Opinion — Southern Pacific Co. v. Kentucky

SOUTHERN PACIFIC CO. r. COMMONWEALTH

OF KENTUCKY.

ERROR TO THE COURT OF APPEALS OF THE STATE OF

KENTUCKY.

No. 247. Argued October 11, 12, 1911.—-Deeided November 13, 1911.

Ap artificial situs for purposes of taxation is not acquired by the en-

rollment of a vessel at a port or the marking of that port on the

stern, under §§ 4141 and 4178, Rev. Stat., as amended by the act

of June 23, 1874, 18 Stat. 252, ¢. 467.

The taxable situs of a vessel which has no permanent location within

64 OCTOBER TERM, 1911.

Argument for Plaintiff in Error. 222 U.S.

another jurisdiction is the domicile of the owner. Ayer & Lord Tie

Co. v. Kentucky, 202 U. 8. 409, followed, and Old Dominion Steam-

ship Co. v. Virginia, 198 U. 8. 299, distinguished.

A vessel is built to navigate the seas and not to stay in port and it

does not acquire a situs in one port rather than another by reason

of frequently visiting the former. Hays v. Pacific Mail Steamship

Co., 17 How. 596.

Although equality of burdens be the general standard sought to be

obtained in taxation, the legality of the tax is not to be measured

by the benefit received by the taxpayer, nor are protection and

taxation necessarily correlative obligations.

The taxing power can only be interfered with on the grounds of un-

justness where the abuse is flagrant and can be remedied by some

affirmative principle of constitutional law.

A corporation organized under the law of a State and having its gen-

eral office and holding its corporate meetings therein, receives such

protection from that State as affords a basis for taxing its intangible

property which has not acquired a situs for taxation elsewhere.

The taxable situs of a vessel not permanently located within another

jurisdiction does not depend upon whether the State which is the

domicile of the owner possesses a port which such vessel could reach.

Such a test would introduce elements of uncertainty dependent

upon draft of the vessel and depth of the water.

Vessels engaged in coastwise trade belonging to a Kentucky corpora-

tion held to be taxable in Kentucky although enrolled in the port

of New York, having the name of New York painted on their sterns

and never were at any port in Kentucky.

134 Kentucky, 417, affirmed. ;

Tue facts, which involve the power of the State of

Kentucky to tax steamships belonging to a corporation

of that State but enrolled at the port of New York, are

stated in the opinion.

Mr. Alexander Pope Humphrey and Mr. Maxwell Evarts

for plaintiff in error:

Kentucky is the artificial situs of the ships of the

Southern Pacific Company, New York their actual situs.

They are therefore not rightfully subject to taxation in

Kentucky. _

Taxation is imposed by a State in return for protection

RES ALATA IIE FAS ADEN EY ONO RIED EAE NE HEAT ENTER HI RR De 17 NERY GATE LS MAIL ALIS, WIPES ORO ETNA SEMI

SOUTHERN PACIFIC CO. v. KENTUCKY. 65

222 U.S. Argument for Plaintiff in Error.

given. Unless a State gives some return for a tax im-

posed there is no ground for the tax.

To tax personal property where it has no situs is to

take property without due process of law, and is pro-

hibited by the Fourteenth Amendment.

As to real estate it was never doubted that the taxing

laws of a State could have no extraterritorial force. It

has now come to be settled law that the same is true as

to personal property. Louisville & Jeffersonville Ferry

Co. v. Kentucky, 188 U. S. 385; D., L. & W. R. R. Co. v.

Pennsylvania, 198 U. 8. 342; Union Transit Co. v. Ken-

tucky, 199 U. S. 195.

Six cases have been decided by this court in reference

to the taxation of ships. Hays v. Pacific Mail S. S. Co., 17

How. 596; St. Louis v. The Ferry Co., 11 Wall. 423; Morgan

vy. Parham, 16 Wall. 471; Transportation Co. v. Wheeling,

99 U. S. 273; Old Dominion S. S. Co. v. Virginia, 198 U.S.

299; Ayer & Lord Co. v. Kentucky, 202 U. S. 409.

This court having held that the protection given by the

taxing sovereignty to the thing taxed is the true basis of

taxation, and that this principle should be applied in the

case of personal property, as well as to real estate, it is

not plain why ships alone of all personal property should

be excepted from the rule.

