State Tax Commission v. Baltimore & Ohio Railroad

¹²⁸ Parke, J., delivered the opinion of the Court. The State Tax Commission of Maryland has brought this appeal from an order of the Circuit Court of Baltimore City, overruling an assessment by the Commission by which a mileage proportion of the rolling stock of the Baltimore and Ohio Railroad Company was subjected to an assessment for the year 1984 for taxation in Baltimore City and in the counties of the state. The Commission maintains that the assessment was made under the authority of chapter 226, pp. 621-726, of the Acts of 1929, which is a codification and revision of the revenue ■and tax laws of the State of Maryland. The General Assembly of the State, by chapter 687 of the Acts of 1927, authorized the appointment of a Tax Revision Commission, and its report and recommendations are the basis and occasion for the general legislation embodied in chapter 226, and now, as modified by later enactments, found incorporated in article 81, title “Revenue and Taxes,” of the Code of Public General Laws, 1939.

By section 6, sub-section (2), all tangible personal property located in this state and not by sections 7 and 8 exempted or otherwise provided shall be subject to assessment to the owner and taxation for ordinary taxes, which are defined by section 4 to be all direct taxes which are imposed upon real or personal property. The assessment to be made and the taxes to be laid on such personal property shall be in either the county or city in which it is respectively permanently located, with the reservation, however, that the rolling stock of railroads worked by steam shall be taxed only as provided by section .8, sub-section (a). The mode so prescribed is that rolling stock of railroads worked by steam shall, for' purposes of county and Baltimore City taxation, be apportioned among the counties of this state and the City of Baltimore in proportion to the mileage of such railroads therein; and whenever the railroads owning, hiring, or leasing said rolling stock shall extend beyond the limits of this state, that proportion of the total rolling stock not permanently located in this state which the ¹²⁹ mileage of such railroad in this state bears to its total mileage shall be deemed located and taxable in Maryland. Section 8, sub-section (a). - Under section 10, sub-section (b) (3), the rolling stock of railroads worked by steam shall be valued and assessed for the purposes of State, county and city taxation, or for any such political entities, by the State Tax Commission.

And such assessment shall be at its full cash value of the date as of which taxes are to be levied for the taxable year in question and upon which assessments become final for such year, subject to authorized correction. Code, art. 81, sec. 1, sub-section (20) ; secs. 11, 26, 27, 28, 36-45. These provisions of the statute with reference to the assessment and taxation of the rolling stock of domestic railroad corporations are subject to strictly construed exemptions from assessment and from state, county and city taxation in this state, as found in the following sub-sections of section 7 of article 81 of the Code: “(15) Shares of stock in domestic railroad companies, which are subject to taxation upon their gross receipts within this State; and (from State taxes only) the real and personal property of such railroad companies. * * * “(21) Any property exempted from taxation by this State by the Constitution of the United States or by any Act of Congress passed pursuant to and in conformity with the Constitution of the United States.” By sub-section (4) of section 1 of article 81, the term “domestic” as applied to a corporation shall mean “organized under the laws of this State.” It follows that exclusively those domestic railroad companies which are subject to taxation upon their gross receipts within this state are exempt from state taxes only on their real and personal property. The gross receipts tax is declared to be a state franchise tax and is levied annually in terms specifically inclusive of “all domestic or foreign railroad companies, whose roads are worked by steam, doing business in this State.” Code 1939, art. 81, sec. 95, sub-sec.

(a) (1), and sections 96-100. For the failure ¹³⁰ to pay the gross receipts tax as prescribed, the corporate charter may be forfeited. Supra, secs. 152, 153. All taxes are required, to -be collected by the public officials who are charged with this duty.

Code 1939, art. 81, secs. 154-166. Acting in purporting pursuance of these provisions and within their terms, the State Tax Commission of Maryland assessed the rolling stock of the appellant, which is a domestic corporation of the State of Maryland under a charter of incorporation granted by chapter 123 of the Acts of the General Assembly of Maryland of 1826. The principal office of the Baltimore and Ohio Railroad Company, which, for brevity, will hereafter be called “Company,” has, from its creation, been located continuously in Baltimore City. For the tax year beginning with January 1st, 1934, the total mileage which was owned or leased by the Company both within and without the State of Maryland was 6,384.39 miles.

