Canton Railroad Company v. Rogan
Encyclopedia
Canton Railroad Company v. Rogan, 340 U.S. 511 (1951), is a case in which the United States Supreme Court
held that a state franchise tax
upon the services performed by a railroad in handling import
ed and export
ed goods did not violate the Import-Export Clause of the United States Constitution
.
is an industrial switching railroad operating in the port area of Baltimore, Maryland
. The State of Maryland imposed a franchise tax on the gross receipts of the railroad, apportioned based upon the percentage of the railroad trackage located within the state. A substantial portion of the freight handled by the Canton Railroad involved goods that were either being imported or exported into the United States. Canton Railroad for the tax year of 1946 claimed that $705,957.21 of its total receipts of $1,588,744.48 should be exempt from taxation because they were derived from operations in foreign commerce. The State Tax Commission rejected the railroad's claim of exemption, and imposed a tax of $39,029.34.
Canton Railroad appealed the State Tax Commission to the Baltimore City Circuit Court
and then to the Court of Appeals of Maryland. The Court of Appeals upheld the imposition of the tax with two judges dissenting
.
by Justice Douglas first noted that the Import-Export Clause of the Constitution of Article One
, Section 10, Clause 2 provides that
The opinion then noted that the franchise tax was not similar to those state taxes the Supreme Court had struck down in cases that had taxed goods being exported or imported, in that this tax was a general tax on revenues from the handling of the goods and not on the goods themselves. The opinion held that to import or export involve acts that begin and end at the water's edge (country's border), and that to use the railroad's argument that it was involved in exporting and importing would create a zone of tax immunity covering nearly every forest, mine, and factory in the country. For this reasoning, the Court held that the Maryland franchise tax did not violate the Import-Export Clause. Lastly, regarding a claim that the tax violated the Commerce Clause, the Court noted that prior cases had already held that a state franchise tax structured in this manner did not violate this clause.
The dissent by Justice Jackson
, styled as an opinion reserving judgment on the case, discussed the history of the Import-Export Clause as one of the fundamental policies imbedded in the Constitution. The constitutional concern was that states with ports and their associated roads would exploit this advantage, causing inland states to pay tribute to the seaboard states for the privilege of exportation. The dissent considered this federal policy to go beyond simple direct taxation on goods, and that Maryland's franchise tax had the effect of directly increasing the cost of exports. However, the dissent noted that the effect of the federal policy on the validity of the state tax was not addressed before the state courts or by the railroad company's counsel before the Supreme Court, so the Justice did not wish to express a final view on this matter. This dissenting opinion was also to apply to the companion case
decided on the same day, Western Maryland R. Co. v. Rogan, 340 U.S. 520 (1951).
Chief Justice Vinson
did not take part in the consideration or decision of the case.
The Maryland franchise tax has been recodified at Section 8-101 and 8-102 of the Tax-General Article of the Annotated Code of Maryland
.
Supreme Court of the United States
The Supreme Court of the United States is the highest court in the United States. It has ultimate appellate jurisdiction over all state and federal courts, and original jurisdiction over a small range of cases...
held that a state franchise tax
Franchise tax
Franchise tax is a tax charged by some US states to corporations with a nexus with those states. The common feature of a state's franchise tax is that it is not based on income...
upon the services performed by a railroad in handling import
Import
The term import is derived from the conceptual meaning as to bring in the goods and services into the port of a country. The buyer of such goods and services is referred to an "importer" who is based in the country of import whereas the overseas based seller is referred to as an "exporter". Thus...
ed and export
Export
The term export is derived from the conceptual meaning as to ship the goods and services out of the port of a country. The seller of such goods and services is referred to as an "exporter" who is based in the country of export whereas the overseas based buyer is referred to as an "importer"...
ed goods did not violate the Import-Export Clause of the United States Constitution
United States Constitution
The Constitution of the United States is the supreme law of the United States of America. It is the framework for the organization of the United States government and for the relationship of the federal government with the states, citizens, and all people within the United States.The first three...
.
Background
The Canton RailroadCanton Railroad
The Canton Railroad is a Class III switching and terminal railroad, operating in eastern Baltimore City and Baltimore County. It serves the Helen Delich Bentley Port of Baltimore and local shipping companies, and connects with two Class I railroads: CSX Transportation and the Norfolk Southern...
is an industrial switching railroad operating in the port area of Baltimore, Maryland
Maryland
Maryland is a U.S. state located in the Mid Atlantic region of the United States, bordering Virginia, West Virginia, and the District of Columbia to its south and west; Pennsylvania to its north; and Delaware to its east...
