Commonwealth, by, Etc. v. Union Pacific R. Co.

• Decision Date: 07 May 1926
• Citation: 214 Ky. 339
• Court: United States State Supreme Court — District of Kentucky
• Parties: Commonwealth, by, etc. v. Union Pacific Railroad Company. Commonwealth, by, etc. v. Canadian Pacific Railroad Company. Commonwealth, by, etc. v. Chicago, Milwaukee & St. Paul Railroad Company. Commonwealth, by, etc. v. Atchison, Topeka & Santa Fe Railroad Company.

214 Ky. 339

Commonwealth, by, etc. v. Union Pacific Railroad Company.

Commonwealth, by, etc. v. Canadian Pacific Railroad Company.

Commonwealth, by, etc. v. Chicago, Milwaukee & St. Paul Railroad Company.

Commonwealth, by, etc. v. Atchison, Topeka & Santa Fe Railroad Company.

Court of Appeals of Kentucky. Common Pleas, First, Second and Third Divisions.

Decided May 7, 1926.

1. Taxation — State, in Exercising its Right to Tax, Exercises Attributes of Sovereignty, and May Tax Only Things and Persons Subject Thereto. — In exercising its right to tax, state is exercising one

of its attributes of sovereignty, and may tax only those persons and things subject to its sovereignty.

2. Licenses — Taxation — State May Levy Personal Tax on Persons Subject to its Jurisdiction, Property Tax on Property Within Territory, and License Tax on Acts Done Therein. — State may levy personal tax on persons subject to its jurisdiction and sovereignty, property tax on all property located in its territory and license tax on all acts done therein.

3. Taxation. — Personal tax may be imposed on all domiciled within territories of state, whether he be citizen, alien or corporation.

4. Taxation. — Personal tax may not be imposed on person or corporation not domiciled within territory of state.

5. Taxation — Power to Tax Railroads, Not Resident of or Domiciled in State on Freight Cars Belonging to Them and Used Within State Cannot be Rested on Right to Impose Personal Tax. — Power to tax railroads which are not resident of or domiciled within state on freight cars belonging to them and used within state, cannot be rested on right to impose personal tax.

6. Taxation. — Chattel temporarily in state is not subject to ordinary property tax, though sovereign has jurisdiction over every chattel situated within its territory.

7. Taxation — Real and Personal Property is Not Subject to Taxation, Unless it has Situs for Taxation Within State (Constitution, Sections 171, 172, 174; Kentucky Statutes, Section 4020). — Constitution sections 171, 172, 174, and Kentucky Statutes, section 4020, requiring that all real and personal estate shall be subject to taxation held not to mean that such property shall be subject to taxation unless it has a situs for taxation within state.

8. Taxation. — Chattels transiently present in transactions of commercial operations or but temporarily located within state do not generally acquire taxing situs within state.

9. Taxation — Freight Cars of Foreign Railroads, Used to Carry Freight on Connecting Carrier Line for Shippers' Convenience, Held Not Subject to Taxation Within State, Not Having Acquired Taxable Situs. — Freight cars of foreign railroads, sent into state temporarily for purpose of carrying freight on other freight lines for convenience of shipper held not taxable in state.

10. Taxation. — Foreign railroad, owning no property and doing no business within state, is not liable for franchise tax because its cars are frequently transported over railroads in state.

Appeals from Jefferson Circuit Court.

J. MATT CHILTON, County Attorney, J. VAN NORMAN, GORDON & LAURENT, D.L. HAZELRIGG and FRANK E. DAUGHERTY, Attorney General, for appellant.

JAMES P. HELM, JR., TRABUE, DOOLAN, HELM & HELM and EDMUND F. TRABUE for appellee Union Pacific Ry. Co.

HELM BRUCE and BRUCE & BULLITT for appellee Canadian Pacific Railway Co.

CHARLES G. MIDDLETON and HUMPHREY, CRAWFORD & MIDDLETON for appellees, Chicago, M. & St. P. Ry. Co., and Atchison,

OPINION OF THE COURT BY JUDGE DIETZMAN.

Affirming.

