The State of New York, in the sale of mineral waters taken from
Saratoga Springs, owned and operated by the State, is not immune
under the Federal Constitution from the tax imposed on mineral
waters by § 615 of the Revenue Act of 1932. Pp.
326 U. S.
573-574,
326 U. S.
584.
140 F.2d 608 affirmed.
Certiorari, 322 U.S. 724, to review the affirmance of a judgment
for the United States, 48 F. Supp. 15, in a suit to recover taxes
assessed against the State on the sale of mineral water.
Page 326 U. S. 573
MR. JUSTICE FRANKFURTER announced the judgment of the Court and
delivered an opinion in which MR. JUSTICE RUTLEDGE joined.
Section 615(a)(5) of the 1932 Revenue Act, 47 Stat. 169, 264,
imposed a tax on mineral waters. [
Footnote 1] The United States brought this suit to recover
taxes assessed against the New York on the sale of mineral waters
taken
Page 326 U. S. 574
from Saratoga Springs, New York. [
Footnote 2] The State claims immunity from this tax on the
ground that,
"in the bottling and sale of the said waters, the defendant
State of New York was engaged in the exercise of a usual,
traditional, and essential governmental function."
The claim was rejected by the District Court, and judgment went
for the United States. 48 F. Supp. 15. The judgment was affirmed by
the Circuit Court of Appeals for the Second Circuit. 140 F.2d 608.
The strong urging of New York for further clarification of the
amenability of States to the taxing power of the United States led
us to grant certiorari. 322 U.S. 724. After the case was argued at
the 1944 Term, reargument was ordered.
On the basis of authority, the case is quickly disposed of. When
States sought to control the liquor traffic by going into the
liquor business, they were denied immunity from federal taxes upon
the liquor business.
South
Carolina
Page 326 U. S. 575
v. United States, 199 U. S. 437;
Ohio v. Helvering, 292 U. S. 360.
And, in rejecting a claim of immunity from federal taxation when
Massachusetts took over the street railways of Boston, this Court,
a decade ago, said: "We see no reason for putting the operation of
a street railway [by a State] in a different category from the sale
of liquors."
Helvering v. Powers, 293 U.
S. 214,
293 U. S. 227.
We certainly see no reason for putting soft drinks in a different
constitutional category from hard drinks.
See also Allen v.
Regents, 304 U. S. 439.
One of the greatest sources of strength of our law is that it
adjudicates concrete cases, and does not pronounce principles in
the abstract. But there comes a time when even the process of
empiric adjudication calls for a more rational disposition than
that the immediate case is not different from preceding cases. The
argument pressed by New York and the forty-five other States who,
as
amici curiae, have joined her deserves an answer.
Enactments levying taxes made in pursuance of the Constitution
are, as other laws are, "the supreme Law of the Land." Art. VI,
Constitution of the United States;
Flint v. Stone Tracy
Co., 220 U. S. 107, 108
[argument of counsel, omitted},
220 U. S. 153.
The first of the powers conferred upon Congress is the power "To
lay and collect Taxes, Duties, Imposts and Excises. . . ." Art. I,
§ 8. By its terms, the Constitution has placed only one limitation
upon this power, other than limitations upon methods of laying
taxes not here relevant: Congress can lay no tax "on Articles
exported from any State." Art. I, § 9. Barring only exports, the
power of Congress to tax "reaches every subject."
License
Tax Cases, 5 Wall. 462,
72 U. S. 471.
But the fact that ours is a federal constitutional system, as
expressly recognized in the Tenth Amendment, carries with it
implications regarding the taxing power as in other aspects of
government.
See, e.g., Hopkins Federal Savings Assn. v.
Cleary, 296 U. S. 315.
Thus, for Congress to tax State activities while leaving
Page 326 U. S. 576
untaxed the same activities pursued by private persons would do
violence to the presuppositions derived from the fact that we are a
Nation composed of States.
But the fear that one government may cripple or obstruct the
operations of the other early led to the assumption that there was
a reciprocal immunity of the instrumentalities of each from
taxation by the other. It was assumed that there was an equivalence
in the implications of taxation by a the governmental activities of
the National Government and the taxation by the National Government
of State instrumentalities. This assumed equivalence was nourished
by the phrase of Chief Justice Marshall that "the power to tax
involves the power to destroy."
McCulloch
v. Maryland, 4 Wheat. 316,
17 U. S. 431.
To be sure, it was uttered in connection with a tax of Maryland
which plainly discriminated against the use by the United States of
the Bank of the United States as one of its instruments. What he
said may not have been irrelevant in its setting . But Chief
Justice Marshall spoke at a time when social complexities did not
so clearly reveal as now the practical limitations of a rhetorical
absolute.
See Holmes, J., in
Long v. Rockwood,
277 U. S. 142,
277 U. S. 148,
and in
Panhandle Oil Co. v. Mississippi, 277 U.
S. 218,
277 U. S. 223.
The phrase was seized upon as the basis of a broad doctrine of
intergovernmental immunity, while at the same time an expansive
scope was given to what were deemed to be "instrumentalities of the
government" for purposes of tax immunity. As a result, immunity
was, until recently, accorded to all officers of one government
from taxation by the other, and it was further assumed that the
economic burden of a tax on any interest derived from a government
imposes a burden on that government so as to involve an
interference by the taxing government with the functioning of the
other government.
See Metcalf & Eddy v. Mitchell,
269 U. S. 514;
Helvering v. Mountain Producers Corp., 303 U.
S. 376;
Graves v. New York ex rel. O'Keefe,
306 U. S. 466,
306 U. S.
480-481.
