Source: https://supreme.justia.com/cases/federal/us/85/206/
Timestamp: 2019-04-22 10:04:23+00:00

Document:
1. Although it has been repeatedly held by this Court that the legislature of a state may exempt particular parcels of property or the property of particular persons or corporations from taxation, either for a specified period or perpetually, or may limit the amount or rate of taxation to which such property shall be subjected, and that when such immunity is conferred or such limitation is prescribed by the charter of a corporation, it becomes a part of the contract, and is equally inviolate with its other stipulations, yet before any such exemption or limitation can be admitted, the intent of the legislature to confer the immunity or prescribe the limitation must be clear beyond a reasonable doubt. All public grants are strictly construed, and nothing can be taken against the state by presumption or inference. The established rule of construction in such cases is that rights, privileges, and immunities not expressly granted are reserved.
2. Accordingly, a provision in an act of the Legislature of Delaware under which the original Wilmington & Susquehanna Railroad Company was united with the Delaware & Maryland Railroad Company, requiring the new company to pay annually into the treasury of the state a tax of one-quarter of one percent upon its capital stock of $400,000, did not prevent a subsequent legislature from imposing a further or different tax upon the company. The amount designated was only a declaration of the tax payable annually until a different rate should be established.
Railroad Company. The act of Delaware authorizing the consolidation on her part provided that the holders of the stocks of the two companies should, when consolidated, hold, possess, and enjoy all the property, rights, and privileges, and exercise all the power granted to and vested in the companies, or either of them, by that law or any other law or laws of that state or of Maryland. The act of Maryland, authorizing the consolidation on her part, contained a similar provision. Held that the purpose of the two provisions was to vest in the new company the rights and privileges which the original companies had previously possessed under their separate charters; the rights and privileges in Maryland which the Maryland company had there enjoyed, and the rights and privileges in Delaware which the Delaware company had there enjoyed; not to transfer to either state and enforce therein the legislation of the other. The new company, after the consolidation, stood in each state as the original company had previously stood in that state, invested with the same rights and subject to the same liabilities. The act of consolidation, so far as Delaware was concerned, had only this effect.
"constitute one company, and be entitled to all the rights, privileges, and immunities which each and all of them possess, have, and enjoy, under and by virtue of their respective charters."
Held that this latter provision in no respect changed the position with reference to taxation of the now company, in one of the states, from that of the old company in such state.
to pay the tax on such number of the shares of its capital stock as would be in that proportion to the whole number of shares, which the length of the road or canal within the limits of the state should bear to the whole length of such road or canal.
1st. That the tax was not imposed upon the shares of the individual stockholders, or upon the property of the corporation, but was a tax upon the corporation itself, measured by a percentage upon the cash value of a certain proportional part of the shares of its capital stock, a rule which, though an arbitrary one, was approximately just in the case.
2d. That the tax did not conflict with the power of Congress to regulate commerce among the several states nor interfere with the right of transit of persons and property from one state into or through another.
6. The state may impose taxes upon the corporation as an entity existing under its laws as well as upon the capital stock of the corporation or its separate corporate property. And the manner in which its value shall be assessed and the rate of taxation, however arbitrary or capricious, are mere matters of legislative discretion.
7. A tax upon a corporation may be proportioned to the income received as well as to the value of the franchise granted or the property possessed.
8. The fact that taxation increases the expenses attendant upon the use or possession of the thing taxed of itself constitutes no objection to its constitutionality.
9. The exercise of the authority which every state possesses to tax its corporations and all their property, real and personal, and their franchises, and to graduate the tax upon the corporations according to their business or income, or the value of their property, when this is not done by discriminating against rights held in other states, and the tax is not on imports or tonnage, or transportation to other states, cannot be regarded as conflicting with any constitutional power of Congress.
Appeal from the Circuit Court of the United States for the District of Delaware, in which court William Minot filed a bill against the Philadelphia, Wilmington & Baltimore Railroad Company and the State Treasurer and Collector of State Taxes of Delaware to enjoin the collection of certain taxes.
of each year afterwards, pay to the treasurer of the state for the use of the state, in addition to the taxes then imposed by law upon such companies, a tax of three percent upon their net earnings or income received from all sources during the preceding year, with a proviso, that when a line of railroad or canal belonging to any company liable to the tax lay partly in the state and partly in an adjoining state or states, the part or share of such net earnings or income of the company only should be subject to the tax, as would be in that proportion to the whole net earnings or income of the company, which the length of the road or canal within the limits of the state should bear to the whole length of such road or canal.
