Board of Trustees of the University of Illinois v. United States

Graham, Presiding Judge,

delivered the opinion of the court:

This is an appeal from a judgment of the United States Customs Court holding certain laboratory equipment, imported by appellant at the port of Chicago, to be used for educational purposes, dutiable as classified and assessed by the collector under various paragraphs of the Tariff Act of 1922.

Appellant filed protests against such classifications, claiming that the imported merchandise was free of duty—

as being imported by an instrumentality of the government of the State of Illinois, for use in the execution of a governmental function and purpose.

Appellant concedes that the merchandise is dutiable as classified unless it is entitled to free entry.

The lower court overruled the protests and entered judgment accordingly. From such judgment this appeal is taken.

The question presented is whether the Government has any constitutional right to impose the duties here involved.

Appellant’s claim for free entry is based upon a claimed implied exemption enjoyed by the State and National Governments from taxation assessed by one against the other’s essential agencies or instrumentalities upon the theory that the University of Illinois is an agency of the State of Illinois engaged in the performance of governmental functions of that State wholly of a public character.

The Government, on the other hand, contends that the duty in question is a valid exercise of the taxing power of the Congress under clause 1, section 8, Article I of the Constitution of the United States, pursuant to which the Tariff Act of 1922 was enacted. Said clause reads as follows:

1. To lay and collect taxes, duties, imposts, and excises to pay the debts and provide for the common defense and general welfare of the United States; but all duties, imposts, and excises shall be uniform throughout the United States.

The Government contends that the maintenance of a university by a State is not a governmental function, but is proprietary, and that, therefore, under the decision in the case of South Carolina v. *136United States, 199 U. S. 437, the duties in question were properly-imposed. It also makes another contention, viz, that the importation of merchandise is a privilege, not a right, and that the Government may impose conditions upon its importation, such as the payment of the duties here in question, under and by virtue of clause 3, section 8, Article I of the Constitution of the United States, which clause reads as follows:

3. To regulate commerce with foreign nations, and among the several States and with the Indian tribes.

Appellant, on the other hand, relies upon the cases of McCulloch v. Maryland, 4 Wheat. 315, Collector v. Day, 11 Wall. 113, and many subsequent cases in support of its contention. It denies that the functions of the University of Illinois are such as to bring the property, devoted by it to educational uses, within the taxing power of the Federal Government.

The evidence produced upon the trial establishes that the University of Illinois was organized in 1867 by a general statute enacted by the Legislature of the State of Illinois. Said act denominated the institution as the “Illinois Industrial University.” Its control was vested in a board of trustees, all of whom were appointed by the governor. The full term of each trustee was fixed at six years, and all vacancies occurring were to be filled by appointment by the governor and confirmed by the senate. Broad powers were conferred upon the board to establish and conduct a higher institution of learning. Much subsequent legislation was enacted relative to the university. It is sufficient, for the purposes of this case, to say that, by act of the Legislature, the name of the institution was changed to “University of Illinois,” and that, at the time of the importations here involved, its trustees were at stated times elected by the people of the State of Illinois, with the governor and the superintendent of public instruction as ex officio members of the board.

The board is given power to sue and be sued; all of the property pertaining to the university is held by the board in trust for the State of Illinois, and is carried upon the books as State property, being inventoried, in 1925, at $17,114,917.13; the institution is supported mainly by appropriations made by the Legislature of said State, amounting to over $5,000,000 annually; the comptroller of the university reports regularly to the governor and State auditor. Equipment purchased for the use of the university is paid for by vouchers drawn by the auditor of public accounts of the State against State appropriations, and the duties involved in the case at bar were paid directly out of the treasury of the State of Illinois.

The student body of the university was, at the time of the importations here in question, about 12,000 in number, approximately 10,000 of whom were residents of the State, 2,000 being resident *137elsewhere. No tuition is charged to students resident in the State of Illinois, but what is called a “service fee,” amounting to about $60 annually, is paid by each student. Students from outside the State are charged, in addition to said service fee, a tuition fee of about $25 a year.

