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 The Green Bag

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federal taxation in the interest of the

it against the federal corporation tax erroneously assume that its operation will in all cases be reciprocal. Such an

tions were co-extensive with that of the federal government, there would be no escape from the assumption that because a state may not tax a federal franchise, therefore the federal govern ment may not tax a state franchise.

assumption would lead to the desired conclusion that because a state may not

Every corporation created by the state would then be an instrumentality of the

tax a federal franchise, or its exercise, therefore the nation may not tax a

state government, and as such, beyond the reach of federal taxation. Without question, a state frequently

states, as well as state taxation in the interest of the nation, those who invoke

state franchise, or its exercise.

That

this reasoning is misleading would seem to follow from a comparison of the power of the federal government to grant cor porate charters with that of the states.

That there is a fundamental distinc tion between the right of the federal

creates a corporation for no other pur pose than to serve as a kind of agent in the discharge of governmental functions. Such is the ordinary municipal corpora tion, whose franchise is beyond reach of federal taxation. It is conceivable that

government to create corporations and that of the states is elementary. The

there may be others of a less public

right when exercised by a federal gov ernment is not substantive, but inci dental. It can be employed only as a. means of carrying into the eﬁect the enumerated powers of the federal gov ernment. The resulting corporation is

strumentalities of the states, without unduly straining the doctrine. But

thus necessarily the means of exercising a federal function and is to be regarded

talities of the states, but are private enterprises, pure and simple, organized primarily to make proﬁt for their pro moters and stockholders.

as an instrumentality of government. In fact, if it cannot be so regarded,

there is no constitutional warrant for its existence. The United States bank was chartered to provide the government with a ﬁscal agent. The incorporation of the Paciﬁc railroads by Congress can be justiﬁed on no other ground than as

nature that might be regarded as in

corporations of this character are com paratively few. The vast majority of corporations of state creation can in no

proper sense be regarded as instrumen

In so far, then, as the principle in voked has any application to the federal corporation tax, it would operate to withdraw from its provisions those cor

tion by a state rests upon its general power

porations, and those corporations only, that can fairly be said to perform a func tion of the state under whose authority they were created. The same prin ciple would likewise operate to exempt

to incorporate.

from the provisions of a general income

a means of regulating interstate com

merce.16 But the creation of a corpora Such a power is exer

cised by the states as an independent,

and not as a dependent, power.

If the

power of the states to create corpora

tax, levied under the proposed “six teenth amendment," the incomes of

state officials. In either case its appre ciable effect would be too slight to affect

10 California v. Central Pacific Railroad Ga., 127 U. S. l.

the constitutionality of the tax.