A tax imposed by a state upon all money or exchange brokers is
not void for repugnance to the constitutional power of Congress to
regulate commerce.
Foreign bills of exchange are instruments of commerce, it is
true, but so also are the products of agriculture or manufactures,
over which the taxing power of a state extends until they are
separated from the general mass of property by becoming
exports.
A state has a right to tax its own citizens for the prosecution
of any particular business or profession within the state.
Banks deal in bills of exchange, and this Court has recognized
the power of a state to tax banks, where there is no clause of
exemption in their charters.
On 26 March, 1842, the State of Louisiana passed an act to
increase the revenue of the state, the ninth section of which
provided that "each and every money or exchange broker shall
hereafter pay an annual tax of $250 to the state in lieu of the tax
heretofore imposed on them."
On 3 February, 1845, Isaac T. Preston, the Attorney General of
the state, filed a petition in the District Court of the First
Judicial District stating that A. M. Nathan was justly indebted to
the petitioner in the sum of $250, for pursuing or having lately
pursued, within the year 1843, the business of a money and exchange
broker. The petition then prayed that he might be cited to appear
and answer and be condemned to pay; also that he might answer the
following interrogatories under oath,
viz.:
"Were you a broker, as above stated, in 1843?"
"Did you or not receive brokerage or commissions?"
"State clearly the nature of the same; whether received in money
transactions."
The same process was pursued to collect the tax for 1844.
On 19 April, 1845, the two suits were consolidated and the
defendant answered as follows:
"The defendant for answer denies generally all the allegations
in the plaintiff's petition contained. And further answering, he
says, that so much of such parts of 'an act to increase the revenue
of the state,' under and by virtue of which this suit is brought to
recover of this defendant the tax thereby imposed upon the business
of a money and exchange broker, and especially the ninth section
thereof, particularly referred to in the plaintiff's petition, so
far as the said section and act impose a tax on that part of the
business of a money and exchange
Page 49 U. S. 74
broker which consists in buying and selling exchange, the same
is contrary to and in violation of so much and such parts of the
Constitution of the United States as give to Congress the exclusive
power to regulate commerce, and prohibit to the states all
interference with the power so granted, and forbid them to impose,
without consent of Congress, any duty on imposts or exports."
"And so far as the said section and act imposes a tax on that
part of the business of a money and exchange broker which consists
in buying and selling money or foreign coin, or other currency, the
same is contrary to and in violation of so much and such parts of
the Constitution of the United States as gives to Congress the
exclusive power 'to coin money, regulate the value thereof, and of
foreign coin.'"
"And so far as said section imposes a tax, not uniform in amount
with other state taxes on occupations, respondent avers that the
same is contrary to so much of the treaties, laws, and Constitution
of the United States as reserve and guarantee to the inhabitants of
Louisiana all the rights, advantages, and immunities of citizens of
the United States, particularly that of uniform taxation, and to so
much of said Constitution as reserves to the people of the several
states all powers not delegated to the states respectively, or to
the Union."
"Wherefore he prays, that the plaintiff's demand be dismissed
with costs and for all other and general relief which his case may
require."
"RICHARD HENRY WILDE,
Defendant's Attorney"
"A. K. JOSEPHS"
"H. H. STRAWBRIDGE"
A. M. Nathan, defendant, for answer to the interrogatories to
him propounded in the above entitled suit, says:
"I was a money and exchange broker in 1843 and 1844; I received
a brokerage or commissions on money and bills of exchange sold by
my agency."
"I will state clearly the nature of the same. My business, like
that of money and exchange brokers in general, consists exclusively
in negotiating and effecting for others the purchase and sale of
exchange on other states or foreign countries. During the thirty
years that I have been a money and exchange broker, I believe --
nay, I am certain -- that I have never, as such, sold a single bill
drawn from one point of Louisiana on another. "
Page 49 U. S. 75
"I make myself acquainted with the current market value of
exchanges. The purchasers and the sellers both resort to me for
information on the state of the market of exchanges, and make me
their common agent in the purchase and sale of bills, which are
purchased for the purpose of making remittances to foreign parts,
and usually so remitted immediately. On and out of the price of
each bill I receive a percentage or commission, varying from
one-fourth to one eighth of one percent, which is commonly paid on
settlement. It is the same in money transactions."
