Ohio Tax Cases Ohio River Western Railway Company v. Robert Dittey No 642 Marietta, Columbus Cleveland Railroad Company v. David Creamer No 643

• Decision Date: 24 February 1914
• Docket Number: Nos. 642 and 643,s. 642 and 643
• Citation: 232 U.S. 576,58 L.Ed. 737,34 S.Ct. 372
• Parties: OHIO TAX CASES. OHIO RIVER & WESTERN RAILWAY COMPANY, Appt., v. ROBERT M. DITTEY, Frank E. Munn, and Christian Pabst, as the Tax Commission of Ohio, and the Tax Commission of Ohio. NO 642. MARIETTA, COLUMBUS, & CLEVELAND RAILROAD COMPANY, Appt., v. DAVID S. CREAMER, Treasurer of State of the State of Ohio; Edward M. Fullington, Auditor of State of the State of Ohio; Timothy S. Hogan, Attorney General of the State of Ohio; Robert M. Dittey, Frank E. Munn, and Christian Pabst, as the Tax Commission of Ohio, and the Tax Commission of Ohio. NO 643
• Court: U.S. Supreme Court

232 U.S. 576

34 S.Ct. 372

58 L.Ed. 737

OHIO TAX CASES. OHIO RIVER & WESTERN RAILWAY COMPANY, Appt.,

v ROBERT M. DITTEY, Frank E. Munn, and Christian Pabst, as

the Tax Commission of Ohio, and the Tax

Commission of Ohio.

NO 642.

MARIETTA, COLUMBUS, & CLEVELAND RAILROAD COMPANY, Appt.,

v. DAVID S. CREAMER, Treasurer of State of the State

of Ohio; Edward M. Fullington, Auditor of State of the

State of Ohio; Timothy S. Hogan, Attorney General of the

State of Ohio; Robert M. Dittey, Frank E. Munn, and

Christian Pabst, as the Tax Commission of Ohio, and the Tax Commission of Ohio.

NO 643.

Nos. 642 and 643.

Argued January 7, 1914.

Decided February 24, 1914.

[Syllabus from pages 576-578 intentionally omitted] 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 14th Amendment, and of the commerce clause of the Federal Constitution, and also of the preamble and Article 1, §§ 2 and 19 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. at L. 1162, chap. 231, U. S. Comp. Stat. Supp. 1911, p. 236), 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 Fed. 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 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 30th 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 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 4 per cent 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.

Messrs. Robert J. King and F. A. Durban for appellants.

[Argument of Counsel from pages 580-583 intentionally omitted] Messrs. Frank Davis, Jr., Clarence D. Laylin, and Mr. Timothy S. Hogan, Attorney General of Ohio, for appellees.

Statement by Mr. Justice Pitney:

[Argument of Counsel from pages 583-586 intentionally omitted] 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 the determination of all the questions presented, irrespective of the disposition that may be made of the Federal questions. Siler v. Louisville & N. R. Co. 213 U. S. 175, 191, 53 L. ed. 753, 757, 29 Sup. Ct. Rep. 451; Michigan C. R. Co. v. Vreeland, 227 U. S. 59, 63, 57 L. ed. 417, 419, 33 Sup. Ct. Rep. 192.

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, 598, 35 L. ed. 273, 277, 11 Sup. Ct. Rep. 646; Ex parte Young, 209 U. S. 123, 52 L. ed. 714, 13 L.R.A.(N.S.) 932, 28 Sup. Ct. Rep. 441, 14 Ann. Cas. 764.

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, 64 N. E. 564, 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 practised in the effort to make the railroad yield a fair return upon the investment; but that, notwithstanding these efforts, it has never been able to earn, and is 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 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, 31 N. E. 721; State ex rel. Schwartz v. Ferris, 53 Ohio St. 314, 30 L.R.A. 218, 41 N. E. 579; and Hagerty v. State, 55 Ohio St. 613, 45 N. E. 1046, are examples of taxing the privilege or franchise conferred; while ...