The Henderson Bridge Company was a corporation created by the
Kentucky for the purpose of erecting and operating a railroad
bridge, with its approaches, over the Ohio River between the City
of Henderson, in Kentucky, and the Indiana shore. It owned 9.46
miles of railroad and .65 of a mile of siding, making its railroad
connections in Indiana, which property was assessed for taxation in
that state at $627,660. The length of the bridge in the two states,
measured by feet, was one-third in Indiana and two-thirds in
Kentucky. The tangible property of the company was assessed in
Henderson County, Kentucky at $649,735.54. From the evidence before
them, the Board of Valuation and Assessment placed the value of the
company's entire property at $2,900,000, and deducted therefrom
$627,660 for the tangible property assessed in Indiana, which left
$2,272,340, of which two-thirds, or $1,514,893, was held to be the
entire value of the property in Kentucky. From this, $649,735.54,
the value of the tangible property in Henderson
Page 166 U. S. 151
County, was deducted, and the remainder, $865,157.46, was fixed
by the Board as the value of the company's franchise. From the
total value,
$1,385,107 was deducted for the tangible and intangible property
in
Indiana, and the taxes in Kentucky were levied on $1,514,893 of
tangible
and intangible property in that state. The company paid the tax
on the
tangible property ($2,762.08), and refused to pay the tax on the
intangible property ($3,675.91). This action was brought to recover
it. The
Court of Appeals held that the Commonwealth was entitled to
recover
it.
Held:
(1) That the company was chartered by the Kentucky to build and
operate a bridge, and the state could properly include the
franchises it had granted in the valuation of the company's
property for taxation.
(2) That the tax was not a tax on the interstate business
carried on over or by means of the bridge, because the bridge
company did not transact such business, that business being carried
on by the persons and corporations which paid the bridge company
tolls for the privilege of using the bridge.
(3) That the fact that the tax in question was to some extent
affected by the amount of the tolls received, and therefore might
be supposed to increase the rate of tolls, was too remote and
incidental to make it a tax on the business transacted.
(4) That the acts of Congress conferred no right or franchise on
the company to erect the bridge or collect tolls for its use; that
they merely regulated the height of bridges over that river and the
width of their spans, in order that they might not interfere with
its navigation, and that the declaration that such bridges should
be regarded as post roads did not interfere with the right of the
state to impose taxes.
(5) That the tax in controversy was nothing more than a tax on
the intangible property of the company in Kentucky, and was
sustained as such by the Court of Appeals, as consistent with the
provisions of the Constitution of Kentucky in reference to
taxation, and that, for the reasons given, and on the authorities
cited in
Adams Express Co. v. Ohio State Auditor,
165 U. S. 194,
this Court is unable to conclude that the method of taxation
prescribed by the statute of Kentucky and followed in making this
assessment is in violation of the Constitution of the United
States.
The case is stated in the opinion.
Page 166 U. S. 152
MR. CHIEF JUSTICE FULLER delivered the opinion of the Court.
This was an action brought by the Commonwealth of Kentucky
against the Henderson Bridge Company to recover the sum of
$3,675.91, taxes levied against that company on an assessment made
of its intangible property by the Kentucky Board of Valuation and
Assessment for the year 1893.
The Henderson Bridge Company is a corporation created by the
Commonwealth of Kentucky for the purpose of erecting and operating
a railroad bridge, with its approaches, over the Ohio River,
between the City of Henderson, in Kentucky, and the Indiana
shore.
The record does not show that it was also incorporated under any
law of Indiana, but the company alleged that, being incorporated by
the laws of Kentucky, it was granted certain powers and privileges
under the laws of Indiana, though it was not denied that the
company actually constructed and now owned and operated the bridge
and approaches under its Kentucky charter. It was, moreover,
averred that the company built its bridge under and in accordance
with the Act of Congress of December 17, 1872, 17 Stat. 398, c. 4,
entitled "An act to authorize the construction of bridges across
the Ohio River, and to prescribe the dimensions of the same," which
provided that any such bridge should be recognized as a post route,
and the act supplementary to that act approved February 14, 1883,
22 Stat. 414, c. 44.
It appeared that the bridge company owned 9.46 miles of railroad
and .65 of a mile of siding, making its railroad connections in
Indiana, which property was assessed for taxation in that state at
$627,660; that the length of the bridge in the two states, measured
by feet, was one-third in Indiana and two-thirds in Kentucky; that
the tangible property of the company was assessed in Henderson
County, Kentucky, at $649,735.54; that the capital stock of the
company was $1,000,000, and that it had issued bonds to the amount
of $2,000,000.
