Conceding, merely for argument, that the tax is imposed on the exercise of "the privilege of doing business in a corporate form," the present writer claims that Congress has power to tax the exercise of such a privilege.

Obviously, the exercise of a privilege to do business in a corporate form is not the exercise of a "strictly governmental function. It is not the exercise of a governmental function at all. It is the exercise of a private privilege conferred by the State on private persons to facilitate the conduct of private business. Therefore it does not fall within the implied limitation upon the taxing power of Congress. It matters not that, to the extent of the Federal tax, the value of the privilege conferred by the State is indirectly diminished, or that, by making the tax on the exercise of the privilege sufficiently large, its exercise could be practically prevented. To that extent the States consented that the exercise of private privileges conferred by them might be burdened when they conferred on Congress plenary powers of taxation.

If the indirect (though practical) curtailment of the powers of a State which might result from Federal taxation constituted a Constitutional barrier against the exercise by Congress of the taxing power, it could be argued with far greater force that Congress could not tax the subjects selected by a State for taxation. No one will maintain such a proposition. Yet by taxing all of the subjects of State taxation to the limits of their capacity to respond, Congress could wholly withdraw from the State its sources of revenue, for, "in the case of a tax upon the same subject by both Governments, the claim of the United States must be preferred."1

The reader need not be aghast at the destructive power here disclosed. There is a practical limitation upon abuses of that power; but it is not to be found in any supposed Constitutional barrier of State sovereignty. It resides in the fact

118 Wall. at p. 29.

ment. It is composed of the representatives of the several States, and there is little danger that they will use the power of taxation in a way to destroy the State governments of the people who choose them.

The writer has been unable to find any decision denying to Congress the power to impose excise taxes on the exercise of private privileges or franchises conferred by the States.

He has found a number of decisions recognizing the right of Congress to tax the exercise of such privileges.

In Knowlton vs. Moore1 it was claimed that an excise tax imposed by Congress upon the enjoyment of the privilege of taking property by inheritance invaded the Constitutional barrier of the sovereignty of the State which conferred the privilege.

The Court, after quoting with approval one of its previous opinions, holding that "the right to take property by devise or descent is a creature of the law and not a natural right, . . ." conceded that a tax imposed by Congress on the enjoyment of that right "certainly . . . diminishes to the extent of the tax the value of the right to inherit or receive," but unanimously rejected the contention that this would invade the Constitutional barrier of the sovereignty of the State which conferred the privilege. The Court held that the tax was a burden cast upon the recipi ent of the privilege or right, and not upon the power of the State to grant, withhold, or regulate the privilege or right.

While the force of the decision in the case of Veazie Bank vs. Fenno,2 upholding the statute which taxed out of existence the circulation of the State banks, is weakened, in connection with the present discussion, by the fact that the second reason given by the Court for sustaining the validity of the tax was that the power to impose the tax was derived from the power of Congress to provide a uniform currency, the first ground given was that Congress had authority, under the taxing power, to impose a tax on the exercise of a privilege derived from a State. It was strenuously argued that Congress could not impose the tax without invading the

1178 U. S., 41, at p. 44. 28 Wall., 533.

Constitutional barrier of State sovereignty. Two judges dissented on that ground. But the other five rejected the contention, and, while they held that the tax was upon the exercise of franchise rights derived from the State, as distinguished from a tax upon the franchise itself, regarded as property (just as was held in Knowlton vs. Moore, supra), expressed the following views :

It may be admitted that the reserved rights of the States, such as the right to pass laws, to give effect to laws through executive action, to administer justice through the courts, and to employ all agencies for legiti

mate purposes of State government, are not proper subjects of the taxing power of Congress. But it cannot be admitted that franchises granted by a State are necessarily exempt from taxation, for franchises are property, often very valuable and productive property, and when not conferred for the purpose of giving effect to some reserved power of a State, seem to be as properly objects of taxation as any other property. [p. 547.]

It is not necessary, in order to sustain the validity of the so-called Corporation Tax, to sustain the proposition quoted above; for that tax is not levied directly on the corporation's privileges, as such, regarded as property, but only (if we admit Mr. Pierson's contention) on the exercise of the privileges in connection with

the doing of business. But the writer believes that a tax levied by Congress directly on corporate franchises regarded as property would not invade the Constitutional barrier of State sovereignty so long as the franchise taxed was not one grant

ing the right to discharge functions strictly

governmental in character.

In the following cases the Supreme Court upheld the constitutionality of excise taxes nposed by Congress on the exercise of State-conferred franchises or

privileges. While it is true that the opinions do not discuss any contention that the taxes invaded the sovereignties of the States which conferred the privileges, that point was necessarily involved, and the decisions would have been the opposite unless that contention had been rejected.

In upholding the constitutionality of the tax on the sales of shares of stock of State corporations,1 the Court clearly recognized the right of Congress to tax the Thomas vs. U. S., 192 U. S., 363.

