returns from time to time received by the stockholder from gains or earnings of the corporation. A dividend received by a stockholder from a corporation may be either in distribution of capital assets or in distribution of profits. Whether it is the one or the other is in no way affected by the medium in which it is paid, nor by the method or means through which the particular thing distributed as a dividend was procured. If the dividend is declared payable in cash, the money with which to pay it is ordinarily taken from surplus cash in the treasury. But (if there are profits legally available for distribution and the law under which the company was incorporated so permits) the company may raise the money by discounting negotiable paper; or by selling bonds, scrip or stock of another corporation then in the treasury; or by selling its own bonds, scrip or stock then in the treasury; or by selling its own bonds, scrip or stock issued expressly for that purpose. How the money shall be raised is wholly a matter of financial management. The manner in which it is raised in no way affects the question whether the dividend received by the stockholder is income or capital; nor can it conceivably affect the question whether it is taxable as in

come.

Likewise whether a dividend declared payable from profits. shall be paid in cash or in some other medium is also wholly a matter of financial management. If some other medium is decided upon, it is also wholly a question of financial management whether the distribution shall be, for instance, in bonds, scrip or stock of another corporation or in issues of its own. And if the dividend is paid in its own issues, why should there be a difference in result dependent upon whether the distribution was made from such securities then in the treasury or from others to be created and issued by the company expressly for that purpose? So far as the distribution may be made from its own issues of bonds, or preferred stock created expressly for the purpose, it clearly would make no difference in the decision of the question whether the dividend was a distribution of profits, that the securities had to be created expressly for the purpose of distribution. If a dividend paid in securities of that nature represents a distribution of profits Congress may, of course, tax it as income of the stockholder. Is the result different where the security distributed is common stock?

NOTE. There is a wide-spread impression that the adoption of the Sixteenth Amendment has made unimportant the distinction between

direct and indirect taxes, but this is erroneous. Income taxes are not the only form of direct tax, but they are the only form which Congress may levy without apportionment according to population. The dictum in Hylton v. United States (1796), 3 Dallas, 171, to the effect that the only direct taxes within the meaning of the Constitution are taxes on land and capitation taxes was followed in Pacific Insurance Co. v. Soule (1868), 7 Wallace, 433, in which it was held that a tax on an insurance company's receipts from premiums and assessments was indirect, and in Scholey v. Rew (1874), 23 Wallace, 331, which involved an inheritance tax on real estate, and in Springer v. United States (1880), 102 U. S. 586, which involved a tax on incomes. It was not until the enactment of the income tax of 1894 that the Court broke away from the influence of the dictum in the Hylton case and undertook an independent examination of the nature of direct taxes. The result aroused much hostile criticism, not apparently because the decision was unsound but rather because the Court had disappointed expectations by failing to persist in a mistaken notion which had misled it for a hundred years. Since the Pollock case it has been held that direct taxes do not include a stamp tax upon each sale of products by an exchange or board of trade, Nicol v. Ames (1899), 173 U. S. 509; or a tax on tobacco as a commodity, Palton v. Brady (1902), 184 U. S. 608; or a stamp duty on sales of shares of stock, Thomas v. United States (1904), 192 U. S. 363; or a tax on the business of refining sugar measured by the gross annual receipts, Spreckles Sugar Refining Co. v. McClain (1904), 192 U. S. 397; or a tax on the gross products of a mine, Stanton v. Baltic Mining Co. (1916), 240 U. S. 103.

In Evans v. Gore (1920), 253 U. S. 245, the Court had under consideration the question as to whether the Sixteenth Amendment affected the constitutional provision that the compensation of the judges "shall not be diminished during their continuance in office." It was held in accordance with the ruling in the Brushaber case that the Amendment did not extend the taxing power of Congress to new or excepted subjects and hence it did not affect the provision as to the compensation of the judges. It was also held that a tax on the salary of a judge diminished the compensation which he was promised when he took office and hence was contrary to the Constitution. In passing upon a question which concerned them so intimately, the judges felt the delicacy of their position, which however was relieved by the fact that all the members of the Court had regularly paid the tax in question.

Important discussions of direct taxation are contained in Ballantine, Corporate Personality in Income Taxation, Harvard Law Review, XXXIV, 573; Clark, Eisner v. Macomber and Some Income Tax Problems, Yale Law Journal, XXIX, 735; Powell, Stock Dividends, Direct Taxes, and the Sixteenth Amendment, Columbia Law Review, XX, 536; Seligman, Are Stock Dividends Income? American Economic Review, IX, 517; Warren, Taxability of Stock Dividends as Income, Harvard Law Review, XXXIII, 885.

CHAPTER IX.

THE REGULATION OF COMMERCE.

SECTION 1. WHAT IS COMMERCE.

GIBBONS v. OGDEN.

SUPREME COURT OF THE UNITED STATES. 1824.
9 Wheaton, 1.

