Where the federal jurisdiction does not depend upon diversity of
citizenship, but on federal questions presented by the record, it
extends to the determination of all questions presented,
irrespective of the disposition made of the federal questions.
Page 232 U. S. 577
Where the statute specifically makes the tax a lien upon real
estate and the bill alleges that enforcement of penalties would
work irreparable injury, equity jurisdiction is properly
invoked.
The federal court may examine the opinion of the state court as
well as the syllabus to ascertain the scope of the decision,
notwithstanding the state rules of practice require the syllabus to
be prepared by the judge preparing the opinion and to be confined
to the points of law arising from the facts that have been
determined.
The franchise of a railroad company is not necessarily to be
regarded as valueless merely because its present earnings are not
sufficient to pay more than high grade investments or even to pay
operating expenses.
State Railroad Tax Cases, 92 U. S.
575.
A state statute imposing a tax on railroads is not
unconstitutional as denying equal protection of the law. The
classification rests upon a reasonable and sufficient basis of
distinction.
In the absence of a construction by the state court to that
effect, the federal court should not, if it can avoid doing so,
place such a construction upon a state statute as would render it
unconstitutional.
"Interstate," as used in a state tax statute, can fairly be
construed as including all commerce other than "intrastate" when
the evident purpose is to tax only the earnings subject to state
taxation.
In a state statute imposing a tax on intrastate earnings, it is
reasonable to suppose that the exclusion of interstate earnings
from taxation extended to earnings from foreign commerce when
another construction would render the statute unconstitutional.
The reasonableness of an excise or privilege tax, unless some
federal right is involved, is within the discretion of the state
legislature.
Where a state statute does not on its face manifest a purpose to
interfere with interstate commerce, this Court cannot accept
historical facts in connection with its enactment as evidence of a
sinister purpose on the part of the legislature to evade
obligations of the federal Constitution, without a more substantial
basis than appears in this case.
Double taxation does not exist in a legal sense unless the
double tax is levied upon the same property within the same
jurisdiction, and an excise tax measured on earnings from operating
the property is not a double tax because the property itself is
taxed.
These actions do not involve enforcement of penalties, and the
penalty provisions of this statute, if unconstitutional, are
severable by the express terms of the statute itself.
The Ohio statute of 1911 imposing an excise tax of four percent
on gross intrastate earnings of railroad companies, is not
unconstitutional
Page 232 U. S. 578
either as denying equal protection of the law or as depriving
the railroad of their property without due process of law, or as
interfering with interstate commerce, or a being an attempt to
indirectly tax total gross receipts of the railroad, or a double
taxation.
203 F. 537 affirmed.
These suits were brought in the United States District Court for
the Southern District of Ohio (Eastern Division) by appellants,
which are Ohio railroad corporations, to enjoin the certification
and collection by appellees of a tax which the state was seeking to
enforce upon the privilege of carrying on business in that state.
This tax appellants claimed to be in violation of the due process
and equal protection clauses of the Fourteenth Amendment, and of
the commerce clause of the federal Constitution, and also of the
preamble and sections two and nineteen of the Ohio
Constitution.
A restraining order was allowed by the district court, and
afterwards appellants' motions for temporary injunctions came on
for hearing before three judges, of whom one was a circuit judge,
pursuant to § 266 of the Judicial Code (36 Stat. 1162, c.
231), which went into effect shortly after the bills were filed.
The two cases were argued and considered together upon the facts
averred in the bills, which were, for the purposes of the motions,
conceded to be true by appellees, and, after consideration, the
temporary injunctions were refused. 203 F. 537.
Appellants come direct to this Court, under the same section of
the Code.
The tax law in question, the validity of which is attacked
generally, and also specially in its application to appellants, was
enacted in its present form May 31, 1911. 102 Ohio Laws 224.
It created a tax Commission with defined powers, and prescribed
various taxes, some upon property and others upon franchises and
privileges, with sundry provisions, penal and otherwise, for the
collection thereof. Some of
Page 232 U. S. 579
these taxes were new in Ohio law, others were carried over from
previously existing statutes.
