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[199 U.S. 1, 2] On May 26, 1899, the legislature of New York passed an act amending the tax law of the state. N. Y. Laws, 1899, chap. 712, p. 1589. The first section reads:
The portions in italics are the new matter introduced by the amendment. Other section were added to tax law, of which 46 is as follows:
Other sections provide the machinery for assessment. This assessment was to be made by the state board of tax commissioners, and one section authorized certiorari to review their proceedings.
Under this law an assessment was made of the franchises belonging to the plaintiff in error, a corporation created by the consolidation of several corporations, having franchises for the maintenance and operation of street railroads in the city [199 U.S. 1, 5] of New York. A certiorari to review this assessment was finally decided by the court of appeals of the state, which, on April 28, 1903 (174 N. Y. 417, 63 L. R. A. 884, 67 N. E. 69), sustained the assessment, and remanded the case to the special term of the supreme court, by which court a final judgment was entered, June 22, 1903. Thereupon this writ of error was sued out. Plaintiff in error makes three assignments of error:
Prior to 1874 the legislature of New York made direct grants of franchises, rights, or privileges to use the streets of the city of New York. In that year the following amendment to the Constitution was adopted ( Constitution 1846, as amended, art. 3, 18):
In 1884 an act was passed (Laws 1884, chap. 252, p. 309) giving to the local authorities power to grant franchised for street railroads. This act provided:
In 1886 an act amending a prior act of the same year was passed (Laws 1886, chap. 642, p. 919), which contained the following terms:
The special acts passed before the amendment of 1874, which are claimed to constitute contracts, the obligations of which are impaired by this tax legislation, are found, first, in chap. 625 of the Laws of 1868, which granted to certain persons the right to construct, maintain, and operate and use a street railroad, with a provision that 'the said persons, or their assigns, shall pay to the sinking fund commissioners of the city of New York the sum of $1,000 per annum, to be applied by them in the same manner as moneys received on account of rentals and leases;' second, in chap. 19 of the Laws of 1871, which, granting the privilege of occupying certain streets with street railroad tracks, provided that the company should 'make compensation to the mayor, aldermen, and commonalty of said city of New York for the value of the rights and privileges herein granted or authorized,' and also prescribed the mode of ascertaining that compensation by three commissioners, whose decision should be final and conclusive as to the company and the mayor, aldermen, and commonalty of said city, adding 'the amount so fixed and determined shall [199 U.S. 1, 9] be paid to the commissioners of the sinking fund of said city, by the said company, within thirty days after the same becomes payable, according to the decision aforesaid, and applied to the reduction of the debt of said city;' third, in chap. 508 of the Laws of 1874, which granted the right to 'construct, operate, maintain, and use railways' in certain streets in the city of New York, and provided that 'the said persons, or their assigns, shall annually, on the first day of November, pay into the treasury of the city of New York 1 per cent of the gross receipts of the road herein provided for, the amount of which gross receipts shall be determined by the sworn statement of the president and treasurer of said railway, but subject to the inspection of its books by the comptroller of the city of New York.'
Subsequent to the law of 1884, above referred to, fifteen other franchises now belonging to the relator were granted by the common council of the city of New York. Most of them provided for annual payment to the city of New York of either a fixed amount or a fixed percentage, varying from 2 to 8 per cent of the gross earnings.
Messrs. William D. Guthrie and Elihu Root for plaintiff in error.
[199 U.S. 1, 24] Messrs. Julius M. Mayer and Louis Marshall for defendant in error.
Mr. Justice Brewer delivered the opinion of the court:
The decision of the court of appeals settles that there is nothing in the law or the proceedings in this case in conflict with the Constitution of that state. It is not contended by the plaintiff in error that there is any constitutional objection to the taxation of franchises. The right to subject them to a share in the burden of supporting the government is conceded.