"[Signed] A. M. NATHAN"
On 7 June, 1845, the district court decreed that the State of
Louisiana should recover of the defendant, A. M. Nathan, the sum of
five hundred dollars, and costs of suit.
An appeal was had to the Supreme Court of Louisiana, which, on
15 December, 1845, affirmed the judgment of the district court. The
defendant sued out a writ of error, and brought the case up to this
Court.
Page 49 U. S. 79
MR. JUSTICE McLEAN delivered the opinion of the Court.
By an act of the Legislature of Louisiana of 26
Page 49 U. S. 80
March, 1842, entitled "An act relative to the revenue of the
state," it is provided in the ninth section that "each and every
money or exchange broker shall hereafter pay an annual tax of $250
to the state, in lieu of the tax heretofore imposed on them." The
defendant below having failed to pay the tax for two years, a suit
was brought against him in the district court of the state, in
which a judgment for five hundred dollars was rendered. That
judgment, on an appeal to the supreme court of the state, was
affirmed. The defense made was that the sole business of the
defendant was buying and selling foreign bills of exchange, which
are instruments of commerce, and that the tax is repugnant to the
constitutional power of Congress "to regulate commerce with foreign
nations and among the several states."
This is not a tax on bills of exchange. Under the law, every
person is free to buy or sell bills of exchange, as may be
necessary in his business transactions; but he is required to pay
the tax if he engage in the business of a money or an exchange
broker.
The right of a state to tax its own citizens for the prosecution
of any particular business or profession within the state has not
been doubted. And we find that in every state money or exchange
brokers, venders of merchandise of our own or foreign manufacture,
retailers of ardent spirits, tavern keepers, auctioneers, those who
practice the learned professions, and every description of property
not exempted by law are taxed.
As an exchange broker, the defendant had a right to deal in
every description of paper and in every kind of money, but it seems
his business was limited to foreign bills of exchange. Money is
admitted to be an instrument of commerce, and so is a bill of
exchange, and upon this ground it is insisted that a tax upon an
exchange broker is a tax upon the instruments of commerce.
What is there in the products of agriculture, of mechanical
ingenuity, of manufactures which may not become the means of
commerce? And is the vendor of these products exempted from state
taxation because they may be thus used? Is a tax upon a ship, as
property, which is admitted to be an instrument of commerce,
prohibited to a state? May it not tax the business of shipbuilding
the same as the exercise of any other mechanical art? and also the
traffic of ship chandlers and others who furnish the cargo of the
ship and the necessary supplies? There can be but one answer to
these questions. No one can claim an exemption from a general tax
on his
Page 49 U. S. 81
business within the state on the ground that the products sold
may be used in commerce.
No state can tax an export or an import as such except under the
limitations of the Constitution. But before the article becomes an
export, or after it ceases to be an import by being mingled with
other property in the state, it is a subject of taxation by the
state. A cotton broker may be required to pay a tax upon his
business or by way of license although he may buy and sell cotton
for foreign exportation.
A bill of exchange is neither an export nor an import. It is not
transmitted through the ordinary channels of commerce, but through
the mail. It is a note merely ordering the payment of money, which
may be negotiated by endorsement, and the liability of the names
that are on it depends upon certain acts to be done by the holder,
when it becomes payable.
The dealer in bills of exchange requires capital and credit. He
generally draws the instrument, or it is drawn at his instance,
when he is desirous of purchasing it. The bill is worth more or
less as the rate of exchange shall be between the place where it is
drawn and where it is made payable. This rate is principally
regulated by the expense of transporting the specie from the one
place to the other, influenced somewhat by the demand and supply of
specie. Now the individual who uses his money and credit in buying
and selling bills of exchange, and who thereby realizes a profit,
may be taxed by a state in proportion to his income, as other
persons are taxed, or in the form of a license. He is not engaged
in commerce, but in supplying an instrument of commerce. He is less
connected with it than the shipbuilder, without whose labor foreign
commerce could not be carried on.
