PULLMAN CO. v. RICHARDSON, State Treasurer of California. HINES, Director General of Railroads, v. SAME.

These were actions by the Pullman Company against the Treasurer of California to (recover moneys paid under protest as state taxes. Each action related to a designated part of the tax for a distinct year and was brought on the theory that the part designated was invalid because imposed under constitutional and statutory provisions repugnant to the Constitution of the United States. The Treasurer prevailed in the court of first instance and in the Supreme Court of the state. 185 Cal. 484, 197 Pac. 346. The Pullman Company then brought the cases here on writs of error.

In 1910 California adopted an amendment to her Constitution, section 14 of article 13, one purpose of which was to effect a separation of state from local taxation by subjecting public service corporations to a designated tax for state purposes and relieving them from taxation for county and municipal purposes. Referring to this feature of the amendment, the Supreme Court of the state said in San Francisco v. Pacific Telephone & Telegraph Co., 166 Cal. 244, 248, 135 Pac. 971, 973:

'Under the old system, the property and franchises of the corporations above referred to were taxed for both state and local purposes. The amendment creates a new mode of taxing such property and franchises, and appropriates the revenue so raised to state purposes solely. The new method by which taxes are collected exclusively for the state, is substituted for the former system, under which the same subjects were taxed for both state and local purposes.'

The pertinent parts of the amendment are as follows (Laws 1910-11, p. xliv):

'Sec. 14 (a) * * * All sleeping car, dining car, drawing room car, and palace car companies, * * * operating upon the railroads in this state, * * * shall annually pay to the state a tax upon their franchises, * * * rolling stock, * * * and other property, or any part thereof, used exclusively in the operation of their business in this state, computed as follows: Said tax shall be equal to the percentages hereinafter fixed upon the gross receipts from operation of such companies and each thereof within this state. When such companies are operating partly within and partly without this state, the gross receipts within this state shall be deemed to be all receipts on business beginning and ending within this state, and a proportion, based upon the proportion of the mileage within this state to the entire mileage over which such business is done, of receipts on all business passing through, into, or out of this state.

'The percentages above mentioned shall be as follows: * * * On all sleeping car, dining car, drawing room car, palace car companies, * * * three per cent. * * * Such taxes shall be in lieu of all other taxes and licenses, state, county and municipal, upon the property above enumerated of such companies except as otherwise in this section provided. * * *

'(e) * * * In the event that the above named revenues are at any time deemed insufficient to meet the annual expenditures of t e state, including the above named expenditures for educational purposes, there may be levied, in the manner to be provided by law, a tax, for state purposes, on all the property in the state, including the classes of property enumerated in this section, sufficient to meet the deficiency.

'(f) All the provisions of this section shall be self-executing, and the Legislature shall pass all laws necessary to carry this section into effect, and shall provide for a valuation and assessment of the property enumerated in this section. * * * The rates of taxation fixed in this section shall remain in force until changed by the Legislature, two-thirds of all the members elected to each of the two houses voting in favor thereof.'

Several acts to carry the amendment into effect were adopted from time to time, but it suffices here to say of them, first, that the computing percentage applicable to sleeping car, dining car, drawing room car, and palace car companies was increased to 4 per cent. in 1913 (chapter 6, Laws 1913) and reduced to 3.95 per cent. in 1915 (chapter 2, Laws 1915); secondly, that provision was made for enforcing the tax by either the usual tax sale or a suit in the name of the state (chapter 335, §§ 20, 21, 24, Laws 1910-11; chapter 6, § 5, Laws 1913); and, thirdly, that there was further provision that if the tax was not paid within a designated period the delinquent company, if a domestic corporation, 'will forfeit its charter' and if a foreign corporation, 'will forfeit its right to do business in this state,' and that the transaction of any business in the state on behalf of a company incurring any such forfeiture, except to settle its affairs, should be punished by substantial fines (Laws 1911, c. 335, § 24; Laws 1913, c. 6, § 5, and chapter 320, § 9).

The taxes in question were levied under the new system in 1911 and six subsequent years. All were alike, save in particulars not material here; so it will be enough to state the facts relating to the tax levied in 1911.

The Pullman Company is an Illinois corporation engaged in operating sleeping and parlor cars on the railroads of the country. Some of its cars are operated between points in California, some between points within and points without that state and some through the state between points outside. In 1910 the company's gross receipts from all its operations within the state were $1,905,302.97. Of this sum $938,786.80 came from operations which began and ended in the state and $966,516.17 came from that part of the interstate operations which was within the state. The latter amount was arrived at by taking every service performed partly within and partly without the state and determining on a mileage basis what portion of the sum received therefor was attributable to the part of the service within the state. To illustrate: If a passenger was carried in a sleeping car from Oakland to Chicago for $14, and one-seventh of the mileage was in California, $2 was deemed the gross receipt for so much of the service as was rendered in that state.

The gross receipts were calculated and reported by the company and the state officers accepted the calculation. The amount of the tax was computed by applying to the gross receipts the percentage rule prescribed by the amendment to the state Constitution. In this way a tax of $57,159.08 was levied in 1911. Had the gross receipts from intrastate business alone been considered the tax would have been $28,163.61—that is, $28,995.47 less than the actual levy.

The company objected to the consideration of the gross receipts from the interstate business, although they came only from service within the state, and objected to a corresponding part of the tax—the $28,995.47. That part was paid under protest and the first of these actions was brought to recover it—an admissible course under the state law. Laws 1910-1911, c. 335, § 23; Laws 1913, c. 320, § 7. The other part was paid voluntarily and is not in controversy.

