*1 62Ó
with rules and him discharge well-settled from custody otherwise, assurance, by recognizance or proper he interrogation required. will This is appear of a properly all he could demand court under similar circumstances. consideration ex- question
Here the concerns the under ercise Senate ah indubitable power; d>£ .be., invoked it successfully can judicial interference can im- arbitrary showing clear constitute a use as will denial provident find That condition we are unable to process due law. present case. in the Judgment reversed. MASSACHUSETTS. THE MACALLEN COMPANY May Argued 27, 1929. April 25, 1929. Decided No. 578. *2 Mr. for appellant. Thomas Allen Cutter, Mr. Attorney B: Ammi Assistant General of Massachusetts, whom Mr. E. Attor- Joseph Warner, with was on the ney brief, appellee. General, T. G. filed Knight Messrs. Seth Cole and Stuart a brief New Tax Commission on behalf amid curiae (cid:127) York; by special of Court. leave opinion Mr. Justice Sutherland delivered the Court. 63, § 32,
A as amended Massachusetts, statute of L. c. G. Stat. c. 1, provides: § as., Except thirty-four otherwise in sections provided thirty-four A, domestic every business pay annually, shall to the carrying with of business of the follow- by it, equal excise to the sum ing, provided that annu- every pay such corporation shall a total twentieth excise than one ally not less amount *3 of per one cent the fair cash of all the shares con- value its dn first stituting April stock capital day the return section thirty-five called due: An amount to five (1) equal dollars thousand -per of its the value excess. corporate An to
“(2) per amount two and one half cent equal net in. income, its defined part chapter, as this from derived business carried on within the which is commonwealth.” 1925, L. c. By 63, c. 5, G. as amended Stat. 30, par. § “net ” — come defin e 1A, in
343, § d as in Income,’ otherwise except provided Net sections the net" for the tax- thirty-nine, and income thirty-four required corporation as to be returned year able under the federal revenue act government ap- federal thereto net as adding any for the losses period, plicable federal revenue act that have de- in been said defined required not so interest and dividends ducted, and all on shares of stock except as dividends net returned laws of the common- organized under the corporations paid capital.” from liquidation and dividends wealth in G. amendment, Before definition embodied § L. as before the par. 5, amended, Shortly pas- c. quoted of the last sage amendment, by Stat. c. 265 1, provided: § “ ‘ Net as except provided otherwise sections income/ thirty-four and the net income for the taxable thirty-nine, year required, returned to the ,be federal under federal revenue act government appli- cable adding any thereto net losses period, as defined by said fedéral revenue deducted, and, act that have been in the case of domestic inter- business corporation^' dividends, est so to be returned as required net income, as would be taxable received by. an inhabitant of this in the commonwealth; less, both case of a domestic foreign business corporation corporation, interest, returned, required so to be received upon bonds, indebtedness, notes and certificates of of the United States.” original definition net there income,
Thus/under was from expréssly excluded the net income at taxable two and one-half cent per all interest received bonds, *4 Liberty States bonds and Federal Farm Loan Bonds. The Liberty bonds statute of the United States ex pressly made exempt from all taxation imposed by any state, except estate or inheritance taxes. C. 56, Stat. 288, 291, § 7. Federal Farm Loan bonds are issued under of authority c. 245, 39 360, Stat. and, by 380, p. § declared to be instrumentalities of the United States and both as to.principal and income exempt from all state taxa- of bonds large a number
tion. The also owned when which, of Massachusetts counties and municipalities from exempt issued and the were acquired corporation, 59, 5, a G. L. c. by the of state statute. taxation terms § securities, course, Of of United States par. A tax, state how- superfluous. statutory exemption the derived there- securities interest small, upon ever interfere with the interferes or tends- to constitu- from,' money the to borrow general government power tional of States, constitutes a burden the credit United bn of and carriéd far government; operations The principle destructive. set forth would enough prove Charleston, Pet. 449, in Weston v. century ago from this Court: departed been never since extent, tax the contract to- any right The to borrow must before it is made, operate