constitutional law: the commerce clause: state taxation of the gross receipts of domestic...

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Constitutional Law: The Commerce Clause: State Taxation of the Gross Receipts of DomesticCorporations Engaged in Interstate CommerceAuthor(s): Ruth ClouseSource: California Law Review, Vol. 18, No. 5 (Jul., 1930), pp. 512-522Published by: California Law Review, Inc.Stable URL: http://www.jstor.org/stable/3475221 .

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512 2 8 CALIFORNIA LAW REVIEW

Evan Haynes, former editor of the Review, who has been absent in New York during the last year, where he has been engaged as Lec- turer in Law at Columbia University, returns to California as Asso- ciate Professor of Law. He will resume his duties as faculty editor-in- chief.

Professor George P. Costigan, Jr., will be in residence only during the first half of the coming year. He is leaving in December for a voyage around the world.

Miss Rosamond Parma has been elected President of the American Association of Law Libraries for the year 1930-1931. She is the first woman to have been honored by selection to this office.

O. K. M.

Comment CONSTITUTIONAL LAW: THE COMMERCE CLAUSE: STATE TAXA-

TION OF THE GROSS RECEIPTS OF DOMESTIC CORPORATIONS ENGAGED IN INTERSTATE COMMERCE.--In New Jersey Bell Tel. Co. v. State Bd. of Assessments of New Jersey,' the United States Supreme Court, speaking through Mr. Justice Butler, and with Mr. Justice Brandeis concurring in Mr. Justice Holmes' dissent, has added one more decision to the perplexing list which makes up the law of state taxation of instrumentalities engaged in interstate commerce - the list which prompted the resigned state court, whose decision was reversed in the instant case, to declare that "It would be a hopeless task to even attempt to harmonize the decisions of that court [the United States Supreme Court] on this point; much more it would be a useless task, as that court is the sole and ultimate authority on this subject."2

The disputed New Jersey tax was levied under the provisions of the much-litigated Voorhees Act, which now is declared invalid inso- far as it authorizes the inclusion of receipts from interstate commerce in the gross receipts by which the franchise taxes laid on corporations using the public streets are measured. The Act, as it reads and as the state courts have interpreted it,3 sets up a complete scheme of taxation for corporations having the privilege of using the public streets. The effect is to classify property as tangible and intangible, the former to be taxed by cities and towns, using the usual ad valorem method, and the latter (consisting of the corporations franchise "to exist" (in

1 (1930) 280 U. S. 338, 50 Sup. Ct. 111. 2 New Jersey Bell Telephone Co. v. State Board of Taxes and Assessment of

New Jersey (1929) 105 N. J. L. 94, 97, 143 Atl. 841, 842. 3 See Phillipsburg R. Co. v. State Board of Assessors (1911) 82 N. J. L. 49,

81 Atl. 1121, and New Jersey Bell Telephone Co. v. State Board of Taxes and Assessment of New Jersey, supra note 2.



COMMENT 513

the case of domestic corporations), and its special franchise "to use" the streets4) to be taxed by a 5 per cent tax levied on such proportion of the gross receipts of the corporation as the lines in the public streets bear to the total lines. Thus the method prescribed employs in a lim- ited way the "unit rule" theory of taxation, in connection with the hazardous measuring rod of gross receipts.

The tax was challenged by a domestic telephone corporation all of whose lines were within the state, and about 26 per cent of whose business was interstate in character. The complainant denied the validity of the tax only in regard to the 5 per cent levied on its gross receipts from interstate commerce, claiming that the tax was a license fee levied directly on gross earnings, and therefore invalid under the Commerce Clause. This proposition was sustained by Mr. Justice Butler in a somewhat conventional majority opinion which recog- nized two of the major premises upon which the Supreme Court relies in cases involving the general question presented in the case at bar: (1) That property used in interstate commerce may be taxed by the states; (2) that a direct levy on the gross receipts of a corporation engaged in interstate commerce is invalid as a regulation of that commerce.

