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 Federal incorporation; constitutional que 
 
 3 1924 019 227 184 
 
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FEDERAL INCORPORATION 
 
FEDERAL INCORPORATION 
 
 Constitutional Questions 
 Involved 
 
 BY 
 
 ROLAND CARLISLE HEISLER 
 
 GOWEN MEMORIAL FELLOW IN THE LAW SCHOOL OF THE 
 UNIVERSITY OF PENNSYLVANIA, 1910-12 
 
 BOSTON 
 
 THE BOSTON BOOK COMPANY 
 
 1913 
 
Copyright, 1913 
 By the university OF PENNSYLVANIA 
 
 The Riverdale Press, BrookUne, Boston, Mass., U. S.A. 
 
UNIVERSITY OF PENNSYLVANIA 
 LAW SCHOOL SERIES 
 
 NUMBER 3 
 
 "C^ACH volume in this series has been made a 
 publication of the School of Law of the 
 University of Pennsylvania, by a vote of the 
 Law Faculty. The authors are connected with 
 the school as members of the teaching force, 
 fellows, or graduate students. 
 
 The object of the University is to promote 
 the scientific study of legal problems — historical 
 and practical, and to assist in the improvement 
 of the law. 
 
PREFACE. 
 
 The subject of Federal Incorporation, and 
 especially the constitutional questions involved, 
 are among the most interesting and vital con- 
 fronting the people of the United States. The 
 author of this treatise, Mr. Roland C. Heisler. 
 a graduate of the Law School of the University 
 of Pennsylvania and a member of the Philadel- 
 phia Bar, held the position of Gowen Memorial 
 Fellow in the Law School from September, 1910, 
 to September, 1912. There are four such Fel- 
 lowships in the school, founded by Mrs. Esther 
 Gowen Hood, in memory of her father, Franklin 
 B. Gowen, a distinguished lawyer. The primary 
 object of the foundation is to enable those hold- 
 ing the Fellowship to devote all their time to 
 legal research and analysis. During the first 
 year of his Fellowship, Mr. Heisler studied the 
 constitutional questions which he here analyzes 
 and discusses. The delay in publication, after 
 the text was in print, has been due to causes, 
 over which he had no control. 
 
 William Draper Lewis. 
 
CONTENTS. 
 
 Chapter I. 
 The Nature of the Power vested in Congress by the 
 
 Commerce Clause 1 
 
 Chapter II. 
 Incorporation under the Commerce Clause ... 6 
 
 Chapter III. 
 Incorporation under Powers other than that over 
 
 Commerce 23 
 
 Chapter IV. 
 
 Methods of obtaining Compulsory Federal Corpora- 
 tion 29 
 
 First Method: Exclusion of the Products of State 
 
 Corporations from Interstate Commerce ... 30 
 
 Second Method : Direct exclusion of State Corpora- 
 tions from Interstate Commerce 58 
 
 Third Method: Taxation of Interstate Commerce 
 
 transacted by State Corporations 70 
 
 Fourth Method: Exclusion of Mail Matter of State 
 
 Corporations 83 
 
 Chapter V. 
 State Legislation with reference to State Corpora- 
 tions engaged in Interstate Commerce . . 87 
 
 (1) Taxation 91 
 
 (2) Police and other regulations 150 
 
vm CONTENTS. 
 
 Chapter VI. 
 State Legislation with reference to Federal Corpora- 
 tions engaged in Interstate Commerce . . .161 
 
 Chapter VII. 
 Jurisdiction of Federal Courts over Suits by or 
 against Federal Corporations 183 
 
 Chapter VIII. 
 The Meaning of the Term "Commerce Among the 
 Several States" 190 
 
FEDERAL INCORPORATION 
 
 Constitutional ^juestions Involved. 
 
 CHAPTER I. 
 
 THE NATURE OF THE POWER VESTED IN CONGRESS 
 BY THE COMMERCE CLAUSE. 
 
 The problems which are discussed in this treatise in- 
 volve for the most part questions arising under the power 
 over interstate commerce vested in Congress by the Con- 
 stitution; and accordingly it has seemed appropriate, 
 as a preliminary matter, to consider briefly the nature 
 and extent of this power, which, at the present time, is 
 perhaps the most important and far-reaching possessed 
 by the Federal Government. 
 
 The Constitution merely provides: "The Congress 
 shall have power — To regulate commerce with foreign 
 nations, among the several States, and with the Indian 
 tribes." 
 
 Prior to the adoption of the Constitution each State 
 had absolute power over its interstate and foreign com- 
 merce, and could tax it at will or prohibit it altogether. 
 In the Articles of Confederation it was expressly pro- 
 vided that the United States should not by treaty in- 
 terfere with the right of each State to prohibit "the 
 exportation or importation of any species of goods or 
 commodities whatever." ' 
 
 As a result of rivalries and jealousies between the 
 States, the exercise of this power placed commerce in 
 such an unenviable condition that there was a general 
 
 I Article IX, section 1. 
 
2 FEDERAL INCORPORATION. 
 
 feeling that a change was necessary, and little objection 
 was therefore made to the clause of the Constitution 
 which placed the power of regulation in the hands of the 
 Federal Government. 
 
 Owing to the scarcity of contemporaneous literature 
 on the subject, it is difficult to determine the exact power 
 which was intended to be vested in Congress by those 
 who adopted the Constitution. At that time the navi- 
 gation of the high seas was the chief means of commercial 
 intercourse between the States, and there was more com- 
 merce with foreign countries than among the several 
 States. It seems fairly clear that the main object souglit 
 to be accomplished by the clause in the Constitution, 
 so far as interstate commerce was concerned, was to free 
 that commerce from the burdens and restrictions im- 
 posed by the individual States. From this it has been 
 argued that Congress possesses merely a negative power 
 to insure the free passage of commerce from State to 
 State, and that there was no intention to transfer from 
 the States to the national legislature affirmative powers 
 of control. 
 
 But whatever may have been the primary intention 
 for the insertion of the clause in the Constitution, it 
 must be remembered that under the precise wording, the 
 power granted is not a mere negative duty to restrain 
 hostile State action, but is clearly an affirmative power 
 of regulation placed in the hands of a sovereign govern- 
 ment. There has been such a vast change in the charac- 
 ter of commerce itself, and in the instrumentalities by 
 which it is carried on, and the subject has become of so 
 much greater importance, that a power of regulation at 
 the present time may include within its scope far dif- 
 ferent measures than were ever contemplated at the 
 time of the adoption of the Constitution. This does not 
 mean that the Constitution is to be abrogated or altered 
 
FEDERAL INCORPORATION. 3 
 
 to suit the convenience of the legislature, but merely 
 means that the people who adopted that instrument 
 "must be understood to have employed words in their 
 natural sense, and to have intended what they have 
 said." 1 
 
 In other words, in determining the validity of an act 
 passed under the commerce power, the question is not, 
 is it such a regulation as those who adopted the Consti- 
 tution intended to give to Congiess the power to enact, — 
 but rather, is it a regulation of commerce within the ordi- 
 nary meaning of those words? To attempt to ascertain 
 and to rely upon the intentions of the framers would in 
 many cases cause difificulty and confusion. For example, 
 although the chief reason for placing in the hands of the 
 Federal Government the power to regulate interstate 
 commerce may have been to remove that commerce 
 from the possibility of State restrictions, and there may 
 have been no intention to grant the power of afifirmative 
 control, yet it is equally clear that, so far as foreign com- 
 merce was concerned, the Federal Government was in- 
 tended to possess the power to carry out the prevailing 
 economic policy of the time, and restrict or prohibit 
 altogether commerce with those nations which adopted 
 an unfriendly policy towards the United States. Yet 
 the words employed to convey the power over foreign 
 commerce are exactly the same as those which convey 
 the power over interstate commerce. "The reasons which 
 may have caused the framers of the Constitution to re- 
 pose the power to regulate interstate commerce in Con- 
 gress," the Supreme Court has said, in a comparatively 
 recent case, "do not, however, affect or limit the extent 
 of the power itself."" 
 
 ^Gibbons v. Ogden, 9 Wheat. 1, 188. 
 
 iAddystone Pipe and Steel Co. v. United States (1899), 175 U. S. 
 211, 228. 
 
4 FEDERAL INCORPORATION. 
 
 In fact, in view of the decisions in recent years, any 
 discussion of the narrow construction contended for 
 seems entirely academic. The nature of the power as 
 defined by the Supreme Court in the early case of Gib- 
 bons V. Ogden has been many times affirmed. 
 
 "What is this power?" said Chief Justice Marshall. 
 "It is the power to regulate; that is, to prescribe the 
 rule by which commerce is to be governed. This power, 
 like all others vested in Congress, is complete in itself, 
 may be exercised to its utmost extent, and acknowledges 
 no limitations, other than are prescribed in the Consti- 
 tution. ... If, as has always been understood, the 
 sovereignty of Congress, though limited to specific ob- 
 jects, is plenary as to those objects, the power over com- 
 merce with foreign nations, and among the several States, 
 is vested in Congress as absolutely as it would be in a 
 single government, having in its constitution the same 
 restrictions on the exercise of the power as are found in 
 the Constitution of the United States. The wisdom and 
 the discretion of Congress, their identity with the people, 
 and the influence which their constituents possess at 
 elections, are, in this, as in many other instances, as that, 
 for example, of declaring war, the sole restraints on which 
 they have relied, to secure them from its abuse." * 
 
 Until recent years there was little attempt on the part 
 of Congress to enact affirmative regulations. For the 
 first half of the nineteenth century the difficulty in the 
 Supreme Court was to determine from a consideration 
 of State statutes whether the States could exercise a 
 concurrent jurisdiction over interstate commerce, or 
 whether the power of Congress was exclusive; and for 
 the next thirty years the problem was to decide how far 
 the exercise of the reserved powers of the States was 
 
 ' 9 Wheat. 1, 196. 
 
FEDERAL INCORPORATION. 5 
 
 limited by the commerce clause. By that time the sub- 
 ject had become of so great importance that Congress 
 began to enact affirmative measures in the exercise of its 
 power- 
 
 The first great step taken was in 1887, when the Inter- 
 state Commerce Act was passed. This was followed, in 
 1890, by the Sherman Anti-Trust Act. and numerous 
 other statutes have been enacted subsequently. The 
 decisions in the Supreme Court clearly demonstrate that 
 the limit of Congressional action has by no means been 
 reached, and the precise extent of the federal power has 
 yet to be determined. The large growth of industrial 
 corporations has made the subject of the utmost impor- 
 tance, because it is by virtue of this power that Congress 
 is believed to be capable of controlling these bodies. 
 More efficient regulation than is in force at present un- 
 questionably appears desirable. One method which 
 has been suggested is that the Federal Government shall 
 itself incorporate companies to engage in interstate com- 
 merce, and it is the purpose of this treatise to discuss the 
 constitutional questions which would be involved as a 
 result of such legislation.* 
 
 1 A bill to provide for the formation of corporations to engage in 
 interstate and international trade and commerce was introduced 
 in the House of Representatives on Feb. 7, 1910 [61st Congress, 
 2d Session, H. R. 20142], but no action has as yet been taken 
 thereon. 
 
CHAPTER II. 
 INCORPORATION UNDER THE COMMERCE CLAUSE. 
 
 In discussing the power of Congress to create corpora- 
 tions, a practical distinction must be noted in the nature 
 of Congress itself. By the Constitution, Congress is 
 given power "to exercise exclusive legislation, in all cases 
 whatsoever, over such district (not exceeding ten miles 
 square) as may by session of particular States and the 
 acceptance of Congress become the seat of government 
 of the United States"; and also "to make all needful 
 rules and regulations respecting the territory or other 
 property belonging to the United States." 
 
 As a legislative body, therefore, Congress has what 
 might be termed a dual nature. It may act solely as 
 the national legislature, or, in addition to this, it may act 
 as the legislature for the District of Colu^feia or the 
 Territories. This does not mean that there is any dif- 
 ference in the method of passing local laws for the Dis- 
 trict or the Territories and that of legislating for the 
 country at large; nor that laws made in pursuance of 
 the former power are any less the laws of the United 
 States than those made under the latter. The difference 
 lies in the fact that Congress, when acting solely as the 
 national legislature, can exercise only those powers con- 
 ferred upon it by tne Constitution, while in legislating 
 for the District or for the Territories, the powers which 
 may be exercised are as full and complete as those of 
 a State with respect to the persons and property within 
 the jurisdiction of the State.' 
 
 ^Capital Traction Co. v. Hof (1898), 174 U. S. 1; Murphy v. 
 Ramsey (1884), 114 U. S. 15; National Bank v. Yankton (1897), 
 101 U. S. 129. 
 
FEDERAL INCORPORATION. 7 
 
 Thus, whatever may be the limitations upon the power 
 of Congress to incorporate as the national legislature, 
 it may as freely charter companies to engage in business 
 in the District of Columbia and the Territories as a State 
 may incorporate companies within the State. For ex- 
 ample, in the District of Columbia, Congress has created 
 such corporations as an insurance company,' a savings 
 bank,* and a cemetery company.' These corporations, 
 however, are not regarded as of national character. They 
 have the same status as State corporations, in that they 
 can demand recognition of their corporate privileges 
 within the District only, and if they seek to pass beyond 
 that jurisdiction and do business within a State, they 
 may be excluded altogether, or forced to comply with 
 the requirements of the State law as to foreign corpora- 
 tions.* 
 
 But, as mentioned. Congress in its capacity as the 
 national legislature has not the same sovereign powers 
 as a State, bSH: has only such powers of legislation as are 
 conferred by the Constitution. It is an elementary 
 principle that the Federal Government is one of enumer- 
 ated powers. Certain acts of legislation may, however, 
 be within the power of Congress, and yet not be granted 
 in express words by the Constitution. In the celebrated 
 case of McCullough v. Maryland,^ it was decided that the 
 constitutional functions of Congress comprised, not only 
 
 1 Act Feb. 14, 1865, 13 Stat. 428. See Daiy v. National Insurance 
 Co. (1878), 64 Ind. 1. 
 
 » Act March 3, 1865, 13 Stat. 510. 
 
 ' Act July 27, 1854. See Close v. Cemetery Co. (1882), 107 U. S. 
 466. Congress has also incorporated a municipal board for the 
 local government of the District. See Stoutenburgh v. Hennick 
 (1888), 129 U. S. 141. 
 
 *Daly V. National Ins. Co. (1878), 64 Ind. 1. 
 
 6 4 Wheat. 316. 
 
8 FEDERAL- INCORPORATION. 
 
 those powers expressly conferred, but also all appro- 
 priate means for carrying those powers into execution. 
 Nowhere in the Constitution is there a specific grant of 
 the power to incorporate, and accordingly, if such a power 
 does exist, it must be as a means of exercising some other 
 power or powers. 
 
 Little assistance is obtained from the record of the 
 proceedings in the Constitutional convention. It appears 
 that a proposition was made in that body to authorize 
 Congress to open canals and an amendatory one to em- 
 power it to grant charters of incorporation in cases where 
 the pubUc good might require them, but the motion was 
 defeated. It is uncertain whether the cause for the de- 
 feat lies in the fact that such power was regarded as al- 
 ready given, or for other reasons, and both Hamilton 
 and Randolph, in submitting their opinions to Washing- 
 ton on the constitutionality of the national bank, agreed 
 that no weight could be attached to those proceedings.' 
 
 In 1790, the year after the first Congress assembled, 
 a charter was granted by Congress to incorporate a na- 
 tional bank. Before signing the bill, Washington re- 
 quested the opinion of the members of the Cabinet on 
 the constitutionality of the act of incorporation. Jef- 
 ferson and Randolph denied the federal power to incor- 
 porate, but Hamilton, whose opinion prevailed, favored 
 it, he being the first to advance the doctrine, later adopted 
 by the Supreme Court, known as the doctrine of implied 
 powers.^ The name is perhaps unfortunate, as the doc- 
 trine merely signifies that Congress has a right to a 
 choice of means when executing its enumerated powers. 
 
 1 Jefferson, however, argued that the motion was defeated because 
 it was not thought desirable to vest in Congress the power to incor- 
 porate. 
 
 =! Hamilton's Works (Putnam), Vol. 3, p. 445. 
 
FEDERAL INCORPORATION. 9 
 
 The Supreme Court did not pass upon the constitu- 
 tionality of the national bank until 1819, in the Ccise of 
 McCullough V. Maryland,^ in which the court upheld the 
 validity of the act of incorporation. "The Constitu- 
 tion," said Chief Justice Marshall, "does not profess to 
 enumerate the means by which the powers it confers may 
 be executed, nor does it prohibit the creation of a cor- 
 poration, if the existence of such a being be essential to 
 the beneficial exercise of those powers. The power of 
 creating a corporation, though appertaining to sover- 
 eignty, is not, like the power of making war, or levying 
 taxes, or of regulating commerce, a great substantive 
 and independent power, which cannot be implied as 
 incidental to other powers, or used as a means of execut- 
 ing them. It is never the end for which other powers are 
 exercised, but a means by which other objects are accom- 
 plished. . . . No city was ever built with the sole object 
 of being incorporated, but is incorporated as affording 
 the best means of being well governed. The power of 
 creating a corporation is never used for its own sake, 
 but for the purpose of effecting something else. No 
 sufficient reason is, therefore, perceived, why it may not 
 pass as incidental to those powers which are expressly 
 given, if it be a direct mode of executing them." 
 
 This case, therefore, definitely established the prin- 
 ciple that Congress, though not expressly given the power 
 to incorporate, may exercise such power if it be a means 
 of carrying into execution a power which is expressly 
 conferred by the Constitution. Nor does it have to be 
 an absolutely necessary means, without which the power 
 granted would be nugatory, as was argued by Jefferson 
 in his opinion submitted to Washington. "Necessary 
 and proper," as the phrase is used in the Constitution, 
 
 1 4 Wheat. 316. 
 
10 FEDERAL INCORPORATION. 
 
 is to be construed in a broad sense.^ "The sound con- 
 struction of the Constitution," said Marshall, "must 
 allow to the national legislature that discretion, with 
 respect to the means by which the powers it confers are 
 to be carried into execution, which will enable that body 
 to perform the high duties assigned to it, in the manner 
 most beneficial to the people Let the end be legitimate, 
 let it be within the scope of the Constitution, and all 
 means which are appropriate, which are plainly adapted 
 to that end, which are not prohibited, but consist with 
 the letter a.nd spirit of the Constitution, are constitu- 
 tional." 
 
 Does, then, the principle of this case authorize the 
 creation by Congress of corporations to carry on inter- 
 state commerce, such as transportation companies and 
 trading companies? Is the incorporation of these com- 
 panies an appropriate means of executing the complete 
 power of Congress over commerce? 
 
 It was not until 1862 that corporations were chartered 
 by Congress under the commerce power. In 1806, Con- 
 gress authorized the construction of the Cumberland 
 Road from the Potomac to the Ohio rivers, but it was 
 stipulated that the consent of the States through which 
 the road was to pass should be obtained. No corpora- 
 tion was created by Congress for the purpose." The 
 power even to authorize the construction of the road 
 was doubted by many, but was never passed upon by the 
 Supreme Court. After the WheeUng bridge had been 
 adjudged to be a nuisance. Congress, in 1852, passed 
 an act declaring it a lawful structure, and it was 
 
 1 The Constitution provides, "The Congress shall have power — 
 To make all laws which shall be necessary and proper for carrying 
 into execution the foregoing powers, and all other powers vested 
 by this Constitution in the Government of the United States, or 
 in any department or officer thereof." 
 
FEDERAL INCORPORATION. 11 
 
 held that this was within the power to regulate com- 
 merce.^ Here also there was, of course, no actual 
 incorporation. 
 
 But in 1862, in pursuance of a plan to establish a high- 
 way from the Missouri River to the Pacific Ocean, the 
 Union Pacific Railroad was incorporated, with power 
 to construct a railroad and telegraph line from a point 
 in the then territory of Nebraska to the western bound- 
 ary of the territory of Nevada. It appears that in the 
 construction of this continuous line to the Pacific Ocean, 
 Congress did not create a corporation to operate within 
 the limits of a State, but only within the territorial Juris- 
 diction of the United States, while state-created corpora- 
 tions were granted additional franchises and aids by the 
 Federal Government with the consent of the State which 
 created them. From this fact it has been argued that 
 Congress was acting merely as the legislature for the 
 Territories, and not under its commerce power. But this 
 position cannot be maintained. A corporation created 
 by Congress in a Territory becomes a state corporation 
 
 1 Pennsylvania v. Wheeling Bridge Co. (1855), 18 How. 421. By 
 the act of Sept. 19, 1890, c. 907, 26 Stat. 426, 453, Congress pro- 
 vided that no bridge should be constructed over navigable waters 
 of the United States until the location and plan should be approved 
 by the Secretary of War. See Lake Shore, etc., Ry. v. Ohio (1897), 
 165 U. S. 365. 
 
 In 1866 Congress passed a statute granting to any telegraph 
 company organized under the law of any State the right to con- 
 struct and maintain lines of telegraph through and over any por- 
 tion of the public domain, over and along any of the military and 
 post-roads of the United States, and over, across, or under any of 
 the navigable streams of the United States. In Pensacola Telegraph 
 Co. v. Western Union Telegraph Co. (1877), 96 U. S. 1, this act was 
 held to be a valid exercise of the commerce power, and a statute 
 of Florida which granted exclusive telegraph privileges within the 
 State to one company was held unconstitutional as in conflict 
 with the act of Congress. 
 
12 FEDERAL INCORPORATION. 
 
 upon the admission of the Territory as a State,^ while 
 the corporations created by Congress to build transcon- 
 tinental railroads have always been regarded as federal 
 corporations. Moreover, the Texas and Pacific Rail- 
 road, incorporated by Congress, in 1871, was author- 
 ized to construct and maintain a railroad from a point 
 in the State of Texas to connect with another rail- 
 road in California. Texas passed an act, in 1873, 
 accepting the railroad, but it does not appear that 
 this was necessary to validate the construction of the 
 road.^ The decisions in the Supreme Court relating 
 to the establishment of this system of railroads 
 justify the creation of the corporations principally 
 upon the commerce power of Congress. In Cali- 
 fornia V. Pacific Railroad Co? it was said: "It cannot 
 at the present time be doubted that Congress, under 
 the power to regulate commerce among the several States, 
 as well as to provide for postal accommodations and mili- 
 tary exigencies, had authority to pass these laws. The 
 power to construct, or to authorize individuals or cor- 
 porations to construct, national highways and bridges 
 
 1 Kansas Pacific Railroad v. Atchison, etc.. Railroad Co. (1884), 
 112 U. S. 414. In this case the corporation was chartered by the 
 territorial legislature, but it seems clear that the principle»would 
 be the same where Congress itself acted as the territorial legis- 
 lature. 
 
 2 The Northern Pacific Railway Company was chartered by 
 Congress in 1864 and authorized to construct a railway and tele- 
 graph line from a point in the State of Minnesota or the State ef 
 Wisconsin to a point west of Puget Sound. The charter contained 
 the provision that no road should be constructed within a State 
 without the consent of the State. In 1866, the Atlantic and Pacific 
 Railroad Company was chartered by Congress, being authorized to 
 construct a railway and telegraph line from a point in the State of 
 Missouri to the Pacific Ocean. 
 
 3 (1887), 127 U. S. 1. 
 
FEDERAL INCORPORATION. 13 
 
 from State to State is essential to the complete control 
 and regulation of interstate commerce. Without authority 
 in Congress to establish and maintain such highways 
 and bridges, it would be without authority to regu- 
 late one of the most important adjuncts of commerce. 
 The power in former times was exerted to a very limited 
 extent, the Cumberland or National Road being the 
 most notable instance. Its exertion was but little called 
 for, as commerce was then mostly conducted by water, 
 and many of our statesmen entertained doubts as to the 
 existence of the power to establish ways of communica- 
 tion by land. But since, in consequence of the expansion 
 of the country, the multiplication of its products, and 
 the invention of railroads and locomotion by steam, land 
 transportation l^as so vastly increased, a sounder con- 
 sideration of the subject has prevailed, and led to the con- 
 clusion that Congress has primary power over the whole 
 subject. Of course the authority of Congress over the 
 territories of the United States, and its power to grant 
 franchises exercisable therein, are, and ever have been, 
 undoubted. But the wider power was very freely exer- 
 cised, and much to the general satisfaction, in the crea- 
 tion of the vast system of railroads connecting the East 
 with the Pacific, traversing States as well as Territories 
 and employing the agency of State as well as federal 
 corporations." 
 
 In Luxton v. North River Bridge Co} the power of 
 Congress to incorporate a company to construct a bridge 
 across the Hudson or North River was sustained. In 
 this case the court said, "Congress may incorporate 
 as an appropriate means of executing the powers of gov- 
 ernment, as, for instance, a bank for the purpose of car- 
 rying on the fiscal operations of the United States, or a 
 
 1 (1894), 153 U. S. 525. 
 
14 FEDERAL INCORPORATION. 
 
 railroad corporation for the purpose of promoting com- 
 merce among the States." 
 
 From these cases it seems to be settled that Congress, 
 under its power to regulate commerce, can incorporate 
 bridge or railroad companies. 
 
 And it also seems beyond question that to enable such 
 a company to carry out its operations, the power of 
 eminent domain may be conferred upon it to be exer- 
 cised within the limits of a State, even against the con- 
 sent of the State.^ In the case last cited, the Bridge 
 Company, a corporation created by Congress, petitioned 
 for the appointment of commissioners to assess damages 
 for the appropriation and condemnation of land owned 
 by a citizen of New Jersey, the land to be used as an 
 approach to the bridge. In granting the petition the 
 court said, "And whenever it becomes necessary, for 
 the accomplishment of any object within the authority 
 of Congress, to exercise the right of eminent domain and 
 take private lands, making just compensation to the 
 owners. Congress may do this, with or without a concur- 
 rent act of the State in which the lands lie." 
 
 A railroad company is engaged in tra.nsportation. 
 Transportation between the States is commerce within 
 the regulating power of Congress. But "commerce 
 among the several States" comprises more than the mere 
 act of transportation. A contract which in its perform- 
 ance involves transportation from one State to another 
 is a commercial transaction which is also subject to the 
 jurisdiction of Congress.* A corporation which in the 
 
 1 Kohl V. United States (1875), 91 U. S. 368; Cherokee Nation v. 
 Kansas Ry. (1889), 135 U. S. 641; Luxton v. North River Bridge Co. 
 (1894), 153 U. S. 625. 
 
 ^Robbins v. Shelby Co. (1886), 120 U. S. 489; Addystone Pipe 
 and Steel Co. v. United States (1899), 175 U. S. 211; Stockard v. 
 Morgan (1901), 185 U. S. 27; Rearick v. Pennsylvania (1906), 203 
 U. S. 507. See post, page 199 
 
FEDERAL INCORPORATION. 15 
 
 course of its business enters into such contracts and ships 
 its products to other States in pursuance thereof, although 
 it does not engage, in the actual transportation itself, 
 is just as much engaged in the prosecution of interstate 
 commerce as is the railroad which conveys the goods. 
 
 Congress has the power to incorporate a railroad com- 
 pany as a means of regulating that commerce which is 
 transportation. Should it not have the same power to 
 incorporate a trading company as a means of regulating 
 that commerce which consists in buying and selling be- 
 tween theStates? Can it be said that the means, though 
 appropriate in the first instance, are not so in the second? 
 It must be remembered that the means employed need 
 not be absolutely necessary. Congress must be allowed 
 that discretion which will enable it to perform its duties 
 in the manner most beneficial to the people. Consider- 
 ing this, it can hardly be denied that the granting of cor- 
 porate privileges to individuals to be exercised in the 
 purchase and sale of articles among the States would be 
 well within the complete power over interstate commerce 
 which is vested in Congress by the Constitution. 
 
 The trusts have become national in .character, carry- 
 ing on business in many different States, and practically 
 all of them are engaged in interstate commerce. This 
 is not, however, an essay on the economical desirabiHty 
 of federal incorporation. Many economists believe that 
 the individual States should continue to charter com- 
 panies to engage in interstate commerce; that a change 
 to federal incorporation would centralize too great power 
 in the Federal Government. Others contend that such 
 corporations can enter foreign States to exercise their 
 functions without the necessity of complying with the 
 requirements of those States with reference to foreign 
 corporations, and thus the corporate poHcy of one State is 
 forced upon the others; that by predatory competition 
 
16 FEDERAL INCORPORATION. 
 
 and unfair discrimination, many large corporations 
 have acquired practical monopolies in staple articles 
 so that they alone regulate the output and the price, 
 and that effective regulation is out of the question under 
 the present system of diverse State laws. 
 
 But however the question may be decided from an 
 economic standpoint, constitutionally there seems no 
 valid objection. Federal incorporation is not the only 
 means of regulation, and it may not be the most desirable, 
 but it is certainly within the principle pronounced by 
 Chief Justice Marshall, which has never been qualified: 
 "Let the end be legitimate, let it be within the scope of 
 the Constitution, and all means which are appropriate, 
 which are plainly adapted to that end, which are not 
 prohibited, but consist with the letter and spirit of the 
 Constitution, are constitutional." Can it be denied that 
 the granting of peculiar privileges to be employed by 
 individuals in the conduct of a business is not a means 
 of regulating that business? 
 
 It has been contended that interstate railroads may 
 be incorporated, because that business is public in charac- 
 ter, and the Federal Government could, if it thought 
 fit, acquire and conduct the entire business itself; but 
 that it would not be within the power of Congress to 
 incorporate a business which lacked this element of ptib- 
 lic interest. This position, however, appears unsound. 
 The public character of the business of a railroa,d may 
 make it more necessary or more desirable that the 
 company be incorporated by Congress, but the absence 
 of this quality cannot destroy the appropriateness 
 of incorporation as a means of regulating commerce. 
 In view of the plenary power over interstate commerce 
 which the Supreme Court has many times declared is 
 vested in the FederaJ Government, it is inconceivable 
 that Congress may not itself prescribe the corporate 
 
FEDERAL INCORPORATION. 17 
 
 privileges which shall be employed in the transaction 
 of any part of that commerce, whether it be interstate 
 transportation or buying and selling between the States. 
 
 If, then, it would be appropriate for Congress to incor- 
 porate trading companies to engage in interstate com- 
 merce, it becomes necessary to determine the exact privi- 
 leges which such a corporation would have. Could it, 
 in addition to its interstate business, buy and sell entirely 
 within the limits of a State? Could the power to pro- 
 duce be granted by Congress as incidental to the power 
 to make interstate sales? 
 
 After the decision in McCullough v. Maryland} Ohio 
 taxed the operations of a branch of the Bank of the 
 United States, claiming that the bank was not only en- 
 gaged in business for the United States Government, 
 but also carried on a private banking business. In the 
 case of Osborn v. Bank, * this tax was held unconstitu- 
 tional, the court expressly declaring that the national 
 bank had the right to carry on a private banking business, 
 because otherwise it would not be an effective means or 
 instrument to enable the government to carry out its 
 power over fiscal matters. 
 
 By analogy, a federal trading corporation would have 
 the right to make intrastate purchases and sales if this 
 right would be necessary to make the company a capable 
 instrument for the transaction of an interstate business. 
 
 That such would be the case seems unquestionable. 
 The distinction between interstate and intrastate com: 
 merce, as determined by State boundary lines, is wholly 
 artificial and not founded on any distinction in the trade 
 itself. Undoubtedly the operations of a corporation 
 engaged in interstate commerce would be materially 
 
 > 4 Wheat. 316 
 
 2 (1824), 9 Wheat. 738. 
 
18 FEDERAL INCORPORATION. 
 
 burdened if the added privilege of carrying on a local 
 business were denied. The Pacific railroads incorporated- 
 by Congress engage in transportation wholly within the 
 limits of a single State. It is true that the States trav- 
 ersed by the railroads agreed to admit them, but with- 
 out such consent there seems little doubt but that the 
 railroads would have possessed the right. Indeed, the 
 cases dealing with the power of the States to regulate 
 the intrastate rates of these roads incorporated by 
 Congress, not only do not question the right of the 
 company to carry on the local business, but even con- 
 cede to Congress the power to remove operations therein 
 from the control of the States.' 
 
 In the recent Kansas cases ^ the opinion of the majority 
 of the court and the concurring opinion of Mr. Justice 
 White make it clear that a State has not absolute control 
 over the intrastate business of a corporation which is 
 also engaged in interstate commerce, and that an 
 arbitrary prohibition of the right to carry on that 
 business would burden the interstate business to an 
 unconstitutional extent. 
 
 It may, therefore, be regarded as practically settled 
 that a federal trading company would have the inci- 
 dental right to carry on a local business within a single 
 State in addition to its interstate transactions. The 
 
 ^Reagan v. Mercantile Trust Co. (1894), 154 U. S. 413; Smyth 
 V. Ames (1898), 169 U. S. 466. See post, pages 175-179. 
 
 2 Western Union Telegraph Co. v. Kansas (1910), 216 U. S. 1; 
 Pullman Co. v. Kansas (1910), 216 U. S. 56. Mr. Justice White 
 expressly said, "Morever, to me it seems that where the right to 
 do an interstate business exists, without regard to the assent of 
 the State, a State law which arbitrarily forbids a corporation from 
 carrying on with its interstate commerce buoiness a local business 
 would be a direct burden upon interstate commerce." See post, 
 pages 142-146 
 
FEDERAL INCORPORATION. 19 
 
 extent to which this business would be subject to 
 the control of the State will be discussed in a later 
 chapter. 
 
 A different problem arises when we consider the power 
 of the Federal Government to confer the right to pro- 
 duce as an incident to the power to carry on interstate 
 commerce. There are two questions which must be 
 considered in this connection: (1) Can a federal cor- 
 poration be given the absolute right to produce against the 
 consent of the State into which the corporation enters 
 to do business? (2) If the Federal Government cannot 
 grant this absolute right, can it confer the corporate 
 capacity to produce, to be exercised if the State does 
 not object? 
 
 (1) Mr. Garfield, in his report for 1904 as Commissioner 
 of Corporations, argued that the Federal Government 
 could grant to a federal corporation the absolute right 
 to produce, irrespective of the consent of the State in 
 which the production is undertaken, because such a power 
 is a necessary and absolutely essential incident to the 
 right to engage in interstate commerce. The two 
 functions of production and exchange, he says, are 
 inseparable from an economic standpoint; the sub- 
 ordinate power to produce is a natural and prima facie 
 corollary of the power to exchange, and a natural part 
 of the constitutional machinery for the regulation of com- 
 merce. He points out the fact that national banks have 
 many incidental powers which a^e not strictly necessary 
 for the carrying on of a banking business, as, for exam- 
 ple, the right to buy and sell exchange, coin, and bulUon, 
 to hold land for debts, and to discount notes, drafts, 
 and bills of exchange. Once granting the propriety of 
 the general power to regulate interstate commerce by 
 conferring corporate privileges to be exercised therein, 
 he argues, it necessarily follows that the discretion 
 
20 FEDERAL INCORPORATION. 
 
 of Congress in the matter is very broad, reaching to 
 every means, form, incidental, and detail not plainly 
 prohibited. 
 
 But this argument, it is believed, carries the doctrine 
 of McCullough V. Maryland too far. Production has 
 been definitely decided not to be a part of interstate 
 commerce.^ Production is the creation of an article, 
 and Congress has not the power to create the articles 
 which may become the subject of interstate commerce, 
 but merely to regulate that commerce. If the creation 
 of the thing to be regulated is an incident of the power 
 to regulate, then it would seem that the power to 
 produce can be derived as incidental to nearly any 
 one of the powers of Congress. Thus, since Congress 
 has the power to lay taxes, why could it not produce 
 the objects to be taxed, as an appropriate means of 
 exercising such power? The power to sell usually 
 accompanies the power to produce, but this is because 
 it is incidental to the right of ownership, and it does 
 not by any means follow that the power to produce 
 is incidental to the power to exchange. It is believed, 
 therefore, that Congress has no power to confer the 
 legal right to produce within a State as an incidental 
 means of regulating interstate commerce.^ 
 
 (2) But although this argument leads us to the con- 
 clusion that Congress cannot grant the legal right to 
 produce within a State, can it give to its own corporation 
 the corporate capacity to produce, to be exercised 
 with the consent of the State where production is 
 undertaken? 
 
 1 Kidd V. Pearson (1888), 128 U. S. 1; United States v. E. C. 
 Knight Co. (1895), 156 U. S. 1. 
 
 ^For an excellent discussion of this question see an article by 
 Mr. Wilgus, on "Federal License or Incorporation," 3 Mich. L. 
 Rev. 264. 
 
FEDERAL INCORPORATION. 21 
 
 It must be remembered that Congress as the national 
 legislature has not the same sovereign power as a State 
 to charter corporations. The corporation must be 
 created as a means of executing some express power, 
 and, therefore, the corporate powers granted must bear 
 some relation to the end to be accomplished. Since 
 manufacturing or production is not a part of inter- 
 state commerce nor of any other express power vested 
 in Congress, at first glance it would appear that Con- 
 gress had no power to grant such corporate capacity. 
 
 But it must also be remembered that Congress has 
 complete sovereign power over a certain section of the 
 country, — the Territories and the District of Columbia. 
 Within this section the granting of the corporate ca- 
 pacity is not limited to the accomplishment of a power 
 expressly conferred upon Congress by the Constitution. 
 It is entirely within the power of Congress to incorporate 
 a company to engage in production in either the Terri- 
 tories or the District of Columbia. 
 
 Since this is true, nq constitutional objection can be 
 perceived which would prevent Congress, in granting 
 a charter to engage in interstate commerce, from also 
 conferring the legal right to produce which could be 
 exercised within the Territories and the District of 
 Columbia. The corporation would thus have an exist- 
 ence as a national corporation engaged in interstate 
 commerce, in which character it could riot be excluded 
 by a State, and as a producing corporation of the 
 District of Columbia and the Territories, in which char- 
 acter it could be excluded by a State. That is, the func- 
 tion of interstate commerce could be exercised regardless 
 of the consent of the State which is entered by the 
 corporation; but the function of production, on the con- 
 trary, would be dependent upon the consent of the 
 State where the production is undertaken. To this 
 
22 FEDERAL INCORPORATION. 
 
 extent, and to this extent only, it is submitted, has 
 Congress the power to grant the right to produce. 
 
 The power of Congress, in creating a trading corpora- 
 tion, to lay restrictions upon the organization, conduct, 
 or management of the corporation seems unquestionable. 
 It was not doubted in the formation of the system of 
 transcontinental railroads by Congress. In United States 
 V. Stanford,^ it was said that Congress, in granting a 
 franchise to a State corporation, could, if it chose, make 
 the stockholders individually liable for the obligations of 
 the corporation. A fortiori could it impose such liability 
 upon the stockholders of a corporation of its own crea- 
 tion, and the right to prescribe similar conditions with 
 reference to the exercise of the corporate privileges in 
 interstate commerce would follow. 
 
 To summarize : Congress, as an appropriate means of 
 regulating commerce among the States, can incorporate 
 not only railroad and bridge companies, but also trading 
 companies. As an incidental right, a federal trading 
 corporation could make intrastate sales. It could also 
 be given the corporate power to produce, which could 
 be exercised as a legal right in the District of Columbia 
 and the Territories, and which could also be exercised 
 within a State, if the laws of the State did not deny such 
 right. 
 
 1 (1896), 161 U. S. 412, 433. 
 
CHAPTER III. 
 
 INCORPORATION UNDER POWERS OTHER THAN THAT 
 OVER COMMERCE. 
 
 We have concluded that, as a means of exercising its 
 power over commerce, Congress could incorporate com- 
 panies to engage in that commerce. It remains to be 
 considered whether the power to incorporate could be 
 exercised under other clauses of the Constitution, and 
 if so, whether it would be of any practical importance 
 so far as a general incorporation act is concerned. 
 
 Here, as in the discussion of incorporation under the 
 commerce clause, it is really a question of the extent 
 to which the principle of McCullough v. Maryland ^ can 
 be carried . The granting of a charter is never an ultimate 
 purpose in itself ; it is never the end in view, but is merely 
 a means of accomplishing some other purpose or end. 
 
 Unquestionably, a grant of corporate powers would be 
 an appropriate means of carrjdng into execution certain 
 others of the powers conferred upon Congress than those 
 over fiscal matters, under which the bank was incor- 
 porated, and the commerce power, upon which mainly 
 was justified the incorporation of the transcontinental 
 railroads. Thus Hamilton, in his letter to Washington 
 favoring the constitutionality of the national bank, sug- 
 gested that a corporation might be created in relation 
 to the collection of taxes." Similarly, the Post-Office 
 might be incorporated, or the Mint. 
 
 Granting, however, the constitutionality of legisla- 
 tion of this character by Congress, it would be of no 
 
 •■ 4 Wheat. 316. 
 
 2 Hamilton's Works (Putnam), Vol. 3, p. 445. 
 
24 FEDERAL INCORPORATION. 
 
 importance for our present purposes. A corporation 
 created under the taxing power could be given only those 
 rights which would be necessary to enable it to assess 
 and collect the taxes levied by the National Government. 
 No question of incidental powers could arise, as in the 
 case of the national bank or of a corporation chartered 
 to engage in interstate commerce. Accordingly, there 
 would be no grounds for justifying the enactment of a 
 general incorporation law by a reference to the taxing 
 power. A similar conclusion must be reached with 
 regard to the incorporation of the Post-Ofifice or the 
 Mint. 
 
 Under the power to establish post-roads, also. Congress 
 might grant charters of incorporation. The practice 
 of Congress in exercising this power has been to adopt 
 State roads as the route over which the mail should be 
 carried. Indeed for some time after the adoption of the 
 Constitution there was considerable doubt whether Con- 
 gress had the power to do more than designate the roads 
 which should be used as post-roads. But the better 
 view undoubtedly is that Congress, if it deems it neces- 
 sary and proper, may authorize the construction of a 
 road for postal purposes.' Incorporation would certainly 
 be an appropriate means of exercising this power. In 
 fact, the system of transcontinental railroads established 
 by Congress, although justified chiefly by the power over 
 interstate commerce, is also supported by the power to 
 establish post and military roads. But the only com- 
 panies which could be incorporated under this clause 
 would be those which could appropriately be employed 
 to carry the mails, and an attempt to pass a general 
 incorporation law for trading or industrial companies 
 would clearly exceed the power of Congress. 
 
 1 See 2 Story, sees. 1124^1150. 
 
FEDERAL INCORPORATION. 25 
 
 More difficult questions arise in connection with the 
 power to raise and support an army and to provide and 
 maintain a navy. It is necessary in properly equipping 
 an army or navy to supply vessels, arms, uniforms, and 
 the like. There is no question but that the Federal 
 Government can itself make these necessary articles; 
 in fact, this is what is done at the present time to a very 
 considerable extent. There also seems little doubt that 
 Congress could, in its discretion, incorporate a company 
 as a means of procuring these supplies. 
 
 If this be true, the question would then arise as to the 
 right of the corporation to manufacture and sell its 
 articles to private individuals within the State in which 
 it had established its business, and if it did possess this 
 right, to what extent it could be exercised. As we have 
 seen, a national bank, in addition to the duties it performs 
 for the Federal Government, carries on a private bank- 
 ing business, and it has been held that this is a necessary 
 incidental right. So also the railroads incorporated by 
 Congress engage in transportation wholly within the 
 limits of a single State; and we have concluded that a 
 federal interstate trading company would have the in- 
 cidental right to transact an intrastate business. It 
 might well be that a corporation created to supply cloth- 
 ing to the Army and Navy could not perform these duties 
 satisfactorily unless it were allowed to carry on a pri- 
 vate business. Under such circumstances, it seems dif- 
 ficult to escape from the conclusion that the reasoning 
 applied in the case of the national bank would also jus- 
 tify the carrying on of a private manufacturing business 
 by such corporation as we have supposed. 
 
 But if Congress should abuse this power, and attempt 
 to gain control of occupations now under State control, 
 the remedy would lie in the hands of the Supreme Court. 
 That tribunal will not question the motives of Congress 
 
26 FEDERAL INCORPORATION. 
 
 when an act is a clear exercise of an express power,' but 
 the purpose or end of the legislation in question will be 
 investigated to determine if it is actually within the 
 express power. The mere fact that Congress declares 
 that the end is within an express power will not prevent 
 the court from questioning this, and if the real purpose 
 is to reach subjects which are beyond the power of Con- 
 gress, the act will be declared unconstitutional. Thus, 
 in sustaining the power to incorporate the bank, Chief 
 Justice Marshall said: "But, were its necessity less 
 apparent, none can deny its being an appropriate meas- 
 ure ; and if it is, the degree of its necessity, as has been 
 very justly observed, is to be discussed in another place. 
 Should Congress, under the pretext of executing its 
 powers, pass laws for the accomplishment of objects not 
 intrusted to the government, it would become the pain- 
 ful duty of this tribunal, should a case requiring such a 
 decision come before it, to say that such an act was not 
 the law of the land ; but when the law is not prohibited, 
 and is really calculated to effect any of the objects in- 
 trusted to the government, to undertake here to inquire 
 into the degree of its necessity, would be to pass the line 
 which circumscribes the judicial department, and to 
 tread on legislative ground." ^ 
 
 Thus, if Congress should incorporate manufacturing 
 companies generally, declaring its purpose to be the fur- 
 nishing of supplies to the army and navy, it would be clear 
 that the real object was not the execution of this power, 
 but the attainment of an end not within any power 
 vested by the Constitution in the Federal Government. 
 
 Similarly, it might be argued that the Federal Govern- 
 ment could itself go into a private business as a means 
 
 » McCray v. United States (1904), 195 U. S. 27. 
 2 McCullough V. Maryland, 4 Wheat. 316, 423. 
 
FEDERAL INCORPORATION. 27 
 
 of raising revenue, and if so, companies might be incor- 
 porated for this purpose. A State, for example, as a 
 sovereign power, may engage in a private business.^ 
 
 But, in the first place, it seems doubtful if the Federal 
 Government can enter a private occupation for the pur- 
 pose of raising revenue. A State has all the sovereign 
 powers which are not prohibited by the Constitution of 
 the United States, or by its own constitution, and it can 
 raise revenue by carrying on a business for itself, because 
 it is nowhere prohibited to do so. But the Federal Gov- 
 ernment has only those powers which are conferred upon 
 it by the Constitution, and nowhere in that instrument 
 is it authorized to engage in a private business. It is 
 granted the power to raise revenue, but the method is 
 specified — by taxes, duties, imposts, and excises; and, 
 in view of this, it is doubtful if it could be said that enter- 
 ing a private occupation would also be an appropriate 
 means for the government to employ. 
 
 But, granting that it would be, it would afford no 
 justification for a general federal incorporation act. It 
 might be within the power of Congress to incorporate 
 a company in which the United States owned all the 
 stock, but the problem would be entirely different if a 
 bare majority or only one share of stock was retained by 
 the government, and the remainder purchased by pri- 
 vate individuals. The only practical method of incor- 
 porating generally would be for the government to own 
 a very small number of shares, and if legislation provid- 
 ing for this were enacted by Congress, it could hardly be 
 contended that the end was to raise revenue for the 
 United States. It would clearly be an unconstitutional 
 attempt to extend the power of Congress under the pre- 
 text of exercising one of its legitimate powers. 
 
 ' Vance v. Vandercook County (1887), 170 U. S. 438. 
 
28 FEDERAL INCORPORATION. 
 
 Upon the whole, therefore, we are led to the conclusion 
 that under no power other than that over interstate 
 commerce can a practical working incorporation act be 
 justified. 
 
CHAPTER IV. 
 
 METHODS OF OBTAINING COMPULSORY FEDERAL 
 INCORPORATION. 
 
 Granting that federal incorporation would be an 
 effective means of regulating the interstate commerce 
 transacted by corporations, the question arises whether 
 Congress could make this incorporation compulsory. 
 
 It has been contended that this step would be unneces- 
 sary — that corporations would voluntarily avail them- 
 selves of the opportunity to become established on a 
 secure basis, free from State interference; that investors 
 and customers would naturally prefer to deal with a 
 business sanctioned by the Federal Government. 
 
 But, while this would be true to a certain extent, it 
 must be remembered that a federal incorporation law, 
 in placing interstate commerce on a more secure and 
 definite basis, wo.uld have for its object, not only the 
 removal of corporations engaged in such commerce from 
 diverse and conflicting State laws, but also the improve- 
 ment of the corporation itself — the protection of those 
 dealing with it from the abuse of corporate privileges^ 
 from overcapitalization, lack of publicity, and the like. 
 As a result, there would be features objectionable to 
 promoters and incorporators which the advantages of 
 federal incorporation would not, in many cases, over- 
 come. And therefore, in these cases, incorporation, as at 
 present, would still be sought in those States whose laws 
 are most lax and favorable to the incorporators and 
 promoters. 
 
