CHAPTER XX.

TAXATION.

$151. Introductory. A corporation may, of course, be assessed for its property to the same extent, and the tax thereon may be levied and collected in the same way that would be followed if the owner were a natural person; and this is a usual method of dealing with corporations having no capital stock. But, considered as subjects of taxation, a natural person and a corporation differ in this: the corporation may have issued shares of stock; and it is the owner of a franchise, i. e. the right to be, and exercise and enjoy the powers granted by the charter. Taking, for illustration, the business corporation, you find three elements of value in or incident to it: the corporate assets, the franchise1 and the shares,-which last are rights in, but not of, the corporation. Are these distinct taxable values or merely different forms of the same property? If the organic law of the state forbids double taxation, may any more than one of these values be taxed at the same time? If an irrepeal

1 It is important to distinguish between the corporate franchise, as defined in the text, and so-called special franchises, such as the right of a public service corporation to use the streets of a municipality. The latter may conceivably be enjoyed by a natural person. A street franchise, when exercised, is an easement and is taxable as real property. Consolidated Gas Co. v. Baltimore, 101 Md. 541: 105 Md. 43; United Railways Co. v. Baltimore, 111 Md. 265.

able charter exempts one, may a tax be laid on one or both of the others? Is a franchise, property, within the meaning of a constitutional provision requiring uniformity in the taxation of property? When will a tax amount to an unlawful interference with interstate commerce? These are the main questions involved in the perennial conflict between legislation, usually crude and drastic, on the one hand, and the tax-dodging instinct on the other. The chief results of this conflict will be noted in broad outline; but first something must be said of two matters which underlie the whole discussion. The nature of share property and of corporate assets is easy to grasp; but what is the nature and measure of taxable value in a franchise? What is meant by the requirement that taxation shall be uniform and not double or unequal?

First. The value of all the outstanding shares may be something more than the difference between the assets and the debts of the corporation. This margin may be little or great; it may represent nothing more than the elements of good will and business capacity, or it may express the value of peculiar privileges and exemptions. In any case, this margin will represent substantially the value of the franchise, taxable as incorporeal property having its situs in the creating state.1 Usually, however, the case is not so simple. In the laudable effort to sustain the taxing power, the courts, departing from earlier views, have treated the value of the franchise as measurable by its exercise, for example, by the gross receipts; and have thus, by indirection, made gross receipts taxable, where a direct tax thereon would violate the rule of uniformity or the commerce clause of the Federal Constitution. U. S. Express Co. v. Minnesota, 223 U. S.

1 Compare State Railroad Tax Cases, 92 U. S. 575.

335. In State v. C. & P. R. Co., 40 Md. 22, there was an act imposing upon the appellee a tax of two cents per ton upon all the coal mined in the state and transported to any place in the state or elsewhere. It was held by a divided court that whether regarded as a direct tax on the coal, or as a tax on the franchise, it was imposed upon property without regard to uniformity, and was void under the accepted construction of the fifteenth article of the Bill of Rights. In State v. P. W. & B. R. R. Co., 45 Md. 376, the dissenting view of the earlier case prevailed. In this case there was an act imposing upon the appellee a tax upon its gross receipts, namely "one-half of one per cent. on the same proportion of the whole gross receipts of the road, as the length of the company's track in Maryland bore to the whole length of the road, which ran through the states of Maryland, Delaware and Pennsylvania." In answer to the contention that the Bill of Rights requires all property in Maryland to be taxed uniformly, the court said: “A franchise is a special privilege conferred by the State on certain persons and which does not belong to them of common right, and although the franchises of a company may be considered in one sense property, and valuable property, yet they are not property in the meaning of that term as used in the Bill of Rights." And again, in answer to the objection that the tax was imposed upon transportation and therefore in conflict with the commerce clause of the Federal Constitution, it was said that the tax imposed was a franchise tax; that the gross receipts were not the subject of the tax but merely the measure of the tax on the franchise.1

Second. Double or unequal taxation is forbidden and

1 See the dissenting opinion of Judge Alvey, for the earlier Maryland view.

uniformity is enjoined, expressly or by judicial construction, in the organic law of most of the states.1 But with the need for a broader exercise of the taxing power, a change has come over the judicial interpretation of these guaranties. In an earlier view, regard was had to the thing itself, without reference to the fact that different persons might have different interests in the same thing; and a tax was double if the same thing was compelled to pay twice. The modern test is different, namely whether the owner pays twice by reason of his ownership of the same property. For example, one man may own the land and another may be the holder of a mortgage on that same land for its entire worth. These are distinct values and a tax on both the land and the mortgage is not a double tax. Allen v. Bank, 92 Md. 509.

So with regard to uniformity. In the former view no tax could be imposed upon one kind of property "which is not equally borne by every other species of property in the state in proportion to its value." The modern test is whether the tax is uniform on all property of the same class, and not whether it is imposed equally upon everything that is the subject of ownership. The later view is well put in Pacific Express Co. v. Seibert, 142 U. S. 351: "This court has repeatedly laid down the doctrine that diversity of taxation, both with respect to the amount imposed, and the various species of property selected either for bear

1 In Maryland, by construction,-State v. Sterling, 20 Md. 502; Frederick County v. Bank, 48 Md. 119. See, now: Wilkins Co. v. Baltimore, 103 Md. 293; and post, § 152.

2 U. S. Elec. Co. v. State, 79 Md. 71; but an owner may be taxed for the same value both by the state of the situs and the state of the owner's domicil. Coe v. Errol, 116 U. S. 517; Corry v. Baltimore, 196 U. S. 466; Willoughby on the Constitution, secs. 533 and 541. 3 Baltimore v. R. R. Co., 6 Gill, 291

ing its burdens or for being exempt from them, is not inconsistent with a perfect uniformity and equality of taxation in the proper sense of those terms."1

$152. Taxation of domestic corporations. In the light of the foregoing principles, an examination will now be made of some results established by the weight of authority.

First. Fundamental principles. (a) Corporations are persons within the Fourteenth Amendment, which declares that no state shall deny to any person within its jurisdiction. the equal protection of the laws. "This imposes a limitation. upon the exercise of all the powers of the state which can touch the individual or his property, including among them that of taxation. It implies * * * also his exemption from any greater burdens or charges than such as are equally imposed upon all others under like circumstances. Unequal exactions in every form, or under any pretense, are absolutely forbidden; and, of course, unequal taxation, for it is in that form that oppressive burdens are usually laid."

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(b) While a state may not, directly or indirectly, burden interstate commerce, or tax the privilege of carrying it on, it may by a general property tax reach the instrumentalities of that commerce, situated within its borders. And this is so, whether the interstate corporation is foreign or domestic.4

1 To the same effect is Simpson v. Hopkins, 82 Md. 488; and see Baltimore v. Starr Church, 106 Md. 287.

2 Per Field, J. in San Mateo v. Southern Pacific R. Co., 13 Fed. 722; Santa Clara Co. v. Southern Pacific R. Co., 118 U. S. 394.

3 Galveston R. Co. v. Texas, 210 U. S. 217; U. S. Express Co. v. Minnesota, 223 U. S. 335,-with which compare Baltic Mining Co. v. Mass., 231 U. S. 68.

4 Pullman Co. v. Pennsylvania, 141 U. S. 18.