The tax here in question is limited in its operation to certain
lines of
quasi-public business specifically named in the
act and therein referred to as "public utilities," including
railroads.
As applied to railroads, the act requires the filing with the
tax Commission, by each railroad doing business in the state, of a
statement, on or before September 1, setting forth, among other
things, its
"entire gross earnings, including all sums earned or charged,
whether actually received or not, for the year ending on the 30th
day of June next preceding, from whatever source derived, for
business done within this state, excluding therefrom all earnings
derived wholly from interstate business or business done for the
federal government. Such statement shall also contain the total
gross earnings of such company for such period in this state from
business done within this state."
Sections 81 and 83 of Act; §§ 5470 and 5472, General
Code of Ohio.
It is further provided that, on the first Monday of October, the
Commission
"shall ascertain and determine the gross earnings as herein
provided, of each railroad company whose line is wholly or
partially within this state, for the year ending on the thirtieth
day of June next preceding, excluding therefrom all earnings
derived wholly from interstate business or business done for the
federal government. The amount so ascertained by the Commission
shall be the gross earnings of such railroad company for such
year."
Section 88 of Act; § 5477, Gen.Code.
The act further provides that, on the first Monday of November,
the Commission shall certify to the auditor of state the amount of
the "gross earnings so determined" (§ 93 of Act; § 5482,
Gen.Code), and that
"in the month of November, the Auditor of State shall charge
for
Page 232 U. S. 580
collection, from each railroad company, a sum in the nature of
an excise tax, for the privilege of carrying on its intrastate
business, to be computed on the amount so fixed and reported to him
by the Commission, as the gross earnings of such company on its
intrastate business for the year . . . by taking four percent of
all such gross earnings."
Section 97 of Act; § 5486, Gen.Code. The tax is imposed
equally and alike on corporations, partnerships, and individuals.
Section 39 of Act; § 5415, Gen.Code.
Page 232 U. S. 586
MR. JUSTICE PITNEY, after making the foregoing statement,
delivered the opinion of the Court.
These two cases depend upon practically identical facts, and
present the same questions of law.
The federal jurisdiction arose because of the federal questions
presented in the record, and did not depend upon diversity of
citizenship, and it extends, of course, to
Page 232 U. S. 587
the determination of all the questions presented, irrespective
of the disposition that may be made of the federal questions.
Siler v. Louisville & Nashville R. Co., 213 U.
S. 175,
213 U. S. 191;
Michigan Central R. Co. v. Vreeland, 227 U. S.
59,
227 U. S.
63.
The right to invoke the equity jurisdiction is clear, for the
act specifically makes the tax a lien upon the real estate of
appellants, from the cloud of which they sought to free it by the
bringing of these actions (§ 117 of Act; § 5506,
Gen.Code), and the bills alleged threatened irreparable injury
through the enforcement of the penalties and coercive features of
the Act.
Shelton v. Platt, 139 U.
S. 591,
139 U. S. 598;
Ex Parte Young, 209 U. S. 123.
The following are the questions to be disposed of:
First, it is insisted by appellants that, under the state
constitution, as construed by the Ohio Supreme Court in
Southern Gum Co. v. Laylin, 66 Ohio St. 578, the
legislature is without power to impose a privilege tax which is in
excess of the value of the privilege; that the admitted facts show
the present tax upon appellants respectively to be in excess of
such value, and that therefore as to them, its exaction violates
the state constitution, and amounts to confiscation and a taking of
property without due process of law.