 Accordingly, the question must be considered whether 
 it is within the power of Congress to require all 
 
30 FEDERAL INCORPORATION. 
 
 corporations engaged in interstate commerce to procure a 
 federal charter. Several methods have been suggested, by 
 each qf which it is contended that this result can be 
 accomplished by Congress without any violation of the 
 Constitution : 
 
 1. The articles manufactured or otherwise produced 
 by State corporations may be excluded from the chan- 
 nels of interstate commerce. 
 
 2. All corporations not incorporated by Congress 
 may be prohibited from engaging in interstate commerce. 
 
 3. A prohibitive tax may be imposed upon the inter- 
 state business transacted by State-chartered corpora- 
 tions. 
 
 4. State corporations which carry on interstate com- 
 merce may be denied the use of the mails. 
 
 The constitutionality of each of these proposed methods 
 will be discussed in the order named. 
 
 First Method: Exclusion of the Products of State 
 Corporations from Interstate Commerce. 
 
 To determine if this power resides in Congress it is 
 necessary to decide two questions: (l) Does the power 
 to regulate include the power to prohibit? (2) If this 
 be answered in the affirmative, is there any other clause 
 in the Constitution which limits the power of Congress 
 to enact the legislation under consideration? 
 
 Upon the first question there has been and is much 
 difference of opinion. There are three possible ways of 
 viewing the power in the hands of Congress: — 
 
 (1) The broad view that standing by itself the power 
 is complete and absolute, and confers upon Congress 
 entire jurisdiction over interstate commerce. In other 
 words, the same power which prior to the adoption of 
 the Constitution existed in the individual States, is by 
 
FEDERAL INCORPORATION. 31 
 
 this clause vested in the Federal Government. It 
 therefore includes the power both to license and to 
 destroy. The only limitations upon the exercise of 
 the power, if any, are to be found in other parts 
 of the Constitution, and not in the grant of the 
 power itself. 
 
 (2) The power is limited by the very nature of the 
 word "regulate," which presupposes the existence of a 
 commerce to be regulated, and falls short of the power to 
 put an end arbitrarily to that commerce. To regulate 
 is merely to prescribe the rules by which an existing 
 commerce shall be carried on, and it is necessarily not 
 a regulation to destroy the very thing which is to be 
 regulated. Under this view a prohibition would be valid 
 only when calculated to facilitate or protect interstate 
 commerce itself; as, for example, the exclusion of 
 diseased cattle. 
 
 (3) The intermediate view that, while the power to 
 regulate does not include the power to destroy arbitra- 
 rily, yet since it is a power conferred upon a sovereign 
 nation, it vests in that sovereign a complete police power 
 over the subject to be regulated. Therefore, not only 
 would a prohibition be valid which facilitates interstate 
 commerce, but also one which has for its object the 
 protection of the health, morals, and safety of the 
 people, or which is designed to promote the public 
 good. 
 
 It cannot be said that the Supreme Court has ever 
 definitely and finally adopted any one of these views. 
 The legislation which we are considering, — the exclu- 
 sion from interstate commerce of legitimate articles 
 because of their production by State corporations, — 
 is undoubtedly within the first view. It is equally cer- 
 tain that it is not within the second view, since it cannot 
 be said to facilitate or protect the free passage of other 
 
32 FEDERAL INCORPORATION. 
 
 articles thiough the channels of interstate commerce. 
 To be a regulation within the third view, it is necessary 
 that the act be a valid police regulation. 
 
 The exact scope of the police power is a matter of great 
 uncertainty. Where State legislation is in question, it 
 is ceitain that the protection of the health, morals, and 
 safety of the public is within a legitimate exercise of 
 this power. But from recent decisions in the Supreme 
 Court it may safely be asserted that any measure 
 passed for the immediate and actual good of the public 
 is comprised within the scope of the police power.^ 
 Accordingly, if Congress should, as a matter of public 
 policy, declare that all corporations which had grown 
 beyond a certain size were dangerous to the property 
 interests and the welfare of the community, and should 
 exclude their products from interstate commerce, it 
 might be that such legislation would be within the 
 police power. But it will be safer to conclude that a 
 broad prohibition extending to the articles produced 
 by all State corporations, of whatever size, would not 
 be so clearly a measure for the immediate and actual 
 good as to be within the power of police. 
 
 Therefore, unless the first view be adopted, the 
 prohibition in question would not be within the con- 
 stitutional power of Congress over commerce. If it be 
 admitted that the first view is correct, the act would be 
 a regulation of commerce, but the further question will 
 remain whether it would be of such- a character as to be 
 prohibited by other parts of the Constitution. Before 
 attempting any discussion of this question it is of course 
 necessary to examine the actual cases in which Con- 
 gress has exercised a prohibitory power over interstate 
 
 '^ Noble State Bank v. Haskell (1911), 219 U. S. 104; McLean v. 
 Arkansas (1909), 211 U. S. 539. See post, pages 150-152. 
 
FEDERAL INCORPORATION. 33 
 
 commerce, in order to ascertain to which view the Su- 
 preme Court is most likely to adhere. 
 
 The most important example of prohibition is that 
 furnished by the decision in the Lottery Case,^ in which 
 a majority of the court held that lottery tickets were 
 subjects of commerce, and that Congress, under its 
 power to regulate commerce, could prohibit their car- 
 riage between the States. Several illustrations were 
 given by the court of cases in which regulation had 
 appropriately taken the form of prohibition. 
 
 (a) Diseased Cattle: In the first place, there is no 
 doubt but that Congress may prevent the transportation 
 of diseased cattle from one State to another. In fact, 
 such action has already been taken.* 
 
 But this establishes no precedent for the prohibition 
 of any legitimate article which is not harmful. Under 
 the decisions of the court, articles infected with disease 
 are not legitimate subjects of commerce, and may even 
 be excluded by a State without interfering with the juris- 
 diction of Congress over interstate commerce.' Such 
 action on the part of Congress is within its power to 
 regulate commerce under any one of the three views 
 taken. The result is to protect and benefit interstate 
 commerce itself by keeping its channels free from 
 diseases which may be harmful to sound articles of 
 commerce. 
 
 (b) Anti-Trust Legislation: As a second illustration, 
 the Sherman Anti-Trust Act was cited. "The object 
 of that act was to protect trade and commerce against 
 unlawful restraints and monopolies. To accomplish 
 
 ' (1903), 188 U. S. 321. 
 
 " Act May 29, 1884, c. 60, 23 Stat. 32. See Rassmussen v. 'daho 
 (1901), 181 U. S. 198; Reid v. Colorado (1902), 187 U. S. 137. 
 ' Reii V. Colorado (1902), 187 U. S. 137. 
 
34 FEDERAL INCORPORATION. 
 
 that object Congress declared certain contracts to be 
 illegal. That act, in effect, prohibited the doing of cer- 
 tain things, and its prohibitory clauses have been sus- 
 tained in several cases as valid under the power of 
 Congress to regulate interstate commerce."* 
 
 But this also is not an example of an absolute prohi- 
 bition. By declaring illegal all contracts in restraint of 
 trade, the result is clearly to facilitate interstate com- 
 merce. The act not only does not prohibit the trans- 
 portation of legitimate articles, but it removes all 
 contracts or combinations which may obstruct interstate 
 commerce and prevent its free passage. It is a regula- 
 tion which is likewise within the power of Congress under 
 each of the three views. 
 
 (c) The Wilson Act: The case of In re Rahrer^ was 
 cited as a third illustration. Prior to the Wilson Act, 
 spirituous liquor had been held to be a legitimate sub- 
 ject of commerce, and the power of a State to prohibit 
 its importation from another State or its sal6 in the 
 original package was denied. In 1890, by the Wilson 
 Act, Congress provided that upon arrival within a State 
 or Territory all spirituous liquor should become subject 
 to the police power of such State or Territory, and should 
 not be exempt by reason of being in the original pack- 
 age. This act was held constitutional in the case of In 
 re Rahrer, and a State law prohibiting the sale of spirituous 
 Uquor was held to apply to the sale in the original pack- 
 age of liquor brought from another State. Thus the 
 act of Congress, it is argued, made it impossible to trans- 
 port liquor into prohibitory States and there dispose of 
 it by sale, which before the act could be done without 
 interference. 
 
 '^ Lottery Case (1903), 188 U. S. 321, 359. 
 " (1891), 140 U. S. 545. 
 
FEDERAL INCORPORATION. 35 
 
 This, however, does not appear to be a true example of 
 prohibitory legislation by Congress. A State cannot 
 directly regulate interstate commerce, but in the exer- 
 cise of its reserved powers laws may be passed which in 
 their operation affect that commerce. The validity of 
 such laws in their effect upon interstate commerce de- 
 pends lipon whether or not they are in conflict with the 
 will of Congress. By the "doctrine of silence," when 
 the subject is of national concern, the will of Congress, 
 as expressed by its silence or inaction, is that the passage 
 of commerce among the States shall be free and unre- 
 stricted by State laws.' But Congress may break its 
 silence a.nd declare that certain or all laws passed under 
 the reserved powers of the States shall not be invalid 
 because they may incidentally affect interstate com- 
 merce. And this is what was done by the Wilson Act. 
 As a result of it. State laws which had been held by the 
 court to be inoperative as applied to the sale in the 
 original package of liquor brought into the State, because 
 in conflict with the law of the United States, were re- 
 garded by the Supreme Court as no longer in conflict 
 with the federal law. The legislation of Congress itself 
 did not directly prohibit interstate commerce in any 
 respect. 
 
 It might be argued that the so-called "commodities 
 clause" of the Hepburn Act furnishes an example of 
 prohibitory legislation by Congress under the commerce 
 power. In the case of United States v. Delaware and 
 Hiidson R. R. Co? it was held that the effect of this 
 clause was to prohibit the transportation by a common 
 carrier of a commodity in which the carrier had a legal 
 
 ^County of Mobile v. Kimball (1880), 102 U. S. 691; Leisy v. 
 Harden (1890), 135 U. S. 100. 
 " (1909), 213 U. S. 366. 
 
36 FEDERAL INCORPORATION. 
 
 interest, direct or indirect, at the time of the transporta- 
 tion. 
 
 But it seems equally clear that this is a valid regula- 
 tion within any view of the power of Congress. There 
 is no prohibition of interstate commerce in any particu- 
 lar commodity, but only of transportation by a carrier 
 which is interested in the commodity. The object is to 
 prevent discrimination in rates and to secure equal ser- 
 vice for all. 
 
 Thus none of these illustrations furnish precedents for 
 the absolute exclusion of legitimate articles from inter- 
 state commerce. They are not inconsistent with any 
 view of the power to regulate possessed by Congress. 
 A step in advance, however, was taken in the Lottery 
 Case itself. By that case it appears to be definitely 
 decided that Congress has a power of police over inter- 
 state commerce. Lottery tickets were regarded as harm- 
 ful to the morals of the community, and it was held that 
 their passage through the channels of interstate commerce 
 could be prohibited by Congress. The court, after 
 reviewing the prior adjudications, said: 
 
 "They also show that the power to regulate commerce 
 among the several States is vested in Congress as abso- 
 lutely as it would be in a single government, having in 
 its constitution the same restrictions on the exercise of 
 the power as are found in the Constitution of the United 
 States; that such power is plenary, complete in itself, 
 and may be exerted by Congress to its utmost extent, 
 subject only to such limitations as the Constitution im- 
 poses upon the exercise of the powers granted by it; 
 and that in determining the character of the regulations 
 to be adopted. Congress has a large discretion which is 
 not to be controlled by the courts, simply because, in 
 their opinion, such regulations may not be the best or 
 most effective that could be employed. . . . 
 
FEDERAL INCORPORATION. 37 
 
 "If a State, when considering legislation for the sup- 
 pression of lotteries within its own limits, may properly 
 take into view the evils that inhere in the raising of money, 
 in that mode, why may not Congress, invested with the 
 power to regulate commerce among the several States, 
 provide that such commerce shall not be polluted by 
 the carrying of lottery tickets from one State to another? 
 . . . We should hesitate long before adjudging that an 
 evil of such an appalling character, carried on through 
 interstate commerce, cannot be met and crushed by the 
 only power competent to that end. We say competent 
 to that end, because Congress alone has the power to 
 occupy, by legislation, the whole field of interstate com- 
 merce. ... If the carrying of lottery tickets from one 
 State to another be interstate commerce, and if Congress 
 is of opinion that an effective regulation for the suppres- 
 sion of lotteries, carried on through such commerce, is 
 to make it a criminal offense to cause lottery tickets to 
 be carried from one State to another, we know of no 
 authority in the courts to hold that the means thus de- 
 vised are not appropriate and necessary to protect the 
 country at large against a species of interstate commerce 
 . . , which has grown into disrepute and has become 
 offensive to the entire people of the Nation." 
 
 The long quotation seems justified to illustrate the 
 broad attitude with which the court views the power over 
 commerce which is vested in Congress. The decision 
 itself appears entirely sound. It is difficult to perceive 
 why Congress should not possess a complete police power 
 over interstate commerce. The exclusive power of regu- 
 lation is vested in the Federal Government, and it is 
 right and proper that that government should have all 
 the governmental powers which may be required for 
 complete regulation. It would be a weak power of reg- 
 ulation if the channels of interstate commerce could not 
 
* 
 38 FEDERAL INCORPORATION. 
 
 be kept free from matter which is directly harmful to 
 the morals or safety of the country at large. A State 
 cannot exclude from its limits a legitimate subject of 
 commerce, even though it may be detrimental to the 
 morals of the community,* and if such a power did not 
 exist in the Federal Government, the agency of interstate 
 commerce could be freely employed, as was declared by 
 the court, to overthrow the declared policy of the States. 
 
 Apparently, therefore, the second and narrow view 
 of the power of Congress to regulate commerce has 
 been definitely abandoned by the Supreme Court. A 
 prohibition within the third view would, under the Lot- 
 tery Case, be constitutional. But we have concluded 
 that the prohibition under discussion could hardly be 
 said to be a police regulation. Will the further step be 
 taken and the power to regulate vested in a sovereign 
 government be held to include necessarily the right to 
 prohibit at discretion? 
 
 Under the power "to establish post-offices and post- 
 roads," it has been held that Congress may prohibit the 
 transportation of matter through the mails.^ In deliv- 
 ering the opinion of the court in the case cited, Mr. 
 Justice Field said: "We do not think that Congress pos- 
 sesses the power to prevent the transportation in other 
 ways, as merchandise, of matter which it excludes from 
 the mails. To give efficiency to its regulations, and pre- 
 vent rival postal systems, it may perhaps prohibit the 
 carriage by others for hire, over postal routes, of articles 
 which legitimately constitute mail matter, in the sense 
 in which those terms were used when the Constitution 
 was adopted, consisting of letters, and newspapers and 
 
 1 See Leisy v. Harden (1890), 135 U. S. 100; Schollenberger v. 
 Pennsylvania (1898), 171 U. S. 1. 
 2£« parte Jackson (1877), 96 U. S. 727. 
 
FEDERAL INCORPORATION. 39 
 
 pamphlets, when not sent as merchandise; but further 
 than this its power of prohibition cannot extend." This 
 dictum was approved in the later case of In re Rapier} 
 
 In the' Lottery Case, in answer to the argument that if 
 Congress could exclude lottery tickets, the principle would 
 lead necessarily to the conclusion that any article, of 
 whatever kind or nature, could be excluded, regardless 
 of the motive of Congress, Mr. Justice Harlan said: 
 "It will be time enough to consider the constitutionality 
 of such legislation when we must do so. The present 
 case does not require the court to declare the full extent 
 of the power that Congress may exercise in the regula- 
 tion of commerce among the States. We may, however, 
 repeat, in this connection, what the court has heretofore 
 said, that the power of Congress to regulate commerce 
 among the States, though plenary, cannot be deemed 
 arbitrary, since it is subject to such limitations or re- 
 strictions as are prescribed by the Constitution. This 
 power, therefore, may not be exercised so as to infringe 
 rights secured or protected by that instrument." * 
 
 From this the conclusion may be drawn that, since the 
 power over interstate commerce is plenary, it may take 
 the form of absolute prohibition; that the only restric- 
 tions upon its exercise are to be found, not in the grant 
 of the power itself, but in other parts of the Constitu- 
 tion. In the Northern Securities Case, the court said, 
 "Is there, then, any escape from the conclusion that, 
 subject only to such restrictions, the power of Congress 
 over interstate and international commerce is as full 
 and complete as is the power of any State over its domes- 
 tic commerce? " ' Unquestionably, a State has absolute 
 
 i(1892),143U. S. 110, 133. 
 
 2 188 U. S. 321, 362. 
 
 « (1903), 193 U. S. 197, 342. 
 
40 FEDERAL INCORPORATION. 
 
 power over its domestic commerce and could exercise 
 this power by prohibition if there were no constitu- 
 tional restrictions upon its exercise. And there is un- 
 doubtedly a strong tendency noticeable in the decisions 
 of the Supreme Court to regard the commerce clause as 
 a transfeience to the Federal Government of the same 
 power which, prior to the adoption of the Constitution, 
 was vested in the individual States. 
 
 Moreover, it is diiificult to perceive why this view is 
 not sound. Prior to the Constitution the States had 
 complete control over interstate commerce. The power 
 to regulate was granted to the Federal Goverrunent, and 
 if this did not vest in Congress as complete control as 
 the States formerly had, what became of the residue? 
 It certainly does not remain in the States, and yet the 
 only clause removing any power from the States is that 
 which grants to Congress the power to regulate. If the 
 power to regulate does not include the power to prohibit, 
 why should not the power to prohibit interstate commerce 
 remain in the States, and Congress merely have the 
 power to prescribe rules for such commerce as the States 
 permit to be carried on? It is submitted that the better 
 view is, that the plenary power which the grant to a 
 sovereign government of an exclusive power to regulate 
 vests in that goverimient should amount to full control 
 over the subject to be regulated, including the right to 
 prohibit when the legislative body deems it necessary. 
 
 The power over interstate commerce is granted in the 
 same words as that over foreign commerce, and it is 
 settled that the latter power is complete, and may extend 
 to prohibition, as is illustrated by the non-importation 
 and embargo laws.^ The Supreme Court has said many 
 times, that "the power to regulate commerce among the 
 
 ' SeeButtfield v. Stranahan (1904), 192 U. S. 470. 
 
FEDERAL INCORPORATION. 41 
 
 several States is granted to Congress in terms as abso- 
 lute as is the power to regulate commerce with foieign 
 nations." * Therefore, so far as the grant of the power 
 itself is concerned, no reason can be perceived why it 
 does not include the power to prohibit to the same ex- 
 tent as does the power to regulate foreign commerce. 
 
 But it does not necessarily follow that, because a pro- 
 hibition may be a regulation of commerce, therefore 
 Congress has absolute power to prohibit interstate com- 
 merce in any legitimate article of commerce. At the 
 present time, as we have intimated, it cannot be doubted 
 that the exercise of the commerce power is subject to the 
 restrictions and limitations imposed upon the Federal Gov- 
 ernment by other provisions of the Constitution.^ Is 
 there, then, any such limitation or restriction which would 
 render unconstitutional the exclusion from interstate 
 commerce of articles of commerce solely because of the 
 fact that they have been produced by State corporations? 
 
 The only limitations which seem to have any applica- 
 tion are those to be found in the Fifth Amendment. 
 There are two rules in that amendment designed to pro- 
 tect property: 
 
 "No person shall be . . . deprived of life, liberty, 
 or property, without due process of law; nor shall pri- 
 vate property be taken for public use without just com- 
 pensation." 
 
 A prohibition of the transportation of property in 
 interstate commerce is clearly not a taking of property 
 
 ^Brown v. Houston (1885), 114 U. S. 622, 630. See also Bow- 
 man V. Railway Co. (1888), 125 U. S. 465, 482; Crutcher v. Ken- 
 tucky (1891), 141 U. S. 47, 58; Pittsburg Coal Co. v. Bates (1895), 
 156 U. S. 577, 587; Lottery Case (1903), 188 U. S. 321, 351. 
 
 2 Monongahela Navigation Co. v. United States (1893), 148 U. S. 
 312; Interstate Commerce Commission v. Brimson (1894), 154 U. S. 
 447. 
 
42 FEDERAL INCORPORATION. 
 
 for public use without just compensation within the 
 meaning of the amendment. Therefore the only rele- 
 vant clause is that which prohibits a deprivation of life, 
 liberty, or property without due process. 
 
 If the question were new it might be argued that this 
 clause was meant to prevent arbitrary or illegal oppres- 
 sion by the executive or judicial branches of the govern- 
 ment only, and not by the operation of a law duly passed 
 by the legislature. The clause is undoubtedly derived 
 from that part of Magna Charta which provided : 
 
 "No free man shall be seized, or imprisoned, or dis- 
 possessed, or outlawed, or any way destroyed; nor will 
 we condemn him, nor will we commit him to prison, ex- 
 cepting by the legal judgment of his peers, or by the 
 laws of the land." 
 
 The terms "due process of law" and "laws of the land" 
 would appear to be practically synonymous. It is clear 
 that the clause in Magna Charta was intended as a re- 
 straint upon the action of the king only, and did not in 
 any way impede the action of Parliament. And it may 
 well be that the framers of the amendment had the same 
 idea in view; that they intended to express the prin- 
 ciple that the Federal Government was a government of 
 laws and not a government of men. This question, how- 
 ever, is no longer open, but has been definitely decided. 
 In the early case of Murray v. Hoboken Land Co.,^ it 
 was said: "The article is a restraint on the legislative 
 as well as on the executive and judicial powers of the 
 government, and cannot be so construed as to leave Con- 
 gress free to make any process 'due process of law' by 
 its mere will." Apparently, the strongest argument in 
 favor of this position is that while in England the action 
 of Parliament is unrestrained, the provisions of Magna 
 
 1 (1885), 18 How. (U. S.) 272. 
 
FEDERAL INCORPORATION. 43 
 
 Charta not limiting or defining the functions of that 
 body, so that, theoretically, no law is beyond the scope 
 of its powers, yet this is not true in the United States; 
 here the Federal Government was created by the Con- 
 stitution, and the functions of each department were 
 expressly defined, and accordingly, each lirhitation or 
 restriction applies to each department of that govern- 
 ment, unless a contrary intention appears in the context 
 of the limitation or restriction. 
 
 But though it is therefore settled that the clause oper- 
 ates as a restraint upon the legislative action of Congress, 
 yet, in the absence of direct decision, it may be contended 
 very plausibly that this is only true so far as legislation 
 upon matters of procedure is concerned. Unquestion- 
 ably, a broader construction has been given to the same 
 clause in the Fourteenth Amendment. That amend- 
 ment operates £is a restraint upon the action of the 
 States, and it has been held to prevent an arbitrary 
 deprivation of property, although the law which has 
 this effect has no relation to judicial proceedings. But 
 to this it may be answered that the setting of the "due 
 process" clause in the Fifth Amendment is different from 
 that in the Fourteenth. The Fourteenth Amendment 
 deals with the question of citizenship of the United 
 States and with the rights of such citizens and the rights 
 of persons within the individual States. The other 
 clauses of the Fifth Amendment, on the other hand, deal 
 entirely with matters of administrative justice. 
 
 But although it does not appear that this point has 
 been discussed in any case, there seems little doubt 
 but that the words in the Fifth Amendment would be 
 given the same construction which has been adopted 
 in the Fourteenth Amendment. In cases dealing with 
 the latter, it has been said that the phrase is the same as 
 that in the earlier amendment, except, of course, that 
 
44 FEDERAL INCORPORATION. 
 
 the restriction is upon the States instead of the Federal 
 Government.* Therefore it is much safer to assunle 
 that the Supreme Court would hold that any legislation 
 by Congress, even though not relating to matters of 
 administrative justice, must conform to the requirement 
 of due process. 
 
 Admitting this, what, then, is the test by which we may 
 decide whether a particular act of Congress does or does 
 not violate the prohibition? Or, to put the question in 
 another way, unquestionably Congress has a wide dis- 
 cretion to change old laws or enact new ones, but how 
 far is this discretion governed by the fact that all 
 persons within the jurisdiction must be accorded due 
 process of law? 
 
 It is not possible from an examination of the cases to 
 obtain a definite conception of due process, from which 
 it can be ascertained in advance with certainty whether 
 or not a given law is objectionable to the clause. It 
 seems clear, however, from an examination of the de- 
 cisions interpreting the clause in the Fourteenth Amend- 
 ment, that the purpose of the limitation is to protect the 
 individual from an arbitrary exercise of the powers of 
 government, from legislation which affects private rights 
 and which shocks existing conceptions of what is funda- 
 mentally fair and right. Some of the definitions which 
 occur most frequently are as follows: 
 
 "Due process of law within the meaning of the Four- 
 teenth Amendment is secured if the laws operate on all 
 alike, and do not subject the individual to an arbitrary 
 exercise of the powers of government.^ 
 
 ^Slaughter House Cases (1872), 16 Wall. 36; Tonowanda v. 
 Lyon (1901), 181 U. S. 389, 391; Twining v. New Jersey (1908), 
 211 U.S. 78. 
 
 ''Giozza V. Tiernan (1893), 148 U. S. 657, 662. See also Yick 
 Wo V. Hopkins (1886), 118 U. S. 356; Dent v. West Virginia (1889), 
 
FEDERAL INCORPORATION. 45 
 
 The words "due process of law" "were intended to 
 secure the individual from the arbitrary exercise of the 
 powers of government, unrestrained by the established 
 principles of private rights and distributive justice." ^ 
 
 "The great purpose of the requirement (due process 
 of law) is to exclude everything that is arbitrary and 
 capricious in legislation affecting the rights of the citi- 
 zen." 2 
 
 All rights of life, liberty, and property are held subject 
 to laws passed by the sqvereign for the public good. As 
 a result there may be many cases of what may be re- 
 garded as a deprivation of such rights, which are not 
 prohibited by the Fifth Amendment. Illustrations of 
 this are furnished by the operation of laws passed under 
 the police power, the power of eminent domain, and the 
 taxation power. It is an unjust, arbitrary exercise of 
 the powers conferred upon^ Congress which is prevented 
 by the necessity of due process. 
 
 With these principles in mind, let us consider the 
 exact result of legislation by Congress which prohibits 
 the transportation in interstate commerce of all articles 
 produced by State corporations. 
 
 As the result of such a statute, not only would State 
 corporations be prohibited from directly shipping their 
 productions between the States, but the prohibition 
 would also apply to individuals who had purchased such 
 commodities from the State corporations. No matter 
 how far removed from the corporation the goods might 
 be, the fact that they were originally produced by such 
 
 129 U. S. 114, 124; Leeper v. Texas (1891), 139 U. S. 462, 468; 
 Yesler v. Commissioners (1892), 146 U. S. 646, 665; Duncan v. Mis- 
 souri (1894), 152 U. S. 377, 382. 
 
 ^Bank V. Okely (1819), 4 Wheat. 235, 244; Twining v. New 
 Jersey (1908), 211 U. S. 78, 101. 
 
 2 Dent V. West Virginia (1889), 129 U. S. 114, 124. 
 
46 FEDERAL INCORPORATION. 
 
 a body would prevent their transportation at any time 
 through the channels of interstate commerce. 
 
 If the statute should be unconstitutional as applied to 
 the prohibition of the goods in the hands of individuals, 
 it would be unconstitutional in its entirety. Unless a 
 federal statute is clearly separable, the Supreme Court 
 will not hold it constitutional in part and unconstitu- 
 tional in another part.^ So here it would seem apparent 
 that the law in question would be in its nature insepara- 
 ble, and the court could not divide its provisions and 
 hold the prohibition constitutional with reference to ar- 
 ticles shipped directly by State corporations, and uncon- 
 stitutional when applied to the goods in the hands of 
 individuals at the time of the shipment. The constitu- 
 tionality of the statute will therefore first be considered, 
 viewing it in its most objectionable sense, as applied 
 to the transportation of goods produced by State cor- 
 porations but in the hands of individuals at the time of 
 shipment; after which its effect as applied to the cor- 
 porations involved, and with reference to the sovereignty 
 of the States, will be discussed. 
 
 The right to trade, it appears, is a right or privilege 
 possessed by all persons subject to the jurisdiction of the 
 Federal Government. The character of the right is not 
 altered by the fact that the trade is carried on between 
 several States, instead of entirely within the limits of 
 one State. The Constitution did not grajit the right to 
 engage in interstate commerce, but merely placed the 
 regulation of it in the hands of Congress. In Gibbons v. 
 Ogden, Chief Justice Marshall said: "In pursuing the 
 inquiry at the bar, it has been said, that the Constitution 
 does not confer the right of intercourse between State 
 
 ^Trade-Mark Cases (1879), 100 U. S. 82; Employers' Liability 
 Cases (1908), 207 U. S. 463. 
 
FEDERAL INCORPORATION. 47 
 
 and State. That right derives its source from those laws 
 whose authority is recognized by civilized man through- 
 out the world. That is true. The Constitution found 
 it an existing right, and gave to Congress the power to 
 regulate it."^ And in Crutcher v. Kentucky, the court, 
 in speaking through Mr. Justice Bradley, said: "To 
 carry on interstate commerce is not a franchise or privi- 
 lege granted by the State. It is a right which every 
 citizen of the United States is entitled to exercise under 
 the Constitution and laws of the United States." ^ 
 
 The right to dispose of one's property by interstate 
 sales is both a right of liberty and of property within the 
 meaning of those words in the amendment. "The liberty 
 mentioned in that amendment means, not only the right 
 of the citizen to be free from the mere physical restraint 
 of his person, as by incarceration, but the term is deemed 
 to embrace the right of the citizen to be free in the enjoy- 
 ment of all his faculties; to be free to use them in all 
 lawful ways; to live and work where he will; to earn 
 his livelihood by any lawful calling; to pursue any liveli- 
 hood or avocation, and for that purpose to enter into all 
 contracts which may be proper, necessary, and essential 
 to his carrying out to a successful conclusion the pur- 
 poses above mentioned." ^ That the right is also one of 
 property seems unquestionable. 
 
 But, as mentioned, all rights of liberty and property 
 are held subject to the reasonable exercise of the powers 
 of government for the public benefit. The prohibition 
 in question, however, is not an exercise of the police 
 power of Congress over commerce, nor of the taxing 
 
 ' (1824), 9 Wheat. 1, 211. See also Crowley v. Christensen (1890),- 
 137 U. S. 86, 89. 
 2 (1891), 141 U. S. 47, 57. 
 ' AUgeyer v. Louisiana (1897), 165 U. S. 578, 589. 
 
48 FEDERAL INCORPORATION. 
 
 power, nor that of eminent domain. It is a regulation of 
 commerce, but the question remains whether or not 
 it is an arbitrary exercise of that power, aiid there- 
 fore a deprivation without due process of the liberty 
 and property right to sell articles in interstate com- 
 merce. 
 
 When an act is clearly a legitimate exercise of a power 
 conferred upon Congress, it is settled that the court will 
 not inquire into the motives which prompted the legis- 
 lation. ^ But when a law on its face appears arbitrary, 
 there must be some valid reason justifying it, or it will 
 be violative of due process. Any act which deprives a 
 citizen of a vested right is arbitrary, it is believed, unless 
 it is shown that it was passed for the furtherance of some 
 public policy. For example, the act prohibiting the trans- 
 portation of lottery tickets in interstate commerce was 
 justified upon the ground that it was for the protection 
 of the morals of the public. 
 
 The prohibition which we are discussing is arbitrary 
 on its face. It deprives the individual of his vested right 
 to trade between the States, in so far as he is possessed 
 of goods which have been originally manufactured or pro- 
 duced by a State corporation, whereas goods of exactly 
 the same character and quality, but not the product of 
 such corporations, may have a free passage. And it is 
 believed that no sound reason can be found which justi- 
 fies such action. The ultimate purpose, — to compel 
 all corporations which may engage in interstate commerce 
 to become chartered by the Federal Government, — may 
 be the wisest method of regulating that commerce, but 
 the means employed to accomplish it seem wholly arbi- 
 trary and unjust. 
 
 ' Veazie Bank v. Fenno (1869), 8 Wall. 533; McCray v. United 
 Stales (1904), 195 U. S. 27. 
 
FEDERAL INCORPORATION. 49 
 
 Furthermore, the operation of the statute upon the 
 corporations affected illustrates its arbitrary character. 
 It affects not only the State corporations which may be 
 engaged in interstate commerce, but manufacturing and 
 other corporations which may never carry on an inter- 
 state business, but sell entirely to local dealers, who are 
 themselves engaged in interstate transactions. As a re- 
 sult of the stigma placed upon their productions, those 
 commodities would be practically unmarketable within 
 the State except to the few dealers whose business was 
 confined wholly within the limits of the State. It would 
 therefore amount to an interference with the right of the 
 corporation to contract within the jurisdiction which 
 created it; all producing corporations would be prac- 
 tically compelled to obtain a federal charter even though 
 not themselves engaged in interstate commerce. Pro- 
 duction within the State is entirely without the juris- 
 diction of Congress. State corporations engaged only 
 in production could not be compelled directly by Con- 
 gress to become chartered by the Federal Government. 
 Congress would therefore be exercising its power over 
 commerce to obtain control of a business which is en- 
 tirely outside of its jurisdiction. That such legislation 
 would be unconstitutional seems apparent from the deci- 
 sion in the Employers' Liability Cases,^ in which an act of 
 Congress regulating the relation of master and servant, 
 so far as interstate carriers were concerned, was held un- 
 constitutional, because by its terms it was not limited 
 to the interstate business of the carriers. It was argued 
 that one who engaged in interstate commerce thereby 
 subjected all of his business concerns to the regulating 
 power of Congress, but the court, speaking through Mr. 
 Justice White, denied this: "To state the proposition is 
 
 1 (1908), 207 U. S. 463. 
 
60 FEDERAL INCORPORATION. 
 
 to refute it. It assumes that because one engages in inter- 
 state commerce he thereby endows Congress with power 
 not delegated to it by the Constitution ; in other words, 
 with the right to legislate concerning matters of purely 
 State concern. It rests upon the conception that the 
 Constitution destroyed that freedom of commerce which 
 it was its purpose to preserve, since it treats the right to 
 engage in interstate commerce as a privilege which can- 
 not be availed of except upon such conditions as Congress 
 may prescribe, even although the condition would be 
 otherwise beyond the power of Congress. It is apparent 
 that if the contention were well founded it would extend 
 the power of Congress to every conceivable subject, how- 
 ever inherently local, would obliterate all the limitations 
 of power imposed by the Constitution, and would destroy 
 the authority of the State as to all conceivable matters 
 which from the beginning have been, and must continue 
 to be, under their control so long as the Constitution 
 endures." In the legislation under discussion, Congress 
 would be denying the right to transport goods in in- 
 terstate commerce, except upon the condition that those 
 goods have not been produced by certain bodies, — a 
 condition which would otherwise be clearly beyond the 
 power of Congress. 
 
 In addition, it may be fairly contended that the act 
 would be so arbitrary as to amount to an invasion of 
 the sovereignty of the States. A State unquestionably 
 has the power to incorporate companies and grant to 
 them the absolute right to engage in production and 
 sale entirely within the limits of the State. Congress, 
 however, by singling out all such corporations and 
 closing the channels of interstate commerce to their 
 products, in whosesoever hands they might come, would 
 so impair the ability of the corporation to market its 
 products within the State as practically to declare to 
 
FEDERAL INCORPORATION. 51 
 
 the State government that it should not do what it had 
 the complete power to do. 
 
 Upon the whole, therefore, we are led to the con- 
 clusion that the prohibition in question would be 
 so arbitrary an exercise of the power as to be incon- 
 sistent with that due process required by the Fifth 
 Amendment. 
 
 There is a further argument by which, if it is sound, 
 the same conclusion is reached. If by the act in ques- 
 tion an unreasonable classification is adopted, would 
 not this in itself be a denial of due process? In other 
 words, does due process require that the laws shall 
 operate equally upon all who are similarly circum- 
 stanced? 
 
 Upon this point there are no direct decisions. The 
 necessity for an answer to such a question could never 
 arise under the Fourteenth Amendment, because that 
 amendment contains a clause which prohibits a State 
 from denying to any person within its jurisdiction the 
 equal protection of the laws. This fact, indeed, furnishes 
 a strong argument against the contention, because if 
 the necessity for equal laws is a part of due process, 
 the clause of the Fourteenth Amendment mentioned is 
 mere redundancy. And we have concluded that there 
 is little doubt but that the clause in the Fifth Amend- 
 ment would be construed the same as the similar clause 
 in the later amendment has been. 
 
 But, on the other hand, one of the most fundamental 
 conceptions of our government would seem to be the 
 idea of equality before the law. If any measure can 
 be said to be arbitrary, it is that which singles out an 
 individual and subjects him to duties or burdens from 
 which his fellow-citizens in similar circumstances are 
 exempt. The right to the equal protection of the laws 
 would seem to be one of those inherent rights, such as 
 
62 FEDERAL INCORPORATION. 
 
 the right to notice and a hearing, a deprivation of 
 which is in itself arbitrary and unjust, and in violation 
 of due process. 
 
 This idea is clearly recognized in many of the defini- 
 tions of due process. It appeared in the oft-quoted 
 definition of Mr. Webster, "By the law of the land is 
 most clearly intended the general law; a law which 
 hears before it condemns; which proceeds upon inquiry 
 and renders judgment only after trial." In a definition 
 which has been cited, the Supreme Court said, "Due 
 process of law within the meaning of the Fourteenth 
 Amendment is secured if the laws operate on all alike, 
 and do not subject the individual to an arbitrary exer- 
 cise of the powers of government." 
 
 In the recent case of District of Columbia v. Brooke,^ 
 the question was raised, but not decided. Congress, in 
 legislating with reference to the drainage system in the 
 District of Columbia, discriminated between resident 
 owners and non-resident owners of property. The court 
 intimated a doubt whether Congress was prohibited 
 from enacting laws which discriminated between persons 
 or things, but held that, however that might be, the 
 prohibition could not be stricter or more extensive than 
 that imposed upon the States by the Fourteenth Amend- 
 ment. Since the clause of the amendment prohibiting 
 a denial of the equal protection of the laws did not take 
 from the States the power of classification, the same 
 power could not be denied to Congress. And the classifi- 
 cation between resident and nop-resident property 
 owners adopted by Congress in the statute in question 
 was regarded as entirely reasonable. 
 
 But, while it must be admitted that the question is 
 still open, it is believed that the better and sounder 
 
 ' (1909), 214 U. S. 138. 
 
FEDERAL INCORPORATION. 53 
 
 view is that an act of Congress which unreasonably 
 discriminates against a class, or which adopts an arbi- 
 trary and unreasonable classification, is inconsistent 
 with due process, and therefore unconstitutional. 
 
 In the statute under discussion there is a classifica- 
 tion of things and of persons. Articles which may be 
 shipped in interstate commerce are divided into two 
 classes, those which were manufactured or otherwise 
 produced by State corporations, and those which were 
 not. Producers are also divided into two classes, those 
 who are incorporated by a State, and those who are not. 
 
 1. Classification with reference to things. In deter- 
 mining what is or is not an equal operation of the laws, 
 the Supreme Court would probably be governed by the 
 decisions upon that question under the clause of the 
 Fourteenth Amendment, which prohibits a denial of 
 the equal protection of the laws by a State. 
 
 From the case of Coxe v. Texas,^ decided under that 
 clause, it appears that a classification or discrimination 
 as to things is not a denial of the equal protection of the 
 laws, where the facts are such that there is not a definite 
 class of persons selling the article discriminated against, 
 and an entirely distinct class selling the articles not 
 discriminated against. In that case, the State of Texas 
 passed a statute which required dealers in liquor to 
 procure a license and give a bond. By the provisions of 
 the statute, it did not apply to the sale of wine produced 
 from grapes grown in the State while in the hands of 
 the producers or manufacturers thereof. It was con- 
 tended that this amounted to a denial of the equal 
 protection of the laws, but the court, in reply, said that 
 there was no natural distinction of classes among 
 liquor sellers, — one class selling their own domestic 
 
 ' (1906), 202 U. S. 446. 
 
54 FEDERAL INCORPORATION. 
 
 wines, another selling all intoxicants except domestic 
 wines and therefore there was no arbitrary prohibition 
 to one class what a similar class was permitted to do. 
 
 A similar decision was made under the Fifth Amend- 
 ment in the case of the United States v. Delaware and 
 Hudson Railway Co} The commodities clause of the 
 Hepburn Act prohibited carriers from transporting in 
 interstate commerce articles or commodities in which 
 the carrier had an interest, direct or indirect. Timber 
 and the manufactured products thereof were excepted 
 from the operation of the statute. In holding that this 
 exception did not render the act unconstitutional the 
 court said, "Deciding, as we do, that the clause, as 
 construed, was a lawful exercise by Congress of the 
 power to regulate commerce, we know of no constitu- 
 tional limitation requiring that such a regulation when 
 adopted should be applied to all commodities alike. It 
 follows that even if we gave heed to the many reasons 
 of expedience which have been suggested in argument 
 against the exception and the injustice and favoritism 
 which it is asserted will be operated thereby, that fact 
 can have no weight in passing upon the question of 
 power. And the same reasons also dispose of the con- 
 tention that the clause is void as a discrimination 
 between carriers." 
 
 On its facts this case appears to be analogous to 
 Cox v. Texas.. There was no one class of carriers trans- 
 porting timber and the manufactured products thereof 
 only, and a distinct class transporting all commodities 
 except timber. Accordingly there was no denial of the 
 equal protection of the laws. 
 
 So far as the classification as to things is concerned, 
 these cases would appear to govern the prohibition 
 
 > (1909), 213 U. S. 366. 
 
FEDERAL INCORPORATION. 55 
 
 under discussion. There is no particular class of shippers 
 who deal only in goods manufactured by State corpora- 
 tions as opposed to another class of shippers who deal 
 in all other goods. Therefore the argument that there 
 is an unreasonable discrimination between goods would 
 not render the statute violative of due process. 
 
 2. Classiiication with reference to persons. But the 
 contention that there is an arbitrary discrimination 
 between producers is of much greater weight. While 
 it is true that the right to an equal operation of the 
 laws does not take away the power of Congress to 
 classify, the classification must be upon a reasonable 
 basis. Arbitrary selection, the Supreme Court has said, 
 can never be justified by calling it classification. 
 
 Here the discrimination is against State corporations 
 in favor of federal corporations and individuals. Is this 
 classification justifiable? "In all cases it must appear, 
 not only that a classification has been made, but also 
 that it is one based upon a reasonable ground — some 
 difference which bears a just and proper relation to the 
 attempted classification — and is not mere arbitrary 
 selection."* 
 
 It must be remembered that this is not the direct 
 question of depriving State corporations of the right to 
 engage in interstate commerce, in which case a classifi- 
 cation between federal corporations on the one hand and 
 State corporations on the other might well be reasonable, 
 but it is a classification of producers, which selects one 
 part of the group. State corporations, and provides that 
 their productions shall never be transported in interstate 
 commerce, no matter in whose hands they shall come. 
 The classification is employed with reference to a group 
 engaged in a business over which Congress has no 
 
 ^Gulf, etc.. Railroad, v. Ellis (1897), 165 U. S. 150, 165. 
 
56 FEDERAL INCORPORATION. 
 
 control. Unless there is some reasonable ground for this 
 discrimination, the statute is a denial of the equal 
 protection of the laws. 
 
 What difference can there be in the method of pro- 
 duction employed by State corporations as opposed to 
 that employed by federal corporations or by individuals, 
 which justifies placing the former in a separate class and 
 legislating with reference to their productions only? 
 There is certainly no inherent difference in the quality 
 of the goods. A State statute regulating the rates of 
 stock yards, which applied only to those transacting 
 a certain amount of business, was held to be a denial 
 of the equal protection of the laws, and yet that would 
 appear to be based upon more reasonable grounds 
 than the one under consideration.* And an anti-trust 
 act of a State which excepted from its provisions farmers 
 and stock raisers was also held unconstitutional for the 
 same reason.^ An excellent example of an arbitrary 
 classification appears in the case of Gulf, etc., R. R. v. 
 Ellis,^ in which a statute was held unconstitutional 
 which required each railroad to pay the attorney's fees 
 of successful litigants against the railroad. The fact 
 that the statute applied only to railroads deprived them 
 of the equal protection of the laws. A proper basis for 
 an attempted classification, said the court, "must al- 
 ways rest upon some difference which bears a reasonable 
 and just relation to the act in respect to which the classi- 
 fication is proposed, and can never be made arbitrarily 
 and without any such basis." 
 
 The classification which we are discussing does not 
 appear to be reasonable within the principle quoted. 
 
 1 Cotting V. Stock Yards Co. (1901), 183 U. S. 79. 
 
 " Connolly v. Union Sewer Pipe Co. (1902), 184 U. S. 540. 
 
 « (1897), 165 U. S. 150. 
 
FEDERAL INCORPORATION. ' 57 
 
 There is no such material difference which can justify 
 a separate classification, with reference to the produc- 
 tion of goods, between individuals who have been granted 
 corporate privileges by a State and those who have not, 
 or between those who have been granted corporate 
 privileges by a State and those who have been granted 
 the same privileges by the Federal Government. Could 
 it be said that the classification would be reasonable if 
 it discriminated between foreign and domestic State 
 corporations doing business in the same State, and 
 excluded fiom interstate commerce the products of one 
 class and not of the other? This would clearly appear 
 to be arbitral y, and yet no difference can be perceived 
 so far as production is concerned between a foreign 
 State corporation and a federal corporation. 
 
 Nor is the case of United States v. D. & H. R.R. 
 Co} an authority against this view. The commodities 
 clause of the Hepburn Act applied only to railroads and 
 not to other carriers, and it was held that this fact did 
 not impair the constitutionality of the act. But in 
 view of the importance of railroads and of the great 
 public interest in the reasonable prosecution of their 
 business, it cannot be said that the legislation regulating 
 the manner in which the business is carried on is unequal 
 and imjust because it does not apply also to other carriers 
 whose business is of a different nature and of less impor- 
 tance to the public. Unquestionably, a State statute 
 which provides for the regulation of the rates of railroads, 
 and not of other carriers, does not amount to a denial of 
 the equal protection of the laws; and in view of the 
 purpose to be accomplished, the Supreme Court could 
 not say that the classification in the commodities clause 
 was not also reasonable. 
 
 1 (1909), 213 U. S. 366. 
 
58 FEDERAL INCORPORATION. 
 
 Accordingly, if "due process" requires that the laws 
 shall operate on all alike, the classification which would 
 be adopted by Congress in a statute excluding from 
 interstate commerce the products of State corporations 
 would be a further reason for holding the statute un- 
 constitutional. 
 
 Second Method : Direct Exclusion of State Corpora- 
 tions FROM Interstate Commerce. 
 
 In discussing this problem we are confronted with 
 the question of the power of Congress to prohibit, not 
 the articles of commerce, but the use of special privileges 
 granted by a State to individuals to be employed in 
 transporting or shipping such articles. 
 
 The general rule is that a corporation has no life 
 beyond the limits of the jurisdiction which created it. 
 A charter is merely the grant to individuals of certain 
 peculiar privileges, and those privileges cannot be exer- 
 cised as of right except within the boundaries of the 
 sovereign power which has created them.' Each State, 
 therefore, has the right to determine upon what condi- 
 tions, if at all, foreign corporations shall be recognized 
 within its jurisdiction. But an exception to this role 
 has been made in the case of corporations which are 
 engaged in interstate commerce. For the purpose of 
 transacting interstate^ commerce, corporations have the 
 absolute right to enter other States.^ 
 
 ^Bank of Augusta v. Earle (1839), 13 Pet. 619; Paul v. Virginia 
 (1868), 8 Wall. 168 Hooper v. California (1895), 155 U. S. 648; 
 New York v. Roberts (1898), 171 U. S. 658. 
 
 2 Pensacola Tel. Co. v. Western Union Tel. Co. (1877), 96 U. S. 1; 
 Norfolk, etc., R.R. v. Pennsylvania (1890), 136 U. S. 114; Crutcher 
 V. Kentucky (1891), 141 U. S. 47. 
 
FEDERAL INCORPORATION. 59 
 
 What is the reason underlying this exception? The 
 power to exclude foreign corporations, or to control the 
 exercise of their corporate privileges within the juris- 
 diction, is a matter which is clearly within the reserved 
 powers of the State, just as is the exercise of the police 
 power. What is the objection to legislation by a State 
 which prohibits a foreign corporation engaged in inter- 
 state commerce from exercising its corporate privileges 
 within the State in that business? In enacting such 
 legislation the State would be exercising one of its 
 reserved powers, and would no more be regulating inter- 
 state commerce than in the case of a law which pro- 
 hibits the sale of an article which is injurious to the 
 health of the public, as applied to articles brought from 
 another State, such as diseased cattle, for example. 
 Both cases would appear to be governed by the same 
 principles. In each the law is passed by the State in 
 the exercise of one of its reserved powers, and in the 
 operation of each law interstate commerce is incidentally 
 affected. The question then arises, how far may the 
 statute affect interstate commerce and be va.lid. Under 
 the "doctrine of silence" the validity of police regula- 
 tions is determined by the extent to which interstate 
 trade is affected. If it is in a matter which requires 
 one uniform plan of regulation, the silence of Congress 
 expresses its will that the commerce shall be entirely 
 free from State laws, and the police regulation is invalid ; 
 but if it is a matter of local concern, the silence of Con- 
 gress is interpreted as expressing its will that the States 
 may act until Congress itself has legislated upon the 
 subject.* 
 
 1 For a more extended discussion of the validity of State statutes 
 passed under the reserved powers which in their operation affect 
 interstate commerce, see post. Chapter V. 
 
