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decided: March 19, 1934.



Hughes, Van Devanter, McReynolds, Brandeis, Sutherland, Butler, Stone, Roberts, Cardozo

Author: Stone

[ 291 U.S. Page 620]

 MR. JUSTICE STONE delivered the opinion of the Court.

This is an appeal under § 237 of the Judicial Code from a judgment of the Supreme Court of Washington, 172 Wash. 668; 21 P. 2d 727, sustaining a municipal license or excise tax, assailed by appellant as infringing the Fourteenth Amendment and the contract clause of the Federal Constitution.

An ordinance of the City of Seattle of May 23, 1932, imposes an annual license tax upon the privilege of carrying on the business of selling or furnishing electric light

[ 291 U.S. Page 621]

     and power to consumers. The tax is 3% of the gross income from the business "in the city" during the fiscal year next preceding the tax year for which the license is required. The suit, brought to recover an installment of the tax already paid and to enjoin the collection of future installments, was heard and decided upon demurrer to appellant's complaint.

Both appellant, a Massachusetts corporation, acting under a municipal franchise, and appellee, the City of Seattle, acting by state authority, are engaged and actively compete in the business of furnishing electric light and power to consumers for hire. By state law the city is given plenary power to fix rates for the electric current which it distributes, and its rates are not subject to regulation and control by the Public Service Commission, as are those of appellant. § 10390, Remington's Rev. Stat. of Washington. Revenues of the city from its electric light business are required by the city charter, Art. VIII, § 9, to be deposited in a special "city light fund," separate from the general funds of the city, and transfer from one fund to the other, except by direction of the city council, is forbidden by the city charter. Art. IX, § 17. Section 6 of the ordinance, in terms, imposes the same tax on the city "so far as permitted by law," as that levied on appellant. But it appears that the city, acting under a state statute, § 9491, Remington's Rev. Stat. of Washington, enacted before the taxing ordinance, has issued bonds, the payment of which, both principal and interest, is secured by the revenue of its electric light business. Appellant contends that by the statute, municipal ordinance, and the terms of the bonds themselves, this pledge is superior to all other charges upon the gross revenue and that the city cannot lawfully pay the tax. It appears that in fact the city has not paid the tax or made any provision for paying it. The state court, in passing on this question, said:

[ 291 U.S. Page 622]

     "The city has not allocated, and probably cannot allocate, any of the revenues of its power and light business to the payment of such a tax. Bonds have been issued in excess of $30,000,000 against the revenues from that business; and those bonds are a prior lien on the entire income from it -- taking precedence even over operating charges. Conceding that the city's light and power revenues could be subjected to the tax, no machinery is set up in the ordinance to accomplish such an end. Furthermore, in making up its budget for 1932, no provision was made for the levy of general taxes to cover the excise provided for in the ordinance. So the problem must be met as though § 6 had been omitted from the ordinance; . . ." [p. 671]

Whether by this statement the court intended to decide that the city could not lawfully pay the tax, or assumed that to be the case for the purpose of the decision, it is unnecessary to determine, for appellant further insists that even though the tax were paid by the city to itself it would impose no actual burden.

Asserting that no effective tax is imposed with respect to the business carried on by the city, appellant argues that the taxation of its competing business is a denial of equal protection and deprives it of its property without due process. The tax is also assailed because the measure of it is vague and uncertain and because, by imposing a license tax upon the privilege of doing the business, the ordinance impairs appellant's franchise contract which gave it the right to conduct the business.

In sustaining the constitutionality of the tax, the state court found it unnecessary to ascertain whether, under the city charter and ordinances, and state law, the tax if paid by the city must be paid from its city light fund rather than from its general fund, or to what extent moneys may now or hereafter be transferred from one

[ 291 U.S. Page 623]

     fund to the other, or how far the general fund raised by taxation may be used otherwise, either directly or indirectly, to aid the city's electric lighting business. We do not attempt to resolve these questions here. Decision that the city is not authorized by existing law to aid its light fund by taxation, without disposing of the constitutional question decided by the state court, would entail the decision of other questions, arising under the equal protection and contract clauses, not raised or considered in the case. Moreover the appellant insists that in any case payment of the tax would neither relieve appellant of its burden nor impose a comparable burden on the city, since the same hand would both pay and receive the tax, and there is no constitutional limitation on the power of the city to use the tax when collected for the maintenance of the city's business. Standard Oil Co. v. City of Lincoln, 114 Neb. 245; 207 N. W. 172, 208 id. 962; aff'd per curiam, 275 U.S. 504. All the questions thus suggested are met and disposed of by decision of the constitutional question which the state court decided and which we decide here.

