Western Union Tel. Co. v. Attorney General, 125 U.S. 530 (1888)
U.S. Supreme CourtWestern Union Tel. Co. v. Attorney General, 125 U.S. 530 (1888)
Western Union Telephone Company v. Attorney General
Argued February 15, 1888
Decided March 19, 1888
125 U.S. 530
The privilege conferred upon telegraph companies by Rev.Stat. § 5263 carries with it no exemption from the ordinary burdens of taxation in a state within which they may own or operate lines of telegraph.
The laws of Massachusetts impose a tax upon the Western Union Telegraph Company on account of the property owned and used by it within that state, the value of which is to be ascertained by comparing the length of its lines in that state with the length of its entire lines, and such a tax is essentially an excise tax, and is not forbidden by the fact of the acceptance on the part of the company of the rights conferred on telegraph companies by Rev.Stat. § 5263, nor by the commerce clause of the Constitution.
The principles established by the statutes of Massachusetts for regulating the taxation of corporations doing business within its limits, whether domestic or foreign, do not appear to be unfair or unjust.
A state statute which authorizes an injunction to be issued to restrain a corporation organized under the laws of another state, whose taxes are in arrears, from prosecuting its business within the state until the taxes are paid is void so far as it assumes to confer power upon a court to so restrain a telegraph company which has accepted the provisions of Rev.Stat. § 5263 from operating its lines over military and post roads of the United States.
In equity. The bill was filed by the Attorney General of the Commonwealth of Massachusetts, at the relation of the
Treasurer of that state, and on behalf of the Commonwealth, in the Supreme Judicial Court of that state on the 27th April, 1886. It averred that certain proceedings had been taken in accordance with law and under the statutes of that state, to assess taxes in that state in the year 1885 upon the capital stock of the Western Union Telegraph Company, a corporation owning, controlling, and using, under lease, or otherwise, lines of telegraph within that Commonwealth for purposes of business or profit. The provisions in the Constitution and laws of Massachusetts which were relied upon are printed in the margin. [Footnote 1] The nature of the proceeding, in the valuation of the
property of the company for the purposes of the assessment of the tax are sufficiently stated in the Report of the Examiner, infra.
The bill averred that the taxes had not been paid, and were still due and owing to the commonwealth, and prayed the
court "to order and decree that said sum due for taxes as aforesaid shall be paid to said Commonwealth" by the said corporation,
with interest thereon, together with the costs of this information, and to grant unto your informant a writ of injunction, issuing out of and under the seal of this honorable court, to be directed to the said corporation and its officers, agents, and servants, commanding them and each of them absolutely to desist and refrain from the further prosecution of the business of said corporation until said sums due to the said commonwealth as aforesaid for taxes as aforesaid shall have been fully paid, with interest and costs,
and for further and other relief.
On motion of the defendant, the cause was, on May 13, 1886, removed to the circuit court of the United States, and on the 29th day of the same May, the answer of the defendant was filed in that court.
The answer set forth that the defendant was a corporation organized in the New York and under the laws of that state; that it owned, controlled, and used many lines of telegraph in various parts of the United States, and in the State of Massachusetts, largely in that state over and along the post roads of the United States which had been declared to be such and over, under, and across navigable waters of the United States in or adjoining that state, and that on the 5th of June, 1867, it had accepted the provisions and obligations of the Act of July 24, 1866, 14 Stat. 221, c. 230 [now Rev.Stat. § 5263 [Footnote 2]]; that thereby it became entitled to construct and maintain its lines over the post roads and over, under, and across the navigable waters of the United States, and became bound to transmit the telegrams of the United States over its lines at rates to be fixed by the Postmaster General, and that no state legislation could prevent its occupation of post roads for that purpose; that its lines extend to and from Massachusetts to other states, and to Washington, and connect with the lines of other companies doing business
in this country and outside of the United States and beyond the seas; that while it was operating its lines in Massachusetts, it was called upon to make returns of its capital stock &c. to the tax commissioner of the state according to the provisions of §§ 38, 39, 40, 41, and 42 of c. 13 of the Public Statutes of the state, and made a return as follows:
"WESTERN UNION TELEGRAPH COMPANY"
"TREASURER'S OFFICE, NEW YORK, June 25, 1585"
"Hon. Daniel A. Gleason, Tax Commissioner of the Commonwealth of Massachusetts."
