18 Wall. 5, 21 L. Ed. 787; California v. Central P. R. Co., 127 U. S. 1, 32 L. Ed. 150, 2 Inters. Com. Rep. 153, 8 Sup. Ct. 1073.

"An examination of these cases will show that in each case where the tax was held invalid, the decision rested upon the proposition that the corporation was created to carry into effect powers conferred upon the federal government in its sovereign capacity, and the attempted taxation was an interference with the effectual exercise of such powers.

"In Osborn v. Bank of United States, supra, a leading case upon the subject, whilst it was held that the Bank of the United States was not a private corporation, but a public one, created for national purposes, and therefore beyond the taxing power of the state, Chief Justice Marshall, in delivering the opinion of the court, conceded that if the corporation had been originated for the management of an individual concern, with private trade and profit for its great end and principal object, it might be taxed by the state. *** [Here follows a quotation from this case, 9 Wheat. at 859, 860.]

"While the tax in this case, as we have construed the statute, is imposed upon the exercise of the privilege of doing business in at corporate capacity, as such business is done under authority of state franchises, it becomes necessary to consider in this connection the right of the federal government to tax the activities of private corporations which arise from the exercise of franchises granted by the state in creating and conferring powers upon such corporations. We think it is the result of the cases heretofore decided in this court, that such business activities, though exercised because of state-created franchises, are not beyond the taxing power of the United States. [Citing Mich. C. Ry. v. Slack, 100 U. S. 595, 25 L. Ed. 647; U. S. v. Erie Ry., 106 U. S. 327, 1 Sup. Ct. 223, 27 L. Ed. 151; Spreckels Ref. Co. v. McClain, 192 U. S. 397, 24 Sup. Ct. 376, 48 L. Ed. 496.] The question was raised and decided in the case of Veazie Bank v. Fenno, 8 Wall. 533, 19 L. Ed. 482. In that well-known case a tax upon the notes of a state bank issued for circulation was sustained. Mr. Chief Justice Chase, in the course of the opinion, said:

* * *

"Is it, then, a tax on a franchise granted by a state, which Congress, upon any principle exempting the reserved powers of the states from impairment by taxation, must be held to have no authority to lay and collect?

may

"We do not say that there may not be such a tax. It be admitted that the reserved rights of the states, such as the right to pass laws, to give effect to laws through executive action, to administer justice through the courts, and to employ all necessary agencies for legitimate purposes of state government, are not proper subjects of the taxing power of Congress. But it cannot be admitted that franchises granted by a state are necessarily exempt

from taxation; for franchises are property, often very valuable and productive property; and when not conferred for the purpose of giving effect to some reserved power of a state, seem to be as properly objects of taxation as any other property.

"But in the case before us the object of taxation is not the franchise of the bank, but property created, or contracts made and issued under the franchise, or power to issue bank bills. A railroad company, in the exercise of its corporate franchises, issues freight receipts, bills of lading, and passenger tickets; and it cannot be doubted that the organization of railroads is quite as important to the state as the organization of banks. But it will hardly be questioned that these contracts of the company are objects of taxation within the powers of Congress, and not exempted by any relation to the state which granted the charter of the railroad. And it seems difficult to distinguish the taxation of notes issued for circulation from the taxation of these railroad contracts. Both descriptions of contracts are means of profit to the corporations which issue them; and both, as we think, may properly be made. contributory to the public revenue.' (Pp. 547, 548.)

"It is true that the decision in the Veazie Bank Case was also placed, in a measure, upon the authority of the United States to control the circulating medium of the country, but the force of the reasoning which we have quoted has not been denied or departed from. [Here follow references to Thomas v. U. S., 192 U. S. 363, 24 Sup. Ct. 305, 48 L. Ed. 481, and Nicol v. Ames, 173 U. S. 509, 19 Sup. Ct. 522, 43 L. Ed. 786.]

