1. While a state may forbid a foreign corporation to do business
within its jurisdiction, or to continue it, and may fix conditions
under which the exercise of the privilege may be allowed, it may
not do so by imposing upon the corporation a sacrifice of its
rights under the federal Constitution. Pp.
272 U. S.
507-509
2. At the end of the period for which a license to do local
business has been granted to a foreign corporation, the state may
impose as a condition precedent to a renewed license that its valid
laws shall have been complied with in the past. P.
272 U. S.
514.
3. But the state may not make past compliance with an
unconstitutional tax a condition precedent to renewal of the
license. P.
272 U. S.
514.
4. A decision of a state supreme court construing a local law
taxing foreign corporations as imposing a privilege tax, rather
than a property tax, is binding on this Court; but this Court, in
determining
Page 272 U. S. 495
the applicability of the equal protection clause of the
Fourteenth Amendment, must decide independently whether the tax is
part of the condition upon which admission to do business in the
state is permitted, and is merely a regulating license by the state
to protect the state and its citizens in dealing with such
corporation, or whether it is a tax law for the purpose of securing
contributions to the revenue of the state as they are made by other
taxpayers of the state. Pp.
272 U. S.
509-511.
5. A foreign corporation which is duly admitted to do business
in a state is to be classified with similar domestic corporations
in testing the equality of the laws enacted for the purpose of
raising revenue. P.
272 U. S.
511.
6. An Illinois tax on the local net receipts of foreign
insurance companies was long construed and applied as a tax on
personal property; and, like other personal property taxes, partly
by law and partly by custom, was assessed on only 30% of the full
value; but afterwards, by a change of construction, it was held to
be an occupation or privilege tax, laid on such corporations
annually, as a condition to their right to do business in Illinois,
with the result that all of their local net income was taxed at the
rate applicable to personal property, while domestic corporations
of the same class and engaged in the same kinds of business paid
only a tax on their personal property, assessed at the reduced
valuation.
Held a discrimination which denied the equal
protection of the laws to a foreign corporation which had renewed
its license in Illinois from year to year, built up a large
business and goodwill in that state, and had many agents there and
extensive records containing information concerning its policies
and policyholders. P.
272 U. S.
516.
317 Ill. 366 reversed.
Error to a judgment of the Supreme Court of Illinois which
affirmed a judgment dismissing the bill of the Insurance Company, a
New York corporation, against Carr, the treasurer and tax collector
of Cook County, Illinois. The bill prayed an injunction to prevent
distraint of the plaintiff's property under a warrant for taxes due
under an Illinois law which the bill challenged as unconstitutional
under the state constitution and the equal protection clause of the
Fourteenth Amendment. Harding, treasurer of Cook County, was
substituted in this Court for Carr, his predecessor in office.
Page 272 U. S. 501
MR. CHIEF JUSTICE TAFT delivered the opinion of the Court.
This is a writ of error under § 237 of the Judicial Code to the
judgment of the Supreme Court of Illinois affirming a decree of the
Superior Court of Cook County dismissing the bill of the Hanover
Fire Insurance Company, a corporation of New York, against Patrick
J. Carr, County Treasurer and
ex officio tax collector of
Cook county, Illinois. The prayer was for an injunction to prevent
the distraint of the property of the complainant under a warrant
for the collection of $10,678.50 as taxes due under a law of
Illinois, which law, the bill averred, denied to the complainant
the equal protection of the laws under the Fourteenth Amendment of
the federal Constitution.
The defendant filed an answer denying the claims of the bill
and, after a reply, the case was heard by the trial court, which
made findings of fact in its decree based on a stipulation by the
parties, and entered a decree as set forth below.
The law in question reads as follows:
"Foreign Companies. -- Tax on Net Receipts. Section 30. Every
agent of any insurance company incorporated by the authority of any
other state or government shall return to the proper officer of the
county, town, or municipality
Page 272 U. S. 502
in which the agency is established, in the month of May
annually, the amount of the net receipts of such agency for the
preceding year, which shall be entered on the tax lists of the
county, town, and municipality, and subject to the same rate of
taxation, for all purposes -- state, county, town and municipal --
that other personal property is subject to at the place where
located, said tax to be in lieu of all town and municipal licenses,
and all laws and parts of laws inconsistent herewith are hereby
repealed: Provided, that the provisions of this section shall not
be construed to prohibit cities having an organized fire department
from levying a tax, or license fee, not exceeding two percent in
accordance with the provisions of their respective charters, on the
gross receipts of such agency, to be applied exclusively to the
support of the fire department of such city."
