§ 464. Power to exempt from taxation.

In the absence of such provisions against exemption, a State may, it would seem, grant such exemptions from taxation as it pleases; 12 and in several States there are special provisions granting such exemptions. Thus in Delaware "the general assembly may by general laws exempt from taxation such property as in the opinion of the general assembly will best promote the public welfare;" 13 and in Mississippi and Louisiana manufactories, railroads, or other enterprises of public utility may be exempted.14 In accordance with this policy several States have exempted from taxation for ten years manufacturing establishments to be erected in a town.15

An exemption once absolutely made becomes a contract, and cannot be withdrawn by the State.16 It is usually provided in the charter that the provisions of it (in which the exemption from taxation is usually found) shall be subject to amendment; and such exemptions are sometimes withdrawn by a general law,17 though on the other hand after a change of general policy by the State existing exemptions may be preserved. 18 An exemption granted in the State of charter can have no force, of course, in another State. 19 And

12 It will be noticed that the following States have no constitutional provision against exemption from taxation: Conn., Del., Fla., Ind., Kan., Me., Md., Mass., Mich., Minn., N. H., N. J., N. Y., N. Car., Ore., R. I., S. Car., Tenn., Vt., Va., Wis.

13 Del. Const. Art. 8, § 1.

14 La. Const. Art. 230; Miss. Const. § 182; 1900, ch. 48, § 1.

15 N. H. Stat. ch. 55, § 11; R. I. Gen. L. ch. 44, § 5. The period of exemption is five years, and the establishments are for the manufacture of cloth or ships: Ala. 1901, No. 1151, § 2. The town cannot extend the exemption for a second period: Boody v. Watson, 63 N. H. 320.

16 Raleigh & G. R. R. v. Reid, 13 Wall. 269, 20 L. ed. 570; Winona & S. P. R. R. v. County, 3 Dak. 1, 12 N. W. 561; St. v. Dexter & N. R. R., 69 Me. 44. "The impolicy of this legislation is apparent, but there is no relief to the state, for the rights secured by the contract are protected from invasion by the constitution of the United States." Davis, J., in Raleigh & G. R. R. v. Reid, supra.

17 Vt. Stat. § 594.

18 Del. 1901, ch. 15, § 19.

19 P. v. Coleman, 135 N. Y. 231, 31 N. E. 1022.

so an exemption of the taxation of State bonds by the debtor State cannot exempt the bonds from taxation in another State.20

§ 465. Constitutional provisions: equality of taxation.

It is often provided that taxation shall be "equal and uniform," 21"so that every person and corporation shall pay a tax in proportion to the value of his, her or its property." In Massachusetts it is provided that taxes shall be "proportional and reasonable," 23 and this has been held to prevent a tax upon the franchises and privileges of a corporation as a property tax.24 This result is prevented in a few States by express provision. Thus in Illinois "the general assembly shall have power to tax. . . toll bridges, ferries, insurance, telegraph and express interests or business . . . and persons or corporations owning or using franchises or privileges in such manner as it shall direct by general law, uniform as to the class upon which it operates." 25 So in Kentucky "nothing in this Constitution shall be construed to prevent the general assembly from providing for taxation based on income, licenses or franchises; " 26 and in Idaho "the legislature may also impose a license tax (both upon natural persons and upon corporations, other than municipal, doing business in this State)." 27

In the absence of a special provision in the Constitution there is no requirement of equality in taxation. Even under that clause of the Fourteenth Amendment to the Constitution

20 Bonaparte v. Tax Court, 104 U. S. 592, 26 L. ed. 845.

21 W. Va. Const. Art. 10, § 1; to the same effect, Ga. Const. Art. 7, § 2. 22 Ill. Const. Art. 9, § 1. To the same effect, Cal. Const. Art. 13, § 1; Ida. Const. Art. 7, § 2; Ky. Const. § 174; Neb. Const. Art. 9, § 1; Tex. Const. Art. 8, § 1; W. Va. Const. Art. 10, § 1.

23 Mass. Const. Part II, Art. 4.

24 Com. v. Hamilton Mfg. Co., 12 All. (Mass.) 298.

25 Ill. Const. Art. 9, § 1; Neb. Const. Art. 9, § 1.

26 Ky. Const. § 174.

27 Ida. Const. Art. 7, § 2.

of the United States which guaranties equal protection of the laws, a State may so adjust its tax system as to fall differently upon different classes of property, so long as all property of the same class, whether belonging to residents or to nonresidents, is taxed equally.28 "The mere fact of classification is not sufficient to relieve a statute from the reach of the equality clause of the fourteenth amendment, and in all cases it must appear, not merely that a classification has been made, but also that it is based on some reasonable ground,-something which bears a just and proper relation to the attempted classification, and is not a mere arbitrary selection." 29

Even under a State constitution which provides that taxes must be equal and uniform, a classification of corporations into resident and non-resident, taxed at different rates, is based on a reasonable distinction and is valid.30

§ 466. Discriminating tax.

