State Taxation of the Interstate Commerce Privilege: Foreign Corporations
DOCTRINAL HISTORY
In the famous case of Paul v. Virginia,[623] decided in 1869, it was held that a corporation chartered by one State could enter other States only with their assent, which might "be granted upon such terms and conditions as those States may think proper to impose";[624] but along with this holding went the statement that "the power conferred upon Congress to regulate commerce includes as well commerce carried on by corporations as commerce carried on by individuals."[625] And in the State Freight Tax Case it is implied that no State can regulate or restrict the right of a "foreign" corporation—one chartered by another State—to carry on interstate commerce within its borders,[626] an implication which soon became explicit. In Leloup v. Port of Mobile,[627] decided in 1888, the Court had before it a license tax on a telegraph company which was engaged in both domestic and interstate business. The general nature of the exaction did not suffice to save it. Said the Court: "The question is squarely presented to us, * * *, whether a State, as a condition of doing business within its jurisdiction, may exact a license tax from a telegraph company, a large part of whose business is the transmission of messages from one State to another and between the United States and foreign countries, and which is invested with the powers and privileges conferred by the act of Congress passed July 24, 1866, and other acts incorporated in Title LXV of the Revised Statutes? Can a State prohibit such a company from doing such a business within its jurisdiction, unless it will pay a tax and procure a license for the privilege? If it can, it can exclude such companies, and prohibit the transaction of such business altogether. We are not prepared to say that this can be done."[628]
In Crutcher v. Kentucky[629] a like result was reached, without assistance from an act of Congress, with respect to a Kentucky statute which provided that the agent of an express company not incorporated by the laws of that State should not carry on business there without first obtaining a license from the State, and that, preliminary thereto, he must satisfy the auditor of the State that the company he represented was possessed of an actual capital of at least $150,000. The act was held to be a regulation of interstate commerce so far as applied to a corporation of another State in that business. "To carry on interstate commerce," said the Court, "is not a franchise or a privilege granted by the State; it is a right which every citizen of the United States is entitled to exercise under the Constitution and laws of the United States; and the accession of mere corporate facilities, as a matter of convenience in carrying on their business, cannot have the effect of depriving them of such right, unless Congress should see fit to interpose some contrary regulation on the subject."[630]
LICENSE TAXES
The demand for what in effect is a license is, of course, capable of assuming various guises. In Ozark Pipe Line v. Monier[631] an annual franchise tax on foreign corporations equal to one-tenth of one per cent of the par value of their capital stock and surplus employed in business in the State was found to be a privilege tax, and hence one which could not be exacted of a foreign corporation whose business in the taxing State consisted exclusively of the operation of a pipe line for transporting petroleum through the State in interstate commerce, and of activities the sole purpose of which was the furtherance of its interstate business. Likewise a Massachusetts tax based on "the corporate surplus" of a foreign corporation having only an office in the State for the transaction of interstate business was held in Alpha Portland Cement Co. v. Massachusetts to be virtually an attempt to license interstate commerce.[632] In the same category of unconstitutional taxation of the interstate commerce privilege, the Court has also included the following: a State "franchise" tax on a foreign corporation, whose sole business in the State consisted in landing, storing and selling in the original package goods imported by it from abroad, the tax being imposed annually on the doing of such business and measured by the value of the goods on hand;[633] a State privilege or occupation tax on every corporation engaged in the business of operating and maintaining telephone lines and furnishing telephone service in the State, of so much for each telephonic instrument controlled and operated by it, as applied to a company furnishing both interstate and intrastate service, and employing the same telephones, wires, etc., in both as integrated parts of its system;[634] a State occupation tax measured by the entire gross receipts of the business of a radio broadcasting station, licensed by the Federal Communications Commission, and engaged in broadcasting advertising "programs" for customers for hire to listeners within and beyond the State, since it did not "appear that any of the taxed income ... [was] allocable to interstate commerce";[635] a State occupation tax on the business of loading and unloading vessels engaged in interstate and foreign commerce;[636] an Indiana income tax imposed on the gross receipts from commerce inasmuch as the tax reached indiscriminately and without apportionment the gross income from both interstate commerce and intrastate activities;[637] an Arkansas statute making entry into the State of motor vehicles carrying more than twenty gallons of gasoline conditional on the payment of an excise on the excess.[638]
DOCTRINE OF WESTERN UNION TELEGRAPH v. KANSAS EX REL. COLEMAN
One of the most striking concessions ever made by the Court to the interstate commercial interest at the expense of the State's taxing power was that which appeared originally in 1910, in Western Union Telegraph. Co. v. Kansas ex rel. Coleman,[639] which involved a percentage tax upon the total capitalization of all foreign corporations doing or seeking to do a local business in the State. The Court pronounced the tax, as to the Western Union, a burden upon the company's interstate business and upon its property located and used outside the State, and hence void under both the commerce clause and the due process of law clause of the Fourteenth Amendment. The decision was substantially aided by the fact that the company had been doing a general telegraphic business within the State for more than fifty years without having been subjected to such an exaction.[640]
SPREAD OF THE DOCTRINE