60 FEDERAL INCORPORATION. 
 
 These same principles apparently must govern the 
 power of a State to control the exercise of corporate 
 privileges by foreign corporations engaged in interstate 
 commerce. Applying them, in view of the large amount 
 of interstate business carried on by corporations, it is 
 clear that State laws which prohibited their entrance 
 within the jurisdiction, or which imposed conditions 
 upon such entrance, would affect interstate commerce 
 in a matter of national concern, in which, if there is to 
 be legislation, one uniform system is required. There- 
 fore, in the silence of Congress, State corporations must 
 be allowed to pursue interstate trade without inter- 
 ference by any foreign State. 
 
 But no reason is perceived why Congress could not 
 break its silence, and say that all State corporations 
 engaged in interstate commerce should, upon entering 
 a foreign State, be subject to laws passed by that State 
 in the exercise of its reserved powers. Under the Wilson 
 Act it was held that Congress could subject a legitimate 
 article of commerce to the operation of the police regu- 
 lations of the State, even though, as a result, the right 
 to sell in the original package was destroyed.^ Similarly, 
 why could not the exercise of corporate privileges in 
 interstate commerce be made dependent upon the 
 laws of the States in which it might desire to exercise 
 those privileges? Such action by Congress would not 
 be a delegation of its power to regulate commerce, be- 
 cause, as mentioned, the State would not be regulating 
 interstate commerce, but would be acting within one 
 of its reserved powers. 
 
 But such legislation is by no means advocated. In- 
 stead of clearing up any confusion which now exists 
 and placing interstate commerce on a firm basis, it 
 
 1 In re Rahrer (1891), 140 U. S. 545. 
 
FEDERAL INCORPORATION. 61 
 
 would subject all interstate commerce corporations in 
 their entire operations to the corporate policy of each 
 State, and vastly increase the present confusion. The 
 illustration of what seems entirely possible was cited 
 to indicate the reason for the non-interference by the 
 States with corporations which carry on interstate 
 commerce. 
 
 In other words, to engage in interstate commerce is not 
 a vested right of a corporate body. It is undoubtedly 
 true that a corporation is a person within the mean- 
 ing of the Fifth Amendment, so that it cannot constitu- 
 tionally be deprived of its liberty or property rights 
 without due process of law.* But although it is both a 
 liberty and a property right of an individual to pursue a 
 lawful occupation such as interstate commerce, this is 
 not the case with regard to the exercise of special privi- 
 leges granted by a State to individuals. The absolute 
 right to exercise those privileges can be claimed only in 
 the jurisdiction which has conferred them, and if their 
 exercise beyond the jurisdiction in interstate commerce 
 cannot be interfered with, it must be because Congress 
 has not legislated upon the subject. In Crutcher v. Ken- 
 tucky,'^ a law of Kentucky was held unconstitutional 
 which required agents of express companies not chartered 
 by that State to take out a license, and to file a statement 
 showing the financial condition of the company, and 
 that it was possessed of an actual capital equal to at 
 least $150,000. "To carry on interstate commerce," 
 the court said, "is not a franchise or a privilege granted 
 by the State; it is a right which every citizen of 
 the United States is entitled to exercise under the 
 
 1 Paid. V. Virginia (1868), 8 Wall. 168; Santa Clara County v. 
 Railroad (1886), 118 U. S. 394; Smyth v. Ames (1898), 169 U. S. 466. 
 ''(1891),141U. S. 47. 
 
62 FEDERAL INCORPORATION. 
 
 Constitution and laws of the United States; and the 
 accession of mere corporate facilities, as a matter of con- 
 venience in carrying on their business, cannot have the 
 effect of depriving them of such right, luiless Congress 
 should see fit to interpose some contrary regulations on 
 the subject." 
 
 This is a clear recognition of the power of Congress to 
 exclude corporations from interstate commerce. And 
 no sound reason is perceived why this should not be the 
 case. Prior to the Constitution, each State had the power 
 to exclude the corporations of other States, even though 
 the corporations were engaged in interstate commerce. 
 The grant to Congress of the complete power to regulate 
 has taken away this absolute right of the States, and it 
 must have conferred the same power in the national leg- 
 islature, because there is no part of the Constitution 
 which expressly destroys it. 
 
 A corporation not engaged in interstate trade can do 
 business in a foreign State only with the consent of that 
 State. When a corporation engages in interstate com- 
 merce it enters the jurisdiction of Congress, and can carry 
 on that business only with the consent of Congress. The 
 power to exclude would appear to be as absolute as is 
 the power of the State in the first instance. To hold 
 otherwise would mean that, no matter how objectionable 
 the corporate policies of a State, Congress would be 
 unable to prevent the exercise in interstate commerce 
 of corporate privileges granted by that State. Consid- 
 ered alone, overcapitalization, lack of publicity, cind other 
 matters relating to the internal management of a cor- 
 poration, are exclusively within the jurisdiction of the 
 States, but when a corporation engages in interstate 
 commerce, all of these matters may be investigated and 
 regulated by Congress in so far as it is sought to employ 
 them in the conduct of that business. If Congress has 
 
FEDERAL INCORPORATION. 63 
 
 not the power to deny the right to exercise in interstate 
 commerce the special privileges for the transaction of 
 business which a State has granted, its power over that 
 commerce is by no meajis plenary, as has frequently 
 been asserted by the Supreme Court. The Federal Gov- 
 ernment does not grant to individuals the right to engage 
 in trade among the several States, because that right 
 existed before the Constitution was adopted, but it does 
 grant, expressly or impliedly, the right to exercise therein 
 special privileges granted to individuals by a State. 
 
 The question may be approached from a different stand- 
 point. Has not Congress, under its power to regulate 
 interstate commerce, the right to establish the sub- 
 stantive rules of law pertaining to the commercial trans- 
 actions? If so, what objection can there be to a statute 
 which provides that the stockholders of each State cor- 
 poration which engages in interstate commerce shall be 
 unlimitedly liable for all obligations of the corporation 
 incurred in that business? 
 
 It is unquestionable that the power of Congress over 
 interstate commerce includes the power to regulate the 
 instrumentalities which are employed in that commerce.' 
 In the case of Northern Securities Co. v. United States^ 
 it was said: "No State can, by merely creating a cor- 
 poration, or in any other mode, project its authority into 
 other States, and across the continent, so as to prevent 
 Congress from exerting the power it possesses under the 
 Constitution over interstate and international commerce, 
 or so as to exempt its corporation engaged in interstate 
 commerce from obedience to any rule lawfully estab- 
 lished by Congress for such commerce." And in a 
 
 ' Interstate Commerce Commission v. Illinois Cent. R.R. (1910) 
 215 U. S. 452. The authorities upon this point are numerous. 
 ' (1904), 193 U. S. 197, 345. 
 
64 FEDERAL INCORPORATION. 
 
 subsequent case the court declared that franchises granted 
 to corporations by a State, "so far as they involve ques- 
 tions of interstate commerce, must be exercised in sub- 
 ordination to the power of Congress to regulate such 
 commerce, and in respect to this the General Govern- 
 ment may assert a sovereign authority to ascertain 
 whether such franchises have been exercised in a lawful 
 manner, with a due regard to its own laws. . . . The 
 powers of the General Government in this particular in 
 the vindication of its own laws are the same as if the 
 corporation had been created by an act of Congress." ^ 
 
 There is no doubt, then, that corporations created by 
 a State to engage in interstate commerce are subject to 
 all lawful regulations of commerce enacted by Congress, 
 even although privileges granted by the State are thereby 
 infringed or destroyed. If there is a conflict, the power 
 of the State must yield to the supreme authority of Con- 
 gress. The only requirement is that the act of Congress 
 must have some real or substantial relation to the com- 
 merce regulated.^ With this as a test, can it be said that 
 a law which prescribes unlimited liability as to all inter- 
 state commercial transactions, — which places stock- 
 holders in State corporations upon the same basis as 
 individuals so far as interstate commerce is concerned, — 
 bears no reasonable relation to interstate commerce? * 
 
 In the Employers' Liability Cases^ it was held that, 
 under the power to regulate commerce. Congress could 
 regulate the relation of master and servant with refer- 
 ence to the interstate business transacted by carriers. 
 Under the statute in question the common law doctrine 
 of fellow-servants was abolished, contributory negligence 
 
 ' Hale V. Henkle (1906), 201 U. S. 43, 75. 
 'Adair v. United States (1908), 208 U. S. 161. 
 ' (1908) 207, U. S. 463. 
 
FEDERAL INCORPORATION. 65 
 
 was made a bar only in proportion to the amount of 
 negligence, and it was provided that no contract of relief 
 or indemnity entered into by the employee should con- 
 stitute a bar or defense to any action brought by the 
 employee for personal injuries. In delivering the opin- 
 ion of the court Mr. Justice White expressly declared: 
 "We may not test the power of Congress to regulate 
 commerce solely by abstractly considering the particu- 
 lar subject to which a regulation relates, irrespective of 
 whether the regulation in question is one of interstate 
 commerce. On the contrary, the test of power is not 
 merely the matter regulated, but whether the regulation 
 is directly one of interstate commerce, or is embraced 
 within the grant conferred on Congress to use all lawful 
 means necessary and appropriate to the execution of the 
 power to regulate commerce." Surely the requirement 
 of unlimited liability in the transaction of interstate 
 commerce bears as reasonable a relation to that com- 
 merce as the regulation of the liability of a carrier to its 
 employees. 
 
 As has been mentioned, interstate commerce comprises, 
 not only the actual transportation of goods across State 
 lines, but also contracts which in their performance 
 necessarily involve such transportation.^ Since the 
 contracts themselves are commercial transactions sub- 
 ject to the regulating power of Congress, the prescrip- 
 tion of rights and liabilities arising out of them, and 
 the time within which such rights shall be enforced, 
 are as much within the power of Congress as it is 
 within the power of a State to enact similar laws for 
 contracts made in the pursuance of that commerce which 
 does not cross State lines. And unquestionably a State 
 could provide that foreign corporations not engaged in 
 
 1 Supra, page 14. See also, Chapter VIII. 
 
66 FEDERAL INCORPORATION. 
 
 interstate commerce could carry on a local business 
 within the State only upon the condition that the stock- 
 holders should be unlimitedly liable upon all contracts 
 in that business. 
 
 The majority of these subjects up to the present time 
 have been governed by the laws of the individual States, 
 but this is only because Congress has not seen fit to legis- 
 late directly upon them, and in the absence of such 
 legislation they have been regarded as matters which 
 should properly be determined by the local law. This 
 seems to be clearly recognized by the few decisions 
 bearing upon the subject. 
 
 In Chicago, etc., Ry. v. Solan,^ a shipment of stock from 
 Iowa to Illinois was made under a contract limiting the 
 liability of the carrier for its negligence. Through the 
 negligence of the carrier in Iowa, damage resulted, and 
 suit was brought in the courts of that State. By the law 
 of Iowa, contracts limiting liability for negligence were 
 prohibited. It was argued that the application of this 
 law to the contract in question would ^mount to an inter- 
 ference with interstate commerce, but the court refused 
 to adopt this contention. "The rules prescribed for the 
 construction of railroads," it was declared, "and for their 
 operation and management, designed to protect persons 
 and property, otherwise endangered by their use, are 
 strictly within the scope of the local law. They are not, 
 in themselves, regulations of interstate commerce, al- 
 though they control, in some degree, the conduct and the 
 liability of those engaged in such commerce. So long 
 as Congress has not legislated upon the particular sub- 
 ject, they are rather to be regarded as legislation in aid 
 of such commerce, and as a rightful exercise of the police 
 power of the State to regulate the relative rights and 
 
 1 (1898), 169 U. S. 133. 
 
FEDERAL INCORPORATION. 67 
 
 duties of all persons and corporations within its 
 limits." » 
 
 A similar decision was made in Pennsylvania R.R. v. 
 Hughes? A horse shipped from New York to Philadel- 
 phia was valued at a certain sum, and, in consideration of 
 reduced tariff rates, the liability of the railroad for injury 
 resulting from its negligence was limited by the contract 
 to the said valuation. The horse was injured in Pennsyl- 
 vania, and suit brought in that State, the public policy 
 of which denied the right of the carrier to limit its 
 liability for negligence. Damages largely in excess of 
 the agreed valuation were recovered by the owner of 
 the horse. The Federal Supreme Court held that in the 
 absence of legislation by Congress the law of Pennsyl- 
 vania was properly applied. The contention was made 
 that Congress, by the Interstate Commerce Act, had 
 legislated upon the subject. To this the court replied: 
 "It may be assumed that under the broad power con- 
 ferred upon Congress over interstate commerce, as de- 
 fined in repeated decisions of the court, it would be law- 
 ful for that body to make provision as to contracts for 
 interstate carriage, permitting the carrier to limit its 
 liability to a particular sum in consideration of lower 
 freight rates for transportation. But upon examina- 
 tion of the terms of the law relied upon, we fail to find 
 any such provision therein." 
 
 In Martin v. Pittsburg, etc., R.R. Co.^ it was held that 
 a statute of Pennsylvania which provided that persons 
 not passengers, employed in or about a railroad, should, 
 in case of injury or loss of life, have only the same right 
 
 ^To the same effect, see Western Union Telegraph Co. v. Mill- 
 ing Co. (1910), 218 U. S. 406. 
 2 (1903), 191 U. S. 477. 
 » (1906), 203 U. S. 284. 
 
68 FEDERAL INCORPORATION. 
 
 of recovery as employees of the road, was, in the absence 
 of legislation by Congress, applicable to a postal clerk 
 on an interstate voyage, who was injured in Pennsyl- 
 vania, while on the train. 
 
 The necessary implication from these cases is that Con- 
 gress may, if it chooses, legislate affirmatively in respect 
 to the right of a carrier to limit his liability in trans- 
 actions of interstate commerce. That such is the case 
 was held directly in Atlantic Coast Line v. Riverside 
 Mills} By the Carmack Amendment to the Interstate 
 Commerce Act^ Congress provided that any carrier 
 receiving shipments in interstate commerce should be 
 liable for any loss or damage to such shipments caused 
 by it or any connecting carrier to whom the goods 
 might be delivered; and that no contract should exempt 
 the carrier from such liability. After the passage of 
 this Act, goods were delivered to the Atlantic Coast 
 Line Railroad for transportation to points in other 
 States, under a contract which limited the liability of 
 the Railroad to loss or damage occurring on its road. 
 The goods were safely delivered by the Coast Line to 
 connecting carriers, and were lost while in the care of 
 such carriers. The shipper brought action against the 
 Coast Line to recover the value of the goods. The Su- 
 preme Court unanimously held that the Carmack Amend- 
 ment was a valid regulation of interstate commerce, and 
 that the Coast Line was therefore liable for the loss. 
 
 Would it be any the less a regulation of interstate 
 commerce to provide that any one engaging in interstate 
 commerce without a federal charter should be unlimitedly 
 liable upon all obligations contracted in the course of 
 that business? To state the question in a different form, 
 
 1 (1911), 219 U. S. 186. 
 
 "January 29, 1906, c. 3591, 34 Stat. 584, 595. 
 
FEDERAL INCORPORATION. 69 
 
 can a State grant to a group of individuals the right to 
 have limited liability with reference to contracts and 
 undertakings over which the State has no control? 
 
 The fact that this regulation providing for unlimited 
 liability would be made applicable only to State and 
 not to federal corporations appears to establish an en- 
 tirely reasonable classification. The right to incorporate 
 directly would be within the power of Congress, and 
 in doing so the liability of the stockholders of these fed- 
 eral corporations would of course be prescribed. Then, by 
 the legislation under discussion, Congress would be 
 determining the liability of those who did not choose to 
 avail themselves of the prior regulation. Therefore, even 
 though due process be held to prevent a denial of the 
 equal protection of the laws, the court could not say that 
 the classification was unreasonable and arbitrary. 
 
 For the purposes of legislation which excludes a State 
 corporation from interstate commerce, it is immaterial 
 upon what theory a corporation is regarded. If treated 
 as an entity, a fictitious person created by a State, that 
 artificial personality can have no life beyond the juris- 
 diction of the State which brought it into being except 
 with the consent of the sovereign power whose juris- 
 diction is invaded. The State cannot grant to the entity 
 the absolute right to engage in interstate commerce, 
 because it is beyond the power of the State to make such 
 a grant. Congress has exclusive jurisdiction over inter- 
 state commerce, and therefore has the power to refuse 
 to recognize the fictitious person created by the State. 
 
 If the aggregate theory be adopted, viewing the cor- 
 poration as a group of individuals to whom the State has 
 granted peculiar privileges for the purpose of carrying 
 on business, the result is the same. The privileges con- 
 ferred by the State can have no extraterritorial effect, 
 but can be exercised as of right only within the limits of 
 
70 FEDERAL INCORPORATION. 
 
 the State which has granted them. It is within the power 
 of Congress to allow or refuse to allow the extension of 
 such privileges to the business which is under the exclu- 
 sive control of that body. 
 
 Third Method: Taxation of Interstate Commerce 
 Transacted by State Corporations. 
 
 A third method which has been suggested to enable 
 Congress to compel all corporations engaged in inter- 
 state commerce to procure a federal charter involves 
 the imposition of prohibitive taxes upon the interstate 
 traffic of all State corporations. The constitutionality 
 of such legislation resolves itself into the determination 
 of two general questions: 
 
 1. Has Congress under the Constitution the power 
 to tax interstate commerce? 
 
 2. If this be answered in the affirmative, does a tax 
 upon the interstate commerce business of State corpora- 
 tions conform to the limitations placed by the Con- 
 stitution upon the power of Congress to lay and 
 collect taxes? 
 
 1. The Constitution provides: "The Congress shall 
 have power — To lay and collect taxes, duties, imposts, 
 and excises, to pay the debts and provide for the common 
 defence and general welfare of the United States." 
 
 The grant is made in the most general terms. It is 
 subject only to the express exception that "no tax or 
 duty shall be laid on articles exported from any State"; 
 and the implied exception that State governmental 
 agencies shall not be taxed. "It is true that the power of 
 Congress to tax is a very extensive power. It is given in 
 the Constitution, with only one exception and only two 
 qualifications. . . . Thus limited, and thus only, it 
 reaches every subject, and may be exercised at discre- 
 
FEDERAL INCORPORATION. 71 
 
 tion."^ All property within the geographical limits of the 
 United States, all occupations or special privileges, 
 which do not come within the exceptions noted, are there- 
 fore within the taxation power of Congress. As illus- 
 trations of the subjects of this power may be cited the 
 transmission and receipt of property by death, although 
 the right thus to receive property is derived from the 
 State ;^ the privilege of carrying on a private business 
 in corporate form;* and the carrying on of a business 
 entirely within the limits of a single State.* 
 
 The occupation or business of interstate commerce is 
 within the jurisdiction of the Federal Government, and 
 it is clearly not included within the implied exception 
 that State governmental agencies cannot be taxed. Un- 
 less, therefore, a tax on interstate commerce would be 
 a tax or duty on articles exported from a State within 
 the meaning of the Constitution, no reason can be per- 
 ceived which would prevent the imposition by Congress 
 of a tax on such business. 
 
 It seems very probable that the framers of the Consti- 
 tution intended the word "exports" to apply, not only 
 to articles sent from a State to a foreign country, but 
 also to articles sent from one State to another. As used 
 in State constitutions and statutes at the time of the 
 adoption of the Federal Constitution, the word included 
 all articles transported across State lines, regardless of 
 their destination. And apparently Chief Justice Mar- 
 shall regarded articles brought into a State from another 
 State as "imports" within the meaning of that word in 
 the clause of the Constitution which provides that "no 
 
 ^License Tax Cases (1866), 5 Wall. 462, 471. 
 2 Knowlton v. Moore (1900), 178 U. S. 41. 
 ^ Flint V. Stone Tracy Co. (1911), 220 U. S. 108. 
 * License Tax Cases (1866), 5 Wall. 462. 
 
72 FEDERAL INCORPORATION. 
 
 State shall, without the consent of Congress, lay any 
 duties or imposts upon imports or exports, except what 
 may be absolutely necessary for executing its inspection 
 laws."' Furthermore, an express decision was made to 
 this effect by the Supreme Court in Almy v. California.^ 
 
 But in Woodruff v. Parham,^ it was held that a State 
 tax on goods in the original package brought into the 
 State from another State was not a tax on imports within 
 the meaning of the Constitution. "It is not too much to 
 say," declared Mr. Justice Miller, in delivering the opin- 
 ion of the court, "so far as our research has extended, 
 neither the word export, import, nor impost is to be 
 found in the discussions on this subject, as- they have 
 come down to us from that time, in reference to any 
 other than foreign commerce, without some special form 
 of words to show that foreign is not meant. , . . Whether 
 we look, then, to the terms of the clause in question, or 
 to its relation to the other parts of that instrument, or 
 to the history of its formation and adoption, or to the 
 comments of the eminent men who took part in those 
 transactions, we are forced to the conclusion that no 
 intention existed to prohibit, by this clause, the right 
 of one State to tax articles brought into it from 
 another." 
 
 The doctrine of this case has never been qualified.* 
 Therefore, if "import§" refers only to goods brought from 
 a foreign country, "exports," by a necessary correlation, 
 refers only to goods sent to a foreign country, unless 
 
 ^ Brown v. Maryland (1827), 12 Wheat. 419. 
 
 ^ (1860), 24 How. 169. 
 
 '(1867), 8 Wall. 123. 
 
 ■■In accord, see Brown v. Houston (1885), 114 U. S. 622; Pitts- 
 burg, etc., Coal Co. v. Bates (1895), 156 U. S. 577 ; Fairbank v. United 
 States (1901), 181 U. S. 283; American Steel'Co. v. Speed (1904), 192 
 U. S. 500. 
 
FEDERAL INCORPORATION. 73 
 
 there is some special form of words showing that foreign 
 commerce is not meant. 
 
 The clause in question reads: "No tax or duty shall 
 be laid on articles exported from any State." It may be 
 argued that had it been intended to prohibit taxation 
 on goods sent to foreign countries only, the clause would 
 have been more general in its terms, — "No tax or duty 
 shall be laid on articles exported"; that by specifically 
 providing against taxation of articles exported "from 
 any State," it was intended to include all articles sent 
 out of a State, regardless of their destination. But the 
 decisions clearly refute this contention,"^ and it may be 
 regarded as established that a tax upon goods sent from 
 one State to another would not be a tax on exports with- 
 in the meaning of the Constitution. Thus, in Dooley v. 
 United States, the court said: "It follows, and is the 
 logical sequence of the case of Woodruff v. Parham, that 
 the word 'export' should be given a correlative meaning, 
 and applied only to goods exported to a foreign country. 
 If, then, Porto Rico be no longer a foreign country under 
 the Dingley Act ... we find it impossible to say that 
 goods carried from New York to Porto Rico can be 
 considered as 'exports' from New York within the 
 meaning of the clause in the Constitution." 
 
 Accordingly, there seems no reason to doubt that Con- 
 gress has the power under the Constitution to lay a tax 
 upon the occupation of carrying on interstate commerce. 
 
 2. Granting the power to tax, there are two clauses 
 in the Constitution which limit the exercise of this power: 
 "All duties, imposts, and excises shall be uniform through- 
 out the United States"; "No capitation or other direct 
 tax shall be laid, unless in proportion to the census or 
 
 'See Turpin v. Burgess (1886), 117 U. S. S04; Dooley v. United 
 States (1901), 183 U. S. 151; Cornell v. Coyne (1904), 192 U. S. 418, 
 427. 
 
74 FEDERAL INCORPORATION. 
 
 enumeration hereinbefore directed to be taken." Direct 
 taxes are subject to the rule of apportionment, indirect 
 taxes to the rule of uniformity. 
 
 A tax upon interstate commerce would not be a direct 
 tax. A tax levied upon persons because of their general 
 ownership of property, real and personal, is a direct tax.' 
 But a tax upon a business, privilege, employment, or 
 vocation is indirect, and therefore not subject to the 
 rule of apportionment. Thus in Nichol v. Ames^ a tax 
 upon the sale of property at exchanges was held not to 
 be a direct tax upon the property itself, but a tax upon 
 the facilities and the benefits which inhered in the use of 
 an exchange. As a tax upon a privilege it was decided 
 to be indirect. In Knowlton v. Moore? a tax upon the 
 transmission of property by inheritance was held to be 
 indirect. A tax on sales of shares of stock in corporations 
 is an indirect tax.* In this last case the court said that 
 the words "duties, imposts, and excises" "were used 
 comprehensively, to cover customs and excise duties 
 imposed on importation, consumption, manufacture, and 
 sale of certain commodities, privileges, particular business 
 transactions, vocations, or occupations, and the like." 
 Likewise in Spreckels Sugar Refining Co. v. McClain,^ 
 a tax upon the business of refining sugar, measured by the 
 gross annual receipts from that business, was held to be 
 an indirect tax. "Clearly the tax is not imposed upon 
 the gross annual receipts as property, but only in respect 
 of the carrying on or doing the business of refining sugar." 
 Finally, in the recent case of Flint v. Stone Tracy 
 
 » Pollock V. Loan Sf Trust Co. (1895), 157 U. S. 429; Flint v. 
 Stone Tracy Co. (1911), 220 U. S. 108. 
 2 (1899), 173 U. S. 509. 
 » (1900), 178 U. S. 41. 
 
 * Thomas v. United States (1904), 192 U. S. 363. 
 ' (1904), 192 U. S. 397. 
 
FEDERAL INCORPORATION. 75 
 
 Co.,^ a tax upon business corporations measured by the 
 annual net income was held to be an excise upon the 
 privilege of carrying on business in corporate form, and 
 therefore an indirect tax. 
 
 In view of these decisions, a tax upon the occupation 
 of engaging in interstate commerce would clearly be 
 an indirect tax. As such, it would be subject to the 
 constitutional requirement of uniformity. The question, 
 therefore, which must next be determined is whether a 
 tax laid only on the interstate commerce transacted by 
 State corporations would conform to this requirement. 
 
 The case of Knowlton v. Moore ^ definitely settled the 
 meaning of "uniformity" as that word is used in the Con- 
 stitution. In that case it was argued that an excise tax 
 upon the transmission of property by inheritance was 
 not uniform, because (l) legacies below a certain figure 
 were exempted ; (2) the rate of tax was classified accord- 
 ing to the relationship or absence of relationship of the 
 legatee to the deceased; (3) the rate of taxation pro- 
 gressed according to the amount of the legacy or share. 
 After a careful and elaborate consideration, the Supreme 
 Court decided that the uniformity clause did not re- 
 strict Congress to intrinsic uniformity, but merely to 
 geographical uniformity throughout the United States. 
 This principle was affirmed in FUnt v. Stone Tracy Co.} 
 the court saying, "As we have seen, the only limitation 
 upon the authority conferred is uniformity in laying the 
 tax, and imiformity does not require the equal applica- 
 tion of the tax to all persons or corporations who may 
 come within its operation, but is limited to geographical 
 uniformity throughout the United States." 
 
 » (1911), 220 U. S. 108. 
 2 (1900), 178 U. S. 41. 
 ' Supra. 
 
76 FEDERAL INCORPORATION. 
 
 Thus the fact that the tax under discussion would be 
 imposed only on State corporations, and not on individ- 
 uals or federal corporations engaged in interstate com- 
 merce, would not violate the requirement of uniformity. 
 So far as this limitation is concerned, Congress could 
 adopt an arbitrary classification for taxation purposes. 
 To make the tax uniform, it would only be necessary 
 that it apply to all State corporations throughout the 
 country which carry on interstate trade. 
 
 But we have concluded that the necessity for due pro- 
 cess would prevent an arbitrary and unreasonable classi- 
 fication by Congress. It remains to be considered, 
 therefore, first, whether the Fifth Amendment limits the 
 power of Congress to lay and collect taxes; and, if so, 
 second, whether the classification here is so arbitrary as 
 to violate due process. 
 
 In McCray v. United States^ it was said by Mr. Jus- 
 tice White , in delivering the opinion of the court : ' 'Whilst 
 undoubtedly both the Fifth and Tenth Amendments 
 qualify, in so far as they are applicable, all the provisions 
 of the Constitution, nothing in those Amendments oper- 
 ates to take away the grant of power to tax conferred 
 by the Constitution upon Congress. . . . Conceding 
 merely for the sake of argument that the due process 
 clause of the Fifth Amendment would avoid an exertion 
 of the taxing power which, without any basis for classi- 
 fication, arbitrarily taxed one article and excluded another 
 article of the same class, such concession would be wholly 
 inapposite to the case in haAd." 
 
 The classification in that case discriminated between 
 butter and oleomargarine artificially colored to represent 
 butter, a tax being imposed upon the latter and not upon 
 the former. This classification was regarded as entirely 
 reasonable. 
 
 M1904), 195U. S. 27. 
 
FEDERAL INCORPORATION. 77 
 
 Assuming that the Fifth Amendment would prevent 
 an arbitrary classification, it is certain, however, that 
 the power to tax and a wide discretion in its exercise is 
 so essential to a sovereign government that a classifica- 
 tion which might be held arbitrary if made in the exer- 
 cise of another power, may well be regarded as within 
 the discretionary power of Congress in the case of the 
 exercise of the taxation power."^ In Bell's Gap R.R. v. 
 Pennsylvania,^ in dealing with the limitations upon the 
 power of a State to tax, imposed by the clause of the 
 Fourteenth Amendment, which prohibits a denial of 
 the equal protection of the laws, the Supreme Court 
 said: 
 
 "The provision in the Fourteenth Amendment, that 
 no State shall deny to any person within its jurisdiction 
 the equal protection of the laws, was not intended to 
 prevent a State from adjusting its system of taxation in 
 all proper and reasonable ways. It may, if it chooses, 
 exempt certain classes from any taxation at all, such as 
 churches, libraries, and the property of charitable insti- 
 tutions. It may impose different specific taxes upon 
 different trades and professions, and may vary the rates 
 of excise upon various products, it may tax real estate 
 and personal property in a different way, it may tax 
 visible property only, and not tax securities for payment 
 of money, it may allow deductions for indebtedness, or 
 not allow them. All such regulations, and those of like 
 character, so long as they proceed within reasonable 
 limits and general usage, are within the discretion of the 
 State legislature or the people of the State in framing theii 
 Constitution. But clear and hostile discriminations 
 against particular persons and classes, especially such 
 
 ^ See Flint v. Stone Tracy Co., supra, and authorities cited therein. 
 ' (1890), 134 U. S. 232. 
 
78 FEDERAL INCORPORATION. 
 
 as are of an unusual character, unknown to the practice 
 of our government, might be obnoxious to the constitu- 
 tional prohibition." 
 
 The discretion of Congress under the Fifth Amend- 
 ment in classifying for taxation purposes is, of course, as 
 wide as that of a State legislature under the Fourteenth 
 Amendment. The tax under discussion would be upon 
 the privilege of exercising in interstate commerce cor- 
 porate privileges granted by a State. It would not 
 be imposed upon individuals engaged in interstate com- 
 merce nor upon federal corporations transacting the same 
 business. 
 
 It is obvious that there is sufficient difference between 
 the transaction of business with corporate privileges 
 and the transaction of the same business as individuals, 
 to justify the imposition of taxes upon the former and 
 not upon the latter. The peculiar advantages which 
 inhere in the corporate capacity afford a substantial 
 basis for the classification.* 
 
 And there also appears to be a reasonable basis for 
 the discrimination against State corporations in favor 
 of federal corporations. The right of federal corpora- 
 tions to exercise corporate privileges in interstate com- 
 merce is granted directly by the Federal Government, 
 which has exclusive jurisdiction over that commerce. 
 State corporations, on the other hand, receive their 
 corporate powers from the State governments, and the 
 federal tax upon them is laid on the privilege of exercis- 
 ing in interstate trade these special advantages which 
 have not been granted by Congress, and which are only 
 exercised as a matter of comity. The classification would 
 seem clearly to be within the wide discretion which may 
 be exercised by Congress. A case in point is that of 
 
 ' Flint V. Stone Tracy Co., supra. 
 
FEDERAL INCORPORATION. 79 
 
 Veazie Bank v. Fenno,^ in which the tax which was sus- 
 tained b}' the court was laid on the circulating notes of 
 State banks only. It is true that the decision was also 
 based upon the power of Congress over the currency, 
 but the reasoning by which the case was sustained as an 
 exercise of the taxing power has since been affirmed by 
 the Supreme Court.^ 
 
 Nor would the classification in question be in conflict 
 with the decision in Southern Railroad Co. v. Greene? 
 In that case it was held that an additional State tax im- 
 posed on foreign corporations for the privilege of doing 
 business in the State, domestic corporations engaged in 
 the same business not being taxed, amounted to a denial 
 of the equal protection of the laws, where the foreign 
 corporation had come into the State in compliance with 
 its laws and had paid a license tax for the privilege of 
 carrying on business therein. 
 
 In that case the foreign corporation had been author- 
 ized to do business within the State, and had acquired 
 valuable property therein, and there was no reasonable 
 ground for distinguishing between it and a domestic 
 corporation engaged in the same business. But in the 
 present case, the State corporation would not have re- 
 ceived the express grant from Congress of the right to 
 exercise its franchise in interstate commerce. At present 
 this right is exercised merely as a matter of comity, and 
 the Federal Government could change this policy and 
 place a cha.rge upon the privilege, exactly as an individual 
 State, which has hitherto allowed the corporations of 
 other States to engage in business within the State upon 
 
 ' (1869) 8 Wall. 533. 
 
 2 See McCray v. United States (1904), 195 U. S. 27, 58; Flint v. 
 Stone Tracy Co. (1911), 220 U. S. 108, 155, 156. 
 » (1910), 216 U. S. 400. 
 
80 FEDERAL INCORPORATION. ' 
 
 the principles of comity, may legislate expressly and 
 exact a license tax for the privilege, when the corpo- 
 ration in question is not engaged in the transaction of 
 interstate trade. 
 
 That this tax would not be an infringement of the sover- 
 eign power of a State to grant corporate franchises suf- 
 ficiently appears from the case of Flint v. Stone Tracy 
 Co} In that case it was held that the fact that corporate 
 privileges were granted by a State did not exempt the 
 corporation from a federal excise tax upon the exercise 
 of such privileges in business. A federal tax upon the 
 privilege of exercising in interstate commerce corporate 
 privileges granted by a State would present a much 
 stronger case, because it would not only be an excise tax 
 upon a privilege, but also a charge for entering a busi- 
 ness over which Congress has exclusive jurisdiction. 
 
 As a final objection to the tax it might be urged that 
 the power to lay and collect taxes can be exercised by 
 Congress only for the purpose of raising revenue, and 
 not for the accomplishment of objects upon which Con- 
 gress could not legislate directly. This does not mean 
 that, as a general rule, the court will examine into the 
 motives of Congress, but merely that when on its face 
 a tax upon a particular object is so excessive as to make 
 it apparent that it is prohibitive, it is not, properly 
 speaking, a tax at all, but a regulation. Thus, in the 
 tax under discussion, the object of Congress would be 
 to render the interstate commerce transacted by State 
 corporations so unprofitable that they would be compelled 
 to procure a federal charter, and this object would be 
 apparent on the face of the act. The argument does not 
 deny that under certain circumstances it may be neces- 
 sary for the government, for the purpose of obtaining 
 
 ' Supra. 
 
FEDERAL INCORPORATION. 81 
 
 revenue, to take the greater part or all of a citizen's 
 property under a legitimate tax.^ 
 
 But, however sound this contention may be theoreti- 
 cally, and it does appear to be sound, the Supreme Court, 
 it appears, hcis definitely adopted the contrary doctrine. 
 Assuming merely for the purpose of this argument that 
 it would not be within the power of Congress to legislate 
 directly with the object of excluding State corporations 
 from interstate commerce, — although the contrary 
 would appear to be the case,^ — the right to levy an 
 excessive tax for the purpose of accomplishing that re- 
 sult is supported by direct authority. 
 
 In the case of Veazie Bank v. Fenno,^ a tax imposed 
 by Congress of ten per cent upon the amount of notes 
 of State banks issued for circulation was held valid, 
 although its plain object was not revenue, but the de- 
 struction of the subject taxed. The constitutionality 
 of the tax was attacked for that reason, but the court 
 said: "It is insisted, however, that the tax in the case 
 before us is excessive, and so excessive as to indicate a 
 purpose on the part of Congress to destroy the franchise 
 of the bank, and is, therefore, beyond the constitutional 
 power of Congress. The first answer to this is that the 
 judicial cannot prescribe to the legislative departments 
 of the government limitations upon the exercise of its 
 acknowledged powers. The power to tax may be exer- 
 cised oppressively upon persons, but the responsibility 
 of the legislature is not to the courts, but to the people 
 by whom its members are elected. So if a particular 
 tax bears heavily upon a corporation, or a class of 
 
 ' See an article in 6 Mich. Law Review, 277, "May Congress levy 
 money exactions, designated 'taxes,' solely for the purpose of 
 destruction?" by Mr. J. B. Waite. 
 
 2 Supra, pages 58-70. 
 
 ' (1869) 8 Wall. 533. 
 
82 FEDERAL INCORPORATION. 
 
 corporations, it cannot, for that reason only, be pro- 
 nounced contrary to the Constitution." 
 
 The tax in this case was also justified under the power 
 of Congress over the currency, and it may, therefore, be 
 distinguished from a case in which the object to be 
 accomplished is itself beyond the jurisdiction of Congress, 
 but the language quoted has been approved by the 
 Supreme Court in subsequent cases. ^ 
 
 However this may be, the case of McCray v. United 
 States^ is directly in point. In it was involved the con- 
 stitutionality of an act of Congress which imposed a tax 
 of ten cents per pound upon the manufacture and sale 
 of oleomargarine when colored to represent butter, un- 
 colored oleomargarine being taxed one-quarter of a cent 
 per pound. This tax made the cost of production of 
 colored oleomargarine so high as to prohibit its sale, and 
 accordingly it was apparent that revenue was not jthe 
 result desired, but the prohibition of the production of 
 the article, a matter upon which Congress had no power 
 to legislate directly. The act was sustained as a valid 
 exercise of the taxation power of Congress. In delivering 
 the opinion of the court, Mr. Justice White said: 
 
 "The decisions of the court from the beginning lend 
 no support whatever to the assumption that the judi- 
 ciary may restrain the lawful exercise of power, on the 
 assumption that a wrongful purpose or motive has caused 
 the power to be exerted. . . . 
 
 "The judiciary is without authority to avoid an act 
 of Congress exerting the taxing power, even in a case 
 where, to the judicial mind, it seems that Congress had 
 in putting such power in motion abused its lawful au- 
 thority by levying a tax which was unwise or oppressive, 
 
 ^ See supra, p. 79, note 2. 
 2 (1904), 195 U. S. 27. 
 
FEDERAL INCORPORATION. 83 
 
 or the result of the enforcement of which might be to 
 indirectly affect subjects not within the power delegated 
 to Congress." 
 
 In view of this case, any argument based upon the 
 excessive character of a tax upon the privilege of exer- 
 cising in interstate commerce corporate privileges granted 
 by a State, or upon the motive or purpose o.f Congress in 
 enacting such legislation, would appear of little avail. 
 
 And on the whole, no valid objection can be per- 
 ceived to the constitutionality of such a tax. Without 
 entering into any discussion of the merits of the various 
 methods, the indirect method of prohibition by taxation 
 seems much less desirable than the direct exclusion of 
 state corporations from interstate commerce, which 
 appears equally constitutional. 
 
 Fourth Method: Exclusion of Mail Matter of 
 State Corporations. 
 
 If Congress, under its power to establish post-ofifices 
 and post-roads, can determine arbitrarily what shall and 
 what shall not be carried in the mails, a further indirect 
 method of bringing about compulsory incorporation 
 would be to deny to all State corporations engaged in 
 interstate commerce the use of the mails. 
 
 The power of Congress over the postal system is very 
 broad. It is vested exclusively in the Federal Govern- 
 ment, because the exercise of a similar power by the States 
 would be inconsistent and repugnant. "The States be- 
 fore the Union was formed could establish post-offices 
 and post-roads, and in doing so could bring into play 
 the police power in the protection of their citizens from 
 the use of the means so provided for purposes supposed 
 to exert a demoralizing influence upon the people. When 
 the power to establish post-offices and post-roads was 
 
84 FEDERAL INCORPORATION. 
 
 surrendered to the Congress it was as a complete power, 
 and the grant carried with it the right to exercise all 
 the powers which made that power effective." ' 
 
 Under this power it has been held that Congress can 
 prohibit the transportation through the mails of all let- 
 ters or circulars concerning lotteries.^ "The power pos- 
 sessed by Congress," the court said in the first case, 
 "embraces the regulation of the entire postal system of 
 the country. The right to designate what shall be car- 
 ried necessarily involves the right to determine what shall 
 be excluded." 
 
 An act prohibiting the carriage through the mails of 
 obscene literature was passed by Congress in 1873,^ and 
 its constitutionality has never been questioned. By the 
 act of 1890^ the use of the mails was denied to any per- 
 son or company engaged in conducting any lottery or 
 device for obtaining money or property by means of 
 false pretenses. This act was held constitutional by the 
 Supreme Court in the case of Public Clearing House v. 
 Coyne? in which was sustained the right to deny the use 
 of the mails to a corporation which the Postmaster-Gen- 
 eral believed was carrjdng on a fraudulent business. In 
 discussing the nature of the postal system, the court said: 
 
 "It is not, however, a necessary part of the civil gov- 
 ernment in the same sense in which the protection of 
 life, liberty, and property, the defense of the government 
 against insurrection and foreign invasion, and the admin- 
 istration of public justice are; but it is a public function 
 
 »7» re Rapier (1892), 143 U. S. 110, 134. 
 
 "Ex parte Jackson (1877), 96 U. S. 727; In re Rapier (1892), 143 
 U. S. 110. 
 ' Act March 3, 1873, 17 Stat. 598. 
 ' Act Sept. 19, 1890, 26 Stat. 465. 
 * (1904), 194 U. S. 497. 
 
FEDERAL INCORPORATION. 85 
 
 assumed and established by Congress for the general 
 welfare, and in most countries its expenses are paid solely 
 by the persons making use of its facilities; and it re- 
 turns, or is presumed to return, a revenue to the govern- 
 ment, and really operates as a popular and efficient 
 method of taxation. Indeed, this seems to have been 
 originally the purpose of Congress. The legislative 
 body in thus estabHshing a postal service may annex 
 such conditions to it as it chooses." 
 
 The cases cited may be justified under a general police 
 power of Congress over the postal system, without con- 
 ceding the absolute power of prohibition. The poHce 
 power extends, not only to the protection of the morals, 
 but also to the protection of property. Therefore there 
 seems no reason to doubt the power of Congress to de- 
 nounce all corporations which control a monopoly, as 
 repugnant to the property interests of the public, and 
 refuse to such corporations the use of the mails. Legis- 
 lation of this character, however, would have no appli- 
 cation to the majority of State corporations which are 
 engaged in interstate commerce, and would accordingly 
 be of little value in making compulsory a general federal 
 incorporation act. 
 
 But from the language of the court it is clear that the 
 power of Congress over the postal system is absolute 
 and includes the power to prohibit. And while in exert- 
 ing the power. Congress must not act arbitrarily in viola- 
 tion of the due process clause of the Fifth Amendment, 
 it can hardly be said, in view of the nature of the postal 
 system, that any individual can have such a vested right 
 to use the mails as to defeat the exercise of the discre- 
 tion of Congress to determine what shall and what shall 
 not be carried. 
 
 But each person within the jurisdiction has, it is be- 
 lieved, as a part of due process, the right to be subject 
 
86 FEDERAL INCORPORATION. 
 
 only to the same laws which apply to others similarly 
 circumstanced. In Public Clearing House v. Coyne,^ it 
 is said: "While it may be assumed, for the purpose of 
 this case, that Congress would have no right to extend 
 to one the benefit of its postal service, and deny it to 
 another person in the same class and standing in the 
 same relation to the government, it does not follow that 
 under its power to classify mailable matter, applying 
 different rates to different articles, and prohibiting some 
 altogether, it may not also class the recipients of such 
 matter, and forbid the delivery of letters to such persons 
 or corporations as in its judgment are making use of the 
 mails for the purpose of fraud or deception or the dis- 
 semination among its citizens of information of a charac- 
 ter calculated to debauch the public morality." 
 
 If we are correct in believing that due process requires 
 the equal protection of the laws, an arbitrary selection or 
 classification is beyond the power of Congress. A law 
 which divides those who use the mail into two general 
 classes, all State corporations on the one hand, and all 
 who are not incorporated by a State on the other, does 
 not seem based upon any reasonable difference, either 
 in the character of the person or in the kind of mail mat- 
 ter sent, which will make the classification more than 
 arbitrary selection . The constitutionality of this method , 
 therefore, seems open to grave doubts. 
 
 ' (1904), 194 U. S. 497, 507. 
 
CHAPTER V. 
 
 STATE LEGISLATION WITH REFERENCE TO STATE 
 
 CORPORATIONS ENGAGED IN INTERSTATE 
 
 COMMERCE. 
 
 Undoubtedly the most important problems which 
 would arise as the result of a federal incorporation sys- 
 tem would deal with its effect upon State action. To 
 determine to what extent the property and operations 
 of a federal corporation would be subject to State laws, 
 and to comprehend fully the exact changes, if any, from 
 the present system, it is first necessary to ascertain the 
 extent to which State legislation at the present time may 
 affect State corporations, foreign or domestic, which are 
 engaged in interstate commerce. 
 
 The effect of the federal power of regulation in its 
 limitation upon State action has naturally been the sub- 
 ject of much litigation, as there is scarcely a business of 
 any magnitude which does not extend over two or more 
 States. The first important problem before the Supreme 
 Court was to determine the character of the federal 
 power, — whether it was exclusive or whether the States 
 had a concurrent jurisdiction in the absence of conflicting 
 legislation by Congress. 
 
 It is an elementary principle that the States may exer- 
 cise all powers not vested exclusively in the Federal Gov- 
 ernment by the Constitution or prohibited to the States. 
 Hamilton, in The "Federalist," declared that under the 
 Constitution a power would exist exclusively in the Fed- 
 eral Government in three ca^es only, — "where the Con- 
 stitution in express words granted an exclusive authority 
 to the Union; where it granted in one instance an 
 
88 FEDERAL INCORPORATION. 
 
 authority to the Union, and in another prohibited the 
 States from exercising a like authority; and where it 
 granted an authority to the Union to which a similar 
 authority in the States would be absolutely and totally 
 contradictory and repugnant." ^ 
 
 The power to regulate commerce among the several 
 States is not granted exclusively to Congress in express 
 words, nor are the States prohibited from exercising a like 
 power. Therefore, if it is vested exclusively in Congress, 
 it must be because a similar authority in the States would 
 be "absolutely and totally contradictory and repugnant." 
 
 There are three possible ways in which the question 
 may be decided: (l) the power of the Federal Govern- 
 ment is concurrent with that of the States in all cases; 
 (2) it is exclusively vested in the Federal Government 
 in matters of national concern, and concurrently in the 
 States in local matters ; (3) it is exclusive in the Federal 
 Government in all cases. 
 
 The first view has never been adopted by the Supreme 
 Court, although individual judges have supported it. 
 The third view was declared by Chief Justice Marshall, 
 in Gibbons v. Ogden,^ but it was not necessary to the de- 
 cision, and was not followed in the decisions immediately 
 subsequent to that case. There was a marked difference 
 of opinion among the members of the court until the case 
 of Cooley v. Board of Port Wardens? In the opinion in 
 that case, the court, holding that State pilot laws were 
 not in conflict with the power of Congress to regulate 
 interstate commerce, pronounced in favor of the second 
 view, that whatever subjects were in their nature national 
 or admitted of only one uniform plan of regulation, were 
 
 ' "Federalist," No. 32. 
 « (1824), 9 Wheat. 1. 
 5 (1851), 12 How. 299. 
 
FEDERAL INCORPORATION. 89 
 
 under the exclusive control of Congress ; while in matters 
 essentially local in importance, the power of Congress 
 was concurrent with that of the States. 
 