Page 326 U. S. 577
To press a juristic principle designed for the practical affairs
of government to abstract extremes is neither sound logic nor good
sense. And this Court is under no duty to make law less than sound
logic and good sense. When this Court, for the first time, relieved
States officers from a nondiscriminatory Congressional tax, not
because of anything said in the Constitution, but because of the
supposed implications of our federal system, Mr. Justice Bradley
pointed out the invalidity of the notion of reciprocal
intergovernmental immunity. The considerations bearing upon
taxation by the States of activities or agencies of the federal
government are not correlative with the considerations bearing upon
federal taxation of State agencies or activities. The federal
government is the government of all the States, and all the States
share in the legislative process by which a tax of general
applicability is laid. "The taxation by the State governments of
the instruments employed by the general government in the exercise
of its powers," said Mr. Justice Bradley,
"is a very different thing. Such taxation involves an
interference with the powers of a government in which other States
and their citizens are equally interested with the State which
imposes the taxation. [
Footnote
3]"
Since then, we have moved
Page 326 U. S. 578
away from the theoretical assumption that the National
Government is burdened if its functionaries, like other citizens,
pay for the upkeep of their State governments, and we have denied
the implied constitutional immunity of federal officials from State
taxes.
Graves v. New York ex rel. O'Keefe, supra. See
Gillespie v. Oklahoma, 257 U. S. 501,
criticized in
Burnet v. Coronado Oil & Gas Co.,
285 U. S. 393,
285 U. S. 401,
and explicitly overruled in
Helvering v. Mountain Producers
Corp., 303 U. S. 376;
Long v. Lockwood, 277 U. S. 142,
overruled in Fox Film Corp. v. Doyal, 286 U.
S. 123;
Collector v.
Day, 11 Wall. 113, and
New York ex rel. Rogers
v. Graves, 299 U. S. 401,
overruled in Graves v. New York ex rel. O'Keefe,
supra.
In the meantime, cases came here, as we have already noted, in
which States claimed immunity from a federal
Page 326 U. S. 579
tax imposed generally on enterprises in which the State itself
was also engaged. This problem did not arise before the present
century, partly because State trading did not actively emerge until
relatively recently, and partly because of the narrow scope of
federal taxation. In
South Carolina v. United States,
199 U. S. 437,
immunity from a federal tax on a dispensary system whereby South
Carolina monopolized the sale of intoxicating liquors was denied by
drawing a line between taxation of the historically recognized
governmental functions of a State and business engaged in by a
State of a kind which theretofore had been pursued by private
enterprise. The power of the federal government thus to tax a
liquor business conducted by the State was derived from an appeal
to the Constitution "in the light of conditions surrounding at the
time of its adoption."
South Carolina v. United States,
supra, at
199 U. S. 457.
That there is a Constitutional line between the State as government
and the State as trader was still more recently made the basis of a
decision sustaining a liquor tax against Ohio.
"If a state chooses to go into the business of buying and
selling commodities, its right to do so may be conceded so far as
the Federal Constitution is concerned, but the exercise of the
right is not the performance of a governmental function. . . . When
a state enters the marketplace seeking customers, it divests itself
of its
quasi-sovereignty
pro tanto, and takes on
the character of a trader, so far, at least, as the taxing power of
the federal government is concerned."
Ohio v. Helvering, supra, at
292 U. S. 369.
When the Ohio case was decided, it was too late in the day not to
recognize the vast extension of the sphere of government, both
State and national, compared with that with which the Fathers were
familiar. It could hardly remain a satisfactory constitutional
doctrine that only such State activities are immune from federal
taxation as were engaged in by the States in 1787. Such a static
concept of government denies its essential nature.
"The science of government is the most abstruse
Page 326 U. S. 580
of all sciences, if, indeed, that can be called a science, which
has but few fixed principles and practically consists in little
more than the exercise of a sound discretion, applied to the
exigencies of the state as they arise. It is the science of
experiment."
Anderson v.
Dunn, 6 Wheat. 204,
19 U. S.
226.
When this Court came to sustain the federal taxing power upon a
transportation system operated by a State, it did so in ways
familiar in developing the law from precedent to precedent. It
edged away from reliance on a sharp distinction between the
"governmental" and the "trading" activities of a State, by denying
immunity from federal taxation to a State when it
"is undertaking a business enterprise of a sort that is normally
within the reach of the federal taxing power and is distinct from
the usual governmental functions that are immune from federal
taxation in order to safeguard the necessary independence of the
state."
Helvering v. Powers, supra, at
293 U. S. 227.
But this likewise does not furnish a satisfactory guide for dealing
with such a practical problem as the constitutional power of the
United States over State activities. To rest the federal taxing
power on what is "normally" conducted by private enterprise in
contradiction to the "usual" governmental functions is too shifting
a basis for determining constitutional power, and too entangled in
expediency to serve as a dependable legal criterion. The essential
nature of the problem cannot be hidden by an attempt to separate
manifestations of indivisible governmental powers.
See
Wambaugh, Present Scope of Government (1897) 20 A.B.A.Rep. 307;
Frankfurter, The Public and its Government (1930).
The present case illustrates the sterility of such an attempt.
[
Footnote 4] New York urges
that, in the use it is making of
Page 326 U. S. 581
Saratoga Springs, it is engaged in the disposition of its
natural resources. And so it is. But, in doing so, it is engaged in
an enterprise in which the State sells mineral waters in
competition with private waters the sale of which Congress has
found necessary to tap as a source of revenue for carrying on the
National Government. To say that the States cannot be taxed for
enterprises generally pursued, like the sale of mineral water,
because it is somewhat connected with a State's conservation policy
is to invoke an irrelevance to the federal taxing power. Liquor
control by a State certainly concerns the most important of a
State's natural resources -- the health and wellbeing of its
people.
