Northern Pac. Ry. Co. v. Henneford, 4472.

• Citation: 15 F. Supp. 302
• Decision Date: 09 June 1936
• Docket Number: No. 4472.,4472.
• Court: U.S. District Court — Eastern District of Washington
• Parties: NORTHERN PAC. RY. CO. v. HENNEFORD et al.

15 F. Supp. 302

NORTHERN PAC. RY. CO. v. HENNEFORD et al.

No. 4472.

District Court, E. D. Washington, N. D.

June 9, 1936.

L. B. daPonte, R. S. Macfarlane, and D. H. Eastman, all of Seattle, Wash., F. J. McKevitt, of Spokane, Wash., and A. N. Whitlock, of Seattle, Wash., for plaintiff Northern Pac. Ry. Co.

G. W. Hamilton, Atty. Gen., and R. G. Sharpe, Asst. Atty. Gen., for defendant.

Before HANEY, Circuit Judge, and WEBSTER and PRAY, District Judges.

WEBSTER, District Judge.

This is an action by the plaintiff railway company against the members of the Washington State Tax Commission to enjoin the enforcement as against the plaintiff, of what is called a "compensating tax," as defined and imposed by title 4, § 31 et seq., c. 180, p. 726, Session Laws 1935. Jurisdiction is predicated upon diversity of citizenship and the presence of federal questions. Upon stipulation of the parties, the case is now under final submission for all purposes upon the merits.

The pertinent facts are these: The plaintiff owns and operates a transcontinental system of railroad and is engaged in interstate and intrastate transportation as a common carrier of freight and passengers in the state of Washington. The system comprises 10,498 miles of operated track, of which 3,266 miles are in the state of Washington. In 1934 the operating revenue in Washington was approximately $13,368,674.15, of which $7,574,486.54 was from interstate business and $5,794,187.61 was from intrastate business. The exact figures for 1935 are not now available, but they will be approximately the same as those for 1934. In the necessary operation, maintenance, and repair of its railroad in Washington, the plaintiff purchases a large amount of materials, supplies, shop machinery, tools, etc., part of which it buys in Washington and part in other states. In the months of May and June, 1935, the period covered by this litigation, the plaintiff purchased in various states of the United States and in the Dominion of Canada a quantity of such property which it transported into the state of Washington to various points on its railroad for use in operating, maintaining, and repairing the railroad, which is used indiscriminately and inseparably by the plaintiff in interstate and intrastate commerce in the state of Washington. Property of this character upon its arrival in Washington is classified and taxed as operating property of the railway company pursuant to section 1 (17), c. 123, pp. 356, 360, Session Laws 1935. Much of this property cannot be procured in the state of Washington and most of it is specially designed and all of it purchased for specific railroad purposes and is not practically adapted to any other use.

Chapter 180, title 4, § 31, p. 726, Laws 1935, reads:

"There is hereby levied and there shall be collected from every person in this state a tax or excise for the privilege of using within this state any article of tangible personal property purchased subsequent to April 30, 1935. Such tax shall be levied and collected in an amount equal to the purchase price paid by the taxpayer multiplied by the rate of 2%."

Section 35 of the act (page 727) provided that the "purchase price" shall mean the consideration paid to the seller, plus the actual cost of transportation from the place where the article was purchased to the person using the same in Washington. Chapter 180, title 3, section 16, of this same act (page 721) imposes a general sales tax as follows:

"From and after the first day of May, 1935, there is hereby levied and there shall be collected a tax on each retail sale in this state equal to two per cent of the selling price."

Section 32 of the act (page 726) provides that the compensating tax shall not apply in respect to the use of property, the sale or use of which has already been subjected to a tax equal to or in excess of that imposed by title 4, whether under the laws of this state or some other state of the United States. Section 33 of the act (page 727) provides:

"If any article of tangible personal property has already been subjected to a tax by this or any other state in respect to its sale or use in an amount less than the tax imposed by this title, the provisions of this title shall apply, but at a rate measured by the difference only between the rate herein fixed and the rate by which the previous tax upon the sale or use was computed."

A circular or pamphlet containing regulations for the enforcement of title 4, issued by the defendants as the state tax commission in October, 1935, contains this language:

"The primary purpose of the Compensating Tax is to protect the merchants of Washington from discrimination arising by reason of our inability, under Federal law, to impose a tax upon sales made to our residents by competitive merchants in other states."

