Source: https://supreme.justia.com/cases/federal/us/242/111/
Timestamp: 2019-04-25 21:51:11+00:00

Document:
Three corporations, formed, and operating railways, in Alabama, Tennessee, and Mississippi, respectively, consolidated themselves under the laws of each of those states. The consolidated company succeeded to all the property of the constituents, and issued its shares in lieu of theirs. As construed by the court below, the law of Alabama, under which the consolidation was there effected, constituted the new company a domestic corporation of that state and, treating it as such, the state has imposed a franchise tax, not unreasonable in amount, based upon its entire paid-up capitalization.
(1) That, subject to the limitations of the federal Constitution, the existence and status of the consolidated corporation in Alabama were dependent on the Alabama laws.
the basis of their property within the state. Southern Railway Co. v. Greene, 216 U. S. 400, distinguished.
A state may tax foreign corporations for the privilege of doing business within her limits at a different rate than that which she applies to her own corporations in taxing the franchises by which she creates them.
While a state may not tax property beyond her borders, she may measure a franchise tax within her authority by capital stock which stands in part for property beyond her taxing power. Kansas City &c. Railway Co. v. Kansas, 240 U. S. 227, applied, and Western Union Telegraph Co. v. Kansas, 216 U. S. 1, distinguished.
Whether a tax is a burden on interstate commerce depends on the nature of the tax; a tax which in kind is within the state authority may properly be measured by capital which, in part, is used for interstate commerce where the circumstances do not indicate a purpose to burden such commerce, or that such will be the necessary effect.
the laws of Alabama shall pay an annual franchise tax as follows: where the paid-up capital stock does not exceed $50,000, one dollar per thousand of such paid-up capital stock; where paid-up capital stock is more than $50,000, and up to $1,000,000, one dollar per thousand on the first $50,000, and fifty cents for each thousand of the remainder; where paid-up capital stock is more than $1,000,000, and up to $5,000,000, one dollar per thousand on the first $50,000, and fifty cents per thousand for the next $950,000, and twenty-five cents per thousand for the remainder; where the paid-up capital stock exceeds $5,000,000, one dollar per thousand on the first $50,000, fifty cents per thousand on the next $950,000, twenty-five cents per thousand on the next $4,000,000, and ten cents per thousand on the remainder, and that corporations organized under the laws of any other state, and doing business within the State of Alabama, shall pay annually franchise tax as above, based, however, on the actual amount of capital employed in the State of Alabama. The act also contains provisions not relevant to this action and not necessary to be set forth here.
solely under the laws of the State of Mississippi, acquired, constructed, owned, and operated all that part of plaintiff's line and railway situated within the State of Mississippi, and a separate and distinct railroad corporation, organized and existing solely under the laws of the State of Alabama, acquired, constructed, owned, and operated all that part of plaintiff's line and railway situated within the State of Alabama. Plaintiff avers that said separate railroad corporations, being desirous of operating said distinct and separately owned properties as a single system for the conduct of the business of a common carrier in interstate commerce, as well as the continuation of intrastate commerce within said several states before the period mentioned or involved herein, and by virtue of concurrent or contemporaneous laws or special acts of said several states, including the States of Tennessee and Mississippi, as well as the State of Alabama, consolidated themselves into a corporation known as Kansas City, Memphis, & Birmingham Railroad Company, the plaintiff herein, and, in pursuance of the laws of each of said states, duly filed therein agreements and instruments consolidating said companies, and complying with the laws of each of said states authorizing the same. And plaintiff avers that, by said consolidation, the shares of stock of said several companies were surrendered by the holders thereof, and in lieu thereof there were issued the shares of stock of said consolidated company, the plaintiff herein, being the capital stock of plaintiff issued and outstanding as aforesaid. Plaintiff further avers that the capital stock on which said franchise tax was estimated and exacted as aforesaid was and is the capital stock issued and outstanding under the circumstances aforesaid, although less than one-half thereof was issued in lieu of the stock of or represents the property or assets or business of the Alabama corporation which became a constituent of the plaintiff by consolidation as aforesaid. "
The entire capital stock of the consolidated railroad company amounted to $5,976,000, and it was upon this entire amount that the company was assessed. By this action, the railroad company seeks to recover the full amount of the franchise tax exacted upon that basis, and contends that, in any event, it should have been assessed only upon that part of the capital employed by it in the State of Alabama.