Cahill's Ill.Rev.Stat.1925, c. 73, § 159, p. 1405.
This had been in force since 1869, and was part of the Act of
March 11 of that year, entitled "An act to incorporate and to
govern fire, marine and inland navigation insurance companies doing
business in the State of Illinois." The section was amended to the
above form by an Act approved May 31, 1879.
By § 22 and other sections of the original Act of 1869 (Cahill's
Ill.Rev.Stat.1925, c. 73, § 150, p. 1402), it was made unlawful for
a foreign insurance company to transact any insurance business in
the state unless it had a prescribed amount of capital, appointed
an attorney in the state on whom process of law could be served,
filed a properly certified copy of the charter or deed of
settlement of the insurance company, showing its name and the place
where located, the amount of its capital and a detailed statement
of its assets, together with its indebtedness, the losses adjusted
and unpaid, the amount incurred and in process of adjustment, and a
copy of its last annual report. It was required also to deposit
with the Director
Page 272 U. S. 503
of Trade and Commerce of the state, for the benefit and security
of the policyholders residing in the United States, a sum of not
less than $200,000 in 6 percentum stock of the United States or the
State of Illinois, or approved mortgage securities, with a
provision that, so long as the company should continue solvent and
comply with the laws of the state, it might collect the interest on
these securities. The law provided that it should not be lawful for
the agents of the company to transact business without procuring
annually from the Director of Trade and Commerce the authority
stating that such company had complied with all the requisitions of
the act which applied to it, and that any violation of the
provisions of the act should subject the one violating it to a
penalty not exceeding $500 for each violation; that such insurance
companies should make annual statements of their condition and
affairs to the Director of Trade and Commerce in the same manner
and in the same form as similar insurance companies organized under
the laws of the state, on or before the first day of March in each
year for the year ending on the preceding 30th of September. The
insurance superintendent was given authority by the same act to
investigate affairs of the foreign companies, such investigation to
be at the expense of the company, and if he found the condition of
any one unsound, to close up the business of the company by
application to the circuit court of the county in which it had its
principal office. By the same act, each foreign company was
required to pay $30 for filing the charter, $10 for filing the
annual statement required, and $2 for each certificate of authority
for agents, and certain other fees of a similar character.
Paragraphs 150, 152, 156, Cahill's Ill.Rev.Stat.1925, c. 73.
By the Act of June 28, 1919 (Cahill's Ill.Rev.Stat.1925, c. 73,
§ 79, p. 1390), it was provided that each nonresident corporation
licensed and admitted to do an insurance
Page 272 U. S. 504
business in the state should pay an annual state tax for the
privilege of so doing, equal to 2 percentum of the gross amount of
premiums received during the preceding calendar year on contracts
covering risks within the state after certain reductions; that the
tax should be in lieu of all license fees or privilege or
occupation taxes levied or assessed by any municipality in the
state, and that no municipality should impose any license fee,
privilege, or occupation tax upon such corporation for the
privilege of doing an insurance business therein, but this should
not be construed to prohibit the levy and collection of any state,
county, or municipal taxes upon the real and personal property of
such corporations, or the levying and collection of taxes
authorized by § 30, above quoted.
By § 12 of the same act (Cahill's Ill.Rev.Stat., c. 73, § 90, p.
1391), it was provided that, if any corporation should fail or
neglect to make any report, or to refuse to pay any tax assessment
within 30 days after the same became due, the Department of Trade
and Commerce should have power to revoke its license to transact
the business of insurance in the state, or to suspend it until the
reports were filed or the taxes paid.
The complainant insurance company complied with the requirements
of § 22 and other unrepealed sections of the Act of 1869 and paid
the 2 percent tax on its premiums received as provided by the Act
of 1919.
