Summary
In San Francisco v. Western Union Tel. Co., 96 Cal. 140, [17 L.R.A. 301, 31 P. 10], it was assumed that the assessment was on the federal franchise, and it was one of the things taken as granted that the company "has derived no franchise from the state of California."
Summary of this case from Western Union Telegraph Co. v. HopkinsOpinion
Appeal from a judgment of the Superior Court of the City and County of San Francisco.
COUNSEL
R. B. Carpenter, for Appellant.
W. A. S. Nicholson, for Respondent.
JUDGES: In Bank. McFarland, J. Sharpstein, J., Paterson, J., Harrison, J., Garoutte, J., and De Haven, J., concurred.
OPINION
McFARLAND, Judge
This action was brought to recover a certain sum of money alleged to be due from defendant to plaintiff for state and county taxes, alleged to have been duly assessed and levied "upon personal property of said defendant, to wit, franchise for the fiscal year ending June 30, 1866." Judgment was rendered for plaintiff, and defendant appeals from the judgment.
From the findings of the trial court, and the written stipulations of the parties contained in a bill of exceptions, the following are substantially the facts upon which the appeal must be determined:
During the times mentioned in the complaint, appellant was, and still is, a corporation "organized and existing under the laws of the state of New York," and engaged in the business of transmitting telegraphic messages. "It is not organized under the laws of the state of California, and has derived no franchise therefrom." For the said fiscal year ending June 30, 1886, the appellant was assessed upon all its lines and property within this state for state and city and county taxes, and paid all of said taxes. The assessment upon which the taxes sued for in this action is based is as follows: "Franchise, $ 50,000"; and no other taxes or causes of action are here involved.
On July 24, 1866, there was approved an act of the Congress of the United States entitled "An act to aid in the construction of telegraph lines, and to secure to the government the use of the same for postal, military, and other purposes"; which act was put in evidence. It is to be found at pages 221, 222, U.S. Stats. at Large, 1865-67, also incorporated in title LXV. of the Revised Statutes. This act provides: "That before any telegraph company shall exercise any of the powers or privileges conferred by this act, such company shall file their written acceptance with the postmaster-general of the restrictions and obligations required by this act"; and such written acceptance was so filed by the appellant herein on June 12, 1867. It is not necessary, at this point, to state in detail the provisions of that act, because the United States supreme court, in decisions hereinafter noticed, has declared its nature, purpose, and scope, and the character of the rights and privileges which it conferred upon the appellant herein. It is sufficient here to say, generally, that the act gives the appellant the right to construct and maintain telegraph lines, not only through the public domain (portions of which are granted to it) and across navigable streams and waters, but also over and along any of the "postroads of the United States which have been or may hereafter be declared such by acts of Congress"; that it provides for a priority of telegrams between the departments of the United States government and their officers and agents over all other business, and that they shall be sent [31 P. 11] at rates fixed by the postmaster-general; and that under the act the United States may, at any time after five years, for postal, military, or other purposes, purchase all the lines and property of the appellant, at a value to be appraised in the manner provided in said act. It further appears that on and prior to the first Monday of March, 1885, the defendant, as such corporation, had constructed and was maintaining and operating in the state of California, and along the military and post roads of the United States, and over, under, and across the navigable streams or waters of the United States, telegraph lines aggregating 6,531 1/2 miles, and 3,501 1/4 miles of telegraph poles; 34 2-5 miles of said wires, and 9 miles of said poles, are in the city and county of San Francisco; that all of said lines are used by defendant in the transmission of telegrams from points in the state of California to points in the other states of the United States, and to foreign countries, and from said other states and countries to points within the state of California, as well as in the transmission of telegrams from point to point within the state of California; that the defendant is likewise engaged in the transmission over said wires of messages for, from, and between the several departments of the government of the United States; that said messages last mentioned are, by this defendant, given priority over all other business, and are sent at rates annually fixed by the postmaster-general of the United States.
Under these facts, it is contended by appellant -- among other things which we do not deem it necessary to discuss -- that the appellant is one of the means employed by the United States government for carrying into effect its sovereign powers; that the attempt to tax its franchise, in addition to the taxes which, in common with others, it pays on its property, is an attempt to tax "the operation of an instrument employed by the government of the Union to carry its powers into execution," within the meaning of the decision in McCulloch v. Maryland, 4 Wheat. 316; and that therefore the taxes sought to be recovered in this action were beyond the jurisdiction of the state to levy, and void.