The Court of Appeals of Kentucky declined to hold

that the State which furnished protection to the thing

taxed alone had the right of taxation, upon the ground

that it was prevented from so doing by the decisions of

this court in reference to the taxation of ships.

The decisions cited do not so hold. There is no

case decided by this court which holds that a ship in the

coastwise trade can be taxed by an inland State within

whose jurisdiction it is a physical i:npossibility for it ever

to come. Further than that, in its later decisions this

court has favored the rule of reason and common sense,

viz., that ships should not be taxed in the artificial situs

VOL. CCXxII—5

66 OCTOBER TERM, 1911.

Opinion of the Court. 222 U.S.

of the domicile of the owner, but in their actual situs—

where they receive the protection of the taxing power.

In every case in this court where the principle that the

domicile of the owner was to be regarded as the situs of

the vessel for the purpose of taxation, it was always a

domicile where it was physically possible for that ship to

be, and not a domicile where under no circumstances the

taxing power could have the ship within its jurisdiction.

The question is: Are these ships to be taxed in a State

which does, and can give them, no protection or in a State

which can and does do so—in a State where the fiction of

the law as to personalty following the owner’s domicile

must be extended to an extreme, or in one where they have

an actual situs, so far as possible for ships engaged in

coastwise trade to have a situs, and pay a tax to that State

which does something for them in return?

Mr. Matt J. Holt, with whom Mr. Joseph Selligman

was on the brief, for defendant in error.

Mr. Justice Lurton delivered the opinion of the court.

The question arising upon this writ of error is, whether

certain steamships owned by the Southern Pacific Com-

pany, a corporation of the State of Kentucky, are taxable

in Kentucky as property having a taxable situs there.

The Southern Pacific Company is a corporation organ-

ized under a special act of the General Assembly of Ken-

tucky of March 17, 1884. Acts of 1883-4, p. 725. Very

wide and diverse powers are thereby conferred, among

them being the right to own, lease, maintain and operate

railroads, telegraphs and steamships, though prohibited

from owning, leasing or operating “any railroad within the

State of Kentucky.” By an act of March 21, 1888, the act

of March 17, 1884, was amended by adding thereto the

following: ‘‘ Except subject to and in conformity with the

provisions of the laws of the State of Kentucky applicable

-_ ee ee

FERIA SAL

SOUTHERN PACIFIC CO. v. KENTUCKY. 67

222 U.S. Opinion of the Court.

to railroads, and acquiring no special rights that may be

possessed by any railroads in the State, except the general

and ordinary rights of common carriers as possessed by

railroads generally.’ The company is required to keep its

principal office in the State, with power to open other

offices at places outside of the State, as its business may

make convenient.

By virtue of the authority conferred the company has

acquired and is operating a line of railway from New Or-

leans and Galveston to San Francisco and Portland, to

say nothing of connecting lines in the same region either

owned, leased or controlled through stock domination.

It also owns and operates a line of twenty steamships be-

tween the ports of New York and New Orleans, New York

and Galveston, and New Orleans and Havana, Cuba.

Auxiliary to these ships it also owns barges, tugs and ferry-

boats, which operate exclusively in the harbors of the

ports mentioned. These tugs, barges, ete., were held to

have acquired a permanent situs in such ports, under the

ruling in Old Dominion Steamship Co. v. Virginia, 198

U. 8. 299, and in this the State of Kentucky acquiesced,

leaving open only the question of the taxable situs of the

ocean-going steamships.

All of these ships are enrolled at the port of New York

and carry on their sterns the words “‘ New York,” as re- -

quired by the statute. Two of them sail between New

Orleans and Havana, five between New York and New

Orleans exclusively, and thirteen interchangeably between

New York and New Orleans, and New York and Galves-

ton, Texas. The enrollment at New York and the mark-

ing of the name of that port upon the stern of these

vessels is only of importance upon the question of an

actual situs at New York. The owner has no power to

give his vessel a taxable situs by the arbitrary selection

of a home port, which is neither his domicile, nor the domi-

cile of actual situs. St. Louis v. Ferry Co., 11 Wall. 423;

68 OCTOBER TERM, 1911.

Opinion of the Court. 222 U.S.

Old Dominion Steamship Co. v. Virginia, 198 U. 8. 299;

Ayer & Lord Tie Co. v. Kentucky, 202 U.S. 409.

