TITLE V. OF THE TAXATION OF CORPORATIONS. CHAPTER XIX. GENERAL PRINCIPLES OF TAXATION. 461. Scope of title: incidence of § 466. Discriminating tax. taxation upon both domestic and foreign corporations. 462. Jurisdiction to tax: person, property and acts. 463. Constitutional provisions: complete taxation. 464. Power to exempt from taxation. 465. Constitutional provisions: equality of taxation. 467. Instrumentalities of the Fed- 468. Patents and copyrights. 470. Separate taxation for State 471. State boards of valuation. 472. Foreign corporations. § 461. Scope of title: incidence of taxation upon both domestic and foreign corporations. This title does not purport to contain the whole law regarding the taxation of corporations. The object of it is to set forth such statutory and common law as is useful for a person in one State to know about the tax laws of another State. All consideration, therefore, of machinery for assessment and of procedure for collection of taxes is out of place. Nor is it desirable to examine the rules for the division of the proceeds of taxation between different localities. How far it is desirable to include the rules for the taxation of special corporations, such as railroads and telegraph companies, which are in most States dealt with by themselves and not in accordance with the general rules, is hard to deter mine. It will no doubt be found that no logical method of settling the question has been selected; but on the whole the desire has been to go into the particulars of such taxation only in so far as it illustrates general principles, and therefore bears upon the problems of taxation of ordinary corporations. Nor is any consideration given to assessment for local improvements. While this is a kind of taxation, it has no special connection with corporations, foreign or domestic, and falls outside the scope of this book. The object of this Title is twofold; first, to enable one who is desirous of forming a corporation to know in what State the corporation may be formed with the least burden of taxation, or one who is or intends to become a stockholder to know what is the burden of taxation upon the corporation in question; secondly, to enable the members of a corporation to know what will be the burden of taxation upon the corporation if it engages in business in another State. For the first purpose it is necessary to study the rules for the taxation of domestic corporations; for the second, the rules for the taxation of foreign corporations. In brief, then, the scope of the Title is the study of the incidence of taxation upon both domestic and foreign corporations. As to the taxation of foreign corporations there is no choice; all foreign corporations are treated alike.1 It is impossible, therefore, by choosing one State of incorporation rather than another, to affect the burden of taxation in any other State. But the burden of taxation of domestic corporations differs greatly in the different States; and it is, therefore, one of the matters legitimately to be considered in choosing a place of incorporation. The taxation levied on the property and the privileges of a corporation, which it ought not to escape, is imposed wherever it has property and does business; and this taxation it cannot escape by choosing one State rather than 1 See an exception to this general statement in the retaliatory legislation of several States, collected in Chapter VI. another for its place of incorporation. The taxation which depends on the choice of a place of incorporation is merely that which is imposed in return for the permission granted by the State to become a corporation; and there is no ethical or legal impropriety in purchasing such permission at the lowest price for which it is offered. § 462. Jurisdiction to tax: persons, property and acts. The jurisdiction of a State to levy taxes, like jurisdiction in general, depends in the last analysis on power. A State may lay a tax on anything from which it has power to exact payment. It may tax all persons domiciled within its territory, all property situated within its territory, and all acts done within its territory. As Mr. Justice Field said:2 "The power of taxation, however vast in its character and searching in its extent, is necessarily limited to subjects within the jurisdiction of the state. These subjects are persons, property, and business. Whatever form taxation may assume, whether as duties, imposts, excises, or licenses, it must relate to one of these subjects. It is not possible to conceive of any other, though, as applied to them, the taxation may be exercised in a great variety of ways. It may touch property in every shape, in its natural condition, in its manufactured form, and in its various transmutations. And the amount of the taxation may be determined by the value of the property, or its use, or its capacity, or its productiveness. It may touch business in the almost infinite forms in which it is conducted, in