Western Union Telegraph Co. v. Taggart
163 U.S. 1 (1896)

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U.S. Supreme Court

Western Union Telegraph Co. v. Taggart, 163 U.S. 1 (1896)

Western Union Telegraph Company v. Taggart

No. 662

Argued January 16-17, 1898

Decided May 18, 1896

163 U.S. 1

Syllabus

A statute of a state, requiring a telegraph company to pay a tax upon its property within the state valued at such a proportion of the whole value of its capital stock as the length of its lines within the state bears to the length of all its lines everywhere, deducting a sum equal to the value of its real estate and machinery subject to local taxation within the state, is constitutional and valid notwithstanding that nothing is in terms directed to be deducted from the valuation either for the value of its franchises from the United States or for the value of its real estate and machinery situated and taxed in other states, unless there is something more showing that the system of taxation adopted is oppressive and unconstitutional.

The Statute of Indiana of March 6, 1893, c. 171, which directs the state board of tax commissioners to take as the basis of valuation of the property within the every telegraph company, incorporated in Indiana or in any other state the proportion of the value of its whole capital stock which the length of its lines within the state bears to the whole length of all its lines, yet, as construed by the supreme court of the state, makes it the duty of the tax commissioners to make such

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deductions on account of a greater proportional value of the company's property outside the state, or for any other reason, as to assess its property within the state at its true cash value, and, so construed, is constitutional.

This was a bill in equity, filed December 19, 1893, in the Circuit Court of the County of Marion and State of Indiana by the Western Union Telegraph Company against Thomas Taggart, the auditor of that county, and Sterling R. Holt, its treasurer, and against the auditors and treasurers of other counties of Indiana to restrain them from apportioning and collecting a tax assessed upon the plaintiff by the board of tax commissioners of he state under the statute of Indiana of March 6, 1893, c. 171, the material parts of which are copied in the margin. * The principal allegations of the bill were as follows:

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That the plaintiff was, and for many years had been, a corporation of the State of New York, and

"the owner of a large amount and number of telegraph poles, lines, wires,

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cables, fixtures, instruments, machinery, appliances, apparatus, and real estate constituting a plant for the transmission and conveyance of telegraph messages, which said telegraphic plant extends into and through every state and territory of the United States, the Dominion of Canada, and under

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the Atlantic Ocean to England and to Cuba,"

and that the plaintiff, by reason of rights under contracts with various persons and corporations in the United States and in other parts of the world, and under letters patent from the United States, and valuable franchises granted by the United States, and by New York and other states of the Union (but not

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by Indiana), and by many municipalities in those states, and by the governments of England and of Cuba, was

"enabled to do a large and profitable business, by and by means of said telegraphic plant, and not only an amount which would be equivalent to rent upon said property, in case the same was owned by another corporation and leased by complainant, but also to make a profit for complainant in addition to said amount so applicable as rent of such telegraphic plant."

That the

"portion of said telegraphic plant situated within said State of Indiana is of the actual cash value of $686,126 -- the said cash value being ascertained by taking the cost of original construction, as nearly as the same can be ascertained, and deducting therefrom a sum partially equal to the depreciation of the plant -- and could be replaced by an entirely new plant of the same extent and location, and of far more valuable and lasting material, for the sum of $1,226,625."

That the pretended statute of March 6, 1893, was not a law of the State of Indiana (for reasons not insisted on in this Court), and that on July 11, 1893, the plaintiff, reserving its rights to contest the validity of that statute, filed with the auditor of the state a statement and return, as therein required (a copy of which was annexed, and which included substantially the same objections as were stated in the bill, and showed that the entire mileage of the company was 189,576 miles, 6,436 of which were in the State of Indiana); that it had no real estate, machinery, and appliances in Indiana subject to local taxation. That the cost of its real estate in other states was $5,013,326, and the amount of its outstanding mortgage bonds was $1,211,000.

