Generally .--It was not contemplated that the adoption of the Fourteenth Amendment would restrain or cripple the taxing power of the States. 1 Rather, the purpose of the amendment was to extend to the residents of the States the same protection against arbitrary state legislation affecting life, liberty, and property as was afforded against Congress by the Fifth Amendment. 2
Public Purpose .--As a general matter, public moneys cannot be expended for other than public purposes. Some early cases applied this principle by invalidating taxes judged to be imposed to raise money for purely private rather than public purposes. 3 However, modern notions of public purpose have expanded to the point where the limitation has little practical import. Whether a use is public or private, while it is ultimately a judicial question, ''is a practical question addressed to the law-making department, and it would require a plain case of departure from every public purpose which could reasonably be conceived to justify the intervention of a court.'' 4 Taxes levied for each of the following purposes have been held to be for a public use: a city coal and fuel yard, 5 a state bank, a warehouse, an elevator, a flourmill system, homebuilding projects, 6 a society for preventing cruelty to animals (dog license tax), 7 a railroad tunnel, 8 books for school children attending private as well as public schools, 9 and relief of unemployment. 10
Other Considerations Affecting Validity: Excessive Burden; Ratio of Amount of Benefit Received .--When the power to tax exists, the extent of the burden is a matter for the discretion of the lawmakers, 11 and the Court will refrain from condemning a tax solely on the ground that it is excessive. 12 Nor can the constitutionality of taxation be made to depend upon the taxpayer's enjoyment of any special benefits from use of the funds raised by taxation. 13
Estate, Gift, and Inheritance Taxes .--The power of testamentary disposition and the privilege of inheritance being legitimate subjects of taxation, a State may apply its inheritance tax to either the transmission, or the exercise of the legal power of transmission, of property by will or descent, or to the legal privilege of taking property by devise or descent. 14 Accordingly, an inheritance tax law, enacted after the death of a testator but before the distribution of his estate, constitutionally may be imposed on the shares of legatees, notwithstanding that under the law of the State in effect on the date of such enactment, ownership of the property passed to the legatees upon the testator's death. 15 Equally consistent with due process is a tax on an inter vivos transfer of property by deed intended to take effect upon the death of the grantor. 16
When remainders indisputably vest at the time of the creation of a trust and a succession tax is enacted thereafter, the imposition of the tax on the transfer of such remainder is unconstitutional. 17 But where the remaindermen's interests are contingent and do not vest until the donor's death subsequent to the adoption of the statute, the tax is valid. 18
The Court has noted that insofar as retroactive taxation of vested gifts has been voided, the justification therefor has been that ''the nature or amount of the tax could not reasonably have been anticipated by the taxpayer at the time of the particular voluntary act which the [retroactive] statute later made the taxable event. . . . Taxation . . . of a gift which . . . [the donor] might well have refrained from making had he anticipated the tax . . . [is] thought to be so arbitrary . . . as to be a denial of due process.'' 19
Income Taxes .--The authority of states to tax income is ''universally recognized.'' 20 Years ago the Court explained that ''[e]njoyment of the privileges of residence in the state and the attendant right to invoke the protection of its laws are inseparable from responsibility for sharing the costs of government. . . . A tax measured by the net income of residents is an equitable method of distributing the burdens of government among those who are privileged to enjoy its benefits.'' 21 Also, a tax on income is not constitutionally suspect because retroactive. The routine practice of making taxes retroactive for the entire year of the legislative session in which the tax is enacted has long been upheld, 22 and there are also situations in which courts have upheld retroactive application to the preceding year or two. 23
Franchise Taxes .--A city ordinance imposing annual license taxes on light and power companies is not violative of the due process clause merely because the city has entered the power business in competition with such companies. 24 Nor does a municipal charter authorizing the imposition upon a local telegraph company of a tax upon the lines of the company within its limits at the rate at which other property is taxed but upon an arbitrary valuation per mile, deprive the company of its property without due process of law, inasmuch as the tax is a mere franchise or privilege tax. 25
