Neither the right of a state to attach conditions when licensing
a sister state corporation to do local business nor its power to
tax the corporation in respect of such business, when licensed, can
sustain impositions which, in the guise of permit charges or
franchise or excise taxes, result in direct burdens on interstate
commerce or in the
Page 245 U. S. 179
taxation of property beyond the confines and jurisdiction of the
state.
These principles, repeatedly affirmed by the Court, are in
nowise qualified by
Baltic Mining Co. v. Massachusetts,
231 U. S. 68, and
other recent cases involving particular state statutes which were
not inherently repugnant to the commerce clause or the due process
clause of the Fourteenth Amendment and which, because of their own
restrictive provisions, avoided such repugnancy in their necessary
operation and effect. Those cases lend no sanction to the
proposition that the duty of enforcing the Constitution may depend
upon the degree of violation or of resulting wrong.
In 1889, Texas exacted of foreign corporations a charge,
graduated upon capital stock, but limited to $200, for a permit to
do business for 10 years. In 1893, a so-called franchise tax of $10
per annum was exacted of domestic and licensed foreign corporations
alike, which was increased in 1897 to a maximum of $50 for domestic
corporations, while for foreign corporations the minimum was raised
to $25, and the tax was otherwise calculated by fixed percentages
upon capital stock without maximum limit. After some intervening
modification, it was enacted in 1907, as to both classes of
corporations, that, in case the capital stock, issued and
outstanding, plus surplus and undivided profits, should exceed the
capital stock authorized, the franchise tax should be calculated
upon the aggregate of such amounts. In the same year, the permit
provisions were altered by abolishing the maximum limit ($200) and
increasing the percentages on authorized capital stock. An Illinois
manufacturing and trading corporation engaged largely in interstate
commerce obtained a 10-year permit under the Act of 1889, purchased
real estate, erected warehouses, and engaged in business in Texas;
paid its taxes on its local property, and also those laid under the
franchise laws, until its permit (obtained in 1905) was about to
expire, when it brought suit against the Secretary of State and the
Attorney General to enjoin the enforcement by them of the permit
and franchise laws of 1907. Its authorized capital stock was
$17,000,000, issued and paid up, and its surplus and undivided
profits over $8,000,000. The total assessed value of its property
in Texas was about $300,000. Its gross receipts and gross sales in
all its business in 1913 were $39,831,000, of which only $1,019,750
had any relation to Texas, and of this nearly one-half had resulted
from sales and shipments in interstate commerce. Its franchise tax
had increased from $480 in 1904 to $1,948 in 1914, under the
franchise Act of 1907. Its permit fee under the permit Act of 1907
would have been $17,040.
Page 245 U. S. 180
Held that the franchise and permit taxes both violated
the due process clause of the Fourteenth Amendment and directly
burdened interstate commerce.
A suit to enjoin state officials from enforcing an
unconstitutional tax is not a suit against the state.
218 F. 260 affirmed.
The case is stated in the opinion.
Page 245 U. S. 183
MR. CHIEF JUSTICE WHITE delivered the opinion of the Court.
Chartered in 1865 by the Legislature of Illinois, the Crane
Company had its domicile and principal establishment at Chicago. It
carried on its chartered business of manufacturing and dealing in
hardware, railway supplies, building materials, agricultural
implements, etc., not only in Illinois, but in other states, by the
shipment of merchandise on orders obtained through the solicitation
of its agents and sent to Chicago for execution, or orders sent to
Chicago through the mail. The company, moreover, established
agencies in other states to which goods were also shipped from
Chicago or from other points where they were bought and shipment
directed, from which agencies such goods were sold and delivered
either in the original or broken packages, as was most convenient.
Such agencies also became supply depots from which interstate
commerce was carried on by filling orders received from other
states.
Page 245 U. S. 184
In the State of Texas, for the purpose of facilitating the
carrying on of its business by all the methods stated, the company
acquired real estate at Dallas and built a depot or warehouse, and
also had a warehouse at another place in the state.
In 1889, Texas enacted a statute entitled
"An act to require foreign corporations to file their articles
of incorporation with the Secretary of State, and imposing certain
conditions upon such corporations transacting business in this
state. . . ."
