U.S. Supreme Court
New York v. United States,326U.S. 572 (1946)New York v. UnitedStatesNo. 5Argued December 7, 8,1944Reargued December 4,1945Decided January 14,1946326U.S. 572CERTIORARI TO THE CIRCUIT COURT OFAPPEALSFOR THE SECONDCIRCUITSyllabusThe State of New York, in the sale of mineral waters taken fromSaratoga Springs, owned and operated by the State, is not immuneunder the Federal Constitution from the tax imposed on mineralwaters by § 615 of the Revenue Act of 1932. Pp.
326 U. S.573-574,
326 U. S.584.140 F.2d 608 affirmed.Certiorari, 322 U.S. 724, to review the affirmance of a judgmentfor the United States, 48 F. Supp. 15, in a suit to recover taxesassessed against the State on the sale of mineral water.
Page 326 U. S. 573MR. JUSTICE FRANKFURTER announced the judgment of the Court anddelivered an opinion in which MR. JUSTICE RUTLEDGE joined.Section 615(a)(5) of the 1932 Revenue Act, 47 Stat. 169, 264,imposed a tax on mineral waters. [
Footnote 1] The United States brought this suit to recovertaxes assessed against the New York on the sale of mineral waterstaken
Page 326 U. S. 574from Saratoga Springs, New York. [
Footnote 2] The State claims immunity from this tax on theground that,"in the bottling and sale of the said waters, the defendantState of New York was engaged in the exercise of a usual,traditional, and essential governmental function."The claim was rejected by the District Court, and judgment wentfor the United States. 48 F. Supp. 15. The judgment was affirmed bythe Circuit Court of Appeals for the Second Circuit. 140 F.2d 608.The strong urging of New York for further clarification of theamenability of States to the taxing power of the United States ledus to grant certiorari. 322 U.S. 724. After the case was argued atthe 1944 Term, reargument was ordered.On the basis of authority, the case is quickly disposed of. WhenStates sought to control the liquor traffic by going into theliquor business, they were denied immunity from federal taxes uponthe liquor business.
SouthCarolinaPage 326 U. S. 575v. United States,199 U. S. 437;
Ohio v. Helvering,292 U. S. 360.And, in rejecting a claim of immunity from federal taxation whenMassachusetts took over the street railways of Boston, this Court,a decade ago, said: "We see no reason for putting the operation ofa street railway [by a State] in a different category from the saleof liquors."
Helvering v. Powers,293 U.S. 214,
293 U. S. 227.We certainly see no reason for putting soft drinks in a differentconstitutional category from hard drinks.
See also Allen v.Regents,304 U. S. 439.One of the greatest sources of strength of our law is that itadjudicates concrete cases, and does not pronounce principles inthe abstract. But there comes a time when even the process ofempiric adjudication calls for a more rational disposition thanthat the immediate case is not different from preceding cases. Theargument pressed by New York and the forty-five other States who,as
amici curiae, have joined her deserves an answer.Enactments levying taxes made in pursuance of the Constitutionare, as other laws are, "the supreme Law of the Land." Art. VI,Constitution of the United States;
Flint v. Stone TracyCo.,220 U. S. 107, 108[argument of counsel, omitted},
220 U. S. 153.The first of the powers conferred upon Congress is the power "Tolay and collect Taxes, Duties, Imposts and Excises. . . ." Art. I,§ 8. By its terms, the Constitution has placed only one limitationupon this power, other than limitations upon methods of layingtaxes not here relevant: Congress can lay no tax "on Articlesexported from any State." Art. I, § 9. Barring only exports, thepower of Congress to tax "reaches every subject."
LicenseTax Cases, 5 Wall. 462,
72 U. S. 471.But the fact that ours is a federal constitutional system, asexpressly recognized in the Tenth Amendment, carries with itimplications regarding the taxing power as in other aspects ofgovernment.
See, e.g., Hopkins Federal Savings Assn. v.Cleary,296 U. S. 315.Thus, for Congress to tax State activities while leaving
Page 326 U. S. 576untaxed the same activities pursued by private persons would doviolence to the presuppositions derived from the fact that we are aNation composed of States.But the fear that one government may cripple or obstruct theoperations of the other early led to the assumption that there wasa reciprocal immunity of the instrumentalities of each fromtaxation by the other. It was assumed that there was an equivalencein the implications of taxation by a the governmental activities ofthe National Government and the taxation by the National Governmentof State instrumentalities. This assumed equivalence was nourishedby the phrase of Chief Justice Marshall that "the power to taxinvolves the power to destroy."
McCullochv. Maryland, 4 Wheat. 316,
17 U. S. 431.To be sure, it was uttered in connection with a tax of Marylandwhich plainly discriminated against the use by the United States ofthe Bank of the United States as one of its instruments. What hesaid may not have been irrelevant in its setting . But ChiefJustice Marshall spoke at a time when social complexities did notso clearly reveal as now the practical limitations of a rhetoricalabsolute.
See Holmes, J., in
Long v. Rockwood,277 U. S. 142,
277 U. S. 148,and in
Panhandle Oil Co. v. Mississippi,277 U.S. 218,
277 U. S. 223.The phrase was seized upon as the basis of a broad doctrine ofintergovernmental immunity, while at the same time an expansivescope was given to what were deemed to be "instrumentalities of thegovernment" for purposes of tax immunity. As a result, immunitywas, until recently, accorded to all officers of one governmentfrom taxation by the other, and it was further assumed that theeconomic burden of a tax on any interest derived from a governmentimposes a burden on that government so as to involve aninterference by the taxing government with the functioning of theother government.
