Source: https://supreme.justia.com/cases/federal/us/222/334/
Timestamp: 2019-04-25 16:10:30+00:00

Document:
The amount in controversy where the question is whether a contract of exemption from taxation has been impaired by subsequent legislation is measured by the value of the right to be protected, and not by a mere isolated element, such as the tax for a single year.
In this case, the jurisdictional value of amount in controversy held to exceed $2,000, although the actual tax, the collection whereof was sought to be enjoined on the ground that its imposition impaired the obligation of a legislative contract, was less than $2,000.
Cases in which the jurisdictional value of amount in controversy is limited to the single tax involved reviewed and distinguished.
The Act of March 2, 1867, 14 Stat. 426, now Rev.Stat., § 1889, prohibiting the granting by territorial legislatures of especial privileges related to conferring new privileges on existing corporations as well as to granting privileges in original charters, and the prohibition included all especial privileges such as exemption from taxation.
manifested by the act, and not by the motive which initiated it; the scope of the act may extend beyond the generating cause thereof.
The rule that exemption from taxation must be strictly construed against the exemption is as broad as the subject to which it relates; the rule applies not only to the extent of the legislative grant itself, but also to the power of the legislature to make it.
A contract for exemption from taxation is an especial privilege, and is nonetheless within the prohibition of § 1889, Rev.Stat., because granted to an educational institution; it cannot be regarded as beyond the prohibition because granted as an equivalent.
The fact that Congress failed to disapprove an act of a territorial legislature does not validate it if the act was passed in direct violation of a prohibitive provision in the organic act. Clayton v. Utah, 132 U. S. 632.
The facts, which involve the jurisdiction of the Circuit Court of the United States on the question of the amount involved and also the validity of an act of the Legislature of the Territory of Washington exempting property of an educational institution from taxation, are stated in the opinion.
"That the property of said Board of Trustees of Whitman College, including all income and proceeds, shall be used exclusively for the purpose of education, and in consideration of said use, the said property, income, and proceeds shall not be subject to taxation."
"That the legislative assemblies of the several territories of the United States shall not, after the passage of this act, grant private charters or especial privileges, but they may, by general incorporation acts, permit persons to associate themselves together as bodies corporate, for mining, manufacturing, and other industrial pursuits, or the construction or operation of railroads, wagon roads, irrigating ditches, and the colonization and improvement of lands in connection therewith, or for colleges, seminaries, churches, libraries, or any benevolent, charitable, or scientific association."
Whitman College took over the property and effects of the Seminary. It increased its holdings of real and personal property, the avails of which were all devoted to the purposes of the institution. It was in existence when the territorial government passed out of being and the State of Washington was incorporated into the Union, and it is conceded by both sides in argument that no question which requires to be decided on this record calls for a consideration of any of the events or legislation which were a part of the transition from the territorial form of government to statehood. Up to 1905, it is inferable that no attempt was made to tax the property of Whitman College.
In 1905, however, the assessing officers of the County of Walla Walla, who are the appellants upon this record, acting under the authority of the state taxing law and upon the assumption that the property of the corporation was taxable, assessed its real property in the County of Walla Walla not actually and physically used for the purposes of the institution, and taxes were levied on such assessment, amounting to $946.32. The corporation thereupon filed in the circuit court of the United States the bill which is now before us. The bill contained no averment of diversity of citizenship, and exclusively invoked the authority of the court below upon the ground of the existence of a perpetual contract right of exemption from taxation created by the sixth section of the Act of 1883, and the impairment of such contract by the assessment and levy of the taxes in question.
