Nashville & D. R. Co. v. Atkins

• Decision Date: 22 January 1973
• Parties: NASHVILLE & DECATUR RAILROAD COMPANY, Complainant-Appellant, v. Z. D. ATKINS, Commissioner of Finance and Taxation, State of Tennessee, Defendant-Appellee.
• Court: Tennessee Supreme Court

Page 837

489 S.W.2d 837

NASHVILLE & DECATUR RAILROAD COMPANY, Complainant-Appellant, v. Z. D. ATKINS, Commissioner of Finance and Taxation, State of Tennessee, Defendant-Appellee.

Supreme Court of Tennessee.

Jan. 22, 1973.

David M. Keeble, Hooker, Keeble, Dodson & Harris, Nashville, for complainant-appellant.

David M. Pack, Atty. Gen., State of Tennessee, Milton P. Rice, Deputy Atty. Gen., Everett H. Falk, Asst. Atty. Gen., Nashville, for defendant-appellee.

OPINION

SHRIVER, Special Justice.

This is a declaratory judgment suit filed by complainant, Nashville & Decatur Railroad Company, to determine whether the Railroad Company is liable for excise and franchise taxes under Tennessee statutes, Section 67--2711 et seq., and 67--2917 et seq., T.C.A. After a hearing on the pleadings, stipulation of facts and exhibits, and argument of counsel, the Chancellor held the complainant liable for the taxes in question, and from this decree it perfected its appeal to this Court and has assigned errors.

The original bill, filed March 23, 1956, avers that the Nashville & Decatur Railroad Company was incorporated under the laws of the State of Tennessee; that it owns 133.60 miles of railroad trackage, of which 93.03 miles are located in Tennessee, the remaining mileage being in the State of Alabama; that complainant has outstanding 142,150 shares of capital stock, with a par value of $3,553,750.00, plus fractional shares equal to $13,632.33, making a total par value of $3,567,382.33; and that, as of December 31, 1953, 55,838 full shares were owned by residents of the State of Tennessee.

It is further averred that by a lease dated October 18, 1899, copy of which is made Exhibit 1 to the bill, said Railroad Company leased all of its property to the Louisville and Nashville Railroad Company, a Kentucky corporation, for a period of 999 years. Pursuant to said lease, the Louisville and Nashville Railroad Company pays direct to the stockholders of the Nashville & Decatur Railroad Company 7 1/2% Per annum of the par value of their respective holdings of stock in said corporation. It is alleged that the Nashville & Decatur Railroad Company does not carry on business of any type other than the ownership and leasing of its property, as hereinabove stated.

It is alleged that the Department of Finance and Taxation of Tennessee has issued a distress warrant against complainant, a copy of which is attached and made Exhibit 2 to the bill, seeking to collect franchise tax for 1954 in the amount of $2,852.82 and an excise tax for the same year in the amount of $5,367.80, and that the Department is threatening to run an execution to collect said taxes unless paid promptly.

Complainant denies that it is liable for either the franchise or excise tax, and pertinent parts of the statutes under which the State seeks to hold complainant liable are copied into the bill.

Complainant contends that its mere ownership of property in the State of Tennessee and the leasing thereof pursuant to the terms of the 999 year lease above referred to, does not constitute doing business in the State and that a corporation is not subject to a franchise tax for the privilege of doing business in the State where it does not actually exercise that privilege.

As to the excise tax originally enacted in 1923, complainant contends that it is not subject to said tax inasmuch as it is not doing business in the State of Tennessee and had no earnings from business in the State for the year 1954, the year for which the levy involved here was made.

It is further averred that the defendant is bound by the long and consistently adhered to policy and construction of these tax statutes on the part of the officials of the Department of Finance and Taxation of Tennessee who held that complainant was not liable for said taxes, and that the reenactment in 1937 of the franchise tax by the Legislature with knowledge of the Commissioner's construction of said tax amounted to an adoption of that construction.

Complainant further asserts that, even if it is liable for the taxes in question, the method of computation of said taxes as used by the State is erroneous and that the statutory formula specifically applicable to common carriers by rail should be applied.

As above indicated, the bill prays for a declaratory judgment decreeing that it is not liable for either the excise or franchise tax under Tennessee statutes and, in the alternative, if it be held liable, that the computation be made on the basis and according to the formula provided for rail carriers and not according to the assessment made by the State.

The answer of the defendant admits the allegations of fact set forth in the original bill, but denies the conclusions of law drawn by complainant.

