People ex rel. Hatch v. Reardon

The issue of law joined by the petition, return and reply is whether the legislature had power to enact, and did in fact enact, chapter 241 of the Laws of 1905, which provides for a tax on the sale and transfer of stock certificates. That act is part of the Tax Law, which it amends by adding a new article known as number fifteen. It imposes a tax “ on all sales, or agreements to sell, or memoranda of sales or deliveries or transfers of shares or certificates of stock in any domestic or foreign association, company or corporation, made after the first day of June, 1905,” of two cents “on each hundred dollars of face value or fraction thereof.” Payment of the tax must be denoted by an adhesive stamp or stamps affixed in a manner adapted to the circumstances of the sale.

The act is attacked as invalid on the ground that it was prematurely passed before it had been on the desks of the members of the legislature in its final form for at least three calendar legislative days prior to its final passage, as required by section 15, article 3 of the Constitution; that it makes an improper classification; that the tax is- imposed on a wrong basis; that it is imposed upon property without the state, and that the act violates the commerce clause of the Federal Constitution. '

After carefully considering these objections, we have reached the conclusion that they are not well founded and the following are our reasons, so far as we have found time to express them:

First. The statute in question originated, as a bill, in the senate, where it was amended from time to time and reprinted as often as it was amended. Printed copies thereof, as it was when introduced and as it was each time after it was amended, were promptly placed on the desks of the members of both houses when it was introduced and after each amendment. This was not required by any written rule of the legislature but was in accordance with the general practice that has prevailed since the Constitution of 1894 was adopted. The bill was passed by the senate on the third of April, 1905, was sent to the assembly for its concurrence on the fourth and was

The Constitution provides that “ No bill shall be passed or become a law unless it shall have been printed and upon the desks of the members, in its final form, at least three calendar legislative days prior to its final passage, unless the Governor, or the acting Governor, shall have certified to the necessity of its immediate passage, under his hand and the seal of the State.” (Const. art. 3, § 15.)

The object of this provision, which first appeared in the Constitution of 1894, is to prevent hasty and careless legislation, to prohibit amendments at the last moment and to secure more publicity than had been required before. Care was taken to provide for emergencies by a certificate of necessity from the governor, which authorizes immediate action. The requirement is not directory, but mandatory, as is obvious from the form of the command, which prohibits a bill from becoming a law without compliance therewith. The question is, who are meant by “ the members ” upon whose desks the printed bill is to be placed % Does the provision mean that the members of the legislature are to have the bill on their desks for three days prior to its final passage, which was the fact in the instance before us; or that the members of the house in which it originated must first have it on their desks for three days, and after they have passed it the members of the other house must have it on their desks for three days more before they can pass it ? If the latter is the true meaning of the requirement, it was not obeyed, for the bill was passed by the assembly on the second day after it was passed by the senate.

The Constitution created the legislature as an entity, con

Many other sections, containing similar provisions, might be cited, but the foregoing are sufficient to show that while the senate and assembly are separate bodies, they constitute the legislature; that their united action becomes the act of the legislature and that the members of both houses are members of the legislature. A bill is the draft of a proposed statute submitted to the legislature for enactment. It cannot become a law by the action of the senate alone, or of the assembly alone, but only by the action of both, when it becomes an act of the legislature, subject to the approval of the governor. It may originate in either house and when introduced in either it is before the legislature, or else no bill can ever get before it, for each house is part of the legislature. When, therefore, the Constitution provides that no bill shall be passed unless it shall have been printed and upon the desks of “ the members” in its final form for a certain period, it means the members of the legislature, not the members of the senate and assembly, -merely as such. This is emphasized by the contrast in the form of the command when action is required by the members of each house separately, as in section twenty of article third relating to the requirement of “a two-third vote” upon a bill “appropriating the public moneys or property for local or private purposes.” There the command is addressed “to the members elected to each' branch of the Legislature,” separately, instead of to the members of the legislature, collectively, which is the usual form. When the Constitution speaks of three calendar legislative days it means three calendar days of the legislature, or days when the legislature is in session. It does not mean six days, which the construction contended for would involve. The bill in its final form, that is in the form in which it becomes a law, must be on the desks of all members of both houses for three days before it is passed by either. But one occasion for placing it on the desks is named, not two separate occasions, the first confined to one house and the second to the other.

