state governmental operations is that of the State of South Carolina v. United States,56 decided in 1905. In this case was questioned the right of the Federal Government to levy internal revenue taxes upon intoxicating liquors sold under the state dispensary system of South Carolina.

By several statutes the State had assumed the direct control of the wholesale and retail sale of intoxicating liquors within its limits, had established dispensaries, and appointed dispensers therein. The dispensers received fixed salaries, and had therefore no pecuniary interest in the sales, the entire profits therefrom being appropriated by the State, one-half being divided equally between the municipality and the county in which the dispensaries were located, and the other half paid into the state treasury. In previous cases the Supreme Court of the United States had held that the regulation and control of the sale of intoxicating liquors, so far as interstate commerce was not interfered with, was within the legitimate police power of the States, and, indeed, by express congressional statute the States had been permitted to control the sale of imported liquors after their arrival within the States. The question thus was: had the Federal Government the constitutional power to exact taxes from officials appointed and paid by the State of South Carolina and performing functions which the State was constitutionally empowered to intrust to them? The Supreme Court held that, in this particular case, it had. With reference to the argument that was made by South Carolina that for Congress to tax the agents of the State charged with the duty of selling intoxicating liquors, was to interfere with the State's legitimate police power, the court said: "We are not insensible to the force of this argument, and appreciate the difficulties which it presents, but let us see to what it leads. Each State is subject only to the limitations prescribed by the Constitution, and within its territory is otherwise supreme. Its internal affairs are matters of its own discretion. The Constitution provides that the United States shall guarantee to every State in this Union a republican form of Government.'57 That expresses the

56 199 U. S. 437; 26 Sup. Ct. Rep. 110; 50 L. ed. 261. 57 Art. IV, § 4.

full limit of national control over the internal affairs of a State. The rights of South Carolina to control the sale of liquor by the dispensary system has been sustained.58 The profits from the business in the year 1906, as appears from the findings of fact, were over a half a million dollars. Mingling the thought of profit with the necessity of regulation may induce the State to take possession, in like manner, of tobacco, oleomargarine, and all other objects of internal revenue taxation. If one State finds it thus profitable, other States may follow, and the whole body of internal revenue tax be thus stricken down."

The Supreme Court was not content to rest its judgment upon a premised possibility of serious interference with the revenues of the National Government should the State be permitted, by assuming control of an enterprise, to withdraw it from federal taxation. Two additional reasons were given why the tax in question should be held valid. In the first place the court note the fact that the tax is not imposed on any property belonging to the State, but is a charge on a business before any profits are realized therefrom." It is thus, the court say, similar to a succession tax which has been construed to be a tax levied upon and deducted from property before the person to whom it is bequeathed obtains a title thereto. The second additional reason given by the Supreme Court for holding constitutional the federal income tax upon the South Carolina dispensaries is that it is not a tax upon the means of instrumentalities employed by the State in discharge of its ordinary functions of government. Upon this point the court adverts to the fact that in the cases in which a federal tax upon state agencies had been held unconstitutional, it had been levied upon instrumentalities of government. After a review of the cases, the court say: "These decisions, while not controlling the question before us, indicate that the thought has been that the exemption of state agencies and instrumentalities from national taxation is limited to those which are of a strictly governmental character, and does not extend to those

58 Vance v. Vandercook Co. (170 U. S. 438; 18 Sup. Ct. Rep. 674; 42 L. ed.

which are used by the State in the carrying on of an ordinary private business."59

In conformity with the doctrine that state inheritance taxes may be levied and collected upon bequests or estates consisting of federal securities, it has been held that state securities are similarly subject to inheritance taxes federally imposed.

59 In support of this distinction between the ordinary functions of government, and the control of private enterprises by the State, the court refers to the well-established distinctions between the duties of a public character cast upon municipal corporations, and those which relate to what may be considered their private business, and the resulting different responsibilities in cases of negligence in respect to the discharge of those duties, respectively. (Oliver v. Worcester, 102 Mass. 489; Lloyd v. New York, 5 N. Y. 369; Western Sav. Fund Society v. Philadelphia, 31 Pa. 175.) In the last case it was held that a city supplying gas to the inhabitants acts as a private corporation, and is subject to the same liabilities and disabilities. In its opinion the Supreme Court declare: "Such contracts are not made by the municipal corporation by virtue of its powers of local sovereignty, but in its capacity of a private corporation. The supply of gaslight is no more a duty of sovereignty than the supply of water. Both these objects may be accomplished through the agency of individuals or private corporations, and in very many instances they are accomplished by those means. If this power is granted to a borough or a city, it is a special private franchise, made as well for the private emolument and advantage of the city as for the public good. The whole investment is the private property of the city, as much so as the lands and houses belonging to it. Blending the two powers in one grant does not destroy the clear and well-settled distinction, and the process of separation is not rendered impossible by the confusion. In separating them, regard must be had to the object of the legislature in conferring them. If granted for public purposes exclusively, they belong to the corporate body in its public, political or municipal character. But if the grant was for the purpose of private advantage and emolument, though the public may derive a common benefit therefrom, the corporation quoad hoc is to be regarded as a private company. It stands on the same footing as would any individual or body of persons upon whom the like special franchises had been conferred." Concluding its opinion, the Supreme Court of the United States say: "Now, if it be well-established, as these authorities say, that there is a clear distinction as respects responsibility for negligence between the powers granted to a corporation for governmental purposes and those in aid of private business, a like distinction may be recognized when we are asked to limit the full power of imposing excises granted to the National Government by an implied inability to impede or embarrass a State in the discharge of its functions. It is reasonable to hold that, while the former may do nothing by taxation in any form to prevent the full discharge by the latter of its governmental functions, yet, whenever a State engages in a business which is