Its railway system within the confines of the State of Maryland extends through parts of Baltimore City, Baltimore, Howard, Carroll, Frederick, Washington, Allegany and Garrett, Harford, Cecil, Anne Arundel, Montgomery and Prince George’s Counties, with an aggregate mileage of 352.52. Of this amount 234.25 miles were acquired under the charter obtained by the Act of 1826, and 118.27 miles were acquired under franchises granted by later Acts. The total mileage in Maryland upon which local taxes upon fixed property is paid by the Company is 181.20 miles, and included in this particular mileage are 50.79 miles on which local taxes on fixed property are paid through the Philadelphia branch of the Company. The Company claims that the Philadelphia Branch was built under its original charter.

See Balto. & O. R. Co. v. Waters, 105 Md. 396, 405-414 , 66 A. 685 ; State v. Balto. & O. R. Co., 48 Md. 49, 78, 79 ; State v. Balto. & O. R. Co., 127 Md. 434, 448 , 96 A. 636 . The net value as of January 1st, 1934, of all of the Company’s rolling stock which was not permanently located within the State of Maryland was fixed by the ¹³¹ Commission at $145,579,160. The proportion of the mileage (352.52 miles) of the railway lines within the state to the total mileage (6384.39) of its lines both within and without the state was found by the Commission to be 5.521 per centum. On this relative mileage basis the Commission apportioned to the State 5.521 per centum of the total value ($145,579,160) or $8,037,442.

The Commission then computed that the proportion of the lines (181.20 miles) within the state on which local taxation is paid to the whole mileage (352.52) within the state is 51.4 per centum, and then concluded that a similar proportion of value of the rolling stock, which was allocated to the State ($8,037,442), should ascertain the value of the rolling stock within the State subject to assessment. 51.4 per centum of $8,037,442 is, in even dollars, $4,131,245, the amount of the assessment which the State claims is apportionable under the statute, on a mileage basis, among the City of Baltimore and the several counties of the State. There is no controversy on the basic facts with respect to the mileage, and the use and value of the rolling stock upon which the assessment was made. The questions involved were submitted on a stipulation of the facts which embraced the following statement: “13. As a record of the receipts and expenditures of the funds of The Baltimore and Ohio Railroad Company and of the operation of its business over all lines and branches of its entire system, the said Company ■maintains but one set of records and one system of books of account.

All of the rolling stock of the Company is carried as one of its assets in one capital account on said books. None of said rolling stock, whether or not permanently located within the State of Maryland, is assigned for use, entirely or at all, to any particular line or branch but all of said rolling stock is used indiscriminately upon the entire system and in and to such localities as the necessities of freight and passenger traffic require.” The formula applied by the Commission in making the assessment is not expressly provided by the statute. ¹³² Without pausing to consider at present whether this particular method is contemplated by the statute, but assuming that the assessment so made is in mode authorized and proper, the Company must have recourse to a defense which arises outside of the revenue measure whose provisions have been here mentioned. The defense is based on the original charter of the Company, which granted all the rights and powers necessary to the construction of a railroad from the city of Baltimore “to some suitable point on the Ohio River” arid to the making of lateral railroads in any direction whatsoever, in connection with said railroad from the City of Baltimore to the Ohio River. Acts of 1826, ch. 123, sec. 14.

