Railway Express Agency, Inc. v. Maxwell

Beogden, J. The Commissioner of Eevenue for the State of North Carolina found that the plaintiff operates as an express company over 3,053.31 miles of railroad within said State. Thereupon, pursuant to section 205, chapter 345 of Public Laws of 1929, he demanded the sum of $15 per mile as a franchise or license tax, aggregating $45,799.65. The plaintiff paid the tax demanded, and after complying with the proper preliminaries provided by law, brought this action to recover the sum so paid. The pertinent portion of the statute under which the tax was levied reads as follows: “Where the net income on the average capital invested during the year ending the thirtieth day of June of the current year is six per cent or less, $15.00 per mile of railroad lines. More than six per cent and less than eight per cent, $18.00 per mile of railroad lines. Eight per cent and over, $21.00 per mile of railroad lines operated over.” At the outset the plaintiff attacks the constitutionality of the statute generally, and also upon certain specific grounds, to wit: (a) That said statute invades the domain of the commerce clause of the Federal Constitution in that an illegal burden is directly laid upon interstate commerce. (b) That said statute imposes a tax upon business which the plaintiff does for the United States Government. [642] (c) That said statute undertakes to levy a tax upon property locatec outside the State of North Carolina and in other jurisdictions, contrary to section 1 of the Fourteenth Amendment of the Constitution ol the ‘United • States. (d) That said statute imposes a tax which is so excessive and burdensome as to amount to a confiscation of property. \ Article Y, section 3, of the Constitution of North Carolina, provides that “the General Assembly may also tax trades, professions, franchises and incomes,” etc. Hence, the General Assembly has the power to levy a franchise tax, and in pursuance of such power, has through a course of years imposed such taxes upon express companies doing business within the State. Moreover, the tax has always been assessed upon a mileage basis. Beginning in 1913 with a tax of $3.00 per mile the General Assembly, in substantially similar statutes, increased the tax to $5.00 in 1921, $7.50 in 1925, and to a minimum of $15.00 per mile in 1929. In arriving at a correct and sound conclusion as to whether the taxing statute of a sovereign State enacted in accordance with the constitution thereof invades the inhibitions of the supreme law of the land, it must be borne in mind that every reasonable presumption rises and runs in favor of validity. Mr. Justice Bay, in Green v. Frazier, 253 U. S., 233, clothed the idea in these words: “The taxing power of the States is primarily vested in the legislatures, deriving their authority from the people. "When a state legislature acts within the scope of its authority it is responsible to the people, and their right to change the agents to whom they have entrusted the power is ordinarily deemed a sufficient check upon its abuse. When the constituted authority of the State undertakes to exert the taxing power, and the question of the validity of its action is brought before this Court, every presumption in its favor is indulged, and only clear and demonstrated usurpation of power will authorize judicial interference with legislative action.” Furthermore, “the burden is on him who seeks the recovery of a tax already paid to establish those facts which show its invalidity.” Compania General v. Collector, 279 U. S., 306. See, also, Fox v. Haarstick, 156 U. S., 674; Heim v. McCall, 239 U. S., 175. All courts are agreed that the franchise of a foreign corporation or its right to carry on its business in a particular State under the protection of the laws of such State is a proper subject for taxation, irrespective of the fact that a portion of the property included in the computation is used in interstate commerce. Mr. Justice Stone, writing the opinion in International Shoe Co. v. Shartel, 279 U. S., 429, said: “A franchise tax imposed on a corporation, foreign or domestic, for the privilege of doing a local business, if apportioned to business done or property owned within the State, is not invalid under the commerce [643] clause merely because a part of .tbe property or capital included in computing tbe tax is used by it in interstate commerce.” Tbe signboards marking out tbe road along wbicb a valid privilege tax must travel, are pointed out by Mr. Justice Brandeis in Sprout v. City of South Bend, 217 U. S., 163. It is there written: “But in order tbat tbe fee or tax shall be valid, it must appear tbat it is imposed solely on account of tbe intrastate business; tbat tbe amount exacted is not increased because of tbe interstate business done; tbat one engaged in exclusively interstate commerce would not be subject to tbe imposition; and tbat tbe person taxed could discontinue tbe intrastate business without withdrawing also from tbe interstate business.” N. Y. State v. Latrobe, 279 U. S., 421; MacAllen v. Mass., 279 U. S., 620; N. J. Telegraph Co. v. Tax Board, 280 U. S., 338; Western Cartridge Co. v. Emerson, 50 Supreme Court Reporter, 283. "While tbe principles underlying privilege and franchise taxes have been discussed in tbe cases above cited and numerous -others referred to therein, tbe chief difficulty encountered in arriving at tbe ultimate, conclusion is tbe correct application of correct taxing theory to particular statutes and to particular states of fact. Tbe statute under