INDIRECT ENCROACHMENT ON FEDERAL AUTHORITY 639 interstate commerce. The court emphasizes the point that, in the absence of discrimination, the effect of such a tax on interstate commerce is "indirect" and therefore constitutionally innocuous. It regards this effect as identical with the effect on exports of the federal net income tax on income from an exporting business. Two weeks earlier in Peck ^ Co. v. Lowe ^^ the court had held that it was not a tax on exports to tax the net income of an exporting business. In the opinion Mr. Justice Van Devanter had said: "The tax in question is unlike any of those heretofore condemned. It is not laid on articles in course of exportation, or on anything which inherently or by the usages of commerce is embraced in exportation or any of its processes. On the contrary, it is an income tax laid generally on net incomes. ... It is both nominally and actually a general tax. . . . There is no discrimination. At most, exportation is affected only indirectly and remotely. The tax is levied after exportation is com- pleted, after all expenses are paid and losses adjusted, and after the recipient of the income is free to use it as he chooses. Thus what is taxed — the net income — is as far removed from the exportation as are articles intended for export before the exportation begins." ^^ This passage was paraphrased by Mr. Justice Pitney in the Oak Creek case, prefatory to pointing out the distinction between the measures of gross and of net income and to minimizing the deter- rent effect on interstate commerce of the latter, since a tax on net profits "does not arise at all unless a gain is shown over and above expenses and losses, and the tax cannot be heavy unless the profits are large." ^^ We may take it for granted, then, that the legal character of the recipient and the nature of the business in which the recipient is engaged are immaterial elements in considering the constitution- ality of a state-wide, all-inclusive general tax on net income from business done within the state. The recipient may be an indi- vidual, a partnership, a domestic or a foreign corporation. The business may be exclusively interstate. But the tax must be gen- eral, and the measure must probably be net, and not gross, income, with the possible qualification that some latitude will be allowed the states in prescribing what are permissible deductions by way " 247 U. S. 165, 38 Sup. Ct. Rep. 432 (1918). »^ 247 U. S. 165, 174-75, 38 Sup. Ct. Rep. 432 (1918). " 247 U. S. 321, 329, 38 Sup. Ct. Rep. 499 (1918).
