Court Opinion

ID: 9418706
Source: CourtListenerOpinion
Date Created: 2023-08-02 22:36:32.888924+00
Date Added: 2024-06-11T17:22:08.234642
License: Public Domain

Mr. Justice Sutherland,
dissenting.
Mr. Justice Van Devanter, Mr. Justice Butler and myself entertain a different view.
The duty of this court to examine taxing- acts to see that the use of federal tax-exémpt subjects as a measure for taxes imposed in terms upon taxable subjects, is not a cloak, under which the former in substance and effect are taxed, was never more imperative than now, when, by reason of increased and increasing public expenditures, states and municipalities are driven to search in every direction for additional sources of revenue. .
The self-evident operation of the provisions of the New York tax law is to cause the tax here in question to fall on an instrumentality of the United States. The statute necessarily exacts tribute from the income derived from that instrumentality. The amount of this tax is the same, and its effect, in every respect, is the same; as though it had been imposed upqp the income in precise terms. Were it not for Flint v. Stone Tracy Co., it would be difficult to suggest any reason for ignoring the rule so *395often laid down in the earlier cases, that the validity of the tax will depend not on what is named as the subject of the 'tax, but on its effect. Macallen Co. v. Massachusetts, U. S. 620, 625-627.
It is true that this court in the Macóllen case did not overrule the Flint case, but it did characterize that case as, “ the extreme example ” of the doctrine that a tax may be measured by income, although a part of such income is derived from nontaxable property. But .the Macollen case definitely determined that such a tax must be held to be invalid if the legislative purpose to lay the tax upon the nontaxable subject be “ fairly inferable from a consideration of the history, the surrounding circumstances, or the statute itself considered in all its parts.” In the present' case, we are of opinion that the legislative purpose, though not as clear as it is in respect of income derived from federal bonds, is “ fairly inferable ” in respect of copyrights. And, although it may be conceded that a tax measured by income derived from copyrights does not impose a burden upon the exercise of a vital power of the federal government, as it would in the case of federal bonds, it is, nevertheless, a tax falling upon income which is exempt in virtue of an implied prohibition of thp federal Constitution. Long v. Rockwood, 277 U. S. 142.
A former act of the state had been held not to reach certain federal bonds (People ex rel. Standard Oil Co. v. Law, 237 N. Y. 142, 149), and that act was amended so as to include “all interest received from federal, state, municipal or other bonds.” The amendment by definite words thus clearly manifests the legislative purpose to include in the measure of the tax, income derived from federal bonds of every description, and thereby to disregard the exemption of federal instrumentalities from state taxation. So far then as federal bonds are concerned the case falls precisely within the test laid down in the Macollen case, and substantially within the facts *396of that case. The legislature, however, was not content with this, but later amended the taxing act so as to include in the measure of the tax “income -from any . source.” The history of these amendments, successively-, broadening the terms of the statute, fairly justifies'the inference that the aim. of the legislature was to reach income from every source, including that derived from all varieties of nontaxable subjects, and, therefore, necessarily including copyrights and patents. That aim the state cannot make effective consistently with constitutional principles long respected, and vital to the preservation of óur dual system of government.
