Railroad Tax Cases

• Decision Date: 25 September 1882
• Citation: 13 F. 722
• Parties: THE RAILROAD TAX CASES. v. SOUTHERN PACIFIC R. CO. COUNTY OF SAN MATEO
• Court: United States Circuit Court, District of California

13 F. 722

THE RAILROAD TAX CASES.

COUNTY OF SAN MATEO v. SOUTHERN PACIFIC R. CO.

United States Circuit Court, D. California.

September 25, 1882

[Copyrighted Material Omitted]

This was an action commenced by the county of San Mateo, of California, under the provisions of an act of the state of 1880, (St. 1880, p. 136,) for the recovery of state and county taxes claimed to be due from the defendant to the plaintiff for the fiscal year 1881-1882. The complaint is in the form prescribed by the statute. The amended answer contains a general denial of every allegation of the complaint, and sets up special matters as a defense. With this general denial the court does not deal; it deals only with the special matters pleaded, it having been agreed by counsel that if they constitute a defense to the action judgment final shall be entered for the defendant, otherwise for the plaintiff.

The material averments of the answer in this respect are that the defendant is a corporation existing under the laws of the United States and of the state of California, having its principal place of business in the city and county of San Francisco; that it was organized in the year 1878 under an act of the legislature of the state entitled 'An act to provide for the incorporation of railroad companies, the management of the affairs thereof, and other matters relating thereto,' approved May 30, 1861; that the term of its existence was to be 50 years from the date of its organization; that it is still in existence under said laws except in so far as its existence and character are affected by the federal enactments referred to and made part of the answer; that many of its stockholders and members are citizens of the United States, and residents of states other than the state of California, while many other stockholders and members are citizens of the United States, and residents of states other than the state of California; that it constructed a line of railroad known as the Southern Pacific Railroad, which commences at the city of San Francisco, and extends in a southerly direction to connect with the Texas &amp Pacific Railroad, and the Atlantic & Pacific Railroad, both of which are chartered by act of congress; that prior to the first day of January, 1881, it was indebted to divers persons, citizens of the United States, many of them citizens and residents of the state of California, in large sums of money, which were advanced for, and used in the construction and equipment of, the defendant's railroad; that to secure the payment of such indebtedness the company, prior to the first day of January, 1881, executed and delivered a mortgage upon its railroad, rolling stock, appurtenances, and franchise, and upon divers tracts of land belonging to it, and situated in different parts of the state; that the indebtedness so secured exceeds $3,000 per mile, and is still subsisting, secured as aforesaid, no part thereof having been paid except its accruing interest.

It is further averred that the assessment, according to which the taxes claimed were levied, was made on the second day of May, 1881, by the board of equalization of the state of California; that the board assessed against the defendant the whole of its railroad property, and failed to deduct from its value the mortgage given thereupon to secure said indebtedness; that the assessment was made without notice to the defendant, and that neither the constitution nor the laws of the state of California provided in respect to such assessment an opportunity of time, place, or tribunal for the defendant to be heard, or for any notice to the defendant before its liability was fixed; that all owners of railroad property situated in said state, and operated in more than one county, as is the property of the defendant, are denied any protection from the laws of California, which require with respect to other property that notice of its assessment shall be given to the owners; which require that before its liability shall be fixed an opportunity to be heard shall be afforded to them; which give to them an appeal from the assessor to a board of equalization; which require the assessment to be made in the counties in which the property is situated, and prevent its being made in localities distant from the situs of the property; and which allow deductions from its valuation for indebtedness secured by mortgage.

It is further averred that at and before and ever since the adoption of the constitution of California now in force, there were and have been existing, under the laws of said state, corporations of various kinds, formed for the purpose of, and actually operating and doing business, and holding and using property in more than one county in the state; that at all said times there were, and there are now, divers natural persons, residents of said state, operating property in more than one county; that at all of said times there were, and now are, railroads owned by corporations formed under the general laws of said state which are operated only in one county; that by the provisions of section 10, art. 13, of the state constitution persons operating railroads in more than one county in the state have been singled out from other persons operating property in more than one county in the state, and denied the right common to all other persons to apply for relief from overvaluation of their property by the assessor to local boards of equalization, and denied the rights and privileges accorded by law to all other persons in that respect.

It is further averred that the franchise of defendant is held, and its corporate powers exercised, under authority of the government of the United States; that by the several acts of congress set out in the answer the defendant was selected by the government of the United States as a means and instrument of that government to construct the railroad in question, and to keep and maintain the same in repair, to the end that the government of the United States might, when occasion required, use the same for the transportation of its armies, military stores, and mails, and for such other purposes as said government, in the exercises of its powers, might desire to use the same; that the government of the United States has never given to the state of California the right to lay any tax on the franchise, existence, or operation of defendant; that such a tax would hinder and impede the lawful operations of the government of the United States, and would hinder, delay, and prevent the defendant from performing the obligation imposed upon it by said act of congress, and would wholly nullify and prevent the enforcement of the same; and that in the assessment, which constitutes the basis of plaintiff's action, the valuation of the franchise of the defendant-- its right to exist--is so blended with the valuations affixed to the road-way, road-bed, rails, and rolling stock, that it can neither be distinguished nor separated from them.

Upon the matters thus averred, it was alleged and claimed by the defendant that in the assessment of its property, according to which the taxes in suit were levied, an unlawful and unjust discrimination was made between its property and the property of individuals to its disadvantage, in that it was not allowed any deduction from the valuation of its property for the mortgage thereon, which is allowed for mortgages in the assessment of property of individuals; and that the company was thus subjected to an unequal share of the public burdens; and that, as this discrimination was made in pursuance of provisions of the constitution of the state, the company was denied the equal protection of the laws guarantied by the fourteenth amendment of the federal constitution.

It was further alleged and claimed by the defendant that the assessment of its property was illegal and void, because made in pursuance of the provisions of the state constitution, which gave no notice to the defendant, and afforded it no opportunity to be heard respecting the value of its property, or for the correction of any errors of the state board, thus depriving it of its property without due process of law guarantied by that amendment.

It was also averred and claimed that the franchise of the defendant was exempt from state taxation, the defendant having been selected by the government of the United States as a means and instrument to construct the road, and to keep the same in repair, for the transportation of the troops, military stores, and mails of the United States, and for such other purposes as the government, in the exercise of its powers, might desire.

The case was argued before Mr. Justice FIELD and Judge SAWYER, the argument commencing on the twenty-first day of August, 1882, and closing on the 29th. The opinions were read in the circuit court on September 25, 1882.

A. L. Rhodes, A. L. Hart, Atty. Gen., and Tolles and Ware, Dist. Attys., for plaintiff.

Creed Haymond, J. Norton Pomeroy, T. I. Bergin, and T. B. Bishop, for defendants.

FIELD Justice.

This action is brought to recover of the Southern Pacific Railroad Company, a corporation formed under the laws of California, certain state and county taxes levied upon its property for the fiscal year of 1881 and 1882, alleged to be due to the plaintiff, with 5 per cent. added for their non-payment, and interest. It was commenced in one of the superior courts of the state, and, on application of the defendant, was removed to this court.

The railroad company, besides a general denial of the allegations of the complaint, sets up as a special answer to the action that in the assessment of its property, according to which the taxes claimed were levied, an unlawful and unjust discrimination was made between its property and the...