The main contention is that this tax legislation impairs the obligation of contracts, It must be borne in mind that presumptively all property within the territorial limits of a state is subject to its taxing power. Whoever insists that any particular property is not so subject has the burden of proof, and must make it entirely clear that, by contract or otherwise, the [199 U.S. 1, 36] property is beyond its reach. In Providence Bank v. Billings, 4 Pet. 514, 7 L. ed. 939, Mr. Chief Justice Marshall, in delivering the opinion of the court, said (p. 561, L. ed. p. 955):
In Vicksburg, S. & P. R. Co. v. Dennis, 116 U.S. 665 , 29 L. ed. 770, 6 Sup. Ct. Rep. 625, Mr. Justice Gray cited many authorities, quoting the different phraseology in which, by the several writers of the opinions, the same rule was announced. In Wells v. Savannah, 181 U.S. 531 , 45 L. ed. 986, 21 Sup. Ct. Rep. 697, the law was thus stated by Mr. Justice Peckham ( p. 539, L. ed. p. 991, Sup. Ct. Rep. p. 700):
In Chicago Theological Seminary v. Illinois, 188 U.S. 662 , 47 L. ed. 641, 23 Sup. Ct. Rep. 386, the same Justice declared (p. 672, L. ed. p. 648, Sup. Ct. Rep. p. 387):
See also Erie R. Co. v. Pennsylvania, 21 Wall. 492, 22 L. ed. 595; Wilmington & W. R. Co. v. Alsbrook, 146 U.S. 279 , 36 L. ed. 972, 13 Sup. Ct. Rep. 72; Ford v. Delta & P. Land Co. 164 U.S. 662 , 41 L. ed. 590, 17 Sup. Ct. Rep. 230.
This rule is akin to, if not part of, the broad proposition, now universally accepted, that in grants from the public nothing passes by implication. As said by Mr. Chief Justice Taney, in Charles River Bridge v. Warren Bridge, 11 Pet. 420, 549, 9 L. ed. 773, 824:
Applying these well-established rules to the several contracts, it will be perceived that there was no express relinquishment of the right of taxation. The plaintiff in error must rely upon some implication, and not upon any direct stipulation. In each contract there was a grant of privileges, but the grant was specifically of privileges in respect to the construction, operation, and maintenance of a street railroad. These were all that, in terms, were granted. As consideration for this grant the grantees were to pay something, and such payment is nowhere said to be in lieu of or as an equivalent or substitute for taxes. All that can be extracted from the language used was a grant [199 U.S. 1, 38] of privileges and a payment therefor. Other words must be written into the contract before there can be found any relinquishment of the power of taxation.
In the well-considered opinion of the court of appeals in this case it was stated by Mr. Justice Vann:
It would not be doubted that, if a grant was of specific tangible property, like a tract of land, and the payment therefor was a gross sum, no implication of an exemption from taxation would arise. Whether the amount paid was large or small, greater or less than the real value, if the payment was distinctly the consideration of a grant, that which was granted would pass into the bulk of private property, and, like all other such property, be subject to taxation. Nor would this result be altered by the fact that the payment for the thing granted was to be made annually instead of by a single sum in gross. If it was real estate it would be equivalent to the conveyance of the tract subject to ground rent, and the grantee taking the title would hold it liable to taxation upon its value. If this be true in reference to a grant of tangible property, it is equally true in respect to a grant of a franchise, for a franchise, though intangible, is none the less property, and oftentimes property of great value. Indeed, growing out of the conditions of modern business, a large proportion of valuable property is to be found in intangible things like franchises. We had occasion to review this subject in Adams Exp. Co. v. Ohio, 166 U.S. 185 , 41 L. ed. 965, 17 Sup. Ct. Rep. 604, where we said ( pp. 218, 219, L. ed. pp. 976, 977, Sup. Ct. Rep. p. 605):
It is urged that when the public grants a privilege on condition of the payment of an annual sum the contract implies that the public shall exact no larger amount for that privilege, that to impose a tax is simply increasing the price which the grantee is called upon to pay for the privilege, and Gordon v. Appeal Tax Court, 3 How. 133, 11 L. ed. 529, is relied upon as authority. It is true, in the opinion of the court, announced by Mr. Justice Wayne, is this language (p. 145, L. ed. p. 535):
But there was in that case an express exemption from taxation, in these words:
There being thus an express stipulation on the part of a state not to impose any further tax or burden, the question decided was really the extent of the exemption, and it was held to apply not merely to the franchise, but to the property of the bank. The statements of Mr. Justice Wayne were only by way of argument to support the conclusion that the exemption went beyond the franchise alone. Furthermore, that case has been repeatedly qualified and limited by subsequent decisions. In New Orleans City & Lake R. Co. v. New Orleans, 143 U.S. 192 , 36 L. ed. 121, 12 Sup. Ct. Rep. 406, Mr. Justice Gray, speaking for the court, said (p. 195, L. ed. p. 122, Sup. Ct. Rep. p. 406):
