legal treatise," Personal property, permanently remaining in a State, has a situs therein for the purposes of taxation although belonging to a foreign corporation." In other States, however, the practice of taxing domestic companies on their entire property, regardless of its location, is in some cases applied, so that the same property is taxed twice by different States. With railroads the difficulty is no longer of particular significane so far as concerns tangible personality subject to measurably permanent location, but with rolling stock the question is more complicated. The difference between the two kinds of property is recognized in the Tennessee law taxing railroad companies. Real estate and personalty having stable location are taxed as localized property," and assessed in the locality where situated; property having no actual situs-i. e., rolling stock-is known as "distributable property." and is assessed against the company employing it on a pro rata mileage basis. In those States where rolling stock is assessed as part of a general railroad-property valuation, the same method is generally employed. In Marye v. Baltimore and Ohio Railroad Co., it was decided that the situs of rolling stock may be fixed in whatever locality such property may be brought and used by its owner by the law of the place where it is found. In this particular case the right of Virginia to tax the rolling stock of the Baltimore and Ohio Railroad Company was not allowed on the ground that the Virginia law had application only to domestic corporations. But in respect to the general right of a State to tax the rolling stock of foreign corporations employed within its limits, the court said that "it would certainly be competent and legitimate for the State to impose upon such property, thus used and employed, its fair share of the burdens of taxation imposed upon other similar property used in the like way by its own citizens."

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In the State railroad freight tax cases, the court, referring to the principle of mooilia personam sequuntur, says that it may be doubted very reasonably whether such a rule can be applied to a railroad corporation as between the different localities embraced by its line of road; the rule is merely the law of the State which recognizes it * * [and] therefore, subject to legislative repeal." In Baltimore and Ohio Railroad Co. v. Allen, it was held that in the case of a leased line, rolling stock used thereon has its situs there. In Pullman Palace Car Co. v. Twombly, it was decided that cars used on a railroad, and owned by a nonresident of any State in which they are employed, are not exempt from taxation in that State by reason of their being instrumentalities used exclusively for interstate commerce.

5

From these decisions it will be seen that the power of the States to tax rolling stock used at all within their borders is not subject to narrow restrictions. The right to do this upon a pro rata mileage basis in the case of companies engaged in interstate commerce is undisputed; and State practice, as already indicated, is following this plan.

The rule as to vessels engaged in foreign or interstate commerce is, that their situs for purposes of taxation is their home port of registry, or if unregistered, the residence of their owner. Somewhat analogous is the Pennsylvania decision that corporate property like barges, dredges etc., without permanent location in any place, is taxable only in the State of the corporation's domicile.

2. Interstate taxation of corporate securities.-The second phase of the double taxation of the same class of subjects by competing authorities is the interstate taxation of corporate securities. The evils resulting from double taxation of this character have been so generally recognized as to call for express legislation on the subject in a number of instances. In New York the law of 1880 (chap. 42) provided for the taxation of corporations on their entire capital stock. În 1885 this was so amended as to extend only to that portion of the capital stock employed in business within the State. A court decisions in 1887, however, on the basis of the law of 1880, held that the entire capital stock, and not the portion of it employed within the State, was the legal measure of business done within the State. Subsequent legislation came around to the principle of the law of 1885 for both foreign and domestic corporations.

In Pennsylvania the practice has uniformly been that of taxing only that portion of the capital stock represented by business done in the State. This was given judicial sanction in Commonwealth v. Standard Oil Co., where it was held

1 Pierce on Railroads.

2127 U. S., 117.

392 U. S., 607.

4 22 Fed. Rep., 376.

529 Fed. Rep., 658.

Hays v. Pacific Mail Steamship Co. (17 Howard, 596).
Commonwealth v. American Dredging Co. (122 Pa., 386).

8 People v. Horn Silver Mining Co. (105 N. Y., 76).

that the "power of taxation is limited to subjects within the jurisdiction of the State," and that the laws of the State were not intended to tax the entire capital stock of a foreign corporation, "but to tax the property of such company, that is, its capital stock, to the extent that it brings such property within the State in the transaction of its business." In the case of transportation companies this has generally been determined upon a mileage basis. The validity of this method as applied in Pennsylvania was affirmed in Erie Railway Co. v. Pa.,' and again in Pullman Palace Car Co., where it was held that the capital stock of a transportation company, represented by its equipment used interchangeably within and without a State, is taxable upon a pro-rata mileage basis.

The same conclusion had already been reached at a much earlier date in Minot v. P. W. & B. R. R. Co.,3 where it was held that the taxation of capital stock on the pro-rata mileage basis is a rule which, though an arbitrary one, is approximately just, at any rate is one which the legislature of Delaware was at liberty to adopt."

