The plaintiff in error failed to make a return of its loans to
the state authorities as required by law, whereupon the auditor
general, under direction of state law, made out an account against
it containing the following charge: "Nominal value of scrip, bonds
and certificates of indebtedness held by residents of Pennsylvania,
$530,000 -- tax three mills -- $1,617.00." The company appealed
from this to the Court of Common Pleas, which decided in its favor,
and the Commonwealth from thence to the supreme court of the state,
which rendered a judgment in favor of the Commonwealth for $666.
Among the grounds for the appeal was that the tax was in violation
of section one of the Fourteenth Amendment, became the assessment
was for the nominal value, and not for the real value of
Page 134 U. S. 233
the bonds; because the owners of the bonds had no notice, and no
opportunity to be heard; because the company was taxed for property
that it did not own, and because the deduction of the tax from the
interest due the bondholders in Pennsylvania took their property
without due process of law and denied to them the equal protection
of the laws. The case being brought to this Court from the state
court by writ of error, a motion was made to dismiss for want of
jurisdiction, to which was united a motion to affirm.
Held:
(1) That there was clearly a federal question raised, and the
writ could not be dismissed for want of jurisdiction.
(2) That although it was doubtful whether, under the rules,
there was sufficient color for the motion to dismiss to justify the
court in considering the motion to affirm, yet, as the Supreme
Court of Pennsylvania, in its opinion did not seem to have
expressly passed upon the federal question, which was clearly in
the record, the court could consider that there was color for
making that motion.
(3) That the provision for the assessment of the tax upon the
nominal or face value of the bonds, instead of upon their actual
valve, was a part of the state system of taxation, authorized by
its constitution and laws, and violated no provision of the
Constitution of the United States.
(4) That the failure to give personal notice to the owners of
the bonds involved no violation of due process of law when executed
according to customary forms and established usages, or in
subordination to the principles which underlie them.
(5) That it was not true in point of fact that the corporation
was taxed for property which it did not own.
The Fourteenth Amendment was not intended to compel the states
to adopt an iron rule of equal taxation.
Motions (1) to revoke the allocatur and quash the writ of error,
(2) to dismiss for want of jurisdiction, (3) to affirm the judgment
below. The case is stated in the opinion.
MR. JUSTICE BRADLEY delivered the opinion of the Court.
Motion is made in this case to revoke the allocatur of the writ
of error, and to quash the writ, and, in the alternative,
Page 134 U. S. 234
to affirm the judgment. The first motion is based on the
assumption that the writ was improperly allowed by the judge, and
questions the propriety of his action. It is probable that the
counsel who makes the motion does not intend it in that sense, but
is merely unfamiliar with the practice of this Court by which the
ordinary proceeding to vacate a writ of error is a motion to
dismiss it.
In the present case we think that the writ was demandable, and
cannot be dismissed, as will more fully appear from the following
statement.
By the law of Pennsylvania, all moneyed securities are subject
to an annual state tax of three mills on the dollar of their actual
value, except bonds and other securities issued by corporations,
which are taxed at three mills on the dollar of the nominal or par
value. If the treasurer of a corporation fails to make return of
its loans, as required by law, the auditor general makes out and
files an account against the company, charging it with the tax
supposed to be due. This account, if approved by the state
treasurer, is served upon the corporation, which must pay the tax
within a specified time or show good cause to the contrary. If it
objects to the tax, it is authorized, in common with all others who
are dissatisfied with the auditor's stated accounts, to appeal to
the court of common pleas of the county where the seat of
government is -- at present Dauphin County -- which appeal is
served on the auditor general and by him transmitted to the clerk
of said court, to be entered of record, subject to like proceedings
as in common suits. A declaration is then filed on the stated
account in behalf of the state, and the cause is regularly
tried.
In the present case, on failure of the company (The Bell's Gap
Railroad Company) to make return except under protest, the auditor
general made out an account against it containing the following
charge:
Nominal value of scrip, bonds, and
certificates of indebtedness owned by
residents of Pennsylvania, $539,000
-- tax, three mills . . . . . . . . . . . $1,617.00
Page 134 U. S. 235
The company thereupon tendered an appeal, which was filed in the
Court of Common Pleas of Dauphin County, a declaration was filed on
the part of the state, and the cause was tried by the court, a jury
being waived.
The appeal filed by the corporation (which was the basis of the
proceedings in the court) contained eight grounds of objection to
the tax. Most of these objections were founded upon the
Constitution or laws of Pennsylvania, and need not be noticed here.