See Mugler v. Kansas, 123 U.
S. 623,
123 U. S. 662;
Crane v. Campbell, 245 U. S. 304,
245 U. S. 307.
If, in its wisdom, a State engages in the liquor business and may
be taxed by Congress as others engaged in the liquor business are
taxed, so also Congress may tax the States when they go into the
business of bottling water as others in the mineral water business
are taxed, even though a State's sale of its mineral waters has
relation to its conservation policy.
In the older cases, the emphasis was on immunity from taxation.
The whole tendency of recent cases reveals a shift in emphasis to
that of limitation upon immunity. They also indicate an awareness
of the limited role of courts in assessing the relative weight of
the factors upon which immunity is based. Any implied limitation
upon the supremacy of the federal power to levy a tax like that now
before us, in the absence of discrimination against State
activities, brings fiscal and political factors into play. The
problem cannot escape issues that do not lend themselves to
judgment by criteria and methods of reasoning that are within the
professional training and special competence of judges. Indeed, the
claim of implied immunity by States from federal taxation raises
questions not wholly unlike provisions of the Constitution, such
as
Page 326 U. S. 582
that of Art. IV, § 4, guaranteeing States a republican form of
government,
see Pacific States Tel. & Tel. Co. v.
Oregon, 223 U. S. 118,
which this Court has deemed not within its duty to adjudicate.
We have already held that, by engaging in the railroad business,
a State cannot withdraw the railroad from the power of the federal
government to regulate commerce.
United States v.
California, 297 U. S. 175.
See also University of Illinois v. United States,
289 U. S. 48.
Surely the power of Congress to lay taxes has impliedly no less a
reach than the power of Congress to regulate commerce. There are,
of course, State activities and State-owned property that partake
of uniqueness from the point of view of intergovernmental
relations. These inherently constitute a class by themselves. Only
a State can own a Statehouse; only a State can get income by
taxing. These could not be included for purposes of federal
taxation in any abstract category of taxpayers without taxing the
State as a State. But, so long as Congress generally taps a source
of revenue by whomsoever earned and not uniquely capable of being
earned only by a State, the Constitution of the United States does
not forbid it merely because its incidence falls also on a State.
If Congress desires, it may, of course, leave untaxed enterprises
pursued by States for the public good while it taxes like
enterprises organized for private ends.
Cf. Springfield Gas Co.
v. Springfield, 257 U. S. 66;
University of Illinois v. United States, supra, at
289 U. S. 57;
Puget Sound Co. v. Seattle, 291 U.
S. 619. If Congress makes no such differentiation, and,
as in this case, taxes all vendors of mineral water alike, whether
State vendors or private vendors, it simply says, in effect, to a
State:
"You may carry out your own notions of social policy in engaging
in what is called business, but you must pay your share in having a
nation which enables you to pursue your policy."
After all, the representatives of all the States, having, as the
appearance
Page 326 U. S. 583
of the Attorneys General of forty-six States at the bar of this
Court shows, common interests, alone can pass such a taxing
measure, and they alone, in their wisdom, can grant or withhold
immunity from federal taxation of such State activities.
The process of Constitutional adjudication does not thrive on
conjuring up horrible possibilities that never happen in the real
world and devising doctrines sufficiently comprehensive in detail
to cover the remotest contingency. Nor need we go beyond what is
required for a reasoned disposition of the kind of controversy now
before the Court. The restriction upon States not to make laws that
discriminate against interstate commerce is a vital constitutional
principle, even though "discrimination" is not a code of specifies,
but a continuous process of application. So we decide enough when
we reject limitations upon the taxing power of Congress derived
from such untenable criteria as "proprietary" against
"governmental" activities of the States, or historically sanctioned
activities of Government or activities conducted merely for profit,
[
Footnote 5] and find
Page 326 U. S. 584
no restriction upon Congress to include the States in levying a
tax exacted equally from private persons upon the same subject
matter.
Judgment affirmed.
MR. JUSTICE JACKSON took no part in the consideration or
decision of this case.
[
Footnote 1]
"Sec. 615. Tax on Soft Drinks."
"(a) There is hereby imposed -- . . ."
"
* * * *"
"(5) Upon all natural or artificial mineral waters or table
waters, whether carbonated or not, and all imitations thereof, sold
by the producer, bottler, or importer thereof, in bottles or other
closed containers at over 12 1/2 cents per gallon, a tax of 2 cents
per gallon."
[
Footnote 2]
The history of New York's relations to the springs at Saratoga
may be briefly summarized. Under previous private operation, the
flow of the springs had been substantially diminished by excessive
pumping. In 1911, the New York began to acquire title to all the
lands on which the mineral springs were located at Saratoga
Springs. In order to conserve the springs for beneficial operation,
the State took various measures until, in 1930, control over the
springs in the State Reservation was given to the newly created
Saratoga Springs Commission. In 1933, the Commission leased the
springs' facilities, and delegated their management to the Saratoga
Springs Authority, a public benefit corporation of New York.
During the years 1932 to 1934 for which the tax is asserted, the
Commission and the Authority operated the Reservation as a health
resort and spa. There are recreation facilities, bath houses, drink
halls, a research laboratory, and other buildings on the grounds.
Some of the mineral waters of the springs that have a medicinal
value are bottled and sold to distributors, retailers, and directly
to consumers. The sales are promoted by advertising, and
customarily yield a profit which is applied to meeting in part the
expenses of operating the other facilities. The remainder of those
expenses is met by annual legislative appropriations.
