Commonwealth v. Southern Ry. Co.

• Decision Date: 18 November 1921
• Citation: 237 S.W. 11,193 Ky. 474
• Parties: COMMONWEALTH EX REL. HAWKINS, SHERIFF, v. SOUTHERN RY. CO. COMMONWEALTH EX REL. HAWKINS, SHERIFF, v. SOUTHERN RY. CO. ET AL.
• Court: Kentucky Court of Appeals

237 S.W. 11

193 Ky. 474

COMMONWEALTH EX REL. HAWKINS, SHERIFF, v. SOUTHERN RY. CO.

COMMONWEALTH EX REL. HAWKINS, SHERIFF, v. SOUTHERN RY. CO. ET AL.

Court of Appeals of Kentucky.

November 18, 1921

Appeal from Circuit Court, Woodford County.

Action by Commonwealth of Kentucky, on the relation of Robert Hawkins, Sheriff, etc., against the Southern Railway Company and by the Commonwealth of Kentucky, on the relation of Robert Hawkins, Sheriff, etc., against the Southern Railway and another. Disposed of as one case. Judgment of the county court dismissing the proceedings was affirmed by the circuit court, and plaintiff appeals. Reversed and remanded.

L. W Morris, Hazelrigg & Hazelrigg, and Hobson & Hobson, all of Frankfort, and Will D. Jesse, of Versailles, for appellant.

Humphrey Crawford & Middleton, of Louisville, and Wallace & Harris, of Versailles, for appellees.

THOMAS J.

The commonwealth of Kentucky, on relation of Robert Hawkins sheriff of Woodford county, filed two statements in the county court of that county under the authority given by section 4241 of the Statutes, by which it was sought to list for taxation, as omitted property, for the years 1914-1918, both inclusive, the proportionate part of the intangible property of defendant Southern Railway Company that its alleged owned and controlled lines in Kentucky bore to its owned and controlled lines constituting its entire railway system. The statement seeking the relief for the years 1914, 1915, and 1916 was filed against Southern Railway Company alone, and the one seeking the same relief for the years 1917 and 1918 joined with the company the Director General of Railroads, who for those two years operated defendant's railway system under the Federal Control Act (U. S. Comp. St. 1918, U.S. Comp. St. Ann. Supp. 1919,§§ 3115 3/4a-3115 3/4p). The facts governing the right to assess the property for each of the years are the same, and the two statements were heard and disposed of in the courts below as one case. In each statement it was averred, in substance, that defendant Southern Railway Company, which is a Virginia corporation, owned, operated, and controlled, in round numbers, 127 miles of railroad in Kentucky, running from the city of Louisville, in Jefferson county, to Danville, in Boyle county, with branches running to Versailles, Georgetown, Lexington, and perhaps other points, but which were ostensibly owned and operated by a Kentucky corporation known as "Southern Railway Company in Kentucky"; that it so owned, operated, and controlled 38 and a fraction miles of railroad trackage in Kentucky, ostensibly owned and operated by the Mobile & Ohio Railroad Company; that it likewise owned, operated, and controlled 1 3/4 miles of railroad in Bell county, ostensibly operated in the name of Cumberland Railway Company, and also owned, operated, and controlled 12.9 miles of railroad in Knox county, Ky. ostensibly owned and operated by the Cumberland Railroad Company; that defendant entirely omitted to make any report to the Auditor of Public Accounts of the state for either of the years involved as is required by the provisions of section 4078 of the Statutes as a basis for the assessment of Kentucky's portion of its intangible property; and that none of said property had been assessed except that which was assessed to, and paid by, the ostensibly owning corporations before mentioned, and which amounts so assessed and paid were not the true ones to which the state was entitled.

The answer to each statement denied the material allegations therein and affirmatively alleged the assessment and payment of the local franchise taxes due from the various divisional units of railroad lines referred to, as a bar to any right of recovery. Appropriate pleadings made the issues, and upon submission the county court dismissed each proceeding, from which the commonwealth, by the sheriff, its relator, procured an appeal to the Woodford circuit court, and a similar judgment was rendered by that court in each case, to reverse which these appeals have been brought to this court and by agreement are heard together.

There were searching interrogatories attached to each statement which were unreservedly answered by the defendant, and those answers, including the exhibits filed therewith, and an agreed stipulation signed by the parties, furnished the facts upon which both the county and the circuit court based their respective judgments, and which facts must also govern us in the disposition of these appeals. We will defer a consideration of the facts for the moment while we briefly notice the law in Kentucky with reference to taxing intangible property of corporations, both foreign and domestic, and the methods pointed out therein by which the value of such property as has a taxing situs within the taxing authority for such purposes may be ascertained and assessed.

Prior to the original enactment of sections 4077-4091, both inclusive, of the Kentucky Statutes, being subdivision 1 of article 4 of chapter 108, corporations neither assessed nor paid any franchise property tax, which, it has been held, is but another name for intangible property. The only property upon which taxes were assessed and paid prior to that time was tangible property. It was discovered, not only in Kentucky, but elsewhere, that in addition to their tangible property many corporations, because of the use of such property in the manner permitted by the sovereignty creating them or under whose permission they operated locally outside of the state of their creation, increased the total value of their property largely in excess of their tangible property, which excess grew out of the exercise of the privileges conferred in the use of their tangible property, and such excess valuation is referred to in the books sometimes as the corporations' franchise, but it is now come to be more generally designated as intangible property, and is universally regarded and held to be a legitimate subject of taxation. The class of corporations which the statutes make liable for taxes on their intangible property is set forth in section 4077 of our Statutes in this language:

"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."

In order to enable the assessment board to properly value the franchise, or the intangible property subject to taxation in this state, section 4078 of our Statutes requires all corporations subject to the payment of the tax to file a report between the 30th day of June and the 1st day of October of each year with the auditor of public accounts setting forth the facts therein stated, and, if the corporation is a common carrier with lines extending beyond the confines of this state, section 4079 requires the statement of additional facts in such report, among which are "the length of entire lines operated, owned, leased or controlled in this state, and in each county, incorporated city, town or taxing district, and the entire line operated controlled, leased or owned elsewhere." The latter section also requires that the corporations referred to therein shall also report "the gross and net income or earnings received in this state and out of this state, on business done in this state, and the entire gross receipts of the corporation, company or association in this state and elsewhere during the twelve months next before the thirtieth day of June of the year in which the assessment is required to be made." The two following sections, 4080 and 4081, furnish formulas to guide the assessing board in arriving at the true value of the intangible property subject to taxation in this state. Since the enactment of the sections referred to, all corporations coming within their purview have made the required reports to the Auditor of Public Accounts, and have been assessed and have paid the taxes on the due proportion of their intangible property, which, under the Statutes, has a taxable situs in this state; and it is admitted by the defendant that, if it was doing business as a common carrier in this state, it would be subject to the franchise tax provided by the sections of the statute and to the payment of taxes on its proportion of intangible property in Kentucky. But it insists that it did not make the report required by the statute to the Auditor of Public Accounts, and that it is not liable for any franchise tax or taxes on any intangible property sought to be assessed because it does not now nor had it ever exercised "any special or exclusive privilege or franchise not allowed by law to natural persons" in Kentucky; that the only business which it does in Kentucky is to maintain an office for the purpose of soliciting freight and other business for its railroad system out of Kentucky, which is not the exercise of such a privilege as subjects it to the character of taxes sought to be recovered, and that the business which is performed in Kentucky, under the character of special privilege mentioned, is...