it has passed from the stage of compensation for carrying persons or property, as it may tax other property within its limits, a tax upon receipts for this class of carriage specifically, is a tax upon the commerce out of which it arises, and if that be interstate commerce it is void under the statute. And the court further held that states cannot be permitted under the guise of a tax upon business transacted within their borders to impose a burden upon commerce among the states, when the business so taxed is itself interstate commerce.

In the case of the State freight tax decision in the 15th of State of Pennsylvania, which imposed upon all railroad corporations doing business within that state a specific tax on each two thousand pounds of freight carried, graduated according to the articles transported, was invalid. The court said upon the same subject:

"It is not at all material that the tax levied is upon all freight as well as that which is wholly internal, as that embarked in interstate trade. The State may tax its internal commerce; but if an act to tax interstate or foreign commerce is unconstitutional, it is not cured by including in its provisions subjects within the domain of the state. Nor is a rule prescribed for the carriage of goods through, out of or into the state, in the least a regulation of transportation, because the same rule may be applied to carriage which is wholly internal. If the state chooses to exact conditions for allowing the passage or carriage of persons or freight through, out of or into another state, the nature of the exaction is not changed by adding to it similar conditions for allowing transportation wholly within the State."

The law as laid down in these decisions has become so well established that in a recent case decided in the Supreme Court of Dakota, being the Northern Pacific Railway Company vs. Raymond, treasurer, the attor ney general of that state, upon the hearing of that branch of the caserelating to a tax upon the gross receipts of a company, arising from interstate business, admitted the invalidity of the Dakota law, and the court thereupon held that the Dakota statute, which provides for the levy and collection of a percentage of the gross earnings of railroad companies, in lieu of other taxes, is unconstitutional and invalid in so far as it imposes a tax upon the transporation of freight or passengers to or from points outside of the state, such traffic being interstate commerce subject only to the regulations of congress. The court says further that the act passed by the legislature of that state is an intermeddling with, and an effort to tax the earnings or proceeds arising from interstate commerce, and an attempt of usurpation of a power which under the constitution is to be solely and exclusively exercised by congress, citing Fargo vs. Michigan.

Philadelphia S. S. Co. vs. Pa., 126 U. S. R., 326-347, and the cases therein cited;

Indiana vs. Pullman Palace Car Co., 11 Biss. U. S. R., 561; Delaware and H. Canal Co. vs. Commonwealth, 37 American and English R. R. cases, 359.

In the case of the Commonwealth vs. Lehigh Railway Company, 12 Atlantic Reporter, 179, the court held that where both or one of the terminal points of a railroad company is beyond the state, a tax laid passengers within those points, is void, being a tax upon interstate

commerce. This last decision will apply to railroad companies organized on the gross receipts received from the transportation of freight or under the laws of this State, but having a corporate existence also in other states and in Canada. And in support of this general proposition I also cite:

Philadelphia S. S. Co. vs. Pa., 126 U. S. 326; cited in 138 New York at page 1.

And again in the case of the people ex rel. vs. Wemple, 131 N. Y. 64, affirming 61 Hun, 63, the court said:

"It seems the property of a foreign corporation, engaged in the business of state and interstate transportation in this state, is subject to taxation here in common with domestic corporations engaged in the same business, but a tax or other burden imposed upon the property of either corporation upon its business carried on in this state, when it is exclusively the business of interstate commerce, is a regulation of commerce between the states, which is vested exclusively in congress.”

It might be maintained that because the Michigan statute provides that the computation of tax of the gross earnings "shall be made upon the business actually done within this State, and 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," that therefore the tax was upon state commerce, and not upon interstate commerce. But this is not tenable and would be a mere evasion and an attempt by a division of interstate traffic into parcels, to maintain that neither the traffic outside of the state, coming into the state, or that going out of the state, constituted any portion of the interstate traffic. In other words, it would be an attempt to maintain that the two parts do not constitute the whole.

