All the following comes from
the Flint v. Stone Tracy Supreme Court decision. What follows
seems a bit redundant, but in being redundant, definitively nails down
what is taxed and
how the tax is to be measured.
Flint v. Stone Tracy, 220
U.S. 107 (1911)
These cases involve the constitutional validity of 38 of the act of
Congress approved August 5, 1909, known as 'the corporation tax' law.
[I]n this statute the
intention is expressly declared to impose a special excise tax with respect to the carrying on or doing
business by such corporation, joint stock company or
association, or company. It is
therefore apparent ... that
the tax is imposed ... upon
the doing of corporate or insurance business, and with respect to the carrying on thereof,
...
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- The tax is a special excise tax.
- The tax is upon the doing
of corporate business.
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[W]hen imposed in this
manner it is a tax upon the doing of
business, with the advantages which inhere in the peculiarities of
corporate or joint stock
organization of the
character described. As the latter organizations share many
benefits of
corporate organization, it may be
described generally as a tax upon the
doing of business in a corporate capacity.
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- The tax is upon the doing
of (corporate) business in a corporate capacity.
- The tax is upon the advantages
of doing business as a
corporatation.
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In other words, the tax is imposed upon the doing of
business of the character described, and the measure of the tax is to
be income, with the deduction stated, received not only from
property used in business, but from every source.
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- The tax is upon the character
of doing
(corporate) business measured
by the "income" of the
corporation.
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This interpretation of the
act, as resting upon the doing of
business, is sustained by the reasoning in Spreckels Sugar Ref.
Co. v. McClain, in which a special tax measured
by the gross receipts of the business of refining oil and sugar was sustained as an excise in respect to the
carrying on or doing of such business.
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- The Spreckels tax was a special excise tax.
- The Spreckels tax was upon the doing
of business measured
by the gross "income" of
the corporation.
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Within the category of indirect taxation,
as we shall have further occasion to show, is embraced a tax upon business done in a corporate
capacity, which is the subject-matter of the tax imposed in the
act under consideration. The Pollock Case construed the tax there
levied as direct, because it was imposed upon property simply because
of its ownership. In the present case the
tax is not payable unless there be a carrying on or doing of business
in the designated capacity, and this is made the occasion for
the tax, measured by the standard prescribed. The difference between
the acts is not merely nominal, but rests upon substantial differences
between the mere ownership of property and the actual doing of business in a certain
way.
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- The tax is upon business done in a corporate capacity.
- The tax is payable when business is done in the designated (corporate) capacity.
- The tax is upon the actual doing of business in a certain (corporate) way.
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Excises are 'taxes
laid upon the manufacture, sale, or consumption of commodities
within the country, upon licenses to pursue certain occupations, and upon corporate privileges.'
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- Excise tax and privilege tax are synonymous.
- This corporate excise
tax is a corporate
privilege tax.
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The tax under
consideration, as we have construed the statute, may be described as an excise upon the
particular privilege of doing business in a corporate capacity,
i. e., with the advantages which arise from corporate or quasi
corporate organization; or, when applied to insurance companies, for
doing the business of such companies. As was said in the Thomas Case,
supra, the requirement to pay such
taxes involves the exercise
of privileges, and the
element of absolute and unavoidable demand is lacking. If business is not done in the manner
described in the statute, no tax is payable.
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- The excise tax is upon the particular
privilege
of doing business in a corporate
capacity.
- The requirement to pay involves the exercise of
privileges (doing
business in a corporate capacity).
- If business is not done in the
manner described (in a corporate
capacity), no tax is payable.
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In
the case at bar we have already discussed the limitations which the
Constitution imposes upon the right to levy excise taxes, and it could not be said, even if the principles of
the 14th Amendment were
applicable to the present case, that there
is no substantial difference
between the carrying on of business by the corporations taxed, and the
same business when conducted by a private firm or individual.
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Double negatives cancel:
Parse:
| It could .
be said, there is . substantial
difference
between the carrying on of business by the corporations taxed, and the
same business when conducted by a private firm or individual. |
There
is substantial
difference
between the carrying on of business by the corporations taxed, and the
same business when conducted by a private firm or individual.
The thing taxed is not the
mere dealing in merchandise, in which the actual transactions may be
the same, whether conducted by individuals or corporations, but the tax is laid upon the privileges which
exist in conducting business with the advantages which inhere in the
corporate capacity of those taxed, and which are not enjoyed by private
firms or individuals. These advantages are obvious, and have led
to the formation of such companies in nearly all branches of trade. The continuity of the business,
without interruption by death or dissolution, the transfer of property
interests by the disposition of shares of stock, the advantages of
business controlled and managed by corporate directors, the general
absence of individual liability,
these and other things inhere in the
advantages of business thus conducted, which do not exist when the same business
is conducted by private individuals or partnerships. It is this distinctive privilege which is
the subject of taxation, not the mere buying or selling or
handling of goods, which may be the same, whether done by corporations
or individuals.
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- The tax is upon
privileges which exist in conducting
(corporate) business.
- Individuals do NOT enjoy such privileges unless they
hold stock
in a corporation.
- Stock holders (corporate owners) are fully immunized
from the liability of
a corporate tort.
- It is the distinctive privilege (business in corporate form) that is
taxed.
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Applying that doctrine to
this case, the measure of taxation being the income of the corporation
from all sources, as that is but the measure of a privilege tax
within the lawful authority of Congress to impose, it is no
valid objection that this measure includes, in part, at least, property
which, as such, could not be directly taxed.
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- The measure
of the privilege tax of a
corporation is the income of
the
corporation from all sources.
- Income is the measure of the (corporate) privilege
being taxed.
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What we have said as to the character of the corporation tax as an
excise disposes of the contention that it is direct, and
therefore requiring apportionment by the Constitution. It remains to consider whether these
corporations are engaged in business. 'Business' is a very
comprehensive term and embraces everything about which a person can be
employed. Black's Law Dict. 158, citing People ex rel. Hoyt v. Tax
Comrs. 23 N. Y. 242, 244. 'That which occupies the time, attention, and
labor of men for the purpose of a livelihood or profit.' 1 Bouvier's
Law Dict. p. 273.
We think it is clear that corporations
organized for the purpose of doing business, and actually
engaged in such activities as leasing property, collecting rents,
managing office buildings, making investments of profits, or leasing
ore lands and collecting royalties, managing wharves, dividing profits,
and in some cases investing the surplus, are engaged in business within the meaning
of this statute, and in the capacity necessary to make such
organizations subject to the law.
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- The character of the
corporation tax is an excise tax.
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In Summary:
- The tax is upon the doing
of corporate business.
- The doing of corporate
business is a privilege.
- The corporation's
net income is the
measure of the importance of the privilege.
- Thus the corporation's
net income is the
measure of the privilege
being taxed.
- Natural Persons do not have such distinctive privilege which is the subject
of taxation.
- Unless the Natural Person owns shares of corporate
stock.
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