Sections 4141 and 4178, Revised Statutes, as amended

by the act of June 23, 1874, 18 Stat. 252, c. 467, give to

an owner the right to mark upon the stern of his vessel

either the name of the place of enrollment, the place where

the vessel was built, or the place where the owner resides.

As the place of enrollment is not of itself determinative

of the place of taxation, it is obvious that the right to

select a place to be marked upon the stern as a place of

hail or home port, does not confer the arbitrary right upon

the owner of selecting a place for the taxation of his vessel.

To give to the statute this construction, said this court

in Ayer & Lord Tie Co. v. Kentucky, cited above (p. 426),

‘“‘would be simply to hold that its purpose was to endow

the owner with the faculty of arbitrarily selecting a place

for the taxation of his vessel in defiance of the law of

domicile and in disregard of the principle of actual situs.’

Since, therefore, an artificial situs for purposes of taxa-

tion is not acquired by enrollment nor by the marking

of a name upon the stern, the taxable situs must be that

of the domicile of the owner, since that is the situs as-

signed to tangibles where an actual situs has not been

acquired elsewhere. The ancient maxim which assigns

* to tangibles, as well as intangibles, the situs of the owner

i alah aa aie See Dd

for purposes of taxation has its foundation in the pro-

tection which the owner receives from the government of

his residence, and the ex.ception to the principle is based

upon the theory that if the owner, by his own act, gives

to such property a permanent location elsewhere, the

situs of the domicile must yield to the actual situs and

resulting dominion of another government. Thus in St.

Louis v. Ferry Co., 11 Wallace, 423, 430, this court, after

referring to the taxing power of a State as extending to

all persons and property within its territorial jurisdiction,

said:

NTS ADRES eRe TREareRENOE RRA oA TE SENN EEL RIO IE LL IIS

SOUTHERN PACIFIC CO. ». KENTUCKY. 69

222 U.S. Opinion of the Court.

‘‘In the eye of the law personal property, for most pur-

poses, has no locality. . . . Ina qualified sense it accom-

panies the owner wherever he goes, and he may deal with

it and dispose of it according to the law of his domicile.

If he die intestate, that law, wheresoever the property

may be situate, governs its disposal, and fixes the rights

and shares of the several distributees. But this doctrine

is not allowed to stand in the way of the taxing power in

the locality where the property has its actual situs, and

the requisite legislative jurisdiction exists. Such property

is undoubtedly liable to taxation there in all respects as if

the proprietor were a resident of the same locality. The

personal property of a resident at the place of his resi-

dence is liable to taxation, although he has no intention to

become domiciled there. Whether the personal property

of a resident of one State situate in another can be taxed

in the former, is a question which in this case we are not

called upon to decide.”

The question thus reserved was decided adversely to

the State of domicile in Union Transit Co. v. Kentucky, 199

U.S. 194.

The persistence with which this court has declared and

enforced the rule of taxability at the domicile of the owner

of vessel property, when it did not appear that the ves-

sels had an actual situs elsewhere, is illustrated by the

eases of Hays v. Pacific Mail Steamship Company, 17

Howard, 596; Morgan v. Parham, 16 Wallace, 471; St.

Louis v. Ferry Co., 11 Wallace, 423; Old Dominion Steam-

ship Co. v. Virginia, 198 U. S. 299, and the case of Ayer

& Lord Tie Co. v. Kentucky, 202 U. S. 409.

In Hays v. Pacific Mail Steamship Company it appeared

that the ships of the company were the property of a New

York corporation, and that they were registered at the

port of New York, where the capital represented by them

was assessed for taxation. They were regularly and con-

tinuously employed on the Pacifie coast, and were re-

SpeNeerT EY

70 OCTOBER TERM, 1911.

Opinion of ‘he Court. 222 U.S.

fitted and repaired from time to time at Benicia, in the

State of California. Concerning these ships, which the

State of California sought to tax upen the theory that they

had an actual situs in that State, this court said (p. 598):

‘These ships are engaged in the transportation of pas-

sengers, merchandise, &c., between the city of New York

and San Francisco, by the way of Panama, and between

San Francisco and different ports in the territory of Ore-

gon. They are thus engaged in the business and commerce

of the country, upon the highway of nations, touching at

such ports and places as these great interests demand,

and which hold out to the owners sufficient inducements

by the profits realized or expected to be realized. And so

far as respects the ports and harbors within the United

States, they are entered and cargoes discharged or laden

on board, independently of any control over them, except

as it respects such municipal and sanitary regulations of

the local authorities as are not inconsistent with the Con-

stitution and laws of the General Government, to which

belongs the regulation of commerce with foreign nations

and between the States.

