Case Name: QUAKER CITY CAB COMPANY v. COMMONWEALTH OF PENNSYLVANIA
Court: Supreme Court of the United States
Jurisdiction: United States
Decision Date: 1928-05-28
Citations: 277 U.S. 389
Docket Number: No. 139
Parties: QUAKER CITY CAB COMPANY v. COMMONWEALTH OF PENNSYLVANIA.
Judges: Mr. Justice Holmes concurs in this opinion.
Reporter: United States Reports
Volume: 277
Pages: 389–412

Head Matter:
QUAKER CITY CAB COMPANY v. COMMONWEALTH OF PENNSYLVANIA.
No. 139.
Argued April 20, 1928.
Decided May 28, 1928.
Mr. Owen J. Roberts, with whom Mr. Douglass D. Storey was on the brief, for plaintiff in error.
In such a case as this, valid tax classification cannot rest solely upon the character of the operator (that is, whether it be corporate or non-corporate), when there is no other difference in the situation or the circumstances of the operators. The tax is not of a kind peculiar to corporations. It is unlike a capital stock tax, which of necessity can apply only to artificial taxpayers, or an excise tax. Even in Pennsylvania this distinction is important. Schoyer v. Comet Oil Co., 284 Pa. 189.
In Fort Smith Lumber Co. v. Arkansas, 251 U. S. 532, the tax was a capital stock tax, which obviously can be levied only upon corporations and other associations having the characteristics of corporations. If the principle should be extended, then there is no reason why corporations cannot be classified for the purpose of paying any tax. Real estate and personal property taxes could be levied on real estate and personal property only when owned by corporations. In fact, all taxes could be levied only' upon corporate beings.
The tax is not an excise, a privilege, or a license tax. Commonwealth v. Harrisburg Light & Power Co., 284 Pa. 175. This Court itself definitely held that this tax was not a privilege tax. Phila. & Southern Mail S. S. Co. v. Commonwealth, 122 U. S. 326.
The present statute which repealed the acts involved in that case, made no change in the nature of the tax, but only followed the rule there announced and limited the tax to the “ gross receipts . . . received from passengers and freight traffic transported wholly within this State.”
In dealing with excise, license, and privilege taxes, the latitude is very broad, and purely artificial selections have been sustained which are not sanctioned with respect to other taxes. In Flint v. Stone Tracy Co., 220 U. S. 107, the Court made it clear that the tax was sustained not because it was imposed on the business (which it ad mitted was the same “ whether conducted by individuals or corporations”) but because it was imposed only on the privilege of conducting the business in corporate form. Other leading cases like the one last cited are:' Magoun v. Illinois Trust & Savings Bank, 170 U. S. 283; Spreckels Sugar Refining Co. v. McClain, 192 U. S. 397; Ohio Tax Cases, 232 U. S. 576; Cheney Bros. & Co. v. Massachusetts, 246 U. S. 147; Southern Ry. Co. v. Watts, 260 U. S. 519; Roberts & Schaeffer Co. v. Emmerson, 271 U. S. 50.
But broad as seems to be the power of selection in the imposition of such taxes, there is a limit. In Southern Ry. Co. v. Greene, 216 U. S. 400, an additional franchise tax on foreign corporations for the. privilege of doing business was held invalid. See Bethlehem Motors Corp’n v. Flynt, 256 U. S. 421, which completely answers the contention that plaintiff in error can avoid taxation by surrendering its charter and operating as a general partnership. This it cannot do, with, its outstanding obligations, any more easily that the foreign corporations could comply with the arbitrary terms of the North Carolina' statute, with which that case dealt. See Air Way Electric Appliance Corp’n v. Day, 266 U. S. 71.
The classification being based solely upon whether the taxicab operator is an artificial being, it is arbitrary and illegally discriminatory. The discrimination is real. The corporate taxicab operator pays every tax which the non-corporate taxicab operator pays. In addition, the corporate (domestic and foreign) operator pays a capital stock tax of 5 mills upon the' actual value of its capital stock and a bonus of Vs of l% .on the par value of all issued stock, if it be a domestic corporation, or Vs of 1% on the amount of capital -actually employed in Pennsylvania, if it be a foreign corporation.
