Harlan F. Stone

“ As it operates to measure the tax on the corporate franchise by the entire net income of the corporation, without any discrimination between income which is exempt and that which is not, there is no infringement of any constitutional immunity. ”

“ The term 'net income,' as herein used, means the gross income less the deductions allowed.' (No deduction, however, is allowed for interest received from federal, state, municipal or other tax-exempt bonds.) The foregoing is so plain that comment or elucidation would seem unnecessary. The bare recital of the facts, in our opinion, shows how unreasonable it is to hold that the aim and purpose of the legislation was not, by indirection, to impose a tax upon income derived from tax-exempt securities which, constitutionally, could not be imposed directly. ”

“ Under the laws of Wisconsin the income from the United States bonds may not be the only item exempted from the income tax on corporations, but it certainly is the most conspicuous instance of exemption at the present time. ”

“ The state of California had previously imposed a tax on shareholders in banks, based on their proportionate share of the undivided profits, capital, and surplus. Corporations other than banks, public utility, and insurance companies were taxed on the basis of their 'corporate excess,' in the computation of which non-taxable bonds were not included. In 1927 the California Legislature (St. 1927, p. 781) created a commission to prepare a scheme of taxation which would secure the requisite equality. ”

“ If, as appellant argues, the exemption from taxation of the bonds is contractual and extends to the income derived from them, the question still remains whether the immunity is broad enough to secure freedom from taxation of a corporate franchise, to the extent that it is measured by tax exempt income. ”

“ Thus the legislative abandonment of a policy which had previously discriminated in favor of tax exempt securities was treated as a discrimination against them, and the tax, although in fact nondiscriminatory, was condemned as analogous to the discriminatory tax held invalid in the Miller Case. ”

“ A taxing statute, like others, must be read as a whole, as it stands on the statute books at its applicable date, and the legislative purpose in enacting it must be taken, regardless of forms of words, to envisage the obvious consequences which flow from its operation. ”

“ It is important for the states and their municipalities to obtain revenue; but, in doing so, it is also important that they shall not dishonor their promises. The moral duty of a state to keep its word, in spirit as well as in letter, is no less than that of an individual; and courts which condemn direct impairment by legislation of contractual obligations should not be over-ready to approve the adoption of circuitous and delusive means, which in form avoid but in fact accomplish the same unconstitutional result.
Notes
↑ The California Bank and Corporation Franchise Tax Act, Cal. ”

“ The adoption of the taxing act, as recommended by the commission, may therefore be taken, as appellant contends, to evidence a definite and specific legislative purpose to levy a new type of franchise tax, measured by corporate net income, including the tax exempt income from federal and state bonds. ”

“ State taxes which, if nondiscriminatory, would be upheld, even though they reach or affect those engaged in interstate commerce, are condemned if they discriminate against those so engaged, by placing on them heavier burdens than those imposed on others within the state. ”

“ These municipal securities were issued and acquired prior to the passage of the act, and when so issued and acquired were exempt from all forms of taxation by the express terms of a state statute. The situation in that respect is the same here, except that the exemption from taxation was made by the state Constitution instead of by statute. There, as here, the constitutionality of the act was challenged under the Federal Constitution as impairing the obligation of contracts. ”