The principles laid down in
Western Union Telegraph Co. v.
Kansas, 216 U. S. 1, and
other cases limiting the power of a state in respect of license
fees or excise taxes imposed on foreign (sister state) corporations
doing interstate as well as local business are restated and
reaffirmed.
A license fee or excise of a given percent of the par value of
the entire authorized capital stock of a foreign corporation doing
both local and interstate business and owning property in several
states, tested, as it must be, by its essential and practical
operation, rather than by its form or local characterization, is a
tax on the entire business and property of the corporation, and is
unconstitutional and void both as an illegal burdening of intestate
commerce and as a deprivation of property without due process of
law.
The immunity of interstate commerce from state taxation is
universal, and covers every class of such commerce, including that
conducted by merchants and trading companies no less than what is
done by common carriers.
As respects the power of a state to tax property beyond its
jurisdiction belonging to a foreign corporation, it is of no moment
whether the corporation be a carrier or a trading company, for a
state is wholly without power to impose such a tax.
Massachusetts Stats., 1914, c. 724, § 1, as construed by the
Supreme Judicial Court, removed the maximum limit fixed by Stats.,
1909, c. 490, Pt. III, § 56, so that the two conjointly exact a
single tax based on the par value of the entire authorized capital
stock of the foreign corporation of 1/50 of 1% of the first
$10,000,000, and 1/100 of 1% of the excess.
Held that, so
changed, the law in its essential and practical operation is like
those held invalid in
Western Union Telegraph Co. v. Kansas,
supra, and other cases cited, including
Looney v. Crane
Co., 245 U. S. 178, and
that a tax exacted under it for the privilege of doing local
business, from a foreign corporation largely engaged in interstate
commerce, and
Page 246 U. S. 136
whose property and business were largely in other states, was
void.
Baltic Mining Co. v. Massachusetts, 231 U. S.
68, distinguished.
228 Mass. 101 reversed.
The case is stated in the opinion.
Page 246 U. S. 138
MR. JUSTICE VAN DEVANTER delivered the opinion of the Court.
This is a suit by a New York corporation to recover the amount
of an excise tax assessed against it in Massachusetts for the year
1915 and paid under protest, the right of recovery being predicated
on the asserted invalidity of the tax under the commerce clause of
the Constitution and the due process clause of the Fourteenth
Amendment. The tax is also assailed on other grounds which will be
passed without particular notice. The case is set forth in an
agreed statement, in the light of which
Page 246 U. S. 139
the state court has sustained the tax. 228 Mass. 101. The
Massachusetts statutes under which the tax was imposed are as
follows:
St.1909, c. 490, Part III, § 56:
"Every foreign corporation shall, in each year at the time of
filing its annual certificate of condition, pay to the treasurer
and receiver general, for the use of the commonwealth, an excise
tax to be assessed by the tax commissioner of one fiftieth of one
percent of the par value of its authorized capital stock as stated
in its annual certificate of condition, but the amount of such
excise tax shall not in any one year exceed the sum of two thousand
dollars."
St.1914, c. 724, § 1
"Every foreign corporation subject to the tax imposed by section
fifty-six of Part III of chapter four hundred and ninety of the
acts of the year nineteen hundred and nine shall in each year at
the time of filing its annual certificate of condition, pay to the
treasurer and receiver general, for the use of the commonwealth, in
addition to the tax imposed by said section fifty-six, an excise
tax to be assessed by the tax commissioner of one one hundredth of
one percent of the par value of its authorized capital stock in
excess of ten million dollars as stated in its annual certificate
of condition."
The facts shortly stated are these. The company, as before
indicated, is a New York corporation. Its authorized capital stock,
on which the tax was computed, is $45,000,000. Its total assets are
not less than $39,000,000 or $40,000,000, of which not more than 1
3/4 percent are located or invested in Massachusetts. Its
authorized and actual business is manufacturing and selling paper,
in which connection it operates 23 paper mills -- one in
Massachusetts and 22 in other states. The output of its mills is
sold by it in both interstate and intrastate commerce, principally
the former. In Massachusetts, it maintains a selling office where
two salesmen, with a bookkeeping and clerical force, negotiate
sales of a part of the
Page 246 U. S. 140
output to consumers in the New England states, subject to the
approval of the home office in New York. About 86 percent of the
sales negotiated through this selling office are in interstate
commerce, and the remainder are local to Massachusetts. The sales
are made largely through long-term contracts with proprietors of
newspapers whereby the company engages to supply their needs from
its mills and from the output in transit at the time. No stock of
goods is kept on hand in Massachusetts from which current sales are
made. The executive and financial offices of the company are in New
York, and none of its corporate or business activities are carried
on in Massachusetts save as is here indicated. It pays local
property taxes in Massachusetts on its real and personal property
located there. In 1915, the assessed value of such property was
$472,000 and the tax paid thereon was $8,118. The tax in question
was in addition to the property tax, and amounted to $5,500. It was
imposed, so the state court holds, as an annual excise for the
privilege of doing a local business within the state.
