Chapter LXXXIII: Section 1: All persons born or naturalized in the United (4)

Prior even to the ratification of the Fourteenth Amendment, it was settled principle that a State could not tax land situated beyond its limits; and subsequently elaborating upon that principle the Court has said that "* * *, we know of no case where a legislature has assumed to impose a tax upon land within the jurisdiction of another State, much less where such action has been defended by a court."[490] Insofar as a tax payment may be viewed as an exaction for the maintenance of government in consideration of protection afforded, the logic sustaining this rule is self-evident.

Tangible Personalty

As long as tangible personal property has a situs within its borders, a State validly may tax the same, whether directly through an _ad valorem_ tax or indirectly through death taxes, irrespective of the residence of the owner.[491] By the same token, if tangible personal property makes only occasional incursions into other States, its permanent situs remains in the State of origin, and is taxable only by the latter.[492] The ancient maxim, _mobilia sequuntur personam_, which had its origin when personal property consisted in the main of articles appertaining to the person of the owner, yielded in modern times to the "law of the place where the property is kept and used." In recent years, the tendency has been to treat tangible personal property as "having a situs of its own for the purpose of taxation, and correlatively to * * * exempt [it] at the domicile of its owner."[493]The benefit-protection theory of taxation, upon which the Court has in fact relied to sustain taxation exclusively by the situs State, logically would seem to permit taxation by the domiciliary State as well as by the nondomiciliary State in which the tangibles are situate, especially when the former levies the tax on the owner in terms of the value of the tangibles. Thus far, however, the Court has taken the position that when the tangibles have a situs elsewhere, the domiciliary State can neither control such property nor extend to it or to its owner such measure of protection as would be adequate to meet the jurisdictional requirements of due process.

Intangible Personalty

General.--To determine whether a State, or States, may tax intangible personal property, the Court has applied the fiction, _mobilia sequuntur personam_ and has also recognized that such property may acquire, for tax purposes, a business or commercial situs where permanently located; but it has never clearly disposed of the issue as to whether multiple personal property taxation of intangibles is consistent with due process. In the case of corporate stock, however, the Court has obliquely acknowledged that the owner thereof may be taxed at his own domicile, at the commercial situs of the issuing corporation, and at the latter's domicile; but, as of the present date, constitutional lawyers are speculating whether the Court would sustain a tax by all three jurisdictions, or by only two of them, and, if the latter, which two, the State of the commercial situs and of the issuing corporation's domicile, or the State of the owner's domicile and that of the commercial situs.[494]

Taxes on Intangibles Sustained.--Thus far, the Court has sustained the following personal property taxes on intangibles:

(1) A debt held by a resident against a nonresidence, evidenced by a bond of the debtor and secured by a mortgage on real estate in the State of the debtor's residence.[495]

(2) A mortgage owned and kept outside the State by a nonresident but on land within the State.[496]

(3) Investments, in the form of loans to residents, made by a resident agent of a nonresident creditor, are taxable to the nonresident creditor.[497]

(4) Deposits of a resident in a bank in another State, where he carries on a business and from which these deposits are derived, but belonging absolutely to him and not used in the business, are subject to a personal property tax in the city of his residence, whether or not they are subject to tax in the State where the business is carried on. The tax is imposed for the general advantage of living within the jurisdiction [benefit-protection theory], and may be measured by reference to the riches of the person taxed.[498]

(5) Membership owned by a nonresident in a domestic exchange, known as a chamber of commerce.[499]

(6) Membership by a resident in a stock exchange located in another State. "Double taxation" the Court observed "by one and the same State is not" prohibited "by the Fourteenth Amendment; much less is taxation by two States upon identical or closely related property interests falling within the jurisdiction of both, forbidden."[500]

(7) A resident owner may be taxed on stock held in a foreign corporation that does no business and has no property within the taxing State. The Court also added that "undoubtedly the State in which a corporation is organized may * * *, [tax] of all its shares whether owned by residents or nonresidents."[501]

(8) Stock in a foreign corporation owned by another foreign corporation transacting its business within the taxing State. The Court attached no importance to the fact that the shares were already taxed by the State in which the issuing corporation was domiciled and might also be taxed by the State in which the issuing corporation was domiciled and might also be taxed by the State in which the stock owner was domiciled; or at any rate did not find it necessary to pass upon the validity of the latter two taxes. The present levy was deemed to be tenable on the basis of the benefit-protection theory; namely, "the economic advantages realized through the protection, at the place * * *, [of business situs] of the ownership of rights in intangibles * * *"[502]

(9) Shares owned by nonresident shareholders in a domestic corporation, the tax being assessed on the basis of corporate assets and payable by the corporation either out of its general fund or by collection from the shareholder. The shares represent an aliquot portion of the whole corporate assets, and the property right so represented arises where the corporation has its home, and is therefore within the taxing jurisdiction of the State, notwithstanding that ownership of the stock may also be a taxable subject in another State.[503]

(10) A tax on the dividends of a corporation may be distributed ratably among stockholders regardless of their residence outside the State, the stockholders being the ultimate beneficiaries of the corporation's activities within the taxing State and protected by the latter and subject to its jurisdiction.[504] This tax, though collected by the corporation, is on the transfer to a stockholder of his share of corporate dividends within the taxing State, and is deducted from said dividend payments.[505]

(11) Stamp taxes on the transfer within the taxing State by one nonresident to another of stock certificates issued by a foreign corporation;[506] and upon promissory notes executed by a domestic corporation, although payable to banks in other States.[507] These taxes, however, were deemed to have been laid, not on the property, but upon an event, the transfer in one instance, and execution, in the latter, which took place in the taxing State.

