Home Insurance Co of New York v. State of New York

• Decision Date: 07 April 1890
• Parties: HOME INSURANCE CO. OF NEW YORK v. STATE OF NEW YORK. 1
• Court: U.S. Supreme Court

10 S.Ct. 593

134 U.S. 594

33 L.Ed. 1025

HOME INSURANCE CO. OF NEW YORK v. STATE OF NEW YORK.¹

April 7, 1890.

[Statement of Case from pages 594-596 intentionally omitted] B. H. Bristow and David Willcox, for plaintiff in error.

Chas. F. Tabor and D. O'Brien, for defendant in error.

Mr. Justice FIELD, after stating the facts as above, delivered the opinion of the court.

The contention of the plaintiff in error is that the tax in question was levied upon its capital stock, and therefore invalid so far as the bonds of the United States constitute a part of that stock. If that contention were well founded, there would be no question as to the invalidity of the tax. That the bonds or obligations of the United States for the payment of money cannot be the subject of taxation by a state, is familiar law, settled by numerous adjudications of this court. It is a tax upon the exercise of the power of congress to borrow money; a tax which, if permitted, could be limited in amount only by the discretion of the state, and might, therefore, be carried to an extent impairing, if not destructive of, the efficiency of the power, to the serious detriment of the general government. As held in McCulloch v. Maryland, 4 Wheat. 436, the states have no power by taxation to impede, burden, or in any manner control, the operation of the constitution and laws enacted by congress to carry into execution the powers vested in the general government, a doctrine which, applied the Weston v. City Council, 2 Pet. 449, annulled a tax levied by the authority of a law of South Carolina on stock issued for loans to the United States. Nor can this inhibition upon the states be evaded by any change in the mode or form of the taxation, provided the same result is effected; that is, an impediment is thereby interposed to the exercise of a power of the United States. That which cannot be accomplished directly cannot be accomplished indirectly. Through all such attempts the court will look to the end sought to be reached; and, if that would trench upon a power of the government, the law creating it will be set aside, orits enforcement restrained. Thus, in Henderson v. Mayor, etc., 92 U. S. 259, 268, a statute of New York provided that the master or owner of any vessel bringing passengers from foreign ports into the port of New York should give a bond in the sum of $300, for each passenger landed, against his becoming a public charge for four years thereafter, or pay within 24 hours thereafter $150 for each passenger, and that, if neither bond was given nor payment made, a penalty of $500 for such failure would be incurred, which should be a lien upon the vessel. It was contended that the object of the requirement was not taxation, but protection against pauperism, and therefore valid as within the poice power. But the court said that, in whatever language the statute may be framed, its purpose must be determined by its reasonable and natural effect, and, judged by that criterion, the tax was either on the owners of the vessel, for the right of landing passengers, or upon the passengers themselves, and that therefore the statute was a regulation of commerce, and void. To the same purport is the familiar case of Brown v. Maryland, 12 Wheat. 419, so often cited in this court, where it was contended that a license tax required of an importer to sell his goods while held in bulk as imported was a tax only upon his occupation. But the court observed that this was only changing the form, without varying the substance, of the tax, adding that 'it is treating a prohibition which is general as if it were confined to a particular mode of doing the forbidden thing. All must perceive that a tax on the sale of an article imported only for sale is a tax on the article itself.'

Looking now at the tax in this case upon the plaintiff in error, we are unable to perceive that it falls within the doctrines of any of the cases cited, to which we fully assent, not doubting their correctness in any particular. It is not a tax, in terms, upon the capital stock of the company, nor upon any bonds of the United States composing a part of that stock. The statute designates it as a tax upon the 'corporate franchise or business' of the company, and reference is only made to its capital stock and dividends for the purpose of determining the amount of the tax to be exacted each year. By the term 'corporate franchise or business,' as here used, we understand is meant (not referring to corporations sole, which are not usually created for commercial business) the right or privilege given by the state to two or more persons of being a corporation, that is, of doing business in a corporate capacity, and not the privilege or franchise which, when incorporated, the company may exercise. The right or privilege to be a corporation, or to do business as such a body, is one generally deemed of value to the corporators, or it would not be sought in such numbers as at present. It is a right or privilege by which several individuals may unite themselves under a common name, and act as a single person, with a succession of members, without dissolution or suspension of business, and with a limited individual liability. The granting of such right or privilege rests entirely in the discretion of the state, and, of course, when granted, may be accompanied with such conditions as its legislature may judge most befitting to its interests and policy. It may require, as a condition of the grant of the franchise, and also of its continued exercise, that the corporation pay a specific sum to the state each year or month, or a specific portion of its gross receipts, or of the profits of its business, or a sum to be ascertained in any convenient mode which it may prescribe. The validity of the tax can in no way be dependent upon the mode which the state may deem fit to adoptin fixing the amount for any year which it will exact for the franchise. No constitutional objection lies in the way of a legislative body prescribing any mode of measurement to determine the amount it will charge for the privileges it bestow. It may well seek in this way to increase its revenue to the extent to which it has been cut off by exemption of other property from taxation. As its revenues to meet its expenses are lessened in one direction, it may look to any other property as sources of revenue which is not exempted from taxation. Its action in this matter is not the subject of judicial inquiry in a federal tribunal. As was said in Delaware Railroad Tax Case, 18 Wall. 206, 231: 'The state may impose taxes upon the corporation as an entity existing under its laws, as well as upon the capital stock of the corporation, or its separate corporate property; and the manner in which its value shall be assessed, and the rate of taxation, however arbitrary or capricious, are mere matters of legislative discretion. It is not for us to suggest in any case that a more equitable mode of assessment or rate of taxation might be adopted than the one prescribed by the legislature of the state. Our only concern is with the validity of the tax. All else lies beyond the domain of our jurisdiction.' It is true, as said by this court in California v. Railroad Co., 127 U. S. 41, 8 Sup. Ct. Rep. 1073, that the taxation of a corporate franchise has no limitation but the discretion of the taxing power; and its value is not measured like that of property, but may be fixed at any sum that the legislature may choose. It may be arbitrarily laid, without any valuation put upon the franchise. If any hardship or oppression is created by the amount exacted, the remedy must be sought by appeal to the legislature of the state. It cannot be furnished by the federal tribunals. The tax in the present case would not be affected if the nature of the property in which the whole capital stock is invested were changed, and put into real property or bonds of New York, or of the other states. From the very nature of the tax, being laid upon a franchise given by the state, and revocable at pleasure, it cannot be affected in any way by the character of the property in which its capital stock is invested. The power of the state over its corporate franchise, and the conditions upon which it shall be exercised, is as ample and plenary in the one case as in the other.

In some states the franchises and privileges of a corporation are declared to be personal property. Such was the case in New York with reference to the privileges and franchises of savings banks. They were so declared by a law passed in 1866, and made liable to taxation to an amount not exceeding the gross sum of the surplus earned, and in the possession of the banks. The law was sustained by the court of appeals of the state in Bank v. City of Rochester, 37 N. Y. 365, 367, although the bank had a portion of its property invested in United States bonds. In its opinion the...