In the absence of this frank declaration, it is plain from the law itself that such is its primary purpose.

In assailing title 4 of the act defining and imposing the compensating tax, counsel for plaintiff make two principal or primary contentions: (1) That if considered as a tax for the privilege of using the property indiscriminately and inseparably as instrumentalities of interstate and intrastate commerce, the law imposes directly an unjust and undue burden on interstate commerce in violation of the commerce clause of the Constitution of the United States (article 1, § 8, cl. 3), and (2) if considered as a tax attaching to the mere ownership of the property, the tax would be a property tax and not an excise and therefore void under the uniformity and equality clause of the Fourteenth Amendment to the Constitution of the state of Washington, and also under the Federal Constitution (Amendment 14). In Morrow v. Henneford et al., 182 Wash. 625, 47 P.(2d) 1016, the Supreme Court of Washington had before it an attack upon the general sales tax of the state as defined by title 3 of chapter 180, Laws 1935, p. 721, upon the ground, among others, that the tax imposed by the act is a direct property tax, lacking uniformity and equality and consequently in violation of both the State and Federal Constitutions. The validity of the tax was sustained upon the ground that the tax was an excise as distinguished from a property tax and as such excise was not obnoxious to either State or Federal Constitution. In the course of its opinion the court cited with approval and quoted copiously from Bromley v. McCaughn, 280 U.S. 124, 50 S.Ct. 46, 47, 74 L.Ed. 226, involving the validity of a tax imposed upon the transfer of property by gift. Instead of employing language of its own, the court elected to quote language from decided cases upon which it relied. Included in a quotation from Bromley v. McCaughn, supra, this language is found:

"While taxes levied upon or collected from persons because of their general ownership of property may be taken to be direct, Pollock v. Farmers' Loan & Trust Company, 157 U.S. 429, 15 S.Ct. 673, 39 L.Ed. 759; Id., 158 U.S. 601, 15 S.Ct. 912, 39 L. Ed. 1108, this court has consistently held, almost from the foundation of the government, that a tax imposed upon a particular use of property or the exercise of a single power over property incidental to ownership, is an excise which need not be apportioned. * * * It is a tax laid only upon the exercise of a single one of those powers incident to ownership, the power to give the property owned to another. Under this statute all the other rights and powers which collectively constitute property or ownership may be fully enjoyed free of the tax."

In Vancouver Oil Company v. Henneford et al., 183 Wash. 317, 49 P.(2d) 14, 16, the Supreme Court of Washington upheld the constitutionality of title 4 of the act as applied to the use of a motor vehicle and trailer purchased in Oregon, delivered at Vancouver, Wash., and there to be used solely in local intrastate business. Following Morrow v. Henneford, supra, the court upheld the act as an excise and not a property tax. The opinion did not undertake to alter or enlarge the distinction between an excise and a property tax as pointed out in the Morrow Case. Indeed there was no occasion to do so since the provisions of title 4 lay a tax solely upon the privilege of using within the state of Washington property purchased outside of the state, and in that case it was property for common use. With respect to the contention that title 4 was in violation of the commerce clause of the Constitution of the United States, the court said:

"With reference to the commerce clause of the Federal Constitution, it is well settled, of course, that the state, through its Legislature, has no power to restrict or regulate interstate commerce, or to impose a tax upon an article which would place a direct burden upon such commerce. A state tax, however, on merchandise brought into this state from another state, or upon its sales, whether in original packages or not, after it has reached its destination and is in a state of rest, is lawful, providing the tax does not work a discrimination against merchandise because of its origin in another state."

The only interstate characteristic of the transaction involved in that case was that the truck and trailer were purchased in Oregon and brought into the state of Washington. The property was never intended to be used, either in whole or in part, in interstate commerce. That case, therefore, manifestly is not authority for holding that the compensating tax, as defined and laid by title 4, is valid as applied to property purchased outside the state for the operation, maintenance, and repair of an interstate railroad and which is brought into the state for that sole and exclusive purpose. It is difficult to conceive how property so purchased and brought into the state to be so used can be said to come to a state of rest in the state and be commingled with the common property of the state in the period intervening its crossing the state boundary...