See Metcalf & Eddy v. Mitchell,269 U. S. 514;
Helvering v. Mountain Producers Corp.,303 U.S. 376;
Graves v. New York ex rel. O'Keefe,306 U. S. 466,
306 U. S.480-481.
Page 326 U. S. 577To press a juristic principle designed for the practical affairsof government to abstract extremes is neither sound logic nor goodsense. And this Court is under no duty to make law less than soundlogic and good sense. When this Court, for the first time, relievedStates officers from a nondiscriminatory Congressional tax, notbecause of anything said in the Constitution, but because of thesupposed implications of our federal system, Mr. Justice Bradleypointed out the invalidity of the notion of reciprocalintergovernmental immunity. The considerations bearing upontaxation by the States of activities or agencies of the federalgovernment are not correlative with the considerations bearing uponfederal taxation of State agencies or activities. The federalgovernment is the government of all the States, and all the Statesshare in the legislative process by which a tax of generalapplicability is laid. "The taxation by the State governments ofthe instruments employed by the general government in the exerciseof its powers," said Mr. Justice Bradley,"is a very different thing. Such taxation involves aninterference with the powers of a government in which other Statesand their citizens are equally interested with the State whichimposes the taxation. [
Footnote3]"Since then, we have moved
Page 326 U. S. 578away from the theoretical assumption that the NationalGovernment is burdened if its functionaries, like other citizens,pay for the upkeep of their State governments, and we have deniedthe implied constitutional immunity of federal officials from Statetaxes.
Graves v. New York ex rel. O'Keefe, supra.SeeGillespie v. Oklahoma,257 U. S. 501,criticized in
Burnet v. Coronado Oil & Gas Co.,285 U. S. 393,
285 U. S. 401,and explicitly overruled in
Helvering v. Mountain ProducersCorp.,303 U. S. 376;
Long v. Lockwood,277 U. S. 142,
overruled in Fox Film Corp. v. Doyal,286 U.S. 123;
Collector v.Day, 11 Wall. 113, and
New York ex rel. Rogersv. Graves,299 U. S. 401,
overruled in Graves v. New York ex rel. O'Keefe,supra.In the meantime, cases came here, as we have already noted, inwhich States claimed immunity from a federal
Page 326 U. S. 579tax imposed generally on enterprises in which the State itselfwas also engaged. This problem did not arise before the presentcentury, partly because State trading did not actively emerge untilrelatively recently, and partly because of the narrow scope offederal taxation. In
South Carolina v. United States,199 U. S. 437,immunity from a federal tax on a dispensary system whereby SouthCarolina monopolized the sale of intoxicating liquors was denied bydrawing a line between taxation of the historically recognizedgovernmental functions of a State and business engaged in by aState of a kind which theretofore had been pursued by privateenterprise. The power of the federal government thus to tax aliquor business conducted by the State was derived from an appealto the Constitution "in the light of conditions surrounding at thetime of its adoption."
South Carolina v. United States,supra, at
199 U. S. 457.That there is a Constitutional line between the State as governmentand the State as trader was still more recently made the basis of adecision sustaining a liquor tax against Ohio."If a state chooses to go into the business of buying andselling commodities, its right to do so may be conceded so far asthe Federal Constitution is concerned, but the exercise of theright is not the performance of a governmental function. . . . Whena state enters the marketplace seeking customers, it divests itselfof its
quasi-sovereignty
pro tanto, and takes onthe character of a trader, so far, at least, as the taxing power ofthe federal government is concerned."
Ohio v. Helvering, supra, at
292 U. S. 369.When the Ohio case was decided, it was too late in the day not torecognize the vast extension of the sphere of government, bothState and national, compared with that with which the Fathers werefamiliar. It could hardly remain a satisfactory constitutionaldoctrine that only such State activities are immune from federaltaxation as were engaged in by the States in 1787. Such a staticconcept of government denies its essential nature."The science of government is the most abstruse
Page 326 U. S. 580of all sciences, if, indeed, that can be called a science, whichhas but few fixed principles and practically consists in littlemore than the exercise of a sound discretion, applied to theexigencies of the state as they arise. It is the science ofexperiment."
Anderson v.Dunn, 6 Wheat. 204,
19 U. S.226.When this Court came to sustain the federal taxing power upon atransportation system operated by a State, it did so in waysfamiliar in developing the law from precedent to precedent. Itedged away from reliance on a sharp distinction between the"governmental" and the "trading" activities of a State, by denyingimmunity from federal taxation to a State when it"is undertaking a business enterprise of a sort that is normallywithin the reach of the federal taxing power and is distinct fromthe usual governmental functions that are immune from federaltaxation in order to safeguard the necessary independence of thestate."
Helvering v. Powers, supra, at
293 U. S. 227.But this likewise does not furnish a satisfactory guide for dealingwith such a practical problem as the constitutional power of theUnited States over State activities. To rest the federal taxingpower on what is "normally" conducted by private enterprise incontradiction to the "usual" governmental functions is too shiftinga basis for determining constitutional power, and too entangled inexpediency to serve as a dependable legal criterion. The essentialnature of the problem cannot be hidden by an attempt to separatemanifestations of indivisible governmental powers.