 This view has not, perhaps, been expressly repudiated, 
 but there seems little doubt from the language of the 
 court in subsequent decisions that the actual rule at the 
 present time is the one advanced by Marshall, that the 
 power of regulation is exclusively vested in Congress in 
 all cases. ^ This does not mean that a State law may not 
 affect interstate commerce. A distinction must be noted 
 between a State law which regulates interstate commerce 
 and a law passed in the exercise of a power reserved to 
 the State which in its operation incidentally affects that 
 commerce to a greater or less extent. The power to tax 
 property and privileges within the jurisdiction, to enact 
 police regulations for the protection of the health, morals, 
 or safety of the public, and to regulate that commerce 
 which is confined within the limits of a single State, are 
 among the powers reserved to the individual States. It 
 is entirely possible that a law passed in the exercise of one 
 of these legitimate powers may have the same effect upon 
 interstate commerce as would a law enacted by Congress 
 under its power to regulate that commerce, and yet the 
 State law is not a regulation of interstate commerce. 
 Thus Chief Justice Marshall, in Gibbons v. Ogden,^ 
 
 iSee Shepard v. Northern Pac. Ry. Co. (1911), 184 Fed. 765; 
 Western Union Telegraph Co. v. Kansas (1910), 216 U. S. 1; Gal- 
 veston, etc.. Railway v. Texas (1908), 210 U. S. 217; Houston, etc.. 
 Railroad v. Mayes (1906), 201 U. S. 321; Northern Securities Co. 
 V. United States (1904), 193 U. S. 197; Lottery Case (Champion v. 
 . Ames) (1903), 188 U. S. 321; Chicago, etc.. Railroad v. Solan (1897), 
 169 U. S. 133: Hennington v. Georgia (1896), 163 U. S 299; Brennan 
 V. Titusville (1893), 163 U. S. 289; Brown v. Houston (1884). 114 
 U. S. 622; Hall v. De Cuir (1877), 95 U. S. 485. See, also, Cooke 
 on the Commerce Clause, sec. 55 et seg. 
 2 (1824), 9 Wheat 1.204. 
 
90 FEDERAL INCORPORATION. 
 
 declared, "All experience shows that the same measures, 
 or measures scarcely distinguishable from each other, 
 may flow from distinct powers ; but this does not prove 
 that the powers themselves are identical." 
 
 Many illustrations of this could be given. For ex- 
 ample, a State law requiring all railroad engineers to 
 procure a license by passing a certain examination was 
 held constitutional even as appUed to engineers on trains 
 engaged in interstate commerce.^ Undoubtedly Con- 
 gress could pass a similar law as a regulation of interstate 
 commerce ; but it does not follow that the State law was 
 passed under the power to regulate interstate commerce. 
 On the contrary, the law was regarded as a valid exer- 
 cise of the poUce power of the State. So, also, it seems 
 that in all the cases in which the effect of a State 
 regulation upon interstate commerce has been considered, 
 the statute has been passed in the exercise, not of the 
 power to regulate interstate commerce, but of some dis- 
 tinct power reserved to the State. The actual regula- 
 tion of interstate commerce, it appears, is a power which 
 exists only in Congress. 
 
 If this be true, the problem is at once presented, — 
 how far may such laws, enacted in the reasonable exer- 
 cise of a reserved power of the State, affect interstate 
 commerce ? It might have been held that any attempt'to 
 apply the law to the subjects of interstate commerce was 
 an invasion of the authority conferred upon Congress, 
 and therefore unconstitutional. On the other hand, it 
 might have been decided that since the law was passed 
 in the exercise of an admitted power, it could affect inter- 
 state commerce to any extent, provided that it did not 
 conflict with an act of Congress regulating that commerce. 
 The Supreme Court, however, adopted an intermediate 
 
 ' Smith V. Alabama (1888), 124 U. S. 465. 
 
FEDERAL INCORPORATION. 91 
 
 view. By the "doctrine of silence," which has been re- 
 ferred to several times, first pronounced in the case of 
 Welton V. Missouri,^ and developed by succeeding cases, 
 it is held that a State law which affects interstate com- 
 merce may be in conflict with the will of Congress as 
 expressed by its silence or inaction. In matters which 
 admit only of one uniform plan of regulation, the silence 
 of Congress expresses its will that commerce among the 
 States shall be entirely free from State restrictions, no 
 matter under what power the law is passed ; but in local 
 matters, which concern only the immediate State, the 
 State regulation may affect the subjects of interstate com- 
 merce until Congress itself legislates upon the same matter. 
 State regulations which in their operation incidentally 
 bear upon interstate commerce may be divided into two 
 general classes, taxation laws and police or other regula- 
 tions. There are a large number of cases under each of 
 these classes which involve the validity of the laws when 
 applied to corporations engaged in interstate commerce. 
 Those dealing with the extent of the power of State 
 taxation will be discussed first. 
 
 I. State Taxation of Corporations Engaged in 
 Interstate Commerce. 
 
 State regulation of corporations which carry on an 
 interstate commerce business usually takes the form of 
 taxation. 
 
 A corporation whose business is not interstate com- 
 merce cannot enter a foreign State against the consent 
 
 ' (1875) 91 U. S. 275. See also, Hall v. De Cuir (1877), 95 U. S. 
 485; Gloucester Ferry Co. v. Pennsylvania (1885), 114 U. S. 196; 
 Robbins v. Shelby County Taxing District (1887), 120 U. S. 489; 
 Leisy v. Harden (1890) 135 U. S. 100; Pittsburg, etc., Coal Co. v. 
 Bates (1895), 156 U. S. 577; Western Union Telegraph Co. v. James 
 (1896), 162 U. S. 650. 
 
92 FEDERAL INCORPORATION. 
 
 of that State. It may be excluded arbitrarily, or per- 
 mitted to enter upon certain conditions only. But this 
 rule, as we have seen, does not apply to a corporation 
 engaged in trade among the States. To allow the 
 States to refuse admission to such corporations would 
 materially burden that trade. Since, therefore, the cor- 
 poration could not be excluded, the natural attempt on 
 the part of the State has been to increase its revenues 
 by taxation, and innumerable cases have arisen involv- 
 ing the question of the constitutionality of such action. 
 Some of these decisions are apparently conflicting, and 
 it is impossible to reconcile many of the statements in 
 the opinions. Certain definite principles have, how- 
 ever, become settled : — 
 
 A. A State cannot tax the privilege of engaging in 
 interstate commerce. 
 
 B. A State can tax property which has a situs within 
 the jurisdiction, although it is employed in interstate 
 commerce. 
 
 C. A State can tax the intrastate business of a cor- 
 poration engaged also in interstate commerce. 
 
 D. A State can impose a charge upon an interstate 
 commerce corporation for local governmental super- 
 vision rendered necessary by the way in which the 
 business is carried on. 
 
 E. A State can charge for the privilege of using the 
 public highways, although the corporation making use 
 of them is engaged in interstate commerce. 
 
 Admitting these principles does not, however, clear 
 up the difficulties. It is the application of the first 
 two, and lately of the third, that has caused so much 
 difference of opinion among the members of the Supreme 
 Court. In view of the existing confusion it has been 
 thought not only appropriate but necessary to examine 
 at length the decisions under each principle. 
 
FEDERAL INCORPORATION. 93 
 
 A . A State Cannot Tax the Privilege of Engaging in 
 Interstate Commerce. 
 
 This is the fundamental principle at the basis of the 
 decisions. The right to engage in interstate commerce 
 is not granted by the State, and, being subject to the 
 exclusive jurisdiction of Congress, is not a privilege 
 which the State may tax. To allow such taxes to 
 be imposed would heavily burden the transaction of 
 intersta,te trafific, and would practically give to the 
 States the power to regulate. 
 
 There can be no doubt as to the correctness of many 
 of the decisions. When a corporation or its agent is 
 required to pay a license tax for the privilege of coming 
 into the State to carry on an interstate business, it is 
 apparent that the principle is violated.* For the same 
 reason a tonnage tax upon freight carried in interstate 
 commerce is unconstitutional,^ as is a tax upon all 
 messages, interstate and local, transmitted by a tele- 
 graph company.' 
 
 If it were necessary, many more illustrations could 
 be given. From these and similar cases it appears 
 that, for the purpose of testing the constitutionality of 
 a tax, the only sound, simple, and definite method is to 
 regard the tax as falling upon that subject by which 
 its amount is measured. It is undoubtedly true that all 
 taxes, by whatever measured, are in reality taxes upon 
 the person or corporation by whom the tax is paid, but, 
 for constitutional purposes, a tax which is measured, 
 for example, by the gross receipts, — which rises and 
 falls in amount as the gross receipts increase or de- 
 crease, — should be considered as a direct tax upon 
 
 1 Crutcher v. Kentucky (1891), 141 U. S. 47. 
 'State Freight Tax Case (1872), 15 Wall. 232. 
 3 Telegraph Co. v. Texas (1881), 105 U. S. 460. 
 
94 FEDERAL INCORPORATION. 
 
 the gross receipts. Thus, if there should be no gross 
 receipts there would be no tax. "It has repeatedly 
 been held that the constitutionality or unconstitutional- 
 ity of a State tax is to be determined, not by the form 
 or agency through which it is to be collected, but by 
 the subject upon which the burden is laid." ' It is be- 
 lieved that if this principle had been followed in all of 
 the cases, there would have been little or none of the 
 confusion which has resulted. 
 
 To return to the decisions, it seems that no logical 
 distinction could be made between the effect of a tax 
 upon freight carried in interstate commerce, and the 
 receipts derived from the carriage of such freight, but 
 at first such a distinction was made. In the case of 
 State Tax on Gross Receipts,^ it was held that a tax 
 upon gross receipts was constitutional, although a large 
 part of those receipts was derived from interstate com- 
 merce. The tax was regarded as falling upon a fund 
 which had become the property of the company com- 
 mingled with its other property within the State. 
 
 This distinction, however, was unsound, and in Phila- 
 delphia, etc., Steamship Co. v. Pennsylvania^ it was 
 abandoned, the court holding that a tax on the gross 
 receipts derived from interstate commerce was a burden 
 upon that commerce, and therefore unconstitutional. 
 No State has a right to tax interstate commerce in any 
 form, whether by way of duties laid on the transporta- 
 tion of the subjects of that commerce, or on the receipts 
 derived from that transportation, or on the occupation 
 or business of carrying it on, and the reason is that such 
 taxation is a burden on such commerce, and amounts 
 
 ^ State Freight Tax Case (1872), 15 Wall. 232, 272. 
 ' (1872), 15 Wall. 284. 
 ' (1883), 122 U. S. 326. 
 
FEDERAL INCORPORATION. 95 
 
 to a regulation of it, which belongs solely to Con- 
 gress." ^ 
 
 Considerable confusion was thrown upon the subject 
 by the decision in Maine v. Grand Trunk Ry? Maine 
 had imposed upon all corporations operating railroads 
 "an annual excise tax for the privilege of exercising its 
 franchises" within the State. If the railroad did not 
 lay wholly within the State, the tax was to be upon an 
 amount "equal to" such a proportion of the gross re- 
 ceipts as the mileage within the State bore to the entire 
 mileage. The Grand Trunk Railway Company, a 
 Canadian corporation engaged in interstate commerce, 
 objected to the payment of the tax, upon the ground 
 that it was an interference with interstate commerce. 
 The tax, however, was held constitutional by a divided 
 court. The majority opinion was based upon the 
 ground that the privilege of exercising franchises within 
 the State might be granted or withheld, within the 
 discretion of the State, and might therefore be conferred 
 upon such conditions, pecuniary or otherwise, as the 
 State should think fit; and the reference to the gross 
 receipts in this case was merely to determine an amount 
 which might be fixed at an arbitrary sum. Four mem- 
 bers of the court dissented upon the ground that the 
 tax, while called a franchise tax, was laid in an unconsti- 
 tutional manner, being in reality a tax upon the gross 
 receipts. 
 
 The language of both the majority and dissenting 
 opinions appear in conflict with the principle that no 
 State can tax the privilege of engaging in interstate com- 
 merce. It is not true that a State may deny to a for- 
 eign corporation the privilege of exercising its franchises 
 
 ^Uloup V. Mobile (1888), 127 U. S. 640, 648. 
 2 (1891), 142 U. S. 217. 
 
96 FEDERAL INCORPORATION. 
 
 within the State when those franchises are employed in 
 interstate commerce. Furthermore, the amount of the 
 tax in question was measured by taking a proportion of 
 the gross receipts of the company derived from all 
 sources. If a tax upon the entire gross receipts from 
 interstate commerce is a tax upon that commerce, and 
 is therefore unconstitutional, it is difficult to understand 
 how such a tax falls any the less upon interstate com- 
 merce when only a certain portion of those receipts are 
 taxed. It can only be a matter of degree. The distinc- 
 tion between a tax directly upon the gross receipts and 
 a tax upon an amount "equal to" the gross receipts 
 appears wholly artificial and unsound. 
 
 It is probable, although it does not appear from the 
 report, that the corporation was also engaged in intra- 
 state commerce in Maine, and it may be that the fran- 
 chise of carrying on this local business was what was 
 meant by the court. The validity of the tax viewed in 
 this light will be discussed in a later section.* 
 
 Subsequent decisions have held that Maine v. Grand 
 Trunk Railway is sound only, if at all, upon the ground 
 that the method of taxation was a proper measure of 
 the value of the property of the company within Maine. 
 In Wisconsin, etc., Railway v. Powers,^ the Supreme 
 Court sustained a tax upon the actual earnings within 
 the State of an interstate railroad, the amount of the 
 tax being ascertained by adding to the income derived 
 from the business done entirely within the State, such 
 proportion of the income from interstate business as 
 the mileage within the State bore to the entire mileage. 
 The court did not discuss the question of an interference 
 with interstate commerce, but merely remarked that 
 
 ^ See post, page 139. 
 2 (1903), 191 U. S. 379. 
 
FEDERAL INCORPORATION. 97 
 
 this was a tax upon the property and business computed 
 by the same method as was employed in Maine v. 
 Grand Trunk Railway. 
 
 Dividing the tax in this case into its component parts, 
 it was laid (a) upon the earnings from business trans- 
 acted wholly within the State, and (b) upon such pro- 
 portion of the receipts from interstate commerce as the 
 mileage within the State bore to the entire mileage. To 
 the first part of the tax there can be no valid objection, 
 but the proportionate tax upon the interstate receipts, 
 under the' principle that a tax falls upon that by which 
 its amount is measured, is clearly a tax upon interstate 
 commerce, and should have been held unconstitutional. 
 To abandon this principle would mean, apparently, that 
 the constitutionality of each tax is to be determined by 
 the name it is given, — by the "shadow" and not by 
 the "substance," — which is certainly unsound. 
 
 The final decision upon the subject is the recent case 
 of Galveston, etc., Railway Co. v. Texas.^ The State of 
 Texas imposed upon all railroads Ijdng wholly within 
 its limits an occupation tax "equal to one per cent of 
 the gross receipts." If the railroad lay partly within 
 and partly without the State, the tax was to be "equal 
 to such proportion of the one per centum of its gross 
 receipts as the length of the portion of such line bears 
 to the whole length of such line." The Galveston, etc., 
 Ry. Co., a Texas corporation, lay wholly within the 
 State, but it connected with other roads, and a large 
 part of its gross receipts was derived from interstate 
 commerce. 
 
 The tax was declared unconstitutional, the court 
 (four judges dissenting) affirming the doctrine estab- 
 lished in Philadelphia, etc.. Steamship Co. v. Pennsyl- 
 
 1 (1908), 210 U. S. 217. 
 
98 FEDERAL INCORPORATION. 
 
 vania,^ that a tax upon the gross receipts from inter- 
 state commerce was a direct tax upon such commerce. 
 It was argued that the case was governed by Maine v. 
 Grand Trunk Railway, but of that case the court said: 
 "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 trans- 
 portation as such, was shown by the fact that the 
 scheme of the statute was to fix a system. The build- 
 ings of the railroad and its lands 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. That idea came in later. The excise was 
 an attempt to reach that additional value. The two 
 taxes together fairly may be called a commutation tax." 
 
 In the case at bar the tax was regarded as "an effort 
 to reach the gross receipts, not even disguised by the 
 name of an occupation tax, and in no way helped by 
 the words 'equal to.' " "The distinction," declared the 
 court, "between a tax 'equal to' one per cent of the 
 same, seen.s to us nothing, except where the former 
 phrase is the index of an actual* attempt to reach the 
 property and to let the interstate traffic and the receipts 
 from it alone." 
 
 If in this case the lines of the railroad had extended 
 beyond the limits of Texas, the apportionment of the 
 gross receipts according to the mileage within the State 
 would, it seems, have been practically the same method 
 as that which was held constitutional in Maine v. 
 
 ' Supra. 
 
FEDERAL INCORPORATION. 99 
 
 Grand Trunk Ry. It is not easy to understand how 
 either tax can be said to fall any the less upon interstate 
 commerce. The only difference which can be per- 
 ceived is that the amount of interstate commerce 
 which is taxed is greater in the one case than in the 
 other. It does not seem satisfactory to say that in the 
 one case the tax is an attempt to reach the value of 
 the property, while in the other it is a burden upon the 
 interstate business. 
 
 It therefore appears that, as a general rule, State 
 taxation of the gross receipts derived from interstate 
 commerce is a tax upon that commerce, and is uncon- 
 stitutional. But if only a proportion of the gross receipts 
 are taxed, and the court, looking at the whole scheme 
 of tcixation, regards the statute as an attempt to deter- 
 mine the value of the property of the company within 
 the State, the tax will be held constitutional. 
 
 B, A State Can Tax Property which has a Situs within 
 the Jurisdiction, although it is Employed in Interstate 
 Commerce. 
 
 The fundamental principle governing the right to 
 tax is that the object taxed must be within the juris- 
 diction of the taxing power. "All subjects over which 
 the sovereign power of a State extends are objects of 
 taxations; but those over which it does not extend are, 
 upon the soundest principles, exempt from taxation." ' 
 Property of an interstate company which is situated 
 within a State and enjoys the protection of its laws 
 should bear its proper proportion of the burdens of 
 government, unless to tax it would burden the inter- 
 state commerce in which it is employed, and thus 
 
 » McCtdlough V. Maryland (1819), 4 Wheat. 316, 429. 
 
100 FEDERAL INCORPORATION. 
 
 amount to an interference with the exclusive jurisdic 
 tion of the Federal Government. A tax based upon 
 the actual value of the property, as other property in 
 the State is valued, has no such effect, and is open to 
 no objection. 
 
 The difficulty has been in the methods of valuation 
 employed by the various States. The interstate business 
 carried on by the company could not be taxed by the 
 State, and as in many cases the amount of this business 
 greatly exceeded the actual value of the property, 
 systems were devised by which a portion of the business 
 could be reached in the valuation of the property of 
 the company within the State. The most general 
 method is the proportionate mileage system employed 
 in the case of transportation and telegraph companies, 
 by which the taxable value of the property within the 
 State is determined by assessing such proportion of 
 the capital stock as the mileage within the State bears 
 to the entire mileage of the company. 
 
 The arguments in favor of this scheme of taxation are 
 very forcible. The rule of property taxation undoubtedly 
 is that the value of the property is the basis of taxation. 
 But the true value of a railroad or telegraph company, 
 it is said, is something more than an aggregation of the 
 value of individual parts of it operated separately. Each 
 part is enhanced in value because of its use in connec- 
 tion with the rest of the system, and each part, 
 therefore, for taxation purposes may be treated as 
 part of an organic whole, and its value determined 
 accordingly. "The value of property results from the 
 use to which it is put, and varies with the profitableness 
 of that use, present and prospective, actual and antici- 
 pated. There is no pecuniary value outside of that which 
 results from that use. The amount and profitable charac- 
 ter of such use determines the value, and if property is 
 
FEDERAL INCORPORATION. j^l 
 
 taxed at its actual cash value it is taxed- upon Is6'iiiething 
 which is created by the uses to which it is piTtr"^ 
 
 The entire value of the property of every kind of a 
 railroad or telegraph company, it is argued, is evidenced 
 by the actual value of its capital stock, and when such 
 a proportion of that value is taken, as the mileage within 
 the taxing State bears to the entire mileage of the system, 
 a fair valuation of the property within the State is 
 reached. It is admitted that the rule could not be 
 applied under certain circumstances, as, for example, 
 where the corporation had a terminal of immense 
 value outside of the taxing State. But as a general rule, 
 it is contended, the result is just, both to the State and to 
 the corporation. 
 
 In spite of the force of these arguments, it is sub- 
 mitted that the rule is unsound in principle. That 'it is 
 unsatisfactory in application is evidenced by the numer- 
 ous dissenting opinions in the decisions sustaining the 
 application of the rule. A tax measured upon the actual 
 value of the capital stock of a corporation — which 
 changes in amount as the stock rises and falls on the 
 market — is a direct tax upon the capital stock. The 
 theory is that the capital stock represents the property 
 in which the stock is invested. But an analysis of the 
 elements which enter into the market value of capital 
 stock will show that it is made up of more than tangible 
 property. In the case of Pullman Co. v. Transporta- 
 tion Co? one of the points involved was the valuation of 
 property which had been leased and destroyed before 
 the disaffirmance by the lessee of the contract, which 
 was illegal. The lessor, a corporation, had leased its 
 entire plant, and the circuit court decided that the 
 
 1 Cleveland, etc., Railroad v. Backus (1894), 154 U. S. 439, 445. 
 
 2 (1898), 171 U. S. 138. 
 
102 FEDERAL INCORPORATION. 
 
 market value of the capital stock at the time of the trans- 
 ference was the proper measure of the value of the prop- 
 erty. This conclusion the Supreme Court reversed, 
 saying : 
 
 "The market price of the shares of stock in a manu- 
 facturing corporation includes more than the mere value 
 of the property owned by it. . . . The value of the 
 franchise for one thing enters into the computation of 
 market value. . . . The probable prospective capacity 
 for earnings also enters largely into the market value, 
 and future possible earnings again depend to a great ex- 
 tent upon the skill with which the affairs of the company 
 may be managed. These considerations, while they may 
 enhance the value of the shares on the market, yet do 
 not in fact increase the value of the actual property 
 itself. They are matters of opinion upon which the per- 
 sons buying and selling the stock may have different 
 views." 
 
 Thus there are three elements which ^nter into and 
 determine the value of the capital stock, (a) the tan- 
 gible property, (b) intangible property, including the 
 franchise, and (cj the prospects of income from the 
 business. A tax upon the actual value of the capital 
 stock is a tax upon all three of these elements. The in- 
 come, present or prospective, from the business cannot 
 be taxed by itself, because that business is interstate 
 commerce. Omitting for the present any discussion of 
 the right to tax the franchise, should the prospects of 
 income from the business be included in the value of 
 the property, upon the theory that the value of the 
 property depends upon the use to which it is put? 
 
 It is true that the value of property depends largely 
 upon its capacity for use, but it is by no means true that 
 property employed in a business is as valuable as the 
 earnings from that business. The earnings in any busi- 
 
FEDERAL INCORPORATION. 103 
 
 ness depend to a very considerable extent upon the ability 
 and experience of those who are conducting it. To quote 
 from Judge Taft: "It certainly could not be said that 
 the amount of profits of a dry goods store capitalized on 
 a basis of six per cent would afford any proper guide 
 to the value of the real estate, the merchandise, and the 
 ready capital used in the business. Where the property 
 earns the money, as real estate earns rent, or as money 
 loaned earns interest, the earnings do determine very 
 largely the value of the property; but where, as in a 
 business of an individual or a corporation, the invest- 
 ment is active, instead of passive, there is no necessary 
 relation between the value of the tangible property and 
 the earnings." ' The business of conducting a railroad 
 or a telegraph company is unquestionably an active in- 
 vestment, and the profits made in the business bear no 
 necessary relation whatever to the value of the tangible 
 property. The use to which the property is put, so far 
 as it is interstate commerce, is not within the jurisdic- 
 tion of the taxing State, and cannot be burdened. 
 
 It is no less a tax upon such use when the tangible 
 property is assessed above its actual value at an amount 
 which includes the earnings from the interstate business 
 in which the property is employed. In the case of Dela- 
 ware, etc.. Railroad v. Pennsylvania,^ in which a tax 
 upon the entire capital stock of a Pennsylvania corpora- 
 tion was held unconstitutional in so far as it included the 
 value of coal which had a situs outside of the taxing 
 State, the court said : 
 
 "If the property itself could not be specifically taxed 
 because outside the jurisdiction of the State, how does 
 the tax become legal by providing for assessing the tax 
 
 ' Western Union Tel. Co. v. Foe (1894), 61 Fed. Rep. 449, 457. 
 2 (1905), 198 U. S. 341. 
 
104 FEDERAL INCORPORATION. 
 
 on the value of the capital stock to the extent it repre- 
 sents that property and from which the stock obtains its 
 increased value? Can the mere name of the tax alter its 
 nature in such a case? If so, the way is found for taxing 
 property wholly beyond the jurisdiction of the taxing 
 power by calling it a tax on the value of the capital stock 
 or something else, which represents that property. Such 
 a tax, in its nature, by whatever name it may be called, 
 is a tax upon the specific property which gives the added 
 value to the capital stock." 
 
 So here it may be asked, — If the interstate business 
 cannot be specifically taxed, how can the tax become legal 
 by assessing the property at an amount which includes 
 the prospective profits from that interstate business, 
 which unquestionably add considerably to the market 
 value of the capital stock? 
 
 Therefore the argument that the value of the property 
 depends upon the value of the business seems clearly 
 unsound. But the further question remains with ref- 
 erence to the franchise of the corporation. Can it be 
 taxed, as property? If so, what is the proper measure 
 of its value? Does its value depend upon the amount of 
 business transacted by the corporation? 
 
 A corporate franchise is a right granted by the sov- 
 ereign to carry on a particular business subject to certain 
 peculiar rules of law. It is a property right, just as is 
 the right of an individual to contract, or the right of 
 individuals to associate as partners. 
 
 If an enterprise of the size and character of that car- 
 ried on by corporation X could not be carried on by a 
 partnership, then the right to carry it on with "common 
 name," "limited liability," "transferable shares," etc., is 
 essential. In one sense, in such a case, the franchise is 
 worth the whole value of the capital stock less the value 
 of the tangible property and the choses in action. The 
 
"FEDERAL INCORPORATION. 105 
 
 value of the stock depends upon tangible property and 
 prospective profits, and the prospective profits could not 
 be acquired if the business were not continued, and the 
 business could not be continued without the corporate 
 franchise. 
 
 On the other hand, the profits are to be made out of 
 the business. The business is not the franchise , any more 
 than the right of two partners to associate is the business 
 of the partnership. A and B are partners. The business 
 is too large for either one to carry on separately. In one 
 sense the value of the right to associate as partners is 
 the difference between what the partners could make 
 acting separately and what they could make acting in 
 partnership. The right to associate as partners is 
 essential. But so also the right of an individual to con- 
 tract, or to hold and convey property, is essential to 
 his business, and the value of these rights is in one sense 
 the value of his business. 
 
 A business is a connected series of acts toward the end 
 profit. Certain legal rights or rules of law are essedtial 
 to all business, as the right to contract. Certain other 
 rights, as the right to associate on a corporate basis, 
 are essential to some businesses. But the mere right 
 without the business is of no value. If the right is a 
 special right that is not common to all men, then the 
 State may charge those to whom it grants the right 
 any arbitrary sum it pleases, unless some constitutional 
 provision stands in the way. But if the amount of 
 the tax varies with the amount of the business, the tax 
 is on the business, and not on the right; if it varies with 
 the amount of property in the business, it is a tax on 
 that property, not on the right; for, by supposition, if 
 there were no business or no property there would be no 
 tax, and yet the right would still exist. 
 
 If the right is common to all persons, as the right 
 
106 FEDERAL INCORPORATION: 
 
 to contract, and the State should tax its exercise accord- 
 ing to the value of the contracts, this again would be 
 a tax on those contracts, and not on the right to contract. 
 The State might say, if no constitutional provision stood 
 in the way, that all men who did not pay so much a 
 year must resign their right to contract, and this would 
 be a tax on the right, as it would be levied on the pos- 
 session of the right and not on its exercise. 
 
 The mere fact that the right is not a general right, 
 as the right to have limited liability in a certain class of 
 contracts, does not make it any the less a mere right. 
 The special value of the right gives it a market value 
 which it would not otherwise possess. The State, 
 therefore, is able to charge for it, just as it would be 
 able to charge for the right to make shoes, if it could 
 withdraw that right from the people generally, and put 
 up at auction a few licenses. But the moment it meas- 
 ured its charge on the amount of shoes, or the profits 
 in the business of shoemaking, it would be a charge on 
 the business, not on the abstract right to carry it on. 
 
 Applying the result of this analysis to the taxation 
 of a corporate franchise, — first, by the State which 
 granted the charter, — the value of the right to carry 
 on business in corporate form is not the amount of 
 business transacted, but the market value of the abstract 
 right to do business in that way. This market value 
 depends on two factors. Can the business be carried 
 on by those who wish to do it, without the peculiar 
 corporate rights, — could it be done by a partnership? 
 If so, the market value of a franchise is little or nothing. 
 But if practically it could not be carried on without a 
 corporate franchise, how limited is the privilege to do 
 it as a corporation? If the State freely grants the cor- 
 porate franchise to all, it has no more market value 
 than the right to contract. This difference, however, 
 
FEDERAL INCORPORATION. 107 
 
 exists. No matter how freely the State grants the cor- 
 porate rights, theoretically each charter is a special 
 grant, which under the power to alter, amend, and re- 
 peal, the State can take away constitutionally. There- 
 fore, it can charge for this right where it cannot for a 
 right which it cannot take away, such as the right to 
 contract. And constitutionally, there may be a great 
 deal to be said for the proposition that the State can 
 charge any arbitrary sum it desires. 
 
 The real question of difficulty is this. It is admitted 
 a State cannot tax interstate commerce. It is admitted 
 that it cannot tax property outside of its jurisdiction. 
 Suppose it is admitted that, having the right to refuse 
 or to annul a charter to be a corporation, the State can 
 place any arbitrary charge on the exercise of this right. 
 If, under these circumstances, it imposes upon the cor- 
 poration a tax of a certain per cent of its receipts from 
 interstate business and calls it a charge for the con- 
 tinued enjojmient of the franchise to be a corporation, 
 is the law constitutional? 
 
 To this there may be two solutions: 1. A tax falls 
 upon that subject by which its amount is measured. 
 This tax is measured by the amount of interstate busi- 
 ness transacted, and is therefore a tax on that business 
 and is unconstitutional. The State has a right to charge 
 for the franchise, but it cannot tax interstate commerce 
 under the pretense of taxing the franchise. 
 
 2. As the State can charge any arbitrary sum it 
 desires for the franchise, the mere fact that reference 
 is made to the interstate business to ascertain the amount 
 of the tax does not make it a tax on that business. 
 
 These are the two — and apparently the only two — 
 possible solutions when a State taxes a corporation, 
 which it has chartered, for the privilege of continued 
 corporate existence, and measures the tax upon the 
 
108 FEDERAL INCORPORATION. 
 
 entire capital stock or gross receipts, or a certain pro- 
 portion of either. The same difficulty has arisen in 
 other cases in which the State has the right to charge 
 for a privilege granted by it, as in the case of a tax 
 upon the intrastate business of a corporation which is 
 also engaged in interstate commerce. The Supreme 
 Court has, it would appear, proceeded sometimes on 
 the one theory and sometimes on the other, although 
 of late the tendency has been to adopt the first and 
 what, it is submitted, is the better rule. To regard a 
 tax as falling upon that by which its amount is measured 
 furnishes an exact and practical test by which its con- 
 stitutionality can be determined. 
 
 If, then, the value of the corporate franchise, taken 
 by itself, cannot be determined by a reference to the 
 interstate business of the corporation, no more can it 
 be said to equal the value of the capital stock less the 
 value of the tangible property and choses in action, in 
 order to enable the State to tax the capital stock or a 
 proportion of it. Such a valuation includes the profits 
 from the business, and is a tax upon those profits. 
 
 Next, let us apply the foregoing principles to the 
 taxation of the corporate franchise by a foreign State 
 into which the corporation has gone for the purpose of 
 transacting business. The business is interstate com- 
 merce, so that the State cajtinot exclude the corporation. 
 Therefore, the right to carry on the business with 
 "limited liability," "transferable shares," etc., is not a 
 privilege granted by any State other than that which 
 granted the charter. No additional franchise of corpo- 
 rate capacity is granted by the foreign State. 
 
 In some cases the franchise of a corporation is divided 
 into the franchise "to be" and the franchise "to do," 
 and it is said that the franchise "to do" is taken into 
 every State in which the corporation has tangible 
 
FEDERAL INCORPORATION. 109 
 
 property, and can be taxed together with the tangible 
 property in that State. But there seems to be no 
 reason for any such distinction. The franchise of a 
 corporation is the right to carry on business with the 
 advantage of certain pecuHar rules of law, and whether 
 it is called the franchise "to be" or "to do," it is all 
 one and the same. If the franchise of corporate capacity 
 cannot be taxed, it is difficult to perceive upon what 
 reasoning the franchise to transact business in corporate 
 form can be held subject to taxation. Indeed, if there 
 is any valid distinction, it would seem that the franchise 
 "to do" interstate business is clearly exempt from 
 State taxation. To repeat the quotation from Crutcher 
 V. Kentucky:^ "To carry on interstate commerce is not 
 a franchise or privilege granted by the State; it is a 
 right which every citizen of the United States is entitled 
 to exercise under the Constitution and laws of the 
 United States; and the accession of mere corporate 
 facilities, as a matter of convenience in carrying on 
 this business, cannot have the effect of depriving them 
 of such right, unless Congress should see fit to interpose 
 some contrary regulation on the subject." 
 
 Since, then, the State does not grant the right to have 
 corporate capacity, it cannot charge for the continued 
 enjoyment of that privilege, as could the State which 
 originally created the corporation. But this right of 
 corporate capacity is a property right which is taken 
 wherever the corporation transacts business, and it 
 should be subject to State taxation in so far as it is 
 employed within the State. The amount of such taxa- 
 tion, however, cannot be arbitrarily fixed by the State, 
 but, like ail property taxation, must be based upon the 
 actual value of the property right. The sole question 
 
 • (1891), 141 U. S. 47, 57. 
 
110 FEDERAL INCORPORATION. 
 
 then must be, what is the market value of the franchise? 
 This again depends upon the two factors mentioned, — 
 the necessity of the franchise to the successful prosecu- 
 tion of that particular business, and the difficulty of 
 obtaining the grant of the privilege. Under modern 
 incorporation laws, in the great rhajority of the States, 
 there is no difficulty practically in procuring a corporate 
 franchise. As a result, the franchise itself would have 
 little or no more market value than the right of individ- 
 uals to contract. 
 
 But, however this may be, the same is true in this 
 case as in our former discussion. A tax upon the busi- 
 ness or the profits from the business carried on by a 
 corporation is not a tax upon the abstract right to have 
 corporate capacity. A tax upon a certain proportion 
 of the capital stock is a tax upon that proportion of 
 the tangible property of the company, the intangible 
 property, including the franchise, and the prospective 
 profits from the business. The tax upon the profits 
 is a direct burden upon interstate commerce, and can- 
 not be made any the less so by being included in what 
 is termed a tax upon the tangible property and 
 franchises within the State treated as part of a going 
 concern. 
 
 In the case of railroad taxation, it may be argued 
 that the State is taxing the privilege or right of eminent 
 domain. This privilege need not be granted to the 
 corporation, and the right of the State to impose a 
 charge for such a grant is unquestioned. And if the 
 right has been granted, its future exercise may possibly 
 be taxed. But when the right has been exercised, when 
 the land has been appropriated, the right ceases to 
 exist and cannot be taxed. The land appropriated 
 becomes part of the property of the corporation, and a 
 tax upon the right to appropriate it is an impossibility. 
 
FEDERAL INCORPORATION. Ill 
 
 A tax on the capital stock of the corporation, therefore, 
 is not a tax upon the right of eminent domain. 
 
 To summarize, at the risk of repetition: A tax upon 
 the capital stock, or a proportionate part of it, is a tax 
 upon the elements which make up the value of the 
 capital stock. These elements are the tangible and 
 intangible property and the prospects of income from 
 the business. The theory that the value of the property 
 is equal to the value of the business is unsound, because 
 the investment is active. The franchise not only can- 
 not be said to equal the value of the capital stock less 
 the tangible property and choses in action, but has, in 
 itself, little or no market value. Upon neither theory, 
 therefore, can the prospects of income from the inter- 
 state commerce business be included in the property 
 taxed, and by strict conformance to settled principles, 
 the tax, it is submitted, should be held unconstitutional. 
 
 Property Taxation by the Incorporating State. 
 
 In reviewing the cases, those dealing with taxation 
 by the State which chartered the corporation will be 
 discussed first. 
 
 One preliminary matter must be disposed of. Eco- 
 nomically an original charge or fee for incorporation is 
 not a tax. It is a fee charged in pajnnent of a privi- 
 lege granted by the State, and is imposed only once. 
 It is not, as is a tax, an annual or continued charge. 
 As a result, there seems no constitutional objection to 
 the determination of such a fee by taking a certain 
 per cent of the entire capital stock of the corporation, 
 even though part of the property of the company is 
 located outside of the incorporating State, and though its 
 business is largely interstate commerce. It is not simi- 
 lar to a tax which rises and falls with the amount of 
 
112 FEDERAL INCORPORATION. 
 
 interstate business transacted, because it is charged at 
 one time only. The principle would, of course, be the 
 same when separate corporations consolidate into one. 
 
 This was decided in the case of Ashley v. Ryan,^ the 
 facts of which were as follows: Certain railroads, incor- 
 porated under the laws of several different States, one 
 of which was Ohio, desired to consolidate into one 
 corporation under the laws of Ohio. As a fee for incor- 
 poration, the State demanded one-tenth of one per cent 
 of the value of the entire capital stock of the various 
 companies. Objection was made that this amounted 
 to a tax on property located outside of Ohio, and an 
 interference with the interstate commerce in which the 
 railroads in question were engaged. The Supreme 
 Court, however, held that Ohio, in granting corporate 
 privileges, could impose such conditions as it deemed 
 proper. "Considering, as we do, that the payment of 
 the charge was a condition imposed by the State of Ohio 
 upon the taking of corporate being or the exercise of 
 corporate franchises, the right to which depended solely 
 on the will of that State, and hence that liability for the 
 charge was entirely optional, we conclude that the exac- 
 tion constituted no tax upon interstate commerce, or 
 the right to carry on the same, or the instruments thereof, 
 and that its enforcement involved no attempt on the 
 part of the State to extend its taxing power beyond its 
 territorial limits." 
 
 But it would seem unquestionable that a continued 
 charge upon interstate commerce could not be imposed 
 as a condition precedent to incorporation. To allow a 
 State to reserve in a charter the right to tax or otherwise 
 regulate interstate commerce would give the State the 
 power to gain control, by its own act, of matters within the 
 
 1 (1892), 153 U. S. 436. 
 
FEDERAL INCORPORATION. 113 
 
 exclusive jurisdiction of Congress. Upon this ground 
 appears unsound the decision in Railroad v. Maryland} 
 which upheld a stipulation in the charter of an interstate 
 railroad which provided that at the end of every six 
 months one-fifth of the total amount received for the 
 transportation of passengers should be paid to the State. 
 
 The case of the Delaware Railroad Tax^ appears to be 
 the first case in which the court discussed the propor- 
 tionate mileage system from the standpoint of an inter- 
 ference with interstate commerce. The State of Dela- 
 ware imposed upon all railroads incorporated under its 
 laws and doing business within the State a tax of one- 
 fourth of one per cent upon the actual cash value of the 
 capital stock, with a provision that if part of the road 
 lay without the State, the share of the capital stock 
 taxed should be in proportion to the entire stock as the 
 mileage in Delaware bore to the entire mileage. The 
 Delaware Railroad, a corporation of Delaware, had a 
 total mileage of about one hundred miles, with a mileage 
 in the State of about twenty-six miles. It was argued 
 that the tax was unconstitutional because it burdened 
 the interstate business of the company, and also reached 
 property outside of the jurisdiction, it being shown that 
 the value of the property in Delaware did not bear as 
 great a proportion to the value of the entire property as 
 the mileage within the State bore to the entire mileage. 
 
 The court admitted that if the tax were regarded as 
 a property tax, there might be difficulty in sustaining it, 
 but they held that it was not a tax lipon the property, 
 but upon the corporation itself, which the State might 
 tax as an entity existing under its laws. "The manner in 
 which its value shall be assessed, and the rate of taxation, 
 
 ' (1874), 21 Wall. 456. 
 2 (1873), 18 Wall. 206. 
 
114 FEDERAL INCORPORATION. 
 
 however arbitrary or capricious, are mere matters of 
 legislative discretion." 
 
 It therefore appears that the tax here was regarded 
 as a tax imposed by the State which created the corpora- 
 tion as a charge for the privilege of continued corporate 
 existence. Since the State had the power to exact an 
 arbitrary sum, the reference to a proportionate part of 
 the value of the capital stock did not invalidate the tax. 
 Under this view, it would follow that the tax would have 
 been constitutional if measured upon the entire capital 
 stock, or upon the entire gross receipts derived from 
 interstate commerce. Under our analysis, the tax was 
 directly upon a proportionate part of the capital stock, 
 and was a burden upon the elements which gave the 
 value to that stock; and since one of these elements 
 was the interstate business of the railroad, the tax 
 should have been held unconstitutional. 
 
 A decision similar to that in the Delaware Railroad 
 Tax was made in the case of State Tax on Gross Receipts.^ 
 The tax on the gross receipts, including receipts derived 
 from interstate commerce, was also sustained upon the 
 ground that it was a tax upon the franchise which the 
 State had granted. The tax, it was said, might be pro- 
 portioned either to the value of the franchise granted, 
 or to the extent of its exercise; and the gross receipts 
 might be a measure of proximate value. ^ 
 
 1 (1872), 15 Wall. 284. 
 
 ^ In Philadelphia, etc., Steamship Co. v. Pennsylvania (1883), 122 
 U. S. 326, in which the first part of the decision in State Tax on 
 Gross Receipts was overruled, a State tax on gross receipts being 
 held to be a tax on interstate commerce and therefore unconstitu- 
 tional, the court declared that the second ground for the earlier 
 decision could not apply to the case at bar, because by the terms 
 of the act the tax was laid equally on foreign corporations doing 
 business in Pennsylvania. 
 
FEDERAL INCORPORATION. 115 
 
 In the case of Central Pacific Railroad v California ' 
 the franchise granted by CaHfornia was held to be tax- 
 able by that State together with the other property of the 
 corporation within the State. The method of deter- 
 mining the value of the franchise is not clear. The 
 State Board, in assessing together the "franchise, road- 
 way, roadbed, rails, and rolling-stock," took into con- 
 sideration the number of miles within the State, and the 
 total mileage of the road; the value of the road within 
 the State, and the total value, etc. The principal ques- 
 tion involved was whether franchises granted to the 
 company by the Federal Government were included 
 in the assessment, and it was held that the presumption 
 was that such franchises were not included, as the 
 Supreme Court of California had held. It appears, 
 therefore, that there was no fixed method of assessment, 
 and it cannot be said that the value of the franchise was 
 determined by a reference to the receipts from interstate 
 commerce. There could be little objection if an arbitrary 
 sum was fixed by the Board as the value of the con- 
 tinued enjoyment of the privilege granted by the State. 
 
 Up to this time there had been no definite departure 
 from the principle of the Delaware Railroad Tax case, 
 that since the value of the franchise could be determined 
 arbitrarily by the State, the fact that it was fixed by a 
 reference to the actual value of the capital stock did not 
 make the tax a burden on that capital stock. But in 
 Henderson Bridge Co. v. Kentucky'^ the court intimated 
 that the interstate business of the corporation could not 
 be included in the valuation of the franchise. 
 
 The Henderson Bridge Company, incorporated by 
 Kentucky to build a bridge across the Ohio River between 
 Kentucky and Indiana, was taxed by Kentucky upon its 
 
 1 (1896), 162 U. S. 91. 
 
 2 (1897), 166 U. S. 150. 
 
116 FEDERAL INCORPORATION. 
 
 property, including its franchise. Part of the property 
 of the corporation was located in Indiana, and a franchise 
 had also been granted to the company by that State. 
 The value of the franchise granted by Kentucky was 
 determined by subtracting the value of the tangible and 
 intangible property in Indiana and the tangible property 
 in Kentucky from the total value of the property; which 
 was ascertained by adding to the market value of the 
 capital stock the amount of outstanding bonds. It was 
 held that the franchise granted by Kentucky could be 
 included in the property subject to taxation; and that 
 the method of determining its value was reasonable. It 
 was objected that the tax was also upon the interstate 
 commerce transacted by the company, but the court 
 denied this: "Clearly the tax was not a tax on the inter- 
 state business carried on, over, or by means of the bridge, 
 because the bridge company did not transact such busi- 
 ness. That business was carried on by the persons and 
 corporations which paid the bridge company tolls for 
 the privilege of using the bridge. The fact that the tax 
 in question was to some extent affected by the amount 
 of tolls received, and might therefore be supposed to in- 
 crease the rate of tolls, is too remote and incidental to 
 make it a tax on the business transacted." 
 
 From this it would appear that, had the company 
 clearly been engaged in interstate commerce, the tax 
 would have been declared unconstitutional, because that 
 business was included in the valuation of the franchise. 
 Four members of the court dissented upon the ground 
 that the company was in fact engaged in interstate com- 
 merce, and that the tax was not only a burden upon that 
 commerce, but also reached property outside of the juris- 
 diction.^ 
 
 ' Prior to this case, in Covington, etc., Bridge Co. v. Kentucky 
 (1894), 154 U. S. 204, it was decided that the tolls charged by a 
 
FEDERAL INCORPORATION. 117 
 
 In Keokuk, etc., Bridge Co. v. Illinois^ it was held that 
 a tax laid by Illinois on the entire capital stock of a bridge 
 company which maintained an interstate bridge was a 
 valid tax upon the franchise granted by Illinois to the cor- 
 poration. The court, however, expressly pointed out 
 that the constitutionality of the assessment upon the cap- 
 ital stock was not before them. The only objection to the 
 tax brought before the court was that it was an interfer- 
 ence with interstate commerce. Upon this point the 
 court approved the decision in Henderson Bridge Co. v. 
 Kentucky, holding that the company was not itself en- 
 gaged in interstate commerce. 
 
 The question was more directly presented in the case 
 of Louisville Ferry Co. v. Kentucky.'^ The ferry com- 
 pany, a corporation of Kentucky, maintained a ferry be- 
 tween Indiana and Kentucky. An additional franchise 
 had been granted to the corporation by Indiana. Ken- 
 tucky imposed a tax upon the franchise granted by it, 
 determining the value by capitalizing the net receipts 
 of the company at six per cent and deducting from the 
 total the value of the tangible property in Indiana and 
 Kentucky. No deduction was made for the value of the 
 
 bridge company for the transportation across a bridge connecting 
 two States could not be regulated by one State, because such tolls 
 were receipts from interstate commerce. In view of this decision, 
 the opinion of the minority in Henderson Bridge Co. v. Kentucky 
 that the bridge company was itself engaged in interstate commerce 
 appears sounder than that of the majority. But, admitting that 
 the company was not engaged in interstate commerce, as the 
 majority decided, the problem resolves itself into the question 
 whether the rental received from leased property can be taxed 
 when that property is employed in interstate commerce. Such a 
 tax does not appear objectionable so far as an interference with 
 interstate commerce is concerned. See pages 130-131. 
 
 ' (1900), 175 U. S. 626. 
 
 " (1903), 188 U. S. 385. 
 
118 FEDERAL INCORPORATION. 
 
 franchise granted by Indiana, and for this reason the tax 
 was declared unconstitutional. "There is, in our judg- 
 ment," said the court, "no escape from the conclusion 
 that Kentucky thus asserts its authority to tax a prop- 
 erty right, an incorporeal hereditament, which has its 
 situs in Indiana." 
 
 It was argued that the State could make it a condition 
 of continued corporate existence that a tax should be 
 measured by the value of all the property of the corpora- 
 tion, wherever situated. To this the court replied : "It 
 is a sufficient answer to this suggestion to say that no 
 such condition was prescribed in the charter of the ferry 
 company when it was granted and accepted. Nor does 
 the taxing statute in question make it a condition of 
 the ferry company's continuing to exercise its corporate 
 powers that it shall pay a tax for its property having a 
 situs in another State. . . . We express no opinion as 
 to the validity of such a condition if it had been inserted 
 in the company's charter, or if it were now, in terms, 
 prescribed by any statute." Since, under this view, the 
 tax was unconstitutional, the court declined to express 
 an opinion with reference to the objection that the tax 
 was a burden upon the interstate commerce. 
 
 It is submitted that it was not necessary that the stat- 
 ute should in terms make the payment of the taxa condi- 
 tion of continued corporate existence to make it a tax 
 upon that privilege. As a result of our analysis we have 
 concluded that the fact that the State possessed the 
 power to repeal a charter, and thus end the corporate ex- 
 istence, was the principal element which entered into 
 the value of the franchise and gave it a market value 
 which could be taxed. Since, therefore, this right of the 
 State to take away the franchise is what enables it to 
 charge for or tax the privilege after it has been granted, 
 any tax upon a franchise granted by the taxing State 
 
FEDERAL INCORPORATION. 119 
 
 is a charge upon the right of continued corporate ex- 
 istence. But, assuming that the tax in the case above 
 was upon this right, it would still be objectionable 
 because measured upon the value of property beyond 
 the State and also upon the profits from the interstate 
 business. 
 
