At the outset, the Court did not regard the Equal Protection Clause as having any bearing on taxation.1538 It soon, however, entertained cases assailing specific tax laws under this provision,1539 and in 1890 it cautiously conceded that “clear and hostile discriminations against particular persons and classes, especially such as are of an unusual character, unknown to the practice of our governments, might be obnoxious to the constitutional prohibition.”1540 The Court observed, however, that the Equal Protection Clause “was not intended to compel the State to adopt an iron rule of equal taxation” and propounded some conclusions that remain valid today.1541 In succeeding years the clause has been invoked but sparingly to invalidate state levies. In the field of property taxation, inequality has been condemned only in two classes of cases: (1) discrimination in assessments, and (2) discrimination against foreign corporations. In addition, there are a handful of cases invalidating, because of inequality, state laws imposing income, gross receipts, sales and license taxes.
Classification for Purpose of Taxation.
The power of the state to classify for purposes of taxation is “of wide range and flexibility.”1542 A state may adjust its taxing system in such a way as the state, Great Atlantic & Pacific Tea Co. v. Grosjean, 301 U.S. 412 (1937) (distinguishing Louis K. Liggett Co. v. Lee, 288 U.S. 517 (1933)). Electricity: municipal systems may be exempted, Puget Sound Co. v. Seattle, 291 U.S. 619 (1934); that portion of electricity produced which is used for pumping water for irrigating lands may be exempted, Utah Power & Light Co. v. Pfost, 286 U.S. 165 (1932). to favor certain industries or forms of industry1543 and may tax different types of taxpayers differently, despite the fact that they compete.1544 It does not follow, however, that because “some degree of inequality from the nature of things must be permitted, gross inequality must also be allowed.”1545 Classification may not be arbitrary. It must be based on a real and substantial difference1546 and the difference need not be great or conspicuous,1547 but there must be no discrimination in favor of one as against another of the same class.1548 Also, discriminations of an unusual character are scrutinized with special care.1549 A gross sales tax graduated at increasing rates with the volume of sales,1550 a heavier license tax on each unit in a chain of stores where the owner has stores located in more than one country,1551 and a gross receipts tax levied on corporations operating taxicabs, but not on individuals,1552 have been held to be a repugnant to the Equal Protection Clause. But it is not the function of the Court to consider the propriety or justness of the tax, to seek for the motives and criticize the public policy which prompted the adoption of the statute.1553 If the evident intent and general operation of the tax legislation is to adjust the burden with a fair and reasonable degree of equality, the constitutional requirement is satisfied.1554
One not within the class claimed to be discriminated against cannot challenge the constitutionality of a statute on the ground that it denies equal protection of the law.1555 If a tax applies to a class that may be separately taxed, those within the class may not complain because the class might have been more aptly defined or because others, not of the class, are taxed improperly.1556
Foreign Corporations and Nonresidents.
The Equal Pro-tection Clause does not require identical taxes upon all foreign and domestic corporations in every case.1557 In 1886, a Pennsylvania corporation previously licensed to do business in New York challenged an increased annual license tax imposed by that state in retaliation for a like tax levied by Pennsylvania against New York corporations. This tax was held valid on the ground that the state, having power to exclude entirely, could change the conditions of admission for the future and could demand the payment of a new or further tax as a license fee.1558 Later cases whittled down this rule considerably. The Court decided that “after its admission, the foreign corporation stands equal and is to be classified with domestic corporations of the same kind,”1559 and that where it has acquired property of a fixed and permanent nature in a state, it cannot be subjected to a more onerous tax for the privilege of doing business than is imposed on domestic corporations.1560 A state statute taxing foreign corporations writing fire, marine, inland navigation and casualty insurance on net receipts, including receipts from casualty business, was held invalid under the Equal Protection Clause where foreign companies writing only casualty insurance were not subject to a similar tax.1561 Later, the doctrine of Philadelphia Fire Association v. New York was revived to sustain an increased tax on gross premiums which was exacted as an annual license fee from foreign but not from domestic corporations.1562 Even though the right of a foreign corporation to do business in a state rests on a license, the Equal Protection Clause is held to insure it equality of treatment, at least so far as ad valorem taxation is concerned.1563 The Court, in WHYY Inc. v. Glassboro,1564 held that a foreign nonprofit corporation licensed to do business in the taxing state is denied equal protection of the law where an exemption from state property taxes granted to domestic corporations is denied to a foreign corporation solely because it was organized under the laws of a sister state and where there is no greater administrative burden in evaluating a foreign corporation than a domestic corporation in the taxing state.
