All incorporeal hereditaments, such, for example, as corporate franchises, may be taxed only in the State from whose law they are derived and where, consequently, they have their legal situs.27
26 After referring to earlier decisions relating to the taxation of stock of rational banks, the court say: "In substance the contention is that the conceded principle has no application to taxation by a State of shares of stock in a corporation created by it, because, by the Constitution of the United States, the States are limited as to taxation to persons and things within their jurisdiction, and may not, therefore, impose upon a nonresident, by reason of his property within the State, a personal obligation to pay a tax. By the operation, therefore, of the Constitution of the United States, it is argued the States are restrained from affixing, as a condition to the ownership of stock in their domestic corporations by nonresidents, a personal liability for taxes upon such stock, since the right of the nonresident to own property in the respective States is protected by the Constitution of the United States, and may not be impaired by subjecting such ownership to a personal liability for taxation. But the contention takes for granted the very issue involved. The principle upheld by the rulings of this court to which we have referred, concerning the taxation by the States of stock in national banks, is that the sovereignty which creates a corporation has the incidental right to impose reasonable regulations concerning the ownership of stock therein, and that a regulation establishing the situs of stock for the purpose of taxation, and compelling the corporation to pay the tax on behalf of the shareholder, is not unreasonable regulation. Applying this principle, it follows that a regulation of that character, prescribed by a State, in creating a corporation, is not an exercise of the taxing power of the State over persons and things not subject to its jurisdiction. And we think, moreover, that the authority bo possessed by the State carries with it the power to endow the corporation with a right of recovery against the stockholder for the tax which it may have paid on his behalf. Certainly, the exercise of such a power is no broader than the well-recognized right of a State to affix to the holding of stock in a domestic corporation a liability on a nonresident as well as a resident stockholder in personam, in favor of the ordinary creditors of the corporation."
27 As to federal taxation of state granted franchises, see Section 57.
This doctrine is clearly stated in Louisville & Jeffersonville Ferry Co. v. Kentucky.28 In this case it was held that a Kentucky corporation operating a ferry across the Ohio river was deprived of its property without due process of law by the action of the State in including, for purposes of taxation, in the valuation of its franchise derived from Kentucky, the value of a franchise derived from Indiana for a ferry from the Indiana to the Kentucky shore. The court say: "Beyond all question, the ferry franchise derived from Indiana is an incorporeal hereditament derived from and having its legal situs in that State. It is not within the jurisdiction of Kentucky. The taxation of that franchise or incorporeal hereditament by Kentucky is, in our opinion, a deprivation by that State of the property of the ferry company without due process of law ... as much so as if the State taxed the real estate owned by that company in Indiana." The court go on to say that they are not called upon to decide and that they express no opinion as to the validity of a law making it a condition of the ferry company's continuing to exercise its corporate powers that it should pay a tax for its property having a situs in another State. It would seem, however, that such a condition would be valid, each State having the right to make such conditions as it may see fit to the existence of a company as a domestic corporation, or to entrance a foreign corporation to do business within the State. Thus, as will later appear, while a State may not tax the franchise of a foreign corporation as such, it may levy a license tax upon its right to do business within the State and may determine the amount of that tax by the value of its property, including the value of its corporate franchise. What would seem, however, to be a recent departure from this principle is discussed in Section 74 of this treatise.