FLINT V. STONE TRACY CO., 220 U. S. 107 (1911)

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U.S. Supreme Court

Flint v. Stone Tracy Co., 220 U.S. 107 (1911)

Flint v. Stone Tracy Company

Nos. 407, 409-412, 415, 420, 425, 431, 432, 442-443, 446, 456-457

Argued March 17, 18, 1910

Restored to docket for reargument May 31, 1910

Reargued January 17, 18, 19, 1911

Decided March 13, 1911.

220 U.S. 107


The Corporation Tax, as imposed by Congress in the Tariff Act of 1909, is not a direct tax, but an excise; it does not fall within the apportionment clause of the Constitution, but is within, and complies with, the provision for uniformity throughout the United States; it is an excise on the privilege of doing business in a corporate capacity,

Page 220 U. S. 109

and, as such, is within the power of Congress to impose; franchises of corporations are not governmental agencies of the state, and the tax is not invalid as an attempt to tax state governmental instrumentalities; not being direct taxation, but an excise, the tax is properly measured by the entire income of the parties subject to it notwithstanding a part of such income may be derived from nontaxable property; the tax does not take property without due process of law, nor is it arbitrarily unequal in its operation, either by differences in corporations or by reason of the classes exempted; the method of its enforcement is within the power of Congress, and all corporations, not specially exempted by the act itself, carrying on any business, are subject to the provisions of the law.

The substitution of a tax on incomes of corporations for a tax on inheritance in a bill for raising revenue is an amendment germane to the subject matter, and not beyond the power of the Senate to propose under § 7, Art. I, of the Constitution, providing that such bills shall originate in the House of Representatives, but that the Senate may propose or concur in amendments as in other bills. The corporation tax provision of the Tariff Act of 1909 is not unconstitutional as being a revenue measure not originating in the House of Representatives under § 7, Art. I, of the Constitution; but so held without holding that the journals of the House or Senate may be examined to invalidate an act which has been passed and signed by the presiding officers of both branches of Congress, approved by the President and deposited with the State Department.

A tax, such as the Corporation Tax imposed by the Tariff Act of 1909, on corporations, joint stock companies, associations organized for profit and having a capital stock represented by shares, and insurance companies, and measured by the income thereof, is not a tax on franchises of those paying it, but a tax upon the doing of business with the advantages which inhere in the peculiarities of corporate or joint stock organization of the character described in the act.

Joint stock companies and associations share many benefits of corporate organization, and are properly classified with corporations in a tax measure such as the Corporation Tax. Spreckels Sugar Refining Co. v. McClain, 192 U. S. 397.

While the legislature cannot by a declaration change the real nature of a tax it imposes, its declaration is entitled to weight in construing the statute and determining what the actual nature of the tax is.

The Corporation Tax is not a direct tax within the enumeration provision of the Constitution, but is an impost or excise which Congress

Page 220 U. S. 110

has power to impose under Art. I, § 8, cl. 1, of the Constitution. Pollock v. Farmers' Loan & Trust Co., 157 U. S. 429; 158 U. S. 158 U.S. 601, distinguished.

Indirect taxation includes a tax on business done in a corporate capacity; the difference between it and direct taxation imposed on property because of its ownership is substantial, and not merely nominal.

Excises are taxes laid upon the manufacture, sale, or consumption of commodities within the country, upon licenses to pursue certain occupations and upon corporate privileges; the requirement to pay such taxes involves the exercise of the privilege, and if business is not done in the manner described, no tax is payable.

The only limitations on the power of Congress to levy excise taxes are that they must be for the public welfare and must be uniform throughout the United States; they do not have to be apportioned.

Courts may not add any limitations on the power of Congress to impose excise taxes to that of uniformity, which was deemed sufficient by those who framed and adopted the Constitution.

The revenues of the United States must be obtained from the same territory, and the same people, and its excise taxes collected from the same activities, as are also reached by the states to support their local governments, and this fact must be considered in determining whether there are any implied limitations on the federal power to tax because of the sovereignty of the states over matters within their exclusive jurisdiction.

Enactments of Congress levying taxes are, as are other laws of the federal government acting within constitutional authority, the supreme law of the land.

Business activities such as those enumerated in the Corporation Tax Law are not beyond the excise taxing power of Congress because executed under franchises created by the states.

