St. Louis Southwestern Railway Company v. Arkansas ex rel Norwood

The attorney general of Arkansas, proceeding under act No. 112, approved March 23, 1911, entitled, 'An Act for an Annual Franchise Tax on Corporations Doing Business in the State of Arkansas' (Acts of Arkansas, 1911, p. 67), brought this suit in one of the courts of the state to recover a tax levied against the St. Louis Southwestern Railway Company by the state tax commission under the provisions of that act for the year 1911, amounting to the sum of $6,798.26, besides a penalty and interest.

The act is one of three that were passed by the general assembly during the same year, designed for the purpose of obtaining revenue from corporations doing business in the state. The first of these is act No. 87, approved March 8 (Acts 1911, p. 48), which prescribes the fees to be paid by domestic corporations for the filing of their articles of incorporation, and by foreign corporations for the privilege of doing intrastate business in Arkansas. Its 8th section requires railroad and other transportation companies organized under the laws of the state to pay incorporation fees based upon the mileage of their lines; and, by § 9, 'All foreign railroad, street, interurban, or other transportation companies now doing intrastate business, or desiring to engage in intrastate business, or authorized to engage in intrastate business, shall, before being permitted to continue to do intrastate business, or authorized to engage in intrastate business, shall pay the same fees as are required of such domestic corporations.'

Act No. 112 provides for what are called 'annual franchise taxes' on corporations doing business in the state. The first three sections refer to domestic corporations doing business for profit. Sections 4 and 5 require each foreign corporation for profit doing business in the state, and owning or using a part or all of its capital or plant in the state, to make an annual return to the tax commission, showing, among other things, the total amount of its capital stock, the market value of the same, and the value of property owned and used by it, within and without the state, respectively. Section 6 provides that the commission, from the facts thus reported and any other facts bearing upon the question, shall determine 'the proportion of the authorized capital stock of the company represented by its property and business in this state,' and shall report the same to the auditor, who shall charge and certify to the treasurer for collection annually from such company, 'in addition to the initial fee otherwise provided by law, for the privilege of exercising its franchise in this state, 1/20 of 1 per cent each year thereafter upon the proportion of the outstanding capital stock of the corporation represented by property owned and used in business transacted in this state.' Section 12 requires the attorney general to collect the tax with an added penalty for delinquency in payment, by suit to be brought in the name of the state. By § 14 the tax and penalty are made a first lien upon all property of the corporation. By § 15, if a corporation 'organized under the laws of Arkansas or any foreign country authorized to do business in this state for profit' fails or neglects to make the report or pay the tax prescribed for thirty days after the expiration of the time limited by the act, and the default is wilful and intentional, an action may be brought by the attorney general or prosecuting attorney to forfeit and annul the charter of the corporation, and 'if the court is satisfied that such default is wilful and intentional it shall revoke and annul such charter.' By § 20, when any corporation shall have paid the franchise tax prescribed by the act, the tax commission, or the secretary of state if the commission be abolished, is required to issue to it a certificate authorizing it to do business in the state for the term of five years, upon condition that it pay annually the franchise tax prescribed by the act, and such certificate is made evidence in all the courts of the state of the right of the corporation to do business in the state during the term of the certificate. And, 'in case any corporation shall fail to pay the franchise tax prescribed by this act when it becomes due during the term of said certificate, the said tax commission shall cancel said certificate, and said corporation shall forfeit its right to do business in this state, in addition to the other penalties prescribed in this act.' By act No. 313, approved May 26, 1911, act No. 112 was amended with respect to the time of its taking effect, and in another particular not now pertinent.

On May 4, the legislature passed act No. 251, entitled, 'An Act to Provide the Manner of Assessing for Taxation the Property of Railroads, Express, Sleeping Car, Telegraph, Telephone, and Pipe Lines Companies.' (Acts of Arkansas 1911, p. 233.) This provides that the property of railroad corporations, and of the others named in the title, shall be assessed by the tax commission. Section 2 is as follows:

'Section 2. The franchise (other than the right to be a corporation) of all railroads, express, telegraph, and telephone companies, are declared to be property for the purpose of taxation, and the value of such franchises shall be considered by the assessing officers when assessing the property of such corporations. In valuing for assessment purposes the property of such corporations the Arkansas Tax Commission shall determine the total value of the entire property of the corporation, tangible and intangible.'

Section 9 requires railroad companies to file with the tax commission statements showing their physical property in the state. Section 10 requires that the statement shall show 'the aggregate value of the whole railroad, and there shall be taken into consideration in fixing said value the entire right-of-way as given by the charter of the company or statutes of the state, the franchises, privileges, and everything of any character whatever situated upon the right-of-way of the road, connected with or appertaining to it in any way which adds to its earning power or gives the railroad value as an entire going thing.'

The defendant, a Missouri corporation, owning and operating lines of railroad in the states of Missouri, Arkansas, and other states, over which it carries both intrastate and interstate commerce, made its report for the year 1911 in accordance with act No. 112, but under protest, reserving the right to contest the validity of the act. This report, among other things, showed that the total amount of authorized capital stock was $55,000,000 and the total amount of issued and outstanding capital stock was $36,249,750. The commission found the proportion of the outstanding capital stock represented by property owned and used by defendant in business transacted in the state of Arkanas for the year 1911 to be $13,596,520, on which the franchise tax amounted to $6,798.26.

The complaint filed in behalf of the state herein set forth the making of the report by defendant as mentioned, and the taking of the necessary proceedings to fix its responsibility under the provisions of act No. 112.

Defendant's answer, besides setting up its status as a railway corporation incorporated under the laws of Missouri owning and operating a railway line in Arkansas and several other states, and engaged as a common carrier in interstate business in those states, and also doing intrastate business in the state of Arkansas pursuant to its laws, averred that its property in that state was assessed for the purposes of general taxation for the year 1910 at the value of $9,155,965, and the tax levied thereon amounted to $191,713.95, which defendant paid; and that under act No. 251, approved May 4, 1911, the state tax commission assessed its property within the state for tax purposes for the latter year at the value of $11,260,240, upon which assessment taxes had been levied in the sum of $239,388.84, which defendant offered to pay (and has since paid), and averred that the tax sued on 'is a tax upon the privilege and right of this defendant to do both an interstate and intrastate business in the state of Arkansas, and is a tax upon the interstate business, property, and income of the defendant, and is a tax placed and imposed upon defendant for the privilege of engaging in interstate commerce, and an attempt to regulate interstate commerce, and a burden thereon; and that if said act is enforced defendant will be deprived of its right to engage in an interstate business in and through the state of Arkansas.' The answer also challenged the validity of act No. 112, as applied and attempted to be enforced against defendant, on the ground that it amounted to a taking of its property without due process of law and a denial of the equal protection of the laws.

The attorney general's demurrer to this answer was sustained, and, the defendant declining to plead further, judgment was entered for the tax and penalty sued for.

The supreme court of the state affirmed the judgment (106 Ark. 321, 152 S. W. 110), and the present writ of error was sued out.

Messrs. William T. Wooldridge, Frank G. Bridges, Edward A. Haid, and Samuel H. West for plaintiff in error.

Messrs. William H. Rector, Thomas E. Helm, Lewis Rhoton, De E. Bradshaw, and Mr. William L. Moose, Attorney General of Arkansas, for defendant in error.

Statement by Mr. Justice Pitney:

[Argument of Counsel from pages 357-360 intentionally omitted]

Mr. Justice Pitney, after making the foregoing statement, delivered the opinion of the court: