|Stearns v. Minnesota
[ Brewer ]
[ White ]
Stearns v. Minnesota
ERROR TO THE SUPREME COURT OF THE STATE OF MINNESOTA
MR. JUSTICE WHITE, with whom concurred MR. JUSTICE HARLAN, JUSTICE GRAY, and MR. JUSTICE McKENNA, assenting to the judgment of reversal.
The act which was accepted by the corporation, and which is now decided to be an irrevocable contract protected from impairment by the Constitution of the United States, in substance provided that, in lieu of all other taxes upon its property of every kind and nature, whether real or personal, the railroad company should annually pay a fixed gross receipt tax of three percent. It, however, provided that the public lands which the State had received from the United States, and which it had given to the corporation to aid in the construction of its railroad, might be taxed by the State in addition to the three percent gross receipt tax whenever the corporation had parted with its title to such property. When this gross receipt tax was enacted, the constitution of the State commanded that taxation should be equal and uniform, and that property should be assessed according to valuation. In addition, express authority was given to exempt from taxation certain enumerated classes of property, such as universities, schools, churches, burying grounds, etc. From this it resulted that the legislature was deprived of the right to exempt persons or property in any case unless embraced in the classes as to which the power to exempt was specifically granted as above stated. This is not disputed. It follows, then, that if the gross receipt tax was an exemption, it was void because repugnant to the constitution of the State. If so void, it did not create a contract, within the contract clause of the Constitution of the United States, for rights protected from impairment could not flow from an act which had no legal existence. The conclusion, then, that the act which imposed the gross receipt tax created a contract protected from impairment by the Constitution of the United States must rest [p255] on the premise that such act was not an exemption. To this proposition, I cannot give my assent.
True it is that, in McHenry v. Alford, 168 U.S. 61, a territorial legislative act which taxed a railroad corporation by a levy on its gross receipts was decided not to be a violation of the organic act of the territory, which commanded that taxation should be uniform and that all property should be assessed by a method of valuation. But in that case, no question of contract was involved, and the issue presented and the one decided was that the territorial legislature, in selecting a gross receipt tax as the method for reaching railroad property, did not necessarily violate the organic law of the territory as to uniformity and valuation. But this ruling is inapposite to the present case, where the question is not whether the legislature of Minnesota was empowered by the constitution of that State to provide that railroad property should be taxed by a gross receipt tax, but whether, conceding the legislature had the authority to enact such a tax as to railroads or any other class by it selected, it possessed the additional power to enter into an irrevocable contract, by which the method thus selected as to the persons and property designated should be forever thereafter continued.
It seems to me the moment it is admitted that the gross receipt tax is an irrevocable contract, thereby it necessarily results that an exemption from taxation was provided for. The object of forbidding exemptions from taxation is not alone to secure revenue, but is to preserve untrammeled by contract the fullness of all the lawful power of taxation in the successive repositories of such power. In other words, forbidding exemptions in terms directs that no one legislature shall by contract limit the lawful rights of its successors, by taking particular property out of the legislative authority to tax, on the assumption that such persons or property are thereafter to be governed by a contract which exempts from all future exercise of the legislative power of taxation. This seems so obvious that I cannot find words to express the thought that a particular person or property is irrevocably taken, by contract, beyond the reach of the legislative right to tax by any lawful mode deemed from time to time to be best for the public interest, without at the same time saying [p256] that, by such an irrevocable contract, an exemption from taxation is created.
Nor does it seem to me that the decisions of the Minnesota courts, which are referred to as showing that, under the constitution of that State, it was competent for the legislature to enact a gross receipt tax law and provide for its continuance by an irrepealable contract, sustain the proposition deduced from them. In no single one of these cases was the question of irrepealable contract presented, considered or decided in any form. Undoubtedly some of these decisions held that a gross receipt tax was valid, just as it was so held in McHenry v. Alford, supra. But, as I have said, to decide that the general assembly of Minnesota could select a gross receipt tax without violating the rule of uniformity or the requirement of valuation did not involve the question whether one legislature, in exercising its discretion as to such subjects, could in addition impose by an irrepealable contract its action on the succeeding legislatures of the State.
The first case which arose in Minnesota, in which the question whether the levy of a gross receipt tax and the acceptance of the terms of the act by a corporation made an irrepealable contract, is the one now here, and there can be no question that the Supreme Court of Minnesota has declared unequivocally that the element of irrevocable contract, if upheld, would cause the act or acts to become exemptions, and therefore repugnant to the constitution of the State. Even if, however, the Minnesota decisions, prior to the one now before us, had the import which is deduced from them, in my opinion, they would not be decisive of this controversy. The decisions in question were not rendered prior to the enactment of the gross receipt tax which is here in controversy, and therefore it cannot be argued that they entered into and formed a part of such act. In adjudging whether a contract has been impaired by subsequent legislation, it is elementary that this court determines for itself whether there was a contract. Whilst it is true that, in making such inquiry, the persuasive power of state decisions will be taken into view, nevertheless the duty ever remains to determine independently whether the contract existed which it is asserted has been [p257] impaired. Discharging such duty in this case, in view of the provisions of the constitution of the State of Minnesota, my mind cannot be persuaded to the conclusion that an agreement is not an exemption by which a particular person or property is forever, as regards taxation, by irrevocable contract, exempted from the general rules of taxation.
