The Delaware Railroad Tax
85 U.S. 206

Annotate this Case

U.S. Supreme Court

The Delaware Railroad Tax, 85 U.S. 18 Wall. 206 206 (1873)

The Delaware Railroad Tax

85 U.S. (18 Wall.) 206

APPEAL FROM THE CIRCUIT COURT OF THE

UNITED STATES FOR THE DISTRICT OF DELAWARE

Syllabus

1. Although it has been repeatedly held by this Court that the legislature of a state may exempt particular parcels of property or the property of particular persons or corporations from taxation, either for a specified period or perpetually, or may limit the amount or rate of taxation to which such property shall be subjected, and that when such immunity is conferred or such limitation is prescribed by the charter of a corporation, it becomes a part of the contract, and is equally inviolate with its other stipulations, yet before any such exemption or limitation can be admitted, the intent of the legislature to confer the immunity or prescribe the limitation must be clear beyond a reasonable doubt. All public grants are strictly construed, and nothing can be taken against the state by presumption or inference. The established rule of construction in such cases is that rights, privileges, and immunities not expressly granted are reserved.

2. Accordingly, a provision in an act of the Legislature of Delaware under which the original Wilmington & Susquehanna Railroad Company was united with the Delaware & Maryland Railroad Company, requiring the new company to pay annually into the treasury of the state a tax of one-quarter of one percent upon its capital stock of $400,000, did not prevent a subsequent legislature from imposing a further or different tax upon the company. The amount designated was only a declaration of the tax payable annually until a different rate should be established.

3. By an act of the Legislature of Maryland, passed in 1831 and its supplement, a corporation called the Delaware & Maryland Railroad Company was created with authority to construct and maintain a railroad from a point on the Delaware & Maryland line to some point on the Susquehanna River, and by the nineteenth section of the act it was provided that the shares of the capital stock of the company should be exempt from the imposition of any tax or burden by the state assenting to the act except upon that portion of the permanent and fixed works of the company which might be within the State of Maryland. By an act of the Legislature of Delaware passed in 1832 and its supplement, another corporation was created called the Wilmington & Susquehanna Railroad Company, with authority to construct and maintain a railroad from a point on the boundary line of Pennsylvania and Delaware to the City of Wilmington and thence towards the Susquehanna in the direction of Baltimore. In 1835, these two companies were, under acts of the Legislatures of Maryland and Delaware, consolidated into one company under the name of the latter -- the Wilmington & Susquehanna

Page 85 U. S. 207

Railroad Company. The act of Delaware authorizing the consolidation on her part provided that the holders of the stocks of the two companies should, when consolidated, hold, possess, and enjoy all the property, rights, and privileges, and exercise all the power granted to and vested in the companies, or either of them, by that law or any other law or laws of that state or of Maryland. The act of Maryland, authorizing the consolidation on her part, contained a similar provision. Held that the purpose of the two provisions was to vest in the new company the rights and privileges which the original companies had previously possessed under their separate charters; the rights and privileges in Maryland which the Maryland company had there enjoyed, and the rights and privileges in Delaware which the Delaware company had there enjoyed; not to transfer to either state and enforce therein the legislation of the other. The new company, after the consolidation, stood in each state as the original company had previously stood in that state, invested with the same rights and subject to the same liabilities. The act of consolidation, so far as Delaware was concerned, had only this effect.

4. The consolidated company above-mentioned was, in 1838, united with two other railroad companies, one called the Baltimore & Port Deposit Railroad Company, chartered by the Legislature of Maryland in 1831, with authority to construct and maintain a railroad from Baltimore to Port Deposit, on the Susquehanna River, and the other called the Philadelphia, Wilmington & Baltimore Railroad Company, chartered by the Legislature of Pennsylvania in the same year, with authority to construct and maintain a railroad from Philadelphia to the Delaware state line. These three companies were, under acts of the legislatures of these states, Delaware, Maryland, and Pennsylvania, consolidated into one company with a common stock, retaining as its corporate name the name of the company chartered by Pennsylvania. The act of the Legislature of Delaware, under which the consolidation was effected, declared that the respective companies should

"constitute one company, and be entitled to all the rights, privileges, and immunities which each and all of them possess, have, and enjoy, under and by virtue of their respective charters."