We can give no heed to the criticism of coiinsel that there is no statute or written rule requiring bills to be placed on the desks of member’s, for it is not the province of the courts to direct the legislature how to do its work. It is sufficient for us that the Constitution requires each house “ to keep a journal of its proceedings ” and that the journal of the assembly, which may be consulted to support a statute, shows that the constitutional provision in question was complied with when the act before us was passed. (Art. 3, § 11.)

Second. The classification made by selecting one kind of property and taxing the transfer of that "only, is assailed as so arbitrary, discriminating and unreasonable as to deprive certain persons of their property without due process of law and to withhold from them the equal protection of the laws.'

“ A tax may be imposed only on certain callings and trades, for when the state exerts its power to tax it is not bound to tax all pursuits or all property that may be legitimately taxed for governmental purposes. It would be .an intolerable burden if the state could not tax any property or calling unless at the same time it taxed all property or all callings.” (Connolly v. Union Sewer Pipe Co., 184 U. S. 540 , 562; Armour Packing Co. v. Lacey, 200 U. S. 226 , 235.)

“We cannot say that treating stocks of corporations as a class subject to special restrictions was unjust discrimination or denial of the full protection of the laws.” (Otis v. Parker, 187 U. S. 606 , 610.)

“ The Legislature must decide when and how and for what

There is no express restriction upon this power in our State Constitution and no implied restriction, except by the primary guaranties relating to life, liberty, property and due process of law. The same is true of the Federal Constitution except as to certain subjects of national interest under the control of Congress, such as imports, patent rights and agencies used to carry the powers of Congress into execution. Subject to these restraints, the legislature has supreme control of the power to tax, and its action, even if arbitrary, discriminating and unreasonable, is binding upon all persons and property within the boundaries of the state. The state retained all the power of legislation that it did not part with in adopting the Federal Constitution or consenting to the amendment thereof, and subject to that exception, it is as supreme as the British Parliament, which is restrained only by the custom of the realm and the conservatism of the people. Taxes upon the right of succession to property by will and intestate law, on special franchises and upon the sale of intoxicating liquors, are recent instances of the exercise of .this power by the state through the selection of special subjects of taxation, involving the exemption of all others, each of which was attacked as in violation of both Constitutions, but all were sustained by the courts. The tariff and internal revenue laws show that the same power of selection has been exercised by Congress, and the Federal courts have uniformly upheld it. Indeed, the prototype of the statute before us was an act of Congress passed in 1898, known as the “War Revenue Act,” imposing a stamp tax on sales, transfers and deliveries of stock certificates, which was sustained without dissent by the Circuit and Supreme Courts of the United States. (30 U. S. Stat. 448; United States v. Thomas, 115 Fed. Rep. 207 ; 192 U. S. 363 .) A like tax on sales of merchandise, although expressly limited to those made at “ any exchange or board of trade,” leaving all other sales untouched, was also sustained, and the declaration made that “ a sale at an exchange does form a proper