And so in the case of the State ex rel. Car vs. Woodrull Sleeping and Parlor Car Company, 33 American and English R. R. Cases, 476, the court says:

"The Attorney General ably and ingeniously argues that the statute is valid because it is competent for the state to tax the local occupation of appellant by the measures of its gross receipts for the proportionate amount of travel in the state. But this argument, while not without plausibility, is radically unsound under the laws authoritatively declared by the court of last resort that no tax in any form, or for any purpose, can be laid upon interstate commerce."

And again on page 480, the court says in that case, the theory of the pleading is:

# *

*

"That the state may levy a tax upon the gross earnings of the corporation in the proportion that the distance traveled through this state bears to the entire distance for which fares were received. That theory is unsound, and the complaint bad. A man on his way to the seaboard, who travels through Indiana, is carried in the course of the interstate commerce and not in the course of domestic commerce, and a fare received from him is received in the matter of interstate commerce. A fare thus received no state can tax."

I need only to add a further illustration to that offered by the Supreme Court of Indiana, by saying that a carload of coal shipped from Ohio into Michigan, and a carload of grain from Minnesota into Michigan, and vice versa, are transactions of interstate commerce, and not domestic com

merce.

After presenting the above line of argument, and the leading case bearing upon the question, permit me to call you attention to certain cases which without a proper analysis might appear to authorize a tax upon the gross earnings of corporations engaged in interstate commerce, by saying that in none of the cases hereinafter referred to are gross earnings taxed, although in the process of taxing the corporations, parties to the suits, the earnings have been used as a basis upon which to determine either the value of the property or the value of the franchises exercised within the particular tax jurisdiction in which the tax was spread.

In the case of Maine vs. Grand Trunk Railway Company, reported in 142 U. S. R., at page 217, the suit was brought for the collection of an excise tax upon the defendant corporation for the privilege of exercising its franchises within the State of Maine; the tax to be determined by the amount of its gross earnings, and not to be levied upon the gross earnings themselves.

Mr. Justice Field in delivering the opinion of the court bears out this view at page 229 of the opinion in the following language:

"There is no levy by the statute on the receipts themselves, either in form or fact; they constitute, as said above, simply the means of ascertaining the value of the privilege conferred."

So in the case of the Western Union Telegraph Company vs. Massachusetts, decided in 125 U. S. R., at page 530. The question arises under the law of Massachusetts, imposing a tax upon the Western Union Telegraph Company on account of the property owned and used by it within that State, the value of which was ascertained by comparing the length of its lines in that state with the length of its entire lines.

Mr. Justice Miller in delivering the opinion of the court says: "The tax in the present case, though nominally upon the shares of the capital sotck of the company, is in effect a tax upon that organization on account of property owned and used by it in the State of Massachusetts, and the proportion of the length of its lines in that state to their entire length throughout the whole country is made the basis for ascertaining the value of that property."

The same view was expressed by Mr. Justice Gray in the case of Massachusetts vs. Western Union Telegraph Company, reported in 141, U. S. R., at page 40. And the same view was held in the case of Pullman's Palace Car Company vs. Pennsylvania, reported on page 16.

In the case of People ex rel P. R. R. Co. vs. Wemple, reported in 138 New York, at page 15, the court affirmed many of the cases which I have quoted above, in its opinion, and distinguishes them from the cases last above cited, and says:

"The case of Maine vs. Grand Trunk Railway Company was decided on the ground that the tax imposed under the statute of Maine in that case was a franchise tax upon corporate privileges conferred by the legis lature of the State on the defendant corporation, and that it did not invalidate the tax because the amount was apportioned with reference

to the gross receipts for transportation over its whole line, which extended beyond the state. The dissent in that case proceeded upon a different view taken by the minority of the court as to the character of the tax, their opinion being in substance that it was a tax on the business of interstate commerce. These cases do not disturb the general

principle of the other cases."

In conclusion, it can be said that the case of Fargo vs. Michigan, the leading case, held invalid statutes similar to the one under which this State taxes railway properties, and it has never been overruled or modified, but has been affirmed many times since. And not only the weight of authority, but all authority of the courts of last resort are against the validity of the Michigan statute taxing railway corporations upon their gross receipts. and as well the amendment known as the "Merriman bill," recently passed by the legislature; and so far as it attempts to tax the gross earnings of corporations not organized under the laws of this State, but doing business therein, is a usurpation of the power of congress, which has exclusive right to regulate commerce among the states.