attack in the ease at bar imposes a minimum tax of “$15.00 per mile on railroad line” when tbe “net income on tbe average capital invested ... is 6 per cent or less.” Manifestly this language means tbat if an express company made nothing at all, it would be required to pay tbe minimum tax of $15.00 per rail mile. Hence, so far as this particular record is concerned, tbe terms “net income” and “average capital invested” are not involved in tbe specific question of law presented. If, under tbe taxing statute, tbe defendant, Commissioner of Eevenue, bad undertaken to levy a tax of $18.00 per rail mile, wbicb levy would necessarily involve tbe determination of “net income” on “invested capital,” then tbe plaintiff would be in a position to present squarely tbe legal questions debated in tbe brief. Tbat is to say, section 205, chapter 345, Public Laws of 1929, imposes a franchise and privilege tax of $15.00 per mile on express companies licensed to do business in this State. Said tax is tbe minimum tax under any and all circumstances, and, as tbe record is interpreted tbe question as to what would happen o-r what tbe legal status of tbe parties would be if a higher tax bad been levied under tbe statute, is at most an interesting but at tbe same time hypothetical question. Appellate Courts everywhere have been slow to plunge into tbe field of hypothesis and speculation in deciding constitutional questions, and have ordinarily been content to rest in safety upon tbe wisdom of tbe scriptural declaration : “Sufficient unto tbe day is tbe evil thereof.” - This is particularly true when tbe apprehended evil is constitutional in its nature. [644] It is obvious that if the interpretation given the statute is sound, the tax does not rise as interstate business increases or fall with the diminution thereof. Nor is there evidence tending to show that it is not imposed solely on account of intrastate business transacted; neither is there anything in the record tending to show that the plaintiff would not have the right at any time to discontinue intrastate business within North Carolina. Under the facts- as disclosed upon the face of the record the tax is constant and points without variation to “$15.00 per rail mile.” Therefore, as we see it, the only question presented is whether the tax of $15.00 per rail mile is so excessive and -exorbitant upon its face as to amount to a confiscation of property. Under the tax structure set up- in chapter 345 of the Revenue Act of 1929 domestic and foreign corporations are required to pay franchise or privilege taxes based upon certain data contained in reports filed with the Commissioner of Revenue. See sections 210 and 211 of said chapter 345. In addition, such corporations pay the license taxes imposed by various sections of said Revenue Act. However, express companies are exempt from the operation of sections 210 and 211 by section 213, and the tax assessed against them is by virtue of section 205. It is apparent, therefore, from an inspection of the statute that the tax imposed upon the plaintiff is a combination franchise and occupation tax assessed by the State, and counties are expressly prohibited from levying a privilege or license tax, and the amount leviable by municipalities is limited to a sliding scale of small proportions. The power granted to municipalities to impose the tax is doubtless based upon the fact that the plaintiff must necessarily use the streets in the orderly prosecution of its business. The evidence discloses that the revenue produced from exclusively intrastate business was $122,286.69 for a period of four months. Hence the annual revenue from such source would be approximately $366,860.07. The revenue' arising from interstate shipments received by plaintiff within North Carolina was $762,853.98 for a period of four months. Hence the annual revenue from such source would be approximately $2,288,561.94. It also appears from the evidence that the plaintiff in constructing the comparison between revenue derived from intrastate commerce “based on intrastate shipments on the one part, and interstate shipments received at points in North Carolina from points without the State on the other part” that no consideration was given to interstate shipments from points in North Carolina to points without the State. So that the volume of such business does not appear. It does appear, however, that “in business activities and progress North Carolina is regarded as an average State of those through which the plaintiff operates.” Furthermore, it does appear [645] that the “ratio of intrastate revenue to interstate revenue wherever the company operated during the year 1929 was 18.28 per cent. The ratio of such revenue for the State of North Carolina for the same period was 16.05 per cent. The bald result is that the combined franchise and privilege tax imposed upon the plaintiff is slightly in excess of 12 per cent of its gross revenue derived exclusively from intrastate business, taking no account of other items and factors, which are worthy of consideration upon the contention that the amount is confiscatory. There are other questions debated in the briefs with much learning and skill, but if the view of the law herein adopted by the Court is correct, all such questions become immaterial. In conclusion, under the facts and circumstances presented or disclosed by this particular record and involved in a decision of this particular case, we cannot say that as a matter of law the tax imposed is confiscatory, and the judgment of the trial court is Affirmed.