A Federal excise tax laid on the exercise of the privilege (when granted by the State) of selling lottery tickets and liquors, on the insurance business, conducted by a corporation, and on the sugar refining business, conducted by a corporation, were declared to be Constitutional exercises of the taxing powers of Congress.

Mr. Pierson himself concedes that the

exercise by a corporation of its " privilege of doing business" may be taxed by Congress. Having conceded this much, it seems to me that he has conceded everything; for the "privilege of doing busi

ness

is, in the case of a corporation, not a natural right, but is a privilege or franchise wholly derived from the State in the exercise of its sovereignty.

What becomes, therefore, of his contention that the exercise of " the privilege of doing business in the corporate form" cannot be taxed by Congress because it is a privilege wholly derived from the State?

It is no more derived from the State and subject to its regulation than the corporation's bare "privilege of doing business."

Mr. Pierson cites the following cases to show that the exercise of privileges conferred by the Federal Government cannot be taxed by the States. He argues, by analogy, that Congress cannot tax privileges of the same kind conferred by

the States.

In California vs. Central Pacific Railroad Congress denied the right of a State

Italics are the writer's.

2 Railroad vs. Collector, 100 U. S., 595.

3 License Tax Cases, 5 Wall., 462.

4 Pacific Ins. Co. vs. Soule, 7 Wall., 433. Spreckels Sugar Refining Co. vs. McClain, 192 U. S., 397.

• 127 U. S., 1.

to levy a tax on the franchises granted to an inter-State railway chartered by Congress. The franchises, while they in part conferred the right on the Company to conduct a private railway business, in part delegated to the railway the governmental function of carrying on commerce between the States and of carrying mails, troops, and Government stores. The tax was therefore, in part at least, laid upon an instrumentality of Government, and curtailed its exercise of governmental functions. Hence it fell within the exceptions which we have referred to. It may be noted in passing that the tax was levied directly upon the franchise as property, not merely on the doing of the Company's railway business in the corporate form.

Had the tax been upon the roadbed, rolling stock, or other private property of the Company, the State would have had power to levy it.1

6

That patent rights are private privileges, and hence taxable by the States, in spite of the fact that the Federal Government confers them, was argued in the first case cited by Mr. Pierson on this subject. But the Court rejected the contention, calling attention to the fact that Chief Justice Marshall, in McCullough vs. Maryland, classified patent rights with the mails, the mint, and judicial process as means of government. Without expressing its own views on the correctness of the classification, the Court seemed to feel bound by Justice Marshall's dictum, and by the decisions based thereon, to treat patent rights as governmental instrumentalities.

As

such they would fall within the implied limitation referred to.

But even if patent rights were private rights conferred by Congress, a distinction might be drawn between the right of the States to tax these privileges and the right of Congress to tax State-conferred private privileges, as follows: The surrender by the States to Congress of the power to grant patent rights and copyrights was complete and without reservation, and therefore the States surrendered so much of their taxing power as empowered them to burden the enjoy ment of patent rights and copyrights by taxing their exercise. On the other hand, the power retained by the States to grant and regulate the exercise of private privileges was retained subject to the power of taxation which they surrendered to Congress-a power co-extensive with their own taxing power, operating on the same subjects of taxation and limited only by the expressed limitations of the Constitution and the implied limitation that Congress might not curtail the exercise of their functions strictly governmental in character. Therefore, while the States may not tax patent rights and copyrights, even if they be private privileges, Congress may tax rights private in character conferred by the State.

-Chief Justice Marshall has suggested another distinction in his famous opinion in McCullough vs. Maryland,1 as follows :

But

It has also been insisted that, as the power of taxation in the General and State Governments is acknowledged to be concurrent, every argument which would sustain the banks chartered by the States will equally right of the General Government to tax sustain the right of the States to tax banks chartered by the General Government. the two cases are not on the same reason. The people of all the States have created the General Government and have conferred upon it the general power of taxation. The people of all the States, and the States themselves, are represented in Congress, and, by their representatives, exercise this power. When they tax the chartered institutions of the States, they tax their constituents; and these taxes must be uniform. But when a State taxes the operations of the Government of the United States, it acts upon institutions created, not by their own constituents, but by the people over whom they claim no control. It acts upon the measures of a govern

14 Wheaton, 405. See also Henderson vs. Mayor, 92 U. S. at p. 272.

ment created by others as well as themselves for the benefit of others in common with themselves. The difference is that which always exists, and always must exist, between the action of the whole on a part and the action of a part on the whole-between the laws of a government declared to be supreme and those of a government which, when in opposition to those laws, is not supreme.

My conclusion is that the Constitutional barrier of State sovereignty is raised only against taxation by Congress which directly impedes the exercise by the States or by their agencies of the States' strictly governmental functions.

As Mr. Pierson's objection is that the Corporation Tax imposes a tax on the exercise of privileges pertaining to the corporate form, and as the corporation, in exercising those privileges, does not discharge a governmental function, but merely a private function, I conclude that the statute does not invade the Constitutional barrier of State sovereignty.

