The question whether a state has power to tax franchises of a
corporation derived from acts of Congress, and property used in
connection therewith, and the question whether a statute of
California under the operation of which the railroad of the
Southern Pacific Railroad Company is subjected to taxation in
California without deduction of its mortgage encumbrances, while in
the valuation of the property of other corporations not railroad
corporations, and of individuals for taxation in the state, the
mortgage encumbrances are deducted is repugnant to the XIVth
Amendment of the Constitution, are questions arising under the
Constitution and laws of the United States, which, when properly
raised in a suit at law or in equity of a civil nature pending in a
state court, authorize its removal into a circuit court of the
United States, and this although other issues, not federal, are
raised by the pleadings in the case.
A suit brought by the State pf California in one of its own
courts against the Southern Pacific Railroad Company to recover an
amount claimed to be due for taxes is a suit at law of a civil
nature within the meaning of the removal clauses in the Act of
March 3, 1875.
Railroad Co. v. Mississippi, 102 U.
, affirmed and applied.
Starin v. New York, 115 U. S. 248
affirmed and applied.
Page 118 U. S. 110
The case is stated in the opinion of the Court.
MR. CHIEF JUSTICE WAITE delivered the opinion of the Court.
This is a suit brought by the State of California in one of its
own courts against the Southern Pacific Railroad Company to recover
$31,470.58 claimed to be due for taxes. The railroad company
answered the complaint, setting up, among others, the following
1. That under and by virtue of the Acts of Congress of July 27,
1866, 14 Stat. 292, c. 278; March 3, 1871, 16 Stat. 573, c. 122;
and May 2, 1872, 17 Stat. 59, c. 132, the defendant
"became, and ever since has been a federal corporation, and has
held its franchises and exercised all its corporate powers under
the government of the United States,"
"if, by virtue of the several acts of Congress . . . referred
to, it did not become a federal corporation, yet it holds under the
government of the United States all the corporate powers and
franchises granted to it by the said several acts of Congress as
the trustee for the government, and for the governmental uses and
purposes specified in said acts; . . . that the government of the
United States has never given to the State of California the right
to lay any tax upon the franchise, existence, or operations of
that the "value of all the franchises held, and corporate powers
exercised, by defendant under said acts of Congress" were included
in the valuation of the property of the company upon which the
taxes sued for were assessed, and that, by reason of the premises,
the taxes are illegal and void.
2. That the property of the company for which the taxes sued for
were levied was and is encumbered by a mortgage securing an
indebtedness of the railroad company exceeding $3,000 a mile, and
that it was valued for taxation without deduction on account of
such encumbrance, because such was the requirement of the statute
with respect to railroad corporations
Page 118 U. S. 111
owning railroads within the state, and operated in more than one
county, and this corporation was and is of that class.
3. That the statute under which the taxes were levied is
repugnant to Article XIV of the Amendments of the Constitution of
the United States inasmuch as it deprives railroad corporations of
the state operated in more than one county of the equal protection
of the laws 1, by providing that the property of such corporations
shall be valued for taxation to them without deduction on account
of mortgage encumbrances, while the mortgaged property of other
corporations and of natural persons is taxed to its owner only on
its value after the value of the mortgage has been deducted, and 2,
by failing to provide a tribunal for the correction of errors in
the valuation of the property of such railroad corporations for
taxation when such a tribunal is provided for all other
corporations and for natural persons.
4. That the statute is still further repugnant to the same
amendment because it deprives such corporations of their property
without due process of law, there being no provision for notice to
them of a time, place, or tribunal for a hearing in defense of
their rights in the valuation of their property for taxation.
Upon the filing of this answer, the railroad company presented
its petition, accompanied with the necessary security, for the
removal of the suit to the Circuit Court of the United States for
the District of California under the Act of March 3, 1875, 18 Stat.
470, c. 137, on the ground that the action "is a suit at law of a
civil nature, and arising under the Constitution and laws of the
United States." This petition was filed in time. The state court
proceeded with the suit notwithstanding the petition, and gave
judgment against the railroad company for the full amount of the
tax and the statutory penalty. From this judgment the corporation
appealed to the supreme court, where the only question presented
for decision was
"whether the federal Constitution and the act of Congress
authorized a removal of an action from a state to a federal court,
brought by a state to recover taxes levied under its laws
Page 118 U. S. 112
on the property of a being created by its power in one of its
This question was decided against the corporation, and the
judgment of the court below affirmed. To this judgment of
affirmance the present writ of error was brought on the allowance
of the chief justice of the supreme court of the state.
In Railroad Co. v. Mississippi, 102
U. S. 141
, it was decided that a suit brought by a state
in one of its own courts against a corporation of its own creation
can be removed to the circuit court of the United States, under the
Act of March 3, 1875, if it is a suit arising under the
Constitution or laws of the United States, although it may involve
questions other than those which depend on the Constitution and
laws. The case of Ames v. Kansas, 111 U.
, is to the same effect, and in Starin v. New
York, 115 U. S. 257
it was stated as the effect of all the authorities on the subject
that if from the questions involved in a suit
"it appears that some title, right, privilege, or immunity, on
which the recovery depends will be defeated by one construction of
the Constitution or a law of the United States or sustained by the
opposite construction, the case will be one arising under the
Constitution or laws of the United States within the meaning of
that term as used in the act of 1875; otherwise not."
Applying these rules, which must now be considered as settled,
to the present case, it is apparent that the court below erred in
deciding that the suit was not removable, for it distinctly appears
that the right of the state to recover was made by the pleadings to
depend 1, on the power of the state to tax the franchises of the
corporation derived from the acts of Congress, which were specially
referred to, as well as the property used in connection therewith,
and 2, on the effect of Article XIV of the Amendments of the
Constitution on the validity of the statutes under which the taxes
sued for were levied. The first depended on the construction of the
acts of Congress, and the second on the construction of the
constitutional amendment. If decided in one way, the state might
recover; if in another, it would be defeated at least in part. The
right of removal does not depend upon the validity of the claim set
up under the Constitution
Page 118 U. S. 113
or laws. It is enough if the claim involves a real and
substantial dispute or controversy in the suit. In this case, there
can be no doubt about that. The Circuit Court of the United States
for the District of California has already decided more than once,
in other cases involving precisely the same questions, that the
statute on which the recovery depends was unconstitutional and
void, and some of these cases are now pending here on writs of
error. Already much time has been devoted in this Court to their
argument under special assignments.
The judgment of the supreme court is reversed and the cause
remanded with directions that it be sent back to the Superior Court
of Los Angeles County for removal to the circuit court of the
United States in accordance with the prayer of the petition filed
for that purpose.