The case at bar, therefore, is totally unlike General American Tank Car Corp’n v. Day, 270 U. S. 367, where the special tax of 25 mills on the dollar of the assessed value of the rolling stock of foreign corporations was in lieu of all other state taxes which averaged approximately 25 mills.
In dealing with'taxes other than (1) taxes peculiar to corporations and (2) excise, license, or privilege taxes, this Court has consistently taken the stand that, while the Fourteenth Amendment does not impose upon the legislature an iron rule of equal taxation, it does impose the rational constitutional rule that so-called classifications cannot be made solely with reference to the character of the taxpayer; that is, whether it is a’natural or an artificial person. California R. R. Tax Cases, 13 Fed. 722, (dismissed by compromise, County of San Mateo v. Southern Pacific R. R. Co., 116 U. S. 138); County of Santa Clara v. Southern Pacific R. R. Co., 18 Fed. 385, (affirmed on another ground, Santa Clara County v. Southern Pacific R. R. Co., 118 U. S. 394, but see concurring opinion, and Guthrie, Fourteenth Amendment, p. 121); Magoun v. Illinois Trust & Savings Bank, 170 U. S. 283; Quong Wing v. Kirkendall, 223 U. S. 59; Pullman Co. v. Knott, 235 U. S. 23; Chalker v. Birmingham & Northwestern Ry. Co., 249 U. S. 522; Royster Guano Co. v. Virginia, 253 U. S. 412; Schlesinger v. Wisconsin, 270 U. S. 230; Hanover Fire Ins. Co. v. Harding, 272 U. S. 494.
The rule that the legislature may exempt from the general class a particular group which operates for a distinctly different purpose, as in Citizens Telephone Co. v. Fuller, 229 U. S. 322, is only application of the same general principle which permits the legislature, if it chooses, to “ exempt certain classes of property from any taxation at all, such as churches, libraries, and the property of charitable institutions.” Bell’s Gap R. R. Co. v. Pennsylvania, 134 U. S. 232.
The same rule was applied in Northwestern Mut. Life Ins. Co. v. Wisconsin, 247 U. S. 132, where an annual license tax on level premium life insurance companies was sustained although fraternal and beneficial societies having lodges and insuring only the lives of members were exempt.
The decisions of state courts condemn a classification based solely upon whether the taxpayer is a corporation or a natural person. Russell v. Croy, 164 Mo. 69; Southwestern Bell Telephone Co. v. Middlekamp, 1 F. (2d) 563; Gamble-Robinson Fruit Co. v. Thoresen, 53 N. D. 28.
The several state constitutions contain provisions relative to uniformity of taxation. While they are expressed in different language,- the basic idea is to protect taxpayers from unfair and arbitrary classifications and discriminations. The following. cases, we believe, establish, the rule that the classification made in the case at bar is wholly, arbitrary and illusory. Pullman Palace Car Co. v. Texas, 64 Tex. 274; Parker v. North British & M. Ins. Co., 42 La. Ann. 428; Adams v. Yazoo & Mississippi Valley R. R. Co., 77 Miss. 194; State v. Stonewall Ins. Co., 89 Ala. 335; U. S. Express Co. v. Ellyson, 28 Ia. 370; Sid. Life & Accident Ins. Co. v. Detroit, 95 Mich. 466; Danville v. Quaker Maid, 211 Ky. 677.
The discrimination in this statute is clear and hostile against the corporate taxicab,operators and is of an unusual character unknown to the practice in Pennsylvania. Bell’s Gap R.. R. Co. v. Pennsylvania, 134 U. S. 232. Heisler v. Thomas Colliery Co., 260 U. S. 245, distinguished.
Mr. John Robéri Jones, with whom Mr. Thomas J. Baldridge was on the brief, for defendant in error.
The construction put by the court below upon the statutes and constitution of its own State is not open to review in this Court., The Pennsylvania court held the plaintiff in error to be a transportation corporation, operating a device for the transportation of passengers and their luggage upon the public highways and therefore within the terms of the section and subject to the tax. The transportation of passengers or freight, or both, is the business which the companies named are empowered by law to transact, which, in the case of the plaintiff in error, is the business authorized by its charter, and which the State permitted it, as a foreign corporation, to perform within its borders, and for which the Public Service Commission granted it a certificate of public convenience. The sole business of the plaintiff in error is that of the transportation of passengers and their luggage solely within the State. To the receipts of such business alone was the rate of taxation applied to determine the amount of the tax. Under the act if plaintiff in error had had no receipts irom such business, it would not have been liable for the payment of any tax.
