Macallan Co. v. Massachusetts,
279 U.S. 620 (1929)

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U.S. Supreme Court

Macallan Co. v. Massachusetts, 279 U.S. 620 (1929)

Macallan Co. v. Massachusetts

No. 578

Argued April 25, 1929

Decided May 27, 1929

279 U.S. 620


1. A state tax on federal securities, or on the interest therefrom, is invalid, regardless of the amount of the tax. P. 279 U. S. 624.

2. In determining whether a tax is an excise on the privilege of doing business as a corporation, or is in reality a tax on income from tax-exempt securities, this Court must inquire independently, and is not bound by the designation of the tax in the taxing act or the opinion of the state court as to its nature. P. 279 U. S. 625.

3. In the decisions of this Court holding that a tax lawfully imposed on the exercise of corporate privileges within the taxing power may be measured by income from the property of the corporation, although a part of such income is derived from nontaxable property, it is implicit that the thing taxed in form was in fact and reality the subject aimed at, and that any burden put upon the nontaxable subject by its use as a measure of value was fortuitous and incidental. P. 279 U. S. 627.

4. The fact that a tax ostensibly laid upon a taxable subject is to be measured by the value of a nontaxable subject at once suggests the probability that it was the latter, rather than the former, that the lawmaker sought to reach. If inquiry discloses persuasive grounds for the conclusion that such is the real purpose and effect of the legislation, the tax cannot be upheld. P. 279 U. S. 628.

Page 279 U. S. 621

5. A state cannot tax the bonds of the United States, or the income therefrom, directly or indirectly, in any form. Words which, literally considered, import a tax on something else -- e.g., a tax upon the privilege of doing corporate business measured in part upon the amount of nontaxable interest received -- may nevertheless be adjudged to lay a tax upon the interest if that purpose be fairly inferable from a consideration of the history, the surrounding circumstances, or the statute itself, considered in all its parts. P. 279 U. S. 629.

6. A liberal application of the foregoing principles is essential to the preservation of the constitutional limitations imposed upon the taxing power of the states. P. 279 U. S. 631.

7. The Massachusetts Legislature, having provided for a tax on corporations measured in part by net income, but exempting from consideration as part of the measure all interest upon nontaxable securities, passed an amendment, presumably based on a report of a special committee, which had the effect of repealing this exemption and of thereby imposing a burden on the securities from which, by express language, they had theretofore been free. Held, upon a consideration of the legislation and the contents of the report, that the purpose of the change was to tax the income of the securities. P. 279 U. S. 631.

8. Assuming that the states are authorized by Act of Congress to tax income of national banks derived from United States bonds, this would not justify imposition of like taxes in the case of an ordinary corporation. P. 279 U. S. 633.

9. A state tax on the income of United States bonds held by an ordinary corporation cannot be upheld upon the ground that it was necessary in order to avoid discriminating against national banks contrary to Acts of Congress. P. 279 U. S. 634.

10. State taxation of the income of county and municipal bonds which were exempt by statutory contract of the state held invalid under the contract clause of the Federal Constitution. P. 279 U. S. 634.

264 Mass. 396 reversed.

Appeal from a judgment of the Supreme Judicial Court dismissing a petition for abatement of a tax.

Page 279 U. S. 622

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