Kansas City, Fort Scott & Memphis Railway Co. v. Sessions
The Kansas City, Fort Scott & Memphis Railway Company v. Charles H. Sessions, as Secretary of State, etc.
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Opinion of the Court
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The opinion of the court was delivered by Mason, J.:
The Kansas City, Fort Scott & Memphis Railway Company, a corporation organized under the laws of this state, paid under protest to the secretary of state in March, 1914, $2500, the sum required of it by the terms of the statute set out in the foregoing statement. (Laws 1913, ch. 135, § 1.) It then brought action in the district court to recover the amount, and being denied relief, appeals.
The plaintiff, a carrier doing interstate as well as local 'business, insists that the charge exacted of it is illegal because it places a burden upon interstate commerce, and upon property outside of Kansas. The fee collected is a tax upon-the right of corporate existence— the franchise-granted by the state to be a corporation— to do business with the advantages associated with that form of organization. It is measured by the amount of paid-up stock, although not directly proportioned to it, the percentage being graduated up to a capital of $5,000,000, no increase being made after that amount is exceeded. The plaintiff argues that the tax is one imposed upon interstate commerce, and upon property beyond the jurisdiction of Kansas, inasmuch as its size is regulated by the amount invested in a business a large part of which is carried on outside of the state, and between different states.
A corporation may be required by the state which created it to pay a tax upon the privilege of corporate existence which it has so obtained, notwithstanding it may be engaged in interstate commerce. Cases supporting that doctrine are collected and classified in a *268 Note in 57 L. R. A. 79. The natural and obvious way of determining the amount of such a tax is to fix it with reference to the capital stock, which in a way measures the extent of the power conferred. That is the method ordinarily pursued. (37 Cyc. 817, Note 58.) It does'not necessarily afford an accurate measure of the relative value of the right which is taxed, but it affords a practical basis for a reasonable approximation. To distinguish between the amount of the capital which is invested locally and that used abroad, or in interstate business, would be to apportion the tax according to the business done and not according to the capacity to do business in a particular way, which is the essence of the thing taxed. If such a distinction were necessary it would follow that a company engaged solely in interstate commerce could not be required to pay any tax whatever upon its franchise to exist as a corporation.
In State Tax on Railway Gross Receipts, 82 U. S. 284 , the court upheld a state tax upon the gross receipts of a carrier, derived in part from interstate commerce, upon two grounds. One was that the receipts had become mingled with the general property of the state, a ground which was afterwards" held to be untenable. (Phila. Steamship Co. v. Pennsylvania, 122 U. S. 326 .) The other ground was thus expressed:
“It is not to be questioned that the States may tax the franchises of companies created by them, and that the tax may be proportioned either to the value of a franchise granted, or to the extent of its exercise; nor is it deniable that gross receipts may be a measure of proximate value, or, if not, at least of the extent of enjoyment.” ( 82 U. S. 296 .)
Upon this proposition the Gross Receipts case was distinguished and not overruled, the court saying:
“The second ground on which the decision referred to was based was, that the tax was upon the franchise, of the corporation granted to it by the state. We do not think that this can be affirmed in the present case. *269 It certainly could not have been intended as a tax on the corporate franchise, because, by the terms of the act, it was laid equally on the corporations of other states doing business in Pennsylvania.” ( 122 U. S. 342 .)
There is obviously a good basis, however, for distinguishing between a tax upon the gross receipts of an interstate carrier and a tax- upon its corporate entity, graded according to its capital stock. In Henderson Bridge Company v. Kentucky, 166 U. S. 150 , the court sustained a tax imposed by the state of Kentucky upon the “intangible property” of a corporation owning an interstate bridge, saying: “The only franchises treated here as the subject of taxation were those granted by the State of Kentucky.” (p. 154.) A vigorous dissent, based on the contrary view, was written by Mr. Justice White, who said: “I can not bring my mind to the conclusion that the tax is only levied on the mere franchise to exist as a corporation conferred by the State of Kentucky.” (p. 166.) Clearly, if the dissenting justices could have accepted that view of the matter, their objection to the decision would have been removed. In Atlantic &c. Tel. Co. v. Philadelphia, 190 U. S. 160 , the general rule was again declared, that “The franchise of a corporation, although that franchise is the business of interstate commerce, is, as a part of its property, subject to state taxation, providing at least the franchise is not derived from the United States.” (p. 163.)
In Western Union Tel. Co. v. Kansas, 216 U. S. 1 , it was said:
“If a domestic corporation engaged in the business of soliciting orders for goods manufactured, sold and delivered in a State, should, in addition, solicit orders for goods manufactured in and to be brought from another State for delivery, could the former State make it a condition of the right to engage in local business within its limits that the corporation pay a given per cent of all fees or commissions received by it in its business, interstate and domestic? There can be but *270 one answer to this question, namely, that such a condition would operate as a direct burden on interstate commerce, and therefore would be unconstitutional and void. Consistently with the Constitution no court could, by any form of decree, recognize or give effect to or enforce such a condition.” (p. 36.)
As already suggested, for the state to assess a tax gauged by the total capital stock, upon the right to exist as a corporation, which it has granted, is a very different thing from requiring a business to pay the state a percentage of what it earns by each transaction undertaken, some of them being of an interstate character. A tax measured by the capital stock may in some situations be equivalent to a charge upon the whole business done, while in others it is not. In the case just quoted from, the statute which was held void undertook to require a foreign corporation, as a condition to doing a purely local business in Kansas, to pay a fee fixed by a graduated percentage of its total capital stock, which was largely employed in business elsewhere, and in interstate commerce. There was no logical connection between the amount charged and the extent or value of the business done wholly within the state- — the only matter over which the state had control. Here the amount of the tax has a direct relation to the scope and value of the privilege conferred and controlled by the state — the right to be a corporation.
We find nothing in the cases referred to or elsewhere that denies the power of a state to tax all domestic corporations, including those engaged in interstate commerce, upon their right of corporate existence, regulating the amount in the usual manner, by their capital stock. We conclude that such power exists, and that the statute in question is not subject to the objections stated.
The judgment is affirmed.
Dawson, J., not sitting.
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