
    Delaware & Hudson Canal Co. v. Commonwealth. Commonwealth v. Delaware & Hudson Canal Co.
    The Act of June 7,1879, $ 7, providing for a tax v/pon gross receipts derived from tolls and transportation, telegraph business and express business, in so far as it attempts to impose a tax upon gross receipts derived from commerce between points within and points without the state, or i/nter-state commerce, is void, under the commercial clause of the constitution of the United States, article 1, \ 8.
    It seems that the Railway Gross Receipts Case, Pa. R. R. Co. v. Pa., 82 U. S. 284, has been, in effect, overruled by Fargo, Michigan, 121, U. S. 230, and Phila. and S. Mail S. S. Co. v. Pa., 122 U. S. 326; and with that case are overruled the cases of Phila. and S. M. S. S. Co. v. Com., 104 Pa. 109; Pullman P. C. Co. v. Com., 107 Pa. 148; and W. U. Tel. Co. v. Com., 110 Pa. 405.
    The tax imposed, under the Act of 1879, upon all receipts derived from commerce which is internal, commerce which is confined to the limits of the state, is valid, although the company doing the business is a foreign corporation, and the receipts are not physically within the state.
    Receipts from transportation temporarily detained while in transit, but which was destined for a point without the state, is not liable to taxation by the state.
    
      May 31, 1888.
    Errors, Nos. 26 and 34, May T. 1888, to C. P. Dauphin Co., to review a judgment on appeal from settlement of accounting officers, at June T. 1887, No. 534. Trunkey and Green, JJ., absent.
    On appeal from settlement of accounting officers to the court of common pleas, the Delaware and Hudson Canal Co. filed the following specifications of objections:
    1. The Delaware and Hudson Canal Company is a corporation and citizen of the state of New York having its principal office and place of business and general treasury in the city of New York in said state. And at the time when the taxes, claimed in the settlement hereby appealed from, are alleged to have accrued or become due, and also at or prior to the time of the settlement of the account by the auditor general, all of the receipts upon which taxes are charged were the personal property of said company in the city and state of New York, mingled with its other receipts and personal property in said state, and were not subject to taxation by the state of Pennsylvania.
    2. Of the gross amount of $742,635.03, upon which tax is charged in the settlement hereby appealed from, no more than $158,141.98 was received, or ever was, physically, within the commonwealth of Pennsylvania, and the said sum of $158,141.98 received in Pennsylvania by agents of the company had been by them paid into the general treasury of the company in the city of New York, before the time at which the taxes claimed are alleged to have accrued and become due, and before the date of the settlement of the account by the .attorney general.
    3. The taxation, by the state of Pennsylvania, of property owned in New York, by a corporation of the state of New York, is in violation of a necessary implication of the constitution of the United States, that each state shall have jurisdiction only over property within its own territorial limits.
    4. A large proportion of the receipts taxed in the settlement hereby appealed from, including a part of the $158,141.98; actually received within the state of Pennsylvania, as well as the receipts never physically within the state of Pennsylvania, was derived from freight and passengers carried by continuous transportation from points in Pennsylvania to points in other states, or from points in other states to points in Pennsylvania, or from points in other states to points in other states passing through the state of Pennsylvania. The taxation of freight or passengers transported by continuous hues of transportation out of, into, or through tíre state of Pennsylvania, or of the receipts for such transportation out of, into, or through the state of Pennsylvania, is in violation of that clause of section 8, of article 1, of the constitution of the United States, which provides that Congress shall have power to regulate commerce with foreign nations and among the several states and with the Indian tribes. And the Act of June 7, 1879, under which said tax is claimed, or any other Act of Assembly, if it shall be found to warrant the imposition of the said tax, is unconstitutional and void.
    
      5. The taxation, or attempted taxation, by the state of Pennsylvania, of moneys never physically within the state of Pennsylvania, but received and owned in New York by a corporation of the state of New York, because said moneys were received for the transpor-. tation of freight or passengers into, out of, or through the state of Pennsylvania, is in violation of that clause of section 8, of article 1, of the constitution of the United States which reserves to Congress the power to regulate commerce with foreign nations and among the several states and with the Indian tribes; and is, therefore, void.
    The case was tried without a jury under the Act of April 22, 1874. The court found the facts and conclusions of law in the following opinion by McPherson, J.:
    
