The statute of Texas of April 17, 1905, c. 141, imposing a tax
upon railroad companies equal to one percent of their gross
receipts is, as to those companies whose receipts include receipts
from interstate business, a burden on interstate commerce, and as
such violative of the commerce clause of the federal Constitution.
Philadelphia & Southern Mail S.S. Co. v. Pennsylvania,
122 U. S. 326
followed;
Maine v. Grand Trunk Railway Co., 142 U.
S. 217, distinguished, and held that the latter case did
not overrule the former.
Neither the state courts nor the legislatures, by giving a tax a
particular name or by the use of some form of words, can take away
the duty of this Court to consider the nature and effect of a tax,
and if it bears upon interstate
Page 210 U. S. 218
commerce so directly as to amount to a regulation, it cannot be
saved by name or form.
97 S.W. Rep. 71 reversed.
The facts are stated in the opinion.
Page 210 U. S. 223
MR. JUSTICE HOLMES delivered the opinion of the Court.
This is an action against certain railroads to recover taxes and
penalties. The supreme court of the state held the penalties
Page 210 U. S. 224
to be void under the state constitution, but upheld the tax. 97
S.W. 71. The railroads bring the case here mainly on the ground
that the law upon which the action is based is an attempt to
regulate commerce among the states.
The act in question is entitled
"An Act Imposing a Tax upon Railroad Corporations . . . and
Other Persons . . . Owning . . . or Controlling Any Line of
Railroad in This state . . . Equal to One Per Cent of Their Gross
Receipts, . . . and Repealing the Existing Tax on the Gross
Passenger Earnings of Railroads."
It proceeds in § 1 to impose upon such railroads
"an annual tax for the year 1905, and for each calendar year
thereafter, equal to one percentum of its gross receipts, if such
line of railroad lies wholly within the state."
In § 2, a report, under oath, of "the gross receipts of such
line of railroad, from every source whatever, for the year ending
on the thirtieth day of June last preceding," and immediate payment
of the tax, "calculated on the gross receipts so reported," are
required. The comptroller is given power to call for other reports,
and is to "estimate such tax on the true gross receipts thereby
disclosed," etc. The lines of the railroads concerned are wholly
within the state, but they connect with other lines, and a part, in
some instances much the larger part, of their gross receipts is
derived from the carriage of passengers and freight coming from, or
destined to, points without the state. In view of this portion of
their business, the railroads contend that the case is governed by
Philadelphia & Southern Mail Steamship Co. v.
Pennsylvania, 122 U. S. 326. The
counsel for the state rely upon
Maine v. Grand Trunk Ry.
Co., 142 U. S. 217, and
maintain, if necessary, that the later overrules the earlier
case.
In
Philadelphia & Southern Mail Steamship Co. v.
Pennsylvania, supra, it was decided that a tax upon the gross
receipts of a steamship corporation of the state, when such
receipts were derived from commerce between the states and with
foreign countries, was unconstitutional. We regard this decision as
unshaken, and as stating established law. It cites
Page 210 U. S. 225
the earlier cases to the same effect. Later ones are
Ratterman v. Western Union Telegraph Co., 127 U.
S. 411;
Western Union Telegraph Co. v.
Pennsylvania, 128 U. S. 39;
Western Union Telegraph Co. v. Seay, 132 U.
S. 472.
See also Pullman's Palace Car Co. v.
Pennsylvania, 141 U. S. 18,
141 U. S. 25;
Ficklen v. Taxing District of Shelby County, 145 U. S.
1,
145 U. S. 22;
New York, Lake Erie & Western R. Co. v. Pennsylvania,
158 U. S. 431,
158 U. S. 438;
McHenry v. Alford, 168 U. S. 651,
168 U. S.
670-671;
Atlantic & Pacific Telegraph Co. v.
Philadelphia, 190 U. S. 160,
190 U. S. 162.
In
Maine v. Grand Trunk Ry. Co. supra, the authority of
the
Philadelphia Steamship Company case was accepted
without question, and the decision was justified by the majority as
not in any way qualifying or impairing it. The validity of the
distinction was what divided the court.
It being once admitted, as, of course, it must be, that not
every law that affects commerce among the states is a regulation of
it in a constitutional sense, nice distinctions are to be expected.
Regulation and commerce among the states both are practical, rather
than technical, conceptions, and naturally their limits must be
fixed by practical lines. As the property of companies engaged in
such commerce may be taxed,
Pullman's Palace Car Co. v.
