Commonwealth v. New York, Pennsylvania And Ohio Railroad Company

• Decision Date: 17 October 1898
• Docket Number: 24
• Citation: 41 A. 594,188 Pa. 169
• Parties: Commonwealth of Pennsylvania v. New York, Pennsylvania and Ohio Railroad Company, Appellant
• Court: Pennsylvania Supreme Court

41 A. 594

188 Pa. 169

Commonwealth of Pennsylvania v. New York, Pennsylvania and Ohio Railroad Company, Appellant

No. 24

Supreme Court of Pennsylvania

October 17, 1898

Argued June 1, 1897.

Reargued February 28, 1898.

Appeal No. 24, May T., 1897, by defendant, from judgment of C.P Dauphin Co., Commonwealth Docket, 1896, No. 691, on appeal from tax settlement. Affirmed. MITCHELL, GREEN and WILLIAMS JJ., dissent.

Appeal from tax settlement.

The facts appear by the opinion of SIMONTON, P.J., whichwas as follows:

This is an appeal from a settlement made by the auditor general and state treasurer against the corporation defendant June 30 1896, for tax on capital stock for the tax year 1895. It was tried by the court without a jury, as provided by the act of April 22, 1874, and on the testimony and documentary evidence we find the following facts:

1. Defendant is a corporation chartered under the laws of the states of New York, Pennsylvania and Ohio, owning a line of railroad extending from Salamanca, New York, across the northwestern part of the state of Pennsylvania to Dayton Ohio, a distance of 388.04 miles. Of this line 92.4 miles are within the state of Pennsylvania and the remainder in either New York or Ohio. Defendant also owns a line of railroad 33.78 miles in length, known as the Franklin branch, extending from Buchanan to Oil City, all in Pennsylvania. It also owns a branch 7.7 miles in length in Ohio; making the total mileage owned by it 429.59 miles. It is also lessee of 168.09 miles of road, of which 34.54 miles are in Pennsylvania and the remainder in Ohio. It connects at Salamanca, its eastern terminus, with the railroad of the New York, Lake Erie and Western Railroad Company, and by a connection at Dayton, Ohio, its western terminus, it forms by means of leases and trackage contracts part of the through line of the last named road from the city of New York to the cities of Cincinnati and Chicago.

2. Defendant's capital was in 1895, $44,999,350, divided into 899,987 shares of the par value of $50.00 each; 200,000 shares, or $10,000,000, being preferred stock, and 699,987 shares, or $34,999,350, common stock. The cost of defendant's road and equipment was $170,987,519.58. No dividends were ever paid on either the preferred or common stock.

3. In 1895 defendant's indebtedness amounted to the sum of $129,853,080.72, as follows: Prior lien bonds, $8,000,000; first mortgage bonds, $44,337,000; deferred warrants converted into first mortgage bonds, representing unpaid interest on first mortgage bonds, $27,640,345.75; second mortgage bonds, $14,500,000; third mortgage bonds, $30,000,000; car trust agreements, subject to which the company held its active rolling stock, $1,950,000, and a small unsecured balance. Defendant has not for many years earned or paid any interest on its second or third mortgage bonds, and no interest was paid in 1895 on its first mortgage bonds, though some was earned. The interest on the $8,000,000 prior lien bonds was paid. Nearly all defendant's indebtedness is due to citizens or corporations of other states and countries than Pennsylvania.

4. In April, 1883, it leased its line and road to the New York, Lake Erie and Western Railroad Company for ninety-nine years, the terms of the lease requiring the lessee to pay to defendant thirty-two per cent of the gross receipts derived from the operation of the road. The gross receipts in the tax year 1895 amounted to $6,332,317.52, and the proportion due to defendant was $2,062,000. In 1893 the lessee became insolvent and passed into the hands of receivers appointed by the circuit court of the southern district of New York, and by virtue of an arrangement of the southern district of New York, and by virtue of an arrangement not clearly explained in the evidence, and of a decree of that court, the receivers were ordered to pay to the defendant instead of the agreed rental, only the net earnings received from the operation of its road, not less, however, than $1,500,000. Defendant during the tax year 1895 actually received as rental only $1,411,573.96, and it had during that time receipts from other sources amounting to $52,029.49. During its fiscal year ending June 30, 1895, its gross income from all sources was $2,042,307.15, and during 1895 there were expended upon its road in betterments $2,931,686.31. From what source the amount thus expended was derived is not definitely shown by the evidence.

