In Cheney Brothers Co. v. Massachusetts52 one of the complaining corporations contended that it was denied the equal protection of the laws because it was taxed more heavily than similar domestic corporations. In Northwestern Mutual Life Ins. Co. v. Wisconsin 53 a domestic corporation complained of a like discrimination in favor of foreign corporations. Both complainants relied unsuccessfully on Southern Railway Co. v. Greene, 54 which had held in 1910 that a foreign railroad corporation which had acquired in the state a large amount of property of a permanent character had thereby become "a person within the jurisdiction" and could object to increases of taxation not suffered by domestic corporations similarly situated. In distinguishing the Greene case, the opinions of the court indicated that the doctrine is confined to corporations whose property is of a kind not readily susceptible of other uses, and that such corporations can object only to discriminatory increases. Another complaint against discrimination alleged to be a violation of the equal-protection clause was rejected in Sunday Lake Iron Co. v. Wakefield.55 It was evident that in the year 1911 the company's property had been assessed at its full value, while other property in the township and county was generally assessed at not more than a third of its true worth. This relative overassessment was thought by the victim to bring the situation within an earlier decision 56 which established, as the court recognized, that "intentional, systematic undervaluation by state officials of other taxable property in the same class contravenes the constitutional right of one taxed upon the full value of his property." But the court found that in the case at bar the injustice was due to an honest inadvertence, had not occurred before or since, and therefore came within the rule that mere errors of judgment will not support a claim of unconstitutional discrimination. $2 Note 10, supra. 55 (1918) 247 U. S. 350. 56 se Raymond v. Chicago Union Traction Co., (1907) 207 U. S. 20. Readers of the review of decisions for the three preceding years may recall the assessment of benefits for street paving by a method that Mr. Justice Holmes called "a farrago of irrational irregularities throughout."57 The state court, in interpreting the mandate of the Supreme Court, sustained the onefourth part of the tax assessed according to foot frontage, but declined to make a new assessment of the three-fourths' part unconstitutionally apportioned. The quarrel came to the Supreme Court again in Schneider Granite Co. v. Gast Realty & Investment Co.,58 which sustained the state court in both its rulings, but pointed out that nothing in the federal Constitution prevented a new assessment in substitution for the one declared invalid. But whether it should be made, and, if so, whether by the state court or by some other authority, were said to be matters of state law with which the Supreme Court was not concerned. The situs for taxation of intangibles, which has been a fruitful source of litigation, came before the court again in Fidelity & Columbia Trust Co. v. Louisville59 in which all the court but the Chief Justice agreed that bank deposits in Missouri were taxable to their owner at his domicile in Kentucky. The statement of the case included the information that the deposits were not used by the owner in his Missouri business, but belonged absolutely to him; but this element was not mentioned in the opinion. The Kentucky tax was said to be one upon the person, "imposed, it may be presumed for the general advantages of living within the jurisdiction," and it was observed that "these advantages, if the State so chooses, may be measured more or less by reference to the riches of the person taxed." Neverthe 7 See 12 American Political Science Review 451. 58 (1917) 245 U. S. 288. ** (1917) 245 U. S. 54. See 3 Bulletin of the National Tax Association 77, 85 Central Law Journal 441, 31 Harvard Law Review 786, 62 Ohio Law Bulletin 533, and 3 Virginia Law Register n. s. 775. On the general subject, see Charles E. Carpenter, "Jurisdiction over Debts for the Purpose of Administration, Garnishment, and Taxation," 31 Harvard Law Review 905. Mr. Carpenter does not mention the principal case, although it was discussed in a note in the Harvard less it was later declared that "it is unnecessary to consider whether the distinction between a tax measured by certain property and a tax on that property could be invoked in a case like the present," because, "whichever this tax technically may be, the authorities show that it must be sustained." It was assumed that the deposits were taxable also in Missouri, but Mr. Justice Holmes observed that "liability to taxation in one State does not necessarily exclude liability in another," and the rules of jurisdiction over chattels were declared not to extend to intangibles. That the taxing power may be used to raise funds to establish a municipal wood yard to sell fuel without profit was decided in Jones v. Portland.60 The court recognized fully that the Fourteenth Amendment prevents the use of the taxing power for any but a public purpose, and that the Supreme Court must decide what purposes are public, but it observed that the test may vary with local conditions and that the judgments of state legislatures and state courts must be given great weight. While much of Mr. Justice Day's opinion seemed to rest the decision chiefly on the approving opinion of the state court, reference was made to a decision of another state court sanctioning the use of taxation to establish a municipal heating-plant, and it was said that "we see no reason why the state may not, if it sees fit to do so, authorize a municipality to furnish heat by such means as are necessary and such systems as are proper for its distribution." The federal income tax of 1913 brought eleven cases to the Supreme Court, but only three of them proceeded on constitutional grounds. Lynch v. Hornby held that cash dividends. paid to stockholders after the effective date of the statute were taxable to them as income, although they came from a surplus accumulated by the corporation before the enactment of the 6o (1917) 245 U. S. 217. See C. C. Maxey, "Is Government Merchandising Constitutional?" 