A tax which is imposed by a state statute upon "the corporate
franchise or business" of all corporations incorporated under any
law of the state or of any other state or country, and doing
business within the state, and which is measured by the extent of
the dividends of the corporation in the current year, is a tax upon
the right or privilege to be a corporation and to do business
within the state in a corporate capacity, and is not a tax upon the
privilege or franchise which, when incorporated, the company may
exercise, and, being thus construed, its imposition upon the
dividends of the company does not violate the provisions of the
statute exempting bonds of the United States from taxation, 12
Stat. 346, c. 33, § 2, although a portion of the dividends may be
derived from interest on capital invested in such bonds.
Such a tax is not in conflict with the last clause of the first
section of the Fourteenth Amendment to the Constitution of the
United States declaring that no state shall deprive any person
within its jurisdiction of the equal protection of the laws.
The validity of a state tax upon corporations created under its
laws or doing business within its territory can in no way be
dependent upon the mode which the state may deem fit to adopt in
fixing the amount for any year which it will exact for the
franchise.
McCulloch v.
Maryland, 4 Wheat. 316, 4 Wheat. 436;
Weston v. City Council of
Charleston, 2 Pet. 449;
Henderson v. Mayor of
New York, 92 U. S. 259, and
Brown v.
Maryland, 12 Wheat. 419, in nowise conflict with
the points decided in this case, and the Court fully assents to
those cases, and has no doubt of their correctness in any
particular.
This case was first heard at October term, 1886. On the 15th of
November, 1886, it was affirmed by a divided Court, and was
reported in
119 U. S. 119 U.S.
129, to which reference is made for the reporter's statement of the
case at that hearing, including the text of the New York statute
and the agreed case. On the 7th of February, 1887, on motion of the
counsel for the plaintiff in error, that judgment was rescinded and
annulled, and the cause restored to its place on the docket, to be
heard by a full bench. 122 U.S. 636. With its present opinion,
the
Page 134 U. S. 595
Court handed down a statement of the case now made, which is as
follows:
The plaintiff in error, The Home Insurance Company of New York,
is a corporation created under the laws of that state. Its capital
stock during the year 1881 was three millions of dollars, divided
into thirty thousand shares of the par value of one hundred dollars
each, all fully paid. In the months of January and July of that
year a dividend of $150,000 was declared by the company, making
together ten percent upon the par value of its capital stock. A
portion of that capital stock was invested in bonds of the United
States, amounting, when the dividend was declared in July, 1881,
and also on the first of November of that year, to $1,940,000.
By an act of the Legislature of New York passed May 26, 1881, c.
361, amending a previous act providing for the taxation of certain
corporations, joint stock companies and associations, it was
declared that every corporation, joint stock company, or
association then or thereafter incorporated under any law of the
state, or of any other state or country and doing business in the
state, with certain designated exceptions not material in this
case, should be subject to a tax upon "its corporate franchise or
business," to be computed as follows: if its dividend or dividends
made or declared during the year ending the first day of November
amount to six percent or more upon the par value of its capital
stock, then the tax to be at the rate of one-quarter mill upon the
capital stock for each one percent of the dividends. A less rate is
provided where there is no dividend, or a dividend less than six
per cent and also where the corporation, company or association has
more than one kind of capital stock -- as, for instance, common and
preferred stock -- and upon one of them there is a dividend
amounting to six or more percent and upon the other there is no
dividend or a dividend of less than six percent. The purpose of the
act is to fix the amount of the tax each year upon the franchise or
business of the corporation by the extent of dividends upon its
capital stock, or, where there are no dividends, according to the
actual value of the capital stock during
Page 134 U. S. 596
the year. We are concerned in this case, however, only with the
tax where the amount is computed by the extent of the
dividends.
The tax payable by the Home Insurance Company, estimated
according to its dividends under the above law of the state,
aggregated $7,500. The company resisted its payment, assuming that
the tax was in fact levied upon the capital stock of the company
and contending that there should be deducted from it a sum bearing
the same ratio thereto that the amount invested in bonds of the
United States bears to its capital stock, and that the law
requiring a tax without such reduction is unconstitutional and
void. An agreed case was accordingly made up embodying a statement
of the facts, between the company and the Attorney General of New
York representing the state, and submitted to the supreme court of
the state. That court gave judgment in favor of the state against
the company, which on appeal to the Court of Appeals of the state
was affirmed. 92 N.Y. 328. The judgment of the latter court, having
been remitted to the supreme court and entered there, the case is
brought to this Court for review on writ of error.
