1. A statute by which a State taxed deposits in banks outside of
the State at fifty cents per hundred dollars and deposits in banks
within the State at ten cents per hundred dollars
held
consistent with the due process, equal protection, and privileges
and immunities clauses of the Fourteenth Amendment. P.
309 U. S.
86.
2. In taxation, even more than in other fields, legislatures
possess the greatest freedom in classification. The presumption of
constitutionality can be overcome only by the most explicit
demonstration that a classification is a hostile and oppressive
discrimination against particular persons and classes. P.
309 U. S.
87.
3. The treatment accorded the two kinds of deposits in this case
may have resulted from the differences in the difficulties and
expenses of tax collection. P.
309 U. S.
89.
4. The right to carry out an incident to a trade, business, or
calling, such as the deposit of money in banks, is not a privilege
of national citizenship, protected by the privileges and immunities
clause of the Fourteenth Amendment.
Hague v. CIO,
307 U. S. 496,
expounded;
Colgate v. Harvey, 296 U.
S. 404, in part overruled. P.
309 U. S.
90.
277 Ky. 343; 126 S.W.2d 463, affirmed.
Appeal from a judgment sustaining the assessment and taxation of
a decedent's bank deposits, in a suit against the executor of his
will in the name of the Kentucky.
Page 309 U. S. 85
MR. JUSTICE REED delivered the opinion of the Court.
This is an appeal [
Footnote
1] brought here under Section 237(a) of the Judicial Code from
a judgment of the Court of Appeals of Kentucky sustaining the
validity of a statute of that state against an attack by the
appellant on the ground of its being repugnant to the due process,
equal protection,
Page 309 U. S. 86
and privileges and immunities clauses of the Fourteenth
Amendment of the Constitution of the United States.
The issue is whether a state statute which imposes on its
citizens an annual
ad valorem tax on their deposits in
banks outside of the state at the rate of fifty cents per hundred
dollars and at the same time imposes on their deposits in banks
located within the state a similar
ad valorem tax at the
rate of ten cents per hundred dollars is obnoxious to the stated
clauses of the Fourteenth Amendment. The relevant provisions of the
Kentucky statutes for the period in question appear in the note
below. [
Footnote 2]
The opinion of the Court of Appeals of Kentucky in this case
construes the exception in Section 4019, limiting the tax on bank
deposits to one-tenth of one percent, as applicable only to
depositors in local financial institutions organized under the laws
of Kentucky or under the national
Page 309 U. S. 87
banking laws. This interpretation of the state laws is, of
course, accepted by us. [
Footnote
3]
John E. Madden died in November, 1929, a citizen and resident of
Fayette County, Kentucky. On several prior assessment dates, July 1
in Kentucky, Mr. Madden had on deposit in New York banks a
considerable amount of funds. These deposits had not been reported
for the purposes of taxation in Kentucky. That state brought suit
against Mr. Madden's executor to have these deposits assessed as
omitted property and to recover an
ad valorem tax of 50
cents per hundred dollars as of July 1 of each year, together with
interest and penalties. The executor used as one defense against
this claim the contention that a tax on deposits in banks outside
of Kentucky at a higher rate than the tax upon bank deposits within
Kentucky would abridge decedent's privileges and immunities as a
citizen of the United States, deprive him of his property right and
the liberty to keep money on deposit outside of Kentucky without
due process of law, and deny to him equal protection of the law in
violation of the Fourteenth Amendment. The Court of Appeals passed
upon the constitutional questions submitted because of the
difference in taxing rate between Kentucky deposits and
out-of-state deposits. It approved the classification as
permissible under the due process and equal protection clauses, and
refused to accept the argument that its interpretation of the
statutes violated the privileges and immunities clause.
I.