* * *

"When the Constitution was framed, the right to lay excise taxes was broadly conferred upon the Congress. At that time very few corporations existed. If the mere fact of state incorporation, extending now to nearly all branches of trade and industry, could withdraw the legitimate objects of federal taxation from the exercise of the power conferred, the result would be to exclude the national government from many objects upon which indirect taxes could be constitutionally imposed. Let it be supposed that a group of individuals, as partners, were carrying on a business upon which Congress concluded to lay an excise tax. If it be true that the forming of a state corporation would defeat this purpose, by taking the necessary steps required by the state law to create a corporation and carrying on the business under rights granted by a state statute, the federal tax would become invalid and that source of national revenue be destroyed, except as to the business in the hands of individuals or partnerships. It cannot be supposed that it was intended that it should be within the power of individuals acting under state authority to thus impair and limit the exertion of authority which may be essential to national existence. "In this connection South Carolina v. United States, 199 U. S.

HALL CASES CONST.L.-19

437, 461, 50 L. Ed. 261, 26 Sup. Ct. 110, 4 Ann. Cas. 737, is important. In that case it was held that the agents of the state government, carrying on the business of selling liquor under state authority, were liable to pay the internal revenue tax imposed by the federal government. In the opinion previous cases in this court were reviewed, and the rule to be deduced therefrom stated to be that the exemption of state agencies and instrumentalities from national taxation was limited to those of a strictly governmental character, and did not extend to those used by the state in carrying on business of a private character.

"The cases unite in exempting from federal taxation the means and instrumentalities employed in carrying on the governmental operations of the state. The exercise of such rights as the establishment of a judiciary, the employment of officers to administer and execute the laws, and similar governmental functions, cannot be taxed by the federal government. The Collector v. Day, 11 Wall. 113, 20 L. Ed. 122; United States v. Baltimore & O. R. Co., 17 Wall. 322, 21 L. Ed. 597; Ambrosini v. United States, 187 U. S. 1, 47 L. Ed. 49, 23 Sup. Ct. 1, 12 Am. Crim. Rep. 699.

"But this limitation has never been extended to the exclusion of the activities of a merely private business from the federal taxing power, although the power to exercise them is derived from an act of incorporation by one of the states. We therefore reach the conclusion that the mere fact that the business taxed is done in pursuance of authority granted by a state in the creation of private corporations does not exempt it from the exercise of federal authority to levy excise taxes upon such privileges. *

"We come to the question, Is a so-called public-service corporation, such as the Coney Island and Brooklyn Railroad Company, in case No. 409, and the Interborough Rapid Transit Company, No. 442, exempted from the operation of this statute? In the case of South Carolina v. United States, 199 U. S. 437, 50 L. Ed. 261, 26 Sup. Ct. 110, 4 Ann. Cas. 737, this court held that when a state, acting within its lawful authority, undertook to carry on the liquor business, it did not withdraw the agencies of the state, carrying on the traffic, from the operation of the internal revenue laws of the United States. If a state may not thus withdraw from the operation of a federal taxing law a subject-matter of such taxation, it is difficult to see how the incorporation of companies whose service, though of a public nature, is, nevertheless, with a view to private profit, can have the effect of denying the federal right to reach such properties and activities for the purposes of revenue.

"It is no part of the essential governmental functions of a state to provide means of transportation, supply artificial light, water, and the like. These objects are often accomplished through the medium of private corporations, and though the public may a benefit from such operations, the companies carrying on such

derive

enterprises are nevertheless private companies, whose business is prosecuted for private emolument and advantage. For the purpose of taxation they stand upon the same footing as other private corporations upon which special franchises have been conferred.

"The true distinction is between the attempted taxation of those operations of the states essential to the execution of its governmental functions, and which the state can only do itself, and those activities which are of a private character. The former, the United States may not interfere with by taxing the agencies of the state in carrying out its purposes; the latter, although regulated by the state, and exercising delegated authority, such as the right of eminent domain, are not removed from the field of legitimate federal taxation. Applying this principle, we are of opinion that the socalled public-service corporations represented in the cases at bar are not exempt from the tax in question."

