THE COMMERCE CLAUSE AND THE POWERS OF THE STATES

A. State Taxation and Interstate Commerce

Two cases presented applications of the familiar principle that the state may in the absence of pertinent legislation by Congress require the inspection of dangerous products which have not yet ceased to be articles of interstate commerce and may charge a reasonable fee therefor, but must not make the fee so high that the law partakes of the nature of a revenue measure and thus becomes an unconstitutional regulation of interstate commerce. In Pure Oil Co. v. Minnesota" the state was given a clean bill of health because it appeared that the to consider whether Congress had exceeded its powers. The opinion of Mr. Justice Brandeis may be taken as a hint that the federal statute will be sustained to the extent that it forbids migratory birds to be destroyed or taken contrary to federal regulations, for one of the reasons adduced in support of thus limiting the scope of the statute is the familiar canon of construction that "where a statute is reasonably susceptible of two interpretations, by one of which it would be clearly constitutional and by the other of which its constitutionality would be doubtful, the former construction should be adopted."

In Sandberg v. McDonald, (1918) 248 U. S. 185, 39 Sup. Ct. 84 (see 28 Yale Law Journal 403), the Seamans Act was by a vote of five to four interpreted as not intending to include advancement to sailors in foreign ports in a provision forbidding the deduction of wages advanced from the sum due for past services. The minority, consisting of Justices McKenna, Holmes, Brandeis and Clarke, recognized that their construction of the statute made the question of the constitutionality of the statute "not only of ultimate but of first insistence," but it passed it by for the reason that it had not been duly certified by the Circuit Court of Appeals. The majority prefaced its examination of the question of interpretation by saying: "Conceding for the present purpose that Congress might have legislated to annul such contracts as a condition upon which foreign vessels might enter the ports of the United States . . . ." thus inviting the assumption that federal control of foreign commerce is sufficiently extensive to sanction the constitutionality of the statute as interpreted by the minority. The Sandberg Case involved a British ship. In Neilson v. Rhine Shipping Co., (1918) 248 U. S. 205, 39 Sup. Ct. 89 (see 28 Yale Law Journal 403), the act was held not to apply to extra-territorial payments by an American ship, the same four justices dissenting.

In Louisville & Jeffersonville Bridge Co. v. United States, (1919) 249 U. S. 534, 39 Sup. Ct. 355, the Safety Appliance Act was held to apply to a movement of twenty-six cars three quarters of a mile in a terminal yard: The bridge company contended that it was engaged in a mere switching of cars and not a "train movement" within the meaning of the act, but does not appear to have contested the constitutionality of the application of the statute successfully urged by the government.

latest report showed that over seventy-five per cent of the receipts were used for departmental expenses and that in addition the general officers of the state had not a little to do with the enforcement of the statute. Weight was also given to the fact that the state had from time to time reduced the fees when experience had shown that they yielded more than the cost of inspection. In Standard Oil Co. v. Graves, 12 however, the state of California had made a net profit of about $250,000 during the decade when the law had been in force and the receipts for the last preceding year were nearly ten times the disbursements, and it was therefore held that the law was substantially a revenue measure and unconstitutional as a direct burden on interstate

commerce.

A similar excess of pecuniary zeal was discovered by Union Pacifie R. Co. v. Public Service Commission of Missouri13 in Missouri's scale of fees for certificates from the public service commission authorizing the issue of bonds by railroads, where the bonds were secured by mortgage of property within the state. The fee was graduated according to the size of the issue, and by the provisions of the statute failure to pay the fee subjected the mortgagor to penalties and invalidated the bonds. The state court had held that as the application for the certificate was voluntary the company was estopped to decline to pay the statutory compensation, and it was therefore contended on behalf of the state that the case presented no federal question. But the Supreme Court found that the certificate was a commercial necessity and that the payment was under duress and that the constitutionality of the requirement was therefore in issue. The state had imposed a charge of $10,962.25 for an issue of $31,848,900 by a Utah corporation which had in Missouri property valued at a little more than $3,000,000 out of a total of over $281,000,000, and less than a mile of main track out of a total of over 3500 miles. Of the expenditures for which the bonds were issued, less than $125,000 had been made in Missouri. The Missouri business of the complaining foreign corporation was exclusively interstate. The company contested the charge under the due-process clause of the Fourteenth Amendment as well as under the commerce clause, but the decision of the Supreme Court was based entirely on the commerce clause, no mention being made of the Fourteenth Amendment. The reliance of the court on

13 (1919) 249 U. S. 389, 39 Sup. Ct. 320.

1a (1918) 248 U. S. 67, 39 Sup. Ct. 24. See 32 Harvard Law Review 579 and 28 Yale Law Journal 291.

Looney v. Crane Co.14 and International Paper Co. v. Massachusetts15 shows that the decision would have been the same even if the company had done local as well as interstate commerce in Missouri, and that the Supreme Court intends to apply to fees for special acts the same principles or practices which have been worked out with respect to annual excises on foreign corporations.

