A state statute incorporating a railroad company which provides
that the capital stock of the company shall be forever exempt from
taxation and that the road with all its fixtures and appurtenances
shall be exempt from taxation for the period of twenty years and no
longer, exempts the road its fixtures and appurtenances from
taxation only for the term named in the act, but forever exempts
shares in the capital stock of the company, in the hands of the
various holders, from taxation in the state.
When two railroad corporations whose shares are by a state
statute exempt from taxation in the state consolidate themselves
into a new company under a state law which makes no provision to
the contrary, and issue shares in the new company in exchange for
shares in the old company, the right of exemption from taxation in
the state passes into the new shares and into each of them.
This is a suit in mandamus brought by the State of Tennessee in
the Circuit Court of Davidson County against
Page 117 U. S. 130
George K. Whitworth, the trustee and tax collector of that
county, to require him to assess for taxation the shares of stock
in the Nashville, Chattanooga and St. Louis Railroad Company. After
the suit had been begun in the state court, it was removed by
Whitworth to the Circuit Court of the United States for the Middle
District of Tennessee under the Act of March 3, 1875, c. 137, 18
Stat. 470, on the ground that the suit was one arising under the
Constitution of the United States.
The case is as follows:
The Nashville and Chattanooga Railroad Company, now, by
consolidation with the Nashville and Northwestern Railroad Company
and a change of name, the Nashville, Chattanooga and St. Louis
Railroad Company, was incorporated by the Legislature of Tennessee
December 11, 1845, to build and operate a railroad. Section 38 of
its charter is in these words:
"SEC. 38. The capital stock of said company shall be forever
exempt from taxation, and the road, with all its fixtures and
appurtenances, including workshops, warehouses, and vehicles of
transportation, shall be exempt from taxation for the period of
twenty years from the completion of the road, and no longer."
The act incorporating the Nashville and Northwestern Railroad
Company contained a provision identical with this.
The question is whether this provision has the effect of a
contract by the state for the exemption from taxation in Tennessee
of the shares of the capital stock of the corporation. The capital
stock was by the charter divided into shares of $25 each, to be
subscribed for on books opened for that purpose. It was also
provided that as soon as the requisite number of shares had been
subscribed, "the Nashville and Chattanooga Railroad Company shall
be regarded as formed," and "the said subscribers to the stock
shall form a body politic and corporate in deed and in law, by the
name and for the purpose" specified. Fifty cents on each share was
to be paid in money at the time of subscribing.
Sections Nine, Twelve, Fifteen, Sixteen, and Seventeen were as
follows:
Page 117 U. S. 131
"SEC. 9. As soon as the number of forty thousand shares shall
have been subscribed, it shall be the duty of the commissioners
appointed to declare the same to appoint a time for the
stockholders to meet in Nashville, and give notice thereof by
publication in some of the newspapers of Nashville at which time
and place the said stockholders, in person or by proxy, shall
proceed to elect the directors of the company and to enact all such
regulations, rules, and bylaws as may be necessary for the
government of the corporation and the transaction of its business.
The persons elected directors at this meeting shall serve for such
period, not exceeding one year, as the stockholders may direct, and
at this meeting the stockholders shall fix on the day and place or
places where the subsequent elections of directors shall be held,
and such elections shall thenceforth be annually made. But if the
day of annual election should pass without any election of
directors, the corporation shall not be thereby dissolved, but it
shall be lawful on any other day to hold and make such election in
such manner as may be prescribed by a bylaw of the
corporation."
"SEC. 12. The board of directors shall not exceed, in their
contracts, the amount of the capital of the corporation, and of the
funds which the company may have borrowed and placed at the
disposal of the board, and in case they should do so, the president
and directors who may be present at the meeting at which such
contract or contracts so exceeding the amount aforesaid shall be
made shall be jointly and severally liable for the excesses, both
to the contractor or contractors and the corporation,
provided that anyone may discharge himself from such
liability by voting against such contract or contracts and causing
such vote to be recorded on the minutes of the board, and giving
notice thereof to the next general meeting of the
stockholders."
"SEC. 15. The board of directors may call for the payment of
twenty-four and a half dollars on each share of stock, in sums not
exceeding two dollars in every thirty days,
provided that
twenty days' notice be given of such call in at least one public
newspaper of the state in which any of the stockholders may reside,
and a failure to pay, or secure to be paid,
Page 117 U. S. 132
according to the rules of the company, any of the installments
so called, as aforesaid, shall induce a forfeiture of the share or
shares on which default shall be so made, and all payments thereon,
and the same shall vest in and belong to the company, and may be
restored to the owner or owners by the board of directors, if they
deem proper, on the payment of all arrears on such shares, and
legal interest thereon, or the directors may waive the forfeiture
after thirty days' default, and sue the stockholders for the
installments due at their discretion."