Severance Taxes .--A state excise tax on the production of oil which extends to the royalty interest of the lessor as well as to the interest of the lessee engaged in the active work of production, the tax being apportioned between these parties according to their respective interest in the common venture, is not arbitrary as applied to the lessor, but consistent with due process. 26
Real Property Taxes .--The maintenance of a high assessment in the face of declining value is merely another way of achieving an increase in the rate of property tax. Hence, an overassessment constitutes no deprivation of property without due process of law. 27 Likewise, land subject to mortgage may be taxed for its full value without deduction of the mortgage debt from the valuation. 28
A State may defray the entire expense of creating, developing, and improving a political subdivision either from funds raised by general taxation or by apportioning the burden among the municipalities in which the improvements are made or by creating, or authorizing the creation of, tax districts to meet sanctioned outlays. 29 Where a state statute authorizes municipal authorities to define the district to be benefited by a street improvement and to assess the cost of the improvement upon the property within the district in proportion to benefits, their action in establishing the district and in fixing the assessments on included property, after due hearing of the owners as required by the statute cannot, when not arbitrary or fradulent, be reviewed under the Fourteenth Amendment upon the ground that other property benefited by the improvement was not included. 30
It is also proper to impose a special assessment for the preliminary expenses of an abandoned road improvement, even though the assessment exceeds the amount of the benefit which the assessors estimated the property would receive from the completed work. 31 Likewise a levy upon all lands within a drainage district of a tax of twenty-five cents per acre to defray preliminary expenses does not unconstitutionally take the property of landowners within that district who may not be benefited by the completed drainage plans. 32 On the other hand, when the benefit to be derived by a railroad from the construction of a highway will be largely offset by the loss of local freight and passenger traffic, an assessment upon such railroad is violative of due process, 33 whereas any gains from increased traffic reasonably expected to result from a road improvement will suffice to sustain an assessment thereon. 34 Also the fact that the only use made of a lot abutting on a street improvement is for a railway right of way does not make invalid, for lack of benefits, an assessment thereon for grading, curbing, and paving. 35 However, when a high and dry island was included within the boundaries of a drainage district from which it could not be benefitted directly or indirectly, a tax imposed on the island land by the district was held to be a deprivation of property without due process of law. 36 Finally, a State may levy an assessment for special benefits resulting from an improvement already made 37 and may validate an assessment previously held void for want of authority. 38
The operation of the Due Process Clause as a limitation on the taxing power of the states has been an issue in a variety of different contexts, but most involve one of the other of two basic issues, first, the relationship between the state exercising taxing power and the object of that exercise of power, and second, whether the degree of contact is sufficient to justify the state's imposition of a particular obligation. Often these issues arise in conjunction with claims that the state's actions are also violative of the Commerce Clause. Illustrative of the factual settings in which such issues arise are 1), determining the scope of the business activity of a multijurisdictional entity that is subject to a state's taxing power, 2) application of wealth transfer taxes to gifts or bequests of nonresidents, 3) allocation of the income of multijurisdictional entities for tax purposes, 4) the scope of state authority to tax the income of nonresidents, and 5) collection of state use taxes.
The Court's opinions in these cases have often discussed due process and Commerce Clause issues as if they were indistinguishable. The recent decision in Quill Corp. v. North Dakota, 39 however, utilized a two-tier analysis that found sufficient contact to satisfy due process but not Commerce Clause requirements. Quill may be read as implying that the more stringent Commerce Clause standard subsumes due process jurisdictional issues, and that consequently these due process issues need no longer be separately considered. This interpretation has yet to be confirmed, however, and a detailed review of due process precedents may prove useful.
