193 Ky. 474 | Ky. Ct. App. | 1921
Opinion op the Court by
Reversing the judgment in each case.
The Commonwealth of Kentucky on relation of Robert Hawkins, sheriff of Woodford county, filed two statements in the county court of that county under the am thority given by section 4241 of the statutes by which it was sought to list for taxation, as omitted property, for the years 1914-1918, both inclusive, the proportionate part of the intangible property of defendant, Southern Railway Company, that its alleged owned and controlled lines in Kentucky bore to its owned and controlled lines constituting its entire railway system. The statement seeking the relief for the years 1914, 1915 and 1916 was filed against Southern Railway Company alone, and the one seeking the same relief for the years 1917 and 1918 joined with the company the Director General of Railroads, who for those two years operated defendant’s railway system under the Federal Control Act. The facts governing the right to assess the property for each of the years are the same, and the two statements were heard and disposed of in the courts below as one Case.
The answer to each statement denied the material allegations therein and affirmatively alleged the assessment and payment of the local franchise taxes due from the various divisional, units or railroad lines referred to, as a bar to any right of recovery. Appropriate pleadings made the issues and upon submission the county court dismissed each proceeding, from which the Commonwealth by the sheriff, its relator, procured an appeal to the Woodford circuit court and a similar judgment was rendered by that court in each case, to reverse which these appeals have been brought to this court and by agreement are heard together.
There were searching interrogatories attached to each statement which were unreservedly answered by the defendant, and those answers, including the exhibits filed therewith, and an agreed stipulation signed by the parties,
Prior to the original enactment of sections 4077-4091, both inclusive, of the Kentucky Statutes, being subdivision 1 of article 4 of chapter 108, corporations neither assessed nor paid any franchise property tax, which, it has been held, is but another name for intangible property. The only property upon which taxes were assessed and paid prior to that time was tangible property. It was discovered, not only in Kentucky but elsewhere, that in addition to their tangible property many corporations, because of the use of such property in the manner permitted by the sovereignty creating them or under whose permission they operated locally outside of the state of their creation, increased the total value of their property largely in excess of their tangible property, which excess grew out of the exercise of the privileges conferred in the use of their tangible property, and such excess valuation is referred to in the books, sometimes as the corporation’s franchise, but it is now come to be more generally designated as intangible property, and is universally regarded and held to be a legitimate subject of taxation. The class of corporations which the statutes make liable for taxes or their intangible property are set forth in section 4077 of our statutes in this language: “Every railway company or corporation, and guarantee or security company, gas company, water company, ferry company, bridge company, street railway company, express company, electric light company, electric power company, telegraph company, press dispatch company, telephone company, turnpike company, palace ear company, dining car company, sleeping car company, chair ear company, and every other like company, corporation or association also every other corporation, company or association having or exercising any special or exclusive privilege or franchise not allowed by law to natural persons, or performing any public service, shall, in addition to the other
In order to enable the assessment board to properly value the franchise, or the intangible property subject to taxation in this state, section 4078 of our statutes requires all corporations subject to the payment of the tax to file a report between the thirtieth day of June and the first day of October of each year with the Auditor of Public Accounts setting forth the facts therein stated, and if the corporation is a common carrier with lines extending beyond the confines of this state, section 4079 requires the statement of additional facts in such report, among which are “the length of entire lines operated, owned, leased or controlled in this state, and in each county, incorporated city, town or taxing district, and the entire line operated, controlled, leased or owned elsewhere.” The latter section also requires that the corporations referred to therein shall also report “the gross and net income or earnings received in this state and out of this state, on the business done in this state, and the entire gross receipts of the corporation, company or association in this state and elsewhere during the twelve months next bef ore the thirtieth day of June of the year in which the assessment is required to be made.” The two following sections, 4080 and 4081, furnish’formulas to guide the assessing board in arriving- at the true value of the intangible property subject to taxation in this state. Since the enactment of the sections referred to, all corporations coming within their purview have made the required reports to the Auditor of Public Accounts, and have been assessed and have paid the taxes on the due proportion of their intangible property, which, under the statutes, has a taxable situé in this state; and it is admitted by the defendant that if it was doing business as a common carrier in this state it would be subject to the franchise tax provided by the sections of the statute and to the payment of taxes on its proportion of intangible property in Kentucky. But it insists that it did not make the report required by the statute to the Auditor of Public Accounts, and that it is not liable for any franchise tax or taxes on any intangible property sought to be assessed because it does not now nor has it ever exercised “any special or exclusive privilege or franchise not allowed
The first question, therefore, is one of fact, which requires for its determination a return to the answers of defendant to the interrogatories propounded to it and to the written stipulation agreed to and filed by the parties. To undertake to insert herein defendant’s answers to the interrogatories, and the parts of the stipulation containing the decisive facts, would be an unnecessary con sumption of time and space, and we will content ourselves by giving the substance of what is shown by them as constituting the facts.
