to its earnings includes the value of all the franchises that help to make the earnings possible.

It now seemed to be firmly established that the state could tax receipts from interstate commerce, provided it did so by using those receipts as a measure of the value of property. But the battle royal was yet to come. Before considering the next phase, however, mention should be made of two decisions which have a bearing on later developments. Both were rendered in 1895. Erie Railroad v. Pennsylvania" allowed a state to tax a railroad on tolls received from other carriers for the use of its line, even though the lessee carrier used the road largely for interstate commerce. The tax was directly on the tolls, but the court held in substance that the tolls were received as rent and not for carriage, and cited for the constitutionality of the exaction the Maine case, the Indiana cases, and Postal Telegraph Co. v. Adams,72 decided four months earlier.

The Postal case sustained a tax on an interstate telegraph company assessed at one dollar for each mile of line, which tax was in lieu of all other state, county, and municipal taxes. The company insisted, and Justices Brewer and Harlan agreed with it, that the tax was on the privilege of doing business, and was therefore void as a regulation of interstate commerce and an interference with a federal instrumentality. But the majority of the court thought that the tax, though called a privilege tax, was in substance one on property, and as such was free from fault. "In marking the distinction between the power over commerce and municipal power," observed Chief Justice Fuller, "literal adherence to particular nomenclature should not be allowed to control construction in arriving at the true intention and effect of state legislation.” 73 Since the charge, though in the form of a franchise tax, was "arrived at with reference to the value of its property within the State and in lieu of all other taxes," 74 it was held not to amount to a regulation of interstate commerce. This case did not involve taxes measured by receipts and is therefore not pertinent to the problem of valuation. Its relevancy to the present discussion lies in its indication that taxes in lieu of property taxes will receive the

71 158 U. S. 431, 15 Sup. Ct. Rep. 896 (1895). Mr. Justice Harlan alone dissented. 155 U. S. 688, 15 Sup. Ct. Rep. 268 (1895).

72

73 Ibid., 688, 700.

74 Ibid.

same consideration that is bestowed on taxes directly on property, and that the validity or invalidity of any particular tax complained of may be dependent on the rôle it plays in the entire fiscal system of the state.

III

In all but one of the cases thus far considered, the property which has been regarded as the subject of taxation consisted of railroad, telephone or telegraph lines and their accoutrements. By far the greater part of such property is indissolubly annexed to the business in which it is engaged. This is true even of the rolling stock of a railroad, if we have in mind the railroad business in its entirety. Nevertheless a practical distinction immediately suggests itself between valuing the tangible property of telephone and telegraph companies on the basis of income, and applying the same rule to the cars of the Pullman Company. If the Pullman company sold its business, but retained its cars, the cars would not become valueless. Undoubtedly they would be worth less than their reproduction cost, if we assume that they have no market as ministers to luxury. They would fall in value to the cost of the less gaudy and expensive coaches which carry the multitude. But the right of way and tracks of a railroad, and the equipment of telegraph and telephone companies would suffer far more from being disassociated from the business which they serve. There is a genuine practical difficulty in valuing this species of property divorced from the profitableness of the uses to which it is put a difficulty immeasurably greater than that presented by the carriages of the Pullman company.75 This difference, however, was overlooked by the

75 In Pullman's Palace Car Co. v. Central Transportation Co., 171 U. S. 138, 18 Sup. Ct. Rep. 808 (1898) the Supreme Court had comparatively little difficulty in fixing a rule for the valuation of palace cars which excluded from consideration all elements of value derived from the receipts of the business in which they were used. This case was a suit to recover the value of property delivered under an ultra vires contract. The court was urged to consider the market value of the shares of the transferring corporation in determining the value of the property transferred, but it refused to do so, Mr. Justice Peckham declaring: “The market price of the shares of stock in a manufacturing corporation includes more than the mere value of the property owned by it, and whatever is included in that price beyond and outside of the value of its property is a factor which in a case like this cannot be taken into consideration in determining the liability of the cross defendant. . . . The probable prospective capacity for earnings also enters largely into market value, and

76

minority as well as the majority in Pullman's Palace Car Co. v. Pennsylvania, in which attention was fixed almost exclusively on the question whether the cars had a taxable situs in the state.

In Adams Express Co. v. Ohio State Auditor," however, the matter was more fully threshed out. This case sustained Ohio's application of the unit rule to the taxation of interstate express companies. The real estate of these companies was separately appraised, and this appraised value was deducted from the assessment of the company's "entire property" within the state. The statute set forth no explicit instructions for the appraisal of this "entire property," but the companies were required to report the value of their total capital stock, their entire gross receipts, their gross receipts from business done in Ohio, and the length of the lines of rail and water routes over which they did business in Ohio and elsewhere. From this and other data the board was to "arrive at the true value in money of the entire property of said companies within the State of Ohio, in the proportion which the same bears to the entire property of said company, as determined by the value of the capital stock thereof, and the other evidence and rules as aforesaid." 78 For the most accurate statement of what the board did we must go to the brief of Mr. Maxwell in behalf of the companies:

". . . it is manifest that what the board did . . . was not to assess the defendants on the basis of the market value of such of their tangible property as was found within the State of Ohio, and on their moneys and credits within the State, but to treat the companies as owning dividend producing plants, whose value is represented by the market value of their shares, and to assign a portion of that value to the State of Ohio, as being property subject to taxation in that State. The basis of apportionment

future possible earnings again depend to a great extent upon the skill with which the affairs of the company may be managed. These considerations, while they may enhance the value of the shares in the market, yet do not in fact increase the value of the actual property itself. . . . We must therefore take the property that actually was transferred and determine its value in some other way than by this resort to the market price of the stock" (pages 154-56).

It should be noted that a year before this opinion was rendered, the court [had forsaken the notion that these state taxes measured by the unit rule were imposed on tangible property alone, and had announced the doctrine that it was the intangible property of the company that was thus being valued.

76 Note 33, supra.

77 165 U. S. 194, 17 Sup. Ct. Rep. 305 (1897).

78 Ibid., 194, 197.

made by the board to Ohio is not disclosed; it was evidently hap-hazard and arbitrary." 79

Or, as was argued later, "the assessments, while purporting to be upon the property of the plaintiffs within the State, are, in fact, levied upon the plaintiffs' business (which is largely interstate commerce), by placing a fictitious and artificial value upon that property." 80 The result was that wagons, horses, pouches, etc., which one of the companies valued at $23,400, were assessed at $499,377.60, if that was the property being taxed.

It is difficult to escape from the characterizations of the tax presented in the briefs against its constitutionality. Certainly the value of the horses, wagons, etc., "would be precisely the same" and they "could be bought for the same price -be sold for the same price -be produced and reproduced for the same pricewhether the capital stock of the company was 50 per cent below par or 100 per cent above par.' It is true also that "under this method of valuation, whether the horses were lame or sound, or old or young, whether the wagons and harness were old or new, was of little consequence." 82 Nor does there seem any valid answer to the position that:

"" 81

"To say that this sort of detached and fugitive property, simply because it is employed in the business of an organized express company, is unit property, like a railroad or a telegraph, is only another way of attempting to justify an assessment against the business of a company, under the pretense of assessing its property."

9 83

As the brief of Mr. James C. Carter puts it: "The property which, according to the notion under criticism, is taxed, is a pure abstraction having no situs, no existence, even, save in intellectual conception, something which can nowhere be seen or handled or made the subject of action." 84 Later Mr. Carter enumerates the elements which determine the market value of the shares, and contends that a tax on those elements is a tax on the occupation itself.

79 165 U. S. 194, 204–05, 41 L. Ed. 686–687 (1897).

80 Ibid., 194, 205, Ibid., 687.

81 Ibid., 194, 215, Ibid., 692.

82 Ibid.

83 41 L. Ed. 687 (1897). This excerpt is not contained in the abstract of Mr. Maxwell's brief given in the official reports.

84 41 L. Ed. 693 (1897). Not in the official reports.

These contentions of attorneys for the companies seem incontrovertible. Any realistic approach to the genuine issue must concede their validity. If such a tax is to be sustained, it must be because the states can tax interstate commerce, provided they do it in approved ways. But the majority position seems poetical rather than realistic. "Doubtless there is a distinction," says Chief Justice Fuller, "between the property of railroad and telegraph companies and that of express companies." 85 The learned justice recognizes that "the physical unity existing in the former is lacking in the latter"; but he discounts the importance of this difference by saying that "there is the same unity in the use of the entire property for the specific purpose, and there are the same elements of value arising from such use." 86 After pointing out that "the cars of the Pullman Company did not constitute a physical unity, and their value as separate cars did not bear a direct relation to the valuation which was sustained in that case," 87 he continues:

"No more reason is perceived for limiting the valuation of the property of express companies to horses, wagons and furniture, than that of railroad, telegraph and sleeping car companies, to roadbed, rails and ties, poles and wires, or cars. The unit is a unit of use and management, and the horses, wagons, safes, pouches and furniture, the contracts for transportation facilities, the capital necessary to carry on the business, whether represented in tangible or intangible property, in Ohio, possessed a value in combination and from use in connection with the property and capital elsewhere, which could as rightfully be recognized in the assessment for taxation in the instance of these companies as the others." 88

That such value exists is clear. Whether it should rightfully be recognized as a basis for the assessment of state taxes is a question of policy. No criticism is here directed against the judgment that "the States through which the companies operate ought not to be compelled to content themselves with a valuation of separate pieces of property disconnected from the plant as an entirety, to the proportionate part of which they extend protection, and to the dividends of whose owners their citizens contribute." 89 But when 85 165 U. S. 194, 221, 17 Sup. Ct. Rep. 305 (1897). 86 Ibid.

88 Ibid.

87 Ibid.

89 Ibid., 194, 227.