Classification. -- The broad discretion as to
classification possessed by a legislature in the field of
taxation
Page 309 U. S. 88
has long been recognized. [
Footnote 4] This Court fifty years ago concluded that "the
fourteenth amendment was not intended to compel the states to adopt
an iron rule of equal taxation," [
Footnote 5] and the passage of time has only served to
underscore the wisdom of that recognition of the large area of
discretion which is needed by a legislature in formulating sound
tax policies. Traditionally, classification has been a device for
fitting tax programs to local needs and usages in order to achieve
an equitable distribution of the tax burden. It has, because of
this, been pointed out that, in taxation, even more than in other
fields, legislatures possess the greatest freedom in
classification. [
Footnote 6]
Since the members of a legislature necessarily enjoy a familiarity
with local conditions which this Court cannot have, the presumption
of constitutionality can be overcome only by the most explicit
demonstration that a classification is a hostile and oppressive
discrimination against particular persons and classes. [
Footnote 7] The burden is on the one
attacking the legislative arrangement to negative every conceivable
basis which might support it. [
Footnote 8]
Paying proper regard to the scope of a legislature's powers in
these matters, the insubstantiality of appellant's claim that he
has been denied equal protection or due process of law by the
classification is at once apparent. When these statutes were
adopted in 1917, during a general revision of Kentucky's tax laws,
the chief problem facing the legislature was the formulation of
an
Page 309 U. S. 89
enforceable system of intangible taxation. [
Footnote 9] By placing the duty of collection on
local banks, the tax on local deposits was made almost
self-enforcing. The tax on deposits outside the state, however,
still resembled that on investments in
Watson v. State
Comptroller, the collection of which was said to depend
"either upon [the taxpayer's] will or upon the vigilance and
discretion of the local assessors." [
Footnote 10] Here, as in the
Watson case, the
classification may have been "founded in
the purposes
Page 309 U. S.
90
and policy of taxation.'" The treatment accorded the two
kinds of deposits may have resulted from the differences in the
difficulties and expenses of tax collection. [Footnote 11]
II.
Privileges and Immunities. -- The appellant presses
urgently upon us the argument that the privileges and immunities
clause of the Fourteenth Amendment of the Constitution of the
United States [
Footnote 12]
forbids the enforcement by the Kentucky of this enactment which
imposes upon the testator taxes five times as great on money
deposited in banks outside the State as it does on money of others
deposited in banks within the State. The privilege or immunity
which appellant contends is abridged is the right to carry on
business beyond the lines of the his residence, a right claimed as
appertaining to national citizenship.
There is no occasion to attempt again an exposition of the views
of this Court as to the proper limitations of the privileges and
immunities clause. There is a very recent discussion in
Hague
v. Committee Industrial Organization. [
Footnote 13] The appellant purports to accept as
sound the position stated as the view of all the justices
concurring in the
Hague decision. This position is that
the privileges and immunities clause protects all citizens against
abridgement by states of rights of national citizenship, as
distinct from the fundamental or
Page 309 U. S. 91
natural rights inherent in state citizenship. [
Footnote 14] This Court declared in the
Slaughter-House Cases [
Footnote 15] that the Fourteenth Amendment, as well as
the Thirteenth and Fifteenth, were adopted to protect the negroes
in their freedom. This almost contemporaneous interpretation
extended the benefits of the privileges and immunities clause to
other rights which are inherent in national citizenship, but denied
it to those which spring from
Page 309 U. S. 92
state citizenship. [
Footnote
16] In applying this constitutional principle, this Court has
determined that the right to operate an independent
slaughter-house, [
Footnote
17] to sell wine on terms of equality with grape growers,
[
Footnote 18] and to operate
businesses free of state regulation [
Footnote 19] were not privileges and immunities protected
by the Fourteenth Amendment. And a state inheritance tax statute
which limited exemptions to charitable corporations within the
state was held not to infringe any right protected by the
privileges and immunities clause. [
Footnote 20] The Court has consistently refused to list
completely the rights which are covered by the clause, though it
has pointed out the type of rights protected. [
Footnote 21] We think it quite clear that the
right to carry out an incident to a trade, business, or calling
[
Footnote 22] such as the
deposit
Page 309 U. S. 93
of money in banks is not a privilege of national
citizenship.
In the states there reposes the sovereignty to manage their own
affairs except only as the requirements of the Constitution
otherwise provide. Within these constitutional limits, the power of
the state over taxation is plenary. An interpretation of the
privileges and immunities clause which restricts the power of the
states to manage their own fiscal affairs is a matter of gravest
concern to them. [
Footnote
23] It is only the emphatic requirements of the Constitution
which properly may lead the federal courts to such a
conclusion.
Appellant relies upon
Colgate v. Harvey, supra,
[
Footnote 24] as a precedent
to support his argument that the present statute is not within the
limits of permissible classification, and violates the privileges
and immunities clause. In view of our conclusions, we look upon the
decision in that case as repugnant to the line of reasoning adopted
here. As a consequence,
Colgate v. Harvey, supra, must be,
and is, overruled.
Affirmed.
MR. CHIEF JUSTICE HUGHES concurs in the result upon the ground,
as stated by the Court of Appeals of Kentucky, that the
classification adopted by the legislature rested upon a reasonable
basis.
[
Footnote 1]
See Act of January 31, 1928, 45 Stat. 54.
