Union Tank Line v. Wright/Opinion of the Court
This cause requires us to consider the power of a state to lay and collect taxes upon instrumentalities of interstate commerce which move both within and without its jurisdiction.

Union Tank Line-plaintiff in error-an equipment company incorporated in New Jersey which has never carried on business or had an office in Georgia, owns 12,000 tank cars suitable for transporting oil over railroads and rents them to shippers at agreed rates, based on size and capacity. The roads over which they move also pay therefor stipulated compensation. Under definite contract certain of these cars were furnished to the Standard Oil Company of Kentucky and all of those which came into Georgia were being operated by the Oil Company under such agreement. They were not permanently within that state but passed 'in and out.' March 16, 1914, the Tank Line made the following tax return to the comptroller general for 1913:

Name of company................................. Union Tank Line

Value of real estate owned by
company in or out of Georgia................... None

Number of miles of railroad lines
in Georgia over which * * *
cars are run................................... 6976. 
Total value of * * * cars and
* * * other personal property
(in Georgia and elsewhere)..................... $10,518,333. 
Value franchise (in Georgia).................... No franchise

Total number of miles railroad
lines over which * * * cars
are run (in Georgia and
elsewhere)..................................... 251, 
Total value of property taxable
in Georgia..................................... $47,310. 
Union Tank Line Company had
an average of 57 tank cars in
Georgia during 1913, which at a
value of $830 per car equals................... $47,310.

Defendant in error expressly admitted that the average number of cars in Georgia during 1913 was 57, the value of each being $830-total $47,310; that the owner had paid into the state treasury as taxes the full amount required on such valuation and during that year had no other property in the state. Acting upon information contained in return above quoted, the comptroller general assessed the Tank Line's property for 1913 at $291,196, its franchise at $27,685, and demanded payment. In explanation of this action he wrote to it as follows:

'As to the return filed, you have furnished the data desired,      but have made an error in the application of same. After      giving the mileage for the company everywhere and for Georgia, you then go ahead and assign 57 tank cars      for this state and value them at $830 each, making the total      for Georgia $47,310. This is an incorrect method. If you were      to be allowed to merely assign so many cars to the state for      taxation there would be no need for the mileage figures to be      furnished. The valuation to be assigned to Georgia must be in      the same proportion to the valuation for the entire company      as the mileage in Georgia bears to the entire mileage      everywhere. * * * Or to work it out by percentage instead of      proportion: 6,976.5 the Georgia mileage, is 2.76846 per cent.      of 251,999, the entire mileage. Georgia is therefore entitled      to 2.76846 per cent. of the entire valuation. This per cent.      of $10,518,333 is $291,195.84, or the same sum arrived at by      proportion, if we call the 84 cents an even dollar. * * * A      franchise value should also be returned. And whatever the      valuation you place on the franchise for the entire country,      2.76846 per cent. of same must be assigned to Georgia. Thus,      if you should value your franchise at $1,000,000, the      franchise value to be assigned to Georgia would be $27,685.

'The valuation for Georgia was determined by taking 2.76846      per cent. of the valuation you gave for the entire company,      exclusive of franchise. The 2.76846 per cent. is the ratio      the Georgia mileage bears to the entire mileage, as explained      in a previous letter. The franchise value was obtained by      placing your franchise for the entire country at an even      million dollars and giving Georgia 2.76846 per cent.      thereof.'

Thereupon, plaintiff in error instituted this proceeding in Fulton county superior court alleging invalidity of the assessment, that to enforce the tax would violate the Fourteenth amendment, and asked appropriate relief. The cause was tried upon pleadings and agreed statement of facts. Among other things, the parties stipulated:

'On April 7, 1914, when the defendant entered an as sessment in his office of property and franchise of the plaintiff as      shown hereinbefore, he had no other information for any of      the years 1907 to 1914 inclusive than was contained in the      said return filed by the plaintiff on March 16, 1914, and      embraced in this statement and which was refused by the      defendant, and did not know what cars defendant had had in      Georgia during any of said named years nor did he ascertain      the value of such cars, but his action was taken on such      information hereinbefore shown; and that the assessment so      entered by the defendant in his office against the      plaintiff's property during said period for each of said      years embraces the valuation of about three hundred cars in      excess of what the plaintiff actually had in the state of      Georgia, during said years of the approximate value of      $250,000.00 each year; and that the true value of a tank car      is about eight hundred and thirty ($830.00) dollars per car.

