1. The taxation by Congress of the income of domestic
corporations derived from sale abroad of goods bought or made by
them in this country is not a tax on exports, nor does it violate
due process of law because a like tax is not imposed on the income
similarly derived by foreign corporations. National Paper Co.
v. Bowers, 266 U. S. 373
267 U. S.
2. The exemption of foreign corporations is equally valid
whether complete or only partial. Revenue Acts of 191, and 1921
considered. P. 267 U. S.
3. The power of Congress in laying taxes is very wide, and the
Fifth Amendment does not apply to discrimination between taxpayers
based on a classification that is not arbitrary and capricious, but
reasonable. P. 267 U. S.
Error to a judgment of the district court dismissing an action
to recover money paid under protest as a federal income tax. The
case here (547) was first decided on December 15, 1924, upon
authority of National Paper & Type Co. v. Bowers,
320, decided on the same day and reported in 266 U. S. 266
373. Due to a motion for rehearing, the opinion was withheld from
publication. It is now printed, following the opinion overruling
Page 267 U. S. 446
MR. CHIEF JUSTICE TAFT delivered the opinion of the Court.
On December 15, 1924, Mr. Justice McKenna delivered the opinion
of this Court in the case of National Paper & Type Co. v.
Frank K. Bowers, Collector, 266 U. S. 373
That case was heard at the same time with this. They were suits to
recover taxes which it was claimed had been illegally collected,
for the reason that the statutes under which they had been exacted
deprived the taxpayers of their property without due process of
law. The statute attacked in No. 320 was the income tax of 1921;
that in this case was the income tax of 1918.
The plaintiffs in the two cases were corporations of this
country engaged in the business of the purchase and manufacture of
personal property within the United States and the sale thereof
without the United
Page 267 U. S. 447
States. Their objection to the taxes both of 1921 and 1918 was
that they were subjected to a tax on all of their net income,
including profits made by them in the sale of their goods abroad,
while foreign corporations engaged in the same business of buying
and manufacturing goods in this country and selling them abroad
were not taxed upon their whole net income, but were exempted from
a tax on all or a part of it.
Another objection to the tax was that the tax in both instances
was a tax on exports. That was disposed of by this Court in opinion
No. 320 by reference to the case of Peck & Co. v.
Lowe, 247 U. S. 165
The court further pointed out that, in respect to what was
called discrimination in favor of foreign corporations, Congress
might adopt a policy calculated to serve the best interests of this
country in dealing with citizens or subjects of another country,
and might properly say as to earnings from business begun in one
country and ending in another that the net income of foreign
subjects or citizens should be left to the taxation of their own
government, or to that having jurisdiction of the sales; that the
question of taxing foreign corporations on such income might
properly be affected by the consideration that domestic
corporations had the power of the United States to protect their
interests and redress their wrongs in whatever part of the world
their business might take them, while the foreign corporations must
look to the country of their origin for protection against injury
or redress of losses occurring in countries other than the United
States. Having disposed of No. 320 for these reasons in favor of
the government by affirming the judgment below, a short opinion was
delivered by Mr. Justice McKenna in No. 547, in which he said that
the charge of invalidity in that case was on the same grounds as
those set up in No. 320, and that, upon authority of the decision
in No. 320, the judgment should be affirmed.
Page 267 U. S. 448
A petition for rehearing seeks now to differentiate the present
case from that considered and decided in No. 320.
The Revenue Act of 1918, 40 Stat. 1076, § 230, provided for a
tax of 12 percent on the net income in excess of certain credits
upon domestic corporations, but contained this provision in case of
foreign corporations, under § 233(b):
"In the case of a foreign corporation, gross income includes
only the gross income from sources within the United States,
including the interest on bonds, notes, or other interest-bearing
obligations of residents, corporate or otherwise, dividends from
resident corporations, and including all amounts received (although
paid under a contract for the sale of goods or otherwise)
representing profits on the manufacture and disposition of goods
within the United States."
40 Stat. 1077.
The Revenue Act of 1921 taxed the net income (meaning the gross
income, less certain deductions) of domestic corporations. 42 Stat.
252, 254. The same section, No. 232, provided that: "In the case of
a foreign corporation . . . , the computation shall also be made in
the manner provided in § 217."
The relevant parts of §§ 217 and 233 were as follows:
"Sec. 217. (a) That, in the case of a nonresident alien
individual or of a citizen entitled to the benefits of § 262. . .
"(e) Items of gross income, expenses, losses and deductions,
other than those specified in subdivisions (a) and (c), shall be
allocated or apportioned to sources within or without the United
States under rules and regulations prescribed by the Commissioner
with the approval of the Secretary. . . . Gains, profits and income
from (1) transportation or other services rendered partly within
and partly without the United States, or (2) from the sale of
personal property produced (in whole or in part) by the taxpayer
within and sold without the United States, or produced (in whole or
in part) by the taxpayer
Page 267 U. S. 449
without and sold within the United States, shall be treated as
derived partly from sources within the partly from sources without
the United States. Gains, profits and income derived from the
purchase of personal property within and its sale without the
United States or from the purchase of personal property without and
its sale within the United States shall be treated as derived
entirely from the country in which sold. . . ."