Nor can I agree, because the State of Minnesota received public land from the United States to be used to aid in the construction of a railroad, the general assembly of that State was thereby endowed with the attribute of dealing with such land in violation of the constitution of the State. The constitution of the State was the measure of the powers of the legislature of Minnesota, and, in our system of government, I do not conceive that Congress can confer upon a state legislature the right to violate the constitution of the State. True it is that, in taking the land, a relation of trust was engendered by which the obligation arose to devote the lands to the purpose for which they had been entrusted by Congress to the State. But this, it seems to me, can only signify that the State of Minnesota, through its legislature, was obliged to use the lands in furtherance of the trust in accordance with the powers and under the restrictions imposed by the constitution of the State. Whilst this reasoning is alone to my mind sufficient to refute the theory that the gift by Congress could endow the general assembly with power to disregard the constitution of the State, even if Congress had so expressly directed, the conclusion is cogently reinforced when it is considered that no provision was made by Congress in giving the lands to the State that, in using such lands for the purposes specified in the grant, the State should exempt them by irrevocable contract from taxation. Even if it be conceded arguendo only that such a power could have been lawfully imposed, its exercise ought not to be implied in order thereby to prevent the legislature of the State from using its taxing authority free from the restraints of an irrevocable contract. But again, if it be conceded that Congress could lawfully have authorized the legislature of the State of Minnesota to violate the constitution of that State, and even if it be granted that Congress did so, these concessions should not affect the decision [p258] of this case. For if such power existed, it could only relate to lands given by the United States, and not to all the other real and personal property of the railroad, which came not from the grant by the United States to the State. But the irrevocable contract which is now decided to have been lawfully made by the general assembly of the State of Minnesota was not one dealing only with the lands given by the United States, but was one relating to all the property of the railroad. To enforce its obligations therefore, under the assumption of a trust as to lands given by the United States, is to restrain the power of the State by contract as to property within its borders, not received from Congress, not embraced by the trust, and over v. which the plenary taxing power of the State extends.
Because the provision as to the lands given by Congress to the State is indivisibly united with the other provisions contained in the gross receipt tax law, it does not follow that that which is confessedly repugnant to the constitution of the State should be held to be valid; but it should rather, I think, be decided that the vice which affects a part, and which cannot be separated, operates upon the contract as an entirety, and causes the whole to be void.
Although I dissent, for the foregoing reasons, from some of the grounds stated in the opinion of the court, I yet concur in the judgment of reversal upon one ground expressed therein. Conscious that nothing is needed to strengthen the conclusive reasoning by which the proposition is sustained in the opinion of the court, nevertheless, as the question presents itself to my mind in a somewhat different aspect from that considered by the court, the additional grounds which cause me to concur will now be stated.
In 1871, an amendment to the constitution of Minnesota, which is set out in the opinion of the court, was adopted by a vote of the people. The opinion of the Supreme Court of Minnesota in the case at bar holds that the effect of that amendment was to ratify and confirm the gross receipt tax laws and to deprive the general assembly of all power to repeal or amend such laws, unless the legislative act so doing was submitted to and ratified by a vote of the people. Accepting this construction [p259] as conclusive, it follows that the gross receipt tax laws, even if they contained a grant of exemption, were no longer in violation of the constitution of the State, but did not evidence irrevocable contracts, since they were subject to repeal or amendment by a legislative act approved and ratified by a vote of the people. This suit rests upon an act of the general assembly of Minnesota, approved by the people in 1896, which it is claimed was the first act which repealed or amended the gross receipt tax law relating to the rights of the corporation now here, to the extent that it provided that the public lands given to the railroad should be taxed before the corporation had parted with its title. Before examining the scope of the act relied upon, it is important to bear in mind the relations which are engendered when a contract is entered into by a State subject to the reserved power to repeal, alter or amend. In such case, no irrepealable contract, protected from impairment under the Constitution of the United States, takes effect, because it is impossible to conceive that contract rights which are conferred subject to the power of repeal, alteration or amendment are protected from an impairment which under the terms of the grant the State has reserved a right to make. Louisville v. Bank of Louisville, 174 U.S. 439, 444; Citizens' Savings Bank v. Owensboro, 173 U.S. 636, 644, et seq.
