of the possibility that what caused Mr. Justice Bradley most concern was the cumulation of taxes on the same economic interest, rather than the fact that interstate commerce did not escape entirely from giving sustenance to the states. It shows, too, the recognition that every tax may depend for its justification on the absence of certain other possible taxes. No just solution of the complex problem raised by alleged conflicts between state taxing power and the necessary freedom of interstate commerce can be reached if the state is not required to let its right hand know what its left hand doeth. II From the foregoing review it appears that for two decades the Supreme Court had been allowing states to impose taxes that from an economic standpoint were levied more or less directly on receipts from interstate commerce. In all this time, however, none of the opinions had indicated clearly that the court knew exactly what it was doing and was prepared to support its decisions by accurate and detailed analysis of the economics of the matter. The judges were engaged in the task of finding what subjects of taxation were interstate commerce itself, and what were something else. They assumed that a tax on a subject not itself interstate commerce could not be a regulation of that commerce; and they were prone to indulge in nominalism and conceptualism in finding what was the subject taxed. In State Tax on Railway Gross Receipts 49 and in Osborne v. Mobile,50 they took positions that they later abandoned.51 They seemed to be feeling their way in the dark. From 1894 on, however, the issues are more clearly recognized and more adequately discussed. In Cleveland, C., C. & St. L. R. Co. v. Backus,52 Mr. Justice Brewer leaves no doubt as to what the majority of the court think about the propriety of assessing railroad property so as to include the value of the interstate commerce in which the road is engaged. This case and a companion one 53 had to do with Indiana statutes 49 Note 18, supra. 50 16 Wall. (U. S.) 479 (1872). 51 The former in Philadelphia & Southern Mail S. S. Co. v. Pennsylvania, note 20, supra; the latter in Leloup v. Mobile, 127 U. S. 640, 8 Sup. Ct. Rep. 1380 (1888). 52 154 U. S. 439, 14 Sup. Ct. Rep. 1122 (1894). 53 Pittsburgh, C. C. & St. L. Ry. Co. v. Backus, 154 U. S. 421, 14 Sup. Ct. Rep. 1114 (1894). which, while not requiring the tax commissioners to assess railroad property on the basis of its earnings, clearly permitted them to do so. And it was quite evident that they had done so, for one road was valued at $6,000 per mile less than another, and the assessment of a previous year under the method then prevailing was nearly trebled under the new statute. The decision in the two cases is that value is a matter of fact for the assessors to determine, and that the court will not upset that determination unless it is fraudulent. But the opinion in the Cleveland case unequivocally approves of the position that the value in fact is what the road would sell for, that this depends on the earnings, and that therefore the earnings may and should be considered in estimating that value. "The rule of property taxation," says Mr. Justice Brewer, "is that the value of the property is the basis of taxation." 54 "It does not mean," he adds, "a tax upon the earnings which the property makes, nor for the privilege of using the property, but rests solely upon that value." 55 Then he states what value is: 1956 "But the value of property results from the use to which it is put and varies with the profitableness of that use, present and prospective, actual and anticipated. There is no pecuniary value outside of that which results from such use. The amount and profitable character of such use determines the value, and if property is taxed at its actual cash value it is taxed upon something which is created by the uses to which it is put." The opinion then goes on to say that "in the nature of things it is practically impossible—at least in respect to railroad propertyto divide its value, and determine how much is caused by one use to which it is put and how much by another." 57 The learned justice asks whether an interstate bridge, the value of which depends entirely on interstate commerce, must "on that account be entirely relieved from the burden of state taxation." 58 He assumes two such bridges, one between two large centers of population and the other between two hamlets, and inquires whether they must be valued at the same amount, in spite of the fact that one is obviously worth much more than the other. "Will it be said that the taxation must be based simply on the cost, when never was it held 54 154 U. S. 439, 445, 14 Sup. Ct. Rep. 1122 (1894). 58 Ibid., 439, 446. 57 Ibid. that the cost of a thing is the test of its value?"59 It is a practical impossibility to "eliminate all of the value which flows from the use, and place the assessment at only the sum remaining." 60 There are only two alternatives. "Either the property must be declared wholly exempt from state taxation or taxed at its value, irrespective of the causes and uses which have brought about such value." 