CENTRAL R. CO. v. PENNSYLVANIA
Legal provision: Article 1, Section 8, Paragraph 3: Interstate Commerce Clause
Argument of Roy J. Keefer
Chief Justice Earl Warren: Number 400, Central Railroad Company of Pennsylvania, Appellant, versus, Pennsylvania.
Mr. Roy J. Keefer: Mr. Chief Justice, may it please the Court.
The state statute at issue in this case imposes a tax on the capital stock of corporations organized under the laws of Pennsylvania.
It provides that tangible personal property permanently located outside the State should be excluded also exempt assets such as United States securities.
The tax has been construed by the Pennsylvania courts and by this Court as a property tax on the assets of the corporation.
This case presents the validity of the property tax assessment made by Pennsylvania upon the entire fleet of appellant's freight cars numbering 3074.
The assessment included tax also on all of appellant's locomotives numbering 30.
The tax was challenged under the Due Process and Commerce Clauses on the ground that an average number of the locomotives and freight cars had acquired a situs outside the State or were habitually and substantially employed outside the State and therefore, Pennsylvania lack power and jurisdiction to tax them.
The tax was challenged also under the Equal Protection Clause on the ground that the claim made by appellant for exclusion of certain freight cars denied to it, was allowed to other railroads under similar circumstances.
The Court of Common Pleas of Dauphin County Pennsylvania sustained the tax as assessed.
The Supreme Court of Pennsylvania modified the judgment of the trial court by excluding from the tax an average of 13 locomotives claimed by appellant to have acquired a situs outside the State.
But the court sustained the tax on all of appellant's locomotives or all of appellant's freight cars.
The tax on the freight cars is here on appeal.
Appellant, Central Railroad Company of Pennsylvania is a Pennsylvania corporation, having its nominal domiciliary office at Mauch Chunk, Pennsylvania, but having its principal business operating office at Jersey City, New Jersey.
The state court reached the conclusion that all of appellant's freight cars had their taxable situs in Pennsylvania.
Now, since the principal issue before this Court under the process of Commerce Clauses turns on the determination of the question of situs or of the power and jurisdiction of Pennsylvania to tax is within the province of this Court to analyze the facts in order to apply the law and thus ascertain whether the conclusion reached by the state court can be supported.
The facts have been stipulated by the parties and are not in dispute.
However, they are important and I shall summarize them as briefly as possible.
All of the capital stock of appellant is owned by the Central Railroad Company of New Jersey, which for brevity will be referred to hereafter as CNJ.
Appellant's railroad trackage of 207 miles lies wholly within Pennsylvania and extends from Scranton and Wilkes-Barre to the Pennsylvania, New Jersey border at Easton where it connects with railroad lines operated by CNJ of New Jersey to Jersey City and to points on the North -- North Jersey shore.
Appellant and CNJ share offices, officers, administrative and clerical personnel at offices in Jersey City, New Jersey and New York City.
Appellant conducts its railroad operations at and from the Jersey City office.
These operations consist of maintenance and repair of railroad equipment, assignment of locomotives to train movements, assignment of freight cars to meet the demands of shippers, accounting and settlement with all carriers and with all users of its equipment.
There are two separate and distinct types of use of appellant's railroad equipment, the one under the operating agreement between appellant and CNJ and the other, under the car service and Per Diem Agreement of the Association of American Railroads.
First, the operating agreement.
On August 5, 1946, Central Railroad -- I'm sorry, prior to August 5, 1946, CNJ operated its railroad lines in New Jersey and it operated also the railroad lines in Pennsylvania from Easton to Wilkes-Barre and Scranton.
On August 5, 1946, appellant with a consent of the Interstate Commerce Commission took over the operation of the railroad lines in Pennsylvania and entered into an operating agreement with CNJ in order to continue the existing through freight and passenger service over the respective lines of the two companies.
The agreement provided that each should furnish its fair share of locomotives and equipment necessary to operate the through service.
And also, that whenever any unit of locomotive or other equipment of the one party entered onto the lines of the other party, it should thereupon be temporarily leased to the other party until returned -- and operated by the other party until returned to the owner's lines.
Pursuant to disagreement and to the stipulation of the parties in this case, appellant's locomotives and freight cars in the course of through freight shipments originating either on its own lines in Pennsylvania or on the lines of CNJ in New Jersey run on fixed routes and regular schedules over the railroad lines of both companies.
And for that use, appellant received a share of the freight revenue and while its equipment was on the lines of CNJ in New Jersey, it received a mileage rate for its locomotives and a per diem rental for its freight cars.
Justice John M. Harlan: There's no distinction as I understand it between the operation and to the operating agreement of the cars as distinguished in the engine?
Mr. Roy J. Keefer: Locomotive, no, sir.
Justice John M. Harlan: Locomotive.
Mr. Roy J. Keefer: There is not.
However, the state court make --
Justice John M. Harlan: Court --
Mr. Roy J. Keefer: -- did make a distinction.
Justice John M. Harlan: -- Supreme Court to a tax distinction?
Mr. Roy J. Keefer: Did make a distinction.
I'll -- I'll come to that, Your Honor.
Justice William J. Brennan: There is -- you just told us there is a distinction.
I don't know but probably is --
Mr. Roy J. Keefer: There is no dis --
Justice William J. Brennan: -- in -- in a manner of payment of the lease.
One is on the mileage basis and the other is per diem.
Mr. Roy J. Keefer: Oh, yes, one is a mileage rate and the other is a per diem rental, yes.
Now, the second type of the use of appellant's railroad equipment is under the Car Service and Per Diem Agreement.
Under the Interstate Commerce Act of 1920 as amended, common carriers subject to provisions of the Act, including appellant, were required to establish through routes and rates and to interchange equipment in order to provide rapid and eficient through interstate movement of passengers and freight.
The Car Service and Per Diem Agreement of the Association of American Railroads effected a large part, the purposes of the Interstate Commerce Act.
The subscribing members including appellant are component parts of an integrated railroad system.
They are parties to through freight shipments extending beyond their own lines.
The agreement provides for the handling and use of their equipment by other subscribing members until returned to the owner's route.
The owner is entitled to a share in freight revenue on through shipments originating in -- and terminating on its lines and to a per diem rental of $1.75 a day while its equipment is off its lines to destination point and until the equipment has returned to its route.
Justice John M. Harlan: That applies to engine as well as (Voice Overlap) --
Mr. Roy J. Keefer: No, there is involved in this one, Your -- in the second use only the -- only the freight cars.
The locomotives are not involved under the second degree.
Now, it might be of interest to point out just here that refrigerator and tank cars owned by private car companies and by railroads and running on the lines of railroads by -- used by shippers are also subject to provisions of this agreement.
The owner of such equipment receives the same per diem rental of $1.75 a day as for freight cars or a mileage rate at the option of the owner who are the controlling railroad.
Now, appellant's entire fleet of 3074 freight cars was in general service and will subject to this agreement.
The parties have stipulated that while off its own lines in Pennsylvania and the lines of CNJ in New Jersey, the freight cars were run habitually, regularly and continuously on the lines of other railroads operating wholly in Pennsylvania, operating within and without Pennsylvania or operating wholly outside Pennsylvania.
Justice Felix Frankfurter: Would you mind stating that again?
Mr. Roy J. Keefer: The parties have stipulated that while appellant's freight cars are off its own lines in Pennsylvania and of the lines of Central of New Jersey in New Jersey, the cars are run regularly, habitually and continuously on the lines of other railroads operating wholly in Pennsylvania, operating within and without Pennsylvania or operating wholly outside of Pennsylvania.