The legislature has power to classify as it sees fit by imposing a heavy burden on one class of property and no burden at all upon others, the remedy for injudicious action being in the hands of the people, not of the courts. Arbitrary selection and discrimination characterize the history of legislation, botli state and national, with reference to taxation, yet, when all persons and property in the same class are treated alike, it has uniformly been sustained both by the state and Federal courts. The tax on tobacco, on oleomargarine and the like is not less arbitrary or discriminating than the tax in question. While a tax upon a particular house, or horse, or the houses or horses of a particular man, or on the sale thereof, would obviously invade a constitutional right, still a tax upon all houses, leaving barns and business buildings untaxed, or upon all horses or the sale thereof, leaving sheep and cows untaxed, however unwise, would be within the power of the legislature. This is true of a tax on all houses with “ more than one chimney,” or “ with more than one hearth-stone,” or on all racehorses. The power of taxation necessarily involves the right of selection, which is without limitation, provided all persons in the same situation are treated alike and the tax imposed equally upon all property of the class to which it belongs. (Matter of McPherson, 104 N. Y. 306 , 318; Matter of Gould, 156 N. Y. 423 , 427.) The equal protection of the laws “ only requires the same means and methods to be applied impartially to all the constituents of each class, so that the laws shall operate equally and uniformly upon all persons in similar circumstances.” (Kentucky R. R. Cases, 115 U. S. 321 , 337.) Or, in other words, all persons must “be treated alike under like circumstances and conditions, both in the privilege conferred and the liabilities imposed.” (Magoun v. Illinois Trust and Savings Bank, 170 U. S. 283 , 293; Hayes v. Missouri, 120 U. S. 68 ; Barbier v. Connolly, 113 U. S. 27 , 32.) “ Let it reach all of a class, either of persons or tilings, it matters not whether those included in it be one or many, or

The tax in question is not imposed upon property, but on the transfer of a certain class of property, extensively bought and sold throughout the state. It does not discriminate between different kinds of stock, taxing the sale of some and leaving others untaxed, but treats all in the class alike. The class includes all sales of certificates issued by any domestic or foreign association, company or corporation. It is a large and comprehensive class, as is shown by the revenue produced, which amounts to five or six millions per annum. The sales affected are made chiefly for speculation which may have influenced the legislature in making the selection. The statute operates equally and uniformly upon all transfers of the class named when made by any person within the state. All persons who sell stocks are treated 'alike and all parts of the state are treated alike. It applies with equal force to all sales, whether in the city or country, in exchanges, offices or on the street, by farmers, mechanics, brokers and others. The classification violates neither Constitution.

Third. It is claimed that the statute is invalid because it fixes the amount of the tax regardless of the value of the certificates sold or of the sum for which they are sold.

The tax in question is an excise tax which need not depend upon any principle of valuation or on any notice to the taxpayer. It is not a direct tax governed by the rule of appraisement, but an indirect tax governed by the rule of uniformity. It is not like a general tax upon the bulk of property in the state which must.be paid in any event, for if there is no sale there» is no tax. Neither notice nor grievance day is required, for no valuation is made except by the statute itself, and there is no provision in either Constitution requiring such a tax to be laid on an ad'valorem basis. There can be no tax without a sale, even if the property is of great value and is owned -in every household. When a sale is made the tax follows, and the legislature had the right to measure it in any way that it saw fit.

Convenience in doing business, the slight cost of collection and the necessity of preventing evasion are important considerations in laying an excise tax and the rule of counting rather than valuing is almost universally adopted, so that the citizen may know at once the amount of the tax and pay it by affixing the stamps required, which are permanent evidence of the sum paid. The statute itself in all such cases, as well as in the case under consideration, apportions the tax

Pourth. It is insisted that a tax on the transfer of stock certificates issued by ú foreign corporation and owned by a non-resident, although made within' this state, is virtually a tax on property without the jurisdiction of the state.

This position is founded on the theory that the shares of capital stock of a corporation represent its property and if that property is not within the state the shares are not taxable

The question is whether the state has jurisdiction to impose a tax on a certain class of contracts when made Avithin its territorial limits? Jurisdiction over the persons who make the contract does not depend on their residence, but on their presence within the state when the contract is made. Jurisdiction over property depends on its physical presence here, or if it is persona] property, either its presence here or the residence of the owner here. The fiction of the common law, mdbilia sequuntur personam, has no foundation in the Constitution and does not control the legislature, Avhich rejects or adopts it at will as applied to the subject of taxation. When íavo citizens of Connecticut come into this state and make a contract here, to be enforced here, both they and their contract are subject to its laws, and they are not only entitled to the protection thereof, but are under the same obligation to obey as if they were citizens. .Such a contract is valid or invalid as our laws declare. When the law commands that if they, or any other persons, whether residents or not, make a certain contract here they must pay a certain tax for the privilege, the command is personal, addressed to them as persons. then Avithin the state, and is as binding on them as if they resided in the state. Their rights and their obligations in reference to such a contract are the same as if they were citizens, no greater and no less. The fact that the contract,

