INDIRECT ENCROACHMENT ON FEDERAL II. REGULATIONS OF INTERSTATE COMMERCE (continued) 2. Taxes not Discriminating Against Interstate Commerce (continued) C. TAXES ON ACTS, OCCUPATIONS, OR INCOME. THIS HIS study has now reached a point where the remaining cases can most profitably be considered under the somewhat omnibus rubric chosen for this section. We have seen that the Supreme Court has not been meticulous in inquiring whether the statute under which a tax is imposed calls it a tax on property or on a franchise or on capital stock or "on the corporation itself." If a rose by another name would smell sweeter, it has sometimes been rechristened and found sweet enough to accept. "Literal adherence to particular nomenclature should not be allowed to control construction in arriving at the true intention and effect of state legislation," observed Chief Justice Fuller in a passage already quoted. In spite of the rule that earnings from interstate commerce may not be taxed directly, such earnings have been accorded recognition in assessing the amount of taxes on privileges or property. Most of the cases have dealt with valuations that regarded a capitalization of net earnings. But Maine v. Grand Trunk Railway 1 For preceding instalments of this discussion see 31 HARV. L. REV. 321-72 (January, 1918); Ibid., 572-618 (February, 1918); Ibid., 721-78 (March, 1918); Ibid., 932-53 (May, 1918); and 32 HARV. L. REV. 234-65 (January, 1919). 2 Postal Telegraph Cable Co. v. Adams, 155 U. S. 688, 700, 15 Sup. Ct. Rep. 268 (1895). 3 32 HARV. L. REV. 249. • The Delaware Railroad Tax, 18 Wall. (U. S.) 206 (1873), 32 HARV. L. Rev. 236; Western Union Telegraph Co. v. Massachusetts, 125 U. S. 530, 8 Sup. Ct. Rep. 961 (1888), 32 HARV. L. REV. 239; Massachusetts v. Western Union Telegraph Co., 141 U. S. 40, 11 Sup. Ct. Rep. 889 (1891), 32 HARV. L. REV. 239; Pullman's Palace Car Co. v. Pennsylvania, 141 U. S. 18, 11 Sup. Ct. Rep. 876 (1891), 32 HARV. L. Rev. 240; Cleveland, C., C. & St. L. Ry. Co. v. Backus, 154 U. S. 439, 14 Sup. Ct. Rep. 1122 (1894), 32 HARV. L. REV. 244; Pittsburgh, C. C. & St. L. Ry. Co. v. Backus, 154 U. S. 421, 14 Sup. Ct. Rep. 1114 (1894), 32 HARV. L. REV. 248; Western Union Telegraph 6 Co., Erie Railroad v. Pennsylvania and Henderson Bridge Co. v. Kentucky accepted the measure of gross earnings, some or all of which were from interstate commerce. To an untutored mind, taxes measured by gross earnings are a form of income taxes; and from now on it will be convenient to treat them as such, no matter by what name courts or legislatures may choose to call them. It will help towards seeing things as they are, if we emulate the attitude of Mr. Justice Holmes in his illuminating essay on "The Path of the Law," in which, in order to point to the distinction between law and morals, he looks to the mental and emotional processes of the "bad man." For our purposes we may invoke that more estimable person whom we know as the "business man." This pecuniary creature will think that he is taxed on his income when his tax varies directly with the ups and downs of his income, even though judges and scholars may assure him that he is taxed on something entirely different. He will be primarily interested in knowing when and why such a tax must be paid and when and why it can be escaped. He will care less what such a tax is called by those versed in legal niceties than what its effect will be on his balance sheet. To him, at least, we may look for forgiveness for such imperfect coördination as may be indulged in by treating together all taxes measured by income, whether they are formally taxes on income or taxes on occupations, franchises or property. 9 For a decade after the Ohio Express cases, there was comparative quiet among those subjected to taxes that took account of earnings from interstate commerce. Parke, Davis & Co. v. Roberts 10 sustained a tax on that part of the capital stock of a foreign corporation which was regarded as employed within the state, although Co. v. Taggart, 163 U. S. 1, 16 Sup. Ct. Rep. 1054 (1896), 32 HARV. L. REV. 248; Adams Express Co. v. Ohio State Auditor, 165 U. S. 194, 17 Sup. Ct. Rep. 305 (1897), 166 U. S. 185, 17 Sup. Ct. Rep. 604 (1897), 32 HARV. L. REV. 251; Adams Express Co. v. Kentucky, 166 U. S. 171, 17 Sup. Ct. Rep. 527 (1897), 32 HARV. L. REV. 258, note 104. 