State v. Philadelphia, Wilmington & Baltimore Railroad

Robinson, J.,

delivered the opinion of the Court.

The main questions presented by this appeal are, first, whether the tax of one-half of one per centum upon the gross receipts of railroad companies, imposed by the Act of 1872, ch. 234, in lieu of all other taxes, is a valid exercise of Constitutional power ? and secondly, if so, whether the defendant corporation is,' by its charter, exempt from the payment of said tax?

The power of the Legislature to impose a tax of this character cannot be questioned, unless there is some provision in the Constitution prohibiting the exercise of such power.

A tax upon the gross receipts of railroad companies, it is contended, is an arbitrary tax upon property levied without regard to value, and not being imposed upon all property in the State, is in conflict with the Bill of Rights, which declares:

“ That the levying of taxes by the poll is grievous and oppressive, and ought to be prohibited; that paupers ought not to be assessed for the support of the government; but every person in the State, or person holding property therein, ought to contribute his proportion of public taxes, for the support of the government, according to his actual worth in real or personal property; yet, fines, duties or taxes may properly and justly be imposed or laid, with a political view for the good government and benefit of the community.” Art. 15, Bill of Bights, Constitution of 1867.

This Article in the Bill of Rights was not adopted for the first time by the Constitution of 1867; on the contrary, it is to be found word for word, in the Constitution of 1776, and in fact, in every Constitution adopted in this State from that time to the present, constituting thus a *377 part of the fundamental law of the State, for just one hundred years, and relating to a subject so vital and important, — the exercise of the power of levying taxes for the support of the government, — we might reasonably suppose by this time at least, its construction and meaning ought to he beyond all controversy ; and yet a law is seldom passed for the purpose of raising revenue, unless it he a direct assessment upon real or personal property, hut what the tax thereby imposed, is claimed to he in conflict with this provision of the Constitution.

It can hardly he necessary to say, the Bill of Rights announced no new principle in regard to the exercise of the power of taxation, on the contrary, with a phraseology somewhat varied hut unimportant, it is to he found in every standard work on the subject.

That every one should contribute his proportion of the public burdens, according to the measure of his ability, and that all taxes levied upon property for the support of the government, should so far as it is practicable, he equal and uniform, may he considered as a principle underlying the American system of taxation. It was to give an authoritative recognition of a principle so just and impartial, and which challenges universal assent, that the framers of the Constitution of 1776, made it a part of the organic law of the State. Having denounced the levying of taxes by the poll as grievous and oppressive, and recognizing property, as contra-distinguished from the person, to he the proper subject of taxation, they declared that every one ought to contribute his proportion of taxes according to the value of his property, and in order that every one should hear his just proportion and no more, it follows as a necessary corrollary that all taxes levied upon property, should be equal and uniform according to its actual value. In other words, that the Legislature should not impose a tax upon the property of one person at one rate, and upon the property of another at a different rate. *378 But beyond this, it was not the purpose of the framers of the Constitution, nor of the people who adopted it, to restrict or limit the Legislature in the exercise of the power of taxation.

“The power of taxing the people and their property,” say the Supreme Court, “ is essential to the very existence of government and may be legitimately exercised on tbe objects to which it is applicable, to the utmost extent to which the government may choose to carry it. The only security against abuse of this power, is found in the structure of the government. In imposing a tax the Legislature acts upon its constituents. This is in general a sufficient security against erroneous and oppressive taxation.” Brown vs. McCullough, 4 Wheaton, 429 .

We must not forget too, that the Article in the Bill of Rights was first adopted in 1776, just after the beginning of the War for Independence. No human wisdom could foresee the result of that great contest, nor to what extent the necessities of the State might require the exercise of the power now under consideration, and we can hardly presume that the wise men who framed' that instrument, intended to limit the power of the Legislature in regard to it beyond what they have plainly expressed. And in order to prevent any misconstruction, they declared that in addition to taxes upon property, other taxes might he levied “for the good government and benefit of the community.”

Without extending this opinion by a review of the several cases, in which this Article of the Bill of Rights has been considered, it is sufficient to say, they go to the extent of holding, and no. further, that when taxes are laid directly upon property, they must be equal and uniform upon all property in the State.

In the late case of The State vs. The Cumberland and Pennsylvania Railroad Company, 40 Md., 22 , a tax upon all coal mined in the State for transportation, was held by *379 a majority of this Court to he a direct tax on property, and not being imposed upon all property in the State_ it was declared to he in conflict with the Bill of Rights. The protection afforded hy the Constitution, say the Court, “ Consists in the equality and uniformity required, whereby one person shall not he taxed more nor less than another, because he may happen to own a different species of property from that owned hy another.”

