5

may lawfully tax the income of persons in the employ or service of the United States who are not public officers; but the distinction is narrow and how far the state can go in this direction is open to considerable doubt. It has also been held that a trustee in bankruptcy it not exempt from state taxation with respect to the property of the bankrupt in his hands although it is probable that Congress by express enactment might establish an exemption from state taxation in such cases. A person performing services for the United States under a contract is not necessarily exempt from state taxation. Thus a corporation engaged in constructing a public work under contract with the United States is taxable by the state upon the implements used in the work."

29. Federal Charters and Franchises

The United States has in many instances granted charters to private corporations in order to more effectually carry out the objects for which the national government was established. Familiar examples are the national banking corporations and the transcontinental railroad companies, which were created by authority of Congress, and the interstate telegraph companies, which were chartered by the states but which were given a franchise by Congress to operate on post roads throughout the country. All of such corporations are agencies of the United States, and it is well settled that even in the absence of any express exemption by Congress, a state cannot tax such a corporation for the privilege of exercising the functions allotted to it by the United States,1 or tax its property in such a way as to impede

3 In Melcher v. Boston, 9 Met. 73 (1845) it was held that a clerk in the post office was taxable by the city with respect to his salary, and in Palfrey v. Boston, 101 Mass. 329 (1869) it was held that a dealer in United States internal revenue stamps was not exempt from taxation as a quasi officer of the United States.

4 In Biscoe v. Tax Commissioner, 236 Mass. 201 (1920), it was held that the salary of the vice-president of a railroad was exempt from state taxation while the railroad was under federal control.

5 Swarts v. Hamm, 194 U. S. 441 (1904).

6 Gromer v. Standard Dredging Co., 224 U. S. 362 (1912). So also a state may impose a tax on a surety company based on premiums, and include premiums on bonds of United States officers. Fidelity etc. Co. v. Pennsylvania, 240 U. S. 319 (1916).

1 McCulloch v. Maryland, 4 Wheat. 316, 436 (1819). A state may however impose a tax which is nominally upon the franchise of a corporation chartered by Congresss if it is in reality a tax upon its property within the state. Western Union Tel. Co. v. Attorney General, 125 U. S. 530 (1887); Massachusetts v. Western Union Tel. Co., 141 U. S. 40 (1891).

or prevent the performance of such functions; but the property of such a corporation within the limits of a state is taxable at the same rate as other property of like character.2

The power of the state to tax such corporations is governed largely by the acts of Congress establishing them. The taxation of national banks has been explicitly regulated by Congress and is discussed in another portion of this work. It is settled that Congress may constitutionally exempt them from taxation if it sees fit,* or permit the states to tax them." The transcontinental railroads were chartered by Congress and given subsidies and grants of land, and they agreed to serve the government, when required, for a reasonable compensation, but were not specifically exempted from taxation. It was held that the states might tax them on their property but not on their operations or franchises. The telegraph companies were given power by Congress to maintain lines over the public domain, across navigable streams and along military and post roads. It was held that the companies were not thereby exempted from taxation by the states; but a state cannot make payment of the tax a condition precedent to entry by a telegraph company within its jurisdiction."

7

6

A state has no power to tax patent rights, since such rights are a franchise created for federal purposes under the constitution and laws of the United States; 10 but a patented article may be taxed as property at its full value, although part of its value is derived from the patent."

2 McCulloch v. Maryland, 4 Wheat. 316 (1819); Henderson Bridge Co. v. Kentucky, 166 U. S. 150 (1897); Keokuk etc. Bridge Co. v. Illinois, 175 U. S. 626 (1900); Williams v. Talladega, 226 U. S. 404 (1912).

3 Infra, pages 505 to 515 inc.

4 Flint v. Aldermen of Boston, 99 Mass. 141 (1868).

5 Van Allen v. The Assessors, 3 Wall. 573 (1865).

6 Thomson v. Union Pacific R. R. Co., 9 Wall. 579, 588 (1869); Union Pacific R. R. Co. v. Peniston, 18 Wall. 5, 31 (1873). The fact that a railroad right of way was intended to be used in part as an instrumentality for developing Indian coal lands does not exempt its right of way from taxation as an agency of the federal government. Choctaw etc. R. R. Co. v. Mackey, U. S.

