203 F. 537 (S.D.Ohio 1913), 1,593, Ohio River & W. Ry. Co. v. Dittey

Docket Nº1,593, 1,600.
Citation203 F. 537
Party NameOHIO RIVER & W. RY. CO. v. DITTEY et al., Tax Commission of Ohio. MARIETTA, C. & C.R. CO. v. CREAMER, State Treasurer, et al.
Case DateFebruary 15, 1913
CourtUnited States District Courts, 6th Circuit, Southern District of Ohio

Page 537

203 F. 537 (S.D.Ohio 1913)

OHIO RIVER & W. RY. CO.

v.

DITTEY et al., Tax Commission of Ohio.

MARIETTA, C. & C.R. CO.

v.

CREAMER, State Treasurer, et al.

Nos. 1,593, 1,600.

United States District Court, S.D. Ohio, Eastern Division.

February 15, 1913

Page 538

Robt. J. King, of Zanesville, Ohio, for Ohio River & Western Railway co.

F. A. Durban and Robt. J. King, both of Zanesville, Ohio, for the Marietta, Columbus & Cleveland R.R. Co.

Timothy S. Hogan, Atty. Gen., of Columbus, Ohio (Clarence D. Laylin, of Columbus, Ohio, of counsel), for defendants.

Page 539

Before WARRINGTON, Circuit Judge, and SATER and DAY, District Judges.

PER CURIAM.

Jurisdiction of these cases is vested in this court through the presence of certain federal questions, no matter how it shall be found necessary to decide them, or whether to decide them at all. Siler v. Louisville & Nashville R.R. Co., 213 U.S. 175, 29 Sup.Ct. 451, 53 L.Ed. 753; Mich. Cent. R.R. Co. v. Vreeland, 227 U.S. 59, 33 Sup.Ct. 192, 57 L.Ed. . . ., decided January 20, 1913; L. & N.R. Co. v. Siler (C.C.) 186 F. 176. The plaintiff in each of the cases is an Ohio corporation, whose line of road lies wholly within the state. In each case the plaintiff challenges the constitutionality of certain sections of the act of May 31, 1911 (102 Ohio Laws, pp. 224-260), creating a tax commission, and providing for a system of taxation, and imposing a sum which the act recites is in the nature of an excise tax upon the privilege of carrying on intrastate business. A restraining order having been granted in each case, the respective plaintiffs seek a temporary injunction. The defendants, who are certain state officers and members of the Tax Commission, demur to each of the bills. The cases are for hearing on the plaintiffs' applications for interlocutory injunctions and upon the demurrers of the defendants.

The law under consideration is a re-enactment of the act of March 10, 1910. Its history is contained in the brief filed in behalf of the state, but its development need not be traced. The act raises the rate of the so-called excise taxation on certain utilities, substitutes a tax commission for a board of appraisers and assessors, assembles the various tax laws of the state, and incorporates them into one measure. The term 'public utility,' as used in the act and as defined in section 39, means and embraces each corporation, company, firm, individual, and association, their lessees, trustees, or receivers elected or appointed by any authority whatsoever referred to in such section--a railroad company being one of the many kinds of companies therein mentioned--and includes also any plant or property owned or operated, or both, by any such companies, corporations, firms, individuals, or associations. By the provisions of section 40 any person or persons, firm or firms, copartnership or voluntary association, joint-stock association, company or corporation, wherever organized or incorporated, when engaged in the business of operating a railroad, either wholly or partially within the state, on rights of way acquired and held exclusively by such company, or otherwise, is a railroad company.

Section 42 defines the term 'gross earnings'--

'to mean and include the entire earnings for business done by any person or persons, firm or firms, copartnership or voluntary association, joint-stock association, company or corporation, wherever organized or incorporated, from the operation of any public utility, or incidental thereto, or in connection therewith. The gross earnings for business done by an incorporated company, engaged in the operation of a public utility, shall be held to mean and include the entire earnings for business done by such company under the exercise of its corporate powers, whether from the operation of the public utility itself or from any other business done whatsoever.'

