Rutland Company v. Central Vermont Railroad Company
These were two writs of error to review decrees of the court of chancery for the county of Franklin and state of Vermont, denying, in accordance with mandates of the supreme court of the state, the right of the Rutland Railroad Company, which had leased its railroad to the Central Vermont Railroad Company, to recover the amount of taxes assessed upon the gross earnings of that railroad under the laws of the state, and paid by the Central Vermont Railroad Company, and by it deducted from the rent due to the Rutland Railroad Company under the lease. The case appeared by the record to be as follows:

On December 30, 1870, the Rutland Railroad Company leased its road, including a branch known as the Addison Railroad, for 20 years, to the receivers of the Vermont Central and Vermont & Canada Railroad Companies, at a fixed rent, payable semiannually. On June 21, 1873, the Central Vermont Railroad Company became the receiver of the Vermont Central and the Vermont & Canada Railroad Companies, and took possession of the Rutland Railroad under the lease. Disputes arose between the parties, and on February 23, 1876, they made an agreement in writing, modifying the lease, and by which the rent was made payable monthly, and was to be a certain proportion of the gross earnings, which the lessee guarantied should be not less that $250,000 a year. Neither of the contracts contained any provision for the payment of taxes.

Under the statutes of Vermont of 1874 and 1876, railroads were taxed by the mile in the towns through which they passed; and the supreme court of Vermont, at January term, 1878, in Rutland county, in a case between these parties, not reported, but stated in the opinion of the court below in this case, held that the lessor, and not the lessee, was bound to pay such taxes. See 63 Vt. 12, 25, 26, 21 Atl. 262, 731.

On November 28, 1882, the legislature of Vermont passed a statute, entitled 'An act to provide a revenue for the payment of state expenses,' which repealed all former statutes taxing the property of railroad companies, and required them to pay to the state a tax of a certain proportion of their gross earnings, and provide that the lessee of a railroad should pay this tax, and might deduct the amount from any payments due to lessor. The material provisions of this statute are copied in the margin. 

As required by this statute, blank returns of statements of gross earnings were sent in August, 1883, by the commissioner of state taxes, to the Central Vermont Railroad Company; and that company filled out the returns, and paid the taxes on such earning under protest.

A large part of the gross earnings so returned and taxed accrued from the transportation of persons and property between other states and countries through Vermont, and between Vermont and other states and countries.

The Central Vermont Railroad Company paid the rents, when due according to the agreement, until July 31, 1883, but afterwards delayed such payments, and deducted therefrom the sums paid for taxes on gross earnings.

On September 19, 1883, the treasuer of the Rutland Company, by directin of its officers, wrote a letter to the treasurer of the Central Vermont Railroad Company, claiming that the tax was invalid against the Rutland Company, and demanding payment of the rent in full, without deduction on account of the tax. The president of the Rutland Company afterwards, in conversation with the president of the Central Vermont Company, without intending to limit, or being understood to limit, the grounds of objection of the Rutland Company to the payment of the taxes, stated that it had no gross earnings, and therefore could not be liable for the taxes. No other reason for the denial of its liability for the taxes under the statute of 1882 was ever given to the Central Vermont Company.

By an order of court of January 19, 1884, the Central Vermont Railroad Company was discharged of the receivership, and ordered to transfer and make over all the property in its hands, including the lease of the Rutland Railroad, to the Consolidated Railroad Company of Vermont. On June 30, 1884, the transfer was made accordingly; and, on the same day, the latter company leased all the railroads to the Gentral Vermont Railroad Company, which afterwards continued in possession and operation thereof.

On November 9, 1886, the Rutland Company filed in the court of chancery a petition, praying that the Central Vermont Company and the Consolidated Railroad Company of Vermont be ordered to pay the rent due in full, with interest, and without deduction for taxes. The two defendant companies filed an answer denying their liability. The case was referred to a master, upon whose report, embodying the facts above stated, the court of chancery, on January 1, 1889, dismissed the petition.