"SIR: I, Roswell H. Rochester, Treasurer of the Western Union Telegraph Company, hereby return that on the first day of May, 1885, said corporation held its principal place of business at the City of New York."
Its capital stock was . . . . . . . . . . . . . . $80,000,000.00
The whole number of its shares was 800,000.
The par value of each share was . . . . . . . . . 100.00
The market value of each share was . . . . . . . 59.37 1/2
The value of the real estate owned by the
corporation without the State of
Massachusetts was . . . . . . . . . . . . . . . 3,058,933.82
The value of the real estate owned by
the corporation within the State of
Massachusetts was nothing.
The total number of miles of line owned or
leased was 146,052.60.
Of which the number of miles (not on post
roads of the United States and excluding
2,334.55 miles which were on post roads
of the United States) within the State
of Massachusetts was 498.50.
Total property, 800,000 shares at
$59.37 1/2 per share. . . . . . . . . . . . . . 47,500,000.00
This includes --
Real estate . . . . . . . . . . . . . . . . . . . 3,058,933.82
Two hundred and nine three-fourth shares
held by this company unissued at $59.37 1/2 . . 12,453.90
Stocks in other companies outside of our
system, not included in above statement
of miles of line. . . . . . . . . . . . . . . . $ 8,773,622.70
Balance value of 146,052.60 miles of line . . . . 35,654,989.58
Value at same rate of said 498.50 miles as
the valuation of the corporate franchise of
said company for taxation under the laws
of Massachusetts. . . . . . . . . . . . . . . . 121,695.97
"This return includes the lines and property of the American union Telegraph Company, the Franklin Telegraph Company, the Mutual union Telegraph Company, and the Gold and Stock Telegraph Company as part of the Western Union lines."
"R. H. ROCHESTER, Treasurer"
The answer then set forth the action of the tax commissioner upon this return and respecting the valuation of the property of the company for the purposes of taxation, [Footnote 3] and continued:
"And this respondent does not deny, but admits, that its property in said State of Massachusetts is subject to taxation the same as other property, and that it may be taxed in a proper way thereon, yet it respectfully submits and avers that this respondent does not derive its existence from the laws of said state, or derive the right to have and exercise its said franchises, rights, and privileges from said state, or hold them subject to its control, and that said franchise tax is clearly not a tax on its property in any legal sense, and cannot be held valid as such; that it is in the nature of an excise on the exercise of all the franchises, rights, and privileges enjoyed by this respondent in the conduct of its business, and a tax on its operations in such exercise; that while it is claimed by the officers of said state and by said Attorney General that the laws imposing said tax are founded on the alleged right of said state to refuse to this respondent the right or permission
to transact its business or exercise its functions, franchises, rights, and privileges within said state except for such price and on such terms and conditions, including the payment of such taxes as said state may see fit to prescribe and assess and to compel the performance of, and to exclude this respondent from such transaction or exercise if the same are not performed and obeyed."
"Yet this respondent avers that said franchise tax has not and cannot have this or any legal foundation, and that it includes and is a tax or assessment on the rights, privileges, and franchises granted and secured to this respondent by the United States by the said act of Congress, and on the use thereof by this respondent as an instrument of commerce and as a government agent for the transmission of public business by means thereof, and on its operation in said state, which said state cannot limit, control, refuse, or tax."
"That even if said tax could in any form be so properly levied and assessed on the use of such rights and privileges for other purposes, which this respondent denies, it is not only impossible in this case to indicate or designate the portion of the burden of said franchise tax on said use as an instrument of commerce and as a government agent or on any use for other purposes, but that the mode of valuation thereof specifically prescribed by said act does in terms include and designate as a subject of taxation the franchise exercised on that portion of this respondent's lines constructed, maintained, and used in the exercise and enjoyment of said rights and privileges, and that the said tax bears upon the whole machine without distinction and indistinguishably as well upon the faculty of receiving and transmitting the messages of the government of said United States as on that of receiving and transmitting messages of individuals, and as well upon the faculty of receiving and transmitting through said state messages sent and received in and for the purposes of foreign and interstate commerce, as upon that of receiving and transmitting other messages wholly within said state."
