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 The Federal Corporation Tax Constitutional?

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ports to be levied on either privilege

matter which is itself not taxable by

converted into a direct tax, because the income accruing from its enjoy ment is adopted as a standard or measure of the assessment? Such is the speciﬁc issue involved in this line of attack.

way of an excise? If this inquiry is not answered in the

Very recently, the Supreme Court

has held that a tax avowedly levied on one object, the taxable value of which

is measured by another object, is not thereby imposed upon the object serv

ing as the measure of assessment. Such

was the decision in the Spreckels case,‘5 now proving a stumbling block of the ﬁrst magnitude to those who are assert ing that the federal corporation tax is not what it purports to be, a “special excise."

In that case, a tax on the

Spreckels case, prior decisions in both state and federal courts have relieved the question of much doubt. The courts have repeatedly sustained schemes of taxation whereby the taxable value of a corporate franchise is measured by the possession of property which is itself entirely immune from taxation, or which, if not entirely immune, is not assessable

by the same type of tax. In 1829 the Supreme Court held that federal securi ties were beyond the reach of state

taxation.“ Further protection was ac corded the borrowing power of the United States by withdrawing from the ﬁeld of state taxation the capital stock of cor

carrying on or doing the business of porations and the deposits of savings reﬁning sugar, equivalent to a percent banks to the extent that they were age on the gross amount of all receipts, invested in United States stocks and was held to be a tax on the business bonds.7 Relying upon these decisions, and not on the receipts.

The brevity of

the reasoning in the Spreckels case is doubtless responsible for the belief that means of distinguishing the corporation tax would readily be found. Without doubt, the federal corpora

tion tax could be held a direct tax without overruling the Spreckels case, on the ground that a tax on the gross

receipts of a business is not necessarily a direct tax, while a tax on net receipts or income is direct. The court could escape the charge of inconsistency by

reasoning that whether the tax fell upon the business or on the receipts, an excise

tax might properly be applied to either. Only by such a distinction can the Spreckels case be held to leave un answered the query: May Congress levy an excise upon proper subject-matter of such a tax and measure its assessable

corporations have sought to escape en

tirely, or substantially diminish, the payment of franchise taxes, because computed on their capital stock, invested wholly or in part in United States securi ties. This was the ground taken by the company in House Insurance Company v.

New York8 (1889), which involved a New York statute subjecting corpora tions to a tax “upon (their) corporate

franchise or business, computed upon their capital stock and dividends." In his opinion, Mr. Justice Field stated “the contention of the plaintiff in error" as being “that the tax in question was levied upon its capital stock, and there

fore invalid so far as the bonds of the United States constitute a part of the

stock." The contention was dismissed with the observation that the tax was not levied in terms upon the capital

value by reference to that of subject ‘Sprnkolr Sugar Refining Co. v. McLal'n, 192 U. S. 397.

0 Weston v. Charleston, 2 Peters 449. 7 Bank of Commerce v. N. Y. City, 2 Black 620. ' 134 U. S. 594.