By the General Revenue Act of Illinois, in force since February
25, 1898 (Cahill's R.S. 1925, c. 120, § 329, p. 2042), personal
property is to be valued at its fair cash value, which value is to
be set down in one column to be headed "Full Value," and one-half
part thereof is to be ascertained and set down in another column
headed "Assessed Value." The one-half value of all the property so
ascertained and set down is to be the value for all purposes of
taxation. It is further stipulated in this case and found by the
trial court that, for the
Page 272 U. S. 505
year 1923, and for many years prior thereto, there has been what
is called an equalization which systematically and intentionally
reduces the amount set down in the column headed "Full Value" to
not more than 60 percent of the actual market value of the personal
property returned, and by further reducing this by 50 percent to
make the assessed value in accord with the statute, the tax is
collected only on 30 percent of the full value.
This suit presents the question of the validity of the
assessment made by taxing officers under § 30 for the year 1922.
The Supreme Court of Illinois, in
People v. Barrett, 309
Ill. 53, in an opinion announced June 20, 1923, near the close of
the year for which the assessment of 1922 was made, held that the
tax under § 30 was an occupation tax, and that no reduction should
be permitted to foreign insurance companies in the assessment for
taxation of their annual net receipts. The superior court found
that the actual amount of net cash receipts of the complainant
company was $90,824, less by $45,000 than the amount reported by
the Board of Review, so that its decree forbade the collection of
more than $7,184.18, instead of $10,678.50, for which the warrant
had issued, but denied further relief. The complainant insisted
that, under the previous practice and proper construction of § 30
as a property tax, with due equalization and debasement, the tax
assessed should have been $2,155.24, and that this, if anything, is
all that should be collected from it. The supreme court, by a
divided court, three judges dissenting, affirmed the decree of the
superior court.
Hanover Fire Insurance Co. v. Carr, 317
Ill. 366.
The petitioner is an insurance corporation organized under the
laws of the State of New York. By its charter, it is authorized to
do a business of insurance against the hazard of fire, marine
perils, inland navigation, tornado, theft, explosion, property
damage to automobiles, and
Page 272 U. S. 506
other property by collision, crop insurance, and other similar
lines of insurance against specified hazards. There are in Illinois
domestic insurance companies which do business in all of such
risks. In
Fidelity & Casualty Co. v. Board of Review,
264 Ill. 11 decided in 1914, the Supreme Court held that the only
insurance companies whose receipts come within § 30 are foreign
fire, marine, and inland navigation insurance companies doing
business in the state. And if they do business in the other hazards
above stated, as the complainant and petitioner is authorized to
do, then they must pay taxes on their net receipts made not only
from fire, marine, and inland navigation company business, but also
from the other hazards.
The situation, then, is that a foreign fire, marine, and inland
navigation insurance company like the petitioner must pay at a rate
percentum equivalent to that imposed on personal property a tax on
the cash amount or 100 percent of its net receipts from all its
insurance business. A domestic fire, marine, and inland navigation
insurance company pays no tax on its net receipts from any kind of
insurance. Both pay on their personal property other than net
receipts as of a fixed date in each year on an assessment of 30
percent of its full value.
The Supreme Court of Illinois for many years held the payment of
a tax on the net receipts was a tax on personal property.
Walker v. Springfield, 94 Ill. 364;
City of Chicago v.
James, 114 Ill. 479;
Chicago v. Phoenix Insurance
Company, 126 Ill. 276;
National Fire Insurance Co. v.
Hanberg, 215 Ill. 378;
People v. Cosmopolitan Fire
Insurance Co., 246 Ill. 442. The net receipts were the gross
receipts from each agency after the operating expenses had been
deducted. The losses from fire and other risks assumed were not
deducted.
National Fire Insurance Co. v. Hanberg, 215 Ill.
378. It is quite apparent from reading these cases that, in
practice,
Page 272 U. S. 507
the net receipts were treated as personal property and their
assessment was by equalization and debasement reduced from full
value as all other personal property, until the decisions in
People v. Kent, 300 Ill. 324, (1921), and in
People v.
Barrett, 309 Ill. 53.
The general principle upon which the Supreme Court of Illinois
holds the tax complained of herein to be valid is that the payment
of it is part of the condition which the petitioner, as a foreign
insurance company, is obliged to perform in order to maintain and
retain its right to do business in the state. It was settled in
Bank of Augusta v.
Earle, 13 Pet. 519,
Paul v.