5. During the months of April, May and June of 1895, 4,200 shares of the preferred stock of the defendant were sold in the city of New York at prices ranging from 62 1/2 to 87 1/2 cents per share, the average price being 75 cents. There were no shares of common stock sold during the tax year 1895.

6. An order of sale of defendant's road was granted in January, 1896, at the suit of the holders of the bonds secured by the first mortgage on its road and franchises, and in pursuance of this order all of its property, leasehold and otherwise, including its franchises, was on February 26, 1896, sold at public auction at the court house in Akron, Ohio, for the sum of $10,000,000, subject to the prior lien mortgage of $8,000,000; and the proceeds of the sale were appropriated towards the payment of the first mortgage bonds, the holders of subsequent liens receiving nothing.

7. On February 21, 1896, the secretary and treasurer of the defendant company, after having taken the oath prescribed by the act of June, 1891, made the report to the auditor general required by said act, and appraised the capital stock of said corporation as of no value whatever. The auditor general and state treasurer, being dissatisfied with the appraisement and valuation so made and returned, valued and appraised the capital stock of defendant for the tax year 1895 at $34,480,577.70, stating at length in their appraisement their reason for so doing, and settled an account in accordance with said appraisement, charging defendant with a tax at the rate of five mills, amounting to $172,402.88, from which settlement defendant appealed to this court, and on the trial the report and appraisement made by defendant's officers, the appraisement and settlement made by the auditor general and state treasurer, defendant's specifications of objection to the settlement and other evidence, oral and documentary, were offered and heard.

8. After a full consideration of all the relevant evidence in the case, we find that the appraisement made by the defendant's officers is not correct, and that the appraisement made by the auditor general and state treasurer is excessive; and we further find that the actual value in cash of defendant's capital stock, representing its tangible property and assets and its franchises between the 1st and 15th of November, 1895, was $15,000,000, and that defendant is taxable for the tax year 1895 at the rate of five mills on 126/510 18/20 of said $15,000,000, that being the proportion of defendant's capital stock which represents the proportion of its road, property, assets, franchises and privileges in Pennsylvania calculated on the mileage basis.

DISCUSSION.

The opinion of the court below in Commonwealth v. Western Land and Improvement Co., 156 Pa. 455, contains a history of this tax and shows that it has always been assessed on the basis of the rate per cent of dividends when the dividends during the tax year equaled or exceeded six per cent; and, when no dividend was made, on an appraisement of the capital stock. And when the dividend was less than six per cent, under some of the acts, the tax was assessed on the basis of the rate per cent of the dividend, and under others, on the assessed value of the capital stock. That case decides that when the tax is measured by the rate per cent of the dividend that is the only test; and some of the cases there cited illustrate this very forcibly, and show that the value indicated by the rate per cent is sometimes very different from the actual value. Thus in Atlantic and Ohio Telegraph Co. v. Commonwealth, 66 Pa. 57, where the report of the officers of the corporation stated that a dividend of ten per cent had been made, it was held that the dividend reported furnished the measure of the tax, although the corporation proved that it had in reality been paid upon a part only of the stock. And in Columbia Conduit Co. v. Commonwealth, 90 Pa. 307, where, after declaring dividends amounting to $200,000, a loss by fire occurred to which nearly one half of the amount divided was applied, instead of being paid to the stockholders, the whole dividend was nevertheless held to furnish the measure of the tax. And in Matson's Ford Bridge Co. v. Commonwealth, 117 Pa. 265, where all the property of a corporation with a capital of the par value of $45,000 was converted into money and amounted to $75,000, the excess of $30,000 above the par value of the capital stock was held to be a dividend, and the company was assessed thereon with a tax of one half mill on each one per cent amounting to $1,500, which would be a three mill tax upon $500,000. And in Commonwealth v. Fall Brook Coal Company, 156 Pa. 488, it was decided that a tax on the capital stock of the Fall Brook Railway Company was a tax on $3,500,000, which the Fall Brook Coal Company held invested in the shares of the railway company, and that to tax that amount of the capital stock of the coal company after the railway company had paid the tax on its capital stock would be double taxation.

It thus appears that under the acts taxing capital stock, as they stood prior and up to 1891, the amount of dividend declared during the tax year was the only test of the amount of the tax, and that this had no necessary relation to the actual value of the capital stock of the corporation.

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