1. A state may tax that part of the property of a carrier
engaged in interstate and local business which is permanently
located or commonly used within the state, according to its fair
value as part of a going concern, measured with reference to the
gross receipts from both local and interstate business. P.
261 U. S.
2. A tax, measured in this way, which is called a property tax,
which is imposed in lieu of all other taxes upon the carrier's
property in the state, which is not in excess of what would be a
Page 261 U. S. 331
on such property, valued as part of a going concern, nor
relatively higher than taxes on other classes of property, does not
discriminate against interstate commerce. P. 261 U. S.
3. A state statutory provision that a foreign corporation
failing to pay a tax shall be excluded from doing business in the
state would be void as applied to interstate commerce. P.
261 U. S.
4. The tax here involved, based on the California Constitution
(Art. XIII, § 14, as amended, 1910) and on subsequent statutes, was
not intended to reach income from property situated or business
done outside of the state. P. 261 U. S. 340
185 Cal. 484 affirmed.
Error to judgments of the Supreme Court of California affirming
judgments for the defendant in actions brought against the state
treasurer to recover money paid, under protest as taxes.
Page 261 U. S. 333
MR. JUSTICE VAN DEVANTER delivered the opinion of the Court.
These were actions by the Pullman Company against the Treasurer
of California to recover moneys paid under
Page 261 U. S. 334
protest as state taxes. Each action related to a designated part
of the tax for a distinct year, and was brought on the theory that
the part designated was invalid because imposed under
constitutional and statutory provisions repugnant to the
Constitution of the United States. The Treasurer prevailed in the
court of first instance and in the supreme court of the state. 185
Cal. 484. The Pullman Company then brought the cases here on writs
In 1910, California adopted an amendment to her Constitution, §
14 of Article XIII, one purpose of which was to effect a separation
of state from local taxation by subjecting public service
corporations to a designated tax for state purposes and relieving
them from taxation for county and municipal purposes. Referring to
this feature of the amendment, the supreme court of the state said,
in San Francisco v. Pacific Telephone & Telegraph Co.,
166 Cal. 244, 248:
"Under the old system, the property and franchises of the
corporations above referred to were taxed for both state and local
purposes. The amendment creates a new mode of taxing such property
and franchises, and appropriates the revenue so raised to state
purposes solely. The new method by which taxes are collected
exclusively for the state is substituted for the former system,
under which the same subjects were taxed for both state and local
The pertinent parts of the amendment are as follows (Laws
1910-11, p. xliv):
"Sec. 14(a). . . . All sleeping car, dining car, drawing room
car, and palace car companies . . . operating upon the railroads in
this state . . . shall annually pay to the state a tax upon their
franchises, . . . rolling stock, . . . and other property, or any
part thereof, used exclusively in the operation of their business
in this state, computed as follows: said tax shall be equal to the
percentages hereinafter fixed upon
Page 261 U. S. 335
the gross receipts from operation of such companies and each
thereof within this state. When such companies are operating partly
within and partly without this state, the gross receipts within
this state shall be deemed to be all receipts on business beginning
and ending within this state, and a proportion, based upon the
proportion of the mileage within this state to the entire mileage
over which such business is done, of receipts on all business
passing through, into, or out of this state."
"The percentages above mentioned shall be as follows: . . . on
all sleeping car, dining car, drawing room car, palace car
companies, . . . three percent. . . . Such taxes shall be in lieu
of all other taxes and licenses, state, county and municipal, upon
the property above enumerated of such companies except as otherwise
in this section provided. . . ."
"(e) . . . In the event that the above named revenues are at any
time deemed insufficient to meet the annual expenditures of the
state, including the above named expenditures for educational
purposes, there may be levied, in the manner to be provided by law,
a tax, for state purposes, on all the property in the state,
including the classes of property enumerated in this section,
sufficient to meet the deficiency."
