CHAPTER XVIII. TAXATION. Property Subject to Taxation. The power of a State to tax subjects within its jurisdiction - including persons, business, and property is unlimited, except as restrained by constitutional provisions; but the power does not extend to subjects without its jurisdiction. It extends to foreign as well as domestic corporations, to the extent of the capital stock, property, and business within the State; 2 and it extends to the property of railroad corporations which is in the possession of mortgagees or receivers.3 The rate and mode of assessment and rules of valuation are matters of legislative discretion, except when regulated, as they sometimes are, by the State constitution.5 The debts owed by a corporation are the property of its creditors, and are taxable to them in the State of their domicile, and there only. A State cannot therefore tax the bonds of a corporation held by non-residents, and require it to withhold the amount of the tax from the interest due to such bondholders; and the rule is the same where the bonds are secured by a mortgage on a railroad within the State. Such legislation is extra-territorial, and also impairs the obligation of the contract between the corprovement Co. v. Slack, 100 U. S. 648. 1 Lane County v. Oregon, 7 Wall. 71, 77; Thomson v. Kansas Pacific R. Co., 9 Wall. 579, 591; State Tax on Foreignheld Bonds, 15 Wall. 300, 319; Union Pacific R. Co. v. Peniston, 18 Wall. 5, 29; State Railroad Tax Cases, 92 U. S. 575, 603; Kirtland v. Hotchkiss, 100 U. S. 491; Porter v. Rockford, R. I., & St. L. R. Co., 76 Ill. 561, 573; Stockton & V. R. Co. v. Stockton, 41 Cal. 147; Pittsburg, Ft. W., & C. R Co. v. Commonwealth, 3 Brewster, 355. A company may be a railroad company within the meaning of a statute imposing taxes, although authorized to do other kinds of business as well as that of railroad transportation. Kentucky Im 2 New York & E. R. Co. v. Sabin, 26 Pa. St. 242; Commonwealth v. Cleveland, P., & A. R. Co., 29 Pa. St. 370; Delaware & H. Canal Co. v. Commonwealth, 43 Pa. St. 227; Quincy Bridge Co. v. Adams Co., 88 Ill. 615; Burlington & S. W. R. Co. v. Counties, 5 Dill. 289. 235. 3 State v. Railroad Com'rs, 12 Vroom, 4 Delaware Railroad Tax, 18 Wall. 206, 231; Dubuque v. Chicago, D., & M. R. Co., 47 Iowa, 196. 5 Davenport v. Chicago, R. I., & P. R. Co., 38 Iowa, 633; Dubuque v. Ill. Cent. R. Co., 39 Iowa, 56. poration and its creditors. For the same reason, it cannot tax the dividends of non-residents, by requiring the corporation to reserve a portion as a tax.2 But it may tax the capital stock though held in part by non-residents, either as a whole, or as divided into shares.3 Its right to tax its citizens for the debts due to them by a foreign corporation is not affected by the fact that they are secured by a mortgage on real estate situated in such foreign State.1 A State may tax its citizens for shares in the capital of a foreign corporation, or for bonds of the corporation which are held by them, regardless of the foreign law as to the taxation of the capital stock. Where the railroad runs through different States, a tax upon the income or franchise is properly apportioned by taking the whole income or value of the franchise, and the length of the road within each State, as the basis of taxation. A foreign corporation which succeeds to the management of a railroad situated in another State, under a lease or purchase confirmed by such State, becomes taxable as a domestic corporation under its laws.7 Personal property permanently remaining in a State has a situs therein for the purposes of taxation, although belonging to a foreign corporation.8 1 Northern Cent. R. Co. v. Jackson, 7 Wall. 262; State Tax on Foreign-held Bonds, 15 Wall. 300; United States v. Balt. & O. R. Co., 17 Wall. 322; Murray v. Charleston, 96 U. S. 432; Kirtland v. Hotchkiss, 100 U. S. 491; Commonwealth v. Chesapeake & O. R. Co., 27 Gratt. 