Reinhart v. McDonald · 11,915

Court

Circuit Court, N. D. California

Decided

Aug 17, 1896

Judge

McKENNA, Circuit Judge

Posture

Defendant's demurrer to complaint pending

Plaintiffss (3)

J. W. Reinhart and others, receivers of Atlantic & Pacific Railroad Company

C. A. Sterry, E. S. Pillsbury

Defendants (2)

J. R. McDonald, State Treasurer of California

W. F. Fitzgerald, Atty. Gen. Cal., W. EL. Anderson, Asst, Atty. Gen. Cal.

Overview

The demurrer is sustained, with leave to plaintiffs to amend within 20 days, if they shall be so advised; and the motion to dismiss is denied.

Case summary

Receivers of Atlantic & Pacific Railroad Company sued California's state treasurer under Political Code §3669, challenging state taxes on railroad rolling stock used in California. The rolling stock was leased from Southern Pacific Railroad Company and used in interstate commerce between Illinois and California, with taxes already paid in New Mexico. Defendant demurred, arguing federal court lacked jurisdiction (as suit against state) and complaint failed to state a cause of action. The Circuit Court held: (1) federal court had jurisdiction because the state statute allowing suit against treasurer could be invoked in federal court when other jurisdictional grounds existed; (2) rolling stock was not exempt from California taxation merely because used in interstate commerce; (3) payment of taxes in New Mexico did not create exemption; and (4) California constitution applied to all property in the state regardless of ownership, allowing assessment of rolling stock to the lessee. The court sustained the demurrer but granted plaintiffs 20 days to amend.

Abstract

Receivers of a railroad company sued the state treasurer, challenging taxes imposed on leased railroad rolling stock used in interstate commerce within the state, despite taxes paid elsewhere. The court held it had jurisdiction, the rolling stock was not exempt from state taxation due to interstate use or prior payments, and the state constitution permitted assessment to the lessee. The demurrer was sustained with leave to amend, while the motion to dismiss was denied.

Opinion of the court

Majority
opinionMcKENNA, Circuit Judge

Federal court has jurisdiction over suit against state treasurer under state statute
Interstate commerce use does not exempt property from state taxation
Payment of taxes in another jurisdiction does not create exemption
California constitution applies to all property in state regardless of ownership

Jurisdiction

challenged

Statutory basis

Section 3669 of the Political Code of California

Subject matter

Federal court jurisdiction based on diversity or federal question (interstate commerce and constitutional issues)

Jurisdictional holding

Court has jurisdiction; suit against state treasurer under state statute may be brought in federal court when other jurisdictional grounds exist

Jurisdictional facts

Plaintiffs are receivers of Atlantic & Pacific Railroad Company, a corporation of another state
Suit involves federal questions regarding interstate commerce and state taxation

Procedural posture

Posture at trial

Defendant's demurrer to complaint pending

Posture on appeal

Not an appeal; trial court ruling on demurrer

Preserved issues

Jurisdiction of federal court to hear suit against state treasurer
Legality of state tax on railroad rolling stock

Legal categories

Business

Case record

Full case name

REINHART et al. v. McDONALD, State Treasurer.

Docket number

No. 11,915

Court

Circuit Court, N. D. California

Trial court

Circuit Court, N. D. California

Trial court judge

McKENNA, Circuit Judge

Decided

Aug 17, 1896

Opinion author

McKENNA, Circuit Judge

Opinion type

published

Precedential status

precedential

Judges on panel

McKENNA, Circuit Judge

Issues & holdings

Issues raised

affirmed

Holdings

Whether federal court has jurisdiction over suit against state treasurer for allegedly illegal taxes under Political Code §3669

affirmed

Standard of review

de novo

Disposition rationale

Court holds that suit against state treasurer may be brought in federal court when other jurisdictional grounds exist, even if statute primarily contemplates state court suits

Preservation

Issue preserved for review

Whether rolling stock is exempt from California taxation because it is engaged in interstate commerce

affirmed

Standard of review

de novo

Disposition rationale

Court follows precedent that interstate commerce use does not exempt property from state taxation

Preservation

Issue preserved for review

Whether rolling stock is exempt from California taxation because it has situs in New Mexico where taxes were paid

affirmed

Standard of review

de novo

Disposition rationale

Court follows precedent that payment of taxes in another jurisdiction does not exempt property from taxation where it is used