The bill, as amended by stipulation, averred the existence of the contract, the compliance by the corporation with all its obligations, the acquisition of large amounts of property through contributions and otherwise dedicated to the purposes of the corporation, the detriment and loss which would be occasioned as the result of levying taxes upon the property of the corporation by the County of Walla Walla or otherwise by state authority, the destruction of the right of perpetual exemption, not only as to the present, but as to all future acquired property of the corporation, which would result, and a consequent loss or damage vastly in excess of $2,000. In substance, the prayer was for a decree recognizing and enforcing the contract of perpetual exemption from taxation as to all the property of the corporation, present or prospective, and for an injunction adequate to secure these results.
declared on had been established, and was protected from impairment by the contract clause of the Constitution, and therefore the assessment and levy of the taxes complained of were void. As defendants elected not to further plead, a final decree was entered granting the relief prayed in the bill. The appeal now before us was then taken.
The taxing officers of the County of Walla Walla, the defendants below and appellants here, insist that we may not review the merits, because the court below had no jurisdiction over the cause, and therefore we must reverse and remand with directions to dismiss the bill. This rests upon the proposition that, as the tax was below the jurisdictional amount, it afforded no basis for jurisdiction. The sum of the levied tax, it is urged, could not be increased by considering the power of taxation which might be exerted in other taxing districts, or by adding taxes which, if the right to tax existed, might be assessed and levied in future years. This, it is insisted, is not only sustained by reason, but is sanctioned by prior decisions of this Court.
Both assumptions are wrong. The first because it misconceives the character of the relief prayed, which was the enforcement of a contract exemption during the perpetual life of the corporation, and as broad as its power to acquire and hold property.
"The vice of this argument consists in assuming that the taxes for specific years were alone involved and covered by the decree of the court. The controversy was as to the force and effect of the Hewitt law as a contract -- not for one year, but for all years; not for one assessment, but for all assessments of taxes upon certain property of the bank. The contest was over the contract and the consequent want of power to collect any and all taxes the assessment of which did violence to the contract rights of the bank. The court had jurisdiction of the parties and of the subject matter of the suit, and it was adjudicated that there was a contract which was entitled to protection against impairment by state legislation within the right guaranteed by the federal Constitution. This adjudication necessarily included not only the taxes for specific years, but foreclosed the right to collect any taxes concerning which the contract afforded immunity to the bank. "
Measuring the contention as to the absence of the jurisdictional sum by the principles thus established, it answers itself, since the argument is equivalent to saying that a subject which is necessarily included in the relief to be granted, and is, in the nature of things, concluded by the decree to be rendered, is yet excluded from consideration for the purpose of the issues in the cause -- that is, may not be taken into account in ascertaining whether there is jurisdiction over the controversy.
We state in the margin the cases principally relied upon to support the contention as to the want of jurisdiction. * It would suffice to say of these cases that, if they supported the proposition which they are cited to maintain, they have been qualified and restricted by the cases which we have just reviewed. But such result is uncalled for, as an analysis of the case will show that all of them considered, in the absence of contract, where the right to levy a particular tax was assailed, whether there was authority to make up the jurisdictional amount required, by calling into the consideration the influence which the judgment might have upon different taxes or the power to take in view future illegal taxes, upon the theory that they might be levied.
prohibitions of the organic act, dismissing all questions concerning the incorporation of the Territory of Washington into the Union as a state, because, as we have seen, it is conceded that nothing on that subject controls the question here to be decided.
which it is urged was a common form of territorial legislative abuse prior to the adoption, in 1867, of the organic act, and therefore was presumably the evil intended to be reached by the enactment of that act. We say this because, even if it be conceded that such alleged abuses were the generating cause of the insertion in the organic act of the prohibition against especial privileges, that concession affords no ground for the generic prohibition, and for saying that it should be only applied to one class of especial privileges, to the exclusion of all other such privileges. We must be controlled by the power which the act manifests, not by a consideration of the mere motive which initially energized the bringing of the power into play.
no direct bearing on the more important proposition here to be decided, we cannot give it, even by silence, our assent, because we consider that it admits, on the one hand, the rule of strict construction, and at once denies it upon the other, by improperly restricting the area of its operation. We say this because if, in a particular case, the duty arises of determining whether words of restriction found in the fundamental law are intended to operate a limitation on the legislative power to grant contract exemptions from taxation, the rule of strict construction is just as applicable as it would be to a case where it was applied for the purpose of determining whether the particular terms of an alleged contract did or did not embrace an exemption from taxation. We think the rule of construction is as broad as the subject to which it relates, and its operation does not depend upon whether the question is one of limitation of legislative power or of the true interpretation of a contract asserted to be one of exemption.
