
    The People ex rel. The Pennsylvania Railroad Co., Resp’t, v. Edward Wemple, Comptroller, App’lt.
    
      (Court of Appeals,
    
    
      Filed April 11, 1893.)
    
    Taxes — Foreign corporations carrying on interstate commerce.
    A foreign corporation engaged in this state exclusively in the business of interstate commerce is not liable to taxation under chap. 542, Laws 1880. As to §uch corporation such tax would be void as a regulation of commerce, the tax being one upon franchises or business and not upon property.
    Appeal from order of the supreme court, general term, third department, reversing assessment and order of the comptroller.
    
      Charles F. Tabor, for app’lt; E. Randolph Robinson, for resp’t.
   Andrews, Ch. J.

This is an appeal by the comptroller of the state of New York from an order of the general term of the third department, reversing the determination of the comptroller assessing a tax on the relator for the sum of $40,886.89, under the alleged authority of chap. 542 of the Laws of 1880, and the acts supplementary thereto and amendatory thereof. The relator is a Pennsylvania corporation, operating a line of railroad for the transportation of freight and passengers, extending through the state of New Jersey into other states of the Union. No part of its road is within the state of New York. But it operates in connection with its road a ferry from the New Jersey shore across the Hudson river to the city of New York, where it has terminal facilities consisting of wharves, piers and docks, and buildings connected therewith, used in the transaction of the business of delivering freight and passengers carried over its line to that city, and of receiving freight and passengers to be carried from the city into New Jersey and other states reached by its system of roads.

The only transportation over New York territory carried on by the relator is over that part of the Hudson river within the terminal boundaries of the state, by means of its ferry boats. It collects in the city of New York money due for transportation to that point and for transportation from that city, and there makes contracts for transportation of freight and passengers over its lines and issues and sells passenger tickets. It employs in the city of New York a large number of agents, clerks and laborers in the prosecution of its business. It is engaged in no business in that city except such as relates to the transportation of freight and passengers over its lines.

The question of the validity of the tax in question, irrespective of alleged errors in the computation, depends upon the point whether the scheme of taxation enacted by chapter 542 of the Laws of 1880, entitled “An act to provide for raising taxes for the use of the state upon certain corporations, joint stock companies and associations,” and its amendments, _ can be enforced against the relator. It is claimed in behalf of the relator that, as applied to it, the tax is a tax upon interstate commerce, and that the act under which it is imposed is, as to the relator, if embraced within its purview, an attempted regulation by the state of interstate commerce, which appertains exclusively to congress under article 1, § 8, clause 3 of the federal constitution. That a tax imposed by a state may constitute a regulation of commerc'e was decided in the case of Brown v. Maryland, 12 Wheat., 419, and has been frequently decided in subsequent cases. There has been much difficulty in the federal courts in determining what constitutes interstate commerce, and what acts of the state are to be deemed regulations thereof. But there is no question, at least at this time, that the business of the relator comes within the description of “ commerce among the states ” in the commerce clause of the federal constitution. Miller, J., Fargo v. Michigan, 121 U. S., 241; Pickard v. Pullman South. Car Co., 117 id., 34.

We do not understand it to be contended by the learned counsel for the state that if the act of 1880, as applied to the relator, is a regulation of commerce, the tax in question can be sustained.

In determining the question now presented, two propositions must be deemed conclusively established. One is that the business in which the relator was engaged in this state was exclusively that of interstate commerce. Whatever it did here was incident to and in aid of the business of interstate transportation. Interstate transportation was not a part of its business only in this state. It performed the work of an interior carrier in Mew Jersey and other states, but in this state its business was that of interstate commerce exclusively. There may, therefore, be eliminated from the discussion the question which would arise in the case of a foreign corporation conducting within this state both the business of strictly interior transportation and that of interstate carrier to points within and from points without the state. We do not intend to be understood as determining whether, in that case, the state might not, under the act of 1880, lawfully impose upon such a corporation, in common with all other corporations, domestic and foreign, doing business here, a business tax based upon its capital employed in the state, which, under the amendment of 1885, is now the basis of taxation of corporations liable to taxation under the act of 1880. Chap. 501, Laws of 1885.

