1. Whatever the terms used by the state legislature to impose a
tax or by the state court in reference to it, the law cannot be
sustained if it operates to burden or regulate interstate business.
P. 280 U. S.
2. A New Jersey telephone company, all of whose line and other
property were within that state but part of whose business was in
interstate and foreign commerce, was not only taxed ad
on its real and personal property, but was also
subjected to a "franchise tax" of 5% of that part of the gross
receipts from all of its business during the year, which bore the
same proportion to the whole as the length of it line in the public
streets bore to the length of it whole line.
that this exaction was not a charge or rental for
use of public property; nor was it a property tax on the company's
right to use the streets or on the value of its power of eminent
domain and possession of going concern and of a regulated monopoly;
that it was neither a tax on property nor in lieu of a property
tax, but was a direct tax on gross receipts derived from interstate
and foreign commerce and, as to that part, at least, was void under
the commerce clause. Pp. 280 U. S.
105 N.J.L. 641 reversed.
Appeal from a judgment of the Court of Errors and Appeals of New
Jersey which affirmed a judgment of the supreme court of the state,
105 N.J.L. 94, sustaining on certiorari a tax assessment against
Page 280 U. S. 343
MR. JUSTICE BUTLER delivered the opinion of the Court.
In 1928 appellee made an assessment against the appellant under
a law of New Jersey known as the Voorhees Franchise Tax Act.
Appellant caused the assessment by writ of certiorari to be brought
to the supreme court of the state, and there insisted that as
construed the statute is repugnant to the commerce clause. That
court held the law valid, sustained the tax, and dismissed the
writ. 105 N.J.L. 94. And its judgment was affirmed in the Court of
Errors and Appeals. 105 N.J.L. 641.
As stated in its title, the act is one
"for the taxation of all the property and franchises of persons,
copartnerships, associations, or corporations [hereinafter referred
to as taxpayers] using or occupying public streets, highways, roads
or other public places . . . [hereinafter referred to as streets].
Section 1 (P.L.1900, p. 502, as amended by P.L.1917, p. 43, § 2)
provides that "all the property, real and personal, and franchises
of" taxpayers who have the right to use or occupy streets shall be
valued, assessed, and taxed as provided in the Act. Section 2
directs that the respective assessors
"shall each year ascertain the value of such property located
in, upon, or under any public street, . . . in each taxing
district, and the value of the property not so located; when so
ascertained, all such property shall be assessed and taxed at local
rates, as now provided by law. . . ."
"And § 3 requires the valuation of all property located in
streets to be reported by districts to county boards and by them to
Page 280 U. S. 344
Section 4 provides that all such taxpayers shall return each
year to appellee a statement showing the gross receipts of their
business in the state for the calendar year next preceding, and
that "the franchise tax of such person, copartnership, association
or corporation for business so done in this state" shall be upon
such proportion of gross receipts as the length of the line or
mains in the streets bears to the length of the whole line or
mains. Section 5 prescribes the rate. It was 2 percent prior to the
amendment of 1917, but that Act increased it to 3 percent for 1918
to 4 percent for 1919 and to 5 percent for 1920 and each year
Section 6 requires appellee to apportion the franchise tax among
the taxing districts on the basis of the locally assessed value of
the taxpayer's property in the streets in each district to the
total value of all its property so located. The amounts so
apportioned are collected as are other taxes. Section 7 enacts that
money paid to a tax district pursuant to contract shall be
considered a payment on account of the franchise tax imposed by
Act, and § 8 declares that the franchise tax shall be in lieu of
all other franchise taxes assessed against such taxpayers and their
Appellant is a corporation organized under the laws of New
Jersey, and has long carried on a telephone business there. All its
lines and property are within that state. October 1, 1927, it
succeeded to the property and business in that state of the New
York Telephone Company. A supplementary act approved March 27,
1928, required that company's gross receipts in New Jersey in 1927
to be included for the calculation of the franchise tax assessed
against appellant. P.L.1928, p. 223. Each company furnished
intrastate telephone service in New Jersey, and also had large
receipts for transmission of messages, passing over its lines in
that state and other companies' connecting lines, between places in
Page 280 U. S. 345
and places in other states and countries. The service so
rendered in New Jersey in respect of such interstate and foreign
commerce is, for brevity, called interstate business. Appellant's
telephone plant in New Jersey included large amounts of real and
personal property which was assessed and taxed locally. The average
of the local rates in 1918 was 3.877 percent. [Footnote 2
] The record does not disclose the
assessed value of appellant's property.
The gross receipts of both companies from business in New Jersey
in 1927 was $40,280,332.95. Each received from its interstate
business in that state between 23 and 24 percent of its total. The
New York Telephone Company had 10,829 miles of line in New Jersey,
of which 5,516 were in streets. And the appellant, after the
acquisition of the property of the other company, had 15,203 miles,
of which 8,403 were in streets. The franchise tax assessed in 1928,
calculated as required by the Act, amounted to $1,058,997.85.
Appellant paid so much of the tax as was based on its intrastate
earnings. The controversy in this case concerns only the 5 percent
of gross receipts derived from interstate commerce.
