Section 2 of chapter 153 of the Public Acts of Connecticut, passed in 1897, reads as follows:
This method of assessment and taxation of nonresident stockholders in insurance corporations has been in force in Connecticut since 1866, although at first the rate of tax was only 1 per cent. Pub. Acts 1866, chap. 29.
By 1 of chap. 50 of the Public Acts of 1899 it is provided:
The original section in the General Statutes, enacted in 1888, is precisely the same as the first half of the amended section, and secured to the corporation a lien upon the stock for debts due to it by the stockholder, the amendment consisting in the addition of the last half, which provides the method of enforcing such lien.
Section 3836 of the General Statutes, as amended by chapter 63 of the Public Acts of 1889, reads:
This action was commenced by the state of Connecticut to recover of the Travelers' Insurance Company, under the first of the statutes quoted, taxes due for the year 1898, from nonresident stockholders. The defendant answered, alleging that its capital stock consisted of 10,000 shares, of which 8,201 were owned by residents and 1,799 by nonresidents of the state; that it was the owner of a large amount of real estate on which it had been assessed and had paid a tax, and adding these averments:
A demurrer to this answer was sustained and judgment entered for the state, which was affirmed by the supreme court of the state (73 Conn. 255, 47 Atl. 299), and thereupon the case was brought here on error.
Messrs. William R. Matson and Lucius F. Robinson for plaintiff in error.
Mr. Charles Phelps for defendant in error.
Mr. Justice Brewer delivered the opinion of the court:
The single question presented for our consideration is whether this legislation of the state of Connecticut in respect to the taxation of the shares of stock in a local corporation held by nonresidents is in conflict with 1 of 2 of article 4 of the Federal Constitution, or the 14th Amendment thereto. It is alleged that there is such discrimination between resident and nonresident stockholders as works a denial of the equal protection of the laws, and to the prejudice of citizens of other states. The stock of the nonresident stockholder is assessed at its market value, without any deduction on account of real estate held by the corporation. The stock of the resident stockholder is assessed at its market value, less the proportionate value of all real estate held by the corporation upon which it has already paid a tax. As thus stated, there would appear to be a wrongful discrimination, and that the nonresident stockholder was subjected to a larger burden of [185 U.S. 364, 367] taxation than the resident stockholder, and this, not as a result of the action of any mere ministerial officers in making assessments, but by reason of the direct command of the statute to include the real estate in the valuation in the one case and to exclude it in the other.
But this apparent discrimination against the nonresident disappears when the system of taxation prevailing in Connecticut is considered. By that system the nonresident stockholder pays no local taxes. He simply pays a state tax,-contributes so much to the general expenses of the state. While, on the other hand, the resident stockholder pays no tax to the state, but only to the municipality in which he resides. In other words, the state imposes no direct taxes for its benefit upon the property belonging to residents, but collects its entire revenue from corporations, licenses, etc. The rate of state tax upon the nonresident stockholder is fixed, 15 mills on a dollar, applying equally to all, while the rate of local taxation varies in the several cities and towns, according to the judgment of their local authorities as to the amount necessary to be raised for carrying on the municipal government. Obviously the varying difference in the rate of the tax upon the resident and the nonresident stockholders does not invalidate the legislation. How, then, can it be that a difference in the basis of assessment is such an unjust discrimination as necessarily vitiates the tax upon the nonresident? The resident stockholder does not pay the 15 mills to the state which is demanded of the nonresident, and the nonresident stockholder does not pay to any locality the sum, greater or less than 15 mills, which may be imposed by the authorities of that locality. In respect to this the supreme court, in its opinion, said (p. 281, Atl. p. 308):
In other words, the state, dealing with the question of taxation of the shares of stock in a local corporation, found two classes; one, shares held by residents, and the other, those held by nonresidents. It was believed that a resident in a city or town, enjoying all the benefits of local government, should be taxed for the expenses of that government upon all the property he possessed, whether that property consisted in part or in whole of shares of stock. On the other hand, the nonresident, enjoying little or none of the benefits of local government, was exempted from taxation on account of the expenses of such local government. At the same time it was not right that he should escape all contribution to the support of the state which created and protected the corporation and the property of all its stockholders, and so a tax was cast upon the nonresident stockholder for the expenses of the state. This, with kindred taxes, has been found sufficient to pay the running expenses of the state government. The resident is not called upon to pay any of the expenses of the state, but only to bear his propor- [185 U.S. 364, 369] tional share of those of the municipality. The nonresident is called upon to pay no share of the expenses of the municipality, but only to contribute to the support of the state.