Held that this latter provision in no respect changed the position with reference to taxation of the now company, in one of the states, from that of the old company in such state.

5. An act of the Legislature of Delaware taxing railroad and canal companies was passed on the 8th of April, 1889. The fourth section of the act provided that every company of the class designated should, in addition to other taxes, also pay to the treasurer of the state for its use, on the first day of July then next and on the first day of July of each year thereafter, or within thirty days from such period, a tax of one-fourth of one percent upon the actual cash value of every share of its capital stock, with a proviso that when the line of the railroad or canal belonging to a company liable to the tax lay partly in the state and partly in an adjoining state or states, the company should only be required

Page 85 U. S. 208

to pay the tax on such number of the shares of its capital stock as would be in that proportion to the whole number of shares, which the length of the road or canal within the limits of the state should bear to the whole length of such road or canal.

Held:

1st. That the tax was not imposed upon the shares of the individual stockholders, or upon the property of the corporation, but was a tax upon the corporation itself, measured by a percentage upon the cash value of a certain proportional part of the shares of its capital stock, a rule which, though an arbitrary one, was approximately just in the case.

2d. That the tax did not conflict with the power of Congress to regulate commerce among the several states nor interfere with the right of transit of persons and property from one state into or through another.

6. The state may impose taxes upon the corporation as an entity existing under its laws as well as upon the capital stock of the corporation or its separate corporate property. And the manner in which its value shall be assessed and the rate of taxation, however arbitrary or capricious, are mere matters of legislative discretion.

7. 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.

8. The fact that taxation increases the expenses attendant upon the use or possession of the thing taxed of itself constitutes no objection to its constitutionality.

9. The exercise of the authority which every state possesses to tax its corporations and all their property, real and personal, and their franchises, and to graduate the tax upon the corporations according to their business or 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 or tonnage, or transportation to other states, cannot be regarded as conflicting with any constitutional power of Congress.

Appeal from the Circuit Court of the United States for the District of Delaware, in which court William Minot filed a bill against the Philadelphia, Wilmington & Baltimore Railroad Company and the State Treasurer and Collector of State Taxes of Delaware to enjoin the collection of certain taxes.

The case was thus:

On the 8th of April 1869, the Legislature of the State of Delaware passed an act taxing railroad and canal companies in the state. The first section of the act provided that all railroad and canal companies, incorporated under the laws of the state and doing business therein, should, on the first day of January then next and on the first day of January

Page 85 U. S. 209

of each year afterwards, pay to the treasurer of the state for the use of the state, in addition to the taxes then imposed by law upon such companies, a tax of three percent upon their net earnings or income received from all sources during the preceding year, with a proviso, that when a line of railroad or canal belonging to any company liable to the tax lay partly in the state and partly in an adjoining state or states, the part or share of such net earnings or income of the company only should be subject to the tax, as would be in that proportion to the whole net earnings or income of the company, which the length of the road or canal within the limits of the state should bear to the whole length of such road or canal.

The fourth section of the act provided that every company of the class designated should, in addition to other taxes, also pay to the treasurer of the state for its use, on the first day of July then next, and on the first day of July of each year thereafter or within thirty days from such period, a tax of one-fourth of one percent upon the actual cash value of every share of its capital stock, with a proviso similar in its character to that of the first section, namely that when the line of the railroad or canal belonging to a company liable to the tax lay partly in the state and partly in an adjoining state or states, the company should only be required to pay the tax on such number of the shares of its capital stock as would be in that proportion to the whole number of shares, which the length of the road or canal within the limits of the state should bear to the whole length of such road or canal.

Another section of the act further provided that every railroad company should also pay to the state treasurer on the first day of January then next, and on the first day of January of each year thereafter, or within thirty days from such period, for the use in the state of every locomotive belonging in whole or in part to the company, and used by it at any time during the preceding year, a tax of $100; and for the like use of each passenger car thus owned and used,

Page 85 U. S. 210

a tax of $25, and of each freight car and truck thus owned and used, a tax of $10.

