(40 Sup.Ct.) *52 That a state may tax callings and occupations as well as persons and property has long been recognized. forms of taxation in order to defray the gov-[ federal Constitution, and the scope and limits ernmental expenses. Certainly they are not of national interference are well settled. There restricted to property taxation, nor to any is no general supervision on the part of the naparticular form of excises. In well-ordered tion over state taxation, and in respect to the society property has value chiefly for what latter the state has, speaking generally, the it is capable of producing, and the activities freedom of a sovereign both as to ob*jects and of mankind are devoted largely to making re-methods." current gains from the use and development of property, from tillage, mining, manufacture, from the employment of human skill and labor, or from a combination of some of these; gains capable of being devoted to "The power of taxation, however vast in its their own support, and the surplus accumu- character and searching in its extent, is neceslated as an increase of capital. That the sarily limited to subjects within the jurisdicstate, from whose laws property and business tion of the state. These subjects are persons, * It [taxation] and industry derive the protection and secur-property, and business. * ity without which production and gainful occupation would be impossible, is debarred from exacting a share of those gains in the form of income taxes for the support of the government, is a proposition so wholly inconsistent with fundamental principles as to be refuted by its mere statement. That it may tax the land but not the crop, the tree *51 but not the fruit, the mine or well but not the product, the business but not the profit derived from it, is wholly inadmissible. Income taxes are a recognized method of distributing the burdens of government, favored because requiring contributions from those who realize current pecuniary benefits under the protection of the government, and because the tax may be readily proportioned to their ability to pay. Taxes of this character were imposed by several of the states at or shortly after the adoption of the federal Constitution. Laws N. Y. 1778, c. 17; Report of Oliver Wolcott, Jr., Secretary of the Treasury, to 4th Cong. 2d Sess. (1796), concerning Direct Taxes; American State Papers, 1 Finance, 423, 427, 429, 437, 439. The rights of the several states to exercise the widest liberty with respect to the imposition of internal taxes always has been recognized in the decisions of this court. In McCulloch v. Maryland, 4 Wheat. 316, 4 L. Ed. 579, while denying their power to impose a tax upon any of the operations of the federal government, Mr. Chief Justice Marshall, speaking for the court, conceded (4 Wheat. 428, 429, 4 L. Ed. 579) that the states have full power to tax their own people and their own property, and also that the power is not confined to the people and property of a state, but may be exercised upon every object brought within its jurisdiction, saying: "It is obvious, that it is an incident of sovereignty, and is coextensive with that to which it is an incident. All subjects over which the sovereign power of a state extends, are objects of taxation," etc. In Michigan Central Railroad v. Powers, 201 U. S. 245, 292, 293, 26 Sup. Ct. 459, 462 (50 L. Ed. 744), the court, by Mr. Justice Brewer, said: "We have had frequent occasion to consider questions of state taxation in the light of the 40 SUP.CT.-15 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." State Tax on Foreign-Held Bonds, 15 Wall. 300, 319, (21 L. Ed. 179). See, also, Welton v. Missouri, 91 U. S. 275, 278, 23 L. Ed. 347; Armour & Co. v. Virginia, 246 U. S. 1, 6, 38 Sup. Ct. 267, 62 L. Ed. 547; American Mfg. Co. v. St. Louis, 250 U. S. 459, 463, 39 Sup. Ct. 522, 63 L. Ed. 1084. And we deem it clear, upon principle as well as authority, that just as a state may impose general income taxes upon its own citizens and residents whose persons are subject to its control, it may, as a necessary consequence, levy a duty of like character, and not more onerous in its effect, upon incomes accruing to nonresidents from their property or business within the state, or their occupations carried on therein, enforcing payment, so far as it can, by the exercise of a just control over persons and property within its borders. This is consonant with numerous decisions of this court sustaining