The legislature, with these inequalities before it, aimed, as appears from the opinion of the supreme court, to apportion fairly the burden of taxes between the resident and the nonresident stockholder; and the mere fact that in a given year the actual workings of the system may result in a larger burden on the nonresident was properly held not to vitiate the system, for a different result might obtain in a succeeding year, the results varying with the calls made in the different localities for local expenses. If it be said that equality would be secured by imposing upon the resident stockholder a uniform tax for local purposes of 15 mills, without any reduction on account of real estate held by the corporation, a gross inequality might result in many towns between the resident stockholder and other taxpayers of that locality, in that they might be called upon to pay much more than he. On the other hand, if it be contended that inequality might be avoided by holding the situs of nonresident stockholders to be that of the city in which the corporation has its principal office (in this case Hartford), then unjust discrimination between that city and other localities would follow, in that to the one was given the total benefit of property which in fact belonged to parties living outside of the state. So, while there may result from year to year a variance in the amount of the burden actually cast upon noresidents as compared with that cast upon residents, yet it is also true that a like inequality will exist between residents of different localities in the state by reason of the different rates of taxation in those localities. You cannot put one resident against one nonresident stockholder, and by a comparison of their different burdens determine the validity of the legislation, any more than you can place a stockholder resident in one municipality over against a stockholder resident in another municipality, and by comparison of their different burdens determine the validity of the tax law in respect to resident stockholders. It does not seem possible to adjust, with unerring certainty, all the varying burdens which grow out of the fact that some of the stock of [185 U.S. 364, 370] the various state corporations is held outside of the state and some within the state, and the latter in separate municipalities with different rates of taxation.
It may also be said that, apparently, equality would be more certainly secured by making the assessment in each case upon the market value of the stock, diminished by the value of the real estate upon which taxes have been paid. But here again a difficulty is presented. Many of the taxable corporations own no real estate, and much of the real estate which belongs to corporations who have investments therein is located outside of the state. According to the returns made by this particular corporation, out of a holding in real estate amounting in value to $1,778, 662.05, upon which it had paid taxes, that which was situated in Connecticut was valued at only $137,965.81. Now, it may be true that as to the real estate held outside of the state the title and possession of the corporation are protected, not by Connecticut, but by the state in which such real estate is found. But can it be said that there was any unjust discrimination between the different nonresident stockholders in the various corporations, or even between all the nonresident and resident stockholders, when the state, ignoring this matter of real estate, and considering that the corporation as a state institution was protected in all its corporate rights by the state, provided that nonresident stockholders should pay upon the market value of their investments in the property of that corporation? In respect to this the supreme court of Connecticut said (p. 280, Atl. p. 308):
But, further, the validity of this legislation does not depend on the question whether the courts may see some other form of assessment and taxation which apparently would result in greater equality of burden. The courts are not authorized to substitute their views for those of the legislature. We can only consider the legislation that has been had, and determine whether or no its necessary operation results in an unjust discrimination between the parties charged with its burdens. It is enough that the state has secured a reasonably, fair distribution of burdens, and that no intentional discrimination has been made against nonresidents.
This court has frequently held that mere inequality in the results of a state tax law is not sufficient to invalidate it. Thus, in Tappan v. Merchants' Nat. Bank, 19 Wall. 490, 504, 22 L. ed. 189, 195, it was said:
Again, in State Railroad Tax Cases, 92 U.S. 575, 612 , 23 S. L. ed. 669, 673:
And in Merchants' & Mfrs. Nat. Bank v. Pennsylvania, 167 U.S. 461, 464 , 42 S. L. ed. 236, 238, 17 Sup. Ct. Rep. 829, 830:
For these reasons we are of opinion that the act challenged cannot be held to conflict with either of the clauses of the Federal Constitution referred to, and the judgment of the Supreme Court of Connecticut is affirmed.
Mr. Justice Harlan did not hear the argument, and took no part in the decision of this case.