1. A charter granted by the Georgia to a railroad company in
1833 provided that
"The stock of the said company and its branches shall be exempt
from taxation for and during the term of seven years from and after
the completion of the said rail roads or any one of them, and after
that, shall be subject to a tax not exceeding one half percent. per
annum on the net proceeds of their investments."
In 1937 the State imposed a tax of 5 1/2 percent on the net
income of all domestic and foreign corporations, and in 1941
assessed deficiencies for such taxes against a lessee of the
railroad.
Held, following a decision of the highest court of the
State, that the 1833 exemption did not apply to taxes on "income"
imposed by a statute in 1937, and therefore the tax did not impair
the obligation of the railroad's charter contrary to Art. I, § 10,
of the Federal Constitution. Pp.
332 U. S.
169-174.
2. Earlier decisions of this Court construing the same tax
exemption provision, in cases involving property taxes and not a
conventional income tax, are not controlling here. Pp.
332 U.S. 173-174.
200 Ga. 856, 38 S.E.2d 774, affirmed.
The railroad company appealed to the state courts from a tax
assessment under a state statute challenged as violative of the
contract clause of the Federal Constitution. The trial court gave
judgment for the railroad. The State Supreme Court reversed. 200
Ga. 856, 38 S.E.2d 774. On appeal to this Court,
affirmed,
p.
332 U. S. 174.
Page 332 U. S. 169
MR. JUSTICE FRANKFURTER delivered the opinion of the Court.
This was a proceeding in the courts of Georgia to declare
invalid an assessment by the State Revenue Commissioner against the
Atlantic Coast Line Railroad Company on the ground that the tax as
applied to the appellant impairs the obligation of contracts.
United States Constitution, art. I, Sec. 10.
To encourage railroad development, the State of Georgia, in
1833, chartered the Georgia Railroad Company (which later became
the Georgia Railroad and Banking Company), and gave the railroad
certain immunity from taxation. Georgia's increasing need of
tapping new sources of revenue has not unnaturally brought to the
courts the scope of this immunity. Its construction in relation to
the claim of Georgia that, despite the charter of 1833, the
appellant is subject to its corporate income tax is the sole issue
before us.
The case is this. Georgia, in 1931, imposed a tax of 5 1/2
percent. on the net income of all domestic and foreign
corporations. Acts 1931, Extra.Sess. pp. 24, 26, amended, Acts
1937, pp. 109, 117, Ga.Ann.Code § 92-3102. No claim under this
corporate income tax was made against the Atlantic Coast Line, one
of the lessees of the Georgia Railroad, until 1941. For the
calendar years 1941, 1942, 1943, the State Revenue Commissioner
assessed against the appellant deficiency taxes on the basis of its
net income from the road, computed at the 5 1/2 percent. rate paid
by all corporations. It is this assessment that is contested. The
appellant resisted on the ground that the attempt of Georgia to
impose this tax is in disregard of the obligation assumed by
Georgia through § 15 of the Charter of 1833. The Supreme Court of
Georgia sustained the assessment, holding that the tax exemption of
the charter related merely to the limits to which a tax on the
railroad property could be levied, such a property
Page 332 U. S. 170
tax to be measured so as not to exceed one-half percent. of the
net earning power of the properties. 200 Ga. 856, 38 S.E.2d 774.
The exemption, so the State Supreme Court found, was not concerned
with what we now know as a corporate net income tax, and therefore
did not bargain away the power of the legislature to impose such a
tax.
A claim that a State statute impairs the obligation of contract
is an appeal to the United States Constitution, and cannot be
foreclosed by a State court's determination whether there was a
contract or what were its obligations. But while it is true that we
are not bound by the construction of local statutes by the local
courts in deciding the Constitutional question,
"yet, when we are dealing with a matter of local policy, like a
system of taxation, we should be slow to depart from their judgment
if there was no real oppression or manifest wrong in the
result."
Clyde v. Gilchrist, 262 U. S. 94,
262 U. S.
97.
The Georgia Supreme Court had to construe the following Georgia
language:
"The stock of said company and its branches shall be exempt from
taxation for and during the term of seven years from and after the
completion of said railroads or any one of them, and after that,
shall be subject to a tax not exceeding one half percent. per annum
on the net proceeds of their investments."
§ 15, Act of December 21, 1833, Acts 1833, p. 256, 263-64.
It is not for us to read such a local law with independent but
innocent eyes, heedless of a construction placed upon it by the
local court. Such a tax provision is not a collocation of abstract
words. In seeking the meaning conveyed by a local enactment, it
must be viewed as part of the whole texture of local laws and of
the economy to which they apply. The language draws to itself
presuppositions not always articulated, and even what is
expressed
Page 332 U. S. 171
in words may carry meaning to insiders which is not within the
sure discernment of those viewing the law from a distance. And so
we are not prepared to say that the Supreme Court of Georgia was
"manifestly wrong,"
Hale v. State Board, 302 U. S.
95,
302 U. S. 101,
in construing the exemption as limiting merely the right to impose
property taxes. Our search is for something other than the meaning
which the tax specialists may today find in the words.
"It is for the meaning that at a particular time and place and
in the setting of a particular statute might reasonably have
acceptance by men of common understanding."