The charter endowed the corporation with the privilege of perpetual succession and provided for a capital stock of three millions of dollars, to be divided in thirty thousand shares of the par value of one hundred dollars each. Of these shares, it was expressly provided that ten thousand shares should be reserved for subscription by the State of Maryland and five thousand shares for subscription by the City of Baltimore for the space of twelve months after the passage of the act of incorporation ; and the remaining fifteen thousand shares should be offered for subscription by any other corporation or by individuals. It was thus contemplated that the State and the City of Baltimore could invest public funds in the stock of the new corporate enterprise to the extent of one-half of its authorized capital stock. With so large a measure of permitted ownership by the State and by the City of Baltimore in the capital stock, and with the necessity of enlisting the aid of private capital in the hazards of the novel undertaking of the building and operation of the first railroad in the United States, the General, Assembly of Maryland further enacted by Section 18 of the Act: “* * * and that the said road or roads, with all their works, improvements and profits, and all the machinery of transportation used on said road, are hereby vested in the said company incorporated by this act, and their successors forever; and the shares of the ¹³³ capital stock of the said company shall be deemed and considered personal estate, and shall be exempt from the imposition of any tax or burden by the states assenting to this law.” In juxtaposition with this exemption, section 19 authorizes the declaration of dividends on the stock of “the net profits arising from the resources of the said company, after deducting the necessary current and probable contingent expenses; and that they shall divide the same amongst the proprietors of the stock of said company, in proper proportions to their respective shares.” The public nature and interest of this corporate project is not only indicated by the statute, but also by the State’s subscription to the stock in the sum of $500,000 under the provisions of the Acts of 1827, ch. 104; and the City of Baltimore’s subscription in the sum of $500,-000 under Resolution 1827, No. 41.

The continued interest and fostering aid and care of both the State and the City of Baltimore in this railway enterprise is shown by later legislation and noted in the decisions of this tribunal. See Baltimore v. Balto. & O. R. Co., 21 Md. 50, 71, 91 ; Brady v. State, 26 Md. 290, 303 ; Balto. & O. R. Co. v. State, 36 Md. 519 ; Brady v. Johnson, 75 Md. 445, 446 , 26 A. 49 ; McColgan v. Baltimore Belt R. Co., 85 Md. 519 , 36 A. 1026 ; Acts of 1830, ch. 158; of 1831, ch. 330; of 1832, ch. 175 (Washington Branch); State v. Balto. & O. R. Co., 127 Md. 434, 448 , 96 A. 636 ; Acts of 1865, ch. 70 (Metropolitan Branch) ; Acts of 1835, ch. 395; 1827, chs. 104, 209; 1835, ch. 245; 1836, ch. 276; 1845, ch. 313; 1854, ch. 34; 1866, chs. 154, 157; 1868, chs. 119, 471; 1870, ch. 362. The charter so granted became on acceptance a contract between the State of Maryland and the Company, whose obligations could not, without the assent of the corporation, be impaired by any act of the legislature of Maryland consistently with the Constitution of the United States Art. 1, sec. 10, which declares that no State, shall pass any “Law impairing the Obligation of ¹³⁴ Contracts.” And this impairment may arise from the direct terms of the law or from their necessary construction, since there is no difference in principle between a law which directly and in terms impairs the obligation of a contract and one which produces the same effect in its plain construction and practical operation. Chesapeake & Ohio Canal Co. v. Baltimore & Ohio R. Co., 1832, 4 G. & J. 1, 108, 109, 132, 138, 139, 145-149 , see 194-198, 271, 272; Regents v. Williams, 9 G. & J. 365 ; Norris v. Trustees of Abingdon Academy, 7 G. & J. 7 ; St. John’s College v. State, 15 Md. 330, 373-376 ; Sheriff v. Lowndes, 16 Md. 357, 375, 376 ; Darthmouth College v. Woodward, 4 Wheat. 518 , 4 L. Ed. 629 ; State v. Baltimore & O. R. Co., 48 Md. 49, 70, 71 ; Pennsylvania R. Co. v. Baltimore & O. R. Co., 60 Md. 263, 267 .

As quoted above, one of the obligations of this contract between the State and the Company is that “the shares of the capital stock of the said company shall be deemed and considered personal estate, and shall be exempt from the imposition of any tax or burden by the states assenting to this law.” The State had the power to grant this exemption beyond the arbitrary power of repeal, as the right to alter the charter was not reserved and as it was not until the Constitution of 1851 that all incorporations formed after the adoption of this Constitution became subject to the power of repeal or modification at the will of the Legislature. Supra; Appeal Tax Court v. Academy of Visitation, 50 Md. 437, 446 ; American Coal Co. v. Consol. Coal Co., 46 Md. 15 ; Shaffer v. Mining Co., 55 Md. 74, 79 ; Constitution of Maryland, art. 3, sec. 48; (1864), art. 3, sec. 51; (1851), art. 3, sec. 47; In re Tax Cases, 1841, 12 G. & J. 117 ; State v. Northern Cent. R. Co., 44 Md. 131 , .163-167; State v. Baltimore & O. R. Co., 48 Md. 49, 70-76 ; Pennsylvania R. Co. v. Baltimore & O. R. Co., 60 Md. 263, 267, 268 .