SeeWambaugh, Present Scope of Government (1897) 20 A.B.A.Rep. 307;Frankfurter, The Public and its Government (1930).The present case illustrates the sterility of such an attempt.[
Footnote 4] New York urgesthat, in the use it is making of
Page 326 U. S. 581Saratoga Springs, it is engaged in the disposition of itsnatural resources. And so it is. But, in doing so, it is engaged inan enterprise in which the State sells mineral waters incompetition with private waters the sale of which Congress hasfound necessary to tap as a source of revenue for carrying on theNational Government. To say that the States cannot be taxed forenterprises generally pursued, like the sale of mineral water,because it is somewhat connected with a State's conservation policyis to invoke an irrelevance to the federal taxing power. Liquorcontrol by a State certainly concerns the most important of aState's natural resources -- the health and wellbeing of itspeople.
See Mugler v. Kansas,123 U.S. 623,
123 U. S. 662;
Crane v. Campbell,245 U. S. 304,
245 U. S. 307.If, in its wisdom, a State engages in the liquor business and maybe taxed by Congress as others engaged in the liquor business aretaxed, so also Congress may tax the States when they go into thebusiness of bottling water as others in the mineral water businessare taxed, even though a State's sale of its mineral waters hasrelation to its conservation policy.In the older cases, the emphasis was on immunity from taxation.The whole tendency of recent cases reveals a shift in emphasis tothat of limitation upon immunity. They also indicate an awarenessof the limited role of courts in assessing the relative weight ofthe factors upon which immunity is based. Any implied limitationupon the supremacy of the federal power to levy a tax like that nowbefore us, in the absence of discrimination against Stateactivities, brings fiscal and political factors into play. Theproblem cannot escape issues that do not lend themselves tojudgment by criteria and methods of reasoning that are within theprofessional training and special competence of judges. Indeed, theclaim of implied immunity by States from federal taxation raisesquestions not wholly unlike provisions of the Constitution, suchas
Page 326 U. S. 582that of Art. IV, § 4, guaranteeing States a republican form ofgovernment,
see Pacific States Tel. & Tel. Co. v.Oregon,223 U. S. 118,which this Court has deemed not within its duty to adjudicate.We have already held that, by engaging in the railroad business,a State cannot withdraw the railroad from the power of the federalgovernment to regulate commerce.
United States v.California,297 U. S. 175.
See also University of Illinois v. United States,289 U. S. 48.Surely the power of Congress to lay taxes has impliedly no less areach than the power of Congress to regulate commerce. There are,of course, State activities and State-owned property that partakeof uniqueness from the point of view of intergovernmentalrelations. These inherently constitute a class by themselves. Onlya State can own a Statehouse; only a State can get income bytaxing. These could not be included for purposes of federaltaxation in any abstract category of taxpayers without taxing theState as a State. But, so long as Congress generally taps a sourceof revenue by whomsoever earned and not uniquely capable of beingearned only by a State, the Constitution of the United States doesnot forbid it merely because its incidence falls also on a State.If Congress desires, it may, of course, leave untaxed enterprisespursued by States for the public good while it taxes likeenterprises organized for private ends.
Cf. Springfield Gas Co.v. Springfield,257 U. S. 66;
University of Illinois v. United States, supra, at
289 U. S. 57;
Puget Sound Co. v. Seattle,291 U.S. 619. If Congress makes no such differentiation, and,as in this case, taxes all vendors of mineral water alike, whetherState vendors or private vendors, it simply says, in effect, to aState:"You may carry out your own notions of social policy in engagingin what is called business, but you must pay your share in having anation which enables you to pursue your policy."After all, the representatives of all the States, having, as theappearance
Page 326 U. S. 583of the Attorneys General of forty-six States at the bar of thisCourt shows, common interests, alone can pass such a taxingmeasure, and they alone, in their wisdom, can grant or withholdimmunity from federal taxation of such State activities.The process of Constitutional adjudication does not thrive onconjuring up horrible possibilities that never happen in the realworld and devising doctrines sufficiently comprehensive in detailto cover the remotest contingency. Nor need we go beyond what isrequired for a reasoned disposition of the kind of controversy nowbefore the Court. The restriction upon States not to make laws thatdiscriminate against interstate commerce is a vital constitutionalprinciple, even though "discrimination" is not a code of specifies,but a continuous process of application. So we decide enough whenwe reject limitations upon the taxing power of Congress derivedfrom such untenable criteria as "proprietary" against"governmental" activities of the States, or historically sanctionedactivities of Government or activities conducted merely for profit,[
Footnote 5] and find
Page 326 U. S. 584no restriction upon Congress to include the States in levying atax exacted equally from private persons upon the same subjectmatter.
Judgment affirmed.MR. JUSTICE JACKSON took no part in the consideration ordecision of this case.[
Footnote 1]"Sec. 615. Tax on Soft Drinks.""(a) There is hereby imposed -- . . .""