In Connecticut, where both capital stock and indebtedness are taxable, transportation companies are assessed upon the proportional mileage basis; and in Massachusetts, where the corporation tax law generally applies to entire capital stock, transportation companies are assessed on only a mileage proportion.

The application of this method in the taxation of telegraph companies has been upheld in the United States Supreme Court as analogous to its use in the case of railroads. Upon the whole, the method has been quite satisfactory in avoiding interstate complications, though from the standpoint of justice in apportionment a ton-mileage basis might prove preferable in the case of railroads. Administrative difficulties might, however, counterbalance any advantages from this source. In the case of telephone companies, the number of instruments in use has already been adopted in certain cases, as not only the more just method, but the most practicable from the administrative standpoint.

Just at present the practical usefulness of the method in its application to the taxation of express companies, as provided for in the laws of several States, is being threatened in a contention which is now pending in the Federal court in Indianapolis, and which is likely to reach the United States Supreme Court for final determination. One of the express companies operating in Indiana claims that under the Indiana law of 1893, providing for the taxation of these companies, the State board of tax commissioners, in arriving at the value of capital stock subject to taxation, shall take into consideration "its entire mileage-ocean, lake, and river, foreign and domestic," and that this valuation shall be that proportion of the aggregate value which the length of its lines and routes within the State of Indiana bears to the whole length of the lines and routes of the company-ocean, lake, and river, foreign and domestic. Should this contention be upheld by the courts, the taxable value would be so materially reduced as to afford a very insignificant revenue. A more explicit statement in the law, as to what is meant by such lines or routes as are outside the State of Indiana," might have avoided this difficulty.

In certain States, as in Illinois, the endeavor to avoid the repeated State taxation of capital stock has resulted in the exemption of the capital stock of foreign corporations on the presumption that they have already been taxed on their capital stock in the State of their domicile. In other States, as in Rhode Island, shares of stock in a corporation are not taxable when the corporation is liable to taxation in another State; in Vermont the law goes even further and provides that shares in a corporation shall not be taxed when either that corporation or the holders of shares in that corporation are taxed in another State.

One of the phases of the interstate taxation of corporate capital, which was referred to in an earlier chapter, is the question of the taxation by a State of that portion of a corporation's capital stock and bonded debt which is held by nonresidents of that State. On this question the Supreme Court of the United States has made a distinction between bonds and shares of stock which has been fruitful of many difficulties in the State taxation of corporate bonded debt.

So far as concerns the taxation of capital stock or of shares of the same, the United States courts have uniformly maintained, in line with the decision in the Delaware Railroad tax case, that a State tax on shares of stock, even though

121 Wall.. 492.

2141 U.S.. 18.

318 Wall., 492.

4 Western Union Telegraph Co. v. Mass. (125 U.S., 530).

Biennial Report of State Board of Tax Commissioners of Indiana, 1899. A recent letter (Feb. 1, 1901) from the auditor of State gives the information that the case has made very slow progress. He states that it is the intention of the State to contest for its rights, even if it is necessary to go to the United States Supreme Court.

held by nonresidents of a State, is a tax on the corporation and not on the stockholder, and is therefore valid. In New Orleans v. Houston1 it was further held that the assessment of a tax upon the shares of holders appearing on the books of a company, which the company is required to pay irrespective of any dividends or profits payable to the shareholder out of which it might repay itself, is substantially a tax upon the corporation itself. In United States v. Railroad Company, however, the court held that a tax on dividends or interest paid by a corporation is a tax on the income of the stockholder or the bondholder and not on the income of the corporation. The state of the law in the taxation of capital stock (or of the shares constituting that capital stock), therefore, is that capital stock may be taxed by a State regardless of the residence of the holders of shares.

The legal status of a tax on bonded debt (or, as the courts would say, on the bonds which constitute it) has been quite different. Here it has been held that a State can not tax the honds of a corporation held by nonresidents, on the ground that bonds are debts owed by a corporation, the property of its creditors, and therefore taxable only in the State of the domicile of those creditors." In Bells Gap Railroad Company v. Commonwealth, as distinguished from the decision in New Orleans v. Houston, the court decided that a tax on bonds, though paid by the corporation, "is a tax on the bondholder and not on the corporation,” in which the matter of collection was simply a matter of convenience.

