State Tax Commission v. Western Maryland Ry. Co.

Marbury, C. J., delivered the opinion of the Court. The decision in these two cases requires an interpretation of the gross receipts tax on steam railroads, imposed by Article 81, sections 94% to 99 of the Code. It differs in this respect from the tax construed in No. 70 of this Term (Rogan, State Tax Commission v. Baltimore & Ohio Railroad Co., 188 Md. 44 , 52 A. 2d 261 ) which was imposed by a special statute affecting only the railroad in that appeal, Act of 1878, Ch. 155. That statute, however, was a compromise agreement for the application to the Baltimore and Ohio of the first Maryland gross receipts laws, Act of 1872, Ch. 234, and Act of 1874, Ch. 408.

These laws were the basis of the general law now in force and the intention evidenced in. them, and reflected in the Act of 1878, has some bearing upon the cases now before us. The Act of 1878 was passed after the Baltimore and Ohio Railroad had been sued for gross receipts taxes under the Act of 1872 (State v. Baltimore & Ohio R. Co., 48 Md. 49 ), and while an appeal by the railroad from an adverse decision in that case was pending in the Supreme Court of the United States. In No. 70 we construed the Act of 1878 as a tax to be measured by the gross receipts of the Baltimore and Ohio within the State, the determination of which was not confined to the length of line or line mile method as contended by the railroad. We held it could be determined by what was contended to be a more accurate method namely, the so-called all track method, ²⁴⁴ used by the State Tax Commission in that case.

The main question in the two cases now under discussion is whether, under the general law, gross receipts earned within the State by steam railroads other than the Baltimore and Ohio, must be determined according to the length of line method, or whether other methods can be used. The difficulty arises when a railroad (such as the two in the cases before us) has receipts from business done wholly within the State, receipts from business done wholly outside the State and receipts from business done partly in the State and partly outside. The amount of the receipts from the first two classes of business is easily ascertainable. The third class presents the problem.

Practically all the inter-state railroads passing through the State claim that they cannot segregate the receipts earned in the State from inter-state business, and therefore some method of approximation must be adopted. The length of line or line mile basis divides the whole length of the railroad by the length of its line in the State, and uses the result as a denominator of the entire gross earnings. The figures used are the lengths of main lines (single track) on the entire system and in the State. By the all track method, all the lines, main track, double or second track, switches, spurs, etc., are included.

The difference is illustrated in the case of the Western Maryland Railway Company. Its length of line is 850 miles of which 32% is in Maryland. Its entire track, however, is 1390 miles of which 39% is in Maryland. Under the length of line method, therefore, it would pay a tax measured by 32% of its gross receipts.

Under the all track method it would pay on 39%. The State Tax Commission assessed the Western Maryland for the years 1942, 1943 and 1944 according to the all track method. The railway paid the taxes and appealed to the Circuit Court of Baltimore City. That Court on April 18, 1946, set aside the assessments and remanded the proceedings to the Commission with directions to recompute the taxes upon the main line or length of line ²⁴⁵ basis.

From that order the appeal is brought here in the name of the State Tax Commission by the attorney-general and the deputy attorney-general of the State. This is case No. 74. A motion has been made to dismiss the appeal because it is claimed that Section 194(b) of Article 81 only gives the parties named in that section the right of appeal. And while one of these parties is “the Attorney-General on behalf of the State” the appeal was taken on behalf of the State Tax Commission, which is not a party named.

It appears, however, that Section 175 (13) of Article 81 authorizes the State Tax Commission to participate in any proceeding in court wherein any assessment or taxation question is involved. The Commission participated in this proceeding below and had the right of appeal granted by Section 30 of Article 5 of the Code to any party to a suit. This right has been frequently recognized by this Court, either impliedly or expressly. State Tax Commission v. Baltimore National Bank, 169 Md. 65 , 180 A. 260 ; Board of Zoning Appeals v. McKinney, 174 Md. 551 , at page 561, 199 A. 540 , 117 A. L. R. 207.

The motion to dismiss will be denied. After the decision in the Western Maryland case, the Maryland and Pennsylvania Railroad Company filed its bill of complaint in the Circuit Court of Baltimore City alleging that for the year 1943 and thereafter the State Tax Commission had assessed its gross receipts within the State by a composite method which the railroad believed produced substantially accurate results. This method was to assign the intra-state revenues to Maryland, to disregard the wholly out of State revenues and to prorate the inter-state revenues on all track basis. The railroad alleged that under the Western Maryland decision, the State Tax Commission would have to use the length of line method as to the Maryland and Pennsylvania, and it claimed that a tax produced by this method, as applied to it, would be unconstitutional and void.

It denied the correctness of the Court’s decision as applied to all railroads. It asked a declaratory decree and an ²⁴⁶ injunction. The Circuit Court dismissed its bill after a hearing, and the railroad appealed here. This is case 108.

