A state legislature, unless restrained by the constitution of
the state, may contract to limit the state's power of taxation;
but, as taxation is essential to the existence and operation of
government, an exemption therefrom will not be presumed from
doubtful language, but must be expressed beyond reasonable
doubt.
When a state becomes the owner by purchase of the entire
property and franchises of a corporation created by itself, it can
only convey the same pursuant to the provisions of the then
existing constitution and it cannot reinvest either a purchaser or
the original owner with any exemption from taxation prohibited by
the existing constitution.
Page 216 U. S. 207
Where the constitution of the state requires equal and uniform
taxation of all real and personal property in the state upon a cash
basis and specifies the property that can be exempted, the
legislature cannot thereafter agree that the payment of a given
percent of the earnings of a corporation from property of a class
not included among the properties that can be exempted shall be in
lieu of all other taxation, and such a contract, if attempted to be
made, would not be protected by the impairment of obligation clause
of the Constitution of the United States.
There is a difference between a contract for a commuted system
of taxation on earnings of a railroad corporation and a specific
exemption from taxation of lands granted to the corporation for a
defined period; the former is personal and not assignable, while
the latter is attached to and follows the land.
In this case, this Court accepts the view of the state court as
to the scope of its own decisions.
106 Minn. 303 affirmed.
The facts are stated in the opinion.
Page 216 U. S. 211
MR. JUSTICE HARLAN delivered the opinion of the Court.
This suit by the State of Minnesota against the Great
Northern
Page 216 U. S. 212
Railway Company, a corporation organized and existing under the
laws of that state, has for its object to recover the balance
alleged to be due the state on account of taxes from the railway
company, under a statute known as Chapter 253 of the General Laws
of Minnesota of 1903.
The controlling question in the case relates to the
constitutionality of certain sections of that statute, as
follows:
"§ 1. Every railroad company owning or operating any line of
railway situated within or partly within this state shall, during
the year 1905, and annually thereafter, pay into the treasury of
this state, in lieu of all taxes and assessments upon all property
within this state, owned and operated for railway purposes by such
company, including the equipment, appurtenances, appendages, and
franchises thereof, a sum of money equal to
four percent
of the
gross earnings derived from the operation of such
line of railway within this state, and the annual payment of such
sum shall be in full
and in lieu of all other taxes and
assessments upon the property and franchises so taxed. The
lands acquired by public grants shall be and remain exempt from
taxation until sold or contracted to be sold or conveyed, as
provided in the respective acts whereby such grants were made or
recognized."
"§ 2. The term 'gross earnings derived from the operation of
such line of railway within this state,' as used in section one of
this act, is hereby declared and shall be construed to mean all
earnings on business beginning and ending within the state, and a
proportion based upon the proportion of the mileage within the
state to the entire mileage over which such business is done of
earnings on all interstate business passing through, into, or out
of the state."
Gen.Laws, Minn., 1903, c. 253, p. 375.
The effect of the statute, Minnesota asserts, was to place the
Great Northern Railway Company, as to rates, on the same basis of
taxation as other railroads in the state. But the company contended
in the courts below, and contends here, that the requirement to pay
for 1905 and annually thereafter
four percent of the gross
earnings derived from the operation
Page 216 U. S. 213
of its railroad within the state was in violation of a statute
enacted May 22d 1857, by the Territory of Minnesota, incorporating
the Minnesota and Pacific Railroad Company, and which fixed
three percentum of the gross earnings of that company's
railroad property as a tax in lieu of all taxes and assessments
whatever. Sess.Laws, Minn., 1857, Extra Sess., §§ 1, 4, 8. The
provisions in the latter statute, it is alleged, constituted a
contract with that company (the remote predecessor of the defendant
company) which was protected, in favor of the latter by the
contract clause of the Constitution of the United States, as well
as by the clause of the Fourteenth Amendment forbidding the
deprivation of property without due process of law. All this was
disputed by the state.
The gross earnings of the company during 1905 were, it is
conceded, $18,540,396.27, four percent of which, $741,615.85, the
state demanded under the Act of 1903. The company paid $620,878.47
on account of gross earnings for 1905, and refused to pay more. For
the difference, $120,737.38, with interest, the state claimed
judgment. The railway company admitted its liability to pay four
percent on the gross earnings derived from certain lines operated
by it in 1905, but denied liability in excess of three percent on
the gross earnings derived, during the same period, from certain
other lines. It insisted that the sum paid by it before being sued
herein was all that could be legally demanded by the state for the
year 1905.
The trial court made certain findings of fact and announced
certain conclusions of law that were not satisfactory to either
party. But it was stipulated that, on the basis of those findings
and conclusions, the state would be entitled to a judgment for
$32,285.94, with interest from July 11th, 1908, and costs, and for
that sum judgment was given by the trial court against the railway
company. Each party prosecuted an appeal to the Supreme Court of
Minnesota. That court sustained the state's appeal, and reversed
the judgment with directions to enter judgment in favor of the
state for the entire amount it had
Page 216 U. S. 214
sued for -- $120,737.88, with interest. 106 Minn. 303. Hence
this writ of error by the railway company.