Respectfully submitted,

SYBRANT WESSELIUS,
Commissioner of Railroads.

On motion of Mr. Merriman,

The message and accompanying communication from the Commissioner of Railroads was ordered spread at large on the Journal. Mr. Merriman then replied to the Governor's message.

Mr. Preston moved that the remarks made by Senator Merriman, together with the references cited, be spread at large on the Journal; Which motion prevailed.

They are as follows:

The message just read, accompanied as it is by the legal opinion of the Honorable Railroad Commissioner, is remarkable for only one thing, and that is that the Governor should be the one to call the attention of the railroad companies to the unconstitutionality of the general railroad law, which has been in force for nearly a quarter of a century, and upon which millions of dollars have been collected, and which, if true, would at least present the opportunity for the railroad companies to demand of this State millions of dollars illegally collected. Aided by the passage of the so called Merriman bill, the Honorable Commissioner has been enabled to make this remarkable discovery. Had the bill failed of passage, or had the discriminating Atkinson amendments been concurred in by this body, I doubt that this discovery would ever have been given The difficulty, to my mind, with the message and opinion, lies in this: that they are shooting at the wrong mark. The entire argument rests upon the assumption that we are taxing "gross receipts," which to my mind is "grossly" in error, basing as he does his entire argument upon the case of Fargo vs. Michigan, 121 U. S. R., p. 230. This case did not hold it to be against interstate commerce to levy a tax upon the property, business or franchises of a corporation, but that this tax was levied upon money in the treasury of the corporation, upon money within the limits of the State, and which had become, like any other property or money, liable to taxation by the State. The opinion just

us.

1897.]

read loses sight of the important wording of our statute: "Every railroad company shall pay a specific tax upon the property and business' of such railroad corporation operated within this State, which tax shall be computed in the following manner, viz.: upon such gross income not exceeding two thousand dollars per mile of road actually operated within this State, two and one-half per cent of such gross income, etc." Notice the distinction, the tax is upon the property and business "computed in the following manner," and not a tax upon the money received, and not a tax upon the "gross" income.

Then it must follow that we levy under our general railroad law no tax upon the receipts themselves either in form or fact. The validity of the tax can in no way be dependent upon the mode which the State may deem fit to adopt in fixing the amount which it will exact. No constitutional objection lies in the way of a legislative body prescribing any mode of measurement to determine the amount it will charge for the privilege it bestows.

The decision upon which I rely was rendered in the United States court, October term, 1891, and is found in volume 142, U. S. reports, being Maine vs. Grand Trunk Ry. Co., and the principle upon which I contend for the constitutionality of our present law is quite fully set forth in the opinion.

The statute of Maine under which the state brought this action is very similar to our own case. It is substantially as follows: Every corporation, person or association operating any railroad in this state shall pay to the state treasurer for the use of the state an annual tax for the privilege of exercising its franchises in this state and is made in lieu of all taxes upon such railroad, its property and stock.

The amount of tax for the privilege of exercising its franchises is ascertained as follows: The amount of the gross transportation receipts as returned to the railroad commissioner for the year ending the 30th of September, shall be divided by the number of miles the railroad operated to ascertain the average gross receipts per mile, which is our case exactly. When such average gross receipts per mile shall not exceeed $2,250, tax shall be one-quarter of one per centum of the gross transportation receipts. When it exceeds $2,250 and does not exceed $3,000, the tax shall be equal to one-half of one per centum of the gross receipts, etc. Mr. Justice Field delivered the opinion of the court:

The syllabus of the case is as follows:

"A state statute which requires every corporation, person or association operating a railroad within this state to pay an annual tax for the privileges of exercising its franchises therein, to be determined by the an.ount of its gross transportation receipts, and further provides that, when applied to a railroad lying partly within and partly without the state, or to one operated as a part of a line or system extending beyond the state, the tax shall be equal to the proportion of the gross receipts in the state, to be ascertained in the manner provided by the statute, does not conflict with the Constitution of the United States; the tax thereby imposed upon a foreign corporation, operating a line of railway, partly within and partly without the state, is one within the power of the state to levy."