Acts of 1889, p. 87. This act not only compelled the filing of
the charter with the Secretary of State, but exacted for a permit
to do business a minimum charge of $25 based upon $100,000 of
capital stock and an increased amount predicated upon capital stock
until the exaction amounted to $200, which was the limit, and the
permit which was authorized to be issued by the secretary of state
was limited to ten years' duration. The tax imposed therefor, if
the permit was enjoyed for the stated period, could not in any
event exceed $20 a year, whatever might be the amount of capital
stock of the corporation
As early as 1893, what was denominated a franchise tax was
provided, imposing upon each and every domestic as well as foreign
corporation having a permit the duty of paying $10 a year. Acts of
1893, p. 158. In 1897, this described franchise tax was modified.
Acts of 1897, p. 168. As to domestic corporations, while retaining
the minimum charge of $10, the maximum was raised to $50. And, as
to foreign corporations, the minimum was raised from $10 to $25 and
the maximum limit was removed by fixing percentages of charges upon
the capital stock increasing without limitation. Without in detail
following the legislation as to taxes denominated as franchise from
the date stated down to the period when this suit was commenced, it
suffices to say that the tax itself was preserved, with some
increases in the bases upon which
Page 245 U. S. 185
it was to be calculated; but, in 1907, it was enacted both as to
domestic and permitted foreign corporations that, in case the
capital stock of a corporation "issued and outstanding, plus its
surplus and undivided profits, shall exceed its authorized capital
stock," the franchise tax should be calculated upon the aggregate
of such amounts, thereby increasing to that extent the levy. (Acts
of 1907, p. 503; Revised Statutes (1911) Art. 7394.)
The authorized capital stock of the Crane Company was
$17,000,000, which was paid up and issued, and, just prior to the
institution of this suit, the surplus and undivided profits of the
company amounted to $8,129,000. The total assessed value in Texas
of its real estate, money there employed and merchandise there held
amounted to $301,179. The company's gross receipts and gross sales
in all its business in all the states for the year 1913 amounted to
$39,831,000, of which only $1,019,750 had any relation to the State
of Texas, and nearly one-half of this amount was the result of
transactions purely of an interstate commerce character arising
from the sale and shipment of goods from other states to purchasers
in Texas who ordered them and from the shipment from Texas to other
states for the purpose of filling orders sent from such states.
The Crane Company was assessed and paid taxes in Texas as other
taxpayers on its real estate, its money on hand in Texas, and its
stock in trade in that state. In 1905, having filed its articles of
incorporation with the Secretary of State, it paid the permit tax
of $200 for the ten-year period as prescribed by the permit Act of
1889. From 1904 down to and including 1914, the company paid the
yearly franchise tax, the amount increasing from $480 in 1904 to
$1,948 in 1914, the increase presumably resulting from the increase
of rate of such tax by the legislation which we have indicated and
from the fact that, by the amendment of the Act of 1907, the
surplus and undivided
Page 245 U. S. 186
profits of the company became susceptible of being taken into
view in addition to its authorized capital stock.
In the same year in which the legislation was enacted providing
for the taxation on the basis of surplus and undivided profits for
the purpose of the franchise tax, there was also enacted a law
vastly increasing the amount of the permit tax. (Acts of 1907,
S.S., p. 500; Revised Statutes (1911) Art. 3837.) We say vastly
increasing because, although the standard for the levy of that tax,
the authorized capital stock, was retained, the maximum limit,
which was $200 for ten years under the previous law, was removed,
and the percentages of levy on the authorized capital stock were so
augmented that the permit for which the company paid to the
Secretary of State $200 for ten years in 1905, under the new law
would have required the company to pay in order to do business in
the state the sum of $17,040.