"And this respondent further avers that if said franchise tax could in form be legally so levied and assessed as to operate
upon only something legally subject to taxation by said state by any mode of estimate or valuation resembling that prescribed by said laws, based upon a valuation of its shares, deducting real estate locally taxed in said state, it would be and is unjust and not proportional not to deduct from said valuation the amount of real estate owned by and subject to local taxation and actually taxed out of said state, both because the laws of said state allow such deduction from the valuation under said laws for like taxation of the franchises of other corporations organized or chartered within and doing business within and without said state, and because otherwise said state would assume and does assume in effect to tax and assess real estate situated in and subject to taxation and actually taxed by other states and jurisdictions."
The plaintiff filed a replication to this answer, whereupon the cause was referred to Francis S. Fiske, Esq., "as Examiner, to take and report the evidence of both parties therein, and such questions of law arising thereon as either party shall desire." The Examiner's report was filed May 4, 1887, as follows:
"I, Francis S. Fiske, having been appointed by the court a special examiner in the above-named case, report --"
"That the information was filed in the Supreme Judicial Court of the state April 27, 1886, and removed to this court by the defendant; that the defendant is a telegraph company organized under the laws of the New York before the passage of the Act of the Congress of the United States of July twenty-fourth, eighteen hundred and sixty-six, entitled 'An act to aid in the construction of telegraph lines and to secure to the government the use of the same for postal, military, and other purposes' (Rev.Stat. § 5263, et seq.), and is a corporation organized for purposes of business and profit, having a capital stock divided into shares, which filed with the Postmaster General of the United States its written acceptance of the restrictions and obligations required by law in accordance with said act on or about the twelfth day of June, 1867, and has ever since been in existence and operation. "
"That on and before and since the first day of May, 1885, it has owned, controlled, and used, under lease or otherwise, a line or lines of telegraph within said commonwealth as part of a system of 146,052 and 60/100 miles of line extending throughout the United States, part of Canada, and to Cuba and England by submarine ocean cable, connecting with lines owned and established by the government of the United States for public purposes."
"That on the sixteenth day of September in said year 1885, after notice had been given to said filing and of other matters mentioned in the notice hereto appended, as below stated, and a return made by said company under section 42 of chapter 13 of the Public Statutes of said Commonwealth, copies of which notice and return are appended [see pp. 125 U. S. 536-537, supra], the tax commissioner of said Commonwealth, in the manner required by its laws, estimated the fair cash valuation of all the shares constituting the capital stock of said corporation on said first day of May at $47,500,000, and allowed as credits to said corporation out of said $47,500,000 the sum or value of $8,786,076."
For 209 shares held by the company unissued,
at $59.37 1/2 . . . . . . . . . . . . . . . . $ 12,453.90
For stock in other companies outside of its
system not included in above statement of
miles of line . . . . . . . . . . . . . . . . 8,773,622.70
"And determined the total number (or whole length) of the miles of line of said defendant to be 146,052.60 as aforesaid and 143,219.55 miles thereof, which included said cables, to be beyond the limits of said Commonwealth."
"That the rate determined under the fortieth section of said thirteenth chapter of said Public Statutes, for the taxation of the corporate franchises therein mentioned was, in and for the year 1885, $14.14 for each $1,000 of valuation."
"That said commissioner, being of opinion that the valuation of the corporate franchise of said defendant for taxation
by said Commonwealth was to be ascertained by deducting from said $47,500,000.00 the said $8,786,076.00, thus leaving $38,713,924.00, and then taking as the total number of"
said line or lines 146,052.60, and as the number thereof in said Commonwealth 2,833.05, without regard to the question whether any thereof were or were not on post roads, declared such by law, or navigable streams or waters of the United States, considered that the valuation of the corporate franchise of said defendant subject to be taxed in said Commonwealth at said rate was 2,833.05/140,052.60 of said $38,713,924, or in all ($750,952) seven hundred and fifty thousand nine hundred and fifty-two dollars, and assessed a tax thereon of ($10,618.46) ten thousand six hundred and eighteen and 46/100 dollars to said company.