"SEC. 16. The stock of said company may be transferred in such
manner and form as may be directed by the bylaws of the said
corporation."
"SEC. 17. The said company may at any time increase its capital
to a sum sufficient to complete the said road, and stock it with
everything necessary to give it full operation and effect, either
by opening books for new stock or by selling such new stock or by
borrowing money on the credit of the company and on the mortgage of
its charter and works, and the manner in which the same shall be
done in either case shall be prescribed by the stockholders at a
general meeting and any state, or any citizen, corporation, or
company of this or any other state or country, may subscribe for
and hold stock in said company, with all the rights and subject to
all the liabilities of any other stockholder."
On the 21st of January, 1848, but before the corporation was
organized by the election of directors, the charter was amended as
follows:
"SEC. 3.
Be it enacted that the charter of the company
be further so amended that the said company be required to estimate
and pay semiannually to the several holders thereof a sum equal to
six percent per annum on the capital stock of said company actually
paid in, to be charged to the cost of construction,
provided a majority of the stockholders at their first
regular meeting agree thereto."
The circuit court was of opinion that the shares of stock were
by the charter exempt from taxation, and gave judgment accordingly.
To reverse that judgment, this writ of error was brought.
Page 117 U. S. 135
MR. CHIEF JUSTICE WAITE delivered the opinion of the Court.
After stating the facts as above reported, he continued:
It is apparent from the charter that the subscribers of shares
and those claiming under them were to be the holders of the stock
of the corporation, and that the money paid into the treasury upon
subscriptions was to be used by the corporation in building and
equipping its railroad. In this way the capital of the corporation
was to be converted into the railroad and its appurtenances. A tax
upon the railroad, therefore, after its completion, is necessarily
a tax upon the capital, because, practically, the capital and that
into which it has been converted are the same. The railroad of the
corporation may be worth more than its capital, but all its capital
is in its railroad. Such being the case, the taxation of both
railroad and capital would be, so far as the corporation is
concerned, double taxation.
In
Railroad Companies v. Gaines, 97 U. S.
697, it was held that a provision in the charter of the
Memphis & Charleston Railroad Company, precisely like that now
under consideration, did not exempt the railroad of that
corporation and its appurtenances from taxation after twenty years
from the time of its completion, even though the capital stock of
the corporation had all been invested in the railroad, because,
taking the whole section together, it was apparent such was not the
intention of the legislature. The property was taxable, but the
capital stock was exempt.
It is no doubt true that the legislature may make a difference,
for the purposes of taxation, between the capital stock of a
corporation in the hands of the corporation itself and the shares
of the same capital stock in the hands of the individual
stockholders. That has often been done, and the cases are
Page 117 U. S. 136
numerous where the exemption of shares from taxation has been
claimed because of a charter exemption of the capital stock.
Notably this was the case with the national banks. The capital
stock of such banks invested in United States securities is not
taxable by the states, but shares of the stock in the hands of the
individual stockholders may be taxed without deduction on account
of such an investment. This has been held from the beginning.
Van Allen v.
Assessors, 3 Wall. 573;
Bradley v.
People, 4 Wall. 462;
People v.
Commissioners, 4 Wall. 244;
Lionberger
v. Rouse, 9 Wall. 468. The capital stock in the
hands of the bank is exempt because invested in securities which
are not to be taxed, Rev.Stat. § 3701, but the shares in the hands
of the stockholders are, by the very terms of the banking act, put
for the purposes of state taxation on the same footing as other
moneyed capital. Rev.Stat. § 5219. This, it was said, showed the
intention of Congress to exempt the bank for what was invested in
government securities, but to charge the stockholder. In
Farrington v. Tennessee, 95 U. S. 679, the
charter of the Union and Planters' Bank provided that
"said company shall pay to the state an annual tax of one-half
of one percent on each share of the capital stock subscribed, which
shall be in lieu of all other taxes,"
and the question was whether this exempted the shares in the
hands of the stockholders from any further taxation by the state.
The Court, three Justices dissenting, held that it did, because, as
the charter tax was laid on each share subscribed, the further
exemption must necessarily have been of the shares in the hands of
the holders, although the tax as imposed was payable by the
corporation. In all cases of this kind, the question is as to the
intent of the legislature, the presumption always being against any
surrender of the taxing power.
