New York Company v. Pennsylvania
This was an action by the commonwealth of Pennsylvania against the New York, Lake Erie & Western Railroad Company, brought in a court of the state, for taxes alleged to be due to the state. On trial without a jury, the court rendered judgment for plaintiff, which was affirmed by the supreme court of the state. Defendant brought error.

This writ of error brings up for review a judgment of the supreme court of Pennsylvania, affirming a judgment of the court of common pleas of Dauphin county, in that state, against the New York, Lake Erie & Western Railroad Company, a New York corporation, for the amount of certain taxes assessed by and alleged to be due to Pennsylvania for the year 1888, in respect to certain bonds and evidences of indebtedness issued by that company, and which were ascertained by the court to have been held and owned by residents of that state.

The judgment of the court of common pleas was affirmed upon the authority of Com. v. New York, L. E. & W. R. Co., 129 Pa. St. 463, 18 Atl. 412, and Com. v. Lehigh Val. R. Co., 129 Pa. St. 429, 18 Atl. 406, 410.

The state based its claim against the railroad company upon a statute enacted on the 30th day of June, 1885. The company insisted that that statute, if applied to it in respect to taxes due and payable in Pennsylvania by residents of that state, was repugnant to the constitution of the United States.

The relations existing between the plaintiff in error, as the successor of the New York & Erie Railroad Company, and the commonwealth of Pennsylvania, at the time of the passage of the statute of 1885, are shown by legislative enactments to which some reference should be made.

From the preamble of a statute approved February 16, 1841, it appears to have been represented to the general assembly of Pennsylvania that the New York & Erie Railroad Company, having authority to construct a railroad from the city of New York to Lake Erie through the southern tier of counties in the state of New York, was hindered in building its road through Broome county, bordering on Pennsylvania, by a mountain of such magnitude as to require tunneling or to be surmounted by stationary power at immense expense, and that a level and easy route could be established if the proposed road followed the valley of the Susquehanna river in Pennsylvania, a distance of about 15 miles, and near to Broome county, N. Y. In consequence of these representations, and to maintain 'amity between adjoining states in respect to their internal improvement operations,' it was provided that the railroad company 'shall have full power to extend their road through such portion of the county of Susequehanna as, in the proper construction of their road, they may find it necessary.' This statute contained numerous provisions for the protection of both the railroad company as well as the public, one of which provided that, if any buildings, fences, timber, or other property, situated in Susquehanna county, should be destroyed by fire occasioned by sparks falling from locomotive engines upon the road, the company should be liable to make full compensation for all damages sustained in consequence of such fire (section 11); a liability which, according to the statement of counsel, Pennsylvania does not impose upon its own corporations. As these provisions do not affect the particular questions now before us, they need not be here set out.

By an act of the general assembly of Pennsylvania, approved March 26, 1846, and supplementary to that of 1841, authority was given the New York & Erie Railroad Company to construct its road through a portion of Susquehanna and Pike counties. That act, among other things, required the company to so regulate its tolls that the charge on anthracite coal should not exceed 1 1/2 cents per ton per mile. Section 3. It also made it the duty of the president and managers of the company, as soon as its railroad was completed through Susquehanna and Pike counties, to prepare a full and accurate account of the costs of that portion of the road within Pennsylvania, and communicate the same to the auditor general of the commonwealth; and after the road was completed and in operation to Dunkirk, of became connected at the western end with any other improvement extending to Lake Erie, the company should pay into the treasury of this state, annually, in the month of January, $10,000, any neglect or refusal to make such payment to work a forfeiture of the rights and privileges granted by the act. Section 5.

That act also provided that the stock of the company to an amount equal to the costs of the construction of that part of its road situated in Pennsylvania should be subject to taxation by that state, in the same manner, at the same rate, as other similar property; and the company should pay into the treasury of the commonwealth any tax to which that proportion of stock was liable, and make, annually, a statement to the legislature, under oath, of its affairs and of the business done on said road during the previous year, such statement to contain a full and accurate account of the number of passengers, amount and weight of produce, merchandise, lumber, coal, and minerals transported on its said road, east of Dunkirk, and west of Piermont. Section 6.

Under the authority of these statutes the railroad company constructed, and has ever since maintained, its road through parts of Pennsylvania. Of the company's road extending from Jersey City to Dunkirk and Buffalo, a distance of 446 miles, about 42 miles are within the counties of Pike and Susquehanna.