State taxation of insurance companies, insulated from Commerce Clause attack by the McCarran-Ferguson Act, must pass similar hurdles under the Equal Protection Clause. In Metropolitan Life Ins. Co. v. Ward,1565 the Court concluded that taxation favoring domestic over foreign corporations “constitutes the very sort of parochial discrimination that the Equal Protection Clause was intended to prevent.” Rejecting the assertion that it was merely imposing “Commerce Clause rhetoric in equal protection clothing,” the Court explained that the emphasis is different even though the result in some cases will be the same: the Commerce Clause measures the effects which otherwise valid state enactments have on interstate commerce, while the Equal Protection Clause merely requires a rational relation to a valid state purpose.1566 However, the Court’s holding that the discriminatory purpose was invalid under equal protection analysis would also be a basis for invalidation under a different strand of Commerce Clause analysis.1567
A state law that taxes the entire income of do-mestic corporations that do business in the state, including that derived within the state, while exempting entirely the income received outside the state by domestic corporations that do no local business, is arbitrary and invalid.1568 In taxing the income of a non-resident, there is no denial of equal protection in limiting the deduction of losses to those sustained within the state, although residents are permitted to deduct all losses, wherever incurred.1569 A retroactive statute imposing a graduated tax at rates different from those in the general income tax law, on dividends received in a prior year that were deductible from gross income under the law in effect when they were received, does not violate the Equal Protection Clause.1570
There is no denial of equal protection in prescribing different treatment for lineal relations, collateral kindred and unrelated persons, or in increasing the proportionate burden of the tax progressively as the amount of the benefit increases.1571 A tax on life estates where the remainder passes to lineal heirs is valid despite the exemption of life estates where the remainder passes to collateral heirs.1572 There is no arbitrary classification in taxing the transmission of property to a brother or sister, while exempting that to a son-in-law or daughter-in-law.1573 Vested and contingent remainders may be treated differently.1574 The exemption of property bequeathed to charitable or educational institutions may be limited to those within the state.1575 In computing the tax collectible from a nonresident decedent’s property within the state, a state may apply the pertinent rates to the whole estate wherever located and take that proportion thereof which the property within the state bears to the total; the fact that a greater tax may result than would be assessed on an equal amount of property if owned by a resident, does not invalidate the result.1576
Motor Vehicle Taxes.
In demanding compensation for the use of highways, a state may exempt certain types of vehicles, according to the purpose for which they are used, from a mileage tax on carriers.1577 A state maintenance tax act, which taxes vehicle property carriers for hire at greater rates than it taxes similar vehicles carrying property not for hire, is reasonable, because the use of roads by one hauling not for hire generally is limited to transportation of his own property as an incident to his occupation and is substantially less extensive than that of one engaged in business as a common carrier.1578 A property tax on motor vehicles used in operating a stage line that makes constant and unusual use of the highways may be measured by gross receipts and be assessed at a higher rate than are taxes on property not so employed.1579 Common motor carriers of freight operating over regular routes between fixed termini may be taxed at higher rates than other carriers, common and private.1580 A fee for the privilege of transporting motor vehicles on their own wheels over the highways of the state for purpose of sale does not violate the Equal Protection Clause as applied to cars moving in caravans.1581 The exemption from a tax for a permit to bring cars into the state in caravans of cars moved for sale between zones in the state is not an unconstitutional discrimination where it appears that the traffic subject to the tax places a much more serious burden on the highways than that which is exempt from the tax.1582 Also sustained as valid have been exemptions of vehicles weighing less than 3,000 pounds from graduated registration fees imposed on carriers for hire, notwithstanding that the exempt vehicles, when loaded, may outweigh those taxed;1583 and exemptions from vehicle registration and license fees levied on private carriers operating a motor vehicle in the business of transporting persons or property for hire, the exemptions including one for vehicles hauling people and farm products exclusively between points not having railroad facilities and not passing through or beyond municipalities having railroad facilities.1584