[
Footnote 3]
The views of Mr. Justice Bradley have been so vindicated by time
and experience that his whole compact opinion deserves to be
recalled:
"I dissent from the opinion of the court in this case because it
seems to me that the general government has the same power of
taxing the income of officers of the State governments as it has of
taxing that of its own officers. It is the common government of all
alike, and every citizen is presumed to trust his own government in
the matter of taxation. No man ceases to be a citizen of the United
States by being an officer under the State government. I cannot
accede to the doctrine that the general government is to be
regarded as in any sense foreign or antagonistic to the State
governments, their officers, or people; nor can I agree that a
presumption can be admitted that the general government will act in
a manner hostile to the existence or functions of the State
governments, which are constituent parts of the system or body
politic forming the basis on which the general government is
founded. The taxation by the State governments of the instruments
employed by the general government in the exercise of its powers is
a very different thing. Such taxation involves an interference with
the powers of a government in which other States and their citizens
are equally interested with the State which imposes the taxation.
In my judgment, the limitation of the power of taxation in the
general government which the present decision establishes will be
found very difficult of control. Where are we to stop in
enumerating the functions of the State governments which will be
interfered wit by Federal taxation? If a State incorporates a
railroad to carry out its purposes of internal improvement, or a
bank to aid its financial arrangements, reserving, perhaps, a
percentage on the stock or profits, for the supply of its own
treasury, will the bonds or stock of such an institution be free
from Federal taxation? How can we now tell what the effect of this
decision will be? I cannot but regard it as founded on a fallacy,
and that it will lead to mischievous consequences. I am as much
opposed as anyone can be to any interference by the general
government with the just powers of the State governments. But no
concession of any of the just powers of the general government can
easily be recalled. I therefore consider it my duty to at least
record my dissent when such concession appears to be made. An
extended discussion of the subject would answer no useful
purpose."
Collector v.
Day, 11 Wall. 113,
78 U. S.
128-129.
[
Footnote 4]
This method of solving a problem inherent in a federal
constitutional system has been found equally inconclusive in Latin
America.
See Amadeo, Argentine Constitutional Law (1943)
97-103.
[
Footnote 5]
Attempts along similar lines to solve kindred problems arising
under the Canadian and Australian Constitutions have also proved a
barren process.
See Australia Constitution Act, 1900, §
114, in Edgerton, Federations and Unions in the British Empire (2d
ed., 1924) 225; Pond, Intergovernmental Immunity: A Comparative
Study of the Federal System (1941) 26 Iowa L.Rev. 272; Kennedy
& Wells, The Law of the Taxing Power in Canada (1931)
35-37.
Even where the Constitution of a federal system explicitly deals
with the problem of intergovernmental taxation, as in Brazil,
litigation is not escaped, and nice distinctions have to be made.
See cases arising under Article 10 of the Constitution of
1891 and under Article 32 of the Constitution of 1937: Appelacao
civel, No. 2.884, 13 Rivesta do Supremo Tribunal 203 (1917);
Appelacao civel, No. 2.900, 14 Rivesta do Supreme Tribunal 44
(1918); Appelacao civel, No. 536, 19 Revista do Suprema Tribunal 76
(1919); Recuso de mandado de seguranca No. 617, 56 Archivo
Judiciario 3 (1940); Agravo de peticao, No. 8.024, 59 Archivo
Judiciario 85 (1941). Article 32 of the Constitution of 1937, the
present Brazilian Constitution, provides: "The Union, the States,
and the Municipalities are forbidden: . . . (
c) to tax
goods, income, or services of each other." Speaking of the earlier
Constitution, a commentator notes:
"These limitations on the federal taxing power are all taken
from our own jurisprudence, either by direct transcription from the
Constitution of the United States or by the incorporation of
principles laid down in decisions of our [the United States]
Supreme Court, as is the case with the last named prohibition"
-- "the prohibition against taxing property, revenues, or
services of the States." James, Federal Basis of the Brazilian
System (1923) 45.
MR. JUSTICE RUTLEDGE, concurring.
I join in the opinion of MR. JUSTICE FRANKFURTER and in the
result. I have no doubt upon the question of power. The shift from
immunity to taxability has gone too far, and with too much reason
to sustain it, as respects both state functionaries and state
functions, for backtracking to doctrines founded in philosophies of
sovereignty more current and perhaps more realistic in an earlier
day. Too much is or may be at stake for the nation to permit
relieving the states of their duty to support it, financially as
otherwise, when they take over increasingly the things men have
been accustomed to carry on as private, and therefore taxable,
enterprise. Competitive considerations unite with the necessity for
securing the federal revenue, in a time when the federal burden
grows heavier proportionately than that of the states, to forbid
that they be free to undermine, rather than obligated to sustain,
the nation's financial requirements.
All agree that not all of the former immunity is gone. For the
present, I assent to the limitation against discrimination, which I
take to mean that state functions
Page 326 U. S. 585
may not be singled out for taxation when others performing them
are not taxed or for special burdens when they are. What would
happen if the state should take over a monopoly of traditionally
private income-producing business may be left for the future,
insofar as this has not been settled by
South Carolina v.
United States, 199 U. S. 437.
Perhaps there are other limitations also, apart from the practical
one imposed by the state's representation in Congress. If the way
were open, I would add a further restricting factor, not of
constitutional import, but of construction.
