The Jersey City news. (Jersey City [N.J.]) 1889-1906, 1889-12-14
THE GREAT TAX suit.
Points Of Difference Be-
tween the State and
Railroad Company.

mere, on behalf of the State in the great
Morris & Essex arbitration suit, while his
chief duty was to argue in support of the
facts in the case, brought forth many in
terrogatories from the arbitrators which
involved every point Of law that there is
In the case. Now, in order to make this
matter understood by the reading public,
it will be necessary to state some facts
which have been more or less correctly
referred to in various newspaper articles
heretofore.
HOW THE STATES CLAIM IS MADE UP.
In the first place the amount OF the
States claim is some 81, 900, of which
amount about $500, 600 is for interest, the
principal being about $75O.OOO. Even If
the arbitrators give a decree in favor of
the State, it is more than doubtful if they
will allow any interest on whatever claim
the State may be found to have
This principal referred to is made up,
as the State claims, of unpaid taxes as Tar
back as 1858, that being as far back as the
complaint of the State goes; and the rea-
son they did not go back any further was
because no record could be,found among
the archives of the State of any reports by
the company to the State prior to that
year. but Governor Bedle, when it came
to his side OF the case, put statements by
the railroad company to the State in evil
dence as far back as 1S45, which he
had found in the Legislative documents
of each year from 1S45 to 1858. But
before these had been put in evidence,
the State had proceeded TO go back to
1S45 In the company's books, III order to
learn what the books showed the net pro-
ceeds had been for those wears prior to
Inn, ncic ant oil
through his argument was that the books
of the company showed that seven per
cent on the cost of the road had been
earned as far back as 1S45. If the arbit-
rators find that this is so and that they
were taxable on hat basis, some $4,000
or $4,000 will have to be added to the
states claim for unpaid taxes back OF
1858, which is the earliest year mentioned
in the complaint.
is ALL CONSTRUCTION COST?
Now. what are the questions that are to
be decided by the arbitrdtors? In the
first place, it is for them to say whether
all the construction accounts as contained
in the books of the company are syn
onomous with and properly part of the
cost of the road. Mr.. Gummere's insist
ment is that construction and cost of
road are synonymous terms. On the
other hand, Ex-Governor Bedle will no
doubt argue the other way.
~
whether the railroad company had right
to pay for betterments out of earnings
and thereby decrease net proceeds so as
to bring them below the seven per cent.
when the whole cost of road becomes
taxable. Mr.. Gummere's insiStment has
been that while under the act of 1862, and
by virtue OF the decision in the Someryille
& Easton case, the company is not liable
to pay tax on cost of equipment, never
theIess, equipment is part of the cost of
the road and that the company especially
as their books show that the money ex-
pended for equipment was capital ex-
penseA, cannot deduct the cost of equip
menu from earnings and thereby bring
their net earnings below the seven per
cent. tax limit.
The discussion between Mr. Gummere
and Judge Dillon on this point is of CON
siderable interest. Judge Dillon said
that in his experience the earnings of the
railroad company were as shifting as the
sands of the desert, and he quoted very
celebrated case as to what The earnings of
railroad company Were. His remarks
were to the effect that the original Pacific
Railroad Act provided, and the Govern
nent aided the Pacific road with land
ana bonds, and to reimburse the company
the road should do the government trans
portation at reasonable rates, and that
one-half of all its earnings should be ap-
piled to the government debt annually,
and in addition thereto five per cent. OF
the net earnings.
AN IMPORTANT CASE IN POINT.
Now" said the Judge, that's the
only clause in the Act of 1862 on that
subject that five per cent. of the net
earnings annually shall be applied TO the
payment of the debt to the government.
Now. the Pacific road went on and built
new stations, they bought new loco
motives and new cars, they put machinery
in their shops, they built hotel for the
accommodation of the passengers, and
the question that came before the United
States Supreme Court was as to whether
they could deduct these expenditures
from gross earnings in order TO ascertain
net earnings, upon which net earnings
they were to pay the government five per
cent, and the supreme Court of the
United States said that they might.
Then came the Thurman Acv, which
increased the contribution which this
company was to make TO the United
States Government from five per cent to
twenty five per cent of its net earnings,
but that act undertook to define how to
ascertain what were the net earnings,
and the way the net earnings were to be
ascertained was by deducting from the
gross earnings each year the sum of money
actually paid during the year for keeping
the road in repair and operation, and the
amount of interest paid Oh the bonds
which are prior IN lien TO the United
States Government; and that was the
basis upon which the road was to pay
twenty-five per cent. of its net earnings to
the government each year. Under this
act a dispute arose between the govern
ment and the company as to what net
earnings were. The company put in new
rolling mills at Laramie, they built new
station at Council Bluffs, new water
works and artesian wells five
or six hundred feet deep and
costing several hundred thousand
dollars; they built snow sheds, and added
several hundred cars and scores OF loco
motives to their plant; and the Court of
Claims decided that that was proper de-
aucuon to be made from gross earnings
in order to ascertain net.
WHEN DOES THE TAX LIE?
Another question of vital Importance in
dispute between the railroad and the
State, is the question whether the COM
pany was liable to pay taxes on the
money expended each year on its various
improvements, such as the Boonton
branch, and the tunnel through Bergen
HILL the construction of which occupied
several years.
The law says that the company shall
pay tax OF one-half of one per cent. on
the cost of its road within one year after
the road is completed and in operation to
Phillipsburg, and annually thereafter
Mr. Gummere's insistment is that the
company was liable TO pay tax on the
nnct of its road annually after il was