Kansas City, Fort Scott Memphis Railway Company v. Botkin

• Decision Date: 21 February 1916
• Docket Number: No. 450,450
• Parties: KANSAS CITY, FORT SCOTT, & MEMPHIS RAILWAY COMPANY, Plff. in Err., v. J. T. BOTKIN, Secretary of State of the State of Kansas
• Court: U.S. Supreme Court

240 U.S. 227

36 S.Ct. 261

60 L.Ed. 617

KANSAS CITY, FORT SCOTT, & MEMPHIS RAILWAY COMPANY, Plff. in Err.,

v J. T. BOTKIN, Secretary of State of the State of Kansas.

No. 450.

Submitted January 7, 1916.

Decided February 21, 1916.

Messrs. R. R. Vermilion and W. F. Evans for plaintiff in error.

[Argument of Counsel from page 228 intentionally omitted] Messrs. James P. Coleman, W. P. Montgomery, and J. L. Hunt, and Mr. S. M. Brewster, Attorney General of Kansas, for defendant in error.

[Argument of Counsel from page 229 intentionally omitted] Mr. Justice Hughes delivered the opinion of the court:

By chapter 135 of the Laws of 1913, of Kansas, every domestic corporation is required to pay to the secretary of state an annual fee which is graduated according to the amount of its paid-up capital stock. When this capital stock does not exceed $10,000, the fee is $10; when it exceeds $10,000, but is not over $25,000, the fee is $25; and there are further increases, graduated as stated, until the maximum fee of $2,500 is reached, that sum being payable in all cases where the paid-up capital stock exceeds $5,000,000. The plaintiff in error is a railroad corporation organized under the laws of Kansas, and its road extends into several states. It has a paid-up capital stock of $31,660,000. On March 31, 1914, it paid to the secretary of state, under protest, the required fee of $2,500, and brought this action to recover the amount, insisting that the tax is a direct burden upon interstate commerce and is laid upon property outside the state, and hence is invalid under the Federal Constitution. The supreme court of Kansas sustained the tax, thus defining its nature: '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.' 95 Kan. 261, 147 Pac. 791.

It must be assumed, in accordance with repeated decisions, that the state cannot lay a tax on interstate commerce 'in any form,' by imposing it either upon the business which constitutes such commerce or the privilege of engaging in it, or upon the receipts as such derived from it. State Freight Tax Case, 15 Wall. 232, 21 L. ed. 146; Philadelphia & S. Mail S. S. Co. v. Pennsylvania, 122 U. S. 326, 336, 344, 30 L. ed. 1200, 1201, 1204, 1 Inters. Com. Rep. 308, 7 Sup. Ct. Rep. 1118; Leloup v. Mobile, 127 U. S. 640, 32 L. ed. 311, 2 Inters. Com. Rep. 134, 8 Sup. Ct. Rep. 1380; Lyng v. Michigan, 135 U. S. 161, 166, 34 L. ed. 150, 153, 3 Inters. Com. Rep. 143, 10 Sup. Ct. Rep. 725; McCall v. California, 136 U. S. 104, 34 L. ed. 391, 3 Inters. Com. Rep. 181, 10 Sup. Ct. Rep. 881; Galveston, H. & S. A. R. Co. v. Texas, 210 U. S. 217, 228, 52 L. ed. 1031, 1038, 28 Sup. Ct. Rep. 638; Western U. Teleg. Co. v. Kansas, 216 U. S. 1, 36, 37, 54 L. ed. 355, 369, 370, 30 Sup. Ct. Rep. 190; Pullman Co. v. Kansas, 216 U. S. 56, 65, 54 L. ed. 378, 385, 30 Sup. Ct. Rep. 232; Meyer v. Wells F. & Co. 223 U. S. 298, 56 L. ed. 445, 32 Sup. Ct. Rep. 218; Baltic Min. Co. v. Massachusetts, 231 U. S. 68, 83, 58 L. ed. 127, 133, L.R.A. ——, ——, 34 Sup. Ct. Rep. 15. And, further, in determining whether a tax has such a direct relation to interstate commerce as to be an exercise of power prohibited by the commerce clause, our decision must regard the substance of the exaction, its operation and effect as enforced,—and cannot depend upon the manner in which the taxing scheme has been characterized. Galveston, H. & S. A. R. Co v. Texas, 210 U. S. 217, 228, 52 L. ed. 1031, 1038, 28 Sup. Ct. Rep. 638; United States Exp. Co. v. Minnesota, 223 U. S. 335, 346, 56 L. ed. 459, 465, 32 Sup. Ct. Rep. 211; St. Louis Southwestern R. Co. v. Arkansas, 235 U. S. 350, 362, 59 L. ed. 265, 271, 35 Sup. Ct. Rep. 99.

