If an assessing board, seeking to assess for purposed of
taxation a part of a railroad within a state the other part of
which is in an adjoining state, ascertains the value of the whole
line as a single property and then determines the value of that
within the state upon the mileage basis, that is not a valuation of
property outside of the state, and the assessing board, in order to
keep within the limits of state jurisdiction, need not treat the
part of the road within the state as an independent line
disconnected from the part without, and place upon that property
only the value which can be given to it if operated separately from
the balance of the road.
Where an assessing board is charged with the duty of valuing a
certain number of miles of railroad within a state forming part of
a line of road
Page 154 U. S. 440
running into another state, and assesses those miles of road at
their actual cash value determined on a mileage basis, this does
not place a burden upon interstate commerce beyond the power of the
state simply because the value of that railroad as a whole is
created partly - and perhaps largely - by the interstate commerce
which it is doing.
The case is stated in the opinion.
MR. JUSTICE BREWER delivered the opinion of the Court.
This case is similar to the two just decided in that it was a
suit brought by this plaintiff in the same court, challenging an
assessment of its railroad property for the same year, by the same
board, with the same result both in the trial and supreme court of
the state. Hence it is useless to reconsider the questions decided
in those cases as to the constitutionality of the act itself, or
those which depend solely upon like testimony. There was, however,
in the trial of this case a more elaborate effort to show that the
state board included in its assessment the value of property
outside the state, and also that the valuation placed nominally
upon the property within the state was largely based upon
interstate business done by the plaintiff, and thus, as is claimed,
to that extent placed a direct burden upon interstate commerce
which, it is conceded, is beyond the power of the state to cast. It
becomes necessary, therefore, to notice a little in detail the
testimony which was received as well as that which was excluded on
the hearing.
It may be premised that there was much testimony of a character
similar to that given in the other cases. Beyond that, there was a
large amount of testimony received, as well as some offered and
rejected, for the purpose of showing what was presented to the
board for consideration, the method by
Page 154 U. S. 441
which it reached its conclusions, and the elements which entered
into its estimate of value. The principal witness relied on in
respect to these matters was the Secretary of State, a member of
the board. By him it was proved that no witness was sworn and
examined, and no inquiry made in that way, as to the value of this
property. It appeared that the return made by the company was
before the board for consideration. The court ruled out an offer to
prove that, outside of such return, no books, papers, or documents
except Poor's Manual and the Investors' Guide were produced before
the board or considered by it in making the assessment, that Poor's
Manual was used by it for data upon which to base the assessment,
and specifically that this was the only evidence which it had as to
the number of miles owned and leased by the plaintiff, the state in
which they were located, and the various encumbrances upon the
different lines of road included in the system belonging to the
plaintiff. It was shown that the plaintiff appeared before the
board by its officers, with such statements as they desired to
make, and also that other individuals, especially an attorney
representing Marion County, one of the counties through which the
road of the plaintiff runs, appeared and made arguments. A series
of questions was put to the witness, of which this is a sample:
"Q. In the assessment of the Cincinnati, La Fayette and Chicago
Railway, extending from Templeton, Indiana, to the Illinois state
line [one of the lines in plaintiff's system and included in the
assessment], in arriving at the basis for the estimate of the value
which you placed upon the main line of that road, did you consider
the market value of any stocks, and if so, of what stocks did you
consider the market value?"
But the court ruled the question out on the ground that it was
an attempt to inquire into the mental processes of members of the
board. At the time counsel for the defendants stated:
"We desire to let the record show at this point, may the court
please, that the defendant will interpose no objection to any
question asked by the plaintiff as to whether or not the state
board of tax commissioners assessed and valued any
Page 154 U. S. 442
bonds, stocks, or anything else outside of the state, and that
we will not object to any question asked any member of the state
board of tax commissioners as to whether or not that board assessed
anything else than railroad track and rolling stock inside of the
State of Indiana."
The plaintiff did not, however, apparently care to take
advantage of this offer. Other questions were put to the witness,
like the following:
"Q. In assessing the Indianapolis and St. Louis Railroad, you
placed the main track at $27,900 per mile, while you assessed the
main track of the Terre Haute and Indianapolis Railroad at $21,800
per mile, being $6,000 per mile less than the track of the St.
Louis Division of the Three C.'s & St.L. or the I. & St.L.
