# State Tax on Railway Gross Receipts

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## Dissenting Opinion

    Miller
United States Supreme Court
82 U.S. 284
State Tax on Railway Gross Receipts
ERROR to the Supreme Court of Pennsylvania; the case being thus:
By an act of the legislature of Pennsylvania, passed on the 23d day of February, 1866, entitled 'An act to amend the revenue laws of the Commonwealth,' a tax was imposed upon the gross receipts of certain companies. The second section was as follows:
'In addition to the taxes now provided by law, every railroad, canal, and transportation company incorporated under the laws of this Commonwealth, and not liable to the tax upon income under existing laws, shall pay to the Commonwealth a tax of three-fourths of one per centum upon the gross receipts of said company; the said tax shall be paid semi-annually upon the first days of July and January, commencing on the first day of July, 1866; and for the purpose of ascertaining the amount of the same, it shall be the duty of the treasurer, or other proper officer of said company, to transmit to the auditor-general a statement, under oath or affirmation, of the amount of gross receipts of the said company during the preceding six months; and if such company shall refuse, or fail, for a period of thirty days after such tax becomes due, to make said return, or to pay the same, the amount thereof, with an addition of ten per centum thereto, shall be collected for the use of the Commonwealth, as other taxes are recoverable by law from said companies.'
Under this statute the accounting officers of Pennsylvania stated an account between the Commonwealth and the Reading Railroad Company, for tax on the gross receipts of the company, for the half year ending December 31st, 1867. The company, as stated in a preceding case, was a corporation created by the State of Pennsylvania. Its road was between Philadelphia and the coal regions of Pennsylvania, and one large source of the company's profit was the transportation on the road of coal from the coal regions to a place near Philadelphia, called Port Richmond, or to the Schuylkill Canal, from both which places most of it went to States other than Pennsylvania.
The account, as stated by the accounting officers of the Commonwealth, was based on returns made by the company, which discriminated between receipts from freight transported to points within, and receipts from freight exported to points without, the State of Pennsylvania. The latter were returned under protest against their liability to taxation, and the tax assessed against these receipts made the subject of the present controversy. The company, in refusing to pay, alleged that the act of February 23d, 1866-so far as it taxed that portion of the gross receipts which were derived from transportation from the State to another State, or into the State from another,-was unconstitutional and void, because, among other reasons, it was in conflict with the fourth paragraph of the eighth section of the first article of the Constitution of the United States, which ordains that—
'Congress shall have power to regulate commerce with foreign nations and among the several States.'
And with the second paragraph of the tenth section of the same article, which ordains that—
'No State shall, without the consent of Congress, lay any imposts or duties on imports or exports, except what may be absolutely necessary for executing its inspection laws.'The Supreme Court of Pennsylvania adjudged that the act was not in conflict with either of the clauses of the Constitution relied on; and to this, its judgment, the present writ of error was taken.
Messrs. James E. Gowen and R. A. Lamberton, for the plaintiff in error:
We assume that the position taken by us in the case of The State Freight Tax-the position, namely, that a State tax upon freight generally is unconstitutional, as applied to the transportation of merchandise from one State to another-will be sustained by the judgment of this court. Setting out, then, as with a postulate, that such a tax is unconstitutional, we say:
1st. There is no difference, in principle, between a freight tax regulated by reference to the articles transported and such a tax levied in the shape of a percentage of the money received for transportation.
Is it not unreasonable to say that a tax of two cents per ton on the transportation of coal is unconstitutional, and yet that a tax of one per cent. on every two dollars (or two cents) paid for the transportation of coal is constitutional? If State taxation of interstate commerce is forbidden, a tax on the transportation of a ton of freight from one State to another must be equally illegal, whether the sum to be paid is specially mentioned or is left to be ascertained by a simple arithmetical calculation. The great object of the constitutional provision giving Congress the power to regulate commerce between the States was to prevent the States from embarrassing the intercourse which was intended should freely exist between these bodies, designed to be united for many purposes into one nation, with equal rights and privileges conferred upon all. If any one could tax the commodities carried it could exclude their passage through the State or across its lines. Is not a tax imposed on the amount of freight received by a transportation company the same in effect as one charged against the article carried? If the State can charge three-fourths of one per cent. on the money paid for freight, it can charge fifty per cent. on all money received, and although it can undoubtedly tax its own citizens who are represented in its legislative bodies to any extent that the law-makers may see proper, it cannot thus increase the price of transportation to the people of other States.