52 American Law Review 215. See also 86 Central Law Journal 21, 3 Cornell Law Quarterly 287, 16 Michigan Law Review 263, 46 Washington Law Reporter 202, and 27 Yale Law Journal 824. (1918) 247 U. S. 339. Sixteenth Amendment. Peabody v. Eisner62 applied the same doctrine to a distribution among stockholders of stocks of other than the distributing corporation. Such a distribution was held to constitute income of the stockholders, in contradistinction to a stock dividend of extra shares in the corporation of which they are members. Such stock dividends were regarded in Towne v. Eisner63 as not income to the stockholder but as scraps of paper rearranging the indicia of his interest in the corporate assets. This decision was carefully confined to the interpretation of the word "income" as contained in the act of Congress, leaving it still to be determined whether stock dividends can be regarded as "income" within the meaning of the Sixteenth Amendment. On this point Mr. Justice Holmes remarked: "But it is not necessarily true that income means the same thing in the Constitution and the Act. A word is not a crystal, transparent and unchanged, it is the skin of a living thought and may vary greatly in color and content according to the circumstances and the time in which it is used." Later statutes of Congress will make it necessary to determine whether the Sixteenth Amendment authorizes the taxing of stock dividends as "income." What is already established is that, if a stockholder gets what to him is income after the effective date of the Amendment and the statute, 62 (1918) 247 U. S. 347. 63 (1918) 245 U. S. 418. See F. R. Fairchild, "The Economic Nature of the Stock Dividend," 3 Bulletin of the National Tax Association 162. See also 86 Central Law Journal 104, 18 Columbia Law Review 63, 31 Harvard Law Review 787, 805, 2 Minnesota Law Review 284, 3 Southern Law Quarterly 67, and 27 Yale Law Journal 553. Among other interpretations put upon the meaning of the word "income" as contained in the statute were the decisions that it does not embrace alimony (Gould v. Gould, 1917, 245 U. S 151) nor a transfer of assets from one corporation to another which is the sole owner of the transferring corporation (Southern Pacific Co. v. Lowe, 1918, 247 U. S. 330) nor a sum received by a stockholder in excess of the par value of his stock on the dissolution of the corporation, where such excess was due to increases in value during a long period before the effective date of the statute, which increase had reached its height before the act became effective (Lynch v. Turrish, 1918, 247 U. S. 221). Various accounting problems raised by the application of the statute were passed upon in Doyle v. Mitchell Bros. Co., 247 U. S. 179, Goldfield Consolidated Mines Co. v. Scott, 247 U. S. 126 Hays v. Gauley Mountain Coal Co., 247 U. S. 189, and United States v. Biwabik that income has no immunity because its economic origins antedated the Sixteenth Amendment. The third decision on constitutional questions presented by the federal income tax is Peck & Co. v. Lowe,65 already referred to, which held that a tax on net income from an exportation business is not a "tax or duty on articles exported from any state." In support of the decision Mr. Justice Van Devanter declared: "At most, exportation is affected only indirectly and remotely. The tax is levied after exportation is completed, after all expenses are paid and losses adjusted, and after the recipient of the income is free to use it as he chooses." From the standpoint of the bearing of this decision on the question whether Congress may now tax the income from state and municipal bonds, note must be taken of the following extract from the opinion: "The Sixteenth Amendment, although referred to in argument, has no real bearing and may be put out of view. As pointed out in recent decisions, it does not extend the taxing power to any new or excepted subjects, but merely removes all occasion, which otherwise might exist, for an apportionment among the states of taxes laid on income, whether it be derived from one source or another." This reiterates that the words "from whatever source derived" which are contained in the Sixteenth Amendment confer no authority to tax income from state securities. The only bearing, then, of Peck & Co. v. Lowe upon that question lies in the possibility that a tax on the entire net income of an individual might possibly now be regarded as having only an indirect effect on such income as he might derive from the treasury of a state or municipality by way of salary or interest. This possibility, however, must be deemed somewhat remote, for there are few, if any, deductions to be made from the gross income from such sources before the taxable net income is derived, as there are from the gross income from an exporting business. The importance of the distinction between gross and net income was em 65 Note 21, supra. |