Shortly before its existing permit for ten years taken in 1905
expired, the company commenced the present suit in the court below
against the Secretary of State and the Attorney General to enjoin
the enforcement by them of the statutes embracing the permit tax
and the franchise tax on the grounds that both were repugnant (a)
to the commerce clause of the Constitution of the United States
because imposing a direct burden on interstate commerce; (b) to the
due process clause of the Fourteenth Amendment because constituting
a taking of property, and (c) to the equal protection clause of the
Fourteenth Amendment based upon what were urged to be
discriminatory provisions in the acts. The parties having been
fully heard on an application for an interlocutory injunction on
the pleadings and by affidavits from which the case as we have
stated it indisputably results by a court organized under the act
of Congress of June 18, 1910 (36 Stat. 557, c. 309, § 17; Judicial
Code, § 266), the interlocutory
Page 245 U. S. 187
injunction was granted and the enforcement of the laws
restrained, the matter being now before us on an appeal from such
order. 218 F. 260.
Passing the contention as to the denial of the equal protection
of the laws, which, as we shall see, it is unnecessary to consider,
we come to dispose of the two other contentions -- that is, the
direct burden on interstate commerce and the want of due
process.
It may not be doubted under the case stated that, intrinsically
and inherently considered, both the permit tax and the tax
denominated as a franchise tax were direct burdens on interstate
commerce and, moreover, exerted the taxing authority of the state
over property and rights which were wholly beyond the confines of
the state, and not subject to its jurisdiction, and therefore
constituted a taking without due process. It is also clear,
however, that both the permit tax and the franchise tax exerted a
power which the state undoubtedly possessed -- that is, the
authority to control the doing of business within the state by a
foreign corporation and the right to tax the intrastate business of
such corporation carried on as the result of permission to come in.
The sole contention, then, upon which the acts can be sustained is
that, although they exerted a power which could not be called into
play consistently with the Constitution of the United States, they
were yet valid because they also exercised an intrinsically local
power. But this view can only be sustained upon the assumption that
the limitations of the Constitution of the United States are not
paramount, but are subordinate to and may be set aside by state
authority as the result of the exertion of a local power. In
substance, therefore, the proposition must rest upon the theory
that our dual system of government has no existence, because the
exertion of the lawful powers of the one involves the negation or
destruction of the rightful authority of the other. But original
discussion is
Page 245 U. S. 188
unnecessary, since to state the proposition is to demonstrate
its want of foundation, and because the fundamental error upon
which it rests has been conclusively established. Indeed, the cases
referred to were concerned in various forms with the identical
questions here involved, and authoritatively settled that the
states are without power to use their lawful authority to exclude
foreign corporations by directly burdening interstate commerce as a
condition of permitting them to do business in the state in
violation of the Constitution, or because of the right to exclude
to exert the power to tax the property of the corporation and its
activities, outside of and beyond the jurisdiction of the state in
disregard, not only of the commerce clause, but of the due process
clause of the Fourteenth Amendment.
Western Union Telegraph Co.
v. Kansas, 216 U. S. 1;
Pullman Co. v. Kansas, 216 U. S. 56;
Ludwig v. Western Union Telegraph Co., 216 U. S.
146;
International Textbook Co. v. Pigg,
217 U. S. 91;
Atchison, Topeka & Santa Fe Ry. Co. v. O'Connor,
223 U. S. 280, 283
[argument of counsel -- omitted].
The dominancy of these adjudications is plainly shown by the
fact that, as the result of the decision in the leading case
(
Western Union Telegraph Co. v. Kansas, 216 U. S.
1), the Supreme Court of the State of Texas, recognizing
the repugnancy of the permit tax law here in question to the
Constitution of the United States, enjoined its enforcement
(
Western Union Telegraph Co. v. State, 103 Tex. 306), and,
following that ruling, the legislature of the state has amended
both the permit tax law and the franchise tax law now before us,
presumably in an effort to cure the demonstrated repugnancy of the
statutes before amendment to the Constitution of the United States.
Of course, whether the amendments as adopted accomplished the
purpose intended is a matter which we are not called upon to
consider, and as to which we express no opinion.
Page 245 U. S. 189
But, despite the controlling decisions dealing with cases in
substance identical in fact and principle with the case here
presented and the effect given to them in Texas as to one of the
statutes here involved, it is now insisted that the statutes are
not repugnant to the Constitution of the United States, and that
error was committed in deciding to the contrary. This is rested on
cases decided since those to which we have referred.