As to the facts upon which this contention is based, the bill of
complaint of the Marietta, Columbus & Cleveland Railroad
Company shows that the tax charged against it for the year 1911
amounts to $2,301.24; that the capital of the company is all, or
practically all, invested in its railroad; that this investment was
and is a reasonable and proper one; that due care and prudence have
been used in the construction, maintenance, and operation of the
property and the conduct of the business; that the greatest economy
has been and is being practiced in the effort to make the railroad
yield a fair return upon the investment; but that, notwithstanding
these efforts, it has
Page 232 U. S. 588
never been able to earn, and is not now able to earn, from
interstate or intrastate business, or both combined, after paying
necessary and proper expenses, including taxes other than the
excise tax, a return on the investment in its railroad or on the
value thereof equal to the current rate of return on legitimate
high-grade investments at all times readily available in the
market, nor have its intrastate earnings, after deducting operating
expenses properly attributable thereto, been sufficient to yield a
return on that portion of its investment properly attributable to
intrastate operations equal to the current rate of return on
legitimate high-grade investments; that, on the contrary, the gross
earnings have not been and are not sufficient to pay actual
operating expenses, and that this condition will continue to exist
during the year which the excise tax is intended to cover.
The bill of complaint of the Ohio River & Western Railway
Company contains similar averments, except as to its inability to
pay actual operating expenses. Its tax amounts to $6,653.60.
The case referred to,
Southern Gum Co. v. Laylin,
supra, dealt with an Act of April 11, 1902, known as the
Willis law. The court held it to be an excise or franchise tax, not
a property tax, and therefore not subject to the express
limitations imposed by the state constitution upon taxes of the
latter kind, but only to such limitations as were to be implied
from certain other provisions of the constitution, respecting which
the court said (p. 594):
"The Constitution was established to 'promote our common
welfare.' Preamble to the constitution. Government is instituted
for the equal protection and benefit of the people. Section 2 of
the Bill of Rights. Private property shall ever be held inviolate,
but subservient to the public welfare. Section 19 of the Bill of
Rights. These provisions of the constitution are implied
limitations upon the power of taxation of privileges
Page 232 U. S. 589
and franchises, and limit such taxation to the reasonable value
of the privilege or franchise conferred originally, or to its
continued value from year to year.
Ashely v. Ryan, 49 Ohio
St. 504;
State ex Rel. Schwartz v. Ferris, 53 Ohio St.
314, and
Hagerty v. State, 55 Ohio St. 613, are examples
of taxing the privilege or franchise conferred, while
Telegraph
Company v. Mayer, 28 Ohio St. 521, and
Express Company v.
State, 55 Ohio St. 69, are examples of taxing the continued
value of the existing privilege or franchise from year to year.
These limitations prevent confiscation and oppression under the
guise of taxation, and the power of such taxation cannot extend
beyond what is for the common or public welfare, and the equal
protection and benefit of the people; but the ascertaining and
fixing of such values rests largely in the general assembly, but
finally in the courts."
This proposition is carried into the syllabus, which, under the
rules of practice of the supreme court, is to be prepared by the
judge assigned to prepare the opinion, is to be confined to the
points of law arising from the facts of the cause that have been
determined by the court, is to be submitted to the judges
concurring therein for revisal before its publication, and is to be
inserted in the book of reports.
An examination of the state decisions cited in the
Laylin case, with others referred to in the opinion of the
district court and in the briefs of counsel, convinces us that the
district court was correct in its conclusion that the state court,
in the
Laylin case, dealt with a general law and its
operation on all corporations of given classes throughout the
state, and not with its effect upon specific financially weak
corporations; that it was not intended to hold that the courts as
final arbiters might overthrow a law imposing a tax on privileges
and franchises merely because, in isolated cases, such law might
impose a hardship, but only that those excise laws whose general
operation is confiscatory and oppressive are unconstitutional.
Page 232 U. S. 590
Nor do we think that, from the facts of the present case, it is
to be inferred that the franchises of plaintiffs in error are
valueless merely because it appears that the present earnings of
the railroads are not sufficient to pay more than can be derived
from legitimate high-grade investment securities that are readily
available on the market, or (in the case of one of the roads) are
not even sufficient to pay operating expenses. Upon this point we
are content to refer to, without repeating, the language employed
by Mr. Justice Miller, speaking for this Court in
State
Railroad Tax Cases, 92 U. S. 575,
92 U. S.
606.