§ 60. Federal Taxation of State Documents.

In a number of cases in the State courts, interesting points have been raised and decided with reference to the obligation imposed by federal laws to affix stamps to certain documents. There is little doubt that the United States may in its own courts, or in other ways refuse to recognize the validity of unstamped documents, but it would seem that it may not dictate to state agencies what instruments they shall accept as valid and enforceable. Though Congress may provide that certain instruments shall be stamped and that if not so stamped they shall not be received as evidence in federal courts, the State cannot be compelled to exclude them as evidence in its courts upon that ground. of a private nature, that business is not withdrawn from the taxing power of the nation."

Three justices dissented from the judgment rendered in South Carolina v. United States. After a review of authorities, which in their judgment did not warrant the position assumed by the majority in the case on trial, these justices say, in answer to the contention that if the instrumentalities of the State in the control of the liquor trade be declared exempt from federal taxation, the way is opened to the States seriously to interfere with federal revenues by extending their operations in other similar directions: "But these extreme illustrations amount simply to saying that it is possible for the imagination to foreshadow conditions which, did they arise, would impair the government created by the Constitution, and, because such conjectures may be indulged in, the limitations created by the Constitution for the purpose of preserving both the state and national governments are to be disregarded. In other words, that the government created by the Constitution must now be destroyed, because it is possible to suggest conditions which, if they arise, would, in future, produce a like result. But the weakness of the illustrations as applied to this case is apparent. They have no relation to this case, since it is not denied that, as to liquor, the State has absolute power, and may prohibit the sale of all liquor, and thus prevent the United States from deriving revenue from that source. Again, therefore, when the true relation of the argument, to the case in hand is seen, it reduces itself to a complete contradiction, viz., a State may, by prohibition, prevent the United States from reaping revenue from the liquor traffic, but any other state regulation by which such result is accomplished may be prevented by the United States, because thereby the State has done indirectly only that which the State had the lawful power directly to do."

As to the point that the State of South Carolina was deriving a revenue from the conduct of the liquor business, the dissenting justices point to the fact that in previous cases it had been expressly settled that the law establishing the State dispensaries had not been passed as a revenue, but as a purely police measure.

It has also been held by state courts that the United States may not impose a stamp tax upon judicial processes of state courts, or forbid the recording of unstamped mortgages, or tax the official Londs of state officers."

§ 61. Federal Exercise of Eminent Domain in the States.

The relation of the federal power to state governmental instrumentalities has been further illustrated in the matter of the Federal Government's right of eminent domain, it having been held that the General Government has an implied right of eminent domain which it may exercise within a State with or without that State's consent. Though never authoritatively decided the better opinion is, however, that the United States may not take for its own use land or other property essential to the State in performance of its governmental functions.

The subject will receive fuller treatment in its appropriate place.cz

60 Jones v. Keep (19 Wis. 376); Fifield v. Close (15 Mich. 505); Tucker v. Potter (35 Conn. 46); Moore v. Quirk (105 Mass. 49); Sayles v. Davis (22 Wis. 225); Davis v. Richardson (45 Miss. 503); Garland v. Gaines (73 Conn. 662); 52 L. R. A. 915. Cf. Judson, On Taxation, § 501.

€1 Monongahela Navigation Co. v. U. S. (148 U. S. 312; 13 Sup. Ct. Rep. 622; 37 L. ed. 463); Chappell v. U. S. (160 U. S. 499; 16 Sup. Ct. Rep. 397; 40 L. ed. 510).

62 McClain, Constitutional Law in the United States, p. 111, says: "As between the Federal Government and a state government, neither one can authorize the condemnation for public use of land which has already been acquired either by condemnation or purchase by the other for public use." He cites, however, no authority, and, moreover, adds: "Possibly the United States Government could not, by any action of the State, be excluded from appropriating state property for federal purposes, but such questions are not likely to arise, for it is hardly conceivable that the Federal Government should find it expedient and necessary to interfere with any State in the enjoyment and discharge of its public rights and duties."