Justice Felix Frankfurter: But that stipulation neither explicitly nor by implication indicates that these freight cars operated continuously, wholly for a predominant part of the year continuously outside of Pennsylvania line, does it?
Mr. Roy J. Keefer: Your Honor, Mr. Justice Frankfurter, on the basis of information in the record, which I will come to, the -- the record shows that those cars, an average of 2189 out of 3074, were continuously outside of Pennsylvania throughout the entire year, an average of 2189 or 71% of the total.
Justice Felix Frankfurter: Well, that -- that statement is in conflict with the basis of the decision of the Supreme Court of Pennsylvania.
Mr. Roy J. Keefer: You are correct, Your Honor, and I'm going to make that point --
Justice Felix Frankfurter: And that's conclusion of the question in the case.
Mr. Roy J. Keefer: Yes, sir, I'm going to make that point in my argument that the state court and the appellee before this Court in its brief has disregarded a vital stipulated fact in the case.
Justice Felix Frankfurter: That -- that seems to me to be the turning point on the case.
Mr. Roy J. Keefer: Yes, sir.
Now, I -- I just like to point out what is in the record.
Justice Felix Frankfurter: Just take your own time.
Mr. Roy J. Keefer: From the reports filed with appellant under the Car Service and Per Diem Agreement, the names and locations of each of the individual railroads on which its cars were used and a number of days that appellant's cars were on the lines of each were included in the record that parties have stipulate, that a time and used formula of car days shows that an average of 2189 of appellant's cars was continuously on the lines of other railroads outside of Pennsylvania during the --
Justice Felix Frankfurter: Where is that stipulation?
Turn to that quickly.
No if it takes anytime.
Mr. Roy J. Keefer: Well, I think it's 50A of the record, Your Honor.
Justice Felix Frankfurter: Volume I --
Mr. Roy J. Keefer: It's 5A, paragraph 15.
But you have to go to the exhibits, Your Honor and figure up the number of car days that appellant's cars were outside of Pennsylvania in relation to total car days to get that formula to which I refer.
And those are -- in those exhibits are Y2 and Y3 and the page numbers are 131A to 144A.
Justice Felix Frankfurter: Now, do -- did I -- do I correctly under -- did I correctly comprehend or apprehend or both that as to each car, there's the record kept.
Each car has a label, has a -- has a number or a -- or letter and as to each car, there is a record and one can tell from those records what car as to what extent in home territory, by home I mean Pennsylvania, and to what extent outside so that one can tell or is this true, that in capable of mathematical demonstration, how many of these cars are more than 180 odd days, 83 days outside of Pennsylvania.
Mr. Roy J. Keefer: Yes, yes.
Except this, Your Honor, that when you come to the railroads on which these cars are, the railroads themselves operating in and out of Pennsylvania --
Justice Felix Frankfurter: Well, but then to --
Mr. Roy J. Keefer: -- the reports --
Justice Felix Frankfurter: -- the catch of the thing, if -- if these railroads, if these farm railroads so-called meaning, not the railroads that own cars also operate within -- within Pennsylvania.
The fact that these cars are used on other roads on your own doesn't make any difference so far as the taxing part is concern.
Suppose your cars used 300 days of the year, in Pennsylvania, you do not on your roads, does that -- does that precludes Pennsylvania from taxing them against you?
Mr. Roy J. Keefer: No, sir, it does not.
Justice Felix Frankfurter: Alright.
Mr. Roy J. Keefer: It's only when the cars are on the railroad lines outside of the State.
Justice Felix Frankfurter: It's a geographical question, isn't it?
Mr. Roy J. Keefer: Yes, sir.
Justice Felix Frankfurter: Alright.
Mr. Roy J. Keefer: Yes.
Justice John M. Harlan: Is there any dispute on this factual matter that you've just been going over between your comments?
Mr. Roy J. Keefer: There's no dispute, Your Honor, as to the member of car days because that's a stipulated part of the record.
These Exhibits Y2 to Y6 in the record as to the number of car days.
Now, it is set forth in the stipulated facts that a car day ratio indicates that so many cars just 2189 were on the lines of railroads outside of Pennsylvania, inferring that the remainder were either on the lines of Central of New Jersey in New Jersey or where on railroad lines in Pennsylvania.
Justice Felix Frankfurter: It couldn't be agreed between the parties of this -- it is difficult for me to see if there was agreement between the parties on this point, Supreme Court of Pennsylvania should have gone wrong.
On your view, the Supreme Court of Pennsylvania rested its decision on an inaccuracy, is that right?
Mr. Roy J. Keefer: Sir?
Justice Felix Frankfurter: The Supreme Court -- the -- the judgment from which you're appealing rested on an assumption which from -- on a mathematical assumption which from your point of view is wrong.
Mr. Roy J. Keefer: Yes, sir.
Justice Felix Frankfurter: Is that right?
Mr. Roy J. Keefer: Yes.
Justice Felix Frankfurter: That's why I'm a little troubled to have your answer, Justice Harlan does not that there was agreement between the parties in to the fact.
Why does the Supreme Court of Pennsylvania go wrong if there was agreement between the parties?
Mr. Roy J. Keefer: May I -- may I read?
I'm reading from page 50A and 51A of the record, beginning at the bottom of page 50A referring to Exhibit Y.
This Exhibit shows, now skip to subparagraph (f), an allocation within and without Pennsylvania of the freight cars on a car day ratio basis thereby resulting in an allocation of so much value to Pennsylvania and so much value outside of Pennsylvania.
All I've done is converted that value into number of -- of freight cars.
And that -- that's what I have done.
Justice John M. Harlan: Oh, I thought the premise of the -- on this issue, I thought the premise is the Pennsylvania Supreme Court's opinion was that a tax situs outside of Pennsylvania and has been acquired only in respect of cars moving on lines outside of Pennsylvania but within a single state.
Mr. Roy J. Keefer: No, Your Honor.
Justice John M. Harlan: Am I wrong about that?
Mr. Roy J. Keefer: The only -- the only thing that the state court allowed was an average of the 13 out of 30 locomotives that were ran regularly on the lines of Central of Pennsylvania in Pennsylvania and Central of New Jersey in New Jersey.
That's the only thing that the state court allowed.It excluded that much tax from the lower court's judgment.
But it sustained the tax on all of appellant's freight -- the entire fleet of 300 -- 3074 including those run regular -- on fixed routes and regular schedules over its own lines in Pennsylvania and the lines that were -- Central of New Jersey in New Jersey as well as the use of the same fleet of cars on the lines of other railroads under interchange all it -- at a per diem rental of $1.75 a day.
Justice John M. Harlan: Without -- without any apportionment?
Mr. Roy J. Keefer: Without any apportionment.
What we're contending here is that the State's sustaining of the other portion of tax violates Due Process and Commerce Clause and we're contending that apportionment should have been allowed.
Justice Felix Frankfurter: Let me see if I understand this case.
I accept I start with Miller, New York -- New York against Miller.
I accept that.
Now, if a State made tax in cars of impugnable goods, if -- if the cars spend most of their time during a taxing year within a state, the State made tax for the value of those cars, if railroads cars are predominantly for most of the years spent in a -- in another State, in a single State outside of -- of the taxing state, a State can tax.
Mr. Roy J. Keefer: State cannot tax.
Justice Felix Frankfurter: Cannot tax at Miller.
Now, then, take the case, take the situation put by Justice Harlan.