If the appellant is to be considered an instrument of the national government, within the meaning of McCulloch v. Maryland, 4 Wheat. 316, then it is quite clear that within the meaning of that celebrated case, the attempted tax on the franchise of the appellant was a tax upon its "operations." It is true that the state of Maryland had put its attempt to tax the United States Bank in the shape of a provision that its notes should be upon stamped paper furnished by the state at certain stated prices; but it is impossible to see how that method of taxation was any more a tax upon the "operation" of the bank than a general tax upon its franchise -- upon its right to operate at all -- would have been. There is in principle no distinction between the two methods of effecting the same result. But there is no need of general argument upon the subject, because the precise question was definitely settled by the supreme court of the United States in the case of California v. Central P. R. R. Co. and certain other railroad companies, 127 U.S. 1. In that case the state of California had attempted to tax the "franchise" of the railroad company, and the latter set up that it had franchises from the general government, granted under certain well-known acts of Congress, which the state had no jurisdiction to tax. The decision of the court -- from which there was no dissent -- was delivered by Mr. Justice Bradley in a very elaborate opinion, and we have space here only to quote the vital parts of it on the question before us. Having concluded that the railroad company had certain franchises from the general government, the court say: "Assuming that the Central Pacific Railroad Company had received the important franchise referred to, by the grant of the United States, the question arises whether they are legitimate subjects of taxation by the state. They were granted to the company for national purposes and to subserve national ends. It seems very clear that the state of California can neither take them away, nor destroy nor abridge them, nor cripple them by onerous burdens. Can it tax them? It may, undoubtedly, tax outside visible property of the company situated within the state. That is a different thing. But may it tax franchises which are the grant of the United States? In our judgment it cannot.. .. . As Chief Justice Marshall said in McCulloch v. Maryland, 'the power to tax involves the power to destroy.' Recollecting the fundamental principle, that the constitution, laws, and treaties of the United States are the supreme law of the land, it seems to us almost absurd to contend that a power given to a person or corporation by the United States may be subjected to state taxation. The power conferred emanates from, and is a portion of, the government that confers it." And again, the court, speaking of the taxation of a franchise, say: "It has no limitation but the discretion of the taxing power. The value of the franchise is not measured like that of property, but may be ten thousand or ten hundred thousand dollars, as the legislature may choose. Or without any valuation of the franchise at all, the tax may be arbitrarily laid. It is not an idle objection, therefore, made by the company against the tax imposed in the present case." Under this decision, therefore, it is entirely clear that if the appellant is an instrument of the national government, within the meaning of McCulloch v. Maryland, 4 Wheat. 316, or has franchises granted by that government for national purposes, then the tax involved in the case at bar cannot be maintained.
The remaining question of importance is this: Are the relations of appellant to the national government, and its franchises derived therefrom, of such character as to bring it within the principles of the cases above cited? We think that the decisions of the supreme court of the United States answer this question in the affirmative. Indeed, the very case of California v. Central Pacific R. R. Co ., 127 U.S. 1, to which we have just referred, seems to be itself a determination of the point in favor of appellant; for a comparison of the railroad acts, which were held in that case to have conferred [31 P. 12] franchises upon the railroad company, with the act of July 24, 1866, respecting telegraph companies (hereinbefore mentioned), shows that the difference between the rights and powers granted in the two instances is a difference of degree only, and not of kind. An interstate railroad is a thing of more magnitude, and has greater financial and commercial value, than an interstate line of wires and poles used for telegraphy. The transportation of troops and munitions of war is, no doubt, a thing of graver importance than the transmission of telegraph messages; but the latter has become also an absolute necessity to the proper administration of the national government, either in peace or war. If, therefore, as was held in the decision last mentioned, the rights, privileges, and powers conferred by Congress on the railroad company constitute franchises which a state cannot tax, it seems impossible to escape the conclusion that the rights, privileges, and powers thus conferred upon the appellant also constitute such franchises.
But the supreme court of the United States has had occasion to declare the character and position of the appellant, with respect to the question here involved, in cases in which the appellant itself was a party to the record.