(1921).

California v. Central Pacific R. R. Co., 127 U. S. 1 (1888).

8 Western Union Tel. Co. v. Attorney General, 125 U. S. 530 (1887); Massachusetts v. Western Union Tel. Co., 141 U. S. 40 (1891).

9 Western Union Tel. Co. v. Texas, 105 U. S. 464 (1881).

10 McCulloch v. Maryland, 4 Wheat. 316 (1819).

11 Webber v. Virginia, 103 U. S. 344 (1880).

30. Interference with Federal Taxing Powers

It follows from the supremacy of the United States under the constitution that when the United States and a state have concurrent taxing power over the same subject matter, the right of the United States takes precedence, and the United States must be paid in full, even if insufficient is left to pay the tax to the state. It has however never been held that the state, in valuing the property, privilege or income taxed for the purpose of its own tax, must deduct the tax paid to the United States, although if it fails to do so it will in effect impose a tax on the tax paid to the United States.

In other respects however the state cannot tax or otherwise burden the federal taxing power. It cannot tax internal revenue stamps as property, or require federal tax receipts to be published or limit the enforcement of a federal tax by its own statutes relative to the recording of liens.*

DUE PROCESS OF LAW

31. Application of the Fourteenth Amendment

That portion of the Fourteenth Amendment to the constitution of the United States which provides that no state shall deprive any person of his life, liberty or property without due process of law nor deny to any person within its jurisdiction the equal protection of the laws affects the power of taxation in various ways.

In matters of substance it prohibits a state from taxing any persons or property or the performance of any acts not within its territorial jurisdiction; and from arbitrarily discriminating in its tax laws against any persons or property within its jurisdiction; or from enacting any tax laws which violate the fundamental and inherent rights of a citizen and amount to mere arbitrary spoliation under the guise of taxation. In matters of procedure it prohibits a state from providing any forms of procedure in

1 United States v. Fisher, 2 Cranch 258, 496 (1804).

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

3 North Dakota v. Hanson. 215 U. S. 515 (1910).

4 United States v. Snyder, 149 U. S. 210 (1893).

tax cases which are essentially arbitrary, unjust or unfair, or which will result in any person being deprived of his property without a fair opportunity to assert in some tribunal acting judicially whatever substantive rights he may have.

32. Discriminatory Taxation

It is well settled that there is nothing in the Fourteenth Amendment which requires a state to tax all property within its jurisdiction at the same rate. Different classes of property may be taxed at different rates as the public policy of the state may seem to require and excises may be imposed upon certain occupations and not upon others without violating the provisions of the amendment unless there is a clearly hostile discrimination against certain persons or classes, not based upon any reasonable distinction.1 Certain classes of property may be wholly exempted from taxation without giving rise to an occa

1 Bell's Gap R. R. Co. v. Pennsylvania, 134 U. S. 232, 237 (1890); Home Insurance Co. v. New York, 134 U. S. 606 (1890); Giozza v. Tiernan, 148 U. S. 662 (1893). Thus all corporations may be put in one class for purposes of taxation and taxed upon a different basis from individuals engaged in the same business, Michigan Central R. R. Co. v. Powers, 201 U. S. 245 (1906); Fort Smith Lumber Co. v. Arkansas, 251 U. S. 532 (1920); or corporations may be classified separately according to the business done by them, as banks, Provident Institution for Savings v. Massachusetts, 6 Wall. 611 (1867); railroad companies, State Railroad Tax Cases, 92 U. S. 575 (1875); Kentucky Railroad Tax Cases, 115 U: S. 321 (1885); Charlotte etc. R. R. Co. v. Gibbes, 142 U. S. 386 (1892); Florida Central etc. R. R. Co. v. Reynolds, 183 U. S. 471 (1902); Ohio Tax Cases, 232 U. S. 576 (1914); express companies, Pacific Express Co. v. Seibert, 142 U. S. 339 (1892); or oil companies, Southwestern Oil Co. v. Texas, 217 U. S. 114 (1910). An inheritance tax law which taxes at a higher rate property which, though taxable, escaped taxation during the life of the decedent is constitutional. Watson v. State Comptroller, 254 U. S. 122 (1920). A distinction may be made between steam railroads and street railways, Savannah etc. R. R. Co. v. Savannah, 198 U. S. 392 (1905); and between surface street railways and those operated in subways, New York v. State Board of Tax Commissioners, 199 U. S. 1 (1905). The franchises of corporations may be taxed at a different rate from tangible property, Coulter v. Louisville etc. R. R. Co., 196 U. S. 599 (1905). Securities issued by corporations may be taxed at a different rate from all other moneyed securities. Bell's Gap R. R. Co. v. Pennsylvania, 134 U. S. 232 (1890); New York v. Reardon, 204 U. S. 142 (1907). A distinction may be made between corporations doing business for profit and co-operative or mutual associations, Citizens Telephone Co. v. Fuller, 229 U. S. 322 (1913), and between express companies which own their means of transportation and those which employ the services of a carrier, Pacific Express Co. v. Seibert, 142 U. S. 339 (1892), and between large and small tracts of land, King v. Mullins, 171 U. S. 404 (1898). A distinction may be made between the different classes of insurance contracts, Farmers' etc. Insurance Co. v. Dobbins, 189 U. S. 301 (1903). A tax on theatres may be graded in accordance with the prices for admission charged, Metropolis Theatre Co. v. Chicago, 228 U. S. 61 (1913).