The taxes in question were imposed under the above statute of 1885, which assessed an annual tax of three mills on the collar for state purposes on all mortgages, money owing by solvent debtors, whether by promissory note, or penal or single bill, bond, or judgment, also on all articles of agreement and accounts bearing interest, owned or possessed by any person or persons whatsoever (except notes or bills for work or labor done, and obligations given to banks for money loaned and bank notes), on all public loans or stocks (except those issued by Pennsylvania or the United States), on all moneys loaned or invested in any other state, and on all other moneyed capital in the hands of individual citizens of Pennsylvania; the property and interests so taxed being exempted from all taxation, except for state purposes, and the act not to apply to building and loan associations. P. L. 193, § 1.

By the fourth section of the act it was provided that 'hereafter it shall be the duty of the treasurer of each private corporation, incorporated by or under the laws of this commonwealth, or the laws of any other state, or of the United States, and doing business in this commonwealth, upon the payment of any interest on any scrip, bond, or certificate of indebtedness, issued by said corporation to residents of this commonwealth, and held by them, to assess the tax imposed and provided for state purposes upon the nominal value of each and every said evidence of debt, and to report on oath, annually, on the first Monday in November to the auditor-general the amount of indebtedness of the corporation owned by residents of this commonwealth, as nearly as the same can be ascertained; and it shall be his further duty to deduct three mills on every dollar of the interest paid as aforesaid, and return the same into the state treasury within fifteen days after the thirty-first day or December in each year; and his compensation for his services shall be the same that city and borough treasurers receive for similar services; and for every failure to assess and pay said tax and make report as aforesaid the auditor-general shall add ten per centum as a penalty to the amount of the tax; in payment of said tax by a corporation the bonds, certificates or other evidences of indebtedness issued by it shall be exempt from all other taxation in the hands of the holders of the same.'

In November, 1888, the treasurer of the railroad company made the following report under oath to the auditor general of Pennsylvania:

'In accordance with the provisions of the fourth section of the act of June 30, 1885, and the requirements of your department, as treasurer of the New York, Lake Erie and Western Railroad Company I make the following report of the indebtedness of said company for the year ending first Monday of November, 1888:

"Nominal value of all scrip, bonds,

and evidences of indebtedness. $78,573,485 10

"Nominal value of all scrip, bonds, and

evidences of indebtedness known to be

owned by residents of Pennsylvania.  None.

"Nominal value of all scrip, bonds, and

evidences of indebtedness none of which

are known to be owned by

residents of Pennsylvania. $78,573,485 10"

This report was accompanied by a communication from the treasurer of the railroad company, stating that it was made in deference to the wishes of the auditor general, but under protest, and not in admission of any authority contained in the fourth section of the act of 1885.

In 1890 the commonwealth, by its attorney general, proceeded against the railroad company in the court of common pleas of Dauphin county to recover the amount claimed from it under section 4 of the act of 1885, for the year ending first Monday of November, 1888, for taxes on its scrip, bonds, and certificates of indebtedness held by residents of Pennsylvania. The amount so claimed was $234,490.86, with 12 per centum interest from 60 days after the settlement of the tax account by the auditor general. That officer settled the account upon the basis that the railroad company was subject to taxes in Pennsylvania on the nominal value of all the scrip, bonds, and certificates of indebtedness issued by the company, and then outstanding, to wit, $78,573,485.10. Having no information whatever as to ownership, the auditor general arbitrarily assumed in the settlement that all the company's outstanding scrip, bonds, and certificates of indebtedness were owned by residents of Pennsylvania.

A trial by jury was dispensed with by the parties, and the case was heard by the court. From the evidence in the cause the court found the following facts:

'(1) Defendant is a corporation chartered by the state of New York, and having its principal office and place of business in the city of New York. It has and exercises the right of way, under a special act of the legislature of the state of Pennsylvania, to run its railroad for somewhat more than thirty miles through the state of Pennsylvania, for which it pays annually to the state the sum of ten thousand dollars. (2) The settlement appealed from is based upon a report made by the treasurer of defendant to the auditor general of Pennsylvania for the year 1888, which contains a detailed statement of the several issues of bonds, scrip, and certificates of indebtedness by defendant, and the corporation whose successor it is, amounting in all to $78,573,485.10, in which it is stated that none of the indebtedness is known to be owned by residents of Pennsylvania, and that it is believed by the officers of the company that nearly all is owned by nonresidents of Pennsylvania. (3) In the settlement appealed from, defendant is charged with tax upon the nominal value of all scrip, bonds, and certificates of indebtedness issued by it, and the corporation whose successor it is, and owing by it, amounting to the sum of $78,573,485.10, as stated in said report. (4) All the evidences of indebtedness owing by defendant were created and issued under authority granted by the legislature of the state of New York, and were issued, sold, and delivered in the city of New York, in said state, or in London, England, and the interest accruing from time to time thereon is payable and paid in said city of New York and in London. The right to the interest is evidenced by coupons payable to the bearer, which, when due, are separated from the bonds, and are presented for payment at the office of defendant in the city of New York by banks, bankers, and their messengers, on behalf of themselves and their correspondents in other places, by whom the coupons have been transmitted, either as cash or for collection; and it is practically impossible for the treasurer or other officers of defendant, at the time the coupons are presented, to ascertain the residence of the owner of the bonds from which they have been separated, because of the large number of coupons presented at the dates when they become due, the whole number of coupons due semiannually amounting to more than one hundred and fifty thousand, and as many as twenty thousand being presented in a single day; and for the further reason that the bankers and their messengers, when they present the coupons, in very many instances do not know who are the owners of the bonds from which they have been detached, and could not be compelled to disclose if they did know, as the coupons are payable to bearer, and a refusal of the treasurer of the company to pay the coupons on presentation, except upon condition of the ownership being disclosed, would subject it to the risk and expense and loss of credit of having the coupons protested for nonpayment. Some of the evidences of indebtedness are coupon bonds issued and payable to bearer, and others are coupon bonds which may be registered or not, at the option of the holders or owners. (5) Holders of the evidences of indebtedness of defendant are entitled to vote for directors of this company, and a register is kept in the office of defendant, in which all holders of such evidences of indebtedness are required to register between sixty and thirty days prior to any election for directors at which they desire to vote. The register for the year 1888 shows an ownership of bonds to the amount of $28,562,700, of which we find that $338,000 were owned by residents of Pennsylvania, but this ownership does not appear on the register. (6) A record of registered bonds is also kept in the office of defendant, and in 1888 there were registered $11,124,300 in value of bonds. Of this amount $2,054,000 were owned by residents of Pennsylvania, $1,551,000 of which were owned by Pennsylvania corporations, leaving $503,000 which were owned by individual residents of Pennsylvania. (7) There is no evidence in this case from which we could find that any particular bonds, other than those which make up the two amounts of $338,000 and $503,000, as above stated, were held or owned, during the year 1888, in Pennsylyania; nor is there any evidence tending to show that the treasurer of defendant, at the time the coupons were paid, could know that any, and, if any, which, or the coupons, other than those which belonged to the bonds above specified, belonged to bonds held or owned in this state; and we therefore do not find that there were any other bonds, or any greater amount of bonds, held in Pennsylvania, during the year for which the tax is claimed in this settlement, than the bonds specified in findings of fact numbers five and six.'

Subsequently, the court found the following additional facts: '(1) The treasurer of defendant is, and was in 1888, a resident of the state of New York. (2) The legislation of the state of New York constituting the charter of the company, and in pursuance of which the bonds and mortgages were issued, is silent upon the subject of their taxation by the state of Pennsylvania, or the assessment or collection of a tax thereon by the company or its officers, and that the legislation of the state of Pennsylvania authorizing the construction of a portion of its road through a portion of said state is silent upon the subject of the taxation of the bonds and mortgages of the company, or of the collection of a tax thereon by the company or its officers. (3) The railroad of defendant extends from New York City to Buffalo,-a distance of 446 miles,-and that, so far as the state of Pennsylvania is concerned, the business of the company consists chiefly in the transportation of freight and passengers from or to, or from and to, other states, into, out of, or through the state of Pennsylvania.'

It was adjudged that the defendant was liable for the tax in respect of the bonds held and owned in 1888 by residents of Pennsylvania, represented by the two items of $338,000 and $503,000,-aggregating $841,000,-and not on any other or greater amount of bonds; and that view was approved by the supreme court of Pennsylvania.

M. E. Olmsted and E. J. Phelps, for plaintiff in error.

Jas. A. Stranahan, Dep. Atty. Gen., and W. U. Hensel, Atty. Gen., for Commonwealth of Pennsylvania.

[Argument of Counsel from pages 637-639 intentionally omitted]

Mr. Justice HARLAN, after stating the facts in the foregoing language, delivered the opinion of the court. 

Notes
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