Pennsylvania, 141 U. S. 18, and
may be taxed at its value as it is, in its organic relations, and
not merely as a congeries of unrelated items, taxes on such
property have been sustained that took account of the augmentation
of value from the commerce in which it was engaged.
Adams
Express Co. v. Ohio state Auditor, 165 U.
S. 194;
Adams Express Co. v. Kentucky,
166 U. S. 171;
Fargo v. Hart, 193 U. S. 490,
193 U. S. 499.
So it has been held that a tax on the property and business of a
railroad operated within the state might be estimated
prima
facie by gross income, computed by adding to the income
derived from business within the state the proportion of interstate
business equal to the proportion between the road over which the
business was carried within the state to the total length of the
road over which it was carried.
Wisconsin & Michigan Ry.
Co. v. Powers, 191 U. S. 379.
Page 210 U. S. 226
Since the commercial value of property consists in the
expectation of income from it, and since taxes ultimately, at least
in the long run, come out of income, obviously taxes called taxes
on property and those called taxes on income or receipts tend to
run into each other somewhat as fair value and anticipated profits
run into each other in the law of damages. The difficulty of
distinguishing them became greater when it was decided, not without
much debate and difference of opinion, that interstate carriers'
property might be taxed as a going concern. In
Wisconsin &
Michigan Ry. Co. v. Powers, supra, the measure of property by
income purported only to be
prima facie valid. But the
extreme case came earlier. In
Maine v. Grand Trunk Ry.
Co., 142 U. S. 217, "an
annual excise tax for the privilege of exercising its franchise"
was levied upon everyone operating a railroad in the state, fixed
by percentages, varying up to a certain limit, upon the average
gross receipts per mile multiplied by the number of miles within
the state, when the road extended outside. This seems at first
sight like a reaction from the
Philadelphia & Southern Mail
Steamship Company case. But it may not have been. The
estimated gross receipts per mile may be said to have been made a
measure of the value of the property per mile. That the effort of
the state was to reach that value, and not to fasten on the
receipts from transportation as such, was shown by the fact that
the scheme of the statute was to establish a system. The buildings
of the railroad and its lands and fixtures outside of its right of
way were to be taxed locally, as other property was taxed, and this
excise with the local tax were to be in lieu of all taxes. The
language shows that the local tax was not expected to include the
additional value gained by the property being part of a going
concern. That idea came in later. The excise was an attempt to
reach that additional value. The two taxes together fairly may be
called a commutation tax.
See Ficklen v. Taxing District, of
Shelby County, 145 U. S. 1,
145 U.S. 23;
Postal
Telegraph Cable Co. v. Adams, 155 U.
S. 688,
155 U. S. 697;
McHenry v. Alford, 168 U. S. 651,
168 U. S.
670-671.
Page 210 U. S. 227
"By whatever name the exaction may be called, if it amounts to
no more than the ordinary tax upon property or a just equivalent
therefor, ascertained by reference thereto, it is not open to
attack as inconsistent with the Constitution."
Postal Telegraph Cable Co. v. Adams, 155 U.
S. 688,
155 U. S. 697.
See New York, Lake Erie & Western R. Co. v.
Pennsylvania, 158 U. S. 431,
158 U. S.
438-439. The question is whether this is such a tax. It
appears sufficiently, perhaps from what has been said, that we are
to look for a practical, rather than a logical or philosophical,
distinction. The state must be allowed to tax the property, and to
tax it at its actual value as a going concern. On the other hand,
the state cannot tax the interstate business. The two necessities
hardly admit of an absolute logical reconciliation. Yet the
distinction is not without sense. When a legislature is trying
simply to value property, it is less likely to attempt or to effect
injurious regulation than when it is aiming directly at the
receipts from interstate commerce. A practical line can be drawn by
taking the whole scheme of taxation into account. That must be done
by this Court as best it can. Neither the state courts nor the
legislatures, by giving the tax a particular name or by the use of
some form of words, can take away our duty to consider its nature
and effect. If it bears upon commerce among the states so directly
as to amount to a regulation in a relatively immediate way, it will
not be saved by name or form.
Stockard v. Morgan,
185 U. S. 27,
185 U. S. 37;
Asbell v. Kansas, 209 U. S. 251,
209 U. S.
254-256.
