(253 U. S. 412) (Argued March 19 and 22, 1920. Decided June 7, 1920.) No. 165. 37-IMPOSITION OF TAX ON INCOME FROM SOURCES OUTSIDE THE STATE INVALID, WHERE CORPORATIONS DOING NO BUSINESS WITHIN STATE ARE NOT TAXED, personal property permanently outside the state involved in Delaware, Lackawanna & F. S. ROYSTER GUANO CO. v. COMMONWEALTH OF VIRGINIA. Western R. R. Co. v. Pennsylvania, 198 U. S. 341, 25 Sup. Ct. 669, 49 L. Ed. 1077, and Union Transit Co. v. Kentucky, 199 U. S. 194, 26 Sup. Ct. 36, 50 L. Ed. 150, 4 Ann. Cas. 493, were held immune from taxation by the 1. CONSTITUTIONAL LAW ~229(1)—TAXATION states in which the companies were incorporated. The limitation upon the power of taxation does not apply even to tangible personal property without the state of the corporation's domicile, if, like a seagoing vessel, the property has no permanent situs anywhere. Southern Pacific Co. v. Kentucky, 222 U. S. 63, 68, 32 Sup. Ct. 13, 56 L. Ed. 96. Nor has it any application to intangible property (Union Transit Co. v. Kentucky, supra, 199 U. S. 205, 26 Sup. Ct. 36, 50 L. Ed. 150, 4 Ann. Cas. 493; Hawley v. Malden, 232 U. S. 1, 11, 34 Sup. Ct. 201, 58 L. Ed. 477, Ann. Cas. 1916C, 842), even though the property is also taxable in another state by virtue of having acquired a "business situs" there (Fidelity & Columbia Trust Co. v. Louisville, 245 U. S. 54, 59, 38 Sup. Ct. 40, 62 L. Ed. 145, L. R. A. 1918C, 124). As stated in that case: "It is unnecessary to consider whether the distinction between a tax measured by certain property and a tax on that property could be invoked in a case like this. Flint v. Stone Tracy Co., 220 U. S. 107, 146, 162, 31 Sup. Ct. 342, 55 L. Ed. 389, Ann. Cas. 1912B, 1312, et seq. Whichever this tax technically may be, the authorities show that it must be sustained." [6] Counsel for the company direct our attention to cases like Adams Express Co. v. Ohio, 165 U. S. 194, 227, 17 Sup. Ct. 305, 41 L. Ed. 683, and 166 U. S. 185, 17 Sup. Ct. 604, 41 L. Ed. 965, which hold that a state may tax a foreign corporation, not only on the value of its tangible property within the state, but also on that proportion *330 of its entire intangible property which is fairly represented by and must be included, in order to place a just value on the tangible property located and the business transacted there. The conclusion drawn by them is that the situs of the intangible property must be with the tangible; otherwise, they say, we must hold that it is in two places at once and that it may be subjected to double taxation. To this it is sufficient to say that the Fourteenth Amendment does not prohibit double taxation. Coe v. Errol, 116 U. S. 517, 524, 6 Sup. Ct. 475, 29 L. Ed. 715; Kidd v. Alabama, 188 U. S. 730, 732, 23 Sup. Ct. 401, 47 L. Ed. 669; Fidelity & Columbia Trust Co. v. Louisville, supra. Affirmed. Home Insurance Co. v. New York, 134 U. S. 594, 601, 10 Sup. Ct. 593, 33 L. Ed. 1035, as personal property consisted in the right to do business as a corporation (see page 599). Acts Va. 1916, c. 472, in so far as it imposes on a domestic corporation doing business both within and outside the state a tax with respect to its income derived from sources outside the state, denies such corporation the equal protection of the laws, in violation of the Fourteenth Amendment, in view of Acts Va. 1916, c. 495, exempting domestic corporations doing no part of their business within the state from any tax on their income; the classification being arbitrary. 2. TAXATION 113-TAXING STATUTES TO BE CONSTRUED TOGETHER. Acts Va. 1916, c. 472, imposing an income tax on persons or corporations, and including all income or profits from business done in or out of the state, and Acts Va. 1916, c. 495, exempting domestic corporations doing no business within the state from taxation on their income, must be construed together as parts of one and the same law. 3. CONSTITUTIONAL LAW 209-STATES MAY RESORT TO CLASSIFICATION IN LEGISLATION. The equal protection of the laws, required by Const. Amend. 14, does not prevent the states from resorting to classification for the purposes of legislation. 4. CONSTITUTIONAL LAW209 CLASSIFICA TION MUST REST UPON SOME REASONABLE Under Const. Amend. 