While a state can tax property permanently within its
jurisdiction although belonging to persons domiciled elsewhere and
used in commerce between the states, it cannot tax the privilege of
carrying on such commerce, nor can it tax property outside of its
jurisdiction belonging to persons domiciled elsewhere.
A state assessment upon an express company of another state
proportioned to mileage is bad when it appears that the total
valuation is made up principally from real and personal property,
not necessarily used in the actual business of the company and
which is permanently located in the state where the company is
incorporated.
Page 193 U. S. 491
The transmission of such an assessment by a state board to the
auditors of the several counties may be enjoined.
Where the assessment is void as made, and a question is raised
in the bill whether any assessment can be levied, an offer to give
security to the satisfaction of the court for the payment of any
sum ultimately found due is sufficient without a tender of any
sum.
The facts are stated in the opinion of the Court.
Page 193 U. S. 495
MR. JUSTICE HOLMES delivered the opinion of the Court.
This is an appeal from a decree of the United States circuit
court dismissing the plaintiff's bill and supplemental bills. The
bill was brought by the president of the American Express Company,
a joint stock company of New York, on behalf of himself and the
other members of the company, to enjoin the Auditor of the State of
Indiana from certifying an assessment for 1898 to the auditor of
the several counties of the state.
Page 193 U. S. 496
Supplemental bills sought the like remedy in respect of the
assessments for the following years through 1901. The ground of
relief is that the assessments will result in unconstitutional
interferences with commerce among the states and also are contrary
to the Fourteenth Amendment. The plaintiff's case may be stated in
a few words. The American Express Company is engaged in commerce
among the states, including Indiana. It has real estate of a market
value of nearly two million dollars, which is outside of Indiana,
and which it says is not used in its business, and fifteen million
and a half dollars worth of personal property in New York, as to
which it says the same; over three million dollars worth of real
estate used in connection with the business, and about a million
and a half dollars worth of personal property used in the business,
of which there was less than eight thousand dollars worth in
Indiana. It has paid the local taxes on this last. The total value
of the property for 1898 was $22,059,055.35. The market value of
what, for brevity, we may call its stock, was $21,600,000. The
state board of tax commissioners has undertaken to tax the property
of the company under the law which was upheld in
American
Express Co. v. Indiana, 165 U. S. 255;
Adams Express Co. v. Ohio state Auditor, 165 U.
S. 194,
s.c., 166 U. S. 166 U.S.
185;
Adams Express Co. v. Kentucky, 166 U.
S. 171, by treating the whole business as a unit and
assessing the company on a proportion of the total value of its
property, determined by the ratio of the mileage in Indiana to the
total mileage of the company, excluding its ocean mileage for
foreign express business, which the company says should have been
included. The company relies on the fact that it made a return to
the board, setting forth in detail what its property was, where it
was situated, and how used, and that the value and nature of the
property was not disputed, and it contends that, when these facts
appeared the board was not at liberty to spread the whole value
over the whole line equally, and tax by mileage. The auditor in his
answer sets up that the said sum of fifteen and a half million
dollars in securities is used by
Page 193 U. S. 497
the company as a part of the necessary capital of its business,
and denies that the board assesses personal property not used in
connection with its business. Thus, he admits, by implication, that
the above sum did enter into the assessment made, and this would be
obvious unless we should assume the intended tax to be wholly
arbitrary, as the assessment was at the rate of four hundred and
fifty dollars a mile for 1,798 and a fraction miles, amounting to
$809,253, as against less than eight thousand dollars worth of
tangible property in the state. There are some differences of
detail between the state and the company as to the precise value of
the stock, etc. But the foregoing facts present the general
question.
The contention of the company in its extreme form is that the
state had no right to tax it anything for the years when its stock
was of less market value than its property, because that ratio
showed that the whole value of the company was in its tangible
assets, and that the intangible property spoken of in the Adams
Express Company case was nothing. It says that in any year that
property was so small as to warrant only a nominal tax. We lay this
contention on one side. It was admitted at the hearing before the
board of tax commissioners that an appreciable sum properly might
be assessed on the mileage basis, and therefore the board was
warranted in assuming the fact. It was admitted at the argument
before this Court that the low market value of the stock was due in
part to the ignorance of the public as to the assets of the
company. On this concession the market value of the stock was not a
test of the value of the business. The statement is confirmed by
the continued rise in the stock since, up to $225 in April, 1902.
And apart from these admissions the board well might have hesitated
to believe that the company was carrying on a business, which it
gave no signs of intending to stop at a loss, and was paying its
regular dividends out of investments alone. We lay on one side also
the question of ocean mileage. Without dwelling on the sudden
change in the returns, which added
Page 193 U. S. 498
nearly one hundred and thirty thousand miles in 1898, with
comparatively slight explanation, or the admitted differences
between the ocean and land carriage, we cannot say that the
tribunal, having the duty and sole jurisdiction to find the facts,
exceeded its powers in not allowing the item.