state taxation of credits due to nonresidents (New Orleans v. Stempel, 175 U. S. 309, 320, et seq., 20 Sup. Ct. 110, 44 L. Ed. 174; Bristol v. Washington County, 177 U. S. 133, 145, 20 Sup. Ct. 585, 44 L. Ed. 701; Liverpool, etc., Ins. Co. v. Orleans Assessors, 221 U. S. 346, 354, 31 Sup. Ct. 550, 55 L. Ed. 762, L. R. A. 1915C, 903), and sustaining federal taxation of the income of an alien nonresident derived from securities held in this coun.ry (De Ganay v. | Lederer, 250 U. S. 376, 39 Sup. Ct. 524, 63 L. Ed. 1042). [7] That a state, consistently with the federal Constitution, may not prohibit the citi zens of other states from carrying on legitimate business within its borders like its own *53 *citizens, of course is granted; but it does not follow that the business of nonresidents may not be required to make a ratable contribution in taxes for the support of the government. On the contrary, the very fact that a citizen of one state has the right to hold property or carry on an occupation or busi Evidently this furnished the model for section 1 of the Oklahoma statute. ness in another is a very reasonable ground [income from all property owned and of every for subjecting such nonresident, although not business, trade, or profession carried on in the personally, yet to the extent of his property United States by persons residing elsewhere." held, or his occupation or business carried on therein, to a duty to pay taxes not more onerous in effect than those imposed under like circumstances upon citizens of the latter state. Section 2 of article 4 of the Constitution entitles him to the privilege and immunities of a citizen, but no more; not to an entire immunity from taxation, nor to any preferential treatment as compared with resident citizens. It protects him against discriminatory taxation, but gives him no right to be favored by discrimination or exemption. See Ward v. Maryland, 12 Wall. 418, 430, 20 L. Ed. 449. Oklahoma has assumed no power to tax nonresidents with respect to income derived from property or business beyond the borders of the state. The first section of the act, while imposing a tax upon inhabitants with respect to their entire net income arising from all sources, confines the tax upon nonresidents to their net income from property owned and business, etc., carried on within the state. A similar distinction has been observed in our federal income tax laws from one of the earliest down to the present.1 The acts of 1861 (12 Stat. 309) and 1864 (13 *54 Stat. *281, 417) confined the tax to persons residing in the United States and citizens residing abroad. But in 1866 (14 Stat. 137, 138) there was inserted by amendment the following: No doubt is suggested (the former requirement of apportionment having been removed by constitutional amendment) as to the power of Congress thus to impose taxes upon incomes produced within the borders of the United States or arising from sources located therein, even though the income accrues to a nonresident alien. And, so far as the question of jurisdiction is concerned, the due process clause of the Fourteenth Amendment imposes no greater restriction in this regard upon the several states than the corresponding clause of the Fifth Amendment imposes upon the United States. *55 [8] It is insisted, however, both by appellant in this case and by the opponents of the New York law in Travis, Comptroller, v. Yale & Towne Mfg. Co., that an income tax is in its nature a personal tax, or a “subjective tax imposing personal liability upon the recipient of the income," and that as to a nonresident the state has no jurisdiction to impose such a liability. This argument, upon analysis, resolves itself into a mere question of definitions, and has no legitimate bearing upon any question raised under the federal Constitution. For, where the question is whether a state taxing law contravenes rights secured by that instrument, the decision must depend not upon any mere question of form, construction, or definition, but upon the practical operation and effect of the tax imposed. St. “And a like tax shall be levied, collected, and paid annually upon the gains, profits, and income of every business, trade, or profession carried on in the United States by persons resid-Louis S. W. Ry. v. Arkansas, 235 U. S. 350, ing without the United States, not citizens thereof." 