“The tax,” as was said in Flint v. Stone Tracy Co., 220 U. S. 107, “is not payable unless there be a carrying on or doing of business in the designated capacity, and this is made the occasion for the tax, measured by the standard prescribed.”.
That the tax is not a property tax is clear, not only from the language of § 23 but also by the construction placed upon it by the Supreme Court. This view is strengthened by the fact that a capital stock tax, which is a property tax, is imposed upon such companies under §§20 and 21 of the same act (changed by subsequent legislation as to the method of computing and determining the amount). It is a tax upon the business of the companies measured in amount by the gross receipts or income resulting from the conduct and operation of such business. It is a tax upon the doing of a business and in respect to a carrying on thereof, in a sum equivalent to eight mills upon each dollar of the gross receipts received from the transacting or performing of such business. It is not a tax upon the property of the corporation. .
The tax is imposed upon both domestic and foreign corporations, and is confined to business done solely within the State. All within the class are treated alike. Hence the issue turns upon the power of the State to classify, and whether or not the classification made by the act rests upon a reasonable basis and is not illusory or arbitrary. Is the particular classification open to objection because it precludes the assumption that it was made in the exercise of legislative judgment and discretion?
. The principles governing the applicatipn of the Fourteenth Amendment were considered in Bell’s Gap R. R. Co. v. Pennsylvania, 134 U. S. 232; Keeney v. New York, 222 U. S. 525; St. Louis, etc. R. R. v. Arkansas ex rel. Norwood, 235 U. S. 350; Maxwell v. Bugbee, 250 U. S. 525; Swiss Oil Corp’n v. Shanks, 273 U. S. 407.
Flint v. Stone Tracy Co., 220 U. S. 107, is conclusive in this case. •
The Pennsylvania tax is limited and confined to the precise business for which the companies made subject to the tax were created and were permitted to transact within the borders of the State. Plaintiff in error is required further to secure from the Public Service Commission of the State a certificate of public convenience to use the public highways as prescribed in such certificate and the law authorizing its issue. - The tax is not payable by the corporation unless it is carrying on or doing business in the designated capacity of a transportation company, and, as was said by this Court in Flint v. Stone Tracy Co., supra, “ this is made the occasion for the tax, measured by the standard prescribed”; and if there be ho receipts from such corporate activity there is no tax. Is this not conclusive in this case?
Having in mind the facts that plaintiff in error is a foreign corporation and is engaged solely in an intrastate business in Pennsylvania, and that it is taxed, as are domestic corporations, solely with reference to the receipts of such business and in the same manner as domestic corporations, and that the State of Pennsylvania had the power to exclude it from the operation of its business within the State (Hooper v. California, 155 U. S. 648) and, therefore, the power to prescribe the conditions and limitations of its business operations within the State, and that the present law was an ingredient of the Pennsylvania system of taxation many years prior to the entrance of plaintiff in error to Pennsylvania, — especially pertinent is the language of this Court in Crescent Oil Co. v. Mississippi, 257 U. S. 129. See also Horn Silver Mining Co. v. New York, 143 U. S. 305; Paul v. Virginia, 8 Wall. 168; New York v. Roberts, 171 U. S. 658; Brown-Forman Co. v. Kentucky, 217 U. S. 563; Southwestern Oil Co. v. Texas, 217 U. S. 114; Pacific Express Co. v. Seibert, 142 U. S. 339; Metropolitan Street Ry. Co. v. New York, 199 U. S. 1.
The classification is valid, whether the tax be regarded as an excise upon the business of the companies, their activities in the State, or a tax upon the franchise or privilege of doing business in the State, or as a property tax. The construction placed upon the act and the Constitution of the State by the state court is accepted by this Court.