On one side or the other of the as yet unlocated line which blocks off these principles one from the other, stand the decisions which decide the limits of the states' power to take toll from the gross receipts of interstate commerce. Some of the taxes have failed when tested by the superficial "verbal incidents" rule of the Supreme Court, which deter- mines whether the tax in question is nominally laid upon a taxable subject, and which ignores the measure employed in levying the tax,5 while other taxes have been approached by the Court in a more wary mood, looking behind the subject taxed to determine if the measure in fact burdens interstate commerce.6 In the case under consideration, Mr. Justice Butler, starting with the proposition that "This tax cannot be sustained if it is not upon the property but is in fact a tax upon appellant's gross receipts from interstate and foreign commerce or a license

4" .. . the tax in question is not levied on the gross receipts of the corporation nor on the business of the corporation, but is merely an excise tax on the franchises of the corporation, viz., the franchise to exist and the franchise to occupy the streets, which is measured in part by the gross receipts." Phillipsburg R. Co. v. State Board of Assessor (1911) 82 N. J. L. 49, 55, 81 Atl. 1121, 1124.

5 Maine v. Grand Trunk Railway Co. (1891) 142 U. S. 217, 12 Sup. Ct. 121, and Ficklen v. Shelby County Taxing District (1892) 145 U. S. 1, 12 Sup. Ct. 810, demonstrate this point of view in situations involving gross receipt taxes.

6 See Western Union Tel. Co. v. Kansas (1910) 216 U. S. 1, 30 Sup. Ct. 190; Ludwig v. Western Union Tel. Co. (1910) 216 U. S. 146, 30 Sup. Ct. 280; Looney v. Crane Co. (1917) 245 U. S. 178, 38 Sup. Ct. 85, none of which involved gross receipts taxes, but all of which point to the fact that although the subject taxed is within the power of the state, the measure will be scrutinized by the Court to determine if the exaction burdens interstate commerce.



514 i8 CALIFORNIA LAW REVIEW

fee to be computed thereon,"' examines the state statute and the cases interpreting it, and, fortified by the fact that the legislature and the courts of New Jersey call the assessment in question a "franchise tax," that it was levied in addition to a property tax (on the tangible property of the corporation), and that it was said to be in lieu, not of other property taxes, but of other franchise taxes, declares that the tax is not a tax on property, and so is not sustainable. In answer to the claim of the state that the tax is a property tax, levied on intangible property, the Court observes that since the tangible property is taxed at the usual local rates, this precludes belief that the intangible property would be levied upon in another manner, as by reference to gross earnings, and concludes by questioning the validity of employing the unit rule in a situation where only one portion of the plant, the special franchise to use the streets, is used as a basis for attributing going concern value to the plant.

The Court is not concluded by any case in arriving at its decision; there appears to be no case flatly on all fours with that at bar which would have controlled the holding. The question therefore arises as to whether any new guide post has been erected by the Court to make easier the somewhat troubled path of the states in levying taxes on corporations which the Commerce Clause puts under the guardianship, sometimes jealous and sometimes generous, of the Supreme Court, and, if such new principle has been established, whether it logically results from the cases which have preceded it.

It is first to be noted that the Court assumes that if the tax being questioned is not a property tax, it cannot be sustained. Thus the Court flatly takes the position not only that a tax levied in terms directly on gross receipts from interstate commerce is void - a proposition which was established early in the history of Commerce Clause litigation8- but also that no excise tax can be measured by such receipts. This position is no doubt warranted by the more recent decisions of the Court,9 although some of the earlier cases (decided at a time when the Court was still feeling its way in arriving at lines of de- marcation in the treatment of cases arising under the Commerce Clause, and before the famous ruling in Western Union Tel. Co. v. Kansas10 had given sanction to the far-reaching proposition that although a tax was levied on a subject within the state's power to tax, the measure adopted for levying the tax might be found by the Court to burden interstate commerce), held valid taxes measured by the gross receipts

