Bosworth v. Evansville & Bowling Green Packet Co.

• Decision Date: 18 January 1918
• Citation: Bosworth v. Evansville & Bowling Green Packet Co., 178 Ky. 716, 199 S.W. 1059 (Ky. Ct. App. 1918)
• Parties: BOSWORTH, AUDITOR, ET AL. v. EVANSVILLE & BOWLING GREEN PACKET CO. [a1]
• Court: Kentucky Court of Appeals

199 S.W. 1059

178 Ky. 716

BOSWORTH, AUDITOR, ET AL. v. EVANSVILLE & BOWLING GREEN PACKET CO. ^[a1]

Court of Appeals of Kentucky.

January 18, 1918

Appeal from Circuit Court, Franklin County.

Suit by the Evansville & Bowling Green Packet Company to enjoin H. M Bosworth, State Auditor, and others from certifying a franchise tax.General demurrer to petition overruled, and judgment for plaintiff, and defendants appeal.Reversed.

M. M Logan, Atty. Gen., and J. C. Duffy, Asst. Atty. Gen., for appellants.

Yeaman & Yeaman, of Henderson, and J. P. Hobson & Son, of Frankfort for appellee.

MILLER J.

The only question presented on this appeal is whether a nonresident steamboat company engaged in Kentucky in interstate as well as intrastate commerce is liable to a franchise tax under the statutes of this state.Section 4077 of the Kentucky Statutes reads, in part, as follows:

"Every railway company or corporation * * * and every other like company, corporation or association, also every other corporation * * * performing any public service, shall, in addition to the other taxes imposed upon it by law, annually pay a tax on its franchise to the state, and a local tax thereon to the county, incorporated city, town or taxing district, where its franchise may be exercised."

Sections 4078-4081 make provision for reports to the state auditor by corporations subject to the franchise tax and provide the method of its ascertainment and an apportionment in the cases of foreign corporations and interstate carriers.

The appellee is an Indiana corporation, with its home office at Evansville, Ind., and operates a steamboat line, carrying freight and passengers on the Ohio and Green rivers between all points from Evansville, Ind., to Bowling Green and Mammoth Cave, in Kentucky.Under protest, the appellee filed with the state auditor the report required by section 4078 of the Kentucky Statutes for the purpose of fixing the franchise tax required by section 4077 from every public service corporation; and upon this report the state board of valuation and assessment tentatively assessed appellee's franchise in this state for 1915 at $30,780, and gave appellee the preliminary notice usual in such cases.Thereupon the appellee filed this action to enjoin the board and its members from certifying the tax upon the ground that the company was not liable for a franchise tax because: (1) It was engaged in interstate commerce; (2) the collection of a franchise tax would deprive the company of its property without due process of law; and (3) the company carried on its business on the navigable waters of the United States, and had no franchise subject to taxation in Kentucky.The circuit court overruled a general demurrer to the petition; and, the defendants standing upon their demurrer, the court granted the relief prayed.The defendants appealed.

The petition and the report to the auditor filed as an exhibit show that the appellee company has a capital stock of $20,000; but they fail to show the value of the stock or any price at which it had previously sold, as is required by the statute.They show, however, these facts concerning the appellee's business, for the year ending June 30, 1914:

Gross earnings		$130,966.36
Salaries	$ 9,051.00
Wages	45,641.78
Dividends	4,000.00
Other expenses	57,521.05
Depreciation	4,000.00
Maintenance of equipment	6,188.80	126,402.63
		-----------
Net income		$ 4,563.73

The petition further shows that appellee owns the following tangible property in Kentucky:

Lot and warehouse at Bowling Green, worth	$ 2,500.00
Wharfboat at Owensboro, worth	1,500.00
Wharfboat at Cromwell, worth	400.00
Warehouse at Morgantown, worth	250.00
Other property, worth	16,000.00
	----------
Total tangible property in Kentucky	$20,650.00

It is alleged however, and must here be treated as true, that the tangible property is used exclusively in the transportation of freight and passengers, or in connection with that business, and that 98 per cent. of the company's business in Kentucky for the year 1915 was interstate business.The net income and the dividends paid for the year aggregated $8,564.73; and that sum, capitalized at 6 per cent., as directed by the statute, would give a total valuation of $142,745.50 to appellee's property; and, deducting from this total the tangible property, alleged to be worth $20,650, the remainder amounting to $122,095 would represent the total value of appellee's franchise, which would have to be apportioned in the manner provided by the statute.SeeKentucky Statutes, §§ 4079,4080,4081.