Examining the statute in the present case, we see no reason to doubt the accuracy of the description of the tax by the state court. We take it to be simply a tax on the privilege of being a corporation,—on the primary corporate franchise granted by the state. The authority of the state to tax this privilege, or franchise, has always been recognized, and it is well settled that a tax of this sort is not necessarily rendered invalid because it is measured by capital stock which in part may represent property not subject to the state's taxing power. Thus, in Society for Savings v. Coite, 6 Wall. 594, 606, 607, 18 L. ed. 897, 902, 903, the power to levy the franchise tax was deemed to be 'wholly unaffected' by the fact that the corporation had invested in Federal securities; and in Home Ins. Co. v. New York, 134 U. S. 594, 599, 600, 33 L. ed. 1025, 1029, 1030, 10 Sup. Ct. Rep. 593, it was held that a tax upon the privilege of being a corporation was not rendered invalid because a portion of its capital (the tax being measured by dividends) was represented by United States bonds. These cases were cited with distinct approval, and the rule they applied in distinguishing between the subject and the measure of the tax was recognized as an established one, in Flint v. Stone Tracy Co. 220 U. S. 107, 165, 55 L. ed. 389, 419, 31 Sup. Ct. Rep. 342, Ann. Cas. 1912B, 1312. It is also manifest that the state is not debarred from imposing a tax upon the granted privilege of being a corporation, because the corporation is engaged in interstate as well as intrastate commerce. Delaware R. Tax, 18 Wall. 206, 231, 232, 21 L. ed. 888, 896; State R. Tax Cases, 92 U. S. 575, 603, 23 L. ed. 663, 669; Philadelphia & S. Mail S. S. Co. v. Pennsylvania, 122 U. S. 326, 336, 344, 30 L. ed. 1200, 1201, 1204, 1 Inters. Com. Rep. 308, 7 Sup. Ct. Rep. 1118; Ashley v. Ryan, 153 U. S. 436, 38 L. ed. 773, 4 Inters. Com. Rep. 664, 14 Sup. Ct. Rep. 865; New York ex rel. Cornell S. B. Co. v. Sohmer, 235 U. S. 549, 559, 560, 59 L. ed. 355, 359, 360, 35 Sup. Ct. Rep. 162. And, agreeably to the principle above mentioned, it has never been, and cannot be, maintained that an annual tax upon this privilege is in itself, and in all cases, repugnant to the Federal power merely because it is measured by authorized or paid-up capital stock. The selected measure may appear to be simply a matter of convenience in computation, and may furnish no basis whatever for the conclusion that the effort is made to reach subjects withdrawn from the taxing authority. We have recently had occasion (Baltic Min. Co. v. Massachusetts, 231 U. S. 68, 83, 58 L. ed. 127, 133, L.R.A. ——, ——, 34 Sup. Ct. Rep. 15) to emphasize the necessary caution that 'every case involving the validity of a tax must be decided upon its own facts;' and if the tax purports to be laid upon a subject within the taxing power of the state, it is not to be condemned by the application of any artificial rule, but only where the conclusion is required that its necessary operation and effect is to make...