Knoxville & O.R. Co. v. Harris

Decision Date03 December 1897
Citation43 S.W. 115,99 Tenn. 684
PartiesKNOXVILLE & O. R. CO. v. HARRIS, Comptroller.
CourtTennessee Supreme Court

Appeal from chancery court, Knox county; H. B. Lindsay, Chancellor.

Bill by the Knoxville & Ohio Railroad Company against James A Harris, state comptroller, to recover taxes paid under protest. From a decree of the court of chancery appeals reversing a decree of the chancellor overruling demurrer to the bill, complainant appeals. Affirmed.

Lucky Sanford & Tyson and W. A. Henderson, for appellant.

Cardell Hull and G. W. Pickle, Atty. Gen., for the State.


The state, through James A. Harris, comptroller of the treasury demanded of the Knoxville & Ohio Railroad Company privilege taxes for the years 1893, 1894, 1895, and 1896, in all $4,820. Controverting its liability for these taxes, the railroad company, pursuant to the statute in relation to disputed revenue claimed by the state (Mill. & V. Code, §§ 926-928; Shannon's Code, §§ 1059-1061), paid them under protest, and within 30 days from the time of payment brought this action to recover from the state the sum so paid. The suit was commenced in the chancery court of Knox county against the comptroller to whom the taxes were paid.

The complainant alleged, in substance, that it was a Tennessee corporation, owning and operating a line of railroad in this state between 25 and 100 miles in length, and having rail and traffic connection at its termini with other railroads, which deliver certain of its freight and passengers at points of destination in other states, and from which it receives freight and passengers starting in other states and destined to points on its line in this state; that it was successor, through judicial sale, to the Knoxville & Kentucky Railroad Company, and as such was, by the terms of the latter's charter, exempt from all taxation; that its successorship to that company, and consequent exemption from ad valorem taxes, had been more than once adjudged in courts of competent jurisdiction; that, notwithstanding this, the legislature of the state had attempted by various acts to impose a privilege tax upon complainant; that by virtue of these acts, though obnoxious to the federal and state constitutions in several designated particulars, the comptroller had wrongfully required the complainant to pay the sum for which it sues.

The defendant demurred to the bill upon several grounds. The chancellor overruled the demurrer, and, exercising a legal discretion (Code, § 3157; Mill. & V. Code, § 3874; Shannon's Code, § 4889), permitted an appeal. On reaching this court the cause was transferred under section 14, c. 76, Acts 1895, to the court of chancery appeals for hearing and decision. That tribunal sustained the demurrer and dismissed the bill. From the decree of dismissal the complainant appealed, and brought the cause into this court again.

Since a demurrer raises questions of law only, and causes decided by the court of chancery appeals are appealable on all questions of law (Acts 1895, c. 76, § 11), and the complainant has prosecuted a broad appeal, the present cause is now before this court, and it was before the other tribunals, for consideration and determination of the legal questions raised by the bill and demurrer.

Owing to the state's attitude in this case, it is not worth while to decide whether the complainant is the legal successor to the Knoxville & Kentucky Railroad Company, and in that relation entitled to exemption from ad valorem taxation to the extent provided in the latter's charter, as it was held to be in Railroad Co. v. Hicks, 9 Baxt. 442, and in Buchanan v. Railroad Co., 18 C. C. A. 122, 71 F. 324. The statutes lay a privilege tax on such railroad companies only as operate or control lines in this state and are not subject to ad valorem taxation; hence the state, by its demand and receipt of the money here involved, treated the complainant as in that situation, and thereby precluded itself from denying in this suit that such was its real status before the law. Therefore, without approving or disapproving the decision made in the two cases just mentioned, or deciding the question anew, it will be assumed that the complainant is really the successor to the Knoxville & Kentucky Railroad Company, and as such is entitled to exemption from ad valorem taxation to the extent provided by that company's charter. These observations, however, are scarcely more than introductory. They do not solve any of the seriously litigated questions.

Ad valorem taxation and privilege taxation are different things, having no necessary connection. They are distinct burdens laid by the government upon those receiving its protection, and, when legally imposed, must be borne as a recompense for that protection. The same person may be subject to both, or to one and not the other. Subjection to one does not mean subjection to the other, nor does exemption from one include exemption from the other. Hence the assumption herein that the complainant has the same exemption from ad valorem taxation that its predecessor, the Knoxville & Kentucky Railroad Company, had under its charter, does not imply that it has exemption from privilege taxation also. Whether it has the latter exemption is to be determined by an original construction of the charter. This question did not arise in any of the previous litigations with this complainant, but is presented for the first time in this cause. Exemption from ad valorem taxes only was involved in the former cases.