Murray v. Charleston, 96 U.S. 432 , 24 L. ed. 760, is not in point. The city of Charleston, having issued bonds, subsequently passed an ordinance assessing a tax upon all real and personal property in the city, and directed the treasurer to retain out of the interest due on those bonds the amount of the tax. Murray was a resident of Germany, and resisted the reduction of interest, and it was held that the city could not, by way of a tax, reduce the amount of the interest which it had promised to pay to this nonresident holder, the court saying in its opinion (p 440, L. ed. p. 761): 'A nonresident creditor cannot be said to be, in virtue of a debt due to him, a holder of property within the city; and the city council was authorized to make assessments only upon [199 U.S. 1, 43] the inhabitants of Charleston, or those holding taxable property within the same.'
Chicago v. Sheldon, 9 Wall. 50, 19 L. ed. 594, is also not in point. An ordinance was passed by the city council of Chicago prescribing the amount of work which a street railway company must do in the grading, paving, etc., of the streets on which its railway was authorized to be constructed. The company, having accepted, and complied with the terms of this ordinance, the city attempted by assessments for special improvements to compel the railway company to pay for further work of the nature required by the original ordinance, and it was held that the obligations assumed by the railway company in respect to street improvements, as provided by the ordinance, could not be increased by special assessments for further improvements. But this involved no question of liability to general taxation, and only held void the effort of the city, under the guise of special assessments, to increase the obligations specifically assumed by the railway company under the original ordinance.
In New Jersey v. Yard, 95 U.S. 104 , 24 L. ed. 352, there was a contract that a certain tax should 'be in lieu and satisfaction of all other taxation or imposition whatsoever, by or under the authority of this state, or any law thereof,' and the decision simply upheld that exemption specifically contracted for.
It is further contended that there has been a recognition and practical construction in respect to the grants of these franchises, and on these grounds: First, no attempt has been made to legislate in respect to their taxation until 1899, although some of them had been in existence for many years; second, Governor Cleveland, in one of his messages, called the amount required to be paid by the contract a tax, and Governor Roosevelt also spoke of existing 'taxes;' third, 46 of the legislation authorizing the tax upon these franchises provided that 'any sum based upon a percentage of gross earnings, or any other income, or any license fee, or any sum of money on account of such special franchise, granted to or possessed by such person, copartnership, association, or [199 U.S. 1, 44] corporation, which payment was in the nature of a tax, all amounts so paid for the exclusive use of such city, town, or village, except money paid or expended for paving or repairing of pavement of any street, highway, or public place, shall be deducted from any tax based on the assessment made by the state board of tax commissioners for city, town, or village purposes, but not otherwise; and the remainder shall be the tax on such special franchise payable for city, town, or village purposes;' fourth, the court of appeals of New York in Heerwagen v. Crosstown Street R. Co. 179 N. Y. 99, 104, 71 N. E. 729, 730, said:
We are not disposed to undervalue the force of these suggestions, but it would be giving them undue significance to hold that they are potent to displace the power of the state to subject to the burdens of taxation property within its limits. The word 'tax' is not infrequently used in a general sense as denoting a burden or charge, and not in the strict legal sense of the charge or burden imposed by the state for the purposes of revenue for its support. Undoubtedly the payment for the franchise of an annual sum was a burden, and in that sense it might not unnaturally have been spoken of as a tax. Being recognized as a burden, it may also well be that when the franchise itself was of comparatively little value the legislature did not see fit to subject it to the burdens of ordinary taxation. But the omission of one legislature or a dozen legislatures does [199 U.S. 1, 45] not destroy the power of the state. The language quoted from 46 indicates the desire of the legislature to deal equitably with the corporations holding these franchises. Surely the manifestation of this desire cannot be construed into a repudiation of power. These annual charges are not called taxes, but are spoken of as in the nature of a tax; and the legislature, recognizing the equitable force of the claim based thereon, provided that the corporation be given credit for sums thus payable. In this connection it is well to recall that in 1 of the act of 1886, supra, these annual charges are called 'rental or percentage of gross earnings.'
