Michigan Southern & Northern Indiana Railroad Co. v. Auditor-General

• Decision Date: 19 January 1862
• Citation: 9 Mich. 448
• Court: Michigan Supreme Court
• Parties: The Michigan Southern & Northern Indiana Railroad Company v. The Auditor-General

9 Mich. 448

The Michigan Southern & Northern Indiana Railroad Company v. The Auditor-General

Supreme Court of Michigan

January 19, 1862

Heard October 11, 1861; October 12, 1861; October 15, 1861,

Appeal in chancery from Wayne circuit.

Decree dismissing the bill affirmed.

Warner Wing and H. H. Emmons, for complainants.

C Upson, Attorney-General, and J. P. Whittemore, for defendants.

Campbell J. Christiancy, J. Manning, J. concurred. Martin, Ch. J concurred with Manning, J.

OPINION

Campbell J.:

The bill in this case was filed to restrain the collection of $ 11,718.34, being a balance claimed to be due from the complainants to the state of Michigan for specific taxes. The complainants claim that this amount of tax is made up of three-fourths of one per cent on six separate items, all of which they insist are exempt from the tax. These items are set forth in the bill as consisting of: First, $ 300,000 of stock which is averred to consist of three thousand shares, which it is alleged were issued in 1849, and delivered to the "then several stock-holders of the company, without any consideration therefor, without any subscription being made for said stock, and without any promise from any person whatsoever to pay the amount or any part thereof to said company, nor was any capital directly or indirectly, actually or technically, paid to said company on account of said certificates;" second, $ 185,459.84, which is the amount of discount on the sale of company bonds below par; third, $ 250,000 of bonds known as Jackson Branch bonds, which were never sold by the company, but were lent and disposed of by the borrower, who had turned out as collateral the bonds of the Chicago & Mississippi railroad company, which the complainants took on settlement and now hold, and which are averred to be worthless; fourth, $ 466,848.02, being the cost of various steamboats, one of which was destroyed some years since, and the remainder are alleged to have been employed and taxed in other states, and of late have been unemployed and lying idle; fifth, $ 300,000 lent by complainants to the Chicago & Mississippi railroad company, and secured by worthless securities; sixth, $ 60,136.87 expenses incurred in obtaining loans and selling bonds.

Before inquiring into these items it becomes necessary to consider a question raised on behalf of the defendant, and which is claimed to preclude any investigation of these matters. It is insisted that the whole controversy is bound by a previous adjudication of the Supreme Court in the case of The People v. The Michigan Southern & Northern Indiana Railroad Company, which is reported in 4 Mich. 398. In that case three of these items were considered, and it is claimed, inasmuch as all of them then existed, the company became estopped by the decision, on the principle that what has become res adjudicata can not be disturbed. Without considering the technical defects of the answer and proofs on this specific defense, I think it is founded on a misapprehension of the rule. The only controversy in the record in that case, was whether a certain portion of the tax of 1855 was due and payable. That controversy only was disposed of; and if any estoppel arises it can not go further. Estoppels arise upon facts, and not upon questions of law. When the latter are decided, they have no further importance than as precedents. That case therefore has no bearing upon any question of law not considered in it. How far it bears upon any of the questions now before us, under the new allegations and proofs adduced in this cause, I shall consider presently.

The first questions which I propose to examine are those not presented in that case, and which may therefore be regarded as new questions. And for convenience they will be taken up in their inverse order.

The complainants claim an exemption of tax on $ 60,136.87, paid out for commissions and other expenses attending the sale of bonds and the obtaining of loans. I do not perceive upon what ground this exemption can be claimed. The loans which caused these expenses were taxable. The expenses were mere agency expenses, in no wise differing from any other outlays for services. The law does not undertake to follow the money of the company to its several destinations. When once borrowed, the company can use it for the proper objects; and should, I think, be held responsible for taxes on it, whether spent profitably or not. No business can be transacted without some unproductive expenditures. The employment and payment of agents is an ordinary necessity, and it is always presumable that their services are worth what they cost. These charges form, I think, no cause of exemption.