“Now, it is quite apparent that if the State of California

possessed the authority to impose the tax in question,

any other State in the Union, into the ports of which the

vessels entered in the prosecution of their trade and busi-

ness, might also impose a like tax. It may be that the

course of trade or other circumstances might not occasion

as great a delay in other ports on the Pacific as at the port

of San Francisco. But this is a matter accidental, de-

pending upon the amount of business to be transacted at

the particular port, the nature of it, necessary repairs,

&c., which in no respect can affect the question as to

the situs of the property, in view of the right of taxation

by the State.

‘“Besides, whether the vessel, leaving her home port

for trade and commerce, visits, in the course of her voyage

8 Le VLEET UR EIS eli FS AT

SOUTHERN PACIFIC CO. ». KENTUCKY. 71

222 U.S. Opinion of the Court.

or business, several ports, or confines her operations in the

carrying trade to one, are questions that will depend upon

the profitable returns of the business, and will furnish

no more evidence that she has become a part of the per-

sonal property within the State, and liable to taxation

at one port than at the others. She is within the juris-

diction of all or any one of them, temporarily, and for

a purpose wholly excluding the idea of permanently abid-

ing in the State, or changing her home port.”

In St. Louis v. Ferry Co., cited above, the steamboats

in question were owned by an Illinois corporation, which

had its principal office within that State. They were

enrolled at the port of St. Louis, where the principal

officers of the company resided, and where an office was

maintained, in which the corporate meetings were held

and where the corporate seal was kept. That they were

enrolled at St. Louis, the court said, ‘throws no light upon

the subject of our inquiry. . . . The solution of

the question, where her home port is, when it arises, de-

pends wholly upon the locality of her owner’s residence,

and not upon the place of her enrollment.” The steamers

were taxed in Illinois, and were held not subject to taxation

in St. Louis. Upon this subject the court said (p. 431):

‘The owner was, in the eye of the law, a citizen of that

State, and from the inherent law of its nature could not

emigrate or become a citizen elsewhere. As the boats

were laid up on the Illinois shore when not in use, and the

pilots and engineers who ran them lived there, that local-

ity, under the circumstances, must be taken to be their

home port. They did not so abide within the city as to

become incorporated with and form a part of its personal

property. Hence they were beyond the jurisdiction of

the authorities by which the taxes were assessed, and the

validity of the taxes cannot be maintained.”

In Morgan v. Parham, the vessel was owned and regis-

tered in New York, but enrolled as a coaster at Mobile,

*.

i aoe ol cP g ver

72 OCTOBER TERM, 1911.

Opinion of the Court. 222 U.S.

where her master resided and where there was an office

and agent under the contro] of a superior agent residing

at New Orleans, who employed and paid the other officers

and men of the ships. There was also a wharf at Mobile

controlled and occupied by the vessels of the line. The

vessels were engaged in commerce between Mobile and

New Orleans and had been so continuously for several

years. The court held that ‘‘the State of Alabama had

no jurisdiction over the vessels for the purpose of taxation,

for the reason that they had not become incorporated

into the personal property of that State, but were there

temporarily only, and that they were engaged in lawful

commerce between the States with their situs at the home

port of New York, where they belonged and where their

owners were liable to be taxed for their value.

The case of The Old Dominion Steamship Company v.

Virginia, affords an instance of where the domicile of the

owner as a taxing situs was held to have been lost and a

new taxing situs acquired by reason of a permanent lo-

cation within another jurisdiction. But in that case the

judgment was rested upon the fact that the vessels had

for years been continuously and exclusively engaged in

the navigation of the Virginia waters, which State had

thereby acquired jurisdiction for imposing a tax as upon

property which had become incorporated into the tangible

property within her territory.

Coming now to the last utterance of this court, the case

of Ayer & Lord Tie Company v. Kentucky, we find a com-

plete authority for upholding the assessability of these

steamers by the State of Kentucky. The boats there in

question were engaged in interstate commerce between

the ports of Kentucky, Illinois, Mississippi, Tennessee

and Arkansas. They were owned by an Illinois corpora-

tion which had its principal office at Chicago, where taxes

had been paid under the laws of the State, both to the

State and to the city. Brookfield, in the extreme south-

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