We think such specific or excise taxes are laid upon privileges rather than on property. (Orr v. Gilman, 183 U. S. 278 , 289 ; Clark v. Titusville, 184 U. S. 329 Thomas v. United States, 192 U. S. 363 ; Foppiano v. Speed, 199 U. S. 501 , 520.) This was distinctly held in the Thomas case, and necessarily so held, for if a tax on certificates is a tax on property it is a direct tqx requiring apportionment “among the several states * * * according to their respective numbers.” (Art. 1, § 2, par. 3.) But, even assuming that a tax on the sale of property is, in effect, a tax on the property itself, what are certificates of stock and how may they be treated by the state for the purpose of taxation? They may be treated as property from the function they perform and the use that is made of them. They may well be regarded as a distinct species of property, for they now represent the bulk of property in the state and are the universal medium of transfer. As we said in a recent case : “ The main use of certificates is for convenience of transfer, and they are treated by business men as property for all practical purposes. They

It does not appear how long the certificates in question had been in the state, or that they were here for some temporary purpose when they were sold by the relator to the complainant. For aught that appears they had been here for years in the possession of the owner, or deposited for safekeeping and had a situs here, so that they" were subject to taxation here. They may have been bought here by the relator on the day of sale, and up to that time they may have been owned and in the possession of "a resident of the state for year after year. The state found them here, and the presumption, in the absence of evidence to the contrary, is that they were subject to taxation here. If, owing to special circumstances, they were not, it was incumbent upon the relator to prove the fact. The legislature had the right to treat them as property and make them property for the purpose of taxation the same as it treats a bank deposit as money, although in reality it is a debt. (Matter of Houdayer, 150 N. Y. 37 ; Matter of Romaine, 127 N. Y. 80 , 88.) We think that the tax, whether it is regarded as a tax on the sale of stock certificates or on the. certificates themselves, touched neither person nor property without the jurisdiction of the state.

The commerce clause provides that Congress shall have power “ to regulate commerce with foreign nations and among the several states and with the Indian tribes.” (Art. 1, § 8, par. 3.) The omission of Congress to exercise this power in any case is an expression of its will that the subject shall be left free from restrictions upon it by the states. (Robbins v. Shelby County, 120 U. S. 489 .) Commerce is the commanding word in the simple but weighty sentence quoted from the Constitution. What is commerce ? According to the derivation, history and use of the word it is the exchange of property and includes the usual agencies of communication and transportation employed to effect the exchange. Thus it extends to whatever is used to move the property involved and the persons engaged in making the contract. Interstate commerce, or commerce among the states, means the exchange of property in one state for property in another state. Its essential characteristic is that the property affected must be transported to some point without the state. There must be interstate movement of property. The telegraph cases do not conflict with this view, for the telegraph practically transports either news or money. The interchange may be between residents of different states or residents of the same state, but the property exchanged must move from one state to another. There can be no interstate commerce without interstate transportation of property, which includes money as well as merchandise and whatever can become the subject of exchange.

