Rogan v. Baltimore & O. R. Co.

• Decision Date: 14 March 1947
• Docket Number: 70.
• Citation: 52 A.2d 261,188 Md. 44
• Parties: ROGAN et al. v. BALTIMORE & O. R. CO.
• Court: Maryland Court of Appeals

52 A.2d 261

188 Md. 44

ROGAN et al. v. BALTIMORE & O. R. CO.

No. 70.

Court of Appeals of Maryland

March 14, 1947

Dissenting Opinion March 19, 1947.

Appeal from Circuit Court of Baltimore City; Emory H. Niles, Judge.

Proceeding by the Baltimore & Ohio Railroad Corporation before Joseph H A. Rogan, Emerson C. Harrington, Jr., and Owen E. Hitchins constituting the State Tax Commission of Maryland, for refund of franchise tax paid under protest, wherein the claim was denied and the claimant appealed to the Circuit Court of the City of Baltimore. From a decree for claimant, the State Tax Commission appeals.

Decree reversed and case remanded for entry of decree in conformity with opinion.

MARKELL J., dissenting.

Richard W. Emory, Deputy Atty. Gen. and Hall Hammond, Atty. Gen. (Joseph D. Buscher, Asst. Atty. Gen., on the brief), for appellants.

John S. Stanley, of Baltimore, and D. Heyward Hamilton, Jr., (Hershey, Donaldson, Williams & Stanley, all of Baltimore, on the brief), for appellee.

Before MARBURY, C.J., and DELAPLAINE, COLLINS, GRASON, HENDERSON and MARKELL, JJ.

DELAPLAINE Judge.

This case calls for construction of the Maryland statute, Laws of 1878, ch. 155, which imposes an annual franchise tax of one-half of one percent on the gross receipts of the Baltimore & Ohio Railroad Company within the State of Maryland.

The railroad company was incorporated by the Legislature in 1826 to build a railroad from the City of Baltimore to the Ohio River. Perpetual exemption from taxation was given by the charter on shares of capital stock of the company. Laws of 1826, ch. 123, sec. 18. The railroad was built through Ellicott City, Monocacy Junction, Harper's Ferry and Cumberland to the West. In 1830 the Legislature authorized the company to construct a branch line from the Main Line to the City of Washington, and in 1832 imposed an annual tax of one-fifth of the whole amount received for the transportation of passengers on the Washington Branch. Laws of 1830, ch. 158; Laws of 1831, ch. 330; Laws of 1832, ch. 175. In 1865 the Legislature authorized the company to construct another branch, the Metropolitan, from some suitable point between Monocacy Junction and Knoxville, Maryland, to the District of Columbia in order to facilitate a more direct communication from the West to the City of Washington. Laws of 1865, ch. 70. In 1868 the company refused to pay the tax on the fares from passengers on the Washington Branch, in view of the decision of the United States Supreme Court in Crandall v. State of Nevada, 6 Wall. 35, 18 L.Ed. 744, 745, that the Nevada statute imposing a capitation tax upon every person leaving the State by any railroad or stage coach was unconstitutional, inasmuch as every citizen of the United States has the right to pass from one State to another without interruption. But the Nevada tax was a tax 'on the transportation,' while the Maryland tax was compensation 'for the transportation,' or for the franchises enjoyed by the carrier. Hence, in State v. Baltimore & Ohio R. Co., 34 Md. 344, the Court of Appeals held that the exaction by the State of one-fifth of the passenger fares collected on the Washington branch was not a capitation tax, or tax upon the passenger for the right to travel, but a franchise tax imposed upon the corporation, and therefore was free from constitutional objection. That decision was affirmed by the Supreme Court in Baltimore & Ohio R. Co. v. State of Maryland, 21 Wall. 456, 22 L.Ed. 678, 684.

In 1872 the Legislature enacted the General Gross Receipts Tax Law imposing an annual tax of one-half of one per cent on the gross receipts derived by railroads worked by steam within the State of Maryland. The gross receipts from the Washington Branch were exempted therefrom as long as the company paid the tax imposed by the Legislature of 1832. Laws of 1872, ch. 234. The Comptroller requested the Northern Central Railway, the Philadelphia, Wilmington and Baltimore Railroad road Company and the Baltimore and Ohio to report the amount of receipts from passenger and freight transportation; but none of the railroad companies had segregated the receipts derived within the State from the receipts derived outside the State. In 1873 the Comptroller, evidently recognizing the impracticability of segregating the receipts, asked the companies to report the length of line within the State and the entire length of line of the railroad. With this information the Comptroller apportioned the gross receipts.

