Great Northern Railway Co. v. Minnesota

delivered the opinion of the court.

This suit by thh State of Minnesota against the Great North

The controlling question in the-case relates to the constitutionality of certain sections of that statute, as follows: “ § 1. Every railroad company owning or operating any line of railway situated within or partly within this State shall, during the year 1905, and annually thereafter,, pay into the treasury of this State in lieu of all taxes and assessments upon all property within this State owned and operated.for railway purposes by such company, including the Equipment, appurtenances, appendages and franchises thereof, a sum of money equal to four per cent of the gross earnings derived from the operation of such line of railway within this State; and the annual payment of such sum shall be in full and in lieu of all other taxes and assessments upon the property and franchises so taxed. The lands acquired by public grants shall be and remain exempt from taxation until sold or contracted to be sold or conveyed, as provided in the respective acts whereby such grants were made or recognized. §2. The term ‘gross earnings derived from the operation of such line of railway within this State' as used in section one of this act is hereby declared and shall be construed to mean all earnings on business beginning and ending within the State and a proportion based upon the proportion of the mileage within the State to the entire mileage over which such business is done of earnings t. all interstate business passing through, into or- out of the State.” Gen. Laws, Minn., 1903, c. 253, p. 375.

. The effect of the statute, Minnesota asserts, was to place the Great Northern Railway Company, as to rates, on the same, basis of taxation as other railroads in the State. But, the .company contended in the- courts below, and contends here, that the requirement to pay for 1905 and annually thereafter four per cent of the gross earnings derived from the operation

The gross earnings of the company during 1905 were, it is conceded, $18,540,396.27, four per cent of which, $741,615.85, the State demanded under the act of 1903. The company paid $620,878.47 on account of gross earnings for 1905, and refused to pay more. For the difference, $120,737.38, with interest, the State claimed judgment. The railway company admitted its liability .to pay four. per cent on the gross earnings derived from certain lines operated by it in 1905, but denied liability in excess of three per cent on the gross earnings derived, during the same period, from certain other lines. It insisted that the sum paid by it before being sued herein was all that could be legally demanded by the State for the year 1905,

The trial court made certain findings of fact and announced certain conclusions of law that were not satisfactory to' either party. But it was stipulated that, on the baáis of those findings and conclusions, the State would be entitled to a judgment for $32,285.94, with interest from July 11th, 1898, and costs; and for that sum judgment was given by the trial court ágainst the railway company. Each party prosecuted an appeal to the Supreme Court of Minnesota. That court sustained the State’s appeal and reversed the judgment with directions to enter judgment in favor of the State for the entire amount it had

It is necessary to a clear understanding of the question of contract, as' well as the objections raised against the act of 1903, that we state certain facts in the history of the taxation of railroad property in Minnesota.

By an act approved February 26th, 1857, Congress authorized the people of the Territory of Minnesota to form a constitution preparatory to its admission into the Union as a State on an equal footing with the. original States. 11 Stat. 166 , c. 60. And by an act passed March 3d, 1857, it made a grant of lands to the Territory to aid in the, construction of railroads between certain points with branches between certain other points, and provided that, the lands so granted should be subject to the future disposal by the Legislature of the Territory or future State for the purposes expressed by Congress, and no other. 11 Stat. 195 , 190, c. 99, §§ 1, 3.

In execution of the trust created by that act of Congress, the Legislative Assembly of the Territory, by the above act of May 22d, 1857, incorporated the Minnesota and Pacific Railroad Company, investing it with all the powers, privileges, franchises and immunities incident to a corporation, and empowering it to survey, locate, construct, maintain and operate a railroad with one or more tracks or lines between certain named places; to which end it was authorized to enter upon and appropriate lands belonging to the Territory or future State, not exceeding a prescribed width throughout the entire length of its railroad. Sess. Laws Minn., 1857, Extra Sess., p. 1, §§ 1, 4, 18.

The 18th section of the latter act constitutes an important feature in this case. So much of that section as is material in determining this case is as follows: “In consideration of the grants, privileges and franchises herein conferred on the said Minnesota and Pacific Railroad Company, the said company shall and will, on or before the first day of March in each year.

