Central Pacific Railroad v. State Board of Equalization

McKinstry, J.: In addition to the points made in San Francisco and North Pacific Railroad Company v. The State Board of Equalization, the petitioner makes the following: 1. The whole of the road within this State has, by respondent, been assessed to petitioner; 2. The State Board, in making the assessment and apportionment, did not pursue the authority conferred by the State Constitution; 3. The Central Pacific Eailroad is one of the means and instrumentalities employed by Congress to carry into operation the powers granted to the general Government. A tax upon its franchise—upon its right to exist—is, within the meaning of all the authorities, a tax upon the means and instrumentalities of the general Government. Without the express consent of Congress, no State can impose such a tax. 1. It is said that the Board had power only to assess the value of the real property of petitioner, less the amount of bonds issued to the company, which, by the “ Eailroad Act ” of July 1,1862, it is declared “ shall ipso facto constitute a first mortgage on the whole line of the railroad and telegraph, together with the rolling stock, fixtures, and property.” The State Constitution declares: “A mortgage, deed of trust, contract, or other obligation by which a debt is secured, shall, for the purposes of assessment and taxation, be deemed and treated as an interest in the property affected thereby.” (§ 4, Art. xiii.) But the same section proceeds: “Except as to railroad and other quasi public corporations, in case of debts so secured, the value of the property affected by each mortgage, deed of trust, contract, or obligation, less the value — 59 — of such security, shall he assessed and taxed to the owner of the property, and the value of such security shall be assessed and taxed to the owner thereof, in the county, city, or district in which the property affected thereby is situate.” Reading the whole section it seems very plain that as to mortgages, deeds of trust, contracts, or other obligations secured upon the property of railroad and other quasi public corporations, they should not be deemed and treated as an interest in the property affected by them “ for the purposes of taxation.” Under the Constitution of this State the property of such corporations is subject to assessment and taxation, without deduction of the amount of any mortgage or like lien thereon. The meaning is made clearer by the language “ shall be assessed and taxed in the county, city, or district” in which the property is situate. By reason of Section 10, Article xiii, the property of railroads “ operated in more than one county” can not be assessed in the counties, but must be assessed only by the State Board of Equalization. The claim is, that thus to impose upon railroad corporations, operated in more than one county, a tax upon the full value of their property, while upon owners of other property is imposed a tax only upon the value of their property after deducting the amount of mortgage and other like liens, is to deny to such corporations the “ equal protection of the laws,” and therefore violative of the Fourteenth Amendment to the Constitution of the United States. It may be urged that there is no practicable difference between taxing the railroad corporations at a higher rate or percentage upon the value of their property than is assessed upon the property of others, and establishing a mode of estimating the value of their property which results in the payment by them of more than is paid upon like property by others. But, if this be true, are the provisions of the State Constitution in conflict with the Fourteenth Amendment of the Constitution of the United States ? “ The power to tax is the strongest and most pervading of all the powers of government.” (Miller, J., in Loan Association v. Topeka, 20 Wall. 655.) No limitations or restrictions upon this essential attribute of government can be raised by — 60 — implication; but the intention to limit or abridge it must be expressed in clear and unambiguous language. (Lane County v. Oregon, 7 Wall. 71; Munn v. Illinois, 94 U. S. 123.) In The Insurance Company v. The City of New Orleans, it was held that an ordinance which levied a tax upon foreign corporations double that levied upon domestic corporations was not in conflict with the Fourteenth Amendment. The United States Circuit Judge said: “Are corporations within the meaning of the amendment ? The word person occurs three times in the first section, in the following connections: ‘All persons born or naturalized in the United States;’ ‘ nor shall any State deprive any person of life, liberty, or property,’ etc.; ‘nor’ shall any State ‘ deny to any person the equal protection of the laws.’ The complainants claim that this last clause applies to corporations—artificial persons. “Only natural persons can be born or naturalized; only natural persons can be deprived of life or liberty; so that it is clear that artificial persons .are excluded from the provisions of the first two clauses just quoted. If we adopt the construction claimed by complainants, we must hold that the word ‘ person,’ when it occurs the third time in this section, has a wider and more comprehensive meaning than in the other clauses of the section where it occurs. This would be a construction for which we find no warrant in the rules of interpretation. The plain and evident meaning of the section is, that the persons to whom the equal protection of the law is secured are persons born or naturalized or endowed with life and liberty,' and consequently natural, not artificial persons.” (1 Wood, 85.) 