Taxes on Intangibles Invalidated.--The following personal property taxes on intangibles have not been upheld:

(1) Debts evidenced by notes in safekeeping within the taxing State, but made and payable and secured by property in a second State and owned by a resident of a third State.[508]

(2) A property tax sought to be collected from a life beneficiary on the corpus of a trust composed of property located in another State and as to which said beneficiary had neither control nor possession, apart from the receipt of income therefrom.[509] However, a personal property tax may be collected on one-half of the value of the corpus of a trust from a resident who is one of the two trustees thereof, notwithstanding that the trust was created by the will of a resident of another State in respect of intangible property located in the latter State, at least where it does not appear that the trustee is exposed to the danger of other _ad valorem_ taxes in another State.[510] The first case, Brooke _v._ Norfolk,[511] is distinguishable by virtue of the fact that the property tax therein voided was levied upon a resident beneficiary rather than upon a resident trustee in control of nonresident intangibles. Different too is Safe Deposit and Trust Co. _v._ Virginia,[512] where a property tax was unsuccessfully demanded of a nonresident trustee with respect to nonresident intangibles under its control.

(3) A tax, measured by income, levied on trust certificates held by a resident, representing interests in various parcels of land (some inside the State and some outside), the holder of the certificates, though without a voice in the management of the property, being entitled to a share in the net income and, upon sale of the property, to the proceeds of the sale.[513]

Transfer Taxes (Inheritance, Estate, Gift Taxes).--Being competent to regulate exercise of the power of testamentary disposition and the privilege of inheritance, a State may base its succession taxes upon either the transmission, or an exercise of the legal power of transmission, of property by will or by descent, or the enjoyment of the legal privilege of taking property by devise or descent.[514] But whatever may be the justification of their power to levy such taxes, States have consistently found themselves restricted by the rule, established as to property taxes in 1905 in Union Refrigerator Transit Co. _v._ Kentucky,[515] and subsequently reiterated in Frick _v._ Pennsylvania[516] in 1925, which precludes imposition of transfer taxes upon tangible personal property by any State other than the one in which such tangibles are permanently located or have an actual situs. In the case of intangibles, however, the States have been harassed by the indecision of the Supreme Court; for to an even greater extent than is discernible in its treatment of property taxes on intangibles, it has oscillated in upholding, then rejecting, and again currently sustaining the levy by more than one State of death taxes upon intangibles comprising the estate of a decedent.

Until 1930, transfer taxes upon intangibles levied by both the domiciliary as well as nondomiciliary, or situs State, were with rare exceptions approved. Thus, in Bullen _v._ Wisconsin,[517] the domiciliary State of the creator of a trust was held competent to levy an inheritance tax, upon the death of the settlor, on his trust fund consisting of stocks, bonds, and notes kept and administered in another State and as to which the settlor reserved the right to control disposition and to direct payment of income for life, such reserved powers being equivalent to a fee. Cognizance was taken of the fact that the State in which these intangibles had their situs had also taxed the trust. Levy of an inheritance tax by a nondomiciliary State was sustained on similar grounds in Wheeler _v._ Sohmer, wherein it was held that the presence of a negotiable instrument was sufficient to confer jurisdiction upon the State seeking to tax its transfer.[518] On the other hand, the mere ownership by a foreign corporation of property in a nondomiciliary State was held insufficient to support a tax by that State on the succession to shares of stock in that corporation owned by a nonresident decedent.[519] Also against the trend was Blodgett _v._ Silberman[520] wherein the Court defeated collection of a transfer tax by the domiciliary State by treating coins and bank notes deposited by a decedent in a safe deposit box in another State as tangible property, albeit it conceded that the domiciliary State could tax the transfer of books and certificates of indebtedness found in that safe deposit box as well as the decedent's interest in a foreign partnership.

In the course of about two years following the recent Depression, the Court handed down a group of four decisions which, for the time being at any rate, placed the stamp of disapproval upon multiple transfer and--by inference--other multiple taxation of intangibles. Asserting, as it did in one of these cases, that "practical considerations of wisdom, convenience and justice alike dictate the desirability of a uniform general rule confining the jurisdiction to impose death transfer taxes as to intangibles to the State of the [owner's] domicile; * * *"[521] the Court, through consistent application of the maxim, _mobilia sequuntur personam_, proceeded to deny the right of nondomiciliary States to tax and to reject as inadequate jurisdictional claims of the latter founded upon such bases as control, benefit, and protection or situs. During this interval, 1930-1932, multiple transfer taxation of intangibles came to be viewed, not merely as undesirable, but as so arbitrary and unreasonable as to be prohibited by the due process clause.