The land grant made by Congress in 1862 to the State of Illinois to aid colleges for the benefit of agriculture and mechanical arts was, by said State, turned over to said board of trustees, to be used for the benefit of the university, and, under various acts of Congress enacted since said year, donations have been made by the Federal Government in aid of the university. At the present time such donations amount to about $360,000 annually. The income from student fees is approximately $750,000 annually. The university also has certain endowments bestowed by private persons, amounting to about $400,000, from which an annual income of approximately $20,000 is derived.

Practically all funds received by the university are devoted to educational purposes in branches above the grade of the common school and high school.

The primary question presented here involves the power of the administrative officers of the United States, acting in alleged pursuance of authority expressed in an act of Congress, to assess and collect duties on goods imported by and for the use of a State or one of its governmental agencies. The question is one of vast importance and merits and has received the most careful consideration by counsel and the court.

In the organization of our constitutional system many difficulties were experienced. The colonies, or States, had each developed as self contained and independent communities, with varying customs and laws. Zealous in the maintenance of their institutions, the States yielded, with caution, any exclusive rights of government to the General Government. The constitutional government of the Nation was adopted only because experience had demonstrated that there must be such a general government that the people of the States might be secure in their persons and property. It was a union for defense and security.

Hence, the exclusive governmental powers given to the National Government were such as would provide for the “general defense and welfare” of all the people. These powers come from the people, not from the States. McCulloch v. Maryland, 4 Wheat. 315.

Whatever doubts may have been felt by any of those who framed the Constitution, and by the States in the ratification thereof, as to certain of the powers granted to the new government, there seems to have been no conflict of opinion as to granting to the Federal Government full and exclusive control of the external affairs of the Nation. *138This included the rights to levy and collect imposts and duties on imports from foreign countries and to regulate international commerce. The contemporaneous exposition of this subject by Hamilton is illuminating. The Federalist, Nos. XXXII, XXXIII, XXXIV, and XXXV.

This exclusive power has been recognized and vitalized by the courts. No more comprehensive discussion of the subject can be ■found than in McCulloch v. Maryland, supra. There Chief Justice Marshall set up certain milestones:

If any one proposition could command the universal assent of mankind, we might expect it would be this — that the government of the Union, though limited in its powers, is supreme within its sphere of action.
* * * * * * *
The sword and the purse, all the external relations, and no inconsiderable portion of the industry of the nation, are intrusted to its government.
* * * * * *
The government.which has a right to do an act, and has imposed on it the duty of performing that act, must, according to the dictates of reason, be allowed to select the means.

The undivided authority of the General Government over imports and import duties and foreign commerce, if, in fact, it has ever been doubted, is confirmed by many authorities. Collector v. Day, 11 Wall. 113; Fairbank v. United States, 181 U. S. 283; Willcuts v. Bunn, 282 U. S. 216. In License Cases, 5 How. 504, it was said that the controlling and supreme power over commerce with foreign nations and the several States was undoubtedly conferred upon Congress:

And here ife the limit between the sovereign power of the State and the Federal power. That is to say, that which does not belong to commerce is within the jurisdiction of the police power of the State; and that which does belong to commerce is within the jurisdiction of the United States (599).

The doctrine is also stated in Gibbons v. Ogden, 9 Wheat. 1; Weston v. Charleston, 2 Pet. 448; Dobbins v. Erie Co., 16 Pet. 434; Mobile v. Kimball, 102 U. S. 691, 697; Webber v. Virginia, 103 U. S. 344, 351; Van Brocklin v. Tennessee, 117 U. S. 151; Brennan v. Titusville, 153 U. S. 289, 299; Buttfield v. Stranahan, 192 U. S. 470.

These cases announce the broad principles that the State governments not only have no right in themselves to levy and collect import duties or to regulate foreign commerce, but that they can not interfere with, obstruct nor question the policy of, any law which Congress may, in pursuance of its constitutional functions, enact on these subjects.