Page 134 U. S. 597
MR. JUSTICE FIELD, after stating the facts as above, delivered
the opinion of the Court.
The contention of the plaintiff in error is that the tax in
question was levied upon its capital stock, and therefore invalid
so far as the bonds of the United States constitute a part of that
stock. If that contention were well founded, there would be no
question as to the invalidity of the tax.
Page 134 U. S. 598
That the bonds or obligations of the United States for the
payment of money cannot be the subject of taxation by a state is
familiar law settled by numerous adjudications of this Court. It is
a tax upon the exercise of the power of Congress to borrow money; a
tax which, if permitted, could be limited in amount only by the
discretion of the state, and might therefore be carried to an
extent impairing, if not destructive of, the efficiency of the
power, to the serious detriment of the general government. As held
in
McCulloch v.
Maryland, 4 Wheat. 436, the states have no power by
taxation to impede, burden, or in any manner control the operation
of the Constitution and laws enacted by Congress to carry into
execution the powers vested in the general government, a doctrine
which, applied the
Weston v. City Council of
Charleston, 2 Pet. 449, annulled a tax levied by
the authority of a law of South Carolina on stock issued for loans
to the United States.
Nor can this inhibition upon the states be evaded by any change
in the mode or form of the taxation, provided the same result is
effected -- that is, an impediment is thereby interposed to the
exercise of a power of the United States. That which cannot be
accomplished directly cannot be accomplished indirectly. Through
all such attempts the court will look to the end sought to be
reached, and if that would trench upon a power of the government,
the law creating it will be set aside or its enforcement
restrained. Thus, in
Henderson v. Mayor of New York,
92 U. S. 259,
92 U. S. 268, a
statute of New York provided that the master or owner of any vessel
bringing passengers from foreign ports into the port of New York
should give a bond in the sum of $300 for each passenger landed
against his becoming a public charge for four years thereafter, or
pay within twenty-four hours thereafter $150 for each passenger,
and that if neither bond was given nor payment made, a penalty of
$500 for such failure would be incurred, which should be a lien
upon the vessel. It was contended that the object of the
requirement was not taxation, but protection against pauperism, and
therefore valid as within the police power. But the Court said that
in whatever language
Page 134 U. S. 599
the statute may be framed, its purpose must be determined by its
reasonable and natural effect, and, judged by that criterion, the
tax was either on the owners of the vessel for the right of landing
passengers or upon the passengers themselves, and that therefore
the statute was a regulation of commerce, and void.
To the same purport is the familiar case of
Brown v.
Maryland, 12 Wheat. 419, so often cited in this
Court, where it was contended that a license tax required of an
importer to sell his goods while held in bulk as imported was a tax
only upon his occupation. But the court observed that this was only
changing the form, without varying the substance, of the tax,
adding that
"it is treating a prohibition which is general as if it were
confined to a particular mode of doing the forbidden thing. All
must perceive that a tax on the sale of an article imported only
for sale is a tax on the article itself."
