SANTA CLARA COUNTY v. SOUTHERN PACIFIC RAILROAD COMPANY
The state of California taxed fences owned by Southern Pacific Railway Company, but Southern Pacific asserted that the state constitution only allowed taxes on "the franchise, roadway roadbed, rails, and rolling stock." Southern Pacific also claimed that state tax board did not properly subtract its outstanding mortgages from the value of its property. Southern Pacific refused to pay taxes on its fences and the difference account for by subtracting outstanding mortgages. Santa Clara County brought action against it in a state court. The county argued that since it could tax the land which situated the fences, it could also tax the additional value of the land added by the fences. Southern Pacific had the action moved to a federal district court, which ruled that the state did not have jurisdiction to tax fences. The county appealed to the Supreme Court.
Did the California constitution allow the state to increase property taxes against railroad companies when the companies added additional value to the property by building fences? Did the state tax board wrongfully tax property without deducting for the outstanding mortgages against the property owners?
No and Yes. Justice John Marshall Harlan delivered the opinion for a unanimous court. The state tax board tried to levy a single sum against the railway company which both wrongfully included the value of the fences and excluded a deduction for the outstanding mortgages. The state tax board increased taxes on the property based on a arbitrary measure of the value added by the fences. The state constitution required the state and its counties to separately assess the "land, and improvements thereon" before increasing taxes. A state statute specified fences as a form of land improvement. The decision famously implied that equal protection laws provided by the Fourteenth Amendment applied to corporations, but the opinion did not explicitly state this.