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House bill No. 571 (file No. 364), being
H. S. Pingree,
Governor. The message was ordered spread on the Journal. The Speaker also announced the following:
Lansing, May 26, 1897. To the Speaker of the House of Representatives:
Sir I have this day approved, signed and deposited in the office of the Secretary of State,
House bill No. 684 (file No. 437), being
An act to establish a lien upon horses and other animals for the cost of shoeing the same.
H. S. Pingree,
Governor. The message was ordered spread on the Journal. The Speaker also announced the following:
Lansing, May 28, 1897. To the Senate and House of Representatives:
I have certain information, prepared at my request by the Commissioner of Railroads, computing the amount of taxes, that will be realized from railroad companies and depot companies under the Merriman bill, 60-called, computed upon the earnings of the railroad companies for 1896. I have also caused to be prepared and herewith submit the opinion of the Commissioner of Railroads as to the validity of the railroad tax law, being act No. 129 of the public acts of 1893, and the so-called Merriman amendment thereof, both of which matters of information I make a part of this message. I deem it my duty, even at this late hour in the session, to call your attention to them. You have yet the time during the present session, by taking proper action, to frame a bill which will be unquestionable in form, to secure to the State that small amount which the Merri. man bill purports to give to it in increased taxes.
While an early adjournment may be desirable it would be very unsatisfactory if it shall result in leaving the people without adequate legal relief. I again earnestly recommend that the few remaining hours of your session be devoted to placing this matter in proper legal form, and if time be found insufficient that the session be extended a short time for that purpose.
I have submitted the opinion of the Railroad Commissioner to other counsel eminent in the practice of their profession, and am advised that what is attempted by the Merriman bill is illegal and is an attempt on 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 bil] and pass one to accomplish the pu ose intended in such a form that no legal objections can be urged against it.
H. S. Pingree,
Lansing, May 28, 1897. 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.
Commissioner of Railroads. Computation of tax, under Merriman bill as passed by the Legislature, based on reports of railroad companies for 1896:
Commissioner of Railroads. 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 colleoted 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 these and many other decisions of the court of final resort it appears beyond question that the legislature 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 corporation is located within the State, and that all of its earnings are there turned into its treasury, and having its property within the tax jurisdiction of Michigan, and in my opinion for that reason only. For, if the principal 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 jurisdiction 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 case 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 validity 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 declaration 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 commerce. The clearest cases, perhaps, upon that subject are those known as the state freight tax, and the State tax of railway gross receipts, which were decided in the December term of the Supreme Court of the United States, in 1872, and reported in the 15th of Wallace, the first case at page 232, and the second case at page 284.
In the first case the statute of the State of Pennsylvania imposed a tax upon all the railroad corporations doing business within that state, as well as on steamboats and others engaged in the carrying trade, and required such companies to pay to 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;
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 invalidty 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 in the business of running cars over any of the railroads of this State, and not being exclusively the property of any railroad company paying taxes on their gross receipts,” passed by the legislature of 1893.