The question then on this branch of the case resolves itself into this, is a tax upon the gross receipts of railroad companies in lieu of all other taxes to he paid hy them, a direct tax upon the property of such companies, within the meaning of the Bill of Rights? We say it is not. It is neither levied upon the capital stock nor upon their property, in the sense in which the term property is used in the Constitution. Gross receipts, it is true, when received may be considered as the property of such companies, just as a person’s income may be considered his property when paid to him. But it will hardly he contended, that an income tax is a direct tax upon property within the meaning of the Bill of Rights. Properly speaking, the tax is not imposed upon the gross receipts; they are referred to not as descriptive of the subject to he taxed, but merely as furnishing the basis of ascertaining the amount of tax to he paid. If then it is not a tax upon property, what is it? We say, it is a tax upon the franchise of railroad companies, measured hy the extent of their business.

A franchise is a special privilege conferred by the State on certain persons, and which does not belong to them of common right, and although the franchises of a company may he considered in one sense property, and valuable property, yet they are not property in the meaning of that term, as used in the Bill of Rights.

That there is a wide distinction between a tax upon the franchises of a corporation, and a tax upon its property, *380 we think is fully sustained both upon principle and authority, In Coite vs. The Society for Savings, 32 Connecticut, 173, the defendant corporation had invested a large amount of its deposits in government securities, which were exempt from State taxation. The Legislature of that State imposed a tax of three-fourths of one per cent, on the total amount of deposits in such institutions, and it' was held to be a tax upon the corporation, and not a tax upon its property. As a tax on property, it was admitted that the Act could not be sustained, because the property of the bank was invested in government securities. Mr. Justice McCurdy, in delivering the opinion of the Court, says: “The tax is not imposed on the securities but on the bank, and it is not imposed on the bank because of its holding the securities, but in consequence of its doing, under the favor of the State, certain business which that favor renders profitable. The tax is a payment for the benefit. The tax stands upon the same ground,»as that-collected of an insurance agent or an auctioneer, as before referred to.”

The judgment in this case was affirmed by the Supreme Court of the United States. Mr. Justice Clifford says:

“Nothing can be more certain in legal decision, than that the privileges and franchises of a private corporation, and all trades and avocations by which citizens acquire a livelihood, may be taxed by a State for the support of the State government.” 6 Wallace, 625.

In the case of The Commonwealth vs. Provident Institutions for Savings, 12 Allen, 312 , it was contended that a tax upon the deposits of Savings Banks, was unconstitutional because it was an arbitrary tax upon the property of a certain class of corporations only, and not laid uniformly upon all property in the State, hut it was held by the Court to be a tax upon the franchise of such corporations and not upon their property. Upon appeal to the Supreme Court of the United States, the judgment in this case was also sustained. 6 Wallace, 630.

*381 And coming down to the late case of the Delaware Railroad Tax, 18 Wall., 206 , we find that a tax imposed hy the Legislature of Delaware, of one-fourth of one per cent, upon the actual cash value of every share of the capital stock of railroad companies, was held to he a tax upon the corporation, atad not upon its property. In delivering- the opinion of the Court, Mr. Justice Fields, says :

“The tax is neither imposed upon the shares of the individual stockholders, nor upon the property of the corporation, hut is a tax upon the corporation itself, measured hy a per centage upon the cash value of a certain proportional part of the shares of its capital stock.

Nor is there anything in the case of “ The State Tax on Railroad Gross Receipts, 15 Wall., 284 , in conflict with these views. There it was contended, that a tax imposed hy the Legislature of Pennsylvania upon the gross receipts of railroad companies, was a tax upon transportation, and therefore in conflict with the Constitution of the United States, which confers upon Congress the exclusive power to regulate inter-State commerce. And although the Court speaks of gross receipts when received hy the company and mingled with its property, as property belonging to the company, yet we understand the Court as deciding the tax to he in fact levied “ upon the railroad company, measured in amount hy the extent of its business or the degree to which its franchise is exercised.”

Being of opinion then, that the tax upon gross receipts of railroad companies, imposed by the Act of 1812, is a tax upon the franchise of such companies, and not upon their property, as that term is used in the .Bill of Rights, we come to the question whether the defendant corporation is exempt from the payment of said tax?

This corporation was formed by a union of the Baltimore and Port Deposit Company, extending from the City of Baltimore to the Susquehanna river, the Wilmington and Susquehanna Company, extending from said river to *382 the Delaware and Pennsylvania line, and the Philadelphia, Wilmington and Baltimore Company, extending from the Delaware line to Philadelphia, thus forming á continuous line from Baltimore to Philadelphia.