Suppose the cars spend most of their time outside of the taxing State but do not spend most of their time in any other single State outside of the taxing State, that raises a different so that there is no permanence of taxing purposes in anyone's States, that raises a different question which certainly wouldn't allow the State like Pennsylvania to tax so it may well allow the State of incorporation tax.
I'm not saying it would.
Mr. Roy J. Keefer: Pennsylvania -- Pennsylvania is the State of incorporation, Your Honor.
Justice Felix Frankfurter: Well, then do you -- Pennsylvania is?
Mr. Roy J. Keefer: Yes.
Justice Felix Frankfurter: Is that the ground in which the tax is?
Mr. Roy J. Keefer: Yes.
Justice Felix Frankfurter: No State --
Mr. Roy J. Keefer: But now --
Justice Felix Frankfurter: -- because otherwise, if that were not so, then cars that do not spend the major part of the year in any particular State would be tax-free.
Mr. Roy J. Keefer: Now, Your Honor, you -- I put your finger on one of the crucial points in the case.
And that is that these cars while on the lines of other railroads outside of Pennsylvania were not predominantly on the lines of railroads within a particular State but on the lines of railroads throughout a number of States.
But it is my position, sir, that that still prevents Pennsylvania from levying an apportioned property tax.
And I rely upon the authority of this Court in Standard Oil Company versus Peck.
Justice Felix Frankfurter: Could any -- any of the -- could any of the States of -- of the borrowed lines taxed?
Mr. Roy J. Keefer: Yes, Your Honor.
Justice Felix Frankfurter: For one-third of the year, for one-fifth of the year?
Mr. Roy J. Keefer: Your Honor, I have attached a -- an Appendix B to my brief if you would return to it -- turn to it.
It's the last page of the brief.
And there is listed the number of borrowing railroads which had the -- the last --
Justice Felix Frankfurter: 54, alright.
I beg your pardon,
Mr. Roy J. Keefer: My -- my brief.
Appellant's brief it would be 46.
Justice Felix Frankfurter: Alright, thank you.
Mr. Roy J. Keefer: There is listed the names of railroads where appellant's cars were on the lines of each more than 4000 days.
Now, I want to call your attention to one particular one.
Look at Long Island Railroad.
It's about -- below the middle of the page.
There, the number of car days on its lines was 6872.
Now, on the -- on a car day ratio basis, that is taking that number of car days over total car days times the value of all freight cars.
You come up with a value of freight cars of $62,630.03.
That represents 18.83 cars.
Now, the lines of Long Island Railroad lay wholly within the State of New York.
And I submit that under all of the average unit rule decisions of this Court that that average number of 18.83 would have a tax situs in the State of New York.
And thus, the State of New York could appropriately levy a property tax on them.
Now, one of my principle points is that if this nondomiciliary States, any of them or most of them, have the power to levy and apportion property tax on these freight cars while on the lines of railroads running through their quarters or within their territories and that they can tax them.
And I submit that they can.
Then, that existence of that power of these nondomiciliary States to tax precludes the taxation of all of appellant's cars by Pennsylvania, the domiciliary State.
And that is the whole point of my case.
Justice Hugo L. Black: Do you think that a State could tax airplanes or there -- there are certain times going through the air?
Mr. Roy J. Keefer: No, Your Honor.
Justice Hugo L. Black: Why not?
Mr. Roy J. Keefer: There must be a contact with the State.
Justice Hugo L. Black: Well, there is a contrary (Voice Overlap) --
Mr. Roy J. Keefer: Not -- not --
Justice Hugo L. Black: -- and they land and they (Voice Overlap) --
Mr. Roy J. Keefer: Well, that -- that was before this Court in Braniff Airways versus Nebraska State Board in 1954 where the planes were run on fixed routes and regular schedules into and through Nebraska.
And Nebraska, the nondomiciliary State, levied an apportioned property tax upon the planes based upon time of stops at the airports, number of tons originating within Nebraska or -- or delivered in Nebraska.
They use an apportionment, a -- a formula to arrive at an average number and this Court sustained.
Justice Hugo L. Black: Do you think your argument follows the holding there?
Mr. Roy J. Keefer: I submit that it does, except this, Your Honor, that our freight cars while on the lines of these other railroads are not run on fixed routes and regular schedules.
But we do have stipulated fact that they were running regularly, habitually and continuously.
And that -- that kind of movement is the very foundation of all of the average unit rule decisions of this Court.
And where you have that kind of a movement, the average unit rule applies and being applicable, the domiciliary State lacks the power to impose an apportion property tax upon all of the units of transportation equipment which are used not only within its borders but are used within the territories of other States.
And in this particular case, the use in the other States was 71% of total time and total cars continuously.
Justice Felix Frankfurter: Have we -- have this Court decided, I ought to know but I don't -- this Court decided that any State in which cars running in interstate commerce run in a State for a fraction of a year are subject to the property tax for that year?
Have we decided that?
Mr. Roy J. Keefer: Your Honor --
Justice Felix Frankfurter: (Voice Overlap) your argument as you've stated in a minute ago rest on the assumption that that can be done.
Mr. Roy J. Keefer: Your Honor --
Justice Felix Frankfurter: (Voice Overlap) you're trying to oust Pennsylvania of its power by saying the other States' habits.
Mr. Roy J. Keefer: Your Honor --
Justice Felix Frankfurter: You said queerly.
Mr. Roy J. Keefer: I believe that this Court has not decided this particular issue that is here in this case.
It has decided cases involving Pullman Cars run on the lines of railroads on fixed routes and regular schedules, that was the beginning of this average unit apportionment property taxation rule.
Justice Felix Frankfurter: But those were the cases where this Court said so long as cars, cars, platonic cars are in the State throughout the State, they didn't have to be the same cars.That conveys different story.
Mr. Roy J. Keefer: No, no, Your Honor.
Now, that's just precisely what happens in -- in our case here as shown by this appendix to our brief.
Justice Felix Frankfurter: Now, have you decided that -- that New York would have this Long Island Railroad use of your car?
Mr. Roy J. Keefer: I believe -- let me -- let me put it this way, Your Honor, I believe that it has in this way.
Refrigerator and tank cars are used just exactly in the same manner as appellant's freight cars are used in this particular case.
In the refrigerator car cases decided by this Court, American Refrigerator Transit Company versus Hall, 174 U.S., Union Refrigerator Transit Company versus Lynch, 177, U.S., there, the facts were stipulate that the tank cars were run indiscriminately and where interchanged on the lines of various railroads.
One of the Western States, I believe it is Colorado, levied an apportioned property tax upon an average number of these cars which it determined was present within its borders throughout the entire year.
And it arrived at that average number on the basis of a mileage ratio of the cars run in the State to total mileage of all cars run.
Justice Felix Frankfurter: Yes, but the use -- during the year was the standard --
Mr. Roy J. Keefer: Well, here --
Justice Felix Frankfurter: -- the calculation was on the basis of a year.
Mr. Roy J. Keefer: Here -- here also, we're only dealing with one year in our particular case.
But may I go on Your Honor?
Justice Felix Frankfurter: Alright.
Mr. Roy J. Keefer: In that case, this Court held that the fact that such cars were used as vehicles of transportation in the interchange of interstate commerce did not --
Justice Felix Frankfurter: Go on.
Mr. Roy J. Keefer: -- make their -- make the tax, the apportioned tax that was levied there unconstitutional.
So, in effect, this Court has decided that in these interchange cases where the cars are run, as it is stipulated in our case, habitually, regularly and continuously in any single State if the State by a use of a formula related in -- related to time and use of the property within the State, if it uses such a type of formula, and comes up with an average number of cars that were permanently within its borders throughout the entire year, it can tax it.