What was said by this court in Home Savings Bank v. Des Moines, 205 U. S. 503, is peculiarly apposite. In that case a statute of Iowa provided that “Shares of stock of state and savings banks and loan and trust companies shall be assessed to such banks and loan and trust companies and not to individual stockholders.” The statute was assailed on the ground that the tax, though in form upon shares of stock, was in fact upon the property of the banks, etc., and invalid because the value of United States bonds which they owned was included in the valuation of the property assessed to them. The court, looking through the words of the act to its purpose and effect, sustained the contention of the banks. In deciding the question the court said (p. 509);
“ It is conceded and cannot be disputed that these securities are beyond the taxing power of the State,, ^nd the only question, therefore, is whether in point of fact the State has taxed! them. The first step useful in the solution of this question is to ascertain with precision the nature of the tax in controversy, and upon what property it was levied, and that step must be taken by an examination of the taxing law as interpreted by the Supreme Court of the State. Á superficial reading of the law would lead *397to the conclusion that the tax authorized by it is a tax upon the shared of stock. The assessment is expressed to be upon ‘ shares of stock of state and savings banks and loan and trust companies.’ But the true interpretation of the law cannot rest upon a single phrase in it: All its parts must be considered in the manner pursued by this court in New Orleans v. Houston, 119 U. S. 265, 278, and Home Insurance Co. v. New York, 134 U. S. 594, with the view of determining the, end accomplished by the taxation, and its actual and substantial purpose and effect.. We must inquire whether the law really imposes á tax upon the shares of stock as the property of their owners, or merely adopts the value of those shares as the meásure of valuation of the property of the corporation, and by that standard taxes that property itself.”
And at page 521:
“ If by the simple device of adopting the value of corporation shares as the measure of the taxation of the property of the corporation that property loses the immunities which the supreme ■ law gives to it, then national securities may easily be taxed, whenever they are owned by a corporation, and the national credit has no defense against a serious wound.”
That the principle, “ an act may become unlawful when done to accomplish an unlawful end,” applies to statutes imposing taxes is well established. Federal Land Bank v. Crosland, 261 U. S. 374, 378.
• But wholly apart from extrinsic circumstances the statute itself in terms seems clearly to impose an income tax. The tax is not one upon the privilege of doing business, but it is an annual tax for the privilege of doing business, to be computed upon the basis of the net income for the year next preceding. The highest court of the state, in People ex rel. Alpha P. C. Co. v. Knapp, 230 N. Y. 48, 57, so held in an opinion by Judge Cardozo, from the *398reasoning of which it is hard to escape. After citing and discussing pertinent decisions of this court, he concludes:
“ Tested by these precedents, the tax. imposed upon this franchise must be held in practical operation to be a tax upon the income. Such, indeed, it would be in form as well as in substance, if the legislature had not stated (sec. 209) that the ' privilege of doing business ’ was the consideration for the payment. Nothing but that recital stands between the statute and conceded invalidity. How the legislature itself looked upon the substance of the burden is indicated by other provisions of the same and later statutes. The tax is to be in lieu of all other taxes on personal property or capital stock (Tax Law, sec. 219-J). It is to be in lieu of all other taxes upon income (sec. 350, subd. 7). There surely was no intention that all mercantile and manufacturing corporations, foreign and domestic, should in very truth be exempt from taxes upon property so fundamental in importance as capital and the fruits of capital. The reason for the apparent exemption was that, under the form of a tax upon the franchise, the property of such corporations had already been subjected to its share of public burdens.
“I think, therefore, that in substance, though.not in •form, in tendency, though not in name, this tax is equivalent to a tax upon relator’s income.”
There is nothing in the later casé of People ex rel. Bass, Ratcliff & Gretton v. Tax Commission, 232 N. Y. 42, which, in our opinion, challenges Judge Cardozo’s cogent view. That ease involved the question whether income which arose in part from property outside the State of New York could be constitutionally included in the basis for computing the tax. The court held it could, being " based on a comparison of the total assets with the assets in New York.” The court quoted what Judge Cardozo had said in the preceding case, that “ ‘ the tax imposed upon this *399franchise must be held in practical operation to be a tax: upon the income . . . This tax is equivalent to a tax upon relator’s income ’ ”; and then added, “ it is primarily a tax levied for the privilege of doing business in the state.” This amounts to nothing more than a repetition in brief of what Judge Cardozo, more at length, already had said, namely, that in practical operation the tax is one upon income for the privilege of doing business; and it leaves the conclusion set forth in the quotation we have made from the Knapp case wholly without modification.
These views, we submit, require a reversal of the judgment below.