Western Md. Ry. Co. v. State Tax Commission

• Decision Date: 19 April 1950
• Docket Number: 76,96.
• Parties: WESTERN MARYLAND RY. CO. v. STATE TAX COMMISSION. CANTON R. CO. v. ROGAN et al.
• Court: Maryland Court of Appeals

73 A.2d 12

195 Md. 206

WESTERN MARYLAND RY. CO. v. STATE TAX COMMISSION.

CANTON R. CO. v. ROGAN et al.

Nos. 76, 96.

Court of Appeals of Maryland.

April 19, 1950

W. Harvey Small, Baltimore (Wm. C. (Purnell, Baltimore on the brief), for appellant Western Maryland Ry. Co.

John Henry Lewin, Baltimore (J. Crossan Cooper, Jr., and Venable Baetjer & Howard, Baltimore, on the brief), for appellant Canton R. Co.

Hall Hammond, Atty. Gen., and Harrison L. Winter, Asst. Atty Gen., for appellee.

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

COLLINS, Judge.

There appeals are taken by Western Maryland Railroad Company (Western Maryland) and Canton Railroad Company (Canton), from decrees of Circuit Court No. 2 of Baltimore City sustaining final assessment against the appellants made by the Maryland State Tax Commission (the Commission) for gross receipts taxes imposed by Article 81, Section 95 of the 1943 Supplement of the Code.

In the case of Western Maryland the contested taxes for the years 1946 and 1947 are computed upon its gross receipts within the State of Maryland for the preceding calendar years of 1945 and 1946, respectively. In the case of Canton the contested taxes for the year 1947 were computed upon its 'gross receipts for the calendar year 1946' within the State of Maryland. Both appellants claim that certain portions alleged to have been derived from their services rendered in 'the importing and exporting process' should not have been included within the total amount of gross receipts subject to the tax. They claim that Article 1, Section 10, Clause 2, of the Constitution of the United States grants immunity to that portion of the gross receipts.

The pertinent provisions of Article 81, sections 94 1/2 and 95, 1943 Supplement of the Code follow:

'94 1/2. The phrases 'gross receipts', 'total receipts', 'gross earnings', 'total earnings' and 'all earnings', as used in Sections 95 to 100, inclusive, mean in the case of railroads and other public service corporations, the operating revenues thereof, without any deductions or credits of any kind whatsoever. When any public service corporation is engaged in more than one class of business and one or more classes thereof is business not subject to the gross receipts tax or subject thereto at different rates, the operating revenues of the class or classes of business subject to such tax at different rates shall be reported separately and taxed at the rate or rates applicable to such class or classes of business. This section shall not be construed as implying that in the absence of this section the requirements of Sections 95 to 100, inclusive, could properly be otherwise construed.

'95. (a) A State tax as a franchise tax is hereby levied annually for the year 1930 and subsequent years measured by the gross receipts for the preceding calendar year, of:

'(1) All domestic or foreign railroad companies, whose roads are worked by steam, doing business in this State, at the following rates, to wit:

'One and one-quarter per centum on the first $1,000 per mile of gross earnings, or on the total earnings if they are less than $1,000 per mile; and

'Two per centum on all gross earnings above $1,000 and up to $2,000 per mile; and

'Two and one-half per centum on all earnings in excess of $2,000 per mile.

* * *

* * *

'(b) If any such railroad company has part of its road in this state and part thereof in another State or States, such company shall return a statement of its gross receipts over its whole line of road, together with a statement of the whole length of its line and the length of its line in this State, and such company shall pay to the State, at the said rates hereinbefore prescribed upon such proportion of its gross earnings as the length of its line in this State bears to the whole length of its line; and similar statements shall be made by each oil pipe line company, and each sleeping car, parlor car, express or transportation company, telephone or telegraph or cable company, so that the proportion of the said gross earnings of the said companies, respectively, accruing, coming from their business within this State, may be accurately ascertained, or said statement may be made in any other mode satisfactory to and required by the State Tax Commission. The said gross receipts taxes shall be due and payable at the treasury on or before the first day of July in each year.

'(c) Every partnership or individual engaged in any of the above enumerated branches of business in this State shall be subject to the tax imposed by this section and comply with all provisions relating thereto as if such firm or individual were a corporation.'

