Our Changing Constitution

d in its title has been settled by the Supreme Court (Flint v. Stone Tracy Co., 220 U.S., 107). The paper is here reproduced, how

nt of view, to say nothing of its economic and political significance, was

o pay annually a special excise tax with respect to the carrying on or doing business by such corporation ... equivalen

ncerning their business and affairs, and confers on the Commissioner of I

, so pronounced during President Roosevelt's Administration, had foreshadowed such legislation. It remained

erruled previous decisions and overturned doctrines that had been acquiesced in almost from the foundation of the Government. A strong party was in favor of enacting another income tax law and bringing the question again before the Court in the hope that the Court as then constituted might be induced to overrule or materially modify the doctrine of the Pollock case. The President and his advisers viewed such a proposal with disfavor. To their minds the proper way to establish the right of Congress to levy a

s. Farmers' Loan & Tru

ssional Record, Jun

y. The same view was taken by able lawyers who surrounded him in the capacity of advisers. The act is understood to have been drafted by Mr. Wi

ith diffidence. I venture, however, to outline briefly s

t, as well as the declarations of its sponsors, clearly indicate that it is intended, not as a direct tax on property, but as an excise tax on privilege. The phraseology of the act itself is-"A special excise tax with respect to the carrying on or doing business by such corpora

, 397) seems clearly to establish the principle that such a tax as this is an excise tax upon privilege and

Sugar Refining Co. vs.

s, but also on the corporation that does no specific business whatever-the corporation which, in the language of an eminent judge, is merely "an incorporated gentleman of leisure."[1] Moreover, if the tax were merely upon the privilege of doing business, it would seem to be obnoxious to the cardinal principle of just taxation that taxes should be uniform. In other words, if the privilege of doing a business-say conducting a department st

in People ex rel. vs.

s in the land are engaged, but is rather a tax upon the privilege of doing business in a corporate capacity, or, in other words,

ss as an artificial entity and of freedom from a general

is the real nature of the

Congress impose a tax on the exercise of that privilege or franchise? The power to tax involves the power to destroy.[1] If Congress can impose a tax of one per cent., it can impose a tax of ten per cent. or fifty per cent., and thus impair or destroy altogether the value of corporate charters for business purposes. Does Congress possess such a power? The Constitution puts no express limitation on the right o

lloch vs. Marylan

ollector vs. Day,

d class of cases where the granting of charters becomes incidental to some power expressly conferred on Congress, e.g., the power to establish a uniform currency, or the power to regulate interstate commerce. On the other hand, the right of the separate states to grant charters of incorporation is unquestionable. By the Tenth Amendment of the Constitution it is expressl

v. Bank of Kentucky,

sovereignty of the states, will not a tax imposed by Congress upon the exercise of the

he Central Pacific Railroad Company by the United States were legitimate subjects of taxation by the State of California. The Supreme Court, in language frequently quoted in subsequent cases, discusses the nature and origin of franchises, concluding that a franchise is "a right, privilege,

axed or render it valueless. As Chief Justice Marshall said in McCulloch v. Maryland, "The power to tax involves the power to destroy."... It seems to us almost absurd to contend that a power given to a person or corporation by the United States may be subjected

d Company v. Penisto

e 2: 127

d not the converse of that question. The reasoning of the Court would seem, however, to apply with equal force to the

tion the right to grant patents and copyrights is expressly conferred on Congress. It has been held repeatedly that patent rights and copyrigh

r burden the operation of the laws enacted by Congress to carry into e

, 417; People ex rel. v. Roberts, 159 N.Y., 70; In Re Sheffield, 64

2: 159 N.Y

ate franchises, a prerogative reserved under our system of government to the states instead of being expressly confer

tate can tax the instrumentalities similarly employed by the General Government. Thus, it has been held that Congress cannot tax a municipal corporation (being a portion of the sovereign power of the state) upon

States vs. Railroad

llector v. Day,

sini v. United Sta

internal improvement, charters an intrastate railway or ferry company with power to charge tolls and exercise the right of eminent domain. Is not the grant of corporate existence and privileges to such a corporation one of the means or ins

tax upon the exercise of the franchise itself. The former tax may be perfectly valid where the latter would be unconstitutional. Thus, the Supreme Court has upheld a tax by a state upon the real and personal property (as

fic Railroad Company vs

ed in the businesses of refining petroleum and refining sugar. The Court held the tax to be an excise tax "in respect of the carrying on or doing the business of refining sugar," and such it obviously was. It was not a tax upon the privilege or franchise of doing business in a corporate capacity, like the tax now u

Sugar Refining Co. vs.

eb Cushing) argued unsuccessfully "that the act imposing the tax impaired a franchise granted by the state, and that Congress had no power to pass any law which could do that;"[2] and that two justices dissented on that ground. The conclusive answer to this argument, was, however, that the power of the states to grant the particular right or privilege in q

1: 8 Wal

: See 8 Wal

ghtly construed, will be found to sustain the right of the General Government to impose a tax upon the exercise of franchises grante

hat involved in the Spreckels case, and that the only constitutional question, therefore, was one of classification under the provision of the Constitution that excises shall be un

the statement which he has just made that he does not seriously question

any tax it pleases except an export tax. Of course a direct tax must be apportioned and an indirect tax must be uniform. Bu

ses.... I have no doubt if the tax fell upon every red-headed man in Massachusetts the same as in

nal Record for July 6,

chise granted by a sovereign state. From the viewpoint of constitutional law it may well be that Congress can tax a p