Cumberland & Pennsylnania Railroad v. State

Pearce, J., delivered the opinion of the Court: This is an appeal from a judgment rendered by the Circuit Court of Allegany County in favor of the State of Maryland for the sum of $76,992.73. The State sued to recover from the Cumberland aud Pennsylvania Railroad Company, certain taxes claimed to be due for the eight years from January 31st, 1890, to January 31st, 1898. These taxes for each of the six ⁶⁷⁶ years up to January 31st, 1896, were duly assessed under the provisions of sec. 1 'of' ch. 559, of the Acts of 1890, and those for the two ensuing years, under the provisions of, sec. 146 of ch. 120, of the Acts of 1896, which repealed and reenacted the Act of 1890. • A plea of nil debet was filed by the defendant, upon which issue was joined, and the, case was-submitted to the Court without the intervention of a jury,-upon an agreed statement of facts, the plaintiff offering one prayer which was granted, and the defendant offering six prayers, all of which were rejected; to which rulings the:defendant excepted. These prayers will be fully set out by the reporter.The Act of 1890 declared “ a State tax of one per'centum shall be and is hereby levied annually upon the gross receipts of all railroad companies worked by steam, incorporated by or under the authority of this State, and doing business therein. * * If any such railroad company has any .part of its road in this State, and-a part thereof m another State-or States, such company shall return a statement of its- gross .receipts over its whole line of road, together with a statement of the whole length of-its line in this State, and such company shall pay to the State at the said rates hereinbefore prescribed, upon such proportion of its gross earnings as the length of its line in this State bears to the whole length of- its line.” .. - The Act of 1896 increased the tax upon gross receipts of railroad companies worked by steam power, establishing a<scale of rates graded according to the. earnings per mile, and specifically declaring the. tax to be a franchise tax, but leaving unchanged the apportionment according to the mileage within. the.

State. The agreed statement of facts sets out that part.of the defendant’s gross receipts upon which the taxes had been assessed by the State Tax Commissioner were derived from the business of interstate commerce; and what part from business exclusively within the State ; also what amount of taxes for the period mentioned were claimed by the State upon the entire gross, receipts of defendant, and-what‘amount-for the same period were-admitted to be due by the defendant -upon ⁶⁷⁷ the entire gross receipts upon business done exclusively within the State, and sets out the tender of this last amount by the defendant at the proper times, and its refusal by the plaintiff. It also showed thát the defendant’s road is operated in Maryland under a charter from the State of Maryland and in West Virginia under a charter from the State of Virginia; 'that the termini of its road are at the city of Cumberland, in Maryland, at the Pennsylvania State line, and at Piedmont, in West Virginia; that the whole length of its road is 32 65-100 miles, of-which 32 44-100 are in Maryland, and 21-100 in West Virginia; and that it is chiefly a coal road forming a connecting link between the B. & O.- R. system at Piedmont and the Pa. R. R. system at the State line'of Pennsylvania, and that everything necessary to be done by defendant in order to avail itself of the defense made, had been duly done.

The single -question thus presented for determination is whether the tax sued for is in part invalid, as being a regulation of commerce among the several States, and therefore in contravention of Art. 1, sec. 8 of the Constitution - of the United States. : This question, always important in principle, and serious in result as involving a possible restriction upon the sovereign power of taxation, essential to the States for the maintenance of their existence — an existence which has been declared “indestructible” by the States themselves — has, in recent years, assumed a larger importance, and graver aspect, by reason of the- enormous increase of expenditures by the Federal government, involving correspondingly heavy Federal taxation upon the citizens of the several States; since, if the States are denied the power; in return for franchises granted by them to corporations of their creation, to require of them their just contribution to the cost of government, the deficiency must be supplied by constantly increasing exactions from their already heavily burdened citizens. The Supreme Court of the United States in 1872, recognized and declared the wrong of unduly narrowing the limits of State taxation, by its decision in Osborne v. Mobile, 16 Wall. 479 , in which it sustained an ordinance of the city of Mobile requiring a license for any rail ⁶⁷⁸ road or express company to transact in Mobile a business extending beyond the limits of the State of Alabama; Chief Justice Chase, saying: “ It is as important to leave the rightful powers of the State in respect to taxation, unimpaired, as it is to maintain the powers of the Federal government in their integrity',' and this language was concurred in by Justices Field, Davis, Miller, Bradley and Strong, who participated in many of the subsequent decisions of that Court involving the consideiation of that clause of the Constitution. Standing then upon the just and impregnable principle announced in the language which we have reproduced, we will consider the question in the light of all the authority which can be derived from the decisions of the Supreme Court upon statutes of similar form and design to that before us. Unless the decision in the case of The State Tax on Railway Gross Receipts, 15 Wall. 284 , is to be disregarded, it must be accepted as requiring the affirmance of the judgment here assailed, and the appellant’s coúnsel, conceding this, have directed all their energy to the effort to show that that decision, if not literally overruled, has been so criticised and discredited by later decisions, as to be shorn of all authority, and to warrant, if not to require, the State Courts to refuse longer to follow it.

