Court Opinion

ID: 7953307
Source: CourtListenerOpinion
Date Created: 2022-09-08 23:41:03.305491+00
Date Added: 2024-06-11T16:34:14.261070
License: Public Domain

Kelly, J.
(dissenting in part). The 1952 legislature amended the general corporation fee act (PA 1921, No 85) by adding section 5b and, for the first time, imposed an annual franchise tax on railroad corporations, as follows:
*669“Sec. 5b. For the purpose of determining the annual franchise fee, the tax payable by a railroad company shall be measured by that portion of its paid-up capital and surplus determined by the average of the following 2 percentage ratios: The net ton miles of freight handled in this State to the total net ton miles of freight handled within and without the State; the number of miles of all track over which it operates within this State to the total number of miles of all track over which it operates within and without the State.” (CLS 1952, § 450.305b, Stat Ann 1953 Cum Supp § 21.208[2].)
Section 5b has since been amended, but this formula prevailed in 1952 and is involved in this appeal.
My Brother cites over 30 United States supreme court decisions, but section 5b is unique not only because it was the first effort by the Michigan legislature to impose an annual special franchise tax on railroads but, also, because the legislature created a formula different than the numerous formulas adopted by legislatures of other States and passed upon by the United States supreme court.
The main question is whether the formula applied by the commission to appellant’s paid-up capital and surplus to determine the portion thereof allocable to Michigan is offensive to the commerce clause of the United States Constitution. Justice Edwards decides it is not, and I conclude that it is offensive.
In determining the tax, the commission and the appeal board found as factor number 1 that the net ton miles of freight in Michigan (interstate and intrastate) was 532,709,000, which would constitute 78.61% of appellant’s total 677,639,000 net ton miles of freight carried by petitioner in 1951. The commission then decided as factor number 2 that there was in Michigan 558.37 miles of trackage out of the total 637.85 miles of appellant’s trackage, which would make the Michigan trackage 81.18% of the *670total trackage. Prom these 2 factors, the commission arrived at the conclusion that 79.8943% of appellant’s paid-up capital and surplus was allocable to Michigan for the purpose of the 1952 franchise tax.
Appellant contends that:
“Under the decisions of this Court and of the supreme court of the United States, the commission and the board should have omitted all consideration of the ‘net ton miles of freight’ transported by petitioner from points within Michigan to points outside of it, from points outside of Michigan to points within it, and between points both of which were outside of it; and the calculation of the portion of a petitioner’s paid-up capital and surplus allocable to Michigan should have been made as follows:
“Net ton miles of freight:
61,031,000 (Michigan intrastate) - = 9.00%
677,639,000 total)
"Tracking: 558.37 (in Michigan) 81.18%
687.85 (total) 90.18%
-=-2 = 45.09%
“Properly only 45.09% of the paid-up capital and surplus of petitioner is allocable to Michigan for the purposes of this tax. The commission and the appeal board have allocated 79.895% thereof to this State. * * *
“The error in the interpretation and application of the allocation formula alone caused the assessment of a tax excessive in the amount of $16,975.44.”
The tax in question is a franchise tax based, in part, on ton miles of freight transported in interstate commerce.
*671A State cannot levy a franchise tax on the privilege of engaging in interstate commerce, within its border.
Cooney v. Mountain States Telephone & Telegraph Co., 294 US 384 (55 S Ct 477, 79 L ed 934), dealt with the State of Montana’s right to levy an occupation tax on a telephone company. The supreme court stated (pp 392, 393):
“There is no question that the State may require payment of an occupation tax from one engaged in both intrastate and interstate commerce. But a State cannot tax interstate commerce; it cannot lay a tax upon the business which constitute such commerce or the privilege of engaging in it. And the fact that a portion of a business is intrastate and therefore taxable does not justify a tax either upon the interstate business or upon the whole business without discrimination. * * * Where the tax is exacted from one doing both an interstate and intrastate business, it must appear that it is imposed solely on account of the latter; that the amount exacted is not increased because of the interstate business done; that one engaged exclusively in interstate commerce would not be subject to the tax; and that the one who is taxed could discontinue the intrastate business without also withdrawing from the interstate business.”
In deciding East Ohio Gas Co. v. Tax Commission of Ohio, 283 US 465 (51 S Ct 499, 75 L ed 1171), the supreme court left no doubt that a State cannot increase its tax on interstate commerce by any device calling for the inclusion of ton miles of interstate freight and, further, that transactions which are an essential and integral part of interstate commerce cannot be considered. The court expressed its views as follows (p 470):
“It is elementary that a State can neither lay a tax on the act of engaging in interstate, commerce. *672nor on gross receipts therefrom. * * * And, while a State may require payment of an occupation tax by one engaged in both intrastate and interstate commerce, the exaction in order to be valid must be imposed solely on account of the intrastate business without enhancement because of the interstate business done, and it must appear that one engaged exclusively in interstate business would not be subject to the imposition and that the taxpayer could discontinue the intrastate business without withdrawing also from the interstate business.”
In Gartland Steamship Co. v. Corporation & Securities Commission, 339 Mich 661, the Court followed the United States supreme court’s rulings as set forth above and ordered the commission to recompute the franchise fee “excluding any and all cargoes transported in interstate and foreign commerce.”
In Panhandle Eastern Pipe Line Co. v. Corporation & Securities Commission, 346 Mich 50, we dealt with a legislative-created franchise fee formula (section 5 of the corporation fee act [CLS 1952, § 450.305; Stat Ann 1953 Cum Supp § 21.208]) which provided that the ratio of corporate Michigan property to total corporate property; plus a ratio- of Michigan wages to total wages; plus 1/2 of the receipts from Michigan interstate sales to all sales, should determine the tax. We held that the formula could not include the 1/2 of the sale of gas in interstate commerce.
Justice Edwards endeavors to reconcile his opinion with our previous opinions, as follows:
“Appellant relies heavily upon the Michigan cases of Gartland Steamship Co. v. Corporation & Securities Commission, 339 Mich 661; and Panhandle Eastern Pipe Line Co. v. Corporation & Securities Commission, 346 Mich 50.
“Both of these cases may be distinguished from our instant case on their facts. Gartland had no *673property in Michigan and did what the Court apparently regarded as only an inconsequential intrastate business in Michigan. Over 90% of Panhandle’s pipe line, properties and activities were1 located outside of Michigan. In addition, Panhandle involved the continuous flow of gas from the Avellheads in the Southwest to Michigan customers. See Michigan-Wisconsin Pipe Line Co. v. Calvert, 347 US 157 (74 S Ct 396, 98 L ed 583). Neither'case involved the identical formula objected to here. And in both eases, this Court, while rejecting the specific formula, upheld the right to leA^y the tax and ordered recomputation under section 5e to achieve a reasonable result.”
I do not agree with such a reconciliation. The fact remains that it is not the ownership of propery within this State that is in issue, but the attempt to use the ton miles of freight transported in interstate commerce.
I agree with my Brother’s conclusion that the commission did not err in its determination of the value of paid-up capital and surplus.
The determination should be reversed, with order that the commission recompute tax excluding ton miles of freight transportation in interstate commerce.
Dethmers, C. J., and Carr, J., concurred with-Kelly, J.
Kavanagh, J., did not sit.