In corporations, four elements of taxable value are sometimes
found: 1, Franchises, 2, capital stock in the hands of the
corporation, 3, corporate property, and 4, shares of the capital
stock in the hands of the individual stockholders. Each of these
is, under some circumstances, an appropriate subject of taxation,
and it is no doubt within the power of a state, when
Page 117 U. S. 137
not restrained by constitutional limitations, to assess taxes
upon them in a way to subject the corporation or the stockholders
to double taxation. Double taxation is, however, never to be
presumed. Justice requires that the burdens of government shall, as
far as is practicable, be laid equally on all, and if property is
taxed once in one way, it would ordinarily be wrong to tax it again
in another way when the burden of both taxes falls on the same
person. Sometimes tax laws have that effect, but if they do it is
because the legislature has unmistakably so enacted. All
presumptions are against such an imposition.
This brings us to an examination of the present charter to see
what the legislature has expressed its intention of doing. "The
capital stock of said company" is exempt from taxation. That has
been expressly enacted, and the owner or owners of the stock are
necessarily relieved from all taxation on this account. The
important question is therefore who are the owners of the capital
stock of this corporation within the meaning of the term "capital
stock" as used in this charter, because, in construing statutes
which are binding on states as contracts, the words employed are,
if possible, to be given the same meaning they had in the minds of
the parties to the contract when the statute was enacted. In this
respect, there is no difference between a contract of a state and a
contract of a natural person. If the words employed are capable of
more than one meaning, that meaning is to be given them which,
taking the whole statute together, it is apparent the parties
intended they should have.
Returning to the charter, we find that the "capital stock" is
divided into shares. These shares are to be subscribed and paid
for, and the money raised in this way constitutes the "capital" of
the corporation spoken of in section 12, where it said: "The board
of directors shall not exceed in their contracts the amount of the
capital of the corporation," etc., and in section 17, where it is
provided "that said company may at any time increase its capital to
a sum sufficient to complete the said road." This capital is to be
used by the corporation to build and equip its road, and if more
capital is needed for
Page 117 U. S. 138
that purpose, it may be raised "by opening books for new stock,
or by selling such new stock." The manner of doing this may
"be prescribed by the stockholders at a general meeting, and any
state, or any citizen, corporation, or company, . . . may subscribe
for and hold stock in the said company, with all the rights and
subject to all the liabilities of any other stockholder."
Sec. 17. Payments of subscriptions are to be made on each share
of stock, and if default is made in a payment when demanded, "the
share or shares on which default shall be so made, and all payments
thereon," are forfeited, "and the same shall vest in and belong to
the company," but the board of directors may, if they deem proper,
restore them to the "owner or owners," "on payment of all arrears
on such shares, and the legal interest thereon." Sec. 15. So too,
"the stock of said company may be transferred in such manner and
form as may be directed by the bylaws of the corporation," sec. 16,
and under the amending act of 1848, interest was to be paid
semiannually at the rate of six percent per annum, "to the several
holders thereof, . . . on the capital stock of said company
actually paid."
From this it is clear to us that while the money paid in by the
subscribers of the shares of the capital stock of the corporation
constituted the capital of the corporation which was to be used in
building and equipping the railroad, the stock created by such
subscription and payment was to belong to and remain as the
property of the several holders of the shares so subscribed and
paid for. As was shown in
Railroad Companies v. Gaines,
above cited, the words "capital stock of said company," and the
words "the road, with all its fixtures and appurtenances," were
used in the charter to describe different things. The "capital,"
which upon the payment by the subscribers belonged to the
corporation, has been converted into the railroad and its
appurtenances, and it had no separate existence as a taxable thing
after the road was built and equipped. But the "capital stock,"
divided into shares, subscribed and paid for by the persons to whom
the shares were originally issued, still has, and was by the
charter intended to have, an existence separate and distinct from
the property into which
Page 117 U. S. 139
the money paid for it has been converted. It can now be bought,
sold, and transferred. Its holders and owners are the owners of the
corporation. They may meet and elect directors, who are to manage
its affairs. The profits of the corporation are to be divided among
them in proportion "to the stock each may hold," sec. 30, and upon
the dissolution of the corporation, they will be entitled to
receive in like proportion the proceeds of what remains of the
corporate property after all the corporation debts and liabilities
are paid or satisfied. In effect, the contributions of subscribers
of the shares were stocked as the capital of the corporation. The
aggregate of the subscriptions made the aggregate of the stock.
Each subscriber owned that part of the stock which his shares
represented, and the aggregate of the shares represented the
aggregate of the stock. It was evidently called the "capital stock
of the company" because it was the stock which, when subscribed and
paid for, furnished the corporation with the capital to build its
road. As capital, it belonged to the corporation, but as stock, it
belonged to the several holders of the shares into which it was
divided. The charter exempted the stock from taxation clearly
because the property which represented the stock had been put in
its place as a taxable thing. The exemption is of the thing called
the "capital stock" divided into shares. As the whole thing is
exempt, so must necessarily be its several parts or shares.
It follows that the judgment of the circuit court was right, and
it is consequently
Affirmed.
