1. A statute of a state imposing a tax upon the gross receipts
of railroad companies is not repugnant to the Constitution of the
United States, though the gross receipts are made up in part from
freights received for transportation of merchandise from the state
to another state or into the state from another.
2. Such a tax is not a regulation, of interstate commerce.
3. Nor is it a tax on imports or exports.
4. Nor is it a tax upon interstate transportation.
5. A distinction made between a tax upon freights carried
between states because of their carriage and a tax upon the fruits
of such transportation after they have become intermingled with the
other property of the carrier.
By an Act of the Legislature of Pennsylvania passed on the 23d
day of February, 1866, entitled "An act to amend the revenue laws
of the Commonwealth," a tax was imposed upon the gross receipts of
certain companies. The second section was as follows:
"In addition to the taxes now provided by law, every railroad,
canal, and transportation company incorporated under the laws of
this Commonwealth and not liable to the tax upon income under
existing laws shall pay to the Commonwealth a tax of three-fourths
of one percentum upon the gross receipts of said company; the said
tax shall be paid semiannually upon the first days of July and
January, commencing on the first day of July, 1866, and for the
purpose of ascertaining the amount of the same, it shall be the
duty of the treasurer or other proper officer of said company to
transmit to the auditor general a statement, under oath or
affirmation, of the amount of gross receipts of the said company
during the preceding six months, and if such company shall refuse
or fail, for a period of thirty days after such tax becomes due, to
make said return or to pay the same, the amount thereof, with an
addition of ten percentum
Page 82 U. S. 285
thereto, shall be collected for the use of the Commonwealth, as
other taxes are recoverable by law from said companies."
Under this statute, the accounting officers of Pennsylvania
stated an account between the Commonwealth and the Reading Railroad
Company for tax on the gross receipts of the company for the half
year ending December 31, 1867. The company, as stated in a
preceding case, [
Footnote 1]
was a corporation created by the state of Pennsylvania. Its road
was between Philadelphia and the coal regions of Pennsylvania, and
one large source of the company's profit was the transportation on
the road of coal from the coal regions to a place near Philadelphia
called Port Richmond, or to the Schuylkill Canal, from both which
places most of it went to states other than Pennsylvania.
The account, as stated by the accounting officers of the
Commonwealth, was based on returns made by the company, which
discriminated between receipts from freight transported to points
within, and receipts from freight exported to points without, the
State of Pennsylvania. The latter were returned under protest
against their liability to taxation, and the tax assessed against
these receipts made the subject of the present controversy. The
company, in refusing to pay, alleged that the Act of February 23,
1866 -- so far as it taxed that portion of the gross receipts which
were derived from transportation from the state to another state or
into the state from another -- was unconstitutional and void
because, among other reasons, it was in conflict with the fourth
paragraph of the eighth section of the first article of the
Constitution of the United States, which ordains that:
"Congress shall have power to regulate commerce with foreign
nations and among the several states."
and with the second paragraph of the tenth section of the same
article, which ordains that:
"No state shall, without the consent of Congress, lay any
imposts or duties on imports or exports except what may be
absolutely necessary for executing its inspection laws. "
Page 82 U. S. 286
The Supreme Court of Pennsylvania adjudged that the act was not
in conflict with either of the clauses of the Constitution relied
on, and to this, its judgment, the present writ of error was
taken.
Page 82 U. S. 292
MR. JUSTICE STRONG delivered the opinion of the Court.
The question is whether the Act of the Legislature of
Pennsylvania passed February 23, 1866, under which a tax was levied
upon the Philadelphia & Reading Railroad Company of
three-quarters of one percent upon the gross receipts of the
company, during the six months ending December 31, 1867, is in
conflict with the third clause of the eighth section, article
first, of the Constitution of the United States, which confers upon
Congress power to "regulate commerce with foreign nations, and
among the several states, and with the Indian tribes," or whether
it is in conflict with the second clause of the tenth section of
the same article, which prohibits the states,
"without the consent of Congress, from laying any imposts or
duties on imports or exports, except what may be absolutely
necessary for executing their inspection laws."