362, 35 Sup. Ct. 99, 59 L. Ed. 265; Mountain Timber Co. v. Washington, 243 U. S. 219, 237, 37 Sup. Ct. 260, 61 L. Ed. 685, Ann. Cas. 1917D, 642; Crew Levick Co. v. Pennsylvania, Similar provisions were embodied in the 245 U. S. 292, 294, 38 Sup. Ct. 126, 62 L. Ed. acts of 1870 (16 Stat. 257) and 1894 (28 Stat. 295; American Mfg. Co. v. St. Louis, 250 U. 553); and in the act of 1913 (38 Stat. 166), S. 459, 463, 39 Sup. Ct. 522, 63 L. Ed. 1084. after a clause imposing a tax upon the entire The practical burden of a tax imposed upon net income arising or accruing from all sourcthe net income derived by a nonresident es (with exceptions not material here) to from a business carried on within the state every citizen of the United States, whether certainly is no greater than that of a tax residing at home or abroad, and to every per-upon the conduct of the business, and this the son residing in the United States though not state has the lawful power to impose, as we a citizen thereof, the following appears: "And a like tax shall be assessed, levied, collected, and paid annually upon the entire net 1 Acts of August 5, 1861 (chapter 45, § 49, 12 Stat. 292, 309); June 30, 1864 (chapter 173, § 116, 13 Stat. 223, 281); July 4, 1864 (Joint Res. 77, 13 Stat. 417); July 13, 1866 (chapter 184, § 9, 14 Stat. 98, 137, 133); March 2, 1867 (chapter 169, § 13, 14 Stat. 471, 477, 478); July 14, 1870 (chapter 255, § 6, 16 Stat. 256, 257); August 27, 1894 (chapter 349, § 27, 28 Stat. 509, 553); October 3, 1913 (chapter 16, § II, A. subd. 1, 38 Stat. 114, 166); September 8, 1916 (chapter 463, title I, part. I, § 1a, 39 Stat. 756 [Comp. St. § 6336a]); October 3, 1917 (chapter 63, title I, §§ 1 and 2, 40 Stat. 300 [Comp. St. §§ 6336aa, 6336aaa]); February 24, 1919 (chapter 18, §§ 210, 213(c), 40 Stat. 1057, 1062, 1066 [Comp. St. Ann. Supp. 1919, §§ 6336%e, 6336%]). have seen. [9] The fact that it required the personal skill and management of appellant to bring his income from producing property in Oklahoma to fruition, and that his management was exerted from his place of business in another state, did not deprive Oklahoma of jurisdiction to tax the income which arose within its own borders. The personal element cannot, by any fiction, oust the jurisdiction of the state within which the income actually arises and whose authority over it operates in rem. At most, there might be a question whether the value of the service of management rendered from without the state (40 Sup.Ct.) ought not to be allowed as an expense incur-, them a corresponding privilege of deducting red in producing the income; but no such their losses, wherever these accrue. As to question is raised in the present case, hence we express no opinion upon it. The contention that the act deprives appellant and others similarly circumstanced of the privileges and immunities enjoyed by residents and citizens of the state of Oklahoma, in violation of section 2 of article 4 *56 of the Constitu*tion, is based upon two grounds, which are relied upon as showing also a violation of the "equal protection" clause of the Fourteenth Amendment. [10, 11] One of the rights intended to be secured by the former provision is that a citizen of one state may remove to and carry on business in another without being subjected in property or person to taxes more onerous than the citizens of the latter state are subjected to. Paul v. Virginia, 8 Wall. 168, 180, 19 L. Ed. 357; Ward v. Maryland, 12 Wall. 418, 430, 20 L. Ed. 449; Maxwell v. Bugbee, 250 U. S. 525, 537, 40 Sup. Ct. 2, 63 L. Ed. 1124. The judge who dissented in Shaffer v. Howard (D. C.) 250 Fed. 873, 883, concluded that the Oklahoma Income Tax Law offended in this regard, upon the ground (page 888) that since the tax is as to citizens of Oklahoma a purely personal tax measured by their incomes, while as applied to a nonresident it is "essentially a tax upon his property and business within the state, to which the property and business of citizens and residents of the state are not subjected," there discrimination a We are unable to was against the nonresident. accept this reasoning. It errs in paying too much regard to theoretical distinctions and too little to the practical effect and operation of the respective taxes as levied; in failing to observe that in effect citizens and residents of the state are subjected at least to the same burden as nonresidents, and perhaps to a greater, since the tax imposed upon the former includes all income derived from their property and business within the state and, in addition, any income