In 1876 the Court of Appeals in State v. Northern Central Ry. Co., 44 Md. 131, held the Gross Receipts Tax Law valid; and in State v. Philadelphia, W. & B. R. Co., 45 Md. 361, 384, 24 Am.Rep. 511, found that, while perfect equality in the apportionment of taxes on gross receipts is unattainable, the line-mile basis of apportionment was apparently fair and reasonable. In 1876 the State entered suit against the Baltimore and Ohio for taxes assessed on gross receipts from all sources except the Washington Branch for the period from April 1, 1872, to December 31, 1872, and for the year 1873. The taxes were assessed by the line-mile method of computation. In that case the Court of Appeals held that, while the gross receipts from the Main Line were exempt from taxation under the provisions of the charter of 1826, the gross receipts from the Metropolitan Branch were not exempt because it was built under authority of the Act of 1865, which did not grant an exemption. The Court further stated that, since the receipts from the Metropolitan Branch had been commingled with the receipts from the Main Line, the only rule by which to approximate the receipts of the Metropolitan Branch was to make them bear the same proportion to the entire receipts derived from the Main Line in the State as the number of miles of the Metropolitan Branch bears to the entire length of the railroad. State v. Baltimore & Ohio R. Co., 48 Md. 49, 79. From that decision the company appealed to the United States Supreme Court; but before the case was reached, the Legislature of 1878 passed the Settlement Act which is now before us.

The purpose of the Settlement Act of 1878 was to adjust and settle finally by agreement all pending controversies between the Baltimore and Ohio Railroad Company and the State of Maryland. The Act provides that, if the company would agree to modify its contract for exemption from taxation by submitting all its franchises and property and all its gross receipts within the State to taxation for State purposes to the extent of an annual tax of one-half of one per cent on the gross receipts of its railroads and branches within the State, then no other tax for State purposes would ever be imposed by the State upon any of the franchises or property or receipts of the company. The Act further provides that upon failure of the company to comply with all the requirements of the Act before July 1, 1878, the Act shall be null and void, and the State shall enforce all its claims against the company in the same manner as if the Act had never been passed. The company, by agreeing to submit its gross receipts to a tax of one-half of one per cent, surrendered a part of its charter exemption, and thereafter the State had the right to tax gross receipts at that rate. The company was relieved from its obligation to pay one-fifth of the amount received for the transportation of passengers on the Washington Branch, but the State had the right to tax receipts from that branch at the rate of one-half of one per cent. This Court held in State v. Baltimore & Ohio R. Co., 127 Md. 434, 450, 96 A. 636, that since the company assented to the Act and complied with its requirements, it became an irrepealable contract. A legislative enactment in the ordinary form of a statute may contain provisions which, when accepted as the basis of action by individuals or corporations, become a contract between them and the State within the protection of the clause of the Federal Constitution, art. 1, sec. 10, that no State shall pass any law impairing the obligation of contracts. State of New Jersey v. Yard, 95 U.S. 104, 24 L.Ed. 352; State Tax Commission v. Baltimore & Ohio R. Co., 179 Md. 125, 133, 17 A.2d 101.

In 1939 Governor O'Conor, upon request of the Legislature, Laws of 1939, ch. 262, appointed the Maryland Tax Revision Commission to investigate thoroughly the systems of taxation in force in this State; and in 1941 this Commission recommended, among other things, that the State abandon the line-mile method and consider the mileage of all the tracks and sidings. Its recommendation as to computation of the gross receipts of the Baltimore and Ohio Railroad Company was as follows: 'No method of apportionment is prescribed or indicated by the Settlement Act. The company apportions its operating revenues, intrastate as well as interstate, on a roadmileage basis, following the plan prescribed by Section 95 when no other mode of apportionment is required by the State Tax Commission. This method may have produced reasonably fair results when it was first adopted, but under present day conditions it is universally regarded as too crude for use except in the simplest situations. All-track mileage would produce more accurate results with no increase in the burden of the computation.' Report, Maryland Tax Revision Commission of 1939, p. 88.

Acting upon that recommendation, the State Comptroller adopted the all-track mileage method of apportionment, and assessed a tax of $158,263.29 on the Baltimore & Ohio for the year ending September 30, 1942. On December 28, 1942, the company presented a check for $103,072.94 to the Treasurer of the State of Maryland for taxes computed as in previous years on the line-mile basis, and he accepted it...