344; Davenport v. Miss. & M. R. Co., 12 Iowa, 539. Contra, Maltby v. Reading & C. R. Co., 52 Pa. St. 140; Pittsburg, Ft. W., & C. R. Co. v. Commonwealth, 66 Pa. St. 73; Delaware, L., & W. R. Co. v. Commonwealth, 66 Pa. St. 64; Buffalo & E. R. Co. v. Commonwealth, 3 Brewster, 874. 2 Oliver v. Washington Mills, 11 Allen, 268. 3 National Bank v. Commonwealth, 9 Wall. 353; Delaware Railroad Tax, 18 Wall. 206, 230; Faxton v. McCosh, 12 Iowa, 527; Jenkins v. Charleston, 5 S. C. 393. See Commonwealth v. Hamilton Man. Co., 12 Allen, 298. 491. 5 Dwight v. Boston, 12 Allen, 316; McKeen v. Northampton County, 49 Pa. St. 519; Whitesell v. Northampton County, 49 Pa. St. 526; Worthington v. Sebastian, 25 Ohio St. 1; Delaware Railroad Tax, 18 Wall. 206, 230; Appeal Tax Court v. Patterson, 50 Md. 354; Appeal Tax Court v. Gill, 50 Md. 377. But it has been held that, to prevent double taxation, a statute is to be construed as exempting the shares so held when the capital stock is fully taxed in the State where the corporation is established. Smith v. Exeter, 37 N. H. 556; Savings Bank v. Nashua, 46 N. H. 389, 398. 6 Delaware Railroad Tax, 18 Wall. 206; Erie R. Co. v. Pennsylvania, 21 Wall. 492; State Railroad Tax Cases, 92 U. S. 575, 611; Buffalo & E. R. Co. v. Commonwealth, 3 Brewster, 374; ante, Chap. I. p. 20. 7 Indianapolis & St. L. R. Co. v. Vance, 96 U. S. 450; Commonwealth v. Kirtland v. Hotchkiss, 100 U. S. Cleveland, P., & A. R. Co., 29 Pa. St. 370. 8 Irvin v. New Orleans, St. L., & C. R. A municipality, having the power to require a license tax, may exact it of a company whose business is partly without as well as partly within its limits.1 Corporate Property and Interests, how Taxed. Taxes may be levied on a corporation or interests therein as follows: Upon (1) capital stock, (2) corporate property, (3) franchises, (4) individual shares. The first three are usually united in a tax levied on the corporation, while the last is levied on the stockholders.2 The capital stock, corporate property, and franchises are taxed as an entirety, either directly or by taxation of the individual shares or revenues of the company; and the tax, unless appropriated wholly for State purposes, is distributed among counties, or cities and towns, according to some equitable mode of division. The property, however, of the company which is not used for railroad purposes, or is held for purposes not connected with the franchise, is usually taxable like other property by municipal corporations. In some jurisdictions, the property of the company, real and personal, including rolling-stock, is taxed in the places where it is situated; but the attempt to sever what is an essential unit only leads to confusion and inequalities. Another mode is to tax the franchise as an entirety, valuing it by the excess of the market value of the aggregate shares of the capital stock over the market value of the visible or tangible property which remains subject to local taxation. Co., 94 Ill. 105. See St. Louis v. Ferry 1 San José v. San José & S. C. R. Co., 53 Cal. 475. 2 Porter v. Rockford, R. I., & St. L. R. Co., 76 Ill. 561; Louisville & N. R. Co. v. State, 8 Heisk. 663; Delaware Railroad Tax, 18 Wall. 206. The shares were held not taxable under the statute in Richmond v. Daniel, 14 Gratt. 