Wright v. Central Ry. of Georgia, ante,
p. 236 U. S. 674
followed to effect that, under the statutes of Georgia and the
leases involved in this action, executions for ad valorem
taxes on railroads the owners whereof were exempted by statute from
a greater tax than a specified percent on the income, could not be
enforced against those in possession of the railroads as
The fact that owners of a railroad, who are exempted by statute
from paying a greater tax than a specified percent on the income
thereof, lease the entire road to another company does not open the
right of the state to tax such lessees on the fee of the
Page 236 U. S. 688
In this case, the exemption of the lessor from taxation on its
road which it has leased applies to betterments and improvements
made by the lessee such as the lessor would have made to meet
enlarging business and so also as to rolling stock substituted for
that of the lessor and which under the lease belongs to the
Railroad property jointly used with exempted property but not
part of the road originally exempted may be subject to assessment,
but not in one assessment covering both the classes of
201 F. 1023 modified and affirmed.
The facts are stated in the opinion.
MR. JUSTICE HOLMES delivered the opinion of the Court.
This is a bill brought by the railroad companies, respondents,
to prevent the collection of a tax upon the Georgia Railroad,
operated by them under a lease and assessed to them as their
property. The district court made a decree for the plaintiffs with
certain exceptions, which was affirmed on appeal and cross-appeal
by the circuit court of appeals for the reasons given by the
district court. 199 F. 454; 201 F. 1023.
The main question is similar to that disposed of in Wright
v. Central of Georgia R. Co.,
just decided, ante,
236 U. S. 674
By its charter granted on December 21, 1833 (Laws of 1833, p.
256), the stock of the company and its branches is subject only to
a "tax not exceeding one-half one percent per annum on the net
proceeds of their investments." § 15. This language is interpreted
and held to constitute
Page 236 U. S. 689
a binding contract in Wright v. Georgia Railroad and Banking
Co., 216 U. S. 420
it is admitted that the present tax could not be levied on the
lessor. By § 12 of the same charter, the company is authorized
"rent or farm out all or any part of their exclusive right of
transportation or conveyance of persons, on the railroad or
railroads, with the privilege to any individual or individuals, or
other company, and for such term as may be agreed upon."
So the state has covenanted that the company's property shall be
exempt from tax except upon its income, which it is authorized to
make in any of three ways. And as bearing on the different uses of
the company's franchise that were deemed possible in that day, as
we remarked in the other case, we may add that, by § 13, if any
persons intrude upon the railroad by any manner of use thereof,
they shall forfeit to the company all the vehicles and animals that
may be so intrusively introduced and used; that, by § 14, the
company, if it sees fit to farm out any part of its exclusive
right, may prescribe the value and size of vehicles to be used or
pass on its road, and the locomotive power, and that, by § 22, the
company, if it prefers, instead of railroads, may construct common
roads and use steam carriages thereon.
The plaintiffs are operating the roads in question under a lease
made to one Wadley, to whose rights they have succeeded.
Georgia Railroad & Banking Co. v. Maddox,
116 Ga. 64.
This instrument purported, in the language quoted above from § 12
of the charter, to "rent and farm out" the privileges and roads of
the lessor for a term of ninety-nine years from April 1, 1881. For
the reasons given in the other case, we cannot believe that, if the
company saw fit to gain "the net proceeds of their investments" (to
one-half of one percent of which their tax was limited) by letting
the whole road instead of allowing others to introduce carriages,
the statute silently opened the right to resume as against the
lessee all that
Page 236 U. S. 690
had been renounced as against the lessor. If the fee of the
roads is taxable to no one while the liability of the lessor to the
above-mentioned one-half of one percent remains, an attempt to
collect a tax upon the fee from the plaintiffs is an attempt on the
part of the state to tax the leased property, which was completely
beyond the reach of its taxing power except insofar as permitted by
the contract, the obligations of which could not be impaired
without a violation of the contract clause of the Constitution of
the United States. Thus, the particular features of the case in
hand take it without the rule applied in Rochester Railway v.
Rochester, 205 U. S. 236
other kindred cases, from which we have no purpose to depart.
Some subordinate questions remain. Betterments and improvements
of the demised road such as the lessor naturally would have made to
meet the necessities of an enlarging business stand on the same
footing as the original road, and are exempt. Wright v. Georgia
R. & Banking Co., 216 U. S. 420
216 U. S.
-432; Gardner v. Georgia R. & Banking
117 Ga. 522, 532. The rolling stock substituted for or
added to that turned over to the lessees became the property of the
lessor as soon as acquired, and also is exempt like that of which
it took the place. The lessee covenants to return the property in
as good condition as it was then in, and the lease provides that
"the property substituted for and added to that which is hereby
rented and farmed out shall be the property of" the lessor. "Shall
be" obviously means shall be when so substituted. It is not
confined to such substituted property as may be on hand at the end
of the lease. The lessor is to be kept continuously the owner of an
equipped road. The railroads, not being domiciled in Georgia, are
not taxable there for stock and bonds of other companies merely
appearing to be owned by them. Some necessary and proper
improvements were made by the lessor before the lease, and paid for
by the proceeds of
Page 236 U. S. 691
bonds issued by it. We do not perceive why they should be put on
a different footing from the others. And we are not prepared to say
that terminals, etc., added to the demised property belonging to
the lessor, although bought with $225,000 of money belonging to the
lessees, were not reasonable betterments and exempt.
The Atlanta terminals require separate treatment. Besides so
much of them as was embraced in the lease, there seems to be other
land belonging to the West Point Company, and other land again of
the Louisville & Nashville Railroad. By an agreement between
the plaintiffs and the West Point Company, this property is
converted into and used as a joint terminal. The assessment
complained of deals with this as a separate entity and item, and in
the decree is excepted from the injunction. It appears to us that
so much of the property as is part of the exempted line still is
exempt. It is used for the purposes of the line, although the
relations have become more complex. The rest may be subject to
taxation, but not in this assessment. The decree will be modified
in this respect, but otherwise is affirmed.
Decree modified and affirmed.
MR. JUSTICE LAMAR took no part in the decision.
MR. JUSTICE HUGHES, MR. JUSTICE PITNEY, and MR. JUSTICE