It is necessary to a clear understanding of the question of
contract, as well as the objections raised against the Act of 1903,
that we state certain facts in the history of the taxation of
railroad property in Minnesota.
By an act approved February 26th, 1857, Congress authorized the
people of the Territory of Minnesota to form a constitution
preparatory to its admission into the Union as a state on an equal
footing with the original states. 11 Stat. 166, c. 60. And by an
act passed March 3d 1857, it made a grant of lands to the territory
to aid in the construction of railroads between certain points,
with branches between certain other points, and provided that the
lands so granted should be subject to the future disposal by the
legislature of the territory or future state for the purposes
expressed by Congress, and no other. 11 Stat.196, c. 99, §§ 1,
3.
In execution of the trust created by that act of Congress, the
legislative assembly of the territory, by the above Act of May 22d
1857, incorporated the Minnesota and Pacific Railroad Company,
investing it with all the powers, privileges, franchises, and
immunities incident to a corporation, and empowering it to survey,
locate, construct, maintain, and operate a railroad with one or
more tracks or lines between certain named places; to which end it
was authorized to enter upon and appropriate lands belonging to the
territory or future state, not exceeding a prescribed width
throughout the entire length of its railroad. Sess.Laws Minn.,
1857, Extra Sess. p. 1, §§ 1, 4, 18.
The 18th section of the latter act constitutes an important
feature in this case. So much of that section as is material in
determining this case is as follows:
"
In consideration of the grants, privileges, and
franchises herein conferred on the said Minnesota and Pacific
Railroad Company, the said company shall and will, on or before the
first day of March in each year,
Page 216 U. S. 215
pay into the treasury of the territory or future state, three
percentum of the
gross earnings of the said railroad for
the year ending on the last day of the preceding December,
in
lieu of all taxes and assessments whatever, . . . and for
securing to the territory or state the payment of the aforesaid
percentum it is hereby declared that the state shall have a lien
upon the railroads of the said company, and upon all other
property, estate, and effects of the said company, whether real,
personal, or mixed, and the lien hereby secured shall take and have
precedence of all demands, decrees, and judgments against the said
company. The first payment shall be made on the first day of March
next after fifty miles of said railroad shall be completed, and
such payment shall be in lieu of all taxes and in full of all
claims of the territory or state for the grant hereby made
and,
in consideration of such annual payments, the said company
shall be
forever exempt from all assessments and taxes
whatever by the territory, or state which shall succeed the
territory, or by any county, city, town, village, or other
municipal authority in the territory or state, upon all stock in
the said 'Minnesota and Pacific Railroad Company,' whether
belonging to said company or to individuals, and upon all its
franchises or estate, real, personal, or mixed, held by said
company, and said land granted by said act of Congress hereby
authorized to be conveyed to the said Minnesota and Pacific
Railroad Company shall be
exempt from all taxation till sold
and conveyed by said company."
This act, it must be remembered, was passed before Minnesota
became a state.
By an act approved May 11th, 1858, Minnesota was admitted into
the Union as a state, with the constitution it had adopted by
popular vote on the thirteenth of October previous, 11 Stat. 285,
c. 31, which constitution provided that all taxes to be raised in
the state
"hall be as
nearly equal as may be, and
all
property on which taxes are to be levied shall have
a cash
valuation and be equalized and uniform throughout the
state."
Another section in the same article required that
Page 216 U. S. 216
"laws shall be passed taxing all moneys, credits, investments in
bonds, stocks, joint stock companies, or otherwise, and also
all real and personal property,
according to its true
value in money;"
also, that certain specified kinds of property, devoted to
charitable and public uses, "shall, by general laws, be exempt from
taxation." Art. 9, §§ 1, 3. But
railroad property was not
included in such exemptions; therefore, after the state
constitution went into operation, railroad property -- if no
inviolable contract controlled the matter -- was taxable in
Minnesota only on the basis fixed in that instrument.
On the twenty-third of June, 1860, there was a foreclosure of
two mortgages (the principal one having been executed July 31st,
1858, and a supplementary one executed November 27th, 1858) which
the Minnesota and Pacific Railroad Company, under the authority of
an act of the legislature, had given to secure moneys borrowed by
it as well as certain bonds it had issued. Those mortgages covered
the company's line and all its property and franchises. Their
validity is not questioned in this case. The state, being the
highest and best bidder at the foreclosure sale, became the
purchaser on the twenty-third of June, 1860, and by that purchase,
the Supreme Court of Minnesota has said, "the state became vested
with all the railroad properties, and, no redemption being made,
the company became wholly divested of its rights."
Subsequently, on March 8th, 1861, the legislature passed an act
entitled, "An Act to Facilitate the Construction of the Minnesota
and Pacific Railroad," which provided
"that the road, lands, property, rights, franchises, privileges,
and immunities belonging or pertaining to the Minnesota and Pacific
Railroad Company, prior to the sale and purchase thereof by the
governor on the 23d day of June, 1860, on behalf of the state, and
now claimed or held by the state, and all bonds and securities of
the said company, held by the state, shall be and are hereby
released, discharged, and restored to the said company free of all
liens or claims thereon held by or
Page 216 U. S. 217
in behalf of the state."