professions, in commerce, in manufactures, and in transportation. Unless restrained by provisions of the Federal Constitution, the power of the state as to the mode, form, and extent of taxation is unlimited, where the subjects to which it applies are within her jurisdiction." The corporation as a person, not being able to leave the State of charter and become domiciled in a foreign State, cannot be taxed except by the State which created it; but 2 State Tax on Foreign-Held Bonds, 15 Wall. 300, 21 L. ed. 179. the power of taxation in that State is complete. The property of the corporation is within the jurisdiction of the State in which it is situated, and may there be taxed. Such property may be tangible or intangible. Just what intangible property may be said to exist and where it is situated are questions of difficulty which must be considered at length; but the power to tax such property wherever it really exists is undoubted. The privilege of acting may be taxed by any State which grants the privilege; unless indeed the State is by the Constitution of the United States required to permit the act, in which case there is nothing to tax. It is to be noticed that any statute levying a tax which is passed by a legislature will be enforced unless such legislation is either outside the jurisdiction of the State or forbidden by the Constitution. Further, the form of the statute has no bearing upon the right of the legislature to pass it. A statute may therefore be passed, purporting to be a tax on a foreign corporation as a person; but if it is in substance levied upon the property of the corporation within the State or upon the privilege of doing business within the State the statute is valid. So a tax which purports to be levied upon property may be valid as a tax on the organization of a domestic corporation, or on the business of a foreign corporation; and conversely a tax which purports to be a franchise tax may be essentially a tax on property. In short the legality of a tax act depends on the substance of it rather than on its form. § 463. Constitutional provisions: complete taxation. By the Constitutions of many States, all property of a corporation is subject to taxation. A typical article is that of the Constitution of Ohio, providing that "The property of corporations, now existing or hereafter created, shall forever be subject to taxation, the same as the property of individ 3 See for instance P. v. Equitable Trust Co., 96 N. Y. 387. 4 See for instance Miller, J., in Western U. Tel. Co. v. Massachusetts, 125 U. S. 530, 547, 31 L. ed. 790. 7 uals." Such a provision would of itself, it seems, prevent a legislature from granting exemptions from taxation not justified by express provision of the Constitution. But in some States the legislature is expressly forbidden to exempt. "No property shall be exempt from taxation except as provided in this Constitution; and every grant of a franchise privilege or exemption shall remain subject to revocation, alteration or amendment." "The power to tax corporations and corporate property shall not be surrendered or suspended by act of the general assembly." " "The power to tax corporations or corporate property shall never be relinquished or suspended." "The power to tax corporations and corporate property shall not be surrendered or suspended by any contract or grant to which the State shall be a party." "The legislature shall have no power to release or discharge corporation . . . from . . its proportionate share of taxes to be levied for State purposes, or due any municipal corporation, nor shall commutation from such taxes be authorized in any form whatever." 11 any 9 " 10 5 Const. Ohio, Art. 13, § 4. See to the same effect Ala. Const. Art. 11, § 6; Cal. Const. Art. 13, § 1; Colo. Const. Art. 10, § 10; Ga. Code, § 777; Idaho Const. Art. 7, § 2; Ill. Const. Art. 9, § 1; Iowa Const. Art. 8, § 2; Ky. Const. § 174; Miss. Const. § 181; Mont. Const. Art. 12, § 7; Neb. Const. Art. 9, § 1; Nev. Const. Art. 8, § 2; Tex. Const. Art. 8, § 1; Utah Const. Art. 13, § 10; Wash. Const. Art. 7, § 3; W. Va. Const. Art. 10, § 1. • South Covington & C. St. Ry. v. Bellevue, 105 Ky. 283, 49 S. W. 23; Railroad v. Adams, 77 Miss. 194, 24 So. 215. 7 Ky. Const. § 3. 8 Mo. Const. Art. 10. To the same effect Col. Const. Art. 10, § 9; La. Const. Art. 228; so "the general assembly shall not pass any local or special law exempting property from taxation," ibid. Art. 48. 9 Mont. Const. Art. 12, § 7; to the same effect, Idaho Const. Art. 7, § 8. 10 Pa. Const. Art. 9, § 3. To the same effect, Ark. Const. Art. 16, §7; Cal. Const. Art. 13, § 6; Ga. Const. Art. 7, § 2, par. 5; S. Dak. Const. Art. 11, § 3; Texas Const. Art. 8, § 4; Wash. Const. Art. 7, § 4. The same, adding after "the State" the words "or any political subdivision thereof," Miss. Const. 182. Adding "or any county or other municipal corporation," N. Dak. Const. Art. 11, § 178; Wyo. Const. Art. 15, § 14. 11 Neb. Const. Art. 9, § 14. |