they may derive from outside sources. [12] Appellant contends that there is a denial to noncitizens of the privileges and immunities to which they are entitled, and also nonresidents, the jurisdiction extends only to their property owned within the state and their business, trade, or profession carried on therein, and the tax is only on such income as is derived from those sources. Hence there is no obligation to accord to them a deduction by reason of losses elsewhere incurred. It may be remarked, in lant has sustained such losses, and so he is passing, that there is no showing that appelnot entitled to raise this question. [13] It is urged that, regarding the tax as imposed upon the business conducted appellant's business to a burden upon inwithin the state, it amounts in the case of terstate commerce, because the products of his oil operations are shipped out of the state. Assuming that it fairly appears that his method of business constitutes interstate commerce, it is sufficient to say that the tax is imposed not upon the gross receipts, as in Crew Levick Co. v. Pennsylvania, 245 U. S. 292, 38 Sup. Ct. 126, 62 L. Ed. 295; but only upon the net proceeds, and is plainly sustainable, even if it includes net gains from interstate commerce. U. S. Glue 499, 62 L. Ed. 1135, Ann. Cas. 1918E, 748. C. v. Oak Creek, 247 U. S. 321, 38 Sup. Ct. Compare Peck & Co. v. Lowe, 247 U. S. 165, 38 Sup. Ct. 432, 62 L. Ed. 1049. [14-16] Reference is made to the gross production tax law of 1915 (chapter 107, art. 2, subd. A, § 1, Sess. Laws 1915, p. 151), as amended by chapter 39 of Sess. Laws 1916 (page 106), under which every person or corporation engaged in producing oil or natural gas within the state is required to pay a tax equal to 3 per centum of the gross value of such product in lieu of all taxes imposed by the state, counties, or municipalities upon the land or the leases, mining *58 rights, and privileges, and the machinery, appliances, and equipment, pertaining to such production. It is contended that payment of the gross production tax relieves the producer from the payment of the income tax. This is a question of state law, upon which no controlling decision by the Supreme Court of the state is cited. We overrule the contention, deeming it clear, as a a denial of the equal protection of the laws, in that the act permits residents to deduct from their gross income not only losses in-matter of construction, that the gross procurred within the state of Oklahoma but also those sustained outside of that state, while nonresidents may deduct only those *57 incurred within the state. The difference, however, is only such as arises naturally from the extent of the jurisdiction of the state in the two classes of cases, and cannot be regarded as an unfriendly or unreasonable discrimination. As to residents it may, and does, exert its taxing power over their income from all sources, whether within or without the state, and it accords to for the ad valorem property tax but not for duction tax was intended as a substitute the income tax, and that there is no such repugnance between it and the income tax as to produce a repeal by implication. Nor, even if the effect of this is akin to double taxation, can it be regarded as obnoxious to the federal Constitution for that reason, since it is settled that nothing in that instrument or in the Fourteenth Amendment prevents the states from imposing double taxation, or any other form of unequal taxation, so long as the inequality is not based up on arbitrary distinctions. St. Louis S. W. Railway v. Arkansas, 235 U. S. 350, 367368, 35 Sup. Ct. 99, 59 L. Ed. 265. or other appropriate process, upon all prop- No. 531: Appeal dismissed. Mr. Justice McREYNOLDS dissents. (252 U. S. 60) [17] The contention that there is a want of due process in the proceedings for enforcement of the tax, especially in the lien imposed by section 11 upon all of the delinquent's property, real and personal, reduces itself to this: that the state is without power to create a lien upon any property of a nonresident for income taxes except the very property from which the income proceeded; (Argued Dec. 15 and 16, 1919. Decided March or, putting it in another way, that a lien for an income tax may not be imposed upon a nonresident's unproductive property, nor up TRAVIS, Comptroller of State of New York, v. YALE & TOWNE MFG. CO. 1, 1920.) on any particular productive property be- 1. CONSTITUTIONAL LAW 283–STATE