From the evidence before them, the Board of Valuation
Page 166 U. S. 153
and Assessment placed the value of the company's entire property
at $2,900,000, and deducted therefrom $627,660 for the tangible
property assessed in Indiana, which left $2,272,340, of which
two-thirds, or $1,514,893, was held to be the entire value of the
property in Kentucky. From this, $649,735.54, the value of the
tangible property in Henderson County, was deducted, and the
remainder, $865,157.46, was fixed by the board as the value of the
company's franchise.
The company's stock was worth not less than $90 per share on the
market, and the bonds took precedence of the stock. The evidence
showed a large amount of assets and the receipt of a large income.
From the total value, $1,385,107 was deducted for the tangible and
intangible property in Indiana, and the taxes in Kentucky were
levied on $1,514,893 of tangible and intangible property in that
state.
The tax on the tangible property amounted to $2,762.08, and
this, as we understand it, was paid by the company. The tax on the
intangible property was $3,675.91, which the company refused to
pay, whereupon this action was brought for its recovery.
The state circuit court rendered judgment in favor of the
commonwealth for $595, which was reversed by the Court of Appeals,
which held the commonwealth entitled to recover the full amount. 31
S.W. 486. The cause having been remanded, and judgment entered
accordingly, by the circuit court and affirmed by the Court of
Appeals, this writ of error was sued out.
The company was chartered by the State of Kentucky to build and
operate a bridge, and the state could properly include the
franchises it had granted in the valuation of the company's
property for taxation.
Central Pacific Railroad v.
California, 162 U. S. 91. The
regulation of tolls for transportation over the bridge considered
in
Covington & Cincinnati Bridge Co. v. Kentucky,
154 U. S. 204,
presented an entirely different question.
Clearly the tax was not a tax on the interstate business carried
on over or by means of the bridge, because the bridge company did
not transact such business. That business was carried
Page 166 U. S. 154
on by the persons and corporations which paid the bridge company
tolls for the privilege of using the bridge. The fact that the tax
in question was to some extent affected by the amount of the tolls
received, and therefore might be supposed to increase the rate of
tolls, is too remote and incidental to make it a tax on the
business transacted. This very question was decided in
Erie
Railroad v. Pennsylvania, 158 U. S. 431,
158 U. S. 439,
where it was said:
"It is argued that the imposition of a tax on tolls might lead
to increasing them in an effort to throw their burden on the
carrying company. Such a result is merely conjectural, and at all
events too remote and indirect to be an interference with
interstate commerce. The interference with the commercial power
must be direct, and not the mere incidental effect of the
requirement of the usual proportional contribution to public
maintenance."
The only franchises treated here as the subject of taxation were
those granted by the State of Kentucky. So far as the State of
Indiana could be said to have conferred any franchise upon the
company, it was a franchise that inhered in that portion of the
structure that was within the State of Indiana, the value of which
was not included in the tax complained of.
The acts of Congress conferred no right or franchise on the
company to erect the bridge or collect tolls for its use. They
merely regulated the height of bridges over that river and the
width of their spans in order that they might not interfere with
its navigation. The declaration that such bridges should be
regarded as post roads did not interfere with the right of the
state to impose taxes, as was decided in
Postal Telegraph Cable
Co. v. Charleston, 153 U. S. 692,
153 U. S. 700.
The contrary view would withdraw from the taxing power of the
states nearly all the railroads and stage routes throughout the
country.
The tax in controversy was nothing more than a tax on the
intangible property of the company in Kentucky, and was sustained
as such by the Court of Appeals as consistent with the provisions
of the Constitution of Kentucky in reference to taxation.
And for the reasons given, and on the authorities cited in
Adams Express Co. v. Ohio state Auditor, 165 U.
S. 194, we are
Page 166 U. S. 155
unable to conclude that the method of taxation prescribed by the
statute of Kentucky, and followed in making this assessment, is in
violation of the Constitution of the United States.
Judgment affirmed.
MR. JUSTICE WHITE, dissenting.
A fuller statement of the facts than is given in the opinion of
the court seems to me necessary in order to make clear the reasons
for my dissent.
The plaintiff in error, the Henderson Bridge Company, owns and
operates a bridge across the Ohio River from Henderson, Kentucky,
to the Indiana shore. This bridge is largely occupied by railroad
tracks, used, necessarily, solely for interstate commerce. On the
Kentucky side, there is an approach, and one also on the Indiana
side, consisting of an embankment and a siding about nine miles in
length. The corporation was chartered by the State of Kentucky. The
general laws of the State of Indiana provide for the recognition of
any corporation
"created by the laws of another state for constructing a bridge
across any river or stream forming in whole or in part the boundary
between such other state and this state."
