INDIRECT ENCROACHMENT ON FEDERAL AUTHORITY 919 is no longer accorded recognition to enable a state to impose on for- eign corporations engaged partly in interstate commerce a tax which is in substance on extra-state property .^^ Should it continue to allow a state to tax United States bonds owned by a corporation through the device of a tax on the 'franchise of a corporation measured by the value of its capital? The answer must depend upon whether there is any substantial reason for holding that a tax directly on the capital must exclude such part thereof as is invested in United States bonds. To require such exclusion is to grant a bounty to the federal borrowing power. The extent of the bounty would be appreciated if the obhgations of competing debtors were similarly excluded. The denial of this bounty, therefore, cannot in substance be regarded as an interference with the federal borrowing power. We may accept the conclusions that a tax on corporate capital is a tax on the property in which it is invested, and that a tax on United States bonds is a tax on a federal instrumentality. If, however, some particular tax on that instrumentality does not in fact burden or interfere with its exercise, there is no economic ground on which to declare it unconstitutional. If all other possible grounds are re- moved by changing the tax from one formally on capital to one formally on a franchise, there is no remaining obstacle to the asser- tion of state power. Two objections may be made to the foregoing discussion. The first is that the United States bonds are taxed twice if they are reached through an assessment of the corporate franchise and a further assessment of the shares of stock. This is true. But they can be taxed twice only as the obligations of competing debtors are similarly taxed. This form of double taxation cannot discriminate against one borrower in favor of another. If the corporation and its stockholders will be subject to separate taxation of their re- spective legal interests without regard to the character of the in- vestments of the corporation, this double taxation cannot exercise any direct influence on the corporation in its choice of investments. On the other hand, if United States bonds are excluded from the assessment of either tax, while the obligations of competing debtors are included in the assessment of both, the federal government has been granted a preference. This answer, it must be recognized, flies in the face of Bank of California v. Richardson}^ If that de- " Note 41, supra. ^ Note 42, supra.
