The St. Louis Southwestern Railway Company, the appellant, paid to the Secretary of State, under protest, the minimum fee of $1000 assessed as its annual franchise tax for the year beginning July 1, 1929, and then filed its bill of complaint in the circuit court of Sangamon county to recover all of the amount paid except $130.25 admitted to be due and to enjoin the payment of the alleged excess amount of $869.75 into the State treasury. To this bill the appellee filed a demurrer, which was extended to an amended bill. After a hearing the circuit court sustained the demurrer and entered a decree dismissing the amended bill for want of equity. From that decree the present appeal was taken. A temporary injunction formerly issued was allowed to remain in force pending the final determination of this case.
The principal contention of the appellant challenges the validity of the minimum franchise tax provisions of sections 105 and 107 of the general Corporation act, and as the latter part of the first sentence of section 105 refers to section 107 of the same act, both sections must be considered and construed together.
From the amended bill in this case it appears that the appellant, a Missouri corporation, was admitted to do business in this State on October 19, 1903, for a term of eighty-eight years, for which it paid an admission fee of $95; *Page 275 that the certificate of admission then issued to the appellant recited its authorized capital stock to be $55,000,000, of which $50,000 was first represented in this State; that afterwards the appellant increased its authorized capital stock from $55,000,000 to $130,000,000, and on this increase paid a further initial or admission fee of $315.45 on that portion represented in Illinois; that on January 1, 1929, $36,249,750 of the appellant's authorized stock had been issued and was outstanding; that subsequent to its admission to do business in Illinois the appellant brought additional property and transacted business in this State in increasing amounts, on which it paid further initial or admission fees to the Secretary of State from time to time; that the annual report filed by the appellant with the Secretary of State on February 15, 1929, showed that the total value of its property in all States in the year 1928 was $77,394,687.25 and that its total business in all States during that year was $17,999,096.83; that the total value of its property in Illinois was then $684,373 and its total business transacted in this State during 1928 was only $1170.06; that it is a common carrier engaged in both intrastate and interstate transportation of freight and passengers; that it has not at any time had any property or business in the State of Illinois which, as compared to the whole of its property and business, represented more than $1,533,324.43 of its issued capital stock. It is contended that since the great bulk of the appellant's business, so far as Illinois is concerned, is interstate commerce, the $1000 franchise tax assessed against it by the Secretary of State is a direct tax burden upon its interstate traffic, contrary to section 8 of article 1 of the Federal constitution.
By the provisions of section 102 of the general Corporation act both domestic and foreign corporations are required to make annual reports to the Secretary of State in February of each year, showing the amount of property located and business transacted in this State during the preceding *Page 276 calendar year. From this report the annual license fee or franchise tax is computed and assessed by the Secretary of State in advance for the next year, beginning July 1. Sections 105 and 107, providing for the computation of the fee or tax to be assessed, are as follows:
"Sec. 105. Each corporation for profit, including railroads, except insurance companies, heretofore or hereafter organized under the laws of this State or admitted to do business in this State, and required by this act to make an annual report, shall pay an annual license fee or franchise tax to the Secretary of State of five cents on each one hundred dollars of the proportion of its issued capital stock, or amount to be issued at once, represented by business transacted and property located in this State, but in no event shall the amount of such license fee or franchise tax be less than that required by this act of corporations having no property or business in this State. * * *
"Sec. 107. In case it appears from the annual report that the corporation has no property located in this State, and is transacting no business in this State, the following fees shall be paid annually to the Secretary of State as an annual franchise tax: All such corporations having issued capital stock of $50,000 or less shall pay an annual fee of $10; corporations having issued capital stock of more than $50,000 but not exceeding $200,000 shall pay an annual fee of $15; corporations having issued capital stock of more than $200,000 but not exceeding $500,000 shall pay an annual fee of $20; corporations having issued capital stock of more than $500,000 but not exceeding $1,000,000 shall pay a fee of $50; corporations having issued a capital stock of more than $1,000,000 but not exceeding $10,000,000 shall pay a fee of $200; corporations having issued capital stock of more than $10,000,000 but not exceeding $20,000,000 shall pay a fee of $500; and all corporations having issued capital stock in excess of $20,000,000 shall pay an annual fee of $1000." *Page 277
The appellant urges that the proper computation under section 105 is to take that portion of its issued capital stock represented by property owned and business done by it in Illinois, (.007186 per cent of the total issued capital stock, $36,249,750, at five per cent,) or the sum of $130.25. The appellee argues that the appellant, a foreign corporation, has issued stock in excess of the $20,000,000, and therefore the minimum franchise tax to be paid in Illinois should be computed under section 107, resulting in a tax of $1000.