Beginning, in 1930, with Farmers' Loan and Trust Co. _v._ Minnesota,[522] the Court reversed its former ruling in Blackstone _v._ Miller,[523] in which it had held that the State in which a debtor was domiciled or a bank located could levy an inheritance tax on the transfer of the debt or the deposit, notwithstanding that the creditor had his domicile in a different State. Farmers' Loan and Trust Co. _v._ Minnesota, strictly appraised, was authority simply for the proposition that jurisdiction over a debtor, in this instance a State which had issued bonds held by a nonresident creditor, was inadequate to sustain a tax by that debtor State on the transfer of such securities. The securities in question, which had never been used by the creditor in any business in the issuing State, were located in the State in which the creditor had his domicile, and were deemed to be taxable only in the latter. In Baldwin _v._ Missouri,[524] a nondomiciliary State was prevented from applying its inheritance tax to bonds, bank deposits, and promissory notes, all physically present within its limits and some of them secured by lands therein, when the owner thereof was domiciled in another State. A like result, although on this occasion on grounds of lack of evidence of any "business situs," was reached in Beidler _v._ South Carolina Tax Commission,[525] in which the Court ruled that a State, upon the death of a nonresident creditor, may not apply its inheritance tax to a debt [open account] owned by one of its domestic corporations. Finally, in First National Bank _v._ Maine,[526] which has since been overruled in State Tax Commission _v._ Aldrich,[527] the Court declared that only the State in which the owner of corporate stock died domiciled was empowered to tax the succession to the shares by will or inheritance and that the State in which the issuing corporation was domiciled could not do so.

Without expressly overruling more than one of these four cases condemning multiple succession taxation of intangibles, the Court, beginning with Curry _v._ McCanless[528] in 1939, announced a departure from the "doctrine, of recent origin, that the Fourteenth Amendment precludes the taxation of any interest in the same intangible in more than one State * * *." Taking cognizance of the fact that this doctrine had never been extended to the field of income taxation or consistently applied in the field of property taxation, where the concepts of business situs as well as of domiciliary situs had been utilized to sustain double taxation, especially in connection with shares of corporate stock, the Court declared that a correct interpretation of constitutional requirements would dictate the following conclusions: "From the beginning of our constitutional system control over the person at the place of his domicile and his duty there, common to all citizens, to contribute to the support of government have been deemed to afford an adequate constitutional basis for imposing on him a tax on the use and enjoyment of rights in intangibles measured by their value. * * * But when the taxpayer extends his activities with respect to his intangibles, so as to avail himself of the protection and benefit of the laws of another State, in such a way as to bring his person or * * * [his intangibles] within the reach of the tax gatherer there, the reason for a single place of taxation no longer obtains, * * * [However], the State of domicile is not deprived, by the taxpayer's activities elsewhere, of its constitutional jurisdiction to tax." In accordance with this line of reasoning, Tennessee, where a decedent died domiciled, and Alabama, where a trustee, by conveyance from said decedent, held securities on specific trusts, were both deemed competent to impose a tax on the transfer of these securities passing under the will of the decedent. "In effecting her purposes," the testatrix was viewed as having "brought some of the legal interests which she created within the control of one State by selecting a trustee there, and others within the control of the other State, by making her domicile there." She had found it necessary to invoke "the aid of the law of both States, and her legatees" were subject to the same necessity.

These statements represented a belated adoption of the views advanced by Chief Justice Stone in dissenting or concurring opinions which he filed in three of the four decisions rendered during 1930-1932. By the line of reasoning taken in these opinions, if protection or control was extended to, or exercised over, intangibles or the person of their owner, then as many States as afforded such protection or were capable of exerting such dominion should be privileged to tax the transfer of such property. On this basis, the domiciliary State would invariably qualify as a State competent to tax and a nondomiciliary State, so far as it could legitimately exercise control or could be shown to have afforded a measure of protection that was not trivial or insubstantial.

On the authority of Curry _v._ McCanless, the Court, in Pearson _v._ McGraw,[529] also sustained the application of an Oregon transfer tax to intangibles handled by an Illinois trust company and never physically present in Oregon, jurisdiction to tax being viewed as dependent, not on the location of the property in the State, but on control over the owner who was a resident of Oregon. In Graves _v._ Elliott,[530] decided in the same year, the Court upheld the power of New York, in computing its estate tax, to include in the gross estate of a domiciled decedent the value of a trust of bonds managed in Colorado by a Colorado trust company and already taxed on its transfer by Colorado, which trust the decedent had established while in Colorado and concerning which he had never exercised any of his reserved powers of revocation or change of beneficiaries. It was observed that "the power of disposition of property is the equivalent of ownership, * * * and its exercise in the case of intangibles is * * * [an] appropriate subject of taxation at the place of the domicile of the owner of the power. Relinquishment at death, in consequence of the non-exercise in life, of a power to revoke a trust created by a decedent is likewise an appropriate subject of taxation."[531] Consistent application of the principle enunciated in Curry _v._ McCanless is also discernible in two later cases in which the Court sustained the right of a domiciliary State to tax the transfer of intangibles kept outside its boundaries, notwithstanding that "in some instances they may be subject to taxation in other jurisdictions, to whose control they are subject and whose legal protection they enjoyed." In Graves _v._ Schmidlapp[532] an estate tax was levied upon the value of the subject of a general testamentary power of appointment effectively exercised by a resident donee over intangibles held by trustees under the will of a nonresident donor of the power. Viewing the transfer of interest in said intangibles by exercise of the power of appointment as the equivalent of ownership, the Court quoted from McCulloch _v._ Maryland[533] to the effect that the power to tax "'is an incident of sovereignty, and is coextensive with that to which it is an incident.'" Again, in Central Hanover Bank & T. Co. _v._ Kelly,[534] the Court approved a New Jersey transfer tax imposed on the occasion of the death of a New Jersey grantor of an irrevocable trust executed, and consisting of securities located, in New York, and providing for the disposition of the corpus to two nonresident sons.

