the part of the legislature to usurp the power of congress to regulate and tax commerce among the states and with Canada. There is no necessity of running such a risk and by a hasty adjournment to leave work of this importance imperfectly done. If you in your wisdom shall deem it of importance you have still the time to recall this bill and pass one to accomplish the purpose intended in such a form that no legal objections can be urged against it. Hon. II. S. Pingree, Governor, Lansing, Mich. : Dear Sir-Your communication directing me to report, first a computation of taxes under the Merriman bill, as passed by the legislature, based on reports of earnings of railroad companies for 1896, and Second, directing me to prepare a brief concerning the validity of the Michigan law relating to the taxation of railroad companies, being Act No. 129 of the public acts of 1893, approved May 27, 1893, and the Merriman amendment thereof, so called, has been received, and I herewith respectfully comply with your request in that behalf. Very respectfully, S. WESSILUS, Commissioner of Railroads. Computation of tax, under Merriman bill as passed by the Legislature, based on reports of railroad companies for 1896: Brief concerning the validity of the Michigan law relating to the taxation of railroad companies, being act No. 129 of the public acts of 1893, approved May 27, 1893. The question presented for discussion arises under the law above named and especially with reference to that portion of Sec. 3 of said act which provides that railroad companies shall pay a certain percentage of tax fixed in the act, upon their gross income from all sources. In accordance with the provisions of said section the tax shall be computed and collected from every railroad company formed under the provisions of this act, or which now is or may hereafter be brought under the provisions of the general law of this State for the taxation of railway or railroad corporations, and as well to every railroad company owning or operating any railroad situated in this State. The same section further provides that "when a railroad lies partly within and partly without this State prima facie, the gross income of said company from such road for the purposes of taxation, shall be on the actual earnings of the road in Michigan, computed by adding to the income derived from the business transacted by said company entirely within this State, such proportion of the income of said company arising from interstate business, as the length of the road over which said interstate business is carried in this State bears to the entire length of the road over which said interstate business is carried." The above extracts from the law are such as are material to this discussion. It will be important at the outset to define the varying situation of the different railroad companies with reference to this statute; and they may be divided into three classes: First, Railroad companies organized under the general railroad law of Michigan, whose business is transacted entirely within this State. Second, Such railroad companies as are organized under the general railroad law of this State, or under special charters granted by this State, whose business is transacted over its lines partly within and partly without the State. Third, Such railroad companies as are organized under the laws of other states, and not incorporated under the Michigan laws, owning railway lines within the State and transacting business thereon, partly within and partly without the State. It will not be necessary to enter upon an extensive analysis of the rights of a State to tax corporations which are its own creatures, in such manner and form as the State shall deem just, so long as the provisions of the Federal Constitution are not violated in so doing. It has been held that the right of a State, in the exercise of its taxing power, is unlimited over subjects within its borders, and in support of the position, I quote a few cases only. In the case of the State of Indiana ex rel Wolf vs. Pullman Palace Car Company, reported in Vol. 13, American and English Railroad Cases, at page 307, and decided in the Supreme Court of the United States in 1883, the court uses this language: "The right of a State to tax property within its territory or jurisdiction and protected by its laws, cannot be questioned so long as no provision of the Federal Constitution is violated. This right of taxing for revenue may be exercised in any mode or form that the State sees fit to adopt. Corporations may be taxed by the State whose creatures they are. They may be taxed on their stock, their franchises, their gross receipts, or their net receipts, and they may be taxed upon their receipts as part of their common property or funds in their treasuries, although such receipts have been derived from the business of commerce between the states. The laws of a State can have no extra-territorial effect." * * And again the court held in the case of Fargo, President, etc., vs. Stevens, Auditor General, a Michigan case, decided by the Supreme Court of the United States, and reported in 121 U. S. Reports at page 230: "A state may tax the money actually within the State, after it has passed beyond the stage of compensation for carrying persons or property, as it may tax other money or property within its limits." From those and many other decisions of the court of final resort it appears beyond question that the legisalture has a right to levy taxes upon the gross income of such corporations as are organized under its laws and doing business wholly within the State. It is apparent that the same rule would apply to such railroad companies as for convenience I have brought under the second classification, to wit: Those organized under Michigan law and having their lines in operation partly within and partly without the State, provided that the principal office of the corpor ation is located within the State, and that all of its earnings are there urned into its treasury, and having its property within the tax jurisdiction of Michigan, and in my opinion for that reason only. For, if the prin cipal office of the corporation organized under the laws of this State is located beyond its borders, and its earnings arise from interstate business, the money received from its business does not come within the juris diction of the Michigan tax law, and cannot be taxed as property within its borders. And if it is then taxed upon its gross earnings it must, to be valid, stand the scrutiny of an analysis which I will apply to the third classification above named, and with reference to which earnings the State will be subject to the same limitations and privileges as relate to its power to tax gross earnings of foreign corporations. Adding this latter class of railroad corporations to those organized under the laws of other states, but transacting business within this State by the operation of lines of railroads, we are prepared to take up the subject of the vaildity of a tax upon the gross earnings of said companies. It will be seen at a glance that in the transaction of their business this latter class of railroad companies is engaged in what is known in the Constitution of the United States as "commerce among the several states," or, to use the more recent and terse expression, "interstate commerce." And this being so we