in interstate commerce even though in the form of an excise on its franchise will be sustained if the tax is measured by the value of its property within the state and collected in the same manner as property taxes.14

25. Taxation of Receipts Derived from Interstate

Commerce

A state has no power to levy a tax upon the gross receipts derived from interstate commerce, and consequently cannot constitutionally tax the entire gross receipts of an individual citizen or even of a domestic corporation when part of such receipts are derived from interstate commerce.1 The fact that a corporation is engaged in interstate commerce does not however remove its receipts from liability to state taxation, for it may lawfully be taxed on so much of its receipts as are derived from local business, and even when a tax is assessed upon its receipts as a whole, without separation or apportionment, that part of the tax only is invalid which is assessed upon the receipts from interstate commerce.3

The use of gross receipts as a measure of the taxation of corporations engaged in interstate commerce is not however wholly denied to the states, and when the gross receipts are employed as a reasonable guide to determining the value of the franchise of a corporation or of its property within the state and no other tax is imposed upon the corporation, the tax will be sustained, even if it appears on its face to be an excise on the privilege of engaging in interstate commerce.*

14 Western Union Tel. Co. v. Attorney General, 125 U. S. 530 (1888); Attorney General v. Western Union Tel. Co., 141 U. S. 40 (1891); Maine v. Grand Trunk Ry. Co., 142 U. S. 217 (1891); Postal Tel. Cable Co. v. Adams, 155 U. S. 688 (1895); United States Express Co. v. Minnesota, 223 U. S. 335 (1912).

1 Philadelphia etc. Steamship Co. v. Pennsylvania, 122 U. S. 326 (1887); Ratterman v. Western Union Tel. Co., 127 U. S. 411 (1888); Western Union Tel. Co. v. Seay, 132 U. S. 472 (1889); Crew Levick Co. v. Pennsylvania, 245 U. S. 292 (1917). A tax "equal to" a certain proportion of the gross receipts is equivalent to a tax on the receipts, Galveston etc. R. R. Co. v. Texas, 210 U. S. 217 (1908).

2 Pacific Express Co. v. Seibert, 142 U. S. 339 (1892).

3 Ratterman v. Western Union Tel. Co., 127 U. S. 411 (1888). A state law taxing receipts from the local business only of public utility companies is constitutional, although it replaces a law by which all receipts were taxed at a lower rate and as to most companies imposes the same amount of tax as the earlier law. Ohio Tax Cases, 232 U. S. 576 (1914).

Maine v. Grand Trunk R. R. Co., 142 U. S. 217 (1891); United States Express Co. v. Minnesota, 223 U. S. 335 (1912); Cudahy Packing Co. v. Minnesota, 246 U. S. 450 (1918).

A state may constitutionally tax the net income of an individual resident or of a domestic corporation although the whole or part of such income was derived from interstate commerce.5 The difference in effect between a tax measured by gross receipts and one measured by net income, recognized by the decisions, is manifest and substantial, and it affords a workable basis of distinction between a direct and immediate burden upon the business affected and a charge that is only indirect and incidental. A tax upon gross receipts affects each transaction in proportion to its magnitude and irrespective of whether it is profitable or otherwise. Conceivably it may be sufficient to make the difference between profit and loss, or so to diminish the profit as to impede or discourage the conduct of the commerce. A tax upon the net profits has not the same deterrent effect, since it does not arise at all unless a gain is shown over and above expenses and losses and the tax cannot be heavy unless the profits are large. Upon the same principle, a state may tax the net income of a non-resident individual or foreign corporation derived from business carried on within its limits, although such business consists in whole or in part of interstate commerce."

TAXATION OF THE PROPERTY AND INSTRUMENTALITIES OF THE UNITED STATES

26. Taxation of the Property of the United States

It necessarily follows from the grant to the United States government by the constitution of certain powers and duties beyond the control of the states that the states cannot burden that government in the exercise of such powers or the performance of such duties, and that consequently a state cannot tax the means and instrumentalities employed by the United States in the exercise of the functions assigned to it by the constitution. In such cases it makes no difference how reasonable, or how universal and indiscriminatory the tax may be; the inability of a state

5 United States Glue Co. v. Oak Creek. 247 U. S. 321 (1918).

Shaffer v. Carter. 252 U. S. 37 57 (1920); Underwood Typewriter Co. v. Chamberlain. 254 U. S. 113 (1920); H. P. Hood & Sons v. Commonwealth, 235 Mass. 572 (1920).

to interfere by means of a tax with the functions of the federal government is established.1