Secondly, it is contended that the act arbitrarily discriminates
against plaintiffs in error and other railroad companies in that
(a) it does not include all other public utilities carrying on
business within the state, those omitted, as is said, being grain
elevators, stockyards, ferries, bridge companies, and innkeepers,
and (b) the law does not operate uniformly among the utilities that
are taxed, since, on electric light, gas, natural gas, water works,
telephone, messenger or signal, union depot, heating, coaling, and
water transportation companies, the tax amounts to 1.2% of gross
intrastate receipts, as to suburban and interurban railroads it is
fixed at 1.2% of gross intrastate earnings, and on express and
telegraph companies, it is 2%; while on railroads, including
plaintiffs in error, it is 4% of such earnings, and the same on
pipeline companies.
Both of these contentions turn upon the familiar question of
classification, concerning which so much has been written. We agree
with the court below that whether the question be considered in
view of the uniformity and equality provisions of the Ohio
Constitution or of the "equal protection" clause of the Fourteenth
Amendment, the result is the same -- it cannot be said that the
classification rests upon no reasonable and sufficient basis of
distinction.
State ex Rel. Taylor v. Guilbert, 70 Ohio St.
253;
Kentucky
Page 232 U. S. 591
Railroad Tax Cases, 115 U. S. 321,
115 U. S. 337;
Bell's Gap Railroad Co. v. Pennsylvania, 134 U.
S. 232,
134 U. S. 237;
Magoun v. Illinois Trust & Savings Bank, 170 U.
S. 283,
170 U. S. 293;
Southwestern Oil Co. v. Texas, 217 U.
S. 114,
217 U. S.
121.
In the third place, it is insisted that the act, as applied to
railroads, is a burden upon their foreign commerce.
This contention is rested in part upon the language of
§§ 83 and 88, which in terms provide for ascertaining the
earnings of the railroad
"from whatever source derived, for business done within this
state, excluding therefrom all earnings derived wholly from
interstate business or business done for the federal
government."
This, it is argued, has the effect of imposing a tax with
respect to the gross receipts from foreign commerce, because such
commerce is not expressly excepted. Section 97, however, indicates
an intent to take into consideration for the purpose of measuring
the excise tax only the earnings upon intrastate business, and it
seems clear enough that, in the former sections, the word
"interstate" was used as meaning "not intrastate," rather than in
its technically correct signification. Certainly, in the absence of
a construction by the state court of last resort to the effect that
the receipts from foreign commerce are to be included, and without
any attempt on the part of the taxing authorities to include them,
the federal courts ought not to place a construction upon the act
that would render it unconstitutional.
Fourthly, it is contended that the history of the legislation
upon the subject shows that the Act of May 31, 1911, was really
contrived to impose upon the railroad companies a franchise tax
proportionate to their interstate commerce, and that such is its
actual as well as intended effect.
It is said that the present act is a reenactment, without
material change so far as present purposes are concerned, of an Act
of March 10, 1910; that, prior to the latter act,
Page 232 U. S. 592
a law known as the Cole Law was in force, under which each
railroad was compelled to pay a tax equal to one percentum of its
entire gross earnings, computed by multiplying the average gross
earnings per mile over the entire system by the number of miles in
Ohio; that this act was obnoxious to the "commerce clause" of the
federal Constitution for the reasons that entered into the decision
of this Court in
Galveston, Harrisburg &c. R. Co. v.
Texas, 210 U. S. 217;
that, after the decision of this case in May, 1908, it was
anticipated that the Cole Law would probably be held
unconstitutional (as it has since been held by an inferior state
court in Ohio), and so the legislature contrived the Act of March
10, 1910, for the purpose of imposing a tax upon the railroads as
heavy as that imposed by the Cole Law, while avoiding the form of
that enactment, and that for this reason the Act of March 10, 1910,
increased the percentages in accordance with which the taxes were
to be severally determined as follows: railroads and pipeline
companies from 1 to 4 percent; express and telegraph companies from
1 to 2 percent; all other utilities from 1 to 1 1/5 percent; but
that, instead of taking all the gross earnings, the new percentages
were to be applied only to intrastate earnings. It is contended
that the increase in the percentages as to railroad and pipeline
companies was due to the fact that it was conceived that about
three fourths of their business was interstate, and that therefore
a tax of 4% on the intrastate earnings would be about equal to a
tax of 1% on the total; in other words, that the tax rate was
increased fourfold because such utilities were engaged in
interstate commerce.
