Source: https://www.law.cornell.edu/supremecourt/text/309/83
Timestamp: 2019-04-21 12:56:57+00:00

Document:
Messrs. Leo T. Wolford and Wm. Marshall Bullitt, both of Louisville, Ky., for appellant.
Mr. Samuel M. Rosenstein, of Frankfort, Ky., for appellee.
This is an appeal 1 brought here under Section 237(a) of the Judicial Code, 28 U.S.C.A. § 344(a), from a judgment of the Court of Appeals of Kentucky sustaining the validity of a statute of that state against an attack by the appellant on the ground of its being repugnant to the due process, equal protection, and privileges and immunities clauses of the Fourteenth Amendment of the Constitution of the United States, U.S.C.A.
John E. Madden died in November, 1929, a citizen and resident of Fayette County, Kentucky. On several prior assessment dates, July 1 in Kentucky, Mr. Madden had on deposit in New York banks a considerable amount of funds. These deposits had not been reported for the purposes of taxation in Kentucky. That state brought suit against Mr. Madden's executor to have these deposits assessed as omitted property and to recover an ad valorem tax of 50 cents per hundred dollars as of July 1 of each year, together with interest and penalties. The executor used as one defense against this claim the contention that a tax on deposits in banks outside of Kentucky at a higher rate than the tax upon bank deposits within Kentucky would abridge decedent's privileges and immunities as a citizen of the United States, deprive him of his property right and the liberty to keep money on deposit outside of Kentucky without due process of law, and deny to him equal protection of the law in violation of the Fourteenth Amendment. The Court of Appeals passed upon the constitutional questions submitted because of the difference in taxing rate between Kentucky deposits and out-of-state deposits. It approved the classification as permissible under the due process and equal protection clauses and refused to accept the argument that its interpretation of the statutes violated the privileges and immunities clause.
II. Privileges and Immunities.The appellant presses urgently upon us the argument that the privileges and immunities clause of the Fourteenth Amendment of the Constitution of the United States 12 forbids the enforcement by the Commonwealth of Kentucky of this enactment which imposes upon the testator taxes five times as great on money deposited in banks outside the State as it does on money of others deposited in banks within the State. The privilege or immunity which appellant contends is abridged is the right to carry on business beyond the lines of the State of his residence, a right claimed as appertaining to national citizenship.
There is no occasion to attempt again an exposition of the views of this Court as to the proper limitations of the privileges and immunities clause. There is a very recent discussion in Hague v. Committee Industrial Organization. 13 The appellant purports to accept as sound the position stated as the view of all the justices concurring in the Hague decision. This position is that the privileges and immunities clause protects all citizens against abridgement by states of rights of national citizenship as distinct from the fundamental or natural rights inherent in state citizenship. 14 This Court declared in the Slaughter-House Cases 15 that the Fourteenth Amendment as well as the Thirteenth and Fifteenth were adopted to protect the negroes in their freedom. This almost contemporaneous interpretation extended the benefits of the privileges and immunities clause to other rights which are inherent in national citizenship but denied it to those which spring from state citizenship. 16 In applying this constitutional principle this Court has determined that the right to operate an independent slaughter-house, 17 to sell wine on terms of equality with grape growers 18 and to operate businesses free of state regulation 19 were not privileges and immunities protected by the Fourteenth Amendment. And a state inheritance tax statute which limited exemptions to charitable corporations within the state was held not to infringe any right protected by the privileges and immunities clause. 20 The Court has consistently refused to list completely the rights which are covered by the clause, though it has pointed out the type of rights protected. 21 We think it quite clear that the right to carry out an incident to a trade, business or calling 22 such as the deposit of money in banks is not a privilege of national citizenship.
In the states, there reposes the sovereignty to manage their own affairs except only as the requirements of the Constitution otherwise provide. Within these constitutional limits the power of the state over taxation is plenary. An interpretation of the privileges and immunities clause which restricts the power of the states to manage their own fiscal affairs is a matter of gravest concern to them. 23 It is only the emphatic requirements of the Constitution which properly may lead the federal courts to such a conclusion.