1. There is no contention that appellant's franchise or any contract relieves it generally from the duty of paying taxes. It is not contended that a state or municipality, merely because it fails or is unable to tax its own property or business, is prohibited from taxing like property or business. The contention here is that constitutional limitations are transgressed only because the tax affects a business with which the taxing sovereign is actively competing. For that reason it is argued that the taxation involves a forbidden discrimination and deprives appellant of its property without due process since the combined power of the city to tax and to compete may be used to destroy appellant's business. As appellant asserts that the tax can impose no effective burden on the city, its

[ 291 U.S. Page 624]

     contention is, in effect, that the city, by virtue of the Fourteenth Amendment, upon entering the business forfeited its power to tax any competitor.

In conducting the business by state authority the city is exercising a part of the sovereign power of the state which the Constitution has not curtailed. The decisions of this Court leave no doubt that a state may, in the public interest, constitutionally engage in a business commonly carried on by private enterprise, levy a tax to support it, Green v. Frazier, 253 U.S. 233; Jones v. Portland, 245 U.S. 217, and compete with private interests engaged in a like activity. Standard Oil Co. v. Lincoln, supra; Madera Water Works v. Madera, 228 U.S. 454; Helena Water Works Co. v. Helena, 195 U.S. 383.

We need not stop to inquire whether the equal protection clause was designed to protect the citizen from advantages retained by the sovereign, or to point out the extraordinary implications of appellant's argument when applied to expansions of government activities which have become commonplace. It is enough for present purposes that the equal protection clause does not forbid discrimination with respect to things that are different. The distinctions between the taxing sovereign and its taxpayers are many and obvious. The private corporation, whatever its public duties, carries on its business for private profit and is subject to the obligation, common to all, to contribute to the expense of government by paying taxes. The municipality, which is enabled to function only because it is a tax gatherer, may acquire property or conduct a business in the interest of the public welfare, and its gains if any must be used for public ends. Hence equal protection does not require a city to abstain from taxing the business of a corporation organized for profit merely because in the public interest the municipality has acquired like property or conducts a like business.

[ 291 U.S. Page 625]

     These differences are not lessened nor the constitutional exaction of uniformity increased because the city competes with a business which it taxes. Compare Springfield Gas Co. v. Springfield, 257 U.S. 66; Hollis v. Kutz, 255 U.S. 452; Emergency Fleet Corp. v. Western Union, 275 U.S. 415. The state may tax different types of taxpayers differently even though they compete. State Board of Tax Commissioners v. Jackson, 283 U.S. 527; Alaska Fish Salting & By-Products Co. v. Smith, 255 U.S. 44; Hammond Packing Co. v. Montana, 233 U.S. 331; Quong Wing v. Kirkendall, 223 U.S. 59. It could not plausibly be argued that a private nonprofit corporation distributing electric current to consumers at cost could not be exempted from taxes borne by others serving the same wants. Compare Louisville Gas Co. v. Coleman, 277 U.S. 32, 40; German Alliance Ins. Co. v. Kansas, 233 U.S. 389, 418; Citizens Telephone Co. v. Fuller, 229 U.S. 322. A business which in private hands might be exempted from taxation because not conducted for private profit is no less privileged because its capital is supplied by the government which controls it in the public interest. These considerations are in no way affected by calling the city's activity "proprietary" instead of "governmental." Compare South Carolina v. United States, 199 U.S. 437, with Murray v. Wilson Distilling Co., 213 U.S. 151 and Metcalf & Eddy v. Mitchell, 269 U.S. 514.

The injury, which appellant fears may result, is the consequence of competition by the city, and not necessarily of the imposition of the tax. Even without the tax the possibility of injury would remain, for the city is not bound to conduct the business at a profit. The argument that some way must be found to interpret the due process clause so as to preclude the danger of such an injury fails ...

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