QUAKER CITY CAB COMPANY v. COMMONWEALTH OF PENNSYLVANIA
No. 139
Supreme Court of the United States
May 28, 1928
277 U.S. 389
Argued April 20, 1928
Decree affirmed.
In Fort Smith Lumber Co. v. Arkansas, 251 U. S. 532, the tax was a capital stock tax, which obviously can be levied only upon corporations and other associations having the characteristics of corporations. If the principle should be extended, then there is no reason why corporations cannot be classified for the purpose of paying any tax. Real estate and personal property taxes could be levied on real estate and personal property only when owned by corporations. In fact, all taxes could be levied only upon corporate beings.
The tax is not an excise, a privilege, or a license tax. Commonwealth v. Harrisburg Light & Power Co., 284 Pa. 175. This Court itself definitely held that this tax was not a privilege tax. Phila. & Southern Mail S. S. Co. v. Commonwealth, 122 U. S. 326.
The present statute which repealed the acts involved in that case, made no change in the nature of the tax, but only followed the rule there announced and limited the tax to the “gross receipts . . . received from passengers and freight traffic transported wholly within this State.”
In dealing with excise, license, and privilege taxes, the latitude is very broad, and purely artificial selections have been sustained which are not sanctioned with respect to other taxes. In Flint v. Stone Tracy Co., 220 U. S. 107, the Court made it clear that the tax was sustained not because it was imposed on the business (which it ad-
But broad as seems to be the power of selection in the imposition of such taxes, there is a limit. In Southern Ry. Co. v. Greene, 216 U. S. 400, an additional franchise tax on foreign corporations for the privilege of doing business was held invalid. See Bethlehem Motors Corp‘n v. Flynt, 256 U. S. 421, which completely answers the contention that plaintiff in error can avoid taxation by surrendering its charter and operating as a general partnership. This it cannot do, with its outstanding obligations, any more easily that the foreign corporations could comply with the arbitrary terms of the North Carolina statute, with which that case dealt. See Air Way Electric Appliance Corp‘n v. Day, 266 U. S. 71.
The classification being based solely upon whether the taxicab operator is an artificial being, it is arbitrary and illegally discriminatory. The discrimination is real. The corporate taxicab operator pays every tax which the non-corporate taxicab operator pays. In addition, the corporate (domestic and foreign) operator pays a capital stock tax of 5 mills upon the actual value of its capital stock and a bonus of 1/3 of 1% on the par value of all issued stock, if it be a domestic corporation, or 1/3 of 1% on the amount of capital actually employed in Pennsylvania, if it be a foreign corporation.
The case at bar, therefore, is totally unlike General American Tank Car Corp‘n v. Day, 270 U. S. 367, where
In dealing with taxes other than (1) taxes peculiar to corporations and (2) excise, license, or privilege taxes, this Court has consistently taken the stand that, while the Fourteenth Amendment does not impose upon the legislature an iron rule of equal taxation, it does impose the rational constitutional rule that so-called classifications cannot be made solely with reference to the character of the taxpayer; that is, whether it is a natural or an artificial person. California R. R. Tax Cases, 13 Fed. 722, (dismissed by compromise, County of San Mateo v. Southern Pacific R. R. Co., 116 U. S. 138); County of Santa Clara v. Southern Pacific R. R. Co., 18 Fed. 385, (affirmed on another ground, Santa Clara County v. Southern Pacific R. R. Co., 118 U. S. 394, but see concurring opinion, and Guthrie, Fourteenth Amendment, p. 121); Magoun v. Illinois Trust & Savings Bank, 170 U. S. 283; Quong Wing v. Kirkendall, 223 U. S. 59; Pullman Co. v. Knott, 235 U. S. 23; Chalker v. Birmingham & Northwestern Ry. Co., 249 U. S. 522; Royster Guano Co. v. Virginia, 253 U. S. 412; Schlesinger v. Wisconsin, 270 U. S. 230; Hanover Fire Ins. Co. v. Harding, 272 U. S. 494.