And that's why I say, Mr. Justice Frankfurter, that New York State in the case of the Long Island Railway Company could tax.
Justice Felix Frankfurter: Mr. Keefer, am I wrong in thinking that a stipulation such as you have here could be made in relation to practically every carrier engaged in interstate commerce because these cars move outside the State often every State?
Very -- am I not right about that?
That this such a stipulation is -- is why it could be made for practically every carrier except -- except the wholly --
Mr. Roy J. Keefer: It could be --
Justice Felix Frankfurter: --intrastate carrier like the Long Island Railroad?
Mr. Roy J. Keefer: Yes, Your Honor, I agree.
It could be if the parties were to agree to such a stipulation.
Justice Felix Frankfurter: No, I mean, such as the transportation fact, isn't it?
Mr. Roy J. Keefer: Yes, it is.
Justice John M. Harlan: Is there any other road on as it could've be if it was a wholly intrastate trackage that represents wholly intrastate trackage?
Mr. Roy J. Keefer: I don't know, Your Honor.
I didn't check into that.
There may be.
Justice John M. Harlan: Looking over, I would suppose not.
Mr. Roy J. Keefer: There may be.
But Your Honor, I -- I submit this.
That any of these nondomiciliary States through which these cars ran could obtain necessary information and data to -- to arrive at an average number of the cars that were used within its particular jurisdiction during the year.
And if that data and the application of it produced an average number, then I submit to them under the decisions of this Court that State could tax it.
And if it can't, then I submit that Pennsylvania, the domiciliary State, cannot levy an unapportioned tax on all of the cars.
Justice Hugo L. Black: The only way a tax could be -- property tax could be imposed on them under your argument is the main with the big railroad that almost use a lot of cars differ each day to a tax -- for a property tax of the proportionate time that each the cars of the railroad had spend in each day tax.
Mr. Roy J. Keefer: Yes, on -- on a mileage basis, Your Honor.
The mileage basis has been approved by this Court any number of times as a reasonable formula to determine use and presence of units of property within the State.
Justice Felix Frankfurter: But the mileage tax that have been used as a mean of ascertaining what has not -- but if not a fictive matter, namely, of concluding that for practical purposes, the cars are in their State during the year.
Mr. Roy J. Keefer: Yes, that is correct.
Justice Felix Frankfurter: That's a very different thing from saying that a fugitive presence in a State gives the State the taxing power over instrumentality with commerce.
Mr. Roy J. Keefer: Your Honor, if it is a fugitive presence, I would agree, but if -- as the --this record shows, it's not a fugitive presence.
Justice Felix Frankfurter: By fugitive I mean non-permanence that the unit cases or varied case, the railroad cases, the Pullman cases etcetera, they all rested on the assumption that since you're dealing with movables and since these are fungible good, one car is no different from another car so far as protection of the State, State's Government is concerned, if cars moving in and out, moving in and out, moving in and out, they're deemed, for all practical purposes, of what the State gives to be in the same situation as the depot -- as the real property of the railroad.
Mr. Roy J. Keefer: Yes, yes.
Well, I submit, Your Honor, that the same thing apply -- was applied by this Court to the refrigerator and tank cars which did not run as regularly on fixed routes and regular schedules as the Pullman Cars.
They ran indiscriminately by -- depending upon the needs of shippers over the lines of railroads.
And their presence in any particular State is just as fugitive, I submit Your Honor, as the presence of the -- the freight cars of this appellant.
Justice Felix Frankfurter: Well, now, help me out, somewhere around 199 U.S. that this Court for the first time decided over a short pungent expression of Mr. Justice Holmes --
Mr. Roy J. Keefer: Yes.
Justice Felix Frankfurter: -- that the domiciliary State cannot tax all the rolling stock of a tank company or railroad company if, if, a big if, if as to the portion with this permanently outside the States.
Mr. Roy J. Keefer: Now, Your Honor, that case was Union Refrigerator Transit Company versus Kentucky --
Justice Felix Frankfurter: Kentucky.
Mr. Roy J. Keefer: -- decided by this Court in 1905.
Justice Felix Frankfurter: I know it was (Voice Overlap) --
Mr. Roy J. Keefer: But now -- not -- but now, this is the way that case arose.
And I -- I must say that the use of this term permanently is often misused in -- in not only in the decisions but also by some tax riders.
Justice Felix Frankfurter: Amount of judges.
Mr. Roy J. Keefer: That case began by an auditor of a county bringing an action to require the listing of property by that tank car company that was present within the predictive with -- within the State.
And the lower court, the county court required the -- the company to list for tax such proportion of its cars as were shown by a system of gross earnings that were used within the State of Kentucky.
Now, -- and that -- that system actually was the -- was the car hire gross earnings or ren -- rental per day for the cars and that showed that an only an average of 40 cars out of an entire fleet of 2000 were on the average within the State of Kentucky, the domiciliary State.
Justice Hugo L. Black: Aside from everything (Voice Overlap) --
Mr. Roy J. Keefer: I -- I would -- I would like to say this.
Justice Hugo L. Black: I (Voice Overlap) --
Mr. Roy J. Keefer: Mr. Chief Justice Stone in his -- a note to his dissenting opinion in Northwest Airlines referred to this Kentucky case.
And he said there that the tank car company did not claim on the record to prove that any average number of its cars were in specific nondomiciliary States.
And he went on to say that since this Court limited the domiciliary State through an apportion tax that the State -- the cou -- this Court must have held by the term use of permanent without the State, that it was permanent, they use the term “permanent” because the cars on the average were used and employed outside the State, the same average number.
Mr. -- Mr. Justice Frankfurter, in this average unit rule decisions of this Court where you do tax an average number and you arrived at that average number, the -- the unit shifting, the average number is said to have a permanent situs within the State.
Justice Felix Frankfurter: Permanent for whatever period of time expands?
Mr. Roy J. Keefer: It's -- it's -- no, an average number was permanent throughout the entire tax year.
Justice Felix Frankfurter: Well, that's a little too difficult for me to comprehend.
Mr. Roy J. Keefer: No --
Justice Felix Frankfurter: If it turns out that cars by whatever -- by whatever formula you're arriving has been in the State only for 23 days.
It's 23 permanent for purposes of our decisions.
Mr. Roy J. Keefer: Your Honor, I -- I submit this -- in this particular case.
When we start out with a -- a time and used formula, let's say, a car days.
And let's say that the total car days here were 1,120,000.
Now, take the case of this Long Island Railroad Company that I have referred to.
The number of days that appellant's cars were on its lines were 6872.
Now, you take that ratio for total car days and you get an average number of 18 cars that were not present in New York for 20 days or 30 days or 50 days but that is a presence for an entire year.
Justice William J. Brennan: In other words they treat -- that's -- that's a method of treating as if 18 of your cars have been for 365 days on the Long Island lines.
It's just a computation, a method of arriving (Voice Overlap) --
Mr. Roy J. Keefer: Mr. Justice Brennan, that is correct.
Now, those -- the same 18 cars weren't there all the time but the units were changing and there it reached 18 words.
Justice William J. Brennan: (Voice Overlap) not actually 100 cars involve but --
Mr. Roy J. Keefer: Throughout the entire year.
Justice Potter Stewart: In other words, if you have the 365 cars, each one of them there for -- in New York for a day and only a day, it had equivalent of one car there all year.
Mr. Roy J. Keefer: No, it just this way, Your Honor.