By an act approved May 11th, 1858, Minnesota was admitted into the Union as a State, with the constitution it had adopted by popular vote on the thirteenth of October previous, 11 Stat. 285 , c. 31; which constitution provided that all taxes to be raised in the State “ shall be as nearly equal as may be, and all property on which taxes are to be.levied shall have a cash valuation and be equalized and uniform throughout the State.” Another section in the same article required that

On the twenty-third of June, 1860, there was a foreclosure of two mortgages, (the principal one having been executed July 31st, 1858, and a supplementary one executed November 27th, 1856), which the Minnesota and Pacific Railroad Company, under the authority of an act of the legislature, had given to secure moneys borrowed by it as well as certain bonds it had issued. Those mortgages covered the company’s line and all its property and franchises. Their validity is not questioned in this case. The State, being the .highest and best bidder at the foreclosure sale, became the purchaser on the twenty-third of June, 1860, and by that purchase, the Supreme Court'of Minnesota has said, “the State became vested with all the railroad properties, and, no redemption being made, the company became wholly divested of its rights.”

Subsequently, on March 8th, 1861, the Legislature passed an act entitled “An act to facilitate the construction of the Minnesota and Pacific Railroad,” which provided “that the road, lands, property, rights, franchises, privileges and’immunities belonging or pertaining to the Minnesota and Pacific Railroad Company, prior to the. sale and purchase thereof by the Governor on the 23d day of June, 1860, on behalf of the State, and now claimed' or held by the State, and all bonds and securities of the said company held by the State, shall be and are hereby released, discharged and restored to the said company free of all liens Or claims thereon held by or

Thereafter, by an act of March 10th, 1862, the Legislature, with’a view of.facilitating the construction of the Minnesota and Pacific Railroad and of amending and continuing the act of incorporation relating thereto, granted to certain named parties under the corporate name of the St. Paul and Pacific Railroad Company “ all the rights, privileges, property, franchises, property'and interests” granted by the Territory of Minnesota to'the Minnesota and Pacific Railroad Company by the above act of May 22d, 1857, “with all the immunities, rights, property, benefits and privileges which the said Minnesota and Pacific Railroad Company had, or might, or could have by reason of the passage of said act, free and clear of all liens thereon, and free from all liens and claims of- the State of Minnesota against the same, except such as are retained by the provisions of this act.” Special Laws, Minn., 1862, c. 20.

We take from the opinion of the Supreme Court of the State this additional statement of facts, 106 Minnesota, 303, 319: “By Chapter 3, p. 174, Sp. Lawrs 1864, the St. Paul and Pacific Company was authorized to issue one or more classes of preferred stock and to enter into agreements or contracts with the holders thereof for the administration of the portion of the road to which the stock might pertain, and for the independent organization by such holders to enable them separately or in conjunction with the general directors of the road to exercise supervision and control of their separate portion of the road. Under this act preferred stock was duly issued and

“Between 1862 and 1871, both these companies separately executed trust deeds and mortgages covering the main line of the road and all its branches according to the ownership of the same by the separate companies, thereby conveying to the mortgagees or trustees all property, rights, privileges, franchises, and immunities held, owned, or possessed by either eom-j >any. Both' companies made default in the payment of the indebtedness secured by these instruments and they were duly

In 1871 the provisions of the state constitution in relation to the taxation of railroad property were extended by an amendment. That amendment was as follows: “Art. 4, sec. 32 (a). Any law providing for the repeal or amendment of any law or laws heretofore, or hereafter enacted, which provides that any railroad company now existing in this State, or operating its roads therein, or which may be hereafter organized, shall, in lieu of all other taxes and assessments upon their real estate, roads, rolling stock, and other personal property, at and during the time and periods therein specified, pay into the treasury of this State a certain percentage therein mentioned of the gross earnings of such railroad companies now existing or hereafter organized, shall, before the same

After the adoption of that amendment the Legislature passed the above act of 1903, increasing the tax to be paid for 1905 and annually thereafter on the gross earnings of railroads operated within the State to four per cent. That act was submitted to a vote of the electors and was sustained by the requisite majority.

As already stated, the railway company insists that the territorial act of May 22d, 1857, incorporating the Minnesota and Pacific Railroad Company, constituted a valid and irre-pealable contract with that company of which its successors in interest could' avail themselves and that its obligation could not be subsequently impaired by any legislative enactment, or by any provision of the state constitution adopted in 1858 after the act of 1857 was passed or as amended in 1871.

We have seen that the (old) Minnesota and Pacific Railroad Company was required, by the territorial act of May 22d,. 1857, “in consideration of the grants, privileges and franchises ” conferred upon it, to pay annually into the treasury of the Territory or future State three per centum of its gross earnings for the preceding year, in lieu of all taxes and assessments whatever, and that, “in consideration of such annual payments,” the company should be forever exempt from all assessments and taxes whatever, territorial, state or municipal, upon all its stock, by whomsoever held, and upon all its franchises or estate, real, personal or mixed, and that the land granted by Congress and conveyed to the company under the authority of the State should be exempt from all taxation until sold and conveyed by it.