* * * *""(5) Upon all natural or artificial mineral waters or tablewaters, whether carbonated or not, and all imitations thereof, soldby the producer, bottler, or importer thereof, in bottles or otherclosed containers at over 12 1/2 cents per gallon, a tax of 2 centsper gallon."[
Footnote 2]The history of New York's relations to the springs at Saratogamay be briefly summarized. Under previous private operation, theflow of the springs had been substantially diminished by excessivepumping. In 1911, the New York began to acquire title to all thelands on which the mineral springs were located at SaratogaSprings. In order to conserve the springs for beneficial operation,the State took various measures until, in 1930, control over thesprings in the State Reservation was given to the newly createdSaratoga Springs Commission. In 1933, the Commission leased thesprings' facilities, and delegated their management to the SaratogaSprings Authority, a public benefit corporation of New York.During the years 1932 to 1934 for which the tax is asserted, theCommission and the Authority operated the Reservation as a healthresort and spa. There are recreation facilities, bath houses, drinkhalls, a research laboratory, and other buildings on the grounds.Some of the mineral waters of the springs that have a medicinalvalue are bottled and sold to distributors, retailers, and directlyto consumers. The sales are promoted by advertising, andcustomarily yield a profit which is applied to meeting in part theexpenses of operating the other facilities. The remainder of thoseexpenses is met by annual legislative appropriations.[
Footnote 3]The views of Mr. Justice Bradley have been so vindicated by timeand experience that his whole compact opinion deserves to berecalled:"I dissent from the opinion of the court in this case because itseems to me that the general government has the same power oftaxing the income of officers of the State governments as it has oftaxing that of its own officers. It is the common government of allalike, and every citizen is presumed to trust his own government inthe matter of taxation. No man ceases to be a citizen of the UnitedStates by being an officer under the State government. I cannotaccede to the doctrine that the general government is to beregarded as in any sense foreign or antagonistic to the Stategovernments, their officers, or people; nor can I agree that apresumption can be admitted that the general government will act ina manner hostile to the existence or functions of the Stategovernments, which are constituent parts of the system or bodypolitic forming the basis on which the general government isfounded. The taxation by the State governments of the instrumentsemployed by the general government in the exercise of its powers isa very different thing. Such taxation involves an interference withthe powers of a government in which other States and their citizensare equally interested with the State which imposes the taxation.In my judgment, the limitation of the power of taxation in thegeneral government which the present decision establishes will befound very difficult of control. Where are we to stop inenumerating the functions of the State governments which will beinterfered wit by Federal taxation? If a State incorporates arailroad to carry out its purposes of internal improvement, or abank to aid its financial arrangements, reserving, perhaps, apercentage on the stock or profits, for the supply of its owntreasury, will the bonds or stock of such an institution be freefrom Federal taxation? How can we now tell what the effect of thisdecision will be? I cannot but regard it as founded on a fallacy,and that it will lead to mischievous consequences. I am as muchopposed as anyone can be to any interference by the generalgovernment with the just powers of the State governments. But noconcession of any of the just powers of the general government caneasily be recalled. I therefore consider it my duty to at leastrecord my dissent when such concession appears to be made. Anextended discussion of the subject would answer no usefulpurpose."
Collector v.Day, 11 Wall. 113,
78 U. S.128-129.[
Footnote 4]This method of solving a problem inherent in a federalconstitutional system has been found equally inconclusive in LatinAmerica.
See Amadeo, Argentine Constitutional Law (1943)97-103.[
Footnote 5]Attempts along similar lines to solve kindred problems arisingunder the Canadian and Australian Constitutions have also proved abarren process.
See Australia Constitution Act, 1900, §114, in Edgerton, Federations and Unions in the British Empire (2ded., 1924) 225; Pond, Intergovernmental Immunity: A ComparativeStudy of the Federal System (1941) 26 Iowa L.Rev. 272; Kennedy& Wells, The Law of the Taxing Power in Canada (1931)35-37.Even where the Constitution of a federal system explicitly dealswith the problem of intergovernmental taxation, as in Brazil,litigation is not escaped, and nice distinctions have to be made.
See cases arising under Article 10 of the Constitution of1891 and under Article 32 of the Constitution of 1937: Appelacaocivel, No. 2.884, 13 Rivesta do Supremo Tribunal 203 (1917);Appelacao civel, No. 2.900, 14 Rivesta do Supreme Tribunal 44(1918); Appelacao civel, No. 536, 19 Revista do Suprema Tribunal 76(1919); Recuso de mandado de seguranca No. 617, 56 ArchivoJudiciario 3 (1940); Agravo de peticao, No. 8.024, 59 ArchivoJudiciario 85 (1941). Article 32 of the Constitution of 1937, thepresent Brazilian Constitution, provides: "The Union, the States,and the Municipalities are forbidden: . . . (
c) to taxgoods, income, or services of each other." Speaking of the earlierConstitution, a commentator notes:"These limitations on the federal taxing power are all takenfrom our own jurisprudence, either by direct transcription from theConstitution of the United States or by the incorporation ofprinciples laid down in decisions of our [the United States]Supreme Court, as is the case with the last named prohibition"-- "the prohibition against taxing property, revenues, orservices of the States." James, Federal Basis of the BrazilianSystem (1923) 45.MR. JUSTICE RUTLEDGE, concurring.I join in the opinion of MR. JUSTICE FRANKFURTER and in theresult. I have no doubt upon the question of power. The shift fromimmunity to taxability has gone too far, and with too much reasonto sustain it, as respects both state functionaries and statefunctions, for backtracking to doctrines founded in philosophies ofsovereignty more current and perhaps more realistic in an earlierday. Too much is or may be at stake for the nation to permitrelieving the states of their duty to support it, financially asotherwise, when they take over increasingly the things men havebeen accustomed to carry on as private, and therefore taxable,enterprise. Competitive considerations unite with the necessity forsecuring the federal revenue, in a time when the federal burdengrows heavier proportionately than that of the states, to forbidthat they be free to undermine, rather than obligated to sustain,the nation's financial requirements.All agree that not all of the former immunity is gone. For thepresent, I assent to the limitation against discrimination, which Itake to mean that state functions
Page 326 U. S. 585may not be singled out for taxation when others performing themare not taxed or for special burdens when they are. What wouldhappen if the state should take over a monopoly of traditionallyprivate income-producing business may be left for the future,insofar as this has not been settled by
South Carolina v.United States,199 U. S. 437.Perhaps there are other limitations also, apart from the practicalone imposed by the state's representation in Congress. If the waywere open, I would add a further restricting factor, not ofconstitutional import, but of construction.With the passing of the former broad immunity, I should thinktwo considerations well might be taken to require that, before afederal tax can be applied to activities carried on directly by thestates, the intention of Congress to tax them should be statedexpressly, and not drawn merely from general wording of the statuteapplicable ordinarily to private sources of revenue. One of theseis simply a reflection of the old immunity, in the presence ofwhich, of course, it would be inconceivable that general wording,such as the statute now in question contains, could be taken asintended to apply to the states. [
Footnote 2/1] The other is that, quite apart fromreflections of that immunity, I should expect that Congress wouldsay so explicitly, were its purpose actually to include statefunctions, where the legal incidence of the tax falls upon thestate. [
