Powers v. Detroit, G.H. & M. Ry. Co., 201 U.S. 543 (1906)
U.S. Supreme CourtPowers v. Detroit, G.H. & M. Ry. Co., 201 U.S. 543 (1906)
Powers v. Detroit, Grand Haven
and Milwaukee Railway Company
Argued February 26, 1906
Decided April 16, 1906
201 U.S. 543
Where a railroad company is reorganized under a special act of the legislature but no new corporation is chartered, a statutory exemption from taxation is not destroyed. A state may, through its legislature, make a valid contract as to taxation with a corporation which the latter can enforce, and this Court is not, under the rule generally applicable as to the binding effect of decisions of the supreme court of the state construing its statutes, concluded by
the decisions of that court as to whether such a contract exists, the extent of its terms, and whether any subsequent law has impaired its obligation. But where the supreme court of the state sustains the validity of the statute from which a contract is claimed, this Court follows that decision and determines what the contract is.
Provisions in a state statute for a special rate of taxation in respect to a particular corporation, made with a view of inducing large expenditures and the completion of an unfinished road of great public importance, and which are formally accepted and complied with, amount to a contract within the protection of the impairment clause of the federal Constitution, and no other tax can be imposed on the corporation.
An annual tax of one percent imposed by a special statute on the capital stock of a particular corporation to be paid in lieu of all other taxes except for penalties imposed thereupon and prescribed to be estimated each year on the last annual report of the corporation, held, under the circumstances of this case, to be a tax upon the property of the corporation, and not a tax upon the shares of stock held by the stockholders.
This case, which is a suit brought by the appellee in the Circuit Court of the United States for the Western District of Michigan, while involving the validity of the railroad tax law of the State of Michigan, Acts 1901, c. 173, p. 236, recently considered by this Court (ante p. 201 U. S. 459) involves the further question of the existence and scope of an alleged contract in respect to taxation. The Detroit and Pontiac Railroad Company was chartered by the Legislature of the Territory of Michigan, March 7, 1834, the Oakland and Ottawa Railroad Company by the Legislature of the State of Michigan, April 3, 1848, Laws 1848, p. 351. By an Act of February 13, 1855, Laws of 1855, p. 305, the Detroit and Pontiac Railroad was authorized to change its name to the Detroit and Milwaukee Railway Company, to purchase all the rights, property, and franchises of the Oakland and Ottawa Railroad Company for the building and operating a continuous line of road from Detroit to Lake Michigan, and the purchase and sale thus provided for was duly effected. Section 9 of this act provided that --
"the said company shall, on or before the first day of July, pay the state treasurer an annual tax of one percent on the capital stock of said company paid in, which tax shall be in lieu of all other taxes, except for penalties imposed upon said company
by its act of incorporation, or any other law of this state. The said tax shall be estimated upon the last annual report of said corporation."
Since 1850, the state constitution has contained these provisions:
"Corporations may be formed under general laws, but shall not be created by special act except for municipal purposes. All laws passed pursuant to this section may be amended, altered, or repealed. But the legislature may, by a vote of two-thirds of the members elected to each house, create a single bank with branches."
Section 1, Art. XV.
"The legislature shall pass no law altering or amending any act of incorporation heretofore granted without the assent of two-thirds of the members elected to each house, nor shall any such act be renewed or extended. This restriction shall not apply to municipal corporations."
Section 8, Art. XV.
In 1860, certain mortgages on the road were foreclosed and the company reorganized, and again in 1878 the road with its appurtenances and franchises was sold upon mortgage foreclosure and again reorganized as the Detroit, Grand Haven and Milwaukee Railway Company. These foreclosures and reorganization took place under the authority of Act No. 96, Laws of 1859, p. 52.
On the hearing in the circuit court it, was held that section 9, above quoted, created a contract between the state and the company which prevented the enforcement against it of the railroad tax law, and a decree was entered accordingly, 138 F. 264, from which decree the state auditor appealed directly to this Court.