14, classification for purposes of legislation must be reasonable, and not arbitrary, and must rest upon some ground lation to the object of the legislation, so that of difference having a fair and substantial reall persons similarly circumstanced shall be treated alike. For other cases see same topic and KEY-NUMBER in all Key-Numbered Digests and Indexes (40 Sup.Ct.) Messrs. Cadwallader J. Collins and James E. Heath, both of Norfolk, Va., for plaintiff in error. [1] The statute thus assailed (Va. Acts 1916, c. 472) imposes an income tax of 1 per centum upon "the aggregate amount of inMr. J. D. Hank, Jr., of Richmond, Va., for come of each person or corporation," subthe Commonwealth of Virginia. *414 ject to specified deductions and exemptions; Mr. Justice PITNEY delivered the opinion including in income "all profits from earnof the Court. Plaintiff in error is a corporation created by and existing under the laws of Virginia, engaged in the business of manufacturing and selling commercial fertilizers. It operates a manufacturing plant in the county of Norfolk in that state and several plants in other states. From the operation of its plant in Virginia it made net profits during the year ending December 31, 1916, amounting in round figures to $260,000, and from the operation of its plants in other states during the same year made net profits amounting to about $270,000. Under the revenue law of *413 ings of any partnership or business done in or out of Virginia," and also "all other gains and profits derived from any source whatever." Under this act, as applied to plaintiff in error by the state officers, whose action was sustained by the court of last resort, a tax was imposed upon the income derived from its plants without the state as well as from that within the state. At the same time, chapter 495, Acts 1916 (page 830), approved on the same day, was in force. This reads as follows: "Whereas, certain corporations have been organized under the laws of Virginia, and it is anticipated that certain others will be organized thereunder, which do no business within this state; therefore-1. Be it enacted by the general assembly of Virginia, that no income tax nor ad valorem taxes, state or local, shall be imposed upon the stocks, bonds, investments, capital or other intangible property owned by state which do no part of their business within corporations organized under the laws of this this state; and the mere holding of stockholders' meetings in this state by such corporations required by law, shall not be construed as doing any business in this state within the meaning of this act"-with further matter not neces sary to be quoted. It is not disputed that, under this act, corporations created by and existing under the laws of Virginia, and doing business in other states, but none within the state except the holding of stockholders' meetings, are exempted from the payment of any in come tax. *the state (Act April 16, 1903 [Va. Acts, c. 148, p. 155], as amended by Act March 22, 1916 [Va. Acts, c. 472, p. 793]), plaintiff in error returned for taxation as income the former amount, omitting the latter. Under appropriate provisions of law the state officials added the latter amount, and assessed an income tax against plaintiff in error upon the aggregate. It petitioned the corporation court of the city of Norfolk for relief from so much of the tax as represented the $270,000, among other reasons upon the ground that, so far as chapter 472 of 1916 taxed that part of its business which was transacted outside of the limits of Virginia, the law imposed upon plaintiff in error a burden not placed upon domestic corporations doing no part of their business in Virginia but transacting business beyond the limits thereof, such corporations, by chapter 495 of 1916 (Va. Acts, p. 830), being [2] Of course, these two statutes-chapter expressly exempted from a tax on income 472 and chapter 495-must be considered toderived from business done without the lim-gether as parts of one and the same law; its of the state; and hence chapter 472, as applied to the business of plaintiff in error transacted beyond the limits of the state, denied to it the equal protection of the laws, in violation of the Fourteenth Amendment. Other points were raised, but they require no mention. The corporation court having sustained the tax, plaintiff in error applied to the Supreme Court of Appeals of the state for a writ of error and supersedeas to review the judgment. That court being of opinion that the decision was right, the application was denied and an order entered in effect affirming the judgment of the corporation court; whereupon this writ of error, directed to the Supreme Court of Appeals in accordance with the practice indicated in Norfolk Turnpike Co. v. Virginia, 225 U. S. 264, 269, 32 Sup. Ct. 828, 56 L. Ed. 1082, was sued out under section 237, Judicial Code, as amended September 6, 1916 (39 Stat. 726, c. 448 [Comp. St. § 1214]). 40 SUP.CT.