'That for the year 1914 the assessment entered against      plaintiff by defendant covered the value of at least three      hundred and fifty cars in excess of the number of cars      plaintiff actually had in the state of Georgia for the time      said tax was assessed.

'That defendant in entering said assessment never undertook      to ascertain the actual property of plaintiff's located in      the state of Georgia during the said years or to assess its      property at its real value for taxation, otherwise than by      simply ascertaining the percentage of its entire property      shown by the ratio of the railroad traversed by its equipment      in Georgia and the railroad mileage traversed by its      equipment everywhere as shown by its said return filed on      March 16, 1914.'

The trial court adjudged the assessment good as to both franchise and physical property. The Supreme Court held no taxable franchise existed, but that the physical property had been assessed as required by statutes not in conflict with either state or federal Constitution. 146 Ga. 489, 91 S. E. 680. It said (Wright v. Union Tank Line, 143 Ga. 765, 769, 771, 773, 85 S. E. 994, 996, 997):

'The case relates to two matters, namely: a tax assessment      against tangible property of the company; and second, a claim      of right to assess a franchise tax. * * * The effort was to      tax property in this state, and in doing so to apply the      statute designed as a rule to ascertain the property so      coming into the state and its proper valuation.'

After quoting sections 989, 990, and 1031 Civil Code of Georgia, copied in the margin,  the opinion continues: 'The several Code sections embody the statutory scheme for      taxing cars of equipment companies whose cars are handled      over the railroads in this state. Owing to the nature of the      business, it is difficult to ascertain the number of cars of      equipment companies that come into this state and designate      the identity of each car or its value. The purpose of the      statute is to provide a reasonable method for determining the      fact that cars come into this state and the values thereof,      to the end that the equipment companies allowing their cars      to come into this state may bear their just proportion of      taxes leviable in this state. The scheme of the statute is      what is sometimes called the track mileage basis of      apportionment, or what in a more general way is termed the      unit rule. The comptroller general followed the statute. The      unit rule has been upheld by the Supreme Court of the United      States, in regard to railroads, telegraph companies, and      sleeping car companies. Kentucky Railroad Tax Cases, 115 U.      S. 321, 6 Sup. Ct. 57, 29 L. Ed. 414; Western Union Telegraph      Company v. Massachusetts, 125 U.S. 530, 8 Sup. Ct. 961, 31      L. Ed. 790; Pullman's Palace Car Co. v. Pennsylvania, 141 U.      S. 18, 11 Sup. Ct. 876, 35 L. Ed. 613. And this principle of      average has been approved in regard to refrigerator cars.      American Refrigerator Transit Co. v. Hall, 174 U.S. 70, 19      Sup. Ct. 599, 46 L. Ed. 899; Union Refrigerator Transit Co.      v. Lynch, 177 U.S. 149, 20 Sup. Ct. 631, 44 L. Ed. 708. It      has even been held that the unit rule of valuation could      properly be applied to the valuation of property of express      companies within a certain state, though there was no physical connection with property beyond the state. * * * It      seems to us, therefore, that the case falls within the rule      laid down by the Supreme Court of the United States, as above      mentioned, and that there are no such circumstances as to      bring it within the ruling made in Fargo v. Hart, 193 U.S.      490, 24 Sup. Ct. 498, 48 L. ed. 761.'

A state may not tax property belonging to a foreign corporation which has never come within its borders-to do so under any formula would violate the due process clause of the Fourteenth Amendment. In so far, however, as movables are regularly and habitually used and employed therein, they may be taxed by the state according to their fair value along with other property subject to its jurisdiction, although devoted to interstate commerce. While the valuation must be just it need not be limited to mere worth of the articles considered separately but may include as well 'the intangible value due to what we have called the organic relation of the property in the state to the whole system.' How to appraise them fairly when the tangibles constitute part of a going concern operating in many states often presents grave difficulties; and absolute accuracy is generally impossible. We have accordingly sustained methods of appraisement producing results approximately correct-for example, the mileage basis in case of a telegraph company (W. U. Tel Co. v. Massachusetts) and the average amount of property habitually brought in and carried out by a car company (American Refrigerator Transit Co. v. Hall). But if the plan pursued is arbitrary and the consequent valuation grossly excessive it must be condemned because of conflict with the commerce clause of the Fourteenth Amendment or both. W. U. Tel. Co. v. Massachusetts, 125 U.S. 530, 8 Sup. Ct. 961, 31 L. Ed. 790; Marye v. B. & O. R. R., 127 U.S. 117, 8 Sup. Ct. 1037, 32 L. Ed. 94; Pullman's Car Co. v. Pennsylvania, 141 U.S. 18, 26, 11 Sup. Ct. 876 (35 L. Ed. 613); Adams Express Co. v. Ohio, 165 U.S. 194, 17 Sup. Ct. 305, 41 L. Ed. 683; Adams Express Co. v. Ohio, 166 U.S. 185, 17 Sup. Ct. 604, 41 L. Ed. 965; American Refrigerator Transit Co. v. Hall, 174 U.S. 70, 19 Sup. Ct. 599, 43 L. Ed. 899; Union Refrigerator Transit Co. v. Lynch, 177 U.S. 149, 20 Sup. Ct. 631, 44 L. Ed. 708; Fargo v. Hart, 193 U.S. 490, 24 Sup. Ct. 498, 48 L. Ed. 761; Cudahy Packing Co. v. Minnesota, 246 U.S. 450, 453, 38 Sup. Ct. 373, 62 L. Ed. 827.