It thus appears that there is no dispute as to the facts, all of which are either admitted in the answer or stipulated.

In the brief and argument of counsel for complainant-appellant (hereinabove referred to as complainant), attention is called to the fact that there is attached to the stipulation a copy of an opinion from the Office of the Attorney General of Tennessee, addressed to the Commissioner of Finance and Taxation, under date of June 20, 1939, with respect to liability for Tennessee excise and franchise taxes of the Chicago, Rock Island & Pacific Railway Company; the Choctaw, Oklahoma & Gulf Railway Company; and the Rock Island, Memphis Terminal Railway Company. It is insisted by complainant that almost identical circumstances existed with respect to the Railway Companies referred to in the foregoing opinion as those existing in the case at bar, and that, in said opinion of the Attorney General, said Railway Companies were held not liable for said taxes.

Also attached to the stipulation is a letter dated April 1, 1937, from Edwin F. Hunt, Assistant Attorney General for the State of Tennessee, addressed to the Honorable J. E. Bates, Director of Assessments, Department of Finance and Taxation, in which he gave the opinion that the Nashville & Decatur Railroad Company was not liable for the Tennessee excise tax.

In the reply brief of the defendant it is stated that appellee recognizes the principle of statutory construction that a long continued administrative interpretation is persuasive with respect to legislative intent. In State ex rel. v. Nashville Baseball Club, 127 Tenn. 292, 154 S.W. 1151, Ann.Cas.1914B, 1243, it was said that construction of a statute or the Constitution, not emanating from judicial decision, but adopted by the legislative or executive departments of the State, and long accepted by the various agencies of government and the people, will usually be accepted as correct by the courts. Citing Austin v. Shelton, 122 Tenn. 634, 127 S.W. 446, and numerous cases. However, it is the State's contention that under the decision of this Court in Texas Gas Transmission Corp. v. Atkins, 197 Tenn. 123, 270 S.W.2d 384, prior to which decision the Department of Revenue did not assert or attempt to collect franchise and excise taxes against complainant, there can be no serious doubt as to appellant's liability for the excise and franchise taxes.

We must agree that an administrative interpretation cannot stand in the face of a subsequent Court decision in which there is a different interpretation than that previously placed upon the statutes by the administrative authorities. See Ownbey v. Butler, 211 Tenn. 366, 365 S.W.2d 33, where it was held that the State was not estopped from collecting excise taxes from Tennessee corporations on sales to out-of-state customers because of prior construction of the tax statute by the Commissioner.

We are of opinion that when the language used by this Court in Memphis Dock & Forwarding Co. v. Ford, 170 Tenn. 109, 92 S.W.2d 408, and Texas Gas Transmission Corp. v. Atkins, 197 Tenn. 123, 270 S.W.2d 384, is carefully considered, the Chancellor's decree holding complainant liable for the taxes in question must be affirmed.

In the Memphis Dock & Forwarding Co. case, supra, a clear and concise opinion by Mr. Justice Cook points out that in several assignments of error the complainant insists (1) that it was not subject to the excise tax because it had leased all of its corporate property and merely maintained its corporate existence for the purpose of holding title, receiving rents, and distributing the income from rentals, and was, therefore, not engaged in business in Tennessee; and (2) that neither the ownership of property nor the rental of property owned by the corporation is a taxable privilege. In passing upon these two propositions, the Court said:

'It may be conceded, as insisted by complainant, that the ownership and rental of corporate property is not a taxable privilege without affecting the result. The tax is not laid upon a particular corporate business or upon a particular transaction; it is upon the privilege of doing business as a corporation and exercising the corporate powers for the purpose of producing a profit. The source of the profit and the character of business carried on in the corporate name is immaterial. The tax is measured by net earnings that result from whatever business may be done by the corporation in the exercise of powers conferred by the charter. That is made apparent by reference to the act carried into section 1316 of the Code of 1932. Our cases of Bank of Commerce & Trust Co. v. Senter, 149 Tenn. 569, 260 S.W. 144, and Jorgensen-Bennett Mfg. Co. v. Knight, 156 Tenn. 579, 3 S.W.2d 668, 60 A.L.R. 393, are in accord with that conclusion.'

The Chancellor's decree was affirmed.

Complainant-appellant places substantial reliance on the decision of this Court in State ex rel. McCanless, etc. v. Cincinnati Southern Railway et al., 178 Tenn. 328, 157 S.W.2d 833, wherein it was held that a corporation organized under the laws of another state which merely carried on the business of leasing, collecting and disbursing the rents from...