The tax is, however, in substance as well as in form, an excise
or privilege tax. Its reasonableness, unless some federal right be
violated, is within the discretion of the state legislature. We
have seen that the classification adopted cannot be deemed illusory
-- that is, there is no
Page 232 U. S. 593
apparent violation of the equality provisions of the state
constitution or of the "equal protection" clause of the Fourteenth
Amendment, although railroad and pipeline companies are required to
pay at the rate of 4% of the annual intrastate earnings, while
other public service corporations pay a less percentage. It is, of
course, entirely settled that a state cannot, consistently with the
federal control of interstate commerce, lay such taxes, either upon
property rights or upon franchises or privileges, as in effect to
burden such commerce. But the line is not always easily drawn, as
recent cases sufficiently show.
Galveston, Harrisburg &c.
R. Co. v. Texas, 210 U. S. 217,
210 U. S. 225,
210 U. S. 229;
United States Express Co. v. Minnesota, 223 U.
S. 335,
223 U. S. 344;
Williams v. Talladega, 226 U. S. 404,
226 U. S. 416;
Baltic Mining Co. v. Massachusetts, 231 U. S.
68,
231 U. S.
82.
The present act does not, on its face, manifest a purpose to
interfere with interstate commerce, and we are unable to accept the
historical facts alluded to as sufficient evidence of a sinister
purpose such as would justify this Court in striking down the law.
We could not do this without in effect denouncing the legislature
of the state as guilty of a conscious attempt to evade the
obligations of the federal Constitution. Assuming the law was
changed in 1910 because of a fear that the Cole Law would be held
unconstitutional, the mere fact that, while excluding interstate
earnings from the multiplicand, the multiplier was increased is not
of itself deemed sufficient evidence of an unlawful effort to
burden a privilege that is not a proper subject of state
taxation.
Fifthly, it is contended that the act is in effect a double tax
upon property, and hence lacking in the uniformity required by the
state constitution. But, as was pointed out by the district court,
the exaction of 4% of the gross intrastate earnings is not a
property tax, but an excise tax, whose amount is fixed and measured
by such earnings, and double taxation in a legal sense does not
Page 232 U. S. 594
exist unless the double tax is levied upon the same property
within the same jurisdiction. Plaintiffs in error pay one tax with
respect to property, another with respect to the privilege or
occupation; hence the taxation is not double.
Bradley v.
Bauder, 36 Ohio St. 28, 35;
Southern Gum Co. v.
Laylin, 66 Ohio St. 578, 596.
The so-called double tax is also laid hold of as a ground for
the contention that there is a denial of equal protection within
the meaning of the Fourteenth Amendment. This, however, is but
another form of the objection to the classification, which has
already been disposed of.
Finally, it is contended that the act is unconstitutional
because of the severity of the penalties imposed for withholding
the tax. But these actions do not involve any present attempt to
enforce the penalties, and the act contains a section (160) which
in terms declares:
"The sections of this act, and every part of such sections, are
hereby declared to be independent sections and parts of sections,
and the holding of any section or part thereof to be void or
ineffective shall not affect any other section or part
thereof."
The penalty clauses, if themselves unconstitutional, are
severable, and there is therefore no present occasion to pass upon
their validity.
Ex Parte Young, 209 U.
S. 123;
Willcox v. Consolidated Gas Co.,
212 U. S. 19,
212 U. S. 53-54;
Flint v. Stone Tracy Co., 220 U.
S. 107,
220 U. S. 177;
Grand Trunk Ry. v. Michigan Ry. Comm'n, 231 U.
S. 457,
231 U. S.
473.
Decrees affirmed.
MR. JUSTICE DAY took no part in the decision of these cases.