The State sets forth that the last clause of section 105 requires a corporation to pay at least the minimum fee prescribed by section 107 if the corporation has not used a substantial part of its capital stock in Illinois during the preceding year, such tax to be paid for the privilege of maintaining its rights in this State and exercising them as it desired. This contention cannot be sustained without doing violence to the clearly expressed intent of the legislature in another portion of the same act. Those who maintain this position must admit that the franchise tax of $1000 assessed against the appellant under sections 105 and 107 is not based upon and has no relation to the amount of property held or the amount of business transacted by it in this State. That the annual franchise tax provided under sections 105 and 107 is not levied as pay for the privilege or authority of doing business in Illinois is shown by section 101 of the general Corporation act, where the legislative purpose in that direction is made clear by this language: "Each foreign corporation for pecuniary profit, * * * in addition to the annual franchise fees and taxes hereinafter provided, shall pay to the Secretary of State for its certificate of authority to do business in Illinois, the same fees provided by this act to be paid by a similar corporation incorporated under the laws of this State." The distinction seems clear between an initial or admission fee, by which the State, largely as a protective measure, may exact, in its discretion, either large or small fees from foreign corporations for the *Page 278 privilege of doing business in the State, and a franchise or excise tax, levied principally for revenue purposes upon the exercise of the franchise or contract rights previously granted. This distinction is made clear in Hanover Fire Ins.Co. v. Harding, 272 U.S. 494, in this language: "In subjecting a law of the State which imposes a charge upon foreign corporations to the test whether such a charge violates the equal-protection clause of the fourteenth amendment, a line has to be drawn between the burden imposed by the State for the license or privilege to do business in the State and the tax burden, which, having secured the right to do business, the foreign corporation must share with all the corporations and other tax-payers of the State. With respect to the admission fee, so to speak, which the foreign corporation must pay to become a quasi-citizen of the State and entitled to equal privileges with citizens of the State, the measure of the burden is in the discretion of the State, and any inequality as between the foreign corporation and the domestic corporation in that regard does not come within the inhibition of the fourteenth amendment, but after its admission the foreign corporation stands equal and is to be classified with domestic corporations of the same kind."
The appellee cites General Railway Signal Co. v. State ofVirginia, 246 U.S. 500, as an approval by the Supreme Court of the United States of the principle of a franchise tax with a reasonable maximum limit. That case, however, really involved the legality of an admission fee to do business within Virginia and not a franchise tax. The cases of New York v. Latrobe,279 U.S. 421, and Hanover Fire Ins. Co. v. Harding, supra, both place the General Railway Signal Co. case in that class of cases where it has been held that a State has the unquestioned right to impose whatever fee it may see fit on a corporation about to enter the State to do business, as distinguished from a tax on the right of a corporation to continue to do business in a State after *Page 279 it has once been admitted. What a State may charge a foreign corporation for the original right of admission to the State does not matter, so long as it does not seek a waiver of any right given by the Federal constitution. St. Louis SouthwesternRailway Co. v. Emmerson, 30 Fed. (2d series) 362.
Another case cited by the appellee was Kansas City, Ft. Scottand Memphis Railroad Co. v. Kansas, 240 U.S. 227, wherein a statute imposed a franchise tax of a graduated nature, with a maximum of $2500, on capital stock amounting to over $5,000,000. It was there held that the tax did not impose a burden upon interstate commerce although a large part of the property and business of the corporation was outside the State of Kansas. However, that case is to be distinguished from the present one because there the railway company was a domestic corporation, and a State may place an excise or franchise tax upon a domestic corporation which is measured by a standard made up of the whole amount of the corporation's stock. This rule does not apply when a foreign corporation is concerned.Airway Electric Appliance Corp. v. Day, 266 U.S. 71; O'GaraCoal Co. v. Emmerson, 326 Ill. 18.
In Baltic Mining Co. v. Massachusetts, 231 U.S. 68, also cited by the appellee, a tax of one-fiftieth of one per cent of the authorized capital stock of foreign corporations was imposed for the privilege of doing business in Massachusetts. A maximum limit of $2000 on a capital stock of $10,000,000 or more was imposed. That case held such a tax reasonable and not necessarily burdensome to interstate commerce in view of the limitations and conditions imposed by the act. When the maximum limitations were subsequently removed from that act it was held in the case of International Paper Co. v. Massachusetts,246 U.S. 135, to be invalid on the ground of being an unreasonable burden on interstate commerce and a tax upon property without the bounds of the State. The Supreme *Page 280 Court of the United States in Alpha Portland Cement Co. v.Massachusetts, 268 U.S. 203, in commenting upon the BalticMining Co. case, said: "It must now be regarded as settled that a State may not burden interstate commerce or tax property beyond her borders under the guise of regulating or taxing intrastate business. So to burden interstate commerce is prohibited by the commerce clause, and the fourteenth amendment does not permit taxation of property beyond the State's jurisdiction. The amount demanded is unimportant when there is no legitimate basis for the tax. So far as the language ofBaltic Mining Co. v. Massachusetts * * * tends to support a different view it conflicts with conclusions reached in later opinions and is now definitely disapproved."