The rule that the legislature may exempt from the general class a particular group which operates for a distinctly different purpose, as in Citizens Telephone Co. v. Fuller, 229 U. S. 322, is only application of the same general principle which permits the legislature, if it chooses, to “exempt certain classes of property from any taxation at all, such as churches, libraries, and the property of charitable institutions.” Bell‘s Gap R. R. Co. v. Pennsylvania, 134 U. S. 232.
The same rule was applied in Northwestern Mut. Life Ins. Co. v. Wisconsin, 247 U. S. 132, where an annual
The decisions of state courts condemn a classification based solely upon whether the taxpayer is a corporation or a natural person. Russell v. Croy, 164 Mo. 69; Southwestern Bell Telephone Co. v. Middlekamp, 1 F. (2d) 563; Gamble-Robinson Fruit Co. v. Thoresen, 53 N. D. 28.
The several state constitutions contain provisions relative to uniformity of taxation. While they are expressed in different language, the basic idea is to protect taxpayers from unfair and arbitrary classifications and discriminations. The following cases, we believe, establish the rule that the classification made in the case at bar is wholly arbitrary and illusory. Pullman Palace Car Co. v. Texas, 64 Tex. 274; Parker v. North British & M. Ins. Co., 42 La. Ann. 428; Adams v. Yazoo & Mississippi Valley R. R. Co., 77 Miss. 194; State v. Stonewall Ins. Co., 89 Ala. 335; U. S. Express Co. v. Ellyson, 28 Ia. 370; Std. Life & Accident Ins. Co. v. Detroit, 95 Mich. 466; Danville v. Quaker Maid, 211 Ky. 677.
The discrimination in this statute is clear and hostile against the corporate taxicab operators and is of an unusual character unknown to the practice in Pennsylvania. Bell‘s Gap R. R. Co. v. Pennsylvania, 134 U. S. 232. Heisler v. Thomas Colliery Co., 260 U. S. 245, distinguished.
Mr. John Robert Jones, with whom Mr. Thomas J. Baldridge was on the brief, for defendant in error.
The construction put by the court below upon the statutes and constitution of its own State is not open to review in this Court. The Pennsylvania court held the plaintiff in error to be a transportation corporation, operating a device for the transportation of passengers
“The tax,” as was said in Flint v. Stone Tracy Co., 220 U. S. 107, “is not payable unless there be a carrying on or doing of business in the designated capacity, and this is made the occasion for the tax, measured by the standard prescribed.”
That the tax is not a property tax is clear, not only from the language of § 23 but also by the construction placed upon it by the Supreme Court. This view is strengthened by the fact that a capital stock tax, which is a property tax, is imposed upon such companies under §§ 20 and 21 of the same act (changed by subsequent legislation as to the method of computing and determining the amount). It is a tax upon the business of the companies measured in amount by the gross receipts or income resulting from the conduct and operation of such business. It is a tax upon the doing of a business and in respect to a carrying on thereof, in a sum equivalent to eight mills upon each dollar of the gross receipts received from the transacting or performing of such business. It is not a tax upon the property of the corporation.
The principles governing the application of the Fourteenth Amendment were considered in Bell‘s Gap R. R. Co. v. Pennsylvania, 134 U. S. 232; Keeney v. New York, 222 U. S. 525; St. Louis, etc. R. R. v. Arkansas ex rel. Norwood, 235 U. S. 350; Maxwell v. Bugbee, 250 U. S. 525; Swiss Oil Corp‘n v. Shanks, 273 U. S. 407.
Flint v. Stone Tracy Co., 220 U. S. 107, is conclusive in this case.
The Pennsylvania tax is limited and confined to the precise business for which the companies made subject to the tax were created and were permitted to transact within the borders of the State. Plaintiff in error is required further to secure from the Public Service Commission of the State a certificate of public convenience to use the public highways as prescribed in such certificate and the law authorizing its issue. The tax is not payable by the corporation unless it is carrying on or doing business in the designated capacity of a transportation company, and, as was said by this Court in Flint v. Stone Tracy Co., supra, “this is made the occasion for the tax, measured by the standard prescribed“; and if there be no receipts from such corporate activity there is no tax. Is this not conclusive in this case?