61 Of course Mr. Justice Brewer's conclusion is not so ineluctable as he seems to think. The value for purposes of state taxation need not be the economic exchange value. While railroad property is merged in the business in which it is engaged, since it has no feasible alternative uses, this is not true of all property, and by resort to hypothesis a separation can be made of the value of the property of a railroad from that of the business which it serves. The fact that it may be difficult or impossible to express the results mathematically with any degree of accuracy does not prevent some compromise between the two alternatives which Mr. Justice Brewer regarded as the only ones conceivable. Such a compromise the court has been compelled to make time and again in finding "fair value" for purposes of rate regulation.62 And the same compromise might have been made in finding value for purposes of taxation. When the court declines to do so, it is guided by considerations of policy, whether it is aware of the fact or not. Mr. Justice Brewer plainly invokes considerations of policy when he declares: "And the uniform ruling of this court, a ruling demanded by the harmonious relations between the States and the national government, has affirmed that the full discharge of no duty entrusted to the latter restrains the former from the exercise of the power of equal taxation upon all private property within its territorial limits. All that has been decided is that, beyond the taxation of property, . . . no state shall attempt to impose the added burden of a license or other tax for the privilege of using, constructing, or operating any bridge, or other instrumentality of interstate commerce, or for carrying on of such commerce.' 1 63 62 See Robert L. Hale, "The Supreme Court's Ambiguous Use of 'Value' in Rate Cases," 18 COL. L. REV. 208. Here the position seems to be that what the commerce clause inhibits is the cumulation of taxes on interstate commerce. But the cumulation denounced does not include taxes on the franchise to be a corporation or to employ corporate powers in local business. Whether taxes on such privileges may be imposed in addition to taxes on property is left uncertain. But there is no uncertainty as to the elements that may be considered in assessing property: "It is enough for the State that it finds within its borders property which is of a certain value. What has caused that value is immaterial. It is protected by state laws, and the rule of all property taxation is the rule of value, and by that rule property engaged in interstate commerce is controlled the same as property engaged in commerce within the State." 64 This, of course, is because the court chooses to have it so. The wisdom of their choice is not here disputed. But the effort to show that the choice does not result in burdening interstate commerce cannot receive the same approval. It is difficult to agree that the assessment of property by reference to the earnings of the business to which the property is devoted is not "an attempt to do by indirection what cannot be done directly that is, to cast a burden on interstate commerce." 65 An accountant would hardly be satisfied with the argument that "it comes rather within that large class of state action, like certain police restraints, which, while indirectly affecting, cannot be considered as a regulation of interstate commerce, or a direct burden on its free exercise."66 Even a rhetorician might find the argument a concession that the state may do indirectly what it is forbidden to do directly. If we are interested primarily in what happens, and only secondarily in what words are used to justify or condemn it, we observe little, if any, difference between a tax on receipts and a tax on property assessed on a basis of receipts. When a court holds that taxes on property may be measured by receipts from interstate commerce or a capitalization thereof, it allows a state to regulate interstate commerce, no matter what name may be affixed to the state action. In any factual sense, this regulation is still a regulation even though it is abundantly justified by the demands of the "harmonious relations between the states and the national government." The dissent in these two Indiana cases added nothing to what Mr. Justice Bradley had said in the Pullman case. Justices Bradley and Lamar were no longer on the bench. Only Justices Harlan and Brown remained of those who had disapproved of the Pullman case. They dissent also in the Indiana cases, Mr. Justice Harlan writing a brief opinion devoted chiefly to the contention that Indiana had taxed property which had no situs there. He insists that "the board had no authority to impart to the value of railroad track and rolling stock, within the State, any part of the company's various interests and property without the State." 67 With this the majority do not disagree. They deny that the state has done so. They say that the value of the property within the state is enhanced by the fact that it is used in connection with other property without the state. "Each state," says Mr. Justice Brewer, "is entitled to consider as within its territorial jurisdiction and subject to the burdens of its taxes what may perhaps not inaccurately be described as the proportionate share of the value flowing from the operation of the entire mileage as a single continuous road." 68 This he treats as a question distinct from that of whether receipts may be used as a test of the value of property. To this latter question Mr. Justice Harlan devotes no argument, although the general language of his opinion indicates disagreement on this point as well as on the one that he specifically discusses. Two years later in Western Union Telegraph Co. v. Taggart 69 the doctrine of the Indiana cases was re-affirmed by an undivided court. The opinion of Mr. Justice Gray consists largely of quotations from previous opinions. It says that "the cost of the property, or of its replacement, is by no means a true measure of its value," 70 and adds that previous authorities have established that the commissioners had the right and the duty, in estimating the value of the property within the state, to take into consideration the franchises granted to the company by sister states, the United States and foreign countries. Plainly a valuation of property by reference 67 154 U. S. 421, 438, 14 Sup. Ct. Rep. 1114 (1894). |