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It is difficult to see, from the economic standpoint, why bonds should be treated differently from stocks in the matter of taxation. From this point of view the early Pennsylvania decision in Maltby v. Reading and Columbus Railroad Company would seem to have the sounder basis. In this case the court says: Corporate stocks are property here though owned beyond our jurisdiction. * * But loans are not stocks, and yet the loans and stock of a railroad company resemble each other in many respects. Both are subscribed under the authority of a special law, and both are so far capital that they are employed for the same general purpose. The certificate of stock is mere paper evidence of property existing here. * * anything more? * * * It is founded upon and derives its value from a mortgage, but that mortgage is here, and the franchises and properties which the mortgage binds are here within our jurisdiction. * Now, although loans and stocks are distinguishable for many purposes, yet the legislature created no very great solecism in treating loans as taxable property within our jurisdiction. * * Corporate loans, though in some sense mere debts, are like moneys at interest, taxable as property."

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Is the bond

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If, however, the decision of the United States Supreme Court in Savings Society v. Multnomah County should be held to apply to corporate bonds as well as to individual mortgages, the former attitude of the court will have been reversed."

But leaving the Multnomah County case out of consideration, the course of the Supreme Court has not been entirely consistent. In Railroad Company v. Collector, a case which arose over the Federal revenue law of 1864 taxing dividends, coupons, etc., the court held that the law was not invalid because under its provisions the tax was withheld from the dividends and interest of stockholders and bondholders not residing in this country. The same decision was reached in U. S. v. Erie Railway Co. In this case Justice Field points out in a dissenting opinion the conflicting nature of the above two decisions with that in U. S. v. Railroad Co.,10 where it was held that such a tax was a tax on the creditor and not on the corporation, making the tax under the law in question, according to the opinion arrived at in the case before the court, a tax on nonresident aliens.

As matters stand, leaving the Multnomah County case still in doubt, the States may tax only that portion of a corporation's bonded debt which is held by residents. Under the Pennsylvania law, as laid down by the courts," the burden of proof as to the residence of its bondholders rests with the corporation-i. e., corporate loans in the operation of the law are assumed to be held by residents in the

1917 Wall., 322. The same general doctrine is to be found in Haight v. R. R. Co. (6 Wall., 15), and in R. R. Co. v. Jackson (7 Wall., 262).

11 Commonwealth v. Lehigh Valley R. R. Co. (129 Pa., 429).

absence of proof to the contrary. This advantage is more than counterbalanced, however, by the disadvantage under which the State is placed in the collection of the tax on resident holders of bonds in a foreign corporation; for the courts of the State have held that a State can not, consistently with the Constitution of the United States, impose upon a foreign corporation, when paying the interest on its bonds in another State, the duty of deducting from the interest paid out, the amount assessed upon that portion of the bonded capital held by residents of the first-mentioned State.1

Should future developments along the line of the Multnomah County case fail to solve these difficulties, there still remains a way of partially avoiding them by adopting the practice of Connecticut in the matter. There transportation companies are taxed on a valuation equal to such portion of the market value of the capital stock and debt as is, in the economic sense, employed in busine3 within the State. In the case of railroads this is determined upon a pro rata mileage basis. 3. Interstate taxation of receipts.-The interstate taxation of corporate receipts, earnings, or income is another phase of the double taxation of the same class of subjects by competing authorities. This question has received considerable attention at the hands of the United States courts. The first case of importance arose in 1872 over the Pennsylvania law laying a tax on merchandise according to tonnage. In this case it was decided that any State tax upon freight taken up in one State to be carried into another State is an interference with interstate commerce, and is therefore unconstitutional. In the same year it was decided in another case that a State tax on the gross receipts of a railway is not unconstitutional, even though those receipts accrue in part from freights for transportation from State to State. Although the company which was thus taxed was a domestic corporation, it does not appear on the face of the decision that the court was desirous of making any express distinction between domestic and foreign corporations. The court says: "While it must be conceded that a tax upon interstate transportation is invalid, there seems to be no stronger reason for denying the power of a State to tax the fruits of such transportation after they have become intermingled with the general property of the carrier than there is for denying her power to tax goods which have been imported after their original package has been broken and after they have been mixed with the mass of personal property in the country." In the present case "the tax is laid upon the gross receipts of the company; laid upon a fund which has become the property of the company, and possibly expended in improvements or put out at interest." Had the decision reached in this case, at least in its probable implication, been followed in subsequent cases the present difficulties which are constantly arising when a State seeks to lay a tax upon the gross receipts of a foreign corporation from business other than that transacted wholly within that State would have been avoided; but a narrower interpretation has since been put upon this decision by the Supreme Court. In a later case it was held that a tax on the gross receipts of a foreign corporation is unconstitutional if those receipts are in part the proceeds of interstate traffic. In the decision it was stated that in the earlier case the tax was upheld because the company in the controversy was a domestic corporation, and that, therefore, the tax was a franchise tax. In Philadelphia and Southern Steamship Company the same ground was taken; but it was further held that the decision in the Railway Gross Receipts Tax Case was legally unsound in so far as it was based on the analogy of goods removed from the original package (as held in Brown v. Maryland, 12 Wheat., 419). Other later decisions take the same ground.

