
    Quicksafe Manufacturing Corporation v. Edgar J. Graham, Comptroller, et al.
    
    (Nashville,
    December Term, 1929.)
    Opinion filed June 28, 1930.
    
      Seat, Stockell, Edwards & Keeble, for complainant, appellee.
    R. E. Maiden and W. H. Eagle, Assistant Attorney s-G-eneral, for defendant, appellants.
   Mr. Justice Cook

delivered the opinion of the Court.

Complainant’s predecessor, a Tennessee corporation and the exclusive owner of a patent right, entered into a contract with Turner & Seymour Company, a Connecticut manufacturer, licensing’ it to make and sell a patented article to the exclusion of all others. The complainant, a domesticated Delaware corporation, which succeeded to the rights of its predecessor, keeps an office in Tennessee where it receives from the Connecticut manufacturer the royalties on the machines manufactured in Connecticut and from there distributed throughout the United States. The complainant does not make or supply any part of the machines or any material that goes into their manufacture, nor does it make, buy or sell any article of commerce. According to tbe statements of tbe bill, wbicb upon demurrer, are admitted, complainant’s sole business is to bold tbe patent right and receive tbe royalties from Turner & Seymour Company.

Tbe Commissioner of Finance and Taxation assessed tbe excise tax against complainant for tbe years 1925, 1926' and 1927, amounting to $539.35, and payment was about to be enforced when complainant pursuing tbe course prescribed by statute, paid tbe tax under protest and, alleging that it was illegally exacted, sued to recover tbe amount paid. Tbe defendants, representing* tbe State, demurred to the bill. Tbe chancellor overruled tbe demurrer whereupon defendant refused to further plead and a decree was entered awarding complainant a recovery for tbe aggregate of tbe taxes paid by it.

The defendants appealed, insisting that complainant is subject to tbe excise tax imposed by chapter 21, Acts of 1923.. Tbe tax levied by this Act is a privilege tax upon domestic and foreign corporations organized for profit and carrying on business in this State. The annual tax is measured by a sum equal to three per cent of tbe net earnings for each preceding fiscal year, arising from business done wholly within tbe State. Corporations not doing business in tbe State and those that derive no net earnings from business done in tbe State are not subject to tbe tax. Bank of Commerce & Trust Co. v. Senter, 149 Tenn., 569.

Tbe complainant derived no profit from tbe manufacture and sale of tbe patented article wbicb was manufactured by tbe licensee. Its income was derived altogether from tbe royalties on its patent right. The State could not levy a tax upon the value of tbe patent right and where tbe State attempts to tax income inquiry is allowed to the sources from which the income is derived and the same considerations that would invalidate a tax upon the source would also invalidate a tax upon the income. Such is the rule announced in Gillespie v. Oklahoma, 257 U. S., 501, following McCullough v. Maryland, 4 Wheat., 316, and other cases.

Eesort to analogy is rendered unnecessary by authorities directly in point. In State v. Butler, 3 Lea, 222, the court, holding that the State could not tax sales of patented articles, said:

“If the State can forbid the use and enjoyment of the right granted except on terms of paying for the privilege . . . she may as well . . . forbid it entirely. In this way the privilege granted may be rendered valueless and the right purchased from the United States be entirely destroyed for all practical purposes.”

In Long v. Rockwood, 277 U. S., 145, 72 Law Ed., 824, the court said:

‘ ‘ These causes present the question whether the State of Massachusetts may tax, as income, royalties received by one of her citizens for the use of patents issued to him by the United States. The Supreme Judicial Court of that State held such an imposition would amount to a tax upon the patent right itself and was prohibited by the Federal Constitution. -We agree with that conclusion.”

Further discussion of the questions presented through the assignments of error and brief are unnecessary.

Affirmed.  