Congress is given power to "regulate commerce with foreign nations, and among the several States." The states retain their original right to regulate their internal commerce, and at first it was thought that they had also the right to regulate inter-state commerce, within their own jurisdiction, in so far as such regulation was not repugnant to the regulations of Congress. Taxation may of course be considered a method of regulation, and as such, under the above supposition, capable of being exercised both by the federal and state governments. But it has been decided that the non-exercise of the power to regulate, which the Constitution gives to Congress, is merely a declaration that it shall be free. This is good political science, if not good constitutional law. The importance of the topic here lies in the application of the principle. A tax on freight has been held to be a tax on commerce, being in the nature of a duty on the articles transported. A tax on gross receipts of a railway has, however, been held to be lawful, since the tax was in the nature of an excise tax on the corporation, and was paid from property actually possessed by the corporation. But this latter decision has been impugned by recent authority; a tax on gross receipts for freight carried through the state, though collected wholly or partly elsewhere, and held outside of the state by a foreign corporation, was declared to be a tax on inter-state commerce. Similarly of the receipts of a steamship company, the tax was held to be virtually a tax on commerce. “Taxing is one of the forms of regulation. It is one of the principal forms. Taxing the transportation, either by its tonnage or its distance, or by the number of trips performed, or in any other way, would certainly be a regulation of the commerce, a restriction upon it, a 1 Cf. Gibbon vs. Ogden, 9 Wheat., I. 2 Welton vs. Mo. (1875), 91 U. S., 275; Cooley, Taxation, p. 94. 3 Reading Ry. Co. vs. Penna. (1872), 15 Wall.. 232. Reading Ry. Co. vs. Penna. (1872), 15 Wall., 284. 5 Fargo vs. Mich. (1886), 121 U. S., 230. burden upon it." In the taxation of the business of telegraph companies, it has been held unconstitutional to tax messages sent beyond the state, since that is "a regulation of foreign and inter-state commerce."2 The messages must be between points within the state. As to express companies, a tax on gross receipts within the state was upheld. It may be readily seen that some of these distinctions, often of no economic value and quite foreign to the spirit of the constitution, may operate to make unequal even a just system of taxation. The power of taxation in the commonwealths, except in respect to those matters in which the Federal constitution intervenes, are the same as those of an independent state. Of course the government of the commonwealth may be limited by its own constitution. There is also historically another limitation, which cannot be found in the constitutional limitations, either state or federal, but which has been announced by the Supreme Court of the United States. The states are denied the right to tax the choses in action of non-residents secured by property within the state, on the ground that such property is not within the jurisdiction of the state. The court undertook to dictate to the state of Pennsylvania what were the proper subjects of taxation. There seems good ground and authority for believing that this was an usurpation of power; there can be little question that the decision was a grave economic blunder. Four justices dissented from this opinion, viz., Justices Davis, Clifford, Miller and Hunt. Davis, J., in giving the dissenting opinion, said: “I am always of opinion 1 Phila. & So. S. S. Co. vs. Penna. (1887), 122 U. S., 326. 2 Tel. Co. vs. Texas (1881), 105 U. S., 460. 3 West. U. Tel. Co. vs. Seay (1890), 132 U. S., 472. Pacific Ex. Co. vs. Seibert (1891), 44 Fed. R., 310. 5 Foreign Held Bonds Case (1872), 15 Wall., 300. 6 Cf. Cooley, Taxation, p. 5. 7 Cf. Seligman, Taxation of Corp., op. cit., p. 653. that a state legislature is not restrained by anything in the federal constitution, nor by any principle which this court can enforce against the state court, from taxing the property of persons which it can reach and lay its hands on, whether these persons reside within or without the state." The commonwealths are bound not only by the provisions of the federal constitution, in the matter of taxation, but also, in a more important and particular manner, by the state constitutions. The general provisions of these instruments are that taxation shall be uniform, and that it shall be levied on all persons or property. This however is not true of all. Other provisions sometimes found are that taxation shall be ad valorem, that it shall be proportional, or that it shall be equal on all persons in the same class. The taxation of the