Railway Express Agency v. Commonwealth of Virginia

Citation3 L.Ed.2d 450,79 S.Ct. 411,358 U.S. 434
Decision Date24 February 1959
Docket NumberNo. 38,38
PartiesRAILWAY EXPRESS AGENCY, Inc., Appellant, v. COMMONWEALTH OF VIRGINIA
CourtUnited States Supreme Court

Mr. Thomas B. Gay, Richmond, Va., for appellant.

Mr. Frederick T. Gray, Richmond, Va., for appellee.

Mr. Justice CLARK delivered the opinion of the Court.

Once again the effort of the Commonwealth of Virginia to levy a tax against express agencies is before us for decision. Nearly five years ago this Court struck down as a 'privilege tax' violative of the Commerce Clause of the Federal Constitution its tax statute under which was laid an assessment on appellant's 'privilege of doing business' in Virginia.1 Railway Express Agency v. Commonwealth of Virginia, 1954, 347 U.S. 359, 74 S.Ct. 558, 98 L.Ed. 757. Subsequently the Virginia General Assembly enacted the Act here involved levying a 'franchise tax' on express companies, measured by gross receipts from operations within Virginia, in lieu of all other property taxes on intangibles and rolling stock. In due course an assessment against appellant was made thereunder for 1956. Both the State Corporation Com- mission, which has jurisdiction of such levies in Virginia, and the Commonwealth's highest court have upheld the validity of the new law as well as the assessment made thereunder, Railway Express Agency v. Commonwealth of Virginia, 199 Va. 589, 100 S.E.2d 785. Appellant levels a dual attack, the first being that the statute is a 'privilege tax' and like the former one violates the Commerce Clause; or, secondly, that in any event the assessment under it is calculated in such a manner as to deprive appellant of its property without due process of law in violation of the Fourteenth Amendment. On appeal we noted probable jurisdiction, 1958, 356 U.S. 929, 78 S.Ct. 772, 2 L.Ed.2d 760. We believe that Virginia has eliminated the Commerce Clause objections sustained against its former tax law. While the tax is in lieu of other property taxes which Virginia can legally assess and should be their just equivalent in amount, Postal Telegraph Cable Co. v. Adams, 1895, 155 U.S. 688, 696, 15 S.Ct. 268, 269, 39 L.Ed. 311, we will not inquire into the exactitudes of the formula where appellant has not shown it to be so baseless as to violate due process. Nashville, C. & St. L.R. v. Browning, 1940, 310 U.S. 362, 60 S.Ct. 968, 84 L.Ed. 1254. The failure of the appellant to furnish, in its return, certain necessary information showing its gross receipts allocated to Virginia, called for under the statute and requested by the Commonwealth, has left the correct amount unobtainable by the latter except by some method of approximation and places the burden on appellant to come forward with affirmative evidence of extraterritorial assessment.

Background and Activity of Appellant in Virginia.

Since the opinion in the former appeal, supra, 347 U.S. at pages 360—361, 74 S.Ct. at pages 559—560, relates the factual details concerning appellant's operations in Virginia, we believe it sufficient to say here that it is a Delaware corporation, owned by 68 of the railroads of the United States. It is engaged in both an inter- state and intrastate express business throughout the Nation, save in Virginia, where a constitutional provision bars foreign corporations from possessing or exercising any of the powers or functions of public service corporations. There it operates a wholly owned subsidiary, a Virginia corporation, which carries on its intrastate functions within the Commonwealth. Appellant's Virginia business is thus of an exclusively interstate nature. Through exclusive contract arrangements with 177 of the railroads of the Nation appellant is the sole operator of express facilities on their lines, including Virginia. It pays therefor all of its net income, thus achieving one of the stated purposes of the agreement—that appellant '* * * shall have no net taxable income.' In turn, appellant's Virginia subsidiary pays all of its net income over to it for the privilege of exercising appellant's exclusive contracts in intrastate business in the Commonwealth. Appellant owns property within Virginia, its return filed with the Commonwealth for tax purposes showing $120,110.70 in cash on deposit; automotive equipment and trucks $262,719.63; real estate of the value of $32,850; and office equipment listed at $42,884.83.

Virginia's General Taxing System.