Footnote 2/2] And theconcurring opinion of Mr. Justice Bradley in
UnitedStates v. Baltimore & Ohio R. Co., 17 Wall.322,
84 U. S. 333,indicates that he may have been of this general view.
Page 326 U. S. 586Nevertheless, since
South Carolina v. United States,supra, such a rule of construction seems not to have beenthought required. [
Footnote 2/3]Accordingly, although I gravely doubt that, when Congress taxedevery "person," it intended also to tax every state, the ruling hasbeen made, [
Footnote 2/4] and Itherefore acquiesce in this case.[
Footnote 2/1]To give removal of the immunity the effect of inverting theintention of Congress, in its later use of the same formula, is aleap in construction longer than seems reasonable to make.[
Footnote 2/2]
Cf. 26 U.S.C. § 22(a), where Congress has specificallyprovided that compensation for personal service, includible ingross income, includes compensation for personal service as anofficer or employee of a state, or any political subdivisionthereof, or any agency or instrumentality of any one or more of theforegoing.[
Footnote 2/3]
University of Illinois v. United States,289 U. S.48;
Ohio v. Helvering,292 U.S. 360.
See Manhattan Co. v. Blake,148 U. S. 412. In
Graves v. New York ex rel. O'Keefe,306 U.S. 466,
306 U. S. 479,the Court said, in another connection:"It is true that the silence of Congress, when it has authorityto speak, may sometimes give rise to an implication as to theCongressional purpose. . . . But there is little scope for theapplication of that doctrine to the tax immunity of governmentalinstrumentalities."[
Footnote 2/4]
See Ohio v. Helvering, supra.MR. CHIEF JUSTICE STONE concurring.MR. JUSTICE REED, MR. JUSTICE MURPHY, MR. JUSTICE BURTON and Iconcur in the result. We are of the opinion that the tax hereinvolved should be sustained, and the judgment below affirmed.In view of our decisions in
South Carolina v. UnitedStates,199 U. S. 437,
Ohio v. Helvering,292 U. S. 360,
Helvering v. Powers,293 U. S. 214, and
Allen v. Regents,304 U. S. 439, wewould find it difficult not to sustain the tax in this case, eventhough we regard as untenable the distinction between"governmental" and "proprietary" interests on which those casesrest to some extent. But we are not prepared to say that thenational government may constitutionally lay a nondiscriminatorytax on every class of property and activities of States andindividuals alike.Concededly a federal tax discriminating against a State would bean unconstitutional exertion of power over a coexisting sovereigntywithin the same framework of government. But our difficulty withthe formula, now first suggested as offering a new solution for anold problem,
Page 326 U. S. 587is that a federal tax which is not discriminatory as to thesubject matter may nevertheless so affect the State, merely becauseit is a State that is being taxed, as to interfere unduly with theState's performance of its sovereign functions of government. Thecounterpart of such undue interference has been recognized sinceMarshall's day as the implied immunity of each of the dualsovereignties of our constitutional system from taxation by theother.
McCulloch v.Maryland, 4 Wheat. 316. We add nothing to thisformula by saying, in a new form of words, that a tax whichCongress applies generally to the property and activities ofprivate citizens may not be in some instances constitutionallyextended to the States merely because the States are included amongthose who pay taxes on a like subject of taxation.If the phrase "nondiscriminatory tax" is to be taken in its longaccepted meaning as referring to a tax laid on a like subjectmatter, without regard to the personality of the taxpayer, whethera State, a corporation or a private individual, it is plain thatthere may be nondiscriminatory taxes which, when laid on a State,would nevertheless impair the sovereign status of the State quiteas much as a like tax imposed by a State on property or activitiesof the national government.