upon have influence on exercised, and a sensible the contract. depends of influence on the will The this extent dis- extent, any however inconsiderable, tinct government; of government. the operations it is a burden shall arrest' them entirely.” extent carried Moines, Bank v. Des 205 U. S. Savings 503, 513. Home of the state assessed taxing against authorities ap- a tax under the provisions for the year pellant, first quoted, statute as above then-existing adding, for assessment,, computing amount purpose appellant determined by net income fed- all, returns of appellant, sums income tax interest- eral from the foregoing States, United appellant received municipal bonds. Loan, county Without Farm original definition under of net addition, and in- tax assessed would come, amount have been materially less. assessed under the amount paid protest and
Appellant abatement of the tax under brought petition pro- setting forth the law, foregoing of the state facts visions *5 unconstitutionality, under alleging the federal of the as held in- Constitution, statute insofar was to derived from the clude interest securities: tax-exempt an (1) contracts; (2) impairing obligation as as from se- attempt impose to income derived (3) and instrumentalities curities of the United States; as its without due depriving petitioner property proc- ess of denying equal law and of the law protection it. in violation of the Amendment; (4) Fourteenth an im- pairment derogation of the Congress money borrow on for the credit States; United other reasons not for present to be set necessary purposes forth.
A Justice Supreme Judicial Court sustained demurrer to On petition. affirmed appeal, this was by the full and the court, petition court, dismissed. That through its Chief Justice, delivered a carefully drawn opinion, numerous reviewing decisions of this Court bear- ing upon question involved. was held to income, not a be but excise “with on or business,” as the carrying statute itself While form declares. it was plain the tax was than it would been if larger have the income from the securities, had not tax-exempt been added to the other making items the factor of net up income,” the in. court held that incomé was not taxed, but simply employed together with the other items in ascertaining measure computing excise.
The words of the act and the opinion of the state court as to the nature the tax given consideration and weight; but they are not conclusive. many .As it times been decided, neither state courts nor legisla tures, by giving the tax a particular using- name, some form words, can take away our duty consider its nature and effect. Choctaw & R. Harrison, R. v. Gulf 235 U. S. 298; Galveston, &c. Co. Harrisburg, Ry.
'626 *6 deter- And this Court must 217, 227.
Texas, 210 U. S. whether tax inquiry by independent mine for itself court, of the state decision in form and what, here is on the be, privilege an excise namely, is it declared tax designation,' of that guise under the business, or, of doing derived a tax on the income reality inis substance and If, form,— by varying securities. from tax-exempt for a tax instead one name to say, if, by using that is a in -one subject or tax terms another, imposing substance effect at, is aimed reality another —the limita- constitutional may changed, of the imposition be naught. come to of taxation -would tions upon powers effect, cases following To this The rule is otherwise. may cited as illustrative. be' importer of an occupation
A laid in terms on the tax 12 a Brown v. Maryland, in effect tax on imports. is that a state 444. the contention Answering Wheat. nothing that this tax was occupation, an tax Marshall said: Justice more, Chief is from ourselves, to conceal that this impossible It is is form, varying without the substance. varying as it general, which is if were con- a treating prohibition thing." the forbidden mode particular fined to a article, im- a tax on the sale All must that perceive, .. . . on itself. sale, a tax ported article mafr occupation importer is, of an in like on the So, price It must to the importation. on add ner, a tax importer consumer, be article, paid on the article duty manner a direct himself, in like right be made. This the state itself would the constitution.” do, prohibited by because tax on the office is a A on the income of an office form the office ex- itself,, and cannot be laid County, Erie Dobbins v. The Commissioners empt. 435. 16 Pet.
627 A tax on sales made an auctioneer is a tax/on the goods, sold, and, goods where such imported and sold for the the law importer, authorizing the tax is void as duty imports. Cook imposing Pennsylvania, v. U. S. 566.
