Part 20

Whether the carriage of persons from one State to another was a branch of interstate commerce was a question which the Court was able to side-step in Gibbons _v._ Ogden.[614] A quarter of a century later, however, an affirmative answer was suggested in the Passenger Cases,[615] in which a State tax on each passenger arriving on a vessel from a foreign country was set aside, though chiefly in reliance on existing treaties and acts of Congress. But similar cases arising after the Civil War were disposed of by direct recourse to the commerce clause.[616] Meantime, in 1865, the newly admitted State of Nevada, in an endeavor to prevent a threatened dissipation of its population, levied a special tax on railroad and stage companies for every passenger they carried out of the State, and in Crandall _v._ Nevada[617] this act was held void on the general ground that the National Government had at all times the right to require the services of its citizens at the seat of government and they the correlative right to visit the seat of government, rights which, if the Nevada tax was valid, were at the mercy of any State, the power to tax being without limit. Reference was also made to the right of the government to transport troops at all times by the most expeditious method. Two of the Justices, however, rejected this line of reasoning and held the act to be void under the commerce clause.[618] But it was not until 1885 that the Court, in deciding Gloucester Ferry Company _v._ Pennsylvania,[619] stated flatly that "Commerce among the States * * * includes the transportation of persons,"[620] and hence was not taxable by the States, a proposition which is still good law.[621] Four years earlier it had been held that the transmission of telegraph messages from one State to another, being interstate commerce, was something that the State of origin could not tax.[622]

State Taxation of the Interstate Commerce Privilege: Foreign Corporations

DOCTRINAL HISTORY

In the famous case of Paul _v._ Virginia,[623] decided in 1869, it was held that a corporation chartered by one State could enter other States only with their assent, which might "be granted upon such terms and conditions as those States may think proper to impose";[624] but along with this holding went the statement that "the power conferred upon Congress to regulate commerce includes as well commerce carried on by corporations as commerce carried on by individuals."[625] And in the State Freight Tax Case it is implied that no State can regulate or restrict the right of a "foreign" corporation--one chartered by another State--to carry on interstate commerce within its borders,[626] an implication which soon became explicit. In Leloup _v._ Port of Mobile,[627] decided in 1888, the Court had before it a license tax on a telegraph company which was engaged in both domestic and interstate business. The general nature of the exaction did not suffice to save it. Said the Court: "The question is squarely presented to us, * * *, whether a State, as a condition of doing business within its jurisdiction, may exact a license tax from a telegraph company, a large part of whose business is the transmission of messages from one State to another and between the United States and foreign countries, and which is invested with the powers and privileges conferred by the act of Congress passed July 24, 1866, and other acts incorporated in Title LXV of the Revised Statutes? Can a State prohibit such a company from doing such a business within its jurisdiction, unless it will pay a tax and procure a license for the privilege? If it can, it can exclude such companies, and prohibit the transaction of such business altogether. We are not prepared to say that this can be done."[628]

In Crutcher _v._ Kentucky[629] a like result was reached, without assistance from an act of Congress, with respect to a Kentucky statute which provided that the agent of an express company not incorporated by the laws of that State should not carry on business there without first obtaining a license from the State, and that, preliminary thereto, he must satisfy the auditor of the State that the company he represented was possessed of an actual capital of at least $150,000. The act was held to be a regulation of interstate commerce so far as applied to a corporation of another State in that business. "To carry on interstate commerce," said the Court, "is not a franchise or a privilege granted by the State; it is a right which every citizen of the United States is entitled to exercise under the Constitution and laws of the United States; and the accession of mere corporate facilities, as a matter of convenience in carrying on their business, cannot have the effect of depriving them of such right, unless Congress should see fit to interpose some contrary regulation on the subject."[630]

LICENSE TAXES

The demand for what in effect is a license is, of course, capable of assuming various guises. In Ozark Pipe Line _v._ Monier[631] an annual franchise tax on foreign corporations equal to one-tenth of one per cent of the par value of their capital stock and surplus employed in business in the State was found to be a privilege tax, and hence one which could not be exacted of a foreign corporation whose business in the taxing State consisted exclusively of the operation of a pipe line for transporting petroleum through the State in interstate commerce, and of activities the sole purpose of which was the furtherance of its interstate business. Likewise a Massachusetts tax based on "the corporate surplus" of a foreign corporation having only an office in the State for the transaction of interstate business was held in Alpha Portland Cement Co. _v._ Massachusetts to be virtually an attempt to license interstate commerce.[632] In the same category of unconstitutional taxation of the interstate commerce privilege, the Court has also included the following: a State "franchise" tax on a foreign corporation, whose sole business in the State consisted in landing, storing and selling in the original package goods imported by it from abroad, the tax being imposed annually on the doing of such business and measured by the value of the goods on hand;[633] a State privilege or occupation tax on every corporation engaged in the business of operating and maintaining telephone lines and furnishing telephone service in the State, of so much for each telephonic instrument controlled and operated by it, as applied to a company furnishing both interstate and intrastate service, and employing the same telephones, wires, etc., in both as integrated parts of its system;[634] a State occupation tax measured by the entire gross receipts of the business of a radio broadcasting station, licensed by the Federal Communications Commission, and engaged in broadcasting advertising "programs" for customers for hire to listeners within and beyond the State, since it did not "appear that any of the taxed income ... [was] allocable to interstate commerce";[635] a State occupation tax on the business of loading and unloading vessels engaged in interstate and foreign commerce;[636] an Indiana income tax imposed on the gross receipts from commerce inasmuch as the tax reached indiscriminately and without apportionment the gross income from both interstate commerce and intrastate activities;[637] an Arkansas statute making entry into the State of motor vehicles carrying more than twenty gallons of gasoline conditional on the payment of an excise on the excess.[638]

