Maine Cent. R. Co. v. Halperin
| Citation | 379 A.2d 980 |
| Parties | MAINE CENTRAL RAILROAD COMPANY v. Raymond L. HALPERIN et al. |
| Decision Date | 16 November 1977 |
| Court | Supreme Judicial Court of Maine (US) |
Pierce, Atwood, Scribner, Allen, Smith & Lancaster, by William C. Smith, James G. Good, Portland, for plaintiff.
Clifford B. Olson, Bureau of Taxation, Jerome S. Matus, Asst. Attys. Gen., Augusta, for defendants.
Henri Francis Rush, Alan W. Heifetz, Interstate Commerce Commission, Washington, D. C., for amicus curiae.
Before DUFRESNE, C. J., and WERNICK, ARCHIBALD, DELAHANTY and GODFREY, JJ.
On July 23, 1975 plaintiff Maine Central Railroad Company commenced a civil action in the Superior Court (Kennebec County) seeking an adjudication by declaratory judgment (14 M.R.S.A. §§ 5951-5963) that either (1) 36 M.R.S.A. § 2624, correctly interpreted, does not contemplate, for the purpose of the computation of Maine's excise tax on railroads, the inclusion within "net railway operating income" of "incentive per diem" charges (49 C.F.R. Part 1036, as hereinafter more fully explained); or (2) if the statute requires such inclusion, in that particular it violates the Constitution of the United States, contravening the "Supremacy" Clause of Article VI, or the "Commerce" Clause of Section 8 of Article I, or both.
Named as defendants in the action were the State Tax Assessor, Raymond L. Halperin, and the Attorney General, Joseph E. Brennan. The Interstate Commerce Commission was permitted to intervene in the action as amicus curiae. Issue was joined by an answer filed by defendants. Defendant State Tax Assessor also filed a counterclaim demanding judgment against plaintiff for balances of excise tax payments due for three quarters in 1975, in the amounts of $205,252.93, $228,794.33 and $228,794.33 as ascertained due on June 15, September 15 and December 15, respectively, "plus interest of 10% from the due dates of the respective payments." These amounts were the total additional assessment attributable to the failure of Maine Central to include "incentive per diem" charges in its "net railway operating income" in the computation of the railroad excise tax for the year 1974.
Pursuant to Rule 72(b) M.R.Civ.P., the case has been reported to us on an agreed statement of facts for our determination of the rights of the parties.
Since 1881 the State of Maine has imposed upon every corporation operating a railroad in the State
"an annual excise tax for the privilege of exercising its franchises and the franchises of its leased roads in the State." (Currently, 36 M.R.S.A. § 2623)
Presently, this annual excise tax together with the tax provided for in 36 M.R.S.A. § 561 are "in place of all taxes upon the property of such railroad." (36 M.R.S.A. § 2623) 1 The amount of the tax is equal to a percentage of the gross transportation receipts. The applicable percentage rate increases with increase in the proportion of net railway operating income to gross transportation receipts. "Net railway operating income" is statutorily defined as
"railway operating revenues less the railway operating expenses, . . . including in the computation thereof debits and credits arising from equipment rents . . . ." (36 M.R.S.A. § 2624)
"Incentive per diem" charges went into effect in 1970 as part of the federal government's continuing efforts to remedy a chronic shortage of railroad freight cars. The history leading to this resort to incentive per diem charges will assist understanding of the relationship between them and the Maine excise tax on railroads.
The practice of interchanging railroad freight cars instead of transferring loads at the end of each railroad's line became a requirement of law with the enactment of the Interstate Commerce Act in 1887. The result was that the freight cars of the nation "became in essence a single common pool, used by all roads", United States v. Allegheny-Ludlum Steel Corp., 406 U.S. 742, 743, 92 S.Ct. 1941, 32 L.Ed.2d 453 (1972), and each railroad boxcar owner was paid rent for the use of its cars by another railroad.