A state cannot tax the property of the United States though situated within the territorial limits of the state, whether such property is devoted to public and governmental uses or merely held as an asset of monetary value; but property in which the title of the United States is less than the absolute and unencumbered fee may be taxed with respect to the estates or interests in private ownership; and when Congress has authorized it, a state may tax the property of the United States.*

Persons who reside on lands within a state purchased by or ceded to the United States, although there has been no other reservation by the state of jurisdiction over such lands than the right to serve civil and criminal process, are subject to taxation for their polls and personal estate by the state. So also property of individuals held in a government warehouse prior to the pay

1 McCulloch v. Maryland, 4 Wheat. 316 (1819); Williams v. Talladega, 226 U. S. 404 (1912); Farmers' etc. Savings Bank v. Minnesota, 232 U. S. 516 (1914); Choctaw etc. R. R. Co. v. Harrison, 235 U. S. 292 (1914); Johnson v. Maryland, 254 U. S. 51 (1920).

2 Van Brocklin v. Tennessee, 117 U. S. 153 (1886); Sherwin v. Wigglesworth, 129 Mass. 64 (1880). Thus public lands held by the United States for purposes of distribution and sale are not subject to taxation by the state in which they are situated. McGoon v. Scales, 9 Wall. 23 (1869); Wisconsin Central R. R. Co. v. Price County, 133 U. S. 496 (1889); Hussman v. Durham, 165 U. S. 144, (1897). When such lands have been conveyed to an individual purchaser or patentee they immediately become subject to taxation by the state. Carroll v. Safford, 3 How. 441 (1844); Union Pacific R. R. Co., v. McShane, 22 Wall. 444 (1874); Stryker v. Goodnow, 123 U. S. 527 (1887). When the United States, though retaining the legal title to land, holds it in trust for one who has performed the requisite conditions, enjoys the beneficial interest and is entitled presently to the final issuance of a patent, the state may tax the interest of the beneficial owner. Witherspoon v. Duncan, 4 Wall. 210 (1866); Wisconsin Central R. R. Co. v. Price County, 133 U. S. 496 (1889); Bothwell v. Bingham County, 237 U. S. 642 (1915). A right of entry in the United States for possible breach of condition will not remove the land from the taxing power of the state. Union Pacific R. R. Co. v. McShane, 22 Wall. 444 (1874); Central Pacific R. R. Co. v. Nevada, 162 U. S. 512 (1896); Maish v. Arizona, 164 U. S. 599 (1896). If however conditions precedent to the acquisition of title have not been complied with the land is not taxable. Kansas Pacific R. R. Co. v. Prescott, 16 Wall. 603 (1872); Hussman v. Durham, 165 U. S. 144 (1897); Sargeant v. Herrick, 221 U. S. 404 (1911).

3 Forbes v. Gracey, 94 U. S. 762 (1876); Maish v. Arizona, 164 U. S. 599 (1896); Baltimore Shipbuilding etc. Co. v. Baltimore, 195 U. S. 375 (1905); Elder v. Wood, 208 U. S. 226 (1908).

Central Pacific R. R. Co. v. Nevada, 162 U. S. 512 (1896); Northern Pacific R. R. Co. v. Meyers, 172 U S. 589 (1899).

5 Leavenworth R. R. Co. v. Lowe, 114 U. S. 525 (1885); Thomas v. Gay, 169 U. S. 264 (1898); Wagoner v. Evans, 170 U. S. 588 (1898); Foster v. Pryor, 189 U. S. 325 (1903). See however Opinion of the Justices, I Met. 580 (1840).

ment of excise taxes thereon is taxable in the state in which the warehouse is situated."

27. Securities Issued by Authority of the United States

5

6

No state may tax the instrumentalities which the United States employs to execute the powers conferred upon it by the constitution. For this reason a state cannot tax in any form the obligations of the United States issued in the exercise of the power to borrow money upon the credit of the United States,1 or impose a stamp tax upon the notes of the Bank of the United States, or tax internal revenue stamps as property of an individual. But checks and warrants on the Treasury intended for immediate use may be taxed by a state. A state may not tax the aggregate property or the aggregate capital of a corporation, partnership or individual if part of the property of the taxpayer consists of United States bonds, but a tax on the whole of the nominal capital of a corporation may be imposed although part of its assets are United States bonds, as the tax is imposed irrespective of the character of the property,' and shares of stock in a corporation may be taxed to the shareholder at their full value although part of the capital of the corporation is invested in United States bonds. When property is the measure and not the subject of a tax, United States bonds may be taken into

