INCOME TAX CASES.

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Peniston, 117 U. S. 151; Van Brocklin v. Tennessee, 117 U. S. 177.

Income Tax Cases. The several States, or the people of the United States, in conferring upon Congress the power to lay and collect taxes limited the power and defined the mode in which it should be exercised by providing (Article I, section 9) that "no capitation or other direct tax shall be laid, unless in proportion to the census or enumeration hereinbefore directed to be taken." Article I, section 2, of the Constitution (third clause), provides that Representatives and direct taxes shall be apportioned among the several States, which may be included within this Union according to their respective numbers. The whole number of persons in each State shall be counted, Indians not taxed excluded. As amended by art. 14, § 2, ratified July 28, 1868.

The States reserved as their principal remaining source of income the power of direct taxation. Direct taxes include taxes on real estate, taxes on rents or income derived from real estate, taxes on personal property, and taxes on the income of personal property.

If Congress should exercise the power to impose a direct tax, such tax must be apportioned according to representation, and according to numbers. It can exercise the power in no other way.

The act of Congress, passed August 15, 1894, known as the Income Tax Bill entitled, "An Act to reduce taxation, to provide revenue for the government and for other purposes " provided for a tax of 2 per cent. on the amount derived over and above $4,000, " upon the gains, profits and income derived from any kind of property, rents, interest, dividends or salaries, or from any profession, trade, employment or vocation carried

on in the United States or elsewhere, or from any other source whatever."

Held to be a direct tax, within the meaning of the Constitution and void because not apportioned accordingly to representation and numbers, as prescribed by the Constitution. (April, 1895.) Pollock v. Farmer's Loan and Trust Co., 157 U. S. 429; s. c., denying reargument (May, 1895), 158 U. S. 601.

Power of State to Tax-Unit Rule.-The transportation of the subjects of interstate commerce, or the receipts. received therefrom, or the occupation or business of carrying it on, cannot be subjected directly to State taxation. Property belonging to corporations or companies engaged in interstate commerce may be taxed by the State in which such property is located. And whatever the particular form of the exaction, if it is essentially only property taxation, it will not be considered as falling within the inhibition of the Constitution. Corporations and companies engaged in interstate commerce should bear their proper proportion of the burdens of government, under whose protection they conduct their operations; and taxation on property, collectible by the ordinary means, does not affect interstate commerce, otherwise than incidentally, as all business is affected by the necessity of contributing to the support of the government. Adams Express Co. v. Ohio, 165 U. S. 194; Postal Tel. Cable Co. v. Adams, 155 U. S. 688.

Unit Rule of Taxation. The Legislature of Ohio passed a law (Laws 1893, chap. 90, approved April 27, 1893), known as the Nichols Law, which provided a unit rule as to the value of the property of a corporation

STATE TAXATION

UNIT RULE.

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existing in many States by declaring that the taxing officer, in fixing the value for purposes of taxation of the property to be taxed in Ohio, should be guided by the value of the entire capital stock of the company, and other evidence bearing on the true value in money of the entire property in Ohio, in the proportion which the same bears to the entire property, as determined by the value of its capital stock and other evidence. The validity of the law was assailed. The court sustained the law, and held that the statute did not require the tax officer to base the value for taxation purposes on the value of the entire capital stock, making the respective values equivalent; but taking market value of stock as a datum the board was to be guided thereby in ascertaining the true value in money of the company's property in the State. The fact that the property was valued as a unit was not objectionable. The value of property depends on the use it is put to, and it may be assessed at the value it has as used, and by reason of its use. Adams Express Co. v. Ohio, 165 U. S. 194.

For construction of a similar statute (Laws Indiana, chap. 171, approved March 6, 1893), under which value of the property of a telegraph company was taxed, on the basis of such a proportion of whole value of stock as length of lines within State bears to length of all lines, deducting sum equal to value of real estate and machinery, see Western Union Tel. Co. v. Taggart, 163 U. S. 1.

Taxation of Property Used in Interstate Commerce. A State has power to tax all the property within its borders, if the tax imposed does not infringe upon the freedom of interstate commerce, or deprive those engaged

therein of the equal protection of the laws. American Refrigerator Co. v. Hall, 174 U. S. 70.

The constitutional and statutory provisions of the State of Colorado required the assessment of a tax on all property in the State owned, used, or controlled by railway companies, telegraph, telephone, and sleeping or palace-car companies. The Colorado authorities required all carriers to file annually a list of all its rolling stock used within the State and the proportion of rolling stock used upon leased lines, within the State, in detail. Plaintiff, an Illinois corporation, filed a bill in the District Court of Arapahoe county, Colo., to restrain the defendant Hall, treasurer of the county, from enforcing the payment of taxes imposed by defendant, assessed upon its refrigerator cars, used in the transportation of perishable freight over various lines. of railroad throughout the United States, upon the ground that the tax was a State tax imposed upon interstate commerce, which the Legislature of Colorado had no power to impose. Plaintiff had judgment below awarding a perpetual injunction as prayed for, which judgment was reversed by the Supreme Court of Colorado. The carrier appealed to the Supreme Court of the United States which affirmed the judgment dissolving the injunction. It was stipulated on the record that if the tax was valid, the amount imposed was just and reasonable. The court held that the mere situs of the carrier's property could not be invoked to enable it to escape bearing in each State such burden of taxation as a fair distribution of the actual value of its property among those States requires. Citing Western Union Tel. Co. v. Massachusetts, 125 U. S. 530; Pullman Co. v. Pennsylvania, 141 U. S. 18; Adams Express Co. v. Ohio, 165 U. S. 194.

TAXATION

INSTRUMENTALITIES OF COMMERCE. 23

Held further that the Colorado statute imposed no burden on the business of the carrier, but contemplated only an assessment of a tax upon property within the State, and that it was competent to ascertain the number of the cars to be subject to taxation by inquiry into the average number used in the State within the year; and the fact that the cars taxed were used as vehicles of transportation in the interchange of interstate commerce did not render the tax invalid. Ib.

See also authority sustaining a Pennsylvania statute (Approved June 7, 1879) authorizing a tax of 1-8 of 1 per cent. on gross receipts of railway companies for tolls and transportation on tracks within the State. Erie Railroad v. Pennsylvania, 158 U. S. 431.

An Ohio statute authorized a tax upon the tangible property of an express company within the State. Such tax is not a privilege tax. It is not a tax imposed for the privilege of doing business, but is a tax on tangible property within the State which the Legislature of the State has a right to tax. A franchise to be is only one of the franchises of a corporation. A franchise to do is an independent franchise, and is as much tangible property and a thing of value as the franchise to be. Rule as to mode of ascertaining tangible property of a corporation which a State may tax stated. Adams Express Co. v. Ohio, 166 U. S. 185; Henderson Bridge Co. v. Kentucky, 166 U. S. 150.

Taxation of Property Used in Interstate Commerce, Continued. There is a marked distinction in an attempt by a State or municipality to regulate or impose a burden on interstate commerce, and the taxing of property of a corporation engaged in interstate commerce. The borough of New Hope, Pa., passed an ordinance im