 The most recent case upon this subject is that of Gal- 
 veston, etc., Railway v. Texas, ^ the facts of which have 
 already been given, but may be repeated briefly. Texas 
 imposed upon all railroads lying wholly within the State 
 an occupation tax equal to one per cent of their gross 
 receipts. The Galveston, etc., Railway, a corporation of 
 Texas, lay wholly within the State, but connected with 
 other roads, so that a large part of its gross receipts was 
 derived from interstate commerce. The attorney for the 
 State argued that the occupation tax was a tax for the 
 privilege of the continued exercise of the franchise granted 
 by Texas to do business in the State as a corporation. The 
 tax was not laid directly upon the gross receipts, it was 
 contended, such receipts being merely a measure by which 
 the amount of the tax was determined. The majority 
 of the court, however, held that the tax was an effort 
 to reach the gross receipts and amounted to an attempt 
 to regulate commerce among the States. "Of course, 
 it does not matter that the plaintiffs in error are domestic 
 corporations or that the tax embraces indiscriminately 
 gross receipts from commerce within as well as outside 
 of the State." 
 
 Chief Justice Fuller and Mr. Justices Harlan, White, 
 and McKenna dissented, upon the ground that the cor- 
 poration was a Texas corporation, "and it cannot be 
 doubted that the State may impose an occupation tax 
 on one of its own corporations, provided such tax does 
 
 1 (1908), 210 U. S. 217; supra, page 97. 
 
120 FEDERAL INCORPORATION. 
 
 not interfere with the exercise of some power belonging 
 to the United States." The tax in question, it was as- 
 serted, did not invade the jurisdiction of Congress, be- 
 cause the tax was not laid directly upon the gross receipts 
 as such, but was upon an amount "equal to" the gross 
 receipts. "The State only measures the occupation tax 
 by looking at the entire amount of the business done 
 within its limits without reference to the source from 
 which the business comes." 
 
 Thus it appears that the entire court agreed that the 
 State could not directly tax the gross receipts from 
 interstate commerce upon the pretense of levying an 
 occupation or franchise tax. The difference in opinion 
 lay in the fact that the tax was upon an amount "equal 
 to" the gross receipts, which the minority of the court 
 did not consider a direct tax upon the gross receipts. 
 The mere reference to an amount equal to the gross 
 receipts was regarded as a reasonable method of deter- 
 mining the amount of the tax. Upon this point the 
 opinion of the majority, it is believed, expresses much the 
 sounder view. If the tax is measured upon a sum equal 
 to the gross receipts, so that its amount rises and falls 
 according to the amount of interstate business trans- 
 acted, the effect is exactly the same as if the tax had been 
 in terms directly laid on the gross receipts. The burdfen 
 falls upon the interstate business as much in the one case 
 as in the other. 
 
 If, therefore, as appears settled by this case, it is 
 unconstitutional to determine the value of the fran- 
 chise by a reference to the gross receipts from interstate 
 commerce, how can a different result be reached when 
 the constitutionality of a tax upon the capital stock in 
 proportion to the mileage within the State is in question? 
 The tangible property and choses in action which have 
 a situs within the State can be ta,xed. The franchise, 
 
FEDERAL INCORPORATION. 121 
 
 since it was granted by the State, can be taxed. The 
 profits, present or prospective, from interstate commercp, 
 cannot be taxed. All three of these elements enter 
 into the actual value of the capital stock, and a tax 
 upon that stock is a tax upon each of them. To allow the 
 interstate business to be taxed by appraising the value 
 of the property and franchise at an amount which in- 
 cludes those profits is, it appears, to allow the State to 
 do indirectly that which it could not do directly. 
 
 Property Taxation by a Foreign State. 
 
 Under this topic there is a long line of decisions sus- 
 taining the power of a State to tax the capital stock of 
 an interstate corporation in such proportion as the mile- 
 age within the State bears to the entire mileage. This 
 method, it is declared, furnishes a fair valuation of the 
 property within the State treated as part of one system, 
 or "going concern." 
 
 Prior to these decisions, in Gloucester Ferry Co. v. 
 Pennsylvania,'- a tax imposed by Pennsylvania upon the 
 entire capital stock of the Gloucester Ferry Company 
 was held unconstitutional. The company maintained 
 a ferry between New Jersey and Pennsylvania, and its 
 only property in Pennsylvania was a leasehold interest 
 in a wharf. The reason for the decision was not only 
 that property outside of the jurisdiction of Pennsyl- 
 vania was taxed, but also that the interstate business 
 of the company was burdened. The court declared 
 that while the property of a corporation engaged in 
 interstate commerce could be taxed by the State in which 
 the property was situated, yet it could not be taxed be- 
 cause of its use in that commerce. The method of 
 
 1 (1885), 114 U. S. 196. 
 
122 FEDERAL INCORPORATION. 
 
 appraising the property by taxing the entire capital 
 stock was evidently regarded as including the inter- 
 state use to which the property was put, and the tax 
 accordingly was invalid. It would seem to follow logic- 
 ally that the tax would have fallen proportionately 
 upon the interstate use if the method of appraisement 
 had been to assess only such proportion of the capital 
 stock as the property in Pennsylvania bore to the 
 entire property. 
 
 Telegraph Companies: The first modification of the 
 rule in Gloucester Ferry Co. v. Pennsylvania appeared in 
 the case of Western Union Telegraph Co. v. Massachu- 
 setts.^ The telegraph company, a New York corporation, 
 was extensively engaged in interstate commerce, its 
 lines extending over many States. Under an act of 
 Congress of 1866 it had the right to erect its lines over 
 the post-roads of the United States. The length of its 
 entire system was about 146,000 miles, and the length 
 in Massachusetts was about 2,800 miles. The actual 
 value of the property of the corporation in Massachu- 
 setts, as other property was valued, was comparatively 
 little. Under these circumstances Massachusetts im- 
 posed upon the company a "frauchise" tax on such 
 proportion of the capital stock as the mileage within the 
 State bore to the entire mileage. 
 
 It was argued that the value of the franchise granted 
 by Congress under the act of 1866 and that granted by 
 New York were included in the property taxed, as well 
 as tangible property beyond the jurisdiction of Massa- 
 chusetts, and that the tax was a burden upon the inter- 
 state business of the company. These contentions, 
 however, were all overruled. "The tax in the present 
 case," the court held, "though nominally upon the 
 
 ' (1888), 125 U. S. 530. 
 
FEDERAL INCORPORATION. 123 
 
 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, and the 
 proportion of the length of its lines in that State to 
 their entire length throughout the whole country is 
 made the basis for ascertaining the value of that prop- 
 erty." The fact that the value of tangible property 
 outside of the State was not deducted was not thought 
 sufficient to make the rule unjust. The act of 1866, it 
 was declared, while it gave the right to erect telegraph 
 lines on post-roads of the United States, did not exempt 
 the property thereon from State taxation. No injunc- 
 tion, however, was granted to restrain the company from 
 prosecuting its business until the amount of the tax 
 should be paid, because the effect of such an injunction 
 would be to restrain and interfere with the interstate 
 commerce of the company. 
 
 By this case, therefore, the rule was established in 
 the case of telegraph companies that the value of the 
 property within the State could be determined by taxing 
 the entire capital stock in the proportion which the 
 mileage within the State bore to the entire mileage. 
 There seems no escape from the conclusion that under 
 this method the property, contrary to the rule in 
 Gloucester Ferry Co. v. Pennsylvania, is taxed because 
 of its use in interstate commerce. A proportionate 
 part of the value of that commerce is included in the 
 amount at which the property is appraised, and this is, 
 in effect, a tax upon that business. 
 
 The case, however, was approved and followed in 
 Western Union Telegraph Company v. Taggart} In that 
 case the tax was laid by Indiana upon the capital stock 
 of the corporation in such proporation as the mileage in 
 
 1(1896), 163 U.S.I. 
 
124 FEDERAL INCORPORATION. 
 
 Indiana bore to the total mileage, deducting from the 
 capital stock the value of real estate subject to local taxa- 
 tion in Indiana. Referring to the prior decision and the 
 case in which it was affirmed, the court said : "Those de- 
 cisions clearly establish that a statute of a State, requir- 
 ing a telegraph company to pay a tax upon its property 
 within the State, valued at such a proportion of the whole 
 value of its capital stock as the length of its lines 
 within the State bears to the length of all its lines every- 
 where, deducting a sum equal to the value of its real es- 
 tate and machinery subject to local taxation within the 
 State, is constitutional and valid, notwithstanding that 
 nothing is in terms directed to be deducted from the val- 
 uation, either for the valuation of its franchises from the 
 United States, or for the value of its real estate and 
 machinery situated a,nd taxed in other States; unless 
 there is something more showing that the system of 
 taxation adopted is oppressive and unconstitutional." 
 
 Further comment is unnecessary, except that it would 
 appear that when the value of real estate and other prop- 
 erty subject to local taxation is deducted from the capi- 
 tal stock, it is much clearer that the tax is upon the inter- 
 state use to which the property is put, and also that it 
 reaches property not subject to the jurisdiction of the 
 State. 
 
 In the case of Postal Telegraph Co. v. Adams} the tax 
 in question, imposed by Mississippi, was not measured 
 by the value of the capital stock, but was a fixed sum. 
 It was termed a "privilege" tax, and the amount required 
 to be paid by telegraph companies was $3,000 if one thous- 
 and miles or more of line were operated within the State, 
 and $1 per mile if less than one thousand miles. The 
 tax was "in lieu of other State, county, or municipal 
 
 ■ (1895), 155 U. S. 688. 
 
FEDERAL INCORPORATION. 125 
 
 taxes." The Postal Telegraph Company, a New York 
 corporation, operating about four hundred miles of line 
 within Mississippi, contended that the tax was a regula- 
 tion of interstate commerce. The decision was that since 
 the tax was in lieu of all other taxes, it was a reasonable 
 tax upon the property of the company within the State. 
 The court said: "This exposition of the statute brings 
 it within the rule where ad valorem taxes are compounded 
 or commuted for a just equivalent, determined by refer- 
 ence to the amount and value of the property. Being 
 thus brought within the rule, the tax becomes substan- 
 tially a mere tax on property, and not one imposed on 
 the privilege of doing interstate business. The substance 
 and not the shadow determines the validity of the exer- 
 cise of the power." 
 
 "Property in the State," the court asserted, "belong- 
 ing to a corporation, whether foreign or domestic, en- 
 gaged in foreign or interstate commerce, may be taxed, 
 or a tax may be imposed on the corporation on account 
 of its property within a State, and may take the form of 
 a tax for the privilege of exercising its franchises within 
 the State, if the ascertainment of the amount is made 
 dependent in fact on the value of its property situated 
 within the State (the exaction, therefore, not being sus- 
 ceptible of exceeding the sum which might be leviable 
 directly thereon) and if payment be not made a condi- 
 tion precedent to the right to carry on the business, but 
 its enforcement left to the ordinary means devised for 
 the collection of taxes. . . . 
 
 "Doubtless, no State could add to the taxation of 
 property according to the rule of ordinary property 
 taxation, the burden of a license or other tax on the privi- 
 lege of using, constructing, or operating an instrumental- 
 ity of interstate or international commerce or for thecar- 
 rjang on of such commerce; but the value of property 
 
126 FEDERAL INCORPORATION. 
 
 results from the use to which it is put, and varies with 
 the profitableness of that use, and by whatever name 
 the exaction may be called, if it amounts to no more 
 than the ordinary tax upon property, or a just equivalent 
 cherefor, ascertained by reference thereto, it is not open to 
 attack as inconsistent with the Constitution." 
 
 Mr. Justices Brewer and Harlan dissented upon the 
 ground that the tax, fairly construed, was upon the privi- 
 lege, of carrying on interstate commerce, and was there- 
 fore unconstitutional. 
 
 There can be little objection to this decision under 
 the interpretation put upon it by the court. The tax was 
 not measured in any way upon the interstate business. 
 There may possibly be objection to the construction of 
 the tax as a property tax instead of a privilege or license 
 tax, as it was called by the State, but as to this it seems 
 that the case could be of little authority except for its 
 own facts. 
 
 The decision in Western Union Telegraph Company 
 V. Massachusetts was again approved in Western Union 
 Telegraph Company v. Gottlieb} The method of assess- 
 ment was not definitely prescribed by the statute of the 
 State (Missouri) , but the court regarded it, as construed 
 by the Supreme Court of Missouri, as similar to that in 
 the earlier case. 
 
 Rolling-stock: The case of Pullman Car Company v. 
 Pennsylvania^ extended the rule of apportionment to 
 the taxation of rolling-stock. The Pullman Company 
 was a corporation of Illinois. Under contracts it fur- 
 nished cars to the various railroads. It was shown that 
 a certain number of cars were always within Pennsylvania, 
 although the cars were not continuously the same. To 
 
 1 (1903), 190 U. S. 412. 
 
 2 (1891), 141 U. S. 18. 
 
FEDERAL INCORPORATION. 127 
 
 ascertain the proportion of the company's property upon 
 which it should be taxed, Pennsylvania assessed such 
 proportion of the capital stock as the number of miles 
 over which it ran cars within the State bore to the whole 
 number of miles, in that and other States, over which its 
 cars were run. This was held a "just and equitable 
 method of assessment; and, if it were adopted by all 
 the States through which these cars ran, the company 
 would be assessed upon the whole value of its capital 
 stock, and no more." 
 
 Mr. Justice Bradley, who had taken no part in the de- 
 cision in Telegraph Company v. Massachusetts, dissented 
 (Mr. Justices Field and Harlan concurring), upon the 
 ground that the cars were employed constantly in inter- 
 state commerce and had no situs in Pennsylvania; and 
 that a tax upon them was as much a burden upon inter- 
 state commerce as was a tax upon the freight transported 
 from one State to another. 
 
 But admitting that when an average number were 
 always within a State, they should be regarded for 
 taxation purposes as having a situs within that 
 State, the method of assessment employed by Penn- 
 sylvania in this case was, it is submitted, for the 
 reasons already discussed, unconstitutional. The court 
 proceeds upon the theory that the capital stock repre- 
 sents only the tangible property of the company, which 
 is unsound. 
 
 A reasonable method of taxing rolling-stock under 
 circumstances similar to those in the preceding case is 
 that which was sustained in American Refrigerator Tran- 
 sit Company v. Hall} The avera,ge number of cars 
 always within Colorado was forty; and the State taxed 
 that number, assessing the value of each car at $250, 
 
 1 (1899), 174 U. S. 70. 
 
128 FEDERAL INCORPORATION. 
 
 which was admitted to be less than the cash value of 
 the car.* 
 
 Railroads: The application of the rule of apportion- 
 ment to interstate railroads was sustained in the cases 
 of Pittsburgh, etc., Railroad v. Backus^ and Cleveland, 
 etc.. Railroad v. Backus.^ The tax, which was held 
 constitutional, was based upon the capital stock in 
 the same manner as the tax in Telegraph Company v. 
 Massachusetts. The court, however, emphasized the 
 fact that the Board of Apportionment was not abso- 
 lutely bound to apply the method strictly. It was 
 admitted that the rule might not always be applicable, 
 as, for example, when the terminal facilities in one 
 State gave to the property in that State a value out of 
 proportion to a^ similar length of line in another State. 
 The evidence in the case at bar tended to show that this 
 was exactly such a case, but the Supreme Court held 
 that the presumption was that the Board, in assessing 
 the property, made allowance for the exceptipnal value 
 of the property outside of the State. 
 
 In upholding the tax it was said: "When a road runs 
 into two States, each State is entitled to consider as 
 within its territorial jurisdiction and subject to the bur- 
 den of its taxes what may perhaps not inaccurately be 
 described as the proportionate share of the value flowing 
 from the operation of the entire mileage as a contin- 
 uous road. It is not bound to enter upon a disintegra- 
 tion of values and attempt to extract from the total 
 value that which would exist if the miles of road within 
 the State were operated separately." 
 
 ' Rolling stock is not taxable at the domicile of the corporation 
 when it is permanently located outside of the State. American Re- 
 frigerator Transit Co. v. Kentucky (1905), 199 U. S. 194. 
 
 ' (1894), 154 U. S. 421. 
 
 ' (1894), 154 U. S. 439. 
 
FEDERAL INCORPORATION. 129 
 
 "The rule of property taxation is that the value 
 of the property is the basis of taxation ; ... if property 
 is taxed at its actual cash value it is taxed upon some- 
 thing which is created by the uses to which it is put. 
 In the nature of things it is practically impossible — 
 at least in respect to railroad property — to divide its 
 value, and determine how much is caused by one use 
 to which it is put and how much by another. Take the 
 case before us; it is impossible to disintegrate the value 
 of that portion of the road in Indiana and determine 
 how much of that value springs from its use in doing 
 interstate business, and how much from its use in doing 
 business wholly within the State." 
 
 In this case the arguments in favor of the system are 
 presented in their strongest light. As we have said, in 
 view of the fact that the business of a railroad is an active 
 investment, depending largely for its success upon the 
 skill of the men managing it, it does not seem that the 
 value of the property bears any necessary relation at all 
 to the profits which are made in that business. Further 
 than this, if such were not the case, when property is put 
 to a use which is entirely beyond the jurisdiction of a 
 State, as in interstate commerce, it should not be con- 
 stitutional for the State to appraise the property at an 
 amount which includes the profitable character of the 
 use. While it would be difficult to determine how much 
 of the value results from the use of the property in doing 
 business wholly within the State, it seems by no means 
 impossible.^ 
 
 Of a different character is the case of Erie Railroad v. 
 Pennsylvania.^ The Erie Railroad, a company incor- 
 porated by New York, leased a railroad lying wholly 
 
 ' See Cooke on the Commerce Clause, pages 268, 269, 270. 
 2 (1894), 158 U. S. 431. 
 
130 FEDERAL INCORPORATION. 
 
 in Pennsylvania, and by agreement with a canal com- 
 pany, the latter was allowed the use of the road upon 
 the payment of a certain sum, the amount of which 
 was based upon the receipts of the canal company for 
 transportation of passengers and freight over the rail- 
 road. Almost the entire amount of these receipts was 
 derived from interstate commerce. A statute of Penn- 
 sylvania provided that certain corporations, domestic 
 or foreign, doing business in the State, and owning or 
 leasing to or from any other corporation, any railroad, 
 etc., should pay a tax upon the gross receipts for tolls 
 and transportation. The tax imposed upon the Erie 
 Railroad under this statute was upon the sum received 
 by it from the canal company for the use of the railroad. 
 
 Since "tolls" had been defined by the Supreme Court 
 of Pennsylvania to be a tribute paid for a service or 
 privilege, and not for transportation, the question to 
 be decided was whether Pennsylvania could validly 
 impose taxes on tolls paid by one company to another 
 for the use of its property, where the company paying 
 the tolls was engaged in interstate commerce, and the 
 amount of the tolls was regulated by the amount of 
 that business. It was contended that the effect of the 
 tax was to burden interstate commerce, but the court 
 held that it was a tax laid upon the corporation on 
 account of its property in the railroad, the tax being 
 measured by a reference to the tolls received. 
 
 This case presents a close question. It may be 
 argued that while the State could, in taxing property, 
 measure its value by a reference to the rental received 
 from it in most cases, yet this could not be done when 
 the amount of the rental was determined by the inter- 
 state commerce transacted by the lessee. Thus the 
 amount of the tax did in fact rise and fall with the 
 increase or decrease of that interstate traffic. The 
 
FEDERAL INCORPORATION. 131 
 
 argument would, of course, admit the right of the State 
 to value the land itself and tax it upon such rental as 
 should be received. But in this case, if the railroad 
 and the canal company had been operating in partner- 
 ship, the canal company carrjdng on the business and 
 paying over to the railroad a certain portion of the 
 gross receipts, those receipts in the hands of the rail- 
 road would probably be untaxable as receipts in so far as 
 they were derived from interstate commerce. Is not the 
 result the same economically, it may be contended, when 
 the agreement is called a lease instead of a partnership? 
 
 But under the facts the decision appears to be sound. 
 The object of the statute was to tax the tolls received 
 as rental for the use of the property. The fact that the 
 amount of the rental paid was determined by the amount 
 of business transacted by the company paying it, could 
 hardly be said to make the tax a tax upon that business. 
 The amount of the tax, it is true, varied with the amount 
 of the gross receipts received by the lessee, but this was 
 the result of the contract between the lessor and lessee, 
 the taxing statute in no way referring to such receipts. 
 The gross receipts in the hands of the lessee could not 
 be taxed, but when a portion of them was set aside and 
 paid over as rental, that part assumed an entirely 
 different character in the hands of the lessor. The 
 only argument upon which it could be claimed that the 
 tax was an actual burden upon interstate commerce was 
 that the imposition of the tax would cause the Erie 
 Railroad to increase the amount of rental demanded 
 from the canal company, upon which the canal company 
 would increase its rates for transportation. This, it is 
 believed, was properly regarded as too remote to amount 
 to an invasion of the jurisdiction of Congress. 
 
 The method of determining the value of the property 
 within the State by the proportionate mileage system, as 
 
132 FEDERAL INCORPORATION. 
 
 we have so far considered it, has been to take the capital 
 stock as the basis of computation of the value of the en- 
 tire value of the property of the company. But it is not 
 limited to this. From the cases of Maine v. Grand Trunk 
 Railroad, etc.,^ as interpreted by subsequent decisions, 
 and Wisconsin, etc.. Railway v. Powers,'^ it appears 
 that the gross receipts, derived from both interstate and 
 intrastate commerce, may be regarded as equivalent to 
 the value of the property of the company. Thus in the 
 first case a tax was upheld which was upon the gross re- 
 ceipts of an interstate railroad in the proportion which 
 the mileage within the State bore to the total mileage; 
 while in the second case the amount of the tax was de- 
 termined by adding the income from intrastate commerce 
 to such proportion of the income from interstate busi- 
 ness as the mileage within the State bore to the entire 
 mileage. 
 
 It is submitted that in principle there would appear to 
 be absolutely no j ustification for these taxes. It is settled 
 that the entire gross receipts derived from interstate 
 commerce cannot be taxed, by whatever name the tax 
 is called, because m substance such a tax is upon inter- 
 state commerce, which is not within the jurisdiction of 
 a State. The mere fact that a portion of these receipts 
 is taxed, instead of the entire quantity, does rot alter 
 the substance of the tax. If every State through which 
 the railroad passes should impose a tax measured in the 
 same manner, the entire gross receipts would be taxed. 
 Accordingly, the law would seem to be that one State 
 alone cannot burden interstate commerce by taxing the 
 entire gross receipts, but several States together have 
 that power, by calling it a property tax. In reality, the 
 
 ' (1891), 142 U. S. 217; supra, page 95. 
 ' (1903), 191 U. S. 379; supra^ page 96. 
 
FEDERAL INCORPORATION. 133 
 
 tax is in each case upon the receipts, as is evidenced by 
 the fact that 'f there were no business there would be no 
 tax, and yet the property would still be there. 
 
 Express companies: It was at first thought that the 
 method of apportionment according to mileage was not 
 applicable to interstate express companies. There was 
 no physical unity between the property of an express 
 company such as existed in the case of a railroad or a 
 telegraph company. All doubts, however, were dispelled 
 by the case of Adams Express Company v. Ohio?- 
 
 A law of Ohio taxing the property of telegraph, tele- 
 phone, and express companies doing business in the State 
 required each company to file a return to the State 
 Board setting forth the par and market value of its cap- 
 ital stock; the value of its entire property and of that 
 located in Ohio; the entire gross receipts for the year 
 from all business, and the receipts from business within 
 Ohio. The following rule of assessment was provided: 
 "In determining the value of the property of said com- 
 panies in this State, . . . said board shall be guided by 
 the value of said property as determined by the value 
 of the entire capital stock of said companies, and such 
 other evidence and rules as will enable said board to 
 arrive at the true value in money of the entire property 
 in the said companies within the State of Ohio, in the 
 proportion which the same bears to the entire property 
 of said companies, as determined by the value of the cap- 
 ital stock thereof, and the other evidence and rules as 
 aforesaid." 
 
 The property of the Adams Express Company in Ohio, 
 under this method of appraisement, was assessed at 
 $533,000, although its actual value was only $42,000. 
 The real property of the company was taxed separately 
 
 > (1897), 165 U. S. 194. 
 
134 FEDERAL INCORPORATION. 
 
 as other real property in the State was taxed, and a tax 
 was also laid on the gross receipts derived from intra- 
 state commerce, so that the tax in this case was upon 
 the horses, wagons, and other personal property of the 
 company. 
 
 The Supreme Court (four justices dissenting) held the 
 tax constitutional. "No more reason," said Chief Jus- 
 tice Fuller, in delivering the opinion, "is perceived for 
 limiting the valuation of the property of express compa- 
 nies to horses, wagons and furniture, than that of rail- 
 road, telegraph, and sleeping car companies, to railroad, 
 rails and ties; poles and wires; or cars. The unit is a 
 unit of use and management, and the horses, wagons, 
 safes, pouches and furniture; the contracts for trans- 
 portation facilities; the capital necessary to carry on the 
 business, whether represented in tangible or intangible 
 property, in Ohio, possessed a value in combination and 
 from use in connection with the property and capital 
 elsewhere, which could as rightfully be recognized in the 
 assessment for taxation in the instance of the companies 
 as the others. . . It is a unity of use, not simply for the 
 convenience and pecuniary profit of the owner, but ex- 
 isting in the very necessities of the case — resulting from 
 the very nature of the business. . . . 
 
 "Assuming the proportion of capital employed in each 
 of several States through which a company conducts its 
 operations has been fairly ascertained, while taxation 
 thereon, or determined with reference thereto, may be 
 said in some sense to fall on the business of the company, 
 it is only indirectly. The taxation is essentially a prop- 
 erty ta'x, and, as such, not an interference with interstate 
 commerce." 
 
 Mr. Justices White, Harlan, Field, and Brown dis- 
 sented, upon the ground that by the system of taxation 
 a proportionate part of the value of property located 
 
FEDERAL INCORPORATION. 135 
 
 outside of Ohio was added to the value of the property 
 within the State, and that therefore Ohio was attempt- 
 ing to tax property beyond its jurisdiction ; and also that 
 as a result of the tax so heavy a burden was thrown 
 upon interstate commerce as to threaten its destruction. 
 
 In refusing a petition for a rehearing,^ Mr. Justice 
 Brewer, on behalf of the court, explained more fully 
 the property upon which the tax fell. 
 
 "The capital stock of a corporation and the shares 
 in a joint stock company represent not only the tangible 
 property, but also the intangible, including therein all 
 corporate franchises and all contracts, privileges and 
 good will of the concern. . . . 
 
 "Where is the situs of this intangible property? Is 
 it simply where its home office is, where is formed the 
 central directing thought which controls the workings 
 of the great machine, or in the State which gave it its 
 corporate franchise? Or is that intangible property 
 distributed wherever its tangible property is located and 
 its work done? Clearly, as we think, the latter. . . . 
 
 "It is also true that a corporation is, for purposes of 
 jurisdiction in the federal courts, conclusively presumed 
 to be a citizen of that State which created it, but it 
 does not follow therefrom that its franchise to be is for 
 all purposes to be regarded as confined to that State. 
 For the transaction of its business it goes into various 
 States, and wherever it goes as a corporation, it carries 
 with it that franchise to be. But the franchise to be is 
 only one of the franchises of a corporation. The fran- 
 chise to do is an independent franchise, or rather a com- 
 bination of franchises, embracing all things which the 
 corporation is given power to do, and this power to 
 do is as much a thing of value and a part of the 
 
 ' (1897), 166 U. S. 185. 
 
136 FEDERAL INCORPORATION. 
 
 intangible property of the corporation as the franchise 
 to be. Franchises to do go wherever the work is done." 
 
 The fact that the majority of the contracts which 
 entered into the value of the capital stock were trans- 
 actions of interstate commerce was not discussed. The 
 court suggested that if a part of the property of the 
 corporation was invested in United States bonds, and 
 therefore exempt from taxation, the corporation should 
 have disclosed that fact, and the State would have 
 been required to deduct that amount from the value 
 of the capital stock. Are not the contracts in interstate 
 commerce and the profits from that business which enter 
 into the value of the capital stock just as much exempt 
 from State taxation as that part of the property which 
 is invested in United States bonds? When the capital 
 stock is taxed, the tax falls as directly upon the pros- 
 pective profits from the busmess as it does upon the 
 property of the corporation. The one is. as much an 
 element of value as the other. 
 
 This appears to be clearly recognized by the Supreme 
 Court in the recent decision in the case of Western 
 Union Telegraph Company v. Kansas.^ In that case 
 a tax of a certain per cent of the entire capital stock of 
 the telegraph company, imposed by Kansas as a charge 
 for the privilege of transacting intrastate business, was 
 held unconstitutional. The court, speaking through Mr. 
 Justice Harlan, said: 
 
 "So, in the case now before us, the exaction, as a 
 condition of the privilege of continuing to do or doing 
 local business in Kansas, that the Telegraph Com- 
 pany shall pay a given per cent of its authorized cap- 
 ital stock, is, for every practical purpose, a tax both 
 on the company's local business in Kansas, and on its 
 
 ' (1910), 216 U. S. 1. 
 
FEDERAL INCORPORATION. 137 
 
 interstate business, or on the privilege of doing inter- 
 state business; for, the statute, by its necessary opera- 
 tion, will accomplish precisely the result that would have 
 been accomplished had it been made, in express words, a 
 condition of doing local business that the Telegraph 
 Company should submit to taxation upon both its inter- 
 state and intrastate business and upon its interests and 
 property everywhere, as represented by its capital 
 stock. The exaction made by the Kansas statute is as 
 much a tax on the interstate business of the company 
 and on its property outside of the State as a fee or tax 
 on the occupation of an importer would be a tax on the 
 property imported." 
 
 This is a clear recognition of the fact that the capital 
 stock represents, not only the tangible property, but 
 also the business. If a tax upon the entire capital 
 stock of an interstate corporation is a tax on the inter- 
 state business, as much as "a fee or tax on the occupation 
 of an importer would be a tax on the property im- 
 ported," then a tax upon a proportionate part of the 
 capital stock must be a tax on that proportion of the 
 interstate business. To tax interstate commerce, or any 
 pfirt of it, is not within the power of a State. 
 
 It is, therefore, believed that the "mileage appor- 
 tionment" system, based upon the actual value of the 
 capital stock or the gross receipts, is unsound in principle. 
 Nor is this extended discussion of the subject purely 
 academic. In view of the late decisions it is possible, 
 though perhaps not probalale, that the court may over- 
 rule the line of cases which have sustained the applica- 
 tion of the system. At any rate, if it is clearly unsound, 
 there would be no valid reason for allowing it to be 
 employed in the taxation of corporations chartered by 
 Congress to carry on interstate commerce, if such 
 action should be taken by the Federal Government. 
 
138 FEDERAL INCORPORATION. 
 
 The history of the court shows that while a long line of 
 pases, which proceed on a principle which investigation 
 shows to be unsound, will not be overruled, the principle, 
 when once recognized as wrong, will not be extended to 
 other cases presenting analogous but not identical facts. 
 Thus the power of the State to tax property may not 
 be diminished by federal incorporation, but the change 
 to federal incorporation, though in a sense no reason, 
 would justify the abandonment of an unsound principle. 
 
 C. A State Can Tax the Intrastate Business of a Cor- 
 poration Engaged also in Interstate Commerce. 
 
 In dealing with the extent of the power of a State 
 over its local commerce, we have at first practically the 
 same problem as was presented in relation to the power 
 of the State to tax a franchise which it has granted. 
 
 The original view was that the State had absolute 
 control over its intrastate business, and could at its 
 discretion grant or withhold from a corporation the 
 privilege of carrying it on. Nor did the fact that the 
 corporation had the right to enter the State to carry 
 on interstate commerce give it also the right to carry 
 on intrastate commerce without the consent of the State. 
 And for the grant of the privilege the State could charge 
 any sum it pleased. 
 
 If, under these circumstances, the amount of the 
 charge, instead of being fixed arbitrarily, is measured on 
 the gross receipts or the capital stock of an interstate 
 corporation, is the tax constitutional? And here again 
 we have the same two solutions, one, that the tax falls 
 on that by which it is measured, and since measured on 
 interstate commerce it is unconstitutional; and the 
 other, that since the State may .charge any sum it 
 pleases, there can be no objection to a determination 
 
FEDERAL INCORPORATION. 139 
 
 of the amount by a reference to a particular business, 
 whether that business is interstate commerce or not. 
 It appears that in the present court there is a difference 
 of opinion, with the majority in favor of the first view. 
 
 But at the present time there is an additional element 
 which differentiates the taxation of intrastate commerce 
 from the taxation of a franchise which the State has 
 granted. This is the fact that there is a strong tendency 
 to deny the absolute power of a State over its intra- 
 state commerce with reference to a corporation which 
 is also engaged in interstate commerce. The exercise 
 of that power must not burden or interfere with rights 
 protected by the Federal Constitution, and if the privi- 
 lege of carrying on interstate commerce would be 
 seriously impaired by a denial of the right to transact 
 also a local business, the State has no power to prohibit 
 the latter right. There is no real difference in sub- 
 stance between commerce which includes several States 
 and that which is confined within the Umits of a single 
 State. The distinction based on State lines is entirely 
 artificial. There seems but little dojubt that the inter- 
 state business of a corporation would be burdened to a 
 considerable extent if it were prohibited from engaging 
 in local business in the various States, and this appears 
 to be the attitude of the present court. 
 
 The language of the court in the case of Maine v. 
 Grand Trunk Railway ^ is explained by the two solutions 
 given above, if the tax therein be regarded as a tax upon 
 the corporation for the privilege of exercising its fran- 
 chises in intrastate commerce. It does not appear in 
 the staternent of facts nor in the opinion of the court that 
 the corporation was engaged in local business in Maine, 
 but in all probability it was. The tax in that case, it 
 
 > (1891), 142 U. S. 217; supra, page 96. 
 
140 FEDERAL INCORPORATION. 
 
 will be remembered, was called a tax for the privilege 
 of exercising franchises within the State, and was measured 
 upon the gross receipts in proportion to the mileage within 
 the State. 
 
 The majority opinion declared that the right to exer- 
 cise the franchise within the State was a valuable privi- 
 lege which the State could withhold altogether, or grant 
 upon such conditions as it saw fit; and the reference to 
 the gross receipts was merely to determine an amount 
 which might be fixed at an arbitrary sum. The dis- 
 senting opinion, on the other hand, argued that while 
 the tax was called a franchise tax, it was laid in an 
 unconstitutional manner, and was in reality a tax upon 
 the gross receipts. 
 
 Regarding the tax in this light, the case illustrates 
 the difference in opinion in the court between the two 
 solutions mentioned, the majority adopting the second 
 and the minority the first view. 
 
 Until recently there were no extreme cases upon this 
 subject. In Pacific Express Company v. Siebert,^ a tax 
 upon an interstate express company for business done 
 "in the State" was held constitutional, the tax being 
 based only upon the gross receipts from the intrastate 
 business. The decision seems unquestionably sound. 
 The tax was not based in any way upon the interstate 
 business of the corporation, but was confined to a busi- 
 ness over which the State had jurisdiction. In Osborne 
 V. Florida * a tax was sustained which required all express 
 companies carrying on a local business to pay a li- 
 cense tax of a certain fixed amount, graduated according 
 to the size of the town in which the company was loca- 
 ted. The court held that the fact that the company 
 
 1 (1892), 142 U. S. 339. 
 » (1897), 164 U. S. 650. 
 
FEDERAL INCORPORATION. 141 
 
 was also engaged in interstate commerce did not 
 exempt it from paying for the privilege of carrying on a 
 local business. 
 
 Subsequently, in Pullman Company v. Adams,^ the 
 tax in question was a privilege tax imposed by Missis- 
 sippi upon sleeping car companies, amounting to $100 
 per car and twenty-five cents per mile for each mile of 
 track over which cars were run within the State. The tax 
 was a charge for the privilege of engaging in transporta- 
 tion wholly within the limits of the State. The company 
 contended that the receipts from the local business did 
 not equal its expenses, and that the tax was therefore a 
 burden 'on the interstate traffic. The court, however, 
 sustained the tax, declaring that the company had 
 the right to choose between what points it would 
 carry, and therefore could give up the carriage of 
 passengers between points Within the State if it 
 objected to the tax. 
 
 This case was approved in y4 Hew V. Pullman Company,^ 
 decided during the same year. A statute of Tennessee 
 provided that sleeping car companies should pay $3,000 
 annually for the privilege of transporting one or more pas- 
 sengers between points wholly within the State. It was 
 argued that the tax was so excessive as to be a thinly 
 disguised attempt to tax the privilege of interstate traffic. 
 To this the court, in holding the tax constitutional, re- 
 plied: "If the payment of this tax was compulsory upon 
 the company before it could do a carrying business 
 within the State, and the burden of its payment, because 
 of the minor character of the domestic traffic, rested 
 mainly upon the receipts from interstate traffic, there 
 would be much force in this objection. Upon this 
 
 1 (1903), 189 U. S. 420. 
 
 2 (1903), 191 U. S. 171. 
 
142 FEDERAL INCORPORATION. 
 
 proposition we are unable to distinguish this case from 
 Pullman Company v. Adams." 
 
 The language of the court as quoted would seem to 
 intimate that an excessive tax could not be made a con- 
 dition precedent to the right to exercise the privilege of 
 carrying on intrastate commerce. The right of the 
 State to lay an excessive tax upon the privilege, however, 
 was sustained, the corporation having the option to pay 
 the tax or to give up all local transportation. 
 
 A decided change from the original theory was made by 
 the decision of the court in the cases of Western Union 
 Telegraph Company v. Kansas ^ and Pullman Company v. 
 Kansas.^ The same state of facts was involved in each 
 of these cases, and they may therefore be considered to- 
 gether. By a statute of the State of Kansas all foreign 
 corporations, even though engaged in interstate com- 
 merce, were required to pay a tax of a certain per cent 
 of their entire capital stock before such corporation 
 could have the privilege of transacting intrastate com- 
 merce within Kansas. The Western Union Telegraph 
 Company in the first case, and the Pullman Company in 
 the second, refused to pay the tax, and the State sought 
 decrees ousting each corporation from the transaction 
 of business within the State. 
 
 The majority of the court, speaking through Mr. 
 Justice Harlan, declared that the name or avowed pur- 
 pose of the tax, as asserted by the State, could not pre- 
 vent the court from looking at its real effect. And the 
 effect of a tax upon the entire capital stock was to 
 burden all the business of the company, interstate and 
 intrastate, and all its property interests in and out of 
 the State, which were necessarily represented by that 
 
 ' (1910), 216 U. S. 1. 
 = (1910), 216 U. S. 66. 
 
FEDERAL INCORPORATION. 143 
 
 capital stock. The tax, therefore, was a burden upon 
 interstate commerce and a taxation of property beyond 
 the jurisdiction of Kansas, and was unconstitutional. 
 The court said: "That the Western Union Telegraph 
 Company is engaged in both interstate and intrastate 
 commerce is no reason, in itself, why Kansas may not 
 in good faith require it to pay a license tax strictly on 
 account of local business done by it in that State. But 
 it is altogether a different thing for Kansas to deny it 
 the privilege of doing such local business, beneficial to 
 the public, except on condition that it shall first pay a 
 given per cent of all its capital stock, representing all 
 its property wherever situated, and all its business in 
 and out of the State." 
 
 Mr. Justice White concurred: The tax, he said, was 
 admittedly unconstitutional, because of want of due 
 process. The argument for the State was that since the 
 power of the State over its domestic commerce was abso- 
 lute, the nature of the condition attached to the grant 
 was wholly immaterial. But here the corporation had 
 come within the State and engaged in local commerce, 
 and had acquired valuable property for that purpose; 
 and if the right of the State to impose an unconstitutional 
 burden as a condition of continued enjojmient should 
 be upheld, that property in the State would be practi- 
 cally confiscated. Such power on the part of the State 
 could not be admitted. Further, the tax was a burden 
 upon interstate commerce. When the power of a State 
 to exclude a foreign corporation was absolute, such con- 
 ditions could be attached to admittance as the State 
 deemed proper, or the corporation could be refused ad- 
 mittance altogether. But with reference to a foreign 
 corporation engaged in interstate commerce the power 
 of the State was not absolute, but merely relative. There 
 was no absolute power to exclude such a corporation, 
 
144 FEDERAL INCORPORATION. 
 
 and accordingly the State could not impose an uncon- 
 stitutional burden as a price for the privilege of doing 
 a local business along with the interstate traffic. 
 
 Mr. Justice Holmes, with whom concurred Chief Jus- 
 tice Fuller and Mr. Justice McKenna, dissented. The 
 power of a State, he argued, in respect to business done 
 wholly within the State, was absolute, and might extend 
 to prohibition, regulation, or taxation. The power to 
 tax, in itself, involved the power to destroy. All that 
 the State did was to require the corporation to pay a 
 certain sum for the privilege of carrying on that part of 
 its business which it had no right to carry on without the 
 consent of the State. "I confess my inability," said Mr. 
 Justice Holmes, "to understand how a condition can be 
 unconstitutional when attached to a matter over which 
 the State has absolute and arbitrary control." 
 
 These decisions seem to establish definitely the propo- 
 sition stated in our first solution, that a tax falls upon 
 that by which it is measured ; and that, though a State 
 may have a right to charge for or tax a privilege, it can- 
 not, under the pretense of laying such a tax, actually 
 put the burden upon something which it cannot consti- 
 tutionally tax directly. 
 
 But in the opinion of the court and the concurring 
 opinion of Mr. Justice White, there appears also the idea 
 that the intrastate business and the interstate business 
 of a single corporation are so closely linked together that 
 the States cannot be said to have absolute and arbitrary 
 control over the intrastate business. Thus Mr. Justice 
 Harlan said: "We cannot fail to recognize the intimate 
 connection which, at this day, exists between the inter- 
 state business done by interstate companies and the 
 local business which, for the convenience of the people, 
 must be done or can generally be better and more eco- 
 nomically done by such interstate companies rather than 
 
FEDERAL INCORPORATION. 145 
 
 by domestic companies organized to conduct only local 
 business. It is of the last importance that the freedom 
 of interstate commerce shall not be trammeled or bur- 
 dened by local regulations which, under the guise of 
 regulating local affairs, really burden rights secured by 
 the Constitution and laws of the United States. While 
 the general right of the States to regulate their strictly 
 domestic affairs is fundamental in our constitutional 
 system and vital to the integrity and permanence of that 
 system, that right must always be exerted in subordi- 
 nation to the granted or enumerated powers of the Gen- 
 eral Government, and not in hostility to rights secured 
 by the Supreme Law of the Land." And Mr. Justice 
 White expressly said: "Moreover, to me it seems that 
 where the right to do an interstate business exists, with- 
 out regard to the assent of the State, a State law which 
 arbitrarily forbids a corporation from carrying on with 
 its interstate commerce business a local business would 
 be a direct burden upon interstate commerce." 
 
 In his dissenting opinion Mr. Justice Holmes remarked : 
 "If after this decision the State of Kansas, without giv- 
 ing any reason, sees fit simply to prohibit the Western 
 Union Telegraph Company from doing any more local 
 business there or from doing local business until it has 
 paid $20,100,^ I shall be curious to see upon what gen- 
 eral ground that legislation will be assailed." 
 
 In answer to this, from the attitude of the majority 
 of the court, there would appear to be but little doubt 
 that an arbitrary prohibition would be held unconstitu- 
 tional as a burden upon interstate commerce. And the 
 result would apparently be the same if an excessive sum 
 should be arbitrarily imposed by the State. The court 
 distinguished the cases of Osborne v. Florida, Pullman 
 
 ' Which was the amount of the tax in this case. 
 
146 FEDERAL INCORPORATION. 
 
 Company v. Adams, and Allen v. Pullman Company, in 
 each of which tax was fixed at a definite amount, upon 
 the ground that in those cases the tax was not at all dis- 
 proportionate to the local business. An unlimited power 
 to tax would in itself include the power to destroy. It 
 would seem to follow, therefore, that an arbitrary sum 
 charged by the State would have to be so reasonable 
 that it could not be regarded "as a mere device to reach 
 or burden the interstate traffic of the company." Under 
 this view, the taxation of intrastate commerce is governed 
 by the same rule as the taxation of property, — the value 
 of the right must be the basis of taxation. 
 
 One other point should be noted in connection with 
 these two decisions. It had been held in the case of Se- 
 curity, etc.. Insurance Company v. Prewitt^ that a State 
 had the right to provide that if a foreign insurance com- 
 pany should remove to the federal courts a case which 
 had been commenced in the State court, the license of 
 the corporation to do business within the State should 
 be thereupon revoked. It was not compelling the cor- 
 poration to give up a constitutional right, the court said, 
 but was merely giving it the option of doing so or of losing 
 its privilege of carrying on a local business. 
 
 This decision Mr. Justice Holmes regards as being over- 
 ruled by the Kansas cases. Thus it may be argued that in 
 the one case the corporation was offered the option of 
 giving up its constitutional right to appeal to the fed- 
 eral courts or of losing the right to transact intrastate 
 business; in the other, it has the option of giving up its 
 constitutional right to have its interstate commerce 
 business unburdened by State taxes or of losing the same 
 privilege of engaging in local business. 
 
 The majority of the court, however, distinguished 
 
 1 (1905), 202 U. S. 246. 
 
FEDERAL INCORPORATION. 147 
 
 the cases upon the ground that the corporation in the 
 Prewitt case was not engaged in interstate commerce. 
 Without discussing the merits of the decision in Insur- 
 ance Company v. Prewitt, this appears to be an absolutely 
 sound distinction, because of the difference in the char- 
 acter of the options offered by the State. In the first 
 case, if the corporation elects to give up its right to re- 
 move a case to the federal courts, it gives up a consti- 
 tutional right which affects it only, which it might or 
 might not have exercised irrespective of the State 
 statute. But, in the second case, if the corporation 
 elects to retain the privilege of carrying on local business, 
 not only does it give up its constitutional right to have 
 its interstate business unburdened, but the jurisdiction 
 of Congress is invaded by the State. No State can tax 
 interstate commerce with or without the consent of the 
 corporation whose business is taxed, because such taxa- 
 tion amounts to a regulation of that commerce, and is 
 an invasion of the exclusive jurisdiction of Congress. 
 Therefore, upon the facts, the decision in Insurance 
 Company v. Prewitt is not necessarily overruled by the 
 later decisions in the Kansas cases. But, as a practical 
 matter, in view of the feeling that the State has not 
 absolute control over the intrastate business of an inter- 
 state commerce corporation, such a corporation could 
 not be compelled to give up a constitutional right of 
 any kind under penalty of forfeiting its right to carry 
 on that business. The intrastate business is so closely 
 connected with the interstate that the absolute power of 
 prohibition does not reside in the State, and it would 
 of course follow that the corporation could not be re- 
 quired to elect between the transaction of such business 
 or the retention of a constitutional privilege. Accord- 
 ingly, the imposition of a condition such as was held 
 constitutional in the Prewitt case, that the corporation 
 
148 FEDERAL INCORPORATION. 
 
 lose the right to carry on the local business if it exercise 
 its right to appeal to the federal court, would be beyond 
 the power of a State if the corporation was also engaged 
 in interstate commerce.^ 
 
 D. A State Can Impose a Charge upon an Interstate 
 Commerce Corporation for Local Governmental Super- 
 vision Rendered Necessary by the Way in which 
 the Business is Carried on. 
 
 When a corporation, though engaged in interstate com- 
 merce, so carries on its business as to justify a police 
 supervision of the property or instrumentalities used 
 within a State, a reasonable fee may be charged for the 
 enforcement of such local supervision. The mere fact 
 that the business of the corporation is for the most part 
 interstate commerce does not entitle it to special privi- 
 leges without liability for compensation therefor. The 
 exaction of such compensation does not place any burden 
 upon the interstate business if it is a reasonable charge 
 for the services performed. This was established by 
 the case of Western Union Telegraph Company v. New 
 Hope? The charge upon the Telegraph Company 
 was $1 per pole and $2.50 per mile of wire within the 
 
 > In Southern Railway Co. v. Greene (1910), 216 U. S. 400, it was 
 held that an additional franchise tax for the privilege of doing 
 business within the State, imposed only on foreign corporations, 
 was a denial of the equal protection of the laws, where the foreign 
 corporation so taxed had entered the State prior to the statute in 
 question, in compliance with the requirements of the laws relating 
 to foreign corporations, and had acquired permanent property 
 within the jurisdiction. The classification which divided corpora- 
 tions doing exactly the same business with the same kind of property, 
 into foreign and domestic corporations, was regarded as unreason- 
 able and arbitrary. 
 