The particular exemption of the shares of the capital stock found in the original charter of the Company was adopted by the General Assembly of Maryland in the incorporation of The Baltimore and Susquehanna Railroad ¹³⁵ Company by the Act of 1827, chapter 72, section 20. The exemption came before this court for construction in one of the numerous appeals involving, inter alia, the power to tax the stock of The Baltimore and Susquehanna Railroad Company under the Act of March Session, 1841, chapter 23. These appeals were quite numerous and were heard together, with eminent counsel representing the parties, and were reported under the name of In re Tax Cases in 12 G. & J. 117 . No opinion was filed, but the record and the argument of counsel as reported, and the judgment of the court in affirming the ruling of the Appeal Tax Court of Baltimore, and the syllabus, make it clear that the validity of the exemptions was directly involved and sustained. 12 G. & J. pages 142, 121, 122, 157.

See Laws & Ordinances Relating to Baltimore and Ohio Railroad Company (1850, John Murphy & Co.), note (a), p. 25; State v. Northern Cent. R. Co., 44 Md. 131, 162 , dissent of Alvey, J., page 179; Anne Arundel County v. Annapolis & Elk Ridge R. Co., 47 Md. 592, 609-611 ; Frederick County v. Farmers’ & Mechanics Nat. Bank, 48 Md. 117, 119-121 . The like provision, section 18 of chapter 123 of the Act of 1826, with respect to the exemption of the Company from taxation, came before this court for consideration in the appeal of the Mayor and City Council of Baltimore v. Baltimore & Ohio R. Co. 1848, which is reported in 6 Gill 288 .

The case began by an action in assumpsit brought to the January Term, on April 17th, 1846, by the municipality against the Company to recover $3077.63 in taxes alleged to be due as of December 1st, 1845, by the Company to the municipality. The case went to trial before a jury, which found for the Company, and from the adverse judgment entered the municipality appealed. At the trial of the cause, the plaintiff offered in evidence the Acts of the General Assembly of Maryland and the Ordinances of the Mayor and City Council of Baltimore, relating to taxation in the State or City of Baltimore; and also, the Act of the General Assembly of ¹³⁶ Maryland of the December session of 1835, chapter 395. In support of the issue on its part, the defendant offered in evidence its charter, Act of 1826, chapter 123, and all the supplements thereto, and all the laws and ordinances of the municipality relating to the defendant.

It was admitted that the defendants owned real and personal estate and shares of its own stock in the City of Baltimore that would be liable to tax and the tax on which would amount to $100, except for the exemption claimed by the Company and denied by the municipality. It was further admitted that, if in the opinion of the court, the stock in the hands of an individual holder would be liable to taxation, the judgment of the court should be entered in favor of the plaintiff for $101 and costs. And it was also admitted that the charter of the Company had-been assented to, according to its terms, by the States of Pennsylvania and Virginia and by the United States as legislature of the District of Columbia. At that time the Washington Branch from Baltimore to Washington had been in operation since 1835.

State v. Baltimore & O. R. Co., 34 Md. 344, 360 . The terms of the Act of 1841, March Session, chapter 23, with those of Revised Ordinances of 1838, chapter 7, section 2, of Baltimore City, provided that an assessment should be made of all real and personal property in Baltimore City, and a record thereof made and kept by the City Collector. The rolling stock of the main line of the Company and of its Washington Branch was separately assessed for the years 1842,1843, 1844 and,1845 at $253,-680 for the main line, and $54,750 for the Washington Branch. At this time, the rolling stock being personalty was assessable, if taxable at all, in Baltimore as the principal place of business of the Company.