      “ We find the facts to be as follows :
    “ 1. The defendant is a transportation company incorporated by the state of New York. It owns and operates a canal and a line of railroad, part of which is in New York and part in Pennsylvania. It is doing business in this commonwealth.
    “ 2. For the six months ending December 31, 1886, its gross receipts for business not done wholly within the state of New York were as follows:
    For tolls and transportation of freight and passengers . $375,516.87
    For telegraph business........... 1,193.64
    For express............... 3,186.05
    For transportation of coal mined, purchased and sold . 362,738.47
    Total...............$742,635.03
    “3. Of the amount received for tolls and transportation, $220,780.95 was received for transportation between points both of which are within the state of Pennsylvania; $89,635.07 was received for transportation beginning in Pennsylvania and ending in other states; $56,797.95 was received for the transportation beginning in other states and ending in Pennsylvania; and $8,302.90 was received for transportation beginning and ending in other states, but passing through Pennsylvania on the way. In the last three classes, the transportation was continuous from the point of beginning to the point of ending, and the freight and passengers were carried for a single sum or charge and upon a single way-bill or ticket.
    “ 4. The' amounts received for telegraph business and for express business were wholly for business done between points both of which are in Pennsylvania.
    “ 5. Of the amount received for transportation of coal, mined, purchased and sold, $930.14 was received for transportation between points both of which are in Pennsylvania; $27,610.63 was received for the transportation of coal shipped from the defendant’s mines in Pennsylvania and then destined to points without the state, but temporarily detained at Flonesdale, Pa., and actually there on Dec. 31, 1886; and $334,197.70 was received for the transportation of coal shipped from the defendant’s mines in Pennsylvania and ending in other states. The coal at ITonesdale was afterward carried to its destination outside the state.
    “ 6. Of the amounts received for transportation, telegraph and express business between points both of which are in Pennsylvania, viz.: $220,780.95 + $1,193.64 + $3,186.05 + $930.14 — $226,090.78, ■only $156,948.34 was received, or ever physically within the state of Pennsylvania, the rest having been paid to the defendant in the-state of New York. The said sum of $156,948.34 was remitted to New York from time to time by tlie defendant’s agents in Pennsylvania, and no part thereof was physically within the state on December 31, 1886.
    “ 7. This settlement taxes the entire gross -receipts mentioned in paragraph 2 for the six months ending December 31, 1886, and is made under § 7 of the Act of 1879, P. L. 116.
    “ Conclusions of law:
    “The 1st, 2d, 3d and 5th specifications of appeal cannot be ■sustained. If any part of the company’s gross receipts is taxable, the tax cannot be evaded by simply sending the money out of the state. The defendant itself is here for purposes of proper taxation, and it does not matter where its funds are physically kept. W. U. Tel. Co. v. Com., 110 Pa. 405.
    “ The 4th specification raises a question which we have been reluctant to entertain, and which nothing but a clear conviction of the present state of the law could bring us to consider. The argument which supports it is directly in the face of the Railway Gross Receipts Case in 15 Wall. 284, decided by the supreme court of the United States in 1872, and Phila. & S. M. S. Co. v. Com., 104 Pa. 109 ; Pullman P. C. Co. v Com., 107 Pa. 148;. and W. U. Tel. Co. v. Com., 110 Pa. 405, decided by the supreme court of Pennsylvania. It is perhaps more correct to say that the argument chiefly attacks the case in 15 Wallace, for the Pennsylvania cases rest upon that, and must stand or fall with it. If we had any doubt upon the subject, we would be bound to give the commonwealth the benefit thereof and uphold the tax in suit, leaving it to the supreme court of the United States to choose its own occasion of saying plainly how much authority its own decision should continue to have. But if the court has already spoken, and has plainly limited or destroyed the force of its earlier opinion, we are bound by this action also in the sphere of federal law, and cannot refuse to follow, even if some ■of our own decisions are still formally in the way. That this is in fact the present situation, and that the case in 15 Wallace has been in effect overruled, carrying with it, of course, the cases in which ■our own court simply followed that decision, we are entirely satisfied, and we think a short review of the late authorities will make olear.
    “ The Railway Gross Receipts Case was that of the Reading Railroad Company, a domestic corporation, and its receipts from all sources were held to be taxable by Pennsylvania for two reasons: first, because tbe receipts had passed into the general property of the company, and had thus lost their distinctive character as freight earned for transportation; and, second, because the tax was held to be upon the company’s franchise, and to be only measured by the amount of its business as shown by its receipts. As the same court had just decided at the same term, in the Freight Tax Case, 15 Wall. 232, that a tax upon the freight or tonnage carried from one state into another was a regulation of commerce, and could not be imposed by the state of Pennsylvania, even upon a domestic corporation engaged in such carriage, it i's not too much to say that the Gross Receipts decision was received with surprise. It was at once felt that the distinction thus drawn between freight and the money paid for carrying freight was unsound in principle, and that the decision must soon be overruled. Even at the first, its force was much weakened by the strong dissent of three judges, but of course it bound all inferior courts, whatever their opinion, of its reasoning might be, and it was followed here in the cases above cited.
    “ Since 1812, however, several cases on this subject of interstate commerce have been decided by the supreme court of the United States, in which the reasoning of the court opposed both the conclusion and the logic of the earlier decision, and finally, in Farge v. Michigan, 121 U. S. 230, the Railway Gross Receipts Case was taken up by name for consideration. This case was decided in April, 1881, while the last case on this subject was decided by the supreme court of Pennsylvania in June, 1885. Mr. Justice Miller easily and plainly distinguished the case in 15 Wallace from the case then before the court, and would naturally have then dismissed it without further discussion if its authority had been still unquestioned ; but he went on to say, with much significance and with an evident reference to the facts of the earlier case : ‘ The proposition that the states can, by way of a tax upon business transacted within their limits, or upon the franchises of corporations which they have chartered, regulate such business or the affairs of such corporations, has often been set up as a defense to the allegation that the taxation was such an interference with commerce as violated the constitutional provision now under consideration. But where the business so taxed is commerce itself, and is commerce among the states or with foreign nations, the constitutional provision cannot thereby be evaded, nor can the states, by granting franchises to corporations engaged in the business of the transportation of persons or merchandise among them, acquire the right to régulate that commerce either by taxation or in any other way.’ This was a sufficiently plain declaration that the second ground on which the tax was rested in 15 Wallace, viz.: that it was a franchise tax, could not be maintained, if the receipts sought to be taxed were derived from interstate commerce, and were taxed as receipts from transportation.
    “Fargo v. Michigan was followed at the same time by Phil. & S. M. S. Co. v. Com., 122 U. S. 326, which was a case substantially identical in principle with the case of the Railway Gross Receipts. In each the defendant was a Pennsylvania corporation, and in each the tax was imposed by Pennsylvania upon its gross receipts, including those derived from transportation between this state and points beyond its limits. The differences were, first, that one defendant was a railroad company, and the other was a steamship company, this difference being immaterial, since both were engaged in the business of transportation; and, second, that the Act of 1868 taxed the railroad company upon its gross receipts from all sources, while the Act of 1877 taxed the steamship company only upon its gross receipts for tolls and transportation, telegraph business and express business, this, too, being immaterial from the present point of view. The commonwealth naturally argued that the case in 15 Wallace was controlling, and that no rational distinction could be drawn between that decision and the case of the steamship company then before the court. And, as we understand the opinion which was delivered by Mr. Justice Bradley, no serious effort is made to draw such a distinction. On the contrary, he expressly declares, on page 342, that, ‘ a review of the question convinces us that the first fround on which the decision in State Tax on Railway Gross Receipts was placed is not tenable; ’ and, as the second and only other ground had already been declared not to be a good one in Fargo v. Michigan, the decision itself would seem to be left with scanty support. But Mr. Justice Bradley goes on to speak also of this second ground; while he does not think that the tax imposed by the Act of 1877 was a franchise. tax, he says with emphasis: ‘It certainly could not have been intended as a tax on the corporate franchise, because, by the terms of the Act, it was laid equally on the corporations of other states doing business in Pennsylvania. If intended as a tax on the franchise of doing business, which in this case is the business of transportation in carrying on inter-state and foreign commerce, it would clearly be unconstitutional.’ Further, speaking of the general subject of taxes upon inter-state commerce, he says, on page 336 : ‘If, then, the commerce carried on by the plaintiff in error in this case could not be constitutionally taxed by a state, could the fares and freights received for carrying on that commerce be constitutionally taxed ? If a state cannot tax the transportation, may it, nevertheless, tax the fares and freight received therefor ? Where is the difference ? • Looking at the substance of things and not at mere forms, it is very difficult to see any difference. The one thing seems to be tantamount to the other. It would seem to be rather metaphysics than plain logic for the state officials to say to the company: “We will not tax you for the transportation you perform, but we will tax you for what you get for performing it.” Such a position can hardly be said to be based on a sound method of reasoning.’
    [“ If the case thus referred to, with others therein cited, and the language quoted, do not completely overthrow the authority of the State Tax on Railway Gross Receipts, we are at a loss to understand their meaning. Believing that they do, we think it our duty to disregard that decision, and to follow the later cases in holding that a statute, which attempts to tax the gross receipts of transportation companies, derived, in the language of the Act before us, from tolls and transportation, telegraph business or express,’ is not valid, so far as such receipts are derived from commerce between points within and points without the state.] [1.]
    “ It is valid, however, as to all receipts derived from commerce, which is internal, that is, the commerce which is wholly confined within the limits of the state, for this is as much under its control as foreign or inter-state commerce is under the control of the general government, Sands v. Manistee River Imp. Co., 123 U. S. 295 ; and therefore the state may lawfully tax receipts from such internal commerce, although the company doing the business is a foreign corporation. If such corporation comes into Pennsylvania and carries on here the business of internal commerce, its receipts therefrom may be taxed precisely as if it were a domestic corporation.
    “ These principles require us to say that the defendant is only, taxable upon $226,090.78 of its gross receipts for the period in question. The rest, being the sum of $516,544.25, was received for-transportation between points within and points without the state, or between points without the state but passing through the state on its way, and therefore cannot be taxed by this commonwealth.
    