A lading a bill stamp substance and- a tax upon thing transported, effect of its because necessary shipment. association with the Almy v. Cali Parham, How. 174. And fornia, see Woodruff 8 Wall. Oil Oklahoma, Indian Co. 522, 530, U. S. a tax
upon oil leases of lands of Indians under the protection *7 the government, by federal made authority of such gov- in ernment, was held void as a being fact the upon to make leases and power capable the. used to being It destroy power. such was said that the since lessees federal were instrumentalities state could not their in or interest the leases either directly as they were repre- stock of by capital sented the corporations owning . “A tax the leases is a tax upon upon them. the power to could be them, make used to destroy the power to If they cannot make them. be taxed as entities they can- not be taxed vicariously taxing stock, only whose is their value, taking value the stock anas evidence of their rather value, or measure than by directly esti- of Equalization them as Board mating and the referee did.” Crosland,
In Federal Land Bank v. 261 U. S. this condemned,, beyond Court as the constitutional power of state, subjecting a statute mortgages executed to a Land Bank to payment a Federal recording tax, as the mortgages. effect a tax being upon pot extend the like necessary list cases of effect.
628- upon
The
its decision
a series
predicates
court below
Co.,
220
S.
Tracy
decisions which Flint v. Stone
U.
a
that
tax law
163-165,
holding
the extreme example,
of corporate.
exercise
fully imposed
privileges
upon
from,
be measured
may
within the taxing power
corporation although
part
the property
also
See
property.
incomé is derived from non-taxable
York, 134
594; Society
Home Ins.
U. S.
Co. v. New
Institution v.
Savings
Coite,
594;
Provident
Wall.
out
Massachusetts,
The distinction pointed
Maryland, Wheat. been reiter destroy,” frequently power volves the course, important Court. The principle, ated a non the tax is to be sought imposed where Moore, or, said in Knowlton v. subject, taxable destroy . the 41, 60, U. S. . . why right of taxation is reason consequence *8 lawfully subjects which bemay to be tax should confined that in even some therein, although happens embraced harm be caused the great by no instance particular subject to a is authority as which of the taxing exercise the power to tax be only may Not scope.” its beyond or government for but one oppressively, exercised —state or se instrumentalities the a tax lay national —to dignity, latter’s to derogatory of the other curities to paramount repugnant and its powers, subversive its. Co., 127 Railroad See authority. Pacific California rea and compelling U. 41. These constitute special S. that here acts why courts, taxing like scrutinizing sons an exac between distinguish should be acute to involved, what it pretends tion reality-is which substance sub to a to a non-taxable be, lay scheme a ject fact that a tax use of words. The deceptive to measured ostensibly subject laid taxable be upon a once subject suggests the value of non-taxable at .that it was the latter rather than the former probability sought that If discloses inquiry reach. law-maker persuasive such grounds the conclusion that is the real effect the tax purpose legislation, cannot be upheld subverting without rule well-established that “. . what cannot directly . be done of constitu because tional restriction cannot be accomplished indirectly by legislation accomplishes the same result. con . . . stitutional whether provisions, operating by way of grant limitation, or are to be enforced according their spirit, letter and and cannot be evaded any legislation not in which, though terms trespassing the letter, yet in substance destroy and effect grant limitation.” States, Fairbank v. United U. S. 294, the consideration legislation, controlling be principle, constantly mind, borne in is that the state cannot or bonds of the United instrumentalities' States, what is the same or, thing, the income derived directly, or therefrom, indirectly say, it cannot —that them form. Words in-any which, literally considered, a tax import upon something else, tax, for example, —a privilege here, upon doing business measured i’n part amount of non-taxable interest received— nevertheless, be adjudged to may, lay tax upon from, interest, purpose fairly inferable a con history, sideration the surrounding circumstances,' itself or the statute considered in all its parts. See Home Moines, Bank Des Savings U. S. 510, 521. *9 liberty tax a corpora- On the one is at hand, the state On tion of its business. with to the the. corpora- other the the income the state cannot tax hand, necessarily It tion from non-taxable derived securities. an artful legislature may follows that use not, beyond of its to look words, authority this Court deprive And legislative the words to the real purpose. great practical
and the Court to do so is of duty simply aim of is For the legislature when importance. injurious likely it less impose to tax the former, aim is than directed burden the latter Galveston, Harrisburg against the latter. See primarily Texas, supra, p. &c. Co. v. Ry. had Milwaukee,