We come, then, to the real question of the case: whether, the
tax provided for by the statute being a tax on property, it
sufficiently appears that the board took into account property
which it had no right to take into account in fixing the assessment
at the large sum which we have mentioned. We already have stated
reasons for assuming that the personal property in New York did
enter into the valuation. We may add that it appears by a
stipulation as to facts, that "the minutes of said state board of
tax commissioners" are in evidence. This means the complete
minutes. It must be assumed that the minutes show all that took
place in the proceedings, and therefore that we have before us all
the evidence that was put in as well as a report of what was said.
There was no indication of dispute concerning the amount, value,
and place of the company's personal property. The protests of the
company alleged that there was no dispute as to the facts. If the
company had been mistaken common fairness required that it should
be informed and allowed to give further evidence of the undoubted
truth. The ground taken before the board, and insisted on in
argument before us, was that the property ought to enter into the
valuation, because, wherever situated, it was used in the business;
if not otherwise, at least as giving the credit necessary for
carrying the business on. We shall assume that the question before
us is narrowed to whether that ground can be maintained. The
pleadings and proceedings leave no alternative open, and no other
could be pressed consistently with the candor to be expected from
the officers of a state, in face of a constitutional question and
dealing with great affairs. For present purposes it does not matter
whether the sum taken for division on a mileage proportion was
reached by taking the value of the stock or the value of the
tangible
Page 193 U. S. 499
assets of the company. For if the former was the starting point
it appears from what we have said that the tangible assets gave the
stock its value. The use of the value either of total stock or
total assets is only as a means of getting at the true cash value
of property within the state.
Western Union Telegraph Co. v.
Taggart, 163 U. S. 1,
163 U. S. 26-27;
Pullman's Car Co. v. Pennsylvania, 141 U. S.
18,
141 U. S.
25.
The general principles to be applied are settled. A state cannot
tax the privilege of carrying on commerce among the states. Neither
can it tax property outside of its jurisdiction belonging to
persons domiciled elsewhere. On the other hand, it can tax property
permanently within its jurisdiction although belonging to persons
domiciled elsewhere and used in commerce among the states. And when
that property is part of a system and has its actual uses only in
connection with other parts of the system, that fact may be
considered by the state in taxing, even though the other parts of
the system are outside of the state. The sleepers and rails of a
railroad, or the posts and wires of a telegraph company, are worth
more than the prepared wood and the bars of steel or coils of wire,
from their organic connection with other rails or wires and the
rest of the apparatus of a working whole. This being clear, it is
held reasonable and constitutional to get at the worth of such a
line, in the absence of anything more special, by a mileage
proportion. The tax is a tax on property, not on the privilege of
doing the business, but it is intended to reach the intangible
value due to what we have called the organic relation of the
property in the state to the whole system.
Western Union
Telegraph Company v. Taggart, 163 U. S.
1,
163 U. S. 21-22.
And this principle, established by many cases, has been extended by
the cases first cited above to the lines of express companies,
although those lines are not material lines upon the face of the
earth. There is the same organic connection as in the other
cases.
It is obvious, however, that this notion of organic unity may be
made a means of unlawfully taxing the privilege, or property
Page 193 U. S. 500
outside the state, under the name of enhanced value or goodwill,
if it is not closely confined to its true meaning. So long as it
fairly may be assumed that the different parts of a line are about
equal in value, a division by mileage is justifiable. But it is
recognized in the cases that if, for instance, a railroad company
had terminals in one state equal in value to all the rest of the
line through another, the latter state could not make use of the
unity of the road to equalize the value of every mile. That would
be taxing property outside of the state under a pretense.
Pittsburgh, Cincinnati, Chicago & St. Louis Ry. Co. v.
Backus, 154 U. S. 421,
154 U. S. 431;
Western Union Telegraph Co. v. Taggart, 163 U. S.
1,
163 U. S. 23. The
same principle applies to personal property which the state would
not have the right to tax directly.
Adams Express Co. v. Ohio
State Auditor, 165 U. S. 194,
165 U. S. 227,
s.c., 166 U. S. 166 U.S.
185,
166 U. S.
222-223. In
Pittsburgh, Cincinnati, Chicago &
St. Louis Ry. v. Backus, there was reason to suspect an
infraction of constitutional rights, but the secretary of state
testified that there was no assessment of property outside the
state (154 U.S.
154 U. S.
434), and therefore the Court could not say that there
was more than a possible overvaluation by the board. Of course, if
the board did not go beyond its jurisdiction, its decision was
final. But the Court recognized that, if the facts charged had
appeared, the case would have been different. In the Express
Companies' cases previously decided, it was pointed out that there
was nothing to show that the lien might not fairly be assumed to be
of substantially the same value throughout. But it was intimated on
the pages just cited that, if the companies should prove the fact
to be otherwise, a different rule would apply, and the statutes
were construed not to prevent such a difference from being taken
into account.