The four above styled cases were begun by the Commonwealth of Kentucky through its revenue agent against the respective appellees herein in the county court of Jefferson county. They are four of a large number of suits begun at the same time against various nonresident railroad companies who own or lease no tracks and operate no lines within this Commonwealth. The purpose of these suits was, first, to have assessed for taxation, as omitted property for the years set out in the respective statements, freight cars of these foreign railroads which had been let or hired by them under what is commonly called the "per diem freight car arrangement" to railroads owning and operating lines within this state. To this end, the statements, in substance, averred that during the years in question these foreign railroads had let or hired for profit, and at the rate of 45 cents or better per day per car, under this "per diem freight car arrangement" a large number of their freight cars to these domestic railroad companies, to be by the latter used on their lines in this state, and which were so used by such domestic railroad companies. The statements further averred that, although the cars and number of cars so let and used varied from day to day during the stated period, yet continuously during that time there had been an average number of such cars so let and so used, which number and their value were set out for each of the years covered by the suits. It was this average number which the Commonwealth sought to have assessed for taxation. The next purpose of these suits was to have assessed against these foreign railroad companies, for the same years as it was sought to assess their freight cars, a franchise tax on their intangible property and earnings, in addition to the tax sought on the freight cars. The theory of the Commonwealth, in this regard, as set out in these statements, was that, by letting and hiring their freight cars for profit to the domestic railroads as above set out, these foreign railroads were exercising a special privilege not allowed by law to natural persons, and enjoying large earnings, for both of which they should pay the franchise tax therein sought.

Each of the defendant roads demurred to these statements in the county court. The demurrers being overruled, they filed their respective answers. After proof heard, the county court awarded the Commonwealth the relief it sought. By agreement, the four cases now before us were appealed as test cases to the circuit court, the other cases to abide the result in these four. One of these four cases fell to First division of the common pleas branch of the Jefferson circuit court. The other three fell to the Second and Third divisions, because the county judge who had decided these cases in the county court had in the meantime been elected to the judgeship of the Fourth division.

In the circuit court, the present appellees renewed their demurrers to the statements. In the Canadian Pacific Railway Company case, supra, which fell to the First division, the demurrer was sustained, and the Commonwealth declining to plead further, its statement was dismissed, and it brought this appeal in that case. In the other three cases the demurrers were overruled, and, on the issues raised by the answers, the court heard proof. On submission, being of the opinion that the Commonwealth had failed to prove any average number of cars as being within this state for any of the years in question, the Second and Third divisions dismissed the statements of the Commonwealth. A motion for a new trial on the ground that, if given further opprtunity, the Commonwealth could prove with reasonable certainty and at a reasonable cost such average number, having been overruled, the Commonwealth brought these appeals in these other three cases.

In exercising its right to tax, the state is exercising one of its attributes of sovereignty. It follows then that the state may tax only those persons and those things which are subject to its sovereignty. As said by Justice Field in State Tax on Foreign Held Bonds, 15 Wall. 300:

"The power of taxation, however vast in its character and searching in its extent, is necessarily limited to subjects within the jurisdiction of the state. These subjects are persons, property and business."

Chief Justice Marshall, in McCulloch v. Maryland, 4 Wheat. 316, expressed the thought in these words:

"All subjects over which the sovereign power of a state extends, are objects of taxation; but those over which it does not extend are, upon the soundest principles, exempt from taxation."

And in the recent case of Rhode Island Hospital Trust Company V. Doughton, 46 S. Ct. 256, 70 L. Ed. ___, Supreme Court Rep. ___ U.S. ___, Chief Justice Taft stated the same prinicple in these words:

"It goes without saying that a state may not tax property which is not within its territorial jurisdiction."

Abundant authority was cited to support this statement.

Obedient to this principle, a state may lay a personal tax upon persons subject to the jurisdiction of its sovereignty, a property tax upon all property located within its territories, and a license tax upon all acts done therein.

A personal tax may be imposed upon all domiciled within the territories of the state, whether he be a citizen, an alien, or even a corporation. This tax, as well said in the case of State v. Ross, 23 N.J.L. 517, is:

"The burden imposed by government upon its own citizens for the benefits which that government affords by its protection and its laws."

Illustrative of such a tax is a poll tax. A personal tax, however, may not be imposed upon a person or corporation not domiciled within the territory of the state. Thus in Dewey v. Des Moines, 173 U.S. 193, the facts were: Dewey, a resident of and domiciled in Illinois, was the owner of a lot in Des Moines, Iowa, upon which a lien for the cost of a street improvement was imposed. Under the provisions of the Iowa law, not only did the construction of the street create a lien against the abutting property for its cost, but it also created a personal liability against the owner of such property, even though he were neither domiciled nor present in Iowa. The question was whether or not Dewey could be thus charged with personal liability. The Supreme Court of the United States held that he could not, saying:

"The state may provide for the sale of the...