II. Jurisdiction and Public Purpose 2

UNION REFRIGERATOR TRANSIT CO. v. KENTUCKY. (Supreme Court of United States, 1905. 199 U. S. 194, 26 Sup. Ct. 36, 50 L. Ed. 150, 4 Ann. Cas. 493.)

[Error to the Court of Appeals of Kentucky. The defendant company, a Kentucky corporation, was sued by that state for the ad valorem property taxes assessed for certain years upon 2,000 freight cars owned by it and rented to shippers, who took possession of them from time to time at Milwaukee, Wis., and used them to carry freight in various parts of the United States, Canada, and Mexico. According to a system of averages based upon gross earnings, only from 30 to 70 of such cars were employed yearly in Kentucky. The state Court of Appeals directed a judg-, ment against the company for taxes upon all of its cars.]

Mr. Justice BROWN. In this case the question is directly presented whether a corporation organized under the laws of Kentucky is subject to taxation upon its tangible personal property permanently located in other states, and employed there in the prosecution of its business. Such taxation is charged to be a violation of the due process of law clause of the fourteenth amend

ment.

Section 4020 of the Kentucky Statutes, under which this assessment was made, provides that "all real and personal estate within For discussion of principles, see Black, Const. Law (3d Ed.) §§ 160, 161, 163, 164.

this state, and all personal estate of persons residing in this state, and of all corporations organized under the laws of this state, whether the property be in or out of this state, * shall be

*

The power of taxation, indispensable to the existence of every civilized government, is exercised upon the assumption of an equivalent rendered to the taxpayer in the protection of his per son and property, in adding to the value of such property, or in the creation and maintenance of public conveniences in which he shares, such, for instance, as roads, bridges, sidewalks, pavements, and schools for the education of his children. If the taxing power be in no position to render these services, or otherwise to benefit the person or property taxed, and such property be wholly within the taxing power of another state, to which it may be said to owe an allegiance, and to which it looks for protection, the taxation of such property within the domicil of the owner partakes rather of the nature of an extortion than a tax, and has been repeatedly held by this court to be beyond the power of the legislature, and a taking of property without due process of law. Northern C. R. Co. v. Jackson, 7 Wall. 262, 19 L. Ed. 88; State Tax on Foreign-Held Bonds, 15 Wall. 300, 21 L. Ed. 179; Tappan v. Merchants' Nat. Bank, 19 Wall. 490-499, 22 L. Ed. 189-193; Delaware, L. & W. R. Co. v. Pennsylvania, 198 U. S. 341, 358, 49 L. Ed. 1077, 1083, 25 Sup. Ct. 669. In Chicago, B. & Q. R. Co. v. Chicago, 166 U. S. 226, 41 L. Ed. 979, 17 Sup. Ct. 581, it was held, after full consideration, that the taking of private property without compensation was a denial of due process within the fourteenth amendment. See also Davidson v. New Orleans, 96 U. S. 97, 102, 24 L. Ed. 616, 618; Missouri P. R. Co. v. Nebraska, 164 U. S. 403, 417, 41 L. Ed. 489, 495, 17 Sup. Ct. 130; Mt. Hope Cemetery v. Boston, 158 Mass. 509, 519, 35 Am. St. Rep. 515, 33 N. E. 695.

Most modern legislation upon this subject has been directed (1) to the requirement that every citizen shall disclose the amount of his property subject to taxation, and shall contribute in proportion to such amount; and (2) to the avoidance of double taxation. As said by Adam Smith in his Wealth of Nations, book V, chap. 2, pt. 2, p. 371: "The subjects of every state ought to contribute towards the support of the government as nearly as possible in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state. The expense of government to the individuals of a great nation is like the expense of management to the joint tenants of a great estate, who are all obliged to contribute in proportion to their respective interests in the estate. In the observation or neglect of this maxim consists what is called the equality or inequality of taxation."