The tax is not imposed upon the gross receipts as property, but only in respect of the carrying on of the business. Spreckels Sugar Refining Co. v. McClain, 192 U. S. 397. If there be no gross receipts from transportation wholly ubthin the State, there is no tax. There is no tax payable unless there is a carrying on or doing of business in the designated capacity. Phila. S. S. Co. v. Pennsylvania, 122 U. S. 326, distinguished. Horn Silver Mining Co. v. New York, 143 U. S. 305; St. Louis, etc., R. R. v. Arkansas, 235 U. S. 350; State Tax on Railway Gross Receipts, 15 Wall. 284.
The principles and policy of the law of taxation in Pennsylvania are fairly outlined in Commonwealth v. Sharon Coal Co., 164 Pa. 304; Commonwealth v. Brewing Co., 145 Pa. 83; Seabolt v. Commissioners, 187 Pa. 318; Commonwealth v. Delaware Division Canal Co., 123 Pa. 594. It is significant that, while the tax upon the business of certain classes of corporations measured by their gross receipts has been in force in Pennsylvania many years, and several of the statutes imposing it have been before this Court (see State Tax on Railway Gross Receipts, 15 Wall. 284; Phila. S. S. Co. v. Pennsylvania, 122 U. S. 326), it does not appear that any such contention was made as is made in the present case.
Authorities invoked to support an argument that a tax on an incident or function of property is a direct tax upon the property itself simply show that the States cannot, directly or indirectly burden the exercise by Congress of the powers committed to it by the Constitution, nor may Congress burden the agencies or instrumentalities employed by the States in the exercise of their power. Such doctrine does not in any way affect the instant case. Assuming, for the purpose of argument, that the tax imposed is a tax upon property; how stands the case of plaintiff in error? It appears that the authorities cited by it not only do not support its contention, but on the contrary expressly negative it.

Opinion:
Mr. Justice Butler
delivered the opinion of the Court.
Judgment was entered in the Court of Common Pleas of Dauphin County, Pennsylvania, in favor of the Commonwealth for "gross receipts taxes for the six months ending the 31st day of December, 1923," amounting with interest and commission to $6,049.94. The tax is claimed under § 23 of an Act of June 1, 1889, P, L, 420, 431; The provisions here material are printed in the margin. The gross receipts taxed were derived by plaintiff in error from the use of its motor vehicles for the transportation within Pennsylvania of persons and their luggage. Plaintiff in error contended that if applied to such receipts the section violates the equal protection clause of the Fourteenth Amendment. The highest court of the State upheld the Act and affirmed the judgment. 287 Pa. 161.
Plaintiff in error is a New Jersey corporation authorized to do business in Pennsylvania as a foreign corporation; and, since June 1,1917, it has carried on a general taxicab business in Philadelphia. The Supreme Court held that the section taxes gross receipts from the operation of taxicabs. It provides that every transportation company, whether incorporated in Pennsylvania or elsewhere, owning or operating any device for the transportation of passengers, " shall pay to the state treasurer a tax of eight mills upon the dollar upon the gross receipts of said corporation . . . received from passengers . . . transported wholly within this State . .
Plaintiff in error was subject to competition in its business by individuals and partnerships operating taxicabs. The Act does not apply to them, and no tax is imposed on their receipts. Corporations operating taxicabs are not exempted from any of the taxes imposed on natural persons carrying on that business. And every such corporation whether domestic or foreign pays a capital stock tax of five mills on the actual value of its capital stock and a bonus of one-third of one per cent on the par value of all stock issued if it be a domestic corporation, and a like rate on its capital- employed in Pennsylvánia if it be a foreign corporation. Act of July 22, 1913, P. L. 903. § 1, Act of May 3, 1899, P. L. 189. § 1, Act of May 8, 1901, P. L. 150. . The Supreme Court said that it is immaterial whether individuals engaged in a like taxicab business are subject to the tax here involved and that corporations may be placed in a class separate from individuals and so taxed.
