State v. Great Northern Railway Company

Decision Date24 December 1908
Docket Number15,994,15,996 - (27,28)
Citation119 N.W. 202,106 Minn. 303
CourtMinnesota Supreme Court

Action in the district court for Ramsey county to recover $120,737.38, the unpaid balance of the tax upon the gross earnings of defendant company for the year 1905, computed at four per cent. Defendant in its answer alleged that its line from St. Paul to Breckenridge, formerly known as the Main Line, and its line from East Minneapolis (formerly St Anthony) to St. Vincent, (of which that part from St. Anthony to Watab [East St. Cloud] was formerly known as the Branch Line and that from East St. Cloud to St. Vincent was formerly known as the Extension Line or St. Vincent Extension, and all operated under a lease from the St. Paul, Minneapolis & Manitoba Railway Company,) were built and have always been operated by virtue of the provisions of the charter of the Minnesota & Pacific Railroad Company and the acts amendatory thereof; that by virtue of section 18 of the act of May 22 1857, it was provided the last named company should be exempt from all assessments and taxes whatever upon the payment of three per cent. of its gross earnings; that by virtue of various enumerated mortgage foreclosure proceedings and purchases at foreclosure sales and of chapter 30, Laws of 1876, and chapter 49, Laws of 1879, the Manitoba Company became invested in respect of each of the lines purchased "with all and singular the franchises, rights, powers privileges and immunities theretofore granted to or possessed by the corporation making such mortgage or deed of trust" to the same extent as if the same had been originally conferred upon such purchaser, and still possessed the same contract rights which were theretofore possessed by the Minnesota & Pacific Railroad Company, the St. Paul & Pacific Railroad Company and the First Division of St. Paul & Pacific Railroad Company in respect to the payment of three par cent. of gross earnings in lieu of all other taxes under the contract whose terms are stated in the act of May 22 1857. It further alleged that it had paid on said leased lines of road the amount of the three per cent. tax on their gross earnings for the year 1905 as required by the act of May 22, 1857. It alleged that the amount claimed was one per cent. of their gross earnings and was claimed solely by virtue of Laws 1903, chapter 253, and that the act was void as to defendant in that it impaired the obligation of the contract contained in the act of May 22, 1857, and so violated section ten of article one of the federal constitution and section eleven of article one of the Minnesota constitution.

The case was submitted upon stipulated facts. The court, Olin B. Lewis, J., found that since June, 1879, the Manitoba Company had constructed, acquired and leased sixteen branch lines of road and that plaintiff was entitled to judgment in an amount equal to one per cent. of the gross earnings for the year 1905 of the several branches enumerated. It was then stipulated that on the findings the amount to which plaintiff was entitled was $32,285.94. From a judgment entered pursuant to the order, both plaintiff and defendant appealed. Affirmed as to defendant's appeal, reversed as to state's appeal and judgment ordered in favor of the state for the amount claimed in the complaint.


Increase in Gross Earnings Tax Constitutional.

Chapter 253, Laws 1903, approved at the general election of 1904, as provided by section 32a of article 4 of the state constitution, increasing the rate of the gross earnings tax of railroad companies doing business in this state to four per cent., is valid as to defendant and all its lines of road and branches thereof. The statute impairs no contractual or other vested right of defendant, and is not repugnant to either the state or the federal constitution.

Cases Distinguished.

First Division St. Paul & P.R. Co. v. Parcher, 14 Minn. 224 (297), and other similar cases, distinguished.

Edward T. Young, Attorney General, George W. Peterson, Assistant Attorney General, and O'Brien & Stone, for plaintiff.

Even though it is now a contract, the three per cent. gross earnings tax provision of the Minnesota & Pacific charter applies only to the lines expressly authorized thereby. The so-called Branch Line was never extended beyond Watab (East St. Cloud) under the original charter. The extension, when it was made, did not go via Crow Wing, but via Sauk Center, Fergus Falls and Barnesville to St. Vincent, and was constructed under the authority of a state law, approved March 6, 1869. Therefore, the original charter authority, and the accompanying gross earnings tax provision, if the latter is to be considered as a contract applicable to any of the lines, must be restricted to the old Main Line from St. Paul to Breckenridge, and to the Branch Line from East Minneapolis to East St. Cloud. As to any lines not constructed under the original charter, but authorized by subsequent laws, and taxed upon the gross earnings basis, as all of them have been, the defendant must depend upon laws of the state, and not upon the charter of 1857, for authority for the gross earnings system of taxation. All such state laws were, at the time of their enactment, invalid, because unconstitutional, and remained so until the validation thereof by the constitutional amendment of 1871 (art. 4, § 32a).