Looking now at the tax in this case upon the plaintiff in error,
we are unable to perceive that it falls within the doctrines of any
of the cases cited, to which we fully assent, not doubting their
correctness in any particular. It is not a tax, in terms, upon the
capital stock of the company, nor upon any bonds of the United
States composing a part of that stock. The statute designates it as
a tax upon the "corporate franchise or business" of the company,
and reference is only made to its capital stock and dividends for
the purpose of determining the amount of the tax to be exacted each
year. By the term "corporate franchise or business," as here used,
we understand is meant (not referring to corporations sole, which
are not usually created for commercial business) the right or
privilege given by the state to two or more persons of being a
corporation -- that is, of doing business in a corporate capacity
-- and not the privilege or franchise which, when incorporated, the
company may exercise. The right or privilege to be a corporation or
to do business as such a body is one generally deemed of value to
the corporators, or it would not be sought in such numbers as at
present. It is a right or privilege by which several individuals
may unite themselves under
Page 134 U. S. 600
a common name and act as a single person, with a succession of
members, without dissolution or suspension of business and with a
limited individual liability. The granting of such right or
privilege rests entirely in the discretion of the state, and, of
course, when granted, may be accompanied with such conditions as
its legislature may judge most befitting to its interests and
policy. It may require, as a condition of the grant of the
franchise and also of its continued exercise, that the corporation
pay a specific sum to the state each year or month, or a specific
portion of its gross receipts, or of the profits of its business,
or a sum to be ascertained in any convenient mode which it may
prescribe. The validity of the tax can in no way be dependent upon
the mode which the state may deem fit to adopt in fixing the amount
for any year which it will exact for the franchise. No
constitutional objection lies in the way of a legislative body
prescribing any mode of measurement to determine the amount it will
charge for the privileges it bestow. It may well seek in this way
to increase its revenue to the extent to which it has been cut off
by exemption of other property from taxation. As its revenues to
meet its expenses are lessened in one direction, it may look to any
other property as sources of revenue which is not exempted from
taxation. Its action in this matter is not the subject of judicial
inquiry in a federal tribunal. As was said in
Delaware
Railroad Tax Case, 18 Wall. 206,
85 U. S.
231:
"The state may impose taxes upon the corporation as an entity
existing under its laws, as well as upon the capital stock of the
corporation, or its separate corporate property, and the manner in
which its value shall be assessed, and the rate of taxation,
however arbitrary or capricious, are mere matters of legislative
discretion. It is not for us to suggest in any case that a more
equitable mode of assessment or rate of taxation might be adopted
than the one prescribed by the legislature of the state. Our only
concern is with the validity of the tax. All else lies beyond the
domain of our jurisdiction."
It is true, as said by this Court in
California v. Pacific
Railroad Co., 127 U. S. 41,
that the taxation of a corporate franchise has no limitation but
the discretion of the taxing power, and its
Page 134 U. S. 601
value is not measured like that of property, but may be fixed at
any sum that the legislature may choose. It may be arbitrarily
laid, without any valuation put upon the franchise. If any hardship
or oppression is created by the amount exacted, the remedy must be
sought by appeal to the legislature of the state. It cannot be
furnished by the federal tribunals.
The tax in the present case would not be affected if the nature
of the property in which the whole capital stock is invested were
changed and put into real property or bonds of New York or of the
other states. From the very nature of the tax, being laid upon a
franchise given by the state and revocable at pleasure, it cannot
be affected in any way by the character of the property in which
its capital stock is invested. The power of the state over its
corporate franchise, and the conditions upon which it shall be
exercised, are as ample and plenary in the one case as in the
other.
In some states, the franchises and privileges of a corporation
are declared to be personal property. Such was the case in New York
with reference to the privileges and franchises of savings banks.
They were so declared by a law passed in 1866, and made liable to
taxation to an amount not exceeding the gross sum of the surplus
earned and in the possession of the banks. The law was sustained by
the Court of Appeals of the state in
Monroe Savings Bank v.
City of Rochester, 37 N.Y. 365, 367, although the bank had a
portion of its property invested in United States bonds. In its
opinion, the court observed that in declaring the privileges and
franchises of a bank to be personal property, the legislature
adopted no novel principle of taxation; that the powers and
privileges which constitute the franchises of a corporation were in
a just sense property, quite distinct and separate from the
property which, by the use of such franchises, the corporation
might acquire; that they might be subjected to taxation if the
legislature saw fit so to enact; that such taxation being within
the power of the legislature, it might prescribe a rule or test of
their value; that all franchises were not of equal value, their
value depending in some instances upon the nature of the business
authorized and the extent to which permission
Page 134 U. S. 602
was given to multiply capital for its prosecution, and that, the
tax being upon the franchises and privileges, it was unimportant in
what manner the property of the corporation was invested. And the
court added:
"It is true that where a state tax is laid upon the property of
an individual or a corporation, so much of their property as is
invested in United States bonds is to be treated, for the purposes
of assessment, as if it did not exist. But this rule can have no
application to an assessment upon a franchise, where a reference to
property is made only to ascertain the value of the thing
assessed."
And again:
"It must therefore be regarded as sound doctrine to hold that
the state, in granting a franchise to a corporation, may limit the
powers to be exercised under it, and annex conditions to its
enjoyment, and make it contribute to the revenues of the state. If
the grantee accepts the boon, it must bear the burden."
This doctrine of the taxability of the franchises of a
corporation without reference to the character of the property in
which its capital stock or its deposits are invested is sustained
by the judgments in
Society for Savings v.
