Delaware, L. & W. R. Co. v. Pennsylvania, 198 U.S. 341 (1905)
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Delaware, Lackawanna & Western
Railroad Company v. Pennsylvania
No. 208
Argued April 10, 1905
Decided May 15, 1905
198 U.S. 341
ERROR TO THE SUPREME COURT
OF THE STATE OF PENNSYLVANIA
Syllabus
A tax on the value of the capital stock of a corporation is a tax on the property in which that capital is invested, and therefore no tax can be levied upon the corporation issuing the stock which includes property that is otherwise exempt.
The same rule that requires the exclusion from the assessment of valuation of capital stock of tangible personal property permanently situated out of the state applies to property sent out of the state to be sold and which is actually out of the state when the assessment is made.
As a state cannot directly tax tangible property permanently outside the state and having no situs within the state, it cannot attain the same end by taxing the enhanced value of the capital stock of a corporation which arises from the value of property beyond its jurisdiction.
While an appraisement of value is in general a decision on a question of fact, and final, where it is arrived at by including property not within the jurisdiction of the state, it is absolutely illegal as made without jurisdiction.
The collection of a tax on a corporation on its capital stock based on a valuation which includes property situated out of the state would amount to the taking of property without due process of law, and can be restrained by the federal courts.
In assessing the value of the capital stock of a corporation of Pennsylvania under the Act of that state of June 8, 1891, coal which is owned by the corporation, but at the time of the assessment situated in another state not to be returned to Pennsylvania, should not be included.
The plaintiff in error brings this case here to review the judgment of the Supreme Court of Pennsylvania, 206 Pa. 645, in favor of that state on a question raised by the plaintiff in error as to its liability to taxation by the state upon certain coal of the value of $1,702,443, belonging to the plaintiff in error, which had been mined in Pennsylvania and which, prior to the appraisement of the value of the capital stock of the company, pursuant to the Pennsylvania statute, for taxation in Pennsylvania, had been transported to and was situated in other states awaiting sale.
The case arises under proceedings provided for by the Pennsylvania statute for appraising, for the purposes of taxation, the value of the capital stock of corporations, such as the plaintiff in error, for the year ending in November, 1899. The statute under which the appraisement was made was passed June 8, 1891 (amendment of act of 1889), printed on page 229 et seq. of the Laws of Pennsylvania for that year. The sections of the act in question are four and five, and are reproduced in the margin.
In appraising the value of the capital stock of the plaintiff in error pursuant to that statute, it is contended by it that the appraising officers should have deducted from the value of the stock the value of the coal mined in Pennsylvania by the company and owned by it, but situated in other states, there awaiting sale, and beyond the jurisdiction of the State of Pennsylvania at the time the appraisement was made. This contention was overruled by the state courts.
The facts upon which the judgment rests were found by the court, and are as follows:
1. The Delaware, Lackawanna & Western Railroad Company was organized under the special act of the General Assembly of Pennsylvania approved March 11, 1853, by the consolidation of the Liggetts Gap Railroad Company, incorporated under the Act of April 7, 1832, whose name was, by the Act of April 14, 1851, changed to Lackawanna & Western Railroad Company, and the Delaware & Cobbs Gap Railroad Company, incorporated by the Act of April 7, 1849. Into the Delaware, Lackawanna & Western Railroad Company, as formed by the merger of the Lackawanna & Western Railroad Company and the Delaware & Cobbs Gap Railroad Company were merged, December 27, 1865, the Keyser Valley Railroad Company; August 12, 1870, the Nanticoke Coal & Coke Company, and June 17, 1870, the Lackawanna & Bloomsburg Railroad Company. The company, as authorized by special act of Pennsylvania Legislature, has its general office and treasury in the City and State of New York, though its corporate home is in Pennsylvania. It is authorized by law to own coal lands in Pennsylvania, and to mine, buy, and sell coal and convey the same to market, and, in addition to its business of owning and operating an extensive system of railroads, is engaged in the business of mining, buying, and selling coal. The proper officers of the company returned and appraised its capital stock as of the actual value, between the first and fifteenth days of November, 1899, of $48,470,000, and in making up the claim of the state for taxes for said year, the auditor general made no deductions whatever, but charged tax at five mills upon said aggregate valuation of $48,470,000, the said tax amounting to $242,350. Amongst other property in addition to its railroad, the company owned coal located at points outside of Pennsylvania, in New York, Illinois, and other states, of the value of $1,702,443, and, as already stated, no deduction was made by the auditor general in his statement of account against the company for or with respect to this coal. All taxes assessed against the company for 1899 in other states, on coal located there, have been paid, according to the belief, and so far as the secretary of the company can now, May 25, 1901, recall.
