An Illinois constitutional provision subjecting corporations and
similar entities, but not individuals, to
ad valorem taxes
on personalty comports with equal protection requirements, the
States being accorded wide latitude in making classifications and
drawing lines that in their judgment produce reasonable taxation
systems.
Quaker City Cab Co. v. Pennsylvania, 277 U.
S. 389, disapproved. Pp.
410 U. S.
359-365.
49 Ill. 2d
137,
273 N.E.2d
592, reversed.
DOUGLAS, J., delivered the opinion for a unanimous Court.
Page 410 U. S. 357
MR. JUSTICE DOUGLAS delivered the opinion of the Court.
In 1970, the people of Illinois amended its constitution
[
Footnote 1] adding Art. IX-A
to become effective January 1, 1971, and reading:
"Notwithstanding any other provision of this Constitution, the
taxation of personal property by valuation is prohibited as to
individuals."
There apparently appeared on the ballot when Art. IX-A was
approved the following:
"The amendment would abolish the personal property tax by
valuation levied against individuals. It would not affect the same
tax levied against corporations and other entities not considered
in law to be individuals. The amendment would achieve this result
by adding a new article to the Constitution of 1870, Article IX-A,
thus setting aside existing provisions of Article IX, Section 1,
that require the taxation by valuation of all forms of property,
real and personal or other, owned by individuals and
corporations."
Respondent Lake Shore Auto Parts Co., a corporation, brought an
action against Illinois officials on its behalf
Page 410 U. S. 358
and on behalf of all other corporations and "nonindividuals"
subject to the personal property tax, claiming that the tax
violated the Equal Protection Clause of the Fourteenth Amendment
since it exempts from personal property taxes all personal property
owned by individuals, but retains such taxes as to personal
property owned by corporations and other "non-individuals." The
Circuit Court held the Revenue Act of Illinois, as amended by Art.
IX-A, unconstitutional as respects corporations by reason of the
Equal Protection Clause of the Fourteenth Amendment.
Shapiro and other individuals also brought suit alleging they
are natural persons who own personal property, one for himself and
his family, one as a sole proprietor of a business, and one as a
partnership. A different trial judge entered an order in these
cases dismissing the complaints except as to Shapiro and members of
his class. The trial judge held that all other provisions of
Illinois law imposing personal property taxes on property owned by
corporations and other "non-individuals" were unaffected by Art.
IX-A, in line with the statement on the ballot, quoted above.
All respondents in both cases appealed to the Illinois Supreme
Court, which held that Art. IX-A did not affect all forms of real
and personal property taxes, but only personal property taxes on
individuals, which it construed to mean "
ad valorem
taxation of personal property owned by a natural person or by two
or more natural persons as joint tenants or tenants in common."
49 Ill. 2d
137, 148,
273 N.E.2d
592, 597. As so construed, the Illinois Supreme Court held that
the tax violated the Equal Protection Clause of the Fourteenth
Amendment.
Id. at 151, 273 N.E.2d at 599, one Justice
dissenting. [
Footnote 2]
Page 410 U. S. 359
The cases are here on writs of certiorari which we granted. 405
U.S. 1039
The Equal Protection Clause does not mean that a State may not
draw lines that treat one class of individuals or entities
differently from the others. The test is whether the difference in
treatment is an invidious discrimination.
Harper v. Virginia
Board of Elections, 383 U. S. 663,
383 U. S. 666.
Where taxation is concerned and no specific federal right, apart
from equal protection, is imperiled, [
Footnote 3] the States have large leeway in making
classifications and drawing lines which, in their judgment, produce
reasonable systems of taxation. As stated in
Allied Stores of
Ohio v. Bowers, 358 U. S. 522,
358 U. S.
526-527:
"The States have a very wide discretion in the laying of their
taxes. When dealing with their proper domestic concerns, and not
trenching upon the prerogatives of the National Government or
violating the guaranties of the Federal Constitution, the States
have the attribute of sovereign powers in devising their fiscal
systems to ensure revenue and foster their local interests. Of
course, the States, in the exercise of their taxing power, are
subject to the requirements of the Equal Protection Clause of the
Fourteenth Amendment. But that clause imposes no iron rule of
equality, prohibiting the flexibility and variety that are
appropriate to reasonable schemes of state taxation. The State may
impose different specific taxes upon different trades and
Page 410 U. S. 360
professions and may vary the rate of excise upon various
products. It is not required to resort to close distinctions or to
maintain a precise, scientific uniformity with reference to
composition, use or value."
In that case, we used the phrase "palpably arbitrary" or
"invidious" as defining the limits placed by the Equal Protection
Clause on state power.
Id. at
358 U. S. 530.
State taxes which have the collateral effect of restricting or even
destroying an occupation or a business have been sustained, so long
as the regulatory power asserted is properly within the limits of
the federal state regime created by the Constitution.