With the passing of the former broad immunity, I should think
two considerations well might be taken to require that, before a
federal tax can be applied to activities carried on directly by the
states, the intention of Congress to tax them should be stated
expressly, and not drawn merely from general wording of the statute
applicable ordinarily to private sources of revenue. One of these
is simply a reflection of the old immunity, in the presence of
which, of course, it would be inconceivable that general wording,
such as the statute now in question contains, could be taken as
intended to apply to the states. [
Footnote 2/1] The other is that, quite apart from
reflections of that immunity, I should expect that Congress would
say so explicitly, were its purpose actually to include state
functions, where the legal incidence of the tax falls upon the
state. [
Footnote 2/2] And the
concurring opinion of Mr. Justice Bradley in
United
States v. Baltimore & Ohio R. Co., 17 Wall.
322,
84 U. S. 333,
indicates that he may have been of this general view.
Page 326 U. S. 586
Nevertheless, since
South Carolina v. United States,
supra, such a rule of construction seems not to have been
thought required. [
Footnote 2/3]
Accordingly, although I gravely doubt that, when Congress taxed
every "person," it intended also to tax every state, the ruling has
been made, [
Footnote 2/4] and I
therefore acquiesce in this case.
[
Footnote 2/1]
To give removal of the immunity the effect of inverting the
intention of Congress, in its later use of the same formula, is a
leap in construction longer than seems reasonable to make.
[
Footnote 2/2]
Cf. 26 U.S.C. § 22(a), where Congress has specifically
provided that compensation for personal service, includible in
gross income, includes compensation for personal service as an
officer or employee of a state, or any political subdivision
thereof, or any agency or instrumentality of any one or more of the
foregoing.
[
Footnote 2/3]
University of Illinois v. United States, 289 U. S.
48;
Ohio v. Helvering, 292 U.
S. 360.
See Manhattan Co. v. Blake,
148 U. S. 412. In
Graves v. New York ex rel. O'Keefe, 306 U.
S. 466,
306 U. S. 479,
the Court said, in another connection:
"It is true that the silence of Congress, when it has authority
to speak, may sometimes give rise to an implication as to the
Congressional purpose. . . . But there is little scope for the
application of that doctrine to the tax immunity of governmental
instrumentalities."
[
Footnote 2/4]
See Ohio v. Helvering, supra.
MR. CHIEF JUSTICE STONE concurring.
MR. JUSTICE REED, MR. JUSTICE MURPHY, MR. JUSTICE BURTON and I
concur in the result. We are of the opinion that the tax here
involved should be sustained, and the judgment below affirmed.
In view of our decisions in
South Carolina v. United
States, 199 U. S. 437,
Ohio v. Helvering, 292 U. S. 360,
Helvering v. Powers, 293 U. S. 214, and
Allen v. Regents, 304 U. S. 439, we
would find it difficult not to sustain the tax in this case, even
though we regard as untenable the distinction between
"governmental" and "proprietary" interests on which those cases
rest to some extent. But we are not prepared to say that the
national government may constitutionally lay a nondiscriminatory
tax on every class of property and activities of States and
individuals alike.
Concededly a federal tax discriminating against a State would be
an unconstitutional exertion of power over a coexisting sovereignty
within the same framework of government. But our difficulty with
the formula, now first suggested as offering a new solution for an
old problem,
Page 326 U. S. 587
is that a federal tax which is not discriminatory as to the
subject matter may nevertheless so affect the State, merely because
it is a State that is being taxed, as to interfere unduly with the
State's performance of its sovereign functions of government. The
counterpart of such undue interference has been recognized since
Marshall's day as the implied immunity of each of the dual
sovereignties of our constitutional system from taxation by the
other.
McCulloch v.
Maryland, 4 Wheat. 316. We add nothing to this
formula by saying, in a new form of words, that a tax which
Congress applies generally to the property and activities of
private citizens may not be in some instances constitutionally
extended to the States merely because the States are included among
those who pay taxes on a like subject of taxation.
If the phrase "nondiscriminatory tax" is to be taken in its long
accepted meaning as referring to a tax laid on a like subject
matter, without regard to the personality of the taxpayer, whether
a State, a corporation or a private individual, it is plain that
there may be nondiscriminatory taxes which, when laid on a State,
would nevertheless impair the sovereign status of the State quite
as much as a like tax imposed by a State on property or activities
of the national government.
Mayo v. United States,
319 U. S. 441,
319 U. S.
447-448. This is not because the tax can be regarded as
discriminatory, but because a sovereign government is the taxpayer,
and the tax, even though nondiscriminatory, may be regarded as
infringing its sovereignty.
A State may, like a private individual, own real property and
receive income. But, in view of our former decisions, we could
hardly say that a general nondiscriminatory real estate tax
(apportioned), or an income tax laid upon citizens and States
alike, could be constitutionally applied to the State's capitol,
its State-house, its public school houses, public parks, or its
revenues from taxes or
Page 326 U. S. 588
school lands, even though all real property and all income of
the citizen is taxed. If it be said that private citizens do not
own State-houses or public school buildings or receive tax
revenues, it may equally be said that private citizens do not
conduct a State-owned liquor business or derive revenue from a
State-owned athletic field. Obviously Congress, in taxing property
or income generally, is not taxing a State "as a State" because the
State happens to own real estate or receive income. Whether a State
or an individual is taxed, in each instance, the taxable occasion
is the same. The tax reaches the State because of the Congressional
purpose to lay the tax on the subject matter chosen, regardless of
who pays it. To say that the tax fails because the State happens to
be the taxpayer is only to say that the State, to some extent
undefined, is constitutionally immune from federal taxation. Only
when and because the subject of taxation is State property or a
State activity must we consider whether such a nondiscriminatory
tax unduly interferes with the performance of the State's functions
of government. If it does, then the fact that the tax is
nondiscriminatory does not save it. If we are to treat as invalid,
because discriminatory, a tax on "State activities and State-owned
property that partake of uniqueness from the point of view of
intergovernmental relations," it is plain that the invalidity is
due wholly to the fact that it is a State which is being taxed so
as unduly to infringe, in some manner, the performance of its
functions as a government which the Constitution recognizes as
sovereign.
