Galveston, Harrisburg & San Antonio Railway Co. v. Texas

Background

This case involves several railroad companies and a State law that imposed an annual tax equal to one percent of a railroad’s gross receipts. The law required sworn reports of gross receipts and immediate payment; the rail lines at issue lay wholly in the State but carried passengers and freight to and from other States. The State supreme court upheld the tax, and the railroads appealed, arguing the law improperly reaches interstate business.

Reasoning

The Court asked whether the tax was simply a permissible tax on property or business done inside the State, or whether it amounted to a direct regulation of interstate commerce by taxing receipts from out-of-state traffic. Relying on earlier decisions that struck down taxes directly laid on receipts from interstate commerce, the majority concluded the statute was an attempt to reach gross receipts tied to interstate traffic rather than a genuine property or occupation valuation. The Court therefore treated the law as an unconstitutional regulation of interstate commerce and reversed the state court’s judgment.

Real world impact

The ruling prevents this State from collecting the one-percent gross-receipts tax as written when it reaches earnings from interstate business. It narrows the kinds of taxing schemes States can use against railroads and other carriers that earn money from out-of-state traffic. The decision limits States’ flexibility in designing taxes that measure business value by gross receipts and protects carriers from direct state burdens on interstate commerce.

Dissents or concurrances

A dissent argued the law should be read as an ordinary occupation tax measured by business done inside the State and that any effect on interstate commerce was only incidental and permissible. The dissent warned the majority’s view would unduly restrict States’ taxing power.