The circumstances under which’ that decision was pronounced are so noteworthy as to justify extended reference to them here. At the December term, 1872, of the Supreme Court of the United States, two cases were argued, in each of which the Reading Railroad Company was appellant, and the State of Pennsylvania was appellee. In each of these cases the Supreme Court of Pennsylvania had affirmed the validity of a statute of the State, which the plaintiff in error alleged to be in contravention of that clause of Art. 1, sec. 8 of the Constitution of the United States which is here drawn in question, In the first of these cases, the statute under consideration was the Act of 1864, which required every transportation company doing business in the State to make quarterly returns of the number of tons of freight carried over its road, and imposed a tax of from two to five cents upon every ton of freight ⁶⁷⁹ so carried, according to a certain classification of freight. In the latter case, the statute in question was the Act of 1866, which required all transportation companies, incorporated under the laws of the State, to make semi-annual returns of their gross receipts, and imposed a tax of three-fourths of one per centum upon such gross receipts.

In the former case the statute was held repugnant to the clause of the Constitution mentioned. In the latter, it was held not to be so repugnant. The former is officially reported under the title of “ Case of the State Freight Tax,” and the latter under the title of “ State Tax on Railway Gross Receipts”; thus emphasizing the discrimination drawn by the Court in laying down the principles decided in the respective cases, and embodying these principles so to speak, in the titles under which they were directed to be reported. They were argued in immediate succession, before the same judges, and by the same counsel.

The former case was the first decided, the decision in the latter following without haste, but within a short time thereafter. All the conditions therefore were favorable to careful consideration, and to calm and impartial judgment, and these decisions must of necessity commend themselves as the deliberate and fixed conclusions of a great tribunal upon great principles, involving great interests ; binding upon all inferior tribunals, and entitled to every presumption of soundness and stability when assailed in that tribunal itself, by those whose interest it is to overthrow or weaken them, or when questioned by judges, however eminent, whose individual views are not in accord with the established doctrine. In the Case of the State Freight Tax, the Court said : “The question calls upon us to trace the line, always difficult to be traced between the limits of State sovereignty in imposing taxation, and the power and duty of the Federal government to protect and regulate interstate commerce;” and after declaring that the constitutionality of a State tax is to be determined, not by the form or agency through which it is to be collected, but by the subject upon which the burden is laid, asked, “Upon what is the tax imposed to be considered as laid ? ⁶⁸⁰ Where does the substantial burden rest ? Very plainly it was not intended to be, nor is it in fact a tax upon the franchise of the carrying companies, or upon their property, or upon their business measured by the number of tons of freight carried.

On the contrary, it is expressly laid upon the freight carried, and the tax is not proportioned to the business done in transportation. The transportation of freight is a constituent of commerce itself. * * * And a tax upon freight transported from State to State is a regulation of interstate transportation arid therefore a regulation of commerce between the States, and the conclusion is inevitable that it is in conflict with the Constitution of the United States. * * * * But while holding this, we fully recognize the power of each State to tax at its own discretion, its own internal commerce, and the franchises, property, or business of its owu corporations’’ Having thus plainly'and conclusively traced the line between the power of the State to impose, and of the Federal government to prohibit taxation, and having asserted the power and duty of the Federal government in the case before it, the Court turned to the consideration of the case of the State tax on railway gross receipts, and proceeded to inquire whether such a tax is a tax upon commerce, so far as that commerce consists in moving goods or passengers across’State lines, using, in the course of the opinion delivered, this lucid and convincing reasoning: “ No doubt 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. We think it may be safely asserted that the States have authority to tax the estate, real and personal, of all their corporations, including carrying companies, precisely as they may tax similar property when belonging to natural persons, and to the same extent. We think also that such taxation may be laid upon a valuation, or may be an excise, and that in exacting an excise tax from their corporations, the States are not obliged to impose a fixed sum upon the franchises, or upon the value of ⁶⁸¹ them, but they may demand a graduated contribution, proportioned either to the value of the privileges granted, or to the extent of their exercise, or to the result of such exercise.