The power to lay imposts or duties and the power to regulate commerce may and often do, find expression in the same act of Congress. The statutory provision may be the combined judgment of the legislative body and may embrace objects extending beyond that of revenue. It was said in Gibbons v. Ogden, supra (pp. 199, 202), *139that the act of laying duties or imposts on imports or exports was, very clearly, an exercise of the taxing power. Yet Chief Justice Marshall, following this expression, as clearly announced:

It is true that duties may often be, and in fact often are, imposed on tonnage with a view to the regulation of commerce; but they may be also imposed with a view to revenue. * * * The idea that the same measure might, according to circumstances, be arranged with different classes of power, was no novelty to the framers of our Constitution. * * * The right to regulate commerce, even by the imposition of duties, was not controverted.

From the beginning Congress has exercised a plenary power in respect to the exclusion of merchandise brought from foreign countries — ■

not alone directly by the enactment of embargo statutes, but indirectly as a necessary result of provisions contained in tariff legislation. It has also, in other than tariff legislation, exerted a police power of foreign commerce by provisions which in and of themselves amounted to the assertion of the right to exclude merchandise at discretion. (Brolan v. United States, 236 U. S. 216.)

An additional duty fixed upon goods coming from east of the Cape of Good Hope was held to be valid as a regulation of commerce. Russell v. Williams, 106 U. S. 623. In the more recent case of Hampton v. United States, 276 U. S. 394, the Supreme Court was of the opinion that a customs duty, although imposed in pursuance of an expressed policy of protection to domestic industries, was valid and enforcible. To like effect was Arnold v. United States, 147 U. S. 494, 497. The power to regulate commerce—

like all others vested in Congress, is complete in itself, may be exercised to its utmost extent, and acknowledges no limitations, other than are prescribed in the Constitution. (Gibbons v. Ogden, supra, 195.)

It has repeatedly been announced that the Congress may place an embargo, total or partial, upon importations from foreign countries, under the exercise of the constitutional powers to regulate commerce. United States v. Marigold, 9 How. 559; The Ably Dodge, 223 U. S. 166; Weber v. Freed, 239 U. S. 325; Hammer v. Dagenhart, 247 U. S. 251. As Congress has the right to absolutely prohibit importation, it also has plenary power to prescribe the conditions upon which the importation may be made. Sang Lung v. Jackson, 85 Fed. 502; United States v. American Exp. Co., 177 Fed. 735, 738—

Impost duties take every conceivable form, as may by the legislative authority be deemed best for the general welfare. They have been at all times often specific. They have sometimes been discriminatory, particularly when deemed necessary by reason of the tariff legislation of other countries. (Knowlton v. Moore, 178 U. S. 41, 88.)

We come, therefore, to this conclusion, based on reason and on the conclusive authorities cited, that it was within the constitutional power of the Congress to fix a rate of import duties to be paid when the articles imported here entered the commerce of the country. *140This it might do for purposes of raising revenue; it might do it as the result of a national policy of protection to the industries of the country; it might do it as a regulation of foreign commerce; for all these powers were within its exclusive power. What the purpose was, so long as it was fairly within the sphere of its constitutional functions, the appellant, or the State government of which it claims to be a part, can not question. Assume that the statute before us, instead of fixing a certain rate of duty, had declared a total embargo upon the importation of such articles. Could the State have ignored this embargo and imported the articles? We dare say there are none who will so contend. If, then, its importation may be prohibited, may it not, by the same power, be conditionally admitted? Upon what theory may a State contend that what the General Government may do in whole, as a matter of national policy, it may not do in part?

Here, if there were otherwise question as to the purposes of Congress in enacting the statute before us, we need have no doubt. The preamble to the Tariff Act of 1922 is:

An Act to provide revenue, to regulate commerce with, foreign countries, to encourage the industries of the United States, and for other purposes. (Italics ours.)

The appellant has treated this question as if the right to import were undisputed, and the imposition of a tax was upon not only the exercise of a necessary governmental agency, but upon the exercise of a right.which was absolute. But this view is fallacious. No individual has a vested right to import articles from a foreign country. His right to do this must depend upon the authority to do so conferred by act of Congress and upon the terms so fixed. Buttfield v. Stranahan, supra.