federal government has been generally indirect, i. e., through duties or imports and internal revenue excises. Of these we need speak no further. But there have been direct taxes laid at different times. The first direct taxes on lands, houses and slaves, were levied three times, and apportioned in the manner provided by the constitution. There have been also excise or license taxes on certain occupations, which, however, were hardly direct taxes. The chief direct taxes which have been levied by the federal government are the income taxes. These were first established during the war, but shortly after abolished. Within the past year the income tax has been revived. The systems of taxation in the several states have a more remote origin, and an extremely diverse history. Suffice it to say that whether the original system was principally composed of capitation, excise, property, or other taxes, the general tendency in all states was to adopt the taxation of property as the central feature. All the states at present have a general property tax. This is supplemented by other taxes, such as poll taxes, taxes on occupations or sales, license taxes, etc. The taxes on occupations often occupy a prominent place in the sytem, and sometimes are of almost equal importance to the property tax. This is the case in some southern states. Income taxes are rarely found, and only as subordinate features. This may be said to be the condition also of the different commonwealths in the first half of the century. But with the growth of great corporations, of railroads, banks, insurance companies, and others, a demand more or less general appeared for special forms of taxation. Beginning in New York and Pennsylvania, and gradually spreading into other states, the special taxation of corporations was developed.' The principle was not everywhere accepted, however; and though the existence of corporations generally necessitated peculiar modes of valuation and assessment, the property valuation, as such, was not discarded. In some cases the differences are traceable to peculiar constitutional provisions and their judicial interpretation. Often special methods are adopted to obtain a just taxation of a corporation possessing great amounts of exempted property. This is very commonly seen in the taxation of savings banks. The inter-state complications, and the conflicts of taxing authority, in respect to corporate property, especially of railroads, telegraph companies, pipes lines, express companies, mining and manufacturing corporations, have led to specialization also. One other form of taxation, though not of recent origin, that has become general only within the last few years, is the inheritance or succession tax. This originated in Pennsylvania, and, like the corporation taxes, was for a long time unknown to most of the other States. It was also . a part of the "war" tax system of the general government. 1 Cf. Seligman, Taxation of Corp., p. 270, et seq., pp. 298-9, etc., op. cit. 2 Cf. Commonw. vs. Hamilton M'f'g. Co. (1866), 94 Mass., 298. Home Insur. Co. vs. State (1890), 134 U. S., 594. Provident Inst. vs. Mass. (1867), 6 Wall., 611; Soc. for Savings vs. Coite (1867), 6 Wall., 594. CHAPTER III, PROPERTY AND DEBTS. THE taxation of property and the deduction of indebtedness has been a subject of great controversy in this country. The fact that taxation is on property, and not on income, made the question open to dispute. As to income taxes, at least in a civilization advanced beyond the feudal stage, where tithes prevail, there can hardly be any question that the basis of taxation is on net income. The reason for this is that all income taxes look in a more direct manner to the persons receiving the income than to the sources from which the income is derived. With property taxes, however, the idea is much more mixed. The tax on property may be easily regarded as a charge upon things and not upon persons. In fact, this is often the acknowledged principle. It is particularly obvious in land taxes.1 Taxes on land have been said to be "a sort of first claim on its revenues regardless of ownership." This idea is applicable to personal property also. In fact, the tax process in some states is held to be a process in rem, and the obligation a real obligation. A remarkable example of the application of this principle in the taxation of choses in action may be here referred to. In Connecticut, the holder of a mortgage or other taxable security may pay a certain definite 1 Cf. N. Y. Laws, 1885, ch. 411. 2 Ely, Maryland Tax Com., 1888, p. 183. 3 Cf. Va. Acts, 1889-91, ch. 244, § 1; Wright vs. Merriwether (1874), 51 Ala., 183; Varner vs. Calhoun (1872), 48 Ala., 178; Dreake vs. Beasley (1875), 26 O. S., 315; Perry vs. Washburne (1862), 20 Cal., 318; People vs. Seymour (1860), 16 Cal., 332; Glasgow vs. Rowse (1869), 43 Mo., 479. |