      “ One further word may be necessary. [Included in the sum of $516,544.25 is the sum of $27,616.63 for transportation of coal from the defendant’s mine to Honesdale, and there detained while in transit. This coal was all destined for points outside the state when it left the mines. Lack of storage room at points of destination, or some other reason, detained it temporarily at Honesdale, but its place of destination continued to be outside the state, and thither it was ultimately carried. The transportation, therefore, had actually begun, the property was in the custody of the carrier, and, as the article was destined for a point without the state, interstate commeree was alz-eady being carried on. ■ The temporazy stoppage was'not an abandonment of the original movement, and the coal was therefoz-e as fully protected at Honesdale as when in znotion upon the company’s cars. Coe v. EztoI, 116 H. S. 517.] [22.] The amount due the Commonwealth is as follows:
    Eight-tenths of one per cezzt. upon $226,090.78, . . . $1,808.72
    Interest from May 30, 1887, to April 2, 1888, .... 182.67
    Attorney General’s commissiozz, . . . ....... 90.40
    Total, . .'.............. $2,081.79
    “ For which sum we direct judgment to. be entered if exceptions are not filed according to law.”
    The Canal Co. filed exceptions alleging that the court ézued, 1, 2 and 3, in not sustaining the 1st, 2d and 3d objections specified in the appeal, reciting them; 4, in directing judgment for the Commonwealth for $2,081.79; and, 5, in not directing judgment for defendant. • , -
    