are met at the very outset, in searching for the power of a State to interfere either directly or indirectly by a deelaration of the Constitution of the United States (in an enumeration of the powers reserved by the general government and not delegated to the states) that congress has reserved "the right to regulate commerce with foreign nations, and among the several states and with the Indian tribes." (Sec 8, Art. 1.) The question as to what constitutes "commerce among the several states" has been many times discussed and decided by the Supreme Court of the United States in the last three decades, and the court has at last laid down some well-defined rules and interpretations upon the subject so clearly that no doubt longer exists as to what constitutes interstate com merce. The clearest cases perhaps upon that subject are those known as 1591 the State Freight Tax, and the State tax of railway were decided in the December term of the Suprem States, in 1872, and reported in the 15th of Wallac 232, and the second case at page 284. In the first case the statute of the state of Penr upon all the railroad corporations doing busines well as on steamboats and others engaged in the carrying tau, quired such companies to pay the State Treasurer a tax on each two thousand pounds of freight so carried, graduated according to the articles transported. These were arranged in three classes, on the first of which a tax of two cents per ton was laid; upon the second, three cents; and upon the third, five cents. The Reading Railroad Company, in making its report to the State under this statute, divided its freight on which the tax was to be levied into two classes, namely, freight transported between points within the State; and freight passed from within the State out of it and from without the State into it. The Supreme Court of the United States, however, held in that case, that freight taken up within the State and carried out of it, or taken up without the State and brought within it, all came under the description of commerce among the states, and within the meaning of that portion of the Constitution of the United States above quoted. And it was also held in that case that freight transported from, and to points exclusively within the limits of the State, was internal commerce, and not commerce among the states. The case above quoted has been the leading case upon the subject as to what constitutes interstate commerce, and has been followed by the court since the same was rendered. In the interest of brevity, therefore, I will not quote from other cases upon the subject, but simply cite you to them: Robbins vs. Shelby county taxing district, 120 U. S. R., 389; Erie Railroad Company vs. State, 31 N. J. L., 531. So in the case of State vs. Woodruff Sleeping and Parlor Coach Company, 33 American and English R. R. Cases, It was held that a sleeping car company engaged in the business of transporting passengers from one state to another is engaged in the business of interstate commerce. Under the provisions of our railroad law there is, of course, no dispute but that the only tax upon railroad property in this State is upon gross earnings, and that tax is in lieu of all other taxes. And I maintain that a tax upon gross earnings when levied upon commerce between the states, whether originating within this State and going to another, or whether coming from another state into this State, which according to the decisions above quoted is interstate commerce, is void. In support of the position maintaining the invalidity of a tax on gross earnings we are much aided by a Michigan decision of the Supreme Court of the United States, which declared invalid "An act to provide for the taxation of persons, copartnerships, associations, car-loaning companies, corporations, and fast freight lines, engaged 1588 ae business of running cars over any of the railroads of this State, such not being exclusively the property of any railroad company paying thaxes on their gross receipts," passed by the legislature of 1893. The provisions of this statute are very similar to the one now upon our statute books taxing railroad companies upon their gross receipts. The case was very hotly contested by the State and the Merchants' Dispatch Transportation Company, a New York corporation. After the law has been upheld as valid by the Supreme Court of this State, the Supreme Court of the United States declared it invalid in the case of Fargo, President, etc., vs. Stevens, Auditor General, 121 U. S. R., 230. And in order that you may understand fully the position of the court I quote at length from the decision of the court as follows, at page 457: "The subject of the attempts by the State to impose burdens upon what has come to be known as interstate commerce or traffic, and which is called in the Constitution of the United States, 'commerce among the states,' by statutes which endeavor to regulate the exercise of that commerce, as to the mode by which it shall be conducted, or by the imposition of taxes upon the articles of commerce, or upon the transportation of those articles, has been very much agitated of late years. It has received the attentive consideration of this court in many cases, and especially within the last five years, and has occupied congress for a time quite as long. The recent act approved February 4, 1887, entitled 'An act to regulate commerce,' passed after many years of effort in that body, is evidence that congress has at last undertaken a duty imposed upon it by the Constitution of the United States in the declaration that it shall have power to 'regulate commerce with foreign nations, and among the several states, and with the Indian tribes.' Congress has freely exercised this power, as far as relates to commerce with foreign nations and with the Indian tribes, but in regard to commerce among the several states it has, until this act, refrained from the passage of any very important regulations upon this subject, except perhaps the statutes regulating steamboats and their operation upon the navigable waters of the country. "With reference to the utterances of this court, until within a very short time past, as to what constitutes commerce among the several states, and also as to what enactments by the state legislatures are in violation of the constitutional provision on that subject, it may be admitted that the court has not always employed the same language, and that all of the judges of the court, who have written opinions for it, may not have meant precisely the same thing. Still we think the more recent opinions of the court have pretty clearly established the principles upon that subject which can be readily applied to most cases requiring the construction of the constitutional provision, and that these recent decisions leave no room to doubt that the statute of Michigan, as interpreted by its Supreme Court in the present case, is forbidden as a regulation of commerce among the states, the power to make which is withheld from the State." In addition to holding that the Michigan statute which attempted to levy a tax upon the gross receipts of railroads for the carriage of freight or passengers into, out of or through the State, is a tax upon commerce among the states and therefore void, the court in the case cited held,that while a state may tax the money actually within the State, after |