In the present case the comptroller general made no effort to assess according to real value or otherwise than upon the ratio which miles of railroad in Georgia over which the cars moved bore to total mileage so traversed in all states. Real values-the essential aim-of property within a state cannot be ascertained with even approximate accuracy by such process; the rule adopted has no necessary relation thereto. During a year two or three cars might pass over every mile of railroad in one state while hundreds constantly employed in another moved over lines of less total length. Fifty-seven was the average number of cars within Georgia during 1913, and each had a 'true' value of $830. Thus the total there subject to taxation amounted to $47,310-the challenged assessment specified $291,196.

We think plaintiff in error's property was appraised according to an arbitrary method which produced results wholly unreasonable and that to permit enforcement of the proposed tax would deprive it of property without due process of law and also unduly burden interstate commerce.

Pullman's Car Co. v. Pennsylvania, supra, relied on by defendant in error, contains the following passage which seems to uphold the Georgia rule:

'The mode which the state of Pennsylvania adopted, to      ascertain the proportion of the company's property upon which      it should be taxed in that state, was by taking as a basis of      assessment such proportion of the capital stock of the      company as the number of miles over which it ran cars within      the state bore to the whole number of miles, in that and      other states, over which its cars were run. This was a just      and equitable method of assessment; and, if it were adopted by all the states through which these cars      ran, the company would be assessed upon the whole value of      its capital stock, and no more.'

But the point therein spoken of was unnecessary to determination of the cause; and so far as the quoted passage sanctions the specified rule for ascertaining values as generally appropriate, just, unobjectionable and productive of conclusive results it must be regarded as obiter dictum, and we cannot now approve or follow it.

Reference to the original record upon which that case came here will aid in understanding the exact issues presented. Pennsylvania demanded taxes of the Pullman Company, an Illinois corporation, for the years 1870 to 1880 upon such portion of its capital stock as total miles of railroad in Pennsylvania over which its cars moved bore to like total in all states. No statute prescribed the method of valuation; it had been adopted by executive officers. The court of common pleas declared:

'On the facts defendant claims that no part of its capital      stock is invested in this state. The argument is that its      cars are personal property, and, as they are not permanently      located in this state, but pass into, through, and out of it,      this personal property has no taxable situs in Pennsylvania,      and could not be taxed specifically in any given locality,      and therefore, it is contended, as the tax on capital stock      is a tax on the property in which the capital is invested,      the latter cannot be taxed. * * * We hold, therefore, that      the proportion of the capital stock of the defendant invested      and used in Pennsylvania is taxable under these acts, and      that the amount of the tax may be properly ascertained by      taking as a basis the proportion which the number of miles      operated by defendant in this state bears to the whole number      of miles operated by it, whthout regard to the question where      any particular car or cars were used. * * * The defendant is      liable to tax on the proportion of its capital stock invested      in this state, as represented by the coaches and cars owned and used by it      here. * * * Determining the amount of the tax on the      principle above stated, it is as follows: Tax for years 1870      to 1880, inclusive, $16,321.89.'

The Supreme Court affirmed this view, saying:

'While the tax on the capital stock of the company 'is a tax      on its property and assets,' yet the capital stock of a      company and its property and assets are not identical. The      coaches of the company are its property. They are operated      within this state. They are daily passing from one end of the      state to the other. They are used in performing the functions      for which the corporation was created. The fact that they      also are operated in other states cannot wholly exempt them      from taxation here. It reduces the value of property in this      state justly subject to taxation here. This was recognized in      the court below, and we think the [proportion] preference was      fixed according to a just and equitable rule.'