Nor, in reason, can it be seen how an agency of a State stands in any different position from an individual in this respect. The appellant had the right to import, but its right was conditional. It will be borne in mind that the goods imported in the case at bar were foreign goods and did not become merged into the commerce of the country until the duties were levied and paid. Sonneborn Bros. v. Cureton, 262 U. S. 506, 509; Faber, Coe & Gregg v. United States, 19 C. C. P. A. (Customs) 8, T. D. 44851. So, a tax upon the imported goods, while it remains a part of foreign commerce and is not introduced into the general mass of property in a State, differs' greatly from a tax upon the property after it has been imported. License Cases, supra (575).

These observations seem, legitimately, to lead us to the conclusion that the duties herein were properly imposed. The appellant, however, vigorously contends that, under a well-considered line of authorities, the State of Illinois and its various governmental agencies are exempt from the payment of these duties. This contention rests upon *141two premises: First, that an impost or duty is a tax; second, that the taxing power of the Government may not be applied to the agencies, instrumentalities, and property of the State.

In support of the first premise, appellant relies upon Brown v. Maryland, 12 Wheat. 419, 439, in which the Supreme Court announced the principle, “A duty on imports is a tax on the article which is paid by the consumer.”

The second premise is claimed to be sustained by a line of cases beginning with McCulloch v. Maryland, supra. In that case, in which the State of Maryland attempted to extend her taxing powers to national banks, the great chief justice announced the essential doctrine that each government, State and national, must continue to exist and perform its full functions, unimpeded and unobstructed by the other, and that neither might destroy the functions or agencies of government of the other by taxation, or otherwise. The Supreme Court, in the case cited, did not alone refer to taxation — it referred to any means by which one government might weaken or destroy the other in the performance of its legal or constitutional functions.

The principle thus announced has been sustained and developed by many cases: Weston v. Charleston, 2 Pet. 448; Dobbins v. Erie Co., 16 Pet. 434; United States v. Ry. Co., 17 Wall. 322; Ry. Co. v. Peniston, 18 Wall. 1, 30; Ohio v. Thomas, 173 U. S. 276; South Carolina v. United States, 199 U. S. 437; Flint v. Stone, 220 U. S. 107; Johnson v. Maryland, 254 U. S. 51; Metcalf v. Mitchell, 269 U. S. 514; Panhandle Oil Co. v. Knox, 277 U. S. 218; Indian Motocycle Co. v. United States, 283 U. S. 570.

The maintenance of our dual form of government has made necessary such a rule. Otherwise, such a system could not long exist—

But recourse may be had to the reason upon which the rule rests, and which must be the guiding principle to control its operation. Its origin was due to the essential requirement of our constitutional system that the Federal Government must exercise its authority within the territorial limits of the States; and it rests on the conviction that each government, in order that it may administer its affairs within its own sphere, must be left free from undue interference by the other. (Metcalf et al. v. Mitchell, 269 U. S. 514, 523.)

The same idea was expressed in Educational Films v. Ward, 282 U. S. 379, and Brown v. Houston, 114 U. S. 622, 630.

In the recent unreported case of Fox Film Corp. v. Doyal, decided May 16, 1932, Chief Justice Hughes, speaking for the court, said:

The principle of the immunity from State taxation of instrumentalities of the Federal Government, and of the corresponding immunity of State instrumental-ities from Federal taxation — essential to the maintenance of our dual system — has its inherent limitations. It is aimed at the protection of the operations of Government, McCulloch v. Maryland, 4 Wheat. 316, 436, and the immunity does-not extend “to anything lying outside or beyond governmental functions and their exertions.”

*142In the later cases since Brown v. Maryland, supra, the tax involved has been such a tax or excise as was within the power of either government to impose. There were no questions of import duties, or regulation of commerce, or foreign relations, exclusive powers of the National Government, involved. One government was so functioning as to weaken or impair the other in a field common to both, and this may not be done. If, however, in the operation of a national policy, in pursuance to a constitutional power which is exclusive, the revenues of a State are incidentally decreased, must the interests of the State not be subservient to the general welfare of all? The operation of national navigation, immigration, or tariff laws may discriminate, in their effect, between communities and States, because of their diverse industries and conditions. Thus, the revenues of the State may be impaired. But does this render the laws unconstitutional? A State may desire to import articles from foreign countries. If it does so, having entered a field entirely within the control of the National Government, it must assent to and conform with every constitutional provision which the National Government has made concerning the same. For these reasons, we are of opinion that the cases heretofore referred to in this branch of the case are not decisive of the point here involved.