Page 540

Section 83 requires a statement to be filed by each railroad company with the Tax Commission containing the 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 the state, excluding therefrom, however, all earnings derived wholly from interstate business or business done for the federal government, such statement also to show as a distinct item the total gross intrastate earnings for such period. By the terms of section 97 the Auditor of State in the month of November is required to charge for collection against each railroad company a sum in the nature of an excise tax for the privilege of carrying on its intrastate business. The amount so charged is 4 per cent., and is computed on the gross earnings, as fixed and reported to him by the Commission, of the company's intrastate business for the year covered by its annual report to such Commission, but the tax shall not be less than $10 in any case. The various public utilities named in the act are classified. The percentage charged for collection as an excise tax for the privilege of carrying on intrastate business is the same as to all utilities falling within any given class, but varies as among different classes.

While the mere declaration of the General Assembly that the tax is an excise tax does not make it so, if it is apparent that it cannot be consistently so designated, nevertheless the declaration of the lawmaking body is entitled to much weight. Flint v. Stone Tracy Co., 220 U.S. 107, 145, 31 Sup.Ct. 342, 55 L.Ed. 389, Ann. Cas. 1912B, 1312. In view of the decisions, state and federal, it is plain that the tax in question is an excise tax on the doing of corporate intrastate business; the gross intrastate business being the yardstick or measure of taxable value. Southern Gum Co. v. Laylin, 66 Ohio St. 578, 64 N.E. 564; State v. Ferris, 53 Ohio St. 314, 41 N.E. 579, 30 L.R.A. 218; Ashley v. Ryan, 49 Ohio St. 504, 31 N.E. 721; Western Union Telegraph Co. v. Mayer, 28 Ohio St. 521; Express Co. v. State, 55 Ohio St. 69, 44 N.E. 506; Adler v. Whitbeck, 44 Ohio St. 539, 9 N.E. 672; Thomas v. U.S., 192 U.S. 363, 24 Sup.Ct. 305, 48 L.Ed. 481; Cooley, Const. Lim. (6th Ed.) 608; State Tax on Railway Gross Receipts, 15 Wall. 284, 21 L.Ed. 164.

Each plaintiff contends that, because it is unable to earn upon its investment a reasonable profit attributable to intrastate business, it possesses no privilege worth 4 per cent. of its gross intrastate earnings, and that such a tax is as to it both confiscatory and discriminatory. The Ohio River & Western Railway Company alleges that a tax of 4 per cent. of its gross intrastate earnings is excessive, because, though carefully managed, it does not produce, without the imposition of such tax, a profit equal to the return upon high grade investments at all times available in the money market. The Marietta, Columbus & Cleveland Railway Company charges that it is operated at an actual loss. Are the plaintiffs or either of them for the reasons stated exempt from the excise tax in question? It was held in State v. Ferris, 53 Ohio St. 341, 41 N.E. 584, 30 L.R.A. 218, and is conceded by the plaintiffs, that the first section of the fourteenth amendment to the Constitution of the United States, which provides that no state shall 'deny to any

Page 541

person within its jurisdiction the equal protection of its laws, ' is no broader than the second section of the Ohio Bill of Rights, and that, therefore, a statute relating to an excise tax authorized by the bill of rights would not conflict with such section of the Constitution of the United States; but the plaintiffs, to maintain their contention, point to the following language in Southern Gum Co. v. Laylin, 66 Ohio St.at pages 578, 594, 64 N.E.at pages 564, 565:

'But upon the power to tax privileges and franchises there is no express limitation in the Constitution, but certain limitations upon that power must be implied from other provisions of the Constitution, so as to make the whole instrument harmonious and consistent throughout. 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 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. Ashley v. Ryan, 49 Ohio St. 504 (31 N.E. 721), State v. Ferris, 53 Ohio St. 314 (41 N.E. 579, 30 L.R.A. 218), and Hagerty v. State, 55 Ohio St. 613 (45 N.E. 1046), are examples of taxing the privilege or franchise conferred; while Telegraph Co. v. Mayer, 28 Ohio St. 521, and Express Co. v. State, 55 Ohio St. 69 (44 N.E. 506), 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 rest largely in the General Assembly, but finally in the courts.'

An examination of that case as reported, as well as of the original file papers, discloses that no contention was made and no issue tendered that the statute then under consideration imposed a tax beyond the reasonable value of the privilege or franchise originally conferred or its continued value from year to year, nor do any of the cases cited in the above quoted excerpt touch that question. The limitation thus said to be imposed by the state Constitution on...

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