Virginia, 8 Wall. 168,
Ducat v.
Chicago, 10 Wall. 410, and
Horn Silver Mining
Co. v. New York, 143 U. S. 305,
that foreign corporations cannot do business in a state except by
the consent of the state; that the state may exclude them
arbitrarily or impose such conditions as it will upon their
engaging in business within its jurisdiction. But there is a very
important qualification to this power of the state, the recognition
and enforcement of which are shown in a number of decisions of
recent years. That qualification is that the state may not exact as
a condition of the corporation's engaging in business within its
limits that its rights secured to it by the Constitution of the
United States may be infringed. This is illustrated in respect to
the breach of the commerce clause of the Constitution by the case
of
Sioux Remedy Co. v. Cope, 235 U.
S. 197,
235 U. S. 203,
and
Looney v. Crane Co., 245 U. S. 178,
245 U. S. 188.
It is illustrated in cases in which a provision of a state law
revoking the license of a foreign corporation for exercising its
constitutional right to remove suits brought against them from the
state courts to the federal courts has been held void,
Terral
v. Burke Construction Co., 257 U. S. 529; in
cases in which the state has vainly attempted to subject foreign
corporations to a payment of a tax which is a tax not only on the
property of
Page 272 U. S. 508
the corporation in the state, but also on its property without
the state, in violation of the due process clause of the Fourteenth
Amendment,
Western Union Telegraph Co. v. Kansas,
216 U. S. 1;
St.
Louis Cotton Compress Co. v. Arkansas, 260 U.
S. 346, and finally in cases of a class to which it is
contended the present case belongs, where a tax or license law
operates to deny to the foreign corporation the equal protection of
the laws,
Southern Railway Co. v. Greene, 216 U.
S. 400;
Air Way Corp. v. Day, 266 U. S.
71. In the former of these last two cases, a railway
corporation of another state had come into Alabama and secured a
license to do business therein as an intrastate railway, and, in
course of that business, had acquired in the state property of a
fixed and permanent nature upon which it had paid all the taxes
levied by the state. It was held that a new and additional
franchise tax for the privilege of doing business within the state,
not imposed upon domestic corporations doing business in the state
of the same character, violated the equal protection clause. In
Air Way Corp. v. Day, a corporation of Delaware had much
or all of its property in Ohio, where it was duly authorized to do
business. Thereafter, a law of Ohio imposed five cents a share upon
a certain proportion of nonpar shares authorized by the State of
Delaware which the court found to be arbitrary, and not based on a
classification of foreign corporations having any reasonable
basis.
In the present case, there is no such permanent investment in
the State of Illinois as there was in the
Greene case in
Alabama, but the averments of the bill show that the complainant
has from year to year secured renewal of its license in the State
of Illinois, and has, through many years past, built up a large
goodwill in the State if Illinois and has associated with it a
large number of agents in the various counties of the state whose
connection with it has resulted in a large and profitable business
to
Page 272 U. S. 509
the complainant, and that it has large numbers of records
containing information respecting its policyholders, the character
and nature of their policies, and other records, the value of all
of which would be destroyed if excluded from the state by a denial
of the equal protection of the laws. In the
Greene case,
the license was indefinite. In this case, it must be renewed from
year to year, but the principle is the same, that, pending the
period of business permitted by the state, the state must not
enforce against its licensees unconstitutional burdens.
It is insisted that we must accept the construction of § 30 by
the state supreme court, and, as the tax levied is sustained by its
construction, and has been held by the court to be an indispensable
condition upon which the petitioner may continue to do business in
Illinois, this Court is bound by both those conclusions.
It is true that the interpretation put upon such a tax law of a
state by its supreme court is binding upon this Court as to its
meaning; but it is not true that this Court, in accepting the
meaning thus given, may not exercise its independent judgment in
determining whether, with the meaning given, its effect would not
involve a violation of the federal Constitution. As said by this
Court in
St. Louis Southwestern Railway v. Arkansas,
235 U. S. 350, at
235 U. S. 362,
where the question was whether a tax law violated the equal
protection clause of the Fourteenth Amendment:
"Upon the mere question of construction, we are, of course,
concluded by the decision of the state court of last resort. But
when the question is whether a tax imposed by a state deprives a
party of rights secured by the federal Constitution, the decision
is not dependent upon the form in which the taxing scheme is cast,
nor upon the characterization of that scheme as adopted by the
state court. We must regard the substance, rather than the
Page 272 U. S. 510
form, and the controlling test is to be found in the operation
and effect of the law as applied and enforced by the state."