The company insists t at the tax in question and the provisions therefor in the state Constitution and statutes are invalid under the commerce clause of the Constitution of the United States, because (a) the tax is laid on gross receipts from interstate commerce, and (b) its payment is made a condition to continuing an interstate business within the state, and are invalid under the due process of law clause of the Fourteenth Amendment, because the tax is intended to reach income from property situated and business done without the state.

The state court holds that the tax is not a tax on gross receipts as such, but is in both name and essence a tax on property within the state, and that it is computed with reference to the gross receipts only as a means of adjusting it to the real value of the property in the relation in which the same is used.

The principles to be applied in cases of this class repeatedly have been considered by this court and are now settled.

A state can neither tax the act of engaging in interstate commerce nor lay a tax on gross receipts therefrom. In either case the tax would be a restraint or burden on such commerce and its imposition and invasion of the power of regulation confided to Congress by the commerce clause of the Constitution. Fargo v. Michigan, 121 U. S. 230, 7 Sup. Ct. 857, 30 L. Ed. 888; Philadelphia & Southern Steamship Co. v. Pennsylvania, 122 U. S. 326, 7 Sup. Ct. 1118, 30 L. Ed. 1200; Galveston, Harrisburg & San Antonio Ry. Co. v. Texas, 210 U. S. 217, 28 Sup. Ct. 638, 52 L. Ed. 1031; Meyer v. Wells, Fargo & Co., 223 U. S. 298, 32 Sup. Ct. 218, 56 L. Ed. 445.

The rule is otherwise with property used in interstate commerce. A state within whose limits such property is permanently located or commonly used may tax it. Cudahy Packing Co. v. Minnesota, 246 U. S. 450, 453, 38 Sup. Ct. 373, 62 L. Ed. 827; Wells, Fargo & Co. v. Nevada, 248 U. S. 165, 167, 39 Sup. Ct. 62, 63 L. Ed. 190; Union Tank Line Co. v. Wright, 249 U. S. 275, 282, 39 Sup. Ct. 276, 63 L. Ed. 602. And, if the property be part of a system and have an augmented value by reason of a connected operation of the whole, it may be taxed according to its value as part of the system, although the other parts be outside the state; in other words, the tax may be made to cover the enhanced value which comes to the property in the state through its organic relation to the system. Fargo v. Hart, 193 U. S. 490, 499, 24 Sup. Ct. 498, 48 L. Ed. 761; Galveston, Harrisburg & San Antonio Ry. Co. v. Texas, 210 U. S. 225, 28 Sup. Ct. 638, 52 L. Ed. 1031; United States Express Co. v. Minnesota, 223 U. S. 335, 337, 32 Sup. Ct. 211, 56 L. Ed. 459; Union Tank Line Co. v. Wright, supra.

In taxing property so situated and used, a state may select and employ any appropriate means of reaching its actual or full value as part of a going concern—such as treating the gross receipts from its use in both intrastate and interstate commerce as an index or measure of its value—and if the means do not involve any discrimination against interstate commerce and the tax amounts to no more than what would be legitimate as an ordinary tax upon the property, valued with reference to its use, the tax is not open to attack as restraining or burdening such commerce. Cudahy Packing Co. v. Minnesota, supra; St. Louis Southwestern Ry. Co. v. Arkansas, 235 U. S. 350, 367, 35 Sup. Ct. 99, 59 L. Ed. 265; United States Express Co. v. Minnesota, supra; Galveston, Harrisburg & San Antonio Ry. Co. v. Texas, 210 U. S. 227, 28 Sup. Ct. 638, 52 L. Ed. 1031; Union Tank Line Co. v. Wright, supra.

An examination of the tax in question in the light of these principles shows that the chief objection urged against it is not tenable. The provisions under which the tax is imposed call it a property tax, specify the property subjected to it and declare that it is in lieu of all other taxes on such property. The Supreme Court of the state holds it is a tax on the property specified. In no material respect does it differ from the tax which was recognized by this court as a property tax in United States Express Co. v. Minnesota and Cudahy Packing Co. v. Minnesota, above cited. True, it is computed with special regard to the gross receipts, but this, as is fairly shown, is done merely as a means of getting at the full value of the property, considering its nature and use. The tax is not claimed to be in excess of what would be legitimate as an ordinary tax on the property valued as part of a going concern, nor to be relatively higher than the taxes on other kinds of property. There is no ground for thinking that it operates as a discrimination against interstate commerce.

The statutory provision that a foreign corporation which fails to pay the tax shall be excluded from doing business in the state requires but brief notice. It is not sought to be enforced here. The Pullman Company has not failed to pay the tax. The provision has not been construed by the state court. If it be construed as covering interstate commerce it is void, for the right to engage in such commerce is not within the state's control. See Western Union Telegraph Co. v. Massachusetts, 125 U. S. 530, 554, 8 Sup. Ct. 961, 31 L. Ed. 790; Leloup v. Port of Mobile, 127 U. S. 640, 645, 8 Sup. Ct. 1380, 32 L. Ed. 311; Postal Telegraph Cable Co. v. Adams, 155 U. S. 688, 695, 696, 15 Sup. Ct. 268, 39 L. Ed. 311. The state court may construe it as confined to intrastate business. St. Louis Southwestern Ry. Co. v. Arkansas, 235 U. S. 350, 368, 369, 35 Sup. Ct. 99, 59 L. Ed. 265. In neither event would it affect the validity of the tax before us.

We find nothing in the provisions under which the tax was levied in the decision off the state court, or in the record, which gives any support to the contention that the tax is intended to reach income from property situated or business done without the state.

Judgment affirmed.