One car --
Justice Potter Stewart: (Voice Overlap) --
Mr. Roy J. Keefer: -- one car was there 365 days.
Justice Potter Stewart: No, 365 cars each there for a day and only a day --
Mr. Roy J. Keefer: Okay, you're right.
Justice Potter Stewart: -- that the equivalent to one car there all year.
Mr. Roy J. Keefer: You're right.
Justice Hugo L. Black: Aside from everything else that one effect maybe the way you have to reach this but aside from everything else, it makes it almost sure that no railroad -- the car -- the cars can be taxed for the reason that the states can't catch up for the (Inaudible) Government, how could they tax it?
Maybe it's a good thing.
I'm not --
Mr. Roy J. Keefer: Maybe --
Justice Hugo L. Black: -- arguing -- (Voice Overlap) --
Mr. Roy J. Keefer: Maybe that's why.
Maybe that's why we haven't had tax cases often.
They haven't caught up with, except in this refrigerator and tank car cases.
There, they do catch up with.
They require them to -- every State through which they are operated requires that the tank car companies furnish information to those States as to the miles that the car has travelled in the States and so forth and so forth.
Before I -- before I forget it, I should emphasize one thing here, which to my mind shows clearly, at least impart that the Supreme Court of Pennsylvania should be reversed.
And that is in connection with appellant's cars that are stipulated to have been run under the operating agreement between appellant and CNJ that were run on fixed routes and regular schedules over appellant's lines in Pennsylvania and over the lines of Central of New Jersey in New Jersey.
Now, every decision of this Court hold that in -- under such a fact, an average number has obtained a situs outside of the domiciliary State.
And in this case, on this car day ratio such an average number is 158 cars.
And I submit that at least on that, the -- the Supreme Court of the State was clearly wrong and tax on that number of cars, 158, should be excluded from the tax assessment.
Justice Potter Stewart: Your point on that is that even by the Pennsylvania court's own reasoning which made it exclude the locomotives, this way will follow --
Mr. Roy J. Keefer: Exactly so.
Justice Potter Stewart: -- the descent cars at least are excluded.
Mr. Roy J. Keefer: Exactly so, Your Honor.
Justice Byron R. White: Have they escaped actually taxation in New Jersey?
Mr. Roy J. Keefer: Sir?
Justice Byron R. White: Have they actually escaped taxation?
Mr. Roy J. Keefer: Yes, they have.
Justice Byron R. White: It's amazing.
Mr. Roy J. Keefer: But they have.
Now, Your Honors, I'd like to leave that phase of the case because I think we've touched the bottom of principal points.
They remain to additional points that I will cover them quite briefly.
The second point is that appellant's freight cars are exposed to multiple taxation in violation of the Commerce Clause, but that point, it must have necessity be based upon the assumption that other States, nondomiciliary States, had the power to levy a property tax on some of appellant's parks.
And if it -- if -- if one or more other States did have such a power, we submit that they did, then the existence of that power, even though it was an exercise like in New Jersey, Your Honor, exposes appellant's property to multiple taxation and that's in violation of the Commerce Clause.
Now, the appellee will argue that multiple taxation isn't involved because appellant hasn't paid any property tax on its freight cars to any other States, but we submit that that isn't the test.
The test is not what other States did or did not do but what Pennsylvania could do.
The last issue involves discrimination against appellant.
The parties have stipulated that in -- that in assessing capital stock tax against railroads having trackage outside the State an apportionment was allowed to them for their freight cars which they owned while those freight cars were on the lines of other railroads outside of Pennsylvania under interchange just the same as appellant's.
Now, appellant contends that they didn't -- the denial of a similar apportionment to it constitutes discrimination.
The state court denied discrimination on the ground that valid classification could be made and was made in the statute between appellant having no trackage outside the State and other railroads having trackage outside the State.
Now, we submit that any such classification is invalid.
For example, if freight cars while on the lines of other railroads under per diem rental and interchange do not acquire a situs, as the State Court held, apart from the owner's domicile, the domiciliary State and therefore, the domiciliary State has constitutional power to levy an apportioned property tax upon all of the freight cars then I submit that the exercise of that power against the appellant and a failure to exercise it against railroads even though they have trackage outside the State constitutes the very essence of discrimination because even in the case of railroads with trackage outside the State, while their freight cars are on the lines of other railroads, the state -- the state court's decision said, “Well, those didn't acquire a situs apart from the domicile of the owner in Pennsylvania.”
Well, now, if they didn't and Pennsylvania had the power to tax and didn't tax them then I submit that the appellant is being discriminated begins because it's not treated the same.
Justice Hugo L. Black: May I ask you what's the difference in your argument, your suggestion, what is the difference, if any, between his and the suggestion of Chief Justice Stone in his dissent in the Northwest Airlines?
Mr. Roy J. Keefer: Your Honor, his dissent was directed more to proving that there was multiple state taxation involved in the Northwest case (Voice Overlap) --
Justice Hugo L. Black: It was an argument by apportionment -- it was an argument for apportionment, was it not such (Voice Overlap) --
Mr. Roy J. Keefer: Yes, it was.
Of necessity, he said that unless you did apportion, you would have multiple state taxation.
My argument then, Your Honor, doesn't differ much from his except I must admit that in that case, there were fixed routes and regular schedules.
And I think he had a good case for apportionment which this Court recognized later in Braniff Airways versus Nebraska State Board 10 years later in 1954.
So I think this Court actually did follow his argument in his dissenting opinion in the Northwest case in 1944.
And I'm saying also, Your Honor, that I don't think that there's any distinction really between operation on fixed routes and regular schedules and a stipulation of facts that the units of transportation equipment were run habitually, regularly and continuously.
To me, both -- they're both the same.
Those are evidence of a presence within the State.
These are domiciliary or nondomiciliary.
Chief Justice Earl Warren: Mr. Keitel.
Argument of George W. Keitel
Mr. George W. Keitel: May it please the Court.
I believe we could summarize the problem here by saying this.
The Commonwealth and the courts below relied upon the New York Central versus Miller case and we think that's controlling here.
The taxpayer contends that later decisions by this Court and so modified the impact of the New York Central case has to set up a different rule as the domiciliary taxation of freight cars.
I'd like to point out what I consider the salient factors in this case.
As you've already heard, this is a domestic corporation incorporated under the laws of Pennsylvania for the business of operating a railroad.
It has no tracks outside Pennsylvania, operates no railroads and no trains outside Pennsylvania.
When its cars go outside Pennsylvania, they are not being used in the Central Railroad of Pennsylvania's business but they're being used in the business of another railroad.
The Central Railroad of Pennsylvania is not authorized to do business in any other State.
It pays no corporation taxes, privilege, property or otherwise in any other State.
It has the same officers as CNJ and these same officers have filed reports in Pennsylvania where CNJ does the same thing as Central of Pennsylvania does in New Jersey to the effect that they're not doing business here and they are not taxed in Pennsylvania for doing the converse of this very same thing.
In fact, Pennsylvania tax has no or as of any other railroad, it is not doing business within the State.
Our court has construed the capital stock tax which is here involved as being on the actual failure of the capital stock as represented by a property and assets.
This tax has determined by fixing actual value under a number of statutory factors, one being the net worth, assets less liabilities, one being the earnings, whether they go into surplus or dividends and in some instances, the market value or the -- or the value of the stock sales.
Now, the property used in Pennsylvania in operation to outside Pennsylvania is exempt such as U.S. securities are exempt.