The tentative assessment valued the franchise in Kentucky at $30,780, and fixed the tax thereon at $169.29.We do not understand the petition to claim that the board of valuation and assessment adopted an erroneous method in arriving at the value of the franchise, or that it was improperly apportioned, or that the amount of the tax is greater than it would owe, if liable.Indeed, under the well-established doctrine recognized in this state in Bell's Trustee v. City of Lexington,120 Ky. 199, 85 S.W. 1081, and other cases, that no one will be permitted to go into a court of equity to enjoin the collection of an incorrect sum levied as a tax until he has shown himself entitled to the aid of the court by paying so much of the tax assessed against him as he owes and ought to pay, appellee has shown no cause for relief by reason of the amount of the tax enjoined.And it does not ask relief upon that ground.On the contrary, appellee rests its case wholly upon the proposition that it is not liable for a franchise tax for the reasons above given.So the question for decision is this: Is the appellee steamboat corporation only liable to assessment on its several pieces of tangible property situated on its line of transportation in this state without reference to its business as a whole, or is it also liable to a franchise tax on its intangible property in this state, as other like corporations?

Appellant relies upon Gloucester Ferry Co. v. Pennsylvania,114 U.S. 196, 5 S.Ct. 826, 29 L.Ed. 158, and cases like it, in support of its contention that the state cannot impose a tax upon interstate commerce.While we are not at all disposed to question the general legal principle, we cannot agree that the case at bar comes within the rule, for the question still remains: Does the proposed franchise tax impose a burden upon interstate commerce?The Gloucester Ferry Company Case did not deal with a franchise tax; it dealt solely with tangible property.

The question before us was carefully considered at length by this court in the recent case of B. & O. S.W. R. Co. v. Commonwealth,177 Ky. 566, 198 S.W. 35.In that case the commonwealth sought to impose a franchise tax upon a foreign railroad corporation which owned and operated a railroad in Indiana and Illinois several hundred miles long, and operated as a part of its system only about three miles of road in Kentucky, and owned only one mile of track in Kentucky.It had, however, tangible property in Kentucky in the shape of depot buildings, office furniture, and rolling stock.But its entire business in Kentucky was interstate business.There, as here, it was contended that the imposition of a tax by the state of Kentucky, other than on its property permanently in Kentucky, would be as a tax on interstate commerce in contravention of the federal Constitution.But in sustaining the tax the court was careful to point out that it repeatedly had been decided by this court, and by the Supreme Court of the United States, that the franchise tax provided by section 4077 of the Kentucky Statutes is nothing more than a tax upon the intangible property of the corporation.Henderson Bridge Co. v. Commonwealth,99 Ky. 623, 31 S.W. 486, 17 Ky. Law Rep. 389, 29 L.R.A. 73, affirmed in166 U.S. 150, 17 S.Ct. 532, 41 L.Ed. 953;Louisville Tobacco Warehouse Co. v. Commonwealth,106 Ky. 165, 49 S.W. 1069, 20 Ky. Law Rep. 1747, 57 L.R.A. 33;Commonwealth v. Cumberland Tel. & Tel. Co.,124 Ky. 535, 99 S.W. 604, 30 Ky. Law Rep. 723;L. & N. R. R. Co. v. City of Henderson,154 Ky. 575, 157 S.W. 1105;Ky. Heating Co. v. City of Louisville,174 Ky. 142, 192 S.W. 4;Adams Express Co. v. Kentucky,166 U.S. 171, 17 S.Ct. 527, 41 L.Ed. 960.And in considering the liability of the railroad company to pay a franchise tax the court said:

"Treating this tax, which for convenience we will call a franchise tax, as a tax on the intangible property of the corporation that has a situs in this state for taxation, we find no obstacle in the way of the state subjecting it to the same rate of taxation to which other property is subjected.The right of the state to subject this character of property to state taxation has been frequently and uniformly upheld by the Supreme Court of the United States.* * * Nor does the fact that this railroad company owns no main lines of track in this state relieve it from liability for this franchise tax.It comes into the state and into its depots situated herein, with its trains and engines over the tracks that it has leased from the Kentucky & Indiana Terminal Company, or that it uses under some traffic arrangement with this company.It does business in this state as an operating railroad company, carrying freight and passengers to and from its depots in this state, and owns tangible property located in this state, and by virtue of these facts it comes within the definition of the corporations subject to the tax described in section 4077 of the Statutes, and is as much subject to a franchise tax as it would

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