Madden v Commissioner, 309 U.S. 83 (1940)
Decided: January 29, 1940
Syllabus
U.S.
Supreme Court
Madden v Commissioner, 309 U.S. 83
(1940)
Madden v Commissioner
No. 92
Argued December 14, 1939
Decided January 29, 1940
309 U.S. 83
Syllabus
1. A statute by which a State taxed
deposits in banks outside of the State at fifty cents per hundred dollars and
deposits in banks within the State at ten cents per hundred dollars held
consistent with the due process, equal protection, and privileges and
immunities clauses of the Fourteenth Amendment. P. 309 U. S. 86.
2. In taxation, even more than in
other fields, legislatures possess the greatest freedom in classification. The
presumption of constitutionality can be overcome only by the most explicit
demonstration that a classification is a hostile and oppressive discrimination
against particular persons and classes. P. 309 U. S. 87.
3. The treatment accorded the two
kinds of deposits in this case may have resulted from the differences in the
difficulties and expenses of tax collection. P. 309 U. S. 89.
4. The right to carry out an
incident to a trade, business, or calling, such as the deposit of money in
banks, is not a privilege of national citizenship, protected by the privileges
and immunities clause of the Fourteenth Amendment. Hague v. CIO, 307 U. S. 496,
expounded; Colgate v. Harvey, 296 U. S. 404,
in part overruled. P. 309 U. S. 90.
277 Ky. 343; 126 S.W.2d 463,
affirmed.
Appeal from a judgment sustaining
the assessment and taxation of a decedent's bank deposits, in a suit against
the executor of his will in the name of the Kentucky.
Page 309 U.S. 85
Opinions
U.S.
Supreme Court
Madden v Commissioner, 309 U.S. 83
(1940) Madden v Commissioner
No. 92
Argued December 14, 1939
Decided January 29, 1940
309 U.S. 83
APPEAL FROM THE COURT OF APPEALS OF
KENTUCKY
Syllabus
1. A statute by which a State taxed
deposits in banks outside of the State at fifty cents per hundred dollars and
deposits in banks within the State at ten cents per hundred dollars held
consistent with the due process, equal protection, and privileges and
immunities clauses of the Fourteenth Amendment. P. 309 U. S. 86.
2. In taxation, even more than in
other fields, legislatures possess the greatest freedom in classification. The
presumption of constitutionality can be overcome only by the most explicit
demonstration that a classification is a hostile and oppressive discrimination
against particular persons and classes. P. 309 U. S. 87.
3. The treatment accorded the two
kinds of deposits in this case may have resulted from the differences in the
difficulties and expenses of tax collection. P. 309 U. S. 89.
4. The right to carry out an
incident to a trade, business, or calling, such as the deposit of money in
banks, is not a privilege of national citizenship, protected by the privileges
and immunities clause of the Fourteenth Amendment. Hague v. CIO, 307 U. S. 496,
expounded; Colgate v. Harvey, 296 U. S. 404,
in part overruled. P. 309 U. S. 90.
277 Ky. 343; 126 S.W.2d 463,
affirmed.
Appeal from a judgment sustaining
the assessment and taxation of a decedent's bank deposits, in a suit against
the executor of his will in the name of the Kentucky.
Page 309 U.S. 85
MR. JUSTICE REED delivered the
opinion of the Court.
This is an appeal [Footnote 1] brought here under Section 237(a) of the
Judicial Code from a judgment of the Court of Appeals of Kentucky sustaining
the validity of a statute of that state against an attack by the appellant on
the ground of its being repugnant to the due process, equal protection,
Page 309 U.S. 86
and privileges and immunities
clauses of the Fourteenth Amendment of the Constitution of the United States.
The issue is whether a state statute
which imposes on its citizens an annual ad valorem tax on their deposits
in banks outside of the state at the rate of fifty cents per hundred dollars
and at the same time imposes on their deposits in banks located within the
state a similar ad valorem tax at the rate of ten cents per hundred
dollars is obnoxious to the stated clauses of the Fourteenth Amendment. The
relevant provisions of the Kentucky statutes for the period in question appear
in the note below. [Footnote 2]
The opinion of the Court of Appeals
of Kentucky in this case construes the exception in Section 4019, limiting the
tax on bank deposits to one-tenth of one percent, as applicable only to
depositors in local financial institutions organized under the laws of Kentucky
or under the national
Page 309 U.S. 87
banking laws. This interpretation of
the state laws is, of course, accepted by us. [Footnote 3]
John E. Madden died in November,
1929, a citizen and resident of Fayette County, Kentucky. On several prior
assessment dates, July 1 in Kentucky, Mr. Madden had on deposit in New York
banks a considerable amount of funds. These deposits had not been reported for
the purposes of taxation in Kentucky. That state brought suit against Mr.