It directs also the filing of a copy of the charter in Indiana,
and subjects the charter of the corporation to the exercise by the
State of Indiana of the power to repeal, alter, or amend. The
bridge in question was also authorized by act of Congress, and was
established as a post route. 17 Stat. 398, as amended by 22 Stat.
414. Whether the operation of the Indiana legislation was to make
the bridge company an Indiana corporation need not be considered.
It is certain, however, from the facts just stated that the bridge
company possessed first, a franchise to exist as a corporation from
the State of Kentucky, and under this franchise to build and
operate the bridge to the Indiana line -- that is, two-thirds of
its length; second, that it also possessed a franchise or right
from the State of Indiana, whether
Page 166 U. S. 156
a corporation under the Indiana laws or not, to build and
operate the bridge and its approaches insofar as these structures
were to be located in that state; third, a franchise or right
derived from the United States to operate the bridge for purposes
of interstate commerce, and as a post route. None of these
franchises was incompatible the one with be others, and all were of
such a nature as to be of value to the corporation.
The laws of the State of Kentucky under which the tax in
question was levied are set out
in extenso in the opinion
of the Court in
Adams Express Co. v. Kentucky, this day
decided,
post, 166 U. S. 171, and
I therefore content myself with a brief statement thereof. The
sections referred to are as numbered and contained in Barbour &
Carroll's compilation of the Kentucky Statutes in force in
1894.
Section 4019 fixes the rate of taxation and the various purposes
for which taxes may be imposed. Section 4020 defines the general
subjects of taxation -- that is to say, the objects upon which the
rate of taxation provided in the previous section are to be levied.
This latter section provides that
"all real and personal estate within this state, and all
personal estate of persons residing in this state, and of all
corporations organize under the laws of this state, whether the
property be in or out of this state, including intangible property,
which shall be considered and estimated in fixing the value of
corporate franchises as hereinafter provided, shall be subject to
taxation unless the same be exempt,"
etc.
It is manifest that this section clearly designates the objects
of taxation to be as follows: (a) all real and personal estate
within this state; (b) all personal estate of persons residing
within the state; (c) all the property of corporations organized
under the law of the state, whether such property be in or out of
the state, including the intangible property of such corporations,
which property -- that is, the intangible property, whether
situated in or out of the state, shall be considered and estimated
in fixing the value of the corporate franchises.
The statutes of Kentucky provide as a general rule for the
assessment by the local or county officials of all real and
personal
Page 166 U. S. 157
property of individuals or corporations in the county where the
property is situated or the corporation established. The franchise
tax embraced in the last of the foregoing enumeration is not
assessed by the local authorities, but by a Board of Valuation and
Assessment, composed of the State Auditor, Treasurer, and Secretary
of State, for it is said in § 4077, "The Auditor, Treasurer and
Secretary of State are hereby constituted a Board of Valuation and
Assessment for fixing the value of said
franchises," and a
subsequent sentence makes the State Auditor the chairman of the
board. Section 4078 compels a return to this board showing the
amount of capital stock, preferred and common; the number of
shares; the amount of stock paid up; the par and real value
thereof; the highest price at which such stock was sold at a
bona fide sale within the next twelve months before the
day on which the statement is required to be made; the amount of
surplus and undivided profit; the value of all assets; the total
amount of principal indebtedness; the amount of gross or net
earnings or income, including interest on investments and income
from all sources for twelve months; the amount and kind of tangible
property in the state and where situated, "assessed or liable to
assessment in the state," and the fair cash value thereof estimated
at the price it would bring at a fair voluntary sale, and such
other facts as the auditor may require. Section 4079 provides, if
the corporation have a line or lines extending beyond the limits of
the state, the statement must also show the length of the entire
line owned, leased, or controlled in the state, and the entire line
of the same company elsewhere. If the corporation be organized
under the laws of any other state, or under the laws of Kentucky
but conduct its business in Kentucky as well as in other states,
the statement is required to show the gross or net income or
earnings received in the state and out of the state on business
done in the state, and the entire gross receipts of the company in
the state and elsewhere during twelve months.
From the data thus obliged to be furnished to the board, the act
(§ 4079) commands that the assessment of the franchises of the
corporation created by the State of Kentucky
Page 166 U. S. 158
shall be made as follows (I quote):
"Provided, that said board from said statement and from such
other evidence as it may have, if such corporation, company or
association be organized under the laws of this state, shall fix
the value of the capital stock of the corporation, company or
association, as provided in the next succeeding section, and from
the amount thus fixed shall deduct the assessed value of all
tangible property assessed in this state or in the counties where
situated.