The contention of the Western Maryland (upheld .by the decision of the lower court) is that the tax is upon the gross receipts calculated according to the length of line method. It bases this contention upon its conception of the proper interpretation of the statute, and upon what it claims is long-continued judicial and administrative construction. In the consideration of this contention and the contrary contention of the State Tax Commission that any reasonable method may be used to find what are the gross receipts, we are not unmindful of the multitude of decisions in the State courts throughout the country and in the Supreme Court of the United States which discuss gross receipts taxes. These are concerned primarily with the right to tax gross receipts, when they can be taxed, and how the tax may be levied.

In general it may be said that the gross receipts of a railroad earned within a State may be taxed as such if no other taxes are levied against it; that gross receipts earned both within and without a State may be used as a basis for the calculation of a franchise tax; that gross receipts earned outside of a State may not be taxed as such; that no apportionment of inter-state receipts which unduly burdens inter-state commerce may be used, whether the tax is called a franchise tax or not, and that an honest State effort to make an apportionment will be upheld unless it produces a “palpably disproportionate result.” 28 Mich. Law. Rev. 328; Galveston, etc., Ry. Co. v. State of Texas, 210 U. S. 217 , 28 S. Ct. 638 , 52 L. Ed. 1031 ; Wallace v. Hines, 253 U. S. 66 , 40 S. Ct. 435 , 64 L. Ed. 782 ; 53 Harvard Law Rev. 909; Illinois Cent.

R. Co. v. State of Minnesota, 309 U. S. 157 , 60 S. Ct. 419 , 84 L. Ed. 670 ; International Harvester Co. v. Evatt, 329 U. S. 46 , 67 S. Ct. 444 , 91 L. Ed. 390 ; Joseph v. Carter & Weekes Stevedoring Co., 330 U. S. 442 , 67 S. Ct. 815 , 91 L. Ed.. 993. The Question before us is whether the Maryland Legislature made the tax base, not the gross receipts-earned ²⁴⁷ within the State, but such gross receipts, estimated by a specific method. To find the answer, we turn to the statutes and the history of the tax with the applicable decisions. Prior to 1872 railroads were taxed on their property, Art. 81, Code 1860, Acts of 1870, ch. 362.

The Act of 1872, ch. 234, was entitled “An Act to tax the gross receipts of railroad companies in this State for State purposes.” The act levied a tax of one-half of one per centum per annum annually upon the gross receipts of all railroad companies, worked by steam, incorporated and doing business in the State. It required the financial officers of such railroads to report under oath to the Comptroller the total gross receipts of the road and to pay the tax levied. No apportionment was required. A similar act for Pennsylvania was upheld by the Supreme Court of the United States In Re State Tax on Railroad Gross Receipts, 1873, 15 Wall 284, 21 L. Ed. 164 .

The act of 1872 also provided that all railroads paying the gross receipts tax should be exempt from other State taxation. The tax therefore was not a tax upon -the property of the corporations affected but was a franchise tax. Cumberland & P. R. Co. v. State, 92 Md. 668 , 48 A. 503 , 52 L. R. A. 764; Postal Telegraph Cable Co. v. Harford County Com’rs, 131 Md. 96 , 101 A. 600 . The interrogatories sent out by the Comptroller under this act called not only for receipts from all sources, but also for the receipts from passengers and freight between points in the State.

In the case of the Baltimore and Ohio we find that they also asked for the length of the main stem from Baltimore to Wheeling and the number of miles of the main stem located in Maryland. The Baltimore and Ohio replied that it kept no separate account of receipts between points in the State. It was then assessed on the basis of the proportion of its main line in the State to its entire main line. Similar action was taken in the case of the Philadelphia, Wilmington and Baltimore Railroad.

Suits were brought and recoveries had against both railroads. State v. Philadelphia W. & ²⁴⁸ B. R. Co., 45 Md. 361 , 24 Am. Rep. 511 and State v. Baltimore & O. R. Co., 48 Md. 49 . The main line method used and approved was different from the length of line method contended for by the Western Maryland.

Branch lines, at least one of which appear to have been taxable (the Port Deposit branch of the P. W. & B.) were omitted. The Washington branch of the B. & O., also omitted, was paying affranchise tax based on one-fifth of the passenger receipts. State v. Baltimore & O. R. Co., 34 Md. 344 , affirmed 21 Wall. 456 , 22 L. Ed. 678 . When the two cases against the P. W. & B. and the B. & O. were argued, the act of 1874, ch. 408, had been passed, although this was not in effect when the taxes sued on were calculated.

