Com. v. Central R. Co. of Pa.

• Decision Date: 17 April 1961
• Citation: 169 A.2d 878,403 Pa. 419
• Parties: COMMONWEALTH of Pennsylvania, Appellee, v. CENTRAL RAILROAD COMPANY OF PENNSYLVANIA, Appellant.
• Court: Pennsylvania Supreme Court

Page 878

169 A.2d 878

403 Pa. 419

COMMONWEALTH of Pennsylvania, Appellee, v. CENTRAL RAILROAD COMPANY OF PENNSYLVANIA, Appellant.

Supreme Court of Pennsylvania.

April 17, 1961.

Rehearing Denied May 25, 1961.

Roy J. Keefer, Hull, Leiby & Metzger, Harrisburg, for appellant.

George W. Keitel, Deputy Atty. Gen., and Anne X. Alpern, Atty. Gen., for appellee.

Before CHARLES ALVIN JONES, C. J., and MUSMANNO, BENJAMIN R. JONES, COHEN, BOK and EGEN, JJ.

COHEN, Justice.

This is an appeal from the decision of the Court of Common Pleas of Dauphin County sustaining the action of the Board of Finance and Review in refusing appellant's petition for resettlement of its capital stock tax, Act of 1889, P.L. 420, §§ 20, 21, as amended, 72 P.S. §§ 1871, 1901, 1902, for the year 1951.

Appellant, Central Railroad Company of Pennsylvania, a domestic corporation, operates a railroad, the tracks of which are solely within Pennsylvania. Appellant interchanges freight cars with connecting carriers as required by the Interstate Commerce Act of 1920, as amended, 49 U.S.C.A. § 1, pars. 9-14 (1959), thereby promoting the rapid and efficient through movement of freight in contrast to the prior burdensome practice of transferring freight from cars of one railroad to the cars of another. Under the current 'car service and per diem agreement' entered into by appellant and all other members of the Association of American Railroads, the owning railroad is paid a per diem rate of $1.75 for its freight cars while on the lines of other railroads.

Appellant also interchanges freight cars and diesel locomotives pursuant to an 'operating agreement' with the Central Railroad Company of New Jersey, a New Jersey corporation which has no trackage in Pennsylvania. Appellant and the Central Railroad of New Jersey run regularly scheduled trains between Pennsylvania and New Jersey.

In its capital stock report for 1951, appellant claimed that an average proportionate value of its diesel locomotives and freight cars which were employed on lines of other railroads outside of Pennsylvania were not subject to the capital stock tax. The settlement of appellant's tax did not allow such claim. Resettlement and review of the settlement were refused and an appeal to the Court of Common Pleas of Dauphin County followed.

The case was tried without a jury and most of the facts were contained in a stipulation. There after the case was argued before the court en banc which entered a judgment nisi. The appellant filed exceptions which, on final judgment, were overruled by the court. This appeal followed.

Appellant maintains that the commerce clause of the Federal Constitution and the due process of the laws provision of the Federal and Pennsylvania Constitutions are violated by the unapportioned capital stock tax imposed on appellant's diesel locomotives and freight cars. The tax as settled against appellant is similarly attacked as violating uniformity of taxation and equal protection of the laws.

The Pennsylvania Capital Stock Tax is a tax upon the actual value of the capital stock of a domestic corporation as represented by its property and assets. Commonwealth v. Southern Pennsylvania Bus Company, 1940, 339 Pa. 521, 15 A.2d 375. Since the Commonwealth does not have power to tax tangible property located beyond its jurisdiction, so much of the value of the capital stock as is represented by such property is exempt from the tax. Delaware, Lackawanna & Western Railroad Company v. Pennsylvania, 1905, 198 U.S. 341, 25 S.Ct. 669, 49 L.Ed. 1077. Thus, we must ascertain whether Pennsylvania has jurisdiction to impose an unapportioned tax on all of appellant's rolling stock.