Sales/Use Taxes .--In Quill Corp. v. North Dakota, 40 the Court struck down a state statute requiring an out-of-state mail order company with neither outlets nor sales representatives in the state to collect and transmit use taxes on sales to state residents, but did so on Commerce Clause rather than due process grounds. Taxation of an interstate business does not offend due process, the Court held, if that business ''purposefully avails itself of the benefits of an economic market in the [taxing] State . . . even if it has no physical presence in the State.'' 41 A physical presence within the state is necessary, however, under Commerce Clause analysis applicable to taxation of mail order sales. 42
Land .--Even prior to the ratification of the Fourteenth Amendment, it was a settled principle that a State could not tax land situated beyond its limits; 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.'' 43 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. 44 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, subject to certain exceptions, is taxable only by the latter. 45 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.'' 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.'' 46 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 it. 47 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, 48 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. 49 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; the doctrines of Union Transit Co. v. Kentucky, 50 as to the taxability of permanently located tangibles, and that of apportionment, for instrumentalities engaged in interstate commerce 51 were held to be inapplicable. 52
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 that State, the latter may nevertheless tax the number of cars which on the average are found to be present within its borders. 53 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. 54 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. 55 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. 56 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. 57
Intangible Personalty .--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 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; constitutional lawyers speculated 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. 58
Thus far, the Court has sustained the following personal property taxes on intangibles:
(1) A debt held by a resident against a nonresident, evidenced by a bond of the debtor and secured by a mortgage on real estate in the State of the debtor's residence. 59
(2) A mortgage owned and kept outside the State by a nonresident but on land within the State. 60
(3) Investments, in the form of loans to a resident, made by a resident agent of a nonresident creditor, are taxable to the nonresident creditor. 61
(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. 62
(5) Membership owned by a nonresident in a domestic exchange, known as a chamber of commerce. 63
(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 interest falling within the jurisdiction of both, forbidden.'' 64
(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] all of its shares whether owned by residents or nonresidents.'' 65
(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 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. . . .'' 66
(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. 67
(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. 68 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. 69
(11) Stamp taxes on the transfer within the taxing State by one nonresident to another of stock certificates issued by a foreign corporation, 70 and upon promissory notes executed by a domestic corporation, although payable to banks in other States. 71 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.
The following personal property taxes on intangibles have been invalidated:
(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. 72
(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 the beneficiary had neither control nor possession, apart from the receipt of income therefrom. 73 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, not withstanding 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. 74 The first case, Brooke v. Norfolk, 75 is distinguishable by virture 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 & T. Co. v. Virginia, 76 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. 77
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. 78 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. 79 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. 80 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. 81 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. 82 But a property tax on the capital stock of a domestic company which includes in the appraisal 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. 83 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. 84
Transfer (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. 85 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 Transit Co. v. Kentucky, 86 and subsequently reiterated in Frick v. Pennsylvania 87 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 Court 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, 88 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. New York, wherein it was held that the presence of a negotiable instrument was sufficient to confer jurisdiction upon the State seeking to tax its transfer. 89 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. 90 Also against the trend was Blodgett v. Silberman, 91 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 indebtness 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 Depression, the Court handed down a group of four decisions which placed the stamp of disapproval upon multiple transfer and--by inference--other multiple taxation of intangibles. 92 Asserting, as it did in one of these cases, that ''practical considerations of wisdom, convenience and justice alike dictate the desirability of a uniform rule confining the jurisdiction to impose death transfer taxes as to intangibles to the State of the [owner's] domicile,'' 93 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.
While the Court expressly overruled only one of these four decisions condemning multiple succession taxation of intangibles, beginning with Curry v. McCanless 94 in 1939, it 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, 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 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 as would 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, 95 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 was 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, 96 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 nonexercise in life, of a power to revoke a trust created by a decedent is likewise an appropriate subject of taxation.'' 97 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, 98 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 the intangibles by exercise of the power of appointment as the equivalent of ownership, the Court quoted from McCulloch v. Maryland 99 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 Co. v. Kelly, 100 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, 101 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.
Corporate Privilege Taxes .--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. 102 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. 103 However, a State, under the guise of taxing the privilege of doing an intrastate business, cannot levy on property beyond its borders; therefore, as applied to foreign corporations, a license tax based on authorized capital stock is void, 104 even though there be a maximum to the fee, 105 unless apportioned according to some method, as, for example, a franchise tax based on such proportion of outstanding capital stock as it represented by property owned and used in business transacted in the taxing State. 106 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). 107
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. 108 But a State lacks 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. 109
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. 110
Individual Income Taxes .--Consistent with due process of law, a State annually may tax the entire net income of resident individuals from whatever source received, 111 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. 112 Jurisdiction, in the case of residents, is founded upon the rights and privileges incident to domicile, and, in the case of non residents, 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 113 and from a trust created and administered in another State, and not directly taxable to the trustee. 114 The fact that another State has lawfully taxed identical income in the hands of trustees operating therein does not necessarily destroy a domiciliary State's right to tax the receipt of 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.'' 115 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. 116
Corporate Income Taxes: 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. 117 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 jurisdication. 118 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. 119 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, consistent 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. 120
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, 121 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. 122 Also violative of due process is a state gross premium tax imposed on a nonresident firm, doing business in the taxing jurisdiction, which purchased coverage of property located therein from an unlicensed out-of-state insurer which consummated the contract, serviced the policy, and collected the premiums outside that taxing jurisdiction. 123 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. 124
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 a purchaser within the taxing State. 125 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. 126 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. 127
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. 128 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. 129 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; 130 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. 131
[Footnote 3] Loan Association v. City of Topeka, 87 U.S. (20 Wall.) 655 (1875) (voiding tax employed by city to make a substantial grant to a bridge manufacturing company to induce it to locate its factory in the city). See also City of Parkersburg v. Brown, 106 U.S. 487 (1882) (private purpose bonds not authorized by state constitution).