This view has been upheld in many cases.
Western Union
Telegraph Co. v. Kansas, 216 U. S. 1,
216 U. S. 27;
Ludwig v. Western Union Telegraph Co., 216 U. S.
146;
Sioux Remedy Co. v. Cope, 235 U.
S. 197;
St. Louis Cotton Compress Co. v.
Arkansas, 260 U. S. 346. In
the last case, the question was whether a foreign corporation doing
business in Arkansas could be required by a law of the state to pay
a so-called occupation tax upon premiums paid by it to insurance
companies not doing business in Arkansas for insurance upon
property of the corporation in Arkansas, the policies having been
issued and accepted outside of Arkansas. This Court held the tax
invalid as a violation of the Fourteenth Amendment. In reaching
this conclusion, this Court said (p.
260 U. S.
348):
"The Supreme Court justified the imposition as an occupation tax
-- that is, as we understand it, a tax upon the occupation of the
defendant. But this Court, although bound by the construction that
the supreme court may put upon the statute, is not bound by the
characterization of it so far as that characterization may bear
upon the question of its constitutional effect."
In subjecting a law of the state which imposes a charge upon
foreign corporations to the test whether such a charge violates the
equal protection clause of the Fourteenth Amendment, a line has to
be drawn between the burden imposed by the state for the license or
privilege to do business in the state and the tax burden which,
having secured the right to do business, the foreign corporation
must share with all the corporations and other taxpayers of the
state. With respect to the admission fee, so to speak, which the
foreign corporation must pay to become a
quasi-citizen of
the state and entitled to
Page 272 U. S. 511
equal privileges with citizens of the state, the measure of the
burden is in the discretion of the state and any inequality as
between the foreign corporation and the domestic corporation in
that regard does not come within the inhibition of the Fourteenth
Amendment, but, after its admission, the foreign corporation stands
equal, and is to be classified, with domestic corporations of the
same kind.
In this class of cases, therefore, the question of the
application of the equal protection clause turns on the stage at
which the foreign corporation is put on a level with domestic
corporations in engaging in business within the state. To leave the
determination of such a question finally to a state court would be
to deprive this Court of its independent judgment in determining
whether a federal constitutional limitation has been infringed.
While we may not question the meaning of the tax law as interpreted
by the state court in the manner and effect in which it is to be
enforced, we must reexamine the question passed upon by the state
court as to whether the law complained of is a part of the
condition upon which admission to do business of the state is
permitted, and is merely a regulating license by the state to
protect the state and its citizens in dealing with such
corporation, or whether it is a tax law for the purpose of securing
contributions to the revenue of the state as they are made by other
taxpayers of the state. Our power and duty in this regard must
follow from our decisions, and, while the exact question has not
heretofore been considered, there can be no doubt that our
conclusion finds its complete support in the analogies of other
cases in which we have had to determine what our duty is in dealing
with the alleged invalidity of state legislation.
Bailey v.
Alabama, 219 U. S. 219,
219 U. S. 239;
Corn Products Co. v. Eddy, 249 U.
S. 427,
249 U. S. 432;
Appleby v. New York, 271 U. S. 364;
Truax v. Corrigan, 257 U. S. 312,
257 U. S.
324-325. What, therefore, we have
Page 272 U. S. 512
to decide here is whether the application of § 30 can be one of
the conditions upon which the insurance company is admitted to do
business in Illinois, or whether, under the law of 1919, the
authority granted by the Department of Trade and Commerce for which
the company paid 2 percent of gross premiums received the previous
year by it put it upon a level with domestic insurance companies
doing business of the same character.
It is plain that compliance with § 30 is not a condition
precedent to permission to do business in Illinois. The state
supreme court concedes this, but its reasoning that payment of the
tax under the section is a condition to its doing business in
Illinois which may vary at the will of the state, without regard to
taxes on similar domestic corporations, is shown by the following
passages:
"The fact that a tax is a privilege tax does not necessarily
require that it be paid as a condition precedent to entering the
state. Such a condition, being precedent, could, of course, be met
but once. However, the greatest financial benefit to such a company
flows from the continuation of the privilege to do business.