The act required the president or treasurer of every company liable to these several taxes, to furnish the state treasurer with statements showing its net earnings or income from all sources during the preceding year, the number of locomotives, passenger cars, freight cars of every description, and trucks belonging to the company and used by it in the state at any time during that period, and the number of shares of the capital stock of the company, with an estimate and appraisement of the actual cash value of each share, and to pay the taxes chargeable. The act also made provision for an estimate of the earnings and an assessment of the taxes in case the statement required was not furnished, and for the collection of the taxes by sale of the property of the company, if they were not voluntarily paid.

The defendant, the Philadelphia, Wilmington & Baltimore Railroad Company, is a corporation created under the laws of Delaware, so far as it exists in that state. By connection with other companies with which under one common name it is consolidated by the legislation of Pennsylvania and Maryland, hereafter particularly mentioned, its road extends to Philadelphia in one state and to Baltimore in the other. It is therefore a corporation liable to taxation by the terms of the Act of April 8, 1869, and is within the provisos of both its first and fourth sections.

The tax upon this company imposed by the fourth section became due for the first time in July, 1869, and in October following, in response to demands of the state treasurer, the president of the company furnished to that officer a statement showing that the capital stock of the company consisted of 186,088 shares of the value of $50 each, accompanied by a protest against the legality of the tax. Soon afterwards, Minot, the complainant, a citizen of Massachusetts, and a stockholder in the company, addressed a written communication to its president inquiring whether the company intended to protect his interests as a stockholder by resisting the collection of the tax, and stating that

Page 85 U. S. 211

as the tax was not a legal one, protection against its levy should be provided. This communication was submitted to the directors, who, in answer, resolved that while they protested against the legality of the tax, they declined to take the responsibility of interfering to prevent its collection, leaving the stockholders at liberty to assert their rights in such way as they might think proper. Minot thereupon filed the present bill. Though the immediate occasion of the bill was the apprehended attempt on the part of the State of Delaware to enforce the tax imposed upon the company by the fourth section of the Act of April 8, 1869, the complainant charged that all the taxes imposed by the act in question were illegal, and sought to have the legislation imposing them, so far as it affected the Philadelphia, Wilmington & Baltimore Railroad, the corporation defendant, declared to be unconstitutional and invalid and the collection of the taxes enjoined.

The circuit court adjudged the tax imposed for the use of the rolling stock to be invalid and enjoined its enforcement, but sustained the legality of the other taxes, and a decree in conformity with this ruling was entered, from which both parties appealed to this Court. On the hearing in this Court, the state officers of Delaware withdrew their appeal, and the inquiry of the Court was thus limited to the validity of the Act of April, 1869, so far as it imposed the taxes specified in its first and fourth sections.

The invalidity of that act, so far as it imposed these taxes upon the defendant corporation, was asserted upon the following grounds:

1st. That it violated the contract between the State of Delaware and the company contained in the charter of the latter.

2d. That it imposed taxes upon property beyond the jurisdiction of the state.

3d. That it conflicted with the power of Congress to regulate commerce among the several states; and,

4th. That it interfered with the right of transit for persons and property from one state into or through another.

Page 85 U. S. 212

The defendant corporation, as already mentioned, was formed by union with companies chartered by other states, and to understand fully the positions of the appellant, reference must be had to the original corporations and the legislation by which they were created. By an act of the Legislature of Maryland passed in 1831 and its supplement, a corporation called the Delaware & Maryland Railroad Company was created, with authority to construct and maintain a railroad from a point on the Delaware & Maryland line to some point on the Susquehanna River, and by the nineteenth section of the act it was provided that the shares of the capital stock of the company should be exempt from the imposition of any tax or burden by the state's assenting to the act, except upon that portion of the permanent and fixed works of the company, which might be within the State of Maryland. By an act of the Legislature of Delaware passed in 1832 and its supplement, another corporation was created called the Wilmington & Susquehanna Railroad Company, with authority to construct and maintain a railroad from a point on the boundary line of Pennsylvania and Delaware to the City of Wilmington and thence towards the Susquehanna in the direction of Baltimore to the Delaware & Maryland line. The act provided that the company should pay annually into the Treasury of the state a tax of eight percent on the dividends exceeding six percent of the capital stock actually paid in.

