216 U.S. 420 (1910), 70, Wright v. Georgia Railroad and Banking Company

Docket Nº:No. 70
Citation:216 U.S. 420, 30 S.Ct. 242, 54 L.Ed. 544
Party Name:Wright v. Georgia Railroad and Banking Company
Case Date:February 21, 1910
Court:United States Supreme Court

Page 420

216 U.S. 420 (1910)

30 S.Ct. 242, 54 L.Ed. 544



Georgia Railroad and Banking Company

No. 70

United States Supreme Court

February 21, 1910

Argued January 11, 1910




A special charter to a railroad corporation contained a provision of exemption from taxation as follows:

The stock of the 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 of them, and after that, shall be subject to a tax not exceeding one-half of one percent, per annum on the net proceeds of their investments.

In construing this provision, held that:

The words "after that" are equivalent to the word "thereafter" and relate to the entire period of time after the expiration of the seven years of total exemption, and are not to be construed as limited by another provision in the charter for a definite period during which the corporation should have exclusive rights.

The capital stock of a corporation is the capital upon which the business is to be undertaken, and is represented by property of every kind acquired by the company, while the shares are mere certificates representing a subscriber's contribution to the capital stock and measuring his interest in the company. This distinction is obvious, although the words "stock" and "shares" are sometimes used synonymously.

The stock exempted in this case was the capital or property of the corporation, and not the shares of stock in the hands of the stockholders.

The federal courts accord to a judgment of the state court only that effect given to it by the courts of the state in which it was rendered, and where the highest court of a state has held that a judgment in

Page 421

a tax suit is not res judicata in a suit for taxes subsequently assessed for another year, even though it must be decided on the same questions, this Court will regard such a decision only as an authority and determine the question on its merits.

Where the capital of a corporation is exempted from taxation, except as specified, the exemption continues even if the property appreciates in value, and where, as in this case, it is evident that the legislature intended that the taxation of the corporation should be measured by the income, the exemption will not be construed as limited to the then value of the property, so that natural increases in value will be subject to any other method of taxation than that stipulated in the charter.

A law which imposes a tax upon the franchise of a railroad company whose property is exempt from taxation is a law in derogation of the exemption contract.

An act of a state legislature attempting to tax the whole or any part of the capital or franchise of a corporation, whose charter contains an express limitation and method of taxation, such as in this case, by any method other than that specified therein, impairs the obligation of the charter and is unconstitutional under the contract clause of the federal Constitution.

A state statute authorizing or directing the grant or transfer of the privileges of a corporation which enjoys immunity from taxation or regulation should not be interpreted as including that immunity in the grant or transfer. Rochester Railway Co. v. Rochester, 205 U.S. 236, 252.

While an exemption from taxation enjoyed by a corporation which acquires the franchises and property of another corporation may not be affected as to property which it already possesses, such exemption does not apply to additional property so acquired, nor do the exemptions enjoyed by the corporation whose property and franchise are acquired pass to the purchasing corporation.

The power of taxation is never to be regarded as surrendered or bargained away if there is room for rational doubt as to the purpose.

Where the decree is affirmed but modified as to a substantial contention, the costs of the appeal will be divided.

The facts are stated in the opinion.

Page 422

LURTON, J., lead opinion

[30 S.Ct. 243] MR. JUSTICE LURTON delivered the opinion of the Court.

This is a bill to restrain the enforcement of certain taxes imposed by the State of Georgia, which the railroad company claims to be in violation of a contract between itself and the state. The court below sustained the contention of the railroad company, and held that the scheme of taxation found in the charter of the company was of inviolable obligation, and enjoined any method of taxation conflicting with the stipulations of the charter; from this decree the comptroller has appealed.

The charter in question was granted by the State of Georgia in 1833 -- a time long before the imposition of any restriction upon the power of the legislature of that state to stipulate for either an entire or partial exemption from taxation. It is therefore not denied by the state that the charter constitutes a contract which may not be impaired by subsequent legislation. In view of this concession, we are only called upon to decide the extent of the charter exemption, and, incidentally, its duration.

The controlling section of the charter is the fifteenth. The part now relevant is as follows:

The stock of the 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 of them, and after that, shall be subject to a tax not exceeding one-half of one percent per annum, on the net proceeds of their investments.

The period of absolute exemption has, of course, long since passed. The only question is as to the duration and extent of the partial exemption which followed.

That the property exempt altogether for seven years is the same property subject to a limited tax thereafter was long

Page 423

ago decided by the Supreme Court of Georgia in a case which involved the interpretation of this very contract. City Council of Augusta v. Georgia Railroad & Banking Company, 26 Ga. 651, 661 et seq. The question in that case was as to the legality of municipal taxes assessed by the City of Augusta upon that part of the capital of the company employed in its banking business and upon real estate situated in that city. The taxes were held illegal. Interpreting this section, that court said:

It means, first, that the stock of the company was to be subject to a tax, but not to any tax exceeding one-half of one percent on the net proceeds of its investments.


That the stock of the company, as stock, as a unit, is alone what is to be subject to the tax; not parts of the stock, as the part used in banking, nor the particulars in which the stock consists, as, the land, cars, rails, etc.

Third. "That this tax to which the stock is to be subject is to be a tax to be laid by the state."

We may as well turn to one side just here to deal first with the question of the duration of this commuted tax which is to follow the period of tax exemption, because we construe the words "after that," which immediately follow the exemption clause, as synonymous with "thereafter," and as fixing the time when that property which was theretofore exempt should be subject to the system of taxation provided by the succeeding clause.

It has been rather faintly urged that the duration of this commuted tax or partial exemption was limited to a term of thirty-six years after the completion of the railroad, and that this period has long since expired. This suggested limitation seems to have no other basis than that the words "and after that" do not mean "thereafter," as we have assumed, nor refer to the limitation immediately preceding, but to a more remote limitation found in the second section of the charter, and again in the earlier part of the fifteenth section. But the thirty-six-year limitation is one obviously applicable

Page 424

only to the grant of an exclusive right, within a defined territory, to construct and operate railroads. This was intended to protect this pioneer railroad from being paralleled within that time. The recurrence to this exclusive right in the first part of the fifteenth section is only for the purpose of placing a condition thereon which, as matter of fact, never happened, and which therefore never became vested, and to provide that the termination of that right should not otherwise affect the corporate existence, estate, powers, or privileges of the company. This reference to the exclusive right conferred first by the second section is followed by the provision above set out, providing that

the stock of the said company and its branches shall be exempt from taxation for and during seven years from and after the completion of said railroads, or any of them, and after that shall be subject to a tax not exceeding one-half of one percent per annum on the net proceeds of their investment.

"After that" obviously refers to the last limitation -- the termination of the exemption period -- and it would be an indefensible construction to construe the words as referring it to the thirty-six-year limitation of the exclusive right regulated...

To continue reading