In 272 U. S. this Court Miller v. quite analogous consider a question occasion the state statute exempted here involved. that case held cor- the United States the income from bonds of stock- so taxing but much porations, provided to the income of corresponded holders’ dividends as holding This the tax Court, not assessed. 715) said : invalid, (p. in usual that conduct which principle is á familiar unlawful when may become protects law situations the If result. prohibited to reach a of a scheme part statute operation or self-evident purpose avowed make and to up the United States to follow the bonds of directly by indirectly them to reach inability for its must, fail but statute even achieving result, the same operation perfectly it would be special for its purpose the income from laws Wisconsin good. Under the exempted item not be United States bonds certainly but it tax on corporations, from the income exemption present at the instance most conspicuous the most offering foreseen intelligently A'result time. fairly about' bring that will for an act motive obvious On that act. purpose to have been may be taken
631 the assumption the of national bonds is immunity too important any narrowing beyond to allow the Acts what of Congress We think would too far permit. going be it say that an intentional that is they interference allow from prevented direct the artificial distinc- being tion between a and its A very members. may well be effect upheld against any may as casual it have of United when upon the bonds the passed States with intent a different and aimed but them, at it becomes A more attack their upon immunity serious théy its obvious aim. the Court must case consider the rather than welfare the artifices con- public trived for convenience and must look at the facts. private Wisconsin,
See also Northwestern Co. Ins. v. U. S. 136; Alpha Massachusetts, Co. 203, Cement U. S. 218; Frick Pennsylvania, Nat’l 268 U. 494-495; S. Ins. States, Co. v. United 277 U. S. Life A of the application foregoing principles, liberal find confirmation in the later especially decisions of this to the of Court, is essential the preservation constitutional of taxing limitations the the states. imposed it once be conceded that such Let limitations be adoption of a delusive name evaded to characterize tax' or form words describe it, destruc- vitality necessary of the these safeguards tion will soon - follow. In the it case, original present statute appears as a part from consideration the measure of exempted the non-taxable all interest securities. The now force has effect of amended act repealing ,and'imposing a'burden original provision upon the se- from.which, by express language, they curities had there- a distinct This was change been free'. policy tofore Commonwealth, adopted, of the as part though words, precise very been so declared had purpose tanto pro securities these subjecting burden of. conclusion, the tax. This confirmed, that be neces- by sary, report special appointed commission legislature investigate the subject of taxation banking institutions, Mass. House Documents, .1925 No. from which we quote: Further, Commission addressed itself to the ques- might what properly considered net ‘ tion income’ for the of this tax. purposes The national proposed banks trust their returns to companies the federal govern- ment to the State under the law 12%% *11 are allowed certain income from specified deductions of of in to the expense securities addition of types Conduct- ing their bad business, debts, losses, etc. The business are same also, allowed the corporations, deductions. In of the Commission there is reason opinion no valid exemption tax, for of this why, income purposes Corporations be differ from should allowed. the individ- hold ual. Business securities corporations exempt fit of their generally, they not because into purpose bearing they upon for the have organization, but tax payments. “ The which upon Commission hat income believes are this tax should so far as national banks laid, be con net income whatever should the total from cerned, be made deductions have been for source, proper after the losses. So far as the cost of business and relates case in should be the the same corporations, the business based the excise measure part of respect to the 2%% net income. ’ “ net for ‘ income It is true that this extension increase tax which business tax would this purpose investi- but the Commission after pay, now corporations relatively tax would be believes that such increased gation in Bonds and Liberty invested Many corporations small. patriotic for during war securities government other business corporations far as reasons, practice, so at and the generally prevalent present, is not concerned, any in the will not exist future to Commission believes its that such, So opinion extent. appreciable corporations business will not increased burden any, appreciable. and trust companies to national banks different. Considerable situation is somewhat amount funds of financial institutions are or surplus assets from invested from securities now exempt time time The income taxation either under federal state law. from banking relatively institutions these sources than In en much that of other greater corporations. for tax on deavoring equitable to reach a basis a fair and stated Commission, previously national banks Sec was limited to the methods under report permitted . A Statutes tion 5219 the United States Revised in the nature of an excise bank tax, .” equitable proper . .
