INDIRECT ENCROACHMENT ON FEDERAL II. REGULATIONS OF INTERSTATE COMMERCE (continued) 2. Taxes not Discriminating against Interstate Commerce (continued) B. TAXES ON PROPERTY EFERENCE has already been made to the cases which treat REFERENCE franchises as property and consider the assessment of such franchises by the criteria which obtain in judging whether taxes on property are regulations of interstate commerce.2 This indicates that there is no hard and fast line to be drawn between privileges and property. When a franchise may be disposed of for a price, it is of course a form of property. Conversely, all property is to an extent a matter of privilege. The remedies for interference with property interests are essential to the security and salability of those interests. In so far as the remedies are the creation of the law, and are subject to amendment or withdrawal, the interests which the remedies serve partake of the nature of privilege, and taxes on those interests might by a chain of reasoning be deemed taxes on privileges. The pursuit of these fascinating possibilities will be left to those who care to indulge in it. It is enough for our present purpose to disclaim any assumption of perfection or of inherent validity in the schematism here employed. The topical headings and their order of treatment are chosen solely from considerations of convenience. Though privilege and property are not mutually exclusive categories, horses and land and ties and rails are different from corporate franchises and the right to inherit. Roughly speaking, taxes on property may be distinguished from taxes on privileges, even though the two share some common because of vicinage. 1 For preceding instalments of this discussion see 31 HARV. L. REV. 321-72 (January, 1918), Ibid., 572-618 (February, 1918), Ibid., 721–78 (March, 1918) and Ibid., 932-53 (May, 1918). 2 31 HARV. L. REV. 768, note 166. This common has already been pointed out in discussing taxes on privileges, and there will be occasion to refer to it again. It is also to be borne in mind that no exercise of state fiscal power can adequately be judged in isolation. The legitimacy of any particular demand may depend upon the presence or absence of some other or others. But threads must first be spun before they can be woven together. If any misapprehensions are permitted or fostered by the effort to disentangle in analysis what is interrelated in practice, they will, it is hoped, be dispelled by a later venture in synthesis. 5 The taxes on property here to be considered do not include those levied on the property that is carried in interstate commerce and offered for sale after reaching its destination. Such taxes, with the exception of those which in some fashion discriminate against interstate commerce, are not treated as instances of indirect encroachment on the realm of federal control. Property in interstate transit and property that has completed its journey present the issue of taxability rather than that of valuation. What we are here concerned with are the taxes which are confessedly on proper subjects of state power, but which are assessed in ways that are alleged to exceed that power. The issue is whether the subject or the method of assessment shall be regarded as controlling. The property taxes which raise this issue are those on property which is an instrument of interstate commerce, whether peripatetic like cars and engines or immobile like ties and track. When property of an intangible character intrudes itself into the discussion, it is because the Supreme Court has chosen to make a classification for which it must bear the responsibility. I On December 15, 1873, in Union Pacific R. R. Co. v. Peniston," a majority of the Supreme Court rejected the contention that the property of the Union Pacific was exempt from state taxation on account of the relation of the road to the federal government. 3 31 HARV. L. REV. 768, note 166. 4 See 31 HARV. L. Rev. 572-74. 5 See editorial note in 26 HARV. L. REV. 358-60. Brown v. Houston, 114 U. S. 622, 5 Sup. Ct. Rep. 109 (1885). 718 Wall. (U. S.) 5 (1873). See 31 HARV. L. REV. 371, note 171. Three dissenting justices, however, argued that the property itself was an agency of the United States, and was therefore as immune from state taxation as are the bonds of the United States or the operations of the United States Bank. Less than three months later, in The Delaware Railroad Tax, Mr. Justice Field indicated without objection from any of his colleagues that a state tax on the property of an interstate carrier was not a regulation of interstate commerce. From that day forward it has never been seriously doubted that a tax on tangible property used as an instrument of interstate commerce is not a tax on that commerce. Such disputes as we have here to chronicle relate to the propriety of methods adopted for assessing that property. Mr. Justice Field's remarks about property taxation in The Delaware Railroad Tax 10 must be regarded as obiter, since he had previously stated that the tax before the court was not a tax on property, but one "upon the corporation itself, measured by a percentage upon the cash value of a certain proportional part of the shares of its capital stock." "It is to be inferred that the tax, if one on property, would have been held to be faulty because of the method by which the amount of property in Delaware was determined. The statute required each company subject to the act to pay a tax of one-fourth of one per cent on such proportion of the cash value of all its shares as the length of the line in Delaware bore to the total mileage. It was conceded that the "ratio of the value of the property in Delaware to the value of the whole property of the company" was considerably "less than that which the length of the road in Delaware bears to its entire length." 