Maine Cent. R. Co. v. Halperin

• Decision Date: 27 December 1977
• Parties: MAINE CENTRAL RAILROAD COMPANY v. Raymond L. HALPERIN et al.
• Court: Maine Supreme Court

Page 8

381 A.2d 8

MAINE CENTRAL RAILROAD COMPANY v. Raymond L. HALPERIN et al.

Supreme Judicial Court of Maine.

Dec. 27, 1977.

Pierce, Atwood, Scribner, Allen, Smith & Lancaster by William C. Smith, James G. Good, Portland, for plaintiff.

Clifford B. Olson, Jerome S. Matus, Asst. Attys. Gen., Augusta, Henri Francis Rush, Alan W. Heifetz, I. C. C., Washington, D. C., for defendants.

Before DUFRESNE, C. J., and WERNICK, ARCHIBALD and GODFREY, JJ.

WERNICK, Justice.

On motion for reconsideration.

Plaintiff Maine Central has moved for reconsideration of the Court's November 16, 1977 opinion in this case. 379 A.2d 980. Maine Central's motion asks us to address the issue

"whether the imposition of the Maine Railroad Excise Tax under the specific circumstances affecting Maine Central's 'net railway operating income' in 1974 contravened the Commerce (Clause) . . . ."

Maine Central suggests that this question became obscured, inadvertently, in the attention concentrated on the broader argument that it is facially unconstitutional to include incentive per diem income in the "net railway operating income" used to compute the excise tax on railroads. Although we are satisfied that in its fundamental import our original opinion sufficiently covered the "as applied" issue now being raised, in the interest of full clarity we deem it appropriate to add a clarifying supplement. It is true that in our original opinion we gave extensive consideration to the "unique combination of circumstances" which occurred in 1974 in arriving at our decision reviewing Maine Central's challenge predicated on the Supremacy Clause of the Constitution of the United States, a decision which Maine Central has not asked us to reconsider. ¹ We did not, however, ignore the 1974 circumstances in addressing the Commerce Clause question. On that issue the purport of our decision was that even in relation to the special circumstances of 1974, the application of the mileage apportionment formula to net railway operating income did not contravene the Commerce Clause.

In Part II of its motion Maine Central relies on Norfolk & Western Ry. Co. v. Missouri State Tax Commission, 390 U.S. 317, 88 S.Ct. 995, 19 L.Ed.2d 1201 (1968) to support the contention that the excise tax as applied in 1974 violated the Commerce Clause. In the Norfolk case, the Supreme Court ruled that

"when a taxpayer comes forward with strong evidence tending to prove that the mileage formula will yield a grossly distorted result in its particular case, the State is obligated to counter that evidence or to make the accommodations necessary to assure that its taxing power is confined to its constitutional limits. If it fails to do so and if the record shows that the taxpayer has sustained the burden of proof to show that the tax is so excessive as to burden interstate commerce, the taxpayer must prevail." (390 U.S. p. 329, 88 S.Ct. p. 1003)

We reiterate our original conclusion that the taxpayer has not met its burden of proving that the mileage formula will yield a "grossly distorted" result.

The alleged "evidence" of distortion is that in the special 1974 situation the effect of the imposition of the Maine excise tax was to attribute to the State of Maine 84.25% Of Maine Central's net freight car rental and incentive per diem charges when in fact only 2.62% Of these receipts had been earned as the rentals from cars used in Maine. The error of this approach lies in the error of its premise, that each component of the value of the railroad franchise may be broken down and examined separately to determine whether the tax is properly apportioned as to that particular component of the value of the railroad franchise.

In this regard, contrary to Maine Central's contention, the distinction between the Maine Excise Tax on Railroads and a tax such as the ad valorem tax in Norfolk & Western, supra, becomes of primary importance. In Norfolk & Western, Missouri had imposed an ad valorem tax on "all real property . . . (and) tangible personal property" owned, hired or leased by any railroad company "in this state." Application of Missouri's mileage apportionment formula to a foreign railroad corporation resulted in a determination that 8% Of the railroad's rolling stock was located in Missouri. Direct evidence, however, established that on tax day (and generally throughout the year in approximately the same proportions) only 2.71% Of the total fleet of rolling stock was located in Missouri. The Norfolk Court rejected Missouri's attempt to uphold the tax on the basis of the enhancement or augmentation in value of the tangible property produced by its connection with, and organic relation to, the integrated railroad system. The tax was thus held to violate the Commerce Clause because it was imposed on tangible property not located in the state. In the instant case, in contrast, the tax does not fall on property outside of the state but rather is imposed on the value of the local railroad franchise as apportioned and measured by net railway operating income and gross transportation receipts throughout the entire railroad system.

In an ad valorem tax system, although the augmentation in value attributed to the existence of tangible property as part of a going concern is a relevant factor in valuing the individual units of tangible property located in the state, the validity of the apportionment may be broken down to individual units such as the value of the rolling stock and the value of terminal facilities. However, as we pointed out in our original opinion, the apportionment of an excise tax on a railroad franchise presents a distinguishable situation. The excise tax is imposed on the value of the local franchise valued as a going concern "in its organic relations, and not merely as a congeries of unrelated items . . . ." (Galveston (Galveston, Harrisburg & San Antonio Ry. Co. v. Texas, 210 U.S. 217, 28 S.Ct. 638, 52 L.Ed. 1031 (1908)) cited in n. 13). In short, with respect to the apportionment of an excise tax, it is improper to consider the validity of the apportionment as it...