The costliness of multiple taxation of estates comprising intangibles is appreciably aggravated when each of several States founds its tax not upon different events or property rights but upon an identical basis; namely that, the decedent died domiciled within its borders. Not only is an estate then threatened with excessive contraction but the contesting States may discover that the assets of the estate are insufficient to satisfy their claims. Thus, in Texas _v._ Florida,[535] the State of Texas filed an original petition in the Supreme Court, in which it asserted that its claim, together with those of three other States, exceeded the value of the estate, that the portion of the estate within Texas alone would not suffice to discharge its own tax, and that its efforts to collect its tax might be defeated by adjudications of domicile by the other States. The Supreme Court disposed of this controversy by sustaining a finding that the decedent had been domiciled in Massachusetts, but intimated that thereafter it would take jurisdiction in like situations only in the event that an estate did not exceed in value the total of the conflicting demands of several States and that the latter were confronted with a prospective inability to collect.

Corporation Taxes

(1) Intangible Personal Property.--A State in which a foreign corporation has acquired a commercial domicile and in which it maintains its general business offices may tax the latter's bank deposits and accounts receivable even though the deposits are outside the State and the accounts receivable arise from manufacturing activities in another State.[536] Similarly, a nondomiciliary State in which a foreign corporation did business can tax the "corporate excess" arising from property employed and business done in the taxing State.[537] On the other hand, when the foreign corporation transacts only interstate commerce within a State, any excise tax on such excess is void, irrespective of the amount of the tax.[538] A domiciliary State, however, may tax the excess of market value of outstanding capital stock over the value of real and personal property and certain indebtedness of a domestic corporation even though this "corporate excess" arose from property located and business done in another State and was there taxable. Moreover, this result follows whether the tax is considered as one on property or on the franchise.[539] Also a domiciliary State, which imposes no franchise tax on a stock fire insurance corporation, validly may assess a tax on the full amount of its paid-in capital stock and surplus, less deductions for liabilities, notwithstanding that such domestic corporation concentrates its executive, accounting, and other business offices in New York, and maintains in the domiciliary State only a required registered office at which local claims are handled. Despite "the vicissitudes which the so-called 'jurisdiction-to-tax' doctrine has encountered * * *," the presumption persists that intangible property is taxable by the State of origin.[540] But a property tax on the capital stock of a domestic company which includes in the appraisement thereof the value of coal mined in the taxing State but located in another State awaiting sale deprives the corporation of its property without due process of law.[541] Also void for the same reason is a State tax on the franchise of a domestic ferry company which includes in the valuation thereof the worth of a franchise granted to the said company by another State.[542]

(2) Privilege Taxes Measured by Corporate Stock.--Since the tax is levied not on property but on the privilege of doing business in corporate form, a domestic corporation may be subjected to a privilege tax graduated according to paid up capital stock, even though the latter represents capital not subject to the taxing power of the State.[543] By the same token, the validity of a franchise tax, imposed on a domestic corporation engaged in foreign maritime commerce and assessed upon a proportion of the total franchise value equal to the ratio of local business done to total business, is not impaired by the fact that the total value of the franchise was enhanced by property and operations carried on beyond the limits of the State.[544] However, a State, under the guise of taxing the privilege of doing an intrastate business, cannot levy on property beyond its borders; and, therefore, as applied to foreign corporations, a license tax based on authorized capital stock is void,[545] even though there be a maximum to the fee,[546] unless apportioned according to some method, as, for example, a franchise tax based on such proportion of outstanding capital stock as is represented by property owned and used in business transacted in the taxing State.[547] An entrance fee, on the other hand, collected only once as the price of admission to do an intrastate business, is distinguishable from a tax and accordingly may be levied on a foreign corporation on the basis of a sum fixed in relation to the amount of authorized capital stock (in this instance, a $5,000 fee on an authorized capital of $100,000,000).[548]

(3) Privilege Taxes Measured by Gross Receipts.--A municipal license tax imposed as a percentage of the receipts of a foreign corporation derived from the sales within and without the State of goods manufactured in the city is not a tax on business transactions or property outside the city and therefore does not violate the due process clause.[549] But a State is wanting in jurisdiction to extend its privilege tax to the gross receipts of a foreign contracting corporation for work done outside the taxing State in fabricating equipment later installed in the taxing State. Unless the activities which are the subject of the tax are carried on within its territorial limits, a State is not competent to impose such a privilege tax.[550]

