that State The importance of the question involved in the case of South Carolina v. United Claim States (199 U.S. 437), decided in 1905, was, as stated by Mr. Justice Brewer, who delivered the opinion of the court, whether persons who are selling liquor are agents are liable relieved from liability for the internal revenue tax by the fact that they have no interest in the profits of the business and are simply the agents of a State which, in the exercise of its sovereign power, has taken charge of the business of selling intoxicating liquors.1 The United States demanded the licence tax in accordance with the provisions of the internal revenue act, the dispensers filed the applications for the licences, and the State, sometimes in cash and sometimes by warrants on its treasury, paid the United States, without protest prior to April 14, 1901, when a protest by the State dispensary commissioner was made and filed with the United States collector of internal revenue at Columbia, South Carolina. No appeal or application for the repayment of the sums paid by the various dispensaries was made either by them or by the State to the Commissioner of Internal Revenue, as authorized by the Revised Statutes, Sections 3226, 3227, and 3228.2 The laws of South Carolina prohibited the sale of liquors by individuals other than the dispensers, and of the 373 special licence stamps issued by the United States internal revenue collector in that State, only 112 were to dispensers and 260 to private individuals. To recover the amounts paid for licence taxes by the dispensers, the State of South Carolina began three actions in the Court of Claims, where they were consolidated and a judgement entered for the United States, from which the State of South Carolina appealed to the Supreme Court of the United States. In the Court of Claims, Mr. Chief Justice Nott opened his opinion with a very interesting statement, showing the novelty, the importance of the case, and the facts and principles involved, saying: This is believed to be the first case brought before a court in which a State has united in one undertaking an exercise of the police power with a commercial business. The exercise of the police power is by legislating and limiting the sale of intoxicating liquor; the commercial business is that of buying and selling such liquors for profit; the question involved is whether the dispensary agents of the State can be required to pay the special tax or license fee imposed on dealers in liquors by the internalrevenue laws of the United States.3 to tax. Action by to recover the State taxes paid. ment in the Court for the From the head-note in the case it appears that the Court of Claims held that Judge'If a State unites in one undertaking an exercise of the police power with a commercial business, the National Government can not be compelled to aid the operation of Claims of the police power by foregoing its constitutional right to lay and collect an impost United or excise on the business part of the transaction'; that 'the Constitution contains States. no grant of power, express or implied, which authorizes the General Government to tax a State through its means and instrumentalities of government; but an excise on the dealer is a tax upon the consumer; and the exemption of the State from taxation extends no further than the functions belonging to a State in its ordinary capacity'; and that 'The principle which rules and guides in such cases is this: The exemption of sovereignty extends no further than the attributes of sovereignty'.4 State of South Carolina v. United States (199 U.S. 437, 447). 2 Ibid. (199 U.S. 437, 438). 3 39 Court of Claims Reports, 257, 280. State of South Carolina v. United States (199 U.S. 437, 439 note). Argu In the course of his argument before the Supreme Court, Mr. Henry M. Hoyt, ment for then Solicitor-General for the United States, said: the United States. Judge ment of the court of the United States. The dispensary system is not a valid exercise of the police power, and the State has deliberately embarked in a commercial enterprise for the sole object of profit. . . . If the State's contentions are well founded, she may assume entire control of the manufacture and sale of liquors and tobacco without paying taxes; she may import free liquors and drugs and cloths; she may engage in any business whatever, under the police claim, on just as good grounds, and claim to be free of all Federal taxation. If some States chose to follow the lead of Australia or New Zealand, on the theory of the government ownership of land and leases to occupants in place of private ownership and title, the right of direct taxation also by the United States would fall before its claim. If one State could pursue these theories, all States could, and the result would be that the Federal power of taxation, both direct and indirect, would be destroyed. . . . When a State enters into business as a corporator, it lays down its sovereignty so far. . . . This principle applies, however the State's business may be conducted, whether as member of a partnership or of a corporation or, as here, by the State acting alone and exercising an exclusive monopoly. The State chooses to step down from its sovereignty and must take the consequences. When the United States avails of the law merchant, it is bound by the rules of that law, notwithstanding its sovereignty. . . If a State embarks in the liquor business, it does so with the same consequences and subject to the same liabilities under the law as a private individual or an ordinary corporation; the internal revenue taxes collected from the South Carolina dispensary system were therefore properly exacted.1 Mr. Justice Brewer, who, as has been stated, delivered the opinion of the court, first considered and eliminated the objection that the word 'person', used in the in favour Revised Statutes, did not apply to a State. If standing alone it might, but would hardly, have been doubtful; but it was defined in the statute to mean and include a partnership, association, company, or corporation, as well as a natural person Doubt was therefore excluded, and, without referring to the many cases that might be cited, the case of the Republic of Honduras v. Soto (112 New York Reports, 310), decided in 1889, may be referred to as holding the very point in question. Mr. Justice Brewer, however, did not consider it worth while to quote an authority or to argue the question, inasmuch as it was the dispensers who applied for and received the licences and who sold the liquors. The question was not whether the dispensers applied for and received licences in order to sell liquor, but whether they, as agents of the State, could be taxed, because the taxation of an agent of the State is in effect a taxation of the State, and, as Mr. Justice Marshall said in the leading case of M'Culloch v. Maryland (4 Wheat. 