Three corporations, formed, and operating railways, in Alabama,
Tennessee, and Mississippi, respectively, consolidated themselves
under the laws of each of those states. The consolidated company
succeeded to all the property of the constituents, and issued its
shares in lieu of theirs. As construed by the court below, the law
of Alabama, under which the consolidation was there effected,
constituted the new company a domestic corporation of that state
and, treating it as such, the state has imposed a franchise tax,
not unreasonable in amount, based upon its entire paid-up
capitalization.
Held:
(1) That, subject to the limitations of the federal
Constitution, the existence and status of the consolidated
corporation in Alabama were dependent on the Alabama laws.
(2) That, the tax being a franchise tax imposed equally upon all
corporations of the state, consolidated or otherwise, and based in
each instance on the entire paid-up capitalization, no arbitrary
classification emerges either (a) because the consolidated
corporation has, and a purely intrastate corporation might not
have, property outside of the state, or (b) because foreign
corporations are taxed only on
Page 242 U. S. 112
the basis of their property within the state.
Southern
Railway Co. v. Greene, 216 U. S. 400,
distinguished.
A state may tax foreign corporations for the privilege of doing
business within her limits at a different rate than that which she
applies to her own corporations in taxing the franchises by which
she creates them.
While a state may not tax property beyond her borders, she may
measure a franchise tax within her authority by capital stock which
stands in part for property beyond her taxing power.
Kansas
City &c. Railway Co. v. Kansas, 240 U.
S. 227, applied, and
Western Union Telegraph Co. v.
Kansas, 216 U. S. 1,
distinguished.
Whether a tax is a burden on interstate commerce depends on the
nature of the tax; a tax which in kind is within the state
authority may properly be measured by capital which, in part, is
used for interstate commerce where the circumstances do not
indicate a purpose to burden such commerce, or that such will be
the necessary effect.
182 Ala. 138 affirmed.
The case is stated in the opinion.
MR. JUSTICE DAY delivered the opinion of the Court.
The Kansas City, Memphis, & Birmingham Railroad Company,
plaintiff in error herein (hereinafter called the railroad
company), filed its complaint in the City Court of Birmingham,
Alabama, against James P. Stiles, probate judge of Jefferson
County, Alabama, whereby it sought to recover sundry sums of money,
aggregating $2,434.40, paid to Stiles by virtue of the provisions
of § 12 of an act of the Alabama Legislature entitled, "An Act to
Further Provide for the Revenues of the Alabama." By this act, it
is provided that corporations organized under
Page 242 U. S. 113
the laws of Alabama shall pay an annual franchise tax as
follows: where the paid-up capital stock does not exceed $50,000,
one dollar per thousand of such paid-up capital stock; where
paid-up capital stock is more than $50,000, and up to $1,000,000,
one dollar per thousand on the first $50,000, and fifty cents for
each thousand of the remainder; where paid-up capital stock is more
than $1,000,000, and up to $5,000,000, one dollar per thousand on
the first $50,000, and fifty cents per thousand for the next
$950,000, and twenty-five cents per thousand for the remainder;
where the paid-up capital stock exceeds $5,000,000, one dollar per
thousand on the first $50,000, fifty cents per thousand on the next
$950,000, twenty-five cents per thousand on the next $4,000,000,
and ten cents per thousand on the remainder, and that corporations
organized under the laws of any other state, and doing business
within the State of Alabama, shall pay annually franchise tax as
above, based, however, on the actual amount of capital employed in
the State of Alabama. The act also contains provisions not relevant
to this action and not necessary to be set forth here.
The railroad company is a consolidated corporation, existing by
virtue of the consolidation, under concurrent acts of the States of
Tennessee, Mississippi, and Alabama, of three independent and
distinct railroad corporations created by and formerly operating
solely within the respective states named. As regards this
consolidation, plaintiff avers
"that it is a consolidated corporation, made up and consisting
of the consolidation of three distinct and separate corporations,
under the following circumstances: a railroad corporation organized
and existing solely under the laws of the State of Tennessee
acquired, constructed, owned, and operated all of that part of
plaintiff's line and railway situated within the State of
Tennessee; a separate and distinct railroad corporation, organized
and existing
Page 242 U. S. 114
solely under the laws of the State of Mississippi, acquired,
constructed, owned, and operated all that part of plaintiff's line
and railway situated within the State of Mississippi, and a
separate and distinct railroad corporation, organized and existing
solely under the laws of the State of Alabama, acquired,
constructed, owned, and operated all that part of plaintiff's line
and railway situated within the State of Alabama. Plaintiff avers
that said separate railroad corporations, being desirous of
operating said distinct and separately owned properties as a single
system for the conduct of the business of a common carrier in
interstate commerce, as well as the continuation of intrastate
commerce within said several states before the period mentioned or
involved herein, and by virtue of concurrent or contemporaneous
laws or special acts of said several states, including the States
of Tennessee and Mississippi, as well as the State of Alabama,
consolidated themselves into a corporation known as Kansas City,
Memphis, & Birmingham Railroad Company, the plaintiff herein,
and, in pursuance of the laws of each of said states, duly filed
therein agreements and instruments consolidating said companies,
and complying with the laws of each of said states authorizing the
same. And plaintiff avers that, by said consolidation, the shares
of stock of said several companies were surrendered by the holders
thereof, and in lieu thereof there were issued the shares of stock
of said consolidated company, the plaintiff herein, being the
capital stock of plaintiff issued and outstanding as aforesaid.