Magnano
Co. v. Hamilton, 292 U. S. 40,
292 U. S. 447.
When it comes to taxes on corporations and taxes on individuals,
great leeway is permissible so far as equal protection is
concerned. They may be classified differently with respect to their
right to receive or earn income. In
Lawrence v. State Tax
Comm'n, 286 U. S. 276,
286 U. S. 283,
a state statute relieved domestic corporations of an income tax
derived from activities carried on outside the State, but imposed
the tax on individuals obtaining such income. We upheld the tax
against the claim that it violated the Equal Protection Clause,
saying:
"We cannot say that investigation in these fields would not
disclose a basis for the legislation which would lead reasonable
men to conclude that there is just ground for the difference here
made. The existence, unchallenged, of differences between the
taxation of incomes of individuals and of corporations in every
federal revenue act since the adoption of the Sixteenth Amendment,
demonstrates that there may be."
Id. at
286 U. S.
283-284.
It is true that, in
Quaker City Cab Co. v.
Pennsylvania, 277 U. S. 389, the
Court held that a gross receipts tax
Page 410 U. S. 361
levied on corporations doing a taxi business violated the Equal
Protection Clause of the Fourteenth Amendment when no such tax was
levied on individuals and partnerships operating taxicabs in
competition with the corporate taxpayers. Justices Holmes,
Brandeis, and Stone dissented.
Id. at
277 U. S.
403-412. Mr. Justice Holmes stated:
"If usually there is an important difference of degree between
the business done by corporations and that done by individuals, I
see no reason why the larger businesses may not be taxed and the
small ones disregarded, and I think it would be immaterial if, here
and there, exceptions were found to the general rule. . . .
Furthermore, if the State desired to discourage this form of
activity in corporate form and expressed its desire by a special
tax, I think that there is nothing in the Fourteenth Amendment to
prevent it."
Id. at
277 U. S.
403.
Each of these dissenters thought
Flint v. Stone Tracy
Co., 220 U. S. 107,
should govern
Quaker City Cab. The
Flint case
involved a federal tax upon the privilege of doing business in a
corporate capacity, but it was not laid on businesses carried on by
a partnership or private individual. It was, therefore, contended
that the tax was "so unequal and arbitrary" as to be beyond the
power of Congress.
Id. at
220 U. S. 158.
We had not yet held that the Fifth Amendment in its use of due
process carries a mandate of equal protection. [
Footnote 4] But the Court in dictum stated:
"[I]t could not be said, even if the principles of the
Fourteenth Amendment were applicable to the present case, that
there is no substantial difference between
Page 410 U. S. 362
the carrying on of business by the corporations taxed, and the
same business when conducted by a private firm or individual. The
thing taxed is not the mere dealing in merchandise, in which the
actual transactions may be the same, whether conducted by
individuals or corporations, but the tax is laid upon the
privileges which exist in conducting business with the advantages
which inhere in the corporate capacity of those taxed, and which
are not enjoyed by private firms or individuals. These advantages
are obvious, and have led to the formation of such companies in
nearly all branches of trade. The continuity of the business,
without interruption by death or dissolution, the transfer of
property interests by the disposition of shares of stock, the
advantages of business controlled and managed by corporate
directors, the general absence of individual liability, these and
other things inhere in the advantages of business thus conducted,
which do not exist when the same business is conducted by private
individuals or partnerships. It is this distinctive privilege which
is the subject of taxation, not the mere buying or selling or
handling of goods which may be the same, whether done by
corporations or individuals."
Id. at
220 U. S.
161-162.
While
Quaker City Cab came after
Flint, cases
following
Quaker City Cab have somewhat undermined it.
White River Co. v. Arkansas, 279 U.
S. 692, involved a state statute for collection of back
taxes on lands owned by corporations, but not individuals. The
Court sustained the statute. Mr. Justice Butler, Mr Chief Justice
Taft, and Mr. Justice Van Devanter dissented, asserting that
Quaker City Cab was not distinguishable. The majority made
no effort to distinguish
Quaker City Cab beyond saying
that it did not involve, as did
White River, back taxes.
Id. at
279 U. S.
696.
Page 410 U. S. 363
In
Rapid Transit Co. v. New York, 303 U.
S. 573, an excise tax was levied on every utility but
not on other business units. In sustaining the tax against the
claim of lack of equal protection, the Court said:
"Since carriers or other utilities with the right of eminent
domain, the use of public property, special franchises or public
contracts, have many points of distinction from other businesses,
including relative freedom from competition, especially significant
with increasing density of population and municipal expansion,
these public service organizations have no valid ground by virtue
of the equal protection clause to object to separate treatment
related to such distinctions."
Id. at
303 U. S.
579.
We reached the same result in
Nashville, C. & St. L.R.
Co. v. Browning, 310 U. S. 362,
where Tennessee had used one system for making assessments under
its
ad valorem tax law as respects most taxpayers and a
totally different one for public service corporations. So far as
equal protection was concerned, we said that the grievance of the
particular complainant was "common to the whole class" and not
"invidious to a particular taxpayer." [
Footnote 5]
Id. at
310 U. S.
368.
