1. A privilege tax on a business of licensing copyrighted motion
pictures, measured by the gross receipts of royalties, is in effect
a direct charge upon the royalties.
Educational Films Corp. v.
Ward, 282 U. S. 379,
distinguished. P.
286 U. S.
126.
Page 286 U. S. 124
2. Copyrights, as granted under the Copyright Act, are the
property of the author, in which the United States has no interest
aside from the general benefits derived by the public from the
labors of authors. P.
286 U. S.
127.
3. Copyrights are not federal instrumentalities, and income
derived from them is not immune from state taxation.
Long v.
Rockwood, 277 U. S. 142
(holding otherwise as to patents) is overruled. Pp.
286 U. S. 128,
286 U. S. 131.
4. The principle of immunity of federal instrumentalities from
state taxation and of state instrumentalities from federal taxation
is confined to the protection of operation of government. P.
286 U. S.
128.
5. The mere fact that a copyright is property derived from a
grant by the United states is insufficient to support the claim of
exemption. Nor does the fact that the grant is made in furtherance
of a governmental policy of the United states, and because of the
benefits which are deemed to accrue to the public in the execution
of that policy, furnish ground for immunity. P.
286 U. S.
128.
6. A nondiscriminatory tax on the royalties from copyrights does
not hamper the execution of the policy of the copyright statute. P.
286 U. S. 131.
173 Ga. 403 affirmed.
Appeal from a judgment, by a divided court, sustaining the
dismissal of a suit to enjoin collection of state taxes.
Page 286 U. S. 126
MR. CHIEF JUSTICE HUGHES delivered the opinion of the Court.
Appellant, a New York corporation which is engaged within the
State of Georgia in the business of licensing copyrighted motion
pictures, brought this suit to restrain the collection of the state
tax upon the gross receipts of royalties under such licenses. The
tax was challenged upon the ground that copyrights are
instrumentalities of the United States. On demurrer, the suit was
dismissed, and the supreme court of the state, the justices being
equally divided in opinion, affirmed the judgment. 172 Ga. 403, 157
S.E. 664. The case comes here on appeal.
The Gross Receipts Tax Act (Georgia Laws 1929, p. 103) describes
the tax as laid "upon the privilege of engaging in certain
occupations" and "upon certain business and commercial transactions
and enterprises." As the tax is measured by gross receipts, the
case is not ruled by
Educational Films Corp. v. Ward,
282 U. S. 379,
where the tax was based upon the net income of the corporation.
Appellant insists, and we think rightly, that the operation of the
statute here in question, in its application to gross receipts, is
to impose a direct charge upon the royalties.
Northwestern
Mutual Life Insurance Co. v. Wisconsin, 275 U.
S. 136,
275 U. S. 141.
See also Crew Levick Co. v. Pennsylvania, 245 U.
S. 292,
245 U. S. 297;
United States Glue Co. v. Oak Creek, 247 U.
S. 321,
247 U. S.
328-329;
New Jersey Bell Telephone Co. v. state
Board, 280 U. S. 338,
280 U. S. 346.
The question is thus presented whether copyrights are to be
Page 286 U. S. 127
deemed instrumentalities of the federal government, and hence
immune from state taxation.
The Constitution empowers the Congress
"to promote the Progress of Science and useful Arts, by securing
for limited Times to Authors and Inventors the exclusive Right to
their respective Writings and Discoveries."
Article 1, ยง 8, par. 8. The production to which the protection
of copyright may be accorded is the property of the author, and not
of the United States. But the copyright is the creature of the
federal statute passed in the exercise of the power vested in the
Congress. As this Court has repeatedly said, the Congress did not
sanction an existing right, but created a new one.
Wheaton v.
Peters, 8 Pet. 591,
33 U. S. 661;
American Tobacco Co. v. Werckmeister, 207 U.
S. 284,
207 U. S. 291;
Globe Newspaper Co. v. Walker, 210 U.
S. 356,
210 U. S. 362;
Caliga v. Inter-Ocean Newspaper Co., 215 U.