That the state board of tax commissioners, on August 21, 1893, made its assessment and valuation of the plaintiff's property in Indiana, deducting the real estate, structures, machinery, and apparatus within the state and subject to local taxation at the sum of $2,297,652, and at the rate of $357 per mile of telegraph line,

"and, in fixing said valuation upon complainant's said property in Indiana, acted under and by virtue of the assumed authority of said pretended statute, approved March 6, 1893, and placed upon complainant's said

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property additional values, beyond the true cash value of complainant's said property as measured by the cost of replacement of the same, making reasonable allowances for deterioration by adding values of complainant's business, property, and goodwill, both in and outside of Indiana, and franchises granted by the State of New York, the United States, and foreign countries, and in witness thereof caused to be entered upon the official record of said board, required by law to be kept by said board, on said August 21, 1893, the following statement and certificate:"

" In accordance with the requirements of the act of the General Assembly of the State of Indiana approved March 6, 1893, the state board of tax commissioners, after full consideration, does hereby assess and value telegraph, telephone, palace car, sleeping car, drawing room car, dining car, express and fast-freight joint-stock associations, companies, co-partnerships, and corporations transacting business in the State of Indiana, which assessment and valuation is as follows, to-wit: Assessment and valuation of telegraph and telephone companies in the State of Indiana by the state board of tax commissioners for the year 1893, exclusive of real estate, structures, machinery, fixtures, and appliances subject to local taxation within the state."

The first line under that heading was: "Western Union Telegraph Company. Miles, 6,436. Per mile, $357. Total, $2,297,652."

"That the state board of tax commissioners, during its said session in the year 1893, did not attempt to specify or describe the property of complainant falling within the description of real estate structures, machinery, and appliances subject to local taxation."

"That, in making said assessment, said state board of tax commissioners assumed to take as the basis thereof the value of the entire capital stock of complainant at a valuation per share based upon the price of the shares of complainant's capital stock dealt in in the stock exchange market of New York City, dividing such aggregate value by the total number of miles of telegraph line of complainant, wherever situated, and both in and outside of Indiana, and thereby obtaining a pretended valuation per mile of the telegraph line of complainant,

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amounting to the said sum of $357 per mile, which said pretended valuation per mile said board, acting under the authority of said pretended statute, imputed to and imposed upon each mile of the whole number of complainant's telegraph line in Indiana, thereby imputing to and imposing upon the whole telegraph line of complainant in Indiana, which is of the length of 6,436 miles, said pretended valuation of $2,297,652, which said pretended valuation is grossly excessive and far beyond the true cash value of complainant's said property in Indiana."

"That said state board of tax commissioners, in reaching said valuation of complainant's said property in Indiana, did not consider and assess the value of the property of complainant situated in Indiana otherwise than by pursuing the requirements of said pretended statute."

"That neither on April 1, 1893, nor at any time prior or subsequent thereto was there any market value for all the shares of the capital stock of complainant. That the whole number of shares was 948,200, of the par value of $100 each. That the number of shares sold or speculated in on April 1, 1893, on the New York stock exchange, was 1,168 shares at the average price of $94.50, and only a part of those was actually delivered, and that the price so obtained did not fairly represent the actual value of the plaintiff's property."

"That any price at which any or all shares of complainant might be sold, by any holder or holders thereof, whether such price be calculated upon any market value or upon actual value includes, amongst other things, a consideration of franchises of great value owned or exercised by complainant, granted by the State of New York, by the United States, by Canada, by Great Britain, by Cuba, and by other states, countries, and municipalities; a consideration of complainant's goodwill, its past earnings from every source, its probable future earnings from every source, the business ability, enterprise, and skill of the present managers of complainant's business, the probable continuance of business ability, enterprise, and skill in the future management of complainant's business, the contract and other relations of complainant to powerful

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railroad, telephone, and cable companies; a consideration of the real estate of complainant situated in the City of New York, which is of great value, to-wit, of the value of $3,500,000, and in the City of Chicago, which is of great value, to-wit, of the value of $1,700,000, and of the real estate of complainant, of great value, situated in many other states and countries, none of which is situated in the State of Indiana, as well as the consideration of the actual value of all complainant's telegraph lines, poles, wires, cables, conduits, instruments, appliances, and office furniture, including that which is situated in Indiana and taxable by the State of Indiana."

"That, in estimating such market or actual value of the shares of the stock of complainant, the values of said intangible franchises, rights, contracts, earnings, business, business ability, enterprise, skill, and management and goodwill, and of all said real and personal estate of complainant, are blended so as to render it impossible to separate and distinguish the portions of value applicable to any or each of said elements of value of said shares."