Coite, 5 Wall. 594, and
Provident
Institution v. Massachusetts, 6 Wall. 611, which
were before this Court at the December term, 1867. In the first of
these cases, it appeared that a law of Connecticut of 1863 provided
that savings banks in that state should make an annual return to
the comptroller of public accounts "of the total amounts of all
deposits in them, respectively, on the 1st day of July in each
successive year," and should pay to the treasurer of the state a
sum equal to three-fourths of one percent on the total amount of
deposits in such banks on those days, and that the tax should be in
lieu of all other taxes upon the banks or their deposits. On the
1st day of July, 1863, the Society for Savings, one of the banks,
had invested over $500,000 of its deposits in securities of the
United States, which were declared by Congress to be exempted from
taxation by state authority, whether held by individuals,
corporations, or associations. 12 Stat. 346, c. 33, § 2. Upon the
amount of its deposits thus invested the society refused to pay the
sum equal to the prescribed percentage. In a suit brought by the
treasurer
Page 134 U. S. 603
of the state to recover the tax the payment of which was thus
refused, the Supreme Court of Connecticut held that the tax was not
on property, but on the corporation as such. The case being brought
here, the judgment was affirmed, this Court holding that the tax
was on the franchise of the corporation, and not upon its property,
and the fact that a part of the deposits was invested in securities
of the United States did not exempt the society from the tax. Said
the court:
"Nothing can be more certain in legal decision than that the
privileges and franchises of a private corporation, and all trades
and avocations by which the citizens acquire a livelihood, may be
taxed by a state for the support of the state government. Authority
to that effect resides in the state independent of the federal
government, and is wholly unaffected by the fact that the
corporation or individual has or has not made investment in federal
securities."
Pp.
73 U. S.
606-607.
It was contended in that case that the deposits in the bank were
subjected to taxation from the fact that the extent of the tax was
determined by their amount. But the Court said:
"Reference is evidently made to the total amount of deposits on
the day named not as the subject matter for assessment, but as the
basis for computing the tax required to be paid by the corporation
defendants. They enjoy important privileges, and it is just that
they should contribute to the public burdens. Views of the
defendants are that the sum required to be paid to the treasury of
the state is a tax on the assets of the institution, but there is
not a word in the provision which gives any satisfactory support to
that proposition. Different modes of taxation are adopted in
different states, and even in the same state at different periods
of their history. Fixed sums are in some instances required to be
annually paid into the treasury of the state, and in others a
prescribed percentage is levied on the stock, assets, or property
owned or held by the corporation, while in others the sum required
to be paid is left indefinite, to be ascertained in some mode by
the amount of business which the corporation shall transact within
a defined period. Experience shows that the latter mode is better
calculated to effect justice among the corporations
Page 134 U. S. 604
required to contribute to the public burdens than any other
which has been devised, as its tendency is to graduate the required
contribution to the value of the privileges granted, and to the
extent of their exercise. Existence of the power is beyond doubt,
and it rests in the discretion of the legislature whether they will
levy a fixed sum or, if not, to determine in what manner the amount
shall be ascertained."
P.
73 U. S.
608.
In the second case mentioned,
Provident Institution v.
Massachusetts, it appeared that the statute of Massachusetts,
passed in 1862, levying taxes on certain insurance companies and
depositors in savings banks provided that every institution for
savings incorporated under its laws should pay to the common wealth
a tax of one-half of one percent per annum on the amount of its
deposits, to be assessed, one-half of said annual tax on the
average amount of its deposits for the six months preceding the 1st
day of May, and the other half on the average amount of its
deposits for the six months preceding the 1st day of November. The
Provident Institution for Savings in that state was authorized to
invest its deposits in securities of the United States. Its average
amount of deposits for the six months preceding the 1st day of May,
1865, was over eight millions, of which over one million was
invested in such securities. It paid all the taxes demanded except
on the portion which was thus invested. Upon that it declined to
pay the tax. In a suit brought by the commonwealth to recover the
same, the Supreme Judicial Court of the state held that the tax was
one on the franchise of the company, and not on property, and
therefore gave judgment for the commonwealth. The case being
brought here, the judgment was affirmed. In deciding the case, this
Court said, referring to a section of the statute under which the
tax was levied:
"'Deposits,' as the word is employed in that section, are the
sums received by the institution from depositors, without regard to
the nature of the funds. They are not capital stock in any sense,
nor are they even 'investments,' as the word is there used, which
simply means the sums received, wholly irrespective of the
disposition made of the same, or their market value."