7 (1930) 280 U. S. 338, 346, 50 Sup. Ct. 111, 113. 8Fargo v. Michigan (1887) 121 U. S. 230, 7 Sup. Ct. 857; Philadelphia and

Southern Mail S. S. Co. v. Pennsylvania (1887) 122 U. S. 326, 7 Sup. Ct. 1118; Western Union Tel. Co. v. Alabama Board of Assessment (1889) 132 U. S. 472, 10 Sup. Ct. 161.

9Meyer v. Wells, Fargo & Co. (1912) 223 U. S. 298, 32 Sup. Ct. 218; Crew Levick Co. v. Pennsylvania (1917) 245 U. S. 292, 38 Sup. Ct. 126.

1o (1910) 216 U. S. 1, 30 Sup. Ct. 190.



COMMENT 515

of corporations doing interstate business." Of these, The State Rail- way Tax on Gross Receipts,,2 which sustained what the Court regarded as a franchise tax on a domestic corporation, measured by the gross receipts of the corporation, including those from interstate commerce, was largely discredited in Philadelphia S. S. Co. v. Pennsylvania,13 although Mr. Justice Bradley did not expressly disapprove of the tax as a franchise tax. Another of these cases, Maine v. Grand Trunk Ry. Co.,14 also treated the gross receipts tax as the measure for taxing a domestic corporation's franchise, but this tax was reinterpreted by the Supreme Court in Galveston Ry. Co. v. Texas15 to be a property and not a franchise tax. The Ficklen case,'6 probably one of the most anomalous decisions dealing with the Commerce Clause, has never been expressly overruled, but so frequently and so severely has it been criticized that no doubt it would be unwise to regard the case as con- clusive authority for the proposition that an occupation tax may be measured by the gross receipts of the business of a commission mer- chant engaged in interstate commerce, the tax being levied in default of a property tax on those having no capital. Consequently, because of the weakness of these three cases, and because of the later decisions, the apparent conclusion is that the Court will not find excise taxes measured by gross receipts including the earnings from interstate business acceptable, and this conclusion is certainly strengthened by the assertion of the majority in the New Jersey Bell Tel. Co. case, espe- cially since the Court does not even consider treating the case as squarely presenting the issue whether a franchise tax may be measured by gross receipts: the opinion assumes that if the state is attempting to sustain the tax as a franchise and not as a property tax that the state's case has failed. But the minority opinion of Holmes demonstrates that there are still members of the Court who feel that the issue of state taxation of franchises by reference to gross receipts has not been settled. This is apparent when he says:

"What then is to hinder New Jersey from charging a reasonable sum for something that the appellant cannot have without her consent? . . . I do not think names of any importance in this case, and do not discuss whether the tax is to be called a property tax upon an easement, a franchise tax upon an incorporeal hereditament, .. . a license tax, or by some other title. If the statute fixes a price for what the appellant needs the

11 State Tax on Railway Gross Receipts (1872) 82 U. S. (15 Wall.) 284; Maine v. Grand Trunk Railway Co. (1891) 142 U. S. 217, 12 Sup. Ct. 121; Ficklen v. Shelby County Taxing District (1892) 145 U. S. 1, 12 Sup. Ct. 810.

12 Supra note 11. 13 (1887) 122 U. S. 326, 7 Sup. Ct. 1118. 14 (1891) 142 U. S. 217, 12 Sup. Ct. 121. 15 (1908) 210 U. S. 217, 226, 28 Sup. Ct. 638, 640. 1' (1892) 145 U. S. 1, 12 Sup. Ct. 810.