Section 1. The act named certain conditions to be performed by
the company in respect of the proposed railroad, and, if they were
not performed by the time specified, then all the rights and
benefits conferred upon said company "shall be forfeited to the
state absolutely, without any further act or ceremony whatever."
Laws, Minn., 1861, c. 5, p. 235. The company having failed wholly
to comply with the conditions prescribed, all the rights,
privileges, franchises, and immunities granted to it by the
last-named act were resumed by and reinvested in the state.
Thereafter, by an Act of March 10th, 1862, the legislature, with
a view of facilitating the construction of the Minnesota and
Pacific Railroad, and of amending and continuing the act of
incorporation relating thereto, granted to certain named parties
under the corporate name of the St. Paul and Pacific Railroad
Company "all the rights, privileges, property, franchises, and
interests" granted by the Territory of Minnesota to the Minnesota
and Pacific Railroad Company by the above Act of May 22d 1857,
"with all the immunities, rights, property, benefits, and
privileges which the said Minnesota and Pacific Railroad Company
had, or might or could have, by reason of the passage of said act,
free and clear of all liens thereon, and free from all liens and
claims of the State of Minnesota against the same, except such as
are retained by the provisions of this act."
Special Laws, Minn., 1862, c. 20.
We take from the opinion of the supreme court of the state this
additional statement of facts:
"By chapter 3, p. 174, Sp.Laws 1864, the St. Paul and Pacific
Company was authorized to issue one or more classes of preferred
stock, and to enter into agreements or contracts with the holders
thereof for the administration of the portion of the road to which
the stock might pertain, and for the independent organization by
such holders to enable them separately or in conjunction with the
general directors of the road to exercise supervision and control
of their separate portion of the road. Under this act, preferred
stock was duly issued, and
Page 216 U. S. 218
the holders thereof, acting under the statute just referred to,
organized and incorporated the First Division of the St. Paul and
Pacific Railroad Company, which company, through its officers,
thereafter cooperated with the St. Paul and Pacific Company in the
construction of the road. The act incorporating the latter-named
company contained no express reference to the rate or system of
taxation to be imposed upon the company, but it is claimed that all
the provisions on this subject contained in the old Minnesota and
Pacific Company's charter passed by the terms of the act
incorporating it, and were included within the designation of
'rights, privileges, and immunities.' However, by Chapter 6, p. 40,
Sp.Laws 1865, an act to facilitate the completion of the St. Paul
and Pacific Railroad and branches [March 2d 1865], the legislature
imposed a different rate of taxation than that contained in the
Minnesota and Pacific Company's charter, in this: that, by this
act, the company was required to pay during the first three years
after thirty miles of its road had been completed, one percent of
its gross earnings, two percent during the succeeding seven years,
and thereafter three percent. The act also contained a provision
that the lands of the company should be subject to taxation as soon
as sold, leased, or contracted to be sold or leased. The St. Paul
and Pacific Company formally accepted this act, and the First
Division Company thereafter complied with its terms and provisions
by paying the rate of taxation thereby imposed. The organization of
the First Division Company was legalized and confirmed by Chap. 1,
p. 11, Sp.Laws 1866."
"Between 1862 and 1871, both these companies separately executed
trust deeds and mortgages covering the main line of the road and
all its branches, according to the ownership of the same by the
separate companies, thereby conveying to the mortgagees or trustees
all property, rights, privileges, franchises, and immunities held,
owned, or possessed by either company. Both companies made default
in the payment of the indebtedness secured by these instruments,
and they were duly
Page 216 U. S. 219
foreclosed in the manner prescribed by law, John S. Barnes, for
himself and associates, being the purchaser at the sale made under
the foreclosure as to the branch line. Thereafter, Barnes and his
associates incorporated under the laws of the state the St. Paul,
Minneapolis & Manitoba Railroad Company, and to this company
they conveyed all rights acquired under the foreclosure stated.
Thereafter the mortgage on the main line was foreclosed and the
Manitoba Company became the purchaser. By these foreclosures, the
Manitoba Company became the sole owner of all rights, privileges,
and property of the two other companies. The Manitoba Company
leased its line, together with all property rights, franchises,
privileges, and immunities to the defendant Great Northern Company,
incorporated under the laws of the state for the term of 999 years.
The old Pacific and the First Division Companies paid taxes to the
state upon the basis of the Act of 1865, already referred to,
viz., one percent for the first three years after the
completion of thirty miles of road, two percent for the succeeding
seven years, and thereafter, and until their rights passed from
them by the foreclosure proceedings, just referred to at the rate
of three percent of their gross earnings. The Manitoba Company paid
this rate at all times during its ownership and operation of the
road."
In 1871, the provisions of the state constitution in relation to
the taxation of railroad property were extended by an amendment.
