Davis v. Wallace

• Decision Date: 09 January 1922
• Docket Number: No. 329,329
• Citation: 257 U.S. 478,42 S.Ct. 164,66 L.Ed. 325
• Parties: DAVIS, Director General of Railroads, et al. v. WALLACE et al
• Court: U.S. Supreme Court

257 U.S. 478

42 S.Ct. 164

66 L.Ed. 325

DAVIS, DirectorGeneral of Railroads, et al.

v WALLACE et al.

No. 329.

Argued, Dec. 16, 1921.

Decided Jan. 9, 1922.

Messrs. C. W. Bunn, D. F. Lyons, and M. L. Countryman, all of St. Paul, Minn., for appellants.

Mr. George E. Wallace, of Bismarck, N. D., for appellees.

Mr. Justice VAN DEVANTERdelivered the opinion of the Court.

This is a suit by the Director General of Railroads and five railroad companies to enjoin the collection of a special excise tax assessed against each of the companies for the years 1918 and 1919 under a statute of North Dakota, c. 222,Laws 1919, which declares:

'Every corporation, joint-stock company or association, now or hereafter organized under the law of any other state, the United States or a foreign country, and engaged in business in the state during the previous calendar year, shall pay annually a special excise tax with respect to the carrying on or doing business in within the state bears to its total business or association, equivalent to 50 cents for each $1,000.00 of the capital actually invested in the transaction of business in the state: Provided, that in the case of a corporation engaged in business partly within and partly without the state, investment within the state shall be held to mean that proportion of its entire stock and bond issues which its business within and without the state, and where such within and without the state, and where such business within the state is not otherwise more easily and certainly separable from such entire business within and without the state, business within the state shall be held to mean such proportion of the entire business within and without the state, as the property of such corporation within the state bears to its entire property employed in such business both within and without the state; provided, that in the case of a railroad, telephone, telegraph, car or freight-line, express company or other common carrier, or a gas, light, power or heating company, having lines that enter into, extend out of or across the state, property within the state shall be held to mean that proportion of the entire property of such corporation engaged in such business which its mileage within the state bears to its entire mileage within and without the state.The amount of such annual tax shall in all cases be computed on the basis of the average amount of capital so invested during the preceding calendar year: Provided, that for the purpose of this tax an exemption of $10,000.00 from the amount of capital invested in the state shall be allowed: Provided, further, that this exemption shall be allowed only if such corporation, joint-stock company or association furnish to the Tax Commissioner all the information necessary to its computation.'

Each of the five railroad companies was subjected in the usual way to a full property tax on all of its property within the state, and that tax is not here in question.The suit relates only to the special excise tax.

The companies were all organized under the laws of states other than North Dakota and all own lines of railroad extending from other states into or through that state.These lines were under federal control, and operated by the Director General during the years for which the excise tax was assessed.

The taxing officers at first assessed the tax for the year 1918 against these companies by using in its computation the mileage ratio prescribed in the second proviso of the statute; but this court held that the tax so assessed was an unwarranted interference with interstate commerce and a taking of property without due process of law.Wallace v. Hines, 253 U. S. 66, 40 Sup. Ct. 435, 64 L. Ed. 782.Thereupon the taxing officers assessed the tax for that year, and also for 1919, by using in its computation the ratio specified in the last preceding clause of the statute—that is to say, a ratio fixed by contrasting the value of the company's railroad within the state with the value of its entire railroad within and without the state.

In the District Court the validity of the tax assessed on the new or substituted basis was challenged on the grounds (a) that as to railroad companies whose lines lie partly within and partly without the statethe statute does not authorize or sanction a tax assessed on that basis; (b) that the statute imposes the tax only as a special excise on doing business in the state, and these companies were not thus engaged during the years for which the tax was assessed, their railroads being then under federal control and operated exclusively by the Director General; and (c) that an excise tax assessed against these companies on the new or substituted basis operates necessarily to burden interstate commerce and to take property without due process of law, and so is in conflict with the commerce clause of the Constitution and the due process clause of the Fourteenth Amendment.

At an early stage in the suit three judges granted an interlocutory injunction against the enforcement of the tax; but on the final hearing, which was on bill and answer, a decree was entered dismissing the bill on the merits.The plaintiffs then sought and were allowed a direct appeal to this court under section 238 of the Judicial Code(Comp. St. § 1215).

The case made by the bill involved a real and substantial question under the Constitution of the United States and the amount in controversy exceeded $3,000, exclusive of interest and costs, so the case plainly was cognizable in the District Court.In such a...