The petitioner appealed to the supreme court of Vermont, which, at October term, 1890, delivered an opinion, copied in the record, and reported 6o Vt. 1, 21 Atl. 262, 731, allowing the claim for interest on rents, reversing the decree, and remanding the case to the court of chancery, with the following mandate:

'In the matter of the petition of the Rutland Railroad Company, it is considered, adjudged, and decreed as follows:

'The act of the legislature of Vermont, entitled 'An act to provide a revenue for the payment of state expenses,' approved November 28, 1882, so far as it imposes a tax upon the gross earnings of railroads derived from interstate transportation of persons or property, is unconstitutional and void, as being in conflict with that clause of the federal constitution which confers upon congress the exclusive power to regulate commerce among the states.

'That section 14 of said act, providing that taxes assessed under said act upon the earnings of railroads operated by lessees thereof shall be paid by such lessees, and charged against and deducted from the rents due to the lessor of such railroads, is constitutional and valid.

'That all taxes paid to the state by the respondent, in accordance with the provisions of said act of 1882, notwithstanding its invalidity, as above held, were, as against the petitioner, valid payments, and so, pro tanto, payments in extinguishment of rents due the petitioner.

'That the petitioner is entitled to recover interest upon the deferred payments of monthly rent, mentioned in the master's report, from the last day of the month on which it is held such monthly installments of rent respectively fell due under the lease and the modification thereof mentioned in said report.

'The decree of the court of chancery is reversed, and the cause remanded.'

In August, 1891, the court of chancery entered a decree purporting to pursue the mandate, and allowed an appeal taken to the supreme court of the state by the respondents, claiming that decree did not conform to the mandate. The petitioner, on September 8, 1891, sued out a writ of error from this court to review that decree.

At October term, 1892, the supreme court of Vermont affirmed that decree, and remanded the cause. 65 Vt. 366, 26 Atl. 638. The court of chancery, in August, 1894, entered a final decree accordingly. The petitioner, on October 9, 1894, sued out a writ of error from this court to review this decree.

The defendants in error moved to dismiss both writs of error for want of jurisdiction,-the first, because the decree which it sought to review was not a final one; and both, because no federal question was involved.

C. A. Prouty and Geo. F. Edmunds, for plaintiff in error.

[Argument of Counsel from pages 635-638 intentionally omitted]

E. J. Phelps, for defendants in error.

B. F. Fifield was with him the the brief.

Mr. Justice GRAY, after stating the case, delivered the opinion of the court. 

Notes

Sec. 11. Every corporation, person or persons, owning or operating a railroad in this state, whether as owner, lessee, receiver, trustee or otherwise, shall pay a tax to the state on the entire gross earnings of such railroad, if such railroad is situated wholly within the state. If such railroad is situated partly within and partly without the state, the tax shall be upon such proportion of the entire gross earnings of such railroad as the mileage of trains run in this state bears to the mileage of all the trains run on the entire main line of the road.

Sec. 12. The tax upon such earnings shall be rated according to the earnings per mile of road in this state, and is hereby assessed, at the rate of two per cent. on the first two thousand dollars a mile, or total earnings if less than that sum; at the rate of three per cent. on the first thousand or part thereof above two thousand dollars a mile; at the rate of four per cent. on the first thousand or part thereof above three thousand dollars a mile; and when the earnings exceed four thousand dollars a mile, at the rate of five per cent. on all earnings above that sum.

Sec. 13. Such tax shall be payable one half semi-annually in the months of February and August, and shall be based upon the gross earnings during the six months terminating with the last day of December or June next preceding.

Sec. 14. When a railroad is operated in this state by a corporation, person or persons, by virtue of a lease or other contract, the aforesaid tax shall be paid by the lessee of such railroad, or holder of such contract, as the case may be; and the said tax shall be charged against and deducted from any payments due or to become due the lessor of such railroad, or person, persons or corporation granting such contract, as the case may be, on account of such lease or contract; unless in the provisions of such lease or contract it is stipulated otherwise.
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