"(f) All the provisions of this section shall be self-executing,
and the legislature shall pass all laws necessary to carry this
section into effect, and shall provide for a valuation and
assessment of the property enumerated in this section. . . . The
rates of taxation fixed in this section shall remain in force until
changed by the legislature, two-thirds of all the members elected
to each of the two houses voting in favor thereof."
Several acts to carry the amendment into effect were adopted
from time to time, but it suffices here to say of them, first, that
the computing percentage applicable to sleeping car, dining car,
drawing room car, and palace car
Page 261 U. S. 336
companies was increased to four percent in 1913 (c. 6, Laws
1913) and reduced to three and ninety-five hundredths percent in
1915 (c. 2, Laws 1915); secondly, that provision was made for
enforcing the tax by either the usual tax sale or a suit in the
name of the state (c. 335, §§ 20, 21, 24, Laws 1910-11; c. 6, § 5,
Laws 1913); and, thirdly, that there was further provision that, if
the tax was not paid within a designated period, the delinquent
company, if a domestic corporation, "will forfeit its charter," and
if a foreign corporation, "will forfeit its right to do business in
this state," and that the transaction of any business in the state
on behalf of a company incurring any such forfeiture, except to
settle its affairs, should be punished by substantial fines. Laws
1911, c. 335, § 24; Laws 1913, c. 6, § 5, and c. 320, § 9.
The taxes in question were levied under the new system in 1911
and six subsequent years. All were alike save in particulars not
material here, so it will be enough to state the facts relating to
the tax levied in 1911.
The Pullman Company is an Illinois corporation engaged in
operating sleeping and parlor cars on the railroads of the country.
Some of its cars are operated between points in California, some
between points within and points without that state, and some
through the state between points outside. In 1910, the company's
gross receipts from all its operations within the state were
$1,905,302.97. Of this sum, $938,786.80 came from operations which
began and ended in the state, and $966,516.17 came from that part
of the interstate operations which was within the state. The latter
amount was arrived at by taking every service performed partly
within and partly without the state and determining on a mileage
basis what portion of the sum received therefor was attributable to
the part of the service within the state. To illustrate: if a
passenger was carried in a sleeping car from Oakland to Chicago for
$14, and one-seventh of
Page 261 U. S. 337
the mileage was in California, $2.00 was deemed the gross
receipt for so much of the service as was rendered in that
The gross receipts were calculated and reported by the company,
and the state officers accepted the calculation. The amount of the
tax was computed by applying to the gross receipts the percentage
rule prescribed by the amendment to the state constitution. In this
way, a tax of $57,159.08 was levied in 1911. Had the gross receipts
from intrastate business alone been considered, the tax would have
been $28,163.61 -- that is, $28,995.47 less than the actual
The company objected to the consideration of the gross receipts
from the interstate business, although they came only from service
within the state, and objected to a corresponding part of the tax
the $28,995.47. That part was paid under protest, and the first of
these actions was brought to recover it -- an admissible course
under the state law. Laws 1910-1911, c. 335, § 23; Laws 1913, c.
320, § 7. The other part was paid voluntarily, and is not in
The company insists that the tax in question and the provisions
therefor in the state constitution and statutes are invalid under
the commerce clause of the Constitution of the United States
because (a) the tax is laid on gross receipts from interstate
commerce, and (b) its payment is made a condition to continuing an
interstate business within the state, and are invalid under the due
process of law clause of the Fourteenth Amendment because the tax
is intended to reach income from property situated and business
done without the state.
The state court holds that the tax is not a tax on gross
receipts as such, but is in both name and essence a tax on property
within the state, and that it is computed with reference to the
gross receipts only as a means of adjusting
Page 261 U. S. 338
it to the real value of the property in the relation in which
the same is used.
The principles to be applied in cases of this class repeatedly
have been considered by this Court, and are now settled.
A state can neither tax the act of engaging in interstate
commerce nor lay a tax on gross receipts therefrom. In either case,
the tax would be a restraint or burden on such commerce, and its
imposition and invasion of the power of regulation confided to
Congress by the commerce clause of the Constitution. Fargo v.