The quotation from the court of appeals must be interpreted in the light of the question presented. That was whether the appellee company was entitled to avail itself of the provision of 46 just quoted, it having been required by its charter to pay a certain percentage of its gross receipts. It was held that it was so entitled, and the argument was to show that the words 'in the nature of a tax' were used in a broad and comprehensive sense to include a payment made on account of the privilege granted. No question was made or considered as to the liability of the company to the tax on its franchise. Its only claim was to the deduction on account of the percentage of its receipts already paid. The court, in addition to the language quoted, said (p. 106, N. E. p. 731):
We are of opinion that no contract right of the relator was impaired by the legislation in question.
It is further insisted that the special franchise tax law denies the relator the equal protection of the laws and due process in three separate and distinct aspects, 'namely: (1) in that it adds to the obligations of their various contracts while preserving all the burdens of those contracts; (2) in that it provides for the deduction of annual payments covered by existing contracts from the amount of tax levied, by reason of which deduction those who agreed to pay for their franchises lump sums or annual amounts less than the new tax are discriminated against; and (3) in that it discriminates against them and subjects them to taxation, while their competitors, operating under the surfaces of many of the same streets, are to be exempted.'
The first specification is answered by the conclusion that we have reached in respect to the claim of an impairment of contract obligations; for if there was no such impairment, the fact that the companies have escaped the burden for these many years is their good fortune, and in no manner discharges them from the ordinary burdens of taxation which the present law imposes.
With respect to the second, it may be observed that the lump sum is so obviously a payment for the franchise that it cannot be considered in any just sense as possessing the nature of a tax. It is not even rental. It is like money paid for a tract of land,-part of the purchase price. It does not, like a percentage of the gross receipts, vary with the changes of business, has no resemblance to a continuing discharge of the obligation which property is under for contribution to the support of the government. Further, this whole matter of allowing a reduction on account of that which is spoken of as 'in the nature of [199 U.S. 1, 47] a tax,' is a matter of grace on the part of the legislature. The franchises granted were, as we have held, subject to taxation, and the fact that, upon equitable considerations, the state has consented that a certain reduction shall, in some cases, be made, does not entitle every holder of a franchise to a like reduction. It is akin to an exemption, and there is nothing in the Federal Constitution to prevent a state from granting exemptions from taxation. Bell's Gap R. Co. v. Pennsylvania, 134 U.S. 232 , 33 L. ed. 892, 10 Sup. Ct. Rep. 533.
With regard to the third contention, it may be said that there is a difference between surface and subsurface street railroads sufficient to justify a diversity in the mode and extent of taxation. In Savannah, T. & I. of H. R. Co. v. Savannah, 198 U. S. ante, 690, 25 Sup. Ct. Rep. 690, just decided, taxation of a street railroad was challenged on the ground that a steam railroad which ran into the city and along its streets, and there did some of the same kind of work as the ordinary street railroad, was not subject to the same tax, and, referring to this contention, is this declaration by Mr. Justice Holmes: 'The difference between the two railroads is obvious, and warrants the diversity in the mode of taxation.' Further, the condition of the title to the only subsurface road in the city of New York clearly puts it in a class by itself.
These are all the questions we deem it important to consider. We find no error in the decision of the Supreme Court of New York, and it is affirmed.
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Citation: 199 U.S. 1
Docket No: No. 74
Decided: May 29, 1905
Court: United States Supreme Court
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