Colgate v. Harvey
| Decision Date | 16 December 1935 |
| Docket Number | No. 8,8 |
| Parties | COLGATE v. HARVEY, Tax Commissioner of Vermont |
| Court | U.S. Supreme Court |
[Syllabus from pages 404-408 intentionally omitted] Mr. E. J. Dimock, of New York City, for appellant.
[Argument of Counsel from pages 408-410 intentionally omitted] Mr. Guy M. Page, of Burlington, Vt., and Mr. Seymour P. Edgerton, of Rutland, Vt., for appellee.
[Argument of Counsel from pages 410-416 intentionally omitted]
The Vermont Income and Franchise Tax Act of 1931, Public Laws of Vermont, 1933, § 872 et seq. (), imposes
individual income taxes as follows: First, with respect to net income derived from salaries, wages, etc., denominated by the court below class A income, at the rate of 2 per cent.; second, with respect to income received on account of the ownership or use of or interest in any interest bearing security, denominated class B income, at the rate of 4 per cent., excluding, however, from such income (a) interest re-
ceived on account of money loaned within the state at a rate of interest not exceeding 5 per cent. per annum, evidenced by a promissory note, mortgage, or bond for a deed bearing a like rate of interest; (b) dividends on stocks of corporations subject to taxation under sections 887, 888 of the statute. If the income taxed is derived wholly from interest-bearing securities, there is allowed, in the case of a single individual, a personal exemption of $400, and, in the case of a head of a family or of a married individual living with husband or wife, a personal exemption of $800. If, however, either husband or wife shall receive any income other than that derived from such securities, then the personal exemption is not allowed. A distinct and larger personal exemption is allowed in the case of net income derived from salaries, wages, etc. (Section 880); namely, $1,000 in the case of a single individual, and $2,000 in the case of a head of a family or a married individual living with husband or wife.
Appellant is a resident of Vermont, married, and living with his wife. During the taxable year in question, he received both class A and class B income; but his class A income, although large, was absorbed by allowable deductions, so that there was no net income from that source, and consequently nothing subject to taxation. His class B income amounted to a larger sum, part of which consisted of interest on notes, mortgages, etc., representing money loaned outside the state of Vermont at not exceeding 5 per cent. per annum, and another part from taxable dividends received from corporations other than Vermont corporations. Upon these two sums a tax was assessed against him at the rate of 4 per cent. Under the statute, he was allowed no personal exemption whatever.
The validity of the statute under the Federal Constitution was properly challenged. The grounds of attack, so far as necessary to be stated, are as follows: (1) The act imposes a tax upon dividends earned outside the state of
Vermont, while exempting from the tax dividends earned within the state, thereby denying petitioner the equal protection of the laws in violation of the Fourteenth Amendment; (2) the act, in violation of the same clause, discriminates in favor of money loaned within the state as against money loaned outside the state; (3) the act arbitrarily denies appellant the $800 exemption while giving it to other persons whose situation differed from his only in that they had no income from business, and thereby denies appellant the equal protection of the laws guaranteed by the Fourteenth Amendment; and in each of these three particulars the act abridges the privileges and immunities of appellant as a citizen of the United States in contravention of the same amendment.2
The court below denied the contentions of appellant, and sustained the validity of the act in every particular. 107 Vt. 28, 175 A. 352.
First. Does the imposition of a tax upon dividends earned outside the state, from which tax dividends earned within the state are exempt, constitute, under the Fourteenth Amendment, an allowable classification? The basis of the classification rests in the consideration that by sections 887 and 888 a tax of 2 per cent., measured by net income, is imposed upon every corporation for the privilege of exer-
cising its franchise in the state and of doing business therein. If the entire business of the corporation be transacted within the state, the amount of the tax is fixed with regard to the entire net income. If the entire business be not so transacted, the net income is calculated with respect to that part of the business done within the state, to be allocated so as fairly and justly to reflect such net income. Dividends upon shares of corporations which are subjected to this tax are exempted from the income tax. In addition to the 2 per cent. franchise tax, all tangible corporate property lying within the state is subjected to a property tax. The evident aim of the classification, therefore, is to produce equality and not inequality; and, obviously, that aim will become effective in fact, to a greater or less extent, in the administration of the legislation.