sion for interference by the federal courts. The latitude of discretion is notably wide in the classification of property for purposes of taxation and the granting of partial or total exemptions upon grounds of policy. Nevertheless the classification must be reasonable and not arbitrary, and must rest upon some ground of difference having a fair and substantial relation to the object of the legislation, so that all persons similarly circumstanced shall be treated alike. A discriminatory tax law cannot be sustained as a lawful classification if the classification appears to be altogether illusory.*

The denial by a state of the equal protection of the laws within the meaning of the Fourteenth Amendment may also take place under statutes which appear on their face to require uniform and proportional taxation, but are enforced in such a way as to discriminate arbitrarily against one class in the community. The purpose of the equal protection clause of the Fourteenth Amendment is to secure every person within the state's jurisdiction against intentional and arbitrary discrimination, whether occasioned by express terms of a statute or by its improper execution through duly constituted agents. When

2 Florida Central R. R. Co. v. Reynolds, 183 U. S. 480 (1902); Missouri v. Dockery, 191 U. S. 170 (1903).

3 Royster Guano Co. v. Virginia, 253 U. S. 412, 415 (1920).

4 Thus a state law which taxes the income of domestic corporations doing business inside the state whether derived from business carried on within or without the state, but exempts altogether the income of domestic corporations which do no business within the state is unconstitutional as imposing an arbitrary discrimination. Royster Guano Co. v. Virginia, 253 U. S. 412 (1920). A state law which imposes a tax upon a foreign corporation which has come into a state in accordance with its laws and acquired property of a permanent character, at a higher rate than is imposed upon domestic corporations for carrying on precisely the same business is unconstitutional. Southern Ry. Co. v. Greene, 216 U. S. 400, 417 (1910). The principle of the last cited case does not prevent a state from requiring of foreign corporations which have not already established themselves in a state a larger tax for the privilege of doing business within the state than is imposed upon domestic corporations upon the franchise which the state grants in creating them. Kansas City etc. R. R. Co. v. Stiles, 242 U. S. 111, 118 (1916); Northwestern Life Ins. Co. v. Wisconsin, 247 U. S. 132, 140 (1918).

5 Sunday Lake Iron Co. v. Wakefield, 247 U. S. 350 (1918). Mere errors or inequalities in assessment violate no constitutional rights when there is no habitual and intentionally unfair discrimination. Coulter v. Louisville etc. R. R. Co., 196 U. S. 599 (1905); Sunday Lake Iron Co. v. Wakefield, 247 U. S. 350 (1918); Mackay Tel. etc. Co. v. Little Rock, 250 U. S. 94 (1919). Even if assessors without authority of law habitually and intentionally discriminate between different classes of property there is no violation of the constitutional rights of those discriminated against if there is a distinction between the two classes of property which the legislature might have constitutionally recognized. Missouri v. Dockery, 191 U. S. 165 (1903).