      The Commonwealth excepted, 1 and 2, to the conclusions of law enclosed in brackets, reciting them; and 3, to the action of the court in not rendering judgment for the Commonwealth for the full amount.
    The court overruled the exceptions and directed judgment in accordance with the opinion previously filed. Both parties took writs of error.
    
      The assignments of error, by the Canal Co., specified, 1-5, the action of the court in overruling its exceptions, reciting them.
    
      The assignments of error, by the Commonwealth, specified, 1-3, the action of the court in overruling her exceptions, reciting them.
    
      M. E. Olmsted, for Canal Co., plaintiff in error. —
    “The power of taxation, however vast in its character and searching in its extent, is necessarily limited to subjects within the jurisdiction of the state. These subjects are persons, property and business. Whatever form taxation may assume, whether as duties, imposts, excises or licenses, it must relate to one of these subjects.” State Tax on Foreign-held Bonds, 15 Wall. 300, 319.
    The tax in controversy cannot be sustained as a personal tax, the Canal Co. being a corporation and citizen of New York.
    As a tax upon business, it is invalid, so far as applied to business which consists of inter-state transportation. Gloucester Ferry Co. v. Com., 114 U. S. 196; Steamship Co. v. Com., 122 U. S. 326. As applied to the receipts of the company derived from its business from transportation conducted between points, both of which are within the state, it is a valid tax.
    But in the court below, the learned Attorney General contended for the entire tax, upon the authority of the decision in the case of State Tax on Railway Gross Receipts, 15 Wall. 284, in which the tax on gross receipts, imposed by the Act of 1866, was treated as a tax on property.
    In that case the company was a corporation of the state imposing the tax; but, in this case, the situation is reversed; at the expiration of the half year, the money which had come into the company’s hands was property in another state.
    This case is like that of Fargo v. Michigan, 121 U. S. 230, in which a tax was sought to be imposed by the state of Michigan upon the gross receipts of the Merchants’ Dispatch Transportation Company, a joint stock association of the state of New York. The attorney general of Michigan relied upon the case of State Tax on Railway Gross Receipts. But the court, per Miller, J., said : “ The money which it received for freight carried within the state probably never was within the state, being paid to the company either at the beginning or the end of its route, and certainly at the time the tax was levied it was neither money nor property of the corporation within the state of Michigan.”
    The presence in the state of the agents of the company wás not file constructive presence of the corporation itself and of its property located in New York. Com. v. Standard Oil Co., 101 Pa. 146.
    The domicile of a corporation is the state of its origin. ' Potter on Corporations, § 10. And it cannot migrate to another sovereignty. Bank of Augusta v. Earle, 13 Pet. 586; Paul v. Virginia, 8 Wall. 168; St. Louis v. Ferry Co., 11 Wall. 423.
    “All subjects over which the sovereign power of a state extends are objects of taxation; but those over which it does not extend are, upon the soundest principles, exempt from taxation.” Marshall, C. J., in McCulloch v. Maryland, 4 Wheat. 429.
    To the same effect are St. Louis v. Ferry Co., 11 Wall. 423 ; Hays v. Pacific Mail Steamship Co., 17 How. 596; Morgan v. Parham, 16 Wall. 471; People ex rel. Hoyt v. Commissioners of Texas, 23 N. Y. 224; People ex rel. P. M. S. S. Co. v. Commissioners of Texas, 58 N. Y. 242; State v. Engle, 34 N. J. L. 425; and Gloucester Ferry Co. v. Com., 114 U. S. 196.
    
