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federal taxation in the interest of the
it against the federal corporation tax erroneously assume that its operation will in all cases be reciprocal. Such an
tions were co-extensive with that of the federal government, there would be no escape from the assumption that because a state may not tax a federal franchise, therefore the federal govern ment may not tax a state franchise.
assumption would lead to the desired conclusion that because a state may not
Every corporation created by the state would then be an instrumentality of the
tax a federal franchise, or its exercise, therefore the nation may not tax a
state government, and as such, beyond the reach of federal taxation. Without question, a state frequently
states, as well as state taxation in the interest of the nation, those who invoke
state franchise, or its exercise.
That
this reasoning is misleading would seem to follow from a comparison of the power of the federal government to grant cor porate charters with that of the states.
That there is a fundamental distinc tion between the right of the federal
creates a corporation for no other pur pose than to serve as a kind of agent in the discharge of governmental functions. Such is the ordinary municipal corpora tion, whose franchise is beyond reach of federal taxation. It is conceivable that
government to create corporations and that of the states is elementary. The
there may be others of a less public
right when exercised by a federal gov ernment is not substantive, but inci dental. It can be employed only as a. means of carrying into the efiect the enumerated powers of the federal gov ernment. The resulting corporation is
strumentalities of the states, without unduly straining the doctrine. But
thus necessarily the means of exercising a federal function and is to be regarded
talities of the states, but are private enterprises, pure and simple, organized primarily to make profit for their pro moters and stockholders.
as an instrumentality of government. In fact, if it cannot be so regarded,
there is no constitutional warrant for its existence. The United States bank was chartered to provide the government with a fiscal agent. The incorporation of the Pacific railroads by Congress can be justified on no other ground than as
nature that might be regarded as in
corporations of this character are com paratively few. The vast majority of corporations of state creation can in no
proper sense be regarded as instrumen
In so far, then, as the principle in voked has any application to the federal corporation tax, it would operate to withdraw from its provisions those cor
tion by a state rests upon its general power
porations, and those corporations only, that can fairly be said to perform a func tion of the state under whose authority they were created. The same prin ciple would likewise operate to exempt
to incorporate.
from the provisions of a general income
a means of regulating interstate com
merce.16 But the creation of a corpora Such a power is exer
cised by the states as an independent,
and not as a dependent, power.
If the
power of the states to create corpora
tax, levied under the proposed “six teenth amendment," the incomes of
state officials. In either case its appre ciable effect would be too slight to affect
10 California v. Central Pacific Railroad Ga., 127 U. S. l.
the constitutionality of the tax.