This ratification of the gross earnings laws was accompanied by a reservation of the power to amend. State v. Luther, 56 Minn. 156; State v. Stearns, 72 Minn. 200; State v. Duluth & I.R.R. Co., 77 Minn. 433. An exemption from taxation contained in a railroad charter does not apply to extensions authorized by subsequent laws. Southwestern R. Co. v. Wright, 116 U.S. 231; Wilmington & W.R. Co. v. Alsbrook, 146 U.S. 279; Chicago, B. & K.C.R. Co. v. Guffey, 120 U.S. 569; Baltimore v. Mayor, 89 Md. 89. Prior to 1871 the state did not have the power, possessed by the territory, of creating a commuted system of taxation. Not having the power to create, it could not extend or enlarge such a system.

Section 18 of the act of May 22, 1857, establishing the straight three per cent. gross earnings tax, was repealed and superseded by the third proviso of section 1 of the act of March 2, 1865, establishing the graduated tax of one, two and three per cent. By the acceptance of this law by both the St. Paul & Pacific and the First Division of the St. Paul * Pacific, the old contract, if it was a contract, was abandoned and a new one entered into, which is subject to amendment. It will be urged that act was unconstitutional and therefore that it could not have the effect of repealing the act of 1857. This is a non sequitur for two reasons: First, the repealing act was validated by the constitutional amendment in 1871; second, the company was paying and the state receiving taxes under this law, at the rate of two per cent. in 1871, when the constitution was amended. It was the law which then governed them and necessarily the law upon which the amendment operated with its validating force. The distinctive feature of the newer law, the graduated tax, was apparent until and including 1875. It was over four years after the amendment before the St. Paul & Pacific and First Division Companies ceased paying the two per cent. permitted by the act of March 2, 1865. Chicago, M. & St. P. Ry. Co. v. Pfaender, 23 Minn. 217.

The three per cent. gross earnings tax provision of the Minnesota & Pacific charter, considered as an irrepealable contract, was personal to that company, and could not be transferred to any other corporation, "save by a specific enabling law couched in explicit language apt to the purpose," and the constitution deprived the state of the power to make such a law. There is nothing in the charters of the St. Paul & Pacific Company, the First Division Company or the Manitoba Company which would authorize the transfer of the tax exemption even if any of those companies had lawfully received the same. See 60 L.R.A. note on page 99, and authorities cited.

Even though the three per cent. gross earnings tax privilege, as an irrepealable contract, was appurtenant to the road, it could not pass to the Manitoba Company, which was legally incapable of receiving it. The Manitoba Company was organized under the general laws of this state in 1879. It could get only the franchises and privileges which its creator was then competent and willing to give to it. The state could not give it an irrepealable contract right to a special form of taxation. Certainly no private corporation could confer what the state, by its constitution, was prohibited from giving.

Franchises and similar privileges or immunities can never be conveyed by the unaided act of the corporation owning them. They can be received only from the sovereign and when they are transferred, nominally from one corporation to another, which can be done only by sovereign permission, they are really and as a matter of legal fact, surrendered to the sovereign by the grantor and by it regranted to the grantee corporation. Lauman v. Lebanon, 30 Pa. St. 42. See 60 L.R.A. 53, et seq.; Trask v. Maguire, 85 U.S. 391; Louisville & N.R. Co. v. Palmes, 109 U.S. 244; Keokuk & W.R. Co. v. Missouri, 152 U.S. 301. After an amendment of a state constitution prohibiting exemptions from taxation, no new corporation is capable of receiving and enjoying old exemptions of this character. Bloxham v. Florida, 35 Fla. 625; Mercantile Bank v. Tennessee, 161 U.S. 161; Dow v. Beidelman, 125 U.S. 680; Wellman v. Chicago, 83 Mich. 592; Memphis & L.R. Co. v. Railroad Com., 112 U.S. 609; Yazoo & M.V.R. Co. v. Adams, 180 U.S. 1; Rochester Ry. Co. v. City of Rochester, 205 U.S. 236; Yazoo & M.V.R. Co. v. Adams, 181...

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