It was claimed in the state courts that the act is
unconstitutional so far as it taxes that portion of the gross
receipts of companies which are derived from transportation from
the state to another state, or into the state from another, and the
supreme court of the state having decided adversely to the claim,
the case has been brought here for review.
We have recently decided in another case between the parties to
the present suit that freight transported from state to state is
not subject to state taxation because thus transported. Such a
burden we regard as an invasion of the domain of federal power, a
regulation of interstate commerce, which Congress only can make. If
then a tax upon the gross receipts of a railroad, or a canal
company derived in part from the carriage of goods from one state
to another is to be regarded as a tax upon interstate
transportation,
Page 82 U. S. 293
the question before us is already decided. The answer which must
be given to it depends upon the prior question whether a tax upon
gross receipts of a transportation company is a tax upon commerce
so far as that commerce consists in moving goods or passengers
across state lines. No doubt every tax upon personal property, or
upon occupations, business, or franchises, affects more or less the
subjects, and the operations of commerce. Yet it is not everything
that affects commerce that amounts to a regulation of it, within
the meaning of the Constitution. We think it may safely be asserted
that the states have authority to tax the estate, real and
personal, of all their corporations, including carrying companies,
precisely as they may tax similar property when belonging to
natural persons, and to the same extent. We think also that such
taxation may be laid upon a valuation, or may be an excise, and
that in exacting an excise tax from their corporations, the states
are not obliged to impose a fixed sum upon the franchises or upon
the value of them, but they may demand a graduated contribution,
proportioned either to the value of the privileges granted, or to
the extent of their exercise, or to the results of such exercise.
No mode of effecting this, and no forms of expression which have
not a meaning beyond this can be regarded as violating the
Constitution. A power to tax to this extent may be essential to the
healthy existence of the state governments, and the federal
Constitution ought not to be so construed as to impair, much less
destroy, anything that is necessary to their efficient existence.
But, on the other hand, the rightful powers of the national
government must be defended against invasion from any quarter, and
if it be, as we have seen, that a tax on goods and commodities
transported into a state, or out of it, or a tax upon the owner of
such goods for the right thus to transport them, is a regulation of
interstate commerce, such as is exclusively within the province of
Congress, it is, as we have shown in the former case, inhibited by
the Constitution.
Is, then, the tax, imposed by the Act of February 23,
Page 82 U. S. 294
1866, a tax upon freight transported into or out of the state or
upon the owner of freight for the right of thus transporting it?
Certainly it is not directly. Very manifestly, it is a tax upon the
railroad company, measured in amount by the extent of its business
or the degree to which its franchise is exercised. That its
ultimate effect may be to increase the cost of transportation must
be admitted. So it must be admitted that a tax upon any article of
personal property that may become a subject of commerce or upon any
instrument of commerce affects commerce itself. If the tax be upon
the instrument, such as a stage coach, a railroad car, or a canal,
or steamboat, its tendency is to increase the cost of
transportation. Still it is not a tax upon transportation or upon
commerce, and it has never been seriously doubted that such a tax
may be laid. A tax upon landlords as such affects rents, and
generally increases them, but it would be a misnomer to call it a
tax upon tenants. A tax upon the occupation of a physician or an
attorney, measured by the income of his profession, or upon a
banker, graduated according to the amount of his discounts or
deposits, will hardly be claimed to be a tax on his patients,
clients, or customers, though the burden ultimately falls upon
them. It is not their money which is taken by the government. The
law exacts nothing from them. But when, as in the other case
between these parties, a company is made an instrument by the laws
to collect the tax from transporters, when the statute plainly
contemplates that the contribution is to come from them, it may
properly be said they are the persons charged. Such is not this
case. The tax is laid upon the gross receipts of the company, laid
upon a fund which has become the property of the company, mingled
with its other property, and possibly expended in improvements or
put out at interest. The statute does not look beyond the
corporation to those who may have contributed to its Treasury. The
tax is not levied, and indeed such a tax cannot be, until the
expiration of each half-year, and until the money received for
freights, and from other sources of income, has actually come into
the company's
Page 82 U. S. 295
hands. Then it has lost its distinctive character as freight
earned by having become incorporated into the general mass of the
company's property. While it must be conceded that a tax upon
interstate transportation is invalid, there seems to be no stronger
reason for denying the power of a state to tax the fruits of such
transportation after they have become intermingled with the general
property of the carrier than there is for denying her power to tax
goods which have been imported after their original packages have
been broken and after they have been mixed with the mass of
personal property in the country. That such a tax is not
unwarranted is plain. Thus, in
Brown v. Maryland,
[
Footnote 2] where it was ruled
that a state tax cannot be levied, by the requisition of a license,
upon importers of foreign goods by the bale or package or upon
other persons selling the same by bale or package, Chief Justice
Marshall, considering the dividing line between the prohibition
upon the states against taxing imports and their general power to
tax persons and property within their limits, said that
"when the importer has so acted upon the thing imported that it
has become incorporated and mixed up with the mass of property in
the country, it has, perhaps, lost its distinctive character as an
import, and has become subject to the taxing power of the
state."