The state’s latitude of discretion is notably wide in the classification of property for purposes of taxation and the granting of partial or total exemption on the grounds of policy,1585 whether the exemption results from the terms of the statute itself or the conduct of a state official implementing state policy.1586 A provision for the forfeiture of land for nonpayment of taxes is not invalid because the conditions to which it applies exist only in a part of the state.1587 Also, differences in the basis of assessment are not invalid where the person or property affected might properly be placed in a separate class for purposes of taxation.1588
Early cases drew the distinction between intentional and systematic discriminatory action by state officials in undervaluing some property while taxing at full value other property in the same class—an action that could be invalidated under the Equal Protection Clause—and mere errors in judgment resulting in unequal valuation or undervaluation—actions that did not support a claim of discrimination.1589 Subsequently, however, the Court in Allegheny Pittsburgh Coal Co. v. Webster County Comm’n,1590 found a denial of equal protection to property owners whose assessments, based on recent purchase prices, ranged from 8 to 35 times higher than comparable neighboring property for which the assessor failed over a 10-year period to readjust appraisals.
Then, only a few years later, the Court upheld a California ballot initiative that imposed a quite similar result: property that is sold is appraised at purchase price, whereas assessments on property that has stayed in the same hands since 1976 may rise no more that 2% per year.1591 Allegheny Pittsburgh was distinguished, the disparity in assessments being said to result from administrative failure to implement state policy rather than from implementation of a coherent state policy.1592 California’s acquisition-value system favoring those who hold on to property over those who purchase and sell property was viewed as furthering rational state interests in promoting “local neighborhood preservation, continuity, and stability,” and in protecting reasonable reliance interests of existing homeowners.1593
Allegheny Pittsburgh was similarly distinguished in Armour v. City of Indianapolis,1594 where the Court held that Indianapolis, which had abandoned one method of assessing payments against affected lots for sewer projects for another, could forgive outstanding assessments payments without refunding assessments already paid. In Armour, owners of affected lots had been given the option of paying in one lump sum, or of paying in 10, 20 or 30-year installment plan. Despite arguments that the forgiveness of the assessment resulted in a significant disparity in the assessment paid by similarly-situated homeowners, the Court found that avoiding the administrative burden of continuing to collect the outstanding fees was a rational basis for the City’s decision.1595
An owner aggrieved by discrimination is entitled to have his assessment reduced to the common level.1596 Equal protection is denied if a state does not itself remove the discrimination; it cannot impose upon the person against whom the discrimination is directed the burden of seeking an upward revision of the assessment of other members of the class.1597 A corporation whose valuations were accepted by the assessing commission cannot complain that it was taxed disproportionately, as compared with others, if the commission did not act fraudulently.1598
A special assessment is not discrimina-tory because apportioned on an ad valorem basis, nor does its validity depend upon the receipt of some special benefit as distinguished from the general benefit to the community.1599 Railroad property may not be burdened for local improvements upon a basis so wholly different from that used for ascertaining the contribution demanded of individual owners as necessarily to produce manifest inequality.1600 A special highway assessment against railroads based on real property, rolling stock, and other personal property is unjustly discriminatory when other assessments for the same improvement are based on real property alone.1601 A law requiring the franchise of a railroad to be considered in valuing its property for apportionment of a special assessment is not invalid where the franchises were not added as a separate personal property value to the assessment of the real property.1602 In taxing railroads within a levee district on a mileage basis, it is not necessarily arbitrary to fix a lower rate per mile for those having fewer than 25 miles of main line within the district than for those having more.1603
- Davidson v. City of New Orleans, 96 U.S. 97, 106 (1878).
- Philadelphia Fire Ass’n v. New York, 119 U.S. 110 (1886); Santa Clara County v. Southern Pacific R.R., 118 U.S. 394 (1886).
- Bell’s Gap R.R. v. Pennsylvania, 134 U.S. 232, 237 (1890).
