CHAPTER VIII

STATE POWER OF TAXATION AND DUE PROCESS

§ 144. Taxing power of the Imperial Parliament. The charters under which our colonial governments were organized were royal grants; they were not concessions from the English legislature. In contemplation of English law the whole group of colonial governments in America, created or confirmed by royal charters, were mere corporations created by the King and subject, like all others of their kind, to his visitorial power, and to the power of his courts, to dissolve them in a proper case presented for the purpose. But until some cause of forfeiture arose, the grant, as between the crown and the patentees, was irrevocable, it being the settled doctrine of English law that after a grant of corporate power made by the Crown had been once accepted, the Crown could not resume the grant without the consent of those in whom its privileges had been vested. The irrevocable rights thus acquired by the colonists as against the Crown were revocable, however, at the hands of the Parliament. Under the theory of the English Constitution, then, as now, "Its power is, legally speaking, illimitable. It may create and abolish and change, at its pleasure, with or without the assent of the people or corporation to be thereby affected." Dillon, Municipal Corporations, i, 109, 2d ed., and cases cited. In the hands of a tax-loving statesman like Grenville that imperial theory was not confined to mere supervision; in such hands it was held to mean that the Imperial Parliament could at any moment override the acts of the colonial assemblies, without consulting their wishes at all, and tax and legislate for the people of

Massachusetts and Virginia just as it could for the people of Kent and Middlesex.

§ 145. Extension of parliamentary control over the colonies. At the outset the English colonies in America, created by the Crown on land considered as terra regis, were not subjected to the control of Parliament. The earliest form of direct legislative control to which any of the colonists were subjected, in the form of ordinances or instructions for their government, emanated, not from the law-making power of the King in Parliament, but from the King in Council. With the founding of the colonies, and with the organization of their political systems, the Crown had everything to do, the Parliament practically nothing. Apart from the control which had existed from the beginning over their external affairs in matters of trade and navigation, the colonies, prior to the latter part of the eighteenth century, had not been drawn within the widening circle of its imperial authority. In their local legislatures the colonists had learned how to tax themselves, and how to regulate their home affairs through laws of their own making. Losing sight of the fact that England had grown into an empire since the work of colonization began, the colonists clave to the earlier conception which regarded the home Parliament simply as the legislative organ of the United Kingdom. As such, they held that it had no right to invade the jurisdictions of their colonial assemblies in order to legislate directly upon their internal concerns.

§ 146. Colonies transformed into sovereign states. When the tie of political dependence that bound the colonies to the mother country was severed, the English provinces in America rose to the full statute of sovereign states. "When the Revolution took place the people of each state became themselves sovereign." And so soon. as they "took into their own hands the powers of sovereignty the prerogatives and regalities which before

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belonged either to the Crown or the Parliament became immediately and rightfully vested in the state." Martin v. The Lessee of Waddell, 16 Pet. 410, 416. On the 10th of May, 1776, the Continental Congress recommended to the several conventions and assemblies of the colonies the establishment of independent governments "for maintenance of internal peace and the defence of their lives, liberties, and properties." Before the end of the year in which the recommendation was made, by far the greater part of the colonies had adopted written constitutions in which were restated in a dogmatic form all of the seminal principles of the English constitutional system. Thus ended that marvelous process of growth through which the English colonies in America were rapidly developed into a group of independent commonwealths in which each was, in its organic structure, a substantial reproduction of the English Kingdom.

§ 147. Constitutional limitations an American invention. Subject to a grave limitation, the unlimited taxing power of the omnipotent Parliament passed at its birth into every American state legislature. It has ever been an elementary principle of American constitutional law that every state legislature is endowed by its very nature with the omnipotence of the English Parliament, save so far as that omnipotence is restrained by express constitutional limitations. Such limitations, of which the European world knew nothing, grew naturally out of the process through which American legislatures came into existence. From the very beginning the powers of the colonial assemblies were more or less limited through the terms of the charters by which such assemblies were either created or recognized. Even in colonial times "questions sometimes arose whether the statutes made by these assemblies were in excess of the powers conferred by the charter; and if the statutes were found in excess, they were held invalid by the courts, that is to say, in the first instance, by the colonial courts, or, if the matter

was carried to England by the Privy Council." Bryce, The Am. Commonw., i, 243. While, as a general rule, the colonies, after being transformed into independent states, adopted new constitutions, the charter granted to Connecticut in 1662 was continued as her organic law until 1818; and that granted to Rhode Island in 1663 was continued as her organic law until 1842. It is worthy of note that one of the first cases, if not the very first, in which a legislative enactment was declared unconstitutional and void, on the ground of conflict with the constitution of a state, was decided under the charter last named. But what is far more important is the fact that this novel and supreme power of declaring an act of the legislature void was assumed by the state courts, as a matter of judge made law, without a line or word on the subject in any state constitution. And here may be quoted the words of Wythe, J., who, in Com. v. Caton, 4 Call (Va.), 5, said: "Nay, more, if the whole legislature, an event to be deprecated, should attempt to overleap the bounds prescribed to them by the people, I, in administrating the public justice of the country, will meet the united powers, at my seat in this tribunal; and, pointing to the constitution, will say, to them, Here is the limit of your authority; and hither shall you go, but no further."

§ 148. Nature and extent of limitations on state taxing power-Exemption of governmental agencies. Passing from generals to particulars it now becomes necessary to indicate the nature and extent of the limitations imposed upon the taxing power of a state, first, by the peculiar structure of our dual system of government; second, by the fundamental principles of judicial administration embodied in the American theory of due process of law. The idea of an indestructible Union of indestructible states rests necessarily upon the principle that neither the state nor Federal Government may tax the property, the agencies, or operations of the other, for the conclusive reason that the power to tax carries with it the power to

destroy. In the leading case of McCulloch v. Maryland, 4 Wheat. 316, in which it was settled that the banks of the United States had the constitutional right to establish its branches within any state; and that the state within which such branches may be established, can not, without violating the constitution, tax that branch,-the Court said: "If the states may tax one instrument, employed by the government in the execution of its powers, they may tax any and every other instrument. They may tax the mail, they may tax the mint, they may tax patentrights; they may tax the papers of the custom-house; they may tax judicial process; they may tax all the means employed by the government, to an excess which would defeat all the ends of government. This was not intended by the American people. They did not design to make their government dependent on the states. the states have no power, by taxation or otherwise, to retard, impeach, burden, or in any manner control the operations of the constitutional laws enacted by Congress to carry into execution the powers vested in the general government." As illustrations of the application of this principle, see Weston v. Charleston, 2 Pet. 466; Bank of Commerce v. New York City, 2 Black 732; Van Allen v. Assessors, 3 Wall. 590; Collector v. Day, 11 Wall. 113; Ward v. Maryland, 12 Wall. 418; Van Rocklin v. Tennessee, 117 U. S. 151; United States v. Baltimore Electric Railroad Co., 17 Wall. 322; Wisconsin Central Railroad Co. v. Price County, 133 U. S. 496; Pollock v. Farmers' Loan, etc., Co., 157 U. S. 429; United States v. Richart, 188 U. S. 438; United States v. Hvoslef, 237 U. S. 1; Thames and Mersey Ins. Co. v. United States, 237 U. S. 19.

§ 149. Federal power to regulate interstate commerce not to be hampered by state taxation. While the instrumentalities of interstate commerce if within a state, may be subjected to taxation by it, the exercise of the power to regulate interstate commerce, which is vested solely in