The second objection, which refers to the Constitution of the
United States, was as follows, to-wit:
"II. The report of the company's treasurer was made under
protest, and does not constitute an assessment, and the tax sought
to be imposed on so much of the company's loans as the commonwealth
claims to be held by residents of Pennsylvania for their nominal or
face value, which varies from the market value on account of the
differing rates of interest, etc., is illegal, and the said tax
cannot be lawfully deducted by the company's treasurer from the
interest payable to the holders of said loans, and the
commonwealth's demands contravene Section one of the Fourteenth
Amendment to the Constitution of the United States for the
following reasons."
Among the reasons then assigned are:
1. That the nominal value of the bonds is not their real
value.
2. That the owners of the bonds have no notice, and no
opportunity of being heard.
3. That the company is taxed for property it does not own.
4. That the deduction of the tax from the interest payable to
the bondholders is taking their property without due process of
law, and denies to them the equal protection of the laws, since all
other personal property in the state is taxed at its actual value,
and upon notice to the owners.
The seventh objection is as follows: "VII. The tax is void, as
impairing the company's obligation to its creditors."
On the trial of the cause the state offered in evidence the
stated account, and the plaintiff in error offered the appeal and
specification of objections and an affidavit of its treasurer. The
court of common pleas decided in favor of the company,
Page 134 U. S. 236
but its decision was reversed on writ of error by the Supreme
Court of Pennsylvania, and judgment was rendered in favor of the
commonwealth for $666, being the amount of tax on bonds shown to
have been owned by residents of Pennsylvania.
It cannot be denied that the plaintiff in error, in its appeal
and specification of objections to the tax, did raise a question
under the Constitution of the United States. That question remained
in the record as the foundation of the proceedings in the court,
and, whether adverted to or not, was necessarily involved in the
final decision of the case. We think it clear, therefore, that the
writ of error cannot be dismissed. Our only doubt is whether, under
our rules, there was sufficient color for the motion to dismiss, to
justify us in considering the motion to affirm. As, however, the
Supreme Court of Pennsylvania, in its opinion, does not seem to
have expressly passed upon the federal question, although it was
clearly in the record, we may consider that there was color for
making the motion to dismiss.
On the merits we have no serious doubt.
1.
As to the assessment of the tax of three mills upon the
nominal or face value of the bonds, instead of assessing it upon
the actual value. This might have been subject to question
under the state laws, but the state courts have upheld the
assessment as valid. We are to accept it, therefore, as part of the
state system of taxation authorized by its constitution and laws.
Then how does it violate any provision of the Constitution of the
United States? It is contended that it violates the first section
of the Fourteenth Amendment, which forbids a state to withhold from
any person the equal protection of the laws. We do not perceive
that the assessment in question transgresses this provision. There
is no unjust discrimination against any persons or corporations.
The presumption is that corporate securities are worth their face
value. Besides, the person that holds them is not affected by the
tax unless he receives his interest from which the tax is deducted.
So long as the interest is paid, the security has to him full
productive value; when it is not paid, he pays no tax.
Page 134 U. S. 237
But be this as it may, the law does not make any discrimination
in this regard which the state is not competent to make. All
corporate securities are subject to the same regulation. The
provision in the Fourteenth Amendment that no state shall deny to
any person within its jurisdiction the equal protection of the laws
was not intended to prevent a state from adjusting its system of
taxation in all proper and reasonable ways. It may, if it chooses,
exempt certain classes of property from any taxation at all, such
as churches, libraries, and the property of charitable
institutions. It may impose different specific taxes upon different
trades and professions, and may vary the rates of excise upon
various products; it may tax real estate and personal property in a
different manner; it may tax visible property only, and not tax
securities for payment of money; it may allow deductions for
indebtedness, or not allow them. All such regulations, and those of
like character, so long as they proceed within reasonable limits
and general usage, are within the discretion of the state
legislature or the people of the state in framing their
constitution. But clear and hostile discriminations against
particular persons and classes, especially such as are of an
unusual character, unknown to the practice of our governments,
might be obnoxious to the constitutional prohibition. It would,
however, be impracticable and unwise to attempt to lay down any
general rule or definition on the subject that would include all
cases. They must be decided as they arise. We think that we are
safe in saying that the Fourteenth Amendment was not intended to
compel the states to adopt an iron rule of equal taxation. If that
were its proper construction, it would not only supersede all those
constitutional provisions and laws of some of the states whose
object is to secure equality of taxation, and which are usually
accompanied with qualifications deemed material, but it would
render nugatory those discriminations which the best interests of
society require, which are necessary for the encouragement of
needed and useful industries, and the discouragement of
intemperance and vice, and which every state, in one form or
another, deems it expedient to adopt.