5 142 U. S. 217, 12 Sup. Ct. Rep. 121 (1891), 31 HARV. L. REV. 579-80, 32 HARV. L. REV. 242. 6158 U. S. 431, 15 Sup. Ct. Rep. 896 (1895), 32 HARV. L. REV. 249. 7166 U. S. 150, 17 Sup. Ct. Rep. 532 (1897), Ibid., 258, note 104. 8 IO HARV. L. REV. 457-78. • Adams Express Co. v. Ohio State Auditor, note 4, supra. the corporation was engaged partly in interstate commerce and the tax was graduated according to the annual dividends. Mr. Justice White did not sit, and Justices Harlan and Brown dissented; but their objections were confined to what they regarded as a discrimination against interstate commerce because the tax was imposed only on corporations not "wholly engaged" in business within the state."1 In 1900 the court unanimously sustained a tax on the total capital stock of a domestic corporation owning an interstate bridge, which was in addition to a tax on its tangible property.12 Three years later Western Union Telegraph Co. v. Missouri 13 sanctioned Missouri's application of the unit rule to the property of the Western Union within the state. Mr. Justice Brewer concurred only in the result, and Justices White and Peckham dissented; but whether on the main point of the case or on the subordinate one that a complaint against discriminatory overvaluation cannot be raised in an action at law, does not appear, as there is no dissenting opinion. Meanwhile other cases had sanctioned assessments of property employed in interstate commerce, which did not take account of 11 The majority recognized that "if the object of the law in question was to impose a tax upon products of other States while exempting similar domestic goods from taxation, there might be room to contend that such a distinction was constitutionally objectionable as tending to affect or regulate commerce between the States" (171 U. S. 658, 662, 19 Sup. Ct. Rep. 58). But the tax was said not to be directly on the articles brought into the state or on their sale, nor on property in other states. It was conceded that the tendency of the law might be "to encourage manufacturing corporations which seek to do business in that State to bring their plants into New York" (Ibid., 665); but the absence of any distinction between domestic and foreign corporations was thought to cure any evil lurking in this design. The majority cannot be said to have dealt satisfactorily with the contentions of the minority. Mr. Justice Shiras refers to the Ohio Express cases and others to show "the distinction between corporations organized to carry on interstate commerce, and having a quasi-public character, and corporations organized to conduct strictly private business" (Ibid.). The drug concern before the court was said to come within the doctrine of Paul v. Virginia, 8 Wall. (U. S.) 168 (1869), and Horn Silver Mining Co. v. New York, 143 U. S. 305, 12 Sup. Ct. Rep. 403 (1892), and therefore to be subject to the arbitrary power of the state with respect to any exaction on its local business. This ground of the decision is now completely undermined by Looney v. Crane Co., 245 U. S. 178, 38 Sup. Ct. Rep. 85 (1917), 31 HARV. L. REV. 601-18. 12 Keokuk & Hamilton Bridge Co. v. Illinois, 175 U. S. 626, 20 Sup. Ct. Rep. 205 (1900). 13 190 U. S. 412, 23 Sup. Ct. Rep. 730 (1903). earnings. Two of these were Colorado 14 and Utah 15 assessments of refrigerator cars, which determined by count the average number of cars within the state and fixed a valuation of $250 per car. Two were ad valorem assessments of interstate bridges. 