[Footnote 4] Carmichael v. Southern Coal & Coke Co., 301 U.S. 495, 515 (1937). In applying the Fifth Amendment Due Process Clause the Court has said that discretion as to what is a public purpose ''belongs to Congress, unless the choice is clearly wrong, a display of arbitrary power, not an exercise of judgment.'' Helvering v. Davis, 301 U.S. 619, 640 (1937); United States v. Butler, 297 U.S. 1, 67 (1936). That payment may be made to private individuals is now irrelevant. Carmichael, supra, at 518. Cf. Usery v. Turner Elkhorn Mining Co., 428 U.S. 1 (1976) (sustaining tax imposed on mine companies to compensate workers for black lung disabilities, including those contracting disease before enactment of tax, as way of spreading cost of employee liabilities).
[Footnote 12] Stewart Dry Goods Co. v. Lewis, 294 U.S. 550 (1935). See also Kelly v. City of Pittsburgh, 104 U.S. 78 (1881); Chapman v. Zobelein, 237 U.S. 135 (1915); Alaska Fish Salting & By-Products Co. v. Smith, 255 U.S. 44 (1921); Magnano Co. v. Hamilton, 292 U.S. 40 (1934); City of Pittsburgh v. Alco Parking Corp., 417 U.S. 369 (1974).
[Footnote 13] Nashville, C. & St. L. Ry. v. Wallace, 288 U.S. 249 (1933); Carmichael v. Southern Coal & Coke Co., 301 U.S. 495 (1937). A taxpayer therefore cannot contest the imposition of an income tax on the ground that, in operation, it returns to his town less income tax than he and its other inhabitants pay. Dane v. Jackson, 256 U.S. 589 (1921).
[Footnote 18] Binney v. Long, 299 U.S. 280 (1936); Nickel v. Cole, 256 U.S. 222 (1921). See also Salomon v. State Tax Comm'n, 278 U.S. 484 (1929) (contingent remainder); and Orr v. Gilman, 183 U.S. 278 (1902) (power of appointment).
[Footnote 21] Id. See also Shaffer v. Carter, 252 U.S. 37, 49 -52 (1920); and Travis v. Yale & Towne Mfg. Co., 252 U.S. 60 (1920) (states may tax the income of nonresidents derived from property or activity within the state).
[Footnote 23] Welch v. Henry, 305 U.S. 134 (1938) (upholding imposition in 1935 of tax liability for 1933 tax year; due to the scheduling of legislative sessions, this was the legislature's first opportunity to adjust revenues after obtaining information of the nature and amount of the income generated by the original tax). Since ''[t]axation is neither a penalty imposed on the taxpayer nor a liability which he assumes by contract,'' the Court explained, ''its retroactive imposition does not necessarily infringe due process.'' Id. at 146-47.
[Footnote 31] Missouri Pac. R.R. v. Road District, 266 U.S. 187 (1924). See also Roberts v. Irrigation Dist., 289 U.S. 71 (1933), in which it was also stated that an assessment to pay the general indebtedness of an irrigation district is valid, even though in excess of the benefits received.
[Footnote 39] 112 S. Ct. 1904 (1992).
[Footnote 40] 112 S. Ct. 1904 (1992).