In cases involving the validity of the laws of a State imposing license fees or excise taxes on corporations organized in another State the United States Supreme Court has decided: "(1) The power of a State to regulate the transaction of a local business within its border by a foreign corporation (meaning a corporation of a sister State) is not unrestricted or absolute but must be exerted in subordination to the limitations which the constitution places on State action. (2) Under the commerce clause exclusive power to regulate interstate commerce rests in Congress, and a State statute which either directly or by its necessary operation burdens such commerce is invalid, regardless of the purpose with which it was enacted. (3) Consistently with the due process clause, a State cannot tax property belonging to a foreign corporation and neither located nor used within the confines of the State. (4) That a foreign corporation is partly, or even chiefly, engaged in interstate commerce does not prevent a State in which it has property and is doing a local business from taxing that property and imposing a license fee or excise in respect of that business, but the State cannot require the corporation, as a condition of the right to do a local business therein, to submit *Page 281 to a tax on its interstate business or on its property outside the State. (5) A license fee or excise of a given per cent of the entire authorized capital of a foreign corporation doing both a local and interstate business in several States, although declared by the State imposing it to be merely a charge for the privilege of conducting a local business therein, is essentially and for every practical purpose a tax on the entire business of the corporation, including that which is interstate, and on its entire property, including that in other States; and this because the capital stock of the corporation represents all its business of every class and all its property wherever located. (6) When tested, as it must be, by its substance — its essential and practical operation — rather than its form or local characterization, such a license fee or excise fee is unconstitutional and void as illegally burdening interstate commerce, and also as wanting in due process because laying a tax on property beyond the jurisdiction of the State." International Paper Co. v.Massachusetts, supra; Airway Electric Appliance Corp. v. Day,supra.
In behalf of the appellant the recent decision of the Supreme Court of the United States in Cudahy Packing Co. v. Hinkle,278 U.S. 460, is urged to have definitely settled the issues in this case in its favor. There the Cudahy Company, incorporated under the laws of Maine, had an authorized capital stock of $45,000,000. Less than $30,000,000 of that stock had been issued, while the total value of the corporate property did not exceed that sum. The company was engaged in a very extensive interstate business in meats and foodstuffs. The capital stock in 1916 was $20,000,000, and at that time the company began to carry on a closely related interstate and intrastate business in the State of Washington after it had been admitted to do business in that State. At the time the action arose the value of the company's property in Washington was $40,000. Gross sales of the company for the year ending October 30, 1926, *Page 282 were over $231,000,000, but only a little over $1,300,000 of these sales were in Washington, and less than one-half of that sum was intrastate business. The statute which was questioned obligated foreign corporations after once being admitted to do business in the State, and domestic corporations also, to pay annual license fees of not exceeding $3000 on their authorized capital stock. The case involved two distinct matters: a question about filing or admission fees due to increased capital, and the question of the license or franchise tax for 1927. The majority of the court followed a previous opinion rendered in the case of Looney v. Crane, 245 U.S. 178, wherein it examined Texas statutes which required foreign corporations to pay permit and franchise taxes graduated according to authorized capital stock and declared them in conflict with the Federal constitution because they imposed a direct burden upon interstate commerce, and additionally exerted the taxing authority of the State over property and rights not situated within its bounds and hence not subject to its jurisdiction. The court declined to follow the Baltic Mining Co. case, supra, saying that the amount demanded was unimportant when there is no legitimate basis for the tax. It is true that in CudahyPacking Co. v. Hinkle, supra, and Airway ElectricAppliance Corp. v. Day, supra, the measure of the tax was authorized rather than issued stock, but they are cited herein as recent and leading authorities where, as in this case, the tax attempted to be collected fell in unreasonable proportion upon corporate assets located and business transacted outside the taxing State.