While the legislation under which the tax was assessed and
collected was enacted in part in 1909 and in part in 1914, its
operation and validity must be determined here by considering it as
a whole, for the opinion of the state court not only holds that the
"maximum limitation" put on the tax by the part first enacted "is
removed" by the other, but treats the two parts as exacting a
single tax based on the par value of "the entire authorized
capital" and computed as to $10,000,000 thereof at the rate of
one-fiftieth of one percent and as to the excess at the rate of one
one-hundredth of one percent
Cases involving the validity of state legislation of this
character often have been before this Court. The statutes
considered have differed greatly, as have the circumstances in
which they were applied, and the questions presented have varied
accordingly. In disposing of these
Page 246 U. S. 141
questions, there has been at times some diversity of opinion
among the members of the Court, and some of the decisions have not
been in full accord with others. But the general principles which
govern have come to be so well established as no longer to be open
to controversy.
The subject was extensively considered in
Western Union
Telegraph Co. v. Kansas, 216 U. S. 1. A
statute of Kansas was there in question. As construed by the state
court, it required a foreign corporation doing an interstate and
local business in that and other states to pay a license fee or
excise of a given percent of its authorized capital for the
privilege of conducting a local business in that state. After
reviewing the earlier decisions, this Court pronounced the statute
invalid as being repugnant to the commerce clause of the
Constitution and the due process clause of the Fourteenth
Amendment. In that and two other cases (
Pullman Co. v.
Kansas, 216 U. S. 56, and
Ludwig v. Western Union Telegraph Co., 216 U. S.
146), which were before the Court at the same time, it
was held:
1. The power of a state to regulate the transaction of a local
business within its borders by a foreign corporation -- meaning a
corporation of a sister state -- is not unrestricted or absolute,
but must be exerted in subordination to the limitations which the
Constitution places on state action.
2. Under the commerce clause, exclusive power to regulate
interstate commerce rests in Congress, and a state statute which
either directly or by its necessary operation burdens such commerce
is invalid regardless of the purpose with which it was enacted.
3. Consistently with the due process clause, a state cannot tax
property belonging to a foreign corporation and neither located nor
used within the confines of the state.
4. That a foreign corporation is partly, or even chiefly,
engaged in interstate commerce does not prevent a state in which it
has property and is doing a local business from
Page 246 U. S. 142
taxing that property and imposing a license fee or excise in
respect of that business, but the state cannot require the
corporation, as a condition of the right to do a local business
therein, to submit to a tax on its interstate business or on its
property outside the state.
5. A license fee or excise of a given percent of the entire
authorized capital of a foreign corporation doing both a local and
interstate business in several states, although declared by the
state imposing it to be merely a charge for the privilege of
conducting a local business therein, is essentially and for every
practical purpose a tax on the entire business of the corporation,
including that which is interstate, and on its entire property,
including that in other states, and this because the capital stock
of the corporation represents all its business of every class and
all its property wherever located.
6. When tested, as it must be, by its substance -- its essential
and practical operation -- rather than its form or local
characterization, such a license fee or excise is unconstitutional
and void as illegally burdening interstate commerce and also as
wanting in due process because laying a tax on property beyond the
jurisdiction of the state.
True, those were cases where the business, interstate and local,
in which the foreign corporation was engaged was that of a common
carrier. But the immunity of interstate commerce from state
taxation is not confined to what is done by the carriers in such
commerce. On the contrary, it is universal, and covers every class
of interstate commerce, including that conducted by merchants and
trading companies. And as respects the power of a state to tax
property beyond its jurisdiction belonging to a foreign
corporation, it is of no moment whether the corporation be a
carrier or a trading company, for a state is wholly without power
to impose such a tax.
Our last decision on the subject was given during the
Page 246 U. S. 143
present term in
Looney v. Crane Co., 245 U.