The Commonwealth has a comprehensive tax structure covering public service corporations.2 It empowers local governments to levy ad valorem taxes on the 'dead' value of all real property and tangible personal property, except rolling stock, located within their respective jurisdictions. This leaves free for state purposes taxes on rolling stock, money and other intangibles, and the 'live' or 'goint-concern' value of the business in Virginia. We are concerned only with the state tax which is levied on the franchises of express companies. It provides3 in pertinent part that

'(e)ach express company * * * shall * * * pay to the State a franchise tax which shall be in lieu of taxes upon all of its other intangible property and in lieu of property taxes on its rolling stock.'

The franchise tax is measured by 'the gross receipts derived from operations within' Virginia which is deemed

'to be all receipts on business beginning and ending within this State and all receipts derived from the transportation within this State of express transported through, into, or out of this State.'

The State Corporation Commission is directed, after notice, to assess the franchise tax on the basis of a report to be filed by the company involved or, in case of its failure to file such report, the Commission is to base the assessment 'upon the best and most reliable information that it can procure.'

The Issues Under the Statute.

First, let us clear away the dead underbrush of the old law. The new tax is not denominated a license tax laid on the 'privilege of doing business in Virginia'; nor is it 'in addition to the property tax' levied against appellant, nor a condition precedent to its engaging in interstate commerce in the Commonwealth. The General Assembly has made crystal-clear that the tax is now a franchise tax laid on the intangible property of appellant, and is levied 'in lieu of taxes upon all of its other intangible property and * * * rolling stock.' The measure of the tax is on gross receipts, fairly apportioned, and, as to appellant, is laid only on those 'derived from the transportation within this State of express transported through, into, or out of this State.'

Appellant concedes that the Commerce Clause does not prohibit the States from levying a tax on property owned by a concern doing an interstate business. It agrees that it has rolling stock and money in the Commonwealth, as well as intangibles, including its exclusive express privileges with the railroads. It readily admits that the latter agreements are 'valuable contract rights' and contribute a principal element to the 'going concern value' of its business in the Commonwealth. Subsuming that a valid tax levy might be levied on such intangibles, it argues, however, that the incidence of the tax is on appellant's privilege to carry on an exclusively interstate business in Virginia rather than on intangible property. Our sole question under the Commerce Clause is whether the tax in practical operation is on property or on privilege.

The due process issue is entangled with appellant's failure to file, in its report, data covering its gross receipts allocated to Virginia.4 Failing to do this the State Cor- poration Commission used a formula which in effect ascribed to Virginia the proportion of such receipts as the mileage of carriers within Virginia bore to the total national mileage of the same lines.5 Appellant contends that the assessment made in this manner is violative of due process and that the resulting amount of tax levied was confiscatory.

In any event, appellant argues, the 'in lieu' provisions of the law, as applied to it, are invalid. Admitting that it had cash, intangibles and rolling stock that were subject to a state tax but which suffered none because of the 'in lieu' provisions of this law, it contends that the tax assessed under the latter was no just equivalent of the 'in lieu' taxes but was greatly in excess thereof and violative of due process.

Validity of the Law Under the Commerce Clause.

As we have pointed out, the statute levies a franchise tax in lieu of all taxes on 'other intangible property' and rolling stock. (Emphasis added.) This leaves no room for doubt that the General Assembly intended to levy a tax upon appellant's intangibles. Moreover, supporting this interpretation, both the State Commission and the Supreme Court of Appeals have construed it as a tax on appellant's intangible property and 'going concern' value. This trinity of agreement by three state agencies, though not conclusive, has great weight in our determination of the natural and reasonable effect of the statute. Railway Express Agency v. Commonwealth of Virginia, supra; Spector Motor Service v. O'Connor, 1951, 340 U.S. 602, 71 S.Ct. 508, 95 L.Ed. 573; Cudahy Packing Co. v. State of Minnesota, 1918, 246 U.S. 450, 38 S.Ct. 373, 62 L.Ed. 827; United States Express Co. v. State of Minnesota, 1912, 223 U.S. 335, 346, 32 S.Ct. 211, 215, 56 L.Ed. 459. This is not to say that a legislature may effect a validation of a tax, otherwise unconstitutional, by merely changing its descriptive words. Lawrence v. State Tax Commission, 1932, 286 U.S. 276, 280, 52 S.Ct. 556, 557, 76 L.Ed. 1102; Galveston, H. & San Antonio R. Co. v. State of Texas, 1908, 210 U.S. 217, 227, 28 S.Ct. 638, 640, 52 L.Ed. 1031. One must comprehend, however, the difference between the use of magic words or labels validating an otherwise invalid tax and their use to disable an otherwise constitutional levy. The latter this Court has said may sometimes be done....

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