Judgment was entered in the Court of Common Pleas of Dauphin County, Pennsylvania, in favor of the Commonwealth for "gross receipts taxes for the six months ending the 31st day of December, 1923," amounting with interest and commission to $6,049.94. The tax is claimed under § 23 of an Act of June 1, 1889, P.L. 420, 431.
Plaintiff in error is a New Jersey corporation authorized to do business in Pennsylvania as a foreign corporation; and, since June 1, 1917, it has carried on a general taxicab business in Philadelphia. The Supreme Court held that the section taxes gross receipts from the operation of taxicabs. It provides that every transportation company, whether incorporated in Pennsylvania or elsewhere, owning or operating any device for the transportation of passengers, "shall pay to the state treasurer a tax of eight mills upon the dollar upon the gross receipts of said corporation. . . . received from passengers . . . transported wholly within this State . . . "
Plaintiff in error was subject to competition in its business by individuals and partnerships operating taxicabs. The Act does not apply to them, and no tax is imposed on their receipts. Corporations operating taxicabs are not exempted from any of the taxes imposed on
The equal protection clause extends to foreign corporations within the jurisdiction of the State and safeguards to them protection of laws applied equally to all in the same situation. Plaintiff in error is entitled in Pennsylvania to the same protection of equal laws that natural persons within its jurisdiction have a right to demand under like circumstances. Kentucky Finance Corp'n v. Paramount Exch., 262 U.S. 544, 550. The equal protection clause does not detract from the right of the State justly to exert its taxing power or prevent it from adjusting its legislation to differences in situation or forbid classification in that connection, "but it does require that the classification be not arbitrary but based on a real and substantial difference having a reasonable relation to the subject of the particular legislation." Power Co. v. Saunders, 274 U.S. 490, 493. It is established that a corporation, by seeking and obtaining permission to do business in a State does not thereby become bound to comply with, or estopped from objecting to, the enforcement of its enactments that conflict with the Constitution of the United States. The right to withhold from a foreign corporation permission to do local business therein does not enable the State to require such a corporation
The section declares the imposition to be a tax "upon gross receipts." And the Supreme Court said: "The read subject of the tax is the gross receipts of a company engaged in the transportation of freight or passengers . . ." That statement is not affected by a later expression referring to the tax as a "state tax on business or income" in contrast with a "local tax on property" such as hacks, cabs and other vehicles. The variation of language used by the court evidently is intended to be, and is, without significance. The words of the section are too plain to require explanation. They could not reasonably be given any other meaning. But, in any event, a characterization of the tax by the state court is not binding here. Louisville Gas & Electric Co. v. Coleman, ante, p. 32. St. Louis Compress Co. v. Arkansas, 260 U.S. 346, 348. There is no controversy as to the application of the tax. Plaintiff in error assumes that the section covers its gross receipts, as held by the state court, but insists that the section is invalid because it does not extend to like receipts of natural persons and partnerships. No doubt there are situations in which, as appears in Cudahy Packing Co. v. Minnesota, 246 U.S. 450, and other cases, a percentage of gross earnings may be taken as a tax on property used in the business and properly may be deemed not to be a tax or burden on such earnings. But the practical operation of the section is to be regarded, and it is to be dealt with according to its effect. Frick, v. Pennsylvania, 268 U.S. 473. Panhandle Oil Co. v. Mississippi,
In effect § 23 divides those operating taxicabs into two classes. The gross receipts of incorporated operators are taxed while those of natural persons and partnerships carrying on the same business are not. The character of the owner is the sole fact on which the distinction and discrimination are made to depend. The tax is imposed merely because the owner is a corporation. The discrimination is not justified by any difference in the source of the receipts or in the situation or character of the property employed. It follows that the section fails to meet the requirement that a classification to be consistent with the equal protection clause must be based on a real and substantial difference having reasonable relation to the subject of the legislation. Power Co. v. Saunders, supra. No decision of this Court gives support to such a classification.
I think that the judgment should be affirmed. The principle that I think should govern is the same that I stated in Louisville Gas & Electric Co. v. Coleman, ante, p. 41. Although this principle was not applied in that case I do not suppose it to have been denied that taxing acts like other rules of law may be determined by differences of degree, and that to some extent States may have a domestic policy that they constitutionally may enforce. Quong Wing v. Kirkendall, 223 U.S. 59. If usually there is an important difference of degree between the business done by corporations and that done by individuals, I see no reason why the larger businesses may not be taxed and the small ones disregarded, and I think it would be immaterial if here and there exceptions were found to the general rule. Flint v. Stone Tracy Co., 220 U.S. 107, 158, et seq. Citizens Telephone Co. v. Fuller, 229 U.S. 322. Amoskeag Savings Bank v. Purdy, 231 U.S. 373, 393. Miller v. Wilson, 236 U.S. 373, 384. Armour & Co. v. North Dakota, 240 U.S. 510, 517. Furthermore if the State desired to discourage this form of activity in corporate form and expressed its desire by a special tax I think that there is nothing in the Fourteenth Amendment to prevent it.
