Kansas City, Memphis & Birmingham Railroad v. Stiles

delivered the opinion of the court.

The Kansas City, Memphis & Birmingham-Railroad Company, plaintiff in error herein (hereinafter called the Railroad Company), filed its complaint,in the City Court of Birmingham, Alabama, against James P. Stiles, Probate Judge of Jefferson County, Alabama, whereby it sought to recover sundry sums of money, aggregating $2,434.40, paid to Stiles by virtue of the provisions of § 12 of an act of the Alabama Legislature, entitled “An Act to further provide for the revenues of the State of Alabama.” By this act it is provided that corporations organized under

The Railroad Company is a consolidated corporation, existing by virtue of the consolidation, under concurrent acts of the States of Tennessee, Mississippi, and Alabama, of three independent and distinct railroad corporations created by and formerly operating solely within the respective States named. As regards this consolidation, plaintiff avers—

“that it is a consolidated corporation, made up and consisting of the consolidation of three distinct and separate corporations, under the following circumstances: A railroad corporation organized and existing solely under the laws of the State of Tennessee, acquired, constructed, owned and operated all of that part of plaintiff's line and railway situated within the State of Tennessee; a separate and distinct railroad corporation, organized and existing

solely under the laws of the State of Mississippi, acquired, constructed, owned and operated all that part of plaintiff’s line and railway situated within the' State of Mississippi; and a separate and distinct railroad corporation, organized and existing solely under the laws of the State of Alabama, acquired, constructed, owned and operated all that part of plaintiff’s line and railway situated within the State of Alabama. Plaintiff avers that said separate railroad corporations, being desirous of operating said distinct and separately owned properties as a single system, for the ‘conduct of the business of a common carrier in interstate commerce, as well as the continuation of intrastate commerce within said several States, before the period mentioned or involved herein, and by virtue of concurrent or contemporaneous laws or special acts of said several States, including the States of Tennessee and Mississippi, as well as the State of Alabama, consolidated themselves into a corporation known as Kansas City, Memphis & Birmingham Railroad Company, the plaintiff herein, and, in pursuance of the laws of each of said States, duly filed therein agreements and instruments consolidating said companies, and complying with the laws of each of said States authorizing the same. And plaintiff avers that by said consolidation the shares of stock of said several companies were sin-rendered by the holders thereof and in lieu thereof there were issued the shares of stock of said consolidated company, the plaintiff herein — being the capital stock of plaintiff issued and outstanding as aforesaid. Plaintiff further avers that the capital stock on wrhich said franchise tax was estimated and exacted as aforesaid was and is the capital stock issued and outstanding under the circumstances aforesaid, although less than one-half thereof was issued in lieu of the stock of or represents the property or assets or business of the Alabama corporation which became a constituent of the plaintiff by consolidation as aforesaid.”

The Railroad Company averred, if it was required to pay the franchise tax in question upon its entire capital, that it would be paying another and different rate of taxation, or another and different amount of franchise tax, from that which is required of like corporations doing business' in. Alabama, contrary to the provision of the Fourteenth Amendment to the Federal Constitution that no State shall deny to any person within its jurisdiction the equal protection of its laws; that the enforcement of the act by subjecting to its operation the Railroad Company’s property in other States'constituted a taking of its property without due process of law; and' that said act imposed a direct burden upon interstate commerce in requiring it to pay, in addition to all other fees and taxes provided by law, a tax upon its capital stock for the right and privilege of transacting and carrying on its interstate business as a common carrier, in violation of clause three of § 8, Article I of the Federal Constitution.

A demurrer was filed to this complaint, which demurrer was sustained. Upon appeal to the Supreme Court of Alabama, this judgment was affirmed, 182 Alabama, 138, and a writ of error brings the action to-this court.