Plaintiff further avers that the capital stock on which said
franchise tax was estimated and exacted as aforesaid was and is the
capital stock issued and outstanding under the circumstances
aforesaid, although less than one-half thereof was issued in lieu
of the stock of or represents the property or assets or business of
the Alabama corporation which became a constituent of the plaintiff
by consolidation as aforesaid. "
Page 242 U. S. 115
The entire capital stock of the consolidated railroad company
amounted to $5,976,000, and it was upon this entire amount that the
company was assessed. By this action, the railroad company seeks to
recover the full amount of the franchise tax exacted upon that
basis, and contends that, in any event, it should have been
assessed only upon that part of the capital employed by it in the
State of Alabama.
The railroad company averred, if it was required to pay the
franchise tax in question upon its entire capital, that it would be
paying another and different rate of taxation, or another and
different amount of franchise tax, from that which is required of
like corporations doing business in Alabama, contrary to the
provision of the Fourteenth Amendment to the federal Constitution
that no state shall deny to any person within its jurisdiction the
equal protection of its laws; that the enforcement of the act, by
subjecting to its operation the railroad company's property in
other states, constituted a taking of its property without due
process of law, and that said act imposed a direct burden upon
interstate commerce in requiring it to pay, in addition to all
other fees and taxes provided by law, a tax upon its capital stock
for the right and privilege of transacting and carrying on its
interstate business as a common carrier, in violation of clause
three of § 8, Article I of the federal Constitution.
A demurrer was filed to this complaint, which demurrer was
sustained. Upon appeal to the Supreme Court of Alabama, this
judgment was affirmed, 192 Ala. 687, and a writ of error brings the
action to this Court.
The consolidated company was formed, so far as the State of
Alabama is concerned, under § 1583 of the Alabama Code of 1886,
which provides in substance, as follows: that whenever the lines of
any two or more railroads chartered under the laws of that or any
other state which, when completed, may admit the passage of burden
or
Page 242 U. S. 116
passenger cars over any two or more of such roads continuously
without break or interruption, such companies are authorized,
before or after completion, to consolidate themselves into a single
corporation in the manner following: the directors of such
corporations may enter into an agreement prescribing the terms and
conditions thereof, mode of carrying into effect, name, number of
directors, etc., and such new corporation shall possess all the
powers, rights, and franchises conferred upon the two or more
corporations, and shall be subject to all the restrictions, and
perform all the duties, imposed by such statute. Provision is also
made for ratification of such consolidation by the stockholders,
after which ratification the agreement is deemed completed as to
each corporation. It is also provided that
"every such new corporation so formed shall keep an office in
the State of Alabama, and be in all respects subject to the laws of
the State of Alabama as a domestic corporation."
The corporation is to be deemed consolidated when a copy of the
agreement is filed with the Secretary of State, and, after the
election of the first board of directors, the property and
franchises of each corporation shall be vested in the new
corporation, and it shall be subject to the liabilities of its
integral parts, as if such debts had been incurred by it.
It will be noted that this statute, which is a grant of
corporate rights from the State of Alabama to the consolidated
company, contains the express provision that such company shall in
all respects be subject to the laws of the State of Alabama as a
domestic corporation. Applying § 12 of the statute, the Alabama
Supreme Court has held that the railroad company is a corporation
organized under the laws of that state, and, as such, subject to
the franchise tax imposed by that section of the statute.
The federal questions (which are alone within the jurisdiction
of this Court) are to be determined upon this construction of the
state statute by its highest court.
Page 242 U. S. 117
When the companies comprised in this consolidation sought to
avail themselves of the laws of Alabama, they were asking a
privilege and right which, subject to the limitations of the
federal Constitution, was within the authority of the state. This
principle was succinctly stated in
Ashley v. Ryan,
153 U. S. 436,
153 U. S.
442:
"Nor is the question at issue affected by the fact that some of
the constituent elements which entered into the consolidated
company were corporations owning and operating property in another
state. The power of corporations of other states to become
corporations, or to constitute themselves a consolidated
corporation under the Ohio statutes, and thus avail of the rights
given thereby, is as completely dependent on the will of that state
as is the power of its individual citizens to become a corporate
body, or the power of corporations of its own creation to
consolidate under its laws.