Although the commerce clause has long been considered to be a limitation upon the power of the states to tax an instrumentality of commerce, the law has evolved to a point where the states are not unduly restrained by that doctrine in their efforts to tax instrumentalities of commerce. As the United States Supreme Court recently stated in Braniff Airways, Inc. v. Nebraska State Board of Equalization and Assessment, 1954, 347 U.S. 590, 74 S.Ct. 757, 98 L.Ed. 967: 'While the question of whether a commodity en route to market is sufficiently settled in a stste for purposes of subjection to a property tax has been determined by this Court as a Commerce Clause question, the bare question whether an instrumentality of commerce has tax situs in a state for the purpose of subjection to a property tax is one of due process.' 347 U.S. at pages 598, 599, 74 S.Ct. at page 762. And due process considerations do not necessarily prohibit the domiciliary state from taxing a corporation's personal property which is located outside the state. See Greenough v. Tax Assessors, 1946, 331 U.S. 486, 491, 67 S.Ct. 1400, 91 L.Ed. 1621. Where, however, the particular property has a tax situs outside of the domiciliary state it would be a violation of due process for the domiciliary state to tax the property at full value since '* * * there would be multiple taxation of interstate operations and the tax would have no relation to the opportunities, benefits, or protection which the taxing state gives those operations.' Standard Oil Company v. Peck, 1952, 342 U.S. 382, 384, 385, 72 S.Ct. 309, 310, 96 L.Ed. 427.

The crucial issue for our determination therefore is whether any of appellant's freight cars and diesel locomotives obtained a tax situs outside this Commonwealth. In order to determine this issue we must review the cases which have considered the question of tax situs in respect to the rolling stock of railroads, vessels of shiplines and, most recently, the flight equipment of airlines.

The continuous and constant use of a portion of a railroad's rolling stock in a non-domiciliary state has been upheld as constituting a tax situs for that portion. In Pullman's Palace Car Company v. Pennsylvania, 1891, 141 U.S. 18, 11 S.Ct. 876, 879, 35 L.Ed. 613, Pennsylvania was permitted to impose its capital stock tax on pullman cars traveling on fixed routes and schedules within this jurisdiction. The tax was apportioned on the basis of a mileage traveled or operated ratio. There the court stated that although particular cars may not remain within the state, '* * * the company has at all times substantially the same number of cars within the state, and continuously and constantly uses there a portion of its property * * *.'

Similarly in American Refrigerator Transit Co. v. Hall, 1899, 174 U.S. 70, 19 S.Ct. 599, 43 L.Ed. 899, the court sustained a colorado property tax against an Illinois corporation which leased refrigerator cars to shippers and carriers throughout the nation. The average number of cars 'permanently located' within Colorado was held subject to the tax.

In Union Refrigerator Transit Co. v. Lynch, 1900, 177 U.S. 149, 20 S.Ct. 631, 44 L.Ed. 708, the Supreme Court sustained a Utah property tax on an average number of refrigerator cars determined under facts similar to those in American Refrigerator Transit Co. v. Hall, supra.

The Supreme Court first ruled on the power of the domiciliary state to tax the full value of rolling stock in the case of Union Refrigerator Transit Co. v. Kentucky, 1905, 199 U.S. 194, 26 S.Ct. 36, 50 L.Ed. 150. There Kentucky, the domiciliary state, attempted to levy personal property taxes on the rolling stock (refrigerator cars) of the Union Refrigerator Transit Company. During the years involved, the cars were rented to shippers who took possession of the cars in Wisconsin and used them in Canada and Mexico as well as throughout the United States. The court held that Kentucky could not tax the cars since they were 'permanently located' in other states. ¹

New York Central Railroad & Hudson River Company v. Miller, 1906, 202 U.S. 584, 26 S.Ct. 714, 50 L.Ed. 1155, similarly dealing with the taxing power of the domiciliary state, was decided the next year. There the railroad was a domestic corporation owning or hiring lines without as well as within the state, having arrangements with other carriers for through transportation, routing and rating and sending its cars to points without as well as within the state, and over other lines as well as its own. By the familiar course of railroad business a considerable proportion of the taxpayer's cars were constantly out of the state, and upon this ground the taxpayer contended that the proportion should be deducted from its entire capital, in order to find the capital stock employed within the state. In deciding that New York could tax all of the railroad's property at full value the court stated, '* * * [in] the present case, however, it does not appear that any specific cars or any average of cars was so continuously in any other state as to be taxable there. The absences relied on were not in the course of travel upon fixed routes, but random excursions of casually chosen cars, determined by the varying orders of particular shippers and the arbitrary convenience of other roads. * * *' ² 202 U.S. at pages 597, 598, 26 S.Ct. at page 716.

The rules of law to be extracted from the aforementioned railroad cases are, in our opinion, determinative of the issues before this court. Railroad rolling stock...