516 18 CALIFORNIA LAW REVIEW

state's permission to use, I think it is within New Jersey's constitutional power."17 In Meyer v. Wells, Fargo & Co. 18 and Galveston Ry. Co. v. Texas,"9

the problem whether the franchise "to be" could be taxed by a reference to gross earnings was not before the Court, because in the Meyer case a foreign corporation was the complainant, and in both cases the intangible property of the corporations had been taxed under other statutes. It is to be noted that the Crew Levick case left open the problem of franchise taxes when the Court said that the tax in question "bears no semblance of a property tax, or a franchise tax in the proper sense."20

Seemingly, therefore, the Court has no direct authority to sustain its assumption that a franchise tax, as such, cannot be measured by gross receipts in a situation where the going concern value of the plant is not reached in any other way. But accepting the Court's proposition, there is left the majority's basic ultimatum that every tax employing the measure of gross receipts, levied on corporations engaged in interstate commerce, must fail if it is not a property tax. While this declaration appears to place a definite restriction upon the taxing powers of the states, it must be noted that the limitation does not make the rule as clear-cut as it seems, for the reason that the Court reserves to itself the determination of what taxes are property taxes. Thus in its sterner moods it may refuse to look behind the terminology which the state has employed in characterizing its tax, and refuse to rename the assessment in order to hold it constitutional. At other times, the Court follows the dictum of Mr. Justice Holmes that "Neither the state courts nor the legislature, by giving the tax a particular name or by the use of some form of words, can take away our duty to consider its nature and effect,""' and may rechristen the tax and hold it constitutional.22 To some extent this is what the Court has done in a class

17 (1930) 280 U. S. 338, 350, 50 Sup. Ct. 111, 114. It is not clear whether Mr. Justice Holmes regards the tax as one on the franchise "to be" a domestic corporation, or as a tax on the special franchise "to use" the streets, or as both, but his greatest stress seems to be upon the privilege granted by the state to use the streets. Taxes on such special franchises as property taxes will be considered later.

18 (1912) 223 U. S. 298, 32 Sup. Ct. 218. 19 (1908) 210 U. S. 217, 28 Sup. Ct. 638. 20 (1917) 245 U. S. 292, 297, 38 Sup. Ct. 126, 128; and see Powell, Indirect

Encroachment on Federal Authority by the Taxing Powers of the States (1918) 31

HARV. L. REV. 932, 953. 21 Galveston Ry. Co. v. Texas (1908) 210 U. S. 217, 227, 28 Sup. Ct. 638, 640. 22Postal Telegraph Cable Co. v. Adams (1895) 155 U. S. 688, 15 Sup. Ct.

268 sustained a tax which the statute described as a privilege tax by holding that it was actually a property tax. In Western Union Tel. Co. v. Massachusetts (1888) 125 U. S. 530, 552, 8 Sup. Ct. 961, 965, the Court said: "The tax, although nominally upon the shares of the capital stock of the company, is in effect a tax upon that organization on account of property owned and used by it in the state of Massachusetts."



COMMENT 517

of cases where the tax levied has consistently been held by the Court to be good; that is, where the state lays a tax on the gross receipts of corporations engaged in interstate commerce, and declares such tax to be in lieu of all other taxes.23 Such assessments are treated by the Court as property taxes, and so any measure which would be acceptable in levying a property tax is valid when applied in lieu of a property tax. The theory upon which these taxes are sustained is brought out in Pullman Co. v. Richardson, when the Court says:

"In taxing property . . . a State may select ... any appropriate means of reaching its . . . value as part of a going concern,-such as treating the gross receipts from its use in both intrastate and interstate commerce as an index . . . of its value,--and if the means do not involve any discrimina- tion against interstate commerce, and the tax amounts to no more than what would be legitimate as an ordinary tax upon the property, valued with reference to its use, the tax is not open to attack as restraining or burdening that commerce."24

The Court thus relies upon a theory which has been consistently subscribed to by it since the cases culminating in Adams Express Co. v. Ohio State Auditor,25 namely, that the states may reach the receipts from interstate commerce through bona fide taxes on property, in situations where the businesses being taxed can be regarded as units. In making this position clear, Mr. Justice Brewer said in the Adams Ex- press case:

"The burden of the contention of the express companies is that they have within the limits of the State certain tangible property . . . ; that that tangible property is their only property within the State; that it must be valued as other like property, and upon such valuation alone can taxes be assessed and levied against them.