6 Carstairs v. Cochran, 193 U. S. 10 (1904). See Farr Alpaca Co. v. Commonwealth, 212 Mass. 156 (1912).

1 Weston v. Charleston, 2 Pet. 449 (1829); Bank of Commerce v. New York, 2 Black 620 (1862); Bank Tax Case, 2 Wall. 200 (1864); Provident Savings Institution v. Massachusetts, 6 Wall. 611 (1867); Banks v. The Mayor, 7 Wall. 16 (1868); Bank v. Supervisors, 7 Wall. 26 (1868); New York Bank v. New York County, 7 Wall. 30 (1868); Louisville etc. Bank v. Kentucky, 9 Wall. 353 (1869); Mitchell v. Leavenworth County, 91 U. S. 206 (1875); Home Insurance Co. v. New York, 134 U. S. 594 (1890); Home Savings Bank v. Des Moines, 205 U. S. 503 (1907).

2 McCulloch v. Maryland, 4 Wheat. 436 (1819).

3 Palfrey v. Boston, 101 Mass. 329 (1869).

4 Hibernia Savings etc. Association v. San Francisco, 200 U. S. 310 (1908). 5 Home Savings Bank v. Des Moines, 205 U. S. 503 (1907).

6 Bank of Commerce v. New York, 2 Black 620 (1862); Bank Tax Case, 2 Wall. 200 (1864); Van Allen v. Board of Assessors, 3 Wall. 573 (1865); Bradley v. Illinois, 4 Wall. 459 (1866); Louisville etc. Bank v. Kentucky, 9 Wall. 353 (1869); Home Savings Bank. v. Des Moines, 205 U. S. 503 (1907).

7 Bank of Commerce v. New York, 2 Black 620 (1862); Provident Institution v. Massachusetts, 16 Wall. 611 (1867).

8 New York v. Tax etc. Commissioners, 4 Wall. 244 (1866); Louisville etc. Bank v. Kentucky, 9 Wall. 353 (1869); Cleveland Trust Co. v. Lauder, 184 U. S. 111 (1902).

consideration, as in the case of an inheritance tax, or an excise tax on corporate frachises.10

Since territorial governments are instrumentalities of the United States, a state has no power to tax bonds of a territorial government or of any of its constituent municipalities." So also it has been held that the bonds of federal land banks may be constitutionally exempted from taxation by Congress.12

When a person, for the purpose of evading taxation, converts his property into United States bonds immediately before the assessment day and reconverts such property to its original form immediately afterward, such a transaction may be treated as a nullity and the property taxed in its original form.13 United States bonds may also be seized to enforce taxes on other property of the same owner.14

14

28. Federal Officers and Employees

A state cannot levy an excise tax on the performance of public duties by an officer of the United States, and this principle has been extended so far as to render a general excise tax invalid because no exception was embodied in the statute in favor of officers of the United States acting in the performance of their duties.1 A sounder result would have been to hold the statute inapplicable to such cases. So also a state cannot tax an officer of the United States on account of the income or emoluments of his office. It has however been held that the state

9 Plummer v. Coler, 178 U. S. 117 (1900).

10 Savings Society v. Coite, 6 Wall. 602 (1867); Provident Institution for Savings v. Massachusetts, 6 Wall. 612 (1867) (tax on franchise of savings bank), Hamilton Manufacturing Co. v. Massachusetts, 6 Wall. 632 (1867); Home Insurance Co. v. New York, 134 U. S. 594 (1889) (tax on corporate franchise), Manufacturers Insurance Co. v. Loud, 99 Mass. 146 (1868).

11 Farmers' etc. Savings Bank v. Minnesota, 232 U. S. 516 (1914). 12 Smith v. Kansas City Title & Trust Co., 255 U. S. 180 (1921).

13 Mitchell v Leavenworth County, 91 U. S. 206 (1875); Shotwell v. Moore, 129 U. S. 590 (1889).

14 Scottish Union etc. Ins. Co. v. Bowland, 196 U. S. 611 (1905).

1 Crandall v. Nevada, 6 Wall. 35 (1867). In Johnson v. Maryland, 254 U. S. 51 (1920) it was held that a state law requiring a license for the operation of automobiles was inapplicable to a post office employee in the course of his duty.

2 Dobbins v. Erie County, 16 Pet. 435 (1842). After a federal officer has received his salary and deposited it in a bank, it may be subjected to the general property tax by the state. Dyer v. Melrose, 197 Mass. 99 (1908), affirmed, 213 U. S. 594 (1909).