42 Stat. 243, 244, 245.
"Sec. 233. . . ."
"(b) In the case of a foreign corporation, gross income means
only gross income from sources within the United States, determined
(except in the case of insurance companies subject to the tax
imposed by §§ 243 or 246) in the manner provided in § 217."
42 Stat. 254.
Counsel contend in their petition for rehearing that the Revenue
Act of 1921 provided with respect to the manufacture within the
United States by foreign corporations of goods which they sold in
foreign countries that the income derived should be allocated to
sources within the United States and imposed a tax on that part of
such income allocated to manufacture, whereas the Revenue Act of
1918, under which this case arose, exempted from tax all income of
foreign corporations derived from the manufacture or purchase of
goods within the United States which they sold or disposed of in
foreign countries. But we do not think that that distinction makes
any difference in the application of the principle upon which the
judgment in No. 320 was based. Whatever the difference between the
acts, whether the foreign corporations were wholly exempted or only
partially exempted, they constituted a class all by themselves, and
could be properly so treated by Congress because of the
considerations suggested in the opinion in No. 320. The attack made
upon the law of 1921 for discrimination against American
corporations in favor of foreign corporations was quite as
Page 267 U. S. 450
vigorous in the briefs of counsel for the plaintiffs in error in
No. 320 as in No. 547, and rested on the same argument, and, while
the exemption of the net income of foreign corporations from
manufacture in the United States did not exist in the Act of 1921
as in the Act of 1918, the question of discrimination in the two
cases only differed in extent and did not call for any real
distinction in deciding them. The question where an income is
earned is always a matter of doubt when the business is begun in
one country and ended in another. As pointed out by the plaintiff
in error in his brief in No. 320, much of the business in such
foreign trade, in addition to the manufacture, is done in the
United States in storehouses and docks and in other ways after the
manufacture, but whatever of that might be equitably allocated as
done in the United States is exempted from taxation of foreign
corporations by the Act of 1921. Thus, exactly the same question
presents itself as in No. 320. It is only a difference in
The power of Congress in levying taxes is very wide, and where a
classification is made of taxpayers that is reasonable, and not
merely arbitrary and capricious, the Fifth Amendment cannot apply.
As this Court said, speaking of the taxing power of Congress in
Evans v. Gore, 253 U. S. 245
253 U. S.
"It may be applied to every object within its range 'in such
measure as Congress may determine,' enables that body 'to select
one calling and omit another, to tax one class of property and to
forbear to tax another,' and may be applied in different ways to
different objects so long as there is 'geographical uniformity' in
the duties, imposts and excises imposed. McCulloch v.
4 Wheat. 316, 17 U. S.
; Pacific Insurance Co. v.
7 Wall. 433, 74 U. S.
; Austin v. Aldermen,
694, 74 U. S. 699
Bank v. Fenno,
8 Wall. 533, 75 U. S.
, 75 U. S. 548
; Knowlton v.
Moore, 178 U. S. 41
, 178 U. S.
, 178 U. S. 106
; Treat v.
White, 181 U. S. 264
, 181 U. S.
; McCray v. United
Page 267 U. S. 451
States, 195 U. S. 27
, 195 U. S.
; Flint v. Stone Tracy Co., 220 U. S.
, 220 U. S. 158
v. United States, 232 U. S. 261
, 232 U. S.
; Brushaber v. Union Pacific R. Co.,
240 U. S.
, 240 U. S. 24
The power of Congress to make a difference between the tax on
foreign corporations and that of domestic corporations is not
measured by the same rule as that for determining whether taxes
imposed by one state upon the profits of a manufacturing
corporation are an imposition of tax upon a subject matter not
within the jurisdiction of the taxing state. Cases on that subject
like Underwood Typewriter Co. v. Chamberlain, 254 U.
, have no application to the question here.
Considerations of policy toward foreign countries may very well
justify an exemption of the foreign corporations from taxes that
might legitimately be imposed on them, but which Congress does not
think it wise to exact. Such considerations justify a different
classification of foreign corporations doing business in the United
States either of manufacture or purchase, and making profit out of
that business in other countries from that which would apply to its
own corporations. The injustice thought to be worked upon domestic
corporations engaged in sales abroad by a different classification
for purposes of taxation of foreign corporations similarly engaged
is an argument not for the constitutional invalidity of the law
before a court, but for its repeal before Congress.
The opinion of Mr. Justice McKenna applying the same principles
in this case to those applied in No. 320 was entirely justified,
and the petition for rehearing is
The original opinion is as follows:
MR. JUSTICE McKENNA delivered the opinion of the Court.
The plaintiff in error is a domestic corporation engaged in
business as a manufacturer. It is subjected to
Page 267 U. S. 452
an income tax from which foreign corporations are exempted. It
charges invalidity on the same grounds as those set up in
National Paper & Type Co. v. Bowers, 266 U.
, and brought suit to recover the amount of the
tax. Its complaint was dismissed on motion of the district attorney
upon the authority of National Paper & Type Co. v. Edwards,
Collector of Internal Revenue,
292 F. 633, and judgment went
on the merits.
The cause was submitted with No. 320, just decided. It presents
the same contentions, based upon the same grounds. And, upon the
authority of our decision in that case, the judgment below is