The remainder thus found shall be the value of its
corporate franchise subject to taxation as aforesaid."
The following section (4080) fixes the rule for the
ascertainment of the value of the capital stock by which the amount
of the tax on franchises is to be arrived at by making it the duty
of the board to "
take the proportion which the gross receipts
in this state within twelve months . . . bears to the entire gross
receipts of the company," and declaring that
"
the same proportion of the value of the entire capital
stock, less the assessed value of the tangible property assessed,
or liable to assessment, in this state, shall be the correct value
of the corporate franchise of such corporation . . . for taxation
in this state."
The bridge company was assessed by the local county officials on
the bridge and other tangible property the sum of $649,735.54. The
board of valuation assessed the company for the franchise tax,
under the laws above stated in the sum of $865,157.46. The
constitutionality of this latter assessment and the tax levied
thereupon is the issue involved.
The first question which arises is was the tax levied on the
franchise of the corporation? In solving this question, it will
serve only to confuse and delude the reason if the method which has
been pursued in argument is now followed -- that is, of calling the
levy a franchise tax in one breath, and then in the next dropping
that designation and not only denominating the tax, but treating it
as solely a tax on intangible property.
Page 166 U. S. 159
If the words "intangible property" be synonymous with
"franchise," there is no reason for shifting the name by which the
object taxed is designated. If, on the contrary, intangible
property and franchise are two different objects, then to call the
tax first by one and then by the other name gives rise not only to
inaccuracy, but to misapprehension.
That the tax is on the franchise is to me so obvious, so clear,
that I fail to see how there can be doubt or question on the
subject. The law under which the tax is levied, in language which
nothing can obscure, designates it as a franchise tax, and only a
franchise tax. Can this be denied? Let the query be answered by
briefly considering the law section by section. Section 4020 says
"shall be considered and estimated in fixing the value of the
corporate franchises as hereinafter provided." Section 4077 -- the
one which creates the board of valuation -- declares "are hereby
constituted a Board of Valuation and Assessment, for fixing the
value of said franchises;" section 4078 says, "in order to
determine the value of the franchises mentioned;" section 4079,
that the information required of the taxpayer is for "determining
the value of the franchises to be taxed." Section 4080 is no less
explicit: "Shall be the correct value of the corporate franchise of
such corporation, company, or association for taxation in this
state."
But, clear as is the statute in its every line, the pleadings of
the state, by which this suit was commenced are, if possible, more
so. The declaration, after reciting the levy of the assessment by
the board and stating the total amount, adds that it is the sum
"which said Board of Valuation and Assessment fixed
as the
value of the franchise of said defendant company." The
language of the statute and the averment of the petition are,
moreover, supported by the opinion of the highest court of the
State of Kentucky, from which this case comes to this Court,
wherein it is announced that the tax is on the franchise. I shall
quote from the opinion hereafter.
The tax being, then, a tax on franchises, the question is:
First,
is it exclusively on the franchise to exist as a
corporation granted by the laws of Kentucky? or, second,
is it also
Page 166 U. S. 160
a tax on the franchise enjoyed by the corporation from the
United States, and likewise on the one accorded to the corporation
by the State of Indiana, and, in addition, is the tax a burden laid
directly by the state upon the interstate commerce business carried
on by the corporation? If it is solely on the first of these
objects of taxation, of course, it was within the power of the
state to assess and levy it.
Central Pacific Railroad v.
California, 162 U. S. 91. On
the other hand, if the tax is levied on all or either of the
subject matters of taxation embraced in the second enumeration, it
violates the Constitution.
California v. Pacific Railroad,
127 U. S. 1, and
authorities cited and referred to in the dissenting opinion in
Adams Express Co. v. Ohio, 165
U. S. 229.
The difference between the levy exclusively on the franchise to
exist as a corporation granted by a state and the attempt by such
state to tax franchises granted by the United States or another
state, or to lay a burden on interstate commerce, is well
illustrated in
Philadelphia & Southern Southern Steamship
Co. v. Pennsylvania, 122 U. S. 326.
There, a tax had been laid by the State of Pennsylvania upon the
gross receipts of a domestic corporation of the state under
authority of a statute which embraced certain classes of
corporations, both foreign and domestic. Answering the argument
that the vessels and franchises of the corporation were two kinds
of personal property, and that the tax was really upon the
franchises of the company, and that each kind of property was taxed
without regard to the fact that it was involved in and devoted to
the pursuit of interstate and foreign commerce, the Court, speaking
through Mr. Justice Bradley, said (p.
