US SUPREME COURT DECISIONS

Presumptively all property within the territorial limits of a state is subject to its taxing power, and the burden of proof is on one claiming that any particular property is by contract or otherwise beyond the reach thereof; and, growing out of the conditions of modern business, a large proportion of valuable property is now to be found in intangible things such as franchises, which are, like other property, subject to taxation.

In grants from the public, nothing passes by implication, and, in the absence of direct stipulations relinquishing the right of taxation, a provision, in grants of privileges or franchises, that the grantee shall pay something therefor is not to be construed as an equivalent or substitute for taxes amounting to a contract of exemption from future taxation within the impairment clause of the federal Constitution.

The omission of the legislature for one year, or for a series of years, to tax certain classes of property, otherwise taxable, does not destroy the power of the state to subject them to taxation when it sees fit to do so.

Nothing in the federal Constitution prevents a state from granting exemptions from taxation, and the reduction, upon equitable considerations, of payments made in the nature of taxes by certain corporations on their franchises from the amount to which they are subjected by a chanrobles.com-red

Page 199 U. S. 2

general law does not entitle every franchise owner to a similar reduction and render the tax invalid because it denies the holders of some franchises the equal protection of the law or derives them of their property without due process of law.

The difference between surface street railroads and subsurface street railroads is sufficient to justify classification in the mode and extent of taxation, and a tax otherwise legal on surface street railroad franchises does not deprive the owners thereof of the equal protection of the laws because subsurface street railroad franchises are not subjected to a similar tax. The tax law of New York as amended May 26, 1899, c. 712, p. 1589, imposing taxes on certain public franchises is not repugnant, so far as the franchises in this case are involved, to the equal protection, due process, or impairment of obligation clauses of the federal Constitution and of the Fourteenth Amendment thereto.

On May 26, 1899, the Legislature of New York passed an act amending the tax law of the state. Laws of New York, 1899, c. 712, p. 1589. The first section reads:

"Section 1. Subdivision three of section two of the tax law is hereby amended to read as follows:"

"3. The terms 'land,' 'real estate,' and 'real property,' as used in this chapter, include the land itself above and under water, all buildings and other articles and structures, substructures and superstructures, erected upon, under, or above, or affixed to the same; all wharves and piers, including the value of the right to collect wharfage, cranage, or dockage thereon; all bridges, all telegraph lines, wires, poles, and appurtenances, and supports and enclosures for electrical conductors and other appurtenances upon, above, and under ground; all surface, underground, or elevated railroads, including the value of all franchises, rights, or permission to construct, maintain, or operate the same in, under, above, on, or through streets, highways, or public places; all railroad structures, substructures, and superstructures, tracks and the iron thereon; branches, switches, and other fixtures permitted or authorized to be made, laid, or placed in, upon, above, or under any public or private road, street, or ground; all mains, pipes, and tanks laid or placed in, upon, above, or under any public or private street or place for conducting steam, heat, water, oil, electricity,

Page 199 U. S. 3

or any property, substance, or product capable of transportation or conveyance therein or that is protected thereby, including the value of all franchises, rights, authority, or permission to construct, maintain, or operate, in, under, above, upon, or through any streets, highways, or public places, any mains, pipes, tanks, conduits, or wires, with their appurtenances, for conducting, water, steam, heat, light, power, gas, oil, or other, substance, or electricity for telegraphic, telephonic, or other purposes; all trees and underwood growing upon land, and all mines, minerals, quarries, and fossils in and under the same, except mines belonging to the state. A franchise, right, authority, or permission specified in this subdivision shall, for the purpose of taxation, be known as a 'special franchise.' A special franchise shall be deemed to include the value of the tangible property of a person, copartnership, association, or corporation situated in, upon, under, or above any street, highway, public place, or public waters in connection with the special franchise. The tangible property so included shall be taxed as a part of the special franchise. No property of a municipal corporation shall be subject to a special franchise tax."

The portions in italics are the new matter introduced by the amendment. Other sections were added to tax law, of which section 46 is as follows:

"SEC 46. Deduction from special franchise tax for local purposes. -- If, when the tax assessed on any special franchise is due and payable under the provisions of law applicable to the city, town, or village in which the tangible property is located, it shall appear that the person, copartnership, association, or corporation affected has paid to such city, town, or village for its exclusive use within the next preceding year, under any agreement therefor, or under any statute requiring the same, 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 corporation, which payment was in the nature of a tax, all amounts so paid for

Page 199 U. S. 4

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. The chamberlain or treasurer of a city, the treasurer of a village, the supervisor of a town, or other officer to whom any sum is paid for which a person, copartnership, association, or corporation is entitled to credit as provided in this section, shall, not less than five nor more than twenty days before a tax on a special franchise is payable, make and deliver to the collector or receiver of taxes or other officer authorized to receive taxes for such city, town, or village, his certificate showing the several amounts which have been paid during the year ending on the day of the date of the certificate. On the receipt of such certificate, the collector, receiver, or other officer shall immediately credit on the tax roll to the person, copartnership, association, or corporation affected the amount stated in such certificate, on any tax levied against any person, copartnership, association, or corporation on an assessment of a special franchise for city, town, or village purposes only, but no credit shall be given on account of such payment or certificate in any other year, nor for a greater sum than the amount of the special franchise tax for city, town, or village purposes, for the current year, and he shall collect and receive the balance, if any, of such tax, as required by law."