We come back to the question whether the taking of personal
property outside the state into the assessment can be justified on
the ground that it gives credit necessary for the business in the
state. The testimony was that the property was not necessary for
that purpose, and in fact was not used. We may
Page 193 U. S. 501
assume that the board was of a different opinion, so far as that
was concerned, and still we may hold its action unjustified. It
will be seen that we are dealing with much more attenuated
relations than when there is a physical line of rails or wires to
be valued, every mile of which is a necessary condition of the use
of the rest of the lines beyond, and therefore a reflex condition
of the value of the line behind it. The case is stronger even than
one of terminals having a large value as real estate independent of
their use to the road. The express business added nothing to the
value of the bonds in New York. Conversely, the utmost extent to
which those bonds entered into the value of property in Indiana was
insofar as they helped to make the public believe that the express
company could be trusted, and therefore increased its goodwill.
That they made a part of the public more willing to buy interests
in the company because they were an assurance against personal
liability was no concern of Indiana. But it is obvious that, merely
from the point of view that the express company could be trusted by
the public with the carriage of goods or money, the goodwill could
not be measured by the assets. In the first place, the public knew
nothing of the amount. This appears as to even the more instructed
portion of the public which bought interests in the concern, and
a fortiori as to the general run of shippers. For if even
the buyers of the stock of the company would pay only in the
neighborhood of the value of the tangible assets, it is apparent
either that they did not know what the assets were, as was stated
by the appellant's counsel, or else that the goodwill taxed was
worth nothing, and either view is equally fatal to the grounds for
the tax.
But again, suppose that the State of the assets of the company
had been published in every newspaper in Indiana, can it be
imagined that it would have had an appreciable effect upon the
company's business? Certainly it is absurd to say that the business
of such companies will bear an exact or any proportion to the
stocks and bonds which they may own. Unless we are much mistaken,
most people who want to send
Page 193 U. S. 502
things by express employ a company simply because it is there,
and they see its sign is out. The only effect that knowledge of the
capital of the company could have would be to produce the
conviction that the company was safe to employ. Assume that
something is to be added to the goodwill of a company because it is
safe, and that the goodwill, or a part of it, of the express
business in Indiana may be considered in assessing its property
there, this is very different from measuring the goodwill by the
capital, when the facts appear as they do in this case. The
difference is not a mere difference in valuation, it is a
difference in principle, and in our opinion the principle adopted
by the board was wrong. It involved an attempt to tax property
beyond the jurisdiction of the state, and to throw an
unconstitutional burden on commerce among the states. The result
has been that, taking the value of the stock as stated by the
defendant to have been 125 for 1898, the state of Indiana assessed
the company for nearly twice the total goodwill of its business,
measuring that goodwill by the difference between the tangible
assets and the total value of the stock. The injustice grew less
flagrant as the stock rose, but in the year 1901 the assessment
still was nearly double what the state had a right to assess,
assuming that, without transcending its constitutional power, it
had a right to assess its proportion by mileage of the total
goodwill.
We have explained why, in our opinion, this cannot fairly be
treated as a mere case of overvaluation, but is an assessment made
upon unconstitutional principles. Under such circumstances, it was
impossible for the company to tender any sum, because it was
impossible for it to say what, if anything, it ought to pay. It
denied that, under the Constitution, it ought to pay anything, and
it is plain that, for the year 1898, at least, it properly could
have been assessed but a comparatively trifling sum. The contention
of the company was serious and plausible. It made the only offer it
could, which was to give security for the payment of whatever
amount should be adjudged to be due.
"If there was no right to assess the particular thing at
Page 193 U. S. 503
all, . . . an assessment under such circumstances would be void,
and, of course, no payment or tender of any amount would be
necessary before seeking an injunction."
People's National Bank v. Marye, 191 U.
S. 272,
191 U. S. 281.
See also Santa Clara County v. Southern Pacific Railroad,
118 U. S. 394;
California v. Central Pacific Railroad, 127 U. S.
1;
Central Pacific Railroad v. California,
162 U. S. 91,
162 U. S.
112.
The assessment being bad for the reasons which we have stated,
the board of tax commissioners acted without jurisdiction,
according to the decision of the Supreme Court of Indiana.
Hart
v. Smith, 159 Ind. 182. We do not abate at all from the
strictness of the rule that, in general, an injunction will not be
granted against the collection of taxes.
State Railroad Tax
Cases, 92 U. S. 575. But
it was recognized in the passage just quoted from
People's
National Bank v. Marye that, under the present circumstances,
a resort to equity may be proper. The course adopted is the same
that was taken without criticism from the court in
Adams
Express Co. v. Ohio State Auditor, 165 U.
S. 194. It avoids the necessity of suits against the
officers of each of the counties of the state, and we are of
opinion that the bill may be maintained.
Union Pacific Ry. v.
Cheyenne, 113 U. S. 516;
Pittsburgh, Cincinnati, Chicago & St. Louis Ry. v. Board of
Public Works, 172 U. S. 32.
Decree reversed.
THE CHIEF JUSTICE, MR. JUSTICE BREWER, and MR. JUSTICE DAY
dissented.