The Wilmington and Susquehanna Company was also formed, by the union of a company chartered'by that name, by the State of Delaware, and the Delaware and Maryland Railroad Company, incorporated by this State, and running from the Susquehanna river to the Maryland and Delaware line. Sec. 19, of the Act of 1831, ch. 296, incorporating this latter company provided:

“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 said company, * * and the shares of the capital stock of said company shall be deemed and considered personal estate, and shall be exempt from the imposition of any tax or burden by the State’s assenting to this law, except upon that portion of the permanent and fixed works of said company, which may lie within the State of Maryland.”

The purpose of the several Acts of the Legislature, under which these companies were united and the present defendant corporation formed, “was to vest in the new company the rights and privileges which the original companies possessed under their separate charters,” that is to say, “the rights and privileges in Maryland, which the Maryland company had there enjoyed ; and not to transfer to either State and enforce therein the legislation of the other.” Delaware Railroad Tax Case, 18 Wall., 221 ; Philadelphia, Wilmington and Baltimore R. R. Comp. vs. Maryland, 10 How., 377.

It is clear then, that by the consolidation of these companies, the qualified exemption granted by the Act of 1831 to the Delaware and Maryland Company, became vested in the new company, the present defendant corporation, and the question then is, whether under such exemp *383 tion it is competent for the Legislature to impose a tax upon the gross receipts of that portion of its road which formerly constituted the Delaware and Maryland Company ?

In a former part of this opinion, we have said that a tax upon the franchises of a company is not a property tax within the meaning of the Bill of Rights, which declares “that every person ought to contribute his proportion of taxes for the support of the government, according to his actual worth in real or personal property.” Although this may be so, yet the franchise of a railroad company, namely, its right to maintain and operate its road and to receive fare for freight and passengers, may, in one sense, be considered property, and in the construction of an Act exempting the company from taxation, the immunity thereby granted may be held to include not only its capital stock and tangible property strictly speaking, but also its franchises, provided the language is such as to satisfy the Court the Legislature so intended.

In Wilmington Railroad vs. Reid, 13 Wall., 264 , where an Act provided, that all the property purchased and works constructed, and profits accruing on said works should be vested in the shareholders, and that the property of said company and the shares therein, shall be held exempt from any public tax or charge, it was held that the franchises of the company were also exempted.

Row the Act of 1831, declares that the road or roads with all their ivories,• improvements and profits, and machinery, dfcc. are “ hereby vested in said company, and the shares of the capital stock of said company shall be deemed and considered personal estate, and shall be exempt from the imposition of any tax or burthen, except the fixed and permanent works within the State.”

Under this Act our predecessors, in the Philadelphia, Wilmington and Baltimore Railroad Company vs. Bayless, 2 Gill, 355 , held, that the capital stock of the company, its *384 works, improvements, machinery of transportation and profits, except its fixed and permanent works within the State, were exempted from all taxation or levies, either for county or State purposes.

This decision was rendered in a case in which the present defendant corporation was a party, and upon the precise question now before us, and whatever may be our opinion in regard to the meaning of the Act of 1831, we are bound by the construction thus placed upon it. It can hardly he necessary to say, such an exemption of the capital stock and property and profits of a company, exempts also its franchises, because its profits are derived solely from the fare and tolls received from freight and passengers. Under the decision thus rendered by this Court, we are of opinion, that the .Legislature has no power to tax the gross receipts of this part of the defendant’s road. ■

There is no exemption from taxation in the charter of the Baltimore and Port Deposit Company, the only other portion of the road lying in this State, and the right of the Legislature to tax the gross receipts of this part of the road cannot be questioned.

The only remaining point then to be considered, is the apportionment of the gross receipts liable to taxation, under the Acts of 1872 and 1874, and in regard to this, we are of opinion, that upon the pleadings and admitted facts in this case, the State is entitled to recover a sum equivalent to that part of the gross receipts, which may be in the same proportion to the whole amount of gross receipts of the defendant, on its entire road from Baltimore to Philadelphia, that the number of miles of the Baltimore and Port Deposit Company bears to the whole number of miles of the Philadelphia,, Wilmington and Baltimore Company, of which it forms a part. It is true, the gross receipts on one part of the road may be greater than on another, but perfect equality in the assessment and apportionment of taxes is unattainable, and the rule we have *385 adopted seems to be fair and reasonable. Delaware Railroad Tax Case , 18 Wallace, 208.

(Decided 23rd June, 1876.)

It follows from what we have said, that the Court erred in granting the defendant’s prayer and in refusing the fourth, twelfth and thirteenth prayers of the plaintiff.

Judgment reversed, and neio trial awarded.