S. 182,
215 U. S. 188.
The statute confers upon the author after publication the exclusive
right for a limited period to multiply and vend copies and to
engage in the other activities described by the statute in relation
to the subject matter. U.S.C. Tit. 17. In creating this right, the
Congress did not reserve to the United States any interest in the
production itself, or in the copyright, or in the profits that may
be derived from its use. Nor did the Congress provide that the
right, or the gains from its exercise, should be free of tax. The
owner of the copyright, if he pleases, may refrain from vending or
licensing, and content himself with simply exercising the right to
exclude others from using his property.
Compare Continental
Paper Bag Co. v. Eastern Paper Bag Co., 210 U.
S. 405,
210 U. S.
422-424. The sole interest of the United States and the
primary object in conferring the monopoly lie in the general
benefits derived by the public from the labors of authors. A
copyright, like a patent, is
"at once the equivalent given by the public for benefits
bestowed by the genius and meditations and skill of individuals and
the incentive to
Page 286 U. S. 128
further efforts for the same important objects."
Kendall v.
Winsor, 21 How. 327,
62 U. S. 328;
Grant v.
Raymond, 6 Pet. 218,
31 U. S.
241-242.
The principle of the immunity from state taxation of
instrumentalities of the federal government, and of the
corresponding immunity of state instrumentalities from federal
taxation -- essential to the maintenance of our dual system -- has
its inherent limitations. It is aimed at the protection of the
operations of government (
McCulloch v.
Maryland, 4 Wheat. 316,
17 U. S. 436),
and the immunity does not extend "to anything lying outside or
beyond governmental functions and their exertion." (
Indian
Motocycle Co. v. United States, 283 U.
S. 570,
283 U. S. 576,
283 U. S.
579). Where the immunity exists, it is absolute, resting
upon an "entire absence of power" (
Johnson v. Maryland,
254 U. S. 51,
254 U. S.
55-56), but it does not exist
"where no direct burden is laid upon the governmental
instrumentality, and there is only a remote, if any, influence upon
the exercise of the functions of government."
(
Willcuts v. Bunn, 282 U. S. 216,
282 U. S.
225)
In this instance, the mere fact that a copyright is property
derived from a grant by the United States is insufficient to
support the claim of exemption. Nor does the fact that the grant is
made in furtherance of a governmental policy of the United States,
and because of the benefits which are deemed to accrue to the
public in the execution of that policy, furnish ground for
immunity. The disposition by the government of public lands, in
order to advance the general interest by promoting settlement,
illustrates the principle and its limitation. The property of the
United States is not subject to state taxation (
Van Brocklin v.
Tennessee, 117 U. S. 151),
but the property of individual owners, although derived from the
United States under its public land laws, may be taxed. The power
to tax exists as soon as the ownership is changed.
Witherspoon v.
Duncan, 4 Wall. 210,
71 U. S.
219.
Page 286 U. S. 129
Though the legal title remains in the government, if the
proceedings have reached the point where nothing more remains to be
done by the entryman, and the government no longer has any
beneficial interest in the land and does not exclude the entryman
from the use of it, he is regarded as the beneficial owner, and the
land is subject to taxation.
Bothwell v. Bingham County,
237 U. S. 642,
237 U. S. 647.
[
Footnote 1] Again, the
possessory right of a qualified locator after discovery of minerals
is a property right in the full sense, unaffected by the fact that
the paramount title to the land is in the United States, and such
interest from early times has been held to be vendible,
inheritable, and taxable.
Forbes v. Gracey, 94 U. S.
762,
94 U. S.
766-767;
Elder v. Wood, 208 U.
S. 226,
208 U. S. 232;
Union Oil Co. v. Smith, 249 U. S. 337,
249 U. S. 349;
Irwin v. Wright, 258 U. S. 219,
258 U. S. 231.
[
Footnote 2] It is thus
apparent that the mere fact that a property right is created by
statute to fulfill a governmental purpose does not make it
nontaxable when it is held in private ownership and exercised for
private advantage.