Acts of 1841, ch. 23; Appeal Tax Court v. Pullman Palace Car Co., 50 Md. 452 . With all the issues of fact admitted, there were left the issues of law for the court, which were presented by these prayers on the part of the plaintiff: “1st. That the real estate of the Baltimore and Ohio ¹³⁷ Railroad Company, the defendants, situate in the City of Baltimore, is liable for City taxes. “2d. That the personal property of the Baltimore and Ohio Railroad Company, situate in the City of Baltimore, is liable for City taxes. “3d.

That the capital stock of the Baltimore and Ohio Railroad Company, the defendants, is liable for City taxes. “4. That the shares of the capital stock of the Baltimore and Ohio Railroad Company in the hands of the share-holders, is liable for City taxes.” The court at nisi prius rejected all these prayers and the plaintiff excepted. Baltimore v. Balto. & O. R. Co., 6 Gill, 288 . The report of the cause shows that it was agreed that, in the appellate court, the counsel might read, from the printed volume of the Laws or Ordinances of the City of Baltimore, all such laws and parts of laws or ordinances as either may desire, for the purpose of argument or illustration, to have the same effect as if such laws, or parts of laws, or ordinances, had been set forth at length in the bills of exceptions.

Thus the questions were squarely presented to the court on appeal whether the exemption declared in the charter was operative with reference to the taxes of Baltimore City in respect of either real estate, or personal property or the capital stock of the defendant or its shares of stock in the hands of a shareholder. The appeal was argued by B. C. Presstman for the municipality and by John H. B. Latrobe and Reverdy Johnson for the Company. The opinion was written by Thomas Beale Dorsey, later the Chief Judge, and was concurred in by the other judges who sat. The judgment was affirmed.

In distinguishing the case of Cheston v. Appeal Tax Court, 3 How. 133, 11 L. Ed. 529 , our predecessors, speaking through Judge Dorsey, said: “The Supreme Court have nowhere intimated (on the contrary the reverse is the clear deduction from its opinion), that to a corporation paying no bonus for its charter, the legislature of Maryland cannot grant an exemption from tax ¹³⁸ ation. In the case now under consideration, it is conceived that such an exemption has been granted; the 18th section of its charter, the act of 1826, chap. 123, having declared that the shares of the capital stock of the said Company shall be deemed and considered personal estate, and shall be exempt from the imposition of any tax or burden. And there is nothing in the charter of the Baltimore and Ohio Railroad Company, or the terms and expressions in which it is couched, or in the objects designed to be accomplished by it, that would justify a construction of this exemption from taxation, as less comprehensive and universal than its terms would ordinarily import. It must, therefore, be held as an exclusion, not only of the State’s right to tax, but of the right of all manner of corporations created by the State, within whose limits the Company may have either real or personal property.” The court then proceeds to answer another contention: “But it is said, that although by the charter of the Baltimore and Ohio Railroad Company, its shares of stock may be exempt from all taxation, yet that such exemption in no wise protects from taxation the specific articles of property of the Company.

If such a specific property be deemed liable to the imposition of taxes, no sufficient reason can be assigned why the franchise should not be subject to the like imposition. It is as much an ingredient in the shares of stock, and component part of their value, as is any portion of the corporate property of the Company; and if under such an express legislative exemption as that now before us, the one be exempt from taxation, so also is the other. “The design contemplated by the legislature in the insertion of this clause of exemption in the act of Assembly, was to confer a substantial, not a nominal benefit, on the stockholders, and to induce capitalists to risk their money in a novel and hazardous enterprise. To impute to the legislature, in the case before us, an intention to exempt the shares of the stock from taxation, and at the same time to reserve the right to tax everything which consti ¹³⁹ tuted it a stock, and gave to it its value, would be gratuitously to cast an imputation upon the legislature, inconsistent with every principle of judicial courtesy. * * * “The effort made to restrict the immunity now under consideration to State taxes only, cannot be sustained. The terms used in its grant are so broad, unambiguous and universal, and the reasons for making them so accordant therewith, that their full and natural import must be given to them.