The equal protection clause extends to foreign corporations within the jurisdiction of the State and safeguards to them protection of laws applied equally to all in the same situation. Plaintiff in error is entitled in Pennsylvania to the same protection of equal laws that natural persons within its jurisdiction have a right to demand under like circumstances. Kentucky Finance Corp'n v. Paramount Exch., 262 U. S. 544, 550. The equal protection clause does not detract from the right of the State justly to exert its taxing power or prevent it from adjusting its legislation to differences in situation or forbid classification in that connection, "but it does require that the classification be not arbitrary but based on a real and substantial difference having a reasonable relation to the subject of the particular legislation." Power Co. v. Saunders, 274 U. S. 490, 493. It is established that a corporation, by seeking and obtaining permission to do business in a State does not thereby become bound to comply with, or estopped from objecting to, the enforcement of its enactments that conflict with the Constitution of the United States. The right to withhold from a foreign corporation permission to do local business therein does not enable the State to require such a corporation to surrender the protection of the Federal Constitution. Power Co. v. Saunders, supra, 497. Hanover Insurance Co. v. Harding, 272 U. S. 494, 507. Frost v. Railroad Commission, 271 U. S. 583, 593 et seq. Fidelity & Deposit Co. v. Tafoya, 270 U. S. 426, 434. Western Union Tel. Co. v. Foster, 247 U. S. 105, 114. Looney v. Crane Co., 245 U. S. 178, 188. Sioux Remedy Co. v. Cope, 235 U. S. 197, 203.
The section declares the imposition to be a tax " upon gross receipts." And the Supreme Court said: " The real subject of the tax is the gross receipts of a company engaged in the transportation of freight or passengers . . ." That statement is not affected by • a later expression referring to the'tax as a " state tax on business or income " in contrast with a " local tax on property " such as hacks, cabs and other vehicles. The variation of language used by the court evidently is intended to be, and is, without significance. The words of the section are ' too plain to require explanation. They could not reasonably be given any other meaning. But, in any event, a characterization of the tax by the state court is not binding here. Louisville Gas & Electric Co. v. Coleman, ante, p. 32., St. Louis Compress Co. v. Arkansas, 260 U. S. 346, 348. There is no controversy as to the application of the tax. Plaintiff in error' assumes that the section covers its gross receipts, as held by the state court, but insists that the section is invalid because it does not extend to like receipts of natural persons and partnerships. No doubt there are situations in which, as appears in Cudahy. Packing Co. v. Minnesota, 246 U. S. 450, and other cases, a percentage of gross earnings may be taken as a tax on property used in the business and properly may be deemed not to be a tax or burden on such earnings. ' But the practical operation of the section is to be regarded, and it is to be dealt with according to its effect.- Frick v. Pennsylvania, 268 U. S. 473. Panhandle Oil Co. v. Mississippi, ante, p. 218. Here the tax is one that can be laid upon receipts belonging to a natural person quite as conveniently as upon those of a corporation. It is not peculiarly applicable to corporations as are taxes on their capital stock or franchises. It is not taken in lieu of any other tax or used as a measure of one intended to fall elsewhere. It is laid upon and is to be considered and tested as a tax on gross receipts; it is specifically that and nothing else.
In effect § 23 divides those operating taxicabs into two classes. r The gross receipts of incorporated operators are taxed while those of natural persons and partnerships carrying on the same business are not. The character-of the owner is the sole fact on which the distinction and discrimination are made to depend. The tax is imposed merely because the owner is a corporation. The discrimination is not justified by any difference in the source of the receipts or in the situation or character of the property employed. It follows that the section fails to meet the requirement that a-classification to be consistent with the equal protection clause must be based on a real and substantial difference having reasonable relation to the subject of the legislation. Power Co. v. Saunders, supra. No decision of this Court gives support to such a classification. In no view can it be held to have more than an arbitrary basis,. As construed and applied by the state court in this- case, the section violates the equal protection clause of the Fourteenth Amendment. See The Railroad Tax Cases, 13 Fed. 722. County of Santa Clara v. Southern Pacific R. R. Co., 18 Fed. 385. Northern Pacific R. Co. v. Walker, 47 Fed. 681. The tax cannot be sustained.
Judgment reversed.
" That every . . . transportation company, . . . now or hereafter incorporated or organized by or under any law of this Commonwealth, or now or hereafter organized or incorporated by any other State or by the United States or any foreign government, and doing business in this Commonwealth, and owning [or] operating . . . any .railroad . or other device for the transportation of freight or passengers or oil . . . shall pay to the state treasurer a tax of eight mills upon the dollar upon the gross receipts of said corporation . . .' received from passengers and freight traffic transported wholly within this State , , ,"
And the Supreme Court of Pennsylvania has condemned such a classification. Schoyer v. Comet Oil & Refining Co., 284 Pa. 189, 196-197.