16 Western Union Telegraph Co. v. New Hope 17 and Atlantic & Pacific Telegraph Co. v. Philadelphia 18 sanctioned license fees on telegraph companies based on the number of poles and of miles of wire, in spite of the fact that it was conceded that the exactions might yield some surplus over the cost of supervision on which the license was professedly based. The state and municipal requirements sustained in these cases make it clear that it is not necessary to measure property taxes by a capitalization of earnings. Since it is feasible to assess cars and bridges and telegraph lines in ways that do not make the tax vary with the income from their use, it is difficult to contest the position that taxes based on a valuation of capital stock or on dividends or gross receipts are in substance a species of income taxes. The sublimation by which earnings are transmuted into a valuation of capital stock need not deceive us. I. Taxes Measured by Gross Receipts. There is no dispute that gross receipts from interstate commerce are not taxable directly as such.19 The Supreme Court will not swallow a gross-receipts pill unless it is fiction-coated. Our task is to discover what coating is necessary to make it palatable. In the section on taxes on privileges we have already dealt with Maine v. Grand Trunk Railway Co.,20 which sustained a gross-receipts 14 American Refrigerator Transit Co. v. Hall, 174 U. S. 70, 19 Sup. Ct. Rep. 599 (1899). 15 Union Refrigerator Transit Co. v. Lynch, 177 U. S. 149, 20 Sup. Ct. Rep. 631 (1900). 16 Pittsburgh, C. C. & St. L. Ry. Co. v. Board of Public works, 172 U. S. 32, 19 Sup. Ct. Rep. 90 (1898); Henderson Bridge Co. v. Henderson City, 173 U. S. 592, 19 Sup. Ct. Rep. 553 (1899). 17 187 U. S. 419, 23 Sup. Rep. 204 (1903). 18 190 U. S. 160, 23 Sup. Ct. Rep. 817 (1903). 19 Fargo v. Michigan, 121 U. S. 230, 7 Sup. Ct. Rep. 857 (1887); Philadelphia & Southern Mail S. S. Co. v. Pennsylvania, 122 U. S. 326, 7 Sup. Ct. Rep. 1118 (1887); Western Union Telegraph Co. v. Alabama Board of Assessment, 132 U. S. 472, 10 Sup. Ct. Rep. 161 (1889); Western Union Telegraph Co. v. Texas, 105 U. S. 460 (1881). 142 U. S. 217, 12 Sup. Ct. Rep. 121 (1891), 31 HARV. L. REV. 579-80, 32 HARV. L. REV. 241. 20 tax nominally on the privilege of exercising corporate franchises within the state. The theory of the majority was that the measure of the tax did not matter, as the state had absolute and arbitrary power over such privileges as it might in its discretion grant or withhold. In 1910 this theory was abandoned,21 so that the Maine case must now find some other leg to stand on or must fall. We shall see that the necessary prop was supplied 22 two years before the original foundation was destroyed. At the same term in which the Maine case was decided, Ficklen v. Shelby County Taxing District 23 sustained a gross-receipts tax without the justification of arbitrary power over corporate privileges. The tax was not in terms on the gross receipts and thus was distinguished by the majority from taxes levied on receipts from interstate commerce "as such." Mr. Justice Harlan was the only one to dissent. He insisted that receipts from interstate commerce cannot be included in the measure of any tax on an occupation. He professed to believe that his eight colleagues would have agreed with him, had the Taxing District expressly required that a license to do a general commission business should be withheld until the applicant had paid a percentage of his gross commissions from interstate sales during the preceding year. The different method which had been adopted was characterized as "a very clever device to enable the Taxing District of Shelby County to sustain its government by taxation upon interstate commerce." 24 This so-called "device" took the form of a requirement that all who desired to do business as general brokers, etc., should take out a license, pay a fee of $50, and in addition pay ten cents for every $100 of capital invested in the business, or, in the absence of such invested capital, give a bond conditioned on the payment of two and one half per cent on the gross commissions during the year for which the license was desired. Complainants had no capital. They had given the required bond. It chanced that the business of Ficklen during the year 1887 had consisted entirely of negotiating interstate sales, and that nine-tenths of the sales and commissions 21 Western Union Telegraph Co. v. Kansas, 216 U. S. 1, 30 Sup. Ct. Rep. 190 (1910); Pullman's Palace Car Co. v. Kansas, 216 U. S. 56, 30 Sup. Ct. Rep. 232 (1910). "In Galveston, H. & S. A. Ry. Co. v. Texas, 210 U. S. 217, 28 Sup. Ct. Rep. 638 (1908), considered infra, 385, et seq. 23 145 U. S. 1, 12 Sup. Ct. Rep. 810 (1892). 24 Ibid., 28. |