The consolidated Company was formed, so far as the State of Alabama is concerned, under § 1583 of the Alabama Code of 1887, which provides in substance, as follows : That whenever the lines of any two or more railroads chartered under the laws of that or any other State, which, when completed, may admit the passage- of . burden or

It will be noted that this statute, which is a grant of corporate rights from the State of Alabama to the consolidated company, contains the express' provision that such company shall in all respects be subject to the laws of the State of Alabama as a domestic corporation. Applying §12 of the statute, the Alabama Supreme Court has held that the Railroad Company is a corporation organized under the laws of that State, and as such subject to the franchise tax imposed by that section of the statute.

. The federal questions (which are alone within the jurisdiction of this court) are to be-determined upon this construction of the state statute by its highest court.

“Nor is the question at issue affected by the fact that some-of the constituent elements which entered into the consolidated company were corporations owning and operating property in-another State. The power of corporations of other States to become corporations, or to constitute themselves a consolidated corporation under the Ohio statutes, and thus avail of the rights given thereby, is as completely dependent on the will of that State as is the power of its individual citizens to become a corporate, body; or the power of corporations of its own creation to consolidate under its laws. Bank of Augusta v. Earle, 13 Pet. 519 ; Lafayette Insurance Co. v. French, 18 How. 404 ; Paul v. Virginia, 8 Wall. 168 , 181.”

This doctrine has been affirmed since. Louisville & Nashville Railroad Co. v. Kentucky, 161 U. S. 677 , 703, and previous cases in this court therein cited; Interstate Railway Co. v. Massachusetts, 207 U. S. 79 , 84.

The railroads comprising this consolidation entered upon it with the Alabama statute before them and under its conditions, and, subject to constitutional objections as to its enforcement, they cannot be heard to complain of the terms under which they voluntarily invoked and received the grant of corporate existence from the State of Alabama.

The specific objections based upon the Federal Constitution remain to be noticed. It is said that the Company is deprived of the equal protection of the laws, this contention being based upon the fact that domestic corporations, operating only within the State, are required to pay thé tax upon property within the State, and foreign cor

That case is readily distinguishable from the one now under consideration. Here the State imposes the franchise tax equally upon all of its corporations, consolidated and otherwise. The fact that a wholly intrastate corporation may own no property outside of the State while the consolidated Company does presents no case of arbitrary classification. In both cases, the franchise tax is based upon a percentage of the capital stock. There is no denial of equal protection of the laws because a State may impose a different rate of taxation upon a foreign corporation for the privilege of doing business within the State than it applies to its own corporations upon the franchise which the State grants in creating them. •

It is urged that this tax is void because it undertakes to tax property beyond the jurisdiction of the State, and imposes a direct burden upon interstate commerce. Objections of this character were so recently discussed, and the previous cases in this court considered, in Kansas City &c. Railway Co. v. Kansas, 240 U. S. 227 , that it would be superfluous to undertake extended discussion of the subject now. In that caée, after a full review of the previous decisions in this court,, it was held that each case

The tax is not of the character condemned in Western Union Telegraph Co. v. Kansas, 216 U. S. 1 , and kindred cases. In the latter case, a tax of large amount was imposed upon a foreign corporation engaged in interstate commerce for the privilege of doing local business within the State. Under the circumstances therein disclosed and the character of the business involved, this court held that the statute was in substance an attempt to tax the right to do interstate business, and to tax property beyond the confines of the State, and was therefore void. Here,. a franchise tax is levied upon a corporation consolidated under the laws of the State by its own acceptance of that law in incorporating under it.

So of the objection that the tax imposes a burden upon interstate commerce, the test of validity recognized in previous cases and repeated in Kansas City &c. Railway Co. v. Kansas, supra, is the nature and character of the tax imposed. The State may not regulate interstate commerce or impose burdens upon it; but it is authorized to levy a tax within its authority, measured by capital in part used in-the conduct of such commerce, where the circumstances are>such as to indicate no purpose or necessary effect in the tax imposed to burden commerce of that character. In the present case, the franchise tax is imposed upon the capital stock of a corporation consoli

We find nothing in the amount or character of the tax. which makes it a burden upon interstate commerce, and so beyond the authority of the State to impose. It results that the judgment of the Supreme Court of Alabama must be

Affirmed.