That the plaintiff was the owner of many thousand miles of telegraph in the States of Massachusetts, New York, Pennsylvania and New Jersey, and in other densely populated portions of the United States, of the cost and value of $2,500 per mile, on the average, and requiring great expenditures for the maintenance thereof; of many thousand miles of cable under the high seas, of the cost and value of $3,500 per mile, on the average, and of many thousands of miles of lines of telegraph in uninhabited, or sparsely inhabited portions of the United States and Mexico which, by reason of the great cost of transportation of material and cost of maintenance, were of great cost and value. That all the plaintiff's lines in the State of Indiana, by reason of the proximity to supplies of material and the very cheap transportation, were of minimum value as compared with the plaintiff's lines situated elsewhere, and that by reason of these facts, the average mile of the telegraph line of the plaintiff within Indiana was of the value of forty percent of the value of the average mile of the whole line situated outside of the State of Indiana, reckoning such

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value upon the cost of construction and maintenance, and making allowance for deterioration.

That sixty-six percent of the plaintiff's whole business in transmitting telegraphic messages, and sixty percent of its business in the State of Indiana, was interstate and international business, and that the average net earnings of a mile of the line in the State of Indiana amounted to only sixty percent of the net earnings of the average mile of its line outside of the state.

That the plaintiff duly accepted the provisions of the Act of Congress of July 24, 1866, c. 230, now sections 5263-5269 of the Revised Statutes, that all the telegraph lines owned or operated by the plaintiff in Indiana were constructed upon railroads, streets, and other post roads of the United States, and thereby the plaintiff was an agent of the government of the United States in the transmission of intelligence by electricity, and that the statute of Indiana of March 6, 1893, and the assessment and valuation of the plaintiff's property under that statute, rendered its property in Indiana substantially valueless and prevented it from performing its obligations to the United States.

That much of the plaintiff's capital stock, to the amount of $7,633,230,

"is invested in and represented by the capital stock and bonds of other telegraph and telephone corporations, whose telegraph or telephone plants are leased to or operated by complainant, which said telegraph and telephone corporations possess no property in the State of Indiana, and do not own or use any franchise granted by the State of Indiana, and are wholly situated outside of the State of Indiana."

"That the attempted and pretended valuation of complainant's said property by said state board of tax commissioners, in manner aforesaid, upon the value of complainant's shares of stock, whether said board pretended to value said property upon a basis which included the consideration or estimation of market value or actual value of the shares of stock of complainant, necessarily includes, and does in fact include, values which are no part of the true cash value of the property of complainant in Indiana, but are imputed and fictitious values,

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distributed to complainant's said property in Indiana as portions of the value of the business, business ability, enterprise, and skill of complainant, of the real and personal estate owned and leased by complainant, and outside of the State of Indiana, and of complainant's franchises granted by states other than Indiana, and municipalities outside of Indiana, and by the United States, and by foreign states and nations, and of the contract relations and other relations existing between complainant and other corporations, all of which said property, things in action, and other things and matters of value are beyond the jurisdiction of the State of Indiana, whether for the purpose of taxation, or for any other purpose."

That the auditor of the state, on September 15, 1893, certified the valuation aforesaid to the auditors of the counties through which the plaintiff's telegraph lines extended, and that the county auditors were engaged in apportioning and distributing the same among the townships, and were preparing to deliver tax duplicates to the county treasurers, to the end that they might collect the tax from the plaintiff.

That the statute of 1893, c. 171, was contrary to the Constitution of Indiana in various particulars pointed out (but not now relied on), and that this statute, and the assessment and valuation of the plaintiff's property by the state board of tax commissioners in compliance with its provisions, levied a tax upon interstate and international commerce in violation of Article I, Section 8, of the Constitution of the United States and deprived the plaintiff of its property without due process of law and denied it the equal protection of the laws, in violation of the Fourteenth Amendment to the Constitution.

The defendants demurred generally to the bill. The court sustained the demurrer and, the plaintiff declining to amend its bill, entered final judgment for the defendants. The plaintiff appealed to the Supreme Court of Indiana, which affirmed the judgment. 141 Ind. 281. The plaintiff thereupon sued out this writ of error.

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