We are of opinion that the statute levying this tax does amount
to an attempt to regulate commerce among the states. The
distinction between a tax "equal to" one percent of gross receipts
and a tax of one percent of the same seems to us nothing except
where the former phrase is the index of an actual attempt to reach
the property and to let the interstate traffic and the receipts
from it alone. We find no such attempt or anything to qualify the
plain inference from the statute, taken by itself. On the contrary,
we rather infer from the judgment of the state court and from the
argument on behalf of the state
Page 210 U. S. 228
that another tax on the property of the railroad is upon a
valuation of that property, taken as a going concern. This is
merely an effort to reach the gross receipts, not even disguised by
the name of an occupation tax, and in no way helped by the words
"equal to."
Of course it does not matter that the plaintiffs in error are
domestic corporations, or that the tax embraces indiscriminately
gross receipts from commerce within as well as outside of the
state. We are of opinion that the judgments should be reversed.
Judgment reversed.
MR. JUSTICE HARLAN, dissenting:
In my opinion, the Court ought to accept the interpretation
which the Supreme Court of Texas places upon the statute in
question. In other words, it should be assumed that, by imposing
upon railroads and corporations owning, operating, managing, or
controlling any line of railroad in the state, for the
transportation of passengers, freight, or baggage, an annual
tax
"equal to one percentum of its gross receipts if such line of
railroad lies wholly within the state, and, if such line of
railroad lies partly within and partly without the state, it shall
pay a tax equal to such proportion of the said one percentum of its
gross receipts as the length of the portion of such line within the
state bears to the whole length of such line,"
the state intended to impose only an occupation tax. Such is the
construction which the state court places on the statute, and that
construction is justified by the words used. We have the authority
of the Supreme Court of Texas for saying that the constitution of
that state authorizes the imposition of occupation taxes upon
natural persons and upon corporations, other than municipal, doing
business in that state. The plaintiff in error is a Texas
corporation, and it cannot be doubted that the state may impose an
occupation tax on one of its own corporations
Page 210 U. S. 229
provided such tax does not interfere with the exercise of some
power belonging to the United States.
But it is said that the tax in question, even if regarded as an
occupation tax, is invalid as constituting a direct burden on
interstate commerce, the regulation of which belongs to Congress.
It is not, in my opinion, to be taken as a tax on interstate
commerce in the sense of the Constitution, for its operation on
interstate commerce is only incidental, not direct. A state, in the
regulation of its internal affairs, often prescribes rules which,
in their operation, remotely or incidentally, affect interstate
commerce. But such rules have never been held as in themselves
imposing direct burdens upon such commerce and on that ground
invalid. The state in the present case ascertains the extent of
business done by the corporation in the state, and requires an
annual occupation tax "equal" to a named percentum of the amount of
such business. It does not lay any tax directly upon the gross
receipts as such, as was the case in
Philadelphia &
Southern Mail Steamship Co. v. Pennsylvania, 122 U.
S. 326. In that case, the Court said:
"The tax was levied directly upon the receipts derived by the
company from its fares and freights, for the transportation of
persons and goods between different states, and between the states
and foreign countries, and from the charter of its vessels, which
was for the same purpose. This transportation was an act of
interstate and foreign commerce. It was the carrying on of such
commerce."
Here, there is no levying upon receipts, as such, from
interstate commerce. The state only measures the occupation tax by
looking at the entire amount of the business done within its
limits, without reference to the source from which the business
comes. It does not tax any part of the business because of its
being interstate. It has reference equally to all kinds of business
done by the corporation in the state. Suppose the state, as, under
its constitution, it might do, should impose an income tax upon
railroad corporations of its own creation, doing business within
the state, equal to a given percent of all income received by the
corporation from its business, would
Page 210 U. S. 230
the corporation be entitled to have excluded from computation
such of its income as was derived from interstate commerce? Such
would be its right under the principles announced in the present
case. In the case supposed the income tax would, under the
principles or rules now announced, be regarded as a direct burden
upon interstate commerce. I cannot assent to this view.
If it did not delay an announcement of the court's decision
longer, perhaps, than is desirable, I should be glad to go into
this subject at large, and present such a review of the adjudged
cases as would show that the views expressed by me are in harmony
with previous cases in this Court. The present decision, I fear,
will seriously affect the taxing laws of many states, and so impair
the powers of the several states, in matters of taxation, that they
cannot compel their own corporations to bear their just proportion
of such public burden as can be met only by taxation. I dissent
from the opinion and judgment of the court.
MR. CHIEF JUSTICE FULLER, MR. JUSTICE WHITE, and MR. JUSTICE
McKENNA concur in this dissent.