The fourth section of the act provided that every company of the class designated should, in addition to other taxes, also pay to the treasurer of the state for its use, on the first day of July then next, and on the first day of July of each year thereafter or within thirty days from such period, a tax of one-fourth of one percent upon the actual cash value of every share of its capital stock, with a proviso similar in its character to that of the first section, namely that when the line of the railroad or canal belonging to a company liable to the tax lay partly in the state and partly in an adjoining state or states, the company should only be required to pay the tax on such number of the shares of its capital stock as would be in that proportion to the whole number of shares, which the length of the road or canal within the limits of the state should bear to the whole length of such road or canal.
a tax of $25, and of each freight car and truck thus owned and used, a tax of $10.
The act required the president or treasurer of every company liable to these several taxes, to furnish the state treasurer with statements showing its net earnings or income from all sources during the preceding year, the number of locomotives, passenger cars, freight cars of every description, and trucks belonging to the company and used by it in the state at any time during that period, and the number of shares of the capital stock of the company, with an estimate and appraisement of the actual cash value of each share, and to pay the taxes chargeable. The act also made provision for an estimate of the earnings and an assessment of the taxes in case the statement required was not furnished, and for the collection of the taxes by sale of the property of the company, if they were not voluntarily paid.
The defendant, the Philadelphia, Wilmington & Baltimore Railroad Company, is a corporation created under the laws of Delaware, so far as it exists in that state. By connection with other companies with which under one common name it is consolidated by the legislation of Pennsylvania and Maryland, hereafter particularly mentioned, its road extends to Philadelphia in one state and to Baltimore in the other. It is therefore a corporation liable to taxation by the terms of the Act of April 8, 1869, and is within the provisos of both its first and fourth sections.
as the tax was not a legal one, protection against its levy should be provided. This communication was submitted to the directors, who, in answer, resolved that while they protested against the legality of the tax, they declined to take the responsibility of interfering to prevent its collection, leaving the stockholders at liberty to assert their rights in such way as they might think proper. Minot thereupon filed the present bill. Though the immediate occasion of the bill was the apprehended attempt on the part of the State of Delaware to enforce the tax imposed upon the company by the fourth section of the Act of April 8, 1869, the complainant charged that all the taxes imposed by the act in question were illegal, and sought to have the legislation imposing them, so far as it affected the Philadelphia, Wilmington & Baltimore Railroad, the corporation defendant, declared to be unconstitutional and invalid and the collection of the taxes enjoined.
The circuit court adjudged the tax imposed for the use of the rolling stock to be invalid and enjoined its enforcement, but sustained the legality of the other taxes, and a decree in conformity with this ruling was entered, from which both parties appealed to this Court. On the hearing in this Court, the state officers of Delaware withdrew their appeal, and the inquiry of the Court was thus limited to the validity of the Act of April, 1869, so far as it imposed the taxes specified in its first and fourth sections.
1st. That it violated the contract between the State of Delaware and the company contained in the charter of the latter.
2d. That it imposed taxes upon property beyond the jurisdiction of the state.
4th. That it interfered with the right of transit for persons and property from one state into or through another.
The defendant corporation, as already mentioned, was formed by union with companies chartered by other states, and to understand fully the positions of the appellant, reference must be had to the original corporations and the legislation by which they were created. By an act of the Legislature of Maryland passed in 1831 and its supplement, a corporation called the Delaware & Maryland Railroad Company was created, with authority to construct and maintain a railroad from a point on the Delaware & Maryland line to some point on the Susquehanna River, and by the nineteenth section of the act it was provided that the shares of the capital stock of the company should be exempt from the imposition of any tax or burden by the state's assenting to the act, except upon that portion of the permanent and fixed works of the company, which might be within the State of Maryland. By an act of the Legislature of Delaware passed in 1832 and its supplement, another corporation was created called the Wilmington & Susquehanna Railroad Company, with authority to construct and maintain a railroad from a point on the boundary line of Pennsylvania and Delaware to the City of Wilmington and thence towards the Susquehanna in the direction of Baltimore to the Delaware & Maryland line. The act provided that the company should pay annually into the Treasury of the state a tax of eight percent on the dividends exceeding six percent of the capital stock actually paid in.
in the charter of the original Wilmington & Susquehanna Railroad Company, requiring the payment of the tax of eight percent on the dividends exceeding six percent of the capital stock actually paid in, and provided that the consolidated company should pay annually into the treasury of the state, a tax of one-quarter of one percent on its capital stock of four hundred thousand dollars, the tax to be paid in semiannual installments, on the first of January and July of each year.
was inferior in structure and equipment to that since maintained by the consolidated company.