"But this contention practically ignores the existence of intangible property, or at least denies its liability for taxation . . . There is nothing ... in the limitations of the Federal Constitution which restrains a State from taxing at its real value such intangible property . . . To ignore this intangible property, or to hold that it is not subject to taxation at its ac- cepted value, is to eliminate from the reach of the taxing power a large portion of the wealth of the country. Now, whenever separate articles of tangible property are joined together, not simply by a unity of owner- ship, but in a unity of use, there is not infrequently developed a property, intangible though it may be, which in value exceeds the aggregate of the value of the separate pieces of tangible property. Upon what theory of substantial right can it be adjudged that the value of this intangible property must be excluded from the tax lists, and the only property placed thereon be the separate pieces of tangible property?"26

23 See United States Express Co. v. Minnesota (1912) 223 U. S. 335, 32 Sup. Ct. 211; Cudahy Packing Co. v. Minnesota (1918) 246 U. S. 450, 38 Sup. Ct. 373; Pullman Co. v. Richardson (1922) 261 U. S. 330, 43 Sup. Ct. 366.

24 (1922) 261 U. S. 330, 338, 43 Sup. Ct. 336, 368. 25 (1897) 166 U. S. 185, 17 Sup. Ct. 604. 26(1897) 166 U. S. 185, 218, 17 Sup. Ct. 604, 605.



518 I8 CALIFORNIA LAW REVIEW

Regardless, then, of one's point of view as to the wisdom of such a concept, since 1897 it has not been doubted that the states may tax property used in interstate commerce, and that in doing so, they are privileged to assess intangible as well as tangible property, and thus reach the going concern value of the plant. When to this fact is added the further observation that the Court is not always over-meticulous in its conclusions as to what constitutes a property tax, and so has sustained not only those which the states have properly designated as property taxes, but also those which are levied in lieu of such taxes and has even solicitously rewritten as property assessments, taxes which the state legislature has erroneously termed excises, the question arises as to the validity of the Court's holding in the New Jersey Bell Tel. case. Could not the Court, under its stated position that "literal adherence to particular nomenclature should not be allowed to control construction in arriving at the true intention and effect of state legislation,'27 and further fortified by the dictum that "A practical line can be drawn by taking the whole scheme of taxation into account,"28 have sustained the New Jersey tax as a property tax?

Had the Court done so, it would have given sanction to the proposition that a gross receipts tax is acceptable as a substitute for a tax on the intangible property of a concern doing both intrastate and interstate business, where all of the tangible property has been subjected to the usual ad valorem tax, but the gross receipts tax alone takes into account the value of the plant as a going concern. This position differs from the holdings in the typical property taxes which have been sustained by the Court, in that although the tax is measured by gross receipts, no ad valorem tax is laid upon any property, whether tangible or intangible, of the corporation.29 On the other hand, the typical tax which has met with the Court's disfavor has been a gross receipts tax which the Court has refused to regard as a property tax, because, in considering the state's whole plan of taxation, the effect would be to authorize and tolerate two property taxes, each of which takes into account the value of the plant as a going concern, and each of which, therefore, taxes the intangible property. This appears to have been the difficulty in both Meyer v. Wells, Fargo & Co.80 and Galveston Ry. Co. v. Texas.8' In the latter case, all of the property of the road had been

assessed, and the value of the plant as a going concern had been in- cluded in the assessment by considering the franchise of the company property for purposes of taxation. In addition to this, a gross receipts tax was levied, and this was held by the Court to be invalid as an

27 Postal Telegraph Cable Co. v. Adams (1895) 155 U. S. 688, 700, 15 Sup. Ct.

268, 271. 28 Galveston Ry. Co. v. Texas (1908) 210 U. S. 217, 227, 28 Sup. Ct. 638, 640. 29 See cases supra note 23. 30 (1912) 223 U. S. 298, 32 Sup. Ct. 218. 31 (1908) 210 U. S. 217, 28 Sup. Ct. 638.