2d. A tax upon the gross receipts of a transportation company is necessarily a tax upon transportation.
In the Bank of Commerce v. The Commissioners of Taxes, it was held that Federal securities held by a bank in New York, as part of the bank's capital, could not be constitutionally taxed under a law of that State which took the actual value of the entire capital stock as the basis of taxation, although it was strongly urged that the Federal securities were not specifically and eo nomine taxed; that no discrimination was made between them and other property; and that, in fact, the tax was upon the aggregate value of the property of the bank, irrespective of the character of the component parts of that property. This court, however, unanimously refused to admit that the law of New York did not tax Federal loans, because the tax was imposed indiscriminately upon all the property of the bank.
So a tax upon the gross receipts of a company is, necessarily, a tax upon its receipts from transportation, or any other source; but, when the company is a transportation company, and the tax is chargeable upon the gross receipts of transportation companies only, it is plain that the tax was practically intended to be a tax on gross receipts from transportation, and on nothing else. The gross receipts of a transportation company must, in nearly every case, be receipts from transportation alone.
The Bank Tax Case was but an affirmance of the principle on which the case we refer to was ruled. It was there held that a tax on a valuation equal to the amount of the capital stock of a bank, paid in, or secured to be paid in, was really and substantially a tax upon that portion of the capital stock which consisted of the loans of the United States, notwithstanding it was strenuously urged that the tax was the same, in substance, as a tax of a specific sum upon the franchises and privileges of the bank, irrespective of the character of its investments, or, to use the language of Denio, C. J., in Utica v. Churchill, a tax 'like that annexed to the franchise as a royalty for the grant,' and notwithstanding the form of the tax appears to have been specially devised to obviate the objections sustained in the case of The Bank of Commerce v. The Commissioners.
Messrs. F. Carroll Brewster and Lewis Waln Smith, contra:
Even if we conceded, which we do not, the unconstitutionality of the tax on freight generally-the matter just now argued in the preceding case-the unconstitutionality of the tax on gross receipts generally by no means follows.
First. The tax of three-fourths of one per cent. on all gross receipts of a transportation company is not a tax on property, but on the franchises of the corporation.
This question came before this court in the case of the Society for Savings v. Coite, and in Provident Institution v. Massachusetts. The identity between the taxes there and the one here, so far as the effect on the corporations was concerned, will be noticed at once. The tax being, therefore, on the franchises of the corporation, and not on the property, it is clearly not included in the prohibited regulation of commerce, even according to the pretensions of the plaintiffs in error.
Second. Even if the tax on gross receipts be considered as a tax on property, it is still constitutional, or within the power of the State so to tax it.
In Woodruff v. Parham, the State levied a tax on the gross sales of an auctioneer. He set up that these sales, which were of goods in unbroken packages from other States, were exempt. The court decided they were taxable. To the same effect is Hinson v. Lott. These cases establish this, as far as adjudication can establish anything, that the States have a right to tax the gross receipts of a citizen transacting business, be the receipts derived from what source soever, and that such a tax is not unconstitutional, provided that the tax does not institute any discrimination against non-residents.
If constitutional, it is not necessary for us to explain why the Commonwealth of Pennsylvania has seen fit to levy, in regard to some corporations in her borders, a tax on gross receipts rather than on something else for which she might have taxed them, yet, as showing the propriety of this sort of tax, sometimes, we may, perhaps, take the freedom to say a word further to the court on this subject.
The greater portion of the revenues of Pennsylvania are derived from the taxes levied on corporations. There are various forms of these taxes. In some cases they are levied on the capital stock; in most, perhaps, on net earnings, or income. The Commonwealth adapts the form of the tax to the particular kind of corporation, so that its collection can be facilitated. Experience has shown her that it is better to charge a mining company a large percentage, as three per cent. on net earnings, and to charge a railroad company a small one, as three-fourths of one per cent., on gross receipts. The reason why the gross receipts are selected as a basis of taxation of a railroad company, was doubtless because the State found that a large number of railroads were expending their receipts in improvements, and charging these as expenses. The cost of every improvement was deducted from the 'net earnings,' and while thus enriching themselves the railroad companies were avoiding taxation. The State, therefore, takes a low percentage on the gross receipts of railroads, and taxes them, whether they are expended in improvements or declared as a dividend. Such a course is both just to the corporation, and politic on the part of the State.