There would seem to be no question that domestic corporations, engaged in both state and interstate commerce, may lawfully be subjected by the state to a franchise tax, measured by its whole capital or business, or in any other way in the discretion of the legislature, without taking notice of thé part of its business arising from interstate commerce, provided no hostile discrimination is made .against such part. Nor would there seem to be any valid reason why a foreign corporation, engaged both in thé business of state and interstate transportation in this state, should not be subject to taxation in common with domestic corporations. See People ex rel. etc., v. Wemple, 131 N.Y., 64; 42 St. Rep., 632; Woodruff v. Parham, 8 Wall., 123; Osborne v. Mobile, 16 id., 479.

The second point which must be deemed to be established is that the tax imposed upon corporations under the act of 1880, as amended by chapter 361 of the Laws of 1881, is a tax upon the “ corporate franchise or business,” and is not a tax upon property. It is made a tax upon the corporate franchise or business by the express language of the enactment, and it was upon the ground that it was a tax on corporate franchises or business, and not upon property, that this court, in the case of People v. Home Ins. Co., 92 N. Y., 345, sustained the tax assessed against the insurance company in that case, measured by a percentage on its whole capital, part of which was invested in United States bonds. The court assented to the proposition that, if the tax was a property tax, the amount invested in United States securities should have been deducted in ascertaining the amount of its taxable capital. The then learned chief judge, in stating the question, said: “It thus appears that the only question presented for our consideration.under this branch of the appeal is whether the tax in question was, in fact, levied upon the franchises of the defendant, which would be undeniably lawful, or upon the property of the corporation invested in the securities of the general government, which would be unlawful," and in conclusion he said: “ It seems conclusively established that the act under which this tax was levied must be held to have imposed a franchise and not a property tax, and that its enactment constituted a lawful exercise of legislative power.” This decision was affirmed on the same ground upon which the decision in this court proceeded, by the supreme court of the United States. 134 U. S., 594. The tax, when imposed on a domestic corporation, is a tax on its corporate franchises; when imposed on a foreign corporation, is a tax on its business; a distinction based on the fact that corporate franchises are only taxable within the jurisdiction which creates them, and where alone they can be said to have a situs. People v. Equitable Trust Co., 96 N. Y., 388.

We come, therefore, to the crucial question of the case; can the ’state of New York tax the relator, a foreign corporation, upon its business carried on in this state, which is exclusively the business of interstate commerce ? The question stated in another form is, may a state tax a foreign corporation, whose business in such state is exclusively that of interstate commerce, for the privilege of transacting that business here, because, as wo have held, this is the essential nature of the tax under the act of 1880. People ex rel., etc. v. Wemple, 131 N. Y., 68; 42 St. Rep., 632. If the tax is a regulation of commerce, and not an exercise of the taxing power of the state, the relator is protected against its imposition under the federal constitution. The power to regulate commerce between the states is vested exclusively in congress, and the fact that congress has not acted confers no powers of state regulation, except as to matters of local interest incidentally affecting foreign or interstate commerce, and where action by the state is permitted under the police power in aid or promotion of commerce, such as the regulation of pilots, wharves, harbors, bridges, etc., and for the protection of the public health. Cooley v. Board of Wardens of Phila., 12 How., U. S., 299; Welton v. State of Missouri, 91 U. S., 282; Brown v. Houston, 114 id., 630. In Cooley v. Board of Wardens of Phila., Mr. Justice Curtis, speaking of this .subject, said: “ Whatever subjects of this power are in their nature national, or admit of only one uniform system or plan of regulation, may justly be said to be of such a nature as to require exclusive regulation by congressand Mr. Justice Field, in Wilton v. State of Missouri, said : “ The fact that congress has not seen fit to prescribe any specific rules to govern interstate commerce does not affect the question. Its inaction on this subject, when considered with reference to its legislation with respect to foreign commerce, is equivalent to a declaration that interstate commerce shall be free and untrammelled."