-36 and by their combined effect, if the judgment under review be affirmed, plaintiff in error will be required to pay a tax upon its income derived from business done without as well as from that done within the state, while other corporations owing existence to #415 the same laws and simul*taneously deriving income from business done without the state, but none from business within it, are exempt from taxation. [3-5] It is unnecessary to say that the "equal protection of the laws" required by the Fourteenth Amendment does not prevent the states from resorting to classification for the purposes of legislation. Numerous and familiar decisions of this court establish that they have a wide range of discretion in that regard. But the classification must be reasonable, not arbitrary, and must rest upon some ground of difference having a fair and substantial relation to the object of the against them for that which ought to operate if at all in their favor. It is obvious that the ground of difference upon which the discrimination is rested has no fair or substantial relation to the proper object sought to be accomplished by the legislation. It follows that it is arbitrary in effect; and none the less because it is probable that the unequal operation of the taxing system was due to inadvertence rather than design. We suggest that it was inadvertent because shortly after the present suit was brought, and as if in recognition of and in order to correct the discrimination, the revenue act was amended by Act of March 14, 1918 (chapter 219, Va. Acts, p. 395), providing: *417 legislation, so that all persons similarly circumstanced shall be treated alike. The latitude of discretion is notably wide in the classification of property for purposes of taxation and the granting of partial or total exemptions upon grounds of policy. Bell's Gap R. R. Co. v. Pennsylvania, 134 U. S. 232, 237, 10 Sup. Ct. 533, 33 L. Ed. 892; Michigan Central Railroad v. Powers, 201 U. S. 245, 293, 26 Sup. Ct. 459, 50 L. Ed. 744; Keeney v. New York, 222 U. S. 525, 536, 32 Sup. Ct. 105, 56 L. Ed. 299, 38 L. R. A (N. S.) 1139; Citizens' Telephone Co. v. Fuller, 229 U. S. 322, 329, 33 Sup. Ct. 833, 57 L. Ed. 1206; Northwestern Life Ins. Co. v. Wisconsin, 247 U. S. 132, 139, 38 Sup. Ct. 444, 62 L. Ed. 1205. Nevertheless a discriminatory tax law cannot be sustained against the complaint of a party aggrieved if the classifica- "Persons and corporations *doing a part of tion appear to be altogether illusory. Now their business within the state and a part withboth of the taxing provisions here in ques- out the state, and having offices or other regution relate to corporations organized under lar places of business both within and without the state, shall be taxed only upon such income the laws of Virginia. It is the object of as is derived from business transacted and chapter 495 to exempt such corporations property located within the state, which may from income taxes (as well as taxes upon in- be determined by an allocation and separate actangible property) where they do no business counting," etc. within the state except holding their stockholders' meetings therein; manifestly in recognition of the fact that Virginia corporations so circumstanced derive no governmental protection from the state warranting the imposition of taxes upon their incomes derived from without the state or property taxes upon their intangibles, and in recognition of the impolicy, if not injustice, of imposing such taxes upon them while they are liable, *416 But this was not retrospective, and, for the reasons given, we are constrained to hold that so far as chapter 472 of the Laws of 1916 operated to impose upon plaintiff in error a tax upon income derived from business transacted and property located without the state because of the mere circumstance that it also derived income from business transacted and property located within the state, while at the same time, under chapter 495, other corporations deriving their existence and powers from the laws of the same state, and receiving income from business transacted and property located without the state, but none from sources within the state, were exempted from income taxes, there was an arbitrary discrimination amounting to a denial to plaintiff in error of the equal protection of the laws within the meaning of the Fourteenth Amendment. Judgment reversed, and the cause remanded for further proceedings not inconsistent with this opinion. and presumably subjected, to taxation in the state or states where their income-producing business is conducted. But no ground is suggested, nor can we conceive of any, sustaining this exemption which does not apply with equal or greater force as a ground for exempting from taxation the income of Virginia corporations derived from sources without the state where they also transact income-producing business within the state. Corporations of this class derive no more protection from the state of their origin with respect to their outside business, and are no less subject to taxation by the states in which such business is conducted, than corporations of the other class; and they are required to comply with the same laws as to the payment of organization taxes and annual registration fees and franchise taxes to the state of origin. Their business done within the state presumably is of some general benefit to the state, certainly enriches its treasury by the amount of the taxes they pay upon the income derived therefrom; and the imposition upon them under chapter 472 of taxes not only upon this income, but also upon income that they derive from business conducted outside of the