Commonwealth v. Pennsylvania Railroad Co.

• Citation: 147 A. 242,297 Pa. 308
• Decision Date: 30 September 1929
• Docket Number: 9
• Parties: Commonwealth v. Pennsylvania Railroad Co., Appellant
• Court: United States State Supreme Court of Pennsylvania

147 A. 242

Commonwealth v. Pennsylvania Railroad Co., Appellant

297 Pa. 308

No. 9

Supreme Court of Pennsylvania

September 30, 1929

Argued March 19, 1928.

Reargued December 3, 1928.

Appeal, No. 9, May T., 1928, by defendant, from judgment of C.P. Dauphin Co., Commonwealth Docket, 1927, No. 29, in case tried without jury, in suit of Commonwealth v. Penn. Railroad Co. Judgment modified.

Appeal from tax settlement.

Case tried without jury.

The opinion of the Supreme Court states the facts.

Judgment for Commonwealth in opinion by FOX, J., 31 Dauph. Co. R. 13. Defendant appealed.

Error assigned, inter alia, was judgment, quoting record.

The judgment of the court below is directed to be modified in accordance with the views herein expressed.

Owen J Roberts, of Roberts & Montgomery, on re-argument, with him Ulric J. Mengert, John McI. Smith, of Nauman & Smith, and H S. P. Nichols, for appellant. -- The tax imposed by the Commonwealth on capital stock is a tax on the property and assets of the corporation issuing such stock: Com. v. Oil Co., 101 Pa. 119, 145; Fox's App., 112 Pa. 337; Com. v. R.R., 165 Pa. 44; Com. v. R.R., 188 Pa. 169, 189; Depuy v. Johns, 261 Pa. 40; Pullman's Palace Car Co. v. Penna., 141 U.S. 18, 25; D L. & W. R. R. v. Penna., 198 U.S. 341.

Since the capital stock tax is a tax on property, it cannot include property which is otherwise exempt from taxation: D., L. & W. R. R. v. Penna., 198 U.S. 341; Com. v. Fall Brook Coal Co., 156 Pa. 488; Com. v. Gas Co., 162 Pa. 602; Com. v. Lehigh Coal & Navigation Co., 162 Pa. 603.

Appellant is subjected to double taxation unless full credit is given for capital stock taxes paid on the stock of other corporations owned by it: Com. v. Fall Brook Coal Co., 156 Pa. 488.

The proportionate method used in calculating the deduction for property beyond the reach of the taxing power does not give this full credit.

The Commonwealth cannot levy a tax on the capitalized cost of betterments, additions and improvements to physical property in New Jersey leased by appellant.

The legislature did not intend to impose double taxation: Com. v. Fall Brook Coal Co., 156 Pa. 488; Com. v. Converting Works, 286 Pa. 545; Callery's App., 272 Pa. 255; Fidelity Co. v. Loughlin, 139 Pa. 612; Com. v. Fall Brook Coal Co., 156 Pa. 488.

John Robert Jones, special counsel, with him Thomas J. Baldrige, Attorney General, for appellee. -- The Act of July 22, 1913, P.L. 903, the act in force in the year 1923, and which is an amendment of the Act of June 8, 1891, P.L. 229, as amended, imposes the capital stock tax with reference to and on all of the property and assets of the corporation subject to the said tax within the jurisdiction of the state, except such property and assets as are granted an exemption from the tax by legislative enactment.

Shares of stock owned by a domestic corporation subject to the capital stock tax are an asset of such corporation which enters into the determination of the taxable value of the capital stock of such owning corporation irrespective of the fact that the corporation which issued such shares of stock is subject to or relieved from the payment of the capital stock tax or its capital stock cannot be taxed because situate outside of the state, the legislature not having granted to such asset an exemption from the capital stock tax.

The inclusion of the value of the shares of stock owned by a domestic corporation as an asset in the determination of the taxable value of the capital stock of such owning corporation does not impose double taxation by reason of the fact that the corporation which issued such shares is subject to or relieved from the payment of the capital stock tax, and though it were double taxation it would be immaterial to the issue by reason of the validity of the above stated propositions.

