CHAPTER XVIII

POWER OF TAXATION

§ 340. Constitutionality of state tax laws. The right of taxation is a fundamental and essential power of the state without which it cannot properly perform its functions. The Fourteenth Amendment was not intended as a restriction on this power and very few laws imposing taxes, when brought to the bar of the Supreme Court, have been held invalid. Alleged discriminations have been upheld on the ground that the state has the right to classify the objects of taxation, provided the classification is not arbitrary, unreasonable, oppressive or capricious.

The Kentucky statute of 1882, to amend the charter of the city of Louisville, so far as it authorized the cost of the improvements of streets to be assessed against the owners of lots and gave a lien thereon, is not in conflict with section 1 of the Fourteenth Amendment to the Constitution of the United States, as amounting to a deprivation of property without due process of law, and a denial of the equal protection of the laws. Whenever the law operates alike upon all persons and property, similarly situated, equal protection cannot be said to be denied. Unjust, unequal or arbitrary burdens are not authorized to be imposed by the terms of the act, and opportunity is given to every party interested to be heard in opposition to the enforcement of the liability in the courts, which are specially authorized to "make all corrections, rules, and orders to do justice to all parties concerned." The remedy for abuse is in the state courts; for, in the language of Mr. Justice Field in Mobile Co. v. Kimball, 102 U. S. 691, "This court is not the harbor in which the people of a city or county can find a refuge from ill-advised,

unequal, and oppressive state legislation." Walston v. Nevin, 128 U. S. 578.

§ 341. Tax on corporate securities. The provision in the Fourteenth Amendment, that no state shall deny to any person the equal protection of the laws, does not prevent a state from adjusting its system of taxation in all proper and reasonable ways, nor compel the states to adopt an iron rule of equal taxation. The Fourteenth Amendment intended only that equal protection and security should be given to all under like circumstances, and that no greater burdens should be laid upon one than are laid upon others in the same calling and condition. The method of assessing the tax in question, on the face value of corporate securities in Pennsylvania, is not violative of the Fourteenth Amendment to the Constitution. Levying a tax on the nominal or face value of bonds instead of assessing it upon the actual value, does not violate the provision of the Fourteenth Amendment which forbids a state to withhold from any person the equal protection of the laws. There is no unjust discrimination against any persons or corporations. The presumption is that corporate securities are worth their face value. Besides, the person holding them is not affected by the tax unless he receives his interest from which the tax is deducted. When the interest is not paid he pays no tax. A state may, if it chooses, exempt certain classes of property from any taxation at all, such as churches, libraries and the property of charitable institutions. It may impose different specific taxes upon different trades and professions, and may vary the rates of excise upon various products; it may tax real estate and personal property in a different manner; it may tax visible property only, and not tax securities for payment of money; it may allow deductions for indebtedness, or not allow them. All such regulations, and those of like character, so long as they proceed within reasonable limits and general usage, are within the discretion of the state legislature,

or the people of the state in framing their constitution. But clear and hostile discriminations against particular persons and classes, especially such as are of an unusual character, unknown to the practice of our governments, might be obnoxious to the constitutional prohibition. It would, however, the Court said, be impracticable and unwise to attempt to lay down any general rule or definition on the subject, that would include all cases. Bell's Gap Railroad Co. v. Pennsylvania, 134 U. S. 232.

§ 342. Tax on business of an express company. The Fourteenth Amendment does not prevent a state from adjusting its system of taxation in all proper and reasonable ways, nor the classification of property for taxation. The Missouri act imposing a tax upon the business of express companies is not repugnant to the Fourteenth Amendment because it does not impose a like tax upon railroad or steamboat companies which carry express matter. The Supreme Court has repeatedly laid down the doctrine that diversity of taxation, both with respect to the amount imposed and the various species of property selected either for bearing its burdens or for being exempt from them, is not inconsistent with a perfect uniformity and equality of taxation in the proper sense of those terms; and that a system which imposes the same tax upon every species of property, irrespective of its nature or condition or class, will be destructive of the principle of uniformity and equality in taxation and of a just adaptation of property to its burdens. The act cannot be considered as invidiously discriminating against express companies in favor of other companies that may carry express matter on certain other conditions or under different circumstances. Railroad and steamboat companies pay taxes on tangible property. Express companies have no tangible property of any consequence subject to taxation under the general laws. There is, therefore, no way by which they can be taxed at all unless by a tax upon their receipts for business transacted. This distinction

clearly places express companies in a separate class from companies owning their own means of transportation. They do not do business under the same conditions, or under similar circumstances, and in the nature of things belong to different classes. The legislature was justified in the discrimination it has seen fit to impose, and the act in question cannot be held violative of the Fourteenth Amendment. Pacific Express Co. v. Seibert, 142 U. S. 339.

§ 343. State taxation of express companies' property. An express company is not denied the equal protection of the laws by classifying it with railroad and telegraph companies as subject to the unit rule of taxation, which estimates the value of the whole plant, though situated in different states, as an entirety, for the purpose of determining the value of the property in one state. The policy pursued in Ohio is to classify property for taxation, when the nature of the property, or its use, or the nature of the business engaged in, requires classification, in the judgment of the legislature, in order to secure equality of burden; and property of different sorts is classified under various statutory provisions for the purposes of assessment and taxation. The state constitution requires all property to be taxed by a uniform rule and according to its real value in money, and this law was upheld by the supreme court of the state. The constitutional test was held to be complied with, whatever the mode, if the result of the assessment was that the property was assessed at its true value in money. Applying the unit rule to express companies does not deny to them the equal protection of the laws. There is no attempt to tax property having a situs outside of the state, but only to place a just value on that within. The states through which the companies operate ought not to be compelled to content themselves with a valuation of separate pieces of property disconnected from the plant as an entirety, to the proportionate part of which they extend protection, and to the dividends of whose owners their citizens contribute. Adams Express Co. v. Ohio State Auditor, 165 U. S. 194.

§ 344. Legacy and inheritance taxes. Legacy and inheritance taxes are constitutional. The equal protection of the laws given by the Federal Constitution only requires that the law shall have the attribute of equality of operation, which does not mean indiscriminate operation on persons merely as such, but on persons according to their relations. Classes based on lineal and collateral relationship to the testator or intestate, made by a statute taxing inheritances, depend on substantial distinctions, and are not arbitrary. Exemptions from a statute taxing inheritances do not render its operation unequal within the meaning of the Fourteenth Amendment. A collateral inheritance tax which does not impose a uniform rate, but classifies legacies to strangers to the blood and imposes higher rates on the larger sums, is not in violation of the rule of equality of the Fourteenth Amendment to the Federal Constitution.

What satisfies the equality of protection guaranteed by the Fourteenth Amendment has not been and probably never can be precisely defined. It does not prohibit legislation which is limited, either in the objects to which it is directed or by the territory within which it is to operate. It only requires the same means and methods to be applied impartially to all the constituents of each class created by the law, and that all persons subjected to such legislation shall be treated alike under like circumstances and conditions, both in the privilege conferred and the liabilities imposed. The rule prescribes no rigid equality and permits to the discretion and wisdom of the state a wide latitude as far as interference by the Supreme Court is concerned. Nor with the policy of the law has it concern. Hardship, impolicy, or injustice of state laws is not necessarily an objection to their constitutional validity. In some circumstances the state may not tax A more than B, but if A be of a different trade or profession than B, it may. And in matters not of taxation, if A be a different kind of corporation than B, it may subject A to a different kind of responsibility to servants than B, to