To concede that the State of Illinois, or any State, might disregard and nullify, when it considers its own interests injuriously- affected, provisions of law exclusively within the control of the National Government, is to weaken and decrease the Federal revenues, to nullify, to an essential degree, its power to regulate international commerce, and to set at naught any other policy which the Congress may have had in mind in enacting the legislation, affecting the welfare of all the people of the Union. In forming our national compact, the Constitution, the people of all the States freely and voluntarily consigned these governmental rights into the hands of the General Government. Whatever rights the States had in this respect were then yielded up, and they can Dot now assert them.

For about 150 years of national existence there has heretofore been no challenge of this power. The administrative officers of both States and Nation have proceeded upon the theory that such duties should be paid by anyone, whether individual citizen or governmental unit, not exempted by the acts of Congress from such payment. The Congress assumed it had such power and in the Tariff Act of July 24, 1897, 30 Stat. 203, paragraph 702, when it was thought desirable to permit free entry of certain goods by a State, it so provided. Such provisions have continued in succeeding acts, including the Tariff Act of 1922, paragraph 1706 (42 Stat. 934). Certainly, such a long-continued administrative, executive, and legislative construction of these constitutional provisions by both States and Nation, are entitled *143to great weight in onr determination of this matter. Hampton & Co. v. United States, supra.

While perhaps unnecessary to a decision of the case, another point may be adverted to. The activities in which the State governments may legally engage are without number. They may conduct the business of grain elevators, banks, and building associations. Green v. Frazier, 253 U. S. 233. Cities which are units of the State government, United States v. Railway Co., supra, may conduct fuel yards, Jones v. Portland, 245 U. S. 217, or public utilities. Springfield G. & E. Co. v. Springfield, 257 U. S. 66. It is true that in South Carolina v. United States, supra, it was held that the agencies of a State were exempted from a Federal tax only when such agencies were performing the ordinary functions of government, and that dispensing alcoholic liquors was not such an ordinary function.

How far the courts might be called upon to go in holding importation for the various legal activities of a State, to be in discharge of its ordinary functions, is uncertain. One fact, however, is obvious: The States, with their various lesser governmental units, cities, villages, counties, drainage, sanitary and reclamation districts, school boards, road districts, and the like, have myriad activities unknown to the framers of the Constitution. Such functions as the building of roads and schools, the employment of convicts, the building of canals, sewers, harbors and levees, are certainly all within the exercise of the ordinary functions of the State. May concrete and stone and building material, road material, materials to employ the labor of convicts, and the like, be imported free of duty by a State, when the individual purchaser must pay the additional price due to the imposition of a duty? To so hold will lead to the result so aptly stated in South Carolina v. United States, supra:

Suppose a State assumes under its police power the control of all those matters subject to the internal revenue tax and also engages in the business of importing all foreign goods. The same argument which would exempt the sale by a State of liquor, tobacco, etc., from a license tax would exempt the importation of merchandise by a State from import duty. While the State might not prohibit importations as it can the sale of liquor, by private individuals, yet paying no import duty it could undersell all individuals and so monopolize the importation and sale of foreign goods.
Obviously, if the power of the State is carried to the extent suggested, and with it is relief from all Federal taxation, the National Government would be largely crippled in its revenues. Indeed, if all the States should concur in exercising their powers to the full extent, it would be almost impossible for the Nation to collect any revenues. In other words, in this indirect way it would be within the competency of the States to practically destroy the efficiency of the National Government.

We are of opinion that the appellant, whether it be considered a governmental agency of the State of Illinois or not, was not exempt from the payment of the duties imposed by the collectors on the im*144ported goods in the case at bar. This being true, a further consideration of the governmental status of the appellant is unnecessary to a disposition of the case.-

The judgment of the United States Customs Court is affirmed.