Taxation by the States.

The most obvious case, to which the section applies, is discrimination in taxation. Of the American provision, Judge Cooleynote says, it “will preclude any State from imposing on the property which citizens of other States may own, or the business which they may carry on within its limits, any higher burdens by way of taxation than are imposed upon the corresponding property or business of its own citizens.” Accordingly, a special tax on commercial travellers from other countries (such, for instance, as is imposed by New Zealand) would be bad so far as travellers from other States are concerned.note An absentee tax, or an increased rate of tax on non-residents, would also be bad; but this does not mean that non-residents are entitled to the most favourable treatment accorded to any class of residents. A “resident in a State” is an ambiguous term; but probably the residence intended is what has been called “habitual physical presence” in the State, neither domicile on the one hand nor mere temporary sojourn on the other.note A State may, as a matter of policy, divide its residents into classes, of which one may be treated on more favourable terms than another. Section 117 appears to be satisfied, if residents in other States are not treated more unfavourably than the less favoured class of residents in the State—they are not subject to a discrimination, which would not be equally applicable to them, if they were residents in the State and fell within the class affected.note

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The benefit of section 117 is secured only to British subjects resident in a State, terms which exclude companies from its scope. It is a personal advantage, and therefore discriminations other than against persons or classes of persons, if prohibited at all, are prohibited by other provisions of the Constitution.

It has been seen that, on the establishment of the Commonwealth, the States are subject to the restriction, that they may not tax the property of the Commonwealth; that perhaps this extends to the “instrumentalities of the Commonwealth”; and that, on the establishment of uniform duties of customs, they may no longer impose duties of customs or excise, nor put any tax upon inter-State trade, commerce, or intercourse. Further, discriminations, injuriously affecting British subjects resident in other States, are inoperative (section 117). Finally, it has been suggested, that the Commonwealth power to make laws with respect to “Taxation” may give very extensive powers of regulating taxation by the States.

In the United States, the doctrine that the laws of a State can have no extra-territorial operation has been applied to limit strictly, as a matter of constitutional law, the taxing power of the States. Thus, in M‘Culloch v. Maryland,note Marshall, C.J., said, “All subjects over which the sovereign power of a State extends are objects of taxation; but those over which it does not extend are on the soundest principles exempt from taxation.” “The subjects of taxation,” it is said, “are persons, property, and business, and any one of them may be taxed though the

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others are beyond the jurisdiction.”note Where the person is resident in a State (mere transient presence is not residence), it seems that he may be taxed in proportion to the value of his property, wherever situated; and upon the same principle, a company may not be taxed upon the whole amount of its capital stock, except by the State in which it is domiciled. Where taxation is based merely upon the presence of property, or the carrying on of business in the State, only the property there situated, or the business there done, can be taxed. Intangible property follows the person of the owner. Stock or shares in a company are taxed where the owner of the stock resides. Debts are taxable only in the State of the creditor, where alone they are “property.” Accordingly, bonds of a corporation, held by non-residents in the State, are not taxable, even though the corporation is chartered by or domiciled in the State, and the corporation may successfully resist an attempt to levy a tax in respect to them.note

No attempt has been made to limit the taxing power of the Colonial Parliaments upon similar principles. The limits of particular taxes have in many cases been expressly laid down by Parliament, and the only judicial question has been one of interpretation of the particular exercise of legislative discretion.note Where the limits have not been defined, the Courts have sought to discover and apply just principles to the incidence of the tax.

Save for the restrictions mentioned as arising out of the Constitution, the powers of taxation belonging to the State Parliaments are the same as those of the Parliaments of the Colonies. It is submitted, that the State Parliaments are not subject to the limitations which the American Courts

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have inferred from the territorial operation of laws, and that the taxing power is limited territorially only by the ability of the legislature to make its laws effective in its own territory. The question is one of considerable practical importance, especially in relation to companies. Several of the Colonies,note for example, have passed laws, similar to those which have been declared unconstitutional in America, requiring companies to pay a tax in respect of their debentures and preference shares held by persons resident out of the several colonies, and to deduct the amount from the interest or dividend of the creditor. If the American doctrine applies, such companies can successfully resist the claim of the Government, and the debenture holder may, in the Courts of the State itself, recover from the Company the full amount of the interest which it has contracted to pay him. If, on the other hand, such provisions are constitutional, the Company may, by proceedings in the Courts of the State, be compelled to comply with the Statute, and the authority of the Statute will be a complete answer to any proceedings in those Courts by the debenture holder against the Government; for there is no provision in the Australian Constitution prohibiting laws which impair the obligation of contracts. But it must be remembered, first, that a State Government is unable to resort to the Courts of any other State to enforce its revenue laws; and, secondly, that, if the contract between the Company and its debenture holder be not governed by the law of the State, the authority of the Statute will not protect the company in any other jurisdiction in which it may be suable by the creditor.note