Page 134 U. S. 238
The general purpose and scope of the Fourteenth Amendment, and
the general qualifications necessary to be applied to it, are well
stated in
Barbier v. Connolly, 113 U. S.
27,
113 U. S. 31.
MR. JUSTICE FIELD, in delivering the opinion of the Court, there
said:
"The Fourteenth Amendment, in declaring that no state 'shall
deprive any person of life, liberty, or property without due
process of law, nor deny to any person within its jurisdiction the
equal protection of the laws,' undoubtedly intended not only that
there should be no arbitrary deprivation of life or liberty, or
arbitrary spoliation of property, but that equal protection and
security should be given to all under like circumstances in the
enjoyment of their personal and civil rights; that all persons
should be equally entitled to pursue their happiness and acquire
and enjoy property; that they should have like access to the courts
of the country for the protection of their persons and property,
the prevention and redress of wrongs, and the enforcement of
contracts; that no impediment should be interposed to the pursuits
of anyone except as applied to the same pursuits by others under
like circumstances; that no greater burdens should be laid upon one
than are laid upon others in the same calling and condition, and
that in the administration of criminal justice no different or
higher punishment should be imposed upon one than such as is
prescribed to all for like offenses. But neither the amendment,
broad and comprehensive as it is, nor any other amendment was
designed to interfere with the power of the state, sometimes termed
its 'police power,' to prescribe regulations to promote the health,
peace, morals, education, and good order of the people, and to
legislate so as to increase the industries of the state, develop
its resources, and add to its wealth and prosperity."
With due regard to these considerations, we are clearly of
opinion that the method of assessing the tax in question on the
face value of corporate securities in Pennsylvania is not violative
of the Fourteenth Amendment to the Constitution.
2.
As to want of notice to the owners of the bonds.
What notice could they have which the law does not give them? They
know that their bonds are to be assessed at their face
Page 134 U. S. 239
value, and that a tax of three mills on the dollar of that value
will be imposed, and that they will only be required to pay this
tax when and as they receive the interest. If the state may assess
the tax upon the face value of the bonds, notice
in pais
is not necessary. We think that there is nothing in this objection
which shows any infraction of the federal Constitution. It is urged
that it is a taking of the bondholder's property without due
process of law. We must confess that we cannot see it in this
light. The process of taxation does not require the same kind of
notice as is required in a suit at law, or even in proceedings for
taking private property under the power of eminent domain. It
involves no violation of due process of law when it is executed
according to customary forms and established usages, or in
subordination to the principles which underlie them. We see nothing
in the process of taxation complained of which is obnoxious to
constitutional objection on this score. Stockholders in the
national banks are taxed in this way, and the method has been
sustained by the express decision of this Court.
National
Bank v. Commonwealth, 9 Wall. 353.
3.
That the corporation is taxed for property it does not
own. This objection is not true in point of fact. The
corporation, as the debtor of its bondholders, holding money in its
hands for their use, namely, the interest to be paid, is merely
required to pay to the commonwealth out of this fund the proper tax
due on the security. The tax is on the bondholder, not on the
corporation. This plan is adopted as a matter of convenience and as
a secure method of collecting the tax. That is all. It injures no
party. It certainly does not infringe the Constitution of the
United States by making one party pay the debts and support the
just burdens of another party, as is implied in the objection.
The other objections are embraced in those which we have already
considered, and need no further notice.
We would say in conclusion that there are several decisions of
this Court which virtually dispose of most of the questions
involved in the present case. We refer particularly to
National Bank v.
Commonwealth, 9 Wall. 353;
Page 134 U. S. 240
Savings Bank v. United
States, 19 Wall. 227,
86 U. S. 240;
King v. United States, 99 U. S. 229;
Hagar v. Reclamation District, 111 U.
S. 701;
Davidson v. New Orleans, 96 U. S.
97;
Walston v. Nevin, 128 U.
S. 578,
128 U. S.
581.
The motion to dismiss the writ of error is denied, and the
judgment of the Supreme Court of Pennsylvania is affirmed.