Court Opinion

ID: 9707909
Source: CourtListenerOpinion
Date Created: 2023-08-26 02:24:28.126472+00
Date Added: 2024-06-11T18:22:39.762263
License: Public Domain

Otis, Justice
(dissenting).
I agree with the conclusions of the trial court which held:
“* * * plaintiff receives operating authority under 49 U.S.C.A. 302 (c) (2) which provides that plaintiff’s services are considered to be performed by the railroad. Plaintiff also receives operating authority under I.C.C. Certificate of Public Convenience and Necessity, MC19978 which restricts plaintiff’s authority to that which is supplemental to or auxiliary of the Chicago, Milwaukee, St. Paul and Pacific Railroad Company. All shipments are limited to those under a railroad bill of lading. The plaintiff solicits no sales for its own account and receives virtually all its revenue from the Railroad. The Railroad collects these revenues from its customers, pays a gross receipts tax and then pays the revenues to plaintiff. Plaintiff is not responsible to the shippers and receivers of freight for cargo losses, damages or shortages for the Railroad account.
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“The services plaintiff performs are necessary railroad operations that would have to be performed by the Chicago, Milwaukee, St. Paul and Pacific Railroad Company if the plaintiff corporation was not created * * *.
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“Since plaintiff is a mere agent of the Chicago, Milwaukee, St. Paul and Pacific Railroad Company, the defendant’s attempted imposition of the corporate franchise or income tax under M.S.A. § 290.02 is contrary to the plain meaning of M.S.A. *79§ 295.02 and Article 4, Section 32 (A) of the Minnesota Constitution and amounts to double taxation of plaintiff * * *.”
The railroad pays a gross earnings tax on revenue generated by the Motor Company. The state now seeks to impose an income tax on the same revenue because it is earned by the Motor Company, a separate corporation, notwithstanding it is owned by the railroad and the railroad is the Motor Company’s only source of business.
The parties have stipulated that the Motor Company performs services only on the railroad company’s instructions; uses only shipping documents supplied by the railroad; and neither bills shippers nor receives revenue from them. The Motor Company’s I. C. C. certificate restricts its operations to service which is auxiliary to the railroad. In this posture of the case, I submit the trial court’s decision is supported by our holding in State v. St. Paul Union Depot Co. 42 Minn. 142, 43 N. W. 840 (1889).
There, the state sought to impose a gross earnings tax on the depot company’s earnings which were also subject to a gross earnings tax in the hands of the railroads the depot served. Mr. Justice Mitchell pointed out that the depot company was never intended as an independent business but was designed merely as an agency through which the railroads who owned it might be furnished facilities to “better enable them to perform their duties as common carriers * * 42 Minn. 143, 43 N. W. 841. Judge Mitchell noted that the depot company was formed as a convenient and economical method of managing the depot business. The charges made by the depot company to the railroads were simply part of the expense of transacting the railroad business. Under those circumstances, we held that we would look beyond the technical status of the depot company as a separate and independent legal entity, and concluded that to impose a tax on both the corporation and its stockholders was double taxation and improper.
In my opinion, the relationship between the Motor Company and the railroad is indistinguishable from that of the depot com*80pany and the railroads it served. In both situations the corporation was an independent entity only in a narrow legal sense. In both cases the corporation was created only as a convenient way to serve the parent company. The tax imposed in both instances was on the earnings of the corporation. The differences are, in my opinion, immaterial — namely, the fact that in one instance there were several parent stockholders rather than one, and the tax in the depot case was a gross earnings tax whereas here the commissioner seeks to impose an income tax. Consequently, unless we are prepared to expressly overrule the depot case it should govern our decision and we should affirm.