385; Farrington v. Tennessee, 95 U. S. 679, 686, 687. 8 Missouri River, F. S., & G. R. Co. v. Morris, 7 Kan. 210; Applegate v. Ernst, 3 Bush, 648; State v. Hamilton, 5 Ind. 310; Michigan Cent. R. Co. v. Porter, 17 Ind. 380; State v. Severance, 55 Mo. 378; Davenport v. Miss. & M. R. Co., 16 Iowa, 348; Iowa Homestead Co. v. Webster County, 21 Iowa, 221. Taxation of the profits of the corporation is said to be the only just rule in Paine v. Wright, 6 McLean, 395. 4 Toledo & W. R. Co. v. Lafayette, 22 Ind. 262. Louisville & N. R. Co. v. State, 8 Heisk. 663; Orange & A. R. Co. v. Alexandria, 17 Gratt. 176; Dubuque & P. R. Co. v. Webster County, 21 Iowa, 235; Dubuque v. Ill. Cent. R. Co., 39 Iowa, 56; Porter v. Rockford, R. I., & St. L. R. Co., 76 Ill. 561, 584. 6 Commonwealth v. Lowell Gas Light Co., 12 Allen, 75; Commonwealth v. Hamilton Man. Co., 12 Allen, 298, 6 Wall. 632; Porter v. Rockford, R. I., & St. L. R. Co., 76 Ill. 561; Chicago, B., & Q. R. Co. v. Cole, 75 Ill. 591; Chicago, B., & Q. R. Co. v. Paddock, 75 Ill. 616; State Railroad Tax Cases, 92 U. S. 575. As to the taxation of property held under The personal property of a railroad company is, when taxed like other property, taxable where the company has its principal office or place of business.1 This rule has been followed in the taxation of rolling-stock. But personal property, including rollingstock, is often treated as a part of the road. Persons operating a railroad, under lease or otherwise, are taxable for the rolling-stock used on it, irrespective of the ownership of the road or of the rolling-stock.1 The corporate franchise may be taxed by a rate imposed on the earnings. Such a tax has been held not to exempt the railroad and property from municipal taxation. It has been also held not to violate a provision of a State constitution requiring uniformity of taxation. The tax may be graduated by the amount of the income, or by the value of the franchise or property. The gross receipts as well as net earnings of a corporation may be taxed by a State without invading the power of Congress to regulate interstate commerce, even though in part derived from the transportation of merchandise between States.8 Where profits are taxed, they are taxable in the shape of divi a lease, see Appeal Tax Court v. Western Md. R. Co., 50 Md. 274; Phil., W., & B. R. Co. v. Appeal Tax Court, 50 Md. 397. 1 Sangamon & M. R. Co. v. Morgan County, 14 Ill. 163; State v. Haight, 1 Vroom, 447; State v. Person, 3 Vroom, 134; Portland, S., & P. R. Co. v. Saco, 60 Me. 196; Western Trans. Co. v. Scheu, 19 N. Y. 408; State v. Hamilton, 5 Ind. 310; State Railroad Tax Cases, 92 U. S. 575, 607. 2 Sangamon & M. R. Co. v. Morgan County, 14 Ill. 163; Orange & A. R. Co. v. Alexandria, 17 Gratt. 176; Pacific R. Cov. Cass County, 53 Mo. 17; State v. Severance, 55 Mo. 378; Appeal Tax Court v. Western Md. R. Co., 50 Md. 274; Phil., W., & B. R. Co. v. Appeal Tax Court, 50 Md. 397; Appeal Tax Court v. Northern Cent. R. Co., 50 Md. 417. See Davenport v. Miss. & M. R. Co., 16 Iowa, 348; Dubuque & S. C. R. Co. v. Dubuque, 17 Iowa, 120; Dubuque v. Ill. Cent. R. Co., 39 Iowa, 56. 8 Louisville & N. A. R. Co. v. State, 25 Ind. 177; Fitchburg R. Co. v. Prescott, 47 N. H. 62. Kennedy v. St. Louis, V., & T. H. R. Co., 62 Ill. 395; Huck v. Chicago & A. 5 Dunlieth & D. Bridge Co. v. Dubuque, 32 Iowa, 427; Davenport v. Chicago, R. I., & P. R. Co., 38 Iowa, 633. As to a tax on earnings in case of division of lines, see Chicago, M., & St. P. R. Co. v. Pfaender, 23 Minn. 217. 