The state power of taxation extends in general to all property, real or personal^ having an actual situs within the state, irrespective of the residence of the owner. The state may not only tax property within its limits, but the business and occupation of its citizens, and the franchises of domestic corporations ; and when it permits foreign corporations to carry on business in the state, it may subject the privilege to such taxation as it may deem expedient. In short, the power of state taxation is coextensive with the subjects of taxation, and the state may define the subjects, provided only that the property, privilege or right upon which the tax is imposed is within the jurisdiction. The existence of this power is essential to the existence of the state governments. But under our system certain powers have been delegated by the whole people to the general government, some exclusive, and some concurrent with the power of the states, and, in some instances, affirmative restrictions upon the power of the states have been imposed by the federal constitution, and others are implied from affirmative powers vested in the government of the Union. Among these restrictions, express or implied, are restrictions on the taxing power of the states. The states cannot tax the property of the federal government within the jurisdiction, nor the public securities of the United States, nor the instrumentalities through which it exercises its delegated powers. It can levy no tax upon exports or imports, and goods imported from foreign countries and brought within a state cannot be reached by its taxing power while in the hands of the importer in the condition in which they were when imported, unless they have been mingled with the general mass of property therein. These are familiar illustrations of an acknowledged principle.

But conflicts have arisen in respect to the power of state taxation which do not admit of so easy a solution. Indeed in many cases it has been found difficult to draw the line and to determine where, state taxation is excluded under the provisions of the federal constitution. The difficulty of the subject has been acknowledged by the courts, and by no court more frequently than by the supreme court of the United States. It is delicate ground, and as was said by Chief Justice Chase in Osborne v. Mobile, 16 Wall., 479: “It is as important to leave the rightful powers of the state in respect to taxation unimpaired, as to maintain the powers of the federal government in their integrity.” No more fruitful subject of controversy has been presented than the proper construction of the commerce clause in the federal constitution, as connected with the right of the states to impose taxation upon interstate commerce, or rather on the question when a tax is to be regarded a tax on such commerce, because the bald proposition that a state may tax interstate commerce has never probably been asserted by any of the courts of the state. The tax has usually been laid on the business, or franchises, or on the occupation of those engaged in interstate commerce, or on the property employed therein, or on freights, the tonnage of vessels,, or in some form in which it could be plausibly argued that the tax was not a direct tax on the commerce itself.

In deciding the question before us we are bound to follow the adjudications of the supreme court of the United States, as far as they have determined any constitutional principle bearing upon the point in controversy. It has been held in a series of decisions in that court, that while a state tax, which in substance and effect is a direct tax on interstate commerce, constitutes a state regulation of commerce and is the usurpation of a power exclusively vested in congress and, therefore, void, yet that the commerce provision of the federal constitution does not deprive the states of the power to levy a property tax, npon property employed in interstate commerce, having a situs within the jurisdiction, provided no adverse discrimination is made in the imposition of the tax between such property and other property of a similar character. The state may subject to a property tax in common with other property, every description of property, real and personal, having its situs there, although .used or employed exclusively in the business of foreign or interstate commerce. Ships or vessels engaged in foreign or coastwise commerce may be taxed at their home port, and the products of one state carried into another and there held for sale by the original producer may be taxed, even before sale, in the state to which they have been taken.

The courts have given the broadest construction to the power of a state to lay a property tax on property employed in interstate commerce, provided, as before stated, it is subjected to no unjust discrimination. Transportation Co. v. Wheeling, 99 U. S., 273; Brown v. Houston, supra; Pullman car Co. v. Pennsylvania, 141 id., 23. Such taxation, although indirectly affecting interstate commerce, is held not to be a regulation of commerce prohibited by the federal constitution. Strong, J., Slate Tax on Railway Gross Receipts, 15 Wall., 293; Railroad Co. v. Maryland, 21 id., 460.

