Spokane Intern. Ry. Co. v. State

Decision Date04 May 1931
Docket Number22980.
Citation299 P. 362,162 Wash. 395
PartiesSPOKANE INTERNATIONAL RY. CO. v. STATE.
CourtWashington Supreme Court

Department 2.

Appeal from Superior Court, Thurston County; John M. Wilson, Judge.

Action by the Spokane International Railway Company against the State. From a judgment of dismissal, plaintiff appeals.

Affirmed.

Alex M. Winston, of Spokane, for appellant.

John H Dunbar and V. D. Bradeson, both of Olympia, for the State.

FULLERTON J.

In this action, the appellant, Spokane International Railway Company sought to recover from the state of Washington the amount of a tax levied upon its franchise by the state, and which it had paid under protest. A general demurrer was interposed to its complaint, which the trial court sustained. The appellant refused to plead further, whereupon the court entered a judgment against it, dismissing its action with prejudice.

The facts following are gathered from the complaint. The appellant is a corporation organized under the laws of the state of Washington as a common carrier of passengers and freight in intrastate, interstate, and foreign commerce. Its principal place of business is at the city of Spokane. It owns and operates a line of railway, commencing in the city named, and extending in an easterly direction into the state of Idaho, from which place it extends in a northerly direction to the international boundary line. The business of the company in the state of Washington is approximately 6 per cent. of its entire business, and the value of its property within the state of Washington is approximately 15 per cent of the total value of its property. It has an authorized capital stock of $4,200,000.

The tax which the appellant seeks to recover was levied pursuant to the act of the Legislative Assembly of 1929 (Laws 1929, c 227, p. 631). The provisions of the act pertinent to the question involved are found in sections 4 and 5 thereof (pages 633, 634). Section 4, in part, reads as follows: 'Every corporation organized under the laws of this state, except the corporations for which existing law provides a different fee schedule, shall pay, on or before the first day of July of each and every year, to the secretary of state, for the use of the state, an annual license fee of fifteen ($15.00) dollars for the first fifty thousand ($50,000.00) dollars or less of its authorized capital stock; and one-fortieth (1/40) of one per cent. (1%) additional on all amounts in excess of fifty thousand ($50,000.00) dollars, and not exceeding one million ($1,000,000.00) dollars; and one one-hundreth (1/100) of one per cent. (1%) additional on all amounts in excess of one million ($1,000,000.00) dollars, and not exceeding four million ($4,000,000.00) dollars; and one two-hundredth (1/200) of one per cent. (1%) additional on all amounts in excess of four million ($4,000,000.00) dollars; but in no case shall an annual license fee exceed the sum of twelve hundred fifty ($1,250.00) dollars. * * *'

Section 5, in part, reads: 'All foreign corporations doing intrastate business, or hereafter seeking to do intrastate business in this state shall pay for the privilege of doing such intrastate business in this state the same fees as are prescribed for domestic corporations for annual license fees in the preceding section, such fees to be computed upon the proportion of the capital stock represented or to be represented by its property and business in this state to be ascertained by comparing the entire volume of business with the volume of intrastate business in this state. * * *'

It will be observed by a comparison of the quoted parts of the cited sections that a domestic corporation, that is, a corporation organized under the laws of this state, is required to pay a license fee based on the whole of its authorized capital stock, regardless of the situation of its property, while a foreign corporation, that is, a corporation organized under the laws of a sister state, and doing business in this state of an intrastate character, is required to pay a fee computed on that proportion of its capital stock, ascertained by comparing its entire volume of business with the volume of business it does in this state. A foreign corporation, to illustrate, situated as the appellant is situated, having the same capital stock, and doing the same character and volume of business the appellant is doing, proportioned between this state and the state of Idaho, as the appellant's business is proportioned, would be required, under the terms of the statute, to pay a license fee on one-sixth of its capital stock, whereas the appellant is required to pay on its entire capital stock. The appellant, of course, has not found a foreign corporation doing in this state an intrastate business whose situation so closely parallels its situation as the illustration assumes, but it alleges that there are a number of foreign corporations doing in this state an intrastate business in competition with its business which pay a license fee based on a proportion of its capital stock less than the whole.

It is the appellant's contention that the act authorizing the tax is void because violative of both the federal and state Constitutions. It argues that it violates the Federal Constitution because, first, it taxes and otherwise burdens interstate commerce, and, second, because it deprives the appellant of the equal protection of the laws; and that it violates the state Constitution because it allows a foreign corporation to transact business within the state on more favorable terms than it allows a domestic corporation to transact a like or similar business.

Before noticing the specific questions, it may be well to call to mind the fact that the exaction here imposed is not, and does not purport to be, a direct tax on the property of corporations coming within its terms. Nor is it an indirect tax on its property, save in the sense that any form of exaction from any business institution, made by the state for revenue purposes, is an indirect tax on its property. In form and in substance, the exaction as to a domestic corporation is a tax on its right to be and exist as a corporation under the laws of the state and to transact business within the state, and, as to a foreign corporation, the exaction is a tax on the privilege the state has granted it to transact business within the state. Neither of these exactions is a direct tax on property, and, in determining their validity, they are not to be measured by the rules relating to direct taxation.

Tested by these considerations, we cannot conceive that the exaction is in any sense a tax on interstate commerce. Obviously, it is not a tax upon the privilege of engaging in such commerce, nor a tax on the business which constitutes it or the receipts derived from such business. In so far as it applies to domestic corporations, it is a tax levied alike upon all of them. The nature or character of the business in which they engage is not taken into account in fixing the amount of the tax. Whether the business of the corporation be wholly intrastate, wholly interstate, or whether it be in part intrastate and in part interstate, the fact does not weigh in determining the amount of the tax. The tax is upon the privilege the state grants to the corporation to engage in commerce with the advantages derived from a corporate organization, not upon the commerce itself. As to foreign corporations, it is a tax which the state exacts from the corporation for the privilege of doing an intrastate business, not for doing an interstate business.

The question involved is a federal question, on which the pronouncements of the federal Supreme Court are authoritative, and that court, as we read its decisions, has upheld a similar state statute. The state of Kansas enacted a statute similar in purport and effect to the statute here in question. It was assailed in the Supreme Court of Kansas on the ground that it imposed an unlawful exaction on interstate commerce. That court refused to sustain the contention ( Kansas City, Ft. S. & M. Railway Co. v. Sessions, 95 Kan. 261, 147 P. 791, 793), saying: 'The fee collected is a tax upon the right of corporate existence--the franchise granted by the state to be a corporation--to do business with the advantages associated with that form of organization.' The cause was taken to the Supreme Court of the United States on a writ of error, where the judgment of the Kansas Supreme Court was affirmed. Kansas City, Ft. S. & M. Ry. Co. v. Botkin, 240 U.S. 227, 36 S.Ct. 261, 262, 60 L.Ed. 617. In the course of its opinion the court said:

'Examining the statute in the present case, we see no reason to doubt the accuracy of the
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