The Supreme Court -of the State expressed doubt whether

The state court recognized the; doctrine as firmly established that a legislature1, unless restrained by state constitutional provisions, may contract to limit its power of taxation. But it held that, as taxation was essential to the existence and operations of government, an exemption from taxes cannot be presumed from doubtful language but must be expressed’ in words so clear and explicit as to leave no reasonable doubt that the exemption was intended to be given. And such is the settled rule announced by this court in cases familiar to counsel and too numerous to be cited. Passing without direct decision the question whether the act of 1857 constituted, in itself, an irrepealable contract as between the Territory and the (old) Minnesota and Pacific Railroad Company, the Supreme Court of Minnesota considered the question whether the contract was personal to that particular company, or. “ did it become attached as an.appurtenant to .the charter, rights, franchises, and privileges of the company.and pass down the line to the defendant.” The first clause of that question was answered by the court in the affirmative: the latter in the

But the state court said, and correctly, that there was another and stronger reason why it should be adjudged that an irrevocable contract did not and could not pass to the companies that claimed to have succeeded to the rights of ■the Minnesota and Pacific Railroad Company. That reason is suggested by the facts and circumstances now to be stated by us.

The rights, franchises, privileges or immunities of every kind covered by the above territorial act of 1857 were wholly lost to the old Minnesota and Pacific Railroad Company when the State, by its purchase of June 23d, 1860, at the foreclosure sale, became completely reinvested with them. Those rights, franchises, privileges and immunities were swept away from that company by that sale. Now when that purchase was made the Territory had become a State, with a constitution expressly requiring the equal and uniform taxation of all real and personal property in the-State upon a cash basis and authorized the exemption from taxation of certain specified kinds of property, devoted to public and charitable uses; but, as we' have seen, railroad property toas not included among the properties that could be so exempted. It is, therefore, to be taken that the Constitution of the State after it went into operation in 1858, required all railroads to be taxed by an equal and uniform rule and on a cash basis. The fetate having, by its purchase, become reinvested, in 1860, with all the rights, franchises and privileges granted to the Minnesota and Pacific Railroad in 1857 could, speaking generally, have disposed of such interests at will, but, clearly, it could not have disposed 'of the interests acquired by its purchase, in any manner that was inconsistent with, or which would have rendered nuga-'

Apart from the decision of the Supreme Court of Minnesota in this case the views just expressed are abundantly supported

In Trask v, Maguire, 18 Wall. 401 , 404, 409, it appeared that a railroad company was incorporated with an exemption from state and county taxes. The corporation obtained a loan from the State. The act under which the loan was made and the bonds given to secure it, provided that the acceptance of such bonds should be a mortgage of the road and every part thereof for the benefit of the State. Subsequently, the State adopted a new constitution, which declared ihat no property, real or personal, should be exempt from taxation, except such as was used exclusively for public schools or belonged to the United States, and also forbade the Legislature to pass any special laws exempting the property of any named person or corporation from taxation. The Legislature passed an act under which proceedings were instituted against defaulting railroad companies to foreclose the State’s lien. Pending those proceedings, another act was passed, declaring that any corporation,- purchasing at such a foreclosure sale, should have the same power, franchises, rights and privileges and be subject to the samé liabilities and restrictions as the corporation whose property and franchises were to be sold. A sale was had and the State became the purchaser of the defaulting railroad and its appurtenances. It was then sold to a private person, who, with his associates, organized a new corporation with the same name as the old one. The question was whether the last corporation was entitled to the immunity from taxation granted to the original company, This court, speaking by Mr. Justice Field, said: “When the State became the purchaser the immunity ceased; the property stood in its hands precisely the same as any other unincumbered property of the State, exempt from taxation, not by virtue of any previous

The Trask case was -cited with approval in Morgan v. Louisiana, 93 U. S. 217 , 224, and Louisiana & N. R. R. Co. v. Palmes, 109 U. S. 244 , 254.

