that the same Congress shall have power "to exercise exclusive legislation, in all cases whatsoever, over such District'

That is, the District of Columbia:

"(not exceeding 10 miles square) as may, by cession of particular States and the acceptance of Congress, become the seat of government of the United States." Under this provision of the constitution, the Congress became and was the local legislature of the District of Columbia, and as such, and as such only, it had the right and the power to provide for the incorporation of a private corporation, such as the appellee, within and for said District. Although the statute under which the appellee became incorporated was enacted by the Congress of the United States, yet, in its enactment, Congress was acting, and could only act, as the legislature of the District of Columbia; and, under this statute, the appellee became and was a corporation, not of the United States, but of said District.

Now, I cite these cases for the purpose of establishing to my mind the necessarily fundamental proposition that meets any inquiry at the threshold as to the power which this bill invokes if enacted by the Congress on the proposition that an artificial person, a corporation created by one sovereignty, has no right to project its activities or to exercise its corporate franchises in another sovereignty except by that comity which expresses itself in acquiescence or by express acquiescence, and the other sovereignty can if it sees fit regulate it and license it.

Now, if that is true in the relationship that exists between State sovereignties, what is the reason, what is the legal argument that the national sovereignty can not impose a license, a regulation upon corporations created by a State that undertakes to exercise corporate franchises under the national control?

Now, Mr. Loos said for the purpose of using an illustration that might be hateful: Is it possible that a baker in Chicago, because he wishes to buy flour in Michigan, or machinery in Ohio, has to allow the Congress of the United States, has to submit to the authority of the Congress to fix the size of his loaf and the formula for mixing the ingredients of that loaf?

Why, let me put the proposition back to Mr. Loos. This is not the question, although we have heard it discussed here for a week, of the butcher and the baker and the candlestick maker; it is a question of corporations, of artificial persons. Suppose a corporation is organized under the laws of Illinois to do a baking business, and suppose it should go to Minenapolis and undertake to establish a local baking business there. Is there any question about the right of the State of Minnesota to treat it as a foreign corporation and to license it, to regulate it?

Suppose, however, that such a corporation organized to carry on a baking business under the laws of Illinois should undertake to ship their loaves to Minnesota, could Minnesota in the exercise of the policy of the State that its legislature thought ought to prevail, and in the exercise of the power they believed they had, undertake to meet that corporation in its interstate commerce with license and regulation? Why, the answer would be made by all the courts that Minnesota. can not do that. And why? Because this is a franchise not exercised in Minnesota under the Minnesota sovereignty. This is a function of interstate commerce; this is a corporate franchise they are exercising in transacting interstate commerce, it is a corporate franchise that they are exercising under the paramount sovereignty of the United States.

Then I ask you: Is it possible that if it is a corporation created by Illinois it can be regulated in its ordinary business transactions when it seeks to invade the sovereignty of Minnesota but can not be licensed or regulated when it carries on interstate commerce in Minnesota, because the paramount authority to regulate interstate commerce is vested in the national sovereignty? Is it possible that the power, then, does not lie in the National Congress to license and to regulate such a corporation? Is it possible, I ask, that in the shuffling of our governments this important attribute of sovereignty, to use the expression of Chief Justice Marshall, has been lost? Has a card of the deck been dropped in the shuffle by our fathers? Did they lose that card when they divided the sovereignty of this country that in some countries rests in the crown and in others in the parliament, and here is divided between the National and the State Governments?

Now, the other proposition, the other limitation, that I say rests upon the State exercising its sovereign power to determine whether it shall be invaded by artificial creatures of another State is one that it can not impose conditions upon its admission, conditions involving the regulation of the corporation that deprives the corporation of some constitutional rights, the constitutional right of inviolability of contract obligations, to have its property not taken except by due process of law, to resort to the Federal courts? These have been well recognized.

On the second limitation, in the recent case of Hanover Fire Insurance Co. v. Carr (272 U. S.) the court said it was settled in the Bank of Augusta v. Earle and in numerous other cases that foreign corporations can not do business in a State except by the consent of the State; that the State may exclude them arbitrarily that is, from engaging in business within its jurisdiction-but there is a very important qualification to this power of State regulation, as shown by decisions in recent years, and the qualification is that the State may not exact as a condition precedent to its doing business within. its limits that the rights secured to it by the Constitution of the United States may be infringed.