6 Kneeland v. Milwaukie, 15 Wis. 454 (overruling Attorney-General v. Winnebago, L., & F. R. Plank R. Co., 11 Wis. 35); Dean v. Gleason, 16 Wis. 1. See as to State constitutional provisions requiring uniformity of taxation, Gilman v. Sheboygan, 2 Black, 510; State Railroad Tax Cases, 92 U. S. 575; Muscatine v. Miss. & M. R. Co., 1 Dill. 536; Bureau County v. Chicago, B., & Q. R. Co., 44 Ill. 229; Chicago & N. W. R. Co. v. Boone County, 44 Ill. 240; Missouri River, F. S., & G. R. Co. v. Morris, 7 Kan. 210. 7 Delaware Railroad Tax, 18 Wall. 206. 8 State Taxes on Railway Gross Receipts, 15 Wall. 284; Buffalo & E. R. Co. v. Commonwealth, 3 Brewster, 386. dends of stock as well as of money; but an issue of new stock, when not based on profits, is not taxable as such.2 A railroad is not subject to be severed and sold in sections for non-payment of taxes.3 Where the track was by statute declared to be personal property, the rails, it was held, could be levied on, removed, and sold for non-payment of taxes. Rolling-stock is liable to seizure and sale for non-payment of taxes.5 State Methods. - In New York, the property of railroad companies is subject to municipal taxation in the same manner as the property of individuals, without any distinctive rules of valuation. The land and fixtures necessary for the road are taxable in the towns or wards where they are situated, at the value at the time of assessment; and the company is, as to land and fixtures within a town, treated as a resident, although its principal place of business is elsewhere. So much of the capital stock as remains after deducting all the real estate valued at cost, including the railroad, is taxable as personal estate in the town or ward where the company has its principal office or place of business. The real estate, including the track, is valued, not as an isolated piece of property, or as land in the vicinity used for ordinary purposes, but as a part of a whole, in connection with its use and relations and the profits derivable from it. The company is taxed upon its track with fixtures as for "land," although it is not the owner 1 Commonwealth v. Cleveland, P., & A. R. Co., 29 Pa. St. 370. v. Fredericks, 48 Barb. 173. An earlier rule disregarded the relations of a par 2 Commonwealth v. Erie & P. R. Co., ticular piece of the railroad to the rest 10 Phil. 465. 3 Georgia v. Atlantic & G. R. Co., 3 Woods, 434. 4 Maus v. Logansport, P., & B. R. Co., 27 Ill. 77. It was held in Mohawk & H. R. R. Co. v. Clute, 4 Paige, 384, that such a declaration does not change the character of the property which is held by the company in its corporate capacity. 5 Randall v. Elwell, 52 N. Y. 521. 61 Rev. Stat. (6th ed.) pp. 935, 979. People v. Cassity, 46 N. Y. 46; People v. Barker, 48 N. Y. 70; Buffalo & S. L. R. Co. v. Board of Supervisors, 48 N. Y. 93. 8 Mohawk & H. R. R. Co. v. Clute, 4 Paige, 384; People v. Supervisors of Niagara, 4 Hill, 20. 9 People v. Barker, 48 N. Y. 70; People of the enterprise. Albany & S. R. Co. v. Osborn, 12 Barb. 223; Albany & W. S. R. Co. v. Canaan, 16 Barb. 244. For discussions as to mode of valuing the real estate, including track, see Sangamon & M. R. Co. v. Morgan County, 14 Ill. 163; State v. Illinois Central R. Co., 27 Ill. 64; State v. Central Pacific R. Co., 7 Nev. 99 ; State v. Central Pacific R. Co., 10 Nev. 47; Huntington v. Central Pacific R. Co., 2 Sawyer, 503. As to mode of valuing the capital stock, see Porter v. Rockford, R. I., & St. L. R. Co., 76 Ill. 561; Chicago, B., & Q. R. Co. v. Cole, 75 Ill. 591; State Railroad Tax Cases, 92 U. S. 575; Commonwealth v. Pittsburg, Ft. W., & C. R. Co., 74 Pa. St. 83. |