Argument for Appellants. 297 U.S. have to make a greater increase in its rates and fares than interstate commerce could bear. As the amount of the tax, if valid, is a matter of state discretion, an essential instrumentality of interstate commerce may be destroyed by the State. This is made more apparent when we consider that, if the State of Washington can impose such a tax, all of the States through which appellant's line of railroad is constructed may do likewise. Congress has so taken possession of the local business, in so far as such business has a direct relation to interstate business, that there is not room for state power to license local business as a privilege which may be granted or denied at the will of the State, nor to take any action whatever which will disable or hamper the carrier in the performance of its duty to maintain an interstate system of transportation and economically and efficiently serve interstate commerce at reasonable rates. It is therefore obvious that the exaction of a tax by the State for the privilege of carrying on local commerce is a direct burden on, and a regulation of, interstate commerce, where, as here, both classes of commerce are carried over the same lines by the same employees, in the same trains, and by the use of the same instrumentalities, and the interstate business is absolutely dependent for its efficient and economical transaction upon the local business. Even if there could have been a doubt upon this point prior to the enactment of the Transportation Act, there can be none now, in view of the provisions of that Act, and there is therefore controlling reason for the strict application of the rule invoked at the beginning of this argument, in view of the amendments and additions to the Interstate Commerce Act by the Transportation Act of 1920. Railroad Commission v. Chicago, B. & Q. R. Co., 257 U. S. 563; Colorado v. United States, 271 U. S. 153; New York v. United States, 257 U. S. 591; Dayton-Goose 403 Counsel for Appellees. Creek R. Co. v. United States, 263 U. S. 456; Atlantic Coast Line R. Co. v. Daughton, 262 U. S. 413. While this Court has always held that ad valorem taxes may be imposed upon property used in interstate commerce, it has likewise always held that an excise or license tax which must be paid out of the receipts from interstate commerce is a burden on such commerce. Appellant's answer alleges, and both courts below have found, that appellant's intrastate business was conducted at a loss during the year 1933, and that the tax in question would have to be paid out of appellant's earnings from interstate and foreign commerce and from the income from its property located outside the State of Washington. The tax is not rendered constitutional by the fact that appellant did not secure permission to raise intrastate rates which, due to competitive and economic conditions. cannot be raised. The following authorities point to the invalidity of the statute under the Fourteenth Amendment: Western Union v. Kansas, 216 U. S. 1; Ludwig v. Western Union, 216 U. S. 146; Fargo v. Hart, 193 U. S. 490; Wallace v. Hines, 253 U. S. 66; Alpha Portland Cement Co. v. Massachusetts, 268 U. S. 203; Shaffer v. Carter, 252 U. S. 37. The tax is not rendered constitutional by reduction of ad valorem taxes. Mr. R. G. Sharpe, Assistant Attorney General of Washington, and Mr. Walter L. Baumgartner, with whom Mr. G. W. Hamilton, Attorney General, was on the brief, for appellees. By leave of Court, Messrs. A. C. Van Soelen and Walter L. Baumgartner filed a brief on behalf of the City of Seattle, as amicus curiae, urging affirmance of the judgment below. MR. JUSTICE BRANDEIS delivered the opinion of the Court. The State of Washington laid upon practically all persons engaged in intrastate business an occupation tax effective August 1, 1933, to continue for twenty-four months. The tax is measured by a percentage of the gross income solely of that business; and, as construed, purports not to tax the privilege of doing interstate business. The rate for telephone companies is 3 per cent; for railroads, 12 per cent. Laws of Washington, 1933, c. 191. No. 544 is a suit by Pacific Telephone & Telegraph Company against the Tax Commission to enjoin proceedings to enforce the tax. No. 573 is an action by the State against Great Northern Railway to collect the tax for the period ending December 31, 1933. No. 529 is a like action against Northern Pacific Railway. Each company is a foreign corporation. The cases are here on appeals from the Supreme Court of the State and were argued together. Each presents the question whether the statute, as applied, is obnoxious to the commerce clause of the Federal Constitution. The railroads claim also that the statute violates the due process clause by taxing income earned outside the State. In each case the trial court held the statute void. The Supreme Court sustained its validity in all the cases. 183 Wash. 697, 698, 33; 48 P. (2d) 931, 938. None of the companies rests its challenge of the statute primarily upon proof that the tax, in fact, burdens interstate commerce. The Telephone Company relies wholly, and the railroads mainly, upon an alleged rule of lawthe proposition that when a foreign corporation engages within a State in both local and interstate commerce, an occupation tax laid upon the local business is necessarily void, unless the corporation is free in law and, in fact to withdraw therefrom without discontinuing its interstate business. They urge that the alleged rule applies to them, claiming that inability to abandon the local business without also discontinuing the interstate is imposed by state and federal law, and arises also from practical considerations. They insist that the rule applies although the tax is not such in character or amount as to induce withdrawal from the local business. The railroads contend further that the tax, in fact, burdens interstate commerce. The trial court found, and the Supreme Court assumel, that practical considerations would prevent either of the railroads from abandoning its intrastate business without also withdrawing from the interstate. And this was assumed to be true of the Telephone Company. The operations of the two classes of business are inextricably intertwined. In the main, they are carried on at the same time, by the same employees, with the same plant, equipment, and facilities. The interstate business is found profitable when carried on in connection with the local, because the expenses of the joint operation are, under applicable accounting rules, apportioned between the two branches of the business. Withdrawal from local business would reduce by but a small percentage each company's cost of operation. The remaining unavoidable expense would be heavier than the interstate business could bear under the existing rates or under any conceivable increase. Moreover, the trial court ruled, and the Supreme Court assumed, that the governing law would not permit these corporations to withdraw from local business without discontinuing also the interstate. The State denies the existence of the alleged rule of law that an occupation tax upon intrastate business is necessarily void, if the corporation is not free to withdraw from the local business without discontinuing also the interstate. There is no denial that a tax upon the privilege of engaging in the local business is void if, by reason of its character or amount, it, in fact, imposes a direct burden upon interstate commerce. The State insists that this tax does not do so. First. Where interstate and intrastate commerce are served by the same instrumentalities of a common carrier, it is possible that a regulation of the State applied directly to the intrastate business only may in fact burden the interstate. Where this occurs Congress may remove the burden, since state regulation must yield to its paramount power to assure adequate interstate service. That power is comprehensive; and has, under appropriate legislation, been extensively exercised. Through the Interstate Commerce Commission, Congress has commanded the raising of local rates where they were so low that the intrastate traffic did not bear its fair share of the cost of the service. It has prevented state authorities from compelling the erection of a union station so expensive as unduly to deplete the financial resources of the carrier. It has prevented the construction of an intrastate branch line which would have depleted the financial resources of the builder or of another interstate carrier. It has curtailed existing local service and authorized abandonment of a controlled line, despite the carrier's contract with the State to maintain the line. Such control over intrastate commerce exists because it is a necessary incident of freeing interstate commerce from burdens, obstructions or discrimination. It has been exerted wherever Congress deemed that the State's power to regulate and promote intrastate commerce is exercised in such a way as to prejudice the interstate. Colorado v. United States, 271 U. S. 153, 164-166. Similarly, where interstate and intrastate commerce are served by the same instrumentalities of the carrier, it is possible that a tax applied directly to the privilege of doing the local business may in fact burden the related interstate business. While a State may tax the privilege of engaging in local business, as it may regulate local |