[
Footnote 2]
Carroll's Kentucky Statutes, Baldwin Revision, 1930, § 4019a-10,
p. 2052 (Ky. Acts.1924, Ch. 116, § 3) provides:
"All property subject to taxation for state purposes shall be
subject also to taxation in the county, city, school, or other
taxing district in which same has a taxable situs, except the
following classes of property which shall be subject to taxation
for state purposes only:"
"
* * * *"
"(4) Money in hand, notes, bonds, accounts and other credits,
whether secured by mortgage, pledge, or otherwise, or unsecured,
and shares of stock. . . ."
Carroll's Kentucky Statutes, Baldwin's Revision 1930, § 4019, p.
2048 (Ky. Acts 1924, Ch. 116, § 1, p. 402, as reenacted in Ky. Acts
1926, Ch. 164, p. 739), provides as follows:
"An annual
ad valorem tax for state purposes of thirty
cents (30�) upon each one hundred dollars ($100.00) of value of all
real estate directed to be assessed for taxation, as provided by
law and fifty cents (50�) upon each one hundred dollars ($100.00)
of value of all other property directed to be assessed for
taxation, as provided by law, shall be paid by the owner, person or
corporation assessed; except a tax at the rate of one-tenth of one
percent. (0.1%) [
i.e., 10 cents upon each $100] shall be
paid annually upon the amount of deposits in any bank, trust
company, or combined bank and trust company, organized under the
laws of this State, or in any national bank of this State, as now
provided by law. . . ."
[
Footnote 3]
St. Louis Southwestern Ry. Co. v. Arkansas,
235 U. S. 350,
235 U. S. 362;
Storaasli v. Minnesota, 283 U. S. 57,
283 U. S.
62.
[
Footnote 4]
New York Rapid Transit Corp. v. New York, 303 U.
S. 573, and cases there cited.
[
Footnote 5]
Bell's Gap R. Co. Pennsylvania, 134 U.
S. 232,
134 U. S.
237.
[
Footnote 6]
Citizens' Telephone Co. v. Fuller, 229 U.
S. 322,
229 U. S.
329.
[
Footnote 7]
See the opinion of Mr. Justice Brandeis in
Louisville Gas & Electric Co. v. Coleman, 277 U. S.
32,
277 U. S. 42,
277 U. S.
46-47.
[
Footnote 8]
Lindsley v. Natural Carbonic Gas Co., 220 U. S.
61,
220 U. S.
78-79.
[
Footnote 9]
Because of a prohibition in the Kentucky Constitution of 1891
against classification in taxation, the state and its political
subdivisions taxed intangibles at the same rate as other property.
This resulted in a total tax of about $2.65 per hundred dollars on
intangibles, a tax which in the case of bank deposits almost
equaled the interest on deposits. The high rate led to widespread
evasion of the tax by concealment of intangibles; with bank
deposits, this took the form of withdrawals for deposits outside
the state. The unequal burden which this evasion placed on other
forms of property led to agitation for reform as early as 1908. Two
special tax commissions reported on the need for a constitutional
amendment and a general tax reform. After an amendment permitting
classification was adopted in 1916, a third committee made specific
proposals for revision, and most of the recommendations were
adopted at a special legislative session in 1917.
See the
message of Governor Stanley to the General Assembly of 1917,
Kentucky Senate Journal of 1917, p. 13. In general, the revision
took the form of a drastic lowering of the rates on intangibles. An
even lower rate was placed on bank deposits, and almost complete
collection assured by placing the duty of collection on the
banks.
The studies which led to the general revision of 1917 may be
found in Report of the Kentucky Tax Commission for 1909; Report of
the Special Tax Commission of Kentucky for 1912-14; Report of the
Kentucky Tax Commission for 1916. A careful examination of the
workings of the revised system has been made by Dr. Simeon E.
Leland. The Taxation of Intangibles in Kentucky, Bulletin of the
Bureau of Business Research, College of Commerce, University of
Kentucky, vol. 1, no. 1 (1929).
[
Footnote 10]
254 U. S. 254 U.S.
122,
254 U. S.
124.
[
Footnote 11]
Carmichael v. Southern Coal & Coke Co.,
301 U. S. 495,
301 U. S.
511.
[
Footnote 12]
The 14th Amendment, Section 1, provides:
"All persons born or naturalized in the United States, and
subject to the jurisdiction thereof, are citizens of the United
States and of the State wherein they reside. No State shall make or
enforce any law which shall abridge the privileges or immunities of
citizens of the United States. . . ."