12 From this Mr. Justice Field concluded that "a tax imposed upon the property in Delaware according to the ratio of the length of its road to the length of the whole road must necessarily fall on property without the State," 13 and observed that, upon the assump 18 Wall. (U. S.) 206 (1873). • In 1891 Mr. Justice Gray on page 23 of his opinion in the Pullman case, note 33, infra, declared: "It is equally well settled that there is nothing in the Constitution or laws of the United States which prevents a State from taxing personal property, employed in interstate or foreign commerce, like other personal property within its jurisdiction." 10 Note 8, supra. 11 18 Wall. (U. S.) 206, 231 (1873). 12 Ibid., 230. 13 Ibid., 231. tion that the tax was on property, there would be great difficulty in sustaining it. The tax was therefore regarded as one "upon the corporation itself," which seems to mean upon the right to exist as a corporation. It was sustained on the theory that the state has absolute power over its own corporate creatures. After saying that "the State may impose taxes upon the corporation as an entity existing under its laws, as well upon the capital stock of the corporation or its separate corporate property," 14 Mr. Justice Field added that "the manner in which its value shall be assessed and the rate of taxation, however arbitrary or capricious, are mere matters of legislative discretion." 15 In view of the previous indication that the caprice of the state would have been curbed, had the tax been one on property, this imputation to the state of arbitrary power must be confined to the assessment of the franchise. But the suggested limitation on the power to tax property is predicated, not on the commerce clause, but on the position that the state must confine its exactions to property within the jurisdiction. The two closing paragraphs of the opinion dismiss the objections under the commerce clause. That the conclusion is not confined to taxes on the franchise is manifest from the final sentence: "The exercise of the authority which every State possesses to tax its corporations and all their property, real and personal, and their franchises, and to graduate the tax upon the corporations according to their business or income, or the value of their property, when this is not done by discriminating against rights held in other States, and the tax is not on imports, exports, or tonnage or transportation to other States, cannot be regarded as conflicting with any constitutional power of Congress." 16 The tax in question was said to affect commerce among the states “just in the same way, and in no other, that taxation of any kind necessarily increases the expenses attendant upon the use or possession of the thing taxed." 17 And Mr. Justice Field, though he had dissented in State Tax on Railway Gross Receipts,18 decided twelve months earlier, quotes with approval from the opinion in that case to the effect that "it is not everything that affects com 18 15 Wall. (U. S.) 284 (1872). See 31 HARV. L. Rev. 576–77. merce that amounts to a regulation of it, within the meaning of the Constitution." 19 Of course the majority judges in the Gross Receipts case could find no fault with taxing property employed in interstate commerce. That case, it will be remembered, sustained a tax levied directly on gross receipts. One of the grounds adduced by the majority was that the receipts were a fund actually in the hands of the corporation, disassociated from the source whence they were derived. The artificiality of this conception was exposed by the minority at the time, and fourteen years later was recognized by a unanimous court.20 But while the doctrine prevailed, there could be no doubt that a state might effectively tax interstate commerce, provided it was careful not to impose the tax formally on the commerce itself. It is significant, however, that the judges who dissented in State Tax on Railway Gross Receipts 21 interposed no objection to the statement in The Delaware Railroad Tax 22 that the property of an interstate carrier was taxable at its full value. The only qualification suggested was that this value must not be inflated by the inclusion of elements not local to the taxing state. It seemed to be assumed that the valuation could take the form of a capitalization of earnings, including those from interstate commerce, for the value of the entire road was fixed by the cash value of the shares of capital, which would of course be determined in large measure by some estimate of earnings. Three years later, in the State Railroad Tax Cases,23 the propriety of this mode of assessment was distinctly affirmed, so far as the Fourteenth Amendment was concerned. Mr. Justice Miller pointed out that "the visible or tangible property of the corporation may or may not include all its wealth." 24 "There may be other property of a class not visible or tangible which ought to respond to taxation, and which the State has a right to subject to taxation." 25 And the method of assessment adopted by Illinois was indicated and approved as follows: 19 15 Wall. (U. S.) 293 (1872); quoted in 18 Wall. (U. S.) 206, 232 (1873). 20 Philadelphia & Southern Mail S. S. Co. v. Pennsylvania, 122 U. S. 326, 7 Sup. Ct. Rep. 1118 (1887). 21 Note 18, supra. 23 92 U. S. 575 (1876). 25 Ibid. 22 Note 8, supra. 24 Ibid., 602. |