State ex rel. Battle v. Baltimore & O.R. Co., s. 12355

• Decision Date: 08 November 1965
• Docket Number: 12356,Nos. 12355,s. 12355
• Citation: 143 S.E.2d 331,149 W.Va. 810
• Court: West Virginia Supreme Court
• Parties: STATE ex rel. G. Thomas BATTLE, State Tax Commissioner, v. The BALTIMORE AND OHIO RAILROAD COMPANY, a corporation (two cases).

Page 331

143 S.E.2d 331

149 W.Va. 810

STATE ex rel. G. Thomas BATTLE, State Tax Commissioner, v. The BALTIMORE AND OHIO RAILROAD COMPANY, a corporation (two cases).

Nos. 12355, 12356.

Supreme Court of Appeals of West Virginia.

Submitted May 4, 1965.

Decided July 20, 1965.

Rehearing Denied Nov. 8, 1965.

Syllabus by the Court

1. A state is without power to impose a tax upon a foreign corporation for the privilege of engaging in interstate commerce for the reason that such tax constitutes an unreasonable burden upon interstate commerce, in violation of Article I, Section 8, of the Constitution of the United States.

2. Where a privilege tax is exacted from a person doing both an interstate and intrastate business, it must appear that the tax, to be valid in its entirety, is imposed solely on account of the intrastate business; that the amount of the tax is not increased because of the interstate business transacted; that the person taxed, if engaged exclusively in interstate commerce, would not be subject to the tax; and that the person taxed could discontinue the intrastate business without also withdrawing from the interstate business.

3. 'A taxing statute, though valid on its face, may be invalid when applied to particular circumstances or conditions of a particular taxpayer.' Point 3, syllabus, Norfolk and Western Railway Company v. Field, 143 W.Va. 219, 100 S.E.2d 796.

4. When at appears that the net income received from intrastate commerce and the net income received from interstate commerce earned by a railroad company within this State, are capable of separation but have not been separated and the amount of each has not been separately determined and the income from interstate commerce is considerably larger than the income from intrastate commerce, a privilege tax imposed by the State upon such composite net income from intrastate and interstate commerce is an unreasonable burden upon interstate commerce in violation of Article I, Section 8, the Commerce Clause, of the Constitution of the United States, and to the extent that such tax is applied to the net income from interstate commerce it is an invalid tax.

5. The tax imposed by Section 5(b), Article 12A, Chapter 11, Code, 1931, as amended, applies only to net income derived from the transportation business of the defendant railroad company and does not apply to its income from dividends, interest and capital gains from sale of securities of a nontransportation entity, as such income is not earned by it within this State and is not a part of the income derived from its transportation business on a tonmile basis, within the meaning of the statute.

6. Under the applicable provisions of prior Internal Revenue Acts and the Internal Revenue Code of 1954, and of Section 6(3), Article 12A, Chapter 11, Code, 1931, as amended, a railroad corporation subject to the provisions of Article 12A of the statute is entitled to deduct eighty five per cent of its annual dividend income from its annual gross income in computing the annual net income of such corporation subject to the annual privilege tax imposed by Section 8(b) of the statute.

7. The three-year limitation prescribed by Section 2a, Article 1, Chapter 11, Code, 1931, as amended, does not begin to run against the claim of a taxpayer for a refund of taxes erroneously paid until the payment in full, or the payment of the last installment, of the annual privilege tax imposed by Section 5(b) of Article 12A; and the payment of the last installment of such tax before the first day of the tenth month following the day the total tax becomes due and payable removed the claim for a refund from the bar of the statute of limitations which, in such instance, does not apply to such claim of a corporate taxpayer when it appears that such taxpayer, within three years from the date of the payment of the last installment, has properly filed a petition for a refund of such taxes, and does not operate as a bar to the relief to which such taxpayer is entitled in a proceeding to determine its right to such refund.

C. Donald Robertson, Atty. Gen., Andrew J. Goodwin, Sp. Asst. Atty. Gen., Charleston, for appellant G. Thomas Battle.

Steptoe & Johnson, William F. Wunschel, Charleston, Steptoe & Johnson, Paul F. Mickey, George B. Mickum, 3d, Washington, D. C., Kenneth E. Ekin, Richard Allen, Baltimore, Md., for appellee.

HAYMOND, Judge.