COMMENT 519

attempt to place a direct burden on interstate commerce. But plainly this does not preclude a different holding in a situation where the first tax assessed only the tangible property of the railroad, without reference to its value as a going concern, and thus left the intangible property free from taxation as such unless an additional tax measured by gross receipts was sustained as such a tax. Consequently, although both the Meyer and the Galveston cases are cited by the Court in the New Jersey Bell Tel. case, they are certainly not direct authority for the proposition involved therein.

Since, therefore, all of the property, both tangible and intangible, may be taxed by the state, so long as two taxes are not levied upon the same property, the remaining problem is to determine what schemes for property assessment will appeal to the Court as legitimate methods for the taxation of property. Could the state, for instance, tax part of the tangible property at the usual ad valorem rates, leaving the remaining part to be used as the basis for a property tax which takes into account the value of the business as a going concern, the measure of that value being the gross receipts? The nearest approach to an answer to this problem is found in Maine v. Grand Trunk Ry. Co.,32 which, it is admitted, is probably dubious authority on which to attempt to sustain the proposition, although the case has never been overruled. As has been noted before, this case was reinterpreted by the Court in Galveston Ry. Co. v. Texas33 as involving a property rather than a franchise tax, Mr. Justice Holmes declaring for the Court:

"The estimated gross receipts per mile may be said to have been made a measure of the value of the property per mile. That the effort of the state was to reach that value, and not to fasten on the receipts from transportation as such, was shown by the fact that the scheme of the statute was to establish a system. The buildings of the railroad, and its land and fixtures outside of its right of way were to be taxed locally, as other property was taxed, and this excise with the local tax were to be in lieu of all taxes. The language shows that the local tax was not expected to include the additional value gained by the property being part of a going concern."33 As thus reinterpreted, the Maine v. Grank Trunk Ry. Co. tax

amounts to this: a levy of two property taxes by the state, one laid on all tangible property outside of the roadbed and rolling stock, to be assessed at the usual local rates, and the second, a further property tax, whereby the remainder of the tangible property was made the basis for a gross receipts tax, this tax being the sole levy to take into account the value of the plant as a going concern. The scheme of taxation taken as a whole, therefore, reached all the property of the com-

32 (1891) 142 U. S. 217, 12 Sup. Ct. 121. In Northwestern Mutual Life Insur- ance Co. v. Wisconsin (1918) 247 U. S. 132, 38 Sup. Ct. 444, the real estate of the complainant was taxed by an ad valorem assessment, but the personalty and the intangible property were taxed by a gross receipts levy. This tax was sustained.

33(1908) 210 U. S. 217, 226, 28 Sup. Ct. 638, 640.



520 iS CALIFORNIA LAW REVIEW

pany, both tangible and intangible, but no part of the property was taxed twice, and the Court ruled the method legitimate.