122 U. S.
342):
"The second ground on which the decision referred to was based
was that the tax was upon the franchise of the corporation granted
to it by the state. We do not think that this can be affirmed in
the present case. It certainly could not have been intended as a
tax on the corporate franchise, because, by the terms of the act,
it was laid equally on the corporations of other states doing
business in Pennsylvania. If intended as a tax on the franchise of
doing business -- which, in this case, is the business of
transportation in carrying
Page 166 U. S. 161
on interstate and foreign commerce -- it would clearly be
unconstitutional."
The issue, then, is was this franchise tax levied solely upon
the franchise granted by the State of Kentucky to exist as a
corporation, or was it upon all the franchises of the company, and
upon all its interstate commerce business? It cannot be that the
Kentucky law contemplated that the assessment which it ordained
should be only on the franchise to exist as a corporation derived
from that state, since the statute commands that the tax shall be
laid upon all corporations doing business in the state, whether or
not they hold a franchise to be a corporation from the State of
Kentucky. This is shown to be the fact on the very face of the
statutes, and this test was made decisive by this Court, as shown
in the foregoing citation from the opinion in
Philadelphia
Steamship Co. v. Pennsylvania.
Let me turn to the particular provisions of the statute and
ascertain upon what it commands the tax to be levied. Section 4020,
in enumerating the objects of taxation which shall be assessed as
part of the franchise, provides for all intangible property to be
thus included in the franchise,
whether the property be in or
out of the state. Can it be said, when the law in mandatory
terms directs the inclusion in the franchise to be assessed of
property, whether in or out of the state, that it means that only
the franchise granted by the state to a corporation to exist and
such shall be assessed? Examine the other sections of the law --
4077, 4078, 4079, 4080 -- and it is apparent that they also provide
that the board shall consider the entire value of the corporate
property, everything that it owns, in ascertaining the value of the
franchise, which is the thing to be taxed. Now when the law says
that, in taxing the franchise, the board shall include therein all
the intangible property of the corporation, whether within or
without the state, and moreover, in subsequent provisions imposes
on the board the duty not simply of considering all the property in
and out of the state, but imperatively says that the assessment of
the franchise shall contain all this property, it seems to me that
it is impossible with reason to
Page 166 U. S. 162
say that the assessment which the law required was one only on
the franchise to exist as a corporation granted by the state, and
was not levied on the value of the franchise made up by assessing
every right which the corporation possessed, whether, in or out of
the state, or whether conferred by the United States or the State
of Indiana.
That the board by which the assessment was made considered it to
be its duty to include everything in and out of the state and every
right possessed by the corporation is made also clear by the
testimony of the State Auditor, who was president of the Board of
Valuation. The corporation had a capital stock, the par value of
which was $1,000,000. It had, besides, outstanding bonds to the
amount of $2,000,000. The president of the Board stated -- and his
testimony is all there is on the subject in the record -- that the
total value was fixed, as follows:
One million (1,000,000) dollars of
capital stock, which was valued
at ninety (90) dollars per share . . . . . . $ 900,000.00
Two million (2,000,000) dollars of
bonds, valued at par . . . . . . . . . . . . 2,000,000.00
-------------
Total . . . . . . . . . . . . . . . . $2,900,000.00
As by the statute the value of the taxable franchise was to be
ascertained by taking the sum determined to be the worth of the
capital stock, as that term was employed in the statute, less the
amount of property otherwise taxed, which was to be deducted, it
follows that the franchise was embraced in the amount of this
total. As the franchise was included in the total, it also results,
as the part is contained in the whole, that the elements which
entered into and formed a part of the total were therefore elements
of value entering into and forming part of the taxable
franchise.
Now by what process of calculation does the president of the
Board declare that the sum of $2,900,000 was reached? I quote the
testimony:
Page 166 U. S. 163
They say their gross earnings or
income amounted to . . . . . . . . . . . . . $ 209,072.21
Income from all other sources. . . . . . . . . 8,000.00
------------
Total . . . . . . . . . . . . . . . . $ 217,072.21
Less interest on bonds . . . . . $120,000.00
Less sinking fund. . . . . . . . 21,000.00
-----------
141,000.00
------------
Balance . . . . . . . . . . . . . . . $ 76,072.21
"So that you see here the corporation paying $120,000 interest
on two millions of bonds, putting $21,000 into a sinking fund, and
with a net profit upon the operation of the bridge of $76,071.21,
which was over seven percent on one million of stock."