(4) Taxes on Tangible Personal Property.--When rolling stock is permanently located and employed in the prosecution of a business outside the boundaries of a domiciliary State, the latter has no jurisdiction to tax the same.[551] Vessels, however, inasmuch as they merely touch briefly at numerous ports, never acquire a taxable situs at any one of them, and are taxable by the domicile of their owners or not at all;[552] unless, of course, the ships operate wholly on the waters within one State, in which event they are taxable there and not at the domicile of the owners.[553] Only recently airplanes have been treated in a similar manner for tax purposes. Noting that the entire fleet of airplanes of an interstate carrier were "never continuously without the [domiciliary] State during the whole tax year," that such airplanes also had their "home port" in the domiciliary State, and that the company maintained its principal office therein, the Court sustained a personal property tax applied by the domiciliary State to all the airplanes owned by the taxpayer. No other State was deemed able to accord the same protection and benefits as the taxing State in which the taxpayer had both its domicile and its business situs; and the doctrines of Union Refrigerator Transit Co. _v._ Kentucky,[554] as to the taxability of permanently located tangibles, and that of apportionment, for instrumentalities engaged in interstate commerce[555] were held to be inapplicable.[556]

Conversely, a nondomiciliary State, although it may not tax property belonging to a foreign corporation which has never come within its borders, may levy on movables which are regularly and habitually used and employed therein. Thus, while the fact that cars are loaded and reloaded at a refinery in a State outside the owner's domicile does not fix the situs of the entire fleet in such State, the latter may nevertheless tax the number of cars which on the average are found to be present within its borders.[557] Moreover, in assessing that part of a railroad within its limits, a State need not treat it as an independent line, disconnected from the part without, and place upon the property within the State only a value which could be given to it if operated separately from the balance of the road. The State may ascertain the value of the whole line as a single property and then determine the value of the part within on a mileage basis, unless there be special circumstances which distinguish between conditions in the several States.[558] But no property of an interstate carrier can be taken into account unless it can be seen in some plain and fairly intelligible way that it adds to the value of the road and the rights exercised in the State.[559] Also, a State property tax on railroads, which is measured by gross earnings apportioned to mileage, is not unconstitutional in the absence of proof that it exceeds what would be legitimate as an ordinary tax on the property valued as part of a going concern or that it is relatively higher than taxes on other kinds of property.[560] The tax reaches only revenues derived from local operations, and the fact that the apportionment formula does not result in mathematical exactitude is not a constitutional defect.[561]

Income and Other Taxes

Individual Incomes.--Consistently with due process of law, a State annually may tax the entire net income of resident individuals from whatever source received,[562] and that portion of a nonresident's net income derived from property owned, and from any business, trade, or profession carried on, by him within its borders.[563] Jurisdiction, in the case of residents, is founded upon the rights and privileges incident to domicile; that is, the protection afforded the recipient of income in his person, in his right to receive the income, and in his enjoyment of it when received, and, in the case of nonresidents, upon dominion over either the receiver of the income or the property or activity from which it is derived, and upon the obligation to contribute to the support of a government which renders secure the collection of such income. Accordingly, a State may tax residents on income from rents of land located outside the State and from interest on bonds physically without the State and secured by mortgage upon lands similarly situated;[564] and the income received by a resident beneficiary from securities held by a trustee in a trust created and administered in another State, and not directly taxable to the trustee.[565] Nor does the fact that another State has lawfully taxed identical income in the hands of trustees operating therein necessarily destroy a domiciliary State's right to tax the receipt of said income by a resident beneficiary. "The taxing power of a State is restricted to her confines and may not be exercised in respect of subjects beyond them."[566] Likewise, even though a nonresident does no business within a State, the latter may tax the profits realized by the nonresident upon his sale of a right appurtenant to membership in a stock exchange within its borders.[567]

Incomes of Foreign Corporations.--A tax based on the income of a foreign corporation may be determined by allocating to the State a proportion of the total income which the tangible property in the State bears to the total.[568] However, such a basis may work an unconstitutional result if the income thus attributed to the State is out of all appropriate proportion to the business there transacted by the corporation. Evidence may always be submitted which tends to show that a State has applied a method which, albeit fair on its face, operates so as to reach profits which are in no sense attributable to transactions within its jurisdiction.[569] Nevertheless, a foreign corporation is in error when it contends that due process is denied by a franchise tax measured by income, which is levied, not upon net income from intrastate business alone, but on net income justly attributable to all classes of business done within the State, interstate and foreign, as well as intrastate business.[570] Inasmuch as the privilege granted by a State to a foreign corporation of carrying on local business supports a tax by that State on the income derived from that business, it follows that the Wisconsin privilege dividend tax, consistently with the due process clause, may be applied to a Delaware corporation, having its principal offices in New York, holding its meetings and voting its dividends in New York, and drawing its dividend checks on New York bank accounts. The tax is imposed on the "privilege of declaring and receiving dividends" out of income derived from property located and business transacted in the State, equal to a specified percentage of such dividends, the corporation being required to deduct the tax from dividends payable to resident and nonresident shareholders and pay it over to the State.[571]

Chain Store Taxes.--A tax on chain stores, at a rate per store determined by the number of stores both within and without the State, is not unconstitutional as a tax in part upon things beyond the jurisdiction of the State.[572]

