quire every bid to be accompanied by a written guaranteė, signed by one or more responsible persons, to the effect that he or they undertake that the bidder, if his bid is accepted, will at such time as may be prescribed by the Secretary of War or the officer authorized to make a contract in the premises, give bond, with good and sufficient sureties, to furnish the supplies proposed or to perform the service required."

The provision of law under which these contracts are made by your department is contained in the act of April 23, 1904, chapter 1485 (33 Stat. 268), which reads as follows:

"That hereafter, except in cases of emergency, or where it is impracticable to secure competition, the purchase of all supplies for the use of the various departments and posts of the Army and of the branches of the Army service shall only be made after advertisement, and shall be purchased where the same can be purchased the cheapest, quality and cost of transportation and the interests of the Government considered; but every open market emergency purchase made in the manner common among business men, which exceeds in amount $200 shall be reported for approval to the Secretary of War under such regulations as he may prescribe.”

Other statutes and rules of your department relating to this question are cited and some of them quoted in the opinion of July 25, 1910.

Manifestly it was the purpose of Congress under these provisions to require the War Department to consider the purchase of its supplies from purely a business standpoint. While the expression which occurs in the opinion of July 25, 1910

66

The phrase the interest of the Government considered' does not enlarge the authority of the contracting officer, but has reference to the cost and adaptability of the supplies for the uses of the Government," (28 Op. 389), may be somewhat narrow, yet the purpose of Congress was to confine the discretion of your department to a consideration of the financial interests of the Government, which

embraces the responsibility of the parties, and every matter which tends to show whether the acceptance of the lowest bid would be financially profitable to the United States; and, as the Standard Oil Co. of Indiana can, under the decision of the Supreme Court, enter into a valid contract for the delivery of oil, and may be required to execute a bond for the faithful carrying out of such contract, the fact that it is a party defendant in the case of United States v. Standard Oil Company of New Jersey et al., and that a final decree of the character above described has been entered against it therein, does not of itself justify you in rejecting its bid.

Respectfully,

GEORGE W. WICKERSHAM.

The SECRETARY OF WAR.

MANILA RAILROAD CO.-CORPORATION TAX.

The Manila Railroad Co., a corporation organized under the laws of New Jersey, and doing business wholly within the Philippine Islands, and operating under a concessionary contract granted by the Philippine Legislature, is liable to the Federal excise tax on corporations, imposed under section 38 of the act of Congress approved August 5, 1909 (36 Stat. 112).

The fact that the company is aided in its business by the Philippine Government can not of itself exempt it from the burdens of taxation imposed by the Government of the United States.

DEPARTMENT OF JUSTICE,

June 24, 1911.

SIR: I have yours of the 20th instant asking the opinion of the Attorney General upon the question "whether the Manila Railroad Co., a corporation organized under the laws of New Jersey, and doing business wholly within the Philippine Islands, and operating under a concessionary contract granted by the Philippine Legislature, is liable to the Federal excise tax on corporations, imposed under section 38 of the act of Congress approved August 5, 1909." (36 Stat. 112).

Section 38, to which you refer, provides:

"That every corporation, joint stock company or association, organized for profit and having a capital stock

represented by shares, and every insurance company, now or hereafter organized under the laws of the United States or of any State or Territory of the United States or under the acts of Congress applicable to Alaska or the District of Columbia, or now or hereafter organized under the laws of any foreign country and engaged in business in any State or Territory of the United States or in Alaska or in the District of Columbia, shall be subject to pay annually a special excise tax with respect to the carrying on or doing business by such corporation, joint stock company or association or insurance company."

This clause of the section clearly includes the Manila Railroad Co. unless the limitation, "engaged in business in any State or Territory of the United States or in Alaska or in the District of Columbia," applies to the domestic as well as to the foreign corporations described in the act.