Compensation for that privilege should be based on the benefits
actually derived from the business done under such privilege, and
such compensation must necessarily be assessed in some manner after
the business is done and the benefits thereof received. Section 30
provides the method by which the amount of this compensation shall
be determined and assessed."
P. 373.
"Section 22 of the act relating to fire, marine and inland
navigation insurance, aside from specifying certain requirements
imposed upon foreign insurance companies seeking to do business in
this state and specifying what shall be necessary to secure the
right of entry, further provides:"
"Nor shall it be lawful for any agent or agents to act for any
company or companies referred to in this section, directly or
indirectly, in taking risks or transacting
Page 272 U. S. 513
the business of fire and inland navigation insurance in this
state, without procuring annually from the Insurance Superintendent
a certificate of authority stating that such company has complied
with all the requisitions of this act which apply to such companies
and the name of the attorney appointed to act for the company."
"The provisions of § 30 requiring the return of net receipts of
this tax are a part of the 'requisitions of this act.' It is
evident, therefore, from the language in § 22 quoted that, before
appellant may continue in business in this state, its agent shall
procure annually from the Insurance Superintendent of the state or
his successor in law a certificate showing that it has complied
with the requirements of § 30 with reference to this tax. Such
certificate cannot be lawfully issued without such showing. This
act provides no other means of collecting such tax, and no
reference is made for its collection "
P. 374.
The court then refers to another act, which imposes a penalty
for violation of § 30 by placing risks or policies of indemnity
upon property in any other manner than through its regularly
authorized agents, and justifying a revocation of the license for a
period of not less than 90 days, and that it shall not be reissued
until it appears that there is complete compliance with the laws of
the state governing such companies and until it has been shown that
all taxes and penalties and expenses due thereunder have been
paid.
"It seems clear, therefore' says the court (p. 375), 'that this
tax is levied as compensation for the privilege of continuing their
business in the state."
"While the Act of 1919 . . . imposes an annual state tax equal
to 2 percent on the gross amount of premiums received by any
foreign insurance company during the preceding year, . . . that
fact does not show that the tax imposed on the business of fire
insurance by § 30 is not likewise a tax for the privilege of
doing
Page 272 U. S. 514
business. The Act of 1919 requires that the tax there levied be
paid to the state. Section 30 requires that the tax be apportioned
among the state and the different municipalities of the situs of
the agency. A valid reason is seen for this distribution of the
tax. The foreign fire insurance company takes its net proceeds
largely from the vicinity of its agencies, and it is but just that
it return to the municipality in which its agency is located
something in lieu of the taxes that would otherwise be realized
from such net receipts as are taken away."
The view of the court seems to be that the constitutional
necessity for equal application of the laws of the state to foreign
and domestic corporations properly engaged in business is avoided
if only the state provides that failure to comply with the laws
during the period or at the end of the period for which the license
runs justifies a revocation of the license pending the period, or a
refusal to grant a new license for the following year. We do not
think the state may thus relieve itself from granting the equal
protection of its laws to a foreign company which has met the
conditions precedent to its becoming a
quasi-domestic
citizen. Of course, at the end of the year for which the license
has been granted, the state may, in its discretion, impose as
conditions precedent for a renewed license past compliance with its
valid laws; but that does not enable the state to make past
compliance with § 30 a condition precedent to a renewal of the
license, if as we find that section violates the Fourteenth
Amendment, for, as already said, while a state may forbid a foreign
corporation to do business within its jurisdiction, or to continue
it, it may not do so by imposing on a corporation a sacrifice of
its constitutional rights. We have said in
Cheney Bros. Co. v.
Massachusetts, 246 U. S. 147, and
in
Kansas City, etc., Railroad Co. v. Stiles, 242 U.
