Southern Pac. Co. v. Corbett

• Decision Date: 03 May 1938
• Docket Number: No. 4055-R.,4055-R.
• Citation: 23 F. Supp. 193
• Court: U.S. District Court — Northern District of California
• Parties: SOUTHERN PAC. CO. v. CORBETT et al.

23 F. Supp. 193

SOUTHERN PAC. CO. v. CORBETT et al.

No. 4055-R.

District Court, N. D. California, S. D.

May 3, 1938.

Guy V. Shoup and Harry H. McElroy, both of San Francisco, Cal., for Southern Pac. Co.

U. S. Webb, Atty. Gen., and H. H. Linney and James J. Arditto, Deputy Attys. Gen., for defendants.

Before DENMAN, Circuit Judge, and ST. SURE and ROCHE, District Judges.

DENMAN, Circuit Judge.

This case has been submitted under an agreed statement of facts which sustains the pertinent allegations of the bill discussed in our opinion denying the motion for its dismissal. 20 F.Supp. 940. The railway has established that the storage use of the railway materials, solely for its current repairs and renewals and necessary extensions of its intermingled interstate and intrastate enterprise and plant, and without which usage the railway would stop running, is a use in interstate commerce. Hence a tax upon such use is a tax affecting an interstate commerce use — that is, affecting the federal as distinguished from any state function performed by the railway as a public carrier. At the hearing we invited further argument and briefing, but the able presentation on behalf of the state has not answered the question, "In what enterprise other than the intercommingled interstate and intrastate railroading is this use in storage for current repairs and replacements, without which the railroad could not operate?" Such storage use for current installation is use in interstate commerce in any realistic sense understood by industrialists and merchants (20 F.Supp. 940, 943), and could be regarded otherwise only by the application of some "artificial standard" prohibited by Gregg Dyeing Co. v. Query, 286 U.S. 472, 480, 52 S.Ct. 631, 634, 76 L.Ed. 1232, 84 A.L.R. 831.

However, since our denial of the motion to dismiss, the Supreme Court has decided three cases dealing with the boundaries of state and federal taxation. Two of them, Western Live Stock v. Bureau of Revenue, 58 S.Ct. 546, 82 L.Ed. ___, and Coverdale v. Arkansas-Louisiana Pipe Line Co., 58 S. Ct. 736, 82 L.Ed. ___, decided April 4, 1938, significantly expand the area of the states. A third, Helvering v. Mountain Producers Corporation, 58 S.Ct. 623, 82 L.Ed. ___, explicitly overrules long-established concepts determining the respective taxing areas of both governments.

It is suggested by the state's officers that since the thirteenth paragraph of that decision states: "* * * In the light of the expanding needs of the state and nation, the inquiry has been pressed whether this conclusion has adequate basis; whether in a case where the tax is not laid upon the leases as such, or upon the government's property or interest, but is imposed upon the gains of the lessee, like that laid upon others engaged in similar business enterprises, there is in truth such a direct and substantial interference with the performance of the government's obligation as to require immunity for the lessee's income," Helvering v. Mountain Producers Corporation, 58 S.Ct. 623, 626, 82 L.Ed. ___, we may be required to reconsider our decision with a view to the expanding needs for revenue of the state of California, and they offer the enactment of the use tax itself as evidence of such need.

In the present emergency of dependent unemployed, California's need for revenue is of sufficient pressure to produce incandescence, but the emitted light does not show where the path of such a principle of determination will lead us.

What light we have on various interstate railways, performing a national public service as important in the body politic as the circulation of blood in the individual, seems to disclose correspondingly "expanding needs" for revenue to meet their expanding pay rolls and interest on debt and, here, expanding taxes. Indeed, so pressing are their needs that only by the expanding use of federal funds is their federally regulated function prevented from transfer to federal courts and federal receivers. Already, for many railways, it has been transferred.

We cannot believe that the language of the Mountain Producers Case must be interpreted as imposing on us, first, a determination of the need for state taxation and, if found, second, a reconsideration of our decision on the denial of the motion to dismiss with a view to a reversal of our holding there. Such a criterion would suggest another review and other overrulings if returning prosperity contracts rather than expands the state's need.

We prefer the alternative view of the state's brief that, just as the emergency of the depression and high rentals in the so-called Rent Cases, Block v. Hirsh, 256 U.S. 135, 41 S.Ct. 458, 65 L.Ed. 865, 16 A.L.R. 165; Marcus Brown Holding Co. v. Feldman, 256 U.S. 170, 41 S.Ct. 465, 65 L. Ed. 877, and Edgar A. Levy Leasing Co. v. Siegel, 258 U.S. 242, 42 S.Ct. 289, 66 L. Ed. 595, and also in the much later case of Home Building & Loan Ass'n v. Blaisdell, 290 U.S. 398, 54 S.Ct. 231, 78 L.Ed. 413, 88 A.L.R. 1481, induced the Congress and the judiciary to the exploration of hitherto unused constitutional powers, so now the urgency of the more recently expanding functions of government in aid of the economic and social needs of the average man, also made poignantly clear by the world depression, requires both Legislatures and courts to review the border line between state and federal taxing areas, as that was decided in cases when no such economic and social conditions existed or had been exposed.

Prior decisions considered in the overrulings by the Mountain Producers Case present a more definite guide for determining its effect on the decision of this case. Among the cases considered is Indian Oil Co. v. Oklahoma, 240 U.S. 522, 36 S.Ct. 453, 60 L.Ed. 779, holding invalid as an unconstitutional burden on a governmental function a tax on Indian land leases owned by the taxpayer. Here the tax was on the property itself of the taxpayer.

In three other cases, the income of the taxpayer from his leases is held not taxable. In Choctaw & Gulf R. R. Co. v. Harrison, 235 U.S. 292, 35 S.Ct. 27, 59 L.Ed. 234, was held invalid a state tax on the lessee of a mine from the trustee of the mine for Choctaw and Chickasaw Indian tribes, wards of the federal government, based upon his gross sales of his coal. The court held (page 29) that the lessee was "the instrumentality through which this governmental obligation is being carried into effect. Such an agency cannot be subjected to an occupation or privilege tax by a state."

In Gillespie v. Oklahoma, 257 U.S. 501, 42 S.Ct. 171, 66 L.Ed. 338, the state tax on the income of leases owned by the taxpayer was held invalid on the same reasoning, as was the federal tax on the income of the owner of state leases in Burnet v. Coronado Oil & Gas Co., 285 U.S. 393, 52 S.Ct. 443, 76 L.Ed. 815.

In all these cases the tax on the taxpayer's property or his income...