This brings us to the text of the organic act. That a contract giving perpetual succession to a corporation and endowing it with a perpetual exemption from taxation as to all its property, real and personal, is an "especial privilege" seems to us too clear for anything but statement. We fail to see how any other conclusion can be reached in view of the fact that the very essence of such a contract is to endow the corporation as to its property forever with the privilege of being exempt from the operation and control of the essential governmental power of taxation, and thereafter to cause the corporation and all its property, so far as that subject is concerned, to live under the law of the contract, and not under the law of general taxation.
contract of exemption from taxation. The cases relied upon are Chesapeake & Ohio Ry. Co. v. Miller, 114 U. S. 176, and Phoenix Insurance Co. v. Tennessee, 161 U. S. 174. Briefly, the subject passed upon in those cases and in others of a similar character was this: where a corporation enjoyed a right of exemption as to the whole or a part of its property, did such exemption from taxation pass under a foreclosure sale to the purchaser at such sale when by law the rights and privileges of the corporation were transferred by the sale? In other words, the question was whether the transmission of the privileges of the corporation to another embraced the privilege resulting from a contract exemption from taxation. It was held that it did not, upon the theory that a contract exemption from taxation was so exceptional in its nature that the right to transmit it was not embraced in the general authority to transmit privileges, and therefore the power to transfer must be expressly and specially conferred. These rulings were but an illustration in another form of the duty to which we have previously referred under all circumstances to bring to the consideration of the question whether a contract exemption from taxation exists, the rule of strict construction. And of course, when the principle upon which the cases were decided is rightly understood, their inappositeness to the case before us is manifest. This must be, unless it can be said that a ruling which held that a contract of exemption was a privilege of such character that it could not be transmitted without express authority was a ruling that a contract exemption was no privilege at all.
an especial privilege, but as an equivalent for the contract obligations assumed. As we have seen, however, it is the contract of exemption which, in the very nature of things, characterizes the grant as an especial privilege. When this is borne in mind, it appears that the proposition is that the feature which gave to the grant the essential characteristic of an especial privilege must be held to cause it not to be of that nature.
The only principal contention remaining unnoticed is the alleged acquiescence of Congress in the grant of exemption, resulting from its failure to disapprove the Act of 1883. Rev.Stat. § 1850. The foundation, however, upon which that contention rests has been decided to be without merit. Clayton v. Utah, 132 U. S. 632, 132 U. S. 642.
We have not reviewed the minor considerations which, in various forms of statement, have been pressed in argument concerning the wisdom displayed by the territorial assembly in enacting the Act of 1883, and the far-reaching and public benefits which have resulted from the provisions of that act, and the possible injury to the public weal to arise from now holding that the contract exemption from taxation which the act granted was beyond the scope of the legislative authority. It suffices to say that whatever may be the cogency of the suggestions thus made, it is obvious that they but invite us into a field of inquiry which lies beyond the line which separates the judicial from the legislative authority, and therefore we may not give heed to them.
The decree of the Circuit Court is reversed, and the cause is remanded to the district court with directions for further proceedings in conformity to this opinion.
* Holt v. Indiana Manufacturing Co., 176 U. S. 68; Clay Center v. Farmers' L. & T. Co., 145 U. S. 224; New England Mortgage Security Co. v. Gay, 145 U. S. 123; Citizens' Bank v. Cannon, 164 U. S. 319; Rude v. Westcott, 130 U. S. 152; Walter v. Northeastern Railroad Co., 147 U. S. 370.

References: § 1889
 § 1889
 v. 
 v. 
 v. 
 § 1850
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v.