Thus, the president of the Board declares that the total sum out
of which the taxable value of the franchise was to be ascertained
was fixed at nearly two millions of dollars above the par value of
the stock of the company, because the gross (not the net) earnings
of the company derived from its entire interstate commerce business
-- its business done in Indiana as well as in Kentucky -- were all
treated as one. The further result of the testimony is that
because, by so considering these gross earnings, they established
that the company realized a sum which would pay six percent upon
its bonds and seven percent upon the par of its capital stock,
therefore the gross amount, in which the franchise was included,
was fixed at two million nine hundred thousand (2,900,000)
dollars.
In passing it is worthy of remark that the record contains no
explanation of how it could have been found that the gross earnings
could have produced the result stated, in view of the fact that
none of the operating expenses of the corporation were taken into
consideration, and that no allowance was even made for the payment
of the sum of the tax which the Board proceeded to assess. Can it
be said, in face of the fact that the assessing officer declares
that although, in making up the total amount, every right possessed
by the corporation and all the results of its interstate business
were made the basis of
Page 166 U. S. 164
the valuation, yet that the sum so made up embraced only the
mere right of the corporation to exist as such, granted by
Kentucky, and did not include the rights enjoyed by the corporation
under the law of the United States and the law of Indiana, and also
all its gross interstate commerce earnings?
But the testimony of the president of the Board as to the method
of calculation by which the ultimate taxable value of the franchise
was fixed at $865,157.46 is an additional demonstration that the
sum of all the gross earnings from interstate commerce, and,
indeed, everything that the corporation earned, was included in
this amount. How was this taxable value of the franchise fixed?
The total valuation was. . . . . . . . . . . . $2,900,000.00
There was deducted the
following assessment on the nine
miles of railroad in Indiana . . $627,660.00
Actual value of bridge estimated
in Kentucky. . . . . . . . . . . 649,735.54
Actual value of bridge estimated
in Indiana . . . . . . . . . . . 757,447.00
-----------
Total . . . . . . . . . . . . . . . . 2,034,842.54
-------------
Balance . . . . . . . . . . . . . . . $ 865,157.46
That is to say, the president of the Board testifies that, after
having used the whole gross earnings of the company from interstate
commerce, from business done in Indiana under the franchise held by
that state, and also under that held by the United States, in order
thereby to swell the original amount, yet when the deductions came
to be made, nothing was subtracted in consequence of having
included in the original amount the results of the United States
franchise, those of the Indiana franchise, and those arising from
the entire interstate commerce business of the corporation. As it
is, in my opinion, a demonstration that these things were included
in the gross amount, and as it is also a demonstration that
none
Page 166 U. S. 165
of them was deducted, it follows that the taxable value of the
franchise was almost wholly made up of these items. It cannot, I
submit, be said that where a thing is included to make up an
amount, and is not subsequently deducted therefrom, it does not
continue to be a part of the amount into which it originally
entered. The statement of the president of the assessing board is
the only testimony on the subject contained in the record. In view
of the fact that he unquestionably establishes that the assessment
was really on the gross receipts, I submit it leaves no room
whatever for conjecture or presumption that the assessment must
have been levied upon some other object of taxation.
This Court has held repeatedly that a state cannot tax the gross
earnings of a corporation, even though created by it, derived from
interstate commerce, as the levy of such tax would be a burden on
that commerce, and therefore an interference with the exclusive
power of Congress over that subject. It being beyond dispute,
therefore, that the sum of taxation in this case was fixed almost
exclusively by the gross earnings from interstate commerce, who,
may I ask, can point out the distinction between taxing the gross
earnings derived from interstate commerce and taxing a valuation
based on such earnings? The elementary principle so often applied
by the court that a tax which may not be imposed directly cannot be
levied indirectly is decisive. Indeed, even the application of that
familiar rule is unnecessary, since the method pursued in this case
is an exact and literal equivalent of a tax levied directly upon
the gross earnings from interstate commerce itself.
The language of the Court of Appeals of Kentucky, whose judgment
is now here for review, leaves no doubt as to how it understood the
case and what it interpreted the tax to be. The opinion, in
referring to the use of the words "capital stock" as a measure or
instrument for the purposes of the valuation of the franchise, says
(31 S.W. 491):
"By this term 'capital stock,' the legislature meant to include
the entire property, real and personal, tangible and intangible,
assets on hand, and its franchises as well, and that, when so
embraced
Page 166 U. S. 166
and construed and valued as an entirety,"
the net balance obtained by deducting the tangible property
already assessed would constitute the "value of the franchise to be
taxed under section 4077." And again, in another portion of the
opinion, after reviewing the figures showing the value of the
"property and the franchises of the company" (mark the use of the
plural), the court said (page 491):
"So that the large earning capacity of this property, based on
its tangible value only, authorizes us to assume that it lies in
its franchise, which is the right to charge tolls on every
locomotive, freight and passenger car, ton of freight, and
passenger that passes over its road."