This received report legislature the consideration fair and, it is constituted the basis adopt- suppose, re- amendment here ing the assailed. effect port is that non-taxable bonds nevertheless should be sub- jected to the burden of the tax; since that could and, *12 be imppsed directly, the clear intimation is that it be im- posed indirectly through the medium of the so-called “ excise.”
It has been suggested that the object of was change the. to conform the taxation of business corporations to that authorized by Congress for the taxation of national banks. Whether under recent federal statutes, states are author- ized to a impose upon the income from tax; United States bonds held by national banks, we need to in- not stop quire. Certainly there is no statute of the. United States which undertakes to authorize a state to impose a tax upon such bonds held by other kinds of corporations.. And what power Congress has under the Constitution in respect of such authorization we need not now determine.
It is authority, clear that even a given, impose in federal bonds the case of national banks does not include, by implication otherwise, the authority to ordinary a tax such bonds held impose upon corpora- ' tions. in that connection that suggested is also the amend and real question necessary, object ment in that its was, forbidden federal discrimination statutes avoid. . it national banks. that'if against enough say But it 'otherwise result must such discrimination would -be avoided method which does involve the impo some uniformly century a tax has been sition of which unconstitutional. condemned state by. Court Congress from infringing itself an*Act not save the Constitution. by violating act and We conclude that the amended substance in securities; federal and bonds imposes, effect the act and necessarily follows substance it municipal county effect also imposes act is both -the void. As to respects, bonds. .In derogation of the constitutional former, act of the United on the credit' money to borrow Congress Congress Acts as in as well violation States, noh-taxable; such bonds securities declaring obligation of the latter, impairs the act and as to the such bonds were of the state statutory contract taxation. exempt from state made
Judgment reversed Dissenting of Mr. opinion Justice Stone. State of Massachu-
Petitioner
is a
business
and the Conduct
its
very existence
setts.
Its
state,
by the
conferred
privileges
form
corporate
Constitution,
may tax. Under the
under the
which,
*13
up-
can be
present
Massachusetts
constitution of
635
only
held
ah excise and
and its predecessors have been
Mfg.
consistently sustained
S.
Dental
as excises.
S. White
Bank
212
Commonwealth,
35,
v.
Mass.
Portland
37;
Co.
12
Provident
Commonwealth
Apthorp,
252;
v.
Mass.
v.
Institution,
Hamilton
312;
94
Commonwealth v.
Mass.
Co., 94 Mass.
Mfg.
306; Eaton Crane & Pike Co. v.
298,
237
Cement
Commonwealth,
Mass.
Portland
523, 527; Alpha
Commonwealth, 244
C
v.
Mass.
This inter
547.
o.
pretation of
nature
of the exaction
been
has
repeatedly
approved by this Court.
Institution Massa
v.
Provident
chusetts, 6
Massachusetts,
Wall.
Hamilton
v.
6
611;
Co.
632;
Wall.
Baltic Mining
cf.
v.
231
Massachusetts,
Co.
68,
U. S.
National
84;
Massachusetts,
Leather Co. v.
S.
Massachu
413; Alpha
U.
Portland Cement
v.Co.
setts, 268 U. S.
216.
is imposed
“with
on
carrying
business,”
is collectible
has
engaged during
fact been so
the taxable
see
year,
Fore River
v.
Shipbuilding Corp.