The theory upon which the tax is laid upon dividends realized from out-of-state business while leaving dividends realized from domestic business untaxed, is that the 2 per cent. franchise tax, especially with the property tax added, has the effect of indirectly imposing a tax burden upon the latter measurably equivalent to that imposed directly upon the former. Thus, the tendency of the plan is to avoid taxing twice what is, in effect, the same thing. And conceding the power of the state to impose double or even multiple taxation, legislation which is calculated to avoid that undesirable result certainly cannot be condemned as arbitrary. Thus far, the question is settled in favor of the validity of the tax by prior decisions of this court. Kidd v. Alabama, 188 U.S. 730, 23 S.Ct. 401, 47 L.Ed. 669; Darnell v. Indiana, 226 U.S. 390, 398, 33 S.Ct. 120, 57 L.Ed. 267; Travelers' Ins. Co. v. Connecticut, 185 U.S. 364, 22 S.Ct. 673, 46 L.Ed. 949; Watson v. State Comptroller, 254 U.S. 122, 124, 125, 41 S.Ct. 43, 65 L.Ed. 170; Lawrence v. State Tax Comm., 286 U.S. 276, 284, 52 S.Ct. 556, 76 L.Ed. 1102, 87 A.L.R. 374. True, it well may be assumed that similar franchise and property taxes are imposed upon the outside corporations by other states; but the assumption is immaterial
to the issue here involved. It is enough that such taxes are not imposed by the state of Vermont. It was so decided in Kidd v. Alabama, supra, where Mr. Justice Holmes, speaking for the court, said (188 U.S. 730, page 732, 23 S.Ct. 401, 402, 47 L.Ed. 669): And see Bacon v. Board of State Tax Com'rs, 126 Mich. 22, 25, 26, 85 N.W. 307, 60 L.R.A. 321, 86 Am.St.Rep. 524.
Appellant urges that the franchise tax measured by the corporation's income is at the rate of 2 per cent., while the tax on dividends is at the rate of 4 per cent.; and concludes that this results in putting a burden on dividends directly taxed twice as great as that imposed indirectly by the franchise tax. But it is obvious that, since the 4 per cent. tax is imposed only upon such part of the corporate net income as passes to the shareholders in the form of dividends, and the 2 per cent. tax is measured by the entire net income of the corporation, this conclusion is erroneous. Corporations do not, at least as a general rule, pay out their entire net income in dividends. Something is reserved for future contingencies; and it may well result that a tax of 2 per cent. measured by the entire net income of the corporation will roughly approximate the amount imposed by a 4 per cent. tax on that part of the net income paid out as dividends. There is nothing in the equality clause of the Constitution which requires that the two sums shall be mathematically equivalent. Concordia Fire Ins. Co. v. Illinois, 292 U.S. 535, 547, 54 S.Ct. 830, 78 L.Ed. 1411. In Klein v. Board of Supervisors, 282 U.S. 19, 51 S.Ct. 15, 75 L.Ed. 140, 73 A.L.R. 679, this court sustained an act exempting corporate shares from taxation where 75 per cent. of the total property of the corporation was taxable in the state and the taxes thereon were paid. It was said that this was plainly a reasonable effort to do justice to all in view of the way other assessments were made.
It is impossible to say from the record before us that there is a greater disproportion here than was presented in the Klein Case, or to conclude that the disproportion is so great as to stamp the classification as wholly arbitrary or capricious. Moreover, as a general thing, a corporation subject to the 2 per cent. franchise tax will pay also a tax upon property located within the state, with the effect of still further narrowing, if not altogether extinguishing, the difference.