Page 410 U. S. 364
Approval of the treatment "with that separateness" which
distinguishes public service corporations from others,
ibid., leads us to conclude in the present cases that
making corporations and like entities, but not individuals, liable
for
ad valorem taxes on personal property does not
transcend the requirements of equal protection.
In
Madden v. Kentucky, 309 U. S.
83, a State laid an
ad valorem tax of 50� per
$100 on deposits in banks outside the State and only 10� per $1,000
on deposits within the State. The classification was sustained
against the charge of invidious discrimination, the Court noting
that "in taxation, even more than in other fields, legislatures
possess the greatest freedom in classification."
Id. at
309 U. S. 88.
There is a presumption of constitutionality which can be overcome
"only by the most explicit demonstration that a classification is a
hostile and oppressive discrimination against particular persons
and classes."
Ibid. And the Court added, "The burden is on
the one attacking the legislative arrangement to negative every
conceivable basis which might support it."
Ibid. That idea
has been elaborated. Thus, in
Carmichael v. Southern Coal
Co., 301 U. S. 495, the
Court, in sustaining an unemployment tax on employers, [
Footnote 6] said:
"A state legislature, in the enactment of laws, has the widest
possible latitude within the limits of the Constitution. In the
nature of the case, it cannot record a complete catalogue of the
considerations which move its members to enact laws. In the absence
of such a record, courts cannot assume that its action is
capricious, or that, with its informed acquaintance with local
conditions to which the legislation
Page 410 U. S. 365
is to be applied, it was not aware of facts which afford
reasonable basis for its action. Only by faithful adherence to this
guiding principle of judicial review of legislation is it possible
to preserve to the legislative branch its rightful independence and
its ability to function."
Id. at
301 U. S.
510.
Illinois tells us that the individual personal property tax was
discriminatory, unfair, almost impossible to administer, and
economically unsound. Assessment practices varied from district to
district. About a third of the individuals paid no personal
property taxes at all, while the rest paid on their bank accounts,
automobiles, household furniture, and other resources, and in rural
areas they paid on their livestock, grain, and farm implements as
well. As respects corporations, the State says, the tax is
uniformly enforceable. Illinois says, moreover, that Art. IX-A is
only the first step in totally eliminating the
ad valorem
personal property tax by 1979, but, for fiscal reasons, it was
impossible to abolish the tax all at once.
We could strike down this tax as discriminatory only if we
substituted our judgment on facts of which we can be only dimly
aware for a legislative judgment that reflects a vivid reaction to
pressing fiscal problems.
Quaker City Cab Co. v.
Pennsylvania is only a relic of a bygone era. We cannot follow
it and stay within the narrow confines of judicial review, which is
an important part of our constitutional tradition.
Reversed.
* Together with No. 71-691,
Barrett, County Clerk of Cook
County, Illinois, et al. v. Shapiro et al., also on certiorari
to the same court.
[
Footnote 1]
In 1969, the Illinois Legislature had provided for the
submission of the proposed amendment to a referendum vote.
[
Footnote 2]
The result was either to reverse with directions to dismiss the
complaints or to affirm the judgment that dismissed the complaints.
Those two cases were heard by the Illinois Supreme Court along with
a petition to file original suit with that court by one Maynard,
who owned nonbusiness personal property, and by three school
districts. That petition was dismissed.
[
Footnote 3]
Classic examples are the taxes that discriminated against
newspapers, struck down under the First Amendment (
Grosjean v.
American Press Co., 297 U. S. 233) or
that discriminated against interstate commerce (
see
Michigan-Wisconsin Pipe Line Co. v. Calvert, 347 U.
S. 157) or required licenses to engage in interstate
commerce.
[
Footnote 4]
See Bolling v. Sharpe, 347 U.
S. 497, decided May 17, 1954, which held that federal
discrimination (in that case racial in nature) may be so arbitrary
as to be violative of due process as the term is used in the Fifth
Amendment.
[
Footnote 5]
In
Atlantic Pacific Tea Co. v. Grosjean, 301 U.
S. 412, a State classified chain stores for purposes of
a chain store tax according to the number of stores -- inside and
outside the State. The Court sustained the tax, saying: "The
statute bears equally upon all who fall into the same class, and
this satisfies the guaranty of equal protection."
Id. at
301 U. S. 424.
In
Carmichael v. Southern Coal Co., 301 U.
S. 495, a State laid an unemployment tax on employers,
excluding,
inter alia, agriculture, domestic service,
crews of vessels on navigable waters, and eleemosynary
institutions. The Court sustained the tax, saying:
"This Court has repeatedly held that inequalities which result
from a singling out of one particular class for taxation or
exemption, infringe no constitutional limitation."
Id. at
301 U. S. 509.
And it added:
"A legislature is not bound to tax every member of a class or
none. It may make distinctions of degree having a rational basis,
and when subjected to judicial scrutiny they must be presumed to
rest on that basis if there is any conceivable state of facts which
would support it."
Ibid.
[
Footnote 6]
Note 5 supra.