Opinion Number. 11



Key Legislation

CONSTITUTION, ss. 51 (i), (ii), (v), (xii), (xiii), (xxxiv), 52 (ii), 92, 99, 114 : STAMP DUTIES ACT 1898 (N.S.W.)


Does this Act [Stamp Duties Act 1898 (N.S.W.)] authorise the taxation of postal money orders since the transfer of the Post Office to the Commonwealth-

  1. on issue at the rate of a penny;
  2. on the receipt of the payee of a money order for 12 or upwards issued within the Commonwealth;
  3. on the like receipt for a money order issued beyond the Commonwealth?

(1) The New South Wales Stamp Duties Act does not purport to bind the Crown and it is extremely doubtful if it ever applied to money orders. It certainly does not apply now. Their issue is part of the ordinary business of the Post Office and comes under the provisions of the Constitution (section 52, sub-section (ii)). They are what are termed 'Federal instruments' and as such undoubtedly pass beyond the power of the States although their taxation is not specifically prohibited in the Constitution: McCulloch v. Maryland A Wheat. 316; The Banks v. The Mayor! Wall. 16; Weston v. City of Charleston 2 Pet. 449.

(2) and (3) The question here involved is more difficult. It is not the instrument that is taxed directly but the receipt given by its payee for the money which it conveys. All receipts over £2 are taxed alike, so that there is no discrimination in New South Wales.

A further consideration is that the Post Office issues postal notes in New South Wales, as elsewhere, payable as bank notes are to the holders or to a particular person whose endorsement is required to obtain payment. Neither of these forms of remittance are taxed. Those who resort to the money orders do so to obtain the additional security of the receipt and it is upon this receipt that they are taxed.

The tax is not unreasonable in amount.

On the other hand the principle laid down in the American cases beginning with McCulloch v. Maryland is strong and clear. A State is not permitted to tax Federal instrumentaUties even to an infinitesimal extent.

The one limitation laid down is that defined by Miller J. in National Bank v. Commonwealth 9 Wall. 355:
The agencies of the Federal Government are only exempted from State legislation so far as that legislation may interfere with or impair their efficiency in performing the functions by which they are designed to serve the Government.

The reference to the Government is to be specially noted. The case in which this judgment was given affected the shares of a bank whose only national character appears to have been derived from the fact that it was established under a Federal Act, was a depository and financial agent of the Federal Government, and had its capital invested in Federal securities which were not subject to State taxation. The case of a Government Department such as the Post Office whose instruments are affected in New South Wales differs entirely in principle. Federal officers' salaries are exempt from State taxation (Dobbins v. Erie County 16 Pet. 443) and State officers from Federal taxation (The Collector v. Day 11 Wall. 123). No one would claim any such exemption for the officer of a bank. In the words of Nelson J., p. 127:
. . . there is no express provision in the Constitution that prohibits the general government from taxing the means and instrumentalities of the States, nor is there any prohibiting the States from taxing the means and instrumentalities of that government. In both cases the exemption rests upon necessary implication, and is upheld by the great law of self-preservation; as any government, whose means employed in conducting its operations, if subject to the control of another and distinct government, can exist only at the mercy of that government. Of what avail are these means if another power may tax them at discretion?

As Marshall C.J. declared: 'the power to tax involves the power to destroy' (see Cooley, pp. 589-594). State banking has been actually and intentionally taxed out of existence in the United States.

Now in the case before me the Post Office and money orders are taxed through its customer. Conceivably they might be so heavily taxed as to prohibit their use altogether. It is true that other modes of transmitting money at present untaxed might be adopted by the Post Office, and it may be urged that this suffices for its protection. But these too might be then attacked by State taxation. If they can be taxed at all they can be taxed out of existence./

Further, it is a first principle of the United States Constitution as interpreted by Marshall C.J. and all his successors that Congress possesses the choice of means and must be empowered to use any means which are in fact conducive to the exercise of a power granted by the Constitution: United States v. Fisher 2 Cranch 358 and again still more emphatically in McCulloch v. Maryland cited above: 'all means which are appropriate' and 'consist with the letter and spirit of the constitution, are constitutional'. In this case the Executive of the Commonwealth must be taken to have made its choice of means by retaining money orders since the Post Office was transferred to their control. They are appropriate means and within the Constitution. They ought not therefore to be liable to taxation. Again the importance of the principle that neither the Federal nor State legislatures should tax each other under our Constitution may be gathered from the special prohibition in regard to the taxation of their respective properties (Constitution, section 114). In this instance as in others our Constitution is more explicit than that of the United States and expressly prohibits taxation which in America is only forbidden by implication. This section adopts as to property the principle laid down by Nelson J. above cited and strengthens the force of its application in the present instance.

From another point of view the Canadian cases emphasise the necessity and propriety of asserting Federal independence of State taxation and vice versa. The decision of the Ontario Court of Appeal as to taxation of Federal salaries in Leprohon v. Ottawa 2 Ont. App. Rep. 522 (Wheeler, Confederation Law of Canada, p. 70), following Dobbins v. Erie County, has been criticised by Lefroy, pp. 663-682. The same necessity for separating the Federal and State spheres of taxation does not exist in Canada in his opinion because the Canadian Constitution differs from that of the United States in specifically naming the power retained by the States. In this respect it differs from ours also. We have then reason to follow the United States precedents. The New South Wales tax is levied-

  1. on the persons doing business with a Federal Department;
  2. under our Constitution, which in this respect according to American precedents must be taken to prohibit in principle any State taxation of Federal instruments however slight, and which does expressly prohibit any interference on either side in regard to property.