No mode of effecting this, and no forms of expression which have not a meaning beyond this, can be regarded as violating the Constitution. A power to tax to this extent may be essential to the healthy existence of the State governments, and the Federal Constitution ought not to be so construed as to impair, much less destroy anything that is necessary to their efficient existence.” It was accordingly held that the act imposing the tax was not in conflict with the Constitution of the United States, and the decision was'placed upon two distinct grounds: ist. That such a tax is laid upon a fund, which though in part derived from freight earned, has lost its distinctive character, and has become the property of the company, and has been incorporated with the general mass of its property. The Court said upon this point: There seems to be no stronger reason for denying the power of a State to tax the fruits of such transportation after they have become intermingled with the general property of the carrier, than there is for denying her power to tax goods which have been transported, after their original packages have been broken, and after they have been mixed with the mass of personal property in the country.' We think it may be safely laid down that the gross receipts of railroad companies, after they have reached the treasury of the carriers, though’they may have been derived in part from the transportation of freight between States, have become subject to legitimate taxation * * * It is not denied that net earnings of such corporations are taxable by State authority without any inquiry after their sources. * * * And net earnings are a part of gross earnings.” The analogy here used, we think, has its foundation in the true philosophy of constitutional law, and the reasoning of the Court will endure the most searching analysis.

The second ground upon which the decision was placed, is upon the right of the States — which the Court declared to be unquestioned — to tax the franchises of companies created by ⁶⁸² them, saying: “It is not deniable that gross receipts may be a measure of proximate value, or if not, at least of the extent of enjoyment. If the tax be in fact laid upon the companies, the adoption of such a measure imposes no greater burden upon any freight, or business from which the receipts came, than would an equal tax laid upon a direct valuation of the franchise. In both cases, the necessity of higher charges to meet the exaction is the same.” To this decision, and to the wise and sound construction, and logical reasoning by which it is supported, Justices Miller, Field and Hunt, in vain opposed their adverse views, which, though often repeated elsewere, have never, in our judgment, been more forcibly expressed than in the dissenting opinion of Justice Miller in that case. Since the decision in State v. P. W. & B. R. R., 45 Md. 379 , it cannot be questioned that the tax in the present case is a franchise tax, measured in amount by the extent of the business of the corporation, the Act of 1872, ch. 234, which was considered in that case, being identical in substance, and very nearly so in language, with the Act of 1890, ch. 559, and the Act of 1896, ch. 120, sec. 148, now under consideration.

The Supreme Court of the United States has said in Erie Railway v. Pa. 158 U. S. 435—36, where the interstate commerce clause of the Constitution was invoked without success : “A construction or meaning, attributed to the terms of a State statute by the Courts of such State, will, of course, be adopted by this Court when called upon to decide questions arising under such legislation;” and that Court must, therefore, if called on to review this decision, assume that this tax is a franchise tax, and upon that assumption, determine its constitutionality, in full view of its own numerous decisions upon that point, which may be summarized in the language of Justice Clifford in Coite v. Society for Savings, 6 Wall. 635 , in which he says : “Nothing can be more certain in legal decisions than that the privileges and franchises of private corporations may be taxed by a State for the support of the State government.” Unless, therefore, the decision in the State tax on railway ⁶⁸³ gross receipts can be shown to have been overruled — or shall be hereafter overruled on a review of this case — the judgment before us must stand. The Gross Tax Receipts Tax case was approved in Osborne v. Mobile, supra, sustaining a license tax upon an express business carried on in Mobile, and including transportation beyond the limits of the State, Chief Justice Chase, saying: “ It comes directly within .the rule laid down in the case relating to the tax on the gross receipts of railroads, and is no more a tax upon interstate commerce than a general tax on drayage would be, because the licensed dray-man might sometimes be employed in hauling goods to vessels to be transported beyond the limits of the State.” It was again approved in the case of the Del. R. R. Tax, 18 Wall. 232 , where Justice Field, dealing with a similar statute imposing a tax upon the net earnings of the railroad, said; “ The tax imposed by the Act in question, affects commerce among the states in just the same way, and in no other, that taxation of any kind necessarily increases the expense attendant upon the use or possession of the thing taxed, and 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. The exercise of the authority which every State possesses to tax its corporations and all their property, real and personal, aud their franchises, and to graduate the tax upon .the corporations according to their business and 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.” The Gross Receipts case has also been approved in numerous subsequent decisions of the Supreme Court of the United States to which reference here is unnecessary.

We shall not attempt to review all the cases cited by the appellant in