In the case of
Briscoe v. Bank of the
Commonwealth of Kentucky, 11 Pet. 257, this Court
held that a state has power to incorporate a bank, and this power
has been exercised by every state in the Union except where it has
been prohibited by its Constitution. And the banks established, it
is believed, have been, without exception, authorized to deal in
foreign bills of exchange. And this Court held in
Providence
Bank v. Billings and Pitman, 4 Pet. 514, that a
state had power to tax a bank, there being no clause in the charter
exempting it from taxation. In the case of
Bank of
Augusta v. Earle, 13 Pet. 519, it was decided that
the bank established in Georgia, having a right in its charter to
deal in bills of exchange, could, through its agent and the comity
of Alabama, buy and sell bills in that state.
If a tax on the business of an exchange broker, who buys
Page 49 U. S. 82
and sells foreign bills of exchange, be repugnant to the
commercial power of the Union, all taxes on banks which deal in
bills of exchange by a state must be equally repugnant.
The Constitution declares that no state shall impair the
obligations of a contract, and there is no other limitation on
state power in regard to contracts. In determining on the nature
and effect of a contract, we look to the
lex loci where it
was made or where it was to be performed. And bills of exchange,
foreign or domestic, constitute, it would seem, no exception to
this rule. Some of the states have adopted the law merchant, others
have not. The time within which a demand must be made on a bill, a
protest entered, and notice given, and the damages to be recovered,
vary with the usages and legal enactments of the different states.
These laws, in various forms and in numerous cases, have been
sanctioned by this Court. Endorsers on a protested bill are held
responsible for damages under the law of the state where the
endorsement was made. Every endorsement on a bill is a new
contract, governed by the local law. Story's Conflict of Laws
314.
For the purpose of revenue, the federal government has taxed
bills of exchange, foreign and domestic, and promissory notes,
whether issued by individuals or banks. Now the federal government
can no more regulate the commerce of a state than a state can
regulate the commerce of the federal government, and domestic bills
or promissory notes are as necessary to the commerce of a state as
foreign bills to the commerce of the Union. And if a tax on an
exchange broker, who deals in foreign bills, be a regulation of
foreign commerce, or commerce among the states, much more would a
tax upon state paper, by Congress, be a tax on the commerce of a
state.
The taxing power of a state is one of its attributes of
sovereignty. And where there has been no compact with the federal
government or cession of jurisdiction for the purposes specified in
the Constitution, this power reaches all the property and business
within the state, which are not properly denominated the means of
the general government; and, as laid down by this Court, it may be
exercised at the discretion of the state. The only restraint is
found in the responsibility of the members of the legislature to
their constituents.
If this power of taxation by a state within its jurisdiction may
be restricted beyond the limitations stated on the ground that the
tax may have some indirect bearing on foreign commerce, the
resources of a state may be thereby essentially impaired. But state
power does not rest on a basis so undefinable. Whatever exists
within its territorial limits in the form
Page 49 U. S. 83
of property, real or personal, with the exceptions stated, is
subject to its laws, and also the numberless enterprises in which
its citizens may be engaged. These are subjects of state regulation
and state taxation, and there is no federal power under the
Constitution which can impair this exercise of state
sovereignty.
We think the law of Louisiana imposing the tax in question is
not repugnant to any power of the federal government, and
consequently the judgment of the supreme court of the state is
Affirmed.
Order
This cause came on to be heard on the transcript of the record
from the Supreme Court of the State of Louisiana and was argued by
counsel. On consideration whereof, it is now here ordered and
adjudged by this Court that the judgment of the said supreme court
in this cause be and the same is hereby affirmed with costs.