In 1835, these two companies were, under acts of the Legislatures of Maryland and Delaware, consolidated into one company under the name of the latter -- the Wilmington & Susquehanna Railroad Company. The act of Delaware authorizing the consolidation on her part provided that the holders of the stocks of the two companies should, when consolidated, hold, possess, and enjoy all the property, rights, and privileges, and exercise all the power granted to and vested in the companies or either of them by that law or any other law or laws of that state or of Maryland. The act of Maryland authorizing the consolidation on her part contained a similar provision. The act of Delaware at the same time repealed the provision

Page 85 U. S. 213

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Page 85 U. S. 214

in the charter of the original Wilmington & Susquehanna Railroad Company, requiring the payment of the tax of eight percent on the dividends exceeding six percent of the capital stock actually paid in, and provided that the consolidated company should pay annually into the treasury of the state, a tax of one-quarter of one percent on its capital stock of four hundred thousand dollars, the tax to be paid in semiannual installments, on the first of January and July of each year.

This consolidated company was in 1838 united with two other railroad companies, one called the Baltimore & Port Deposit Railroad Company, chartered by the Legislature of Maryland in 1831, with authority to construct and maintain a railroad from Baltimore to Port Deposit on the Susquehanna River and the other called the Philadelphia, Wilmington & Baltimore Railroad Company, chartered by the Legislature of Pennsylvania in the same year, with authority to construct and maintain a railroad from Philadelphia to the Delaware state line. These three companies were, under acts of the legislatures of these states, Delaware, Maryland, and Pennsylvania, consolidated into one company with a common stock, retaining as its corporate name the name of the company chartered by Pennsylvania. The act of the Legislature of Delaware, under which the consolidation was effected, declared that the respective companies should

"constitute one company, and be entitled to all the rights, privileges, and immunities which each and all of them possess, have, and enjoy, under and by virtue of their respective charters."

Previous to the consolidation, the three companies had constructed and were operating their respective railroads, which together formed a connected line of railroad from Philadelphia to Baltimore via Wilmington, excepting the interval between the eastern terminus of the Baltimore & Port Deposit railroad, on the western bank of the Susquehanna, and the western terminus of the Wilmington & Susquehanna railroad, on the eastern bank of the same river, which interval was supplied by a ferry, but the line

Page 85 U. S. 215

was inferior in structure and equipment to that since maintained by the consolidated company.

Since the consolidation, the Philadelphia, Wilmington & Baltimore Railroad Company had built a bridge across the Susquehanna in the State of Maryland at a great expense, and had thus established and now maintains a continuous railroad route between Philadelphia and Baltimore, and had expended large sums in laying an additional main track, sidings and turnouts and in building depots and stations, and in furnishing an adequate equipment of rolling stock. The capital stock of the company when the bill was filed was represented by 186,088 fully paid shares of the par value of $50 each, of which 184,524 shares were held by persons who were neither citizens nor residents of Delaware.

The capital stock of the Maryland and Pennsylvania companies, previous to and at the time of the consolidation of these companies with the Delaware company, represented real and personal estate of great value (locally situated in these states) belonging to stockholders not domiciled in Delaware.

The entire length of the railroad of the consolidated Philadelphia, Wilmington & Baltimore Railroad Company, including a branch in the State of Maryland known as the Port Deposit Branch, is 97 74/100 miles, of which 23 8/10 miles are in the State of Delaware; but the value of the property of the company locally situated in the State of Delaware is much less than 2308/9974 of its entire property; the bridge across the Susquehanna, in the State of Maryland, representing alone an expenditure exceeding $1,500,000, and the value of the depot and station grounds, in the States of Pennsylvania and Maryland, with the buildings and structures thereon, exceeding 7666/9974 of the value of the entire depot and station property of the company.

Page 85 U. S. 224

MR. JUSTICE FIELD, after stating the facts of the case, delivered the opinion of the Court as follows:

It is contended by the appellant that the Act of Delaware of April 8, 1869, so far as it imposes taxes upon the corporation defendant, violates the contract between the state and the corporation contained in the charter of the latter. His position is that the provision in the Act of Delaware of 1835 by which the Wilmington & Susquehanna Railroad Company was united with the Delaware & Maryland Railroad Company that the new company should pay annually into the treasury of the state a tax of one-quarter of one percent upon its capital stock of four hundred thousand dollars, being accepted by the stockholders of the two companies by their union into one company, constituted a contract between the new company and the State of Delaware, which precluded that state from imposing any greater or different tax upon the capital stock of the new company, and that the provision in the same act of Delaware, that the new company should possess all the rights and privileges vested in the original companies, or either of them, by that law, or any other law of that state or of Maryland, extended to the new company the same exemption from taxation on its shares of capital stock, which was possessed by the Maryland corporation under its charter, and that the same limitation upon the taxation of the capital stock, and the same immunity of the shares from any taxation, were extended to the corporation defendant by the provisions of the act of Delaware under which this latter company was formed.