- The state “may, if it chooses, exempt certain classes of property from any taxation at all, such as churches, libraries and the property of charitable institutions. 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 manner; 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 their Constitution.” 134 U.S. at 237. See Lehnhausen v. Lake Shore Auto Parts Co., 410 U.S. 356 (1973); Kahn v. Shevin, 416 U.S. 351 (1974); and City of Pittsburgh v. Alco Parking Corp., 417 U.S. 369 (1974).
- Louisville Gas Co. v. Coleman, 227 U.S. 32, 37 (1928). Classifications for purpose of taxation have been held valid in the following situations: Banks: a heavier tax on banks which make loans mainly from money of depositors than on other financial institutions which make loans mainly from money supplied otherwise than by deposits. First Nat’l Bank v. Tax Comm’n, 289 U.S. 60 (1933). Bank deposits: a tax of 50 cents per $100 on deposits in banks outside a state in contrast with a rate of 10 cents per $100 on deposits in the state. Madden v. Kentucky, 309 U.S. 83 (1940). Coal: a tax of 2 ½ percent on anthracite but not on bituminous coal. Heisler v. Thomas Colliery Co., 260 U.S. 245 (1922). Gasoline: a graduated severance tax on oils sold primarily for their gasoline content, measured by resort to Baume gravity. Ohio Oil Co. v. Conway, 281 U.S. 146 (1930); Exxon Corp. v. Eagerton, 462 U.S. 176 (1983) (prohibition on pass-through to consumers of oil and gas severance tax). Chain stores: a privilege tax graduated according to the number of stores maintained, Tax Comm’rs v. Jackson, 283 U.S. 527 (1931); Fox v. Standard Oil Co., 294 U.S. 87 (1935); a license tax based on the number of stores both within and without Gambling: slot machines on excursion riverboats are taxed at a maximum rate of 20 percent, while slot machines at a racetrack are taxed at a maximum rate of 36 percent. Fitzgerald v. Racing Ass’n of Central Iowa, 539 U.S. 103 (2003). Insurance companies: license tax measured by gross receipts upon domestic life insurance companies from which fraternal societies having lodge organizations and insuring lives of members only are exempt, and similar foreign corporations are subject to a fixed and comparatively slight fee for the privilege of doing local business of the same kind. Northwestern Life Ins. Co. v. Wisconsin, 247 U.S. 132 (1918). Oleomargarine: classified separately from butter. Magnano Co. v. Hamilton, 292 U.S. 40 (1934). Peddlers: classified separately from other vendors. Caskey Baking Co. v. Virginia, 313 U.S. 117 (1941). Public utilities: a gross receipts tax at a higher rate for railroads than for other public utilities, Ohio Tax Cases, 232 U.S. 576 (1914); a gasoline storage tax which places a heavier burden upon railroads than upon common carriers by bus, Nashville C. & St. L. Ry. v. Wallace, 288 U.S. 249 (1933); a tax on railroads measured by gross earnings from local operations, as applied to a railroad which received a larger net income than others from the local activity of renting, and borrowing cars, Illinois Cent. R.R. v. Minnesota, 309 U.S. 157 (1940); a gross receipts tax applicable only to public utilities, including carriers, the proceeds of which are used for relieving the unemployed, New York Rapid Transit Corp. v. New York, 303 U.S. 573 (1938). Wine: exemption of wine from grapes grown in the State while in the hands of the producer, Cox v. Texas, 202 U.S. 446 (1906). Laws imposing miscellaneous license fees have been upheld as follows: Cigarette dealers: taxing retailers and not wholesalers. Cook v. Marshall County, 196 U.S. 261 (1905). Commission merchants: requirements that dealers in farm products on commission procure a license, Payne v. Kansas, 248 U.S. 112 (1918). Elevators and warehouses: license limited to certain elevators and warehouses on right-of-way of railroad, Cargill Co. v. Minnesota, 180 U.S. 452 (1901); a license tax applicable only to commercial warehouses where no other commercial warehousing facilities in township subject to tax, Independent Warehouses v. Scheele, 331 U.S. 70 (1947). Laundries: exemption from license tax of steam laundries and women engaged in the laundry business where not more than two women are employed. Quong Wing v. Kirkendall, 223 U.S. 59 (1912). Merchants: exemption from license tax measured by amount of purchases, of manufacturers within the state selling their own product. Armour & Co. v. Virginia, 246 U.S. 1 (1918). Sugar refineries: exemption from license applicable to refiners of sugar and molasses of planters and farmers grinding and refining their own sugar and molasses. American Sugar Refining Co. v. Louisiana, 179 U.S. 89 (1900). Theaters: license graded according to price of admission. Metropolis Theatre Co. v. Chicago, 228 U.S. 61 (1913). Wholesalers of oil: occupation tax on wholesalers in oil not applicable to wholesalers in other products. Southwestern Oil Co. v. Texas, 217 U.S. 114 (1910).
