Commonwealth v. Lee Line Co.

• Decision Date: 09 June 1914
• Citation: 159 Ky. 476,167 S.W. 409
• Parties: COMMONWEALTH v. LEE LINE CO. [d1]
• Court: Kentucky Court of Appeals

167 S.W. 409

159 Ky. 476

COMMONWEALTH v. LEE LINE CO. ^[d1]

Court of Appeals of Kentucky.

June 9, 1914

Appeal from Circuit Court, Henderson County.

Action between the Commonwealth of Kentucky and the Lee Line Company. From a judgment for the company, the Commonwealth appeals. Affirmed.

Ira D Smith, John C. Duffy, and Breathitt & Breathitt, all of Hopkinsville, for the Commonwealth.

Montgomery Merritt, of Henderson, for appellee.

CLAY C.

The Lee Line Company is a foreign corporation, organized under the laws of the state of New Jersey, with its principal office in New York City, and a branch office at Memphis, Tenn. It owns a line of steamboats which are enrolled in the port of New York. These boats ply between Memphis, St. Louis, Evansville Louisville, and Cincinnati, and also touch at certain points in Kentucky, for the purpose of receiving and discharging passengers and freight. The company owns no property of any kind in the state of Kentucky. Its boats have no situs here. The question is: Is such company subject to a franchise tax by the state of Kentucky? The trial court held that it was not. The Commonwealth appeals.

Section 4077, Kentucky Statutes, is as follows:

"Every railway company or corporation, and guarantee or security company, gas company, water company, ferry company, bridge company, street railway company, express company, electric light company, electric power company, telegraph company press dispatch company, telephone company, turnpike company, palace car company, dining car company, sleeping car company, chair car company, and every other like company, corporation or association; also every other corporation, company or association having or exercising any special or exclusive privilege or franchise not allowed by law to natural persons, or performing any public service, shall, in addition to the other taxes imposed on 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."

It may be conceded that appellee is engaged in the performance of a public service, and is therefore a member of that class of corporations of which a franchise tax may be required. The statute, however, does not embrace every such foreign corporation, regardless of whether it has a franchise from this state, or has property in this state, or is doing business in this state. It is well settled that, where the state has jurisdiction of neither the person nor the property, it is without power to tax. Thus in the case of St. Louis v. Ferry Co., 11 Wall. 423, 20 L.Ed. 192, the court said:

"Where there is jurisdiction neither as to person nor property, the imposition of a tax would be ultra vires and void. If the Legislature of a state should enact that the citizens or property of another state or country should be taxed in the same manner as the persons and property within its own limits and subject to its authority, or in any other manner whatsoever, such a law would be as much a nullity as if in conflict with the most explicit constitutional inhibition. Jurisdiction is as necessary to valid legislative as to valid judicial action."

Again, in the case of Union Refrigerator Transit Co. v. Kentucky, 199 U.S. 194, 26 S.Ct. 36, 50 L.Ed. 150, 4 Ann.Cas. 493, the court, speaking through Mr. Justice Brown, said:

"The power of taxation, indispensable to the existence of every civilized government, is exercised upon the assumption of an equivalent rendered to the taxpayer in the protection of his person and property, in adding to the value of such property, or in the creation and maintenance of public conveniences in which he shares, such, for instance, as roads, bridges, sidewalks, pavements, and schools for the education of his children. If the taxing power be in no position to render these services, or otherwise to benefit the person or property taxed, and such property be wholly within the taxing power of another state, to which it may be said to owe allegiance and to which it looks for protection, the taxation of such property within the domicile of the owner partakes rather of the nature of an extortion than a tax, and has been repeatedly held by this court to be beyond the power of the Legislature, and a taking of property without due process of law."

In view of the foregoing authorities, the case turns on whether or not this state has jurisdiction of appellee or of its property. Jurisdiction of the corporation for the purposes of taxation may be acquired by reason of the fact that it derives its franchise from the taxing authority. Thus the franchise of the Southern Pacific Railway Company is taxable in Kentucky, from which it derives its charter, though it exercises its franchise in other jurisdictions. Southern Pacific Co. v. Com., 134 Ky. 410, 120 S.W. 309. Its ships, plying between the ports of New York and New Orleans, New York and Galveston, and New Orleans and Havana, not having acquired an actual situs elsewhere, are also taxable in Kentucky, on the ground that that is the domicile of the owner. Southern Pacific Co. v. Com. of Ky., 222 U.S. 63, 32 S.Ct. 13, 56 L.Ed. 96; Com. v. So. Pacific Co., 134 Ky. 417, 120 S.W. 311, 20 Ann.Cas. 965. Jurisdiction may also be acquired where the foreign corporation has property and exercises its franchise in the taxing state. Adams Express Co. v. Ky., 166 U.S. 171, 17 S.Ct. 527, 41 L.Ed. 960; Adams Express Co. v. Ohio State Auditor, 166 U.S. 185, 17 S.Ct. 604, 41 L.Ed. 965.

As said by Mr. Justice Brewer in Adams Express Co. v. Ohio State Auditor, 166 U.S. 218, 17 S.Ct. 604, 41 L.Ed. 976, the franchise to do, exercised in connection with the tangible property which it holds, creates "a substantive matter of taxation to be asserted by every state in which that tangible property...