Mayo v. United States,319 U. S. 441,
319 U. S.447-448. This is not because the tax can be regarded asdiscriminatory, but because a sovereign government is the taxpayer,and the tax, even though nondiscriminatory, may be regarded asinfringing its sovereignty.A State may, like a private individual, own real property andreceive income. But, in view of our former decisions, we couldhardly say that a general nondiscriminatory real estate tax(apportioned), or an income tax laid upon citizens and Statesalike, could be constitutionally applied to the State's capitol,its State-house, its public school houses, public parks, or itsrevenues from taxes or
Page 326 U. S. 588school lands, even though all real property and all income ofthe citizen is taxed. If it be said that private citizens do notown State-houses or public school buildings or receive taxrevenues, it may equally be said that private citizens do notconduct a State-owned liquor business or derive revenue from aState-owned athletic field. Obviously Congress, in taxing propertyor income generally, is not taxing a State "as a State" because theState happens to own real estate or receive income. Whether a Stateor an individual is taxed, in each instance, the taxable occasionis the same. The tax reaches the State because of the Congressionalpurpose to lay the tax on the subject matter chosen, regardless ofwho pays it. To say that the tax fails because the State happens tobe the taxpayer is only to say that the State, to some extentundefined, is constitutionally immune from federal taxation. Onlywhen and because the subject of taxation is State property or aState activity must we consider whether such a nondiscriminatorytax unduly interferes with the performance of the State's functionsof government. If it does, then the fact that the tax isnondiscriminatory does not save it. If we are to treat as invalid,because discriminatory, a tax on "State activities and State-ownedproperty that partake of uniqueness from the point of view ofintergovernmental relations," it is plain that the invalidity isdue wholly to the fact that it is a State which is being taxed soas unduly to infringe, in some manner, the performance of itsfunctions as a government which the Constitution recognizes assovereign.It is enough for present purposes that the immunity of the Statefrom federal taxation would, in this case, accomplish a withdrawalfrom the taxing power of the nation a subject of taxation of anature which has been traditionally within that power from thebeginning. Its exercise now, by a nondiscriminatory tax, does notcurtail the business of the state government more than it doesthe
Page 326 U. S. 589like business of the citizen. It gives merely an accustomed andreasonable scope to the federal taxing power. Such a withdrawalfrom a nondiscriminatory federal tax, and one which does not bearon the State any differently than on the citizen, is itself animpairment of the taxing power of the national government, and theactivity taxed is such that its taxation does not unduly impair theState's functions of government. The nature of the tax immunityrequires that it be so construed as to allow to each governmentreasonable scope for its taxing power,
Metcalf & Eddy v.Mitchell,269 U. S. 514,
269 U. S. 524.The national taxing power would be unduly curtailed if the State,by extending its activities, could withdraw from it subjects oftaxation traditionally within it.
Helvering v. Powers,supra,293 U. S. 225;
Ohio v. Helvering, supra; South Carolina v. United States,supra, and see Murray v. Wilson Distilling Co.,213 U.S. 151,
213 U. S. 173,explaining
South Carolina v. United States, supra.The problem is not one to be solved by a formula, but we maylook to the structure of the Constitution as our guide todecision."In a broad sense, the taxing power of either government, evenwhen exercised in a manner admittedly necessary and proper,unavoidably has some effect upon the other. The burden of federaltaxation necessarily sets an economic limit to the practicaloperation of the taxing power of the states, and vice versa.Taxation by either the state or the federal government affects insome measure the cost of operation of the other.""But neither government may destroy the other nor curtail in anysubstantial manner the exercise of its powers. Hence, thelimitation upon the taxing power of each, so far as it affects theother, must receive a practical construction which permits both tofunction with the minimum of interference each with the other, andthat limitation cannot be so varied or extended as seriously toimpair
Page 326 U. S. 590either the taxing power of the government imposing the tax . . .or the appropriate exercise of the functions of the governmentaffected by it."
Metcalf & Eddy v. Mitchell, supra,269 U. S.523-524.Since all taxes must be laid by general -- that is, workable --rules, the effect of the immunity on the national taxing power isto be determined not quantitatively, but by its operation andtendency in withdrawing taxable property or activities from thereach of federal taxation. Not the extent to which a particularState engages in the activity, but the nature and extent of theactivity by whomsoever performed, is the relevantconsideration.Regarded in this light we cannot say that the Constitutioneither requires immunity of the State's mineral water business fromfederal taxation or denies to the federal government power to laythe tax.MR. JUSTICE DOUGLAS, with whom MR. JUSTICE BLACK concurs,dissenting.
IIf
South Carolina v. United States,199 U.S. 437, is to stand, the present judgment would have tobe affirmed. For I agree that there is no essential differencebetween a federal tax on South Carolina's liquor business and afederal tax on New York's mineral water business. Whether
SouthCarolina v. United States reaches the right result is anothermatter.Mr. Justice Brandeis stated that"
Stare decisis is usually the wise policy, because, inmost matters, it is more important that the applicable rule of lawbe settled than that it be settled right."
Burnet v. Coronado Oil & Gas Co.,285 U.S. 393,
285 U. S. 406.But, throughout the history of the Court,
stare decisishas had only a limited application in the field of constitutionallaw. And it is a wise policy which largely restricts it to thoseareas of the law where correction can be had by legislation.Otherwise, the Constitution
Page 326 U. S. 591loses the flexibility necessary if it is to serve the needs ofsuccessive generations.I do not believe
South Carolina v. United States statesthe correct rule. A State's project is as much a legitimategovernmental activity whether it is traditional, or akin to privateenterprise, or conducted for profit.
Cf. Helvering v.Gerhardt,304 U. S. 405,
304 U. S.426-427. A State may deem it as essential to its economythat it own and operate a railroad, a mill, or an irrigation systemas it does to own and operate bridges, street lights, or a sewagedisposal plant. What might have been viewed in an earlier day as animprovident or even dangerous extension of state activities maytoday be deemed indispensable. But, as Mr. Justice White said inhis dissent in
South Carolina v. United States, anyactivity in which a State engages within the limits of its policepower is a legitimate governmental activity. Here, a State isdisposing of some of its natural resources. Tomorrow it may issuesecurities, sell power from its public power project, ormanufacture fertilizer. Each is an exercise of its power ofsovereignty. Must it pay the federal government for the privilegeof exercising that inherent power? If the Constitution grants itimmunity from a tax on the issuance of securities, on what groundscan it be forced to pay a tax when it sells power or disposes ofother natural resources?