This exemption is achieved by a fraction in which the numerator contains all the taxable assets and the denominator contains all the assets and that is applied against this value of the capital stock, so that while this is represented by property in a sense, this tax is actually on capital stock value and not directly on the property.
This tax has also been construed by the Pennsylvania Supreme Court has not opined to what I would call the “converse situation”.
A corporation having property in Pennsylvania which is merely leased and not operated by that corporation is not subject to the capital stock tax, so that this case is consistent with prior rulings of our court in saying that we as a domicile can tax all the property not being operated outside the State in business as well as by saying, if we do not tax, the property of outside corporations which is not being used in Pennsylvania in their business.
I think you've recognized the alternatives to the position of the Pennsylvania Supreme Court.
This railroad if -- if that position is reversed will be subject to tax in all 48 States because its cars were rumbling around through all 48 States.
To me, that is a horrendous alternative to this situation in which we find ourselves here.
This is an exemption and it should be strictly construed under both our laws and the rules promulgated by this Court.
Now, we take the position that Pennsylvania as a domiciliary State may tax all rolling stock unless that rolling stock has acquired a situs outside Pennsylvania.
We contend that that puts the burden of proof on the taxpayer to show that there is a tax situs acquired whether it'd be permanent or whether it'd be the type that was discussed here, this afternoon, a body of cars continuously in one State.
You may recall that the Cream of Wheat case, Cream of Wheat versus Grand Forks where this Court said that even though the business and property of a corporation is outside the State, the State of domicile can still tax it and that the only limitation imposed by the Fourteenth Amendment is merely that a State may not tax a resident for property which has acquired a permanent situs beyond its boundaries.
The Court went on to say the limitation upon the power of taxation does not apply even the tangible personal property without the State of the corporation's domicile if like a seagulling vessel, her property has no permanent situs elsewhere and anywhere.
And this case was held that there's still good law and Newark Fire Insurance Company case decided number of years later in a concurring opinion by Mr. Justice Frankfurter, joined him by Justices Black and Douglas.
They assert in that case the extent of the State's taxing power over a corporation of its own creation recognizing the Cream of Wheat case has neither been restricted nor impaired.
That case has not been cited otherwise than with approval.
Well, that brings me to the New York Central case and in view of the crucial part that case has to play in our position.
I would like to refer to it in detail.
The railroad involved there was a domestic corporation owning or hiring lines without as well as within the State, having arrangements with other carriers for through transportation, routing, and railing and sending its cars to points without as well as within the State and over other lines as well as on its own.
This Court in its opinion in 202 U.S. by Mr. Justice Holmes described the business of the railroad in these words and noticed the similarity between Justice Holmes' description of their business and the business of this tax fair.
The cars often are out of the relator's possession for some time, and may be transferred to many roads successively and even may be used by other roads for their own independent business before they return to the relator or the State.
In short, by the familiar course of railroad business, a considerable portion of the relator's cars constantly is out of the State.
And on this ground, the relator contended that that proportion should be deducted from its entire capital in order to find the capital -- the capital stock employed within the State, discontents and the controller had disallowed, and then the proceedings were remitted back to him to find whether any of Central's rolling stock was used exclusively on the State.
“At the rehearing, no evidence,” I'm quoting now, “It was offered to prove that any of the relator's cars or engines were used continuously and exclusively outside the State during the whole tax year.”
The evidence did show movements of particular cars in central mileage and car mileage inside and outside the States in order to show, "That a certain proportion of cars, although not the same cars, was continuously without the State during the whole tax year.”
That's precisely the situation we have here with this taxpayer.
Parenthetically, it should be noted that in this case, we think the appellant has offered no evidence as to freight cars continuously outside Pennsylvania.
It relies on this ratio of car days in Pennsylvania over car days everywhere as a basis for its allocation of freight cars in the Exhibit Y to which Mr. Keefer has referred.
Now, in deciding the New York Central case, this Court construed the New York tax in the same light as our Pennsylvania capital stock tax.
And this is the language that I'd like to refer to on page 596 of 202 U.S.
“It is true that it has been decided that property, even of a domestic corporation, cannot be taxed if it is permanently out of the State.”
And for that, they cite the Union Refrigerator case, which Mr. Justice Frankfurter referred to the Delaware, Lackawanna and Western case versus Pennsylvania.
And I'd -- I'd like the pause here to point out that this Union Refrigerator case preceded the New York Central decision.
The New York Central decision came afterward and the unsuccessful party in that case cited these refrigerator cases in support of his position to no avail.
Resuming the quote, "But it has not been decided, and it could not be decided, that a State may not tax its own corporations for all their property within the State during the tax year, even if every item of that property should be taken successively into another State for a day, a week or six months and then brought back, using the language of domicile, which now so frequently has applied to inanimate things, the State of origin remains the permanent -- permanent situs of the property, notwithstanding its occasional excursions to foreign parts.”
In the present case, it does not appear that any specific cars or any average of cars was so continuously in any other State to be taxable there.
The absences relied on were not in the course of travel upon fixed routes but random excursions of casually chosen cars determined by the varying orders of particular shippers and the arbitrary convenience of other roads.
And the Court went on to say that they need not consider the parallelism between liability elsewhere and immunity at home.
Well, this case was followed by the Northwest Airlines case where the State of Minnesota was permitted to tax in full of fleet of airplanes.
And then by the Standard Oil versus Peck case, the decision -- the majority opinion written by Mr. Justice Douglas and it's my impression that the taxpayer here is contending that the Standard Oil versus Peck case rendered obsolete these earlier decisions and would require Pennsylvania to apportion these freight cars that are going around in other States.
But if you study the decision in the -- in the Standard Oil versus Peck case, you'll find an entirely different situation.
There, the Standard Oil Company was operating in its barges in Tennessee, Indiana, Kentucky and Louisiana.
They did not operate them at all in Ohio which was a State attempting to tax them.
The only time these barges came in to Ohio was to go to Cincinnati to get some repairs and maintenance.
And for 17.5 miles trip of water that they had to pass through in order to get to one of the Kentucky ports across the river.
So that, here you have a case where the barges of the company was operating on were never -- never in the domiciliary State.
That's one main distinction here.
Here, all of these cars are in the State of Pennsylvania and sometime around or other, they have to start there and they have to go back.
Under this car hire agreement between the railroads, there's an obligation to route them back at -- in a convenient manner and we've printed some of that in the appendix to our brief to show some of those provisions.
The second important difference is, and this is a difference that applies to practically all the cases relied upon by the appellant, in the Standard Oil versus Peck case, the taxpayer was operating the barges.
It was his business.
He was doing business in four other States, namely, operating his barges.
That's true also of the Airlines cases.
It's also true of the Refrigerator and the Pullman cases.
Because in those cases, the Pullman Company is engaged in the business of furnishing Pullman service and they're doing that business when they put their cars on a train.
The tank line companies are engaged in the business of leasing tank cars.
And when they lease tank cars to the different States, different people who rent them, they are doing business, the tank car business.
But in this particular case, when these cars were sent out on these other railroads, it's not in further into the business of the taxpayer but it's in the -- in somebody else's business, some other railroads business that these cars are being used.
I think that's a basic -- an essential distinction.
Now, there have been no decisions of this Court on this point but I do have one case in the State of Kentucky where they caught up with this situation and tried to tax the Union Pacific Railroad.
State of Kentucky imposed a property tax and a franchise tax on the Union Pacific Railroad for its freight cars which were going through the State under these car hire agreements.
Now, this was a lower court case, but it's the only case that I could find and -- and its one more case than the counsel for the appellant could find.