Appellant relies upon Colgate v. Harvey, supra, 24 as a precedent to support his argument that the present statute is not within the limits of permissible classification and violates the privileges and immunities clause. In view of our conclusions, we look upon the decision in that case as repugnant to the line of reasoning adopted here. As a consequence, Colgate v. Harvey, supra, must be and is overruled.
I think that the judgment should be reversed. Four years ago in Colgate v. Harvey, 296 U.S. 404, 56 S.Ct. 252, 80 L.Ed. 299, 102 A.L.R. 54, this court held that the equal protection clause and the privileges and immunities clause of the Fourteenth Amendment prohibit such a discrimination as results from the statute now under review. I adhere to the views expressed in the opinion of the court in that case, and think it should be followed in this.
St. Louis Southwestern Ry. Co. v. Arkansas, 235 U.S. 350, 362, 35 S.Ct. 99, 102, 59 L.Ed. 265; Storaasli v. Minnesota, 283 U.S. 57, 62, 51 S.Ct. 354, 355, 75 L.Ed. 839.
New York Rapid Transit Corp. v. City of New York, 303 U.S. 573, 58 S.Ct. 721, 82 L.Ed. 1024, and cases there cited.
Bell's Gap R.R. Co. v. Com. of Pennsylvania, 134 U.S. 232, 237, 10 S.Ct. 533, 535, 33 L.Ed. 892.
Citizens' Telephone Co. v. Fuller, 229 U.S. 322, 329, 33 S.Ct. 833, 835, 57 L.Ed. 1206.
See the opinion of Mr. Justice Brandeis in Louisville Gas & Electric Co. v. Coleman, 277 U.S. 32, 42, 46, 47, 48 S.Ct. 423, 426, 428, 72 L.Ed. 770.
Lindsley v. Natural Carbonic Gas Co., 220 U.S. 61, 78, 79, 31 S.Ct. 337, 340, 55 L.Ed. 369, Ann.Cas.1912C, 160.
Because of a prohibition in the Kentucky Constitution of 1891 against classification in taxation, the state and its political subdivisions taxed intangibles at the same rate as other property. This resulted in a total tax of about $2.65 per hundred dollars on intangibles, a tax which in the case of bank deposits almost equaled the interest on deposits. The high rate led to wide-spread evasion of the tax by concealment of intangibles; with bank deposits this took the form of withdrawals for deposits outside the state. The unequal burden which this evasion placed on other forms of property led to agitation for reform as early as 1908. Two special tax commissions reported on the need for a constitutional amendment and a general tax reform. After an amendment permitting classification was adopted in 1916, a third committee made specific proposals for revision, and most of the recommendations were adopted at a special legislative session in 1917. See the message of Governor Stanley to the General Assembly of 1917, Kentucky Senate Journal of 1917, p. 13. In general the revision took the form of a drastic lowering of the rates on intangibles. An even lower rate was placed on bank deposits and almost complete collection assured by placing the duty of collection on the banks.
The studies which led to the general revision of 1917 may be found in Report of the Kentucky Tax Commission for 1909; Report of the Special Tax Commission of Kentucky for 191214; Report of the Kentucky Tax Commission for 1916. A careful examination of the workings of the revised system has been made by Dr. Simeon E. Leland. The Taxation of Intangibles in Kentucky, Bulletin of the Bureau of Business Research, College of Commerce, University of Kentucky, vol. 1, no. 1 (1929).
254 U.S. 122, 124, 41 S.Ct. 43, 44, 65 L.Ed. 170.
Carmichael v. Southern Coal & Coke Co., 301 U.S. 495, 511, 57 S.Ct. 868, 873, 81 L.Ed. 1245, 109 A.L.R. 1327.
307 U.S. 496, 59 S.Ct. 954, 83 L.Ed. 1423. The prior cases are collected in Note 2 of the dissenting opinion in Colgate v. Harvey, 296 U.S. 404, 445, 56 S.Ct. 252, 266, 80 L.Ed. 299, 102 A.L.R. 54, and Note 1 of Mr. Justice Stone's opinion in the Hague case, 307 U.S. 496, 520, 59 S.Ct. 954, 966, 83 L.Ed. 1423.