Bank of Augusta v. Earle, 13
Pet. 519;
Lafayette Ins. Co. v.
French, 18 How. 404;
Paul v.
Virginia, 8 Wall. 168,
75 U. S.
181."
This doctrine has been affirmed since.
Louisville &
Nashville Railroad Co. v. Kentucky, 161 U.
S. 677,
161 U. S. 703,
and previous cases in this Court therein cited;
Interstate
Railway Co. v. Massachusetts, 207 U. S.
79,
207 U. S.
84.
The railroads comprising this consolidation entered upon it with
the Alabama statute before them and under its conditions, and,
subject to constitutional objections as to its enforcement, they
cannot be heard to complain of the terms under which they
voluntarily invoked and received the grant of corporate existence
from the State of Alabama.
The specific objections based upon the federal Constitution
remain to be noticed. It is said that the company is deprived of
the equal protection of the laws, this contention being based upon
the fact that domestic corporations, operating only within the
state, are required to pay the tax upon property within the state,
and foreign corporations
Page 242 U. S. 118
are taxed only upon the basis of property within the state. To
support this contention as to denial of equal protection of the
laws, the company relies principally upon the decision of this
Court in
Southern Railway Company v. Greene, 216 U.
S. 400. In that case, a foreign corporation, complying
with the laws of Alabama, entered upon business within the state,
paid both license and property taxes imposed by the laws of the
state, and, when it was attempted to impose upon it another tax for
the privilege of doing business in the state, a business in all
respects like that done by domestic corporations of a similar
character who were not subjected to the additional tax complained
of, it contended that it was denied equal protection of the law,
and this Court so held.
That case is readily distinguishable from the one now under
consideration. Here, the state imposes the franchise tax equally
upon all of its corporations, consolidated and otherwise. The fact
that a wholly intrastate corporation may own no property outside of
the state, while the consolidated company does, presents no case of
arbitrary classification. In both cases, the franchise tax is based
upon a percentage of the capital stock. There is no denial of equal
protection of the laws, because a state may impose a different rate
of taxation upon a foreign corporation for the privilege of doing
business within the state than it applies to its own corporations
upon the franchise which the state grants in creating them.
It is urged that this tax is void because it undertakes to tax
property beyond the jurisdiction of the state, and imposes a direct
burden upon interstate commerce. Objections of this character were
so recently discussed, and the previous cases in this Court
considered, in
Kansas City &c. Railway Co. v. Kansas,
240 U. S. 227,
that it would be superfluous to undertake extended discussion of
the subject now. In that case, after a full review of the previous
decisions in this Court, it was held that each case
Page 242 U. S. 119
must depend upon its own circumstances, and that, while the
state could not tax property beyond its borders, it might measure a
tax within its authority by capital stock which in part represented
property without the taxing power of the state. As to the objection
based upon the due process clause of the Constitution, we think
that principle controlling here. There is no attempt in this case
to levy a property tax; a franchise tax within the authority of the
state is in part measured by the capital stock representing
property owned in other states.
The tax is not of the character condemned in
Western Union
Telegraph Co. v. Kansas, 216 U. S. 1, and
kindred cases. In the latter case, a tax of large amount was
imposed upon a foreign corporation engaged in interstate commerce
for the privilege of doing local business within the state. Under
the circumstances therein disclosed and the character of the
business involved, this Court held that the statute was, in
substance, an attempt to tax the right to do interstate business,
and to tax property beyond the confines of the state, and was
therefore void. Here, a franchise tax is levied upon a corporation
consolidated under the laws of the state by its own acceptance of
that law in incorporating under it.
So, of the objection that the tax imposes a burden upon
interstate commerce, the test of validity recognized in previous
cases and repeated in
Kansas City &c. Railway Co. v.
Botkin, supra, is the nature and character of the tax imposed.
The state may not regulate interstate commerce or impose burdens
upon it, but it is authorized to levy a tax within its authority,
measured by capital in part used in the conduct of such commerce,
where the circumstances are such as to indicate no purpose or
necessary effect in the tax imposed to burden commerce of that
character. In the present case, the franchise tax is imposed upon
the capital stock of a corporation consolidated
Page 242 U. S. 120
under the state law and engaged in both interstate and
intrastate commerce.
We find nothing in the amount or character of the tax which
makes it a burden upon interstate commerce, and so beyond the
authority of the state to impose. It results that the judgment of
the Supreme Court of Alabama must be
Affirmed.