The appellant, therefore, in view of the above stated propositions, was not subjected to double taxation and was not aggrieved by the settlement of the capital stock tax as made by the administrative officials of the state and by the judgment of the lower court, and is without legal grounds upon which to base an attack upon the validity of the tax settlement with reference to such assets or upon the validity of the method of the settlement: Com. v. Land & Imp. Co., 156 Pa. 455; Com. v. Water Co., 284 Pa. 180; Harrisburg v. Cemetery Assn., 293 Pa. 390; Com. v. Converting Works, 286 Pa. 545; Com. v. Furnace Co., 268 Pa. 283.

Before MOSCHZISKER, C.J., FRAZER, WALLING, SIMPSON, KEPHART, SADLER and SCHAFFER, JJ.

OPINION

MR. JUSTICE SCHAFFER:

The Pennsylvania Railroad Company appeals from the amount of capital stock taxes assessed against it for the year 1923 as fixed by the accounting officers of the Commonwealth and confirmed by the court below, claiming that it will be required to pay $587,916.92 more than there is legal warrant for.

On the reargument of the case, which we ordered, appellant's contentions were presented along somewhat different lines from those followed on the original hearing; some positions then assumed were abandoned and certain claims for deduction were given up. The problem, which was a somewhat complicated one, has been much simplified. We now have to deal with only two propositions.

There was included by the Commonwealth as a taxable asset the sum of $25,204,943.85, representing expenditures made by the Pennsylvania Railroad Company for construction, betterments, and improvements of railroad properties located outside this state and leased to it by the United New Jersey Railroad and Canal Company under a 999 year lease, the expenditures being required to be made under the terms thereof. Appellant contends that this item should not be included as a taxable asset. The court below included it, because it found, under the stipulation of facts filed, that the sum named represented the agreed-upon value of the lease. Appellant urges that this was error, that there was no agreement as to the value of the lease. In the stipulation of facts filed, it is set forth that, under the terms and conditions of the lease, appellant "has spent various amounts for construction, betterments and improvements of that railroad property in New Jersey, much construction, betterments and improvements being a part of the railroad properties in New Jersey and are owned by the said lessors. . . . The sum of such expenditures for said construction, betterments and improvements amount in the aggregate at the end of the year 1923 to $25,204,943.85. For the purpose of this appeal the value of this asset under the terms and conditions of said lease and contract . . . is the said amount of $25,204,943.85." From this stipulation and what was stated at bar in the oral argument, we conclude that the sum named does not represent the agreed-upon value of the lease, but the amount which appellant has spent upon the physical property of its lessor in New Jersey. Moreover, the lease of the New Jersey lines was not listed among the company's assets on the balance sheet. Hence it is, the present appeal raises no question in regard to the value of the lease or to its taxability. The only thing, therefore, to be decided is whether the Commonwealth has the power to tax the cost of improvements to physical property in another state and it must be determined that it has not: Delaware, Lackawanna & Western R.R. Co. v. Pennsylvania, 198 U.S. 341. Whether such a specific interest in property located in another state can be taxed here may be a serious question, but it does not arise on this record. This feature of the case we leave open for determination by the court below if further evidence is produced.

The second question to be determined grows out of the fact that the Pennsylvania Railroad Company owns the capital stock of other corporations valued at $146,291,873, upon which a capital stock tax has already been paid to the state. Is it entitled to a full credit for the taxes paid or only a proportionate deduction? It is the contention of the Commonwealth that appellant's capital stock taxes are to be settled under what is termed the "proportionate method" which had our sanction in Com. v. Union Shipbuilding Co., 271 Pa. 403. In the shape of the formula which the Commonwealth uses it is:

Miles in Pennsylvania / Total Mileage X Taxable assets / Total Assets X Value of the Capital Stock = Taxable value of the Capital Stock

The purpose of the "proportionate method" is to arrive at a money figure for certain nontaxable assets whose ratio to the total value of those nontaxable assets is the same as the ratio of the appraised value of the capital stock of the corporation, to the total value of all the assets. Without going into the arithmetical calculations which this formula in figures requires, it is sufficient for our present purpose to say that admittedly capital stock taxes have been paid to the Commonwealth on...