Page 85 U. S. 225

That the charter of a private corporation is a contract between the state and the corporators, and within the provision of the Constitution prohibiting legislation impairing the obligation of contracts has been the settled law of this Court since the decision in the Dartmouth College Case. [Footnote 1] Nor does it make any difference that the uses of the corporation are public if the corporation itself be private. The contract is equally protected from legislative interference whether the public be interested in the exercise of its franchise or the charter be granted for the sole benefit of its corporators. This doctrine is not controverted by anyone; it is the established law, and the question in all cases, when it becomes necessary to apply it, is whether the particular legislative interference alleged does in fact impair the obligation of the contract, for it is not every kind of legislative interference with the powers, action, and property of the corporation which will have that result.

It has also been repeatedly held by this Court that the legislature of a state may exempt particular parcels of property or the property of particular persons or corporations from taxation, either for a specified period or perpetually, or may limit the amount or rate of taxation, to which such property shall be subjected. And when such immunity is conferred or such limitation is prescribed by the charter of a corporation, it becomes a part of the contract and is equally inviolate with its other stipulations. But before any such exemption or limitation can be admitted, the intent of the legislature to confer the immunity or prescribe the limitation must be clear beyond a reasonable doubt. All public grants are strictly construed. Nothing can be taken against the state by presumption or inference. The established rule of construction in such cases is that rights, privileges, and immunities not expressly granted are reserved. There is no safety to the public interests in any other rule. And with special force does the principle, upon which the rule rests, apply when the right, privilege, or immunity

Page 85 U. S. 226

claimed calls for any abridgment of the powers of the government, or any restraint upon their exercise. The power of taxation is an attribute of sovereignty, and is essential to every independent government. As this Court has said, the whole community is interested in retaining it undiminished, and has "a right to insist that its abandonment ought not to be presumed in a case in which the deliberate purpose of the state to abandon it does not appear." [Footnote 2] If the point were not already adjudged, it would admit of grave consideration whether the legislature of a state can surrender this power and make its action in this respect binding upon its successors any more than it can surrender its police power or its right of eminent domain. But the point being adjudged, the surrender when claimed must be shown by clear, unambiguous language, which will admit of no reasonable construction consistent with the reservation of the power. If a doubt arise as to the intent of the legislature, that doubt must be solved in favor of the state.

If now we apply this rule of construction to the provision of the act of Delaware under which the original Wilmington & Susquehanna Railroad Company was united with the Delaware & Maryland Railroad Company, requiring the new company to pay annually into the treasury of the state a tax of one-quarter of one percent upon its capital stock of four hundred thousand dollars, the position of the appellant falls to the ground. That provision is not accompanied with any words indicating the intent of the legislature that no further or different tax should not be subsequently levied. Had the provision in question been embodied in an independent act, no one would pretend that the designation of the amount and character of the tax carried with it any implication, that the tax should remain unchanged in these particulars for all future time during the existence of the corporation. And it is not perceived how a different conclusion is warranted because the tax is designated in an independent section of the act, under which the

Page 85 U. S. 227

new company was formed, instead of being designated in an independent act. As already observed, nothing can be taken from the power of the state in this respect by presumption or inference.

In the case of Commonwealth v. Easton Bank, [Footnote 3] we have an adjudication of the Supreme Court of Pennsylvania upon the precise question here presented. The Easton Bank had been chartered under a general law which prescribed the payment of taxes on its dividends at a fixed rate. A subsequent statute increased that rate, and it was argued, as here, that the designation in the original act created a contract on the part of the state that no additional tax should be laid and that the latter act therefore impaired the obligation of the contract. But the court held that the designation in the original act was nothing more than a simple declaration of the tax then to be paid by the bank, and did not give the slightest intimation of an agreement or understanding that the tax should not be increased during the existence of the charter. "To deduce," said the court,

"from premises so insufficient, a consequence of such magnitude, would indeed be a gross violation of the wholesome principle that an abandonment of the power of taxation is only to be established by clearly showing this to have been the deliberate purpose of the state."