Even upon the assumption that certificates of stock are property, the transaction in question involved no movement of property from one state to another, for so far as appears neither money nor property "was brought into the state or taken out of it. A citizen of Connecticut met another citizen of that state in the city of Hew York and there bought the certificates of him, which were delivered and paid for on the

The discussion of this point has proceeded thus far on the theory that the tax is in substance a tax on property, but, as we have held, it is in fact a tax only on the privilege of transfer. But it is insisted that a tax on the privilege of transferring certificates issued by foreign corporations, when the transfer though made here is between non-residents, tends to prevent freedom of commercial intercourse and, hence, is a" restraint upon interstate commerce. The direct effect of a tax on the privilege of making a contract in this state, to be per

While interstate commerce, as such, cannot be taxed at all, the property employed therein may be taxed, even if it is used to facilitate interstate traffic, such as the rolling stock of a foreign railroad corporation running cars into one state from another. (Pullman Palace Car Co. v. Pennsylvania, 141 U. S. 18 .) In deciding this case the court said : “There is nothing in the Constitution or laws of the United States which prevents a state from taxing personal property, employed .in interstate or foreign commerce, like other personal property within its jurisdiction. (Citing Delaware R. R. Tax, 18 Wall. 206 , 232; Telegraph Co. v. Texas, 105 U. S. 460 , 464; Gloucester Ferry Co. v. Penn., 114 U. S. 196 , 206, 211; Western Union Telegraph Co. v. Attorney-General of Mass., 125 U. S. 530 , 549; Marye v. Baltimore & Ohio R. R. Co., 127 U. S. 117 , 124; Leloup v. Mobile, 127 U. S. 640 , 649.) ” A railroad company engaged in interstate commerce and operating a railroad lying partly within and partly without a state “is liable to pay an excise tax according to the value of the business done in the state.” (Maine v. Grand Trunk Ry. Co., 142 U. S. 217 .)

A state cannot regulate interstate commerce, for Congress .only has that power, but as it can tax property employed therein the same as all other property, it can tax the privilege of transferring such property, provided it treats non-residents the same as residents and subjects all transfers in the same class to the same tax. If there is no discrimination in favor of domestic commerce, there is no attack on interstate commerce, for the indirect effect of such a tax is no greater than one laid on property used therein. Taxation of a telegraph company, doing an interstate business, upon its prop

A tax on the right to engage in interstate commerce, as by a commercial traveler, was held void as an attempt to regulate a subject under Federal control, but that is quite different in principle from a tax on all transfer’s of a certain kind of property, which, like all other property, may at times enter into interstate transactions, but is not peculiar thereto. (Robbins v. Shelby County, 120 U. S. 489 .) The tax before us is not on the transfer of stock in foreign corporations, but on the transfer of stock in all corporations. “ A uniform tax imposed by a state on all sales made in it, whether they bo made by a citizen of it or a citizen of some other state, and whether the goods sold are the produce of the state enacting the law or of some other state, is valid,” because “ there is no attempt to discriminate injuriously against the products of other states or the rights of their citizens, and the case is not, therefore, an attempt to fetter commerce among the states, or to deprive the citizens of other states of any privilege or immunity possessed by the citizens of ” the state in question. (Woodruff v. Parham, 8 Wall. 123 , 140; Brown v. Houston, 114 U. S. 622 ; Emert v. Missouri, 156 U. S. 297 ; American Steel & Wire Co. v. Speed, 192 U. 8. 500.)

So a tax on all meat-packing houses in a state, or on the agents thereof, is valid although some do an interstate as well as a domestic business. (Armour Packing Co. v. Lacey, 200 U. S. 232 ; Kehrer v. Stewart, 197 U. S. 60 .) A tax on the gross commissions of brokers derived, wholly in one instance and partly in another, from sales made in behalf of many non-resident principals who shipped goods from without the state for sale, was held to affect interstate commerce only so “ incidentally and remotely as not to amount to a regulation ”

The principles governing interstate commerce are in process of development, and, as is usually true in evolving the law out of many complicated cases, the treatment by the courts has not always been uniform or consistent. We think, however, that the weight of authority regards state legislation, which treats all persons, all property and all transfers of the same class in the same way under the same circumstances,

The order appealed from should be affirmed.

Cullen, Oh. J., O’Brien, Haigiit, Werner, Willard Bartlett and Hiscock, JJ., concur.

Order affirmed.