It is enough for present purposes that the immunity of the State
from federal taxation would, in this case, accomplish a withdrawal
from the taxing power of the nation a subject of taxation of a
nature which has been traditionally within that power from the
beginning. Its exercise now, by a nondiscriminatory tax, does not
curtail the business of the state government more than it does
the
Page 326 U. S. 589
like business of the citizen. It gives merely an accustomed and
reasonable scope to the federal taxing power. Such a withdrawal
from a nondiscriminatory federal tax, and one which does not bear
on the State any differently than on the citizen, is itself an
impairment of the taxing power of the national government, and the
activity taxed is such that its taxation does not unduly impair the
State's functions of government. The nature of the tax immunity
requires that it be so construed as to allow to each government
reasonable scope for its taxing power,
Metcalf & Eddy v.
Mitchell, 269 U. S. 514,
269 U. S. 524.
The national taxing power would be unduly curtailed if the State,
by extending its activities, could withdraw from it subjects of
taxation traditionally within it.
Helvering v. Powers,
supra, 293 U. S. 225;
Ohio v. Helvering, supra; South Carolina v. United States,
supra, and see Murray v. Wilson Distilling Co., 213 U.
S. 151,
213 U. S. 173,
explaining
South Carolina v. United States, supra.
The problem is not one to be solved by a formula, but we may
look to the structure of the Constitution as our guide to
decision.
"In a broad sense, the taxing power of either government, even
when exercised in a manner admittedly necessary and proper,
unavoidably has some effect upon the other. The burden of federal
taxation necessarily sets an economic limit to the practical
operation of the taxing power of the states, and vice versa.
Taxation by either the state or the federal government affects in
some measure the cost of operation of the other."
"But neither government may destroy the other nor curtail in any
substantial manner the exercise of its powers. Hence, the
limitation upon the taxing power of each, so far as it affects the
other, must receive a practical construction which permits both to
function with the minimum of interference each with the other, and
that limitation cannot be so varied or extended as seriously to
impair
Page 326 U. S. 590
either the taxing power of the government imposing the tax . . .
or the appropriate exercise of the functions of the government
affected by it."
Metcalf & Eddy v. Mitchell, supra, 269 U. S.
523-524.
Since all taxes must be laid by general -- that is, workable --
rules, the effect of the immunity on the national taxing power is
to be determined not quantitatively, but by its operation and
tendency in withdrawing taxable property or activities from the
reach of federal taxation. Not the extent to which a particular
State engages in the activity, but the nature and extent of the
activity by whomsoever performed, is the relevant
consideration.
Regarded in this light we cannot say that the Constitution
either requires immunity of the State's mineral water business from
federal taxation or denies to the federal government power to lay
the tax.
MR. JUSTICE DOUGLAS, with whom MR. JUSTICE BLACK concurs,
dissenting.
I
If
South Carolina v. United States, 199 U.
S. 437, is to stand, the present judgment would have to
be affirmed. For I agree that there is no essential difference
between a federal tax on South Carolina's liquor business and a
federal tax on New York's mineral water business. Whether
South
Carolina v. United States reaches the right result is another
matter.
Mr. Justice Brandeis stated that
"
Stare decisis is usually the wise policy, because, in
most matters, it is more important that the applicable rule of law
be settled than that it be settled right."
Burnet v. Coronado Oil & Gas Co., 285 U.
S. 393,
285 U. S. 406.
But, throughout the history of the Court,
stare decisis
has had only a limited application in the field of constitutional
law. And it is a wise policy which largely restricts it to those
areas of the law where correction can be had by legislation.
Otherwise, the Constitution
Page 326 U. S. 591
loses the flexibility necessary if it is to serve the needs of
successive generations.
I do not believe
South Carolina v. United States states
the correct rule. A State's project is as much a legitimate
governmental activity whether it is traditional, or akin to private
enterprise, or conducted for profit.
Cf. Helvering v.
Gerhardt, 304 U. S. 405,
304 U. S.
426-427. A State may deem it as essential to its economy
that it own and operate a railroad, a mill, or an irrigation system
as it does to own and operate bridges, street lights, or a sewage
disposal plant. What might have been viewed in an earlier day as an
improvident or even dangerous extension of state activities may
today be deemed indispensable. But, as Mr. Justice White said in
his dissent in
South Carolina v. United States, any
activity in which a State engages within the limits of its police
power is a legitimate governmental activity. Here, a State is
disposing of some of its natural resources. Tomorrow it may issue
securities, sell power from its public power project, or
manufacture fertilizer. Each is an exercise of its power of
sovereignty. Must it pay the federal government for the privilege
of exercising that inherent power? If the Constitution grants it
immunity from a tax on the issuance of securities, on what grounds
can it be forced to pay a tax when it sells power or disposes of
other natural resources?