Madden's executor to have these deposits assessed as omitted property and to
recover an ad valorem tax of 50 cents per hundred dollars as of July 1
of each year, together with interest and penalties. The executor used as one
defense against this claim the contention that a tax on deposits in banks outside
of Kentucky at a higher rate than the tax upon bank deposits within Kentucky
would abridge decedent's privileges and immunities as a citizen of the United
States, deprive him of his property right and the liberty to keep money on
deposit outside of Kentucky without due process of law, and deny to him equal
protection of the law in violation of the Fourteenth Amendment. The Court of
Appeals passed upon the constitutional questions submitted because of the
difference in taxing rate between Kentucky deposits and out-of-state deposits.
It approved the classification as permissible under the due process and equal
protection clauses, and refused to accept the argument that its interpretation
of the statutes violated the privileges and immunities clause.
I. Classification. -- The
broad discretion as to classification possessed by a legislature in the field
of taxation
Page 309 U.S. 88
has long been recognized. [Footnote 4] This Court fifty years ago concluded that
"the fourteenth amendment was not intended to compel the states to adopt
an iron rule of equal taxation," [Footnote 5] and the passage of time has only served to
underscore the wisdom of that recognition of the large area of discretion which
is needed by a legislature in formulating sound tax policies. Traditionally,
classification has been a device for fitting tax programs to local needs and
usages in order to achieve an equitable distribution of the tax burden. It has,
because of this, been pointed out that, in taxation, even more than in other
fields, legislatures possess the greatest freedom in classification. [Footnote 6] Since the members of a legislature necessarily
enjoy a familiarity with local conditions which this Court cannot have, the
presumption of constitutionality can be overcome only by the most explicit
demonstration that a classification is a hostile and oppressive discrimination
against particular persons and classes. [Footnote 7] The burden is on the one attacking the
legislative arrangement to negative every conceivable basis which might support
it. [Footnote 8]
Paying proper regard to the scope of
a legislature's powers in these matters, the insubstantiality of appellant's
claim that he has been denied equal protection or due process of law by the
classification is at once apparent. When these statutes were adopted in 1917,
during a general revision of Kentucky's tax laws, the chief problem facing the
legislature was the formulation of an
Page 309 U.S. 89
enforceable system of intangible
taxation. [Footnote 9] By placing the duty of collection on local
banks, the tax on local deposits was made almost self-enforcing. The tax on
deposits outside the state, however, still resembled that on investments in Watson
v. State Comptroller, the collection of which was said to depend
"either upon [the taxpayer's] will or upon the vigilance and discretion of
the local assessors." [Footnote 10] Here, as in the Watson case, the
classification may have been "founded in the purposes
Page 309 U.S. 90
and policy of taxation.'" The
treatment accorded the two kinds of deposits may have resulted from the
differences in the difficulties and expenses of tax collection. [Footnote 11]
II. Privileges and Immunities.
-- The appellant presses urgently upon us the argument that the privileges and
immunities clause of the Fourteenth Amendment of the Constitution of the United
States [Footnote 12] forbids the enforcement by the Kentucky of
this enactment which imposes upon the testator taxes five times as great on
money deposited in banks outside the State as it does on money of others
deposited in banks within the State. The privilege or immunity which appellant
contends is abridged is the right to carry on business beyond the lines of the his residence, a right claimed as appertaining to
national citizenship.
There is no occasion to attempt
again an exposition of the views of this Court as to the proper limitations of
the privileges and immunities clause. There is a very recent discussion in Hague
v. Committee Industrial Organization. [Footnote 13] The appellant purports to accept as sound the
position stated as the view of all the justices concurring in the Hague
decision. This position is that the privileges and immunities clause protects all citizens against abridgement by states of
rights of national citizenship, as distinct from the fundamental or
Page 309 U.S. 91
natural rights inherent in state
citizenship. [Footnote 14] This Court declared in the Slaughter-House
Cases [Footnote 15] that the Fourteenth Amendment, as well as the
Thirteenth and Fifteenth, were adopted to protect the negroes in their freedom.
This almost contemporaneous interpretation extended the benefits of the
privileges and immunities clause to other rights which are inherent in national
citizenship, but denied it to those which spring from
Page 309 U.S. 92
state citizenship. [Footnote 16] In applying this constitutional principle,
this Court has determined that the right to operate an independent
slaughter-house, [Footnote 17] to sell wine on terms of equality with grape
growers, [Footnote 18] and to operate businesses free of state
regulation [Footnote 19] were not privileges and immunities protected
by the Fourteenth Amendment. And a state inheritance tax statute which limited
exemptions to charitable corporations within the state was held not to infringe
any right protected by the privileges and immunities clause. [Footnote 20] The Court has consistently refused to list
completely the rights which are covered by the clause, though it has pointed
out the type of rights protected. [Footnote 21] We think it quite clear that the right to
carry out an incident to a trade, business, or calling [Footnote 22] such as the deposit
Page 309 U.S. 93
of money in banks is not a privilege
of national citizenship.