That amendment was as follows:
"Art. 4, sec. 32(
a). Any law providing for the repeal
or amendment of any law or laws heretofore or hereafter enacted
which provides that any railroad company now existing in this
state, or operating its road therein, or which may be hereafter
organized, shall, in lieu of all other taxes and assessments upon
their real estate, roads, rolling stock, and other personal
property at and during the time and periods therein specified, pay
into the treasury of this state a certain percentage therein
mentioned of the gross earnings of such railroad companies now
existing or hereafter organized, shall, before the same
Page 216 U. S. 220
shall take effect or be in force, be submitted to a vote of the
people of the state, and be adopted and ratified by a majority of
the electors of the state, voting at the election at which the same
shall be submitted to them."
This amendment was submitted to popular vote and approved by the
electors. It thereby became, to all intents and purposes, a part of
the Constitution. Const.Minn., Art. 4, § 32a.
After the adoption of that amendment, the legislature passed the
above act of 1903, increasing the tax to be paid for 1905 and
annually thereafter on the
gross earnings of railroads
operated within the state to
four percent. That act was
submitted to a vote of the electors, and was sustained by the
requisite majority.
As already stated, the railway company insists that the
territorial act of May 22d 1857, incorporating the Minnesota and
Pacific Railroad Company, constituted a valid and irrepealable
contract with that company, of which its successors in interest
could avail themselves, and that its obligation could not be
subsequently impaired by any legislative enactment, or by any
provision of the state constitution adopted in 1858, after the act
of 1857 was passed, or as amended in 1871.
We have seen that the (old) Minnesota and Pacific Railroad
Company was required, by the territorial act of May 22d 1857, "in
consideration of the grants, privileges, and franchises" conferred
upon it, to pay annually into the treasury of the territory or
future state
three percentum of its gross earnings for the
preceding year, in lieu of all taxes and assessments whatever, and
that, "in consideration of such annual payments," the company
should be forever exempt from all assessments and taxes whatever,
territorial, state, or municipal, upon all its stock, by whomsoever
held, and upon all its franchises or estate, real, personal, or
mixed, and that the land granted by Congress, and conveyed to the
company under the authority of the state, should be exempt from all
taxation until sold and conveyed by it.
The supreme court of the state expressed doubt whether
Page 216 U. S. 221
the act of 1857 was so worded as to constitute, in itself, a
contract that would prevent the territory or the state from
adopting and enforcing any different rule of taxation from that
prescribed by that act. We share this doubt of the state court,
that act being alone considered, and we are somewhat justified in
so doing by the fact that the state legislature, by the act of
1865, changed the rate of taxation as to this property, then
operated by the St. Paul and Pacific Company (a predecessor of the
plaintiff), which had undertaken to complete the contemplated
railroad and branches. The act of 1865 seems to have been accepted
and complied with by the successors in interest of the Minnesota
and Pacific Railroad Company, and amounted, as the court below well
said, to a practical construction by the parties of the alleged
contract of exemption to be found in the territorial act of 1857.
But we forbear any direct decision of this question, for there are
other grounds upon which our judgment will be based.
The state court recognized the doctrine as firmly established
that a legislature, unless restrained by state constitutional
provisions, may contract to limit its power of taxation. But it
held that, as taxation was essential to the existence and
operations of government, an exemption from taxes cannot be
presumed from doubtful language, but must be expressed in words so
clear and explicit as to leave no reasonable doubt that the
exemption was intended to be given. And such is the settled rule
announced by this Court in cases familiar to counsel and too
numerous to be cited. Passing without direct decision the question
whether the act of 1857 constituted, in itself, an irrepealable
contract as between the territory and the (old) Minnesota and
Pacific Railroad Company, the Supreme Court of Minnesota considered
the question whether the contract was personal to that particular
company, or
"did it become attached as an appurtenant to the charter,
rights, franchises, and privileges of the company, and pass down
the line to the defendant?"
The first clause of that question was answered by the court in
the affirmative, the latter in the
Page 216 U. S. 222
negative, the court citing in support of its conclusions the
following cases:
Morgan v. Louisiana, 93 U. S.
217;
Gulf &c. Ry. Co. v. Miller,
114 U. S. 176;
Covington Turnpike Co. v. Sandford, 164 U.
S. 578;
City of Rochester v. Railway Co., 182
N.Y. 99;
Memphis Ry. Co. v. Comm'rs, 112 U.
S. 609. We need not extend the discussion upon that
point.
But the state court said, and correctly, that there was another
and stronger reason why it should be adjudged that an irrevocable
contract did not and could not pass to the companies that claimed
to have succeeded to the rights of the Minnesota and Pacific
Railroad Company. That reason is suggested by the facts and
circumstances now to be stated by us.