S. 178. The case was orally argued a second time at our
request, and was much considered. It involved the validity of a
Texas statute which, as construed by the state court of last
resort, required a foreign corporation, as a condition to engaging
in local business in that state, to pay a permit tax based on its
entire authorized capital and a franchise tax based on its
outstanding capital plus its surplus and undivided profits. The
foreign corporation complaining of these taxes was a manufacturing
and trading company extensively engaged in interstate and local
commerce, principally the former, in several states, including
Texas. It maintained an agency in that state and had a large supply
depot at one point therein and a warehouse at another. Of its gross
sales and receipts for the year preceding the suit, not more than 2
1/2 percent -- $1,019,750 -- had any relation to Texas, and, of
this, approximately one-half was interstate in character. The
assessed value of its property in the state was $301,179, upon
which it paid the usual
ad valorem tax.
Applying what was held in
Western Union Telegraph Co. v.
Kansas, supra, and the two other cases before cited, this
Court unanimously pronounced the Texas statute invalid as placing
"direct burdens on interstate commerce" and taxing "property and
rights which were wholly beyond the confines of the state, and not
subject to its jurisdiction." Then, turning to
Baltic Mining
Co. v. Massachusetts, 231 U. S. 68,
St. Louis Southwestern Ry. Co. v. Arkansas, 235 U.
S. 350,
Kansas City, Ft. Scott & Memphis Ry. Co.
v. Kansas, 240 U. S. 227, and
Kansas City, Memphis & Birmingham R. Co. v. Stiles,
242 U. S. 111,
which were relied on as practically overruling
Western Union
Telegraph Co. v. Kansas and kindred cases, the court pointed
out that the former contained express statements that they were not
intended to limit the authority of the latter, and further said of
the former (p.
245 U. S.
189):
Page 246 U. S. 144
"In the first place, it is apparent in each of the cases that,
as the statutes under consideration were found not to be on their
face inherently repugnant either to the commerce or due process
clause of the Constitution, it came to be considered whether, by
their necessary operation and effect, they were repugnant to the
Constitution in the particulars stated, and this inquiry, it was
expressly pointed out, was to be governed by the rule long ago
announced in
Postal Telegraph Cable Co. v. Adams,
155 U. S.
688,
155 U. S. 698, that 'the
substance, and not the shadow, determines the validity of the
exercise of the power.' In the second place, in making the inquiry
stated in all of the cases, the compatibility of the statutes with
the Constitution which was found to exist resulted from particular
provisions contained in each of them which so qualified and
restricted their operation and necessarily so limited their effect
as to lead to such result. These conditions related to the subject
matter upon which the tax was levied, or to the amount of taxes in
other respects paid by the corporation, or limitations on the
amount of the tax authorized when a much larger amount would have
been due upon the basis upon which the tax was apparently levied.
It is thus manifest on the face of all of the cases that they in no
way sustain the assumption that, because a violation of the
Constitution was not a large one, it would be sanctioned, or that a
mere opinion as to the degree of wrong which would arise if the
Constitution were violated was treated as affording a measure of
the duty of enforcing the Constitution."
"It follows, therefore, that the cases which the argument relies
upon do not in any manner qualify the general principles expounded
in the previous cases upon which we have rested our conclusion,
since the later cases rested upon particular provisions in each
particular case which it was held caused the general and recognized
rule not to be applicable. "
Page 246 U. S. 145
That case and those which it followed and reaffirmed are fully
decisive of this. The statutes then and now in question differ only
in immaterial details, and the circumstances of their application
or attempted application are essentially the same. In principle,
the cases are not distinguishable.
In holding otherwise, the state court failed to observe the
restricted and limited grounds of our rulings in
Baltic Mining
Co. v. Massachusetts and the other cases dealt with and
distinguished in the excerpt just quoted from our opinion in
Looney v. Crane Company. True, the tax sustained in
Baltic Mining Co. v. Massachusetts was imposed under the
first of the statutes now in question, the one of 1909; but, at
that time, the statute placed a maximum limit on the amount of the
tax, which, as shown in that and other cases, was a material factor
in the decision. This limitation, as the state court holds, was
"removed" by the statute of 1914, which also made a partial
reduction in the tax rate. Since then, the tax has been assessed on
the par value of "the entire authorized capital" at one-fiftieth of
one percent up to $10,000,000 and at one one-hundredth of one
percent for the excess. Accepting the state court's view of the
change wrought by the later statute, it is apparent that, since
1914, the Massachusetts law has been, in its essential and
practical operation, like those held invalid in 1910 in
Western
Union Telegraph Co. v. Kansas, Pullman Co. v. Kansas, and
Ludwig v. Western Union Telegraph Co., and like that held
invalid at the present term in
Looney v. Crane
Company.
What has been said sufficiently shows that the tax in question
should have been declared unconstitutional and void as placing a
prohibited burden on interstate commerce and laid on property of a
foreign corporation located and used beyond the jurisdiction of the
state.
Judgment reversed.