If the tax imposed on corporations by the act of 1880, and the subsequent statutes amending the same, had been a property tax instead of a tax on franchises. or- business, it would not, as we interpret the decisions of the United States supreme court, have been subject to the objection now made in behalf of the relator, nor could the relator have lawfully resisted its payment. The tax would then have been a tax imposed on the property of the relator actually within this state, and that it was employed in-conducting the operations of interstate commerce would have furnished no claim on constitutional grounds for exemption. But we understand that it is the established doctrine of the federal courts that no state can impose a tax on the business of interstate commerce, whatever may be the guise under which the tax is laid, and that a tax which operates directly as a tax on such business is void as a state regulation of commerce. The general power of a state to tax business pursuits' and callings carried on within the state does not, as is held, extend to the taxation of such pursuits where the business is that of interstate commerce. This question has frequently arisen under state laws imposing a license tax upon agents of firms or corporations of other states, as a condition of being permitted to prosecute within the state exacting the license the business of selling or taking orders for the sale of goods or products to be sent there from the state where the principal resides.

In some cases the statute under consideration discriminated against the agents of foreign principals and the agents of domestic principals, and in others no such discrimination was made. While some of the earlier decisions may seem to conflict with the later ones, the rule of the federal courts established by the recent decisions is, “ that a state law is unconstitutional and void which requires a party to take out a license for carrying on interstate commerce, no matter how specious the pretext may be for imposing it,” and that it is immaterial whether the person from whom the license is exacted is an individual or a foreign corporation. Robbins v. Shelby Taxing District, 120 U. S., 489; Crutcher v. Kentucky, 141 id., 47, and cases cited.

The principle upon which the license cases proceed is that a license tax is a tax on the business of interstate commerce, and being such it is a regulation of commerce, a subject exclusively within the regulating power of congress. There seems to be no proposition more firmly established by the decisions of the United States supreme court than that a tax imposed by a state upon the business of interstate commerce is a tax on such commerce, and is, therefore, void. The difficulty arises in determining whether the tax in a given case is in substance a tax on commerce, or a tax affecting commerce indirectly and incidentally only, in which latter case it is not obnoxious to constitutional objection. Taxation of property employed in interstate commerce affects commerce, because it increases the expense of carrying it on, and the burden ultimately falls on the subjects of commerce, but this as we have said does not remove such property from the taxing power of the state.

So the taxation of the franchises of domestic corporations, part of whose business may be interstate commerce, falls in part upon such commerce, but we do not- understand that this in any respect qualifies the power of the state. Many cases of this kind arise under the law now under consideration, in the taxation of railroads organized under our laws.

It must be assumed that the grant by a state of corporate powers carries with it special and peculiar advantages to the corporation to whom the grant is made, and it is this that justifies the taxation of corporate franchises by the state. But it has been held that the state may not tax the gross receipts of a steamship company incorporated under its laws, engaged in foreign and interstate transportation. Philadelphia & Southern S. S. Co. v. Pennsylvania, 122 U. S., 326. In that case Bradley, J., speaking of the tax, said: “ If intended as a tax on the franchise of doing business, which in this case is the business of transportation in carrying on interstate and foreign commerce, it would be clearly unconstitutional.” This was regarded as a direct tax on commerce, as was the tax on all the freight carried by the Reading Railroad Company, a domestic corporation of the taxing state, which included freight brought from or carried without the state. State Freight Tax, 15 Wall, 232.