 ^ (1903), 187 U. S. 419. 
 
FEDERAL INCORPORATION. 149 
 
 limits of the borough of New Hope. It was argued that 
 the sum derived from the tax more than equalled the 
 cost of supervision, but the court did not consider that 
 the facts in the case justified interposition. 
 
 The excess, however, must not be so great as to make 
 it evident that the real object is to raise revenue. In 
 Atlantic, etc., Telegraph Company v. Philadelphia'^ it 
 was held that the reasonableness of the .charge was a 
 question, not for the court, but for the jury. "When it is 
 said, in some of the cases, that such a question is for the 
 determination of the court, it is not meant that the 
 question may not properly be submitted to a jury. 
 What is meant by such observation is that courts are 
 not precluded from considering the reasonableness of 
 the legislative act prescribing the terms and the amount 
 of charges. . . . Regarding, then, the issue to be tried 
 as one of fact, we think it is one which from its nature 
 is eminently fit for the determination of a jury." 
 
 E. A State Can Charge for the Privilege of Using the 
 Public Highways, although the Corporation Making 
 Use of Them is Engaged in Interstate Commerce. 
 
 In this instance, also, there is no burden upon the 
 interstate business if the charge is a reasonable return 
 for the privilege granted. Thus, in St. Louis v. Western 
 Union Telegraph Company,^ a tax of $5 per pole for the 
 privilege of' using the streets of St. Louis was held con- 
 stitutional. It was considered as a charge in the nature 
 of rental for the use of the property of the city. Under 
 the circumstances the amount was not regarded as un- 
 reasonable. It is probable that in a charge of this nature, 
 
 ' (1903), 190 U. S. 160. 
 ' (1893), 148 U. S. 92. 
 
150 FEDERAL INCORPORATION. 
 
 as in the case of a charge for local supervision, the ques- 
 tion of reasonableness would be for the jury to decide. 
 
 II. Police and Other Regulations Affecting Corpo- 
 rations Engaged in Interstate Commerce. 
 
 The scope of the police power: The exact scope of the 
 police power of a State is a matter of considerable 
 dispute. It was defined by Chief Justice Taney as in- 
 cluding all the powers which might be exercised by a 
 sovereign government. "What are the police powers of 
 a State? They are nothing more nor less than the 
 powers of government inherent in every sovereignty 
 to the extent of its dominions. And whether a State 
 passes a quarantine law, or a law to punish offenses, or 
 to establish courts of justice, or requiring certain instru- 
 ments to be recorded, or to regulate commerce within 
 its own limits, in every case it exercises the same power; 
 that is to say, the power of sovereignty, the power to 
 govern men and things within the limits of its do- 
 minions." 1 
 
 This extremely broad view has not, however, been 
 followed. It is often necessary, in determining the con- 
 stitutionality of a State statute, to distinguish between 
 an exercise of the power of police and legislation 
 which may be passed under other reserved powers. 
 It is, however, impossible to enumerate with exactness 
 all the subjects which come within police legislation. 
 For many years the scope of the power seemed restricted 
 to laws passed for the protection of the health, morals, 
 or safety of the public, but of late the decisions have 
 been broader, and at present it may properly be said 
 to include all matters which are immediately necessary 
 
 ^License Cases (1847), 5 How. 504, 638. 
 
FEDERAL INCORPORATION. 151 
 
 for and advantageous to the public good. For example, 
 State legislation requiring coal to be weighed before 
 screening to determine miners' wages was held to be a 
 valid exercise of the police power.^ In this case the 
 court said: 
 
 "It is, then, the established doctrine of this court, that 
 the liberty of contract is not universal, and is subject 
 to restrictions passed by the legislative branch of the 
 government in the exercise of its power to protect the 
 safety, health, and welfare of the people. 
 
 "It is also true that the police power of the State 
 is not unlimited, and is subject to judicial review, and 
 when exerted in an arbitrary or oppressive manner such 
 laws may be annulled as violative of the rights pro- 
 tected by the Constitution. While the courts can set 
 aside legislative enactments upon this ground, the 
 principles upon which such interference is warranted 
 are as well settled as the right of judicial interference 
 itself. 
 
 "The legislature being familiar with local conditions 
 is, primarily, the judge of the necessity of such enact- 
 ments. The mere fact that a court may differ from the 
 legislature in its views of pubHc policy, or that judges 
 may hold views inconsistent with the propriety of the 
 legislation in question, affords no ground for judicial 
 interference, unless that act is unmistakably and 
 palpably in excess of legislative power." 
 
 The most recent case upon the subject is that of 
 Noble State Bank v. Haskell,"^ in which the depositors' 
 
 ^McLean v. Arkansas (1909), 211 U. S. 539. See also, Knox- 
 ville Iron Co. v. Harbison. (1901), 183 U. S. 13, in which a law 
 requiring the redemption in cash of store orders issued by em- 
 ployers in payment of wages was held within the police power of 
 the State. 
 
 2 (1911), 219 U. S. 104. 
 
152 FEDERAL INCORPORATION. 
 
 bank guaranty law of Oklahoma was held constitutional 
 because within the police power^of the State. "It may 
 be^said'in a general way," declared Mr. Justice Holmes, 
 in delivering the unanimous opinion of the court, "that 
 the police power extends to all the great public needs. 
 It may be put forth in aid of what is sanctioned by usage 
 or held by the prevailing morality, or strong or prepon- 
 derant opinion, to be greatly and immediately necessary 
 to the public welfare." 
 
 Effect of police regulations upon interstate commerce: 
 The extent to which police regulations may validly 
 affect interstate commerce is, as we have seen, governed 
 by the doctrine of the silence of Congress. If the effect 
 is in a matter of national concern, the regulation is in 
 conflict with the will of Congress, and is invalid; but 
 if the effect is merely local, the law is valid in the absence 
 of conflicting legislation by Congress. 
 
 But while it is settled that this is the test, its appli- 
 cation in many cases is by no means easy. It is often 
 extremely difficult to determine if the effect upon com- 
 merce is of national or local importance. If commerce 
 among the States will be materially burdened as a 
 result of the State legislation, unquestionably the 
 statute is invalid. There are innumerable cases upon 
 the subject, and no attempt will be made to cite all 
 which are relevant, but merely to give sufificient illus- 
 trations to indicate the application of the principles 
 involved. 
 
 Police regulations may affect {a) the articles carried 
 or shipped by corporations in interstate commerce; 
 (&) the corporations engaged in such commerce. 
 
 Effect upon articles carried in interstate commerce: 
 As a general rule, it may be said that the free passage 
 of articles of commerce between the States is a matter of 
 national concern. Moreover, since the usual object 
 
FEDERAL INCORPORATION. 153 
 
 of transportation from one State to another is a sale, 
 the character of interstate commerce is not lost until a 
 sale in the original package, and the unrestncted right to 
 make such a sale is also a matter of national concern.^ 
 
 But the legislature of a State, for the protection of the 
 morals or health of the community, may absolutely pro- 
 hibit the manufacture and sale of a given article within 
 the State;" and the question then arises, how far will 
 such a regulation be effective in restraining the im- 
 portation of that article from another State, or after 
 importation, in preventing its sale in the original 
 package? 
 
 In deciding this question the Supreme Court has 
 apparently drawn a distinction between articles which 
 are inherently dangerous to the health or safety of the 
 people and those which are merely injurious to the 
 morals, or which are objectionable for some other public 
 reason. Articles which are infected with disease, or are 
 otherwise dangerous to the health, have been declared 
 not to be legitimate subjects of commerce, and therefore 
 may be excluded by a State without an invasion of the 
 jurisdiction of Congress.' It may perhaps be better to 
 say that, since the health of the community is of pri- 
 mary importance, a State regulation directly designed 
 to protect the health, which affects in its operation articles 
 carried in interstate commerce, will be regarded as of 
 local importance, which will be vahd until Congress 
 itself legislates upon the subject. 
 
 The inspection laws of the States are illustrations of 
 the application of this principle: Diseased cattle may 
 
 ^Leisy v. Harden (1890), 135 U. S. 100. 
 2 Kidd V. Pearson (1888), 128 U. S. 1. 
 
 ^License Cases (1847), 5 How. 504, 599; Bowman v. Railway 
 Co. (1888), 125 U. S. 465. 
 
154 FEDERAL INCORPORATION. 
 
 be excluded/ as may impure or adulterated articles of 
 food ,^ and it is probable that dangerous explosives may 
 be kept out altogether, or admitted only upon the 
 taking of precautionary measures. 
 
 The law, however, must be clearly an inspection law, 
 and not designed to promote home products. For 
 example, a law which prohibited the sale of fresh beef 
 unless the animal from which it was taken was inspected 
 by a local inspector twenty-four hours before slaughter 
 was held unconstitutional.' It was clear that the object 
 of the statute was to prohibit the importation of beef 
 from other States. 
 
 Distinction likewise must be made in the statute 
 between articles which are sound and those which are 
 unsound. To illustrate, a law of Missouri, passed 
 ostensibly to prevent the spread of disease among live 
 stock, prohibited absolutely the introduction of Texas 
 cattle during a certain period. The Supreme Court, 
 while conceding the right of the State to enact reasonable 
 inspection laws to prevent the importation of diseased 
 cattle, held the law in question unconstitutional, be- 
 cause under its terms perfectly healthy cattle were 
 excluded.'' 
 
 ' Missouri, etc., Railway Co. v. Haber (1898), 169 U. S. 113; Reid 
 V. Colorado (1902), 187 U. S. 137. 
 
 ^See Schollenherger v. Pennsylvania (1898), 171 U. S. 1. 
 
 ^Minnesota v. Barber (1890), 136 U. S. 313. So, also, was 
 held invalid a statute which provided that it should be unlawful 
 to offer for sale meat from animals slaughtered one hundred miles 
 or more from the place where offered for sale, unless inspected by 
 local inspectors, a heavy fee being charged for such inspection. 
 Brimmer v. Rebman (1891), 138 U. S. 78. 
 
 ' Railroad v. Husen (1877), 95 U. S. 465. For the same reason, 
 a law of Pennsylvania which prohibited the sale of oleomargarine was 
 declared inapplicable to a sale in the original package of oleomar- 
 
FEDERAL INCORPORATION. 155 
 
 When an article cannot be said to be inherently and 
 directly dangerous to health or safety, but for other 
 reasons its manufacture and sale within the State may 
 be prohibited, the prohibition cannot operate to pre- 
 vent the importation of the article from another State, 
 or its sale in the original package, in the absence of per- 
 missive legislation by Congress. Within this class are 
 such articles as spirituous liquor and tobacco. If these 
 articles were directly injurious to the health, as, for 
 example, if the liquor was adulterated or the tobacco 
 impure, the importation could undoubtedly be pro- 
 hibited. 
 
 garine imported from another State. Oleomargarine, it was 
 declared, when properly made, was pure, and was a legitimate 
 subject of commerce, and the law of Pennsylvania made no at- 
 tempt to distinguish between that which was pure and that 
 which was impure. SchoUenherger v. Pennsylvania (1898), 171 
 U. S. 1. 
 
 In Plumley v. Massachusetts (1894), 155 U. S. 461, a police regu- 
 lation which prohibited the sale of oleomargarine when colored to 
 represent butter was held valid even as applied to the sale in the 
 original package of oleomargarine imported from another State. 
 The commerce clause, it was said, did not authorize the commission 
 of fraud in the sale of foodstuffs. There was a strong dissent 
 upon the ground that oleomargarine was a legitimate subject of 
 commerce, and that by its silence Congress expressed its will that 
 interstate traffic should be free from State restrictions. It may 
 be seriously questioned whether the subsequent decision in SchoUen- 
 herger V. Pennsylvania has not restricted the scope of Plumley v. 
 Massachusetts to cases in which the article is actually impure; in 
 other words, when the State regulation is a health law, and not 
 passed merely for the prevention of fraud. If the State has the 
 power to prohibit the sale of pure articles of food when prepared 
 to represent other food products, logically it should have the same 
 power with reference to the sale of articles which are not food, 
 as, for example, cotton prepared in imitation of wool. Such legis- 
 lation as to articles carried in interstate commerce should, it is 
 believed, be within the jurisdiction of Congress only. 
 
156 FEDERAL INCORPORATION. 
 
 The three cases of Bowman v. Railway Co.} Leisy v. 
 Harden,^ and In re Rahrer^ furnish an excellent illus- 
 tration of the doctrine of the silence of Congress. In 
 the first case it was held that a State law which in 
 effect prohibited the importation of spirituous liquor 
 from another State was in conflict with the will of 
 Congress that interstate commerce should be free from 
 State restrictions. Leisy v. Harden carried this one 
 step further, holding that since the character of inter- 
 state commerce was not lost until a sale in the original 
 package, a State law which prohibited that sale was 
 also in conflict with the will of Congress as expressed 
 by its silence. 
 
 In 1890, by the Wilson act,* Congress declared that 
 the sale of liquor in the original package should be 
 subject to the police laws of the State in which the sale 
 took place. This law was held constitutional in the 
 case of In re Rahrer. By it Congress had expressed its 
 will that the State police regulations should be appli- 
 cable to liquor as soon as it came within the State, and 
 therefore, the sale in the original' package could be 
 prohibited equally with the sale of liquor which was 
 manufactured and sold within the State.^ 
 
 Effect upon corporations engaged in interstate commerce : 
 The extent to which police regulations may affect the 
 corporations engaged m mterstate commerce before there 
 is an invason of the jurisdiction of Congress is governed 
 by the same principles. It is impossible to formulate a 
 
 ' (1888), 125 U. S. 465. 
 
 2 (1890), 135 U. S. 100. 
 
 « (1891), 140 U. S. 545. 
 
 * 26 Stat. 313. 
 
 ^ Under the Wilson act, the State regulation can apply only 
 after delivery to the consignee. Heyman v. Southern Railway Co. 
 (1906), 203 U. S. 270. 
 
FEDERAL INCORPORATION. 157 
 
 more definite test by which the validity or invalidity for 
 this reason of all State regulations can be ascertained. 
 It is a question of degree, and each case must depend 
 largely upon its own facts. If a material burden is 
 placed upon the interstate traffic, or the right to carry 
 .it on, the statute will not be sustained; but in general, 
 if it is clearly for the protection of the local community, 
 it will not be invalid because in its operation interstate 
 commerce is incidentally affected. 
 
 A few illustrations may be given. For example, a 
 statute requiring engineers on all trains to pass an ex- 
 amination and take out a license was held valid even 
 as applied to engineers on interstate trains.* The 
 law obviously was designed for the protection of the 
 people of the State. Similarly, laws regulating the speed 
 of trains in their passage through certain communities 
 are essentially local, and trains engaged in interstate 
 commerce must conform to the regulations, unless Con- 
 gress has expressly legislated upon the subject.^ In what 
 appears to be an extreme case, a State law which pro- 
 hibited the running of freight trains on Sunday was held 
 applicable to through trains carrying interstate freight.' 
 
 ^ Smith V. Alabama (1888), 124 U. S. 465. 
 
 ^Erh V. Morasch (1900), 177 U. S. 584. 
 
 3 Hennington v. Georgia (1896), 163 U. S. 299. State laws 
 regulating the heating of cars have been held to apply to interstate 
 trains. NewYork, etc., Railroad Co. v. New York, (1897) 165 U.S. 
 628. In this case, also, the law would appear to be of more 
 than local importance. If each State through which the railroad 
 passes should adopt different regulations, it is obvious that 
 the interstate operations of the company would be materially 
 burdened. 
 
 A statute providing that all persons should be given equal privi- 
 leges on public conveyances, without discrimination because of 
 race or color, is invalid when applied to an interstate carrier. Hall 
 V. DeCuir (1877), 95 U. S. 485. 
 
158 FEDERAL INCORPORATION. 
 
 Regulation of intrastate commerce: Ths regulation of 
 that commerce which is confined within the limits of a 
 single State is among the reserved powers of a State, but 
 in exercising that power care must be taken not to in- 
 vade the jurisdiction of Congress. A statute passed in 
 the exercise of this power, which in its operation burdens- 
 interstate commerce, is, as in the case of a law passed 
 under the police power, invalid. 
 
 It is well settled that a State can regulate the rates 
 of railroad corporations, domestic or' foreign, which are 
 charged in the conduct of intrastate commerce. The 
 fact that the corporation is also engaged in interstate 
 commerce does not exempt it from this regulation of its 
 local business. 1 The effect of low rates required within 
 the State may be to increase the interstate rates, but 
 up to the present time the Supreme Court has not deemed 
 this a sufficiently direct burden upon interstate commerce 
 to invaUdate the State law.^ And it has been held that 
 the rates of a warehouse located in a State may be regu- 
 lated by the State, although a large part of the business 
 of the warehouse is essential to interstate commerce.' 
 
 ^ Smyth V. Ames (1898), 169 U. S. 466; Gulf, etc., Railway Co. v. 
 Texas (1907), 204 U. S. 403. 
 
 'A case is now pending in the Supreme Court involving this 
 question. The State of Minnesota materially reduced the maxi- 
 mum rates which could be charged by railroads for intrastate 
 transportation. The contention was made on behalf of several 
 interstate railroads that the result of the enforcement of the reduced 
 rates would be to burden the interstate trade of these companies. 
 This contention was upheld and the State law declared unconstilw- 
 tional by the Circuit Court in the case of Shepard v. Northern Pac. 
 Railway Co. (1911), 184 Fed. 765. In the opinion of the court, 
 delivered by Sanborn, J., there is a collection of the cases in which 
 State laws affecting interstate commerce have been held valid, and, 
 also of those in which the State laws have been declared to burden 
 interstate commerce to an unconstitutional extent. 
 
 2 Munn v. IlUnois (1876), 94 U. S. 113. 
 
FEDERAL INCORPORATION. 159 
 
 It was regarded as a local matter upon which Congress 
 had not legislated. 
 
 But the regulation of interstate rates is a matter over 
 which Congress alone has jurisdiction, and a State law 
 is unconstitutional in so far as it attempts to control such 
 rates.^ The regulation of the State cannot apply to any 
 part of an interstate shipment, no matter how much of 
 the transportation is within the limits of the State.' 
 Nor can the reasonableness of State rates be determined 
 by taking into consideration the amount" of interstate 
 business transacted.' 
 
 But, on the other hand, interstate railroads may be 
 compelled to comply with local regulations which do not 
 seriously interfere with the transaction of interstate 
 commerce. The reasonableness of the requirement, of 
 course, largely determines its validity. Thus, trains 
 engaged in interstate transportation may be required 
 to stop at all towns of a certain size,* unless the regula- 
 tion applies to all through trains, or requires such trains 
 to go some distance out of their course.* A requirement 
 that rates shall be posted in depots is applicable to 
 interstate railroads. And a State law requiring proper 
 
 1 Hanky v. Kansas City Railway Co. (1903), 187 U. S. 617. 
 
 2 Wabash, etc., Railway Co. v. Illinois (1886), 118 U. S. 557. 
 
 'Smyth V. Ames (1898), 169 U. S. 466. State regulations re- 
 quiring a railroad to furnish cars to shippers within a certain time 
 are invalid when applied to interstate shipments. Houston, etc., 
 Railroad Co. v. Mayes (1906), 201 U. S. 321. A State cannot pre- 
 scribe affirmative regulations for the delivery of interstate telegrams. 
 Western Union Telegraph Co. v. Pendleton (1887), 122 U. S. 347, 
 but can impose a liability for failure to deliver with due diligence, 
 in the absence of legislation by Congress upon the subject. Western 
 
 Union Tel. Co. v. James (1896), 162 U. S. 650. 
 *Lake Shore, etc., Railroad v. Ohio (1899), 173 U. S. 285. 
 ^Illinois Central Railroad Co. v. Illinois (1896), 163 U. S. 142. 
 
160 FEDERAL INCORPORATION. 
 
 facilities for the transference of cars at the junction of 
 two railroads was held not to be a regulation of 
 interstate commerce.' 
 
 1 Wisconsin, etc.. Railroad Co. v. Jacobson (1900), 179 U. S. 287. 
 
 Mr. Cooke, in his recent work on the commerce clause, contends 
 that the validity of State laws which regulate the conduct and 
 liability of those engaged in interstate commerce should depend 
 upon the class for whose benefit such conduct or liability is regu- 
 lated. There are at least three classes, he says, for whose benefit 
 such regulations may be passed: (1) The "public," comprehending 
 those residing in the State; (2) Those enjoying the benefit of trans- 
 portation wholly within the State; (3) those enjoying the benefit of 
 transportation within the scope of the commerce clause. For the 
 benefit of the first two classes, the power to regulate exists to a 
 large extent, being almost without limit so far as the second class 
 is coru;erned. But for the benefit of the third class, he contends, 
 the State should have no power to pass regulations. 
 
 While this view appears entirely sound, it is not clear that it 
 furnishes a more definite or satisfactory test then the determina- 
 tion of whether the State law affects interstate commerce in a 
 matter of national or local importance. Indeed, it seems but 
 another mode of expressing the latter test. 
 
CHAPTER VI. 
 
 STATE LEGISLATION WITH REFERENCE TO FEDERAL 
 
 CORPORATIONS ENGAGED IN INTERSTATE 
 
 COMMERCE. 
 
 There are, of course, comparatively few cases which 
 deal with the limitation of State legislation with refer- 
 ence to corporations chartered by the Federal Govern- 
 ment. An examination of the principles announced in 
 these cases will, however, enable us to determine to a 
 considerable extent the changes, if any, which would re- 
 sult if a federal incorporation system should be adopted 
 for interstate transportation and industrial companies. 
 As in the preceding chapter, the power of the State will 
 be discussed with reference, first, to taxation, second, 
 to police and other regulations. 
 
 I. State Taxation of Federal Corporations. 
 
 In the preceding chapter we found that five principles 
 may be regarded as settled with reference to taxation 
 of State corporations, foreign or domestic, which are 
 engaged in interstate commerce. In this chapter it is 
 proposed to discuss the application of each of these prin- 
 ciples to corporations chartered by Congress to transact 
 such commerce. 
 
 A. A State Cannot Tax the Privilege of Engaging in 
 'Interstate Commerce. 
 
 There can be no question but that this principle would 
 apply equally to federal corporations as to State cor- 
 porations. So far as the right to burden or otherwise 
 
162 FEDERAL INCORPORATION. 
 
 regulate interstate commerce is concerned, it can make 
 no difference by which sovereignty the corporate powers 
 are conferred. 
 
 The case of McCullough v. Maryland^ was the first 
 case in which was involved the constitutionality of State 
 taxation of a means employed by the Federal Govern- 
 ment to carry into effect one of the powers conferred 
 upon it by the Constitution. In that case a tax imposed 
 by Maryland upon the notes issued by the national bank 
 was held unconstitutional. Only those subjects over 
 which the sovereign power of a State extended, it was 
 declared, could be taxed by the State, and that sovereign 
 power did not extend to a means employed by the Federal 
 Government to execute one of its powers. "The States 
 have no power," declared Chief Justice Marshall, "by 
 taxatibn or otherwise, to retard, impede, burden, or in 
 any manner control, the operation of the constitutional 
 laws enacted by Congress to carry into execution the 
 powers vested in the National Government. This is, we 
 think, the unavoidable consequence of that supremacy 
 which the Constitution has declared." 
 
 A corporation chartered by Congress to carry on inter- 
 state commerce would be a means of executing the 
 power to regulate that commerce conferred upon Con- 
 gress by the Constitution, and therefore, irrespective 
 of the principle established in the case of State corpora- 
 tions, the interstate operations of such a corporation 
 could not be taxed or otherwise regulated by a State. 
 
 Consistently with this, the corporation could not, of 
 course, be excluded from the limits of a State, nor com- 
 pelled to pay a tax or charge for the privilege of exer- 
 cising its franchises within the State in interstate busi- 
 ness. A tax could not be measured upon its gross 
 
 H1819), 4 Wheat. 316. 
 
FEDERAL INCORPORATION. 163 
 
 receipts from interstate commerce, nor upon the freight 
 transported by it between the States. All of the deci- 
 sions upon this subject dealing with the taxation of 
 State corporations would apply with even greater force 
 to federal corporations. The State would not only 
 be invading the jurisdiction of Congress over interstate 
 commerce, but also would be burdening the operations 
 of a legitimate means employed by the Federal Govern- 
 ment. 
 
 B. A State Can Tax Property which has a Situs within 
 the Jurisdiction, although it is Employed in Interstate 
 Commerce. 
 
 In the case of State corporations which carry on 
 an interstate commerce business, we have found that a 
 tax upon the property within the State, if laid in the same 
 manner as on other property, does not necessarily result 
 in burdening the operations of the company. So far 
 as an interference with interstate commerce is con- 
 cerned, the same would of course be true if the company 
 is incorporated by the Federal Government. Nor does 
 the additional fact that the federal corporation would 
 be a means of executing an express power vested in 
 Congress exempt its property from such a tax. In 
 McCullough V. Maryland, Chief Justice Marshall de- 
 clared : "This opinion does not deprive the States of any 
 resources which they originally possessed. It does not 
 extend to the tax paid by the real property of the bank, 
 in common with the other real property within the State." 
 There is therefore no constitutional objection to a tax 
 upon the property of a federal corporation. And such 
 were the decisions in the two cases of Thompson v. 
 Railroad^ and Railroad Co. v. Peniston.^ 
 
 1 (1869), 9 Wall. 579. 
 ' (1873), 18 Wall. 5. 
 
164 FEDERAL INCORPORATION. 
 
 In the first of these cases the railroad in question was 
 not incorporated by Congress, but was granted valuable 
 franchises by it. Kansas, the State of incorporation, 
 taxed the property of the company located within the 
 State. The express method of taxation does not appear 
 in the report, but it seems clear that it was the same 
 as. was applied in the case of other property within the 
 State. The constitutionality of the tax was sustained 
 by a unanimous decision. 
 
 "There is a clear distinction," said the court, "between 
 the means employed by the government, and the prop- 
 erty of agents employed by the government. Taxation 
 of the agency is taxation of the means; taxation of the 
 property of the agent is not always, or generally, taxation 
 of the means. No one questions that the power to tax 
 all property, business, and persons, within their respec- 
 tive limits, is original in the States and had never been 
 surrendered. It cannot be so used, indeed, as to defeat 
 or hinder the operations of the National Government; 
 but it will be safe to conclude, in general, in reference to 
 persons and State corporations employed in government 
 service, that when Congress has not interposed to protect 
 their property from State taxation, such taxation is not 
 obnoxious to that objection." 
 
 In the second case the question was directly pre- 
 sented whether the fact that the corporate powers were 
 granted by Congress altered the result. It was decided 
 in the negative. The tax was laid by Nebreiska upon the 
 property of the Union Pacific Railroad, a corporation 
 chartered by Congress. The property within the State, 
 roadbed, depots, bridges, furniture, etc., was assessed 
 upon a valuation of $16,000 per mile. The majority 
 of the court held that the case did not differ from Thomp- 
 son V. Railroad. 
 
 "It is, therefore, manifest that exemption of Federal 
 
FEDERAL INCORPORATION. 165 
 
 agencies from State taxation is dependent, not upon the 
 nature of the agents, or upon the mode of their consti- 
 tution, or upon the fact that they are agents, but upon 
 the effect of the tax; that is, upon the question whether 
 the tax does in truth deprive them of power to serve 
 the government as they were intended to serve it, or 
 does hinder the efficient exercise of their power. A tax 
 upon their property has no such necessary effect. It 
 leaves them free to discharge the duties they have 
 undertaken to perform. A tax upon their operations 
 is a direct obstruction to the exercise of Federal powers." 
 The tax in this case, it was held, was not upon the 
 operations or the franchises of the company, but was 
 exclusively upon the real and personal property, taxed 
 in common with all other property in the State of a simi- 
 lar character. Mr. Justice Swayne concurred in the 
 judgment upon the ground that Congress might, but 
 did not, exempt the property from all State taxation. 
 
 A strong dissenting opinion was filed by Mr. Justice 
 Bradley (Mr. Justice Field concurring). The corpora- 
 tion, it was argued, was a means employed by the Fed- 
 eral Government, and this was a direct tax upon that 
 means. The case was not analogous to a tax upon the 
 real estate of the national bank, because it was not 
 essential to the operations of the bank that it should 
 hold real estate, while the property of a railroad, on the 
 other hand — roadbed, depots, etc., — was absolutely 
 necessary to, and a part of, the operation of the road. 
 Thompson v. Railroad was totally different, because in 
 that case the corporation owed its existence to State 
 laws, and was properly subject to State regulations 
 and taxation. The only interest the Federal Govern- 
 ment had in the corporation was the contract with it, 
 and that contract was not taxed. In this case, on the 
 contrary, the corporation itself was a direct means 
 
166 FEDERAL INCORPORATION. 
 
 employed by Congress to execute its power to regulate 
 interstate commerce, and a tax upon it was in conflict 
 with the decision in McCullough v. Maryland. 
 
 While the arguments of the learned judges who dis- 
 sented are very forcible, it is believed that the sounder 
 view is that expressed by the majority of the court. 
 The property within the State enjoys the protection of 
 the laws of the State, and should contribute to its 
 support as other property within the State contributes, 
 and if the burden of taxation is no heavier than that 
 imposed on other property, it does not seem that the 
 operations of the company would be materially impeded. 
 Upon this point little difference can be perceived be- 
 tween the taxation of the property of State corporations 
 engaged in interstate commerce and that of federal 
 corporations carrying on the same business. The test 
 of the validity of the tax is whether or not it substan- 
 tially burdens the interstate operations of the company, 
 and the fact would be the same whether the corporation 
 is chartered by a State or by the Federal Govern- 
 ment. With reference to the view of Mr. Justice 
 Swayne that Congress possesses the power to exempt 
 the property from State taxation, it is sufficient to say 
 for the present that no reason is perceived why such a 
 power should reside in Congress to any greater extent 
 than in the case of State corporations. This will be 
 discussed at greater length in connection with the cases 
 dealing with the regulation of the intrastate business of 
 federal corporations. 
 
 Assuming the position of the majority to be sound, it 
 is apparently settled by these cases that a tax imposed 
 by a State upon the local property of a federal corpora- 
 tion does not necessarily interfere with the efficient 
 exercise of the powers conferred by Congress upon the 
 corporation. In each case the method of assessment 
 
FEDERAL INCORPORATION. 167 
 
 was evidently the same as was used in the taxation of 
 other property within the State. There was no attempt 
 in either case to include in the assessment the value of 
 the interstate business transacted by the corporation. 
 In the case of State corporations engaged in interstate 
 commerce, the most general method employed in the 
 valuation of the property within the State is the appor- 
 tionate mileage system, taking as a basis the market 
 value of the capital stock. Should this method be 
 applied also to federal corporations engaged in inter- 
 state trade? 
 
 Upon the theory that the actual value of the capital 
 stock represents the value of the entire property of 
 the company, it must be admitted that the question is 
 the same as in the taxation of State corporations. The 
 test of the constitutionality or unconstitutionality of the 
 tax is whether or not it burdens the interstate operation^, 
 and since by the theory thfe tax is upon the property 
 only, there is no interference with the interstate business 
 of the company, whether it be chartered by Congress 
 or by a State. 
 
 But this theory, it is submitted, is clearly unsound. 
 To summarize briefly our former discussion, the pros- 
 pect of profit from the interstate business is at least as 
 important an element in the market value of the capital 
 stock as is the value of the tangible and intangible 
 property. To appraise the property at an amount 
 which includes the prospective profits from the inter- 
 state business amounts to a tax upon that business just 
 as directly as if the business were taxed separately from 
 the property, which beyond question would be un- 
 constitutional. If, therefore, the theory is wrong, it 
 should be abandoned, and no necessity would exist 
 for its application to corporations chartered by 
 Congress. 
 
168 FEDERAL INCORPORATION. 
 
 But the later theory upon which the proportionate 
 mileage system is supported is that the value of the 
 franchise is equal to the value of the capital stock less 
 the value of the tangible and intangible property; and 
 this franchise, as a property right, has a situs wherever 
 the tangible property is located and can be taxed with 
 that tangible property. Upon this theory there would 
 be a material difference when the franchise was granted 
 by the Federal Government. A grant of corporate 
 powers by Congress, although it may be a valuable 
 property right, is not subject to State taxation. 
 
 In the case of California v. Central Pacific Railroad^ 
 the question before the court was whether a tax was 
 constitutional which was imposed by California upon 
 the property of the Central Pacific Railroad located 
 within the State. The assessment was made under the 
 same statute which has been considered in connection 
 with the case of Central Pacific Railroad v. California.^ 
 No definite method was prescribed. The State Board 
 valued the franchise, roadway, roadbed, rails, and rolling 
 stock, while all the taxable property was assessed in 
 the county or municipality where it was located. Each 
 railroad was required to make a statement to the Board 
 showing the mileage within the State and the total 
 mileage, the gross earnings in the State and the entire 
 gross earnings, etc. The lower court had found that 
 the assessment of the State Board included the full 
 value of all franchises held by the railroad, and it was 
 argued against the tax that franchises granted by 
 Congress were wrongfully assessed. This objection was 
 sustained by the Supreme Court, and it was held that 
 the value of such franchises was so blended with the 
 
 ' (1888), 127 U. S. 1. 
 
 « (1896), 162 U. S. 91; supra, page 115. 
 
FEDERAL INCORPORATION. 169 
 
 value of the other property as to make the entire 
 assessment void. 
 
 "A franchise," declared Mr. Justice Bradley, deliver- 
 ing the unanimous opinion of the court, "is a right, 
 privilege or power of public concern, which ought not 
 to be exercised by private individuals at their mere will 
 and pleasure, but should be reserved for public control 
 and administration, either by the government directly, 
 or by public agents acting under such conditions 
 and regulations ' as the government may impose in 
 the public interest, and for the public security. 
 
 "Recollecting the fundamental principle that the 
 constitution, laws and treaties of the United States are 
 the supreme law of the land, it seems to us almost 
 absurd to contend that a power given to a person or 
 corporation by the United States may be subjected to 
 taxation by a State. The power conferred emanates 
 from, and is a portion of, the power that confers It. 
 To tax it is not only derogatory to the dignity, but 
 subversive of the powers of government, and repugnant 
 to its paramount sovereignty. . . . 
 
 "The taxation of a corporate franchise merely as 
 such, unless pursuant to a stipulation in the original 
 charter of the company, is the exercise of an authority 
 somewhat arbitrary in its character. It has no limita- 
 tion but the discretion of the taxing power. The value 
 of the franchise is not measured like that of property, 
 but may be ten thousand or ten hundred thousand 
 dollars, as the legislature may choose. Or, without any 
 valuation of the franchise at all, the tax may be arbi- 
 trarily laid." 
 
 The method of assessment employed in this case was 
 probably not the proportionate mileage system based 
 upon the capital stock, but by the decision any tax 
 upon the federal franchise is unconstitutional, whether 
 
170 FEDERAL INCORPORATION. 
 
 its value be fixed at an arbitrary sum, or be determined 
 by subtracting the value of the tangible and intangible 
 property from the actual value of the capital stock. 
 And it would of course follow that any valuation of the 
 property which included the value of the franchise 
 would Ukewise be unconstitutional. 
 
 Therefore, if we admit the soundness of the theory 
 that the value of the franchise is equal to the value of 
 the capital stock less the value of the tangible and 
 intangible property, although it seems unsound for the 
 same reason as the first theory (because including the 
 value of prospective profits from the business), the 
 proportionate mileage system is clearly inapplicable to 
 the taxation of federal corporations. 
 
 But it may be argued that this method of appraise- 
 ment has been held constitutional when applied to 
 corporations which have received franchises from the 
 Federal Government. Thus the Western Union Tele- 
 graph Company, by accepting the terms of the act of 
 Congress of 1866, became entitled to construct and 
 maintain its lines on the post-roads of the United 
 States. Massachusetts taxed the market value of the 
 capital stock of the company in proportion to the 
 mileage within the State, and in the case of Western 
 Union Telegraph Company v. Massachusetts ^ this tax 
 was held constitutional as a tax upon the property 
 within the State. The court decided that there was 
 no taxation of the franchise received from Congress. 
 Would not the result have been the same if the franchise 
 granted by the Federal Government had been the 
 franchise of corporate capacity? 
 
 This, however, does not necessarily follow. The 
 ranchise or privilege received under the act of 1866, as 
 
 ' (1888), 125 U. S. 530; supra, page 122. 
 
FEDERAL INCORPORATION. 171 
 
 interpreted by the court, merely gives the right to use 
 the post-roads upon pajmient of compensation. No 
 State could prevent the telegraph company from erect- 
 ing its lines along a post-road within the limits of the 
 State, but the corporation could be compelled to make 
 suitable compensation for the property taken. In St. 
 Louis V. Telegraph Company^ it was held that the mu- 
 nicipality could charge a reasonable sum for the use of 
 the public streets by a telegraph company, although the 
 streets were post-roads of the United States and the com- 
 pany had accepted the provisions of the act of 1866. It 
 seems, therefore, that the right conferred by the statute 
 is in the nature of the right of eminent domain. When 
 it has been exercised and the lines constructed, as in 
 Western Union Telegraph Company v. Massachusetts, 
 it is not an element entering into the value of the capi- 
 tal stock, any more than is the right of eminent domain 
 which has been granted by the State and exercised by 
 the corporation. 
 
 There is no sound theory, it is believed, which would 
 justify the extension of the proportionate mileage sys- 
 tem to the taxation of the property of a federal corpora- 
 tion engaged in interstate transportation. 
 
 A further point, a question of fact, would arise in con- 
 nection with federal trading or industrial corporations, 
 chartered for the purpose of buying and selling between 
 the States. If it be conceded that the proportionate 
 mileage system should be applicable to federal trans- 
 portation companies, such as railroad, telegraph, and 
 express companies, would there be such unity between 
 the property of an industrial corporation as to justify 
 the appraisement of its property under the same 
 system ? 
 
 ' (1893) 148, U. S. 92; supra, page 149. 
 
172 FEDERAL INCORPORATION. 
 
 In Adams Express Company v. Ohio,^ it was held that 
 the unity, while something more than the mere unity 
 of ownership, need not be a physical unity. "It is a 
 unity of use," said the court, "not simply for the con- 
 venience or pecuniary profit of the owner, but existing 
 in the very necessities of the case — resulting from 
 the very nature of the business. The same party may 
 own a manufacturing establishment in one State and 
 a store in another, and may make profit by operating 
 the two, but the work of each is separate. The value 
 of the factory is not conditioned on that of the store or 
 vice versa, nor is the value of the goods manufactured 
 and sold affected thereby. The connection between the 
 two is merely accidental and growing out of the unity 
 of ownership." 
 
 Under this definition it may be seriously questioned 
 whether the unity between the property of a federal 
 trading company would be more than a unity of owner- 
 ship. The business of such a company would seem 
 closely analogous to that of a company owning a manu- 
 factory in one State and a store in another, or to that 
 of a company established in one State and sending agents 
 through other States. Accordingly, it is doubtful if, as 
 a matter of fact, the property of the compa.ny could be 
 valued as a unit and assessed in accordance with the 
 jnileage system. 
 
 C. A State Can Tax the Intrastate Business of a Corpor- 
 ation Engaged also in Interstate Commerce. 
 
 We have concluded that the intrastate business trans- 
 acted by an interstate corporation is so closely connected 
 with the interstate business that a federal corporation 
 chartered to engage in interstate commerce would have 
 
 1 (1897), 165 U. S. 194; supra, page 133. 
 
FEDERAL INCORPORATION. 173 
 
 the incidental right to transact local business within a 
 single State.* Does the fact that this right results from 
 the federal charter remove the intrastate business from 
 State taxation? 
 
 In the case of Osborne v. National Bank,^ a tax im- 
 posed by Ohio upon a branch of the national bank located 
 in that State was held unconstitutional, upon the au- 
 thority of McCullough V. Maryland.^ Counsel for the 
 State argued, that in addition to its business for the 
 government the bank carried on a private banking busi- 
 ness, and that this business could be taxed by the State 
 in the same manner as any other intrastate business 
 could be taxed. The court, however, speaking through 
 Chief Justice Marshall, held that while undoubtedly 
 the bank could transact private business as well as na- 
 rional business, yet the corporation was created for a pub- 
 lic purpose, and this private business was essential 
 to make it an efficient instrument for the Federal 
 Government. It was inseparable from the pubUc 
 business and was clearly exempt from State taxation. 
 
 Upon the authority of this case it may be argued that 
 the intrastate business transacted by a federal commerce 
 corporation would be exempt from all state taxes. If the 
 corporation has the right to carry on intrastate business, 
 it is because it is essential to its interstate operations 
 and necessary to make it an efficient means or instru- 
 ment to carry out the purposes of the Federal Govern- 
 ment. A State tax, therefore, upon the right, would be 
 a burden upon the exercise of the powers conferred by 
 Congress, and would be unconstitutional, as was the 
 tax upon the private business of the bank. 
 
 ^ Supra, pages 17, 18. 
 2 (1824), 9 Wheat. 738. 
 ' Supra. 
 
174 FEDERAL INCORPORATION. 
 
 But there seems this difference between the private 
 banking business of a national bank and the intrastate 
 business of a federal corporation engaged in interstate 
 commerce. It is absolutely essential for the bank to 
 carry on a private business in addition to the business it 
 transacts for the government, because otherwise it 
 would be hardly possible for the bank to exist. As Chief 
 Justice Marshall expressed it, it is "the vital spirit which 
 alone can bring it into useful existence." Without it, 
 as a mere "depository of, and vehicle for, the convey- 
 ance of the treasury of the nation," the bank could not 
 be sustained on a paying basis. Since this private busi- 
 ness was a part of the very life of the bank, it was essen- 
 tial that it be free from all State interference or taxation. 
 A tax upon it, therefore, was a matter of national im- 
 portance, and in conflict with the will of Congress. This 
 was particularly true of the tax laid by Ohio, which was 
 imposed only upon the national bank, and was clearly 
 intended to drive the corporation from the State. 
 
 On the other hand, the intrastate business of an inter- 
 state commerce corporation, while necessary to make the 
 corporation a really fit instrument, can hardly be said 
 to be absolutely essential, — "the vital spirit" necessary 
 to bring the corporation into existence. Since it is a 
 reasonable and proper incident to the interstate opera- 
 tions. Congress can grant the right to the corporation 
 and the State cannot prohibit its exercise. But the 
 business is exercised wholly within the State and should 
 be subject to reasonable state regulation and taxation 
 to the same extent that the intrastate business of state 
 corporations engaged in interstate commerce is subject 
 to such regulation and taxation. In either case the State 
 should be allowed to exercise control over the intrastate 
 business as long as it does not thereby substantially 
 burden interstate commerce. The doctrine of the silence 
 
FEDERAL INCORPORATION. 175 
 
 of Congress, it is submitted, should have exactly the 
 same application to federal commerce corporations as 
 to State corporations transacting an interstate business. 
 
 Apparently, however, the cases which have arisen 
 in connection with the intrastate business of the trans- 
 continental railroads incorporated by Congress carry 
 the doctrine to a greater extent and apply it to all State 
 laws, whether of taxation or regulation, which affect 
 those corporations. The cases in question deal with the 
 regulation of intrastate rates.^ 
 
 In the first case, Reagan v. Mercantile Trust Company, 
 a railroad commission appointed under a statute of 
 Texas attempted to regulate the intrastate rates of the 
 Texas & Pacific Railway, a federal corporation. On be- 
 half of the company it was argued that the right to 
 charge and collect tolls was a franchise or privilege 
 received from Congress, which the State had no power 
 to limit or qualify. The court, however, held that the 
 State could regulate the local rates unless Congress 
 had indicated its intention to the contrary. Quoting 
 from Railroad v. Peniston^ the test that the validity 
 of the State tax depended upon its effect upon the 
 operations of the company, the court said : 
 
 "Similarly we think it may be said that conceding 
 to Congress the power to remove the corporation in all 
 its operations from the control of the State, there is in 
 the act creating this company nothing which indicates 
 an intent on the part of Congress to so remove it, and 
 there is nothing in the enforcement of the State of rea- 
 sonable rates' for transportation wholly within the State 
 which will disable the corporation from discharging 
 
 '■ Reagan v. Mercantile Trust Company (1894), 154 U. S. 413; 
 Smyth V. Ames (1898), 169 U. S. 466. 
 "" (1873), 18 Wall. 5; supra, page 163. 
 
176 FEDERAL INCORPORATION. 
 
 all the duties and exercising all the powers conferred 
 by Congress. By the act of incorporation, Congress 
 authorized the company to build its road through the 
 State of Texas. It knew that, when constructed, a 
 part of its business would be the carrying of persons 
 and property from points within the State to other 
 points within the State, and that in so doing it would 
 be engaged in a business, control of which is nowhere 
 by the Federal Constitution given to Congress. It 
 must have known that in the nature of things, the 
 control of that business would be exercised by the State, 
 and if it deemed that the interests of the nation and the 
 discharge of the duties required on behalf of the nation 
 from this corporation demanded exemption in ^11 things 
 from State control, it would unquestionably have 
 expressed such intention in language whose meaning 
 would be clear. Its silence in this respect is satisfactory 
 assurance that, in so far as this corporation should 
 engage in business wholly within the State, it intended 
 that it should be subjected to the ordinary control 
 exercised by the State over such business. Without, 
 therefore, relying at all upon any acceptance by the 
 railroad corporation of the act of the legislature of the 
 State, passed in 1873 in respect to it, we are of the 
 opinion that the Texas & Pacific Railway Company is, 
 as to business done wholly within the State, subject to 
 the control of the State in all matters of taxation, rates, 
 and other police regulations." 
 
 This case was followed in Smyth v. Ames.^ In the 
 act of Congress incorporating the Union Pacific Rail- 
 road it was provided that whenever the net earnings of 
 the road reached a certain amount, "Congress may 
 reduce the rates of fare thereon, if unreasonable in 
 i 
 
 ' Supra. 
 
FEDERAL INCORPORATION. 177 
 
 amount, and may fix and establish the same by law." 
 From this it was argued that Congress had reserved to 
 itself the exclusive control of rates, both interstate and 
 local, to be charged by the railroad, and that therefore 
 the statute of Nebraska regulating the intrastate rates 
 could not be applied to the Union Pacific Railroad. 
 This argument was not sustained, the court holding that 
 Congress had not by that provision withdrawn from the 
 States the right to regulate local rates, but merely 
 reserved the right to intervene under certain circum- 
 stances and establish reasonable rates. "Until Con- 
 gress, in the exercise either of the power specifically 
 reserved, ... or its power under the general reserva- 
 tion made of authority to add to, alter, amend or repeal 
 that act, prescribes rates to be charged by the railroad 
 company, it remains with the States through which the 
 road passes to fix rates for transportation beginning and 
 ending within their respective limits." 
 
 From these cases it appears that the power to regulate 
 in any way the intrastate rates charged by a federal 
 railroad corporation is a local matter upon which the 
 States may legislate unless Congress shall have expressly 
 provided otherwise. The right to tax the local business 
 would seem to be within the power of the State to the 
 same extent as the right to regulate it, provided that 
 the tax was not measured upon the intrastate business, 
 or, if an arbitrary amount, was so reasonable as not 
 to be disproportionate to the amount of local business 
 transacted. 
 
 But the dicta of the court in these decisions, appar- 
 ently adopting the view of Mr. Justice Swayne, in 
 Railroad v. Peniston,^ vests in Congress the power to 
 remove the federal corporation in all its operations 
 
 ' Supra, page 165. 
 
178 FEDERAL INCORPORATION. 
 
 from state regulation or taxation. As mentioned 
 before, it is submitted that Congress has such power to 
 no greater extent than in the case of state corporations 
 engaged in interstate trade. If the effect of the opera- 
 tion of the state law is to burden substantially the 
 interstate commerce of a corporation, it comes into 
 conflict with the will of Congress and is invalid, by 
 whatever sovereign the corporate powers may have been 
 granted. But if there is no interference with inter- 
 state commerce, as, for example, the court has decided 
 in the case of a reasonable state tax upon the property 
 of a state corporation within the jurisdiction, then in 
 the case of a federal corporation there is no interference 
 with the means employed by Congress to regulate inter- 
 state commerce, and the same tax should be valid, and 
 Congress should have no power to prohibit it. 
 
 There is another theory upon which the power of Con- 
 gress to exempt the corporation from the operation of 
 all State laws may have been based. The better view of 
 a franchise, it is believed, is that it is a grant of certain 
 privileges to be employed by individuals in the pursuit 
 of particular undertakings. But if the theory that a 
 franchise creates a legal entity — an artificial person- — 
 be adopted, will this justify the attitude of the court 
 in the cases cited? The idea may have been that this 
 juristic person created by the Federal Government 
 should be subject only to the regulations of the Federal 
 Government, unless Congress, by its silence, should 
 permit the States to act; that otherwise, to allow the 
 States to act would be to sanction an invasion of federal 
 sovereignty. But this result does not seem to follow. 
 If the grant of the charter creates an artificial person, 
 then the power of Congress to exempt it from State 
 regulations should be no greater than in the case of a 
 real person engaged in interstate commerce, and it 
 
FEDERAL INCORPORATION. 179 
 
 could hardly be contended that Congress could pro- 
 hibit State taxation of the property of an individual 
 because of the fact that he was carrying on an inter- 
 state trade. The attitude of the court cannot, therefore, 
 it appears, be explained satisfactorily upon this theory. 
 