316), the right to tax is the right to tax out of existence. From this standpoint, the question is seen to be one of vast importance, and it might involve the existence of the State, if the dispenser were to be conceived as the agent of the State in its sovereign capacity. But not if the State, engaging in business, is to be considered as a private person and as having renounced the immunities of sovereignty in so far as the business is concerned. The importance of the case lies in the fact that the United States is a Union of States, retaining their original sovereignty except in so far as they have divested themselves thereof or of its exercise by a direct grant or by necessary implication, that we have, therefore, two great spheres, separate and distinct, although the line of demarcation may at times be difficult to draw, in one of which each State is supreme, and in the other the United States. The unwarranted exercise of power by either within the sphere of the other disturbs the equilibrium of the States and the harmony of the system. This phase of the subject is thus briefly but clearly stated by Mr. Justice Brewer, who said: govern We have in this Republic a dual system of government, National and state, each A dual operating within the same territory and upon the same persons; and yet working system of without collision, because their functions are different. There are certain matters ment.. over which the National Government has absolute control and no action of the State can interfere therewith, and there are others in which the State is supreme, and in respect to them the National Government is powerless. To preserve the even balance between these two governments and hold each to its separate sphere is the peculiar duty of all courts, preeminently of this—a duty oftentimes of great delicacy and difficulty.1 The learned Justice might have added, had he had in mind the society of nations, that its court would of necessity occupy a like position and assume the same rôle, maintaining the rights of the society on the one hand and safeguarding the rights of its members on the other. Although Mr. Justice Brewer spoke of the nation instead of a Union of States, and certainly could not be accused of sacrificing, even in theory, the former to the latter, he recognized that the Government of the United States was one of enumerated powers, with its necessary consequence that the powers not granted directly or by implication remained with the States. On the other hand, he recognized that a power enumerated and delegated by the Constitution to Congress 'is comprehensive and complete, without other limitations than those found in the Constitution itself', a principle of interpretation applicable to the powers reserved by the States as well as to the powers granted by them, as he himself observed in delivering the opinion of the court in Fairbanks v. United States (181 U.S. 283, 288), decided in 1901. The Constitution is, therefore, at once the grant and the measure of the powers granted. It means what its framers intended it to mean at the time that they framed it and the States adopted it, just as any convention of the society of nations means what the contracting powers meant it to mean when they ratified it, and is to be so interpreted and applied until the one is amended according to its terms or the other modified by consent of the parties. This principle, sound and unanswerable in itself, Mr. Justice Brewer thus stated: ment of the Constitution. The Constitution is a written instrument. As such its meaning does not alter. DevelopThat which it meant when adopted it means now. Being a grant of powers to a government its language is general, and as changes come in social and political life it embraces in its grasp all new conditions which are within the scope of the powers in terms conferred. In other words, while the powers granted do not change, they apply from generation to generation to all things to which they are in their nature applicable. This in no manner abridges the fact of its changeless nature and meaning. Those things which are within its grants of power, as those grants were understood when made, are still within them, and those things not within them remain still excluded.2 1 State of South Carolina v. United States (199 U.S. 437, 448). 2 Ibid. (199 U.S. 437, 448-9). Text of As authority for this statement he appealed to the opinion of Mr. Chief Justice Taney in Dred Scott v. Sandford (19 Howard, 393, 426), decided in 1857: It is not only the same in words, but the same in meaning, and delegates the same powers to the Government, and reserves and secures the same rights and privileges to the citizens; and as long as it continues to exist in its present form, it speaks not only in the same words, but with the same meaning and intent with which it spoke when it came from the hands of its framers, and was voted on and adopted by the people of the United States. Any other rule of construction would abrogate the judicial character of this court, and make it the mere reflex of the popular opinion or passion of the day. In interpreting this written instrument, we must bear in mind that the language used in the Constitution is to be understood in its natural sense, and, as Chief Justice Marshall pointed out in the case of Gibbons v. Ogden (9 Wheaton, 1, 188), decided in 1824, the framers of the Constitution are to be understood to have