      W. S Kirkpatrick, Attorney-General, with him John, F. Sanderson, Deputy Attorney-General, for the Commonwealth.
    Under § 7,-of the Act of June 7, 1879, a railroad company, deriving its franchises from the taxing state, is subject to a tax on its gross receipts, and, so far as the defendant below is concerned, the case of State Tax on Railway Gross Receipts, 15 Wall. 284, is still authority.
    In Philadelphia and Southern Steamship Co. v. Com., 122 U. S. 326, and Fargo v. Michigan, 121 U. S. 230, the companies were engaged solely in the business of transportation and carrying on inter-state and foreign commerce.
    In the Gloucester Ferry Co. case, if the Ferry Co. had held any property having its situs in Pennsylvania, it is clear it could have been taxed upon its capital stock to the extent of such property, notwithstanding it was engaged in inter-state commerce. The real point in the Ferry case is thus made apparent, and the application of it to the Steamship and Fargo cases discloses the real grounds on which these latter cases were decided. They are distinguishable from the present case of a railroad company authorized to construct and operate a public highway of the state and doing an indiscriminate carrying business, only incidentally involving inter-state transportation.
    Nowhere in the Steamship Co. case is the case in 15 Wallace overruled. So far as it may be considered as holding or suggesting that the tax upon gross receipts is a property tax, it is criticized and questioned, but in all other respects the Steamship Co. case is placed upon grounds which indicate a purpose to distinguish "it from the 15th Wallace ease.
    The defendant is a corporation deriving, by Act of Assembly, certain powers and franchises from the state of Pennsylvania; among them the franchise of constructing, using and operating a railroad in the state. For this franchise the state may receive, from those to whom it delegates its power to construct and use such highways, any rate or percentage of such compensation which it may be authorized to charge for transportation. See Railroad Co. v. Maryland, 21 Wall. 456.
    The tax claimed on receipts for transportation of coal, temporarily detained at Honesdale, is within the principle and ruling of the case of Coe v. Errol, 116 U. S. 517.
    
      
      M. E. Olmsted, for Canal Co., defendant in error.
    The case of R. R. Co, v. Maryland, was not a case of taxation at all, but of bonus, as to which there is an essential distinction. Com. v. Erie & Western Transportation Co., 107 Pa. 112.
    In a case decided May 14, 1888, not reported, the supreme court of the United States has decided that an Act which imposes a tax upon corporations having receipts from purely internal commerce, and also from inter-state commerce, is valid as to the former and invalid as to the latter. Ratterman v. Western Union Telegraph Co. and Western Union Telegraph Co. v. Ratterman.
    The coal detained at Honesdale was in course of inter-state transportation, and, as such, was protected from taxation by the federal constitution. The Daniel Ball, 10 Wall. 557. Coe v. Errol, does not sustain the Commonwealth’s position, but the reverse.
    Oct. 1, 1888.
   Per Curiam,

We have examined with care the opinion of the learned judge who tried the above stated cases in the court below, and we are satisfied that the conclusions reached by him are correct. Nor do we deem it advisable to attempt to add anything to what he has so well said.

The judgments are severally affirmed. A. B. W.

See, also, the following case.  