The rights, franchises, privileges, or immunities of every kind
covered by the above territorial act of 1857 were wholly lost to
the old Minnesota and Pacific Railroad Company when the state, by
its purchase of June 23d 1860 at the foreclosure sale, became
completely reinvested with them. Those rights, franchises,
privileges, and immunities were swept away from that company by
that sale. Now
when that purchase was made, the territory
had become a state, with a constitution expressly requiring the
equal and uniform taxation of
all real and personal
property in the state
upon a cash basis, and authorized
the exemption from taxation of certain specified kinds of property,
devoted to public and charitable uses; but, as we have seen,
railroad property was not included among the properties that
could be so exempted. It is therefore to be taken that the
constitution of the state, after it went into operation in 1858,
required all railroads to be taxed by an equal and uniform rule and
on a cash basis. The state having, by its purchase, become
reinvested in 1860 with all the rights, franchises, and privileges
granted to the Minnesota and Pacific Railroad in 1857, could,
speaking generally, have disposed of such interests at will, but
clearly it could not have disposed of the interests acquired by its
purchase in any manner that was inconsistent with or which would
have rendered nugatory
Page 216 U. S. 223
the requirements or injunctions of the state constitution. Even
if the territorial act of 1857, considered alone, might have been
regarded as a contract with the state in respect of the amount of
the tax to be paid by the railroad company named in it, that
contract ceased to have any force, as against the state, when the
state, in 1860, became, by purchase at foreclosure sale, the owner
of all the rights, property, immunities, and franchises of the
company. The legislature of the state could not,
after the
state constitution went into operation, have reinvested the
old railroad company with such property, rights, immunities, or
franchises, or have transferred them to a new corporation or to a
consolidated railroad corporation created by the union of prior
corporations,
accompanied by an exemption from taxation
that was inconsistent with the Constitution. Therefore, when, by
the Act of March 8th, 1861, the state released and restored to the
Minnesota and Pacific Railroad Company the road, lands, property,
rights, franchises, privileges, and immunities which had belonged
to that company prior to the state's purchase of 1860, there did
not go, there could not have gone, with that release or
restoration, an exemption from taxation that was forbidden by the
state constitution then in operation. That instrument stood in the
way of such legislation. And upon like grounds it must be held that
no qualified or partial exemption from taxation could have been
acquired by the St. Paul and Pacific Railroad Company under the Act
of March, 1862, which assumed to pass to that company all the
rights, benefits, privileges, property, franchises, and interests
of the Minnesota and Pacific Company, which the state had acquired
by its second purchase. It was not competent for the legislature,
after the state constitution went into operation, to agree for the
state that the payment of
any given percent of the gross
earnings of the railroad corporation should be in lieu of all
other taxation. The Constitution again stood in the way.
Apart from the decision of the Supreme Court of Minnesota in
this case, the views just expressed are abundantly supported
Page 216 U. S. 224
by adjudged cases. It is well to look at some of those cases,
because the question relates to the existence or nonexistence of a
contract protected as to its obligation by the Constitution of the
United States, and upon that question this Court must exercise its
independent judgment.
Douglas v. Kentucky, 168
U. S. 489,
168 U. S. 492,
and authorities there cited.
In
Trask v.
Maguire, 18 Wall. 401,
85 U. S. 404,
85 U. S. 409, it
appeared that a railroad company was incorporated with an exemption
from state and county taxes. The corporation obtained a loan from
the state. The act under which the loan was made and the bonds
given to secure it provided that the acceptance of such bonds
should be a mortgage of the road and every part thereof for the
benefit of the state.
Subsequently, the state adopted a
new constitution which declared that no property, real or personal,
should be exempt from taxation except such as was used exclusively
for public schools or belonged to the United States, and also
forbade the legislature to pass any special laws exempting the
property of any named person or corporation from taxation. The
legislature passed an act under which proceedings were instituted
against defaulting railroad companies to foreclose the state's
lien. Pending those proceedings, another act was passed declaring
that any corporation purchasing at such a foreclosure sale should
have the same power, franchises, rights, and privileges, and be
subject to the same liabilities and restrictions, as the
corporation whose property and franchises were to be sold. A sale
was had, and the state became the purchaser of the defaulting
railroad and its appurtenances. It was then sold to a private
person, who, with his associates, organized a new corporation with
the same name as the old one. The question was whether the last
corporation was entitled to the immunity from taxation granted to
the original company. This Court, speaking by Mr. Justice Field,
said:
"When the state became the purchaser,
the immunity
ceased; the property stood in its hands precisely the same as
any other unencumbered property of the state, exempt from taxation,
not by virtue of any previous
Page 216 U. S. 225
stipulation with the company, but as all property of the state
is thus exempt. Subsequently, the road and its appurtenances, and
all the franchises, which, under the new Constitution of Missouri,
adopted in 1865, were transferable by the state, were sold by the
commissioners to McKay, Vogel, and Simmons, who conveyed the same
to Thomas Allen, who, with others, in July, 1867, became
incorporated under the name of the St. Louis & Iron Mountain
Railroad Company. That company is still in existence, and is one of
the defendants herein. To it Allen transferred all the rights and
privileges acquired by him from his vendors, and all which they
acquired from the state. The act under which the sale was made
provided that the purchasers of the road should have all the
rights, franchises, privileges, and immunities which were enjoyed
by the defaulting company under its charter and laws amendatory
thereof, subject to the limitations and conditions therein
contained, and not inconsistent with the act authorizing the sale.