Also (on page 492), the court quotes from section 929 of
Morawetz on Private Corporations, among other remarks of the
author, the following:
"On the other hand, franchises clearly have a value if the word
'value' is used to signify the advantage derived from their
possession -- or, in other words, their utility. The value of a
franchise, using the word 'value' in this sense, would not be
measured by the cost of difficulty of obtaining the franchise, or
by its exclusive character, but by the benefit derived from its
possession."
The Kentucky court adds: "Thus, the value of the franchise in
this case aptly illustrates the meaning of the author."
When the opinion of the court of last resort of the state, as
announced in this very case, asserts that the tax is beyond doubt a
levy upon all the property of the company in and out of the state,
that it is a tax upon the value of the exercise of the
privilege of using the bridge, of charging for the running of
locomotives across the bridge, and of doing the business of
interstate commerce in any form, I cannot bring my mind to the
conclusion that the tax is only levied on the mere franchise to
exist as a corporation conferred by the State of Kentucky.
It was doubtless the construction given by the Kentucky court to
the statute which has caused the opinion of this Court now
announced to maintain the proposition that the traffic over the
bridge which crosses the river between Kentucky and Indiana, and
over which, in the nature of things, there can be, I think, nothing
but interstate commerce, is not such commerce. Serious as I
conceive to be the violation of the
Page 166 U. S. 167
Constitution which results from recognizing the right of a state
to tax gross earnings derived from interstate commerce, the premise
upon which the court thus rests its opinion, to my mind, is a yet
more evident violation of the Constitution, and is more pregnant
with dangerous results to our institutions.
I consider it a new and startling doctrine to say that a bridge
which is situated in two states, with the sanction of the law of
both, which has been made a post route by act of Congress, is not
an instrument of interstate commerce, and that the traffic which
goes over such bridge is not such commerce, and that the receipts
derived from or charges resulting from such business are not
receipts derived from interstate commerce business. Pushed to its
legitimate conclusion, this premise deprives the interstate
commerce clause of the Constitution of its entire efficacy, and is,
I think, in direct conflict with the Constitution as interpreted by
this Court from the foundation of the government. I need go no
further to demonstrate this than to refer to the recent decision of
this Court in
Covington & Cincinnati Bridge Co. v.
Kentucky, 154 U. S. 204,
where the validity of an act of the Legislature of Kentucky
regulating the rate of tolls to be charged for traffic over a
bridge between Covington, Kentucky, and Cincinnati, Ohio, was
considered. In the course of the opinion, this Court, speaking
through MR. JUSTICE BROWN, said (p.
154 U. S.
217):
"This case involves the right of one state to fix charges for
the transportation of persons and property over a bridge connecting
it with another state, without the assent of Congress or such other
state, and thus involving the further inquiries -- first whether
such traffic across the river is interstate commerce, and second
whether a bridge can be considered an instrument of such
commerce."
Both these questions were answered in the affirmative on the
authority of
Gloucester Ferry Co. v. Pennsylvania,
114 U. S. 196, and
Wabash, St.Louis & Pacific Railway v. Illinois,
118 U. S. 557.
These cases were held to be directly in point. The first denied the
right of the state to impose a tax upon the franchise of a ferry
company operating between the States of Pennsylvania and New
Jersey, while the second
Page 166 U. S. 168
denied to the State of Illinois the power of regulating the
rates of railway charges between Illinois and New York. Where, may
I ask, can the line of distinction be drawn between the
Covington Bridge case and this? The bridge in the former
case was one between Kentucky and Ohio over the Ohio River, the
bridge here is over the same river between Kentucky and Indiana.
Certainly it cannot be said that there is something peculiar to the
State of Indiana which causes the bridge between that state and
Kentucky not to be an instrument of interstate commerce, and the
traffic over it not to be interstate commerce, when the contrary is
the case as to a bridge between Kentucky and Ohio.