Insurance Company Taxes.--A privilege tax on the gross premiums received by a foreign life insurance company at its home office for business written in the State does not deprive the company of property without due process;[573] but a tax is bad when the company has withdrawn all its agents from the State and has ceased to do business, merely continuing to be bound to policyholders resident therein and receiving at its home office the renewal premiums.[574] Distinguishable therefrom is the following tax which was construed as having been levied, not upon annual premiums nor upon the privilege merely of doing business during the period that the company actually was within the State, but upon the privilege of entering and engaging in business, the percentage "on the annual premiums _to be paid throughout the life of the policies issued_." By reason of this difference a State may continue to collect such tax even after the company's withdrawal from the State.[575]

A State which taxes the insuring of property within its limits may lawfully extend its tax to a foreign insurance company which contracts with an automobile sales corporation in a third State to insure its customers against loss of cars purchased through it, so far as the cars go into possession of purchasers within the taxing State.[576] On the other hand, a foreign corporation admitted to do a local business, which insures its property with insurers in other States who are not authorized to do business in the taxing State, cannot constitutionally be subjected to a 5% tax on the amount of premiums paid for such coverage.[577] Likewise a Connecticut life insurance corporation, licensed to do business in California, which negotiated reinsurance contracts in Connecticut, received payment of premiums thereon in Connecticut, and was there liable for payment of losses claimed thereunder, cannot be subjected by California to a privilege tax measured by gross premiums derived from such contracts, notwithstanding that the contracts reinsured other insurers authorized to do business in California and protected policies effected in California on the lives of residents therein. The tax cannot be sustained whether as laid on property, business done, or transactions carried on, within California, or as a tax on a privilege granted by that State.[578]

When policy loans to residents are made by a local agent of a foreign insurance company, in the servicing of which notes are signed, security taken, interest collected, and debts are paid within the State, such credits are taxable to the company, notwithstanding that the promissory notes evidencing such credits are kept at the home office of the insurer.[579] But when a resident policyholder's loan is merely charged against the reserve value of his policy, under an arrangement for extinguishing the debt and interest thereon by deduction from any claim under the policy, such credit is not taxable to the foreign insurance company.[580] Premiums due from residents on which an extension has been granted by foreign companies also are credits on which the latter may be taxed by the State of the debtor's domicile;[581] and the mere fact that the insurers charge these premiums to local agents and give no credit directly to policyholders does not enable them to escape this tax.[582]

PROCEDURE IN TAXATION

In General

Exactly what due process requires in the assessment and collection of general taxes has never been decided by the Supreme Court. While it was held that "notice to the owner at some stage of the proceedings, as well as an opportunity to defend, is essential" for imposition of special taxes, it has also ruled that laws for assessment and collection of general taxes stand upon a different footing and are to be construed with the utmost liberality, even to the extent of acknowledging that no notice whatever is necessary.[583] Due process of law as applied to taxation does not mean judicial process;[584] neither does it require the same kind of notice as is required in a suit at law, or even in proceedings for taking private property under the power of eminent domain.[585] If a taxpayer is given an opportunity to test the validity of a tax at any time before it is final, whether the proceedings for review take place before a board having a quasi-judicial character, or before a tribunal provided by the State for the purpose of determining such questions, due process of law is not denied.[586]

Notice and Hearing in Relation to General Taxes

"Of the different kinds of taxes which the State may impose, there is a vast number of which, from their nature, no notice can be given to the taxpayer, nor would notice be of any possible advantage to him, such as poll taxes, license taxes (not dependent upon the extent of his business), and generally, specific taxes on things, or persons, or occupations. In such cases the legislature, in authorizing the tax, fixes its amount, and that is the end of the matter. If the tax be not paid, the property of the delinquent may be sold, and he be thus deprived of his property. Yet there can be no question, that the proceeding is due process of law, as there is no inquiry into the weight of evidence, or other element of a judicial nature, and nothing could be changed by hearing the taxpayer. No right of his is, therefore, invaded. Thus, if the tax on animals be a fixed sum per head, or on articles a fixed sum per yard, or bushel, or gallon, there is nothing the owner can do which can affect the amount to be collected from him. So, if a person wishes a license to do business of a particular kind, or at a particular place, such as keeping a hotel or a restaurant, or selling liquors, or cigars, or clothes, he has only to pay the amount required by law and go into the business. There is no need in such cases for notice or hearing. So, also, if taxes are imposed in the shape of licenses for privileges, such as those on foreign corporations for doing business in the State, or on domestic corporations for franchises, if the parties desire the privilege, they have only to pay the amount required. In such cases there is no necessity for notice or hearing. The amount of the tax would not be changed by it."[587]

Notice and Hearing in Relation to Assessments

"But where a tax is levied on property not specifically, but according to its value, to be ascertained by assessors appointed for that purpose upon such evidence as they may obtain, a different principle comes in. The officers in estimating the value act judicially; and in most of the States provision is made for the correction of errors committed by them, through boards of revision or equalization, sitting at designated periods provided by law to hear complaints respecting the justice of the assessments. The law in prescribing the time when such complaints will be heard, gives all the notice required, and the proceeding by which the valuation is determined, though it may be followed, if the tax be not paid, by a sale of the delinquent's property, is due process of law."[588]