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 chanrobles.com-red

Page 199 U. S. 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, 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:

"I. Error in declining to hold that the Act of the Legislature of the State of New York, approved May 26th, 1899 (c. 712, Laws 1899), entitled 'An Act to Amend the Tax Law in Relation to the Taxation of Public Franchises as Real Property,' insofar as it authorizes the assessment imposed by the state board of tax commissioners on March 20, 1900, upon the franchises of the [plaintiff in error] relator above named, deprives said relator of its property without due process of law, in contravention of the Fourteenth Amendment of the Constitution of the United States."

"II. Error in declining to hold that said legislative enactment, insofar as it authorizes the said assessment denies to said relator the equal protection of the laws, in contravention of the Fourteenth Amendment to the Constitution of the United States."

"III. Error in declining to hold that said legislative enactment, insofar as it authorizes the said assessment, impairs the obligations of contracts, in contravention of Section 10, Article I, of the Constitution of the United States."

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, Section 18:

"The legislature shall not pass a private or local bill in any of the following cases: . . ."

"Granting to any corporation, association, or individual the right to lay down railroad tracks. . . ."

"But no law shall authorize the construction or operation

Page 199 U. S. 6

of a street railroad except upon the condition that the consent of the owners of one-half in value of the property bounded on, and the consent also of the local authorities having the control of, that portion of a street or highway upon which it is proposed to construct or operate such railroad, be first obtained, or, in case the consent of such property owners cannot be obtained, the general term of the supreme court, in the district in which it is proposed to be constructed, may, upon application, appoint three commissioners, who shall determine, after a hearing of all parties interested, whether such railroad ought to be constructed or operated, and their determination, confirmed by the court, may be taken in lieu of the consent of the property owners."

In 1884, an act was passed, Laws 1884, c. 252, p. 309, giving to the local authorities power to grant franchised for street railroads. This act provided:

"SEC. 7. The local authorities of any incorporated city or village to whom application, under the provisions of this act, may be made for consent to the construction, maintenance, use, operation, or extension of a street surface railroad upon any street, road, avenue, or highway, may at their option, provide for the sale of and sell at public auction the franchise, subject to all the provisions of this act, to so construct, maintain, use, operate, or extend such street surface railway. . . ."

"* * * *"

"SEC. 8. Every corporation incorporated under, or constructing or operating a railroad constructed or extended under, the provisions of this act, within the cities of the state having a population of two hundred and fifty thousand or more, as aforesaid, shall, for and during the first five years after the commencement of the operation of any portion of its railroad, annually, on the first day of November, pay into the treasury of said respective cities in which its road is located to the credit of the sinking fund thereof, three percent of its gross receipts for and during the year ending the next preceding thirtieth day of September, and after the expiration of

Page 199 U. S. 7

said five years make a like annual payment into the treasury of said respective cities for the credit of said sinking funds, of five percent instead of three percent of said gross receipts; provided, however, that every corporation now existing and operating a street-surface railroad which shall extend its tracks or construct branches therefrom, and operate such extensions or branches under the provisions of this act, or the corporation operating such branches or extensions, shall pay such percentages as aforesaid only upon such portions of its gross receipts as shall bear the same proportion to the whole value thereof as the length of such extension and branches shall bear to the entire length of its tracks. . . ."

"SEC. 4. . . . The consent of the local authorities shall, in all cases, be applied for in writing, and when granted shall be upon the express condition that the provisions of this act pertinent thereto shall be complied with, and shall be filed in the office of the county clerk of the county in which said railroad is located."

In 1886, an act amending a prior act of the same year was passed, Laws 1886, c. 642, p. 919, which contained the following terms:

"SEC. 1. The local authorities of any incorporated city or village, to whom application may be made for consent to the construction, maintenance, use, operation, or extension of a street railroad, or a railroad or railway for the transportation of passengers, mails, or freight, over, upon, under, or through any of the streets, roads, avenues, parks, or public places in such city or village, must provide, as a condition of the said consent to the use of said street, road, avenue, park, or public place, that the right, franchise, and privilege of using the said street, road, avenue, park, or public place shall be sold at public auction to the bidder who will agree to give the largest percentage per annum of the gross receipts of said company or corporation, with adequate security, as hereinafter provided, for the fulfillment of said agreement, and for the commencement and completion of such road according to the

Page 199 U. S. 8

plan or plans, and on the route or routes, fixed for its construction, within the time or times hereinafter designated and prescribed therefor; but this agreement shall not release any such road from the percentages required to be paid by chapter two hundred fifty-two of the Laws of eighteen hundred eighty-four. The legislature expressly reserves the right to regulate and reduce the rate of fare on such railroad or railway."

"* * * *"

"And in the event of the failure or refusal of the party or corporation operating or using the railroad to be constructed as aforesaid, to pay the rental or percentage of gross earnings agreed upon, then, upon notice to the said party or corporation -- of not less than sixty days -- the said consent and right to operate such railroad may be declared forfeited, and the same may be resold to the highest bidder in the manner above provided."

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 c. 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 c. 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

Page 199 U. S. 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 c. 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 one percent 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 two to eight percent of the gross earnings. chanrobles.com-red

Page 199 U. S. 35