MAY yond the amount of the tax upon the income that has proceeded from it. But the facts of the case do not raise this question. It clearly appears from the averments of the bill that the whole of plaintiff's property in the state of Oklahoma consists of oil-producing land, oil and gas mining leaseholds, and other property used in the production of oil and gas; and that, begin *59 TAX INCOMES OF NONRESIDENTS ARISING A state may, without violating the due pro- 2. CONSTITUTIONAL LAW 207(4)—NONRESI DENTS NOT DISCRIMINATED AGAINST BY There is no unconstitutional discrimination against citizens of other states by the provision of Income Tax Law N. Y. § 360, which confines the deduction of expenses, losses, etc., in the case of nonresident taxpayers, to such as are connected with income arising from sources within the taxing state. 3. CONSTITUTIONAL LAW 207(4)—INCOME TAX LAW, REQUIRING TAX TO BE WITHHELD No unconstitutional discrimination against nonresident citizens arises from the provision of Income Tax Law N. Y. § 366, confining the withholding of the tax at the source to the income of nonresidents, as this in no way increases the burden of the tax on nonresidents. ning at least as early as the year 1915, *when the act was passed, and continuing without interruption until the time of the commencement of the suit (April 16, 1919), he was engaged in the business of developing and operating these properties for the production of oil, his entire business in that and other states was managed as one business, and his entire net income in the state for the year 1916 was derived from that business. Laying aside the probability that from time to time there may have been changes arising from purchases, new leases, sales, and expirations (none of which, however, is set forth in the bill), it is evident that the lien will rest upon the same property interests which were the source of the income upon which the tax was imposed. The entire jurisdiction of the state over appellant's property and business and the income that he derived from them-the only jurisdiction that it has sought to assert-is a jurisdic-4. tion in rem; and we are clear that the state acted within its lawful power in treating his property interests and business as having both unity and continuity. Its purpose to impose income taxes was declared in its own Constitution, and the precise nature of the tax and the measures to be taken for enforcing it were plainly set forth in the act of 1915; and plaintiff having thereafter proceeded, with notice of this law, to manage the property and conduct the business out of which proceeded the income now tax-5. ed, the state did not exceed its power or authority in treating his property interests and his business as a single entity, and enforcing payment of the tax by the imposi- The New York Income Tax Law does not, tion of a lien, to be followed by execution by requiring a Connecticut corporation employ CORPORATIONS 641-INCOME TAX LAW REQUIRING WITHHOLDING OF TAX BY EMPLOYER A REASONABLE REGULATION OF FOREIGN CORPORATION'S BUSINESS. The New York Income Tax Law, so far as it requires a Connecticut corporation employing nonresidents within the state to withhold the tax on their salary, is not an unreasonable regulation of the conduct of its business in New York, in the absence of any contract limiting the state's power of regulation, though it might be more convenient to it to pay such salaries in Connecticut. CONSTITUTIONAL LAW 154(2)-STATE INCOME TAX LAW NOT INVALID AS IMPAIRING THE OBLIGATION OF CONTRACTS BETWEEN EMPLOYER AND EMPLOYÉ. For other cases see same topic and KEY-NUMBER in all Key-Numbered Digests and Indexes (40 Sup.Ct.) ing nonresidents within the state to withhold the tax on their salaries, impair the obligation of the contracts between it and its employés, where no contract made before its passage required the wages or salaries to be paid in Connecticut, or contained other provisions conflicting with such requirement. The New York Income Tax Law violates Const. U. S. art. 4, § 2, providing that the citizens of each state shall be entitled to all privileges and immunities of citizens in the several states, by granting to residents a personal exemption of $1,000 in the case of single persons, etc., which is denied to nonresidents, notwithstanding the distinction between the terms "residents" and "citizens." [Ed. Note.-For other definitions, see Words and Phrases, First and Second Series, Citizen; Resident.] 