state (similar in- action *attributable to hostile discrimination come of the favored corporations being ex- against particular persons or classes. Beers empted) has the effect of discriminating v. Glynn, 211 U. S. 477, 485, 29 Sup. Ct. 186, Mr. Justice BRANDEIS dissenting, with whom Mr. Justice HOLMES concurs. It is settled that mere inequalities or exemptions in state taxation are not forbidden by the equal protection clause of the Fourteenth Amendment; that the power of the state to make any reasonable classification of property, occupations, persons or corporations for purposes of taxation is not abridged thereby; and that the amendment forbids merely inequality which is the result of clearly arbitrary action and, particularly, of *418 (40 Sup.Ct.) 53 L. Ed. 290; Merchants' Bank v. Pennsyl- | franchise tax $225. Acts of 1903, c. 148, §§ vania, 167 U. S. 461, 463, 464, 17 Sup. Ct. 37, 43, 41, pp. 179, 182, 180, as amended re829, 42 L. Ed. 236; Bell's Gap Railroad v. spectively by Acts of 1912, c. 301; Acts 1910, Pennsylvania, 134 U. S. 232, 237, 10 Sup. Ct. c. 58; Acts 1908, c. 227. In the year 1915533, 33 L. Ed. 892. The question presented 1916 the fees and taxes from this source agfor our decision is whether the action of Vir- gregated $114,175.80.1 The number of charginia in subjecting its domestic corporations ters issued was 1067-many of them, as the which transact business within the state to list indicates, to companies whose business a tax on all their income, wherever earned, would be transacted wholly without the while exempting from the tax those domes- state of Virginia.2 The dangers from competic corporations which transact no business tition incident to less burdensome corporawithin the state, is so clearly arbitrary or tion laws of other states had, in other coninvidious, as to fall within the constitution- nections, been considered by the tax commisal prohibition. sion. It may well have been the case that the Legislature did not wish to put in peril revenues already being received from concerns which, as they transacted no business within the state, might easily have surrendered their Virginia charters and reincorporated under the laws of the other states; *420 The court declares the act void on the ground that no substantial reason for difference in treatment between the two classes of domestic corporations has been suggested or can be conceived; and that the classification is illusory and the state's action arbitrary. I can conceive of a reason for differentiating in respect to taxation between the two class- and it would have been natural that *to avert es of domestic corporations. The following such loss the Legislature should have relievreason is, in my opinion, substantial, and ed such corporations from the payment of shows that the classification is not illusory, nor the state's action necessarily arbitrary or invidious. ness within the state of Virginia and enjoyed compensating advantages. If the Legislature of Virginia enacted the laws of 1916 here in question because it held that view, we surely cannot say that its action was unreasonable or arbitrary. And with the wisdom of its action we have no concern. If there were a doubt as to its reasonableness the facts which were, or may have been, before the Legislature should be considered. Every private domestic business corporation makes a substantial contribution to the revenues of Virginia, even if it is not subjected to property or income taxes. It pays an organization tax on incorporation, and annually thereafter both a registration fee and an annual franchise tax. These fees and taxes are graduated. For a corporation with a $1,000,000 capital the organization fee is $200; the annual registration fee and income taxes. The joint committee on tax revision had recommended that the income tax cover "all profits from earnings of any partnership or business done in or out of Virginia," and had not suggested that domestic corporations should be exempted from it. It was reasonable that other domestic corporations should have been subjected, like natural persons domiciled within the state, to a tax on all income-whether earned within or without the state. Compare Cream of Wheat Co. v. County of Grand Forks, 253 U. S. 325, 40 Sup. Ct. 558. 64 L. Ed. decided June 1, 1920. The court calls attention to the Act of March 14, 1918 (chapter 219, Va. Acts, p. 395), which exempts all individuals and corporations from the burden of taxation on incomes earned without the state. The effect of this act is, among other things, to remove the alleged discrimination here complained of. But its enactment does not, in my opinion, indicate that the imposition of the tax was inadvertent. To my mind it indicates rather that the Legislatures of the several states may safely be intrusted with the du ty of legislation. I cannot doubt that the classification for purposes of taxation made by the act of 1916 was within the power of the state. But if I did not think the matter clear, I should, for the reasons stated by me fully elsewhere, feel constrained to resolve the doubt in favor of the constitutionality of the act. (253 U. S. 447) BEIDLER v. UNITED STATES. (Argued April 27 and 28, 1920. Decided 1. PATENTS June 7, 1920.) No. 260. 