S. 348
may be called, if it amounts to no more than the ordinary tax
upon property or a just equivalent therefor ascertained by
reference thereto, it is not open to attack as inconsistent with
the Constitution."
We think the tax here in question comes within this principle.
There is no suggestion in the present record, as was shown in
Fargo v. Hart, 193 U. S. 490,
that the amount of the tax is unduly great, having reference to the
real value of the property of the company within the state and the
assessment made. The statute embraces receipts from all the
business done within the state, including much which is purely
local.
Upon the whole, we think the statute falls within that class
where there has been an exercise in good faith of a legitimate
taxing power, the measure of which taxation is in part the proceeds
of interstate commerce, which could not, in itself, be taxed, and
does not fall within that class of statutes uniformly condemned in
this Court, which show a manifest attempt to burden the conduct of
interstate commerce, such power, of course, being beyond the
authority of the state.
We find no error in the judgment of the Supreme Court of the
Minnesota, and it is
Affirmed.