Commonwealth,
636 and no decision of principle is no constitutional
There which would aware, deny I am Court, of which. privileges tax the which it has con state so to all its ferred even upon petitioner, though property in were securities the United States and exempt tax seventy years from For this Court come derived them. principle adhered to the either consistently im may' constitutionally governments federal or state for privilege an on of do corporations excise tax pose ing in-corporate measure tax form, business including or income of property corporation, net other or income derived from tax of the exempt securities Massachusetts, supra; Institution Provident v. them. Co. Hamilton Coite, 6 Savings 594; Wall. Society v. New Massachusetts, Home Insurance Co. v. v. supra; Co., 220 S.U. York, Tracy 134 U. v. Stone 594; S. Flint Co., a Federal Tracy 162-5. Flint Stone v. 107, on or on to. corporations carrying with ” held net was to be income, measured business income, and so was direct or excise, property not a 3, I, not cl. although § under. Art. valid, apportioned notwithstanding 4 of Constitution and cl. 9,§ municipal from bonds net income fact that exempt In no of the tax. was included in measure technical objection. Being an ex this tax does seem open sense may or income and not one on property the tax is cise directly although measurement include either its taxable. inheritance tax like
Upon principle state of United States bonds the value by including measured Coler, 115; 178 U. Plummer S. v. decedent. 12; compare U. Greiner Silberman, S. Blodgett v. an excise on a cor Similarly 258 U. Lewellyn, S. v. outstanding stock, capital measured its may be poration Shartel, ante, 429; Hump Hair- p. v. Shoe Co. International income, net pin Emmerson, 258 U. its 290; Co. S. Chamberlain, U. S. Typewriter Co. Underwood Creek, supra, 120; United States Glue v. Oak Co. even in or of its though a is used some capital of its part derived from interstate commerce. .policy would seem that only public considerations of wanting, weight, wholly would be here appear It has justify overturning a so established. long principle *15 great survived a of war, by government financed the sale suggested and it never even been that in obligations; any way the practical dignity it. has either or impaired credit of the government. national
I a suppose certain would be advantage by enjoyed corporation if in the the of franchise exercise its-corporate purchase and of of could use securities one government not be advantage taxed the other. the Theoretically would inure government marketing to each the of its just as securities, be of would the case such securities the could taxpayer not be seized and for the payment sold of any taxes lawfully levied the or state national gov ernment. the But of the advantage gained one would be the only other, at of the expense it would seem that neither immunity could be claimed under any reasonably practical of the application rule that government instru not taxed. may mentalities be a broad sense, the tax ing power of neither nor government state national can be having exercised without some effect on the other and there at points which the many the exercise of un of one affects other, doubted but the limitation each, so far taxing power .of as it affects other, must receive a 'construction practical which permits both á minimum of to function with interference each with and that limitation cannot be so other;, varied or extended either the serioffsly impair taxiñg power gov- exer . tax . . or the appropriate
eminent imposing affected it.” of the government cise of the functions Mitchell, 269 U. & Eddy S. See Metcalf deemed otherwise valid that a Granted statute directly means of as a covert intended improper sovereignty, the other of of securities ownership burdening I discern no Milwaukee, S. can see Miller U. legislation. was, in the . present sinster purpose Legislature intention course, Massachusetts alone with specifically amendment to deal not § exempt but the tax securities with federal bonds by including and its them municipalities Commonwealth The did in the measure of the excise tax. amendment government national discrimi aim at securities obviously designed against impose nate them. It was generally, tax similar to the excise on corporations banks, income, measured net recommended by national aas means of legislative avoiding committee a then inclusion existing- discrimination. the measure of all tax income from exempt securities tended computation similar purpose, to effect net *16 for national being contemplated But banks.. anything suggest neither case' is there that legisla a direct tax on impose ture intendéd to income or do more impose tax, an excise by income, measured than includ bonds, federal ing which this Court has declared Its was purpose it do. to prevent the evasion by payment the tax corporations which the Common had fixed the price wealth privilege corporate form, within business any course of funds in of their tax exempt investment securities, state As this seems me to be a permissible national. pur I authority, principle both on think the pose judg affirmed. should be below ment and Mr. Holmes Justice Justice Mr. Beandeis con opinion. in this cur notes certificates of of the. United indebtedness States. And the definition had the effect' of excluding, the. samé respect,, interest state, county and municipal : bonds. Appellant, business corporation organized under laws Massachusetts, owned a large number of United