Michigan, 121 U. S. 230
Philadelphia & Southern Steamship Co. v. Pennsylvania,
122 U. S. 326
Galveston, Harrisburg & San Antonio Ry. Co. v. Texas,
210 U. S. 217
Meyer v. Wells, Fargo & Co., 223 U.
The rule is otherwise with property used in interstate commerce.
A state within whose limits such property is permanently located or
commonly used may tax it. Cudahy Packing Co. v. Minnesota,
246 U. S. 450
246 U. S. 453
Wells, Fargo & Co. v. Nevada, 248 U.
, 248 U. S. 167
Union Tank Line Co. v. Wright, 249 U.
, 249 U. S. 282
And, if the property be part of a system and have an augmented
value by reason of a connected operation of the whole, it may be
taxed according to its value as part of the system, although the
other parts be outside the state; in other words, the tax may be
made to cover the enhanced value which comes to the property in the
state through its organic relation to the system. Fargo v.
Hart, 193 U. S. 490
193 U. S. 499
Galveston, Harrisburg & San Antonio Ry. Co. v. Texas,
210 U. S. 225
United States Express Co. v. Minnesota, 223 U.
, 337 [argument of counsel -- omitted]; Union
Tank Line Co. v. Wright, supra.
In taxing property so situated and used, a state may select and
employ any appropriate means of reaching its actual or full value
as part of a going concern -- such as treating the gross receipts
from its use in both intrastate
Page 261 U. S. 339
and interstate commerce as an index or measure of its value --
and if the means do not involve any discrimination against
interstate commerce and the tax amounts to no more than what would
be legitimate as an ordinary tax upon the property, valued with
reference to its use, the tax is not open to attack as restraining
or burdening such commerce. Cudahy Packing Co. v. Minnesota,
supra; St. Louis Southwestern Ry. Co. v. Arkansas,
235 U. S. 350
235 U. S. 367
United States Express Co. v. Minnesota, supra; Galveston,
Harrisburg & San Antonio Ry. Co. v. Texas, 210
U. S. 227
; Union Tank Line Co. v. Wright,
An examination of the tax in question in the light of these
principles shows that the chief objection urged against it is not
tenable. The provisions under which the tax is imposed call it a
property tax, specify the property subjected to it, and declare
that it is in lieu of all other taxes on such property. The supreme
court of the state holds it is a tax on the property specified. In
no material respect does it differ from the tax which was
recognized by this Court as a property tax in United States
Express Co. v. Minnesota
and Cudahy Packing Co. v.
above cited. True, it is computed with special
regard to the gross receipts, but this, as is fairly shown, is done
merely as a means of getting at the full value of the property,
considering its nature and use. The tax is not claimed to be in
excess of what would be legitimate as an ordinary tax on the
property valued as part of a going concern, nor to be relatively
higher than the taxes on other kinds of property. There is no
ground for thinking that it operates as a discrimination against
The statutory provision that a foreign corporation which fails
to pay the tax shall be excluded from doing business in the state
requires but brief notice. It is not sought to be enforced here.
The Pullman Company has not failed to pay the tax. The provision
has not been
Page 261 U. S. 340
construed by the state court. If it be construed as covering
interstate commerce, it is void, for the right to engage in such
commerce is not within the state's control. See Western Union
Telegraph Co. v. Massachusetts, 125 U.
, 125 U. S. 554
Leloup v. Port of Mobile, 127 U.
, 127 U. S. 645
Postal Telegraph Cable Co. v. Adams, 155 U.
, 155 U. S.
-696. The state court may construe it as confined to
intrastate business. St. Louis Southwestern Ry. Co. v.
Arkansas, 235 U. S. 350
235 U. S.
-369. In neither event would it affect the validity
of the tax before us.
We find nothing in the provisions under which the tax was levied
in the decision off the state court, or in the record, which gives
any support to the contention that the tax is intended to reach
income from property situated or business done without the