Having in mind the facts that plaintiff in error is a foreign corporation and is engaged solely in an intrastate business in Pennsylvania, and that it is taxed, as are
The classification is valid, whether the tax be regarded as an excise upon the business of the companies, their activities in the State, or a tax upon the franchise or privilege of doing business in the State, or as a property tax. The construction placed upon the act and the Constitution of the State by the state court is accepted by this Court.
The tax is not imposed upon the gross receipts as property, but only in respect of the carrying on of the business. Spreckels Sugar Refining Co. v. McClain, 192 U. S. 397. If there be no gross receipts from transportation wholly within the State, there is no tax. There is no tax payable unless there is a carrying on or doing of business in the designated capacity. Phila. S. S. Co. v. Pennsylvania, 122 U. S. 326, distinguished. Horn Silver Mining Co. v. New York, 143 U. S. 305; St. Louis, etc., R. R. v. Arkansas, 235 U. S. 350; State Tax on Railway Gross Receipts, 15 Wall. 284.
Authorities invoked to support an argument that a tax on an incident or function of property is a direct tax upon the property itself simply show that the States cannot, directly or indirectly burden the exercise by Congress of the powers committed to it by the Constitution, nor may Congress burden the agencies or instrumentalities employed by the States in the exercise of their power. Such doctrine does not in any way affect the instant case. Assuming, for the purpose of argument, that the tax imposed is a tax upon property; how stands the case of plaintiff in error? It appears that the authorities cited by it not only do not support its contention, but on the contrary expressly negative it.
MR. JUSTICE BUTLER delivered the opinion of the Court.
Judgment was entered in the Court of Common Pleas of Dauphin County, Pennsylvania, in favor of the Commonwealth for “gross receipts taxes for the six months ending the 31st day of December, 1923,” amounting with interest and commission to $6,049.94. The tax is claimed under § 23 of an Act of June 1, 1889, P. L. 420, 431,
Plaintiff in error is a New Jersey corporation authorized to do business in Pennsylvania as a foreign corporation; and, since June 1, 1917, it has carried on a general taxicab business in Philadelphia. The Supreme Court held that the section taxes gross receipts from the operation of taxicabs. It provides that every transportation company, whether incorporated in Pennsylvania or elsewhere, owning or operating any device for the transportation of passengers, “shall pay to the state treasurer a tax of eight mills upon the dollar upon the gross receipts of said corporation . . . received from passengers . . . transported wholly within this State . . .”
Plaintiff in error was subject to competition in its business by individuals and partnerships operating taxicabs. The Act does not apply to them, and no tax is imposed on their receipts. Corporations operating taxicabs are not exempted from any of the taxes imposed on
The equal protection clause extends to foreign corporations within the jurisdiction of the State and safeguards to them protection of laws applied equally to all in the same situation. Plaintiff in error is entitled in Pennsylvania to the same protection of equal laws that natural persons within its jurisdiction have a right to demand under like circumstances. Kentucky Finance Corp‘n v. Paramount Exch., 262 U. S. 544, 550. The equal protection clause does not detract from the right of the State justly to exert its taxing power or prevent it from adjusting its legislation to differences in situation or forbid classification in that connection, “but it does require that the classification be not arbitrary but based on a real and substantial difference having a reasonable relation to the subject of the particular legislation.” Power Co. v. Saunders, 274 U. S. 490, 493. It is established that a corporation, by seeking and obtaining permission to do business in a State does not thereby become bound to comply with, or estopped from objecting to, the enforcement of its enactments that conflict with the Constitution of the United States. The right to withhold from a foreign corporation permission to do local business therein does not enable the State to require such a corporation
The section declares the imposition to be a tax “upon gross receipts.” And the Supreme Court said: “The real subject of the tax is the gross receipts of a company engaged in the transportation of freight or passengers . . . .” That statement is not affected by a later expression referring to the tax as a “state tax on business or income” in contrast with a “local tax on property” such as hacks, cabs and other vehicles. The variation of language used by the court evidently is intended to be, and is, without significance. The words of the section are too plain to require explanation. They could not reasonably be given any other meaning. But, in any event, a characterization of the tax by the state court is not binding here. Louisville Gas & Electric Co. v. Coleman, ante, p. 32., St. Louis Compress Co. v. Arkansas, 260 U. S. 346, 348. There is no controversy as to the application of the tax. Plaintiff in error assumes that the section covers its gross receipts, as held by the state court, but insists that the section is invalid because it does not extend to like receipts of natural persons and partnerships. No doubt there are situations in which, as appears in Cudahy Packing Co. v. Minnesota, 246 U. S. 450, and other cases, a percentage of gross earnings may be taken as a tax on property used in the business and properly may be deemed not to be a tax or burden on such earnings. But the practical operation of the section is to be regarded, and it is to be dealt with according to its effect. Frick v. Pennsylvania, 268 U. S. 473. Panhandle Oil Co. v. Mississippi, ante, p. 218.