DOCTRINE OF WESTERN UNION TELEGRAPH _v._ KANSAS EX REL. COLEMAN

One of the most striking concessions ever made by the Court to the interstate commercial interest at the expense of the State's taxing power was that which appeared originally in 1910, in Western Union Telegraph. Co. _v._ Kansas ex rel. Coleman,[639] which involved a percentage tax upon the total capitalization of all foreign corporations doing or seeking to do a local business in the State. The Court pronounced the tax, as to the Western Union, a burden upon the company's interstate business and upon its property located and used outside the State, and hence void under both the commerce clause and the due process of law clause of the Fourteenth Amendment. The decision was substantially aided by the fact that the company had been doing a general telegraphic business within the State for more than fifty years without having been subjected to such an exaction.[640]

SPREAD OF THE DOCTRINE

The doctrine of the case, however, soon cast off these initial limitations. In Looney _v._ Crane Company[641] a similar tax by the State of Texas was disallowed as to an Illinois corporation, engaged in its home State in the manufacture of hardware, but maintaining in Texas depots and warehouses from which orders were filled and sales made, likewise, in International Paper Company _v._ Massachusetts,[642] it was clearly stated that "the immunity of interstate commerce from State taxation" is not confined to what is done by carriers in such commerce, but "is universal and covers every class of ... [interstate] commerce, including that conducted by merchants and trading companies." On the same occasion the general proposition was laid down that "the power of a State to regulate the transaction of a local business within its borders by a foreign corporation, ... is not unrestricted or absolute, but must be exerted in subordination to the limitations which the Constitution places on State action."[643]

STATUS OF THE DOCTRINE TODAY

The precise standing of this doctrine is, nevertheless, seriously clouded by certain more recent holdings. In Sprout _v._ South Bend,[644] decided in 1928, the doctrine was still applied, to disallow a license tax on concerns operating a bus interstate. Pointing to the fact that the ordinance made no distinction between busses engaged exclusively interstate and those engaged intrastate or both interstate and intrastate, the Court said: "In order that the fee or tax shall be valid, it must appear that it is imposed solely on account of the intrastate business; that the amount exacted is not increased because of the interstate business done; that one engaged exclusively in interstate commerce would not be subject to the imposition; and that the person taxed could discontinue the intrastate business without withdrawing also from the interstate business."[645] Likewise, in Cooney _v._ Mountain States Telephone and Telegraph Co., the Court asserted that to sustain a State occupation tax on one whose business is both interstate and intrastate, "it must appear * * *, and that the one [who is] taxed could discontinue the intrastate business without [also] withdrawing from the interstate business."[646] A year later, nevertheless, Justice Brandeis, speaking for the Court in Pacific Telephone and Telegraph Co. _v._ Tax Commission,[647] asserted flatly: "No decision of this Court lends support to the proposition that an occupation tax upon local business, otherwise valid, must be held void merely because the local and interstate branches are for some reason inseparable."[648] An occupation tax, like other taxes and expenses, lessens the benefit derived by interstate commerce from the joint operation with it of the intrastate business of the carrier; but it is not an undue burden on interstate commerce where, as in this case, the advantage to the carrier, and to the interstate commerce, of continuing the intrastate business is greatly in excess of the tax. And subsequent holdings in cases involving foreign corporations doing a mixed business, comprising both interstate and intrastate elements, have tended on the whole to restore the rule stated in Paul _v._ Virginia[649] shortly after the Civil War, that the Constitution does not confer upon a foreign corporation the right to engage in local business in a State without its assent, which it may give on such terms as it chooses.[650]

State Taxation of Property Engaged in, and of the Proceeds From, Interstate Commerce