Under the constitution of 1834 (article 2, § 28, and article 11, § 7), which was in force at the date of this charter, the legislature was permitted to grant exemption from both ad valorem and privilege taxation (Memphis v. Memphis City Bank, 91 Tenn. 583-585, 19 S.W. 1045); and, if it did so in this instance, the state is conclusively bound thereby, notwithstanding a subsequent change and reversal of government policy and law, as shown by the constitution of 1870 (article 2, § 28, and article 11, § 8; Memphis v. Memphis City Bank, 91 Tenn. 585-589, 19 S.W. 1045), and legislation thereunder. Valid corporate charters have long been held to be contracts, within the meaning of that provision of the federal constitution (article 1,§ 10), and of the state constitution (article 1, § 20), which prohibits the passage of any "law impairing the obligation of contracts." Trustees of Dartmouth College v. Woodward, 4 Wheat. 518; Farrington v. Tennessee, 95 U.S. 684; Union Bank of Tennessee v. State, 9 Yerg. 490; City of Memphis v. Hernando Ins. Co., 6 Baxt. 527; State v. Butler, 13 Lea, 408; State v. Butler, 86 Tenn. 614, 8 S.W. 586; Memphis v. Union & Planters' Bank, 91 Tenn. 546, 19 S.W. 758; Memphis v. Home Ins. Co., 91 Tenn. 561, 19 S.W. 1042; State v. Bank of Commerce, 95 Tenn. 226, 31 S.W. 993. It follows, therefore, that if the charter of the Knoxville & Kentucky Railroad Company included exemption from privilege taxation as well as from ad valorem taxation, and if the complainant has acquired all the exemption of that charter (which latter proposition is assumed), the enactments, under which the complainant was required to pay the privilege taxes here involved, are obnoxious to both federal and state constitutions, in that they impair the obligation of the charter contract.

Did that charter grant exemption from privilege taxation? Taxes are the lifeblood of civil government. The right of taxation is an attribute of sovereignty. It is inherent in the state and essential to the perpetuity of its institutions; consequently he who claims exemption must justify his claim by the clearest grant of organic or statute law. Every presumption is against any surrender of the taxing power, and every doubt must be resolved in favor of the state. Unless the intention to surrender that power is manifested by words too plain to be mistaken, it must be held still to exist. Memphis v. Union & Planters' Bank, 91 Tenn. 550, 19 S.W. 758; Memphis v. Home Ins. Co., 91 Tenn. 562, 19 S.W. 1042; Memphis v. Memphis City Bank, 91 Tenn. 579, 19 S.W. 1045; Turnpike Cases, 92 Tenn. 373, 22 S.W. 75; State v. Bank of Commerce, 95 Tenn. 227, 31 S.W. 993; Wilson v. Gaines, 9 Baxt. 551; Trust Co. v. Debolt, 16 How. 435; Delaware Railroad Tax, 18 Wall. 226; Erie Ry. Co. v. Pennsylvania, 21 Wall. 498; Farrington v. Tennessee, 95 U.S. 686; Railway Co. v. Loftin, 98 U.S. 559; Tennessee v. Whitworth, 117 U.S. 136, 6 S.Ct. 645; Railroad v. Guffey, 120 U.S. 569, 7 S.Ct. 693; New Orleans City & L. R. Co. v. New Orleans, 143 U.S. 195, 12 S.Ct. 406; Philadelphia, W. & B. R. Co. v. State, 10 How. 376. In the case last cited, Chief Justice Taney, speaking for the supreme court of the United States, said: "This court on several occasions has held that the taxing power of a state is never presumed to be relinquished, unless the intention to relinquish is declared in clear and unambiguous terms." 10 How. 393. In Railroad Co. v. Dennis, 116 U.S. 665, 6 S.Ct. 625, decided many years later by the same court, Mr. Justice Gray, after quoting the foregoing language of Chief Justice Taney, said: "In the subsequent decisions the same rule has been strictly upheld and constantly reaffirmed in every variety of expression. It has been said that 'neither the right of taxation nor any other power of sovereignty will be held by this court to have been surrendered, unless such surrender is expressed in terms too plain to be mistaken.' That exemption from taxation 'should never be assumed, unless the language used is too clear to admit of doubt.' That 'nothing can be taken against the state by presumption or inference. The surrender, when claimed, must be shown by clear, unambiguous language, which will admit of no reasonable construction consistent with the...

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