The same objection applies to the demand to have a deduction from the tax on account of $ 300,000 lent by complainants to the Chicago & Mississippi railroad company. Having borrowed money which became taxable as a loan, the complainants did not cease to be debtors for the amount by lending it or giving it away. Such a loss might afford an argument for legislative relief, but it can not change their position as borrowers, nor diminish the amount of their loans.

The next item embraces the cost of the steamboats. It appears that one of them has been lost, and that the rest have been lying at Toledo unproductive, and have been taxed in Ohio. This exemption is claimed on the ground that complainants are not taxable for any capital or loans not "actually employed in the state of Michigan." The third section of the act of consolidation between the Michigan and Indiana company is relied upon for this exemption. That section is as follows: "The said corporation so to be organized, by virtue of this act, shall continue subject to the same rate of tax as though such consolidation should not take place, and the amount of its capital and loans hereafter, upon which such taxation shall be paid, shall be such portion of the whole of its capital and loans as is actually employed in the state of Michigan," etc. By the original charter, the Southern railroad company was liable to a tax of three-fourths of one per cent upon the capital stock paid in, and upon all loans made to the company for the purpose of constructing the railroad, or purchasing, constructing, chartering or hiring steamboats.

By imposing the tax on stock and loans, and exempting the company from other taxes it is evident the design was to have a standard readily ascertained, and which was not likely to fluctuate. The chance of profit, without which no such work would be undertaken, and whereby, under ordinary circumstances, the taxes would be increased, was balanced by the chance of losses, whereby taxation would be diminished. It never was designed that the tax should be lessened by any disaster, any more than that it should be increased by any amount of prosperity. I do not think the consolidation act was designed to infringe upon this principle. When it declares the rate of taxation shall continue the same, it appears to me evident that all the stock and loans formerly taxable were to continue taxable without diminution by losses or unproductiveness. Otherwise the company might continue to own the same identical property, and if found not profitable, might, by leaving it idle, exempt it entirely, when if in private hands it would be taxable upon a valuation. And if exempted for losses there would be great inequality unless they should be made liable to increased taxation in proportion to their profits. I think the true meaning, therefore, of the whole section which refers to capital and loans actually employed in Michigan, must be deduced from the design of the new law to apply the old principle as far as possible to the new state of things. The original company was a Michigan company, and all of its capital was in the eye of the law employed in this state. Whatever money it may have expended in feeders by land or by water must have been regarded as merely ancillary to its home business, and expended upon it. Had any losses then taken place no one can suppose they could have formed any basis for a deduction from the taxes on stock and loans.

The object of the consolidation act was to enable this company to form a union with another company in Indiana; and by the terms of the act the new corporation was to be governed substantially by the old charter. That other company being formed under the laws of another state, held its own property exempt from our laws. There was no reason why that should not remain exempted, while there was no reason on the other hand for exempting what was already subject to our jurisdiction. Looking at the whole subject, I think the term "actually employed" has no reference to the actual use of the property purchased by the company, but is merely designed to distinguish the Michigan investment from the Indiana investment. Because the capital of a company or an individual has been used to purchase a steamboat, it can not in any just sense be regarded as employed in every part of the world where the vessel may navigate, nor as unemployed when she is in ballast, or losing money, or laid up. The capital of an individual is regarded as employed or invested at the place where the owner does business. The capital of a New York or Boston merchant is employed in New York or Boston, no matter where his ships may be. This is the view taken by the Supreme Court of the United States in Hays v. The Pacific Mail Steamship Company, 58 U.S. 596, 17 HOW 596, 15 L.Ed. 254, where New York vessels employed in the California trade were held exempt from taxation in California. Whether allowing vessels or other property to remain in a place for a length of time may or may not confer a right to tax them there, is not decisive of the...