Commonwealth v. Union P. R. Co.

• Decision Date: 07 May 1926
• Citation: Commonwealth v. Union P. R. Co., 283 S.W. 119, 214 Ky. 339 (Ky. Ct. App. 1926)
• Parties: COMMONWEALTH, BY MAYS, REVENUE AGENT, v. UNION PAC. R. CO. (AND THREE OTHER CASES).
• Court: Kentucky Court of Appeals

283 S.W. 119

214 Ky. 339

COMMONWEALTH, BY MAYS, REVENUE AGENT, v. UNION PAC. R. CO. (AND THREE OTHER CASES).

Court of Appeals of Kentucky.

May 7, 1926

Appeals from Circuit Court, Jefferson County, Common Pleas Branch First, Second, and Third Divisions.

Separate suits by the Commonwealth of Kentucky, by its Revenue Agents against the Union Pacific Railroad Company, against the Canadian Pacific Railroad Company, against the Chicago Milwaukee & St. Paul Railway Company, and against the Atchison, Topeka & Santa Fé Railway Company; W. O. Mays being the Revenue Agent in the Union Pacific case, and Walton M Byars in the other three cases.From a judgment sustaining a demurrer in the second case, and from judgments of dismissal in the other cases, plaintiff appeals.Affirmed in each case.

J. Matt Chilton, Co. Atty., of Jefferson County, J. Van Norman and Gordon & Laurent, all of Louisville, D. L. Hazelrigg, of Frankfort, and Frank E. Daugherty, Atty. Gen., for appellant.

James P. Helm, Jr., Trabue, Doolan, Helm & Helm, and Edmund F. Trabue, all of Louisville, for appelleeUnion P. R. Co.

Helm Bruce and Bruce & Bullitt, all of Louisville, for appelleeCanadian P. R. Co.

Charles G. Middleton and Humphrey, Crawford & Middleton, all of Louisville, for appelleesChicago, M. & St. P. Ry. Co. and Atchison, T. & S. F. Ry. Co.

DIETZMAN J.

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 Ry. Co. 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 opportunity, 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, 21 L.Ed. 179:

"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, 4 L.Ed. 579, 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. 475, Chief Justice Taft stated the same principle 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. Law, 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,19 S.Ct. 379, 173 U.S. 193, 43 L.Ed. 665, 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 property upon which the assessment is laid, but it cannot under any guise or pretense proceed farther and impose a personal liability upon a nonresident to pay the assessment or any part of it.* * * The jurisdiction to tax exists only in regard to persons and property or upon the business done within the state, and such jurisdiction cannot be enlarged by reason of a statute which assumes to make a nonresident personally liable to pay a tax of the nature of the one in question."

As none of the railroads in any of the cases before us is or ever was a resident of or domiciled in this state, the power to tax here claimed cannot be rested on the right to impose a personal tax.If valid it must be justified as a property tax upon property located within the territory of the state.

Now while the sovereign has jurisdiction of every chattel situated within its territory, although the owner may be domiciled elsewhere, not every chattel which happens to be so situated can be regarded as having a taxable situs there.A chattel merely temporarily within the limits is not subject to the ordinary property tax.This principle was followed in Semple v. Commonwealth,181 Ky. 675, 205 S.W. 789, wherein, among other things, it was sought to assess a small amount of furniture, an automobile and a bank account owned by Semple, who was domiciled in Texas, but which he had in Kentucky for his personal convenience and comfort while temporarily sojourning in the city of Louisville.We said:

"In order that personal property may have a situs for taxation in a locality different from the domicile of its owner, such personal property must be permanently located at the place where it is sought to be taxed.No temporary location will alter its situs for taxation at a place other than the residence of its owner."

Bearing on the same proposition, Judge Sanford, then a district judge but now a member of the Supreme Court, in his opinion in the case of Tamble v. Pullman...