Baltic
Mining Co. v. Massachusetts, 231 U. S. 68;
St. Louis, Southwestern Ry. Co. v. Arkansas, 235 U.
S. 350;
Kansas City, Fort Scott & Memphis Ry.
Co. v. Kansas, 240 U. S. 227;
Kansas City Memphis & Birmingham R. Co. v. Stiles,
242 U. S. 111. The
proposition is therefore that these cases overruled the previous
decisions. The incongruity of the contention will be manifest when
it is observed that not only did the cases relied upon contain
nothing expressly purporting to overrule the previous cases, but,
on the contrary, in explicit terms, declared that they did not
conflict with them and that they proceeded upon conditions peculiar
to the particular cases.
The demonstration of error in the argument which results from
this situation might well cause us to go no further in its
consideration. In view, however, of the gravity of the subject to
which the argument relates and the misconception and resulting
confusion in doctrine which might result from silence, we briefly
notice it. In the first place, it is apparent in each of the cases
that, as the statutes under consideration were found not to be on
their face inherently repugnant either to the commerce or due
process clause of the Constitution, it came to be considered
whether, by their necessary operation and effect, they were
repugnant to the Constitution in the particulars stated, and this
inquiry, it was expressly pointed out, was to be governed by the
rule long ago announced in
Postal Telegraph Cable Co. v.
Adams, 155 U. S. 688,
155 U. S. 698,
that "the substance, and not the shadow,
Page 245 U. S. 190
determines the validity of the exercise of the power." In the
second place, in making the inquiry stated in all of the cases, the
compatibility of the statutes with the Constitution which was found
to exist resulted from particular provisions contained in each of
them which so qualified and restricted their operation and
necessarily so limited their effect as to lead to such result.
These conditions related to the subject matter upon which the tax
was levied, or to the amount of taxes in other respects paid by the
corporation, or limitations on the amount of the tax authorized
when a much larger amount would have been due upon the basis upon
which the tax was apparently levied. It is thus manifest on the
face of all of the cases that they in no way sustained the
assumption that, because a violation of the Constitution was not a
large one, it would be sanctioned, or that a mere opinion as to the
degree of wrong which would arise if the Constitution were violated
was treated as affording a measure of the duty of enforcing the
Constitution.
It follows, therefore, that the cases which the argument relies
upon do not in any manner qualify the general principles expounded
in the previous cases upon which we have rested our conclusion,
since the later cases rested upon particular provisions in each
particular case which it was held caused the general and recognized
rule not to be applicable.
Some suggestion is made in argument of the possibility of
treating the franchise tax as not repugnant to the Constitution,
although that result be necessarily reached as to the permit tax.
But we are of opinion that the proposition is without merit, as the
interdependence of the two provisions obviously results from the
character of the subjects with which they deal and the mode in
which the statutes deal with them. Indeed, that conclusion would
seem to necessarily follow from the legislative history of both and
the concordant nature of their development.
Page 245 U. S. 191
It finds additional and strongly persuasive support from the
fact that, although the controlling effect of the ruling in
Western Union Telegraph Co. v. Kansas, supra, was applied
by the state court to only one of the statutes, the permit tax,
when the curative power of legislation was exerted, it was made
applicable to both, and both were therefore modified. Aside from
this view, however, as from the history which we have given of the
franchise tax, its provisions were clearly intended to reach all
activities and property of the corporation, wherever situated, that
statute, when separately considered, would come directly within the
control of the doctrine of the previous cases upon which our
conclusion is based.
There is a contention to which we have hitherto postponed
referring, that the court below was without jurisdiction because
the suit against the state officers to enjoin them from enforcing
the statutes in the discharge of duties resting upon them was in
substance and effect a suit against the state within the meaning of
the Eleventh Amendment. But the unsoundness of the contention has
been so completely established that we need only refer to the
leading authorities.
Ex parte Young, 209 U.
S. 123;
Western Union Telegraph Co. v. Andrews,
216 U. S. 165;
Home Telephone & Telegraph Co. v. Los Angeles,
227 U. S. 278.
It follows from what we have said that the court below was right
in awarding an interlocutory injunction to restrain the enforcement
of the assailed statutes, and its order so doing must be and the
same is
Affirmed.