The new company thus acquired all the immunity from taxation which
the original company had possessed, if it were competent for the
legislature,
at the time, under the new constitution, to
confer this privilege. The question, therefore, is whether the
legislature was competent to grant the immunity claimed under that
Constitution, which went into operation on the fourth of July,
1865, previous to the passage of any of the acts authorizing the
proceedings under which the new company acquired its rights. . . .
The inhibition of the Constitution applies in all its force
against the renewal of an exemption equally as against its
original creation, and this inhibition the legislature could not
disregard in providing for the sale of the property which it had
purchased."
The
Trask case was cited with approval in
Morgan v.
Louisiana, 93 U. S. 217, and
Louisville & N. R. Co. v. Palmes, 109 U.
S. 244,
109 U. S.
254.
In the latter case, it appeared that, at a particular date, the
legislature of Florida passed an act that was valid under the
existing state constitution, which exempted from taxation the
capital stock of railroad companies accepting its provisions.
Page 216 U. S. 226
The road, property, franchises, and privileges under that act
were acquired by a certain railroad company; there was a
foreclosure and sale under which the road, property, and franchises
were ultimately acquired by another railroad company, and the
legislature, by an act, declared that the latter company, as
assignees of the original company, should have the same exemption
as the old company. But,
before the above foreclosure, a new
state constitution came into operation which provided for an
uniform and equal rate of taxation, and that the property of
corporations, whenever created, should be subject to taxation. This
Court, speaking by Mr. Justice Matthews, said:
"It does not weaken this conclusion to say that the exemption
contained in the Internal Improvement Act of 1855 was authorized by
the constitution of the state then in force, which may be admitted,
and that it was assignable in its nature or by its terms in such
manner that it became impressed upon the property itself into
whosesoever hands it should afterwards come. . . .
After the
adoption of the Constitution of Florida of 1868, there could
be no corporation created capable in law of accepting and enjoying
such an exemption, for that was prohibited by the constitutional
provisions that have been cited. In the case of the Pensacola &
Louisville Railroad Company, 1872, the capacity at that time to
receive this privilege depended altogether upon the legislative act
amending its charter to that effect, and if any doubt as to this
might be reasonably entertained, certainly none can arise as to the
Pensacola Railroad Company, which derived all its powers and its
very existence from legislation dependent for its validity wholly
upon the Constitution of 1868. The prohibition which forbids the
legislature from exempting the property of railroad corporations
from taxation makes it impossible for the legislature to create
such a corporation capable in law of acquiring and holding property
free from liability to taxation."
In
Memphis Railroad v. Commissioners, 112 U.
S. 609,
112 U. S. 623,
which was a case in which a railroad claimed an exemption
Page 216 U. S. 227
from taxation, enjoyed by its predecessor, this Court said:
"It is, of course, the law in force
at the time the
transaction is consummated and made effectual that must be
looked to as determining its validity and effect. This is the
principle on which this Court proceeded in deciding the case of
Railroad Co. v. Georgia, 98 U. S. 359. The franchise
to be a corporation remained in, and was exercised by, the
old corporation, notwithstanding the mortgage of its charter, until
the new corporation was formed and organized; it was then
surrendered to the state, and by a new grant, then made, passed to
the corporators of the new corporation, and was held and exercised
by them under the constitutional restrictions then existing. Our
conclusions, then, are, that the exemption from taxation contained
in the 28th section of the Act of January 11, 1853, was intended to
apply only to the Memphis & Little Rock Railroad Company as the
original corporation organized under it; that it did not pass by
the mortgage of its charter and works, as included in the transfer
of the franchise to be a corporation, to the mortgagees or
purchasers at the judicial sale; that the franchises embraced in
that conveyance were limited to those which had been granted as
appropriate to the construction, maintenance, operation, and use of
the railroad as a public highway, and the right to make profit
therefrom, and that the appellant, not having become a corporate
body
until after the restrictions in the Constitution of 1874
took effect, was thereby incapable in law of having or
enjoying the privilege of holding its property exempt from
taxation."
That case was referred to with approval in
Mercantile Bank
v. Tennessee, 161 U. S. 161,
where it was held that a sale of a corporate charter and franchises
transferred to the purchaser only the right to reorganize as a
corporation, "subject to the laws, constitutional and otherwise,
existing at the time of the organization."
A case in point is
Keokuk & Western Railroad Company v.
Missouri, 152 U. S. 301,
152 U. S. 312.
Under the authority of a legislative enactment, passed in 1869, a
Missouri corporation was consolidated in 1870 with an Iowa
corporation, created in
Page 216 U. S. 228
1857, and the charter of which contained an exemption of its
stock from taxation for a specified period. The consolidated road
was sold in 1886 under a decree of foreclosure of a mortgage given
by the Iowa corporation, and conveyed to the Keokuk & Western
Railroad Company. The latter company claimed the benefit of the
exemption contained in the charter of the company created in 1857.
