Corporate Privilege Taxes

Corporate Privilege Taxes.—A domestic corporation may be subjected to a privilege tax graduated according to paid-up capital stock, even though the stock represents capital not subject to the taxing power of the State, since the tax is levied not on property but on the privilege of doing business in corporate form.463 However, a State cannot tax property beyond its borders under the guise of taxing the privilege of doing an intrastate business. Therefore, a license tax based on the authorized capital stock of an out-of-state corporation is void,464 even though there is a maximum fee,465 unless the tax is apportioned based on property interests in the taxing state.466 On the other hand, a fee collected only once as the price of admission to do intrastate business is distinguishable from a tax and accordingly may be levied on an out-of-state corporation based on the amount of its authorized capital stock.467

463 Kansas City Ry. v. Kansas, 240 U.S. 227 (1916); Kansas City, M. & B.R.R. v. Stiles, 242 U.S. 111 (1916). Similarly, the validity of a franchise tax, imposed on a domestic corporation engaged in foreign maritime commerce and assessed upon a proportion of the total franchise value equal to the ratio of local business done to total business, is not impaired by the fact that the total value of the franchise was enhanced by property and operations carried on beyond the limits of the State. Schwab v. Richardson, 263 U.S. 88 (1923).

464 Western Union Tel. Co. v. Kansas, 216 U.S. 1 (1910); Pullman Co. v. Kansas, 216 U.S. 56 (1910); Looney v. Crane Co., 245 U.S. 178 (1917); International Paper Co. v. Massachusetts, 246 U.S. 135 (1918).

A municipal license tax imposed on a foreign corporation for goods sold within and without the State, but manufactured in the city, is not a tax on business transactions or property outside the city and therefore does not violate the due process clause.468 But a State lacks jurisdiction to extend its privilege tax to the gross receipts of a foreign contracting corporation for fabricating equipment outside the taxing State, even if the equipment is later installed in the taxing State. Unless the activities which are the subject of the tax are carried on within its territorial limits, a State is not competent to impose such a privilege tax.469

465 Cudahy Co. v. Hinkle, 278 U.S. 460 (1929).

466 An example of such an apportioned tax is a franchise tax based on such proportion of outstanding capital stock as is represented by property owned and used in business transacted in the taxing State. St. Louis S. W. Ry. v. Arkansas, 235 U.S. 350 (1914).

467 Atlantic Refining Co. v. Virginia, 302 U.S. 22 (1937).

468 American Mfg. Co. v. St. Louis, 250 U.S. 459 (1919). Nor does a state license tax on the production of electricity violate the due process clause because it may be necessary, to ascertain, as an element in its computation, the amounts delivered in another jurisdiction. Utah Power & Light Co. v. Pfost, 286 U.S. 165 (1932). A tax on chain stores, at a rate per store determined by the number of stores both within and without the State is not unconstitutional as a tax in part upon things beyond the jurisdiction of the State.

469 James v. Dravo Contracting Co., 302 U.S. 134 (1937).

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