The position of the appellant as to the effect of the provision in the same act of Delaware that the new company should possess all the rights and privileges vested in the original companies, or either of them, by that act or any other law of that state or the State of Maryland is more plausible, but equally unfounded. It proceeds, we think, as stated by the circuit court, upon a misapprehension of the purpose of the provision. A similar provision, as already stated, is contained in the Maryland act authorizing on her part the consolidation of the companies. The purpose of the two provisions was to vest in the new company the rights and privileges which the original companies had previously

Page 85 U. S. 228

possessed under their separate charters -- the rights and privileges in Maryland which the Maryland company had there enjoyed, and the rights and privileges in Delaware which the Delaware company had there enjoyed not to transfer to either state and enforce therein the legislation of the other. The new company was clothed by the Legislature of Delaware, so far as that legislature could clothe it, with all the rights and privileges of both the original companies, but as the Maryland company took under the legislation of Maryland only exemption from taxation of its shares in Maryland, the privilege of the new company in this matter could only be a similar exemption in that state, not a similar exemption of the shares of its capital stock from taxation in Delaware. The new company stood in each state as the original company had previously stood in that state, invested with the same rights, and subject to the same liabilities. And the Act of consolidation, so far as Delaware was concerned, had only this effect.

The act of that state under which the three companies were consolidated into one and the present defendant corporation was formed contained a similar provision to the one we have been considering, that the new consolidated company should be entitled to all the rights, privileges, and immunities which each and all of them possessed and enjoyed under their respective charters, a provision which in no respect changed the position with reference to taxation of the new company in one of the states from that of the old company in such state. Such is substantially the construction given by this Court in the case of the Philadelphia, Wilmington & Baltimore Railroad Company against Maryland, reported in the 10th of Howard. [Footnote 4] In that case, the question arose whether the qualified exemption of the line of road which belonged to one of the companies was extended to the consolidated company under the provision in question, and the Court said that

"as these companies held their corporate privileges under different charters, the evident

Page 85 U. S. 229

meaning of this provision is that whatever privileges and advantages either of them possessed should in like manner be held and possessed by the new company to the extent of the road they had respectively occupied before the union; that it should stand in their place, and possess the power, rights, and privileges they had severally enjoyed in the portions of the road which had previously belonged to them."

We are therefore of opinion that the Act of April 8, 1869, is not obnoxious to the objection that it violates any contract between the State of Delaware and the company contained in the charter of the latter.

We proceed, therefore, to the second objection to the act, that it imposes taxes upon property beyond the jurisdiction of the state. If such be the fact, the tax to that extent is invalid, for the power of taxation of every state is necessarily confined to subjects within its jurisdiction. The objection of the appellant is directed principally to the tax imposed by the fourth section of the act, and assumes that the tax must be considered as laid upon the shares as representing the separate property of the individual stockholders or as representing the property of the corporation. And the argument is that if the tax be laid upon the shares of the stockholders, it falls upon property out of the state, because nearly all the stockholders -- at least a much greater number than the ratio of the mileage of the road in Delaware to its entire length -- are citizens and residents of other states, and if the tax be laid upon the shares as representing the property of the corporation, it falls upon property out of the state, because the ratio of the mileage of the road in Delaware to its entire length is not that which the capital invested by the company in that state bears to the entire capital of the company or that which the value of the property of the company there situated bearers to the value of its entire property

If the assumption of the appellant were correct, there would be difficulty in sustaining the validity of the tax.

In the first place, the share of a stockholder is, in one aspect, something different from the capital stock of the company;

Page 85 U. S. 230

the latter only is the property of the corporation; the former is the individual interest of the stockholder, constituting his right to a proportional part of the dividends when declared and to a proportional part of the effects of the corporation when dissolved, after payment of its debts. Regarded in that aspect, it is an interest or right which accompanies the person of the owner, having no locality independent of his domicile. [Footnote 5] But whether, when thus regarded, it can be treated as so far severable from the property to which it relates as to be taxable independent of the locality of the latter is a question not necessary now to decide. The argument of the appellant assumes that it is thus severable.