But the tax in the New Jersey Bell Tel. case goes one step beyond Maine v. Grand Trunk Ry. Co.; none of the tangible property is left unassessed to serve as a basis for reaching the going concern value of the plant. Rather, all of the tangible property was assessed at local rates, and the intangible property of the corporation, consisting of the franchise "to be," and the special franchise "to use" the streets, is used as the foundation for the levy reaching the going concern value of the business. The decision of the Court seems to suggest that this one step is fatal, and that the Court is unwilling to take the final step beyond Maine v. Grand Trunk Ry. Co., and to treat intangible property, alone and of itself, as within the meaning of property as sanc- tioned by the Court when it permits taxes on property to be measured by gross receipts. Thus, perhaps the concept of the Court may be said to fail at its logical conclusion; after a hard-fought battle at the close of the nineteenth century it established the amazing doctrine that a state may tax as property not only the tangible, but also the intangible property of corporations engaged in interstate commerce. In the decisions that followed, the Court not only sustained taxes where the entire property was levied on together, the value being assessed by a reference to gross receipts, but also permitted the exclusion from an ad valorem property tax of some portion of the tangible property, that portion to be assessed on the basis of the going concern value of the plant. But beyond that the Court has not gone. When the intangible property is removed from the magic company of the tangible, and each is taxed separately, although there is no double taxation, and the going concern value is reached but once, the New Jersey Bell Tel. case demonstrates that the fiction of intangible property as property capable of separate taxation will not be entertained.

And yet the franchise of a domestic corporation is taxable as property, when taxed as part of a plan laying a tax on all property,34 and the special franchise to use the streets has long been regarded as property, both by the federal courts and by state courts, including the state of New Jersey, whose tax was in dispute in the instant case.35 Mr.

84 The tax in Galveston Ry. Co. v. Texas (1908) 210 U. S. 217, 28 Sup. Ct. 638, illustrates this point. There the franchise had been declared property for purposes of taxation, and after its value was determined, the franchise was taxed under the state property tax on an ad valorem basis. It was apparently because the intangible property had already been taxed that the Court refused to sustain the additional gross receipts tax which was before the Court.

35 See Owensboro v. Cumberland Tel. and Tel. Co. (1913) 230 U. S. 58, 65, 33 Sup. Ct. 988, 990, where the Court said: "That an ordinance granting the

right to place and maintain upon the streets of a city poles and wires . . . is the

granting of a property right has been too many times decided by this court to need more than a reference to some of the later cases (citing Detroit v. Detroit Ry. Co. (1901) 184 U. S. 368, 22 Sup. Ct. 410; Louisville v. Cumberland Tel. and Tel. Co. (1912) 224 U. S. 649, 32 Sup. Ct. 572; Boise Water Co. v. Boise City



COMMENT 521

Justice Butler in his majority opinion criticizes the state's attempt to attribute the going concern value of the plant to one of its elements only, namely, the right to use the public streets, when he says:

"There has been called to our attention no precedent for the use of

gross earnings as a measure for the value of a single element of such a

plant."3' And yet Maine v. Grand Trunk Ry. Co.37 was before the Court, and was, in fact, relied upon by the Court in arriving at its decision. Too, the Court must have had in mind such cases as Pullman Co. v. Pennsylvania,38 where the going concern value of the corporation was attributed solely to the average number of cars within the state each year, and while the measure there was total capital stock rather than gross receipts, the Court expressed no objection to the artificial selection of but one item of the corporation's property as the property on which to ground the capital stock tax, a fact which suggests that the Court's major objection in the New Jersey Bell Tel. case was rather to the intangible property chosen to bear the tax, or the reference to gross receipts.

To those who regard a gross receipts tax as an objectionable and unfair measure in state taxation, the decision is no doubt welcome, but to others who realize the possibilities of evasion and the practical diffi- culties connected with a tax on net earnings, the question as to how large a check the decision places on the states' power to reach the gross receipts of corporations engaged in interstate commerce is important. The holding seems to warrant the conclusion that where the usual ad valorem tax is laid on the tangible property, an additional tax on gross receipts which alone takes into account the going concern value of the business will not be sustained as a property tax, but will be regarded as an unconstitutional attempt to burden interstate commerce. But it must be remembered that the Court approached the tax in a nominal- istic mood, and laid great stress on the fact that the state legislature and courts had referred to the tax as a franchise, and not a property tax. Consequently, the decision may leave undecided a situation where the state itself terms and regards the taxation separately of the tangi-

(1912) 230 U. S. 84, 33 Sup. Ct. 997). As a property right it was assignable, taxable and alienable." Even the New Jersey courts, whose tax was in dispute in the case under discussion, has declared in such decisions as State Board of Assessors v. Central Ry. Co. (1886) 48 N. J. L. 146, 4 Atl. 578, and Newark v. State Board of Taxation (1902) 67 N. J. L. 246, 51 Atl. 67, that the special franchise to use the streets is property.