- Quong Wing v. Kirkendall, 223 U.S. 59, 62 (1912). See also Hammond Packing Co. v. Montana, 233 U.S. 331 (1914); Allied Stores of Ohio v. Bowers, 358 U.S. 522 (1959); Fitzgerald v. Racing Ass’n of Central Iowa, 539 U.S. 103 (2003).
- Puget Sound Co. v. Seattle, 291 U.S. 619, 625 (1934). See City of Pittsburgh v. Alco Parking Corp., 417 U.S. 369 (1974).
- Colgate v. Harvey, 296 U.S. 404, 422 (1935).
- Southern Ry. v. Greene, 216 U.S. 400, 417 (1910); Quaker City Cab Co. v. Pennsylvania, 277 U.S. 389, 400 (1928).
- Keeney v. New York, 222 U.S. 525, 536 (1912); Tax Comm’rs v. Jackson, 283 U.S. 527, 538 (1931).
- Giozza v. Tiernan, 148 U.S. 657, 662 (1893).
- Louisville Gas Co. v. Coleman, 227 U.S. 32, 37 (1928). See also Bell’s Gap R.R. v. Pennsylvania, 134 U.S. 232, 237 (1890).
- Stewart Dry Goods Co. v. Lewis, 294 U.S. 550 (1935). See also Valentine v. Great Atlantic & Pacific Tea Co., 299 U.S. 32 (1936).
- Louis K. Liggett Co. v. Lee, 288 U.S. 517 (1933).
- Quaker City Cab Co. v. Pennsylvania, 277 U.S. 389 (1928). This case was formally overruled in Lehnhausen v. Lake Shore Auto Parts Co., 410 U.S. 356 (1973).
- Tax Comm’rs v. Jackson, 283 U.S. 527, 537 (1931).
- Colgate v. Harvey, 296 U.S. 404, 422 (1935).
- Darnell v. Indiana, 226 U.S. 390, 398 (1912); Farmers Bank v. Minnesota, 232 U.S. 516, 531 (1914).
- Morf v. Bingaman, 298 U.S. 407, 413 (1936).
- Baltic Mining Co. v. Massachusetts, 231 U.S. 68, 88 (1913). See also Cheney Brothers Co. v. Massachusetts, 246 U.S. 147, 157 (1918).
- Philadelphia Fire Ass’n v. New York, 119 U.S. 110, 119 (1886).
- Hanover Fire Ins. Co. v. Harding, 272 U.S. 494, 511 (1926).
- Southern Ry. v. Green, 216 U.S. 400, 418 (1910).
- Concordia Ins. Co. v. Illinois, 292 U.S. 535 (1934).
- Lincoln Nat’l Life Ins. Co. v. Read, 325 U.S. 673 (1945). This decision was described as “an anachronism” in Western & Southern Life Ins. Co. v. State Bd. Of Equalization, 451 U.S. 648, 667 (1981), the Court reaffirming the rule that taxes discriminating against foreign corporations must bear a rational relation to a legitimate state purpose.
- Wheeling Steel Corp. v. Glander, 337 U.S. 562, 571, 572 (1949).
- 393 U.S. 117 (1968).
- 470 U.S. 869, 878 (1985). The vote was 5–4, with Justice Powell’s opinion for the Court joined by Chief Justice Burger and by Justices White, Blackmun, and Stevens. Justice O’Connor’s dissent was joined by Justices Brennan, Marshall, and Rehnquist.
- 470 U.S. at 880.