Railroad. Now, in making this assessment, $21,800 per mile, or
$27,900 per mile upon the main track of the St. Louis Division of
the Three C.'s & St.L., did you or not consider the gross
earnings of the Three C.'s & St.L. Railway, including earnings
derived from carrying freight and passengers from points within to
points without the State of Indiana, or through the State of
Indiana, while engaged as a common carrier in interstate
commerce?"
But the court sustained objections to all of them. The witness
was also asked, but not permitted to answer:
"Q. Did you fix the value upon the St. Louis Division of the
Three C.'s & St.L. Railway -- I mean did the board -- as
returned to the auditor of state separately, or did you value that
road as a part of the Three C.'s & St.L. system in Ohio and
Indiana, and did you, having reached a unit of value by considering
the whole system, distribute that unit of value according to
mileage over the operated and leased lines and parts of roads in
Indiana of the plaintiff?"
Another series of questions was propounded, of which the
following is one:
"Q. Did you or not, in assessing and fixing the value of the St.
Louis Division and of the Chicago Division and of the leased and
operated lines of the Three C.'s & St.L. Railway in the State
of Indiana, place or add anything to the value of said lines by
reason of the fact that it had a franchise? "
Page 154 U. S. 443
Objections were made by the defendants to these questions, which
were sustained, but afterwards, when the witness was again on the
stand, the objections were withdrawn, whereupon the plaintiff
withdrew all the questions except the one which we have last
quoted, and to that witness answered: "We did not; no, sir."
These references are probably sufficient to fully present the
questions for consideration. It will not be claimed that it is
within the province of this Court to review any question as to the
admission or rejection of testimony which does not bear directly
upon some matter of a federal nature. It will be noticed that no
testimony was ruled out showing, or tending to show, what was in
fact valued and assessed by the state board. There was also direct
testimony that no franchise belonging to the plaintiff was
estimated in making the assessment. The inquiry, therefore, in view
of the testimony received and that offered and rejected, is
narrowed to these two matters: First. If an assessing board,
seeking to assess for purposes of taxation a part of a road within
a state, the other part of which is in an adjoining state,
ascertains the value of the whole line as a single property, and
then determines the value of that within the state, upon the
mileage basis, is that a valuation of property outside of the
state, and must the assessing board, in order to keep within the
limits of state jurisdiction, treat the part of the road within the
state as an independent line, disconnected from the part without,
and place upon that property only the value which can be given to
it if operated separately from the balance of the road? Second.
Where an assessing board is charged with the duty of valuing a
certain number of miles of railroad within a state forming part of
a line of road running into another state, and assesses those miles
of road at their actual cash value, determined on a mileage basis,
is this placing a burden upon interstate commerce, beyond the power
of the state simply because the value of that railroad as a whole
is created partly, and perhaps largely, by the interstate commerce
which it is doing?
With regard to the first question, it is assumed that no special
circumstances exist to distinguish between the conditions
Page 154 U. S. 444
in the two states, such as terminal facilities of enormous value
in one and not in another. With this assumption, the first question
must be answered in the negative. The true value of a line of
railroad is something more than an aggregation of the values of
separate parts of it, operated separately. It is the aggregate of
those values plus that arising from a connected operation of the
whole, and each part of the road contributes not merely the value
arising from its independent operation, but its mileage proportion
of that flowing from a continuous and connected operation of the
whole. This is no denial of the mathematical proposition that the
whole is equal to the sum of all its parts, because there is a
value created by and resulting from the combined operation of all
its parts as one continuous line. This is something which does not
exist, and cannot exist, until the combination is formed. A notable
illustration of this was in the New York Central Railroad
consolidation. Many years ago, the distance between Albany and
Buffalo was occupied by three or four companies, each operating its
own line of road, and together connecting the two cities. The
several companies were united and formed the New York Central
Railroad Company, which became the owner of the entire line between
Albany and Buffalo, and operated it as a single road. Immediately
upon the consolidation of these companies and the operation of the
property as a single connected line of railroad between Albany and
Buffalo, the value of the property was recognized in the market as
largely in excess of the aggregate of the values of the separate
properties. It is unnecessary to enter into any inquiry as to the
causes of this. It is enough to notice the fact. Now when a road
runs into two states, each state is entitled to consider as within
its territorial jurisdiction, and subject to the burdens of its
taxes, what may perhaps not inaccurately be described as the
proportionate share of the value flowing from the operation of the
entire mileage as a single continuous road. It is not bound to
enter upon a disintegration of values and attempt to extract from
the total value of the entire property that which would exist if
the miles of road within the state were
Page 154 U. S. 445
operated separately. Take the case of a railroad running from
Columbus, Ohio, to Indianapolis, Indiana. Whatever of value there
may be resulting from the continuous operation of that road is
partly attributed to the portion of the road in Indiana and partly
to that in Ohio, and each state has an equal right to reach after a
just proportion of that value and subject it to its taxing
processes. The question is how can equity be secured between the
states? And to that, a division of the value of the entire property
upon the mileage basis is the legitimate answer. Taxing a mileage
share of that in Indiana is not taxing property outside of the
state.