Hale v. State Board, supra. We should reject the
construction which the Georgia Supreme Court has placed upon what
the Georgia Legislature of 1833 wrote only if we can be confident
that the Georgia Legislature of 1833, by the words it used, could
not have expressed the meaning thus attributed to it. A fair regard
for the place of income taxes, as now commonly conceived, in the
thought and practice concerning fiscal matters prevalent in 1833
precludes the rejection of the interpretation by the Georgia Court
of the exemption of 1833.
There were, to be sure, so-called "faculty taxes" in Colonial
times which had some of the characteristics of our present income
taxes in that ability to pay was an ingredient. But even these
taxes, hardly income taxes as we now know them, had by 1833
generally ceased to be, and perhaps even to be remembered.
See,
e.g., Seligman, The Income Tax (2d Ed.) Part II, c. I, pp. 367
et seq.; compare 3 U. S. United
States, 3 Dall. 171, the only imposition even remotely
classifiable as an income tax because presumably based on ability
to pay is that illustrated by a levy of "The sum of four dollars on
all professors of law and physic, and the sum of fifty dollars on
all billiard tables." Law No. 590, 1797, Watkins Digest of the Laws
of Georgia 1755-1799, pp. 646, 648. Not until the Civil War did
Georgia, like the Federal Government,
Page 332 U. S. 172
resort to what was indisputably an income tax. On the other
hand, to read, as the Georgia Supreme Court read, the exemption
provision of the Charter of 1833 as dealing with a tax on property
fairly reflects a practice, not unknown in the earlier days, of
assessing property for tax purposes not by its exchange value, but
by its earning power.
See, e.g., Seligman, The Income Tax
(2d Ed.) pp. 382, 383; Report of Special Commission on Taxation,
Connecticut 1887, p. 9, with comments thereon in Kennan, Income
Taxation p. 207.
In this setting, it would savor of dogmatism to infuse into the
1833 exemption the income tax atmosphere of our own day. It does
not seem inadmissible for the Supreme Court of Georgia to have
found that what the Georgia Legislature of 1833 sought was to
measure the commonplace property tax of the time not by a flat sum,
or on the basis of a value abstractly ascertained, but in
accordance with the fruits of the property, modestly limited.
To sanction such a restricted reading of the exemption is to
respect a rule, deeply rooted in history and policy, according to
which contracts of tax exemption are to be read "narrowly and
strictly."
Hale v. State Board, supra, at
302 U. S. 109.
To recognize that, more than a hundred years ago, the Georgia
Legislature did not forever bargain away the wholly untapped domain
of income taxation is to recognize the governing consideration that
"[t]he power of taxation is never to be regarded as surrendered or
bargained away if there is room for rational doubt as to the
purpose." This was said when an earlier controversy affecting this
charter was here.
Wright v. Georgia Railroad & Banking
Co., 216 U. S. 420,
216 U. S. 438.
As to the astuteness of taxpayers in ordering their affairs so as
to minimize taxes, we have said that "the very meaning of a line in
the law is that you intentionally may go as close to it as you can
if you do not pass it."
Superior
Page 332 U. S. 173
Oil Co. v. Mississippi, 280 U.
S. 390,
280 U. S.
395-396. This is so because "nobody owes any public duty
to pay more than the law demands: taxes are enforced exactions, not
voluntary contributions." Learned Hand, C.J., dissenting in
Commissioner v. Newman, 159 F.2d 848, 851. Conversely, the
State, insofar as it may limit its basic power to tax to enable
government to go on, can sail as closely as astuteness permits to
the line of an immunity from such exaction. This is an old canon of
judicial construction. The policy on which it rests antedates the
charter before us, and it forms the setting in which the exemption
is to be read.
See, e.g., Charles River Bridge v. Warren
Bridge, 7 Pick. (Mass. 1829) 344,
aff'd, 36 U. S. 11 Pet.
420. This requirement in the construction of legislative grants,
especially tax exemptions, is merely an aspect of respecting
legislative purpose. A legislature is not to be presumed to have
relinquished its power of taxation beyond the narrowest rational
reading of an exemption. The potential need of all governmental
powers, and fairness in the distribution of burdens or in the
enjoyment of privileges, preclude such an assumption.
We have carefully considered the earlier cases in which the
scope of this exemption came before this Court.
Central
Railroad & Banking Co. v. Georgia, 92 U. S.
665;
Wright v. Georgia Railroad & Banking Co.,
supra; Wright v. Central of Georgia R. Co., 236 U.
S. 674;
Wright v. Louisville and Nashville R.
Co., 236 U. S. 687;
Central of Georgia R. Co. v. Wright, 248 U.
S. 525;
Central of Georgia R. Co. v. Wright,
250 U. S. 519. It
is needless to rehearse the issues they involved. Suffice it to say
that the prior taxes found to have been barred by the exemption
were all taxes on the railroad property. Now, for the first time,
we are called upon to examine a candid, conventional income tax.
Passing reference to "income" when the Court's mind was not focused
upon the validity of an income tax as such must not be torn
Page 332 U. S. 174
from the context of discussion of property taxes. In any event,
these phrases leave untouched our duty to respect the judgment of a
State court as to the fair intendment of an exemption.
Judgment affirmed.
MR. JUSTICE RUTLEDGE, agreeing with the Court's conclusions
concerning the meaning of the Georgia statute, concurs in the
result.