The railroad company averred, if it was required to pay the franchise tax in question upon its entire capital, that it would be paying another and different rate of taxation, or another and different amount of franchise tax, from that which is required of like corporations doing business in Alabama, contrary to the provision of the Fourteenth Amendment to the federal Constitution that no state shall deny to any person within its jurisdiction the equal protection of its laws; that the enforcement of the act, by subjecting to its operation the railroad company's property in other states, constituted a taking of its property without due process of law, and that said act imposed a direct burden upon interstate commerce in requiring it to pay, in addition to all other fees and taxes provided by law, a tax upon its capital stock for the right and privilege of transacting and carrying on its interstate business as a common carrier, in violation of clause three of § 8, Article I of the federal Constitution.
A demurrer was filed to this complaint, which demurrer was sustained. Upon appeal to the Supreme Court of Alabama, this judgment was affirmed, 192 Ala. 687, and a writ of error brings the action to this Court.
"every such new corporation so formed shall keep an office in the State of Alabama, and be in all respects subject to the laws of the State of Alabama as a domestic corporation."
The corporation is to be deemed consolidated when a copy of the agreement is filed with the Secretary of State, and, after the election of the first board of directors, the property and franchises of each corporation shall be vested in the new corporation, and it shall be subject to the liabilities of its integral parts, as if such debts had been incurred by it.
It will be noted that this statute, which is a grant of corporate rights from the State of Alabama to the consolidated company, contains the express provision that such company shall in all respects be subject to the laws of the State of Alabama as a domestic corporation. Applying § 12 of the statute, the Alabama Supreme Court has held that the railroad company is a corporation organized under the laws of that state, and, as such, subject to the franchise tax imposed by that section of the statute.
The federal questions (which are alone within the jurisdiction of this Court) are to be determined upon this construction of the state statute by its highest court.
"Nor is the question at issue affected by the fact that some of the constituent elements which entered into the consolidated company were corporations owning and operating property in another state. The power of corporations of other states to become corporations, or to constitute themselves a consolidated corporation under the Ohio statutes, and thus avail of the rights given thereby, is as completely dependent on the will of that state as is the power of its individual citizens to become a corporate body, or the power of corporations of its own creation to consolidate under its laws. Bank of Augusta v. Earle, 13 Pet. 519; Lafayette Ins. Co. v. French, 18 How. 404; Paul v. Virginia, 8 Wall. 168, 75 U. S. 181."
This doctrine has been affirmed since. Louisville & Nashville Railroad Co. v. Kentucky, 161 U. S. 677, 161 U. S. 703, and previous cases in this Court therein cited; Interstate Railway Co. v. Massachusetts, 207 U. S. 79, 207 U. S. 84.
are taxed only upon the basis of property within the state. To support this contention as to denial of equal protection of the laws, the company relies principally upon the decision of this Court in Southern Railway Company v. Greene, 216 U. S. 400. In that case, a foreign corporation, complying with the laws of Alabama, entered upon business within the state, paid both license and property taxes imposed by the laws of the state, and, when it was attempted to impose upon it another tax for the privilege of doing business in the state, a business in all respects like that done by domestic corporations of a similar character who were not subjected to the additional tax complained of, it contended that it was denied equal protection of the law, and this Court so held.
That case is readily distinguishable from the one now under consideration. Here, the state imposes the franchise tax equally upon all of its corporations, consolidated and otherwise. The fact that a wholly intrastate corporation may own no property outside of the state, while the consolidated company does, presents no case of arbitrary classification. In both cases, the franchise tax is based upon a percentage of the capital stock. There is no denial of equal protection of the laws, because a state may impose a different rate of taxation upon a foreign corporation for the privilege of doing business within the state than it applies to its own corporations upon the franchise which the state grants in creating them.
must depend upon its own circumstances, and that, while the state could not tax property beyond its borders, it might measure a tax within its authority by capital stock which in part represented property without the taxing power of the state. As to the objection based upon the due process clause of the Constitution, we think that principle controlling here. There is no attempt in this case to levy a property tax; a franchise tax within the authority of the state is in part measured by the capital stock representing property owned in other states.
The tax is not of the character condemned in Western Union Telegraph Co. v. Kansas, 216 U. S. 1, and kindred cases. In the latter case, a tax of large amount was imposed upon a foreign corporation engaged in interstate commerce for the privilege of doing local business within the state. Under the circumstances therein disclosed and the character of the business involved, this Court held that the statute was, in substance, an attempt to tax the right to do interstate business, and to tax property beyond the confines of the state, and was therefore void. Here, a franchise tax is levied upon a corporation consolidated under the laws of the state by its own acceptance of that law in incorporating under it.
under the state law and engaged in both interstate and intrastate commerce.

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