And I think that it's significant because it shows the thinking of at least one court and explains perhaps the reason why the States have not tried to tax these roaming freight cars.
After discussing the tank line and the tank car and the refrigerator cases, the Kentucky court said this, "A railroad freight car, however, is primarily designed for the use of the owning carrier on its own line.
It is not sent by its owner on for the line of another carrier in the prosecution of its owner's business which is to carry freight on the line of such owner.
It is sent on to the line of the connecting carrier for the convenience of the shipper, and because the United States Government requires railroads to do so and through routing.
The tank line and like companies received a substantial profit from the use of their cars within the foreign states or at least their cars are so employed or used in an effort to make such a profit.
But the railroads do not send their cars into other States in an effort to make any profit from them while there.
The foreign railroads are not doing business in such States.
These are tank line and like companies.
Although the freight cars of the foreign railroads are present in this State form time to time, that each one is but temporarily so in the cohesive principle which brings changing units together to form a whole which may be taxed.
That is the use an employment of them together as a whole by the owner in the prosecution of some purpose of his, usually business is absent.”
Justice John M. Harlan: What's the style of that case?
Mr. George W. Keitel: The -- the --
Justice John M. Harlan: What's the name of that one?
Mr. George W. Keitel: It's Commonwealth of Kentucky versus Union Pacific Railroad.
It's in -- you'll find it on -- in my brief.
I've quoted -- I read part of the quote that I have in my brief from that.
So you see -- if you look at the reverse side of the coin as to what powers these other States might have in taxing, you'll find one State already has rejected that possibility.
And we think that it stems back to the central rail or the New York Central versus Miller case which certainly holds that these railroad cars are taxable at the domicile of the owner.
Now, one of the contentions has to do with Standard Oil versus Peck that I mentioned a minute ago.
I'd like to point out that this Court in deciding Standard Oil versus Peck did not overrule the New York Central case.
This is what they said about it.
New York ex rel. so forth versus Miller, “Sustained a tax by domiciliary State on all rolling stock of a railroad.”
But in that case, it did not appear that, “any specific cars or any average of cars” was so continuously in another State as to be taxable there.
Then in Northwest Airlines cases, the decision is mentioned and a similar statement made about that.
Then Justice Douglas states, “Those cases, though exceptional along their facts, though a straight, the reach of the taxing power of the State of the domicile is contrasted to that of the other States.”
But they have no application here, why?
Since most, if not all, of the barges and boats which Ohio has taxed were almost continuously outside Ohio during the taxable year.
And I think that made a great difference in that case.
We also, of course, have the obligation to -- to -- for interstate commerce purposes of apportioning tax values.
But here, it's our position that there is no interstate commerce because this railroad doesn't operate.
It's aligned outside, that kind of interstate commerce that will require this kind of apportionment and as a matter of fact, it pays no taxes and we think we'll not have to pay any taxes in the future.
Justice John M. Harlan: What -- what do you say, Mr. Keitel, perhaps you're coming to it of Mr. Keefer's point with reference to distinction between locomotives and cars under the operating agreement with the Central Railroad in New Jersey?
Mr. George W. Keitel: Of course, we contended in the Pennsylvania Supreme Court that they were -- they were all taxable in Pennsylvania.
And our reasons for that were -- that these trains, when they cross in New Jersey were operated entirely by the Center Railroad in New Jersey.
This was a no sense on operation by the Central Railroad of Pennsylvania.
And if you -- if you read the operating agreement, that is very clear because of responsibility for the equipment and the personnel, the passengers and freight is all assumed by the -- by the other company, the company that's actually operating the train.
And when you're in New Jersey, it's the CNJ that's operating the train.
Now, it was our -- our position -- another interesting thing about it is that the -- this locomotive rental was determined by the -- the depreciated value of a locomotive and they added five mills to pay for the tax which is what our Pennsylvania tax is.
So that, we contend that the Central Railroad in New Jersey, when they paid the rental to Pennsylvania was actually not only paying rental but they were paying the five mills tax that -- that they were trying to get here.
But as to the freight cars themselves, if you examine the operating agreement, you'll find that the freight cars come under this car hire agreement with the other 26 railroads.
And I -- I think it's pretty naïve to assume that all the freight cars of Central Railroad of Pennsylvania run back and forth like the diesel locomotives do.
I would think that a lot of these freight cars would be consigned for New England or some place else.
Justice John M. Harlan: They took an average, didn't they?
Mr. George W. Keitel: They took the mileage in --
Justice John M. Harlan: I mean --
Mr. George W. Keitel: -- they took a mileage average --
Justice John M. Harlan: Well, I get it.
Mr. George W. Keitel: -- in Pennsylvania as against the New Jersey.
Now, I'm sure that these freight cars could go all over.
They don't just come running back and forth, and we may have been mouse trapped on the stipulation here in agreeing that they were used on fixed routes.
Then I think that the fact that their car hire agreement applies makes a difference.
Of course, he probably sensed that I feel that our court was wrong in drawing that --
Justice John M. Harlan: Do you -- do you accept that part of their decision?
Mr. George W. Keitel: And we -- we haven't appealed and --
Justice John M. Harlan: (Voice Overlap) --
Mr. George W. Keitel: -- and we're -- but we're -- we like the right to use the argument here to sustain what the court did decide.
Now, on the stipulation of the facts, we did agree with the taxpayer that these cars are used habitually and/or continuously on other railroads.
Well, that's merely an agreement that the car hire agreement is -- applies to these freight cars.
When you get to examine the figures in, we're entirely in disagreement as to what those figures mean.
I've given a -- a number of examples in my brief as to how these figures add up to almost nothing.
Example number one, there are 345 railroads involved here.
53.8% of the total car days were on the 306 railroads which are entirely outside of Pennsylvania.
If every one of those cars was on every one of those railroads, they'd be on six tenths of 1% days per year per railroad.
The same -- similar thing is true on the railroads in and out of Pennsylvania.
So that -- taking the most favorable position toward the taxpayer on these figures, the cars are more than seven times in -- in Pennsylvania, more than seven times longer than they are in any other railroad.
Another example is the -- the one that was mentioned impart here of the car hire days.
The average is 1979 days per year per railroad.
That could mean either six cars for a full year or 1979 cars for one day.
We don't know what these figures mean.
They're just averages.
And on some of the tables that are offered, the number of cars on the appellant's own railroad had been omitted.
So we -- we contend that these figures do not sustain their burden of proof.
And assuming that they would have a basis, a legal basis for allocating these cars outside Pennsylvania, they can't sustain that burden by showing that they're on some other railroads.
It seems to me that they should have the same burden to show us that they're taxable in California, let's say, as California would have to show their court that they are taxable there.
Taxable situs to me means enough of a situs to enable the -- some State to tax.
All these figures show is that a certain average number of car days were spent on -- on 345 different railroads.
There's nothing fixed.
There's no -- no such thing as fixed routes here because a shipment might go out one day to California and there may not be anymore for -- for six months.
There's no regularity here of anything except the regularity of the application of the car hire agreement.
Speaking briefly about our lack of equal protection, as Your Honors probably recall, there are different kinds of railroads, there are some that have multiple domiciles.
There are four or five operating in Pennsylvania in that category.
And as to them of course, we -- we give a complete allocation by miles -- by miles in Pennsylvania over total miles.
We have to because that's in accordance with our concept that the domicile is the place where the tax situs rests.
There are some railroads, however, that are domicile in Pennsylvania that have tracks outside of Pennsylvania.