[Footnote 41] The Court had previously held that the requirement in terms of a benefit is minimal. Commonwealth Edison Co. v. Montana, 453 U.S. 609, 622 -23 (1982), (quoting Carmichael v. Southern Coal & Coke Co., 301 U.S. 495, 521 -23 (1937)). It is satisfied by a ''minimal connection'' between the interstate activities and the taxing State and a rational relationship between the income attributed to the State and the intrastate values of the enterprise. Mobil Oil Corp. v. Commissioner of Taxes, 445 U.S. 425, 436 -37 (1980); Moorman Mfg. Co. v. Bair, 437 U.S. 267, 272 -73 (1978). See especially Standard Pressed Steel Co. v. Department of Revenue, 419 U.S. 560, 562 (1975); National Geographic Society v. California Bd. of Equalization, 430 U.S. 551 (1977).
[Footnote 42] Quill Corp. v. North Dakota, 112 S. Ct. at 1911-16 (refusing to overrule the Commerce Clause ruling in National Bellas Hess v. Department of Revenue, 386 U.S. 753, 756 (1967)). See also Trinova Corp. v. Michigan Dep't of Treasury, 498 U.S. 358 (1991) (neither the Commerce Clause nor the Due Process Clause is violated by application of a business tax, measured on a value added basis, to a company that manufactures goods in another state, but that operates a sales office and conducts sales within state).
[Footnote 45] New York ex rel. New York Cent. R.R. v. Miller, 202 U.S. 584 (1906). As to the competence of States to tax equipment of foreign carriers which enter their jurisdiction intermittently, see supra, pp. 227-33.
[Footnote 47] Union Transit Co. v. Kentucky, 199 U.S. 194 (1905). Justice Black, in Central R.R. v. Pennsylvania, 370 U.S. 607, 619 -21 (1962), had his ''doubts about the use of the Due Process Clause to . . . [invalidate State taxes]. The modern use of due process to invalidate State taxes rests on two doctrines: (1) that a State is without 'jurisdiction to tax' property beyond its boundaries, and (2) that multiple taxation of the same property by different States is prohibited. Nothing in the language or the history of the Fourteenth Amendment, however, indicates any intention to establish either of these two doctrines . . . And in the first case [Railroad Co. v. Jackson, 74 U.S. (7 Wall.) 262 (1869)] striking down a State tax for lack of judisdiction to tax after the passage of that Amendment, neither the Amendment nor its Due Process Clause . . . was ever mentioned.'' He also maintained that Justice Holmes shared this view in Union Transit Co. v. Kentucky, supra, at 211.
[Footnote 52] Northwest Airlines v. Minnesota, 322 U.S. 292, 294 -97, 307 (1944). The case was said to be governed by New York ex rel. New York Cent. R.R. v. Miller, 202 U.S. 584, 596 (1906). As to the problem of multiple taxation of such airplanes, which had in fact been taxed proportionately by other States, the Court declared that the ''taxability of any part of this fleet by any other State, than Minnesota, in view of the taxability of the entire fleet by that State, is not now before us.'' Justice Jackson, in a concurring opinion, would treat Minnesota's right to tax as exclusively of any similar right elsewhere.
[Footnote 55] Wallace v. Hines, 253 U.S. 66 (1920). For example, the ratio of track mileage within the taxing State to total track mileage cannot be employed in evaluating that portion of total railway property found in the State when the cost of the lines in the taxing State was much less than in other States and the most valuable terminals of the railroad were located in other States. See also Fargo v. Hart, 193 U.S. 490 (1904); Union Tank Line Co. v. Wright, 249 U.S. 275 (1919).
[Footnote 58] Howard, State Jurisdiction to Tax Intangibles: A Twelve Year Cycle, 8 Mo. L. Rev. 155, 160-62 (1943); Rawlins, State Jurisdiction to Tax Intangibles: Some Modern Aspects, 18 Tex. L. Rev. 196, 314-15 (1940).
[Footnote 82] Newark Fire Ins. Co. v. State Board, 307 U.S. 313, 318 , 324 (1939). Although the eight Justices affirming this tax were not in agreement as to the reasons to be assigned in justification of this result, the holding appears to be in line with the dictum uttered by Chief Justice Stone in Curry v. McCanless, 307 U.S. 357, 368 (1939), to the effect that the taxation of a corporation by a State where it does business, measured by the value of the intangibles used in its business there, does not preclude the State of incorporation from imposing a tax measured by all its intangibles.