In the states there reposes the
sovereignty to manage their own affairs except only as the requirements of the
Constitution otherwise provide. Within these constitutional limits, the power
of the state over taxation is plenary. An interpretation of the privileges and
immunities clause which restricts the power of the states to manage their own
fiscal affairs is a matter of gravest concern to them. [Footnote 23] It is only the emphatic requirements of the
Constitution which properly may lead the federal courts to such a conclusion.
Appellant relies upon Colgate v.
Harvey, supra, [Footnote 24] as a precedent to support his argument that
the present statute is not within the limits of permissible classification, and
violates the privileges and immunities clause. In view of our conclusions, we
look upon the decision in that case as repugnant to the line of reasoning
adopted here. As a consequence, Colgate v. Harvey, supra, must be, and
is, overruled.
Affirmed.
MR. CHIEF JUSTICE HUGHES concurs in
the result upon the ground, as stated by the Court of Appeals of Kentucky, that
the classification adopted by the legislature rested upon a reasonable basis.
See Act of January 31, 1928, 45 Stat. 54.
Carroll's Kentucky Statutes, Baldwin
Revision, 1930, § 4019a-10, p. 2052 (Ky. Acts.1924, Ch. 116, § 3) provides:
"All property subject to
taxation for state purposes shall be subject also to taxation in the county,
city, school, or other taxing district in which same has a taxable situs,
except the following classes of property which shall be subject to taxation for
state purposes only:"
"* * * *"
"(4) Money in hand, notes,
bonds, accounts and other credits, whether secured by mortgage, pledge, or
otherwise, or unsecured, and shares of stock. . . ."
Carroll's Kentucky Statutes,
Baldwin's Revision 1930, § 4019, p. 2048 (Ky. Acts 1924, Ch. 116, § 1, p. 402,
as reenacted in Ky. Acts 1926, Ch. 164, p. 739), provides as follows:
"An annual ad valorem
tax for state purposes of thirty cents (30�) upon each one hundred dollars ($100.00) of value of all
real estate directed to be assessed for taxation, as provided by law and fifty
cents (50�) upon each one hundred dollars ($100.00) of value of all
other property directed to be assessed for taxation, as provided by law, shall
be paid by the owner, person or corporation assessed; except a tax at the rate
of one-tenth of one percent. (0.1%) [i.e., 10 cents upon each $100]
shall be paid annually upon the amount of deposits in any bank, trust company,
or combined bank and trust company, organized under the laws of this State, or
in any national bank of this State, as now provided by law. .
. ."
St. Louis Southwestern Ry. Co. v.
Arkansas, 235 U. S. 350, 235 U. S. 362;
Storaasli v. Minnesota, 283 U. S. 57, 283 U. S. 62.
New York Rapid Transit Corp. v. New
York, 303 U. S. 573,
and cases there cited.
Bell's Gap R. Co. Pennsylvania, 134 U. S. 232, 134 U. S. 237.
Citizens' Telephone Co. v. Fuller, 229 U. S. 322, 229 U. S. 329.
See the opinion of Mr. Justice Brandeis in Louisville Gas
& Electric Co. v. Coleman, 277 U. S. 32, 277 U. S. 42,
277 U. S. 46-47.
Lindsley v. Natural Carbonic Gas
Co., 220 U. S. 61, 220 U. S. 78-79.
Because of a prohibition in the
Kentucky Constitution of 1891 against classification in taxation, the state and
its political subdivisions taxed intangibles at the same rate as other
property. This resulted in a total tax of about $2.65 per hundred dollars on
intangibles, a tax which in the case of bank deposits almost equaled the
interest on deposits. The high rate led to widespread evasion of the tax by
concealment of intangibles; with bank deposits, this took the form of
withdrawals for deposits outside the state. The unequal burden which this
evasion placed on other forms of property led to agitation for reform as early
as 1908. Two special tax commissions reported on the need for a constitutional
amendment and a general tax reform. After an amendment permitting
classification was adopted in 1916, a third committee made specific proposals
for revision, and most of the recommendations were adopted at a special
legislative session in 1917. See the message of Governor Stanley to the
General Assembly of 1917, Kentucky Senate Journal of 1917, p. 13. In general,
the revision took the form of a drastic lowering of the rates on intangibles.
An even lower rate was placed on bank deposits, and almost complete collection
assured by placing the duty of collection on the banks.
The studies which led to the general
revision of 1917 may be found in Report of the Kentucky Tax Commission for
1909; Report of the Special Tax Commission of Kentucky for 1912-14; Report of
the Kentucky Tax Commission for 1916. A careful examination of the workings of
the revised system has been made by Dr. Simeon E. Leland. The Taxation of Intangibles
in Kentucky, Bulletin of the Bureau of Business Research, College of Commerce,
University of Kentucky, vol. 1, no. 1 (1929).