Domestic corporations as such, by reason of their mere existence, are subject to the jurisdiction and authority of the United States; foreign corporations are subject to such jurisdiction and authority only as they operate within the United States. The tax imposed by the act is laid accordingly. In the case of the domestic corporation it is "upon the entire net income over and above $5,000 received by it from all sources," etc.; while in the case of the foreign corporation it is "upon the amount of net income over and above $5,000 received by it from business transacted and capital invested within the United States and its Territories, Alaska, and the District of Columbia," etc.

In the case of the foreign corporation there is a territorial limitation upon the measure of the tax, while as to the domestic corporation there is none.

A domestic corporation doing business in the United States and also abroad is taxable upon its entire net income regardless of the proportion which the income from business done abroad bears to the income from business done at home. The measure of the tax not being limited to income from business done at home, it must be held to apply in the case of the domestic company, all of whose income is derived from business done abroad, unless there is express exception of such a company made in the act itself, and no such exception is found therein.

So far as concerns the question here involved, business done in the Philippine Islands stands upon the same footing with business done in foreign countries, for the internal revenue laws of the United States have not been made applicable to those islands.

Income from business done in the islands by a domestic corporation described in the act is subject to the tax not because the act is operative in the islands, but because it is operative upon the corporation and extends to its "entire net income * * * * received by it from all sources."

A corporation created by the Philippine Government is not within the act at all, because it is not "organized under the laws of the United States or of any State or Territory of the United States or under the acts of Congress applicable to Alaska or the District of Columbia," and neither is it "organized under the laws of any foreign country."

The Philippine Islands are not a foreign country, and at the same time the laws of the United States, except as expressly extended to them, are not their laws. Section 1 of the organic act of the islands, approved July 1, 1902 (32 Stat. 691), prescribes that "the provisions of section 1891 of the Revised Statutes of 1878 shall not apply to the Philippine Islands." The section thus referred to is as follows:

"The Constitution and all laws of the United States which are not locally inapplicable shall have the same force and effect within all the organized Territories, and in every Territory hereafter organized as elsewhere within the United States."

* *

A corporation "organized under the laws of any foreign country" is not subject to the income tax with respect to its business done in the Philippine Islands because the measure of the tax, as to it, prescribed by the act, is "the amount of net income * received by it from business transacted and capital invested within the United States and its Territories, Alaska, and the District of Columbia." The word "Territories, as here used, is clearly applicable only to Arizona, New Mexico, and Hawaii.

The resulting discrimination against American, and in favor of foreign, corporations as to business carried on in the Philippines and in Porto Rico can not serve to alter the construction of the act, although it may invite to amendment.

Counsel for the Manila Railroad Co., Mr. John G. Milburn, concurs in the view here expressed, stating in his memorandum that "the Manila Railroad Co. is organized under the laws of the State of New Jersey; it has a capital stock represented by shares, and it is organized for profit. It would seem, therefore, to be within the descriptive terms of the act.'

Mr. Milburn, however, expresses the opinion that, because of the relations of the company to the Philippine Government, it is exempt from the tax. He He says:

"The essential facts are: (1) That the concessionary contracts made under the authority of Congress prescribe the payment annually of a percentage of the gross earnings of the company in exoneration of all taxation; and (2) that the exaction of this additional tax impairs to the extent of its amount the fund applicable to the payment of interest on bonds, which is an obligation of the Government of the Philippine Islands to the extent that it is not paid by the company. I feel that the authorities would be warranted in construing the act not to apply to such a corporation, for the reason that it is exempt from taxation if it pays annually the fixed percentage of its gross earnings; and for the further reason that to do otherwise would make it in substance and effect the imposition of a burden upon the Philippine Government.

In this view I do not concur.

Section 74 of the act of July 1, 1902, providing for the administration of the affairs of civil government in the Philippine Islands, and for other purposes, authorizes concessions for the construction and operation of works of public utility, and for the payment of a reasonable percentage of the gross earnings of such public utility "into the treasury of the Philippine Islands or of the province or municipality within which such franchises are granted and exercised." It does not provide, however, that such pay