Page:Harvard Law Review Volume 32.djvu/695

INDIRECT ENCROACHMENT ON FEDERAL AUTHORITY 659 to solve some pretty problems with respect to the so-called "situs" of income. Nonresidents and foreign corporations will seek sup- port from the Fourteenth Amendment and the commerce clause for complaints that states have allocated to themselves more in- come than belongs to them. When all the transactions out of which the income arises are in a single state, the disputes will not present great difficulty. But when the income-producing activi- ties straddle two states, and the acts in neither alone would yield the income, there is room for perplexity. The importance of the problem justifies a review of two cases which bear upon it, though neither touches it precisely, since in one the taxpayer was a domes- tic corporation, and in the other there was no element of interstate commerce. The first case is the decision of the Wisconsin supreme court in Refrigerator Transit Co. v. Kentucky, 199 U. S. 194, 26 Sup. Ct. Rep. 36 (1905); Delaware, L. &W. R. R. Co. v. Pennsylvania, 198 U. S. 341, 25 Sup. Ct. Rep. 669 (1905). It is also the rule as to such an incorporeal hereditament as a franchise to run a ferry. Louisville & Jeffersonville Ferry Co. v. Kentucky, 188 U. S. 385, 23 Sup. Ct. Rep. 463 (1903). The opinion in the Union Refrigerator case says that it has always been understood that the rule is the same as to extra-state realty. In all of the cases sustaining the taxation of choses in action, there was either power over the creditor or over some economic value behind the chose in action, or over some incidents thereof. The following excerpts from Mr. Justice Brown's opinion in the Union Refrigerator case are clearly apphcable, mutatis mutandis, to income taxation: "The power of taxation, indispensable to the existence of every civilized govern- ment, is exercised upon the assumption of an equivalent rendered to the taxpayer in the protection of his person and property, in adding to the value of such property, or in the creation and maintenance of public conveniences in which he shares. . . . If the taxing power be in no position to render these services, or otherwise to benefit the person or property taxed, and such property be wholly within the taxing power of another State, to which it may be said to owe an allegiance and to which it looks for protection, the taxation of such property within the domicil of the owner partakes rather of the nature of an extortion than a tax, and has been repeatedly held by this court to be beyond the power of the legislature and a taking of property without due process of law. . . . "The argument against the taxability of land within the jurisdiction of another State applies with equal cogency to tangible personal property beyond the jurisdic- tion. It is not only beyond the sovereignty of the taxing State, but does not and cannot receive protection under its laws. True, a resident owner may receive an income from such property, but the same may be said of real estate within a foreign jurisdiction. Whatever be the rights of the State with respect to the taxation of such income, it is clearly beyond its power to tax the land from which the income is derived." 199 U. S. 194, 202-04. There can be no doubt whatever that power over and protection of the recipient or the sources of income will be held essential to jurisdiction to levy an income tax.