This distinction in the liabilities of property in its different
stages has ever since been recognized. [
Footnote 3] It is most important to the states that it
should be. And yet if the states may tax at pleasure imported
goods, so soon as the importer has broken the original packages and
made the first sale, it is obvious the tax will obstruct
importation quite as much as would an equal impost upon the
unbroken packages before they have gone into the markets. And this
is so though no discrimination be made.
There certainly is a line which separates that power of the
federal government to regulate commerce among the
Page 82 U. S. 296
states, which is exclusive, from the authority of the states to
tax persons' property, business, or occupations, within their
limits. This line is sometimes difficult to define with
distinctness. It is so in the present case, but we think it may
safely be laid down that the gross receipts of railroad or canal
companies, after they have reached the Treasury of the carriers,
though they may have been derived in part from transportation of
freight between states, have become subject to legitimate taxation.
It is not denied that net earnings of such corporations are taxable
by state authority without any inquiry after their sources, and it
is difficult to state any well founded distinction between the
lawfulness of a tax upon them and that of a tax upon gross
receipts, or between the effects they work upon commerce, except
perhaps in degree. They may both come from charges made for
transporting freight or passengers between the states, or out of
exactions from the freight itself. Net earnings are a part of the
gross receipts.
There is another view of this case to which brief reference may
be made. It is not to be questioned that the states may tax the
franchises of companies created by them, and that the tax may be
proportioned either to the value of a franchise granted, or to the
extent of its exercise; nor is it deniable that gross receipts may
be a measure of proximate value, or, if not, at least of the extent
of enjoyment. If the tax be in fact laid upon the companies,
adopting such a measure imposes no greater burden upon any freight
or business from which the receipts come than would an equal tax
laid upon a direct valuation of the franchise. In both cases, the
necessity of higher charges to meet the exaction is the same.
Influenced by these considerations, we hold that the act of the
legislature of the state imposing a tax upon the plaintiffs in
error equal to three-quarters of one percent of their gross
receipts is not invalid because in conflict with the power of
Congress to regulate commerce among the states. And under the
decision made in
Woodruff v. Parham, [
Footnote 4]
Page 82 U. S. 297
it is not invalid because it lays an impost or duty on imports
or exports.
Judgment affirmed.
[
Footnote 1]
See supra, 82 U. S.
234.
[
Footnote 2]
25 U. S. 12 Wheat.
419,
25 U. S.
441.
[
Footnote 3]
Waring v.
Mayor, 8 Wall. 122;
Pervear v.
Commonwealth, 5 Wall. 479.
[
Footnote 4]
75 U. S. 8 Wall.
123.
MR. JUSTICE MILLER (with whom concurred JUSTICES FIELD and
HUNT), dissenting.