Now, I desire to discuss when I take up the bill section by section, and I want to ask: In what respect this bill, either in the secondary license or the primary license, has, by the regulation that it imposes upon these corporation, deprived any of the parties of any constitutional right? But with these two limitations a State can exclude any corporation, or license or regulate it. And I say, since a State has been held to be powerless to deal with a foreign corporation in relation to interstate commerce, that the power must exist under the sovereign and paramount sovereignty of Congress to license and regulate these artificial persons when they undertake to exercise their corporate franchises under the national sovereignty.

What right has the State of West Virginia to give life to a corporation and undertake to project its corporate activities beyond the boundaries of the State? No right except that which arises under the fact that Indiana and these other States can not regulate interstate commerce. But the very argument that they can not requires the conclusion that the Federal Congress must be able to do so. In the Northern Securities Co. case in 1904 (193 U. S. 345) it was said:

No State can by merely creating a corporation, or any other mode, project its authority into other States and across the continent so as to prevent Congress

from exercising the power it possesses under the Constitution over interstate and international commerce.

Now, upon this very question of the relation of the Federal Government to these artificial creatures, of their nature as being separable and distinct from the nature and characteristics of the natural person, I want to call the committee's attention to the very interesting case of Fline v. Stone Tracy Co. (220 U. S. 107). In 1894, as we all remember, an income tax law was passed, and it was held unconstitutional by the Supreme Court. Then later on, pursuant to a message by the then President, now Chief Justice Taft, Congress enacted a statute that imposed what is called an excise tax upon incomes of corporations exceeding $5,000, an excise tax on 1 per cent. That tax was bitterly assailed on the ground that the decision of the Supreme Court with reference to income taxes held they had to be apportioned among the States under the old Constitution, which made it impossible to levy that sort of a tax upon corporations, and for various other reasons.

The fact of the matter is-and that is interesting-that there were some 10 companies

Mr. TOWNSEND (interposing). Some 17 companies.

Mr. WARRUM (continuing). That were combined, 10 cases that were combined in the opinion and they were all heard at once. They represented all classes of corporations, municipal, railroads, gas companies, trust companies, insurance companies, real-estate companies, companies engaged in interstate commerce and under the direction of the court or with its approval a synopsis of the briefs, which is interesting to note, is filed in this official report.

It is interesting to notice that the State of Vermont was represented by Mr. John G. Sargent, then attorney general of Vermont. Among other attorneys appearing was Joseph B. Foraker, and John G. Johnson, long the dean of the American bar, and Victor Morawetz, and a great many others among the best known legal lights. They attacked it from every possible point of view. The Solicitor General of the United States said:

It is said to be a tax upon exports, and void because beyond the power of Congress to lay in any manner; a direct tax and void because not apportioned among the States according to population; an excise tax and void because not uniform throughout the United States; a tax upon corporate franchises, and void as an impairment of the sovereignty of the States; a tax upon business and void as discriminating against corporations; not a tax at all, but a mere confiscation of private property for public use; void because in its methods of assessment and collection it involves unreasonable search and seizure and self-incrimination; and, finally, that it was not constitutionally enacted because it is a revenue measure and originated in the Senate.

In other words, it is very interesting to note that the attack made upon that bill is reminiscent of last week's hearing before this committee. But I want to call your attention to what the attorney general said, because it is.an echo-well, not an echo itself but is echoed here by some of the arguments presented to you, about the novelty of this proposition. The attorney general of Vermont [Mr. Sargent] said:

Until the enactment of the corporation tax law no such tax had been imposed by Congress. In 122 years of legislation under the Constitution the corporatior tax of 1909 is the first of its kind.

A careful examination of the opinion will show that this proposition was answered by the Supreme Court by completely ignoring it. But the attorney general of Vermont goes on to say:

The burdens of the corporation tax law fall on the franchise of every corporation.

Why have not they done it before? Why has there not been some attempt to exercise it? I think this is an attempt along the same line and in the same direction. But he says:

The law, therefore, puts the burden on the power of the States to create corporations, and mere phraseology counts for little as against the substance and effect when the constitutionality of the law is attacked.

The plain language of the tenth amendment to the Constitution is not to be evaded by a device which clothes an invasion of State sovereignty in a new

name.