And, speaking of the difference existing between
Page 134 U. S. 605
taxes upon franchises and taxes upon property, it said:
"Franchise taxes are levied directly by an act of the
legislature, and the corporations are required to pay the amount
into the state Treasury. They differ from property taxes, as levied
for state and municipal purposes in the basis prescribed for
computing the amount, in the manner of assessment, and in the mode
of collection."
And again:
"Comparative valuation, in assessing property taxes, is the
basis of computation in ascertaining the amount to be contributed
by an individual; but the amount of a franchise tax depends upon
the business transacted by the corporation and the extent to which
they have exercised the privileges granted in their charter."
Pp.
73 U. S.
631-632.
The Court also referred to a decision made by the supreme court
of the state to the effect that the assessment imposed was to be
regarded as an excise or duty on the privilege or franchise of the
corporation, not as a tax on the moneys in its hands belonging to
the depositors. It was the corporation, it said, that was to make
the payment, and if it failed to do so it was liable not only to an
action for the amount of the tax, but might also be enjoined from
the future exercise of its franchise until all taxes should be
fully paid.
Commonwealth v. Bank, 5 Allen 431.
And the court held that the valuation of the property had
nothing to do with determining the amount of the tax, but that the
amount depended on the average amount of deposits for the six
months preceding the respective days named, and that there was no
necessary relation between the average amount of the deposits and
the amount of property owned by the institution, and, not being a
property tax, it was to be considered as a franchise tax laid upon
the corporation for the privileges conferred by its charter, which,
by all the authorities, it was competent for the state to tax,
irrespective of what disposition the institution had made of its
funds or in what manner they had been invested.
In
Hamilton Company v.
Massachusetts, 6 Wall. 632, a statute of
Massachusetts which required corporations having a capital stock
divided into shares to pay a tax of a certain percentage
Page 134 U. S. 606
upon the excess of the market value of such stock over the value
of its real estate and machinery was sustained as a statute
imposing a franchise tax, notwithstanding a portion of the property
which went to make the excess of the market value consisted of
securities of the United States, this Court, however, placing its
decision upon the fact that, under the provisions of the state
constitution and the practice under it, the tax had been so
considered by the highest tribunal of the state. This decision goes
much further than is necessary to sustain the judgment of the Court
of Appeals of New York in the present case.
In this case, we hold, as well upon general principles as upon
the authority of the first two cases cited from 6 Wall., that the
tax for which the suit is brought is not a tax on the capital stock
or property of the company, but upon its corporate franchise, and
is not therefore subject to the objection stated by counsel,
because a portion of its capital stock is invested in securities of
the United States.
Nor is the objection tenable that the statute, in imposing such
tax, conflicts with the last clause of the first section of the
Fourteenth Amendment of the Constitution of the United States,
declaring that no state shall deprive any person within its
jurisdiction of the equal protection of the laws. It is conceded
that corporations are "persons," within the meaning of this
amendment. It has been so decided by this Court.
Pembina Cons.
Silver Co. v. Pennsylvania, 125 U. S. 181. But
the amendment does not prevent the classification of property for
taxation -- subjecting one kind of property to one rate of
taxation, and another kind of property to a different rate --
distinguishing between franchises, licenses, and privileges, and
visible and tangible property, and between real and personal
property. Nor does the amendment prohibit special legislation.
Indeed, the greater part of all legislation is special, either in
the extent to which it operates or the objects sought to be
obtained by it. And when such legislation applies to artificial
bodies, it is not open to objection if all such bodies are treated
alike under similar circumstances and conditions in respect to the
privileges conferred upon them and the liabilities
Page 134 U. S. 607
to which they are subjected. Under the statute of New York, all
corporations, joint-stock companies, and associations of the same
kind are subjected to the same tax. There is the same rule,
applicable to all under the same conditions, in determining the
rate of taxation. There is no discrimination in favor of one
against another of the same class.
See Barbier v. Conolly,
113 U. S. 32;
Soon Hing v. Crowley, 113 U. S. 709,
Missouri Pacific Railway v. Humes, 115 U.
S. 523;
Missouri Pacific Railway v. Mackey
127 U. S. 209;
Minneapolis Railway Co. v. Beckwith, 129 U.
S. 32.
Judgment affirmed.
MR. JUSTICE MILLER, with whom concurred MR. JUSTICE HARLAN,
dissenting.
MR. JUSTICE HARLAN and myself dissent from the judgment in this
case because we think that, notwithstanding the peculiar language
of the statute of New York, the tax in controversy is in effect a
tax upon bonds of the United States held by the insurance
company.