The defendant was incorporated in Virginia on February 20, 1894, and acquired and operated a railway system in Virginia, and other states, until now it owns and operates in its name, in states outside of Kentucky, railroad lines aggregating more than nine thousand miles. In 1868 the legislature of this state incorporated the “Louisville, Iiarrodsburg and Virginia Railroad Company,” which constructed and operated a part of the one hundred and twenty-seven miles of line now ostensibly owned and operated by the “Southern Railway Company in Kentucky.” In 1884 the charter of the Louisville, Harrodsburg and Virginia Railroad Company was amended and the name of the company changed to “Loilisville Southern Railroad Company,” and it subsequently acquired some branch lines which had been constructed by other local railroad companies. In the meantime the Louisville Southern Railroad Company leased its line
At the time of the decretal sale of the properties of the Louisville Southern Railway Company, and at the time of the organization of and taking over of that property by the “Southern Railway Company in Kentucky,” it acquired 769 cars of all kinds, and also 25 steam locomotives, which included its entire rolling stock; and since then whenever any such rolling stock became unfit for use for any cause it was supplied by the defendant, Southern Railway Company, at its own expense without any charge to the “Southern Railway Company in Kentucky.” During all of the time the directors and officers of the two companies were the same individuals, but perhaps the “Southern Railway Company in Kentucky” did not have the number of directors that the defendant, Southern Railway Company, had, but the members .of the directorate in the one company were also members of the directorate in the other. The receipts from the operation of the portion of the system operated in the name of the “Southern Railway Company in Kentucky” were and are sent directly to its treasurer in Washington, who is also the treasurer of the defendant company, since, as we have seen, each company has the same officers. The “Southern Railway .Company in Kentucky” in making its reports to the Interstate Commerce Commission stated each year that it was merged in the defendant, Southern Railway Company, and the latter company made the same report and also stated in its annual reports to its
The same unifying facts are not shown with reference to the 'other three companies involved, viz.: The Cumberland Eailroad Company, the Cumberland Eailway Company and the Mobile and Ohio Eailroad Company. In the latter company the defendant is shown to own a majority of the stock, and in this way it, in a sense, controls that company at least in the election of its directors and officers, many of whom are the same as those in the defendant company, but it is not shown that the earnings of that company are handled by the defendant to the extent and in the same manner as those of the “Southern Eailway Company in Kentucky” are handled; nor does it appear that the defendant furnishes to that company its depleted rolling stock either with or without charge to it. Many of the acts indicating complete ownership found to exist with reference to the “Southern Eailway Company in Kentucky” are not shown with reference to the operation of the Mobile & Ohio lines. The Cumberland Eailroad Company is a Tennessee corporation, and has a different set of officers from the defendant, and while the latter may own a majority of its stock and control its policies, it is quite clear that there is not enough appearing in the record to destroy the separate identity of the two corporations, or to justify us in treating them as unified in a single operation. The same may be said with reference to the Cumberland Eailway Company, which, however, operates only 1.74 miles of track, all of which is in Bell county, in this state.