- The first level of the Court’s “two-tiered” analysis of state statutes affecting commerce tests for virtual per se invalidity. “When a state statute directly regulates or discriminates against interstate commerce, or when its effect is to favor in-state economic interests over out-of-state interests, we have generally struck down the statute without further inquiry.” Brown-Forman Distillers Corp. v. New York State Liquor Auth., 476 U.S. 573, 579 (1986).
- F.S. Royster Guano Co. v. Virginia, 253 U.S. 412 (1920). See also Walters v. City of St. Louis, 347 U.S. 231 (1954), sustaining a municipal income tax imposed on gross wages of employed persons but only on net profits of the self-employed, of corporations, and of business enterprises.
- Shaffer v. Carter, 252 U.S. 37, 56, 57 (1920); Travis v. Yale & Towne Mfg. Co., 252 U.S. 60, 75, 76 (1920).
- Welch v. Henry, 305 U.S. 134 (1938).
- Magoun v. Illinois Trust & Savings Bank, 170 U.S. 283, 288, 300 (1898).
- Billings v. Illinois, 188 U.S. 97 (1903).
- Campbell v. California, 200 U.S. 87 (1906).
- Salomon v. State Tax Comm’n, 278 U.S. 484 (1929).
- Board of Educ. v. Illinois, 203 U.S. 553 (1906).
- Maxwell v. Bugbee, 250 U.S. 525 (1919).
- Continental Baking Co. v. Woodring, 286 U.S. 352 (1932).
- Dixie Ohio Express Co. v. State Revenue Comm’n, 306 U.S. 72, 78 (1939).
- Alward v. Johnson, 282 U.S. 509 (1931).
- Bekins Van Lines v. Riley, 280 U.S. 80 (1929).
- Morf v. Bingaman, 298 U.S. 407 (1936).
- Clark v. Paul Gray, Inc., 306 U.S. 583 (1939).
- Carley & Hamilton v. Snook, 281 U.S. 66 (1930).
- Aero Mayflower Transit Co. v. Georgia Pub. Serv. Comm’n, 295 U.S. 285 (1935).
- F.S. Royster Guano Co. v. Virginia, 253 U.S. 412, 415 (1920).
- Missouri v. Dockery, 191 U.S. 165 (1903).
- Kentucky Union Co. v. Kentucky, 219 U.S. 140, 161 (1911).
- Charleston Fed. S. & L. Ass’n v. Alderson, 324 U.S. 182 (1945); Nashville C. & St. L. Ry. v. Browning, 310 U.S. 362 (1940).
- Sunday Lake Iron Co. v. Wakefield, 247 U.S. 350 (1918); Raymond v. Chicago Traction Co., 207 U.S. 20, 35, 37 (1907); Coutler v. Louisville & Nashville R.R., 196 U.S. 599 (1905). See also Chicago, B. & Q. Ry. v. Babcock, 204 U.S. 585 (1907).
- 488 U.S. 336 (1989).
- Nordlinger v. Hahn, 505 U.S. 1 (1992).
- 505 U.S. at 14–15.
- 505 U.S. at 12–13.
- 566 U.S. ___, No. 11–161, slip op. (2012).
- 566 U.S. ___, No. 11–161, slip op. at 7–10.
- Sioux City Bridge v. Dakota County, 260 U.S. 441, 446 (1923).
- Hillsborough v. Cromwell, 326 U.S. 620, 623 (1946); Allegheny Pittsburgh Coal Co. v. Webster County Comm’n, 488 U.S. 336 (1989).
- St. Louis-San Francisco Ry v. Middlekamp, 256 U.S. 226, 230 (1921).
- Memphis & Charleston Ry. v. Pace, 282 U.S. 241 (1931).
- Kansas City So. Ry. v. Road Improv. Dist. No. 6, 256 U.S. 658 (1921); Thomas v. Kansas City So. Ry., 261 U.S. 481 (1923).
- Road Improv. Dist. v. Missouri Pacific R.R., 274 U.S. 188 (1927).
- Branson v. Bush, 251 U.S. 182 (1919).
- Columbus & Greenville Ry. v. Miller, 283 U.S. 96 (1931).