31 N.J.L. 531 (N.J.Err. & App. 1864), Erie Railway Co. v. State

Citation:31 N.J.L. 531
Attorney:For the plaintiffs in error, I. W. Scudder, D. A. Depue, J. G. Shipman, and B. Eaton, of New York. For the defendant in error, The Attorney General.
Judge Panel:For reversal --BEASLEY, C. J., CLEMENT, CORNELISON, ELMER, GREEN, CH., KENNEDY, OGDEN, WALES. 8. For affirmance --NONE.
Court:Supreme Court of New Jersey

Page 531

31 N.J.L. 531 (N.J.Err. & App. 1864)







Court of Errors and Appeals of New Jersey.

November Term, 1864

1. A law for revenue, laying a distinctive tax on the business of foreign corporations habitually doing business in this state, such business consisting of the transportation of goods, in transitu, from state to state, and the tax being graduated by the weight of the goods and the number of the passengers carried, is an infringement of the clause of the constitution of the United States giving to congress the regulation of commerce between the several states.

2. Such tax, though in form on the business of the companies, is in substance a tax on the commodities, the transportation of which constitutes such business.

3. Whenever the taxation of a commodity would amount to a regulation of commerce within the prohibition of the constitution, so will the taxation of an inseparable incident or necessary concomitant of such commodity.

4. A state cannot tax a foreign corporation on a principle different from tat in which she can tax one of her domestic corporations.

5. The power to refuse a recognition of corporate existence does not involve the right to tax a foreign corporation at the arbitrary discretion of the government possessing such power.

6. The act of taxation is a recognition of the legal status of the corporation taxed, and admits that such corporation is clothed with all the rights necessary to defend itself against illegal taxation.

Error to the Supreme Court.

For state of the case and opinion of the Supreme Court, vide 1 Vroom 473.

The above stated cases were argued together by consent.

For the plaintiffs in error, I. W. Scudder, D. A. Depue, J. G. Shipman, and B. Eaton, of New York.

For the defendant in error, The Attorney General.



The important question to be decided in this case arises out of the provision of the tenth section of the act of the legislature of this state relating to taxes, passed in the year 1862.

As much of the section as is thus drawn in question, is in the words following, viz.: " That all corporations regularly doing business in this state, and not being corporations of this state, shall be assessed and taxed for and in respect of the business so by them done and transacted in this state, in manner following, that is to say: every such company so doing business shall pay a transit duty of three cents on every passenger, and two cents on every ton of goods, wares, and merchandise or other articles, carried or transported by or for such company on any railroad or canal in this state, for any distance exceeding ten miles, except passengers and freight transported exclusively within this state. And such transit duty for railroad or canal transportation, shall be paid to the treasurer of this state within the month of January in each year, for the transportation of the previous year; and it shall be the duty of the president or treasurer of every such company to furnish to the treasurer of the state, by or before the third Tuesday of January, annually, under oath or affirmation, a full and true account of the number of passengers, and of the number of tons of goods, wares, and merchandise and other articles, so carried or transported as aforesaid."

It is sufficient for all the purposes of the following discussion to state, generally, that the plaintiffs in error are a corporation created by the laws of New York, and that the business which they habitually do in this state, and which is liable to the tax in dispute, is thus described in the state of the case agreed upon by the parties: " Most of the goods, wares, merchandise, and passengers, for the transportation of which by the Erie Railway Company, in the state of New Jersey, the said transit duty or tax is charged, have been, by that company and other railroads in connection with them, carried over the state of New Jersey from states and territories of the United States in the West, to states of the United States in the East, and from states of the United States in the East, over New Jersey, to states and territories of the United States in the West. Some few goods, wares, merchandise, and passengers have been transported from states and territories beyond the limits of the state of New Jersey, which transportation in New Jersey has exceeded ten miles."

From this statement of facts it appears that the plaintiffs are a foreign corporation, habitually transporting passengers and commodities, in the course of commerce between the states, over the territory of New Jersey, and that the tax in question falls on this business in proportion to the number of passengers, and the weight of the commodities transported.

That the state of New Jersey, in the plenitude of her original sovereignty as an independent government, had the right to impose the tax on the business in question, no one can dispute. Did she relinquish such power in the formation of the general government? This inquiry obviously draws into the discussion that provision of the constitution of the United States which declares, that congress shall have power to regulate commerce with foreign nations and among the several states.

The precise question, then, to be considered and decided is, has the tax which has given rise to this controversy been laid within the meaning of the prohibitory clause just referred to, upon commerce between the states?

The principal argument urged before this court, in support of the negative of the foregoing proposition, was that this law did not impose the duty on the goods, but on the business of the plaintiffs in error, and on this account was not within the constitutional prohibition.

It certainly is not to be denied that a state has the right to lay taxes which may incidentally affect commerce between the states. Indeed, it is perhaps impossible to imagine any tax which, in theory at least, may not be said to have, in the distance, such effect. That this class of taxes is legal, upon both general and constitutional considerations, no one doubts. But the difficulty always has been, and, it is probable ever will be, to determine with precision, when any given tax which has a tendency to affect a subject having immunity, is within the purview of the constitution incidental and when direct. And this is the real difficulty now to be overcome by this court.

The first observation that naturally occurs is that the tax imposed must, to avoid the taint of unconstitutionality, by indirect in substance and not merely so in form. Can it be said that this is so in the present case? This tax falls on inter-state commerce alone. It reaches no further. The burthen is not on a general business, one branch of which is the transportation of extra-territorial goods. On the contrary, the only business of the plaintiffs in error which is not taxed, is the business of such company done entirely in the...

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