The Looney case was relied on unsuccessfully by the complainant in American Mfg. Co. v. St. Louis16 who did not relish a license tax on manufacturers assessed at one dollar for each $1000 of sales and complained particularly of such part of the tax as was measured by sales of goods removed from the factory to another state before sale. The crucial issue in the case was whether the tax was on the sales or on the manufacture. The Supreme Court followed the state court in holding that it was the manufacture and not the sales that subjected the company to taxation and declared that, since the city might have measured the tax by the value of the goods at the time and place of manufacture and compelled payment of the tax then and there, the manufacturer could not complain because payment was postponed until sale. The state court had held that the tax did not apply to sales of goods not manufactured within the taxing jurisdiction. Mr. Justice Pitney is probably justified in saying that the Looney case and Crew Levick Co. v. Pennsylvania" "are so obviously distinguishable that particular analysis is unnecessary," yet it is evident that commercial transactions outside the state of manufacture contributed somewhat to the amount of the tax. This element was dealt with by declaring that the tax produces no direct burden on interstate commerce, but "only the same kind of incidental and indirect effect as that which results from the payment of property taxes or any other general contribution to the cost of government."

Another covert attempt to extract an unconstitutional tribute from interstate commerce was charged by the complainant in Postal Telegraph-Cable Co. v. Richmond,18 but was not sustained by the court. One of the matters in issue was a $300 license tax on local business. It was contended that the cost of doing the local business was greater than the net receipts from it, and that, as the company was not free

14 (1917) 245 U. S. 178, 13 American Political Science Review 53.

15 (1918) 246 U. S. 135.

16 (1919) 250 U. S. 459, 39 Sup. Ct. 522.

17 (1917) 245 U. S. 292, 13 American Political Science Review 55.

to decline local business, the tax was necessarily on interstate commerce. Mr. Justice Clarke stated that "if the facts were as thus asserted it might well be that this tax would be invalid," but the evidence as to the unremunerative character of the local business failed to convince the court and the tax was therefore sustained. It was declared that the tax was not an inspection measure which must be limited to the cost of supervising the business, but "an exercise of the police power of the state for revenue purposes"-a hybrid locution which seems to blur the distinction between police and fiscal measures which has previously been regarded as significant.

The same case sustained another tax of two dollars for each pole maintained or used within the city. This, too, was called an "exercise of the police power" to exact a compensation in the nature of rental for the use of the streets. It was declared that even if the tax had to be paid from interstate earnings, "this alone would not be conclusive against its validity," since "even interstate business must pay its way-in this case for the right of way and the expense to others incident to the use of it." Enough consideration was given to the evidence as to the cost of inspecting and supervising the lines within the city to indicate that the charge might possibly have been successfully complained of if imposed as rental only.

Another so-called "pole tax" came before the court in Mackay Telegraph & Cable Co. v. Little Rock19 and was also sustained. The tax was levied at fifty cents per pole, and the company resisted only that part which was levied on poles not on the streets of the city but on a railroad right of way. This was said to be not sufficient to condemn it, "especially in view of the finding of the Supreme Court of Arkansas that the telegraph line as laid along the right of way crosses a street car line and several turnpikes coming into the city, and that it is necessary there shall be local governmental supervision of the lines crossing these highways for the protection of travelers upon them."

The substantial issue in Wells Fargo & Co. v. Nevada20 was whether a state tax on an express company assessed at $300 per mile of line over which it did business was imposed on the property or on the privilege. or franchise. The assessor had described the property as consisting of the right to carry on the business, but the Supreme Court agreed with the state court that this was a mistake and that under the statute what was being taxed was the company's personal property, tangible

19 (1919) 250 U. S. 94, 39 Sup. Ct. 428 20 (1918) 248 U. S. 165, 39 Sup. Ct. 62.

and intangible. "The difference," says Mr. Justice Van Devanter, "is vital, for, consistently with the commerce clause of the federal Constitution, the state could not tax the privilege or act of engaging in interstate commerce, but could tax the company's property within the state, although chiefly employed in such commerce." The company also alleged that "the state board in valuing the property acted on inaccurate data and applied erroneous standards which resulted in a valuation so excessive as to make the tax a burden on interstate commerce," but the Supreme Court did not find the allegation supported by the evidence.

The willingness of the Supreme Court to make the inquiry just referred to indicates that an excessive valuation of property employed in interstate commerce is a violation of the commerce clause, even though the property does not travel from one state to another. Union Tank Line v. Wright21 establishes the principle firmly as to peripatetic property. The Union Tank Line had in Georgia through the taxable year an average of fifty-seven cars which were admittedly worth as separate items of property not more than $47,310. By taking that proportion of the total personal property of the company which the number of miles over which cars were run in Georgia bore to the total number of miles over which they were run, the Georgia property was assessed at $291,196. This assessment, the minority of the court, consisting of Justices Pitney, Brandeis and Clarke, were moved to sustain, contending that controversy was foreclosed by Pullman's Car Co. v. Pennsylvania.22 The majority insisted that the declarations from the Pullman case relied on by the minority related to a matter not in issue and were therefore obiter. They conceded that the valuation of the property in Georgia need not be limited to the mere worth of the articles separately considered but may include the intangible value due to the organic relation of the property in the state to the whole system. The minority thought that the actual value of the property so conceived was so difficult of ascertainment that the rule adopted and applied was sufficiently accurate to satisfy the Constitution. With this the majority disagreed, insisting that the rule adopted had no necessary relation to the real value and was so arbitrary and the consequent valuation so excessive that it must be condemned because of conflict with both the commerce clause and the Fourteenth

21 (1919) 249 U. S. 275, 39 Sup. Ct. 276. See 19 Columbia Law Review 334, 3 Minnesota Law Review 421, and 28 Yale Law Journal 802.