The principles announced in the case of the tax on the ton of
freight, and the argument by which those principles are supported,
meet my full approval. They lie at the foundation of our present
federal Constitution. The burdens which states, possessed of safe
and commodious harbors, imposed by way of taxes called imposts upon
the transit of merchandise through those ports to their destination
for consumption in other states were the cause as much as any one
class of grievances of the formation of that Constitution, and the
reluctance of the little State of Rhode Island to give up the tax
which she thus levied on the commerce of her sister states through
the harbor of Newport, then the largest importing place in the
Union, was the reason that she refused for nearly two years to
ratify that instrument.
The clauses of the Constitution which forbid the states to levy
duties on imports and which gave to Congress the right to regulate
commerce were designed to remedy that evil, and have always been
supposed to be sufficient for that purpose. The one is the
complement of the other, and something more. The first forbids the
states to levy the tax on goods imported from abroad. The second
places the entire control of commerce, with the exception of such
as may be begun and completed within a single state, under the
control of Congress. That commerce which is carried on with
foreigners, or with the Indian tribes, or between citizens of
different states, is under the jurisdiction of the general
government.
The opinion which affirms the tax of so much per ton on
Page 82 U. S. 298
freight carried from one state to another to be a tax upon
transportation, and therefore a regulation of the commerce among
the several states forbidden by the Constitution, receives the
approbation of all the members of this Court except two. And it is
there declared that any tax upon the freight so transported, or
upon the carrier on account of such transportation, is within the
prohibition.
Is the tax in the
present case also within the evil
intended to be remedied by the commerce clause of the
Constitution?
It seems to me that to hold that the tax on freight is within
it, and that on gross receipts arising from such transportation is
not, is "to keep the word of promise to the ear and break it to the
hope." If the State of Pennsylvania, availing herself of her
central position across the great line of necessary commercial
intercourse between the east and the west and of the fact that all
the ways of land and water carriage must go through her territory,
is determined to support her government and pay off her debt by a
tax on this commerce, it is of small moment that we say she cannot
tax the goods so transported, but may tax ever dollar paid for such
transportation. Her tax by the ton being declared void, she has
only to effect her purpose by increasing correspondingly her tax on
gross receipts. In either event, the tax is one for the privilege
of transportation within her borders; in either case, the tax is
one on transportation.
That the tax on gross receipts comes not only ultimately and in
some remote way, but directly out of the freight transported it is
hardly worthwhile to argue. The railroad company makes precisely
the same calculation in making its business profitable in relation
to the cost and expenses of transportation, and the price to be
demanded for it, in regard to this tax, that it does in reference
to the tax on the ton of freight, and it imposes this additional
burden for the benefit of the state in fixing the price of
transportation.
The tax does not depend on the profits of the companies. It is
the same whether the profits or the losses preponderate in a given
year. A road may do a large carrying trade at a loss, but the state
says nevertheless, "for every dollar that
Page 82 U. S. 299
you receive for transportation I claim one cent or half a
cent."
It is conceded that railroads may be taxed as other corporations
are taxed on their capital stock, on their property, real and
personal, and in any other way that does not impose necessarily a
burden on transportation between one state and another. But a
railroad or canal company differs from corporations for banking,
insurance, or manufacturing purposes in this, that while their
business is only remotely or incidentally connected with commerce,
the business of roads and canals, namely, transportation of
persons and property, is itself commerce. So much of said
commerce as is exclusively within the state is subject to its
regulations by taxation or otherwise, but that which carries goods
from or to another state is exempted by the constitution from its
control.
I lay down the broad proposition that by no device or
evasion, by no form of statutory words, can a state compel citizens
of other states to pay to it a tax, contribution, or toll, for the
privilege of having their goods transported through that state by
the ordinary channels of commerce. And that this was the
purpose of the framers of our Constitution I have no doubt; and I
have just as little doubt that the full recognition of this
principle is essential to the harmonious future of this country now
as it was then. The internal commerce of that day was of small
importance, and the foreign was considered as of great consequence.
But both were placed beyond the power of the states to control. The
interstate commerce today far exceeds in value that which is
foreign, and it is of immense importance that it should not be
shackled by restrictions imposed by any state in order to place on
others the burden of supporting its own government, as was done in
the days of the helpless Confederation.
I think the tax on gross receipts is a violation of the federal
Constitution, and therefore void.