US SUPREME COURT DECISIONS

1. A state has no power to tax the interest of bonds (secured in this case by mortgage) given by a railroad corporation, and binding every part of the road, when the road lies partially in another state -- one road incorporated by the two states.

2. The Internal Revenue Act of June 30, 1864, does not lay a tax on the income of a nonresident alien, arising from bonds held by him of a railroad company incorporated by states of the Union and situated in them.

The state of Pennsylvania, by certain acts, as expounded by the supreme court of that state, [Footnote 1] taxed "money owing by solvent debtors, whether by promissory note, penal or single bill, bond or judgment," imposing three mills on the dollar of the principal, payable out of the interest. And where the money was due by a railroad corporation, they made it the duty of the president, or other officer of the company who paid the coupons or interest to the holder, to retain the amount of the tax.

The United States, also, by certain acts, laid what is known as the income tax.

The first tax of this kind was imposed by the act of Congress passed August 5, 1861. [Footnote 2] The 49th section of that act directed that there should be levied and collected upon chanrobles.com-red

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the annual income of every person residing in the United States, from whatever source derived, a tax of 3 percent on the amount of the excess of such income over $800; and upon the income, rents, or dividends, accruing upon property &c., owned in the United States by any citizen residing abroad, a tax of 5 percent

The next act was passed July 1, 1862, [Footnote 3] and the 90th section of it directed that there should be levied and collected a tax of 3 percent on the annual income of every person residing in the United States, over $600 and under $10,000, and when exceeding $10,000, a tax of 5 percent; and upon the income of citizens residing abroad, a tax of 5 percent. The next section provided that the portion of income derived from interest on bonds or other evidences of indebtedness of any railroad company, which should have been assessed and paid by said companies, should be deducted from that prescribed in the previous section; and the 81st section directed that this tax on the bonds and evidences of indebtedness should be paid by the companies, and that they might deduct the same on the payment of interest to the bondholders.

The next act -- one more particularly bearing on one part of this case -- was that of June 30, 1864. [Footnote 4] This act directed the levy and collection of a tax of 5 percent upon the excess of income of every person residing in the United States, or of any citizen residing abroad, over $600 and under $5,000; 7 1/2 percent over $5,000 and not exceeding $10,000; and a tax of 10 percent over $10,000. Subsequent sections [Footnote 5] provided for the deduction from all payments on account of interest arising out of bonds of railroad companies, as in the act of July 1, 1862, and enacted that the payment by the company of the said duty so deducted from the interest, should discharge the company from that amount of interest on the bonds "so held by any person or persons whatever," except where the companies might have contracted otherwise. chanrobles.com-red

Page 74 U. S. 264

In this state of the statutes of Pennsylvania and of the United States, Jackson, an alien resident in Ireland, brought suit in the court below against the Northern Central Railway Company, a company incorporated by the State of Maryland, to recover the amount of certain coupons attached to bonds issued by the company and held by him. The form of them was as follows:

"The Northern Central Railway Company will pay to the bearer, January 1, 1865, thirty dollars, being a half year's interest on bond No. 1827, for one thousand dollars."

"J. S. LIEB, Treasurer"

The plaintiff proved a demand of payment, at the company's office in Baltimore (where the coupons were payable), and that the company offered to pay the amount of them, deducting a tax of 5 percent per annum to the United States, under the acts of Congress; and a further tax of three mills per dollar of the principal of each bond asserted to be due to the state of Pennsylvania, but would not pay more. Offer of such payment was refused. He also gave in evidence charters incorporating the Northern Central Railway Company by the state of Maryland, and by that of Pennsylvania, and rested.

The defendant then gave in evidence the articles of consolidation of four railroad companies, one of which had been incorporated by the State of Maryland, and the three others by the State of Pennsylvania, embracing a line of road extending from Baltimore, in Maryland, to Sunbury, in Pennsylvania, about a third or fourth of the whole road only being in the former state.

This consolidation was entered into by the respective companies in pursuance of acts of the legislatures of the two states; and by means of them the four companies were merged in one, called the Northern Central Railway Company, and was incorporated by the same name by the legislature of each state. The stockholders of the old companies received from the new twice the number of shares held by them in the old, upon the receipt of which the old shares chanrobles.com-red

Page 74 U. S. 265

were cancelled, after this company was thus organized and the directors elected. On the 20th of December, 1855, the company executed a mortgage to a board of trustees upon the entire line of its road from Baltimore to Sunbury, including all its property and estate situate within both the states, which mortgage was given to secure the payment of $2,500,000 in bonds, to be issued in amounts therein specified. The bonds were issued by the company accordingly. And it was upon the coupons of a portion of them in the hands of the plaintiff that this suit was brought.

The court below charged, that if the plaintiff, when he purchased the bonds, was a British subject resident in Ireland, and now resided there, he was entitled to recover the amount of the coupons without deductions. It was the correctness of this charge which, after verdict and judgment in accordance with it, was the subject of the question here. chanrobles.com-red

Page 74 U. S. 266