The so-called Import-Export clause of the Constitution of the United States, Article, 1, Section 10, Clause 2, follows: 'No State shall, without the Consent of the Congress, lay any Imposts or Duties on Imports or Exports, except what may be absolutely necessary for executing it's inspection Laws: and the net Produce of all Duties and Imposts, laid by any State on Imports or Exports, shall be for the Use of the Treasury of the United States; and all such Laws shall be subject to the Revision and Control of the Congress.' See The Federalist, No. 42; 3 Elliot's Debates, 483; 14 U. of Chicago Law Review, 672.

The operating revenues claimed by the appellants to be exempt were received for transportation, switching, storage, crane privileges, wharfage and weighing of coal, grain, ores, and other miscellaneous commodities in transit between foreign ports and points within the United States. Appellant (Canton) claims that the tax in question is an occupation tax exacted for the privilege of engaging in the import-export process and therefore unconstitutional. This Court in a long line of cases has sustained the statutory declaration, supra, that the tax here in question is a franchise tax in lieu of all other State property taxes.

In the case of State v. Philadelphia, Wilmington & Baltimore Railroad Company, 45 Md. 361, 24 Am.Rep. 511, the Court had before it Chapter 234 of the Acts of 1872 which was the predecessor of the present Gross Receipts Tax. This Court said in that case, 45 Md. at page 379, in holding the tax constitutional: 'Properly speaking, the tax is not imposed upon the gross receipts; they are referred to not as descriptive of the subject to be taxed, but merely as furnishing the basis of ascertaining the amount of tax to be paid. If then it is not a tax upon property, what is it? We say, it is a tax upon the franchise of railroad companies, measured by the extent of their business.' At page 381 of 45 Md. it was said: 'Being of opinion, then, that the tax upon gross receipts of railroad companies, imposed by the Act of 1872, is a tax upon the franchise of such companies, and not upon their property, * * * we come to the question whether the defendant corporation is exempt from the payment of said tax?' State v. Baltimore & O. R. Co., 1878, 48 Md. 49; Cumberland & Pennsylvania R. Co. v. State, 1901, 92 Md. 668, 48 A. 503, 52 L.R.A. 764; State v. U. S. Fidelity & Guaranty Co., 1901, 93 Md. 314, 48 A. 918; State v. Central Trust Co., 1907, 106 Md. 268, 67 A. 267; Postal Telegraph Cable Co. v. Harford County Com'rs, 1917, 131 Md. 96, 101 A. 600; Rogan v. Baltimore & Ohio Railroad Co., 1947, 188 Md. 44, 52 A.2d 261; State Tax Commission v. Western Maryland Railway Co., 1947, 188 Md. 240, 246, 52 A.2d 615.

Western Maryland makes no contention that this is not an in lieu franchise tax. Canton to sustain its contention that the tax is an occupation tax and not an in lieu franchise tax cites Section 144 of Article 81 of the Code 1947 Supplement, which imposes a general franchise tax on corporations. Section 144(b) explicitly says that the tax is imposed 'for its franchise to be a corporation.' Sections 95, supra, and 144 supra, tax different kinds of franchises. The franchise to operate a railroad is of course different from the ordinary privileges conferred by a franchise to operate as a corporation.

Canton also contends that the tax here in question is not a franchise tax in lieu or property taxes because it is not proportionate in amount to the property taxes to which it would have been liable. Canton bases this argument on the fact that if the ordinary rate of State taxes is applied to the assessed value of its property for the calendar year 1946 its taxes would have been $3800 while its gross receipt taxes for that period amount to $39,092. Appellee points out in its brief that when Chapter 965 of the Acts of 1945, substantially reenacted, except as to rates, by Chapter 677 of the Acts of 1947 and codified as Sections 7(15), 25(h), 94 1/2 and 95 of Article 81, 1947, Supplement of the Code, is taken into consideration Canton's ad valorem property tax for the calendar year of 1946, as taxes on operating property, including land, would have been $40,681, an amount of $1000 'more than the amount of gross receipt taxes imposed for the gross receipts derived during that calendar year.' Nashville C. & St. L. Ry. v. Browning, 310 U.S. 362, 60 S.Ct. 698, 84 L.Ed. 1254; Ohio River & W. R. Co. v. Dittey, 232 U.S. 576, 34 S.Ct. 372, 58 L.Ed. 737.

Appellant (Canton) states in its brief: 'If it were an original proposition, one might well argue that the phrase 'any Imposts or Duties on Imports or Exports' was intended to mean no more than property taxes on goods while they constitute imports or exports, or, at the most, taxes in the nature of a tariff. The construction which the Supreme Court has placed upon these words through the years is to the contrary.'

The in lieu franchise tax on apportioned gross income has been held valid under the Commerce Clause of the Constitution, art....