The power of Congress to raise revenue is essential to national existence, and cannot be impaired or limited by individuals incorporating and acting under state authority. The mere fact that business is transacted pursuant to state authority creating private corporations does not exempt it from the power of Congress to levy excise laws upon the privilege of so doing.

The exemption from federal taxation of the means and instrumentalities employed in carrying on the governmental operations of the states does not extend to state agencies and instrumentalities used for carrying on business of a private character. South Carolina v. United States, 199 U. S. 437.

Page 220 U. S. 111

The constitutional limitation of uniformity in excise taxes does not require equal application of the tax to all coming within its operation, but is limited to geographical uniformity throughout the United States. Knowlton v. Moore, 178 U. S. 41.

Even if the principles of the equal protection provision of the Fourteenth Amendment were applicable, there is no such arbitrary and unreasonable classification of business activities enumerated in and subject to the Corporation Tax Law as would render that law invalid. There is a sufficiently substantial difference between business as carried on in the manner specified in the act and as carried on by partnerships and individuals to justify the classification.

There are distinct advantages in carrying on business in the manner specified in the Corporation Tax Law over carrying it on by partnerships or individuals, and it is this privilege which is the subject of the tax, and not the mere buying, selling or handling of goods.

While a direct tax may be void if it reaches nontaxable property, the measure of an excise tax on privilege may be the income from all property, although part of it may be from that which is nontaxable, and the Corporation Tax is not invalid because it is levied on total income, including that derived from municipal bonds and other nontaxable property.

The measurement of the Corporation Tax by net income is not beyond the power of Congress as arbitrary and baseless. Selection of the measure and objects of taxation devolve upon Congress, and not on the courts; it is not the function of the latter to inquire into the reasonableness of the excise either as to amount or property on which it is to be imposed.

Congress has power to impose the Corporation Tax, and the act is not void as lacking in due process of law under the Fifth Amendment.

Although the power to tax is the power to destroy, McCulloch v. Maryland, 4 Wheat. 316, the courts cannot prevent its lawful exercise because of the fear that it may lead to disastrous results. The remedy is with the people by the election of their representatives.

Business is a comprehensive term and embraces everything about which a person can be employed, and corporations engaged in such activities as leasing and managing property, collecting rents, making investments for profit and leasing taxicabs, are engaged in business within the meaning of the Corporation Tax Law.

It is no part of the essential governmental function of a state to provide means of transportation and to supply artificial light, water and the like, and although the people of the state may derive a benefit therefrom, the public service companies carrying on such enterprises

Page 220 U. S. 112

are private, and are subject to legitimate federal taxation, such as the Corporation Tax, the same as other corporations are.

Congress has the right to select the objects of excise taxation, and this includes the right to make exemptions; exceptions in the Corporation Tax Law of labor, agricultural, religious and certain other organizations, do not invalidate the tax or render the law unconstitutional.

Courts cannot substitute their judgment for that of the legislature; where details as to estimating the amount of an excise tax, such as the deductions for interest on bonded and other indebtedness provided by the Corporation Tax Law, are not purely arbitrary, they do not invalidate the tax.

If an excise tax operates equally on the subject matter wherever found, its geographical uniformity is not affected by the fact that it may produce unequal results in different parts of the Union.

Corporations, acting as trustees or guardians under the authority of laws of a state and compensated by the interests served and not by the state, are not agents of the state government in a sense that exempts them from the operations of federal taxation.

If it is within the power of Congress to impose the tax, it is also within its power to enact effectual means to collect the tax. @ 17 U. S. 421.

The unreasonable search and seizure provision of the Fourth Amendment does not prevent the federal government from requiring ordinary and reasonable tax returns such as those required by the Corporation Tax Law.

This Court will not pass on questions of constitutionality of a statute until they arise, and no question is now presented as to whether the provisions of the Corporation Tax Law offend the self-incrimination provisions of the Fifth Amendment or whether the penalties for noncompliance are so high as to violate the Constitution; the penalty provisions of the act are separable, and their constitutionality can be determined if a proper case arises.

No case is presented on this record involving the question of lack of power to tax foreign corporations doing local business in a state, or whether, if the tax on foreign corporation is unconstitutional, it would invalidate the tax on domestic corporations as working an inequality against the latter; nor is any case presented involving the invalidity of the act as a tax on exports.

The facts, which involve the constitutional validity of the Corporation Tax Law, being § 38 of the

Page 220 U. S. 113

Payne-Aldrich Tariff Act of August 5, 1909, are stated in the opinion.

Page 220 U. S. 142

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