We will therefore devote the remainder of this opinion to a determination of the question whether the line of railway which is ostensibly operated by the “Southern Eailway Company in Kentucky” is and has been actually in legal contemplation owned and operated by the defend
It is earnestly insisted by counsel for defendant that 'neither its ownership of a majority or even all • of the stock in the “Southern Railway Company in Kentucky,” nor the maintenance by it of an office in this state for the purpose of soliciting and routing freight and passengers to their destination, constitutes “doing business” in this state so as to render it liable for the taxes sought .to be imposed, and in support of the stock ownership contention we are referred to the cases of Commonwealth v. Muir, 170 Ky. 435; Calor Oil and Gas Co. v. Franzell, 128 Ky. 715; City of Louisville v. McAteer, 26 Ky. L. R. 425; Bell, Sheriff v. City of Louisville, 106 S. W. (Ky.) 86; Conley v. Mathieson Alkali Works, 190 U. S. 406, and Interstate Commerce Commission v. Stickney, 215 U. S. 98, and cases and authorities referred to therein; and in support of the latter contention with reference to the maintenance of the office for the solicitation of freight and passengers, the cases of Green v. C. B. & Q. Ry. Co., 205 U. S. 530, and Philadelphia and Reading Railroad Co. v. McKibben, 243 U. S. 264, are cited. Both propositions are sound in the abstract as the cases cited fully demonstrate, and as is also shown in the text of Fletcher’s Cyclopedia of Corporations, vol. 9, pages 9985 and 10024, with numerous cases cited in the notes. Indeed, neither of the propositions is disputed by counsel for the Commonwealth, but tlie question involved here is not what constitutes “doing business,” but rather who is it that is doing the business which is done by the ‘ ‘ Southern Railway Company in Kentucky.” If there were nothing else appearing in this case except what is contained in the two contentions just mentioned, there would be no difficulties in the way of affirming the judgments appealed from; but the problem before us is whether the facts as hereinbefore recited are sufficient, taken in connection with the ownership of the entire stock, to show that defendant is the real owner and operator, and of course the controller, of the railroad lines in Kentucky, which purport to be owned, operated and controlled by the “Southern Railway Company in Kentucky.”
It is insisted that the tax sought to be collected can only be imposed upon corporations, companies or associations “exercising any special or exclusive privilege or franchise not allowed by law to natural persons,” and that the defendant, as owner of the stock of the “Southern Eailway 'Company in Kentucky,” is exercising only the same privilege that a natural person may exercise. If, however, the facts are that in addition to the ownership of such stock the defendant is in reality performing a public service in Kentucky by exercising the franchises and privileges of a common carrier in the name of anothe.r as agent only and to whom the Commonwealth has granted such franchises and privileges, it would be doing something more than a natural person would be authorized to do, and the question again recurs whether the defendant is in reality operating the line of the “Southern Eailway Company in Kentucky in the manner indicated. It has been a guiding rule of courts from time immemorial to regard the substance rather than the shadow, and to determine questions according to the actual facts rather than according to appearances.
A similar question was before the same court in the case of Chicago, Milwaukee & St Paul Railway Co. v. Minneapolis Civic and Commerce Association, 247 U. S. 490. In that case two trunk line railway companies, one of them designated in the opinion as the “Milwaukee Company” and the other as the “Omaha Company,” owned and operated lines of railroad running* into the cities of Minneapolis -and St. Paul, Minnesota. They organized a local company known as the Minneapolis Eastern Railway Company which connected the termini of the two trunk lines in Minneapolis with the city of St. Paul and with certain milling interests therein. Under a contract with the three companies only 300 shares of the authorized capital stock of the local company were issued, and each of the trunk lines took 75 shares, and 5
Other illustrative cases are Colonial Trust Co. v. Montello Brick Works, 172 Fed. 310, and Cutler v. Cutler-Hammer Manufacturing Co., 266 Fed. 388. In those cases, as well as in 26 R. C. L. 164, the rule is announced that whether a corporation is “doing business,” so as to render it amenable to the local laws, is a question which “depends upon the facts of each particular case,” and is necessarily not concluded by the mere fact of adopting a different name in which the particular business is transacted. The case of Peterson v. Chicago, Rock Island & Pacific Railway Co., 205 U. S. 364. strongly relied on, does not militate against that rule, since under the facts of that case it was determined that the companies involved were not identical or unified, but continued to maintain their separate existence and also the independent operation of their respective properties.