But whilst this is settled, it has also been equally determined that the reserved right to repeal, alter or amend does not confer mere arbitrary power, and cannot be so exercised as to violate fundamental principles of justice by depriving of the equal protection of the laws or of the constitutional guarantee against the taking of property without due process of law. St. Louis, Iron Mountain &c. Railway v. Paul, 173 U.S. 404, 408, and cases cited. And an apt illustration of the application of this doctrine is found in Louisville Water Co. v. Clark, 143 U.S. 1.
Will, then, the enforcement of the amendatory act which is here relied upon, providing for the taxation of the lands before the corporation had parted with its title to them, in spite of the continued exaction of the gross receipt tax, deprive the corporation of its property without due process of law, or deny to it the equal protection of the laws? The repealing act says: [p260]
SEC. 1. All lands in this State heretofore or hereafter granted by the State of Minnesota or the United States or the Territory of Minnesota to any railroad company shall be assessed and taxed as other lands are taxed in this State, except such parts of said lands as are held, used or occupied for right of way, gravel pits, side tracks, depots, and all buildings and structures which are necessarily used in the actual management and operation of the railroads of said companies.
But these provisions, which in and of themselves are clearly an amendment of the gross receipt tax laws, are accompanied by the following proviso:
Provided, that said railroad companies shall continue to pay taxes into the state treasury upon their gross earnings in the same manner and in the same amount as is now provided by law, and that nothing in this act contained shall be construed to repeal said laws, except insofar as the same relate to the tax upon said lands.
[Italics are mine.]
Considering for a moment the ratified agreement which the gross receipt tax law embodied, it is patent that the duties which it imposed and the obligations to which it gave rise were, in the strictest sense, reciprocal or commutative; that is, that the agreement to pay the gross receipt tax, and necessarily the amount of those taxes, was predicated on the obligation on the part of the State to regard the payment of said tax as the discharge by the corporation of all taxes due upon all its real or personal property. The amendatory act, therefore, whilst increasing the sum of the obligation of the corporation to the State to the extent that the lands are no longer to be represented by the gross receipt tax, yet at the same time retains in favor of the State the right to take the whole amount of the stipulated payment of the gross receipt tax in the same manner as theretofore, that is, by the contract. That is to say, the amendatory act preserves the contract in favor of the State as an entirety, by retaining the obligations due by the railroad to the State, and yet purports to repeal, alter, or amend the contract by relieving the State from its obligation to the corporation to include all the property of the latter for the purpose of taxation by a gross receipt tax, which was the consideration upon which the obligation [p261] of the corporation to pay such tax rested. This consequence is made certain by the provision that the gross receipt tax, despite the amendment, shall remain payable in the same amount, and in the same manner as before the passage of the amendatory act, and is additionally made evident by the provision of the amendatory act declaring that it "shall not be construed to repeal" the gross receipt tax act. The situation created by the amendatory act may be thus illustrated: the State leases a building to it belonging for a term of years, conditioned on the payment of a stipulated amount of rent annually. The consideration of the obligation of the lessee to pay in such case would, of course, be the right of occupation granted by the State, and the continued right of the State to collect the rent would depend upon the enjoyment by the tenant of the right of occupation which the contract granted. Now, then, if in such a contract the power was reserved to repeal, alter or amend, and it was exercised by declaring that the right of occupation should cease, but that the duty to pay the rent should continue in the same amount and in the same manner stated in the contract, and that nothing in the amendatory act should be construed as relieving the lessee from the duty to pay the whole of the stipulated rent, a condition strictly analogous to that which arises from the amending act relied on in the case at bar would be presented.
My understanding does not permit me to doubt that to preserve in this case the contract in its entirety, so far as the rights of the State are concerned, and at the same time to destroy the reciprocal duty owed by the State to the other contracting party, is not to repeal, alter or amend the contract at all, but, whilst preserving it, to endeavor by an act of arbitrary power to impose a burden incompatible with the very provisions and terms of the amendatory act itself. As has been previously said, the consideration of the contract obligation of the corporation to pay the gross receipt tax was the duty on the part of the State to consider such payment as a discharge of all taxes upon all the real and personal property of the corporation. The agreements, being thus interdependent, are, of necessity, indivisible, and to retain the entire duty or right of one party to [p262] the contract must lead to the preservation of the corresponding and reciprocal right or duty of the other. In reason, the argument comes to this, that the act purporting to amend, on its face cannot be declared to have done so, without concluding at the same time both that it did alter, repeal and amend, and that it did not. Under these circumstances, to enforce the amendatory act would necessarily be to deny to the corporation the equal protection of the laws, since it would leave the corporation subject to taxation not by the general laws of the State, but by the provisions of a contract, and at the same time subject the corporation to burden wholly incompatible with its liability under the contract. It would be a denial of due process of law to the corporation, since it would be but the recognition of the right of the State, without hearing and without process of any kind, to condemn the corporation to the performance of a duty alleged to be resting on it, and at the same time retain in favor of the State as against the corporation an obligation wholly at variance and in absolute conflict with the supposed duty arbitrarily declared by the amendatory act to rest upon the corporation.