U.S. Supreme Court
Mobile & Ohio R. Co. v. Tennessee, 153 U.S. 486 (1894)
Mobile and Ohio Railroad Company v. Tennessee
Argued April 24, 1894
Decided May 14, 1894
153 U.S. 486
This Court has jurisdiction to revise the judgment of the Supreme Court of Tennessee in this case deciding that the provision in the eleventh section of the Tennessee charter of the Mobile and Ohio Railroad Company that no tax shall ever be laid on said road or its fixtures which shall reduce the dividends below eight percent does not forbid the assessment and collection of taxes under the acts of the Legislature of Tennessee referred to in the opinion of that court; that " the said eight percent clause is invalid, . . . null and void," and that the said legislation "does not violate or impair the obligation of any contract with the Mobile and Ohio Company."
In 1848, the Legislature of Tennessee had, under the Constitution of the state of 1834, then in force, power to grant to the Mobile and Ohio Railroad Company the exemption from taxation which was granted to it by the eleventh section of the Act of January 28, 1848, incorporating it in Tennessee, in the following terms:
"That the capital stock of said company shall be forever exempt from taxation, and the road, with all its fixtures
and appurtenances, including workshops, warehouses, and vehicles of transportation, shall be exempt from taxation for the period of twenty-five years from the completion of the road, and no tax shall ever be laid on said road or its fixtures which will reduce the dividends below eight percent."
Under the provisions of that section, the capital stock of the company is forever exempt from taxation during the existence of the corporation; the road, fixtures, etc., were exempt for twenty-five years after the completion of the road, which term has now expired, and now they can be taxed only when the net earnings of the road are more than sufficient to pay to the stockholders, on the present basis of its capital, a dividend of eight percent a year.
Dividends can rightfully be paid only out of profits; profits are measured by the amount of net earnings, and net earnings are what remain after maintaining the property and paying the interest upon its debts.
In sustaining the validity of the exemption, the Court must not be understood as holding that the railroad company has the right, in its discretion, to issue hereafter additional capital stock or to increase its bonded indebtedness, even for legitimate purposes, and have the same taken into consideration upon the question of its liability for taxation under the eight percent dividend clause of its charter.
The case is stated in the opinion.