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Subject Area: Law
Topic: The American Revolution and Constitution

§ 219.: Taxation of interstate commerce.— - Christopher G. Tiedeman, A Treatise on State and Federal Control of Persons and Property in the United States considered from both a Civil and Criminal Standpoint, vol. 2 [1900]

Edition used:

A Treatise on State and Federal Control of Persons and Property in the United States considered from both a Civil and Criminal Standpoint (St. Louis: The F.H. Thomas Law Book Co., 1900). Vol. 2.

Part of: A Treatise on State and Federal Control of Persons and Property in the United States considered from both a Civil and Criminal Standpoint, 2 vols.

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§ 219.

Taxation of interstate commerce.—

The cases of taxation or of attempted taxation by the State or municipal governments of interstate commerce, are not confined to the exactions of license fees from those who are engaged in interstate commerce, as presented in the preceding section. It is not an uncommon occurrence that the attempt is made to lay a more or less direct tax upon those who are engaged in interstate commerce, or upon the articles of interstate commerce, which they handle. Where the tax is properly construed, as a tax upon interstate commerce, it is unconstitutional, and cannot be enforced.

Under the guise of a police regulation, no tax may be laid by the State government upon either exports or imports. The tax will be void, because it is in contravention with § 10, Art I., of the United States Constitution, which declares that “No State shall, without the consent of the Congress, lay any imposts or duties on imports or exports, except what may be absolutely necessary for executing its inspection laws; and the net produce of all duties and imposts laid by any State on imports or exports, shall be for the use of the Treasury of the United States; and all such laws shall be subject to the revision and control of the Congress.” This clause, as well as the interstate commerce clause, is violated, whenever a tax is laid upon exports or imports,1 or upon the business of any importer or exporter, or upon the business of any one who is in any way engaged in the promotion of interstate commerce.

In presenting the limitations of the power of the States to tax corporations which are engaged in interstate commerce, two facts must not be allowed to pass out of sight. The first is, that the State cannot in any case prevent or restrict any corporation or natural person from engaging in an interstate contract or business. But the fact, that a foreign corporation is engaged in a business of interstate character and proportions, does not involve the right of such a corporation to go into another State, open a branch office, for the purpose of there prosecuting its business. In the preceding chapter,1 it has been explained that foreign corporations, unlike the natural citizens of the different States, are not guaranteed the enjoyment of equal privileges and immunities, and may be refused altogether the right to engage in business in any State, other than that in which they have been created; but if they are admitted within any State, they cannot object to the arbitrary or discriminating character of the conditions of their admission into the State.2 So that the exaction of a franchise or license tax from a foreign corporation like an industrial corporation, having a place of business within the State, can in no sense be considered a tax upon interstate commerce.3 That is a very different tax, when it is laid upon a foreign coporation having a place of business within the State, than when it is exacted of a foreign corporation, which does business within, but which conducts it, from a place of business outside of the State, through traveling salesmen and agents, or by mail or telegraph.4 In the former case, the transactions are domestic or intra-state; while, in the latter case, they are interstate contracts, forming a part of the interstate commerce, and being beyond the taxing power of the State. A law, which declares void a contract for the sale of goods, made by the traveling salesman of a foreign and non-resident corporation, unless a franchise fee is paid by such corporation into the State Treasury, is unconstitutional in that it imposes a restraint upon interstate commerce.1 The same rule obtains in regard to the direct taxation of the business, which a foreign corporation may do within the State from the place of business which it has established therein. This is not a tax upon interstate commerce, for the business taxed is done entirely within the State.2

Corporations, which are engaged in business, which is partly interstate and partly intra-state, like the railroads, telegraph and express companies, whose business extends over many States, do not, on account of the extensiveness of their business, escape taxation by the State. In a paragraph of the preceding section, it has been shown how far they may be subjected to a license tax. So, also, may they be subjected to a property and a franchise tax, provided neither as laid constitutes a burden upon interstate commerce. The fact, that property is employed in the prosecution of an interstate business, does not take that property out of the taxing power of the State.3 Thus, a State may tax coal, like any other property within the State, which has been brought into the State, while it is still in the barges afloat upon the navigable waters of the State;4 and forbid the sale of the same until it has been gauged by State officers.5 A city or State may lay a property tax upon a telegraph company, which is measured by the number of poles or the feet of wire it may have and use within such city or State.6

So, also, would a property tax be valid, when it is laid upon the assessed valuation of the property of the telegraph company, which is located within the State, the assessment being determined by the entire value of the company’s property, wherever located, in the proportion that its mileage of wires within the State bears to the entire mileage of its line.1 The same rule of proportional assessment according to mileage within and without the State, when applied to the State taxation of express companies, has been sustained, as a valid exercise of the taxing power of the States, by the Supreme Court of the United States.2 The same rule, that property, which is employed in the prosecution of interstate commerce, may nevertheless be taxed by the State, in which it is located, has been applied to an interstate pipe line company;3 and to a bridge company, whose bridge spans a river which separates two States.4

So, also, may a corporation be subjected by a State to a franchise or business tax, provided such tax is laid exclusively upon the intra-state business, and the interstate business is altogether excluded from the burden of the tax. This rule has been applied to railroads5 and to telegraph companies.6 But where the tax is laid upon the gross receipts of the entire business of a corporation, which is engaged in an interstate business, it is unconstitutional, because it is levied in part upon interstate business.1

The same rule applies to industrial corporations, which are engaged in an interstate business.2

In Postal Tel. Cable Co. v. Adams,3 the court said: It is settled that where, by way of duties laid on the transportation of the subjects of interstate commerce, or on the receipts derived therefrom, or on the occupation or business of carrying it on, a tax is levied by a State on interstate commerce, such taxation amounts to a regulation of such commerce, and cannot be sustained. But property in a State belonging to a corporation, whether foreign or domestic, engaged in foreign or interstate commerce, may be taxed, or a tax may be imposed on the corporation on account of its property within a State, and may take the form of a tax for the privilege of exercising its franchises within the State, if the ascertainment of the amount is made dependent in fact on the value of its property situate within the State (the exaction, therefore, not being susceptible of exceeding the sum which might be leviable directly thereon), and if payment be not made a condition precedent to the right to carry on the business, but its enforcement left to the ordinary means devised for the collection of taxes. The corporation is thus made to bear its proper proportion of the burdens of the government under whose protection it conducts its operations, while interstate commerce is not in itself subjected to restraint or impediment. We are of the opinion that it is within the power of the State to levy a charge upon this company in the form of a franchise tax, but arrived at with reference to the value of its property within the State, and in lieu of all other taxes, and that the exercise of that power by this statute, as expounded by the highest judicial tribunal of the State, did not amount to a regulation of interstate commerce or put an unconstitutional restraint thereon.”

Exports and imports are free from taxation by the State only so long as they are found in that character. Before the article has become an export, or after the original package of the import has been broken and the separate parts of the contents of the original package are offered in trade within the State, they may be subjected to taxation within the State, in common with other property owned within the State, from which they cannot then be distinguished.1

[1]It has been held in Louisiana that this clause of the constitution does not refer to imports from another State, but only to imports from foreign countries. State v. Pittsburg & S. Coal & Coke Co., 41 La. Ann. 465. But see Am. Fertilizing Co. v. Board of Agriculture, 43 Fed. 609.

[1]§ 213.

[2]See cases, cited in § 213, and Pembina Con. Silver M. & M. Co. v. Pennsylvania, 125 U. S. 181; Hooper v. California, 155 U. S. 648; Moline Plow Co. v. Wilkinson, 105 Mich. 57; State v. Phipps, 50 Kans. 609.

[3]Moline Plow Co. v. Wilkinson, 105 Mich. 57.

[4]Coit & Co. v. Sutton, 102 Mich. 324. See, contra, Western Paper Bag Co. v. Johnson (Tex. Civ. App.), 38 S. W. 364.

[1]Coit & Co. v. Sutton, 102 Mich. 324; Aultman, Miller & Co. v. Holder, 68 Fed. 467; Kindel v. Beck and Paul Lithographing Co., 19 Colo. 310; Macnaughton Co. v. McGirl (Mont.), 49 P. 651.

[2]Singer Manufacturing Co. v. Wright, 97 Ga. 115; Singer Manufacturing Co. v. Wright, 33 Fed. 121.

[3]Cleveland C. C. & St. L. Ry. Co. v. Backus, 133 Ind. 513; Indianapolis & V. Ry. Co. v. Backus, 133 Ind. 609.

[4]Brown v. Houston, 114 U. S. 622; Pittsburg & S. Coal Co. v. Bates, 156 U. S. 577.

[5]Pittsburg & S. Coal Co. v. State of Louisiana, 156 U. S. 590.

[6]City of St. Louis v. Western Union Tel. Co., 148 U. S. 92; City of Philadelphia v. Am. Union Tel. Co., 167 Pa. St. 406; City of Philadelphia v. Postal Tel. Cable Co., 67 Hun, 21; Postal Tel. Cable Co. v. Adams, 155 U. S. 688; s. c. 71 Miss. 555.

[1]Western Un. Tel. Co. v. Taggart, 141 Ind. 281.

[2]Cleveland, C. C. & St. L. Ry. Co. v. Backus, 154 U. S. 439; affirming s. c. 133 Ind. 513; Adams Express Co. v. Ohio State Auditor, 165 U. S. 194; Adams Express Co. v. Kentucky, 166 U. S. 171.

[3]Tide Water Pipe Co. v. State Board of Assessors, 57 N. J. L. 516, following Maine v. Grand Trunk Ry. Co., 142 U. S. 217.

[4]Henderson Bridge Company v. Commonwealth (Ky.), 31 S. W. 486; s. c. Henderson Bridge Co. v. Kentucky, 166 U. S. 150.

[5]New York L. E. & W. Ry. Co. v. Pennsylvania, 158 U. S. 431; s. c. Commonwealth v. N. Y. Lake E. & W. Ry. Co., 145 Pa. St. 38; People v. Campbell, 74 Hun, 210; s. c. 144 N. Y. 478.

[6]Ratterman v. Western Union Tel. Co., 127 U. S. 411; Western Union Tel. Co. v. Pennsylvania, 128 U. S. 39. The tax in these cases was based upon the messages, which were sent and delivered by the company within the State. See, also, to same effect, Western Union Tel. Co. v. City of Fremont, 43 Neb. 499.

[1]Fargo v. Stevens, 121 U. S. 230; Leloup v. Port of Mobile, 127 U. S. 472; Lyng v. Michigan, 135 U. S. 161; McCall v. California, 136 U. S. 104; Norfolk & West. R. R. Co. v. Pennsylvania, 136 U. S. 114; Vermont & C. Ry. Co. v. Vermont Central Ry. Co, 63 Vt. 1; People v. Wemple, 65 Hun, 252; 144 N. Y. 478; State v. Woodruff S. & P. Coach Co., 114 Ind. 155.

[2]People v. Horn Silver Mining Co., 105 N. Y. 76; In re Tiffany & Co., 80 Hun, 486; Home Ins. Co. v. State, 92 N. Y. 328; s. c. 134 U. S. 594; Southern Building & Loan Association v. Norman (Ky.), 32 S. W. 952.

[3]155 U. S. 688.

[1]In re May, 82 Fed. 422; Nathan v. State, 8 How. 73; Brown v. Houston, 33 La. Ann. 843; State v. North, 27 Mo. 464. As to what is an original package, see, more fully, post, § 220.