In December, 1866, the legislature of Florida passed an act granting to the Pensacola Telegraph Company "the sole and exclusive right and privilege" of maintaining lines of electric telegraph through certain parts of that state. There was nothing in the state constitution of Florida which prohibited its legislature from granting such exclusive privileges within its own jurisdiction. Afterwards a certain railroad company granted the right to erect a telegraph line along its right of way to the Western Union Telegraph Company, the appellant in the case at bar. The latter company had commenced the erection of the line when the said Pensacola company commenced an action in the United States circuit court to enjoin the work, on account of its alleged exclusive right under said act of the legislature of Florida, with which the proposed line of the Western Union company competed. The action was dismissed in the circuit court, and an appeal was taken by the Pensacola company to the supreme court of the United States, where the judgment was affirmed. (Pensacola Tel. Co. v. Western Union Tel. Co ., 96 U.S. 1.) The case was elaborately argued by counsel, and thoroughly considered by the court, -- Mr. Justice Field delivering a very able and exhaustive dissenting opinion. The opinion of the court was delivered by Chief Justice Waite, and is to lengthy to be quoted here. It was decided, however (in brief), that the said act of July 24, 1866, "to aid in the construction of telegraph lines," etc., was a legitimate and proper exercise by Congress of the power "to regulate commerce with foreign nations and among the several states," and "to establish post-offices and post-roads"; that the powers given to and accepted by the Western Union Telegraph Company cannot be obstructed by state legislation; and that said act extends not only to such post-roads as are on the public domain, but to "any of the military or post roads of the United States which have been or may hereafter be declared such by act of Congress." The court say, among other things, as follows: "It is not necessary now to inquire whether Congress may assume the telegraph as part of the postal system, and exclude all others from its use. The present case is satisfied if we find that Congress has power, by appropriate legislation, to prevent the states from placing obstructions in the way of its usefulness." And the power of a state to tax its "franchise" to an unlimited extent would seem to be about as effective a means as could be imagined of "placing obstructions in the way of its usefulness."
But Telegraph Co. v. Texas , 105 U.S. 460, is still a more pointed case in favor of appellant's contention. In that case the legislature of Texas had passed a statute providing that every telegraph company doing business in the state should pay a certain tax for every message sent by it; and the Western Union Telegraph Company, appellant in the case at bar, having refused to pay taxes under said statute, -- basing its defense on said act of Congress of July 24, 1866, -- judgment had been recovered against it in the state court for the amount of such taxes. But on a writ of error the judgment was reversed. Here was a case almost impossible to be distinguished from McCulloch v. Maryland, 4 Wheat. 316. The court, in its opinion, delivered by Chief Justice Waite, among other things, say: "In Pensacola Tel. Co. v. Western U. Tel. Co ., 96 U.S. 1, this court held that the telegraph was an instrument of commerce, and that telegraph companies were subject to the regulating power of Congress in respect to their foreign and interstate business. A telegraph company occupies the same relation to commerce as a carrier of messages that a railroad company does as a carrier of goods. Both companies are instruments of commerce, and their business is commerce itself." The opinion then refers to rights held by the said telegraph company under the said act of Congress, by which it became a "government agent"; and then, referring to the said tax attempted to be levied on its messages by the state of Texas, says: "As such, so far as it operates on private messages sent out of the state, it is a regulation of foreign and interstate commerce, and beyond the power of the state. That is fully established by the cases already cited. As to the government messages, it is a tax on the means employed by the government of the United States to exercise its constitutional powers, and therefore void. It was so decided in McCulloch v. Maryland, 4 Wheat. 316, and has never been doubted since." And thus in that case the Western Union Telegraph Company is put in exactly the same class with the United States Bank in McCulloch v. Maryland, 4 Wheat. 316. With respect to the last-named case, we stated before that there was in principle no difference between a stamp tax on the notes of the United States Bank and a general tax upon its "franchise." But it is to be observed further on that subject, that the statute of [31 P. 13] Maryland imposing the stamp tax provided that the bank "may relieve itself from the operation of the provision aforesaid by paying annually, in advance, to the treasurer of the Western Shore, for the use of the state, the sum of fifteen thousand dollars. (See act on page 319, 4 Wheaton's Rep.) And so the bank might have avoided the purchase of stamped paper on which to issue its notes by simply paying a lump sum annually; and that would have been the paying of a tax upon its right to carry on its operations, -- upon its franchise. And if the court had seen any substantial difference between the two methods of accomplishing the same thing, it would have told the bank that it had no cause to complain of the illegal stamp tax, because that could have been avoided by the payment of the legal franchise tax. Suppose that the statute of Maryland had made no mention of a stamp tax, and had simply required the annual tax of fifteen thousand dollars, does any one suppose that in such event the great opinion of Chief Justice Marshall would never have been written, to become the broad and sure foundation for subsequent judicial decision in the realm of constitutional law?
