Georgia Railroad & Banking Co. v. Wright

• Decision Date: 29 September 1904
• Docket Number: 1,192.
• Citation: 132 F. 912
• Parties: GEORGIA R. & Banking CO. v. WRIGHT, Comptroller General.
• Court: U.S. District Court — Northern District of Georgia

132 F. 912

GEORGIA R. & Banking CO. v. WRIGHT, Comptroller General.

No. 1,192.

United States Circuit Court, N.D. Georgia.

September 29, 1904

Jos. B & Bryan Cumming and King, Spalding & Little, for complainant.

John C Hart, Atty. Gen., for defendant.

NEWMAN District Judge.

This is a bill brought by the complainant corporation against the defendant, Wm. A. Wright, Comptroller General of the state of Georgia, seeking an injunction against what the company claims is an illegal effort to tax it, and to have a decree adjudging that it is not liable for a property tax on its railroad, or any tax on its franchise, and that the only tax for which it is liable is a tax to the state of one-half of 1 per cent. on the net earnings of its investments.

The defendant has interposed demurrers and pleas, and the complainant, by an amendment, the plea of res judicata, all of which, however, put in issue and bring before the court clearly certain specific questions as to the liability of the complainant company for taxation by the state of Georgia which will be hereafter noted.

The Georgia Railroad & Banking Company was incorporated originally under the name of the Georgia Railroad Company, by an act passed by the Legislature of Georgia, approved December 21, 1833. The provision of the act material here and which is for construction, is a part of the fifteenth section, as follows:

'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 the said railroads or any one of them, and after that shall be subject to a tax not exceeding one-half per cent. per annum on the net proceeds of their investments. ' Laws 1833, p. 264.

The state has for 60 years or more allowed the company to return its net earnings and pay a tax thereon of one-half of 1 per cent., without objection, so far as shown here, except (as will be hereafter referred to) the effort to impose a property tax under the act of 1874. The issues presented are: (1) Does the word 'stock,' as used in this taxing clause in the company's charter, refer to stock in the aggregate in the hands of the company (its capital stock), or does it refer to stock in the hands of the shareholders? (2) Is the decision of the Supreme Court of Georgia rendered in 1874 on the right to tax this corporation res judicata in this case? And (3) is this company subject to a tax on its franchise under the franchise tax act of the Legislature of Georgia of 1902 (Laws 1902, p. 37), in view of the taxing clause in its charter? Other minor questions are raised, but the foregoing are the main and important ones.

The distinguished Attorney General, representing the Comptroller General, contends that the word 'stock' in the clause under consideration refers to stock in the hands of the shareholders, as distinguished from the entire capital stock of the company; and he concedes that the case very largely depends upon the soundness of his contention in this respect. He has urged with much force, both in the oral argument and in the brief he has handed in, this view of the proper meaning of the taxing clause of the charter of the complainant company, which has been quoted above.

It may be remarked in the first place, that, so far as this record shows, or so far as the reported cases show, no effort has ever been made on the part of the state or its officers to treat the scheme of taxation provided for in this clause of the Georgia Railroad Compnay's charter as referring to shareholders. The tax has always been imposed upon the net earnings of the company, the state treating the word 'stock' therefore necessarily as meaning the capital stock in the hands of the company, and not the separate shares of stock in the hands of the shareholders. This course of procedure by the officials of the state has been justified by the decisions of the Supreme Court of the state.

In the case of City Council of Augusta v. Georgia Railroad & Banking Company, 26 Ga. 651, the language used by the court in the opinion clearly indicates that such is its view of the meaning of the word 'stock.' This is from the opinion:

'We think that this part of the charter means, secondly, that the stock of the company, as stock, as a unit, is alone what is to be subject to the tax,' etc.

And this further expression:

'We think, then, that the stock employed in banking is to be considered as included in the expression 'the stock of the company,' and therefore that it also is entitled to the exemption.' In the opinion of the court in State of Georgia v. Georgia Railroad & Banking Company, 54 Ga. 423, the language 'that its tax shall not exceed one-half per cent. on its earnings' is manifestly to the same effect.