The Court of Errors and Appeals rested its decision on the
reasons given by the Supreme Court. The latter declared itself
bound to follow a former decision (Phillipsburg R. Co. v. Board
82 N.J.Law, 49, 81 A. 1121) which, construing a
like statute taxing street railways, held that the tax was not
levied on gross receipts or business, but was "merely an excise
tax," measured in part by gross earnings, on its franchise to exist
as a corporation and its franchise to occupy the streets, and that
it was not repugnant to the commerce clause. Dealing with the tax
here involved, the court held it is a tax on property, "earnings
being taken merely as a measure of the value of the franchise of
Page 280 U. S. 346
Appellant contends that the exaction is a license tax levied
directly on gross receipts from interstate as well as intrastate
commerce in addition to ad valorem
taxes upon its real and
personal property, and that therefore the act is repugnant to the
Appellee insists that the franchise is intangible property which
includes power of eminent domain, right to occupy the streets,
going concern value, and the benefit of the state policy to have a
regulated monopoly. It alludes to Article IV, § VII, par. 12, of
the state constitution: "Property shall be assessed for taxes under
general laws, and by uniform rules, according to its true value,"
and argues that, by using gross receipts as a measure of value of
the property right, a uniform system of taxation at a true value is
attained; that the franchise tax is not upon business, commerce, or
gross receipts as such.
It is elementary that a state may tax property used to carry on
interstate commerce. But, as the Constitution vests exclusively in
the Congress power to regulate interstate and foreign commerce, a
state may not tax, burden, or interfere with such commerce or tax
as such gross earnings derived therefrom or impose a license fee or
other burden upon the occupation or the privilege of carrying on
such commerce, whatever may be the instrumentalities or means
employed to that end. Pullman Co. v. Richardson,
261 U. S. 330
261 U. S. 338
and cases cited. Sprout v. South Bend, 277 U.
, 277 U. S. 171
This tax cannot be sustained if it is not upon the property, but is
in fact a tax upon appellant's gross receipts from interstate and
foreign commerce or a license fee to be computed thereon.
The language of the Act and the decisions of the courts of the
state are to be given consideration in determining the actual
operation and effect of the tax. But neither is necessarily
decisive, for, whatever the terms used by
Page 280 U. S. 347
the legislature to impose the tax or by the courts in reference
to it, the law cannot be sustained if it operates to burden or
regulate interstate business. Galveston, H. & S.A. Ry. Co.
v. Texas, 210 U. S. 217
210 U. S. 227
Quaker City Cab Co. v. Pennsylvania, 277 U.
, 277 U. S. 401
Macallen Co. v. Massachusetts, 279 U.
, 279 U. S.
The franchise tax upon gross earnings does not purport to be,
and is not claimed as, a charge or rental for the use of property
belonging to the state or any of its subdivisions. Indeed, the
appellee insists, and rightly so, that the right to construct,
maintain, and use mains and lines in streets is property owned by
appellant, and it argues that the percentage of gross earnings
exacted is a tax on that property right. Clearly the state, when
passing the act making the assessment, acted, not as a proprietor
demanding compensation for the use of its property, but as
sovereign imposing a tax for the support of government. Cf. St.
Louis v. Western Union Telegraph Co., 148 U. S.
, 148 U. S.
In the title and throughout the Act, the distinction is made
between the tax on property and the franchise tax on gross
receipts. The levying provision (§ 5) defines the exaction as a
"franchise tax upon the annual gross receipts" and elsewhere in the
act it is referred to briefly as "franchise tax." All real and
personal property is required to be taxed by districts at local
rates according to value; the franchise tax is a percentage of
gross receipts, and it is declared to be in lieu not of any
property tax, but of all other franchise taxes.
And as, under the state constitution, property is required to be
assessed by uniform rules according to its true value, the
legislature may not reasonably be deemed to have intended direct
valuation and assessment of some of the property at local rates and
the measurement of the value of other elements of the plant by
percentage of gross earnings increasing on a sliding scale from 2
percent in 1917 to 5 percent in 1920 and thereafter.
Page 280 U. S. 348
Jersey St. Ry. Co. v. Jersey City
(Supreme Court), 73
N.J.Law, 481; (Court of Errors and Appeals) 74 N.J.Law 761.
While the ground on which the Supreme Court put its decision in
this case does not clearly appear, it is certain that, in a number
of earlier decisions, the first of which was in 1906, the franchise
tax upon gross earnings was held by the courts of the state to be a
license fee tax, and not a property tax. North Jersey St. Ry.
Co. v. Jersey City, supra; Bergen Aqueduct Co. v. State Board,
95 N.J.Law, 486; Eastern Penna. Power Co. v. State Board,
103 N.J.Law, 281, and see Phillipsburg R. Co. v. State Bd. of
There is no decision to the contrary, unless
it is this case. Moreover, the preservation of the distinction
between the tax on property and the franchise tax on gross receipts
in amendatory acts passed after the highest court of the state held
the latter to be a license fee strongly suggests that the
legislature intended the meaning of the act to be as construed.