In 1870 the Pullman Company's capital stock amounted to $3,000,000; in 1880 it had grown to $6,000,000. All cars actually owned by the company (leased ones not included) during 1871 numbered 241, and in 1880, 472, their total value being $4,334,000 and $8,588,000 respectively; 100 cars were operated within Pennsylvania during each of the 11 years; total miles of track everywhere passed over by the company cars during 1880 amounted to 57,099; within Pennsylvania, 5,127; and these figures adequately represent the proportion for other years; total tax held due for the 11 years amounted to $16,321.89. While the record does not disclose the precise valuations upon which taxes were computed, enough does appear to show that they were far below (perhaps not one-third) the actual worth of 100 cars.

The company demanded complete exemption upon the ground that its cars were moving in interstate commerce and had no taxable situs in Pennsylvania. The appraisement was not challenged as excessive; if the property was taxable in Pennsylvania the rule adopted may have been decidedly favorable to the owner and the assessment a moderate one. Having failed to challenge amount of the assessment, the company could not well complain of the rule under which this was fixed. In such circumstances reasonableness of the rule was not really in question and what was said of it cannot control here where the very point is presented for decision. Cohens v. Virginia, 6 Wheat, 264, 399, 5 L. Ed. 257; McCormick Machine Co. v. Aultman, 169 U.S. 606, 611, 18 Sup. Ct. 443, 42 L. Ed. 875. See, also, Adams Express Co. v. Ohio, supra.

In other opinions of this court cited below to support the conclusion there reached we upheld the power of a state to tax property actually within its jurisdiction upon a fair valuation considered as part of a going concern-they give no sanction to arbitrary and inflated valuations. Taxes must follow realities, not mere deductions from inadequate or irrelevant data.

In Fargo v. Hart, supra, we condemned an assessment ostensibly proportioned to mileage where property without the state and unnecessary to the express company's actual business had been included; and we pointed out that under no formula can a state tax things wholly beyond its jurisdiction.

The same considerations which establish invalidity of the assessment of plaintiff in error's property for 1913 apply to like ones made by the comptroller general for all other years in question.

Judgment of the court below must be reversed, and the cause remanded for further proceedings not inconsistent with this opinion.

Reversed and remanded.

Mr. Justice DAY, in view of the undisputed facts of this case, concurs in the result.

Mr. Justice PITNEY, with whom concurred Mr. Justice BRANDEIS and Mr. Justice CLARKE, dissenting. 

Notes

Sec. 989. 'Each nonresident person or company whose sleeping cars are run in this state shall be taxed as follows: Ascertain the whole number of miles of railroad over which such sleeping cars are run, and ascertain the entire value of all sleeping cars of such person or company, then tax such sleeping cars at the regular tax rate imposed upon the property of this state in the same proportion to the entire value of such sleeping cars that the length of lines in this state over which such cars are run bears to the length of lines of all railroads over which such sleeping cars run. The returns shall be made to the comptroller general by the president, general agent, or person in control of such cars in this state. The comptroller general shall frame such questions as will elicity the information sought, and answers thereto shall be made under oath. If the officers above referred to in the control of said sleeping cars shall fail or refuse to answer, under oath, the questions so propounded, the comptroller general shall obtain the information from such sources as he may, and he shall assess a double tax on such sleeping cars. If the taxes herein provided for are not paid, the comptroller general shall issue executions against the owners of such cars, which may be levied by the sheriff of any county of this state upon the sleeping car or cars of the owner who has failed to pay the taxes.'

Sec. 990. 'Any person or persons, copartnership, company or corporation wherever organized or incorporated, whose principal business is furnishing or leasing any kind of railroad cars except dining, buffet, chair, parlor, palace, or sleeping cars, or in whom the legal title in any such cars is vested, but which are operated, or leased, or hired to be operated on any railroads in this state, shall be deemed an equipment company. Every such company shall be required to make returns to the comptroller general under the same laws of force in reference to the rolling stock owned by the railroads making returns in this state, and the assessment of taxes thereon shall be levied and the taxes collected in the same manner as provided in the case of sleeping cars in section 989.'

Sec. 1031. 'Railroad companies operating railroads lying partly in this state and partly in other states shall be taxed as to the rolling stock thereof and other personal property appurtenant thereto, and which is not permanently located in any of the states through which said railroads pass, on so much of the whole value of rolling stock and personal property as is proportional to the length of the railroad in this state, without regard to the location of the head office of such railroad companies.'