The exemption covers County and City, as well as State taxes. There are no words used by the legislature qualifying or limiting the extent of the immunity conferred; it is therefore unlike the case of Gordon v. Mayor and City Council of Baltimore [ 5 Gill 231 ], decided by this court at December term, 1847.” See State v. R. R. Co., 44 Md. 131, 162 ; State v. B. & O. R. Co., 48 Md. 49, 70-78 ; Anne Arundel County v. A. & E. R. Co., 47 Md. 592, 609-611 ; State v. Northern Cent. Ry. Co., 90 Md. 447, 472 , 45 A. 465 ; Wilkens Co. v. Baltimore City, 103 Md. 293, 310, 311 , 63 A. 562 ; Baltimore & O. R. Co. v. Waters, 105 Md. 396, 424 , 66 A. 685 ; State v. B. & O. R. Co., 127 Md. 434 , 96 A. 636 ; Havre De Grace v. Bridge Co., 145 Md. 491, 497 , 125 A. 704 ; Miller v. State of New York, 15 Wall. 478 , 21 L. Ed. 98 ; Baltimore & O. R. Co. v. Maughlin, 153 .Md. 367, 376, 138 A. 334 .

After the decision in 1848 in the appeal of Mayor and City Council of Baltimore v. Balto. & O. R. Co., 6 Gill 288 , until 1878, the tax exemption feature of the Company’s charter was not under review in this tribunal until in State v. Balto. & O. R. Co., 1878, 48 Md. 49 , the court had occasion again to consider this exemption and its limitations. The action in the last mentioned appeal began on the 9th of September, 1876, when the State of Maryland filed in the Superior Court of Baltimore City a declaration in debt to recover of the Company the state tax of one-half of one per centum, levied, under the Act of 1872, chapter 234, on the gross receipts of the defendant Company from all sources, except from its Washington ¹⁴⁰ Branch, from the first of April, 1872, to the 31st of December, 1873. The Act of 1872, chapter 234, had adopted the policy of the taxation of railroads upon their gross receipts and imposed a tax upon all the gross receipts of the Company, except those derived from the Company’s Washington Branch, whose gross receipts were exempted from taxation so long as the Company paid the capitation tax imposed upon the receipts accruing to the Company from the operation of this branch. The Company had declined t© pay this tax on the ground of its exemption clause.

The cause was heard in the Superior Court, without a jury, and the judgment was for the defendant Company. The appeal was decided on February 21st, 1878, after argument for the parties by eminent counsel. After mature deliberation, the Court held that: “In The Mayor and City Council of Baltimore v. Baltimore and Ohio R. Co., 6 Gill 292 , the power to tax the real and personal property, and the capital stock of the company, and its shares of stock in the hands of shareholders, was the question and the sole question, before the Court, and after full argument, all the Judges were of opinion that no such power existed, and that the 18th section of the appellee’s charter exempted the property and capital stock, and shares of stock, from taxation. This decision was made in a case in which the Baltimore and Ohio Railroad Company was a party, and upon the very section of its charter now under consideration.

From that time to the present, a period of thirty years, it has been the accepted law of this State; and upon the faith of it millions of dollars have been invested in the property of this company. Every consideration therefore of public policy, and of private right, demands that the decision of the Court upon the question thus submitted to its adjudication, shall be deemed final and conclusive.” 48 Md. page 71. The court then remarked that in delivering the opinion of the court in that case, Judge Dorsey had said that the exemption of the shares of the stock of the company ex ¹⁴¹ empted also its franchises, because the franchises constituted and formed part of the market value of such shares, and that the State had objected to this comment as dictum, and had argued that an expression of opinion should not control the judgment of the court in a later appeal in which that point is for decision. Conceding the point, and considering the question as one of first impression to be answered by the intention of the General Assembly, as found from a construction of the language of the statute in connection with the declared object and the circumstances of its enactment, the court categorically held “that the 18th section exempts the property and franchises of the company from taxation.

If the franchises are exempt, it would necessarily follow, that the gross receipts derived from the exercise of its franchises, are also exempt.” 48 Md. page 74. On this appeal the argument was pressed that in as much as the railroad company was required to complete its road to the Ohio River in 1859, and it having completed one track by that time, the entire road was to be considered as completed and equipped at that time, within the meaning of its charter, and that the immunity from taxation thus granted to the Company is limited to the exercise of its franchises necessary to operate this one track, and to the property owned by the Company at that particular time. The opinion of the court points out that the object of this provision was to enable the State to institute proceedings for