1. In determining the constitutionality of a pecuniary exaction
made under a state statute in the guise of taxation, this Court is
not bound by the characterization of the exaction by the state
supreme court as an "occupation tax." P.
260 U. S.
348.
Page 260 U. S. 347
2. A state law exacting of persons insuring their property
situate in the state a so-called tax of 5% of the amounts paid by
them as premiums to insurers not authorized to do business in the
state is void as applied to insurance contracted and paid for
outside the state by a foreign corporation doing local business. P.
260 U. S. 348.
Allgeyer v. Louisiana, 165 U. S. 578.
147 Ark. 406 reversed.
Error to a judgment of the Supreme Court of Arkansas in an
action brought by the state to recover 5% of amounts paid by the
Compress Company to fire insurance companies, not authorized to do
business in the state, for insuring its property in Arkansas.
MR. JUSTICE HOLMES delivered the opinion of the court.
This is a suit by the State of Arkansas against a corporation of
Missouri authorized to do business in Arkansas. It is brought to
recover five percent on the gross premiums paid by the defendant,
the plaintiff in error, for insurance upon its property in
Arkansas, to companies not authorized to do business in the state.
A statute of the state purports to impose a liability for this
amount as a tax. Crawford & Moses' Digest (1921) ยง 9967. The
answer alleged that the policies were contracted for, delivered,
and paid for in St. Louis, Missouri, the domicil of the
corporation, because the rates were less than those charged by
companies authorized to do business in Arkansas. It also alleged
that, long before the taxing act was passed, the
Page 260 U. S. 348
defendant had made large investments in Arkansas in real and
personal property essential to the conduct of its business, which
it had held and operated over since. The plaintiff demurred. The
lower court overruled the demurrer, but the supreme court sustained
it, holding that the statute denied to the defendant no rights
guaranteed to it by the Fourteenth Amendment. Judgment was entered
for the plaintiff, and the case was brought by writ of error to
this Court.
The supreme court justified the imposition as an occupation tax
that is, as we understand it, a tax upon the occupation of the
defendant. But this Court, although bound by the construction that
the supreme court may put upon the statute, is not bound by the
characterization of it so far as that characterization may bear
upon the question of its constitutional effect.
St. Louis
Southwestern Ry. Co. v. Arkansas, 235 U.
S. 350,
235 U. S. 362.
The short question is whether this so-called tax is saved because
of the name given to it by the statute when it has been decided in
Allgeyer v. Louisiana, 165 U. S. 578,
that the imposition of a round sum, called a fine, for doing the
same thing, called an offence, is invalid under the Fourteenth
Amendment. It is argued that there is a distinction because the
Louisiana statute prohibits (by implication) what this statute
permits. But that distinction, apart from some relatively
insignificant collateral consequences, is merely in the amount of
the detriment imposed upon doing the act. The name given by the
state to the imposition is not conclusive.
Bailey v. Drexel
Furniture Co., 259 U. S. 20,
Lipke v. Lederer, 259 U. S. 557. In
Louisiana, the detriment was $1,000. Here, it is five percent upon
the premiums -- which is three percent more than is charged for
insuring in authorized companies. Each is a prohibition to the
extent of the payment required. The Arkansas tax manifests no less
plainly than the Louisiana fine a purpose to discourage insuring in
companies that
Page 260 U. S. 349
do not pay tribute to the state. This case is stronger than that
of
Allgeyer in that here, no act was done within the
state, whereas there, a letter constituting a step in the contract
was posted within the jurisdiction. It is true that the state may
regulate the activities of foreign corporations within the state,
but it cannot regulate or interfere with what they do outside. The
other limit upon the state's power due to its having permitted the
plaintiff in error to establish itself as alleged need not be
considered here.
Southern Ry. Co. v. Greene, 216 U.
S. 400,
216 U. S. 414;
Cheney Brothers Co. v. Massachusetts, 246 U.
S. 147,
246 U. S. 157;
Northwestern Mutual Life Ins. Co. v. Wisconsin,
247 U. S. 132,
247 U. S.
140.
Judgment reversed.