This is a declaratory judgment proceeding instituted by the State of West Virginia at the relation of the predecessor of G. Thomas Battle, State Tax Commissioner of West Virginia, as plaintiff, in the Circuit Court of Kanawha County, West Virginia, on February 24, 1960, after written notice given by the defendant, The Baltimore and Ohio Railroad Company, a corporation, to the State Tax Commissioner, requesting him to institute such proceeding as provided by Section 2a, Article 1, Chapter 11, Code, 1931, as amended, to determine whether the defendant is entitled to a refund from the plaintiff for the alleged overpayment of privilege taxes assessed against the defendant for the years 1952, 1953 and 1954 under the provisions of Section 5, Article 12A Chapter 11, Code, 1931, as amended, following the refusal by the State Tax Commissioner to grant a petition for a refund of such taxes filed by the defendant on October 15, 1956.

In his petition in this proceeding the State Tax Commissioner charged that the State of West Virginia had required the railroad company to include in its net income all income from all sources when paying its transportation privilege taxes to the State and did not distinguish between transportation and nontransportation income; that the income as reported by the defendant for the years in question was income from, related to, or in furtherance of the railroad business; and that the defendant was precluded from recovering sums paid for the year 1952 because its petition for refund was not filed within three years from the date of payment, as required by Section 2a, Article 1, Chapter 11, Code, 1931, as amended.

The defendant filed an answer in which it alleged that the statute involved dealt with the business of the railroad which began and ended in the State of West Virginia and applied only to income from transportation; that the defendant was entitled to deduct eighty five per cent of its dividend income, as provided by Section 26(b) of the Internal Revenue Code, 1939, in determining its net income to be reported to the State Tax Commissioner, which amount was deductible from the net income reported to the federal government, as provided by Section 6(3), Article 12A, Chapter 11, Code, 1931, as amended; and that the statute in question imposed a burden upon interstate commerce in violation of the Constitution of the United States. The prayer of the answer was that the defendant be granted a refund in the amount of $339,332.51 or in the alternative in the amount of $314,872.37. To the answer the plaintiff filed its replication in which it alleged that the defendant was estopped to plead that it had income within the State other than that related to or in furtherance of its railroad business.

The case as submitted for decision upon the foregoing pleadings and depositions, in behalf of the plaintiff, of representatives of the defendant and the exhibits filed with the depositions, and by its final judgment rendered March 11, 1964, accompanied by its written opinion which is filed as part of the record in this proceeding, the circuit court, after making certain findings of fact, held that the privilege tax imposed upon the defendant by the statute, as applied by the State Tax Commissioner, does not violate Article I, Section 8, the Commerce Clause, of the Constitution of the United States; that in computing such tax the State Tax Commissioner correctly included in the net income the income of the defendant from dividends, interest and capital gains and did not limit such income to that obtained from its transportation business; that in determining its net income the defendant was entitled to a deduction of eighty five per cent of its dividend income for each of the years 1952, 1953 and 1954 and a reduction of its tax for each of those years by deducting such dividend income in determining its net income; and that the refund claimed by the defendant for the year 1952 is not barred by the three-year limitation prescribed by Section 2a, Article 1, Chapter 11, Code, 1931, as amended. By its final order the circuit court required the plaintiff to refund to the defendant the sum of $187,460.13 and rendered final judgment to that effect.

From that judgment this Court granted an appeal upon the application of the plaintiff with respect to the judgment of the circuit court in holding that the defendant is entitled to deduct eighty five per cent of its dividend income from the net income reported to the State Tax Commissioner and in holding that the three-year statute of limitations had not run on the taxes paid for the year 1952; and from the foregoing judgment this Court also granted an appeal upon the application of the defendant with respect to the judgment of the circuit court in holding that the tax imposed by Section 5(b), Article 12A, Chapter 11, Code, 1931, as amended, did not violate Article I, Section 8, the Commerce Clause, of the Constitution of the United States as a tax upon the interstate business of the defendant and in holding that the income of the defendant from nontransportation business, consisting of dividends, interest and capital gains, was properly included in the net income of the defendant in calculating the amount of the tax assessed against the defendant. The two appeals, by agreement of the parties and the consent of this Court, have been consolidated and the questions involved were presented and submitted together for decision upon the written briefs and the oral arguments of the attorneys for the respective parties.

The material facts...