Royster Guano Company v. Virginia/Dissent Brandeis
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 action attributable to hostile discrimination against particular persons or classes. Beers v. Glynn, 211 U.S. 477, 485, 29 Sup. Ct. 186, 53 L. Ed. 290; Merchants' Bank v. Pennsylvania, 167 U.S. 461, 463, 464, 17 Sup. Ct. 829, 42 L. Ed. 236; Bell's Gap Railroad v. Pennsylvania, 134 U.S. 232, 237, 10 Sup. Ct. 533, 33 L. Ed. 892. The question presented for our decision is whether the action of Virginia in subjecting its domestic corporations which transact business within the state to a tax on all their income, wherever earned, while exempting from the tax those domestic corporations which transact no business within the state, is so clearly arbitrary or invidious, as to fall within the constitutional prohibition.

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 classes of domestic corporations. The following reason is, in my opinion, substantial, and shows that the classification is not illusory, nor the state's actio  necessarily arbitrary or invidious.

It is a matter of common knowledge that some states have, in the past, made the granting of charters to nonresidents for companies, which purpose transacting business wholly without the state of incorporation, an important source of revenue. The action of those states has materially affected the legislation of other states. Sometimes it has led to active competition for the large revenues believed to be available from this source. More often, it has led to protective measures. The Legislature of Virginia may have believed that its own citizens interested in corporations whose business was transacted wholly in other states or countries, might be tempted to incorporate under more favorable laws of other states, but that such temptation would prove ineffective where the companies transacted a part of their business 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 franchise tax $225. Acts of 1903, c. 148, §§ 37, 43, 41, pp. 179, 182, 180, as amended respectively by Acts of 1912, c. 301; Acts 1910, c. 58; Acts 1908, c. 227. In the year 1915-1916 the fees and taxes from this source aggregated $114,175.80.  The number of charters issued was 1067-many of them, as the list indicates, to companies whose business would be transacted wholly without the state of Virginia.  The dangers from competition incident to less burdensome corporation laws of other states had, in other connections, been considered by the tax commission.  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; and it would have been natural that to avert such loss the Legislature should have relieved such corporations from the payment of 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 rathert hat the Legislatures of the several states may safely be intrusted with the duty 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. 

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