There were other items in dispute in addition to the coal, and they were covered by defendant’s appeal, but the attorney general, on behalf of the commonwealth, and counsel for the defendant, entered into an agreement in writing as follows, viz.:
And now, to-wit, April 10, 1901, it is hereby agreed that the jury shall deduct, and not include in its verdict, any tax upon $1,702,444, being the value of coal held and owned at points in states other than Pennsylvania, according to the facts as set forth in the depositions of Fred. F. Chambers and W. H. Truesdale, defendant’s treasurer and president, respectively, hereto attached and made part hereof. The said deduction having been made, final judgment shall be entered upon the verdict of the jury in favor of the commonwealth, and against the defendant. The question of defendant’s liability to the Commonwealth of Pennsylvania for taxes upon or in respect of said coal held, owned, and stored at points in states other than Pennsylvania, is hereby reserved, and it is agreed that it shall be submitted for the determination of the court. If the court shall be of the opinion that, upon the facts stated in the aforesaid depositions of Fred. F. Chambers and W. H. Truesdale, attached to and made part hereof, the defendant is liable for tax to the Commonwealth of Pennsylvania upon coal thus held, owned, and stored at points in states other than Pennsylvania, then judgment shall be entered in favor of the commonwealth and against the defendant for the further sum of $8,512.21, being five mills upon the said $1,702,443, the value of the said coal, to which amount there shall be added the usual attorney general’s commission of five percent, either of the parties to be at liberty to file exceptions to, and appeal from, the decision of the court upon the said reserved point with like effect as if the case had been tried by the court without a jury, under the Act of April 22, 1874.
3. The case having been submitted to the jury, a verdict was rendered as follows, viz.:
Tax . . . . . . . . . . . . . . . . . . . . . . . . . $111,250.00
Less five mills on coal, $1,702,443.00. . . . . . . . 8,512.21
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$102,737.79
Less payment on account . . . . . . . . . . . . . . . 100,000.00
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$2,737.79
Add attorney general’s commission of five percent . . 136.88
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Verdict for . . . . . . . . . . . . . . . . . . $2,874.67
The judgment entered upon said verdict has been paid by defendant, leaving open only the one question submitted to the court, as aforesaid, of the defendant’s liability to taxation with respect to capital stock invested in coal located outside of Pennsylvania.
4. The facts agreed upon by counsel for the commonwealth and the company are set forth in the affidavits of W. H. Truesdale, president, and Fred. F. Chambers, the secretary and treasurer of the company, and, insofar as they relate to the reserved question, are as follows, viz.:
Under powers conferred by special charter previous to the adoption of the present Constitution of Pennsylvania, the Delaware, Lackawanna & Western Railroad Company is largely engaged in the mining and purchasing of anthracite coal in Pennsylvania, nearly all of which coal it transports to points without said state, and there sells. By far the greater part of this coal is transported from the mines for immediate delivery at points in other states, and is not kept or held in stock in said other states longer than is necessary for the purpose of transferring possession from this company to the purchaser, but at certain points in other states, as, for instances at Buffalo, New York, and at Chicago, Illinois, the company keeps constantly on hand a stock of coal for purposes of sale, the same being stored in yards or upon docks maintained by the company for that purpose. The coal thus on hand awaiting sale between the first and fifteenth days of November, 1899, the date when the company’s capital stock is required by law to be appraised for taxation, was of the value of not less than $1,702,443, and was included in the valuation of the company’s capital stock upon which tax was charged in the auditor general’s account. The coal thus on hand at that date was approximately the amount usually kept in stock at such points. The said coal, when shipped from Pennsylvania, was destined to said points in other states, with no intention of ever returning the same to Pennsylvania. On the contrary, said coal was intended to, and did, become part of the general mass of property in said other states, and the company is there annually taxed upon or in respect to the same, and was so taxed for 1899. When the coal thus kept in stock in the states of New York, Illinois, and other states outside of Pennsylvania is sold, the proceeds are returned to the company’s treasury in the City and State of New York.
In 1899, the company sold and delivered coal at points outside of the State of Pennsylvania of the aggregate value of not less than $18,587,258, but this was either contracted for before it left the mines or delivered upon, or within a comparatively short time after, its arrival at the points in other states to which it was to be delivered. What I have said above was with reference only to coal kept in stock at points outside of Pennsylvania for purposes of sale.
5. The corporation defendant is authorized by law to transact business and to hold lands in other states for depot, wharfage, and coal-yard accommodations, and to make such agreements and contracts with corporations and individuals of other states as may be necessary and expedient for the transporting and vending of coal mined and purchased by it, and defendant is also authorized to have and maintain its general office and place of business, and to hold its stockholders’ meeting, in the State of New York, and to have as president, directors, and other officers nonresidents of the State of Pennsylvania. The company is taxable upon the value of the property represented by its capital stock, and not upon the amount of the latter.