254 U. S. 254
U.S. 122, 254
U. S. 124.
Carmichael v. Southern Coal &
Coke Co., 301 U. S. 495, 301 U. S. 511.
The 14th Amendment, Section 1,
provides:
"All persons born or
naturalized in the United States, and subject to the jurisdiction thereof, are
citizens of the United States and of the State wherein they reside. No State
shall make or enforce any law which shall abridge the privileges or immunities
of citizens of the United States. . . ."
307 U. S. 307
U.S. 496. The prior cases are collected in Note 2 of the dissenting opinion in Colgate
v. Harvey, 296
U. S. 404, 296 U. S. 445,
and Note 1 of Mr. Justice Stone's opinion in the Hague case, 307 U. S. 496, 307 U. S. 520.
Mr. Justice Roberts' opinion, 307
U.S. at 307
U. S. 512:
"Although it has been held that
the Fourteenth Amendment created no rights in citizens of the United States,
but merely secured existing rights against state abridgement, it is clear that
the right peaceably to assemble and to discuss these topics, and to communicate
respecting them, whether orally or in writing, is a privilege inherent in
citizenship of the United States which the Amendment protects."
Mr. Justice Stone's opinion, 307
U.S. at 307
U. S. 519-521:
"Hence, there is no occasion .
. . to revive the contention, rejected by this Court in the Slaughter-House
Cases, supra, that the privileges and immunities of United States
citizenship, protected by that clause, extend beyond those which arise or grow
out of the relationship of United States citizens to the national
government."
"That such is the limited
application of the privileges and immunities clause seems now to be conceded by
my brethren."
16 Wall. 36 at 83 U. S. 71-72:
"We repeat, then, in the light
of this recapitulation of events almost too recent to be called history, but
which are familiar to us all, and on the most casual examination of the
language of these amendments, no one can fail to be impressed with the one
pervading purpose found in them all, lying at the foundation of each, and
without which none of them would have been even suggested; we mean the freedom
of the slave race, the security and firm establishment of that freedom, and the
protection of the newly made freeman and citizen from the oppressions of those
who had formerly exercised unlimited dominion over him. . . ."
". . . And so, if other rights
are assailed by the States which properly and necessarily fall within the
protection of these articles, that protection will apply though the party
interested may not be of African descent. But what we do say, and what we wish
to be understood, is that, in any fair and just construction of any section or
phrase of these amendments, it is necessary to look to the purpose which we
have said was the pervading spirit of them all, the evil which they were
designed to remedy, and the process of continued addition to the Constitution,
until that purpose was supposed to be accomplished as far as constitutional law
can accomplish it."
Id., 83 U. S. 78-79.
Slaughter-House Cases, supra.
Cox v. Texas, 202 U. S. 446; cf.
85 U. S.
Iowa, 18 Wall. 129; Crowley v. Christensen, 137 U. S. 86; Giozza v. Tiernan, 148 U. S. 657; Crane
v. Campbell, 245
U. S. 304.
Holden v. Hardy, 169 U. S. 366; Wilmington
Star Mining Co. v. Fulton, 205 U. S. 60; Western
Union Telegraph Co. v. Commercial Milling Co., 218 U. S. 406; Rosenthal
v. New York, 226
U. S. 260; Prudential Ins. Co. v. Cheek, 259 U. S. 530.
Board of Education v. Illinois, 203 U. S. 553; cf.
Ferry v. Spokane, P. & S. Ry. Co., 258 U. S. 314.
They have been described as
"privileges and immunities
arising out of the nature and essential character of the national government,
and granted or secured by the constitution of the United States."
In re Kemmler, 136 U. S. 436, 136 U. S. 448.
See also Slaughter-House Cases, supra, at 83 U. S. 79-80;
United States v. Cruikshank, 92 U. S. 542, 92 U. S. 552;
Williams v. Fears, 179 U. S. 270, 179 U. S. 274;
Twining v. New Jersey, 211 U. S. 78, 211 U. S. 97.
Cf. Twining v. New Jersey, 211 U. S. 78, 211 U. S. 94.
Twining v. New Jersey, supra, 211 U. S. 92.
296 U. S. 296
U.S. 404.
MR. JUSTICE ROBERTS.
I think that the judgment should be
reversed. Four years ago in Colgate v. Harvey, 296 U. S. 404,
this court held that the equal protection clause and the privileges and
immunities clause of the Fourteenth Amendment prohibit such a discrimination as
results from the statute now under review. I adhere to the views expressed in
Page 309 U.S. 94
the opinion of the court in that
case, and think it should be followed in this.
MR. JUSTICE McREYNOLDS
joins in this opinion.