'Hence there is no occasion * * * to revive the contention, rejected by this Court in the Slaughter-House Cases, supra, that the privileges and immunities of United States citizenship, protected by that clause, extend beyond those which arise or grow out of the relationship of United States citizens to the national government.
Id. 16 Wall. 78, 79, 21 L.Ed. 394.
Cox v. State of Texas, 202 U.S. 446, 26 S.Ct. 671, 50 L.Ed. 1099; cf. Bartemeyer v. Iowa, 18 Wall. 129, 21 L.Ed. 929; Crowley v. Christensen, 137 U.S. 86, 11 S.Ct. 13, 34 L.Ed. 620; Giozza v. Tiernan, 148 U.S. 657, 13 S.Ct. 721, 37 L.Ed. 599; Crane v. Campbell, 245 U.S. 304, 38 S.Ct. 98, 62 L.Ed. 304.
Holden v. Hardy, 169 U.S. 366, 18 S.Ct. 383, 42 L.Ed. 780; Wilmington Star Mining Co. v. Fulton, 205 U.S. 60, 27 S.Ct. 412, 51 L.Ed. 708; Western Union Telegraph Co. v. Commercial Milling Co., 218 U.S. 406, 31 S.Ct. 59, 54 L.Ed. 1088, 36 L.R.A.,N.S., 220, 21 Ann.Cas. 815; Rosenthal v. People of New York, 226 U.S. 260, 33 S.Ct. 27, 57 L.Ed. 212, Ann.Cas.1914B, 71; Prudential Ins. Co. v. Cheek, 259 U.S. 530, 42 S.Ct. 516, 66 L.Ed. 1044, 27 A.L.R. 27.
Board of Education v. Illinois, 203 U.S. 553, 27 S.Ct. 171, 51 L.Ed. 314, 8 Ann.Cas. 157; cf. Ferry v. Spokane, P. & S. Ry., 258 U.S. 314, 42 S.Ct. 358, 66 L.Ed. 635, 20 A.L.R. 1326.
They have been described as 'privileges and immunities arising out of the nature and essential character of the national government, and granted or secured by the constitution of the United States.' In re Kemmler, 136 U.S. 436, 448, 10 S.Ct. 930, 934, 34 L.Ed. 519. See also Slaughter-House Cases, supra, 16 Wall. at 79, 80, 21 L.Ed. 394; United States v. Cruikshank, 92 U.S. 542, 552, 23 L.Ed. 588; Williams v. Fears, 179 U.S. 270, 274, 21 S.Ct. 128, 129, 45 L.Ed. 186; Twining v. New Jersey, 211 U.S. 78, 97, 29 S.Ct. 14, 18, 53 L.Ed. 97.
Cf. Twining v. New Jersey, 211 U.S. 78, 94, 29 S.Ct. 14, 17, 53 L.Ed. 97.
Twining v. New Jersey, supra, 211 U.S. 92, 29 S.Ct. 16, 53 L.Ed. 97.
296 U.S. 404, 56 S.Ct. 252, 80 L.Ed. 299, 102 A.L.R. 54.
Robert J. LEHNHAUSEN, Petitioner, v. LAKE SHORE AUTO PARTS CO., et al. Edward J. BARRETT, County Clerk of Cook County, Illinois, et al., Petitioners, v. Clemens K. SHAPIRO et al.
Timothy J. LEATHERS, Commissioner of Revenues of Arkansas, Petitioner, v. Daniel L. MEDLOCK et al. Daniel L. MEDLOCK, et al., Petitioners, v. Timothy J. LEATHERS, Commissioner of Revenues, et al.
Christopher H. LUNDING, et ux., Petitioners, v. NEW YORK TAX APPEALS TRIBUNAL, et al.
WHITNEY et al. v. STATE TAX COMMISSION OF NEW YORK.
Carl M. AUSTIN et al., Appellants, v. State of NEW HAMPSHIRE et al.

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