 D. A State Can Impose a Charge upon an Interstate 
 Commerce Corporation for Local Governmental Super- 
 vision Rendered Necessary by the Way in which 
 the Business is Carried on. 
 
 E. A State Can Charge for the Privilege of Using the 
 Public Highways, Although the Corporation Making 
 Use of Them is Engaged in Interstate Commerce. 
 
 There is no reason to suppose that these principles 
 would apply any the less to a federal corporation than 
 to a State corporation. Nor would the doctrine of 
 silence apply. It is not the case of laws passed under 
 the reserved powers of the State which in their opera- 
 tion affect corporations engaged in interstate com- 
 merce; it is a reasonable charge for services rendered 
 or as compensation for the use of land. A federal 
 charter could not confer the right to demand special 
 services from a State without making any return there- 
 for, nor could the corporation be empowered to occupy 
 property, either of an individual or of the State, without 
 compensating the owner. If reasonable, such charges 
 do not in any way hinder or burden the operations of 
 the company, or impair its efficiency as a governmental 
 means. As in the case of State corporations, the ques- 
 tion of reasonableness would undoubtedly be for the 
 jury. 
 
180 FEDERAL INCORPORATION. 
 
 II. Police and Other Regulations Affecting Federal 
 Commerce Corporations. 
 
 Local regulations passed under the police or other 
 reserved powers which in their operation affected fed- 
 eral corporations would be analogous to the taxation of 
 the property and the regulation of the intrastate busi- 
 ness. In the absence of legislation by Congress, the 
 law would be the same as it now is with reference to 
 State corporations engaged in interstate commerce. 
 
 The power of the State to regulate the intrastate com- 
 merce has already been considered in discussing the 
 power to tax that business. There is only one situa- 
 tion which appears to require further comment. 
 
 A federal industrial corporation is chartered by Con- 
 gress with power to buy and sell tobacco among the 
 States. As an incidental right the corporation could 
 also make sales wholly within the limits of one State. 
 If, then, a State within which the corporation is trans- 
 acting business, should, under its police power, prohibit 
 the sale within the State of all tobacco, or of tobacco 
 in the form of cigarettes, would the statute operate 
 to deprive the corporation of its incidental right to make 
 intrastate sales? 
 
 In the absence of legislation by Congress, it'is believed 
 that it would so operate. To say that a federal cor- 
 poration engaged in interstate commerce has the inci- 
 dental right to carry on an intrastate business merely 
 means that the State cannot arbitrarily prohibit that 
 right, upon the theory that it has absolute control over 
 all local business. The corporation has the right to 
 enter the State to carry on interstate commerce, and 
 the performance of this function would be materially 
 burdened and the efficiency of the corporation as a gov- 
 ernmental means impaired if a local business could 
 
FEDERAL INCORPORATION. 181 
 
 not also be transacted. But State regulations govern 
 the carrying on of that local business unless Congress 
 expressly provides otherwise, and the power to regulate 
 its internal commerce is no more firmly vested in the 
 State than the power to enact police regulations for the 
 protection of its citizens. It would seem that any 
 reasonable police regulation such as that in question 
 should be regarded as a matter of local concern, even 
 though it would operate to destroy an incidental right. 
 The effect, it is true, may be to burden the interstate 
 trade of the corporation in cigarettes; but the object 
 would be to protect the morals or health of the people 
 of the State, and if Congress should deem it more ex- 
 pedient for the operations of the corporation to be 
 unobstructed, the power to relieve it from such State 
 legislation would lie in its hands. 
 
 Summary: As a result of a federal incorporation sys- 
 tem, there would be few absolute changes in the re- 
 lation of the States to corporations engaged in interstate 
 commerce. At the present time no State can tax the 
 privilege of transacting interstate commerce, so in this 
 respect the law would be unaltered. The taxation of the 
 local property of a federal corporation, the taxation and 
 regulation of its intrastate business, and the application 
 of reasonable police regulations to its local operations, 
 would all, it appears, be matters within the power of the 
 States to the same extent as at present in the case of 
 State corporations, at least in the absence of legislation 
 by Congress to the contrary. But it is believed that 
 the local property could be taxed only as other property 
 in the State is taxed, and could not be regarded as part 
 of a unit or going concern, and a proportionate part 
 of the actual value of the capital stock or of the gross 
 receipts assessed to determine its value. It has been 
 definitely decided that the franchise granted by the 
 
182 FEDERAL INCORPORATION. 
 
 Federal Government is exempt from State taxation. 
 The fee for incorporation, which under the present sys- 
 tem is paid to the State, would, of course, under federal 
 incorporation, go to the Federal Government. 
 
 The producing function of federal corporations: A 
 federal corporation could be given the absolute right to 
 manufacture or produce in the District of Columbia 
 and the Territories only.* Therefore, so far as that 
 function is concerned, it would have the character 
 merely of a corporation of the District or of a Territory. 
 The right to manufacture within the limits of a State 
 would be determined by the same laws which govern 
 the admission of any foreign corporation not engaged 
 in interstate commerce. As a result, the admission or 
 exclusion of the corporation would be within the dis- 
 cretion of the State, and such conditions could be at- 
 tached to the right to carry on the business as the State 
 should think fit, provided that there was no interference 
 with the exercise of some power belonging to the United 
 States. After admission, the power of the State to con- 
 trol and regulate such business would be exactly the 
 same as its power over occupations of a similar nature 
 carried on within its limits by State corporations. 
 
 ^ Supra, pages 19-21. 
 
CHAPTER VII. 
 
 JURISDICTION OF FEDERAL COURTS OVER SUITS BY 
 OR AGAINST FEDERAL CORPORATIONS. 
 
 The jurisdiction of the federal courts may be estab- 
 lished either because of the subject-matter of the suit 
 or because of the character of the parties to the suit. 
 The Constitution provides: 
 
 "The judicial power shall extend to all cases, in law 
 and equity, arising under this Constitution, the laws of 
 the United States, and treaties made, or which shall be 
 made, under this authority; to all caises affecting ambas- 
 sadors, other public ministers, and consuls; to all cases 
 of admiralty and maritime jurisdiction; to controver- 
 sies to which the United States shall be a party; to 
 controversies between two or more States; between a 
 State and citizens of another State; between citizens 
 of different States — between citizens of the same State 
 claiming lands under grants of different States, and 
 between a State, or the citizens thereof, and foreign 
 states, citizens, or subjects." 
 
 This clause, however, does not of itself directly vest 
 in the federal courts jurisdiction in the cases mentioned. 
 As it has been construed, it merely authorizes Congress 
 to pass legislation extending the jurisdiction of the 
 federal courts to all, or a part only, of the suits which 
 may come within the terms of the clause. The Con- 
 stitution provides that, "In all cases affecting ambas- 
 sadors, other public ministers and consuls, and those in 
 which a State shall be a party, the Supreme Court shall 
 have original jurisdiction." With the exception of these 
 specific cases, it must be shown, to enable a federal 
 
184 FEDERAL INCORPORATION. 
 
 court to assume jurisdiction in a particular case, not 
 only that the case is one which is within the scope of the 
 above clause, but also that an act of Congress has been 
 passed giving to the court jurisdiction in that class of 
 cases. "It is settled law," the Supreme Court has de- 
 clared, "that except in the cases of which this court 
 is given by the Constitution original jurisdiction, the 
 judicial power of the United States is to be exercised in 
 its original or appellate form, or both, as the wisdom of 
 Congress may direct." ^ 
 
 In pursuance of this power Congress has, in various 
 statutes, enumerated the cases which shall be subject 
 to the jurisdiction of the federal courts. Included in 
 these are suits arising under the Constitution and laws of 
 the United States and suits in which there is a diversity 
 of citizenship between the parties. In the absence of 
 express legislation by Congress, it would be necessary 
 to show the application of one of these two provisions to 
 bring suits by or against a federal corporation within 
 the jurisdiction of the federal courts. 
 
 In the case of Osborne v. Bank ^ it was definitely 
 decided that a corporation created by Congress as a 
 means of executing a power expressly conferred by the 
 
 1 Railroad v. Mississippi (1880), 102 U. S. 135, 140. 
 
 An example of the discretion of Congress in not conferring such 
 jurisdiction to the extent provided for in the Constitution is found 
 in the twenty-sixth section of the Judiciary Act of 1789. By that 
 section it was provided that when a suit was brought in a State 
 court, if either of the parties claimed a right, title, or privilege under 
 the Constitution or laws of the United States, and the decision of 
 the State Court was against the existence of such right, title, or privi- 
 lege, the defeated party had a right to appeal to the Supreme Court 
 of the United States. There is an express omission to provide for 
 an appeal in cases where the State courts afifirm the right, title, or 
 privilege claimed. 
 
 ' (1824), 9 Wheat. 738. 
 
FEDERAL INCORPORATION. 185 
 
 Constitution could be authorized to sue in the federal 
 courts, the reason being that such suits were cases 
 arising under a law of the United States. 
 
 "The case of the bank," said Chief Justice Marshall, 
 "is a very strong case of this description. The charter 
 of incorporation not only creates it, but gives it every 
 faculty which it possesses. The power to acquire rights 
 of any description, to transact business of any descrip- 
 tion, to make contracts of any description, to sue on 
 these contracts, is given and measured by its charter, 
 and that charter is a law of the United States. This 
 being can acquire no right, make no contract, bring no 
 suit, which is not authorized by the United States. It 
 is not only itself the mere creature of a law, but all its 
 actions and all its rights are dependent on the same 
 law. Can a being, thus constituted, have a case which 
 does not arise literally, as well as substantially, under 
 the law? 
 
 "Take the case of a contract, which is put as the 
 strongest against the bank. When a bank sues, the 
 first question which presents itself, and which lies at 
 the foundation of the cause, is, has this legal entity a 
 right to sue? Has it a right to come, not into this court 
 particularly, but into any court? This depends on a 
 law of the United States. The next question is, has this 
 being a right to make this particular contract? If this 
 question be decided in the negative, the cause is deter- 
 mined against the plaintiff; and this question, too, 
 depends entirely on a law of the United States." 
 
 The doctrine of this case was expressly affirmed in 
 the Pacific Railroad Removal Cases} in which it was 
 held that suits brought against the Union Pacific Rail- 
 road and the Texas & Pacific Railroad, both of which 
 
 • (1885), 115 U. S. 1. 
 
186 FEDERAL INCORPORATION. 
 
 corporations were chartered by Congress, were suits 
 arising under a law of the United States and could 
 be removed by the corporations to the federal courts.' 
 
 Therefore, so far as its interstate commerce business 
 is concerned, a federal transportation or trading com- 
 pany would unquestionably have the right to sue in, 
 or remove suits against it to, the federal courts. And 
 it seems unquestionable that this would be true also 
 with reference to the intrastate business of the com- 
 pany, because the right to transact such business would 
 result as incidental to the right to carry on interstate 
 operations. 
 
 It is somewhat more difiScult to decide whether the 
 jurisdiction of the federal courts would extend to suits 
 arising in connection with the producing function of the 
 corporation. As a producing corporation, it would have 
 the status of a corporation of the District of Columbia 
 or of a Territory, since Congress has no power to incor- 
 porate manufacturing companies except under its com- 
 plete governmental authority over those sections. 
 
 It might be argued that Congress, when exercising 
 this authority, has merely the character of a local 
 legislature, and the legislation enacted thereunder is 
 not a law of the United States. If this be true, it would 
 be necessary to prove diversity of citizenship to entitle 
 the corporation to sue in the federal courts. 
 
 Practically, for the purpose of establishing the juris- 
 diction of the federal courts, a corporation may be said 
 to be a citizen of the State in which it is chartered. 
 While this is not strictly true, the result is the same, 
 the theory being that the stockholders of a corporation 
 which brings suit or is sued are conclusively presumed to 
 
 ' See also Roberts v. Northern Pacific Railroad Co. (1895), 158 
 U. 5. 1, 22. 
 
FEDERAL INCORPORATION. 187 
 
 be citizens of the State which granted the corporate 
 privileges.' Therefore, as a manufacturing corporation, 
 the federal trading company would, for jurisdictional 
 purposes, be treated as a citizen of the District of 
 Columbia or a Territory. It has been definitely decided 
 that a citizen of the District or of a Territory is not a 
 citizen of a State within the meaning of the clause 
 which extends the judicial power to suits between 
 citizens of different States.^ Accordingly, if this view 
 be adopted, in all cases arising out of its manufacturing 
 business, the corporation would have no right to bring 
 suit in, or remove suits to, the federal courts. 
 
 But the sounder view, it is believed, is that a statute 
 of Congress, though passed by virtue of its power as the 
 local legislature for the District or for a Territory, is 
 nevertheless a law of the United States. The Constitu- 
 tion vests in Congress the power to legislate for these 
 sections of the country, and while this legislation is 
 necessarily local, it would seem to be as much a law 
 of the United States as a statute passed by Congress in 
 the exercise of its authority as the national legislature. 
 
 To illustrate, it is a settled principle that if a statute 
 of Congress is inconsistent in part or in whole, with 
 a prior treaty, the treaty is repealed to the extent that 
 it is in conflict. Would it make any difference in the 
 application of this principle that the statute in question 
 was enacted by Congress under its power to legislate 
 for the District of Columbia? Let us suppose, for 
 example, that a treaty with a foreign nation provides 
 that the citizens of that country shall be permitted to 
 
 ^Blake V. McClung (1898), 172 U. S. 239; Southern Railway Co. v. 
 Allison (1903), 190 U. S. 326. 
 
 ' New Orleans v. Winter (1816), 1 Wheat. 91; Hepburn v. Ellzey 
 (1805), 2 Cranch 226. 
 
188 FEDERAL INCORPORATION. 
 
 become "residents of any part of the United States. 
 After the treaty becomes effective, Congress passes a 
 statute declaring that no citizen of any foreign country 
 shall reside in the District of Columbia. Could it be 
 said that this was merely a local act, and not a law of 
 the United States, so that, therefore, it could not repeal 
 pro tanto the terms of the treaty? 
 
 That this would not be true would appear settled by 
 the case of Cohens v. Virginia,''- in which Chief Justice 
 Marshall said: "The clause which gives exclusive juris- 
 diction is, unquestionably, a part of the Constitution, 
 and, as such, binds all the United States. Those who 
 contend that acts of Congress, made in pursuance of 
 this power, do not, like acts made in pursuance of 
 other powers, bind the nation, ought to show some safe 
 and clear rule which shall support this construction, and 
 prove that an act of Congress, clothed in all the forms 
 which attend other legislative acts, and passed in virtue 
 of a power conferred on, and exercised by Congress, as 
 the legislature of the Union, is not a law of the United 
 States, and does not bind them. . , . But we know 
 that the principle does not apply; and the reason is, 
 that Congress is not a local legislature, but exercises 
 this particular power, like all its other powers, in the 
 high character, as the legislature of the Union." 
 
 Therefore, even with reference to the producing 
 function of the federal corporation, it would be created 
 under a law of the United States, and the jurisdiction 
 of the federal courts would extend to cases arising in 
 connection with that business. 
 
 But, as was said before, the extent of this jurisdiction 
 is subject to the discretion of Congress. Therefore, it 
 would be entirely possible for Congress to provide that 
 
 • (1821), 6 Wheat. 264, 424. 
 
FEDERAL INCORPORATION. 189 
 
 the fact that the company was incorporated under a 
 federal law should not, by itself, be sufhcient to entitle 
 it to invoke the jurisdiction of the federal courts. Or, 
 if not advisable to go to this extent, an express excep- 
 tion to the jurisdiction of the federal courts could be 
 made in the case of suits arising in connection with the 
 manufacturing business of the corporation, where the 
 suit was not, for some other reason, within that juris- 
 diction.^ 
 
 ' In the new "Judicial Code," enacted by Congress March 3, 
 1911, it is expressly provided that no case under the act of April 22, 
 1908, relating to the liability of railroads to their employees, brought 
 in a State court of competent jurisdiction, shall be removed to any 
 court of the United States. 
 
CHAPTER VIII. 
 
 THE MEANING OF THE TERM "COMMERCE AMONG 
 THE SEVERAL STATES." 
 
 Granting that federal incorporation would be an ap- 
 propriate means of regulating interstate commerce, and 
 that it would be within the power of Congress to make 
 such incorporation compulsory, it is obvious that a 
 clear comprehension of what constitutes interstate com- 
 merce would be necessary to ascertain what companies 
 would in fact come within the provisions of the statute. 
 
 There is by no means an exact conception of the mean- 
 ing of the term "commerce among the several States." 
 Many definitions have been given, but none of them are 
 sufficiently accurate to leave a clear idea of the distinc- 
 tion between those transactions which are included and 
 those which are not. 
 
 By the dictionaries, commerce is defined as "the ex- 
 change or buying and selling of commodities ; extended 
 trade or traffic" ;* "interchange of goods, merchandise, 
 or property of any kind; trade; traffic."* From these 
 definitions it would appear that in its ordinary meaning 
 commerce is confined to transactions in which goods are 
 sold or exchanged. 
 
 That such was not the meaning of the word as used in 
 the Constitution was early decided. "The subject to 
 be regulated is commerce," said Chief Justice Marshall, 
 in Gibbons v. Ogden? "and ... it becomes necessary 
 
 ' Webster's International Dictionary. 
 * Century Dictionary. 
 " (1824), 9 Wheat. 1, 189. 
 
FEDERAL INCORPORATION. 191 
 
 to settle the meaning of the word. The counsel for the 
 appellee would limit it to traffic, to buying and selling, 
 or the interchange of commodities. . . . This would 
 restrict a general term, applicable to many objects, to 
 one of its significations. Commerce, undoubtedly, is 
 traffic, but it is something more — -it is intercourse." 
 
 This broad and general statement has formed the 
 bcisis for subsequent decisions. Commerce has been 
 held to include navigation, the transportation of persons 
 and property, and communication by means of tele- 
 graph. "Commerce," it has been said, "is a term of the 
 largest import. It comprehends intercourse for the pur- 
 poses of trade in any and all of its forms, including the 
 transportation, purchase, sale, and exchange of commodi- 
 ties between. . . the citizens of the different States." ' 
 A definition frequently quoted is as follows: "Commerce 
 with foreign countries and among the States, strictly 
 considered, consists in intercourse and traffic, including 
 in these terms navigation, and the transportation and 
 transit of persons and property, as well as the purchase, 
 sale, and exchange of commodities." ^ In a compara- 
 tively recent case the court said: "Commerce among the 
 States embraces navigation, intercourse, communica- 
 tion, traffic, the transit of persons, and the transmission 
 of messages by telegraph." ' 
 
 These definitions have been criticised as too broad and 
 also as inaccurate. It is said that all intercourse among 
 the States is not within the scope of commerce, the criti- 
 cism being based upon the line of cases which hold that 
 a contract of insurance made by citizens of different 
 States is not a part of interstate commerce. It is 
 
 ' Welton V. Missouri (1875), 91 U. S. 275, 280. 
 
 2 Mobile V. Kimball (1880), 102 U. S. 691, 702. 
 
 'Lottery Case (Champion v. Ames) (1903), 188 U. S. 321, 352. 
 
192 FEDERAL INCORPORATION. 
 
 further argued that to say that commerce includes 
 traffic, the sale and exchange of goods, is inaccurate, 
 because such transactions are not included unless trans- 
 portation follows, and if there is that transportation, 
 it is commerce regardless of whether a sale preceded or 
 is to follow. 
 
 This second criticism appears entirely justified, and it 
 is believed that the inaccuracy results from the attempt 
 to define the word "commerce" separately. It is not 
 commerce alone which is to be regulated, but only that 
 commerce which crosses State lines. The transportation 
 or crossing of State lines is the essential element which 
 is necessary to bring the transaction within the juris- 
 diction of Congress. And an examination of the cases 
 seems to justify the conclusion that this transportation 
 may be of practically anything, — that all "intercourse" 
 between the States, as Marshall said, is comprised 
 within the scope of the term interstate commerce. 
 Intercourse is defined as "intimate connection or dealings 
 between persons or nations, in common affairs and civili- 
 ties, in correspondence or trade; communication; in- 
 terchange of thought and feeling"; (Webster) ; "commu- 
 nication between persons or places" (Century). It is 
 certain that at least all intercourse for commercial pur- 
 poses which crosses State lines is commerce within the 
 regulating power of Congress, and in view of the apparent 
 tendency of the court, it does not seem too much to say 
 that the transportation of persons, property, or ideas 
 in any form and for any purpose is also included.* 
 
 ' Mr. Cooke, in his book on the commerce clause, submits the 
 following definition: "Commerce consists in transportation (not 
 necessarily all transportation but certainly) including transporta- 
 tion of persons, tangible property, and (at least under certain 
 conditions) of intelligence." Cooke on the Commerce Clause, 
 No. 4. 
 
FEDERAL INCORPORATION. 193 
 
 But it must be remembered that the mere fact that 
 two persons are citizens of different States does not neces- 
 sarily make their dealings interstate commerce. For 
 example, a citizen of New York, while in Pennsylvania 
 purchases goods from a citizen of Pennsylvania; the 
 transaction is not one of interstate commerce, because 
 it does not involve transportation across State lines. 
 For the same reason, a contract between two persons 
 situated at the time in different States is not a trans- 
 action of interstate commerce unless the performance 
 of it involves a transportation between the States. The 
 communication by which the contract is made, if sent 
 from one State to another, is intercpurse among the States, 
 and its passage would be commerce within the regulat- 
 ing power of Congress, just as in the first illustration the 
 passage from New York to Pennsylvania would be inter- 
 state commerce, but this would not make the contract 
 itself a part of such commerce. Apparently, this is the 
 explanation of the insurance cases, which will later be 
 discussed at greater length. 
 
 An examination of the cases is necessary to determine 
 the correctness of these conclusions. 
 
 Persons as the subject-matter of commerce: In an early 
 case it was decided that the transportation of passengers 
 from one State to another was included within the scope 
 of interstate commerce.' Here of course there was no 
 idea of trade, but the passage of persons from State to 
 State was an important part of the intercourse between 
 the States. No distinction has ever been made between 
 persons traveling for purposes of commerce (in the or- 
 dinary meaning of the word) and those traveling merely 
 for pleasure. 
 
 ^Gibbons v. Ogden (1824), 9 Wheat. 1; see also, Passenger Cases 
 (1849), 7 Howard 283. 
 
194 FEDERAL INCORPORATION. 
 
 Going a step further, it was held in Covington Bridge 
 Co. V. Kentucky^ that the crossing of a bridge over a 
 boundary river between two States by foot passengers 
 was interstate commerce. "The thousands of people 
 who daily pass and repass over this bridge," declared 
 the court, "may be as truly said to be engaged in com- 
 merce as if they were shipping cargoes of merchandise 
 from New York to Liverpool." 
 
 Would it be any the less interstate commerce if, in- 
 stead of walking over a bridge which connected two 
 States, a person should enter a State by road in a carriage 
 or automobile? Or could a State tax all persons for the 
 privilege of walking into the State? It would seem to 
 follow as a logical conclusion from this case that any 
 crossing of State lines in person is interstate commerce 
 within the meaning of the Constitution. It is no answer 
 to say that the case dealt with an interstate highway, 
 for certainly the passage across the bridge was not inter- 
 state commerce because it was over an interstate high- 
 way, but the bridge itself was an instrument of commerce 
 because of the passage over it. 
 
 Property as the subject-matter of commerce: It is well 
 settled that interstate commerce includes the transpor- 
 tation of property from one State to another, irrespective 
 of the motive or purpose which actuates such transporta- 
 tion.^ "Transportation for others, as an independent 
 business, is commerce, irrespective of the purpose to 
 sell or retain the goods which the owner may entertain 
 with regard to them after they shall have been delivered . " ' 
 
 1 (1894), 154 U. S. 204. 
 
 "State Freight Tax Case (1872), 15 Wall. 232; Railroad v. 
 Husen (1877), 95 U. S. 465; Lottery Case (Champion v. Ames) 
 (1903), 188 U. S. 321; St. Clair County v. Interstate Transfer Com- 
 pany (1904), 192 U. S. 454. 
 
 'Hanley v. Railroad Co. (1903), 187 U. S. 617, 619. 
 
FEDERAL INCORPORATION. 195 
 
 So cilso the transportation by a man of his own prop- 
 erty is interstate commerce, as is evidenced by the case 
 of Kelly V. Khoads} Sheep in charge of an agent of 
 their owner were driven through the State of Wyoming 
 on their way from Utah to a point in Nebraska, for the 
 purpose of being shipped. They traveled slowly, and 
 were allowed to graze. While in Wyoming they were 
 taxed by the State under a statute which taxed all 
 live stock brought into the State for the purpose of 
 being grazed. The court held that the sheep, being 
 driven through the State to a market, were subjects 
 of interstate commerce, and therefore exempt from 
 taxation. 
 
 Here there was no transportation for others as an 
 independent business, but transportation by a man of 
 his own property. It is true that there was present an 
 intent to ship the sheep to market on their arrival in 
 Nebraska, but this in itself could not give the character 
 of interstate commerce to the transaction. If, while the 
 sheep were in transit, the owner should change his 
 intention and determine that instead of shipping he 
 would pasture them in Nebraska, would their passage 
 across Wyoming thereby lose its character of interstate 
 commerce? That the intention to sell is immaterial is 
 shown by the case of Interstate Commerce Commission 
 V. Railroad,^ in which the cars of an interstate railroad 
 employed in the transportation of fuel for the com- 
 pany's own use were held to be instruments of interstate 
 commerce. 
 
 There may be some question whether property must 
 not have value to be an article of commerce. Thus in 
 the Lottery Case^ it was argued that a lottery ticket 
 
 » (1903), 188 U. S. 1. 
 * (1910), 215 U. S. 452. 
 » (1903), 188 U. S. 321. 
 
196 FEDERAL INCORPORATION. 
 
 was of no real value in itself, and, therefore, was not a 
 subject of commerce. The court did not decide that 
 such was the test, but said: "If that were conceded to 
 be the only legal test as to what are to be deemed sub- 
 jects of the commerce that may be regulated by Con- 
 gress, we cannot accept as accurate the broad statement 
 that such tickets are of no value." 
 
 There is no reason to believe that such a test will* 
 ever be adopted by the court. In fact, in view of the 
 recent decision in International Text-book Company v. 
 Pigg,^ in which correspondence through the mails was 
 held to be a part of interstate commerce, it may well be 
 concluded that any tangible property, whether it can 
 be said to have a marke'table value or not, may become 
 an article of commerce.^ 
 
 Intelligence as the subject-matter of commerce: Inter- 
 state commerce is not limited to what is tangible, but 
 also includes intercourse between the States by means 
 of the telegraph.* "A telegraph company occupies the 
 
 •■ (1910) 217 U. S. 91. 
 
 ^ What is a legitimate article of commerce is a judicial question 
 to be determined by the Federal Courts, and not by the State 
 legislatures. Bowman v. Railway Co. (1888), 125 U. S. 465. This 
 is obviously sound, because to allow the States to de'cide what is 
 or is not an article of commerce would reduce the power of Congress 
 to a nullity. 
 
 Of course, where property is under the proprietorship of the 
 State, as in the case of game, or oysters in public beds, the State, 
 by virtue of this proprietorship, can prevent such property from 
 becoming the subject of interstate commerce. McCready v. Vir- 
 ginia (1876), 94 U. S. 391; Geer v. Connecticut (1896), 161 U. S. 519. 
 
 ' Pensacola Telegraph Company v. Western Union Telegraph 
 Company (1877), 96 U. S. 1; Telegraph Company v. Texas (1881), 
 105 U. S. 460; Western Union Telegraph Company v. Pendleton 
 (1887), 122 U. S. 347; Leloup v. Mobile (1888), 127 U. S. 640; 
 Western Union Telegraph Company v. Alabama (1889), 132 U. S. 
 472. 
 
FEDERAL INCORPORATION. 197 
 
 same relation to commerce as a carrier of messages, that 
 a railroad company does as a carrier of goods. Both 
 companies are instruments of commerce, and their 
 business is commerce itself." * 
 
 No distinction is made between messages sent for 
 commercial purposes and the mere transmission of 
 ideas. Thus in Telegraph Company v. Texas,^ a State 
 tax on messages sent by a telegraph company was held 
 unconstitutional in so far as it was levied on any inter-, 
 state message. Indeed, it is obvious that any attempt 
 to distinguish between commercial and other messages 
 would be so difficult and impracticable as to be beyond 
 consideration. 
 
 Intercourse by means of the telephone is undoubtedly 
 interstate commerce, although there has been no direct 
 decision in the Supreme Court.' Communication by 
 wireless telegraphy would likewise seem to be included, 
 and logically no reason is apparent why communication 
 by word of mouth between persons located in different 
 States is not within the scope of the commerce clause, 
 although, of course, as a practical matter, it is im- 
 probable that the question would ever arise. 
 
 Correspondence through the mails is under federal 
 control irrespective of the power of commerce, but this 
 also, it appears, is a part of interstate commerce. As 
 stated, in the recent case of International Text-book 
 Company v. Pigg,* it was held that the business of 
 imparting information through the mails in the form 
 
 ' Telegraph Company v. Texas (1881), 105 U. S. 460, 464. 
 
 * Supra. 
 
 ' In Richmond v. Southern Bell Telephone, etc., Co. (1889), 174 
 U. S. 761, it was held that a telephone company was not a telegraph 
 company within the meaning of the act of 1886. The relation of 
 the telephone to commerce was not discussed. 
 
 * (1910), 217 U. S. 91. 
 
198 FEDERAL INCORPORATION. 
 
 of letters, papers, and books, was interstate commerce. 
 The International Text-book Company, better known as 
 the International Correspondence School, a corporation 
 located in Pennsylvania, employed agents in other 
 States to solicit scholars and to collect money due upon 
 completed courses. Instruction papers, text-books, and 
 illustrative apparatus were sent to those who became 
 pupils, and the course of study was pursued by corre- 
 spondence through the mail. The Kansas agent of the 
 school maintained an office at his own expense. The 
 State of Kansas exacted a license fee from foreign cor- 
 porations seeking to do business within the State. Suit 
 was brought by the Text-book Company in Kansas 
 against Pigg to recover unpaid tuition fees, and judg- 
 ment was given in the State courts for the defendant 
 on the ground that the required license fee had not 
 been paid by the corporation. This judgment was 
 reversed by the Supreme Court of the United States, 
 the court, through Mr. Justice Harlan, saying: 
 
 "If intercourse between persons in different States 
 by means of telegraphic messages conveying intelli- 
 gence or information is commerce among the States, 
 which no State may directly burden or unnecessarily 
 encumber, we cannot doubt that intercourse or com- 
 munication between persons in different States, by 
 means of correspondence through the mails, is com- 
 merce among the States within the meaning of the 
 Constitution; especially where, as here, such inter- 
 course and communication really relates to matters of 
 regular, continuous business, and to the making of 
 contracts and the transportation of books, papers, etc., 
 appertaining to such business." 
 
 This case, decided during the peist year, shows 
 clearly the attitude of the court in favor of a broad 
 interpretation of the scope of interstate commerce ; and 
 
FEDERAL INCORPORATION. 199 
 
 it seems reasonable and justifiable to conclude that any 
 crossing of State lines by persons, property, or intelli- 
 gence, is within the meaning of the clause as used in the 
 Constitution. 
 
 Contracts within the commerce clause: In a preceding 
 chapter, comment has been made upon the fact that the 
 power of Congress is not confined to the actual trans- 
 portation of articles between the States. A contract 
 which in its performance necessarily involves such 
 transportation is itself a transaction of interstate com- 
 merce.^ Cases upon this point usually arise where a 
 State taxes the business of an agent of a foreign corpora- 
 tion who solicits orders for goods to be sent into the State, 
 such taxation being uniformly held invalid as an attempt 
 to charge for the privilege of engaging in interstate 
 
 ^Addystone Pipe and Steel Co. v. United States (1889), 175 U. S. 
 211. 
 
 2 Rohbins v. Shelby County Taxing District (1887), 120 U. S. 489; 
 Stockard v. Morgan (1902), 185 U. S. 27. It does not alter the char- 
 acter of the business that the goods are sent to the agent for deliv- 
 ery, instead of directly to the purchaser, Rearick v. Pennsylvania 
 (1906), 203 U. S. 507; even though the agent breaks the bulk and 
 fits the parts together before delivery, Caldwell v. North Carolina 
 (1903), 187 U. S. 622; nor that a part of the order is not accepted 
 until seen by the purchaser, Dozier v. Alabama (1910), 218 U. S. 124. 
 Questions with reference to the time of passage of title in inter- 
 state shipments, or at whose risk the goods are sent, are immaterial, 
 Brennan v. Titusville (1894), 153 U. S. 289; Norjolk etc. Railway Co., 
 V. Sims (1903), 191 U. S. 441; American Express Co. v. Iowa (1905), 
 196 U. S. 133. It is obviously immaterial that an agent acts for more 
 than one principle. Stockard v. Morgan (1902), 185 U. S. 27. 
 
 But if goods are sent to an agent, who then endeavors to sell 
 them, the business is domestic commerce. Emert v. Missouri (1895), 
 156 U. S. 296. The sale is not followed by an interstate transfer 
 of the goods, and the foreign origin of the goods cannot of itself 
 make the transaction interstate commerce. 
 
200 FEDERAL INCORPORATION. 
 
 Just as a contract involving in its performance the 
 interstate transportation of property is a part of inter- 
 state commerce, so it would seem to follow that a 
 contract involving in its performance the interstate 
 transportation of persons or of intelligence is also within 
 the scope of the commerce clause. A close case upon 
 this point is that of Williams v. Fears} The State of 
 Georgia taxed, among other occupations, the business 
 of emigrant agents. An emigrant agent was one who 
 hired laborers to be employed beyond the limits of the 
 State. It was argued that the tax was unconstitutional 
 because the business was interstate commerce. The 
 court, however, held that the agent was not engaged in 
 such commerce. "Of course, transportation must event- 
 ually take place as the result of such contracts, but 
 it does not follow that the emigrant agent was engaged 
 in transportation or that the tax on his occupation was 
 levied on transportation." 
 
 It was evidently considered that the real perform- 
 ance of the contract was the labor for which the men were 
 employed, the transportation being merely incidental 
 thereto and not a true part of such performance. The 
 transportation, however, did actually take place as a 
 part of the performance of the contract, and.it may be 
 questioned whether, to avoid narrow distinctions, the 
 decision might not well have gone the other way.^ 
 
 ' (1900), 179 U. S. 270. 
 
 ^ The following example, it is believed, illustrates the distinction 
 drawn by Williams v. Fears. If A, a resident of State X, purchases 
 from B, a resident of State Y, a machine to be used in A's business, 
 the contract calling for delivery to A in State X, the transaction 
 is unquestionably one of interstate commerce. But if, instead of a 
 sale, the contract is a lease to A of the use of the machine for a cer- 
 tain period, delivery, as before, to be made to A in State X, it 
 would appear from Williams v. Fears that the contract would not 
 
FEDERAL INCORPORATION. 201 
 
 Contracts not within the comtHerce clause: When, how- 
 ever, transportation does not follow as the result of 
 the performance of the contract, the contract itself is 
 not subject to the regulation of Congress. In the case 
 of Paul V. Virginia,^ it was held that the business of 
 insurance was not interstate commerce. "Issuing a 
 policy of insurance," said the court, "is not a transaction 
 of commerce. The policies are simple contracts of 
 indemnity against loss by fire, entered into between the 
 corporation and the assured, for a consideration paid by 
 the latter. These contracts are not articles of com- 
 merce in any proper meaning of the word. They are not 
 subjects of trade and barter offered in the market as 
 something having existence and value independent of 
 the parties to them. They are not commodities to be 
 shipped from one State to another, and then put up for 
 sale. They are like other personal contracts between 
 parties which are completed by their signature and the 
 transfer of consideration. Such contracts are not inter- 
 state transactions, though the parties may be domiciled 
 in different States. The policies do not take effect — 
 are not executed contracts — until delivered by the agent 
 in Virginia. They are, then, local transactions and are 
 governed by the local law." 
 
 This case has been severely criticised, but it is sub.- 
 mitted that it was correctly decided, and is not incon- 
 sistent with the view that commerce is intercourse among 
 the States. A contract of insurance is an agreement 
 to pay a certain sum, dependent upon the happening of 
 
 be a transaction of interstate commerce. The real performance 
 would be the employment of the machine in A's business during 
 the period of the lease, and the interstate transportation would 
 be merely incidental thereto. 
 
 ' (1868), 8 Wall. 168. 
 
202 FEDERAL INCORPORATION. 
 
 a certain contingency. The payment is to be made at a 
 certain place and the performance of the contract does 
 not necessarily involve any transportation between the 
 States. The preliminary negoti,ations, if between per- 
 sons in different States, may well be intercourse among 
 the States, but this does not bring the contract, as a 
 contract, within the scope of the commerce clause, and 
 the question involved in Paul v. Virginia was the right 
 of the State to charge for the privilege of carrying on 
 the business of making such contracts within the State. 
 Thus, the sending of a telegram with reference to the 
 formation of the contract, or the sending of the policy 
 from one State to the other, would be a part of interstate 
 commerce, and the passage of either between the States 
 would be protected against State interference, but this 
 passage would be no part of the performance of the 
 contract. The contract is not completed until the policy 
 is delivered by the agent, and, as the court points out, 
 it is, in itself, no more a transaction of interstate com- 
 merce "than a contract for the purchase and sale of 
 goods in Virginia by a citizen of New York whilst in Vir- 
 ginia would constitute a portion of such commerce." 
 In this latter illustration the journey from New York 
 to Virginia would be within the scope of the commerce 
 clause, but the contract itself would be a purely local 
 matter.! 
 
 • Paid V. Virginia has been cited in support of the proposition 
 that the sending of a policy of insurance from one State to another 
 is not a transaction of interstate commerce. (Dissenting opinion 
 in Lottery Case (1903), 188 U. S. 321, 367.) It is submitted that 
 such was not the decision. It is true that in the opinion it is said 
 that a policy of insurance is not a subject of trade and barter 
 offered in the market, but the court was not dealing with State 
 interference with the transportation of the policy between the 
 States. The character of the business of insurance was under 
 
FEDERAL INCORPORATION. 203 
 
 It is, however, conceivable that the risk of shipping 
 articles of a certain character might be so great that 
 it would never be done without insuring them. In 
 such cases, while the insurance in itself would not be 
 interstate commerce, it might well be so necessary an 
 incident to interstate shipments as to be brought within 
 the jurisdiction of Congress. 
 
 In Nathan v. Louisiana ^ the business of a dealer in 
 foreign bills of exchange was held not to be interstate 
 commerce. The broker was engaged in negotiating 
 purchases and sales of foreign paper, and transporta- 
 tion between the States did not necessarily result in the 
 performance of the contracts made in the course of his 
 business. At the present time, bills of exchange are 
 so essential to all commerce, so important an incident 
 thereto, that it may be seriously contended that State 
 taxation of the business of dealing in them would amount 
 to an actual burden on interstate commerce and there- 
 fore would be unconstitutional. 
 
 The business of a live-stock exchange is not interstate 
 commerce. Such was the decision in Hopkins v. United 
 States,^ a case arising under the Sherman Anti-Trust 
 Act. The exchange employed agents in different States, 
 whose duty it was to persuade owners of live stock to 
 consign it to the exchange for sale. The brokers acted 
 as commission agents in aiding the owner to sell the 
 stock thus consigned. Their acts were regarded as purely 
 local, the court saying: "The selling of an article at its 
 destination, which has been sent from another State, 
 
 consideration, and the sending of the policy was a part of the pre- 
 liminary negotiations and not of the performance of the contract 
 of insurance. Thus the court, continuing, declares that the con- 
 tract was not complete until the delivery of the policy by the agent. 
 and was therefore a local matter. 
 
 » (1850), 8 How. 73. 
 
 " (1898), 171 U. S. 578. 
 
204 FEDERAL INCORPORATION. 
 
 while it may be regarded as an interstate sale, and one 
 which the importer was entitled to make, yet the ser- 
 vices of the individual employed at the place where the 
 article is sold are not so connected with the subject sold 
 as to make them a portion of interstate commerce." Here 
 the services of the brokers on the exchange had nothing 
 to do with the interstate transportation. They merely 
 sold an article which was already at the place of sale.^ 
 
 The recent case of Ware v. Mobile County^ furnishes 
 an excellent illustration of the same principles which 
 govern the insurance decisions. The State of Alabama 
 imposed a license tax on the business of buying and selling 
 futures in cotton. Ware and Leland were engaged in 
 this business, with offices in several States, one of these 
 being located in Alabama. Each office was connected 
 with the other by telegraph. Business was transacted 
 somewhat as follows. An order for cotton received in 
 
 1 In Hatch v. Reardon (1907), 204 U. S. 152, a sale of live stock 
 in New York by a citizen of Connecticut to a citizen of the same 
 State who was doing business in New York was held not to be a 
 transaction of interstate commerce. "The communication between 
 the parties was not between different States, . . . and the bargain 
 did not contemplate or induce the transport of property from one 
 State to another." * 
 
 The case of Swift v. United States (1905), 196 U. S. 375, is some- 
 what extreme in holding that purchases at a live-stock exchange, 
 to which cattle had been sent from other States, were engaged in 
 interstate commerce. The court seemed influenced by the fact 
 that defendants were constant purchasers. "When cattle are sent 
 for sale from a place in one State," it was said, "with the expecta- 
 tation that they will end their transit, after purchase, in another, 
 and when in effect they do so, with only the interruption necessary 
 to find a purchaser at the stock yards, and when this is a typical, 
 constantly recurring course, the current thus existing is a current of 
 commerce among the States, and the purchase of the cattle is a 
 part and incident of such commerce." 
 
 ' (1908), 209 U. S. 405. 
 
FEDERAL INCORPORATION. 205 
 
 New York was telegraphed to the office in Alabama, 
 where the cotton was purchased and held for a rise or fall 
 in price, or until a sale was ordered. The cotton was 
 never sent to the State in which it was ordered, but was 
 always held where purchased. 
 
 It was argued that these transactions were interstate 
 commerce, and that therefore the company was not liable 
 for payment of the license tax. The court, however, 
 held that the business was purely local. In this case, 
 as in many of the insurance cases, the negotiations pre- 
 liminary to the making of contracts in the business — the 
 sending of messages by telegraph — were a part of inter- 
 state commerce, and a State tax upon the sending of 
 such messages would have been clearly unconstitutional ; 
 but this was not sufficient to bring the contracts them- 
 selves, which in their performance did not involve inter- 
 state transportation, within the jurisdiction of Congress. 
 
 Manufacturing is not interstate commerce.' As a 
 business in itself, it does not result in interstate transpor- 
 tation, and the fact that sales of the manufactured ar- 
 ticle may be transactions of interstate commerce, does 
 not make the manufacturing a part of such commerce. 
 "Commerce succeeds to manufacture, and is not a part 
 of it."* For similar reasons, production is not com- 
 merce among the States.' 
 
 1 Kidd V. Pearson (1888), 128 U. S. 1; United States v. E. C- 
 Knight Co. (1895), 156 U. S. 1. 
 
 ^ United States v. E. C. Knight Co. (1895), 156 U. S. 1, 12. A 
 contract by a corporation of one State with a corporation of another 
 State to supervise the erection of a glue factory in the latter State 
 and manage the factory for a certain period, is not a transaction 
 of interstate commerce. Diamond Glue Co. v. United States Glue Co. 
 (1903), 187 U. S. 611. 
 
 ' McCready v. Virginia (1876), 94 U. S. 391. When a mining 
 corporation maintains in a foreign State an office where its transfer 
 
206 FEDERAL INCORPORATION. 
 
 When character of interstate commerce attaches: Con- 
 gress, then, has no jurisdiction over production or manu- 
 facture. Nor has it jurisdiction over transportation or 
 commerce which is confined to the limits of a single State. 
 But it is obvious that the power of the Federal Govern- 
 ment must extend to more than the mere crossing of the 
 line between the States. ' ' Commerce among the States, ' ' 
 said Chief Justice Marshall, "cannot stop at the external 
 boundary line of each State, but may be introduced into 
 the interior." ' It is necessary, therefore, to determine 
 when the characterof interstate commerce attaches to 
 an article and when it is lost. 
 
 For an article to become the subject of interstate 
 commerce, its transit from one State to another must 
 have actually begun. The intention to export is not suf- 
 ficient to remove the article from State control. Thus, 
 in Coe v. Errol? logs had been hauled from a point in 
 New Hampshire to the town of Errol in the same State, 
 to be sent by water to a point in Maine. While at Errol 
 the logs were teixed by the State of New Hampshire. 
 It was contended they were subjects of interstate com- 
 merce and therefore exempt from the tax. The court 
 held the tax valid, on the ground that the logs had not 
 yet started on their interstate journey, and the intention 
 on the part of the owner to export them was not 
 sufficieilt to deprive the State of its power to tax them. 
 
 But when the transit has actually commenced, the 
 property is the subject of interstate commerce, and 
 
 books are kept, its dividends declared and paid, and other business 
 done by it such as is usually performed by corporations where . 
 their principal office of business is situated, it is not engaged in 
 I interstate commerce as to such branch office. Horn Silver Mining 
 Co. V. New York (1892), 143 U. S. 305. 
 
 ^Gibbons v. Ogden (1892), 9 Wheat. 1, 194. 
 
 ' (1886), 116 U. S. 517. 
 
FEDERAL INCORPORATION. 207 
 
 accordingly exempt from State taxation.^ It appears 
 that the place of destination as evidenced by the bill of 
 lading, when the goods are transported by carriers, deter- 
 mines the character of the shipment, interstate or 
 domestic. In Gulf, etc.. Railroad v. Texas, ^ a carload of 
 grain was shipped from a point in South Dakota to a 
 point in Texas. The grain was sold while in transit, and 
 upon arrival at its place of destination it was stored for 
 five days, and then shipped to another point in Texas. 
 The second shipment was held to be local and not inter- 
 state commerce, so that as to it the carrier was subject to 
 the regulation of the State railroad commission. This 
 rule is obviously sound and practical. When goods are 
 shipped from a point in one State to another point in 
 the same State, it should always be regarded as an intra- 
 state shipment, whether the goods have originally come 
 from another State, or are subsequently shipped out of 
 the State after the arrival at the destination designated 
 in the bill of lading. To hold otherwise would make the 
 character of the shipment within the State depend upon 
 the intention of the shipper. 
 
 A shipment between two points in the same State 
 which in the course of its journey passes through part 
 of another State is an interstate shipment, the charges 
 for which cannot be regulated by the State.^ 
 
 1 Rhodes v. Iowa (1898), 170 U. S. 412; Kelky v. Rhoads (1903), 
 188 U. S. 1. 
 
 « (1907), 204 U. S. 403. 
 
 ' Hanky v. Railway Co. (1903), 187 U. S. 617. 
 
 But where a steamship runs between two points in the same 
 State along a boundary river, the fact that on its course it passes 
 over land owned by another State is not sufficient to make it an 
 instrument of interstate commerce. Cincinnati Packet Co. v. Bay 
 (1906), 200 U. S. 179. 
 
 The language of the court in the case of Lehigh Valley R.R. Co. 
 V. Pennsylvania (1892), 145 U. S. 192, appears to be unsound. In 
 
208 FEDERAL INCORPORATION. 
 
 When the character of interstate commerce is lost; origi- 
 nal package doctrine; If an interstate shipment in transit 
 through a State is detained within the State for natural 
 reasons, or for want of transportation facilities, it seems 
 that the character of interstate commerce is not lost."^ 
 But if detained for an indefinite period, awaiting a 
 sale ^ or awaiting orders for further transportation,' the 
 property may be taxed by the State. 
 
 The character of interstate commerce is not definitely 
 lost until the transit is ended and the article becomes 
 mingled with the mass of property in the State. The 
 transit is not ended until delivery to the consignee.'* 
 But delivery to the consignee does not terminate the 
 power of Congress. The article must become mingled 
 with the mass of property in the State. It is difficult 
 to determine the exact time when this occurs. As a 
 rule of convenience the original package doctrine was 
 adopted, according to which an article brought into 
 the State retains its character of interstate commerce 
 until the original package is broken, or, since a sale is 
 the usual object of an interstate shipment, until a sale 
 in the original package.^ 
 
 it a State tax on shipments between points in the State, which passed 
 through another State in the course of their journey, was held valid 
 as a tax upon domestic commerce. The court expressly declared 
 that the mere passage over the soil of another State did not render 
 the shipments interstate commerce. This case, however, is dis- 
 tinguished in Hartley v. Railway Co., on the ground that the tax was 
 proportioned to the mileage within the State. 
 
 iSee KeUey v. Rhoads (1903), 188 U. S. 1. 
 
