1. The former decision of this Court (
274 U. S. 274 U.S.
76) respecting taxes on additional intangible values attributed to
part of the Kentucky mileage of appellant's interstate railway
system, and holding such valuations to be so excessive and
arbitrary as in reality to include property outside of the state
and result in violation of the due
Page 284 U. S. 339
process clause of the Fourteenth Amendment, was addressed to the
particular application of the taxing statute then under
consideration; it did not preclude a retrial of the case upon all
amended petition of the state claiming the same amounts of tax but
including in the recomputation additional and more lucrative
Kentucky mileage of the system. P.
284 U. S.
341.
2. On this appeal, it is not shown that, when attributed to the
entire Kentucky mileage of the railway system, the additional
values are so excessive and arbitrary as to amount to inclusion of
property outside of the state.
Id.
3. A railway company is not relieved by any federal legislation
from the obligation to pay state taxes for year during which its
system was in possession and control of the Director General under
the Federal Control Act, together with penalties imposed by the
state law for its failure to make report of its property when
required. The state may secure payment of such taxes and penalties
by a judgment lien on the railroad properties. P.
284 U. S.
342.
238 Ky. 638 affirmed.
Appeals from a judgment which affirmed a recovery by the state
in proceedings against the Railway Company and the Director General
of Railroads to collect taxes and penalties.
MR. JUSTICE BUTLER delivered the opinion of the Court.
This case involves franchise taxes imposed by Kentucky in
respect of railroad lines in that state that are a part of the
system of appellant, the Southern Railway Company, a Virginia
corporation, and here referred to as the Southern system. A
judgment of the Circuit Court of
Page 284 U. S. 340
Woodford County affirmed in the highest court of the state, 204
Ky. 388, 264 S.W. 850, determined that there remained unpaid
franchise taxes to be assessed on values of intangible elements
amounting to.$1,730.090.02 for 1918 and $3,028,592.62 for 1919.
These additional values were attributed solely to 127.63 miles of
railroad in that state belonging to a Kentucky corporation, the
Southern Railway Company in Kentucky. The lines of the Cincinnati,
New Orleans & Texas Pacific Railway Company had been held to
form a part of the system, but that company paid taxes in Kentucky
upon its tangible property and also franchise taxes calculated on
the basis of its own net earnings. The commonwealth originally made
no claim against appellants for any taxes in respect of that
company's lines. This Court,
274 U. S. 274 U.S.
76, reversed the judgment of the state court on the ground that the
additional values attributed to such 127.63 miles were so excessive
and arbitrary as in reality to include property outside Kentucky
and that the enforcement by that state of franchise taxes based
thereon would violate the due process clause of the Fourteenth
Amendment.
After receiving our opinion and mandate, the Court of Appeals of
Kentucky remanded the case to the circuit court, and there the
commonwealth amended its petition so as to claim, in addition to
its earlier demands, franchise taxes in respect of the Kentucky
mileage of the Cincinnati, New Orleans & Texas Pacific. The
facts were stipulated. Appellant maintained below that the
proceedings were in conflict with our mandate, and that to enforce
the taxes claimed would be to tax property outside the
commonwealth. The court adjudged the commonwealth entitled to
recover as to the Kentucky mileage of both companies on the basis
of the same values that in the former judgment had been assigned to
the line of the Southern Railway Company in Kentucky alone. The
court of appeals affirmed. 238
Page 284 U. S. 341
Ky. 638, 38 S.W.2d 696. This appeal is under 28 U.S.C. §
344(a).
Our former decision merely held that the particular application
of the state statute then under consideration was repugnant to the
due process clause. The judgment now before us is based on a
different claim. The remanding of the case by the Court of Appeals
and the filing of an amended petition in the circuit court by the
commonwealth and the trial thereon were not inconsistent with the
mandate of this Court.
Mutual Life Insurance Co. v. Hill,
193 U. S. 551,
193 U. S. 553;
Wolff Packing Co. v. Industrial Relations Court,
267 U. S. 552,
267 U. S.
562.
The additional values adjudged are based on average net earnings
per mile of the system in the year preceding that for which the
franchise taxes are imposed. As shown in our former opinion, net
earnings of the 127.63 miles of the Southern Railway in Kentucky
were very small for 1917 and there was a large deficit in 1918. But
the net earnings per mile of the Cincinnati, New Orleans &
Texas Pacific, having 197.5 miles in Kentucky, for both years were
high when compared with the average of the system. The values on
which the last-mentioned company separately paid franchise taxes
were excluded.
The Kentucky mileage used in the calculations included certain
trackage rights and also the Kentucky lines of the Mobile &
Ohio, the Cumberland Railroad, and the Cumberland Railway. The
Court of Appeals held that the lines of these three companies were
not a part of the system.
Commonwealth v. Southern R. Co.,
193 Ky. 474, 481, 237 S.W. 11. But the commonwealth shows that,
taking both years together, the additional values so arrived at are
much less than if the computation had been correctly made. The
error operates to the advantage of appellants. They have not shown,
and but faintly claim, that, when attributed to the entire system
mileage in Kentucky, the additional values are so excessive or
arbitrary as to
Page 284 U. S. 342
amount to the inclusion of property outside the state. On this
record, it cannot be said that the enforcement of franchise taxes
on the basis of values established by the judgment would deprive
appellants of their property in violation of the due process clause
of the Fourteenth Amendment.
The judgment requires that, in addition to the taxes levied for
the two years, there shall be paid a penalty of 20 percent on the
taxes based on the omitted assessment "which shall be collected and
accounted for as other taxes." § 4241. Seventy-five percent of the
amount so added is for the compensation of officers prosecuting the
action. The appellant company maintains that it is not liable for
the taxes or the penalty because during 1918 and 1919 the system
was in the possession and control of the Director General. And the
latter says that the enforcement of the penalty against him would
violate the acts of Congress under which the railroads were taken
and operated.
Neither contention can be sustained.
The opinion below shows that the property was not assessed when
it should have been because of the failure of the company to report
as required. It was not relieved of that duty by any federal law.
On the contrary, the Act of March 21, 1918, 40 Stat. 451, after
requiring every agreement for compensation to the carriers to
provide that all taxes during the period of federal control other
than certain war taxes should be paid out of operating revenues, §
1, declares that nothing in the act should be construed to amend,
repeal, impair or affect the existing laws or powers of the states
in relation to taxation. § 15. Whatever may be the rights of the
company as between it and the Director General, its obligations
under state tax laws remain unaffected by federal enactments.
Referring to the enforcement of the judgment, the Court of
Appeals said (238 Ky., p. 661, 38 S.W.2d 706):
Page 284 U. S. 343
"The state cannot compel the government of the United states to
pay the taxes or the penalty, but it has a lien on the property
which should have been assessed to secure the payment of the
taxes,"
and declared that the penalty is not one where the element of
punishment predominates. Our decisions in
Missouri Pac. R. Co.
v. Ault, 256 U. S. 554, and
Norfolk-Southern R. Co. v. Owens, 256 U.
S. 565, cited by appellants, do not apply here. The
judgment, as construed by the court of appeals, is a lien upon the
railroad properties in respect of which the franchise taxes are
collected, but does not require payment of the taxes or penalty by
the Director General or the United states.
Affirmed.
MR. JUSTICE STONE took no part in the consideration or decision
of this case.
* Together with No. 301,
Mellon, Director General of
Railroads v. Kentucky.