And the prescribed basis of apportionment of gross earnings is
clearly inconsistent with the taxation according to its true value
of appellant's right to use the street for its lines. The telephone
property used to render the service from which the earnings are
derived includes the lands, buildings, equipment, etc., as well as
its lines, and material and labor for operation and maintenance are
also required. The assumption underlying the prescribed rule is
that, in respect of service and earnings per mile, mains and lines
in streets are the same as, or fairly comparable with, the other
mains and lines. But it is well known that one stretch of line may
consist of only a pair of wires, while another stretch may carry
many. The property in the streets was directly taxed by districts
at $41,189,804. Assuming, as appellee contends, that these
assessments did not include the value of appellant's right to use
streets, it would be without rational basis and
Page 280 U. S. 349
arbitrary to use a mileage proportion of gross earnings to
measure the value of the privilege or easement in question. And the
amount of the franchise tax upon gross earnings was the equivalent
of a tax at the average rate on property of value in excess of
$27,000,000. That would assign to the naked right to use streets
for telephone mains and lines more than $3,200 per mile. There has
been called to our attention no precedent for the use of gross
earnings as a measure of the value of a single element of such a
plant. The elements of value resulting from appellant's power of
eminent domain and possession of going concern and of a regulated
monopoly cannot reasonably be deemed to be the sole or even a
distinct source of the gross earnings by which the tax is measured.
We think it very plain that the exaction is not a tax on property
nor in substitution for or in lieu of a property tax. Within the
rule heretofore applied in this Court, the exaction is a direct tax
on gross receipts derived from appellant's interstate commerce,
and, as to that part at least, is void. Philadelphia Steamship
Co. v. Pennsylvania, 122 U. S. 326
122 U. S. 336
122 U. S. 345
Galveston, H. & S.A. Ry. Co., supra, 210 U. S. 227
Meyer v. Wells, Fargo & Co., 223 U.
; U.S. Express Co. v.
Minnesota, 223 U. S. 335
Crew Levick Co. v. Pennsylvania, 245 U.
, 245 U. S.
-297; Cudahy Packing Co. v. Minnesota,
246 U. S. 450
U.S. Glue Co. v. Oak
Creek, 247 U. S. 321
247 U. S. 329
Pullman Co. v. Richardson, supra.
MR. JUSTICE STONE took no part in the consideration or decision
of this case.
P.L.1900, p. 502, as amended by P.L.1902, p. 476, P.L.1917, p.
42, P.L.1918, p. 907, and P.L.1927, p. 567.
Fitzgerald's Legislative Manual, N.J.1929, p. 293.
MR. JUSTICE HOLMES.
The appellant, a New Jersey corporation, has a part of its lines
in and over New Jersey roads and other public places, and transmits
over them messages to places both
Page 280 U. S. 350
within the state and outside. For allowing this privilege, the
state charges a price in the form of a tax of five percent on such
proportion of the gross receipts from all the work done in the
state as the lines in the public places bear to the total lines in
the state. There are no lines outside. The lines in public places
are more than half the total lines. The interstate business is less
than a third of the intrastate. I think the tax constitutional. I
call it the price for a privilege, because that is what the Courts
of the state pronounce it to be, North Jersey Street Ry. v.
73 N.J.Law 481, 484, 74 N.J.Law 761, 763, 765,
because, on the statutes, I think it plainly to be such, and
because a statute must be assumed to rest on any and every ground
that will support it, except so far as excluded by specific
What, then, is to hinder New Jersey from charging a reasonable
price for something that the appellant cannot have without her
consent? It is said that the hindrance lies in the fact that a part
of the burden falls on interstate commerce. I am content to assume
that, if the state were attempting to discriminate against such
commerce and using its right as a disguise, the attempt would fail.
A right specifically protected by the Constitution may become a
wrong when used to carry out an unlawful scheme. But there is
nothing of that sort here. The tax is in lieu of all other taxes on
intangible property, which the privilege is held to be in New
Jersey. The reference to gross earnings to ascertain the value is
legitimate. Cudahy Packing Co. v. Minnesota, 246 U.
. The proportion is prima facie
reasonable, especially in view of the proportions between the
lengths of the lines and between state and interstate business. It
fairly may be supposed that the lines over the streets do their
full share of the work. Furthermore, the only objections to the tax
raised in the record by the appellants are objections to the tax as
a whole insofar as it may touch receipts from interstate
Page 280 U. S. 351
business, not to the proportion adopted. And so I think that the
incidence of a part of the tax on interstate commerce, if any such
there be, "does not constitute a direct and material burden" upon
it. Hendrick v. Maryland, 235 U.
, 235 U. S. 622
United States Express Co. v. Minnesota, 223 U.
I do not think names of any importance to this case, and do not
discuss whether the tax is to be called a property tax upon an
easement, a franchise tax upon an incorporeal hereditament as it is
called in New Jersey, a license tax, or by some other title. If the
statute fixes a price for what the appellant needs the state's
permission to use, I think it within New Jersey's constitutional
power. "Even interstate commerce must pay its way." Postal
Telegraph-Cable Co. v. Richmond, 249 U.
, 249 U. S.
MR. JUSTICE BRANDEIS agrees with this opinion.