engaged in interstate commerce is invalid, and although this purported to be a franchise tax, yet the substance rather than the shadow was to be looked at. This tax was in lieu of another tax on property, and did in fact stand for a tax on the intangible property within the State, and it was therefore valid. The court thus summed up the principles on which the case proceeded: 65

It is settled that where, by way of duties laid on the transportation of the subjects of interstate commerce or on the receipts derived therefrom, or on the occupation or business of carrying it on, a tax is levied by a state on interstate commerce, such taxation amounts to a regulation of such commerce, and cannot be sustained. But property in a state belonging to a corporation, whether foreign or domestic, engaged in foreign or interstate commerce, may be taxed, or a tax may be imposed on the corporation on account of its property within a state, and may take the form of a tax for the privilege of exercising its franchises within the state, if the ascertainment of the amount is made dependent in fact on the value of its property situated within the state (the exaction, therefore, not being susceptible of exceeding the sum which might be leviable directly thereon), and if payment be not made a condition precedent to the right to carry on the business, but its enforcement left to the ordinary means devised for the collection of taxes. The corporation is thus made to bear its proper proportion of the burdens of the government under whose protection it conducts its operations, while interstate commerce is not in itself subjected to restraint or impediment. . .

"Doubtless, no state could add to the taxation of property, according to the rule of ordinary property taxation, the burden of a license or other tax on the privilege of using, constructing, or operating an instrumentality of interstate or international commerce, or for the carrying on of such commerce; but the value of property results from the use to which it is put, 65 At pp. 695, 700.

and varies with the profitableness of that use, and by whatever name the exaction may be called, if it amounts to no more than the ordinary tax upon property, or a just equivalent therefor, ascertained by reference thereto, it is not open to attack as inconsistent with the constitution.

"We are of opinion that it was within the power of the state to levy a charge upon this company in the form of a franchise tax, but arrived at with reference to the value of its property within the state, and in lieu of all other taxes, and that the exercise of that power by this statute, as expounded by the highest judicial tribunal of the state in the language we have quoted, did not amount to a regulation of interstate commerce, or put an unconstitutional restraint thereon."

And this same reasoning was applied in sustaining a "franchise" tax which was calculated upon the basis of the intangible property as well as the tangible property within the State, and on the same principle it has been held in the converse case that, though the statute recites that the tax is in lieu of an ad valorem tax on property of the company located within the State, it is, if it exceeds the amount which could properly be levied under the property tax law, void as a regulation of commerce.67

§ 760. Taxation of proportion of intangible property.

The result of these cases is a form of taxation now very generally adopted in the case of corporations engaged in interstate commerce. The principle involved is to tax in each. State a certain proportion of the whole assets of the company; the proportion being based on a comparison of the business done within the State to the whole business of the corporation. The effect is to include within the property of the corporation legally taxable by the States a proportion of all the intangible

66 Adams Express Co. v. Kentucky, 166 U. S. 171, 41 L. ed. 960; Adams Express Co. v. Ohio State Auditor, 166 U. S. 185, 41 L. ed. 965; Coulter v. Weir, 127 Fed. 897.

67 Postal Tel. Cable Co. v. Richmond, 99 Va. 102, 3 Va. Sup. Ct. Rep. 39, 37 S. E. 789.

as well as the tangible assets of the company. The various forms taken by this tax are well summed up by Mr. Chief Justice Fuller in Adams Express Company v. Ohio State Auditor: 68

"As to railroad, telegraph, and sleeping car companies engaged in interstate commerce, it has often been held by this court that their property, in the several States through which their lines or business extended, might be valued as a unit for the purposes of taxation, taking into consideration the uses to which it was put, and all the elements making up aggregate value, and that a proportion of the whole, fairly and properly ascertained, might be taxed by the particular State, without violating any Federal restriction.60 The valuation was, thus, not confined to the wires, poles, and instruments of the telegraph company, or the roadbed, ties, rails, and spikes of the railroad company, or the cars of the sleeping car company, but included the proportionate part of the value resulting from the combination of the means by which the business was carried on, a value existing to an appreciable extent throughout the entire domain of operation. And it has been decided that a proper mode of ascertaining the assessable value of so much of the whole property as is situated in a particular state is, in the case of railroads, to take that part of the value of the entire road which is measured by the proportion of its length therein to the length of the whole,70 or taking as the basis of assessment such proportion of the capital stock of a sleeping car company as the number of miles of railroad over which its cars are run in a particular State bears to the whole number

68 165 U. S. 194, 220, 41 L. ed. 683.