"That in fact more than 2334.55 miles of said line within said Commonwealth, part of said 2,833.05 miles, were on, over, under, or across said post roads -- that is to say, railroads or highways made by law such post roads -- or such streams or waters."
"That before and during said year and since, said defendant has continually transmitted over said lines on said post roads, streams, or waters between the several departments of the United States government and their officers and agents or as provided by § 221 of the Revised Statutes of the United States at rates fixed by the Postmaster General, as required by said act of Congress or title LXV of said section, telegraphic communications and messages for the government of the United States, including those for the signal service relating to the weather, storms, etc., and also commercial and business messages for purposes of foreign and interstate commerce from and to, into, through, and over and between said Massachusetts and all the other states and territories of the United States, the City of Washington, and the District of Columbia, and to and from foreign countries by ocean submarine
cables both for said government and for many private individuals and corporations resident and located as well out of as in said state."
"That it is impossible for said company to determine what portion of any sums received by it was received for services performed in said state in the transmission through the same or any part thereof of messages or communications received or delivered out of it or not on lines over said post roads, streams, or waters, but that the largest part, or approximately seventy percent, of said sums was for messages received or delivered out of said state."
"That said defendant, on said first day of May, 1885, owned a large amount of real estate located and subject to local taxation out of said Massachusetts, on which there was assessed and paid by it a large amount (over $48,000) of taxes, besides other taxes."
"That the amount or value of said real estate was not clearly shown, but it was shown that the cost of land and buildings thereon owned by the defendant and of buildings so owned on land not so owned out of said state was over $3,000,000, and it was agreed by the said parties that if it appeared and became material upon any final decision in this case to fix the amount or value of said real estate, or the taxes thereon, or the amount received for any class of messages, and it was not agreed upon by them, the same should be determined on further hearing by the examiner."
"That no deduction or allowance was made in assessing said tax or in ascertaining the valuation of said franchise for taxation as aforesaid on account of said real estate, land, or buildings, or the taxes paid thereon, or for anything not above specifically stated."
"That notice was duly given to said defendant of said tax, and demand made therefor as required by said chapter, but said defendant protested against said assessment and tax and declined to pay the same; whereupon this information was filed."
The cause was heard on these pleadings and upon the report of the examiner, and the court, on the 28th November, 1887, made a final decree therein:
"That the facts set forth in the examiner's report filed in this cause are true."
"That on those facts the method of valuation, assessment, and taxation provided by the laws of Massachusetts upon the franchise of the defendant corporation is not, as was claimed and contended by said defendant, illegal and unconstitutional under the Constitution and laws either of the State of Massachusetts or the United States -- that is to say, either under the Constitution of the United States, Article I, Section 8; Article III, Section 2; Article VI; Amendments V and XIV; Revised Statutes of the United States, sections 5263, 5264, 5265, 5266, 5267, 5268, 5269, including a revision and consolidation of the Act of July 24, 1866, chapter 230, accepted by the defendant before the revision of section 221; or under the Constitution of said state, part I, art. X; part II, chapter I, Section IV; or chapter 13 of its Public Statutes, but was and is in conformity with and authorized by said constitutions and laws, and that therefore the sum claimed by the plaintiff to be due for taxes, to-wit, $10,618.46, be paid to said state by said corporation, with interest thereon, and that an injunction shall be issued out of and under the seal of this court, directed to said corporation and its officers, agents, and servants, commanding them and each of them absolutely to desist and refrain from the further prosecution of the business of said corporation until said sums due to the said Commonwealth as aforesaid for taxes as aforesaid shall have been fully paid, with interest and costs, unless the said sum is paid by said defendant as aforesaid within thirty days from the entry hereof."
From this decree the defendant appealed.