S. 111,
242 U. S. 118,
that a state does not surrender or abridge its power to change and
revise
Page 272 U. S. 515
its taxing system and tax rates by merely licensing or
permitting a foreign corporation to engage in local business and
acquire property within its limits, and that a state may impose a
different rate of taxation upon a foreign corporation for the
privilege of doing business within the state than it applies to its
own corporations upon the franchise which the state grants them;
but the decision in
Southern Railway Co. v. Greene, supra,
shows that this power to change the tax imposed on a foreign
corporation as a condition for the license of continuing business
is not unlimited, and that any attempt in a renewal to vary the
terms of the original license which, however indirectly, enforces a
new condition upon the corporation and involves a deprivation of
its federal constitutional rights cannot be effective. The state,
in dealing with foreign corporations, may properly and without
discrimination as between them and domestic companies regulate the
former by a provision that for a failure by them to comply with any
valid law governing the conduct of their business in the state the
license already granted may be revoked. That is a legitimate
condition in the treatment of foreign companies which do not have
property and home within the state. It is a police regulation. But
the power thus to revoke a license for breach of a law can only be
validly exercised if the law be a constitutional one. By compliance
with the valid conditions precedent, the foreign insurance company
is put on a level with all other insurance companies of the same
kind, domestic or foreign within the state, and tax laws made to
apply after it has been so received into the state are to be
considered laws enacted for the purpose of raising revenue for the
state, and must conform to the equal protection clause of the
Fourteenth Amendment. This conclusion is not only in accord with
our previous decisions, but is sustained by the reasoning in a
satisfactory judgment of the Court of Errors and Appeals
Page 272 U. S. 516
of New Jersey.
Erie Railway Co. v. State, 31 N.J.Law,
531, 542-544,.
We thus reach the question whether a tax imposed upon foreign
fire, marine, and inland navigation insurance companies on the net
receipts of all their business, whether fire, marine, inland
navigation, or other risks, is a denial of the equal protection of
the laws when domestic insurance companies pay no taxes on such net
receipts. Under the previous decisions of the Supreme Court of
Illinois, when the net receipts were treated as personal property
and the assessment thereon as a personal property tax subjected to
the same reductions for equalization and debasement, it might well
have been said that there was no substantial inequality as between
domestic corporations and foreign corporations, in that the net
receipts were personal property acquired during the year and
removed by foreign companies out of the state, and could be
required justly to yield a tax fairly equivalent to that which the
domestic companies would have to pay on all their personal
property, including their net receipts or what they were invested
in. It was this view, doubtless, which led to the acquiescence by
the state authorities and the foreign insurance companies in such a
construction of § 30 and in the practice under it. But an
occupation tax imposed upon 100 percent of the net receipts of
foreign insurance companies admitted to do business in Illinois is
a heavy discrimination in favor of domestic insurance companies of
the same class and in the same business which pay only a tax on the
assessment of personal property at a valuation reduced to one-half
of 60 percent of the full value of that property. It is a denial of
the equal protection of the laws.
Sunday Lake Iron Co. v.
Wakefield, 247 U. S. 350,
247 U. S.
352-353;
Southern Ry. Co. v. Greene,
216 U. S. 400.
Analogous cases are many.
Cummings v. National Bank,
101 U. S. 153;
Greene v. Louisville R. Co., 244 U.
S. 499,
244 U. S.
516;
Page 272 U. S. 517
Sioux City Bridge v. Dakota County, 260 U.
S. 441,
260 U. S. 445;
Taylor v. L. & N. R. Co., 88 F. 350;
L. & N.
R. Co. v. Bosworth, 209 F. 380, 452;
Washington Water
Power Co. v. Kootenai County, 270 F. 369, 374.
One argument urged against our conclusion is that the relation
of a foreign insurance company to the state which permits it to do
business within its limits is contractual, and that, by coming into
the state and engaging in business on the conditions imposed, it
waives all constitutional restrictions, and cannot object to a
condition or law regulating its obligations even though, as a
statute operating
in invitum, it may be in conflict with
constitutional limitations. This argument cannot prevail in view of
the decisions of this Court in well considered cases.
Insurance Co. v.
Morse, 20 Wall. 445;
Western Union Telegraph
Co. v. Kansas, 216 U. S. 1;
Terral v. Burke Construction Co., 257 U.
S. 529;
Fidelity & Deposit Co. v. Tafoya,
270 U. S. 426;
Frost v. Railroad Commission, 271 U.
S. 583.
The judgment of the Supreme Court of Illinois must be reversed,
and the case remanded for further proceedings not inconsistent with
this opinion.