69 Citing Western Union Tel. Co. v. Massachusetts, 125 U. S. 530, 31 L. ed. 790; Massachusetts v. W. U. Tel. Co., 141 U. S. 40, 35 L. ed. 628; Maine v. Grand Trunk Ry., 142 U. S. 217, 35 L. ed. 994; Pittsburgh, C. &c. Ry. v. Backus, 154 U. S. 421, 38 L. ed. 1031; Cleveland, C. &c. Ry. v. Backus, 154 U. S. 439, 38 L. ed. 1041; Western Union Tel. Co. v. Taggart, 163 U. S. 1, 41 L. ed. 49; Pullman's Palace Car Co. v. Pennsylvania, 141 U. S. 18, 35 L. ed. 613.

70 Citing Pittsburgh, C. &c. Ry. v. Backus, 154 U. S. 421, 38 L. ed. 1031.

of miles traversed by them in that and other States," or such a proportion of the whole value of the capital stock of a telegraph company as the length of its lines within a State bears to the length of all its lines everywhere, deducting a sum equal to the value of its real estate and machinery subject to local taxation within the State.72

"Doubtless there is a distinction between the property of railroad and telegraph companies and that of express companies. The physical unity existing in the former is lacking in the latter; but there is the same unity in the use of the entire property for the specific purpose, and there are the same elements of value arising from such use.”

Taxation of this sort, however, must not include any property which has a situs outside the taxing State. If such property were included in the computation, it could no longer be regarded as the exaction of a tax for the protection of property but must stand or fall as a franchise tax; and as such it would be an unconstitutional interference with interstate commerce.73

§ 761. Tax on special franchise granted by State.

It is of course clear that although a State may not exclude a corporation engaged in interstate commerce, it is not obliged to grant a franchise to such a corporation, as for instance to make it a domestic corporation. No fee exacted for the privilege of becoming a corporation under the law of the State can be contrary to the Constitution of the United States, whatever may be the business of the corporation.74

$762. Tax as return for special police supervision.

When the State finds it necessary to furnish special police supervision for a foreign corporation engaged in interstate

71 Citing Pullman's Palace Car Co. v. Pennsylvania, 141 U. S. 18, 35 L. ed. 613.

72 Citing Western Union Tel. Co. v. Taggart, 163 U. S. 1, 41 L. ed. 49. 73 Fargo v. Hart, 193 U. S. 490.

74 Ashley v. Ryan, 153 U. S. 436, 38 L. ed. 773.

commerce, it may legally and constitutionally oblige the corporation to pay the reasonable expense of such supervision. Such expense need not necessarily be paid out of the general tax levy. The exaction of compensation for the supervision furnished is not a tax in any proper sense; it is compensatory, even though the amount is estimated and exacted in advance.75 But if the amount exacted by way of license fee is found to be unreasonable, the tax is invalid.76 And where the evidence showed that nothing had been done or attempted by the local authorities for the protection of the lives and property of its citizens, and that the fee charged is many times what such protection would cost, the tax is unreasonable and invalid."

8763. General conclusion.

It would seem then that a State tax upon a foreign corporation engaged in interstate commerce in order to be valid must fulfill two requirements: first, it must be levied equally upon domestic and foreign corporations; second, it must in substance be a means of making property within the State bear its share of the burdens of government, or of paying for the grant of special privileges or for special services not connected with interstate commerce. If the tax fails in either of these respects it is a tax on commerce, and is invalid.

75 Western U. T. Co. v. New Hope, 187 U. S. 419, 47 L. ed. 240; Altantic & P. Tel. Co. v. Philadelphia, 190 U. S. 160, 47 L. ed. 995.

76 Postal Telegraph Cable Co. v. New Hope, 192 U. S. 551. 77 Postal Telegraph Cable Co. v. Taylor, 192 U. S. 641.