 2 Pittsburg Coal Co. v. Bates (1895), 156 U. S. 577. 
 
 ^American Steel, etc., Co. v. Speed (1904), 192 U. S. 500. 
 
 * Thus, moving goods, which had been shipped from another 
 State, from the station platform to the freight warehouse prior to 
 delivery to the consignee, is a part of the interstate transit. Rhodes 
 v. Iowa (1898), 170 U. S. 412. 
 
 ^Brown v. Maryland, (1827), 12 Wheat. 419; Leisy v. Harden 
 (1890), 135 U. S. 100. 
 
FEDERAL INCORPORATION. 209 
 
 What constitutes an original package is not entirely 
 settled. Each case must depend largely upon its own 
 facts. In general it may be said that an original pack- 
 age is the package in which the goods are shipped from 
 one State to another.^ The question of good faith is of 
 material importance. The size of the package, it ap- 
 pears, is important only if it is apparent that an attempt 
 is being made to evade the laws of the State. In Austin 
 V. Tennessee^ cigarettes had been sent into Tennessee 
 in loose packages three inches lorig and one and one-half 
 inches wide. The importer of the cigarettes was indicted 
 under the law of Tennessee, which made it a misdemeanor 
 to sell cigarettes, and he contended that the sale was of 
 goods in the original package. But it was held that 
 the small boxes were not original packages. The test 
 was said to be the size "in which bona fide transactions 
 are carried on between the manufacturer and the whole- 
 sale dealer residing in different States." The better 
 view would seem to be that it is immaterial whether 
 the article is intended for wholesale or retail trade.' 
 
 Under this doctrine, the State cannot, of course, 
 prohibit a sale in the original package.* But the char- 
 acter of interstate commerce does not continue beyond 
 
 ' In SchoUenherger v. Pennsylvania (1898), 171 U. S. 1, a ten- 
 pound tub was held to be an original package. In May v. New 
 Orleans (1900), 178 U. S. 496, merchandise was imported in large 
 boxes, each box containing a number of smaller parcels. The boxes 
 were opened and the merchandise sold in the smaller parcels. It 
 was held that the large boxes were the original packages. In 
 Leisy v. Harden (1890), 135 U. S. 100, one-quarter barrels, one- 
 eighth barrels, and sealed cases were held to be original packages. 
 
 2 (1900), 179 U. S. 343. 
 
 ' Schollenberger v. Pennsylvania (1898), 171 U. S. 1. 
 
 * Leisy Y. Harden (1890), 135 U. S. 100; SchoUenherger v. Pennsyl- 
 vania (1898), 171 U. S. 1. 
 
210 FEDERAL INCORPORATION. 
 
 the first sale, even though the original package is not 
 broken.^ If the package is broken before the first 
 sale, the power of Coiigress comes to an end.'' 
 
 Instrumentalities of interstate commerce: It is well 
 settled that the power of Congress extends also to the 
 instrumentalities employed in interstate commerce, such 
 as railroads, telegraph companies, steamboats, bridges, 
 and the like. A warehouse situated entirely within the 
 limits of a State may become an instrument of inter- 
 state commerce.' Similarly, a carrier whose lines lie 
 wholly within one State may, by receiving and deliver- 
 ing goods which have been sent from another State under 
 a through bill of lading, subject itself to the power of 
 Congress.* 
 
 A car regularly used in interstate commerce was held 
 to be an instrument of such commerce while being turned 
 on a STvitch to await the coming of the train to which 
 it was to be attached.* Freight cars with freight from 
 another State, while standing on the tracks of the com- 
 pany awaiting delivery to the consignee, still remain 
 instruments of interstate commerce, and the method of 
 delivery cannot be prescribed by the State.* And 
 
 • Waring v. Mayor (1868), 8 Wall. 110. 
 
 2 May V. New Orleans (1900), 178 U. S. 496. 
 
 The original package doctrine does not apply to State taxation 
 of property, and therefore articles imported from another State 
 may be taxed while still in the original package. Woodruff v. Par- 
 ham (1868), 8 Wall. 123; Brown, v. Houston (1885), 114 U. S. 622. 
 The only requirement in such case is that the tax shall not discrimi- 
 nate against foreign products. Welton v. Missouri (1875), 91 
 U. S. 275. 
 
 ' Munn V. Illinois (1876), 94 U. S. 113. 
 
 * Cincinnati, etc., Ry. Co. v. Interstate Commerce Commission 
 (1896) 162 U. S. 184. 
 
 '^Johnson v. Southern Pacific Ry. Co. (1904), 196 U. S. 1. 
 « McNeil V. Southern Ry. Co. (1906), 202 U. S. 643. 
 
FEDERAL INCORPORATION. 211 
 
 when a railroad is part of a through interstate line, an 
 office established by it in another State in connection 
 with such business is within the jurisdiction of Con- 
 gress, and the privilege of maintaining such office cannot 
 be taxed by the State in which it is located, even though 
 no part of the actual road of the company lies within the 
 State.' 
 
 Navigation: Navigation has always been regarded 
 as a part of interstate commerce.'' The power of Con- 
 gress is not confined to bodies of water which touch 
 two or more States, but comprehends the control of all 
 navigable waters which are accessible from a State other 
 than those in which they lie, even though the waters in 
 question lie entirely within the limits of a single State.' 
 The common law test of navigability does not apply to 
 rivers in this country. Any river is navigable which 
 is navigable in fact, regardless of whether the tide ebbs 
 and flows. "And they are navigable in fact when they 
 are used, or susceptible of being used, in their ordinary 
 condition, as highways for commerce, over which trade 
 and travel are or may be conducted in the customary 
 modes of trade and travel on water."* In the Daniel 
 
 ' Norfolk, etc.. Railway v. Pennsylvania (1890), 136 U. S. 114. 
 So the business of an agent who induces persons to travel over an 
 interstate railroad is a part of interstate commerce, McCall v. 
 California (1890), 136 U. S. 104; as is the maintaining of a station 
 to receive and land passengers from other States. Gloucester Ferry 
 Co. V. Pennsylvania (1885), 114 U. S. 196. But a cab service 
 maintained within a State by an interstate railroad is not a part of 
 interstate commerce where the cab service is independently con- 
 tracted for. Pennsylvania Railroad Co. v. Knight (1904), 192 U. S. 21. 
 
 ^Gibbons v. Ogden (1824), 9 Wheat. 1. 
 
 'Gilman v. Philadelphia (1865), 3 Wall. 713; DanielBall (1870), 
 10 Wall. 557; Miller v. Mayor (1883), 109 U. S. 385; Williamette 
 Bridge Co. v. Hatch (1888), 125 U. S. 1. 
 
 * Supra. 
 
212 FEDERAL INCORPORATION. 
 
 Ball, a steamship plying on an inland river between 
 points in the same State was held to be engaged in 
 interstate commerce in so far as she was employed in 
 carrying goods sent from points without the State to 
 points within, and from points within the State destined 
 for points in other States. A boat engaged within the 
 limits of a State in towing vessels which are employed 
 in interstate transportation, and in lightering goods to 
 and from such vessels, is itself engaged in interstate 
 commerce 
 
 1 
 
 Ferries: Originally, the right to establish and regu- 
 late a ferry was regarded as exclusively within the 
 power of a State, even though the ferry was over a river 
 bounding two States.^ But at the present time it 
 seems beyond question that such a ferry would be an 
 instrument of interstate commerce, subject to the regu- 
 lating power of Congress only. The case of St. Clair 
 County V. Transfer Company ' held that the -business of 
 transporting railroad cars over a boundary river was 
 interstate commerce. The court distinguished the busi- 
 ness from that of a ferry, and did not decide that a 
 ferry would be an instrument of interstate commerce, 
 but a decision otherwise would be wholly inconsistent 
 with established principles.* 
 
 Bridges: The regulation of bridges over navigable 
 streams is within the commerce power of Congress.^ 
 
 ^ Foster V. Davenport (1859), 22 Howard 244; Hartnan v. Chicago 
 (1893), 147 U. S. 396. 
 
 2 Conway v. Taylor's Ex' r (1861), 1 Black 603. 
 
 3 (1904) 192 U. S. 454. 
 
 * See also Gloucester Ferry Co. v. Pennsylvania (1885), 114 U. S. 
 196. 
 
 * Pennsylvania v. Wheeling Bridge Co. (1855), 18 How. 421; 
 Gilman v. Philadelphia (1865), 3 Wall 713; Union Bridge Co. v. 
 United States (1907), 204 U. S. 364. 
 
FEDERAL INCORPORATION. 213 
 
 In the exercise of this power Congress can free naviga- 
 tion from unreasonable obstructions by compelling the 
 removal of a bridge, and no compensation need be paid 
 to the owners.^ 
 
 Conclusion: An act requiring corporations engaging 
 in interstate commerce to become chartered by the 
 Federal Government should, of course, be drawn on 
 practical lines. If we are correct in drawing from the 
 cases the conclusion that interstate commerce comprises 
 all intercourse which crosses State lines, — whether the 
 transportation be of persons, property or intelligence, — 
 then it would seem advisable and necessary that care 
 should be taken in drawing a federal incorporation act 
 to include within its scope only those companies whose 
 regular business involved in the performance of its 
 contracts transactions of interstate commerce. The 
 sending of a letter or telegram between two or more 
 States in reference to business contracts, where the 
 performance of those contracts does not itself involve 
 transactions of interstate commerce, should not, it is 
 believed, be sufficient to bring the company within the 
 federal act. This matter is not, however, within the 
 scope of the present treatise. 
 
 1 Union Bridge Co. v. United States (1907), 204 U. S. 364. 
 
TABLE OF CASES. 
 
 Page 
 
 Adair v. United States, (1908) 208 U. S. 161 64 
 
 Adams Express Co. v. Ohio, (1897) 165 U. S. 194; petition for 
 
 rehearing, 166 U. S. 185 . ' 133, 135, 172 
 
 Addystone Pipe& Steel Co. v. U. S., (1899) 175 U. S. 211 . 3, 14, 199 
 
 Allen V. Pullman Co., (1903) 191 U. S. 171 141 
 
 Allgeyer v. Louisiana, (1897) 165 U. S. 578 47 
 
 Almy V. California, (1860) 24 How. 169 72 
 
 Amer. Express Co. v. Iowa, (1905) 196 U. S. 133 199 
 
 American Refrigerator Transit Co. v. Hall, (1899) 174 U. S. 70. 127 
 American Refrigerator Transit Co. v. Kentucky, (1905) 199 U. S. 
 
 194 128 
 
 Amer. Steel Co. v. Speed, (1904) 192 U. S. 500 72, 208 
 
 Ashley v. Ryan, (1892) 153 U. S. 436 112 
 
 Atlantic Coastline v. Riverside Mills, (1911) 219 U. S. 186 . . 68 
 Atlantic ^c. Tel. Co. v. Philadelphia, (1903) 190 U. S. 160 . . 149 
 Atistin V. Tennessee, (1900) 179 U. S. 343 209 
 
 Bank V. Okely, (1819) 4 Wheat. 235 45 
 
 Bank of Augusta V. Earle, {1839) 13 Pet. 519 58 
 
 Bell's Gap R. R. Co. v. Pennsylvania, (1890) 134 U. S. 232 . . 77 
 
 Blake V. McClung, (1898) 172 U. S. 239 187 
 
 Bmtman v. Ry. Co., (1888) 125 U. S. 465 . . . 41, 153, 156, 196 
 
 Brennan v. TitusvUle, (1893) 153 U. S. 289 89, 199 
 
 Brimmer v. Rebman, (1891) 138 U. S. 78 154 
 
 Brown v. Houston, (1885) 114 U. S. 622 ... . 41, 72, 89, 210 
 
 Brown v. Maryland, (1827) 12 Wheat. 419 72, 208 
 
 Buttfield V. Stranahan, (1904) 192 U. S. 470 40 
 
 Caldwell v. North Carolina, 0.905)187 V.S.62Z 199 
 
 CaUfornia v. Central Pac. R. R., (1888) 127 U. S. 1 ... 12, 168 
 
 Capital Traction Co. v. Hof, (1898) 174 U. S. 1 6 
 
 Central Pacific R. R. Co. v. CaUfornia, (1896) 162 U. S. 91 . 115, 168 
 Cherokee Nation v. Kansas Ry. Co., (1889) 135 U. S. 641 . . 14 
 Chicago &c. Ry. Co. v. Solan, (1898) 169 U. S. 133 . . . . 66, 89 
 
216 FEDERAL INCORPORATION. 
 
 Page 
 
 Cincinnati Packet Co. v. Bay, (1906) 200 U. S. 179 207 
 
 Cincinnati &c. Ry. Co. v. Interstate Commerce Commission, (1896) 
 
 162 U. S. 184 210 
 
 Cleveland &c. R. R. Co. v. Backus, (1894) 154 U. S. 439 . 101, 128 
 
 Close V. Cemetery Co., (1882) 107 U. S. 466 7 
 
 Coe V. Errol, (1886) 116 U. S. 517 ... 206 
 
 Cohens v. Virginia, (1821) 6 Wheat. 264 188 
 
 Connelly v. Union Sewer Pipe Co., (1902) 184 U. S. 540 . . . 56 
 
 Conway v. Taylor's Ex'r, (1861) 1 Black 603 212 
 
 Cooley V. Board of Port Wardens, (1851) 12 How. 299 .... 88 
 
 Cornell v. Coyne, (1904) 192 U. S. 418 73 
 
 Cotting V. Stock Yards Co., (1901) 183 U. S. 79 56 
 
 Covingion&c.Bridge Co. v. Kentucky, (1894) 154 U. S. 204 . 116, 194 
 
 Coxe V. Texas, (1906) 202 U. S. 446 53 
 
 Crowley v. Christensen, (1890) 137 U. S. 86 47 
 
 Crutcher v. Kentucky, (1891) 141 U. S. 47 . . . . 41, 47, 58, 
 
 61, 93, 109 
 
 Daly V. National Insurance Co., (1878) 64 Ind. 1 7 
 
 Dome/ Ba«, (1870) 10 Wall. 557 211 
 
 Delaware &c. R. R. Co. v. Pennsylvania, (1905) 198 U. S. 341 103 
 
 Delaware Railroad Tax Case, (1873) 18 Wall. 206 113 
 
 Dent V. West Virginia, (1889) 129 U. S. 114 44, 45 
 
 Diamond Glue Co. v. U. S. Glue Co., (1903) 187 U. S. 611 . . 205 
 District of Columbia v. Brooke, (1909) 214 U. S. 138 .... 52 
 
 Dooley v. United States, (1901) 183 U. S. 151 73 
 
 Dozier v. Alabama, (1910) 218 U. S. 124 199 
 
 Duncan v. Missouri, (1894) 152 U. S. 377 45 
 
 Emert v. Missouri, (1895) 156 U. S. 296 199 
 
 Employers' Liability Cases, (1908) 207 U. S. 463 . . . . 46, 49, 64 
 
 Erb V. Morasck, (1900) 177 U. S. 584 157 
 
 Erie Railroad v. Pennsylvania, (1894) 158 U. S. 431 .... 129 
 Ex parte Jackson, (1877) 96 U. S. 727 38, 84 
 
 Fairbank v. United States, (1901) 181 U. S. 283 72 
 
 Flint V. Stone Tracy Co., (1911) 220 U. S. 108 . . 71, 74, 75, 79 
 Foster v. Davenport, (1859) 22 How. 244 212 
 
 Galveston 6fc. Ry. Co. V.Texas, (W08) 210 V. S. 217 . 89,97,119 
 
 Geer v. Connecticut, (1896) 161 U. S. 519 196 
 
 Gibbons v. Ogden, (1824) 9 Wheat. 1 .... 3, 47, 88, 89, 190, 
 
 193, 206, 211 
 
TABLE OF CASES. 217 
 
 Page 
 
 Gilman v. Philadelphia, (1865) 3 Wall. 713 211, 212 
 
 Giozza V. Tiernan, (1893) 148 U. S. 657 44 
 
 Gloucester Ferry Co. v. Pennsylvania, (1885) 114 U. S. 196 
 
 91, 121, 211, 212 
 Gulf&c. R. R. Co. V.Ellis, (1897) U5V.S. 150 . . . .55,56 
 Gulf&c. Ry. Co. V. Texas, (1907) 204 U. S. 403 . . . . 158, 207 
 
 Hale V. Henkel, (1906) 201 U. S. 43 64 
 
 Hall V. De Cuir, (1877) 95 U. S. 485 89, 91, 157 
 
 Hanley v. Kansas City Ry. Co., (1903) 187 U. S. 617 . 159, 194,207 
 
 Harman v. Chicago, (1893) 147 U. S. 396 212 
 
 Hatch V. Reardon, (1907) 204 U. S. 152 204 
 
 Henderson Bridge Co. v. Kentucky, (1897) 166 U. S. 150 . . . 115 
 
 Hennington V. Georgia, {189Q) WS U.S. 2Q9 89,157 
 
 Hepburn v. Ellzey, (1805) 2 Cranch 226 187 
 
 Heyman v. Southern Ry. Co., (1906) 203 U. S. 270 156 
 
 Hooper v. CaUfornia, (1895) 155 U. S. 648 58 
 
 Hopkins V. United States, (1898) 171 U. S. 578 203 
 
 Horn Silver Mining Co. v. New York, (1892) 143 U. S. 305 . . 206 
 Houston &c. R. R. Co. V. Mayes, {1906) Wl\J.S.S2l . 89,159 
 
 Illinois Cent. R. R.,v. IlUnois, (1896) 163 U. S. 142 .... 159 
 
 In re Rahrer, (1891) 140 U. S. 545 34, 60, 156 
 
 In re Rapier, (1892) 143 U. S. 110 39, 84 
 
 International Textbook Co. v. Pigg, (1910) 217 U. S. 91 . 196, 197 
 Interstate Commerce Commission v. Brimson, (1894) 154 U. S. 
 
 447 41 
 
 Interstate Commerce Commission v. III. Cent. R. R. Co., (1910) 
 
 215 U. S. 452 63, 195 
 
 Johnson v. Southern Pac. Ry. Co., (1904) 196 U. S. 1 . . . . 210 
 
 Kansas Pacific Railroad v. Atchison, &c. Railroad Co., (1884) 
 
 112 U. S. 414 12 
 
 Kelley v. Rhoads, (1903) 188 U. S. 1 195, 207, 208 
 
 Keokuk &c. Bridge Co. v. Illinois, (1900) 175 U. S. 626 . . .117 
 
 Kidd V. Pearson, (1888) 128 U. S. 1 20, 153, 205 
 
 Knowlton v. Moore, (1900) 178 U. S. 41 71, 74, 75 
 
 Knoxville Iron Co. v. Harbison, (1901) 183 U. S. 13 . . . . 151 
 Kohl V. United States, (1875) 91 U. S. 368 14 
 
 Lake Shore &c. Ry. V.Ohio, (1897) 165 V. S.S65 11 
 
 Lake Shore &c. R. R. Co. v. Ohio, (1899) 173 U. S. 285 ... 159 
 
218 FEDERAL INCORPORATION. 
 
 Page 
 
 Leeper v. Texas, (1891) 139 U. S. 462 45 
 
 Lehigh Valley R. R. v. Pennsylvania, (1892) 145 U. S. 192 . . 207 
 Leisy v. Harden, (1890) 135 U. S. 100 . . . . 35, 38, 91, 153, 
 
 156, 208, 209 
 
 Leloup V. Mobile, (1888) 127 U. S. 640 95, 196 
 
 License Cases, (1847) 5 How. 504 150, 153 
 
 License Tax Cases, (1866) 5 Wall. 462 71 
 
 Lottery Case (Champion v. Ames), (1903) 188 U. S. 321 . 33, 39, 
 
 41, 89, 191, 194, 195, 202 
 Louisville Ferry Co. v. Kentucky, (1903) 188 U. S. 385 . . . . 117 
 Luxlon V. North River Bridge Co., (1894) 153 U. S. 525 .. . 13 
 
 Maine v. Grand Trunk Ry. Co., (1891) 142 U. S. 217 . 95, 132, 139 
 Martin v. Pittsburg &c. R. R. Co., (1906) 203 U. S. 284 .. . 67 
 
 May V. New Orleans, (1900) 178 U. S. 496 208, 210 
 
 McCall V. CaUfornia, (1890) 136 U. S. 104 211 
 
 McCray v. United States, (1904) 195 U. S. 27 . 26, 48, 76, 79, 82 
 
 McCready v. Virginia, (1876) 94 U. S. 391 196, 205 
 
 McCuUough V. Maryland, (1819) 4 Wheat. 316 7, 17, 
 
 23, 26, 99, 162 
 
 McLean v. Arkansas, (1909) 211 U. S. 539 32, 151 
 
 McNeil V. Southern Ry. Co., (1906) 202 U. S. 543 210 
 
 Miller V. Mayor, (1883) 109 U. S. 385 211 
 
 Minnesota v. Barber, (1890) 136 U. S. 313 154 
 
 Missouri &c. Ry. Co. v. Haber, (1898) 169 L). S. 113 . . . .154 
 
 Mobile V. Kimball, (1880) 102 U. S. 691 35, 191 
 
 Monongahela Nav. Co. v. United States, (1893) 148 U. S. 312 . 41 
 
 Munn V. Illinois, (1876) 94 U. S. 113 158, 210 
 
 Murphy v. Ramsay, (1884) 114 U. €. 15 . 6 
 
 Murray V. Hoboken Land Co., (,1S55) 18 How. 272 42 
 
 Nathan v. Louisiana, (1850) 8 How. 73 203 
 
 NationalBankv. Yankton, (1879) 101 U.S. 129 6 
 
 New Orleans v. Winter, (1816) 1 Wheat. 91 187 
 
 New York v. Roberts, (1898) 171 U. S. 658 68 
 
 New York &c. R. R. Co. v. New York, (1897) 165 U. S. 628 . 157 
 
 Nichol V. Ames, (1899) 173 U. S. 509 74 
 
 Noble State Bank v. Haskell, (1911) 219 U. S. 104 . . . . 32, 151 
 Norfolk &c. R. R. Co. v. Pennsylvania, (1890) 136 U. S. 114 
 
 58, 211 
 Norfolk &c. Ry. Co. V.Sims, (1903) 191 U.S. Ul . . . . 199 
 Northern Securities Co. v. United States, (1903) 193 U. S. 197 
 
 39, 63, 89 
 
TABLE OF CASES. 219 
 
 Page 
 
 Osborne v. Bank, (1824) 9 Wheat. 738 17, 173, 184 
 
 Osborne v. Florida, (1897) 164 U. S. 650 140 
 
 PacificExpressCo.v.Seibert, (1892) 142 U.S. 3Z9 140 
 
 Pacific RaUroai Removal Cases, (1885) 115 U. S. 1 185 
 
 Passenger Cases, (1849) 7 How. 283 193 
 
 Paid V. Virginia, (1868) 8 Wall. 168 58, 61, 201 
 
 Pennsylvania v. Wheeling Bridge Co., (1855) 18 How. 421 .11, 212 
 
 Penn. R. R. Co. v. Hughes, (1903) 191 U. S. 477 67 
 
 Penn. R. R. Co. v. Knight, (1904) 192 U. S. 21 211 
 
 Pensacola Tel. Co. v. Western Union Tel. Co., (1877) 96 U. S. 1 
 
 11, 58, 196 
 Phila. &c. S. S. Co. v. Pennsylvania, (1883) 122 U. S. 326 94, 114 
 Pittsburg Coal Co. v. Bates, (1895) 156 U. S. 577 . 41, 72, 91, 208 
 Pittsburg&c. R. R. Co. V. Backus,' 0.SQ4:) 154: U.S. 4:21 . . .128 
 Plumley v. Massachusetts, (1894) 155 U. S. 461 . ... . . . 155 
 
 Pollock w.Loan & Trust Co., (1895) 157 U. S. 429 . " . . . . 74 
 
 Postal Tel. Co. v. Adams, (1895) 155 U. S. 688 124 
 
 Public Clearing House v. Coyne, (1904) 194 U. S. 497 . . . 84, 86 
 
 Pullman Co. v. Adams, (1903) 189 U. S. 420 141 
 
 P«/imo« Co. V. JsTowiOi, (1910) 216 U.S. 56 18,142 
 
 Pullman Car Co. v. Pennsylvania, (1891) 141 U. S. 18 ... 126 
 Pullman Co. v. Transportation Co., (1898) 171 U. S. 138 . . . 101 
 
 Rahrer, In re, (1891) 140 U. S. 545 34, 60, 156 
 
 Railroad v. Husen, (1877) 95 U. S. 465 . ... 154, 194 
 
 Railroad v. Maryland, (1874) 21 Wall. 456 113 
 
 Railroad v. Mississippi, (1880) 102 U. S. 135 184 
 
 Railroad Co. v. Peniston, (1873) 18 Wall. 5 163, 175 
 
 Rapier, In re, (1892) 143 U. S. 110 39, 84 
 
 Rassmussen v. Idaho, (1901) 181 U. S. 198 33 
 
 Reagan v. Mercantile Trust Co., (1894) 154 U. S. 413 . . . 10, 175 
 
 Rearick v. Pennsylvania, (1906) 203 U. S. 507 14, 199 
 
 Reid V. Colorado, (1902) 187 U. S. 137 33, 154 
 
 Rhodes v. Iowa, (1898) 170 U. S. 412 207, 208 
 
 Richmond v. Southern Bell Telephone &c. Co., (1899) 174 U. S. 
 
 761 197 
 
 Robbins v. Shelby County Taxing District, (1887) 120 U. S. 489 
 
 14, 91, 199 
 Roberts v. Northern Pacific R. R. Co., (1895) 158 U. S. 1 . . 186 
 
 St. Clair County v. Interstate Transfer Co., (1904) 192 U. S. 454 
 
 194, 212 
 
220 FEDERAL INCORPORATION. 
 
 Page 
 St. Louis V. Western Union Tel. Co., (1893) 148 U. S. 92 . 149, 171 
 Santa Clam County v. R. R. Co., (1886) 118 U. S. 394 ... 61 
 
 Schollenberger v. Pennsylvania, (1898) 171 U. S. 1 38, 
 
 154, 155, 209 
 Security &c. Insurance Co. v. Prewitt, (1905) 202 U. S. 246 . . 146 
 Shepard v. Northern Pac. Ry. Co., (1911) 184 Fed. 765 . . 89, 158 
 
 Slaughter House Cases, (1872) 16 Wall. 36 44 
 
 Smith-v. Alabama, (18SS) 124: U.S. 465 90,157 
 
 Smyth V. Ames, (1898) 169 U. S. 466 . . 18, 61, 158, 159, 175 
 
 Southern Ry. Co. v. Allison, (1903) 190 U. S. 326 187 
 
 Southern R. R. Co. v. Greene, (1910) 216 U. S. 400 ... 79, 148 
 Spreckels Sugar Refining Co. v. McClain, (1904) 192 U. S. 397 . 74 
 State Freight Tax Case, (1872) 15 Wall. 232 .... 93, 94, 194 
 
 State Tax on Gross Receipts, il872) 15 Wall 284 94,114 
 
 Stockard v. Morgan, (1902) 185 U. S. 27 14, 199 
 
 Stoutenburgv.Hennick, (1888) 129 V. S. 141 7 
 
 Swift V. United States, (1905) 196 U. S. 375 204 
 
 Telegraph Co. v. Texas, (1881) 105 U. S. 460 . . . . 93, 196, 197 
 
 Thomas v. United States, (1904) 192 U. S. 363 74 
 
 Thompson v. Railroad, (1869) 9 Wall. 579 163 
 
 Tonowanda v. Lyon, (1901) 181 U. S. 389 44 
 
 Trade-Mark Cases, (1879) 100 U. S. 82 46 
 
 Turpiny.Burgess,{188&)lVn5.S.3Q4 73 
 
 Twining v. New Jersey, (1908) 211 U. S. 78 44, 45 
 
 Union Bridge Co. v. United States, (1907) 204 U. S. 364 . . . 212 
 United States v. Delaware &c. R. R. Co., (1909) 213 U. S. 366 
 
 35, 54, 57 
 United States v. E. C. Knight Co., (1895) 156 U. S. 1 . . . 20, 205 
 United States v. Stanford, (1896) 161 U. S. 412 22 
 
 Vance v. Vandercook County, (1897) 170 U. S. 438 27 
 
 VeazieBank v. Fenno, (1869) 8 Wall. 533 48, 79, 81 
 
 Wabash&c. Ry.Co.v.IlKnois, {18&&) 118 V. S. 557 . . . . 159 
 
 Ware v. Mobile County, (1908) 209 U. S. 405 204 
 
 Waring v. Mayor, (1868) 8 Wall. 110 210 
 
 Welton V. Missouri, (1875) 91 U. S. 275 91, 191, 210 
 
 Western Union Tel. Co. v. Alabama, (1889) 132 U. S. 472 . . 196 
 Western Union Tel. Co. v. Gottlieb, (1903) 190 U. S. 412 .. . 126 
 WesUrn Union Tel. Co. v. James, (1896) 162 U. S. 650 . . 91, 159 
 
TABLE OF CASES. 221 
 
 Page 
 Western Union Tel. Co. v. Kansas, (1910) 216 U. S. 1 . . 18, 89, 
 
 126, 142 
 Western Union Tel. Co. v. Massachusetts, (1888) 125 U. S. 530 
 
 122, 170 
 Western Union Tel. Co. v. Milling Co., (1910) 218 U. S. 406 67 
 Western Union Tel. Co. v. New Hope, (1903; 187 U. S. 419 . 148 
 Western Union Tel. Co. v. Pendleton, (1887) 122 U. S. 347 159, 196 
 Western Union Tel. Co. v. Poe, (1894) 61 Fed. Rep. 449 . . . 103 
 Western Union Tel. Co. v. Taggart, (1896) 163 U. S. 1 ... 123 
 WilUamette Bridge Co. v. Hatch, (1888) 125 U. S. 1 . . . .211 
 
 Williams v. Fears, (1900) 179 U. S. 270 200 
 
 Wisconsin ^c. R. R. Co. v. Jacobson, (1900) 179 U. S. 287 . . 160 
 Wisconsin &c. Ry. Co. v. Powers, (1903) 191 U. S. 379 . . 96, 132 
 Woodruff v.Parham,(18G7) 8 Wall. 12S 72,210 
 
 Yesler v. Commissioners, (1892) 146 U. S. 646 45 
 
 Yick Wo V. Hopkins, (1886) 118 U. S. 356 44 
 
INDEX. 
 
 Agent: 
 
 sale by, as a transaction of 
 interstate commerce, 199. 
 Arbitrary classification: 
 
 as contrary to due process, 
 51-58. 
 Articles of Confederation: 
 
 power of States over inter- 
 state commerce, 1. 
 Articles: 
 
 of interstate commerce, 
 power of Congress to ex- 
 clude, 30-58. 
 Bank: 
 
 Constitutionality of na- 
 tional, 9. 
 taxation by Congress of 
 notes issued by state, 81. 
 taxation by state of national, 
 173. 
 Bills of exchange: 
 
 as articles of interstate com- 
 merce, 203. 
 Bills of lading: 
 
 Character of shipment de- 
 termined by, 207. 
 Bridge company: 
 
 incorporation by Congress 
 of, 13. 
 Bridges: 
 
 over navigable streams, 
 power of Congress over, 
 212. 
 Carrier (see Congress, Corpora- 
 tion, Interstate Commerce.) 
 
 Capital stock: 
 
 analysis of elements enter- 
 ing into value of, 101. 
 value of, as basis for prop- 
 erty taxation, 101-138. 
 Carmack: 
 
 Amendment to Interstate 
 Commerce Act, 68. 
 Cattle: 
 
 exclusion from interstate 
 commerce when diseased, 
 33, 154. 
 Citizenship: 
 
 diversity of, does not neces- 
 sarily make interstate 
 commerce, 193. 
 of a corporation determined 
 by place of incorporation, 
 186. 
 Classification: 
 
 due process as requiring a 
 
 reasonable, 51-58. 
 for purposes of taxation, 
 76-79. 
 Commissioner of Corporations: 
 report on federal incorpora- 
 tion, 19. 
 Commodities clause: 
 
 of Hepburn Act, 35, 36, 54, 
 57. 
 Compulsory federal incorpora- 
 tion: 
 methods of obtaining, 29- 
 86. 
 
224 
 
 INDEX. 
 
 Congress: 
 
 classification by, for pur- 
 poses of taxation, 76-79. 
 constitutional limitations 
 upon power of, with refer- 
 ence to taxation, 70-74. 
 doctrine of silence of, 35, 
 
 69, 87-91, 152, 156. 
 dual nature of legislative 
 
 powers of, 6. 
 exclusive power over inter- 
 state commerce vested in, 
 87-91. 
 grant by, of right to en- 
 gage in intrastate com- 
 merce, 17-19. 
 of right to engage in pro- 
 duction, 19-22. 
 implied powers of, 7-10. 
 incorporation by, of bridge 
 company, 13. 
 of railroads, 11-13. 
 incorporation by, under com- 
 merce clause, 7-22. 
 under other powers, 
 23-28. 
 legislation by, in respect to 
 liability of carriers, 66-68. 
 police power of, over inter- 
 state commerce, 32-38. 
 power of court to inquire 
 
 into motives of, 25, 48. 
 power of, over bridges, 212. 
 over ferries, 212. 
 over foreign commerce, 
 
 40. 
 over navigation, 211. 
 over postal system, 83- 
 
 86. 
 to exclude state cor- 
 porations from in- 
 terstate commerce, 
 58-70. 
 
 Congress, power of — (coniinited) . 
 to exempt federal cor- 
 porations from state 
 legislation, 163-179. 
 to grant right of emi- 
 nent domain, 14. 
 to make federal incor- 
 poration compulsory, 
 29-86. 
 to prescribe substan- 
 tive rules of law in 
 respect to transac- 
 tions of interstate 
 commerce, 63-68. 
 to prohibit transporta- 
 tion of articles in 
 interstate commerce, 
 30-58. 
 to prohibit passage of 
 matter through the 
 mails, 38, 39, 83-86. 
 prohibition of transporta- 
 tion of lottery tickets in 
 interstate commerce, 33, 
 36. 
 prohibition of transporta- 
 tion of diseased cattle in 
 interstate commerce, 33. 
 regulation of instrumen- 
 talities of interstate com- 
 merce, 63. 
 regulation by means of 
 
 taxation, 80-83. 
 regulation of liability of 
 
 stockholders, 64r-68. 
 regulation of master and 
 
 servant, 64. 
 taxation by, of articles ex- 
 ported from a State, 
 70-73. 
 of corporate privileges, 
 71, 74, 78, 80. 
 
INDEX. 
 
 225 
 
 Congress, taxation by — (con.). 
 of interstate commerce, 
 
 70-83. 
 of intrastate commerce, 
 
 71. 
 of notes issued by state 
 
 banks, 81. 
 of oleomargarine, 76, 82. 
 of right to inherit, 71, 74, 
 75, 
 use of mails prohibited to 
 persons conducting lot- 
 tery, 84. 
 Constitution: 
 
 commerce clause of, 1. 
 due process clause of, 41. 
 judicial power under, 183. 
 limitation upon taxation 
 power of Congress, 70-74. 
 
 Contracts: 
 
 not within the commerce 
 clause, 201. 
 
 substantive legislation by 
 Congress in respect to, 
 when a part of interstate 
 commerce, 63-68. 
 
 within the commerce clause, 
 14, 199. 
 Corporate franchise: 
 
 taxation of, 101-121. 
 
 value of, for taxation pur- 
 poses, 104^110. 
 
 Corporate privileges: 
 
 taxation of, by Congress, 71, 
 74, 78, 80. 
 
 Corporations: 
 
 created by Congress in Dis- 
 trict of Columbia, 7. 
 
 created by Congress in 
 Territories, 7. 
 
 created by Congress under 
 commerce clause, 7-22. 
 
 Corporations — (continued) . 
 
 created by Congress under 
 
 other powers, 23-28. 
 exclusion of mail matter of, 
 
 83-86. , 
 exclusion by State of terri- 
 torial, 7. 
 exercise by, of corporate 
 privileges in foreign State, 
 58. 
 gross receipts of, as basis 
 for property taxation, 
 131-133. 
 jurisdiction of Federal 
 Courts over suits by or 
 against federal, 183- 
 189. 
 power of Congress to ex- 
 clude, from interstate 
 commerce, 58-70. 
 right of, to engage in inter- 
 state commerce, 61. 
 state legislation with refer- 
 ence to interstate, 91- 
 160. 
 taxation of interstate 
 
 commerce, 92. 
 taxation of property, 99. 
 taxation of intrastate 
 
 commerce, 138. 
 charge for governmental 
 
 supervision, 148. 
 charge for use of high- 
 ways, 149. 
 police regulations, 150. 
 state legislation with refer- 
 ence to federal, 161. 
 taxation of interstate 
 
 commerce, 161. 
 taxation of property, 
 
 163. 
 taxation of franchise of, 
 168. 
 
226 
 
 INDEX. 
 
 Corporations, state legislation, 
 etc. — (eontinued) . 
 taxation of intrastate 
 
 commerce, 172. 
 charge for governmental 
 
 supervision, 179. 
 charge for use of high- 
 ways, 179. 
 police regulations, 180. 
 control of producing 
 function, 182. 
 state taxation of foreign, 79, 
 121, 138. 
 Courts: 
 
 jurisdiction of federal, over 
 suits by or against federal 
 corporations, 183-189. 
 Delivery: 
 
 to consignee, as ending 
 transit, 208. 
 Direct taxes: 
 
 What are, 74. 
 Disease : 
 
 articles infected with, as 
 subjects of interstate 
 commerce, 153. 
 District of Columbia: 
 
 corporations of, created by 
 Congress, 7. 
 Doctrine : 
 
 of implied powers of Con- 
 gress, 7. 
 of silence of Congress, 35, 
 69, 87, 152, 156. 
 Due process: 
 
 clause of Constitution, 41. 
 definitions of, 44. 
 meaning of, 42-45. 
 reasonable classification as 
 part of, 51-58. 
 Eminent domain: 
 
 granting of, by Congress, 14. 
 
 Exports : 
 
 taxation of, by Congress, 
 70-73. 
 Express companies: 
 
 taxation of, by States, 133- 
 136. 
 Federal corporation: 
 
 power of, to engage in in- 
 trastate commerce, 17. 
 to engage in production, 
 19. 
 state legislation with refer- 
 ence to, 161-182. 
 taxation of interstate 
 
 commerce, 161. 
 taxation of property, 
 
 163. 
 taxation of franchise, 
 
 168. 
 taxation of intrastate 
 
 commerce, 172. 
 charge for governmental 
 
 supervision, 179. 
 charge for use of high- 
 ways, 179. 
 police regulations, 180. 
 regulation of producing 
 function, 182. 
 Federal incorporation : 
 
 methods of obtaining com- 
 pulsory, 29-86. 
 Ferries: 
 
 regulation of, by Congress, 
 212. 
 Foreign commerce: 
 
 power of Congress in respect 
 to, 40. 
 Franchise : 
 
 taxation of, by State, 101- 
 
 121. 
 taxation of, when granted 
 
 by Congress, 168. 
 value of, 104-110. 
 
INDEX. 
 
 227 
 
 Garfield : 
 
 report of, on federal incor- 
 poration, 19. 
 Gross receipts: 
 
 taxation of, when derived 
 from interstate commerce, 
 94-99. 
 Hamilton : 
 
 opinion of, on constitu- 
 tionality of national bank, 
 8. 
 Heating regulations: 
 
 of State, as affecting inter- 
 state railroads, 157. 
 Hepburn Act: 
 
 commodities clause of, 35, 
 64, 57. 
 Highways: 
 
 interstate corporations 
 charged for use of, 149, 
 179. 
 Implied powers: 
 
 of Congress, 7. 
 Incorporations: 
 
 by Congress of territorial 
 
 companies, 7. 
 under commerce power 7- 
 22. 
 railroads, 11. 
 bridge company, 13. 
 under other powers, 23- 
 
 28. 
 fee for, not a tax, 111. 
 Indirect taxes: 
 
 what are, 74. 
 Inherit: 
 
 taxation of right to, by Con- 
 gress, 71, 74, 75. 
 Inspection laws: 
 
 of State as affecting inter- 
 state commerce, 153. 
 
 Instrumentalities : 
 
 of interstate commerce, 
 
 what are, 210. 
 regulation by Congress, of, 
 63. 
 Insurance: 
 
 as interstate commerce, 192, 
 201. 
 Intelligence: 
 
 as the subject-matter of 
 interstate commerce, 196. 
 Interstate commerce (see Con- 
 gress, Corporations.) 
 contracts as subjects of, 14, 
 
 199. 
 corporations engaged in, 
 state legislation with ref- 
 erence to, 91-160. 
 exclusion from, of articles 
 produced by state cor- 
 porations, 30-58. 
 of diseased cattle, 33, 
 
 153. 
 of lottery tickets, 33, 
 
 36. 
 of state corporations, 58- 
 70. 
 exclusive power of Congress, 
 
 over, 87-91. 
 federal corporations engaged 
 in, state legislation with 
 reference to, 161-182. 
 jurisdiction of Federal 
 Courts over corporations 
 engaged in, 186. 
 meaning of term, 190-213. 
 nature of power over, vested 
 
 in Congress, 1, 30, 87. 
 power of States over, prior 
 
 to Constitution, 1. 
 right of corporation to en- 
 gage in, 61. 
 
228 
 
 INDEX. 
 
 Interstate commerce — (con.). 
 right of individual to en- 
 gage in, 46. 
 subjects of, 193-199. 
 taxation by Congress of, 
 
 70-83. 
 taxation by State ot, 93-99. 
 when character of, attaches, 
 206. 
 is lost, 208. 
 Interstate Commerce Act : 
 
 Carmack Amendment to, 68. 
 Hepburn amendment to, 35, 
 54, 57. 
 Intrastate commerce: 
 
 of federal corporation, taxa- 
 tion by State of, 172. 
 right of federal corporation 
 
 to engage in, 17. 
 regulation of, by State, 158. 
 relation of, to interstate 
 
 commerce, 17, 138. 
 taxation by Congress of, 71. 
 taxation by State of, 138- 
 148. 
 Jefferson : 
 
 opinion of, on constitu- 
 tionality of national bank, 
 8. 
 Jurisdiction: 
 
 of Federal Courts, over 
 suits by or against fed- 
 eral corporations, 183. 
 as dependent upon special 
 legislation by Con- 
 gress, 188. 
 Liquor: 
 
 Wilson Act in respect to, 34. 
 Live-stock: 
 
 when diseased, exclusion 
 from interstate com- 
 merce, 33, 153. 
 
 Lottery tickets: 
 
 exclusion of, from interstate 
 commerce, 33, 36. 
 from mails, 84. 
 Mail: 
 
 as the subject of interstate 
 
 commerce, 197. 
 person conducting lottery 
 
 denied use of, 84. 
 power of Congress to pro- 
 hibit transportation of 
 matter through, 38, 83- 
 86. 
 Manufacturing: 
 
 not a part of interstate 
 commerce, 205. 
 Master and servant: 
 
 regulation of liability of, by 
 Congress, 64. 
 Motives: 
 
 of Congress, power of court 
 to inquire into, 25, 48. 
 Navigation: 
 
 power of Congress over, 211. 
 National bank: 
 
 constitutionality of, 9. 
 taxation of, by State, 173. 
 Obscene literature: 
 
 use of mails prohibited to, 
 84. 
 
 Oleomargarine : 
 
 taxation of, by Congress, 
 76, 82. 
 Original package: 
 doctrine of, 208. 
 what constitutes, 209. 
 Persons : 
 
 as subjects of interstate 
 commerce, 193. 
 
INDEX. 
 
 229 
 
 Police power: 
 
 effect of, on corporations 
 engaged in interstate com- 
 merce, 150-160. 
 extent of, 32, 150. 
 of Congress over interstate 
 commerce, 32-38. 
 Post-roads: 
 
 incorporation under power 
 to establish, 24. 
 Postal system: 
 
 power of Congress over, 83- 
 86. 
 Production : 
 
 power of federal corpora- 
 tion to engage in, 19-22. 
 Prohibition: 
 
 of transportation of articles 
 in interstate commerce, 
 30-58. 
 Property: 
 
 as the subject of interstate 
 
 commerce, 194. 
 taxation of, based upon 
 value of capital stock, 
 101-138. 
 based upon gross re- 
 ceipts, 131. 
 when owned by corpora- 
 tion engaged in inter- 
 state commerce, 99-138. 
 Railroads: 
 
 incorporation of, by Con- 
 gress, 11. 
 police regulations of State 
 
 as applied to, 157. 
 regulation by State of intra- 
 state rates of, 158. 
 taxation of, 128-133. 
 Randolph: 
 
 opinion of, on constitu- 
 tionality of national bank, 
 8. 
 
 Rates: 
 
 regulation by State of, 158. 
 Reasonable classification : 
 
 as a part of due process, 
 51-58. 
 Regulate: 
 
 power to, as including power 
 to prohibit, 30-58. 
 
 by means of taxation, 
 80. 
 Rolling-stock: 
 
 taxation of, when employed 
 in interstate commerce, 
 126. 
 Silence: 
 
 doctrine of, 35, 59, 87, 152, 
 156. 
 Speed : 
 
 regulations in respect to, as 
 applied to interstate rail- 
 roads, 157. 
 State (see Corporation). 
 
 classification by, for pur- 
 poses of taxation, 77. 
 control by, of production 
 by federal corporation, 
 182. 
 legislation with reference to 
 corporations, state and 
 federal, engaged in inter- 
 state commerce, 93-182. 
 police power of, as affecting 
 interstate commerce, 35, 
 59, 150. 
 power of, to exclude cor- 
 porations engaged in in- 
 terstate commerce, 58. 
 to exclude foreign cor- 
 porations, 68. 
 to exclude territorial cor- 
 porations, 7. 
 
230 
 
 INDEX. 
 
 State, power of — (continued). 
 
 to prescribe substan- 
 tive rules of law with 
 respect to interstate 
 commerce contracts, 
 63. 
 to tax privilege of engag- 
 ing in interstate com- 
 merce, 93-99. 
 to tax corporations en- 
 gaged in interstate 
 commerce, 91-150. 
 to tax federal corpora- 
 tions, 161-179. 
 State Banks; 
 
 taxation by Congress of 
 notes issued by, 81. 
 Stockholders: 
 
 regulation by Congress of 
 liability of, in interstate 
 corporations, 64r-68. 
 Subjects: 
 
 of interstate commerce, 
 power of Congress to 
 exclude, 30-58. 
 what are, 193. 
 Suits: 
 
 jurisdiction of Federal 
 Courts over, by or against 
 federal corporations, 183- 
 189. 
 Tax: 
 
 incorporation fee not a. 111. 
 Taxation (see Congress, Cor- 
 poration, State.) 
 classification for purposes 
 
 of, 76. 
 constitutional limitations 
 upon power of Congress 
 in respect to, 70-74. 
 direct and indirect, 74, 75. 
 
 Taxation— (contintied) . 
 
 for purposes of regulation, 
 
 80. 
 gross receipts as basis for, 
 
 of property, 131. 
 of articles exported from a 
 
 State, 70. 
 of corporate privileges, 71, 
 
 74, 78, 80. 
 of corporations by State, 
 
 93-150, 160-179. 
 of gross receipts derived 
 from interstate commerce, 
 94. 
 of interstate commerce by 
 
 Congress, 70-83. 
 of intrastate commerce by 
 
 Congress, 71. 
 of notes issued by State 
 
 banks, 81. 
 of right to inherit, 71 , 74, 75. 
 proportionate mileage sys- 
 tem of, 100-138. 
 requirement of uniformity 
 in respect to, 73. 
 Telegraph: 
 
 as a part of interstate com- 
 merce, 196. 
 Telegraph companies: 
 
 taxation of interstate, 122. 
 Telephone: 
 
 as a part of interstate com- 
 merce, 197. 
 Territorial corporations: 
 
 power of, to do business in 
 States, 7. 
 Trading corporations: 
 
 incorporation of, by Con- 
 gress, 7-22. 
 Transportation: 
 
 across state lines is inter- 
 state commerce^i 183-213. 
 
INDEX. 
 
 231 
 
 Transportation— (continued) . 
 incorporation by Congress 
 of companies to engage in , 
 7-22. 
 Uniformity: 
 
 requirement in respect to, 
 of federal taxation, 75. 
 Union Pacific Railroad: 
 
 incorporation by Congress 
 of, 11. 
 
 Unit rule: 
 
 taxation of property by, 
 100-138. 
 Value: 
 
 importance of, in determin- 
 ing what are subjects of 
 interstate commerce, 195. 
 Wireless telegraphy: 
 
 as a part of interstate com- 
 merce, 197.