Since the consolidation, the Philadelphia, Wilmington & Baltimore Railroad Company had built a bridge across the Susquehanna in the State of Maryland at a great expense, and had thus established and now maintains a continuous railroad route between Philadelphia and Baltimore, and had expended large sums in laying an additional main track, sidings and turnouts and in building depots and stations, and in furnishing an adequate equipment of rolling stock. The capital stock of the company when the bill was filed was represented by 186,088 fully paid shares of the par value of $50 each, of which 184,524 shares were held by persons who were neither citizens nor residents of Delaware.
The capital stock of the Maryland and Pennsylvania companies, previous to and at the time of the consolidation of these companies with the Delaware company, represented real and personal estate of great value (locally situated in these states) belonging to stockholders not domiciled in Delaware.
The entire length of the railroad of the consolidated Philadelphia, Wilmington & Baltimore Railroad Company, including a branch in the State of Maryland known as the Port Deposit Branch, is 97 74/100 miles, of which 23 8/10 miles are in the State of Delaware; but the value of the property of the company locally situated in the State of Delaware is much less than 2308/9974 of its entire property; the bridge across the Susquehanna, in the State of Maryland, representing alone an expenditure exceeding $1,500,000, and the value of the depot and station grounds, in the States of Pennsylvania and Maryland, with the buildings and structures thereon, exceeding 7666/9974 of the value of the entire depot and station property of the company.
It is contended by the appellant that the Act of Delaware of April 8, 1869, so far as it imposes taxes upon the corporation defendant, violates the contract between the state and the corporation contained in the charter of the latter. His position is that the provision in the Act of Delaware of 1835 by which the Wilmington & Susquehanna Railroad Company was united with the Delaware & Maryland Railroad Company that the new company should pay annually into the treasury of the state a tax of one-quarter of one percent upon its capital stock of four hundred thousand dollars, being accepted by the stockholders of the two companies by their union into one company, constituted a contract between the new company and the State of Delaware, which precluded that state from imposing any greater or different tax upon the capital stock of the new company, and that the provision in the same act of Delaware, that the new company should possess all the rights and privileges vested in the original companies, or either of them, by that law, or any other law of that state or of Maryland, extended to the new company the same exemption from taxation on its shares of capital stock, which was possessed by the Maryland corporation under its charter, and that the same limitation upon the taxation of the capital stock, and the same immunity of the shares from any taxation, were extended to the corporation defendant by the provisions of the act of Delaware under which this latter company was formed.
That the charter of a private corporation is a contract between the state and the corporators, and within the provision of the Constitution prohibiting legislation impairing the obligation of contracts has been the settled law of this Court since the decision in the Dartmouth College Case. [Footnote 1] Nor does it make any difference that the uses of the corporation are public if the corporation itself be private. The contract is equally protected from legislative interference whether the public be interested in the exercise of its franchise or the charter be granted for the sole benefit of its corporators. This doctrine is not controverted by anyone; it is the established law, and the question in all cases, when it becomes necessary to apply it, is whether the particular legislative interference alleged does in fact impair the obligation of the contract, for it is not every kind of legislative interference with the powers, action, and property of the corporation which will have that result.
claimed calls for any abridgment of the powers of the government, or any restraint upon their exercise. The power of taxation is an attribute of sovereignty, and is essential to every independent government. As this Court has said, the whole community is interested in retaining it undiminished, and has "a right to insist that its abandonment ought not to be presumed in a case in which the deliberate purpose of the state to abandon it does not appear." [Footnote 2] If the point were not already adjudged, it would admit of grave consideration whether the legislature of a state can surrender this power and make its action in this respect binding upon its successors any more than it can surrender its police power or its right of eminent domain. But the point being adjudged, the surrender when claimed must be shown by clear, unambiguous language, which will admit of no reasonable construction consistent with the reservation of the power. If a doubt arise as to the intent of the legislature, that doubt must be solved in favor of the state.
new company was formed, instead of being designated in an independent act. As already observed, nothing can be taken from the power of the state in this respect by presumption or inference.
"from premises so insufficient, a consequence of such magnitude, would indeed be a gross violation of the wholesome principle that an abandonment of the power of taxation is only to be established by clearly showing this to have been the deliberate purpose of the state."
possessed under their separate charters -- the rights and privileges in Maryland which the Maryland company had there enjoyed, and the rights and privileges in Delaware which the Delaware company had there enjoyed not to transfer to either state and enforce therein the legislation of the other. The new company was clothed by the Legislature of Delaware, so far as that legislature could clothe it, with all the rights and privileges of both the original companies, but as the Maryland company took under the legislation of Maryland only exemption from taxation of its shares in Maryland, the privilege of the new company in this matter could only be a similar exemption in that state, not a similar exemption of the shares of its capital stock from taxation in Delaware. The new company stood in each state as the original company had previously stood in that state, invested with the same rights, and subject to the same liabilities. And the Act of consolidation, so far as Delaware was concerned, had only this effect.
meaning of this provision is that whatever privileges and advantages either of them possessed should in like manner be held and possessed by the new company to the extent of the road they had respectively occupied before the union; that it should stand in their place, and possess the power, rights, and privileges they had severally enjoyed in the portions of the road which had previously belonged to them."