Reply: There is nothing in The Society for Savings v. Coite, to indicate that the court meant to question the authority of the cases which we have cited from 2d Black and 2d Wallace. It was held in The Society for Savings v. Coite, that a statute of a State requiring savings societies authorized to receive deposits, but without authority to issue bills, and having no capital stock or stockholders, to pay annually into the State treasury a sum equal to three-fourths of one per cent. on the total amount of their deposits on a given day, imposes a franchise tax, not a tax on property.
The court, while admitting that the tax would have been unconstitutional, as to deposits invested in Federal securities-if it could be considered a tax on the property represented by such securities-held, that it was not a tax on the property, but on the franchises or privileges of the defendant corporation. The facts of the corporation having no capital stock (its charter authorizing it to improve deposits for the benefit of its depositors), of its investments really belonging to its depositors, and of the tax being assessed not upon the actual value of the deposits, were all considered as showing that the tax was not imposed on the property, but on the functions, franchises, or corporate privileges of the defendant.
The succeeding case of The Provident Institution v. Massachusetts, is to the same effect.
Neither tends to prove that a tax on the gross receipts of a transportation company is not a tax upon transportation, nor that a tax upon interstate transportation is not a tax upon, and a regulation of, interstate commerce.
That the tax upon the gross receipts of railroad, canal, and transportation companies, imposed by the Pennsylvania statute, was intended to be a tax upon their franchises, can hardly be asserted in face of the fact that most other incorporated companies in the State are taxed, confessedly, upon their net earnings or income. The value of a franchise depends upon the profit derived from it; and the gross receipts of a railroad or canal company are not the measure of the profit made. But, in truth, the question is not, whether a tax which is alleged to operate as a regulation of commerce between the States or with foreign nations, is or is not a tax upon persons, property, trades or occupations, but whether it does really operate as a regulation of such commerce; since it is practically impossible for any State to collect a tax except from persons or property within her territory. It was contended that the tax upon importers in Brown v. Maryland, was not a tax upon imports, but upon a business or occupation carried on in Maryland; that the tax on bills of lading in Almy v. California, was a stamp tax, and not a duty on exports; and it might have been, and probably was, urged in Hays v. The Pacific Mail Steamship Company, that the State of California had an undoubted right to tax ships as weell as all other property within her territory. In Crandall v. Nevada, the tax chargeable against the carriers of passengers leaving the State was defended as a tax upon the business of carriers within the State.
When the court decided, in The Savings Society v. Coite, and in The Provident Institution v. Massachusetts, that the taxes there in question were charged upon the business of the corporation, and not upon their property, the unexpressed premise of the argument no doubt was, that such taxes did not practically interfere with the power of the United States to borrow money; just as in Nathan v. Louisiana, a State tax on exchange and money brokers was held not to interfere with the power of Congress to regulate commerce. 'Under the law,' said McLean, J., in the last-mentioned case, 'every person is free to buy or sell bills of exchange as may be necessary in his business transactions, but he is required to pay the tax if he engages in the business of a money or exchange broker.' But can it be said that the power of Congress to regulate commerce between the States, and its actual regulation of it by leaving it free and unrestricted, are not interfered with by a State regulation which exacts a certain sum for every passenger and every bale of goods that cross her boundary? or can it be reasonably said that every person is free to pass or repass, or to send his goods, without being taxed, provided he does not use the railroads or canals of the State?
Mr. Justice STRONG delivered the opinion of the court.

## Notes

* ↑ See supra, 234.
* ↑ Supra, 237-245. The case had just been argued.
* ↑ 2 Black, 620.
* ↑ 2 Wallace, 200.
* ↑ 33 New York, 240.
* ↑ 6 Wallace, 594.
* ↑ Ib. 611.
* ↑ 8 Wallace, 123.
* ↑ 8 Wallace, 148.
* ↑ 12 Wheaton, 419.
* ↑ 24 Howard, 169.
* ↑ 17 Id. 596.
* ↑ 6 Wallace, 36.
* ↑ 8 Howard, 73.
This work is in the public domain in the United States because it is a work of the United States federal government (see 17 U.S.C. 105).
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