IIOne view, just announced, purports to reject the distinctionwhich
South Carolina v. United States drew between thoseactivities of a State which are, and those which are not, strictlygovernmental, usual, or traditional. But it is said that a federaltax on a State will be sustained so long as Congress "does notattempt to tax a State because it is a State." Yet, if that meanthat a federal real estate tax of general application (apportioned)would be valid if applied to a power dam owned by a state butinvalid if applied to a statehouse, the old doctrine has merelybeen
Page 326 U. S. 592poured into a new container. If, on the other hand, any federaltax on any state activity were sustained unless it discriminatedagainst the State, then a constitutional rule would be fashionedwhich would undermine the sovereignty of the States as it has beenunderstood throughout our history. Any such change should beaccomplished only by constitutional amendment. The doctrine ofstate immunity is too intricately involved in projects which havebeen launched to be whittled down by judicial fiat.
IIIWoodrow Wilson stated the starting point for me when he said[
Footnote 3/1] that"the States, of course, possess every power that government hasever anywhere exercised, except only those powers which their ownconstitutions or the Constitution of the United States explicitlyor by plain inference withhold. They are the ordinary governmentsof the country; the federal government is its instrument only forparticular purposes."The Supremacy Clause, Article VI, clause 2, applies to federallaws within the powers delegated to Congress by the States. But itis antagonistic to the very implications of our federal system tosay that the power of Congress to lay and collect taxes, Article I,§ 8, includes the power to tax any state activity or function solong as the tax does not discriminate against the States. [
Footnote 3/2] As stated in
UnitedStates v. Railroad Co., 17 Wall. 322,
84 U. S.327-328:
Page 326 U. S. 593"The right of the States to administer their own affairs throughtheir legislative, executive, and judicial departments, in theirown manner through their own agencies, is conceded by the uniformdecisions of this court and by the practice of the Federalgovernment from its organization. This carries with it an exemptionof those agencies and instruments from the taxing power of theFederal government. If they may be taxed lightly, they may be taxedheavily; if justly, oppressively. Their operation may be impededand may be destroyed if any interference is permitted."Can it be that a general federal tax on the issuance ofsecurities would be constitutional if applied to the issuance ofmunicipal securities or of state bonds or of the securities ofpublic utility districts organized by the States? Could the Statesbe classified with farmers, businessmen, industrial workers,judges, and other ordinary citizens and required to pay an incometax to the federal government? It is said that a federal income taxon the tax revenues of a State would not be sustained because sucha tax would interfere with a sovereign function of the State. Butcan it be that a federal income tax on state revenues derived notfrom taxes, but from the sale of mineral water, liquor, lumber, andthe like, would be sustained?A tax is a powerful regulatory instrument. Local government inthis free land does not exist for itself. The fact that localgovernment may enter the domain of private enterprise and operate aproject for profit does not put it in the class of private businessenterprise for tax purposes. Local government exists to provide forthe welfare of its people, not for a limited group of stockholders.If the federal government can place the local governments on itstax collector's list, their capacity to serve the needs of theircitizens is at once hampered or curtailed. The field of federalexcise taxation alone is practically without limits. Many stateactivities are in
Page 326 U. S. 594marginal enterprises where private capital refuses to venture.Add to the cost of these projects a federal tax, and the socialprogram may be destroyed before it can be launched. In any case,the repercussions of such a fundamental change on the credit of theStates and on their programs to take care of the needy and to buildfor the future would be considerable. To say the present tax willbe sustained because it does not impair the State's functions ofgovernment is to conclude either that the sale by the its mineralwater is not a function of government or that the present tax is soslight as to be no burden. The former obviously is not true. Thelatter overlooks the fact that the power to tax lightly is thepower to tax severely. The power to tax is indeed one of the mosteffective forms of regulation. And no more powerful instrument forcentralization of government could be devised. For, with thefederal government immune and the States subject to tax, theeconomic ability of the federal government to expand its activitiesat the expense of the States is at once apparent. That is theresult whether the rule of
South Carolina v. United Statesbe perpetuated, or a new rule of discrimination be adopted.The notion that the sovereign position of the States must findits protection in the will of a transient majority of Congress isforeign to, and a negation of, our constitutional system. Therewill often be vital regional interests represented by no majorityin Congress. The Constitution was designed to keep the balancebetween the States and the nation outside the field of legislativecontroversy.The immunity of the States from federal taxation is no lessclear because it is implied. The States, on entering the Union,surrendered some of their sovereignty. It was further curtailed asvarious Amendments were adopted. But the Tenth Amendment providesthat"The powers not delegated to the United States by theConstitution, nor prohibited by it to the States, are reserved tothe
Page 326 U. S. 595States respectively, or to the people."The Constitution is a compact between sovereigns. The power ofone sovereign to tax another is an innovation so startling as torequire explicit authority if it is to be allowed. If the power ofthe federal government to tax the States is conceded, the reservedpower of the States guaranteed by the Tenth Amendment does not givethem the independence which they have always been assumed to have.They are relegated to a more servile status. They become subject tointerference and control both in the functions which they exerciseand the methods which they employ. They must pay the federalgovernment for the privilege of exercising the powers ofsovereignty guaranteed them by the Constitution [
Footnote 3/3] whether, as here, they are disposingof their natural resources or tomorrow they issue securities orperform any other acts within the scope of their police power.Of course, the levying of the present tax does not curtail thebusiness of the state government more than it does the likebusiness of the citizen. But the same might be true in the case ofmany state activities which have long been assumed to be immunefrom federal taxation. When a municipality acquires a water systemor an electric power plant and transmission facilities, itwithdraws projects
Page 326 U. S. 596from the field of private enterprise. Is the tax immunity to bedenied because a tax on the municipality would not curtail themunicipality more than it would the prior private owner? Is themunicipality to be taxed whenever it engages in an activity whichonce was in the field of private enterprise, and therefore was oncetaxable? Every expansion of state activity since the adoption ofthe Constitution limits the reach of federal taxation if stateimmunity is recognized. Yet none would concede that the sovereignpowers of the States were limited to those which they exercised in1787. Nor can it be said that, if the present tax is not sustained,there will be withdrawn from the taxing power of the federalgovernment a subject of taxation which has been traditionallywithin that power from the beginning. Not until
South Carolinav. United States was it held that so-called businessactivities of a State were subject to federal taxation. That wasafter the turn of the present century. Thus, the major objection tothe suggested test is that it disregards the Tenth Amendment,places the sovereign States on the same plane as private citizens,and makes the sovereign States pay the federal government for theprivilege of exercising the powers of sovereignty guaranteed themby the Constitution.That this idea is hostile to the view of the Framers of theConstitution is evident from Hamilton's discussion of he taxingpower of the federal government in The Federalist, Nos. 30-36(Sesquicentennial Ed.1937) pp. 183-224. He repeatedly stated thatthe taxing powers of the States and of the federal government wereto be "concurrent" -- "the only admissible substitute for an entiresubordination, in respect to this branch of power, of the Stateauthority to that of the Union." Pp. 202-203. He also stated,"The convention thought the concurrent jurisdiction preferableto that subordination, and it is evident that it has at least themerit of reconciling an indefinite
Page 326 U. S. 597constitutional power of taxation in the Federal government withan adequate and independent power in the States to provide fortheir own necessities."P. 209. On such assurances, could it possibly be thought thatthe States were so subordinate that their activities could be taxedby the federal government?In
McCulloch v.Maryland, 4 Wheat. 316, the Court heldunconstitutional a state tax on notes of the Bank of the UnitedStates. The statement of Chief Justice Marshall (pp.