In any aspect, if provision for the taxation of the shares at the locality of the company be made in its charter, their taxability at such locality is annexed as an incident to the shares, and it does not matter where the domicile of the owner may be. The tax may then be enforced through the corporation by requiring it to withhold the amount from the dividends payable thereon. The shares in the national banks created under the Act of Congress of June 3, 1864, are made taxable at the place where the bank is located, and not elsewhere, and in the case of National Bank v. Commonwealth, reported in the 9th of Wallace, a law of Kentucky requiring the banks in that state to pay the tax laid on their shares was sustained by this Court. [Footnote 6] But in the act of Delaware under which the corporation defendant was formed, there is no such provision for the taxation of the shares of the individual stockholders.

In the second place, assuming that the tax is upon the property of the corporation, if the ratio of the value of the property in Delaware to the value of the whole property of the company be less than that which the length of the road in Delaware bears to its entire length, and such is admitted

Page 85 U. S. 231

to be the fact, a tax imposed upon the property in Delaware according to the ratio of the length of its road to the length of the whole road must necessarily fall upon property out of the state. The length of the whole road is in round numbers one hundred miles; the length in Delaware is twenty-four miles. The tax upon the property estimated according to this ratio would be in Delaware 24/100 or 6/25 of the amount of the tax upon the whole property. But the value of the property in Delaware is not 6/25 of the value of the whole property, but much less than this proportion would require.

We repeat, therefore, that upon the assumption made by the appellant, there would be difficulty in sustaining the tax.

We do not think, however, the assumption is correct. As we construe the language of the fourth section, the tax is neither imposed upon the shares of the individual stockholders nor upon the property of the corporation, but is a tax upon the corporation itself, measured by a percentage upon the cash value of a certain proportional part of the shares of its capital stock -- a rule which, though an arbitrary one, is approximately just -- at any rate is one which the Legislature of Delaware was at liberty to adopt.

The state may impose taxes upon the corporation as an entity existing under its laws, as well as upon the capital stock of the corporation or its separate corporate property. And the manner in which its value shall be assessed and the rate of taxation, however arbitrary or capricious, are mere matters of legislative discretion. It is not for us to suggest in any case that a more equitable mode of assessment or rate of taxation might be adopted than the one prescribed by the legislature of the state; our only concern is with the validity of the tax; all else lies beyond the domain of our jurisdiction.

Nothing was urged in the argument specially against the tax upon the corporation under the first section of the act, which is determined by the net earnings or income of the company. Whatever objections could be presented are answered by the observations already made upon the tax under the other section. A tax upon a corporation may be proportioned

Page 85 U. S. 232

to the income received as well as to the value of the franchise granted or the property possessed.

It remains to notice the objections that the Act of 1869 conflicts with the power of Congress to regulate commerce among the several states, and interferes with the right of transit of persons and property from one state into or through another.

The tax imposed by the act in question affects commerce among the states and impedes the transit of persons and property from one state to another just in the same way, and in no other, that taxation of any kind necessarily increases the expenses attendant upon the use or possession of the thing taxed. That taxation produces this result of itself constitutes no objection to its constitutionality. As was very justly observed by this Court in a recent case,

"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. [Footnote 7]"

The exercise of the authority which every state possesses to tax its corporations and all their property, real and personal, and their franchises, and to graduate the tax upon the corporations according to their business or 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.

From the views expressed, it follows that the judgment of the circuit court must be

Affirmed, and it is so ordered.

[Footnote 1]

17 U. S. 4 Wheat. 518

[Footnote 2]

Providence Bank v. Billings, 4 Pet. 561.

[Footnote 3]

10 Pa.St. 451.

[Footnote 4]

51 U. S. 10 How. 377. In the title given in 10th Howard, the word "Baltimore" is omitted by mistake.

[Footnote 5]

Van Allen v. Assessors, 3 Wall. 583; Union Bank v. State, 9 Yerger 501; Richmond v. Daniel, 14 Grattan 385; Savings Bank v. Nashua, 46 N.H. 398; Dwight v. Mayor, 12 Allen 322; Redfield's Supplement to Law of Railways 507-510.

[Footnote 6]

76 U. S. 9 Wall. 353.

[Footnote 7]

State Tax on Railway Gross Receipts, 15 Wall. 293.

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