In a more recent case, decided in 1891, the Maine tax was upheld on the old ground that the tax was a franchise tax, the real party in the litigation being a domestic corporation.' It was implied in the decision, however, that the distinction between domestic and foreign corporations is not an absolutely necessary one. Judge Field, in delivering the opinion of the court, said:

"The privilege of exercising the franchises of a corporation within a State is generally one of value, and often of great value, and the subject of earnest contention. It is natural, therefore, that the corporation should be made to pay some proportion of the burdens of the government. As the granting of the privilege rests entirely within the discretion of the State, whether the corporation be of

domestic or foreign origin, it may be conferred upon such conditions, pecuniary or otherwise, as the State in its judgment may deem most conducive to its interest or policy. It may require the payment into its treasury each year of a specific sum, or may apportion the amount exacted according to the value of the business permitted, as disclosed by its gains or receipts of the present or past years. The character of the tax or its validity is not determined by the mode adopted in fixing its amount for any specific period or the times of its payment. The whole field of inquiry into the extent of revenue from sources at the command of the corporation is open to the consideration of the State in determining what may be justly exacted for the privilege. The rule of apportioning the charge to the receipts of the business would seem to be eminently reasonable, and likely to produce the most satisfactory results both to the State and the corporation taxed.

Whether telegraphic messages may be considered the subjects of interstate commerce might at first be questioned. Such, however, is in effect the burden of the decisions of the United States Supreme Court. These companies are in respect to the taxation of their receipts subject to substantially the same provisions as railroads. According to the decision in Telegraph Company v. Texas,1 any telegraph company accepting the provisions of Title 65, United States Revised Statutes, becomes an agent of the United States as regards Government business; and any State law imposing a tax on messages is void, both as to Government messages and to messages sent out of the State. In Ratterman v. Western Union Telegraph Company, a decision of general application to transportation companies was reached, to the effect that though a tax on gross receipts from both intrastate and interstate commerce is invalid, the tax is valid so far as it applies to the intrastate portion of those receipts.

To sum up, the legal status of the gross-receipts tax is substantially as follows: Domestic corporations may be taxed on their gross receipts regardless of the source of those receipts, provided they are not entirely the proceeds of interstate commerce. Foreign corporations may be taxed only on the intrastate portion of their receipts. The distinction from the legal standpoint arises out of the fact that in the former case the tax is a tax on franchise, and in the latter case a tax on business-i. e., a tax on interstate traffic-which is in violation of the interstate commerce clause in the Federal Constitution.

The receipts of the large transportation companies are to a large extent the proceeds of interstate traffic. Any transportation tax system which confines the incidence of a tax to purely intrastate receipts is in the main an inadequate one. As we have just seen, however, such is the necessary practice in the taxation of foreign corporations. As concerns the taxation of net income, it is probable that the question of the validity of such a tax would be determined upon different grounds.

C. DOUBLE TAXATION OF CORPORATION AND SECURITY HOLDER.

The simultaneous taxation of both corporation and security holder is one which may arise under competing authorities as well as under the same jurisdiction. It is a problem which may not be viewed from the standpoint of single groups of corporations (e. g., transportation companies, manufacturing corporations, etc.); from any ultimate point of view it must comprehend the entire field of investments. To tax both corporation and security holder, when a tax on investments is general, is clearly double taxation; but when a tax applies only to a special class of investments, the question can not be decided without examining into the incidence of the tax. Professor Seligman says on this point:

"If only one class of corporations is taxed, the purchaser of these corporate securities will escape taxation, because the amount of the tax is discounted in the depreciation of the security. For, let us suppose that a corporation previously untaxed has been paying 5 per cent dividends on its stock quoted at par. If a special tax of 10 per cent be imposed on these dividends, the stockholders will get only 4 per cent. But since by the supposition other classes of corporations, or at all events other noncorporate investments, are not taxed, the price of the stock will fall to 90. People who can get 5 per cent on their capital will not ordinarily consent to take 4 per cent. The original holders of the stock will indeed lose, but the new purchasers will not be affected, because the tax is capitalized and leads to a depreciation of the capital value of the stock. A dividend of $4.50 on stock costing $90 is as good as one of $5 on stock costing $100. A tax levied only on corporate profits, or only on some special classes of corporations, does not affect any one but those who become stockholders before the imposition of the tax. To 2127 U.S., 411.

1105 U. S., 460.