Southern Railway Co. v. Kentucky,
274 U.S. 76 (1927)

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U.S. Supreme Court

Southern Railway Co. v. Kentucky, 274 U.S. 76 (1927)

Southern Railway Co. v. Kentucky

Nos. 33, 34

Argued March 15, 16, 1926

Decided April 11, 1927

274 U.S. 76


1. A state may tax property permanently within its jurisdiction belonging to one domiciled elsewhere and used to carry on commerce among the states. Where railroad property is a part of a system and has its actual use only in connection with other parts of the system, that fact may be considered even though other parts of the system are outside the state. The mileage basis of apportionment cannot be adopted in the taxation of railroad franchises where the result is shown to be arbitrarily excessive. P. 274 U. S. 80.

2. The value of the physical elements of a railroad -- whether that value be deemed actual cost, cost of reproduction new, cost of reproduction less depreciation or some other figure -- is not the sole measure of or guide to its value in operation; much weight is to be given to present and prospective earning capacity at rates that are reasonable, having regard to traffic available and competitive and other conditions prevailing in the territory served. P. 274 U. S. 81.

3. No intangible element of substantial amount over and above the value of its physical parts inheres in a railroad that cannot earn a reasonable rate of return on the amount attributable in valuation to its bare bones, as the mere tangible elements properly may be called. P. 274 U. S. 82.

4. While the mileage used as an integral part of a railroad system may have elements of value that it otherwise would not possess, and the state properly may have regard to the whole in order to ascertain the value of the part that is within its borders, it is not permissible to take into account any of the outside property unless it can be seen in some plain and fairly intelligible way that it adds to the value of the road and the rights exercised in the state. P. 274 U. S. 82.

Page 274 U. S. 77

5. Facts examined and held that the additional values of intangible property on which taxes in question were based are arbitrarily excessive, and include values of system property beyond the state. P. 274 U. S. 85.

6. Record examined and cause held reviewable on writ of error. P. 274 U. S. 86.

204 Ky. 388 reversed.

These were proceedings by the Commonwealth instituted in a county court for the purpose of listing for taxation intangible property of the railway alleged to have been omitted. The first was against the railway alone, covering the years 1914-1916. The second sought like relief for the years 1917-1918, during which the Director General of Railroads operated the railway system. The proceedings, tried together throughout, were dismissed by the county court, and by the circuit court on appeal. The judgment of the latter was reversed in 193 Ky. 474. Judgments recovered on resubmission to the circuit court were affirmed by the Court of Appeals, except that, in respect of the years 1914 and 1916, the judgment in the first case was reversed. 204 Ky. 388.

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