In the case of Southern Railway Company in Kentucky v. Thomas, 28 Ky. L. R. 951, the question of the identity of the same two companies here involved was before this court and many of the facts appearing in this case appeared also in that one, and the court said: ‘ ‘ Taking all the
In addition to the foregoing authorities, our attention has been called to the two English cases of Apthorpe v. Peter Schoenhofen Co., 79 Law Times Rep. (N. S.) 98, and St. Louis Breweries v. Apthorpe, 79 Law Times Rep. (N. S.) 551. In those two cases an imposed income tax was sought to be collected from an English corporation which transacted none of the business in its name from which the company derived the income sought to be taxed, but the business was conducted in America, in the one case by an American corporation located in Chicago, Illinois, and in the other case by a similar corporation located and operated in the-city of St. Louis, Missouri; but the English corporation owned the stock of the two American companies, elected their directors and otherwise controlled their active management, and to all intents and purposes the English company was actually engaged in business in America, but in the name of the two American companies; and the courts held that the income was produced by business transacted by the English companies and sustained the tax. In the St. Louis Breweries ease the court said: “What one looks at is not the words, but the substance. Now, there being to my mind this perfectly satisfactory ground on which to base the decision in this case, I do not propose to discuss the question whether the English company can be said to be carrying on the business of the American company. All I would wish to observe is that in matters of this kind, especially in revenue matters, it seems to me that one ought to look at the- substance, and not merely at matters of machinery and form; and there is a great deal to be sai-d, I -think, in favor of the larger view taken by the attorney general that, in effect -and substantially, this English Company is, through the American company, doing the business they do.”
In the light of the foregoing authorities, and many others which could be cited, and looking at the proposition from a logical and common sense standpoint, we cannot escape the conclusion that in each of the years involved defendant, Southern Railway Company, was the owner of and actually operated the lines of the “Southern Railway Company in Kentucky,” not in its name but in that of the latter company, which latter fact was the shadow, but the actual operation was the substance. Defendant could not have more effectually operated these lines if it had done so in its own name. Every act looking to the control and management of them during the times mentioned was set in motion and actually executed by the same brains which conducted the operation of its admittedly owned lines, and the income from the Kentucky operation was sent to and presumably disbursed by the same officer who received and disbursed the income from the Southern Railway system proper. The defendant gave out to its stockholders and announced to the traveling’ public that it owned the lines of the “Southern Railway Company in Kentucky,” and to allow it to escape taxation on its just proportion of its intangible property subject to taxation in Kentucky, because of the mere shell or hull in whose name it was oper
But, it is insisted that this would result in taxing in Kentucky property having no situs here. A sufficient answer to this is that under the conclusions we have reached the result is the same as if the Kentucky division had been actually operated in the name of the defendant, the same as is the operation of the Illinois Central Railroad Company and other foreign common carriers who pay a similar tax under the same statute. The authorities are unanimous in holding that the intangible property subject to local taxation is not to be estimated alone according to the business done on that division of the railway system located within the taxing authority, but it is to be proportioned according to the business done over the entire system of which the local line or division is a part. Thus, in the case of Cleveland, etc. Ry. Co. v. Backus, 154 U. S. 439, it is said: "The true value of a line of railroad is something more, that an aggregation of the values of separate parts of it, operated separately. It is the aggregate of those values plus that arising from a connected operation o.f the whole, and each part of the road contributes not merely the value arising from its independent operation, but its mileage proportion of that flowing from a continuous and connected operation of the whole. This is no denial of the mathematical proposition that the whole is equal to the sum of all its parts, because there is a value created by and resulting from the combined operation of all its parts
The Commonwealth in these cases recognizes the righof the defendant to credit the amount of taxes which may be assessed herein by the amount of taxes paid for the respective years on intangible property assessed by the “Southern Eailway Company in Kentucky” which, according to our opinion, is all the relief growing out of that fact to which the defendant is entitled. And, of course, if Kentucky’e proportion of the estimated intangible property of the defendant is not equal to or greater than the amount of intangible property assessed and tax paid by the Kentucky company, no judgment can be rendered against the defendant in either of the cases; otherwise, the Commonwealth is entitled to have assessed the excess of the intangible property, if any.
The proceedings are in the nature of a common law-action but to be tried by the court without the intervention of a jury. The lower court did not reach the point of making an estimation of the intangible property to be taxed in Kentucky, since, as we have seen, the statements were dismissed upon the ground that the defendant was not liable in any event. We therefore have a case in which there is no adjudication upon the amount of property to be assessed by the court having original jurisdiction of the subject matter. The litigants have but lightly discussed the question as to the amount of the estimation to be made, nor are we fully aware that the case when submitted was prepared with that point in view. We have, therefore, concluded to remand the -case to the circuit court- with directions that it proceed to ascertain the amount of intangible property which should be assessed for each of the years involved in Kentucky, according to the prevailing rule of law upon the subject.
Wherefore the judgment in each of the cases is reversed and remancled for proceedings not inconsistent with this opinion.