[Footnote 88] 240 U.S. 635, 631 (1916). A decision rendered in 1926 which is seemingly in conflict was Wachovia Bank & Trust Co. v. Doughton, 272 U.S. 567 (1926), in which North Carolina was prevented from taxing the exercise of a power of appointment through a will executed therein by a resident, when the property was a trust fund in Massachusetts created by the will of a resident of the latter State. One of the reasons assigned for this result was that by the law of Massachusetts the property involved was treated as passing from the original donor to the appointee. However, this holding was overruled in Graves v. Schmidlapp, 315 U.S. 657 (1942).
[Footnote 92] First Nat'l Bank v. Maine, 284 U.S. 312 (1932); Beidler v. South Carolina Tax Comm'n, 282 U.S. 1 (1930); Baldwin v. Missouri, 281 U.S. 586 (1930); Farmer's Loan Co. v. Minnesota, 280 U.S. 204 (1930).
[Footnote 97] Id. at 386.
[Footnote 101] 306 U.S. 398 (1939). Resort to the Supreme Court's original jurisdiction was necessary because in Worcester County Trust Co. v. Riley, 302 U.S. 292 (1937), the Court, proceeding on the basis that inconsistent determinations by the courts of two States as to the domicile of a taxpayer do not raise a substantial federal constitutional question, held that the Eleventh Amendment precluded a suit by the estate of the decedent to establish the correct State of domicile. In California v. Texas, 437 U.S. 601 (1978), a case on all points with Texas v. Florida, the Court denied leave to file an original action to adjudicate a dispute between the two States about the actual domicile of Howard Hughes, a number of Justices suggesting that Worcester County no longer was good law. Subsequently, the Court reaffirmed Worcester County, Cory v. White, 457 U.S. 85 (1982), and then permitted an original action to proceed, California v. Texas, 457 U.S. 164 (1982), several Justices taking the position that neither Worcester County nor Texas v. Florida was any longer viable.
[Footnote 104] Western Union Tel. Co. v. Kansas, 216 U.S. 1 (1910); Pullman Co. v. Kansas, 216 U.S. 56 (1910); Looney v. Crane Co., 245 U.S. 178 (1917); International Paper Co. v. Massachusetts, 246 U.S. 135 (1918).
[Footnote 108] American Mfg. Co. v. St. Louis, 250 U.S. 459 (1919). Nor does a state license tax on the production of electricity violate the due process clause because it may be necessary, to ascertain, as an element in its computation, the amounts delivered in another jurisdiction. Utah Power & Light Co. v. Pfost, 286 U.S. 165 (1932).
[Footnote 117] Underwood Typewriter Co. v. Chamberlain, 254 U.S. 113 (1920); Bass, Ratcliff & Gretton Ltd. v. Tax Comm'n 266 U.S. 271 (1924). The Court has recently considered and expanded the ability of the States to use apportionment formulae to allocate to each State for taxing purposes a fraction of the income earned by an integrated business conducted in several States as well as abroad. Moorman Mfg. Co. v. Bair, 437 U.S. 267 (1978); Mobil Oil Corp. v. Commissioner of Taxes, 445 U.S. 425 (1980); Exxon Corp. v. Department of Revenue, 447 U.S. 207 (1980). Exxon refused to permit a unitary business to use separate accounting techniques that divided its profits among its various functional departments to demonstrate that a State's formulary apportionment taxes extraterritorial income improperly. Bair, supra, at 276-80, implied that a showing of actual multiple taxation was a necessary predicate to a due process challenge but might not be sufficient.
[Footnote 120] Wisconsin v. J.C. Penney Co., 311 U.S. 435, 448 -49 (1940). Dissenting, Justice Roberts, along with Chief Justice Hughes and Justices McReynolds and Reed, stressed the fact that the use and disbursement by the corporation at its home office of income derived from operations in many States does not depend on and cannot be controlled by, any law of Wisconsin. The act of disbursing such income as dividends, he contended is ''one wholly beyond the reach of Wisconsin's sovereign power, one which it cannot effectively command, or prohibit or condition.'' The assumption that a proportion of the dividends distributed is paid out of earnings in Wisconsin for the year immediately preceding payment is arbitrary and not borne out by the facts. Accordingly, ''if the exaction is an income tax in any sense it is such upon the stockholders (many of whom are nonresidents) and is obviously bad.'' See also Wisconsin v. Minnesota Mining Co., 311 U.S 452 (1940).
[Footnote 129] Orleans Parish v. New York Life Ins. Co., 216 U.S 517 (1910).