GENERAL ISSUE

In this area of Constitutional Law the principle asserted in the State Freight Tax Case,[651] that a State may not tax interstate commerce, is confronted with the principle that a State may tax all purely domestic business within its borders and all property "within its jurisdiction." Inasmuch as most large concerns prosecute both an interstate and a domestic business, while the instrumentalities of interstate commerce and the pecuniary returns from such commerce are ordinarily property within the jurisdiction of some State or other, the task before the Court in drawing the line between the immunity claimed by interstate business on the one hand and the prerogatives claimed by local power on the other has at times involved it in self-contradiction, as successive developments have brought into prominence novel aspects of its complex problem or have altered the perspective in which the interests competing for its protection have appeared. In this field words of the late Justice Rutledge, spoken in 1946, are especially applicable: "For cleanly as the commerce clause has worked affirmatively on the whole, its implied negative operation on State power has been uneven, at times highly variable. * * * Into what is thus left open for inference to fill, divergent ideas of meaning may be read much more readily than into what has been made explicit by affirmation. That possibility is broadened immeasurably when not logic alone, but large choices of policy, affected in this instance by evolving experience of federalism, control in giving content to the implied negation."[652]

DEVELOPMENT OF THE APPORTIONMENT RULE

At the outset the Court appears to have thought that it could solve all difficulties by the simple device of falling back on Marshall's opinion in Brown _v._ Maryland;[653] and on the same day that it set aside Pennsylvania's freight tax by appeal to that transcendent precedent, it sustained, by reference to the same authority, a Pennsylvania tax on the gross receipts of all railroads chartered by it, the theory being that such receipts had, by tax time, become "part of the mass of property of the State."[654] This precedent stood fourteen years, being at last superseded by a ruling in which substantially the same tax was held void as to a Pennsylvania chartered steamship company.[655] A year later the Court sustained Massachusetts in levying a tax on Western Union, a New York corporation, on account of property owned and used by it in the State, taking as the basis of the assessment such proportion of the value of its capital stock as the length of its lines within the State bore to their entire length throughout the country.[656] The tax was characterized by the Court as an attempt by Massachusetts "to ascertain the just amount which any corporation engaged in business within its limits shall pay as a contribution to the support of its government upon the amount and value of the capital so employed by it therein."[657] And drawing on certain decisions in which it had sought to limit the principle of tax exemption as applied in the case of railroads chartered by the United States, it expressed concern that "the necessary powers of the States" should not be destroyed or "their efficient exercise" be prevented.[658] Three years later Pennsylvania, still in quest of revenue, was sustained in applying the Massachusetts idea to Pullman's Palace Car Company, a "foreign" corporation.[659] Pointing to the fact that the company had at all times substantially the same number of cars within the State and continuously and constantly used there a portion of its property, the Court commended the State for taking "as a basis of assessment such proportion of the capital stock of the company as the number of miles over which it ran cars within the State bore to the whole number of miles, in that and other States, * * *" This, said the Court, was "a just and equitable method of assessment;" one which, "if it were adopted by all the States through which these cars ran, the company would be assessed upon the whole value of its capital stock, and no more."[660]

THE UNIT RULE

And pursuing the same course of thought, the Court, in Adams Express Company _v._ Ohio,[661] decided in 1897, sustained that State in taxing property worth less than $70,000.00 at a valuation of more than half a million, on the ground that the latter figure did not exceed, in relation to the total capital value of the company, the proportion borne by the railway mileage which the company covered in Ohio to the total mileage which it covered in all States. To the objection that "the intangible values" reached by the tax were derived from interstate commerce, the Court replied with the "cardinal rule * * * that whatever property is worth for purposes of income and sale it is also worth for purposes of taxation,"[662] which obviously does not meet the issue. What the case indubitably establishes is that a State may tax property within its limits "as part of a going concern" and hence "at its value as it is in its organic relations," although those relations constitute interstate commerce.[663] In short, values created by interstate commerce _are_ taxed.

Thus emerged the concept of an "apportioned" tax, or as it is called when applied to the problem of property valuation, the "unit rule," which till 1938 afforded the Court its chief reliance in the field of Constitutional Law now under review. The theory underlying the concept appears to be that it is always possible for a State to devise a formula whereby it may assign to the property employed in interstate commerce within its limits, or to the proceeds from such commerce, a value which it may tax or by which it may "measure" a tax, without unconstitutionally burdening or interfering with interstate commerce, while at the same time exacting from it a fair return for the protection which the State gives it. The question in each case is, of course, whether the State has guessed right.

APPORTIONED PROPERTY TAXES

In reliance on the apportionment concept the Court has at various times sustained, in the case of a sleeping car company, as we have seen, a valuation based on the ratio of the miles of track over which the company runs within the State to the whole track mileage over which it runs;[664] in the case of a railroad company, a valuation based on the ratio of its mileage within the State to its total mileage;[665] in the case of a telegraph company, a valuation based upon the ratio of its length of line within the State to its total length;[666] in the case of an express company, as we have just seen, a valuation based upon the ratio of miles covered by it in the State to the mileage covered by it in all States.[667] Also, a tax has been upheld as to a railroad line whose principal business was hauling ore from mines in the taxing State