Northwestern Mutual Life Insurance Company v. Wisconsin (275 U.S. 136)/Opinion of the Court

These two causes, originally brought in the circuit court of Dane county, present the same question. The plaintiff company, a corporation under the laws of Wisconsin, has long carried on therein the business of insuring lives. It seeks to recover excess taxes exacted by the state for the five years, 1918-1923. The courts below held that the exaction was proper under section 76.34, Wisconsin Statutes 1923 (section 1211.35, Stat. 1919; section 51.32, Stat. 1917). And they definitely denied the contention that so construed and applied the statute conflicted with the Constitution or laws of the United States.

'Life Insurance Companies to Pay Annual License. Every     company, corporation or association transacting the business      of life insurance within this state, excepting only such      fraternal societies as have lodge organizations and insure      the lives of their own members, and no others, shall, on or      before the first day of March, in each year, pay into the      state treasury as an annual license fee for transacting such      business the amounts following:

'(1) Domestic Companies; Three per Cent. of Gross Income. If     such company, corporation or association is organized under      the laws of this state, three per centum of its gross income      from all sources for the year ending December thirty-first,      next prior to said first day of March excepting therefrom      income from rents of real estate upon which said company,      corporation or association has said the taxes assessed      thereon, and excepting also premiums collected on policies of      insurance and contracts for annuities. * *  *

'(3) Power Granted by License; License Fee in Lieu of Other     Taxes. Such license, when granted shall authorize the company, corporation or association to whom it is     issued to transact business until the first day of March of      the ensuing year, unless sooner revoked or forfeited. The     payment of such license fee shall be in lieu of all taxes for      any purpose authorized by the laws of this state, except      taxes on such real estate as may be owned by such company,      corporation or association.'

In annual reports the company disclosed all receipts derived from interest on United States bonds and claimed they were exempt from taxation under the Constitution and laws of the United States. The revenue officers acted upon another view, and both courts below have held that they rightly disregarded the source of the receipts and properly assessed sums reckoned upon the company's entire gross income.

Counsel for the state maintain that the effect of section 76.34 is to impose upon domestic insurance companies a privilege or franchise tax, and not one on property or income; that no charge is laid upon bonds of the United States, but the fee exacted is for granted privileges, including exemption from personal property taxation and right to do business; that the state may require domestic corporations to pay privilege, franchise or license taxes measured by gross income, although partly derived from United States bonds; and that in no proper sense can the challenged tax be regarded as one directly imposed upon gross income.

They also suggest that this court has interpreted the statute and pointed out its real nature. Northwestern Mutual Life Ins. Co. v. State of Wisconsin, 247 U.S. 132, 137, 38 S.C.t. 444, 62 L. Ed. 1025. Speaking there of this same statute we did declare:

'The tax in question is, therefore, not only one for the     privilege of doing life insurance business within the state,      but is in effect a commutation tax, levied by the state in      place of all other taxation upon the personal property of the company in the state of Wisconsin.'

But no question was then raised concerning taxation of income derived from United States bonds. The point now presented was not involved.

It cannot be denied (and denial is not attempted) that bonds of the United States are beyond the taxing power of the states. Home Savings Bank v. City of Des Moines, 205 U.S. 503, 509, 27 S.C.t. 571, 51 L. Ed. 901; Farmers & Mechanics Bank v. Minnesota, 232 U.S. 516, 34 S.C.t. 354, 58 L. Ed. 706; and First National Bank v. Anderson, 269 U.S. 341, 347, 46 S.C.t. 135, 70 L. Ed. 295. Certainly since Gillespie v. Oklahoma, 257 U.S. 501, 505, 42 S.C.t. 171, 66 L. Ed. 338, it has been the settled doctrine here that where the principal is absolutely immune, no valid tax can be laid upon income arising therefrom. To tax this would amount practically to laying a burden on the exempted principal. Accordingly if the challenged act, whatever called, really imposes a direct charge upon interest derived from United States bonds, it is pro tanto void.

The fundamental question often presented in cases similar to these, is whether by the true construction of the statute the assessment must be regarded as a tax upon property or one on privileges or franchise of the corporation. Society for Savings v. Coite, 6 Wall. 594, 18 L. Ed. 897; Home Insurance Co. v. New York, 134 U.S. 594, 10 S.C.t. 593, 33 L. Ed. 1025.

Section 76.34 undertakes to impose a charge not measured by dividends paid, as in Home Insurance Co. v. New York, 134 U.S. 594, 10 S.C.t. 595, 33 L. Ed. 1025, nor by net income, as in Flint v. Stone-Tracy Co., 220 U.S. 107, 31 S.C.t. 342, 55 L. Ed. 389, Ann. Cas. 1912B, 1312; and those cases are not controlling The distinction between an imposition the amount of which depends upon dividends or net receipts and one measured by gross returns is clear. U.S. Glue Co. v. Town of Oak Creek, 247 U.S. 321, 328, 38 S.C.t. 499, 62 L. Ed. 1135, Ann. Cas. 1918E, 748, and earlier opinions there cited.

It is important to observe that, although a state statute may properly impose a charge which materially affects interstate commerce without so unreasonable burdening it as to become a regulation within the meaning of the Constitution, no state can lay any charge on bonds of the United States. This distinction was adverted to in Gillespie v. Oklahoma, 257 U.S. 501, 505, 42 S.C.t. 171, 66 L. Ed. 338, and the principle found application in Choctaw & Gulf R. R. Co. v. Harrison, 235 U.S. 292, 35 S.C.t. 27, 59 L. Ed. 234, and Indian Territory Ill. Oil. Co. v. Oklahoma, 240 U.S. 522, 36 S.C.t. 453, 60 L. Ed. 779. The power to tax property necessary to the conduct of interstate commerce has been often upheld, and without doubt the states by apt enactments may tax the ordinary property, franchises or business of their own corporations.

A taxing act which requires payment of a certain percentage of the gross earnings of an interstate carrier, but which practically imposes no more than the ordinary charge upon local property, may be sustained. U.S. Express Co. v. Minnesota, 223 U.S. 335, 32 S.C.t. 211, 56 L. Ed. 459, Cudahy Packing Co. v. Minnesota, 246 U.S. 450, 38 S.C.t. 373, 62 L. Ed. 827. But if the enactment goes further, and burdens property beyond the state, as in Union Tank Line Co. v. Wright, 249 U.S. 275, 39 S.C.t. 276, 63 L. Ed. 602, or amounts to a direct imposition upon interstate commerce itself, as in Galveston R. Co. v. Texas, 210 U.S. 217, 28 S.C.t. 638, 52 L. Ed. 1031, or lays an impost upon exports, as in Crew Levick Co. v. Pennsylvania, 245 U.S. 292, 38 S.C.t. 126, 62 L. Ed. 295, it violates the federal Constitution.

Here the statute undertook to impose a charge of 3 per cent. upon every dollar of interest received by the company from United States bonds. So much, in any event, the state took from these very receipts. This amounts, we think, to an imposition upon the bonds themselves and goes beyond the power of the state.

The judgment below is reversed, and the cause will be remanded to the Supreme Court of the state of Wisconsin for further proceedings not inconsistent with this opinion.

Reversed.