II
One view, just announced, purports to reject the distinction
which
South Carolina v. United States drew between those
activities of a State which are, and those which are not, strictly
governmental, usual, or traditional. But it is said that a federal
tax on a State will be sustained so long as Congress "does not
attempt to tax a State because it is a State." Yet, if that mean
that a federal real estate tax of general application (apportioned)
would be valid if applied to a power dam owned by a state but
invalid if applied to a statehouse, the old doctrine has merely
been
Page 326 U. S. 592
poured into a new container. If, on the other hand, any federal
tax on any state activity were sustained unless it discriminated
against the State, then a constitutional rule would be fashioned
which would undermine the sovereignty of the States as it has been
understood throughout our history. Any such change should be
accomplished only by constitutional amendment. The doctrine of
state immunity is too intricately involved in projects which have
been launched to be whittled down by judicial fiat.
III
Woodrow Wilson stated the starting point for me when he said
[
Footnote 3/1] that
"the States, of course, possess every power that government has
ever anywhere exercised, except only those powers which their own
constitutions or the Constitution of the United States explicitly
or by plain inference withhold. They are the ordinary governments
of the country; the federal government is its instrument only for
particular purposes."
The Supremacy Clause, Article VI, clause 2, applies to federal
laws within the powers delegated to Congress by the States. But it
is antagonistic to the very implications of our federal system to
say that the power of Congress to lay and collect taxes, Article I,
§ 8, includes the power to tax any state activity or function so
long as the tax does not discriminate against the States. [
Footnote 3/2] As stated in
United
States v. Railroad Co., 17 Wall. 322,
84 U. S.
327-328:
Page 326 U. S. 593
"The right of the States to administer their own affairs through
their legislative, executive, and judicial departments, in their
own manner through their own agencies, is conceded by the uniform
decisions of this court and by the practice of the Federal
government from its organization. This carries with it an exemption
of those agencies and instruments from the taxing power of the
Federal government. If they may be taxed lightly, they may be taxed
heavily; if justly, oppressively. Their operation may be impeded
and may be destroyed if any interference is permitted."
Can it be that a general federal tax on the issuance of
securities would be constitutional if applied to the issuance of
municipal securities or of state bonds or of the securities of
public utility districts organized by the States? Could the States
be classified with farmers, businessmen, industrial workers,
judges, and other ordinary citizens and required to pay an income
tax to the federal government? It is said that a federal income tax
on the tax revenues of a State would not be sustained because such
a tax would interfere with a sovereign function of the State. But
can it be that a federal income tax on state revenues derived not
from taxes, but from the sale of mineral water, liquor, lumber, and
the like, would be sustained?
A tax is a powerful regulatory instrument. Local government in
this free land does not exist for itself. The fact that local
government may enter the domain of private enterprise and operate a
project for profit does not put it in the class of private business
enterprise for tax purposes. Local government exists to provide for
the welfare of its people, not for a limited group of stockholders.
If the federal government can place the local governments on its
tax collector's list, their capacity to serve the needs of their
citizens is at once hampered or curtailed. The field of federal
excise taxation alone is practically without limits. Many state
activities are in
Page 326 U. S. 594
marginal enterprises where private capital refuses to venture.
Add to the cost of these projects a federal tax, and the social
program may be destroyed before it can be launched. In any case,
the repercussions of such a fundamental change on the credit of the
States and on their programs to take care of the needy and to build
for the future would be considerable. To say the present tax will
be sustained because it does not impair the State's functions of
government is to conclude either that the sale by the its mineral
water is not a function of government or that the present tax is so
slight as to be no burden. The former obviously is not true. The
latter overlooks the fact that the power to tax lightly is the
power to tax severely. The power to tax is indeed one of the most
effective forms of regulation. And no more powerful instrument for
centralization of government could be devised. For, with the
federal government immune and the States subject to tax, the
economic ability of the federal government to expand its activities
at the expense of the States is at once apparent. That is the
result whether the rule of
South Carolina v. United States
be perpetuated, or a new rule of discrimination be adopted.
The notion that the sovereign position of the States must find
its protection in the will of a transient majority of Congress is
foreign to, and a negation of, our constitutional system. There
will often be vital regional interests represented by no majority
in Congress. The Constitution was designed to keep the balance
between the States and the nation outside the field of legislative
controversy.
The immunity of the States from federal taxation is no less
clear because it is implied. The States, on entering the Union,
surrendered some of their sovereignty. It was further curtailed as
various Amendments were adopted. But the Tenth Amendment provides
that
"The powers not delegated to the United States by the
Constitution, nor prohibited by it to the States, are reserved to
the
Page 326 U. S. 595
States respectively, or to the people."
The Constitution is a compact between sovereigns. The power of
one sovereign to tax another is an innovation so startling as to
require explicit authority if it is to be allowed. If the power of
the federal government to tax the States is conceded, the reserved
power of the States guaranteed by the Tenth Amendment does not give
them the independence which they have always been assumed to have.
They are relegated to a more servile status. They become subject to
interference and control both in the functions which they exercise
and the methods which they employ. They must pay the federal
government for the privilege of exercising the powers of
sovereignty guaranteed them by the Constitution [
Footnote 3/3] whether, as here, they are disposing
of their natural resources or tomorrow they issue securities or
perform any other acts within the scope of their police power.
Of course, the levying of the present tax does not curtail the
business of the state government more than it does the like
business of the citizen. But the same might be true in the case of
many state activities which have long been assumed to be immune
from federal taxation. When a municipality acquires a water system
or an electric power plant and transmission facilities, it
withdraws projects
Page 326 U. S. 596
from the field of private enterprise. Is the tax immunity to be
denied because a tax on the municipality would not curtail the
municipality more than it would the prior private owner? Is the
municipality to be taxed whenever it engages in an activity which
once was in the field of private enterprise, and therefore was once
taxable? Every expansion of state activity since the adoption of
the Constitution limits the reach of federal taxation if state
immunity is recognized. Yet none would concede that the sovereign
powers of the States were limited to those which they exercised in
1787. Nor can it be said that, if the present tax is not sustained,
there will be withdrawn from the taxing power of the federal
government a subject of taxation which has been traditionally
within that power from the beginning. Not until
South Carolina
v. United States was it held that so-called business
activities of a State were subject to federal taxation. That was
after the turn of the present century. Thus, the major objection to
the suggested test is that it disregards the Tenth Amendment,
places the sovereign States on the same plane as private citizens,
and makes the sovereign States pay the federal government for the
privilege of exercising the powers of sovereignty guaranteed them
by the Constitution.