2. The State Board of Equalization performs its function, with reference to the property of railroad corporations, by making the assessments of all such properties accord with the standard of “ actual value.” Section 9, of Article xiii of the Constitution has no relation to the assessments of the property of railroad corporations, operated in more than one county. (§ 10, Art. xiii.) 3. The petitioner derives its franchise, “its right to exist,” solely from and under the laws of the State. When it ceases to exercise all the privileges thus derived (assuming that it may, of its own option, abandon them, and, at the — 61 — same time, relieve itself of the duties and obligations necessarily joined with them), it may, perhaps, be in a position to contest the right of the State to tax the moneyed value of the franchise, as actually employed and in connection with the property acquired and held by means of the powers conferred with the franchise. The franchise, at least in such connection, is property subject to taxation. We are not required now to decide whether the Congress of the United States has power to exempt from State taxation the property of a corporation created by, or organized under the laws of a State; or whether a corporation, the creature of a State law, can, by entering into contract relations with the general Government, withdraw itself from obligations to its creator—obligations which are essential elements of its existence. For the purposes of the case at bar it may be admitted (in the language of counsel) that the Government of the United States can “ seize upon ” the railroad and rolling stock of a corporation, chartered by a State, as the “ means or instrumentality ” for carrying into operation a power of that Government, and that.it can prohibit taxation by the State of the property thus seized. Admitting all this, there is nothing in McCulloch v. Maryland, 4 Wheat. 316, or in the other cases cited by petitioner, which lays down a rule necessarily subversive of the provisions of the State Constitution. In Thomson v. Pacific Railroad, 9 Wall. 587, Chief Justice Chase said: “The main argument for plaintiff is, that the road, being constructed under the direction and authority of Congress, for the uses and purposes of the United States, and being a part of a system of roads thus constructed, is, therefore, exempt from taxation under State authority. It is to be observed that this exemption is not claimed under any Act of Congress. It is not asserted that any Act declaring such exemption has received the sanction of the national Legislature. But it is earnestly insisted that the right of exemption arises from the relations of the road to the general Government. It is urged that the aids granted by Congress to the road were granted in the exercise of its constitutional powers to regulate commerce, to establish post-offices and post roads, to raise and support armies, and to suppress in — 62 — surrection and invasion; and that by the legislation which supplied aid, required security, imposed duties, and finally exacted, upon a certain contingency, a percentage of income, the road was adopted as an instrument of Government, and as such was not subject to taxation by the State.” After pointing out the wide difference between the case then under consideration and McCulloch v. Maryland, the learned Chief Justice proceeded: “We do not doubt,however, that upon the principles settled in that judgment, Congress may, in the exercise of powers incidental to the express powers mentioned by counsel, make or authorize contracts with individuals or corporations for services to the Government; may grant aids by money or land, in preparation for, or in the performance of such services; may make any stipulation and conditions in relation to such aids not contrary to the Constitution; and may exempt, in its discretion, the agencies employed in such services from any State taxation which will really prevent or impede the performance of them. “ But can the right of this road to exemption from such taxation be maintained in the absence of any legislation by Congress to that effect ? “ It is unquestionably true that the Court, in determining the second general question, already stated, did hold that the Bank of the United States, with its branches, was exempt from taxation by the State of Maryland, although no express exemption was found in the charter. But it must be remembered that the Bank of the United States was a corporation created by the United States; and, as an agent in the execution of the constitutional powers of the government, was endowed by the act of creation with all its faculties, powers, and functions. It did not owe its existence, or any of its qualities to State legislation. And its exemption from taxation was put upon this ground.” * * * “ That such (State) taxes can not be imposed on the operations of the Government, is a proposition which needs no argument to support it. And the same reasoning will apply to instruments of the Government, created by itself, for public and constitutional ends. But we are not aware of any case in which the real estate or other property of a corporation, not organized under an act of Congress, has been held to be — 63 — exempt, in the absence of express legislation to that effect, to just contribution, in common with other property, to the general expenditure for the common benefit, because of the employment of the corporation in the service of the government.” “No one questions that the power to tax all property, business, and persons, within their respective limits, is original in the States, and has never been surrendered. It can not be so used, indeed, as to destroy or hinder the operations of the National Government; but it will be safe to conclude, in general, in reference to persons and State corporations employed in Government service, that when Congress has not interposed to protect their property from State taxation, such taxation is not obnoxious to that objection.” “We perceive no limit to the principle of exemption which the complainant seeks to establish. It would remove from the reach of State taxation all the property of every agent of the Government. Every corporation engaged in the transportation of the mails, or of Government property of any description, by land or water, or in supplying materials for the use of the Government, or in performing any service of whatever kind, might claim the benefit of the exemption,” etc. Orders affirmed. Ross and McKee, JJ., concurred.