. The State of Maryland imposed a franchise tax on the gross receipts of the railroad, apportioned based upon the percentage of the railroad trackage located within the state. A substantial portion of the freight handled by the Canton Railroad involved goods that were either being imported or exported into the United States. Canton Railroad for the tax year of 1946 claimed that $705,957.21 of its total receipts of $1,588,744.48 should be exempt from taxation because they were derived from operations in foreign commerce. The State Tax Commission rejected the railroad's claim of exemption, and imposed a tax of $39,029.34.
Canton Railroad appealed the State Tax Commission to the Baltimore City Circuit Court
Baltimore City Circuit Courthouses
The Baltimore City Circuit Courthouses are located in downtown Baltimore, Maryland. Facing each other in the 100 block of North Calvert Street, the Clarence M. Mitchell, Jr, Courthouse and Courthouse East house the 30 judges of the 8th judicial circuit for the state of Maryland...
and then to the Court of Appeals of Maryland. The Court of Appeals upheld the imposition of the tax with two judges dissenting
Dissenting opinion
A dissenting opinion is an opinion in a legal case written by one or more judges expressing disagreement with the majority opinion of the court which gives rise to its judgment....
.
Court's decision
The majority opinionMajority opinion
In law, a majority opinion is a judicial opinion agreed to by more than half of the members of a court. A majority opinion sets forth the decision of the court and an explanation of the rationale behind the court's decision....
by Justice Douglas first noted that the Import-Export Clause of the Constitution of Article One
Article One of the United States Constitution
Article One of the United States Constitution describes the powers of Congress, the legislative branch of the federal government. The Article establishes the powers of and limitations on the Congress, consisting of a House of Representatives composed of Representatives, with each state gaining or...
, Section 10, Clause 2 provides that
No State shall, without the Consent of the Congress, lay any Imposts or Duties on Imports or Exports, except what may be absolutely necessary for executing its inspection Laws ...
The opinion then noted that the franchise tax was not similar to those state taxes the Supreme Court had struck down in cases that had taxed goods being exported or imported, in that this tax was a general tax on revenues from the handling of the goods and not on the goods themselves. The opinion held that to import or export involve acts that begin and end at the water's edge (country's border), and that to use the railroad's argument that it was involved in exporting and importing would create a zone of tax immunity covering nearly every forest, mine, and factory in the country. For this reasoning, the Court held that the Maryland franchise tax did not violate the Import-Export Clause. Lastly, regarding a claim that the tax violated the Commerce Clause, the Court noted that prior cases had already held that a state franchise tax structured in this manner did not violate this clause.
The dissent by Justice Jackson
Robert H. Jackson
Robert Houghwout Jackson was United States Attorney General and an Associate Justice of the United States Supreme Court . He was also the chief United States prosecutor at the Nuremberg Trials...
, styled as an opinion reserving judgment on the case, discussed the history of the Import-Export Clause as one of the fundamental policies imbedded in the Constitution. The constitutional concern was that states with ports and their associated roads would exploit this advantage, causing inland states to pay tribute to the seaboard states for the privilege of exportation. The dissent considered this federal policy to go beyond simple direct taxation on goods, and that Maryland's franchise tax had the effect of directly increasing the cost of exports. However, the dissent noted that the effect of the federal policy on the validity of the state tax was not addressed before the state courts or by the railroad company's counsel before the Supreme Court, so the Justice did not wish to express a final view on this matter. This dissenting opinion was also to apply to the companion case
Companion case
The term companion cases refers to a group of two or more cases which are consolidated by a appellate court while on appeal and are decided together because they concern one or more common legal issues...
decided on the same day, Western Maryland R. Co. v. Rogan, 340 U.S. 520 (1951).
Chief Justice Vinson
Fred M. Vinson
Frederick Moore Vinson served the United States in all three branches of government and was the most prominent member of the Vinson political family. In the legislative branch, he was an elected member of the United States House of Representatives from Louisa, Kentucky, for twelve years...
did not take part in the consideration or decision of the case.
Subsequent developments
The holding of Canton Railroad was reaffirmed when it was cited in both the majority and dissenting opinions in United States v. International Business Machines Corp., 517 U.S. 843 (1996), a case involving a federal tax on the insurance coverage of goods to be exported.The Maryland franchise tax has been recodified at Section 8-101 and 8-102 of the Tax-General Article of the Annotated Code of Maryland
Annotated Code of Maryland
The Annotated Code of Maryland, published by The Michie Company, is the official codification of the statutory laws of Maryland. It is organized, by subject matter, in two sets of volumes...
.