intended what they have said'. And it is also to be borne in mind that, in interpreting the Constitution, recourse is to be had to the common law, inasmuch as ' its provisions are framed in the language of the English common law, and are to be read in the light of its history', as aptly stated by Mr. Justice Matthews in delivering the opinion of the court in Smith v. Alabama (124 U.S. 465, 478), decided in 1888. Applying this conception of the Constitution and its interpretation in order to ascertain its exact meaning, 'we must', Mr. Justice Brewer said, 'therefore, place ourselves in the position of the men who framed and adopted the Constitution, and inquire what they must have understood to be the meaning and scope of those grants.'1 The learned Justice thereupon enumerates the grants, in order later to ascertain the extent of the power conveyed by them. Thus : By the first clause of section 8 of Article I of the Constitution, Congress is given the Con- the power to lay and collect taxes, duties, imposts, and excises, to pay the debts and stitution. provide for the common defense and general welfare of the United States; but all duties, imposts and excises shall be uniform throughout the United States.' By this clause the grant is limited in two ways: The revenue must be collected for public purposes, and all duties, imposts and excises must be uniform through the United States. The fourth, fifth, and sixth clauses of section 9 of Article I are : 4. No capitation, or other direct, tax shall be laid, unless in proportion to the census or enumeration herein before directed to be taken. 5. No tax or duty shall be laid on articles exported from any, State. 6. No preference shall be given by any regulation of commerce or revenue to the ports of one State over those of another; nor shall vessels bound to, or from, one State, be obliged to enter, clear, or pay duties in another.' Article V of the Amendments provides that no one shall be deprived of 'life, liberty, or property, without due process of law'.2 These, Mr. Justice Brewer informs us, are the only constitutional provisions bearing definitely upon the subject, and upon them he thus comments: It will be seen that the only qualifications of the absolute, untrammeled power to lay and collect excises are that they shall be for public purposes, and that they shall be uniform throughout the United States. All other limitations named in the Constitution relate to taxes, duties and imposts. If, therefore, we confine our 1 State of South Carolina v. United States (199 U.S. 437, 450). inquiry to the express provisions of the Constitution there is disclosed no limitation on the power of the General Government to collect license taxes.1 It had been said by Mr. Justice Miller, in delivering the opinion of the court in Ex parte Yarbrough (110 U.S. 651, 658), 'that what is implied is as much a part of the instrument as what is expressed.' Passing to a consideration of matters which are implied, though not expressed, Mr. Justice Brewer himself says, speaking for the majority of the court: nor the Among those matters which are implied, though not expressed, is that the Neither Nation may not, in the exercise of its powers, prevent a State from discharging the the ordinary functions of government, just as it follows from the second clause of States Article VI of the Constitution, that no State can interfere with the free and unem- Union barrassed exercise by the National Government of all the powers conferred upon it.... In other words, the two Governments, National and State, are each to exercise their power so as not to interfere with the free and full exercise by the other of its powers.2 After calling attention to the fact that this principle was laid down in the leading case of M'Culloch v. Maryland (4 Wheaton, 316), holding that the State had no power to impose a tax upon the operations of a national bank, and particularly applicable to federal agencies, the learned Justice showed that the converse was equally true, that the United States could not tax State agencies, quoting with approval the following language of Chief Justice Chase in the leading case of Texas v. White (7 Wallace, 700, 725), decided in 1868: Not only, therefore, can there be no loss of separate and independent autonomy to the States, through their union under the Constitution, but it may be not unreasonably said that the preservation of the States, and the maintenance of their governments, are as much within the design and care of the Constitution as the preservation of the Union and the maintenance of the National Government. The Constitution, in all its provisions, looks to an indestructible Union, composed of indestructible States. For if the Government of the Union could tax at its pleasure the agencies of the States they might be destroyed, and with the indestructible States the indestructible Union would pass out of existence. Mr. Justice Brewer also appropriately refers to the cases of The Collector v. Day (11 Wallace, 113), decided in 1870, in which it was held that Congress could not impose a tax upon the salary of a judicial officer of a State, and quoted with approval the following passage from Mr. Justice Nelson's opinion in that case : It is admitted that there is no express provision in the Constitution that prohibits the General Government from taxing the means and instrumentalities of the States, nor is there any prohibiting the States from taxing the means and instrumentalities of that Government. In both cases the exemption rests upon necessary implication, and is upheld by the great law of self-preservation; as any government, whose means employed in conducting its operations, if subject to the control of another and distinct government, can exist only at the mercy of that government. Of what avail are these means if another power may tax them at discretion? If the State should step from its pedestal and compete with the man in the street, it would exempt not only the official of the State representing it as such in the State of South Carolina v. United States (199 U.S. 437, 451). 2 Ibid. (199 U.S. 437, 451-2), can interfere with the other. |