That this idea is hostile to the view of the Framers of the
Constitution is evident from Hamilton's discussion of he taxing
power of the federal government in The Federalist, Nos. 30-36
(Sesquicentennial Ed.1937) pp. 183-224. He repeatedly stated that
the taxing powers of the States and of the federal government were
to be "concurrent" -- "the only admissible substitute for an entire
subordination, in respect to this branch of power, of the State
authority to that of the Union." Pp. 202-203. He also stated,
"The convention thought the concurrent jurisdiction preferable
to that subordination, and it is evident that it has at least the
merit of reconciling an indefinite
Page 326 U. S. 597
constitutional power of taxation in the Federal government with
an adequate and independent power in the States to provide for
their own necessities."
P. 209. On such assurances, could it possibly be thought that
the States were so subordinate that their activities could be taxed
by the federal government?
In
McCulloch v.
Maryland, 4 Wheat. 316, the Court held
unconstitutional a state tax on notes of the Bank of the United
States. The statement of Chief Justice Marshall (pp.
17 U. S.
429-430) is adequate to sustain the case for the
reciprocal immunity of the state and federal governments:
"If we measure the power of taxation residing in a State by the
extent of sovereignty which the people of a single State possess
and can confer on its government, we have an intelligible standard,
applicable to every case to which the power may be applied. We have
a principle which leaves the power of taxing the people and
property of a State unimpaired, which leaves to a State the command
of all its resources, and which places beyond its reach all those
powers which are conferred by the people of the United States on
the government of the Union and all those means which are given for
the purpose of carrying those powers into execution. We have a
principle which is safe for the States, and safe for the Union. We
are relieved, as we ought to be, from lashing sovereignty; from
interfering powers; from a repugnancy between a right in one
government to pull down what there is an acknowledged right in
another to build up; from the incompatibility of a right in one
government to destroy what there is a right in another to preserve.
We are not driven to the perplexing inquiry, so unfit for the
judicial department, what degree of taxation is the legitimate use,
and what degree may amount to the abuse of the power. "
Page 326 U. S. 598
IV
Those who agreed with
South Carolina v. United States
had the fear that an expanding program of state activity would dry
up sources of federal revenues, and thus cripple the national
government. 199 U.S. pp.
199 U. S.
454-455. That was in 1905. [
Footnote 3/4] That fear is expressed again today when we
have the federal income tax, from which employees of the States may
not claim exemption on constitutional grounds.
Helvering v.
Gerhardt, supra. The fear of depriving the national government
of revenue if the tax immunity of the States is sustained has no
more place in the present decision than the spectre of socialism,
the fear of which, said Holmes "was translated into doctrines that
had no proper place in the Constitution or the common law."
[
Footnote 3/5]
There is no showing whatsoever that an expanding field of state
activity even faintly promises to cripple the federal government in
its search for needed revenues. If the truth were known, I suspect
it would show that the activity of the States in the fields of
housing, public power and the like have increased the level of
income of the people and have raised the standards of marginal or
sub-marginal groups. Such conditions affect favorably, not
adversely, the tax potential of the federal government.
Page 326 U. S. 599
[
Footnote 3/1]
Constitutional Government in the United States (1908), pp. 183,
184.
[
Footnote 3/2]
As stated in
United States v. California, 297 U.
S. 175,
297 U. S.
184-185, the immunity of state instrumentalities from
federal taxation
"is implied from the nature of our federal system and the
relationship within it of state and national governments, and is
equally a restriction on taxation by either of the
instrumentalities of the other."
It went on to say in justification of making state activities
subject to the exercise by Congress of the commerce power,
"But there is no such limitation upon the plenary power to
regulate commerce. The state can no more deny the power if its
exercise has been authorized by Congress than can an
individual."
[
Footnote 3/3]
That fact distinguishes those cases where a citizen seeks tax
immunity because his income was derived from a State or the federal
government. Recognition of such a claim would create a "privileged
class of taxpayers" (
Helvering v. Gerhardt, supra,
304 U. S. 416)
and extend the tax immunity of the States or the federal government
to private citizens. It was in protest to the recognition of such a
derivative immunity that Mr. Justice Bradley dissented in
Collector v.
Day, 11 Wall. 113,
78 U. S. 128,
where the Court held unconstitutional a federal tax on the salary
of a judicial officer of a State. As Mr. Justice Bradley stated,
"No man ceases to be a citizen of the United States by being an
officer under the State government." 11 Wall. p.
78 U. S. 128.
And see Graves v. O'Keefe, 306 U.
S. 466, holding that salaries of federal employees may
be constitutionally included in a nondiscriminatory state income
tax.
[
Footnote 3/4]
As the Solicitor General of New York points out, in the year
when
South Carolina v. United States was decided, over
one-fourth of the entire annual income of the federal government
was derived from taxes on spirits and fermented liquors.
See Annual Report, Secretary of the Treasury (1905), pp.
7, 26.
[
Footnote 3/5]
Holmes, Collected Legal Papers (1921) p. 295.