In effect § 23 divides those operating taxicabs into two classes. The gross receipts of incorporated operators are taxed while those of natural persons and partnerships carrying on the same business are not. The character of the owner is the sole fact on which the distinction and discrimination are made to depend. The tax is imposed merely because the owner is a corporation. The discrimination is not justified by any difference in the source of the receipts or in the situation or character of the property employed. It follows that the section fails to meet the requirement that a classification to be consistent with the equal protection clause must be based on a real and substantial difference having reasonable relation to the subject of the legislation. Power Co. v. Saunders, supra. No decision of this Court gives support to such a classification.* In no view can it be held to have more than an arbitrary basis. As construed and applied by the state court in this case, the section violates the equal protection clause of the Fourteenth Amendment. See The Railroad Tax Cases, 13 Fed. 722. County of Santa Clara v. Southern Pacific R. R. Co., 18 Fed. 385. Northern Pacific R. Co. v. Walker, 47 Fed. 681. The tax cannot be sustained.
Judgment reversed.
I think that the judgment should be affirmed. The principle that I think should govern is the same that I stated in Louisville Gas & Electric Co. v. Coleman, ante, p. 41. Although this principle was not applied in that case I do not suppose it to have been denied that taxing acts like other rules of law may be determined by differences of degree, and that to some extent States may have a domestic policy that they constitutionally may enforce. Quong Wing v. Kirkendall, 223 U. S. 59. If usually there is an important difference of degree between the business done by corporations and that done by individuals, I see no reason why the larger businesses may not be taxed and the small ones disregarded, and I think it would be immaterial if here and there exceptions were found to the general rule. Flint v. Stone Tracy Co., 220 U. S. 107, 158, et seq. Citizens Telephone Co. v. Fuller, 229 U. S. 322. Amoskeag Savings Bank v. Purdy, 231 U. S. 373, 393. Miller v. Wilson, 236 U. S. 373, 384. Armour & Co. v. North Dakota, 240 U. S. 510, 517. Furthermore if the State desired to discourage this form of activity in corporate form and expressed its desire by a special tax I think that there is nothing in the Fourteenth Amendment to prevent it.
MR. JUSTICE BRANDEIS, dissenting.
It has been the consistent policy of Pennsylvania since 1840 to subject businesses conducted by corporations to heavier taxation than like businesses conducted by individuals.1 It has likewise been the consistent policy of
The Supreme Court of the State has construed this statute as applicable to all taxicab corporations; and has held the Quaker City Cab Company, a foreign corporation doing an intrastate business in Pennsylvania since the year 1917, liable for the taxes accrued on that business
As the statute applies equally to domestic and to foreign corporations, cases like Southern Ry. Co. v. Greene, 216 U. S. 400; Kentucky Finance Corporation v. Paramount Auto Exchange, 262 U. S. 544; Hanover Fire Insurance Co. v. Harding, 272 U. S. 494; and Power Manufacturing Co. v. Saunders, 274 U. S. 490, have no application. And no claim is made that the Federal Constitution prevents a State from taxing corporations engaged in one class of business more heavily than those engaged in another. Southwestern Oil Co. v. Texas, 217 U. S. 114; Brown-Forman Co. v. Kentucky, 217 U. S. 563; Heisler v. Thomas Colliery Co., 260 U. S. 245; Oliver Iron Mining Co. v. Lord, 262 U. S. 172. The fundamental question requiring decision is a general one. Does the equality clause prevent a State from imposing a heavier burden of taxation upon corporations engaged exclusively in intrastate commerce, than upon individuals engaged under like circumstances in the same kind of business? The narrower question presented is, whether this heavier burden may be imposed by a form of tax “not peculiarly applicable to corporations.” That is, by a tax of such a character that it might have been extended to individuals if the legislature had seen fit to do so.