It is this special franchise which Mr. Justice Holmes seems to have in mind in his minority opinion in the New Jersey Bell Telephone case. See supra note 17.

36 (1930) 280 U. S. 338, 349, 50 Sup. Ct. 111, 114. 37 (1908) 210 U. S. 217, 28 Sup. Ct. 638. There the value of the plant as a

going concern was all attributed to the roadbed and rolling stock, the rest of the property being assessed in the usual manner and subjected to an ad valorem tax.

38 (1891) 141 U. S. 18, 11 Sup. Ct. 876.



522 18 CALIFORNIA LAW REVIEW

ble and intangible property as one complete systemn of property taxation, in lieu of other taxes. But the stronger conclusion seems to be that New Jersey has used the wrong means of reaching receipts from which she can undoubtedly take toll under properly prepared laws, and that other states may be warned that while in legal theory both tangible and intangible property may be taxed as property and the tax measured by gross receipts, that when the intangible property is removed from the saving company of the tangible, and a gross receipts tax is laid upon the intangible property alone, that the concept of intangibles as property taxable as such fails,39 and the Court will regard the tax as an attempt on the part of the state to encroach upon the ground which was reserved to Congress somewhere within the as yet incompletely defined limits of the clause which reads "the Congress shall have power . . to regulate commerce . . .among the several States."40

Ruth Clouse.

39 See Powell, Indirect Encroachment on Federal Authority by the Taxing Powers of the State (1918) 31 HARV. L. REv. 321.

40 U. S. CONST. Art. 1, ?8, C1. 3.

QUASI-CONTRACTS: CONTRIBUTION BETWEEN JOINT TORT-FEASORS. - One of two or more joint, or joint and several debtors may, volun- tarily or by compulsion, pay the entire debt, or an amount greater than his share. His natural claim will be to have reimbursement from the co-obligors for the amount in excess of his just proportion of the joint obligation. He will request each of the others to contribute' the pro rata share of the debt for which each is liable. If we lay aside for the moment any element of wrongful conduct, this request seems unquestionably fair and just. In early times, the duty to share joint contract liability was only enforced in equity2 on general principles of justice; "that those who have assumed a common burden ought to bear it equally."3 Not until a comparatively late date was this right

1 Two distinctions should be noted at the outset: (1) The difference between (a) the right of the obligee to collect more from one of the joint obligors than from any other of the joint obligors, and (b) the right of contribution between the joint obligors after one has satisfied more than his share. (See Lord Watson in Palmer v. Wick and Pulteneytown Steam Shipping Co. [1894] A. C. 318, 326; Paddock-Hawley Iron Co. v. Rice (1903) 179 Mo. 480, 494, 78 S. W. 634, 638); (2) The difference between (a) contribution and (b) indemnity. ("indemnity if, as between themselves, the defendant in good conscience, and not the plaintiff, should have satisfied the [whole] claim; contribution if the defendant, as between himself and the plaintiff, should in good conscience have shared the burden with the plaintiff." KEENER, QUASI-CONTRACTS (1893) 408).

22 WILLISTON, CONTRACTS (1920) ?1277; Wormleighton and Hunter's Case (1604) Godbolt 243; Fleetwood v. Charnock (1626) Nelson 10; 1 PARSONS, CON- TRACTS (Williston's 8th ed. 1893) *33, note (d).

3 1 PARSONS, Op. cit. supra note 2, at *33, note (d).



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