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United States Supreme Court


No. 23

Argued: Decided: November 16, 1908

Messrs. David L. Withington, Aldis b. Browne, Alexander Britton, and William R. Castle for appellant.[ Honolulu Rapid Transit & Land Co v. Wilder 211 U.S. 137 (1908) ]

[211 U.S. 137, 140]   Messrs. Charles R. Hemenway and Mason F. Prosser for appellee.

[211 U.S. 137, 141]  

Mr. Justice Holmes delivered the opinion of the court:

This is an appeal from a judgment affirming a decision of the tax appeal court and sustaining a tax upon the appellant. The appellant objected to the tax on the grounds that its franchise was derived from an act of Congress, and therefore was exempt from taxation, and that it charter also exempted it in terms. These objections, taken below, were argued at length before us.

The charter was granted by the Republic of Hawaii on July 7, 1898, the day on which Congress passed the resolution of annexation [30 Stat. at L. 750], and doubts having been felt as to the right of the Hawaiian legislature to grant a charter at that time (see 22 Ops. Atty. Gen. 574; Id. 627), the organic act declared that 'subject to the approval of the President . . . all franchises granted by the Hawaiian government in conformity with the laws of Hawaii, between the seventh day of July, [211 U.S. 137, 142]   eighteen hundred and ninety-eight, and the twenty-eighth day of September, eighteen hundred and ninety-nine, are hereby ratified and confirmed.' Act of April 30, 1900, chap. 339, 73, 31 Stat. at L. 141, 154. It is contended that the effect of this section was to make the charter an act of Congress by adoption. In our opinion this is a mistake. There is no doubt that local legislation under the authority of Congress previously granted is treated as emanating from its immediate, not from its remote, source, in determining rights and liabilities. Kawananakoa v. Polyblank, 205 U.S. 349, 353 , 354 S., 51 L. ed. 834, 836, 27 Sup. Ct. Rep. 526. See Re Moran, 203 U.S. 96, 104 , 51 S. L. ed. 105, 108, 27 Sup. Ct. Rep. 25. A general ratification like that of existing laws in 6 would have no greater effect. We discover nothing in the words just quoted from 73 to indicate that Congress had this particular franchise in view, or meant to adopt it and give it a superior source, or to do anything more than to supply the power that by accident might have been wanting. See Miners' Bank v. Iowa, 12 How. 1, 8, 13 L. ed. 867, 870; Murphy v. Utter, 186 U.S. 95, 106 , 46 S. L. ed. 1070, 1077, 22 Sup. Ct. Rep. 776. We need not pursue further this part of the objection to the tax, except to remark that, in view of obvious purpose, it properly was admitted that July 7 was not excluded from the ratification by the word 'between.' See Taylor v. Brown, 147 U.S. 640 , 37 L. ed. 313, 13 Sup. Ct. Rep. 549. For it also was admitted at the argument before us that, if there was no exemption in the charter, the appellant had no case, and we are of opinion that there was none.

The tax in question is a property tax, and the effect of the decision is to uphold a valuation of the whole property as a going concern, and as more than a mere congeries of items; or, in other words, an addition of half a million dollars to the appellant's valuation, for the franchise of the company. The appellant says that this was contrary to 17 of its charter, construed in the light of the scheme disclosed. That section provides that 'the following charges shall be lawful upon the income of said railway: 1st. The expense of operating, repairs, renewals, extensions, interest, and every other cost and charge properly or necessarily connected with the maintenance and [211 U.S. 137, 143]   operation of said railway. 2d. Dividends may be paid to the stockholders not to exceed 8 per cent on the par value of the stock issued. 3d. A sinking fund may be created for the redemption of any bond which may be issued, or other record debt, and the capital upon the expiration of the franchise. Provided [that the amount is limited as set forth]. 4th. The excess of income shall be divided equally between the government of the Republic of Hawaii and the stockholders of said corporation.' It is said that here is a complete plan for the division of the income, declaring what charges shall be lawful, and that only such taxes are allowed as fall under the words, 'other charge properly connected with the maintenance and operation of the road.'

The taxes authorized as such charges are thought to be limited to a license tax not to exceed $10 on each passenger car used, imposed by 31, and to the provisions of 30. The latter section exempts from duty material produced in and imported from the United States, and goes on to say that 'the property of said association and others shall not be liable to internal taxation while said railway is under construction, provided that, as fast as completed and equipped, the completed and equipped portion shall become liable to such taxation.' It is said that, when the charter was granted, real and personal property were assessed for taxation 'separately as to each item thereof for its full cash value,' with provisos deemed not to be material (Rev. Laws, Hawaii, 1905, 1216); that 30 contemplates a taxation of this kind, and that a taxation of the franchise would be double taxation, and was excluded. It is true that one of the provisos in 1216 taxes going concerns as wholes, but 30 is thought to show a choice of the other method. It is contended that the charter, by fair implication, contracts against any other charges, especially in view of the ultimate division of the excess of income, after the payment of 8 per cent dividend. If the dividends do not exceed 8 per cent, the tax will fall wholly on the stockholders, contrary to the fair understanding of what the charter holds out. [211 U.S. 137, 144]   The argument, of which we have given a summary outline, is far from establishing such a clear renunciation of the right to tax as the cases require. New York ex rel. Metropolitan Street R. Co. v. New York State Tax Comrs. 199 U.S. 1 , 50 L. ed. 65, 25 Sup. Ct. Rep. 705. It appears to us very questionable whether the phrase, 'charges properly or necessarily connected with the maintenance and operation of the road,' has any refernce to taxes. It points in another direction. Taxes are left unmentioned in 17, and the liability to them is assumed. The language of 30 does not import the imposition of a tax that otherwise would be excluded. It takes the liability for granted, and relieves the company from the burden for a certain time. The drift of the section cannot be made clearer by lengthy restatement. It starts with exoneration and merely saves the right to tax the portions completed by a proviso which, in this case, fulfils the proper function of that much-abused term. If any doubt were raised by 17, which does not seem to us to be the case, it would be relieved by this further section of the same act. Nothing else seems to us to need mention in the present posture of the case.

Judgment affirmed.

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