Nevertheless, it has never been considered necessary to the validity of a tax that the party charged shall have been present, or had an opportunity to be present, in some tribunal when he was assessed.[589] Where a tax board has its time of sitting fixed by law and where its sessions are not secret, no obstacle prevents the appearance of any one before it to assert a right or redress a wrong; and in the business of assessing taxes, this is all that can be reasonably asked.[590] Nor is there any constitutional command that notice of an assessment as well as an opportunity to contest it be given in advance of the assessment. It is enough that all available defenses may be presented to a competent tribunal during a suit to collect the tax and before the demand of the State for remittance becomes final.[591] A hearing before judgment, with full opportunity to submit evidence and arguments being all that can be adjudged vital, it follows that rehearings and new trials are not essential to due process of law.[592] One hearing is sufficient to constitute due process;[593] and the requirements of due process are also met if a taxpayer, who had no notice of a hearing, does receive notice of the decision reached thereat, and is privileged to appeal the same and, on appeal, to present evidence and be heard on the valuation of his property.[594]

Notice and Hearing in Relation to Special Assessments

However, when assessments are made by a political subdivision, a taxing board or court, according to special benefits, the property owner is entitled to be heard as to the amount of his assessments and upon all questions properly entering into that determination.[595] The hearing need not amount to a judicial inquiry,[596] but a mere opportunity to submit objections in writing, without the right of personal appearance, is not sufficient.[597] If an assessment for a local improvement is made in accordance with a fixed rule prescribed by legislative act, the property owner is not entitled to be heard in advance on the question of benefits.[598] On the other hand, if the area of the assessment district was not determined by the legislature, a landowner does have the right to be heard respecting benefits to his property before it can be included in the improvement district and assessed; but due process is not denied if, in the absence of actual fraud or bad faith, the decision of the agency vested with the initial determination of benefits is made final.[599] The owner has no constitutional right to be heard in opposition to the launching of a project which may end in assessment; and once his land has been duly included within a benefit district, the only privilege which he thereafter enjoys is to a hearing upon the apportionment; that is, the amount of the tax which he has to pay.[600] Nor can he rightfully complain because the statute renders conclusive, after said hearing, the determination as to apportionment by the same body which levied the assessment.[601]

More specifically, where the mode of assessment resolves itself into a mere mathematical calculation, there is no necessity for a hearing.[602] Statutes and ordinances providing for the paving and grading of streets, the cost thereof to be assessed on the front foot rule, do not, by their failure to provide for a hearing or review of assessments, generally deprive a complaining owner of property without due process of law.[603] In contrast, when an attempt is made to cast upon particular property a certain proportion of the construction cost of a sewer not calculated by any mathematical formula, the taxpayer has a right to be heard.[604]

Sufficiency and Manner of Giving Notice

Notice, insofar as it is required, may be either personal, or by publication, or by statute fixing the time and place of hearing.[605] A State statute, consistently with due process, may designate a corporation as the agent of a nonresident stockholder to receive notice and to represent him in proceedings for correcting assessments.[606] Also "where the State * * * [desires] to sell land for taxes upon proceedings to enforce a lien for the payment thereof, it may proceed directly against the land within the jurisdiction of the Court, and a notice which permits all interested, who are 'so minded,' to ascertain that it is to be subjected to sale to answer for taxes, and to appear and be heard, whether to be found within the jurisdiction or not, is due process of law within the Fourteenth Amendment * * *."[607] A description, even though it not be technically correct, which identifies the land will sustain an assessment for taxes and a notice of sale therefor when delinquent. If the owner knows that the property so described is his, he is not, by reason of the insufficient description, deprived of his property without due process. Where tax proceedings are _in rem_, owners are bound to take notice thereof, and to pay taxes on their property, even if assessed to unknown or other persons; and if an owner stands by and sees his property sold for delinquent taxes, he is not thereby wrongfully deprived of his property.[608]

Sufficiency of Remedy

When no other remedy is available, due process is denied by a judgment of a State court withholding a decree in equity to enjoin collection of a discriminatory tax.[609] Requirements of due process are similarly violated by a statute which limits a taxpayer's right to challenge an assessment to cases of fraud or corruption,[610] and by a State tribunal which prevents a recovery of taxes imposed in violation of the Constitution and laws of the United States by invoking a State law limiting suits to recover taxes alleged to have been assessed illegally to taxes paid at the time and in the manner provided by said law.[611]

Laches

Persons failing to avail themselves of an opportunity to object and be heard, cannot thereafter complain of assessments as arbitrary and unconstitutional.[612] Likewise a car company, which failed to report its gross receipts as required by statute, has no further right to contest the State comptroller's estimate of those receipts and his adding thereto the 10% penalty permitted by law.[613]