This court has frequently said that absolute equality in taxation cannot be obtained, and is not required under the Fourteenth Amendment. This, of course, is not to say that, because some degree of inequality from the nature of things must be permitted, gross inequality must also be allowed. The boundary between what is permissible and what is forbidden by the constitutional requirement has never been precisely fixed, and is incapable of exact delimitation. In the great variety of cases which have arisen, decisions may seem to be difficult of reconcilement; but investigation will generally cause apparent conflicts to disappear when due weight is given to material circumstances which...
To continue reading
Request your trial
-
Galahad v. Weinshienk
...consistently followed by the Court. Only once did the Court hold state legislation violative of that clause. Colgate v. Harvey, 296 U.S. 404, 56 S.Ct. 252, 80 L.Ed. 299 (1935). That case was overruled five years later, leaving not a single instance in over 100 years in which the privileges ......
-
New York Rapid Transit Corporation v. City of New York Brooklyn Queens Transit Corporation v. Same
...rather support the view that the 'object' is the revenue to be raised by the acts. In Colgate v. Harvey, 296 U.S. 404 at pages 423, 424, 56 S.Ct. 252, 256, 80 L.Ed. 299, 102 A.L.R. 54, it was recognized that the classification 'must rest upon some ground of difference having a fair and subs......
-
Airport Authority District v. Delta Airlines, Inc Northeast Airlines, Inc v. New Hampshire Aeronautics Commission 8212 99, 70 8212 212
...& Southern S.S. Co. v. Pennsylvania, 122 U.S. 326, 339, 7 S.Ct. 1118, 1121, 30 L.Ed. 1200; Colgate v. Harvey, 296 U.S. 404, 443—444, 56 S.Ct. 252, 265 266, 80 L.Ed. 299 (Stone, J., dissenting); Bowman v. Chicago & Northwestern R. Co., 125 U.S. 465, 480—481, 8 S.Ct. 689, 695—696, 31 L.Ed. 70......
-
Geo. B. Wallace, Inc. v. Pfost
...Amendment applies in favor of citizens of all the states, including those of the state enacting the questioned legislation. ( Colgate v. Harvey, supra.) while this clause protects only the privileges and immunities of citizens of the United States as distinguished from citizens of the state......
-
Lines in the sand: the importance of borders in American federalism.
...Amendment precludes the home state from seeking to interfere with a citizen who takes advantage of this right. Colgate v. Harvey, 296 U.S. 404 (1935), adopted a similar theory in striking down a discriminatory state tax applied to a citizen's out-of-state bank deposits under the Fourteenth ......
-
Extraterritoriality and political heterogeneity in American federalism.
...of national identity. An additional problem with the last argument is that the case on which it is premised, Colgate v. Harvey, 296 U.S. 404, 431 (1935), has been overruled, as Professor Kreimer himself notes. See Kreimer, Law of Choice, supra note 5, at 518 (noting that the decision was ov......
-
The Hatch Act Cases
...on the con- 5 United States v. Lovett, 328 U.S. 303, 90 L. Ed. 1252 (1946).6 6 Wall. 35, 18 L. Ed. 745 (1868). 7 See Colgate v. Harvey, 296 U.S. 404, 444, 80 L. Ed. 299, 319 See Hague v. C.I.O., supra, n. 2.9Supra, n. 7. 10309 U.S. 83, 84 L. Ed. 590. 11 314 U.S. 160, 86 L. Ed. 119 (1941). 1......
-
Answering Justice Thomas in Saenz: granting the Privileges or Immunities Clause full citizenship within the Fourteenth Amendment.
...of citizens of the United States...." U.S. CONST. amend. XIV, [sections] 1. (4.) Saenz, 119 S. Ct. at 1526. (5.) See Colgate v. Harvey, 296 U.S. 404, 426-28 (1935) (relying on the Clause to invalidate state tax targeting out-of-state income while exempting in-state income), overruled by Mad......