In addition to this the question requires to be considered whether such a tax will not presently, upon the imposition of uniform duties, even if not now, conflict with the trade and commerce sub-clause (section 51 (1)) so far as it is imposed upon money orders issued outside New South Wales. In the United States, telegraph lines have been held to be instruments of commerce 'because they are so intimately connected with commerce as now conducted that they are essential thereto' (Prentice & Egan, see cases collected p. 46). The rule is that 'upon interstate commerce the State can lay no tax in any form' (Prentice & Egan, p. 201). It cannot tax goods in transit. It may tax the property of carriers within certain limitations but not those who deal with them, i.e. their customers (Prentice & Egan, p. 222-3). A State cannot tax telegraph messages transmitted without the State-though the telegraph is a private monopoly in the United States (Western Union Telegraph Company v. Pennsylvania 128 U.S. 39). 'The question in every such case is whether taxation is laid upon the means employed by the United States to carry out its power' (Prentice & Egan, p. 231). The State can tax property, but not the operations of Federal agents; how much less can it tax the operations of a Federal Department. The whole tendency of these decisions is to exclude even indirect State taxation upon interstate commerce. There are no United States cases precisely on all fours with that before me, because apparently money orders have never been sought to be taxed by the States, though they have been taxed by the Federal Government itself since 1898. The cases relate to persons or corporations who have pleaded exemption, though merely private agencies, because they were acting for the Federal Government and on this ground claimed to be untrammelled by State levies.

The interpretation of the commerce clause of the United States Constitution is still in evolution. The rule as stated by Prentice & Egan, p. 230, is that taxation by the States of 'instrumentalities', when-

  1. the situs of property is in the State and
  2. no burden is thereby imposed on business,

is sustained. But a tax-

  1. which impedes operation of commerce, or
  2. which is laid directly on such operations,

is beyond the power of the States. See also cases quoted at p. 226. The situs in this instance is certainly in New South Wales. There is a burden, though it is slight, which must to some extent impede commerce, and it is laid directly on the operation of transmitting money. The principle of freedom of commerce is therefore defeated in fact, though not to any considerable extent, without regard to the circumstance that it is a Department of the Federal Government which issues the instrument and pays upon its presentation. The dictum of Bradley J. in Robbins v. Shelby County 120 U.S. 497, appears to sum up the latest view current in United States Courts:
Interstate commerce cannot be taxed at all, even though the same amount of tax should be laid on domestic commerce, or that which is carried on solely within the state.
This would be final if accepted by our High Court. Money orders appear to me to be one appropriate and popular means of conducting commerce within and without the Commonwealth and therefore to be beyond the power of taxation exercisable by a State.

Again it may be a question how far the Commonwealth can permit any discrimination by a State even though it deals equally with all transactions of a particular kind whether wholly domestic or partly beyond its borders, when no similar imposition exists in the rest of the Commonwealth. Can the Federal Parliament permit a taxation upon the transmission of money even wholly within New South Wales which exists nowhere else within its dominion?

If this be doubtful in a general way it can scarcely be doubtful when a Federal Department is made the vehicle of what is from a national point of view a discrimination. Even if one State can burden all its citizens in a class or classes of their business operations, can it do so in regard to those which are carried on by a Federal Department over the whole Commonwealth? The Commonwealth itself cannot give preferences to any State (Constitution, section 99) and cannot discriminate in its taxation (section 51 (ii)). Can it then, so far as its departments are concerned, permit its people in any of its States to be saddled with special taxation, even with the sanction of the local legislature? Can 'trade, commerce, and intercourse' (section 92) be absolutely free, as they are required to be after the imposition of uniform duties, if these means of commerce and intercourse are taxed by a State? Should Federal officers insist that a State tax must be paid upon receipts given to their Department by its customers upon obtaining the money conveyed to them by Federal instruments-the money orders of the Post Office-whether issued within or without the State? To admit this right would be to establish the mastery of the States over the transactions of a Federal Department within its borders if not also over those partly beyond its territory. It would thus confuse the spheres of taxation of the Commonwealth and its States. To deny the right of the States to tax Federal instruments, while conceding a reciprocal immunity from Commonwealth taxation to State salaries and instruments, appears the more logical and constitutional course.

On the whole therefore it seems that a money order is the Federal instrument of a Federal Department, which as such cannot be taxed directly or indirectly. It cannot be so taxed without in some respects conflicting with the provisions of the Constitution in regard to trade and commerce, the prohibition of preferences and discriminations, and the unequivocal mandate for absolute freedom of trade upon the imposition of a uniform tariff.

In regard to the opinion(1); of the Attorney-General of New South Wales as to legislative power:

Though the United States Constitution only authorises Congress to legislate for Post Offices and Post Roads, it has established and maintains a large money order system. The Australian Constitution is not only wider in phrase but at the time of transfer our Post Office departments all included a money order system. The Savings Banks, which were also part of the Post Office, were removed and retained by the States. The money order system remained and was intended to remain. The power to legislate under section 52, sub-section (ii) is therefore sufficient to authorise legis-lation in regard to money orders and to impose or remit any taxes upon their use directly or indirectly. If necessary there might be also invoked, as authority for Commonwealth legislation with regard to money orders, section 51, sub-sections (i), (ii), (v), (xii), (xiii) and (xxxiv), and negatively section 99.

[Vol. 1, p. 69]

(1) Not found.