Collection of Taxes

To reach property which has escaped taxation, a State may tax the estates of decedents for a period anterior to death and grant proportionate deductions for all prior taxes which the personal representative can prove to have been paid.[614] Collection of an inheritance tax also may be expedited by a statute requiring the sealing of safe deposit boxes for at least ten days after the death of the renter and obliging the lessor to retain assets found therein sufficient to pay the tax that may be due the State.[615] Moreover, with a view to achieving a like result in the case of gasoline taxes, a State may compel retailers to collect such taxes from consumers and, under penalty of a fine for delinquency, to remit monthly the amounts thus collected.[616] Likewise, a tax on the tangible personal property of a nonresident owner may be collected from the custodian or possessor of such property, and the latter, as an assurance of reimbursement, may be granted a lien on such property.[617] In collecting personal income taxes, however, most States require employers to deduct and withhold the tax from the wages of only nonresident employees; but the duty thereby imposed on the employer has never been viewed as depriving him of property without due process of law, nor has the adjustment of his system of accounting and paying salaries which withholding entails been viewed as an unreasonable regulation of the conduct of his business.[618]

As a State may provide in advance that taxes shall bear interest from the time they become due, it may with equal validity stipulate that taxes which have become delinquent shall bear interest from the time the delinquency commenced. Likewise, a State may adopt new remedies for the collection of taxes and apply these remedies to taxes already delinquent.[619] After liability of a taxpayer has been fixed by appropriate procedure, collection of a tax by distress and seizure of his person does not deprive him of liberty without due process of law.[620] Nor is a foreign insurance company denied due process of law when its personal property is distrained to satisfy unpaid taxes.[621]

The requirements of due process are fulfilled by a statute which, in conjunction with affording an opportunity to be heard, provides for the forfeiture of titles to land for failure to list and pay taxes thereon for certain specified years.[622] No less constitutional, as a means of facilitating collection, is an _in rem_ proceeding, to which the land alone is made a party, whereby tax liens on land are foreclosed and all pre-existing rights or liens are eliminated by a sale under a decree in said proceeding.[623] On the other hand, while the conversion of an unpaid special assessment into both a personal judgment therefor against the owner as well as a charge on the land is consistent with the Fourteenth Amendment,[624] a judgment imposing personal liability against a nonresident taxpayer over whom the State court acquired no jurisdiction is void.[625] Apart from such restraints, however, a State is free to adopt new remedies for the collection of taxes and even to apply new remedies to taxes already delinquent.[626]

EMINENT DOMAIN

Historical Development

"Prior to the adoption of the Fourteenth Amendment," the power of eminent domain, which is deemed to inhere in every State and to be essential to the performance of its functions,[627] "was unrestrained by any federal authority."[628] An express prohibition against the taking of private property for public use without just compensation was contained in the Fifth Amendment; but an effort to extend the application thereof to the States had been defeated by the decision, in 1833, in Barron _v._ Baltimore.[629] The most nearly comparable provision included in the Fourteenth Amendment, was the prohibition against a State depriving a person of property without due process of law. The Court was accordingly confronted with the task of determining whether this restraint on State action, minus the explicit provision for just compensation found in the Fifth Amendment, afforded property owners the same measure of protection as did the latter in its operation as a limitation on the Federal Government. The Court's initial answer to this question, as set forth in Davidson _v._ New Orleans,[630] decided in 1878, was in the negative; and on the ground of the omission of the clause found in the Fifth Amendment from the terms of the Fourteenth, it refused to equate the just compensation with due process. Within less than a decade thereafter, however, the Court modified its position, and in Chicago, B. & Q.R. Co. _v._ Chicago,[631] seven Justices unequivocally rejected the contention, obviously based on the Davidson Case that "the question as to the amount of compensation to be awarded to the railroad company was one of local law merely, and [insofar as] that question was determined in the mode prescribed by the Constitution and [State] law, the [property owner] appearing and having full opportunity to be heard, the requirement of due process of law was observed." On the contrary, the seven Justices maintained that although a State "legislature may prescribe a form of procedure to be observed in the taking of private property for public use, * * * it is not due process of law if provision be not made for compensation * * * The mere form of the proceeding instituted against the owner, * * *, cannot convert the process used into due process of law, if the necessary result be to deprive him of his property without compensation."

Public Use

While acknowledging that agreement was virtually nonexistent as to "what are public uses for which the right of compulsory taking may be employed," the Court, until 1946, continued to reiterate "the nature of the uses, whether public or private, is ultimately a judicial question."[632] But because of proclaimed willingness to defer to local authorities, especially "the highest court of the State" in resolving such an issue,[633] the Court, as early as 1908, was obliged to admit that, notwithstanding its retention of the power of judicial review, "no case is recalled where this Court has condemned as a violation of the Fourteenth Amendment a taking upheld by the State court as a taking for public uses * * *"[634] In 1946, however, without endeavoring to ascertain whether "the scope of the judicial power to determine what is a 'public use' in Fourteenth Amendment controversies, * * *" is the same as under the Fifth Amendment, a majority of the Justices, in a decision involving the Federal Government, declared that "it is the function of * * * [the legislative branch] to decide what type of taking is for a public use * * *"[635]

Necessity for a Taking

"Once it is admitted or judicially determined that a proposed condemnation is for a public purpose and within the statutory authority, a political or judicially nonreviewable question may emerge, to wit, the necessity or expediency of the condemnation of the particular property."[636] The necessity and expediency of the taking are legislative questions to be determined by such agency and in such mode as the State may designate.[637]

What Constitutes a Taking For a Public Use