Because a critical boxcar shortage developed during World War I, Congress enacted the "Esch Car Service Act" of 1917, 40 Stat. 101, 49 U.S.C. § 1(14) (a). It empowered the Interstate Commerce Commission to establish per diem rental charges as compensatory charges; they presently consist of mileage and per diem rates varying with the cost and age of the boxcar. As regular rental charges, these per diem rates provide revenue which the collecting railroad may utilize for its expenses and general corporate purposes.
By comprehensive regulations 3 the Commission thereafter established "incentive per diem" charges: charges over and above the basic compensatory rental charges applicable to general service unequipped boxcars in the possession of non-owning railroads. As revenues received for car hire in excess of the costs or risks of ownership, the incentive per diem charges are intended to encourage railroads to acquire and maintain an adequate supply of freight cars.
Further to assist in this purpose, the regulations specifically restrict a railroad's use of incentive per diem income to the purchasing, building, rebuilding, or leasing of boxcars and to the payment of state and federal income taxes attributable to incentive per diem income. With the funds derived from incentive per diem charges thus earmarked and segregated, they are not available as general corporate funds from which the railroad can pay its liabilities, such as Maine's excise tax on railroads. 4
After expenditure by a railroad of the incentive per diem funds, the boxcars so acquired become part of the railroad's general assets: that is, earmarking of the incentive per diem funds restricts the railroad only up to and including the point of expenditure; thereafter the railroad owns the boxcars outright, even though the financial source represents revenue in excess of the ordinary rate of return.
The incentive per diem charge funds collected by the railroad must either be put to the intended use within eighteen months or be voluntarily surrendered to "Rail Box", a corporation approved by the Interstate Commerce Commission and organized to acquire, own and lease a fleet of boxcars for use as a national boxcar pool. If a railroad which has not made timely use of the incentive funds fails to surrender them to Rail Box, the railroad becomes subject to
investigation by the Interstate Commerce Commission. III.
As a threshold issue, we are asked to decide whether the concept of " net railway operating income", as statutorily defined, requires the inclusion of incentive per diem charges in the computation of the Maine excise tax on railroads.
Maine Central contends that such inclusion of incentive per diem charges would be contrary to the Legislature's purpose in adopting the current definition of net railway operating income. As support for this position, Maine Central relies on the Legislature's adoption of the gross-net method of taxation in 1927, which, says Maine Central, reflects legislative intent that the excise tax be based strictly on the railroad's ability-to-pay. Maine Central argues that because the earmarking of the incentive per diem funds precludes use of the funds for general corporate purposes, such as payment of the railroad excise tax, inclusion of the restricted incentive per diem funds in the tax computation would increase the tax burden on general corporate assets and therefore is not consonant with the legislative approach predicated on ability-to-pay.
The argument is unconvincing.
As the excise tax on railroads was originally enacted in 1881 (P.L.1881, Ch. 91), the rate of the excise tax increased with increase in the average gross transportation receipts per mile of track, and the amount of the tax was determined by multiplying the gross transportation receipts earned within the State by the tax rate. This led to the asserted inequity that even though a railroad continued to own substantially the same amount of property, it would nevertheless be liable for an increased amount of excise tax as a function of the increased revenues deriving from increases in rate charges necessitated by higher operational expenses. These allegedly excessive tax burdens arose "not by reason of any increased prosperity" but rather as a result of increased revenues allowed by the Interstate Commerce Commission to defray corresponding increases in the costs of operation. See: Remarks of Representative Merrill, Legislative Record at 597, 83rd Maine Legislature (1927).
As a response to such inequities, the Legislature in 1927 adopted the current "gross-net method" (P.L.1927, Ch. 27) under which the excise tax continues to be measured by gross transportation receipts, but the rate of the tax is made to depend on the ratio of net railway operating income to gross transportation receipts.
Maine Central's claim is that inclusion of incentive per diem charges in the computation of net railway operating income would re-introduce the "mischief" which it was the Legislature's purpose to eliminate by the 1927 adoption of the gross-net method of excise taxation.
We cannot agree.
The function of the excise tax on railroads is to measure and tax the value of a railroad's franchise. Yet, pursuant to the...
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