The act of 1874 repealed and re-enacted the act of 1872, codifying it as part of Article 81 of the Code and adding a new section which read as follows: “Whenever the road of any railroad- company, organized under the Laws of this State, shall extend beyond the limits of this State into any other State or States, and the return of the President, Treasurer, or other financial officer of said company, made to the Comptroller, shall not show certainly and accurately, the precise amount of gross receipts within this State, the Comptroller may ascertain said amount, by making the gross receipts in this state, bear the same proportion: to the whole gross receipts of said company, as the number of-miles of said''road in this state, does to the whole number of miles ‘in length of said road.” Both acts were discussed in the two cases. Counsel for the railroad in the Philadelphia W- & B. case (Thomas Donaldson and L Nevitt Steele) contended that the method adopted and permitted by the Act of' 1874 was arbitrary and could not be used. 45 Md. at page 372 , 24 Am. Rep. 511 . The Court said the rule seemed to be fair and reasonable and that /‘perfect equality in the assessment and opportionmeht of taxes is unattainable.” It held that “upon the pleadings and admitted facts in this case” the State could , recover the tax levied. ²⁴⁹ In the Baltimore & O. case, counsel for the railroad (John K. Cowen and I. Nevitt Steele) said that the method authorized by the Act of 1874 “was added to enable the Comptroller * * * to approximate to the gross receipts within the State when he was not furnished with a statement of them by the company’s officers.” 48 Md. at page 59 .

The Court said that as no separate account had been kept, “Under such circumstances the only rule by which we can approximate to such receipts, is to say that they shall bear the same proportion to the entire gross receipts derived from the Main stem in the State, as the number of miles of the Metropolitan Road bears to the entire length of the appellee’s road.” 48 Md. at page 79 . Another suit was brought under the Act of 1872 against the Northern Central Railway Co. State v. Northern Central Ry. Co., 44 Md. 131 . In that case an assessment on the main line basis was upheld.

The Northern Central, at that time, had no branches so the assessment was on the only method that could be used as to it. A decision was rendered by this Court in 1889 which bears somewhat on the construction of the Act of 1874 although it did not arise under that act. The Union Passenger Railway Company of Baltimore City had a franchise subject to the condition of paying to the City Register for the use of the park fund 12% of the gross receipts accruing from passenger travel within the city limits. The railway company had one line which was 2.69 miles in length, one-half mile being outside of the city limits.

The company kept no separate operation accounts of the receipts within and without the city and there was no division of fares at the city line. This Court said it was clear that some method must be adopted to determine what portion of the revenue should be deducted as not liable to tax. In discussing this question it quoted the prior approval of the length of line method as “fair and reasonable” in State v. Philadelphia W. & B. Railroad Co., 45 Md. 361, 24 Am. Rep. 511 , supra.

In the case before it, however, it approved a division on the ²⁵⁰ basis of the full mileage travelled by the cars of the railway company, stating that this rule seemed to reach the justice of the case and to be free from objection. The gross receipts, therefore, in that case were calculated on car mileage rather than length of line mileage. Baltimore Union Passenger Ry Co. v. Mayor, etc., of City of Baltimore, 71 Md. 405 , 18 A. 917 . It seems clear from reading these cases that the Court in each case was approving methods used to find out what were the gross receipts.

The emphasis was on the thing to be ascertained, and the method was approved in each case, because in that case it was found to be a fair and reasonable one to reach the result desired. That is to ascertain as correctly as possible what were the gross receipts to be taxed. There is no statement in any of the cases that the method used in that case is the only method to be used. The next statutory change came when the Act of 1890, Ch. 559, was passed.

As several questions arise as to the form of this enactment then, and its present codification, Sections 1 and 2 as then passed are set out here in full: “Section 1. Be it enacted by the General Assembly of Maryland, That a State tax of one per centum 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; a State tax of one per centum is hereby levied annually upon the gross receipts of every telegraph or cable express or transportation company incorporated under any general or special law of this State and doing business therein; a State tax of two per centum is hereby levied annually upon the gross receipts of all telephone, parlor car, sleeping, car, safe deposit, trust, guaranty and fidelity companies incorporated under any general or special law of this State and doing business therein; a State tax of one per centum is hereby levied annually upon the gross receipts of all oil or pipe line companies and all title insurance companies incorporated under any general or special law of this State and doing business ²⁵¹ therein, and one-half of one per centum upon the annual gross receipts of all electric light or electric construction companies incorporated under any general or special law of this State and doing business therein; if any such railroad company has part of its road in this State and a part thereof in 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, and similar statements shall be made by each oil or pipe line company and each sleeping car, parlor car, express, transportation or cable company, so that the proportion of said gross earnings of said companies respectively accruing from their business within this State may be accurately ascertained, or said ascertainment may be made in any other mode satisfactory to the State tax commissioner; the said gross receipt taxes shall be due and payable at the treasury on or before the first day of July in each year. “Sec. 2. And be it enacted, That it shall be the duty of each and every such corporation or company so doing business in this State on or before the fifteenth day of April next, and on or before the fifteenth day of April in each and every year thereafter to make a report under oath of its president, treasurer or other proper officer, to the State tax commissioner showing its total receipts or revenues accruing from business done in this State