The only decision of the United States supreme court which can be invoked with any plausibility in favor of the validity of the tax here involved is to be found in the case of Western Union Tel. Co. v. Massachusetts , 125 U.S. 530. An analysis of the case, however, shows it to be entirely consistent with the decisions and views hereinbefore cited and expressed. In that case certain taxes levied against appellant herein, under certain statutes of the state of Massachusetts, were upheld; and it is true that in those statutes the words "corporate franchise" are used. But an examination of those statutes will show that the taxes there involved were levied upon the property of the company, and not upon its franchise; and the opinion delivered shows that such was the understanding of the court. When in a statute a certain thing is particularly described so as to clearly identify it, the character of the thing is not changed by a misnomer. The Massachusetts statutes with which the court was dealing may be found in full on pages 531 to 535 of 125 U.S. They contain in detail a long and somewhat complicated plan for the assessment and taxation of corporations. The general scheme is, that each corporation shall return annually to the tax commissioner the amount of its capital stock with its par and market value, and also a list of structures, works, machinery, real estate, etc.; railroad and telegraph companies shall also return the whole length of their lines, and their length outside of the state; the commissioner is to ascertain from the returns or otherwise the true market value of the shares of the corporation, and to estimate therefrom the fair cash value of all of said shares constituting its capital stock; he is also to ascertain and determine the value and amount of all real estate, machinery, etc., owned by the corporation; then from the aggregate value of the shares of capital stock, ascertained as aforesaid, a great many deductions are to be made, and in case of railroad and telegraph companies having lines running beyond the state, there is to be deducted "such portion of the whole valuation of their capital stock, ascertained as aforesaid, as is proportioned to the length of that part of their line lying without the commonwealth," and also an amount equal to the value of certain property located within the state, and subject to local taxation; and the corporation is to pay a tax on such part of the value of the capital stock as remains after all the deductions are made. It thus appears that these statutes -- of which the foregoing is a mere summary -- undertake to provide a just and equitable mode by which the taxable property of a corporation shall be ascertained, according to business principles and usual methods of valuation and appraisement; and that mode is radically and entirely different from the unlimited irresponsible taxation of a "franchise," without regulation or condition, and without any necessary consideration of property values or recognized rules of assessment, such as we find in the case at bar. The tax under the Massachusetts statutes was a tax on property, and so the court clearly holds. Counsel for the telegraph company in that case argued that the tax was upon the franchise, and therefore void; and the court said upon that point as follows: "The argument is very much pressed that it is a tax upon the franchise of the company, which franchise, being derived from the United States by virtue of the statute above recited, cannot be taxed by a state, and counsel for appellant occasionally speak of the tax authorized by the law of Massachusetts upon this as well as all other corporations doing business within its territory, whether organized under its laws or not, as a tax upon their franchises. But by whatever name it may be called, as described in the laws of Massachusetts, it is essentially an excise upon the capital of the corporation. The laws of that commonwealth attempt to ascertain the just amount which any corporation engaged in business within its limits shall pay as a contribution to the support of its government upon the amount and value of the capital so employed by it therein." The court further say that the rights conferred on the company by the said act of Congress do not exempt it from the "ordinary burdens of taxation," and that it is "liable upon its real or personal property as any other person would be"; and referring to Telegraph Co. v. Texas , 105 U.S. 460, it quotes the expression of Chief Justice Waite, that "its property in the state is subject to taxation the same as other property." Again the court say: "The tax in the present case, though nominally upon the shares of the capital stock 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." We think, therefore, that the decision is clearly to the point that the thing there sought to be taxed, "as described in the laws of Massachusetts," was not "franchise," but property in the ordinary sense, "by whatever name it may be ca lled." Under this view, the case is entirely [31 P. 14] consistent with those of California v. Railroad Companies , 127 U.S. 1, and with the Pensacola case and the Texas case above cited; otherwise it is impossible to reconcile it with those cases. Moreover, in the Massachusetts case, the statutes provided that if the telegraph company failed to pay the taxes it should be enjoined from doing business, and the decree of the lower court had awarded an injunction; but the supreme court reversed that part of the decree, and held that the provision in the statutes for an injunction was, as against appellant, void, -- thus, in effect, recognizing the rights of the appellant under the said act of Congress as they had been declared in the other decisions hereinbefore cited. The case of Massachusetts v. Western Union Tel. Co ., 141 U.S. 40, also cited by respondent, is the same, practically, as the case in 125 U.S. which we have just been reviewing. It must be remembered that it has never been held in any of the cases that the property of a corporation holding national franchises was not subject to state taxation. In McCulloch v. Maryland, 4 Wheat. 316, the court say: "This opinion does not deprive the states of any resources which they originally possessed. It does not extend to a tax paid by the real property of the bank in common with the other real property within the state."
From the foregoing decisions and views, we are of opinion that the taxes sought to be recovered in this case were beyond the power of the state to levy, and therefore void.
The judgment is reversed, with direction to the superior court to dismiss the action.