Between that date and the passage of the act of 1869, a new state
constitution was adopted, and it provided that
"no property, real or personal, shall be exempt from taxation
except such as may be used exclusively for public schools and such
as may belong to the United States, to this state, to counties, or
to municipal corporations within this state."
After considering the general question whether an immunity from
taxation passed to the purchaser of the franchises, rights, and
privileges of a railroad company under a foreclosure of a mortgage,
the Court said:
"But the decisive answer to this objection is that the
legislature had no power, in 1869, to extend to a new corporation
created by the consolidation an exemption contained in an act
passed in 1857, before the Constitution was adopted, and hence
that, under the terms of this act, we cannot hold that immunity
from taxation passed as a franchise or privilege to the
consolidated corporation. The construction claimed by the defendant
would be directly in the teeth of the constitutional provision that
no property shall be exempted from taxation. While, as heretofore
observed, an exemption from taxation contained in a charter
previously granted could not be taken away by this constitutional
provision without the impairment of the obligation of a contract,
it doubtless applies to all corporations thereafter formed,
either by original charter or by the consolidation of prior
corporations under the act of 1869."
In
Yazoo & Miss. Valley Ry. Co. v. Adams,
180 U. S. 1,
180 U. S. 23,
which related to an exemption from taxation claimed by a company
consolidated in 1892 by the union of companies organized in 1882,
and which consolidation was held to create a new corporation, this
Court said:
"But it is scarcely necessary
Page 216 U. S. 229
to say that, if the consolidation of 1892 resulted in a new
corporation, it would come into existence under the Constitution of
1890, with the disabilities attaching thereto, among which is the
provision that 'the property of all private corporations for
pecuniary gain shall be taxed in the same way and to the same
extent as the property of individuals.' Even if the legislature, in
these several acts of consolidation, had expressly provided that
the new corporation thereby formed should be exempted from
taxation, the higher law of the Constitution would be interpreted
as nullifying it to that extent. A similar remark may be made with
regard to the provision that these companies might consolidate upon
such terms as they should agree upon. Obviously such terms must be
consistent with the law existing
at the time of the
consolidation. . . . Under no circumstances would they be
interpreted as conveying rights to the new corporation which the
legislature was incompetent to confer."
In
Rochester Ry. Co. v. Rochester, 205 U.
S. 236,
205 U. S.
254-255, in respect to a legislative enactment assuming
to transfer to a particular corporation an exemption granted to a
former corporation, the Court, after a full reference to the
adjudged cases, held:
"No corporation can receive by transfer from another an
exemption from taxation or governmental regulation which is
inconsistent with its own charter or with the Constitution or laws
of the state then applicable, and this is true even though, under
legislative authority, the exemption is transferred by words which
clearly include it;"
that
"those who seek and obtain the benefit of a charter of
incorporation must take the benefit under the conditions and with
the burdens prescribed by the laws
then in force, whether
written in the Constitution, in general laws, or in the charter
itself."
The recent case of
Yazoo & Miss. Valley R. Co. v.
Vicksburg, 209 U. S. 358,
209 U. S.
364-365, was the case of a consolidated corporation
claiming the benefit of an exemption legally given to its
predecessor before the adoption of a state constitution prohibiting
the exemption of corporate property
Page 216 U. S. 230
from taxation. This Court said:
"The exemption to the former constituent company could not inure
to the consolidated company without in effect ignoring the
constitutional provision. . . . The formation of the consolidated
company was not imposed upon the complainant; it had the privilege
of standing upon such rights as it had, by contract or otherwise,
under the former legislation in force before the adoption of the
new constitution. When it saw fit to enter into the consolidation
and form a new corporation in 1892, the constitution
then in
force in the state became the law of its corporate being, and
the requirement that corporate property should not be exempt from
taxation then became binding upon it as upon all other corporations
formed under the new organic law."
In view of the adjudged cases, it would seem clear that, after
the Minnesota Constitution went into operation in 1858, the
legislature could not, by legislation or otherwise, enter into a
binding contract for a complete or partial exemption, either in
favor of the corporation originally created by the territory in
1857, or in favor of a new railroad corporation, or of one created
by the consolidation of old corporations. It must have been
controlled by the fundamental law of the state. So the highest
court of Minnesota has held in this case. And so we hold. It
follows that legislative acts relating to the property and
railroads here in question, and passed after the state constitution
took effect, which proceeded, in the matter of taxation, on grounds
of taxation different from those established by that instrument,
were ineffectual.
We have not deemed it necessary in this discussion to refer in
detail to the numerous cases in the supreme court of the state
which have been cited by counsel. This course has been pursued for
two reasons: 1. The state court, in its opinion in the present
case, said:
"That the question here presented --
viz., whether the
provisions of the Minnesota and Pacific Company's charter on the
subject of the earnings tax constituted an irrevocable contract was
not involved in any prior litigation between
Page 216 U. S. 231
the state and the railroad company, and as what was said in the
previous cases bearing upon the question was wholly unnecessary to
the decision of the particular case, and therefore not of binding
force or effect, we take up and dispose of the present case as
though the question were, as it is, here for the first time."