A tax which improperly discriminates between different classes of taxable property may be unconstitutional as depriving the owner of the equal protection of the laws, or as taking property without due process of law. Thus while it is permissible for a State to exclude a foreign corporation from its borders, if it does admit the corporation it must tax its property on the same basis on which other property is taxed. "It seems to be utterly inconsistent with legal principles which have always been deemed axiomatic to hold that a government can recognize the legal existence of a foreign corporation for the purpose of taxation, and at the same time can deny such legal existence for the purpose of depriving it of those rights which belong to every individual

28 Bell's Gap R. R. v. Pa., 134 U. S. 232, 237, 33 L. ed. 892; Home Insurance Co. v. New York, 134 U. S. 594, 606, 33 L. ed. 1025; Pacific Exp. Co. v. Seibert, 142 U. S. 339, 35 L. ed. 1035; New York v. Roberts, 171 U. S. 658, 43 L. ed. 323.

29 McKenna, J., in Magoun v. Bank, 170 U. S. 283, 42 L. ed. 1037.

30 Blue Jacket Consol. Copper Co. v. Scherr, 50 W. Va. 533, 40 S. E. 514.

or company known to the law. Such a doctrine would obviously offer the entire property of a foreign corporation as a prize to the rapacity of any State in whose territory it might be or over which it might happen to be carried." 31 But the right to classify subjects of taxation and to impose a tax on each class is undoubted.

32

The real question is whether the discrimination between different classes of property is based on reason. "We need not repeat the commonplaces as to the large latitude allowed to the States for classification upon any reasonable basis.3 What is reasonable is a question of practical details, into which fiction cannot enter. Practically, the law before us, in the broad aspect in which alone we are asked to consider it, seems to us to work out substantial justice and equality.' And it was held proper, in taxing corporate stock, to exempt from taxation stock in a corporation which had already paid a tax to the State upon its corporate assets. 34 A careful consideration of the question may be found in Blue Jacket Consolidated Copper Company v. Scherr.35

8 467. Instrumentalities of the Federal government.

11 33

Of course a State cannot tax or otherwise control the property of the Federal government, or the instrumentalities by which its powers are carried out.36 "As held in McCullock v. Maryland 37 the States have no power by taxation to impede, burden, or in any manner control the operation of the

81 Erie Ry. v. State, 31 N. J. L. 531, 86 A. D. 226.

32 Citing Pacific Exp. Co. v. Seibert, 142 U. S. 339, 351, 352, 35 L. ed. 1035, 1039; Gulf, C. & S. F. R. R. v. Ellis, 165 U. S. 150, 155, 41 L. ed. 666, 668; Nicol v. Ames, 173 U. S. 509, 521, 43 L. ed. 786, 793; Atchison, T. & S. F. R. R. v. Matthews, 174 U. S. 96, 43 L. ed. 909; American Sugar Ref. Co. v. Louisiana, 179 U. S. 89, 45 L. ed. 102.

33 Holmes, J., in Kidd v. Alabama, 188 U. S. 730, 47 L. ed. 669.

34 Kidd v. Alabama, supra.

35 50 W. Va. 533, 40 S. E. 514; infra, § 562.

36 Horn Silver Mining Co. v. New York, 143 U. S. 305, 36 L. ed. 164 (semble).

37 4 Wheat. 316, 436, 4 L. ed. 579.

constitution and laws enacted by Congress to carry into execution the powers vested in the general government; a doctrine which, applied in Weston v. City Council,38 annulled a tax levied by the authority of a law of South Carolina on stock issued for loans to the United States. Nor can this inhibition upon the States be evaded by any change in the mode or form of the taxation, provided the same result is effected; that is, an impediment is thereby interposed to the exercise of a power of the United States. That which cannot be accomplished directly cannot be accomplished indirectly. Through all such attempts the court will look to the end sought to be reached; and if that would trench upon a power of the government, the law creating it will be set aside, or its enforcement restrained." 39

For this reason a State cannot tax a franchise conferred upon a State corporation by the United States.40

But this exemption from taxation does not go so far as to prevent the ordinary taxation of the property of the corporation. Thus where an act of Congress confers special privileges on such telegraph companies as accept the provisions of the act and in turn requires certain services from the companies, making them post roads, a State may tax such a company upon such a proportion of its entire corporate assets as is invested in telegraph lines within the State. In the case of Western Union Telegraph Company v. Massachusetts," Mr. Justice Miller said: "While the State could not interfere by any specific statute to prevent a corporation from placing

38 2 Pet. 449, 7 L. ed. 481.

42

39 Field, J., in Home Insurance Co. v. New York, 134 U. S. 594, 33 L. ed. 1025.

40 California v. Central Pacific R. R., 127 U. S. 1, 32 L. ed. 150; Atlantic & P. Tel. Co. v. Philadelphia, 190 U. S. 160, 47 L. ed. 995.

41 Western Union Tel. Co. v. Massachusetts, 125 U. S. 530, 31 L. ed. 790; Western Union Tel. Co. v. Missouri, 190 U. S. 412, 47 L. ed. 1116; but see Postal Tel. Cable Co. v. Richmond, 99 Va. 102, 3 Va. Sup. Ct. Rep. 39, 37 S. E. 789.

42 125 U. S. 530, 31 L. ed. 790.