The equality clause does not forbid a State to classify for purposes of taxation. Discrimination through classification is said to violate that clause only where it is such as “to preclude the assumption that it was made in the exercise of legislative judgment and discretion.” Stebbinsv. Riley, 268 U. S. 137, 143. In other words, the equality clause requires merely that the classification shall be reasonable. We call that action reasonable which an informed, intelligent, just-minded, civilized man could rationally favor. In passing upon legislation assailed under the equality clause we have declared that the classification must rest upon a difference which is real, as distinguished from one which is seeming, specious, or fanciful, so that all actually situated similarly will be treated alike; that the object of the classification must be the accomplishment of a purpose or the promotion of a policy, which is within the permissible functions of the State; and that the difference must bear a relation to the object of the legislation which is substantial, as distinguished from one which is speculative, remote or negligible.4 Subject to this limitation of reasonableness, the equality clause has left unimpaired, both in range and in flexibility, the State‘s power to classify for purposes of taxation. Can it be said that the classification here in question is unreasonable?
The difference between a business carried on in corporate form and the same business carried on by natural persons is, of course, a real and important one. As was stated in Flint v. Stone-Tracy Co., 220 U. S. 107, 161-162, “it could not be said . . . that there is no substantial differ-
The imposition of the heavier tax on corporations by means of an annual tax in the form of a franchise tax de-
For these reasons, I should have no doubt that the statute of Pennsylvania was well within its power, if the question were an open one. But it seems to me that the validity of such legislation has been established by a decision of this Court rendered after much consideration. The contention here sustained differs in no essential respect from that made and overruled in Flint v. Stone-Tracy Co., 220 U. S. 107, 161. There, as here, the tax was imposed merely because the owner of the business was a corporation, as distinguished from an individual or a partnership. There, as here, the character of the owner was the sole fact on which the distinction was made to depend. There, as here, the discrimination was not based on any other difference in the source of the income or in the character of the property employed. The cases differ in but two respects, neither of them material. In the Flint case the tax was on net income while here it is on gross receipts; and the Flint case arose under the Fifth Amendment while the present case arises under the Fourteenth. But a tax on net income is no more “peculiarly applicable to corporations” than is a tax on gross receipts; and in the Flint case it was distinctly ruled that “even if the principles of the Fourteenth Amendment were ap-
MR. JUSTICE HOLMES concurs in this opinion.
MR. JUSTICE STONE, dissenting.
That businesses carried on in corporate form may be taxed while those carried on by individuals or partnerships are left untaxed, was the rule broadly applied under the Fifth Amendment in Flint v. Stone-Tracy Company, 220 U. S. 107, and I can see no reason for not applying it here under the Fourteenth Amendment as well. It is no objection to a taxing statute that the classification is based on two distinct elements—here the doing of business in a corporate form, upheld in Flint v. Stone-Tracy Co., supra, (and see Home Insurance Co. v. New York, 134 U. S. 594; Fort Smith Lumber Co. v. Arkansas, 251 U. S. 532), and the character of the business done as distinguished from other classes of business, upheld in Southwestern Oil Co. v. Texas, 217 U. S. 114; Brown-Forman Co. v. Kentucky, 217 U. S. 563; Heisler v. Thomas Colliery Co., 260 U. S. 245. For it was decided in Stebbins v. Riley, 268 U. S. 137, that such a combination of two permissible bases of classification may itself be made the basis of a classification.