But we do not understand that the state may not tax the franchises of all corporations chartered by it, by a uniform and general rule, or that such taxation would be unauthorized as applied to a corporation engaged in interstate commerce. It could not tax the business as a distinct and separate subject of taxation or discriminate against it. The tax against the Pennsylvania Railroad Company, involved in this case, was distinctly a tax on its business, and that business in this state, as we have said, was exclusively interstate commerce. It has been suggested that the tax is upon the privilege it enjoys, as a foreign corporation, of coming into this state and here exercising corporate functions. We are not called upon to determine in this case whether the state,under the general rule that it may exclude foreign corporations from coming here, and that it is by comity alone that such corporations are permitted to exercise corporate franchises outside of the jurisdiction of origin, could lawfully exclude a foreign corporation engaged in interstate commerce from landing its freight or passengers on our shores, or at the wharves in the city of New York, or from there receiving freight or passengers. See Pensacola Tel. Co. v. West. Union Tel. Co., 96 U. S., 1; Paul v. Virginia, 8 Wall., 168; Pembina Mining Co. v. Pennsylvania, 125 U. S., 181; Crutcher v. Kentucky, supra.

It is sufficient for this case to say that the state has not attempted to exclude the relator from doing business in this state, or withdrawn the comity under which it has been permitted to carry on its business here and acquire real and personal estate for the transaction of its business. The relator is lawfully here, and being here it cannot, we think, under the authorities, be lawfully subjected by the state to a tax upon its business of interstate commerce, or for the privilege of conducting its business here. It does not relieve the tax from its objectionable character that the law of 1880 was not aimed at the business of interstate commerce specifically, but applied to all corporations engaged in transportation, nor is it material that the exemption claimed may render taxation unequal as between domestic and foreign corporations.

The same feature existed in several of the cases in which a tax by the state has been held to be void as a regulation of commerce. The answer made by the cases is, that protection of the business of interstate commerce from state taxation exists under the paramount authority of the federal constitution. The cases of Fargo v. Michigan, supra, and Gloucester Ferry Co. v. Pennsylvania, 114 U. S., 196, seem to be conclusive in favor of the relator here. Both were cases of foreign corporations engaged in interstate commerce. In Fargo v. Michigan, the state of Michigan sought, under a state statute, to tax the gross receipts of the corporation. In the Ferry Company case, the state of Pennsylvania, under a statute very similar to the statute of New York, sought to tax the company, a corporation of New Jersey operating a ferry across the Delaware river from the New Jersey shore to Philadelphia. The tax was nominally on the capital of the company. In both cases the tax was held by the court to be void as regulations of commerce. In the Ferry case, the supreme court of Pennsylvania sustained the tax on the ground that the company did business in that state, but it was held by the supreme court of the United States, in an unanimous opinion reversing the decision of the state court, that as this business was interstate commerce, it was not subject to taxation by the state.

The learned counsel for -the state, who presented with much ability at our bar the argument in support of the tax now in question, places much stress on the recent cases of Western Union Tel. Co. v. Massachusetts, 125 U. S., 530; Massachusetts v. Western Union Tel. Co., 141 id., 40; Pullman Palace Car Co. case, id., 18, and Maine v. Grand Trunk Railway, 142 id., 217. The decisions in the Telegraph cases and in the Pullman Car case were placed distinctly on the ground that the tax in these cases was imposed upon property having a situs in the taxing state, and were thus brought within the general rule that property used in interstate commerce is subject, as all other property within a state, to taxation for municipal purposes. The case of Maine v. Grand Trunk Railway was decided on the ground that the tax imposed under the statute of Maine in that case was a franchise tax upon cor'porate privileges conferred by the legislature of the state on the defendant corporation, and that it did not invalidate the tax because the amount was apportioned with reference to the gross receipts for transportation over its whole line, which extended beyond the state. The dissent in that case proceeded upon a different view taken by the minority of the court as to the character of the tax, their opinion being in substance that it was a tax on the business of interstate commerce. These cases do not disturb the general principle of the other cases. Following, as we suppose, the decisions of the federal court, we are constrained to hold that the tax now under consideration is void as a regulation of commerce.

The order of the general term is, therefore, affirmed.

All concur, except Maynard, J., not sitting. 
      
       Affirming 47 St. Rep., 695.
     