And it's true that for this year 1951, there -- in some of those cases, there were freight cars off the system, you might say, which did -- which did not get allocated 100% in Pennsylvania.
Now, as to those railroads, this -- this failure to make this allocation was due to the fact that they were reported.
There was no distinction made in the reporting of the railroads.
And if there was any discrimination, which we don't believe there was, but if there was any, it was because of the imperfect knowledge of the taxing officers and not because of any policy which -- which discriminated against the -- the -- this railroad and in favor of other railroads.
We were not in a position to give this railroad an allocation because it has no tracks outside Pennsylvania and we think that we've satisfied the Equal Protection Clause in this respect.
Let me close by summarizing in saying that we think that the Central Railroad case controls this case.
We think it's still good law as it applies to meandering freight cars and that the alternative to our position convey the taxation of railroads like this in 48 States.
A thing which I don't believe the railroads would really appreciate because well, their -- well, their taxes might not go up much.
They would be subject to a very unfavorable tax situation.
Rebuttal of Roy J. Keefer
Mr. Roy J. Keefer: Mr. Chief Justice (Voice Overlap) --
Chief Justice Earl Warren: Yes, Mr. Keefer.
Mr. Roy J. Keefer: -- (Voice Overlap) a few minutes?
Chief Justice Earl Warren: Yes, indeed, you have some more time left.
Mr. Roy J. Keefer: I would -- I would like to make two points briefly.
Justice -- Mr. Justice Harlan asked Mr. Keitel about the freight cars that ran on fixed routes and regular schedules over the lines of appellant in Pennsylvania in Central of -- of Railroad in New Jersey in New Jersey's.
And Mr. Keitel lacks the point that those cars were not used in Central's -- appellant's business while they're in New Jersey.
I don't think that makes any difference.
They were run on fixed routes and regular schedules.
The power to levy a property tax is based upon physical presence of that property and habitual employment of it within the taxing State, whether that employment is by the owner or another.
Now, certainly, in this particular case, these freight cars that were run on fixed routes and regular schedules were employed in New Jersey regularly.
I would like to devote the rest of the time to try and to place the decision of this Court in New York Central and the Hudson River Railroad Company versus Miller in its proper perspective.
The state court and the appellee, in this case, disregard -- just turn out by disregarding two vitally stipulated facts.
First, that the cars were run on routes -- in fixed routes and regular schedules under the operating agreement.
Two, under the rental agreement, they were run habitually, regularly and continuously.
Then they -- they start out by applying these descriptive terms to both the movement of appellant's cars under both uses.
The state court said indiscriminate interchange with other railroads and absence of fixed routes and regular schedules, the -- the appellee describes the movement as abs -- temporary absence from the domiciliary State.
But on the basis of those descriptive terms applied in this case, they considered that the decision of this Court in the New York Central and Hudson River case apply.
Now, in that case, it is very clear that this Court considered the movement of the cars to be so sporadic and irregular that they came to the conclusion that the cars did not obtain a situs in the other States.
And for that reason, they sustained the -- the unapportioned property tax levied by the domiciliary State.
Justice Felix Frankfurter: You mean -- you mean to say that Justice Holmes assumed that somebody ran a car out once in while on the -- on St.Patrick's Day or on Columbus Day?
Mr. Roy J. Keefer: No, no, Your Honor, there was absence of proof or absence of stipulation of facts, if you please, as to continuity and regularity of movement of the cars in the Miller case.
Justice Felix Frankfurter: Well, they --
Mr. Roy J. Keefer: And there was -- and the -- and the taxpayers submitted no proof on that point.
Justice Felix Frankfurter: Well, I -- New York Central counsel or very able counsel and they didn't think it's necessary to prove that -- that cars of the New York Central are all over the place, not just error in cars, took a joyride.
Almost -- when you say regular routes means a car run on tracks, does it mean much more than that?
Mr. Roy J. Keefer: Yes -- yes, I think it does, Your Honor.
Justice Felix Frankfurter: I mean cars don't have a -- they're engaged in railroading and railroading means carrying things of passengers from place-to-place.
Mr. Roy J. Keefer: Well, now, for example, let's say, regular routes, is that what you said sir?
Justice Felix Frankfurter: Well, that's what -- that's what your stipulation says and I was wondering what that means.
Mr. Roy J. Keefer: Well, the route was the lines of appellant in Pennsylvania and the lines of Central of New Jersey in New Jersey.
Justice Felix Frankfurter: Based in your case --
Mr. Roy J. Keefer: Those were the regular routes.
Justice Felix Frankfurter: (Voice Overlap) and in the Central case, Justice Holmes said he wouldn't care what was the fact, doubtless of fact that many of the New York Central cars were outside the State for six months of a year.
Mr. Roy J. Keefer: Yes.
But there was an absence -- may -- may I go on for just a minute?
Justice Felix Frankfurter: Please do.
Mr. Roy J. Keefer: Mr. Chief Justice Stone again in his dissenting opinion or at least in a note to it in the Northwest Airlines case had occasion to discuss this refrigerator car case that Kentucky decided in 1905 and compare that with the Miller case, and he says that his explanation of Miller was that there was an absence of proof of continuity and regularity in the Miller case which was present in the Northwest Airlines case and which was present in the Kentucky Tank Car case of 1905.
Now, the -- did this Court in Northwest Airlines applied the rule in the Miller case to that case to sustain the Minnesota on apportioned property tax on the entire fleet -- fleet of planes used in Minnesota on 700 Northwestern States?
That was in 1944.
In 1949, 1952 and 1954, this Court very definitely holds that the rule of the Miller and the Northwest Airlines cases does not apply to units of transportation equipment that were run regularly and continuously to and from and through the domiciliary State and other States.
As witness their -- this Court's decision in Ott versus Mississippi Valley Barge Line of 1949, Standard Oil versus Peck in 1952 and Braniff Airways versus State Board in 1954.
Justice Felix Frankfurter: Do you think airlines and ships are all the same as railroads?
Mr. Roy J. Keefer: Airlines?
Justice Felix Frankfurter: Airlines and ships?
Mr. Roy J. Keefer: Yes, I do, Your Honor.
Justice Felix Frankfurter: Do you think they're all the same for tax purposes?
Mr. Roy J. Keefer: I think the principles -- the principles of presence, habitual employment, which give -- gives rise to the power to tax, is the same in -- in all types of these modes of -- of transportation.
Now, the -- the State has made another point also that it has referred to a Kentucky case decided in 1926.
And the -- the counsel for the Commonwealth has said that the appellant hasn't come up with any case.
Well, I -- I do have a case and I have cited it in my brief, decided by the Supreme Court of Oklahoma in 1959, whereas this Kentucky case was decided in 1926, the Oklahoma Supreme Court had before it the problem of whether or not tank cars had a situs in Oklahoma from which income was earned that was subject to tax by Oklahoma.
Well, the owner of the tank cars was a non-resident and leased these tank cars to railroads who in turn leased them to shippers.
And Oklahoma levy the incomes tax against the owner, the owner protested on the ground, “Why -- why I never used those cars.
I wasn't doing business in -- in Oklahoma.
The railroad, I leased them to him.
He leased them to shippers.”
And the Oklahoma Supreme Court held that “Even though you're not doing business in Oklahoma, an average number of your tank cars had a situs there from which you derived income which is subject to the state tax.”
So the point of that case is that you can have situs of property, an owner can have situs of property apart from his dom -- domicile from which he derives income and his tax revolve in that State where his property is located from which he receives income.
I think that answers, does it Your Honors?
Chief Justice Earl Warren: We'll recess now, Mr. --