These expressions, used by the Supreme Court in the decisions named, show beyond question that the court considered the term 'stock' as referring to stock in the aggregate in the hands of the company.

In Ordinary of Bibb Company v. Central Railroad & Banking Co., 40 Ga. 646-650, Judge Warner speaks of stock of a corporation in this way:

'What is the 'stock' of said railroad companies? Bouvier defines stock to be 'the capital of corporations; this is usually divided into shares of a definite value, as one hundred dollars, fifty dollars, per share.' 2d Bouvier's Law Dictionary, 531. The stock of these companies then consists of their capital invested in such property as may be necessary and proper for conducting the business for which they were chartered. All the property of these companies that is necessary and proper for the purpose of laying, building, and sustaining their respective railroads constitutes a part of the capital stock of said companies, and is not liable to be taxed in any other manner than is specified in their respective charters.'

It is further urged that the use of the pronoun 'their' preceding the word 'investments' indicates that the reference in the clause is to shareholders who should become interested in this enterprise, and not to the corporation. The opposing contention is that it is used in the same sense as if the pronoun 'its' had been used instead of 'their.' An examination of this act shows the latter contention to be true beyond question. The first section of the act has this language: 'The company provided for in this act and herein more especially incorporated and authorized shall and may direct and confine their first efforts,' etc. In the third section, these two expressions are used: 'The said company shall be at liberty to enlarge their capital,' and 'books for enlarging their capital,' etc. And also in the same section: 'So as to make their capital adequate,' etc.; and also this: 'It shall be lawful for the company from time to time to invest so much of said parts of their capital or of their profits,' etc. In section 9 this occurs: 'The aforesaid company * * * by their corporate name aforesaid may sue,' etc. And in section 10: 'The said Georgia Railroad Company shall have power and capacity to purchase and have and hold in fee simple or for years to them and their successors,' etc. In other instances the pronouns 'their,' 'they,' and 'them' are used in referring to the company. The language of the clause itself indicates that the word 'their' relates to the company, and not to the stockholders separately. Reference would hardly be made to what the stockholder gets by way of a dividend as the 'net' proceeds of his investment. The use of the word 'net' indicates that something is being deducted. It could only refer to the company, which deducts its expenses, and has clear, over and above all outlay, a certain amount, which is the net proceeds in its hands on the investment. In addition to this the Supreme Court of the State in State of Georgia v. The Georgia Railroad & Banking Company, supra, clearly treats the word 'their' as having this meaning when the tax provided for in this clause is spoken of as a tax 'on its earnings,' etc. There can be no reasonable doubt, therefore, considering this entire clause, that it refers to the capital stock of the company, and that it was the intention of these early lawmakers that the company should pay the state, after seven years from the completion of the road, one-half of 1 per cent. on its net earnings. There was nothing remarkable about this provision, when we consider the time and conditions. In 1833 railroad building was in its infancy. No one could tell whether this project would be successful or not. It was experimental. Those who put in their capital might, so far as could be then seen, suffer complete loss. What was more natural than that the Legislature should allow a very moderate scheme of taxation for such an enterprise?

In 1874 an act was passed by the Legislature of Georgia, entitled 'An act to amend the tax laws of this state, so far as the same relate to railroad companies, and to define the liability of such companies to taxation, and to repeal so much of the charters of such companies respectively, as may conflict with the provisions of this act. ' Laws 1874, p. 107. In the body of the act (section 1) it was provided that:

'The presidents of all the railroad companies in this state shall be required to return, on oath, annually, to the Comptroller General, the value of the property of their respective companies, without deducting their indebtedness; each class or species of property to be separately named and valued, so far as the same may be practicable, to be taxed as other property of the people of the state.'

Under this act an effort was made to tax the Georgia Railroad &amp Banking Company. The matter was carried into the courts, and determined in favor of the railroad company by the superior court of Fulton county. The case was...