Nashville & Decatur R. Co. v. Woods

• Decision Date: 02 September 1980
• Citation: 604 S.W.2d 47
• Parties: NASHVILLE & DECATUR RAILROAD COMPANY, Plaintiff-Appellee, v. Jayne Ann WOODS, Commissioner of Revenue, State of Tennessee, Defendant-Appellant.
• Court: Tennessee Supreme Court

Page 47

604 S.W.2d 47

NASHVILLE & DECATUR RAILROAD COMPANY, Plaintiff-Appellee, v. Jayne Ann WOODS, Commissioner of Revenue, State of Tennessee, Defendant-Appellant.

Supreme Court of Tennessee.

Sept. 2, 1980.

Harlan Dodson, Dodson, Harris, Robinson & Aden, Nashville, for plaintiff-appellee.

William M. Leech, Jr., Atty. Gen., Everett H. Falk, Deputy Atty. Gen., Nashville, for defendant-appellant.

OPINION

FONES, Justice.

This case involves a construction of the apportionment statutes by which the franchise and excise tax applicable to common carriers was computed for the years 1960-1972.

This litigation is a sequel to Nashville & Decatur R. R. Co. v. Atkins, 489 S.W.2d 837 (Tenn.1973), a declaratory judgment action wherein the railroad sought an adjudication that it was not liable for franchise and excise taxes. Briefly, the gravamen of that action was that the N & D Railroad had leased to the L & N Railroad for a period of nine hundred and ninety-nine years all of its properties, consisting of 133.6 miles of railroad trackage in Tennessee and Alabama and its rights, privileges, and franchises; that it was not engaged in any business, other than the ownership and leasing of its property, which it asserted was not subject to the franchise and excise tax. The Court rejected N & D's arguments and expressly held that its franchise and excise tax liability should be computed by the formulas applicable to common carriers. The applicable formulas were contained in T.C.A. § 67-2709(a) and T.C.A. § 67-2915(a). ¹ The two formulas were identical and read as follows:

"The ratio obtained by taking the arithmetical average of the following two (2) ratios:

1. The gross receipts from railway operations on business beginning and ending within this state without entering or passing through any other state as compared with its entire gross receipts from such operations within and without the state.

2. The mileage owned and operated within Tennessee plus mileage leased and operated within Tennessee as compared with the total of such mileage within and without the state."

The Atkins opinion reveals that the commissioner had first computed N & D's franchise and excise tax by taking the arithmetic average of the following two ratios: 1) the receipts to Tennessee stockholders from the lease proceeds to the receipts to all stockholders, and 2) the track mileage in Tennessee to the track mileage everywhere. The average of those two ratios resulted in the figure of 53.5 percent. At some point in that prior litigation, however, the commissioner changed positions and sought to tax N & D solely on the ratio of Tennessee trackage to all trackage, which produced a measure of the tax at 70 percent. As stated, the Court rejected the commissioner's proposed formula and adjudged the common carrier formula applicable to N & D.

Following the decision in Atkins, N & D computed its tax liability according to its interpretation of the common carrier formula and paid the tax. The commissioner made an audit applying a different interpretation of that formula and assessed additional taxes, which were paid under protest. The present action was brought to recover the deficiency asserted and collected by the commissioner.

I.

The tracks of the N & D run southward from Nashville through Columbia and Pulaski to Athens, Alabama. From Athens, Alabama its tracks continue south terminating in Decatur, Alabama, and also northeastward, terminating in Armore, Alabama. The N & D has 93.3 miles of railroad in Tennessee and 40.57 miles of railroad in Alabama.

The first issue involves the interpretation and application of the language prescribing the numerator of the first ratio, to wit, "the gross receipts from railway operations of business beginning and ending within this state without entering or passing through any other state. . . ."

The N & D contends that this numerator requires inclusion of only those gross receipts on business wherein the bill of lading shows that the entire shipment began and ended within Tennessee without entering or passing through any other state.

The commissioner insists that the numerator of the ratio so delineated requires the inclusion of the gross receipts charged for that portion of the shipment over the N & D tracks, regardless of the state in which the shipment originated and regardless of the state in which the shipment was ultimately received, so long as the shipment was received on the N & D tracks within Tennessee and left the N & D tracks within Tennessee without entering or passing through any other state while on its tracks.

The learned chancellor held that it was not necessary to determine the issue on the basis of interstate or intrastate traffic because the language of the statutory apportionment formula clearly included only traffic that began and ended within this State and excluded traffic that entered or passed through any other state. We agree.

The commissioner correctly insists that the act of carrying on business in interstate commerce does not exempt...