Appeal from the Court for the Trial of Impeachments and Correction of Errors of the State of New York.

Aaron Ogden filed his bill in the court of chancery of that state, against Thomas Gibbons, setting forth the several acts of the legislature thereof, enacted for the purpose of securing to Robert R. Livingston and Robert Fulton, the exclusive navigation of all the waters within the jurisdiction of that state, with boats moved by fire or steam, for a term of years which has not yet expired; and authorizing the chancellor to award an injunction, restraining any person whatever from navigating those waters with boats of that description.

The bill stated an assignment from Livingston and Fulton to one John R. Livingston, and from him to the complainant, Ogden, of the right to navigate the waters between Elizabethtown and other places in New Jersey, and the city of New York; and that Gibbons, the defendant below, was in possession of two steamboats, called the Stoudinger and the Bellona, which were actually employed in running between New York and Elizabethtown, in violation of the exclusive privilege conferred on the complainant, and praying an injunction to restrain the said Gibbons from using the said boats, or any other propelled by fire or steam, in navigating the waters within the territory of New York.

The injunction having been awarded, the answer of Gibbons was filed, in which he stated that the boats employed by him were duly enrolled and licensed, to be employed in carrying

on the coasting trade, under the act of congress, passed the 18th of February, 1793, c. 8 (1 Stats. at Large, 305), entitled, "an act for enrolling and licensing ships and vessels to be employed in the coasting trade and fisheries, and for regulating the same. And the defendant insisted on his right, in virtue of such licenses, to navigate the waters between Elizabethtown and the city of New York, the said acts of the legislature of the state of New York to the contrary notwithstanding.

At the hearing, the chancellor prepetuated the injunction, being of the opinion that the said acts were not repugnant to the constitution and laws of the United States, and were valid. This decree was affirmed in the court for the trial of impeachments and correction of errors, which is the highest court of law and equity in the state, before which the cause could be carried, and it was thereupon brought to this court by appeal.

MARSHALL, CH. J., delivered the opinion of the court,

The appellant contends, that this decree is erroneous, because the laws which purport to give the exclusive privilege it sustains, are repugnant to the constitution and laws of the United States.

They are said to be repugnant-1st. To that clause in the constitution which authorizes congress to regulate commerce. 2d. To that which authorizes congress to promote the progress of science and useful arts.

The state of New York maintains the constitutionality of these laws; and their legislature, their council of revision, and their judges, have repeatedly concurred in this opinion. It is sup ported by great names-by names which have all the titles to consideration that virtue, intelligence and office can bestow. No tribunal can approach the decision of this question without feeling a just and real respect for that opinion which is sustained by such authority; but it is the province of this court, while it respects, not to bow to it implicitly; and the judges must exercise, in the examination of the subject, that understanding which Providence has bestowed upon them, with that independence which the people of the United States expect from this department of the government.

As preliminary to the very able discussions of the constitution, which we have heard from the bar, and as having some influence on its construction, reference has been made to the political situation of these states, anterior to its formation. It has been said, that they were sovereign, were completely independent, and were connected with each other only by a league. This is true. But

when these allied sovereigns converted their league into a government, when they converted their congress of ambassadors, deputed to deliberate on their common concerns, and to recommend measures of general utility, into a legislature, empowered to enact laws on the most interesting subjects, the whole character in which the states appear, underwent a change, the extent of which must be determined by a fair consideration of the instrument by which that change was effected.

This instrument contains an enumeration of powers expressly granted by the people to their government. It has been said, that these powers ought to be construed strictly. But why ought they to be so construed? Is there one sentence in the constitution which gives countenance to this rule? In the last of the enumerated powers, that which grants, expressly, the means for carrying all others into execution, congress is authorized "to make all laws which shall be necessary and proper" for the purpose. But this limitation on the means which may be used, is not extended to the powers which are conferred; nor is there one sentence in the constitution, which has been pointed out by the gentlemen of the bar, or which we have been able to discern, that prescribes this rule. We do not, therefore, think ourselves justified in adopting it. What do gentlemen mean, by a strict construction? If they contend only against that enlarged construction, which would extend words beyond their natural and obvious import, we might question the application of the term, but should not controvert the principle. If they contend for that narrow construction which, in support of some theory not to be found in the constitution, would deny to the government those powers which the words of the grant, as usually understood, im`port, and which are consistent with the general views and objects of the instrument-for that narrow construction, which would cripple the government, and render it unequal to the objects. for which it is declared to be instituted, and to which the powers given, as fairly understood, render it competent-then we cannot perceive the propriety of this strict construction, nor adopt it as the rule by which the constitution is to be expounded. As men whose intentions require no concealment, generally employ the words which most directly and aptly express the ideas they intend to convey, the enlightened patriots who framed our constitution, and the people who adopted it, must be understood to have employed words in their natural sense, and to have intended what they have said. If, from the imperfection of human