17 U. S.429-430) is adequate to sustain the case for thereciprocal immunity of the state and federal governments:"If we measure the power of taxation residing in a State by theextent of sovereignty which the people of a single State possessand can confer on its government, we have an intelligible standard,applicable to every case to which the power may be applied. We havea principle which leaves the power of taxing the people andproperty of a State unimpaired, which leaves to a State the commandof all its resources, and which places beyond its reach all thosepowers which are conferred by the people of the United States onthe government of the Union and all those means which are given forthe purpose of carrying those powers into execution. We have aprinciple which is safe for the States, and safe for the Union. Weare relieved, as we ought to be, from lashing sovereignty; frominterfering powers; from a repugnancy between a right in onegovernment to pull down what there is an acknowledged right inanother to build up; from the incompatibility of a right in onegovernment to destroy what there is a right in another to preserve.We are not driven to the perplexing inquiry, so unfit for thejudicial department, what degree of taxation is the legitimate use,and what degree may amount to the abuse of the power. "
Page 326 U. S. 598IVThose who agreed with
South Carolina v. United Stateshad the fear that an expanding program of state activity would dryup sources of federal revenues, and thus cripple the nationalgovernment. 199 U.S. pp.
199 U. S.454-455. That was in 1905. [
Footnote 3/4] That fear is expressed again today when wehave the federal income tax, from which employees of the States maynot claim exemption on constitutional grounds.
Helvering v.Gerhardt, supra. The fear of depriving the national governmentof revenue if the tax immunity of the States is sustained has nomore place in the present decision than the spectre of socialism,the fear of which, said Holmes "was translated into doctrines thathad no proper place in the Constitution or the common law."[
Footnote 3/5]There is no showing whatsoever that an expanding field of stateactivity even faintly promises to cripple the federal government inits search for needed revenues. If the truth were known, I suspectit would show that the activity of the States in the fields ofhousing, public power and the like have increased the level ofincome of the people and have raised the standards of marginal orsub-marginal groups. Such conditions affect favorably, notadversely, the tax potential of the federal government.
Page 326 U. S. 599[
Footnote 3/1]Constitutional Government in the United States (1908), pp. 183,184.[
Footnote 3/2]As stated in
United States v. California,297 U.S. 175,
297 U. S.184-185, the immunity of state instrumentalities fromfederal taxation"is implied from the nature of our federal system and therelationship within it of state and national governments, and isequally a restriction on taxation by either of theinstrumentalities of the other."It went on to say in justification of making state activitiessubject to the exercise by Congress of the commerce power,"But there is no such limitation upon the plenary power toregulate commerce. The state can no more deny the power if itsexercise has been authorized by Congress than can anindividual."[
Footnote 3/3]That fact distinguishes those cases where a citizen seeks taximmunity because his income was derived from a State or the federalgovernment. Recognition of such a claim would create a "privilegedclass of taxpayers" (
Helvering v. Gerhardt, supra,304 U. S. 416)and extend the tax immunity of the States or the federal governmentto private citizens. It was in protest to the recognition of such aderivative immunity that Mr. Justice Bradley dissented in
Collector v.Day, 11 Wall. 113,
78 U. S. 128,where the Court held unconstitutional a federal tax on the salaryof a judicial officer of a State. As Mr. Justice Bradley stated,"No man ceases to be a citizen of the United States by being anofficer under the State government." 11 Wall. p.
78 U. S. 128.
And see Graves v. O'Keefe,306 U.S. 466, holding that salaries of federal employees maybe constitutionally included in a nondiscriminatory state incometax.[
Footnote 3/4]As the Solicitor General of New York points out, in the yearwhen
South Carolina v. United States was decided, overone-fourth of the entire annual income of the federal governmentwas derived from taxes on spirits and fermented liquors.
See Annual Report, Secretary of the Treasury (1905), pp.7, 26.[
Footnote 3/5]Holmes, Collected Legal Papers (1921) p. 295.