In the present case the State has endeavored to collect a franchise tax from appellant which in a large part would be paid out of corporate assets and business done outside the boundaries of Illinois. Under the provisions of section 105 the franchise tax due from the appellant to the Secretary of State, computed upon its property and business in this State, was $130.25. Its business in Illinois *Page 283 during 1928 only totaled $1170.06. Only $1,533,324.33 of its $36,249,750 issued stock has been admitted to do business in Illinois. Its $684,373 worth of property in this State was all subject to general taxation. Under the provisions of sections 105 and 107 the appellant, even if it had done no business in Illinois or had no property in this State, would nevertheless have been required to pay $1000 a year as a franchise tax because it had issued more than $20,000,000 of its capital stock in another State. It is undisputed that the major portion of the appellant's property in this State was used in the conduct of its interstate business.
The Secretary of State has followed the mandatory provisions contained in section 105 in assessing the minimum franchise tax against the appellant at $1000 under the provisions of section 107. Thus we are faced with the inescapable necessity of deciding whether or not sections 105 and 107 are constitutional. Even a casual reading of section 107 shows it to be squarely in conflict with the previously cited holdings of this and the Federal courts, as it constitutes an attempt on the part of the legislature, inconsistent with the due process clause, to exact minimum franchise taxes from corporations having no property located in this State and transacting no business in this State. That a foreign corporation is partly, or even chiefly, engaged in interstate commerce does not prevent a State in which it has property and is doing a local business from taxing that property and imposing a license fee or excise in respect of that business, but the State cannot require the corporation, as a condition of the right to do a local business therein, to submit to a tax on its interstate business or on its property outside the State. Airway ElectricAppliance Corp. v. Day, supra.
This court has previously called attention to the great weight of authority holding that a State cannot, through the guise of a franchise or permit tax, exert its taxing *Page 284 authority over property located and business done outside its bounds and hence not subject to its jurisdiction. The imposition of such a tax under sections 105 and 107 in the present case constituted a direct burden on interstate commerce. It must be borne in mind that the franchise or excise tax involved here is not a tax upon a property right, tangible or intangible, but is a tax laid upon the exercise of an extraordinary privilege. If the privilege is not exercised there can be no tax. The power to tax depends upon what was done — not upon what might have been done. (Ozark Pipe LineCorp. v. Monier, 266 U.S. 560, 69 L. ed. 439.) In other words, if a foreign corporation is engaged only in interstate commerce it is well settled that no excise tax can be constitutionally imposed upon it by the State. The protection against imposition of burdens upon interstate commerce is practical and substantial and extends to whatever is necessary to the complete enjoyment of the right protected. (Heyman v. Hays,236 U.S. 178, 59 L. ed. 527.) The tax imposed cannot be treated as if it were a consideration paid in exchange for a privilege, whether exercised or not, but rather as an excise, which must be reasonable in amount when considered in relation to the extent of the privilege when exercised. Thus it was said by the United States Supreme Court in Airway Electric ApplianceCorp. v. Day, supra: "Without holding that such a charge must be measured by the value of the privilege for which it is imposed, it may be said that some relation to such value is a reasonable requirement." In this case a franchise tax of $1000 was imposed upon the exercise of a privilege to the extent of $1170.06 worth of intrastate business. Such an imposition obviously bore no reasonable relation to the value of the privilege exercised. Here the appellant was required to pay out almost as much money by way of franchise taxes as it had received in revenue from intrastate business during the preceding year. All of the franchise tax imposed *Page 285 in excess of $130.25 would, if paid, have been deducted from its earnings out of business done in other States. This result would flow from any case where section 107 is applied, as it specifically requires a minimum franchise tax from all corporations, without exception, which have no property in this State and are transacting no business in this State. Section 107 is therefore void in its entirety, as it affords no legitimate basis for a franchise tax and results in the imposition of taxes upon property located and revenues obtained outside of the boundaries of Illinois, in irreconcilable conflict with the commerce clause and the fourteenth amendment of the Federal constitution. Likewise, that portion of section 105 which reads, "but in no event shall the amount of such license fee or franchise tax be less than that required by this act of corporations having no property or business in this State," is invalid because it expressly provides for the imposition of a tax without regard to whether or not it may be reasonably attributed to intrastate business, and further because it refers to section 107, in itself void, for its application. Under section 157 of the Corporation act the invalidity of the quoted clause of section 105 does not affect the validity of the remainder of that section.
While other errors have been assigned by the appellant a consideration of them is unnecessary, inasmuch as this appeal must be sustained upon the error assigned and fully dealt with in this opinion.
The decree is reversed and the cause remanded to the circuit court of Sangamon county, with directions to enter a decree in consonance with the views herein expressed.
Reversed and remanded, with directions.