The contention that, although the traffic over the bridge may be
interstate commerce and the receipts from said traffic be
interstate commerce receipts, yet the tolls paid to the bridge
company are not receipts from interstate commerce business
transacted by the bridge company is a mere distinction without a
difference. What, may I again ask, is the toll paid to the company
for the use of the bridge but the result of a contract entered into
for the purpose of carrying on interstate commerce? In the
Covington Bridge case, the sole question was as to the
right of the State of Kentucky to regulate the amount of tolls to
be received by the bridge company. The right of the state was
denied on the ground that the tolls were a matter of interstate
commerce -- that is, that the business of operating the bridge and
charging for the use thereof was interstate commerce, and not
subject to state control. In that case, then, the tolls were
adjudged to be receipts from interstate commerce; in the case at
bar, they are declared not so to be. The far-reaching consequence
of this asserted distinction is well calculated to arouse
solicitude for the future. A large portion of the interstate
commerce business of the country is carried on by freight lines.
These lines arrange with the railways for transportation, pay them
a charge or toll, and upon this basis afford the public increased
business facilities. Under the supposed distinction, all this
interstate commerce traffic ceases to be such, and the whole of the
gross receipts become taxable in every state through which the
Page 166 U. S. 169
business passes. The freight lines do not transport the
merchandise -- the railways do; therefore, the receipts of the
freight lines as to such lines are not interstate commerce
receipts. This illustration is but one of the many which at once
suggest themselves. All the express business, the sleeping car
business, the tank lines, and manifold other forms of interstate
commerce will be stricken down if the rule now applied to the tolls
of an interstate bridge be enforced as to other means of interstate
commerce.
Where, also, I submit, does a distinction exist between this
case and the case of the ferry between Pennsylvania and New Jersey,
considered in the
Gloucester Ferry case, or the attempt of
the State of Illinois to regulate freight charges between that
state and New York, embraced in the
Wabash case,
supra? Manifestly there is an irreconcilable conflict
between the decision in this case and the rulings of the Court in
the cases just cited. It follows that in order to maintain the tax
in the case at bar, the decisions referred to must be and are, as I
conceive, substantially overruled by the opinion now announced.
Nor can I see the slightest relevancy to the issues in this
cause of the decision in
Erie Railroad v. Pennsylvania,
158 U. S. 431. In
that case, the court considered a statute of Pennsylvania which
authorized the imposition of a tax upon the gross receipts of
companies for tolls and transportation derived from railroads,
etc., situated within the state. The Erie Company held and operated
several branch lines lying wholly within the State of Pennsylvania,
and permitted other railroad companies to use such branch lines or
portions thereof, and the taxes there in question were laid upon
the tolls so received by the Erie Company from its lessees. Such
receipts, of course, were merely the income derived from property
lying wholly within the State of Pennsylvania.
Obviously, the mere fact that corporations who practically
rented property wholly in Pennsylvania, and paid rent charges
thereon, did business outside of the state, could not exempt the
landlord (the Erie Company) from paying taxes on the rentals so
received from its tenants for property wholly in
Page 166 U. S. 170
Pennsylvania. Is there any ground for contending here that the
Henderson bridge is wholly in Kentucky, when the fact is that it is
both in Kentucky and Indiana, and that no business can be done over
it which is not necessarily business done in both states and
between both states? That there was no intention in the
Erie case to question the settled doctrine as to the want
of power in a state to tax interstate commerce, or the gross
receipts derived therefrom, is conclusively shown by the express
language of the opinion, where it was declared (p.
158 U. S. 437)
that it was needless to review the previous decisions of this Court
holding that a tax laid upon gross receipts derived from interstate
commerce put a burden upon commerce among the states, and was void,
because the proposition the decisions were quoted to sustain was
regarded as thoroughly established. So likewise, at page
158 U. S. 438,
an extract was made from the decision in
Postal Telegraph
Company v. Charleston, 153 U. S. 692,
153 U. S. 695,
and the doctrine there declared was approved, to-wit, that a tax,
by whatever name imposed, was valid where the amount of the tax was
made dependent in fact on the value of the property of the taxpayer
situated within the jurisdiction of the state imposing the tax.
How can it, in reason, be said that a case which proceeded
solely upon the ground that the rentals which were taxed were the
fruits of property which lay wholly within the State of
Pennsylvania is authority supporting the proposition now maintained
that the State of Kentucky has the right to tax the gross receipts
derived from business not done wholly within the state, but
consisting of tolls and charges derived from the operation of a
bridge situated between that state and the State of Indiana, and
which tolls and charges this Court has recently declared in the
Covington Bridge case,
supra, constitute receipts
from interstate commerce business?
I am authorized to state that Mr. Justice, MR. JUSTICE HARLAN,
and MR. JUSTICE BROWN, concur in this dissent.