We are therefore of opinion that the Act of April 8, 1869, is not obnoxious to the objection that it violates any contract between the State of Delaware and the company contained in the charter of the latter.
If the assumption of the appellant were correct, there would be difficulty in sustaining the validity of the tax.
the latter only is the property of the corporation; the former is the individual interest of the stockholder, constituting his right to a proportional part of the dividends when declared and to a proportional part of the effects of the corporation when dissolved, after payment of its debts. Regarded in that aspect, it is an interest or right which accompanies the person of the owner, having no locality independent of his domicile. [Footnote 5] But whether, when thus regarded, it can be treated as so far severable from the property to which it relates as to be taxable independent of the locality of the latter is a question not necessary now to decide. The argument of the appellant assumes that it is thus severable.
In any aspect, if provision for the taxation of the shares at the locality of the company be made in its charter, their taxability at such locality is annexed as an incident to the shares, and it does not matter where the domicile of the owner may be. The tax may then be enforced through the corporation by requiring it to withhold the amount from the dividends payable thereon. The shares in the national banks created under the Act of Congress of June 3, 1864, are made taxable at the place where the bank is located, and not elsewhere, and in the case of National Bank v. Commonwealth, reported in the 9th of Wallace, a law of Kentucky requiring the banks in that state to pay the tax laid on their shares was sustained by this Court. [Footnote 6] But in the act of Delaware under which the corporation defendant was formed, there is no such provision for the taxation of the shares of the individual stockholders.
to be the fact, a tax imposed upon the property in Delaware according to the ratio of the length of its road to the length of the whole road must necessarily fall upon property out of the state. The length of the whole road is in round numbers one hundred miles; the length in Delaware is twenty-four miles. The tax upon the property estimated according to this ratio would be in Delaware 24/100 or 6/25 of the amount of the tax upon the whole property. But the value of the property in Delaware is not 6/25 of the value of the whole property, but much less than this proportion would require.
We repeat, therefore, that upon the assumption made by the appellant, there would be difficulty in sustaining the tax.
We do not think, however, the assumption is correct. As we construe the language of the fourth section, the tax is neither imposed upon the shares of the individual stockholders nor upon the property of the corporation, but is a tax upon the corporation itself, measured by a percentage upon the cash value of a certain proportional part of the shares of its capital stock -- a rule which, though an arbitrary one, is approximately just -- at any rate is one which the Legislature of Delaware was at liberty to adopt.
The state may impose taxes upon the corporation as an entity existing under its laws, as well as upon the capital stock of the corporation or its separate corporate property. And the manner in which its value shall be assessed and the rate of taxation, however arbitrary or capricious, are mere matters of legislative discretion. It is not for us to suggest in any case that a more equitable mode of assessment or rate of taxation might be adopted than the one prescribed by the legislature of the state; our only concern is with the validity of the tax; all else lies beyond the domain of our jurisdiction.
to the income received as well as to the value of the franchise granted or the property possessed.
It remains to notice the objections that the Act of 1869 conflicts with the power of Congress to regulate commerce among the several states, and interferes with the right of transit of persons and property from one state into or through another.
"Every tax upon personal property, or upon occupations, business, or franchises, affects more or less the subjects, and the operations of commerce. Yet it is not everything that affects commerce that amounts to a regulation of it, within the meaning of the Constitution. [Footnote 7]"
The exercise of the authority which every state possesses to tax its corporations and all their property, real and personal, and their franchises, and to graduate the tax upon the corporations according to their business or income, or the value of their property, when this is not done by discriminating against rights held in other states, and the tax is not on imports, exports, or tonnage, or transportation to other states, cannot be regarded as conflicting with any constitutional power of Congress.
Providence Bank v. Billings, 4 Pet. 561.
51 U. S. 10 How. 377. In the title given in 10th Howard, the word "Baltimore" is omitted by mistake.
Van Allen v. Assessors, 3 Wall. 583; Union Bank v. State, 9 Yerger 501; Richmond v. Daniel, 14 Grattan 385; Savings Bank v. Nashua, 46 N.H. 398; Dwight v. Mayor, 12 Allen 322; Redfield's Supplement to Law of Railways 507-510.
State Tax on Railway Gross Receipts, 15 Wall. 293.

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