We have heard the tenth amendment referred to here, the amendment that reserves to the States all of the powers not expressly conferred upon the Federal Government. That argument was used there that they could not find anywhere in the Constitution an authority for levying a tax of this character upon corporations.

Among the "ordinary functions" of State government is the creation of corperations, and the exercise of a prerogative of sovereignty in creating them is strictly governmental. The invasion of State sovereignty through the corporation tax is actuai and real.

Now, just for a moment, in order to see the scope of this hearing, the extent of it, and the reaction of the court to it. Mr. Davies and Mr. McKinley appeared for the Baltic Mining Co. Their proposition is based upon the idea that their company was engaged in interstate

commerce:

The power of Congress to raise revenue for the support of the General Government, that is, its power of taxation, and the power of Congress to regulate commerce with foreign nations and among the several States, are both derived from the same articles of the Constitution of the United States.

Well, that is true:

In their origin they are equal and coordinate powers. The power to regulate commerce, is, however, exclusive of the power to tax concurrent with the powers of the several States.

The corporation tax is unconstitutional; as to corporations engaged in interstate commerce it is clearly a tax on the doing of the business of interstate commerce, as it exceeds regulation.

The court agreed with them but said it could be done:

Taxation is not included within the power of regulation granted by the Constitution. The power to tax is the power to destroy or prohibit.

Chief Justice Marshall has said that long ago in McCulloch v. Maryland, and it is repeated in this decision, that the power that Congress undertook to exercise under this excise tax, taxing corporations 1 per cent, involved the power to destroy. As we will see, they sustained the law and the exercise of congressional authority.

If interstate commerce can be taxed at all, it can be taxed out of existence and thus prohibited. The power to regulate does not include the power to prohibit.

This case goes as is apparent much further than our case. The authority of Congress to levy this tax was confined in this action to Article I, section 8, clause 1:

The Congress shall have power to lay and collect taxes, duties, imposts, and excises, to pay the debts, and 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.

The income tax law had been held invalid under this provision: That representatives and direct taxes shall be apportioned among the several States. Now, here is the act:

That every corporation, joint-stock company, or association organized for profit and having a capital stock represented by shares, and every insurance company now or hereafter organized under the laws of the United States or of any State or Territory of the United States or under the acts of Congress applicable to Alaska or the District of Columbia, or now or hereafter organized under the laws of any foreign country and engaged in business in any State or Territory of the United States or in Alaska or in the District of Columbia, shall be subject to pay annually a special excise tax with respect to the carrying on or doing business by such corporation, joint-stock company or association or insurance company, equivalent to 1 per cent upon the entire net income over and above $5,000 received by it from all sources during such year, exclusive of amounts received by it as dividends upon stock of other corporations.

And exempting certain agricultural and horticultural and building and loan associations.

Now, the court was confronted with the power of Congress under this taxing clause to lay its taxing and destroying hand upon corporations exclusively. And the power was to be confined in this clause I have just read, to the right to levy excise taxes-and the power to regulate interstate commerce is just as broad; in fact, it is broader, because there are no limitations upon it. The tax has to be imposed uniformly throughout the United States and to serve the public welfare, to pay debts and provide for the national defense. But in the regulation of commerce the Congress is provided with broad powers, as broad as any language can make it. ~ And as stated by counsel in this case, the power that Congress may have under the taxing clause must be equivalent to the power Congress has under the interstate-commerce clause. If that is true, let us see what they do with corporations. The court says:

Within the category of indirect taxation, as we shall have further occasion to show, is embraced a tax upon business done in a corporate capacity, which is the subject matter of the tax imposed in the act under consideration. The Pollock case

which was the income-tax decision

construed the tax there levied as direct, because it was imposed upon property simply because of its ownership. In the present case the tax is not payable unless there be a carrying on or doing of business in the designated capacity, and this is made the occasion for the tax, measured by the standard prescribed. The difference between the acts is not merely nominal, but rests upon substan tial differences between the mere ownership of property and the actual doing of business in a certain way.

And further:

The tax under consideration, as we have construed the statute, may be described as an excise upon the particular privilege of doing business in a corporate capacity, that is, with the advantages which arise from corporate or quasi-corporate organizations; or, when applied to insurance companies, for doing the business of such companies. As was said in the Thomas case (192 U. S. 363), supra, the requirement to pay such taxes involves the exercise of privileges and the element of absolute and unavoidable demand is lacking.