U.S. Supreme Court
Educational Films Corp. v. Ward, 282 U.S. 379 (1931)
Educational Films Corp. v. Ward
Argued December 1, 1930
Decided January 12, 1931
282 U.S. 379
A New York statute taxes each domestic corporation of certain classes "for the privilege of exercising its franchise in this state." The tax is payable in advance for each year beginning November 1st, chanroblesvirtualawlibrary
and is at a specified rate on so much of the corporation's entire net income for its preceding fiscal year as is, under other provisions, allocated to its business carried on within the state. Net income is defined, by amendments, as embracing income from any source, and entire net income as meaning the total et income, "including all dividends received on stocks and all interest received from federal, state, municipal or other bonds." The income upon which the tax was measured in the present case was derived in part as royalties from copyrights granted by the United States.
1. Assuming that federal copyrights and the income therefrom are immune from state taxation as instrumentalities of the federal government, the tax here, insofar as measured by income from the copyright royalties, is not void as a tax on federal instrumentalities. P. 282 U. S. 386, et seq.
2. The nature of the tax must be determined by its operation, rather than by particular descriptive language applied to it. P. 282 U. S. 387.
3. Since the tax can be levied only where the corporation both seeks or exercises the privilege of doing business in one year and has been in receipt of net income during its preceding fiscal year, the tax, obviously is not exclusively on income apart from the franchise. P. 282 U. S. 388.
4. The state power to tax corporate franchises and the immunity of federal instrumentalities from taxation should be given such a practical construction as will not unduly restrict the power of the government imposing the tax or the exercise of the functions of the government which may be affected by it. Pp. 282 U. S. 388, 282 U. S. 391.
5. There is a logical and practical distinction between a tax laid directly upon all of any class of government instrumentalities, which the Constitution impliedly forbids, and a tax such as the present, which can in no case have any incidence unless the taxpayer enjoys a privilege which is a proper object of taxation, and which would not be open to question if its amount were arrived at by any other nondiscriminatory method. P. 282 U. S. 391.
6. The rule that a nondiscriminatory tax upon corporate franchises is valid notwithstanding the inclusion of tax exempt property or income in the measure of it is applicable to this case, since it cannot be said that the present tax, viewed in the light of actualities, imposes any such real or direct burden on the federal government as to call for the application of a different rule. P. 282 U. S. 392. chanroblesvirtualawlibrary
7. The rule applied in Macallen Co. v. Massachusetts is inapplicable here, because there is nothing to show that the tax was aimed at copyrights, the royalties being included merely because of the general language of the statute as it was before the reference to federal bonds was introduced by amendment. P. 282 U. S. 393.
41 F.2d 395 affirmed.
Appeal from a decree dismissing the bill in a suit to enjoin the New York Tax Commission from collecting a tax on the appellant corporation. chanroblesvirtualawlibrary