See Susquehanna Power Co. v. State Tax
Commission (No. 1), 283 U. S. 291,
283 U. S. 297.
Page 286 U. S. 130
We are of the opinion that no controlling distinction can be
based, in the case of copyrights, upon the character of the right
granted. The argument that it is in the nature of a franchise or
privilege bestowed by the government is met by the fact that it is
not a franchise or privilege to be exercised on behalf of the
government or in performing a function of the government. The
"mining claim" above mentioned, or the possessory right to explore
and work a mine under the applicable federal laws and regulations,
may also be regarded as a franchise or privilege, but the Court
found the right to be nonetheless taxable, observing in
Forbes
v. Gracey, supra, that "Those claims are the subject of
bargain and sale, and constitute very largely the wealth of the
Pacific Coast states." Copyright is a right exercised by the owner
during the term at his pleasure and exclusively for his own profit,
and forms the basis for extensive and profitable business
enterprises. The advantage to the public is gained merely from the
carrying out of the general policy in making such grants, and not
from any direct interest which the government has in the use of the
property which is the subject of the grants. After the copyright
has been granted, the government has no interest in any action
under it save the general one that its laws shall be obeyed.
Operations of the owner in multiplying copies, in sales, in
performances or exhibitions, or in licensing others for such
purposes, are manifestly not the operations of the government. A
tax upon the gains derived from such operations is not a tax upon
the exertion of any governmental function.
In
Gillespie v. Oklahoma, 257 U.
S. 501, the question concerned income derived from
leases of restricted Indian lands. The leases were deemed to be
instrumentalities of the United States in carrying out its duties
to the Indians, and the Court, speaking through Mr. Justice Holmes,
concluded that the tax imposed by Oklahoma was "a direct
Page 286 U. S. 131
hamper upon the effort of the United States to make the best
terms that it can for its wards."
Id., p.
257 U. S. 506. A
similar result was reached in the recent ruling in relation to what
was deemed to be the correlative case of leases by Oklahoma of
lands held by the state for the support of its schools.
Burnet
v. Coronado Oil & Gas Co., 285 U.
S. 393. These decisions are not controlling here. The
nature and purpose of copyrights place them in a distinct category,
and we are unable to find any basis for the supposition that a
nondiscriminatory tax on royalties hampers in the slightest degree
the execution of the policy of the copyright statute.
We agree, however, with the contention that, in this aspect,
royalties from copyrights stand in the same position as royalties
from the use of patent rights, and what we have said as to the
purposes of the government in relation to copyrights applies as
well,
mutatis mutandis, to patents which are granted under
the same constitutional authority to promote the progress of
science and useful arts. The affirmance of the judgment in the
instant case cannot be reconciled with the decision in
Long v.
Rockwood, 277 U. S. 142,
upon which appellant relies, and, in view of the conclusions now
reached upon a reexamination of the question, that case is
definitely overruled.
Judgment affirmed.
[
Footnote 1]
See also Carroll v.
Safford, 3 How. 441,
44 U. S. 461;
Tucker v.
Ferguson, 22 Wall. 527,
89 U. S. 572;
Wisconsin Railroad Co. v. Price County, 133 U.
S. 496,
133 U. S. 505;
Irwin v. Wright, 258 U. S. 219,
258 U. S.
228-229;
New Brunswick v. United States,
276 U. S. 547,
276 U. S. 556;
Exchange Trust Co. v. Drainage District, 278 U.
S. 421,
278 U. S. 425;
Group No. 1 Oil Corp. v. Bass, 283 U.
S. 279,
283 U. S.
282.
[
Footnote 2]
Even the reservation to the United States, in its grant of
property, of a right of user for particular governmental purposes
does not necessarily withdraw the property granted from the taxing
power of the state.
Baltimore Shipbuilding Co. v.
Baltimore, 195 U. S. 375.
Property in private ownership is not rendered nontaxable by the
mere fact that it is the property of an agent of the government and
is used in the conduct of the agent's operations and is necessary
for the agency, when Congress has not provided for its exemption.
Union Pacific Railroad Co. v.
Peniston, 18 Wall. 5,
85 U. S. 33;
Central Pacific R. Co. v. California, 162 U. S.
91,
162 U. S. 125;
Gromer v. Standard Dredging Co., 224 U.
S. 362,
224 U. S. 371;
Choctaw, Oklahoma & Gulf R. Co. v. Mackey,
256 U. S. 531,
256 U. S. 537;
Shaw v. Oil Corporation, 276 U. S. 575,
276 U. S.
581.