7. CONSTITUTIONAL LAW 229(2)—DISCRIMINATION AGAINST NONRESIDENTS BY STATE INCOME TAX LAW NOT REMOVED BY EXCLUDING CERTAIN SOURCES OF INCOME OF NONRESIDENT. The discrimination against citizens of other states under the New York Income Tax Law, arising from the granting of exemptions to residents which are denied to nonresidents, is not counterbalanced by the provision of section 359, par. 3, excluding from the income of nonresidents annuities and interest on bank deposits, bonds, notes, or other interest-bearing obligations, and dividends from corporations, except to the extent to which they are a part of the income from any business, trade, profession, or occupation carried on in the state. 8. CONSTITUTIONAL LAW 207(4)-VALIDITY OF STATUTE DISCRIMINATING AGAINST NONRESIDENTS DEPENDS ON EXISTING CONDI TIONS. The validity of the New York Income Tax Law, which discriminates against nonresidents by denying to them exemptions granted to residents, must be determined with respect to its effect and operation in the existing situation, without speculating as to the possibility that states whose citizens are discriminated against will enact similar laws. 9. CONSTITUTIONAL LAW 207(4)-DISCRIMINATION AGAINST CITIZENS OF ADJOINING STATES NOT CURED BY RETALIATORY DIS CRIMINATION. A discrimination by a state against citizens of adjoining states in imposing an income tax would not be cured, if those states established like discriminations against the citizens of the state in question. Appeal from the District Court of the United States for the Southern District of New York. From a final decree in favor of complainant (262 Fed. 576), defendant appeals. Affirmed. Messrs. James S. Y. Ivins, of Albany, N. Y., and Jerome L. Cheney, First Deputy Atty. Gen., for appellant. Messrs. Louis H. Porter and Archibald Cox, both of New York City, for appellee. *72 *Mr. Justice PITNEY delivered the opinion of the Court. This was a suit in equity, brought in the District Court by appellee against appellant as comptroller of the state of New York to obtain an injunction restraining the enforcement of the Income Tax Law of that state (chapter 627, Laws 1919) as against complainant, upon the ground of its repugnance to the Constitution of the United States because violating the interstate commerce clause, impairing the obligation of contracts, depriving citizens of the states of Connecticut and New Jersey employed by complainant of the privileges and immunities enjoyed by citizens of the state of New York, depriving complainant *73 and its nonresident employés of their *property without due process of law, and denying to such employés the equal protection of the laws. A motion to dismiss the billequivalent to a demurrer-was denied upon the ground that the act violated section 2 of article 4 of the Constitution by discriminating against nonresidents in the exemptions allowed from taxable income; an answer was filed, raising no question of fact; in due course there was a final decree in favor of complainant; and defendant took Judicial Code (Comp. St. § 1215). an appeal to this court under section 238, The act (section 351) imposes an annual tax upon every resident of the state with respect to his net income as defined in the act, at specified rates, and provides also: "A like tax is hereby imposed and shall be levied, collected and paid annually, at the rates specified in this section, upon and with respect to the entire net income as herein defined, except as hereinafter provided, from all property owned and from every business, trade, profession or occupation carried on in this state by natural persons not residents of the state." Section 359 defines gross income, and contains this paragraph: "3. In the case of taxpayers other than residents, gross income includes only the gross income from sources within the state, but shall not include annuities, interest on bank deposits, interest on bonds, notes or other interest-bearing obligations or dividends from corporations, except to the extent to which the same shall be a part of income from any business, trade, profession, or occupation carried on in this state subject to taxation under this article." Suit by the Yale & Towne Manufacturing Company against Eugene M. Travis, In section 360 provision is made for de Comptroller of the State of New York. ducting in the computation of net income as For other cases see same topic and KEY-NUMBER in all Key-Numbered Digests and Indexes |