In the latter case it appeared that at a particular date the Legislature of Florida passed an act that was valid under the existing state constitution, which exempted from taxation the capital stock of railroad companies accépting its provi

In Memphis Railroad Co. v.. Commissioners, 112 U. S. 609 , 623, which was a case in which a railroad claimed an exemp

A case in point is Keokuk & Western Railroad Company v. Missouri, 152 U. S. 301 , 312. Under the authority of a legislative enactment, passed in 1869, a Missouri corporation was consolidated in 1870 with an Iowa corporation, created in

In Yazoo & Miss. Valley Ry. Co. v. Adams, 180 U. S. 1 , 23, which, related to an exemption from taxation claimed by a "company consolidated in 1892 by the union of companies organized in 1882, and which consolidation was held to create a new corporation, this court said: “But it is scarcely necessary

In Rochester Ry. Co. v. Rochester, 205 U. S. 236 , 254, 255, it was held, in respect to a legislative enactment assuming to transfer to a particular corporation an exemption granted to. a former corporation, the court, after a full reference to the adjudged cases, held: “No corporation can receive by transfer from another an exemption from taxation or governmental regulation which is inconsistent with its own charter or with the constitution or laws of the State then applicable, and this is true, even though, under legislative authority, the exemption is transferred by words which clearly include it;” that “those who seek and obtain the benefit of a charter of incorporation must take the benefit under the conditions and with the burdens prescribed by the laws then in force, whether in the constitution, in general laws or in the charter itself.”

The recent case of Yazoo & Miss. Valley R. R. Co. v. Vicksburg, 209 U. S. 358 , 364, 365, was the case of a consolidated corporation claiming the benefit of an exemption legally given to its predecessor before the adoption of a- state constitution prohibiting the exemption of corporate property

In view of the adjudged cases it would seem clear that after the Minnesota constitution went into operation in 1858 the Legislature could not, by legislation or otherwise, enter into a binding contract for a complete or partial exemption, either in favor of the corporation originally created by the Territory in 1857, or in favor of a new railroad corporation or of one created by the cohsolidation of old corporations. It must have been controlled by the fundamental law of the State. So the highest court of Minnesota has held in this case. And so we hold. It follows that legislative acts, relating to the property and railroads here in question, and passed after the state constitution took effect, which proceeded, in the matter of taxation on grounds of taxation different from those established by that instrument, were ineffectual.

We have not deemed it necessary in this discussion to refer in detail to the numerous cases in the Supreme Court of the ■State which have been cited by counsel. This course has been pursued for two reasons: 1. The state court, in its opinion in the preserit- case, said: “That the question here presented, viz., whether.the provisions of the Minnesota and Pacific Company’s charter on the subject of the earnings tax constituted an irrevocable contract was not involved in any prior litigation be

In the present case it is gratifying that there is a concurrence of views between this court and the state court upon the question whether the plaintiff in error, the Great Northern Railway Company, described by the state court as the “successor in interest of all the prior companies,” was entitled, as upon contract, to claim the- benefit of the three per centum gross earnings tax provision in the act of 1857. - And this seems to be a determination of the only question of a Federal nature arising on this writ of error and which should be now decided; for, if the contention of the ’ railroad company as to that question be overruled — as both this court and the state court agree that it must be — it would only remain to inquire whether the act of 1903, prescribing a four per centum gross earnings tax, was, authorized by the state constitution, as amended in 1871. The Supreme Court of the State adjudges, that it was so authorized, but that is a state or local question upon which this court need not express its opinion. It is true that one of the assignments of error before the state court was that the act of 1903 was inconsistent with the due process clause of .the Federal Constitution. But the suggestion was-not much pressed.in argument; and it cannot, under the evi

One other matter deserves notice. Some reference was made at the argument to Stearns v. Minnesota, 179 U. S. 223 , 230, 240, 253. There is nothing in the judgment in that case which at all conflicts with or controls the decision in this case. That case involved only the question whether certain lands owned by the defendant railroad companies, but which were not used in the operation of their roads in the State, were subject to taxation according to their value or were exempted from ordinary rule of taxation by virtue of statutes, like that of 1857, passed after the state constitution took effect. A similar question was adyerted to in the present case and the state Supreme Court, referring to the charter of the Minnesota and Pacific Railroad Company, said; “Two distinct provisions on the subject of taxation were embodied therein, the first providing for a gross earnings-tax in lieu of all other taxes and assessments, and second, an exemption of the land granted until sold or contracted to be sold by the company.” Observing that the exemption in question did not pass as an appurtenant to the railroad properties in question and was not included within the expression ‘rights, privileges, and immunities’- — citing Gulf &c. Ry. Co. v. Hewes, 183 U. S. 66 ;

The State sues only for the balance due to it on account of taxes imposed by the act of 1903 on the gross earnings of property used and operated within its limits for railroad purposes. ' x , • ■

Perceiving no error in the record as to the Federal question involved, the judgment must be affirmed.

It is so ordered.