delivered the opinion of the court,
By the 10th section of the Revenue Act of 1879, — which is substantially a re-enáctment of the 6th section of the Act of May 1st 1868, — certain individuals, companies and corporations, therein mentioned, are required to make report to the Auditor General, setting forth the entire amount of net earnings or income received by them, from all sources, during the preceding year,, and pay a tax of three per centum thereon for the uso of the Commonwealth: P. L. 118.
The corporation, plaintiff in error, being clearly within the provisions of the act, made its return of earnings or income for the tax year ending October 31st 1879, and included therein $28,615.73, interest on United States bonds, and $15,375, interest on Pennsylvania bonds; both of which items, however, it claimed rvere exempt from taxation. It was also claimed that, in ascertaining its net earnings or income, the difference between the par value of $307,000 United States bonds whicli were called in and paid during the year, and the price at which they were purchased several years before, should be treated as a loss and deducted from its gross receipts. The accounting officers having refused to allow any abatement on account of either of these three items, the tax thereon, amounting to $2,068.19, was paid under protest and an appeal taken from the settlement. The decision of the court below was also adverse to the plaintiff in error on the points in controversy. The questions thus presented by the record are, whether, the income derived from either class of bonds, is exempt from taxation; and whether the difference between the price paid for the *53United States bonds and their par value, should be regarded as a loss and deducted from the gross receipts.
It may be conceded that the bonds, as such, are not taxable by the Commonwealth; but the tax in question is not laid on. the bonds. It is a tax on the corporate franchise of the plaintiff in error, measured by its net earnings. The right of the state to impose a tax on the franchise of any corporation that is indebted to it for existence and protection, is too clear for argument. If the right exists, as it undoubtedly does, the manner of its exercise must be left to the wisdom of the legislature : and, perhaps no standard or measure of taxation can be adopted that will operate more justly and equitably than a per centum on net earnings or income.
The interest received by the company on the bonds undoubtedly formed a part of its income, and while the bonds themselves are exempt from taxation by virtue of the laws under which each class respectively was issued, it does not follow that the same immunity adheres to the money paid from time to time in discharge of the interest due on the securities. When so paid it loses the non-taxablo characteristic of the bond on which it accrued, and should thenceforth be treated as any other species of income derived from other sources. But,'as already intimated, the tax is not laid on-the money and other receipts of the company. Its net earnings or income is resorted to simply as a just measure of the tax to be paid for the enjoyment of its corporate franchise.
There is an obvious difference between a direct tax on the property of a corporation and a franchise tax, measured by its earnings which, proximately at least, represent either the value ■ of the franchise granted or the extent of its exercise. The distinction has been repeatedly recognized by both Federal and State courts. In Society for Savings v. Ooite, 6 Wall. 594,-corporations, of the class to which the plaintiff in error in that case belonged, were required to pay annually a sum equal to three-fourths of one per cent, on the total amount of their deposits, and it was held that this was a valid franchise tax, and not a tax on property, and that the society had no right to claim exemption therefrom, to the extent of its deposits invested in non-taxable securities of the United States. Under a similar law in Massachusetts it was held that a savings institution having a portion of its deposits invested in Federal securities was liable to a tax on such deposits as fully as on account of other deposits, nothwithstanding the securities were declared by the act of Congress, under which they are issued, to be exempt from taxation under State authority : Provident Institution v. Massachusetts, 6 Wall. 611.
*54A distinction somewhat similar in principle is made in the cases of State Freight Tax, and State Tax on Railway Gross Receipts, 15 Wall. 232 and 284; in the latter of which it is held that a .statute imposing a tax on the gross receipts of railway companies is not repugnant to the Constitution of the Uni tec! States, though the receipts are made up in part of the freights received from inter-state transportation of merchandise.
The difference between the amount paid for the United States bonds and their par value cannot in any proper sense be regarded, as a loss, but if it were otherwise the plaintiff in error is not entitled to the deduction claimed. A decrease of capital does not necessarily diminish the annual net earnings. It is the latter that has been adopted as a just measure of the tax imposed on the franchise. The contention of the plaintiff in error on this point has been so fully answered by the learned judge of the Common Pleas, in the concluding portion of his opinion, that further comment is unnecessary.
Judgment affirmed.