Heretofore, in order to discuss the question which I believe would interest the general public, I conceded, for argument merely, that the tax was imposed on "the privilege of doing business in the corporate form." I do not, however, believe that the courts will find that the tax is of that character. In interpreting a statute a court is not permitted to consider the opinion of its framers or sponsors, but must find its meaning in its language alone.

The statute states that the tax is imposed on corporations and joint stock companies" organized for profit and having a capital stock represented by shares," "with respect to the carrying on or doing business" by such corporations or joint stock companies. This is plain language.

Mr. Pierson concludes, however, that the tax was not intended to be imposed on the mere privilege of doing business, because the privilege of individuals and copartnerships to do the same business is not taxed, and that omission, he argues, would violate the requirement of the Constitution that excises shall be "uniform throughout the United States." But the "uniformity" limitation of the Constitution requires geographical uniformity only, not equality, as Mr. Pierson seems 1 Knowlton vs. Moore, 178 U. S. at pp. 84 to 106.

If any attack is to be made on the statute based on the fact that corporations and joint stock companies" organized for profit and having a capital stock represented by shares are singled out to be taxed on their privilege of doing business, that attack must be based on the claim that the basis of classification designated in the foregoing quotation is arbitrary, as to corporations, and deprives them of their property without due process of law.1 It has been argued with great force by Senator Root that, as the principle of this basis of classification is followed by a large number of States in imposing taxes, the Federal Government may adopt the same basis of classification without being guilty of arbitrary discrimination.

To say that corporations may not be classified according to their possession of "a capital stock represented by shares," because they derive that privilege from a State grant, while joint stock companies may, because they do not derive the right from that source, would be to hold that corporations are not only entitled to a protection of the laws equal to that accorded to joint stock companies, but that they are entitled to greater protection.

I do not agree with Mr. Pierson that "many good lawyers . . . have assumed, somewhat too hastily, that the tax in question was an excise tax on business or oc

cupation like that involved in the Spreckels case, and that the only Constitutional question, therefore, was one of classification."

I believe that the tax is precisely of that character, namely, merely a tax on the doing of business, and that the only question involved is whether, in singling out for the tax corporations and joint

1 Constitution, Fifth Amendment. See his speech in the United States Senate, delivered July 1, 1909.

stock companies "organized for profit and having a capital stock divided into shares," Congress made an arbitrary classification depriving the corporations of their property without due process of law.

Be that as it may, even if the tax be imposed, as Mr. Pierson contends, not on the doing of business, but on " the doing of business in a corporate form," I believe that, nevertheless, it invades no Constitutional barrier of State sovereignty.

I

N the period following the New York municipal election many prognostications have been made and are being made as to what kind of government the city will have under its newly elected Mayor. One thing is fairly certain. New York will have an experiment in police administration, which, whether it succeeds or fails, will be study well worth while for those interested in that difficult subject. Mr. Gaynor as Mayor will name the Police Commissioner. He can be expected to select a Commissioner who will on general lines conduct his office in accordance with certain principles, for which the Mayor as a judge and citizen has stood steadfastly, in season and out of season, for twenty years. Whether those principles will succeed or fail is the experiment which New York will see demonstrated.

During a campaign filled with bitter personalities, Mr. Gaynor was represented to the public as a Judge who had been the "protector" of crime. The law reports were examined for campaign material. His decisions (and there are many of them) granting injunctions, restraining the police in certain of their efforts to suppress alleged disorderly resorts and gambling dens, were made to serve campaign purposes. All these cases were cited to show that under the régime of Mr. Gaynor, a man of an austere and serious type, the city would have a repetition of the "wide open" town which it had under the beef-eating, convivial Bob" Van Wyck. It may be that these prophecies will prove true. If they prove true, they are likely to result, not from any special sympathy with vice, any belief in

the philosophy of "liberality," on the part of the new Mayor. If New York has a wide-open town under Mr. Gaynor, it will come from a demonstration that his theory of police administration, of the functions and powers of police officers, is inadequate to meet prevailing conditions. For this reason, a study of that theory embodied in his decisions and public utterances may be of interest at this time.

There are certain ancient legal maxims embodied in the American law which come to us as the inherited result of conflicts between the English people and their rulers, and by which were established the rights of individuals against the oppressive power of kings and magnates. The Magna Charta gave us some of them; the struggle of the people against the despotism of Charles I and the more insidious despotism of Charles II gave us others. These legal maxims are something more than maxims; they are milestones in the history of English freedom. They have been written into our Constitutions, State and National, and form the very foundation of the law of the land. For centuries they were in England considered of priceless value and of unequaled importance. As the power of kings grew less, as in our own country the authority of the king and his royal governors was replaced by commonwealths governed by elective magistrates, as the police officer became a representative, not of an arbitrary hereditary ruler, but of the people through these elective officers, and as other problems of government came along to engross our attention, these old principles of law, while not