MR. JUSTICE BRANDEIS, dissenting.
It has been the consistent policy of Pennsylvania since 1840 to subject businesses conducted by corporations to heavier taxation than like businesses conducted by individuals.
The Supreme Court of the State has construed this statute as applicable to all taxicab corporations; and has held the Quaker City Cab Company, a foreign corporation doing an intrastate business in Pennsylvania since the year 1917, liable for the taxes accrued on that business
As the statute applies equally to domestic and to foreign corporations, cases like Southern Ry. Co. v. Greene, 216 U.S. 400; Kentucky Finance Corporation v. Paramount Auto Exchange, 262 U.S. 544; Hanover Fire Insurance Co. v. Harding, 272 U.S. 494; and Power Manufacturing Co. v. Saunders, 274 U.S. 490, have no application. And no claim is made that the Federal Constitution prevents a State from taxing corporations engaged in one class of business more heavily than those engaged in another. Southwestern Oil Co. v. Texas, 217 U.S. 114; Brown-Forman Co. v. Kentucky, 217 U.S. 563; Heisler v. Thomas Colliery Co., 260 U.S. 245; Oliver Iron Mining Co. v. Lord, 262 U.S. 172. The fundamental question requiring decision is a general one. Does the equality clause prevent a State from imposing a heavier burden of taxation upon corporations engaged exclusively in intrastate commerce, than upon individuals engaged under like circumstances in the same kind of business? The narrower question presented is, whether this heavier burden may be imposed by a form of tax "not peculiarly applicable to corporations." That is, by a tax of such a character that it might have been extended to individuals if the legislature had seen fit to do so.
The equality clause does not forbid a State to classify for purposes of taxation. Discrimination through classification is said to violate that clause only where it is such as "to preclude the assumption that it was made in the exercise of legislative judgment and discretion." Stebbins
The difference between a business carried on in corporate form and the same business carried on by natural persons is, of course, a real and important one. As was stated in Flint v. Stone-Tracy Co., 220 U.S. 107, 161-162, "it could not be said .. . that there is no substantial difference
The imposition of the heavier tax on corporations by means of an annual tax in the form of a franchise tax declared
For these reasons, I should have no doubt that the statute of Pennsylvania was well within its power, if the question were an open one. But it seems to me that the validity of such legislation has been established by a decision of this Court rendered after much consideration. The contention here sustained differs in no essential respect from that made and overruled in Flint v. Stone-Tracy Co., 220 U.S. 107, 161. There, as here, the tax was imposed merely because the owner of the business was a corporation, as distinguished from an individual or a partnership. There, as here, the character of the owner was the sole fact on which the distinction was made to depend. There, as here, the discrimination was not based on any other difference in the source of the income or in the character of the property employed. The cases differ in but two respects, neither of them material. In the Flint case the tax was on net income while here it is on gross receipts; and the Flint case arose under the Fifth Amendment while the present case arises under the Fourteenth. But a tax on net income is no more "peculiarly applicable to corporations" than is a tax on gross receipts; and in the Flint case it was distinctly ruled that "even if the principles of the Fourteenth Amendment were applicable
MR. JUSTICE HOLMES concurs in this opinion.
MR. JUSTICE STONE, dissenting.
That businesses carried on in corporate form may be taxed while those carried on by individuals or partnerships are left untaxed, was the rule broadly applied under the Fifth Amendment in Flint v. Stone-Tracy Company, 220 U.S. 107, and I can see no reason for not applying it here under the Fourteenth Amendment as well. It is no objection to a taxing statute that the classification is based on two distinct elements — here the doing of business in a corporate form, upheld in Flint v. Stone-Tracy Co., supra, (and see Home Insurance Co. v. New York, 134 U.S. 594; Fort Smith Lumber Co. v. Arkansas, 251 U.S. 532), and the character of the business done as distinguished from other classes of business, upheld in Southwestern Oil Co. v. Texas, 217 U.S. 114; Brown-Forman Co. v. Kentucky, 217 U.S. 563; Heisler v. Thomas Colliery Co., 260 U.S. 245. For it was decided in Stebbins v. Riley, 268 U.S. 137, that such a combination of two permissible bases of classification may itself be made the basis of a classification.
The Report of the Secretary of the Treasury for 1927, p. 48, states: "If we include the tax paid by individuals on the dividends received from corporations, the rate of tax on net corporate income is 15.27 per cent, whereas had all the corporations been taxed as partnerships the average rate of tax on their net income would have been 9.1 per cent."
The states, too, have acted upon this theory. See Annual Report of the Assessors of New York, 1882, pp. 15-17; Communication of the Secretary of State and the Attorney General of Kansas, relating to the bill for an annual franchise tax, 1911.
In proposing the enactment of a tax of one shilling on the pound on the profits and income of concerns with limited liability, April 19, 1920, the Chancellor of the Exchequer Said: "I justify it on much broader grounds. Companies incorporated with a limited liability enjoy privileges and conveniences by virtue of the law for which they may well be asked to pay some acknowledgment." The statement is quoted in Report of the Secretary of the Treasury for 1920, p. 42.