The second question must also be answered in the negative. It
has been again and again said by this Court that while no state
could impose any tax or burden upon the privilege of doing the
business of interstate commerce, yet it had the unquestioned right
to place a property tax on the instrumentalities engaged in such
commerce.
See, among many other cases,
Marye v.
Baltimore & Ohio Railroad, 127 U.
S. 117 U.S.;
Pullman's Palace Car Co. v.
Pennsylvania, 141 U. S. 18.
The rule of property taxation is that the value of the property
is the basis of taxation. It does not mean a tax upon the earnings
which the property makes, nor for the privilege of using the
property, but rests solely upon the value. But the value of
property results from the use to which it is put, and varies with
the profitableness of that use, present and prospective, actual and
anticipated. There is no pecuniary value outside of that which
results from such use. The amount and profitable character of such
use determines the value, and, if property is taxed at its actual
cash value, it is taxed upon something which is created by the uses
to which it is put. In the nature of things, it is practically
impossible -- at least in respect to railroad property -- to divide
its value and determine how much is caused by one use to which it
is put and how much by another. Take the case before us. It is
impossible to disintegrate the value of that portion of the road
within Indiana, and determine how much of that value springs from
its use in doing interstate business and how much from its use in
doing business wholly within the state. An attempt
Page 154 U. S. 446
to do so would be entering upon a mere field of uncertainty and
speculation, and because of this fact it is something which an
assessing board is not required to attempt. Take for illustration
property whose sole use is for purposes of interstate commerce,
such as a bridge over the Ohio between the States of Kentucky and
Ohio. From that springs its entire value. Can it be that it is on
that account entirely relieved from the burden of state taxation?
Will it be said that the taxation must be based simply on the cost,
when never was it held that the cost of a thing is the test of its
value? Suppose there be two bridges over the Ohio, the cost of the
construction of each being the same, one between Cincinnati and
Newport and another twenty miles below, and where there is nothing
but a small village on either shore. The value of the one will
manifestly be greater than that of the other, and that excess of
value will spring solely from the larger use of the one than of the
other. Must an assessing board in either state, assessing that
portion of the bridge within the state for purposes of taxation,
eliminate all of the value which flows from the use, and place the
assessment at only the sum remaining? It is a practical
impossibility. Either the property must be declared wholly exempt
from state taxation or taxed at its value irrespective of the
causes and uses which have brought about such value. And the
uniform ruling of this Court -- a ruling demanded by the harmonious
relations between the states and the national government -- has
affirmed that the full discharge of no duty entrusted to the latter
restrains the former from the exercise of the power of equal
taxation upon all private property within its territorial limits.
All that has been decided is that beyond the taxation of property
according to the rule of ordinary property taxation, no state shall
attempt to impose the added burden of a license or other tax for
the privilege of using, constructing, or operating any bridge or
other instrumentality of interstate commerce or for the carrying on
of such commerce. It is enough for the state that it finds within
its borders property which is of a certain value. What has caused
that value is immaterial. It is protected by state laws,
Page 154 U. S. 447
and the rule of all property taxation is the rule of value, and
by that rule property engaged in interstate commerce is controlled
the same as property engaged in commerce within the state. Neither
is this an attempt to do by indirection what cannot be done
directly -- that is, to cast a burden on interstate commerce. It
comes, rather, within that large class of state action, like
certain police restraints, which, while indirectly affecting,
cannot be considered as a regulation of, interstate commerce or a
direct burden upon its free exercise. We answer this question,
therefore, in the negative.
These are the only matters which seem to distinguish this case
from the two preceding, and therefore the judgment of the Supreme
Court of Indiana is
Affirmed.
MR. JUSTICE HARLAN and MR. JUSTICE BROWN dissented from the
opinion and judgment in this case upon the grounds stated in their
dissenting opinion in
Pittsburgh, Cincinnati, Chicago & St.
Louis Railway Company v. Backus, No. 899,
ante,
154 U. S. 421.
MR. JUSTICE JACKSON did not hear the arguments in this case or
take part in its decision.