[
Footnote 13]
307 U. S. 307 U.S.
496. The prior cases are collected in Note 2 of the dissenting
opinion in
Colgate v. Harvey, 296 U.
S. 404,
296 U. S. 445,
and Note 1 of Mr. Justice Stone's opinion in the
Hague
case,
307 U. S. 496,
307 U. S.
520.
[
Footnote 14]
Mr. Justice Roberts' opinion, 307 U.S. at
307 U. S.
512:
"Although it has been held that the Fourteenth Amendment created
no rights in citizens of the United States, but merely secured
existing rights against state abridgement, it is clear that the
right peaceably to assemble and to discuss these topics, and to
communicate respecting them, whether orally or in writing, is a
privilege inherent in citizenship of the United States which the
Amendment protects."
Mr. Justice Stone's opinion, 307 U.S. at
307 U. S.
519-521:
"Hence, there is no occasion . . . to revive the contention,
rejected by this Court in the
Slaughter-House Cases,
supra, that the privileges and immunities of United States
citizenship, protected by that clause, extend beyond those which
arise or grow out of the relationship of United States citizens to
the national government."
"That such is the limited application of the privileges and
immunities clause seems now to be conceded by my brethren."
[
Footnote 15]
16 Wall. 36 at
83 U. S.
71-72:
"We repeat, then, in the light of this recapitulation of events
almost too recent to be called history, but which are familiar to
us all, and on the most casual examination of the language of these
amendments, no one can fail to be impressed with the one pervading
purpose found in them all, lying at the foundation of each, and
without which none of them would have been even suggested; we mean
the freedom of the slave race, the security and firm establishment
of that freedom, and the protection of the newly made freeman and
citizen from the oppressions of those who had formerly exercised
unlimited dominion over him. . . ."
". . . And so, if other rights are assailed by the States which
properly and necessarily fall within the protection of these
articles, that protection will apply though the party interested
may not be of African descent. But what we do say, and what we wish
to be understood, is that, in any fair and just construction of any
section or phrase of these amendments, it is necessary to look to
the purpose which we have said was the pervading spirit of them
all, the evil which they were designed to remedy, and the process
of continued addition to the Constitution, until that purpose was
supposed to be accomplished as far as constitutional law can
accomplish it."
[
Footnote 16]
Id., 83 U. S.
78-79.
[
Footnote 17]
Slaughter-House Cases, supra.
[
Footnote 18]
Cox v. Texas, 202 U. S. 446;
cf. 85 U. S. Iowa,
18 Wall. 129;
Crowley v. Christensen, 137 U. S.
86;
Giozza v. Tiernan, 148 U.
S. 657;
Crane v. Campbell, 245 U.
S. 304.
[
Footnote 19]
Holden v. Hardy, 169 U. S. 366;
Wilmington Star Mining Co. v. Fulton, 205 U. S.
60;
Western Union Telegraph Co. v. Commercial
Milling Co., 218 U. S. 406;
Rosenthal v. New York, 226 U. S. 260;
Prudential Ins. Co. v. Cheek, 259 U.
S. 530.
[
Footnote 20]
Board of Education v. Illinois, 203 U.
S. 553;
cf. Ferry v. Spokane, P. & S. Ry.
Co., 258 U. S. 314.
[
Footnote 21]
They have been described as
"privileges and immunities arising out of the nature and
essential character of the national government, and granted or
secured by the constitution of the United States."
In re Kemmler, 136 U. S. 436,
136 U. S. 448.
See also Slaughter-House Cases, supra, at
83 U. S. 79-80;
United States v. Cruikshank, 92 U. S.
542,
92 U. S. 552;
Williams v. Fears, 179 U. S. 270,
179 U. S. 274;
Twining v. New Jersey, 211 U. S. 78,
211 U. S.
97.
[
Footnote 22]
Cf. Twining v. New Jersey, 211 U. S.
78,
211 U. S.
94.
[
Footnote 23]
Twining v. New Jersey, supra, 211 U. S.
92.
[
Footnote 24]
296 U. S. 296 U.S.
404.
MR. JUSTICE ROBERTS.
I think that the judgment should be reversed. Four years ago in
Colgate v. Harvey, 296 U. S. 404,
this court held that the equal protection clause and the privileges
and immunities clause of the Fourteenth Amendment prohibit such a
discrimination as results from the statute now under review. I
adhere to the views expressed in
Page 309 U. S. 94
the opinion of the court in that case, and think it should be
followed in this.
MR. JUSTICE McREYNOLDS joins in this opinion.