118-OPERATION OF PHOTO HELD NOT SUFFICIENTLY DESCRIBED. which it is claimed is new and useful. The invention is declared in the specification to consist in "the details of construction and in the arrangement and combination of the parts," as "set forth and claimed" by the inventor. Figure 1 of the drawings, forming a part GRAPHING AND DEVELOPING APPARATUS of the specification, will aid in explaining the construction and function of the invention as claimed and in determining the character and extent of the disclosures of the patent. Under Rev. St. § 4888 (Comp. St. § 9432), requiring disclosure of the best mode of an application of the discovery, specifications of patent for photographing and developing apparatus held not to include in the description of the operation the giving of an oscillating movement to the film to cause its prompt submergence in the developer, without which the operation would be unsuccessful. 2. PATENTS 328 1,057,397 FOR PHOTOGRAPHING AND DEVELOPING APPARATUS HELD VOID FOR INSUFFICIENT DISCLOSURE. Beidler patent, No. 1,057,397, for photographing and developing apparatus, held void for insufficient disclosure of mode of operation. 3. PATENTS-328-1,057,397 HELD NOT IN FRINGED BY PHOTO-COPYING MACHINE MAN- Photo-copying machine known as Photostat, manufactured and sold under Green patent, No. 1,001,019, held not an infringement of Beidler patent, No. 1,057,397, if the latter were valid. Appeal from the Court of Claims. Suit by George C. Beidler against the United States to recover damages for infringement of a patent. Decree for defendant (53 Ct. Cl. 636), and complainant appeals. Affirmed. See, also, 40 Sup. Ct. 9, 64 L. Ed. Messrs. Charles J. Williamson and Frank S. Appleman, both of Washington, D. C., for appellant. The Attorney General, Mr. Frank Davis, Jr., Asst. Atty. Gen., and Messrs. Daniel L. Morris, and Edward G. Curtis, Sp. Asst. Attys. Gen., for the United States. $449 Fag.1. *448 *The described mode of operation is substantially as follows: W is a roll of sensitized paper or film placed immediately below the exposure chamber F of a camera, with its sensitized surface uppermost to receive the desired image, reflected from the mirror H. This film is fed into the chamber between the rolls b, and thence along the floor to the rollers D where it emerges from the camera and is seized by "clips" or clamps N. These clamps are supported and carried by a rack M, and may be moved to and fro (reciprocated) by turning the pinions L on the shaft K, by means of a crank. I, J and J' are shallow pans or "tanks" in which suitable "developing," "fixing," and "washing" solutions or fluids are placed and the whole of the construction to the right of the camera, as we face the print, is inclosed in a light-proof case E, referred to in the patent sometimes as a "compartment" and sometimes as a "chamber." The rack M, and the clamps which hold and support the film, move above the tanks and necessarily above Mr. Justice CLARKE delivered the opin- the level of the liquid within them. By turnion of the Court. This is a suit to recover damages for the infringement of 5 of the 41 claims of letters patent No. 1,057,397, applied for March 23, 1907, and granted on March 25, 1913. ing the pinion L, the rack M is moved outwardly away from the camera, and the clamps draw the film after them until the required length is attained, when it is severed from the roll by a manually operated cutter, *450 The specification describes the claimed invention as an improvement in photographing. When the film is thus cut to the *desired and developing apparatus, and as designed length, obviously only the free end will fall primarily for reproducing writings, drawings, to the surface of the solution in the tank 1, pictures or the like, "novel means being also and by continuing the outward movement of provided to convey the sensitized film through the rack M, the specification declares, “the a series of receptacles containing suitable film is carried through the several tanks." developing and fixing fluids or though suit- The "clips" or clamps are set and released able baths, according to requirements." automatically and at the limit of the outward movement the film is released and falls into the tank J'. By reversing the turning of the pinions L the rack and clamps are returned inwardly to the camera, so that the operation, just detailed, may be repeated. *448 *The patent is for a machine made up of a combination of elements all of which were old, to produce a result which was old but by a method of co-ordination and operation For other cases see same topic and KEY-NUMBER in all Key-Numbered Digests and Indexes |