We accept that view of the state court as to the scope of its
own decisions. 2. The question just stated -- the question of the
existence or nonexistence of a binding contract with the state --
is one peculiarly for the final determination of this Court. The
authorities heretofore cited by us show that, upon an issue of that
kind, this Court must, upon its own responsibility and independent
judgment, determine the legal rights of the parties under the
clause of the federal Constitution protecting the obligation of
contracts against being impaired by state legislation.
In the present case, it is gratifying that there is a
concurrence of views between this Court and the state court upon
the question whether the plaintiff in error, the Great Northern
Railway Company, described by the state court as the "successor in
interest of all the prior companies," was entitled, as upon
contract, to claim the benefit of the three percentum gross
earnings tax provision in the act of 1857. And this seems to be a
determination of the only question of a federal nature arising on
this writ of error and which should be now decided, for, if the
contention of the railroad company as to that question be overruled
-- as both this Court and the state court agree that it must be --
it would only remain to inquire whether the act of 1903,
prescribing a four percentum gross earnings tax, was authorized by
the state constitution, as amended in 1871. The supreme court of
the state adjudges that it was so authorized, but that is a state
or local question upon which this Court need not express its
opinion. It is true that one of the assignments of error before the
state court was that the act of 1903 was inconsistent with the due
process clause of the federal Constitution. But the suggestion was
not much pressed in argument, and it cannot, under the evidence
Page 216 U. S. 232
before us in this case, be assumed that the rate prescribed by
the act of 1903 is confiscatory, either in its nature or in its
necessary operation. If, when the act of 1903 was passed, the state
was not fettered by inviolable contracts in respect of the taxation
of the gross earnings of railroad property, there was nothing to
prevent the legislature, instructed by a popular vote, from
prescribing a uniform gross earnings tax for all railroad property
operated in the state. There being no adequate proof showing the
contrary, the rate prescribed by that act must be taken as being
within the power of the legislature to establish, and not as being
confiscatory. There is absolutely nothing in the record that would
justify the conclusion that the rate fixed by the act of 1903 was
confiscatory in its nature -- that is, wanting in the due process
of law enjoined by the Constitution.
One other matter deserves notice. Some reference was made at the
argument to
Stearns v. Minnesota, 179 U.
S. 223,
179 U. S. 230,
179 U. S. 240,
179 U. S. 253.
There is nothing in the judgment in that case which at all
conflicts with or controls the decision in this case. That case
involved only the question whether certain
lands owned by
the defendant railroad companies, but which were not used in the
operation of their roads in the state, were subject to taxation
according to their value or were exempted from ordinary rule of
taxation by virtue of statutes, like that of 1857, passed after the
state constitution took effect. A similar question was adverted to
in the present case, and the state supreme court, referring to the
charter of the Minnesota and Pacific Railroad Company, said:
"Two distinct provisions on the subject of taxation were
embodied therein, the first providing for a gross earnings tax in
lieu of all other taxes and assessments, and second, an exemption
of the
land granted until sold or contracted to be sold by
the company."
Observing that the exemption in question did not pass as an
appurtenant to the railroad properties in question, and was not
included within the expression, "rights, privileges, and
immunities," citing
Gulf &c. Ry. Co. v. Hewes,
183 U. S. 66;
Page 216 U. S. 233
C. & O. Ry. Co. v. Miller, 114 U.
S. 176;
Lake Drummond Canal & Water Co. v.
Commonwealth, 103 Va. 337;
Rochester v. Ry. Co., 182
N.Y. 99;
Covington Turnpike Co. v. Sandford, 164 U.
S. 578, the Court said:
"A distinction must not be overlooked, when considering the
assignability of a tax exemption, between those imposing a commuted
system in lieu of property taxes and those exempting specific
property. In the former case, the system does not attach to the
corporation or concern thus taxed, nor to any particular property,
and necessarily is personal, and not assignable. But where, as in
the case at bar, specific land is granted to a railroad company to
aid in the construction of a railroad, and is specifically exempted
from taxation until sold by the company, and the company accepts,
in consideration of the exemption, the exemption attaches to and
follows the land.
New Jersey v. Wilson, 7
Cranch 164;
State v. Hicks, 30 Am. Dec. 423;
Ry. Co.
v. State, 75 Tex. 356. In such case, as we have frequently
held, as will be shown later, the exemption is appurtenant to and
passes with the land to a succeeding corporation assuming the
burden attached to it."
In the
Stearns case, the Court determined only the
question whether the
lands of the railroad company were
taxable. It held, upon the showing there made, that there was a
valid contract with the railroad companies in respect to the
taxation of the lands there in question which it was beyond the
power of the state to impair by legislation. Nothing beyond that
was actually adjudged in the
Stearns case. No such
question arises in the present case. There is no attempt here to
tax the
lands granted by the territorial act of 1857 or by
any other act.
The state sues only for the balance due to it on account of
taxes imposed by the act of 1903 on the gross earnings of property
used and operated within its limits for railroad purposes.
Perceiving no error in the record as to the federal question
involved, the judgment must be affirmed.
It is so ordered.