Preservation

Issue preserved for review

Whether rolling stock can be assessed to Atlantic & Pacific Railroad Company as lessee under California constitution

affirmed

Standard of review

de novo

Disposition rationale

Court interprets California constitution as applying to all property in state regardless of ownership, including rolling stock of non-owner lessee

Preservation

Issue preserved for review

Holdings of the court

Federal court jurisdiction over suit against state treasurer

Federal court has jurisdiction to hear suit against state treasurer under Political Code §3669 when other jurisdictional grounds exist

Right of suit against treasurer being given by state statute, it may be brought in federal courts when other jurisdictional grounds exist; numerous authorities support this position

unanimousbinding precedent

Tax exemption based on interstate commerce

Property used in interstate commerce is not exempt from state taxation

Follows Marye v. Railroad Co. and Pullman's Palace-Car Co. v. Pennsylvania which establish that interstate commerce use does not create tax exemption

unanimousbinding precedent

Tax exemption based on situs in another state

Payment of taxes in another jurisdiction does not exempt property from taxation where it is used

Follows established precedent that property may be taxed where it has actual situs and use

unanimousbinding precedent

Assessment of rolling stock to non-owner lessee under California constitution

California constitution applies to all property in the state regardless of ownership, including rolling stock used by lessee

California constitution Article 13, Section 1 includes 'all matters and things... capable of private ownership'; Section 10 provides assessment method for railroads; constitution applies to property 'of the state' without ownership limitations; distinguishes Marye v. Railroad Co. which involved Virginia statute with different language

unanimousbinding precedent

Statutory interpretation

Statute

Political Code of California §3669

Question

Whether suit against state treasurer may be brought in federal court

Court's reading

Statute allows suit against treasurer; may be brought in federal court when other jurisdictional grounds exist

Canons applied

Plain meaningPractical construction

no legislative history

Statute

California Constitution Article 13, Sections 1 and 10

Question

Whether constitution applies to property of non-owner lessees

Court's reading

Constitution applies to 'all property of the state' without ownership limitations; includes rolling stock used by lessee

Canons applied

Plain meaningComprehensive language

no legislative history

Burden of proof

Prosecution burden

Plaintiffs must show tax is illegal under applicable law

Defence burden

Defendant must show jurisdiction is lacking or complaint fails to state claim

Burden met

false

Burden-shifting issues

Plaintiffs failed to show tax was illegal under their claimed exemptions

Standards of review

Jurisdiction of federal court — de novo Legal question of whether federal court can hear suit against state treasurer under state statute
Interpretation of California constitution and tax exemptions — de novo Legal questions of statutory and constitutional interpretation

Timeline

Aug 17, 1896rulingcited in opinion

Circuit Court sustains defendant's demurrer with leave for plaintiffs to amend complaint within 20 days; denies motion to dismiss

Outcome: Demurrer sustained; motion to dismiss denied

Court rules on jurisdictional and substantive tax issues, allowing plaintiffs opportunity to amend

Jurisdiction of federal courtLegality of state tax on rolling stock

McKENNA, Circuit Judge · Plaintiffs' attorneys · Defendant's attorneys Circuit Court, N. D. California trial court

Facts & evidence

Incident

Location

State of California

Key facts

6 facts

Atlantic & Pacific Railroad Company (lessee) operates railroad in California under lease from Southern Pacific Railroad Company
Company had 89 cars and locomotive engines (rolling stock) valued at $56,810 used along railroad line
Rolling stock was assessed and tax collected in New Mexico territory
Rolling stock used in interstate commerce between Illinois and California
Southern Pacific Railroad Company (lessor) paid assessment on railroad including pro rata share of rolling stock in California
Plaintiffs sued state treasurer under Political Code §3669 claiming tax illegal

Disputed questions

Whether rolling stock is exempt from California taxation due to interstate commerce use
Whether rolling stock has situs in New Mexico where taxes were paid
Whether Atlantic & Pacific Railroad Company as lessee can be assessed for rolling stock under California constitution

Procedural history

3 steps

Plaintiffs filed complaint against state treasurer seeking relief from allegedly illegal taxes
Defendant demurred on grounds of lack of jurisdiction and failure to state cause of action
Court heard arguments on demurrer

Evidence in the record

Documentary

Complaint alleging facts about railroad operation and taxation
Political Code of California §3669
California constitution Article 13

Challenged

Evidence type: Tax assessment on rolling stock · Challenge basis: Illegality under interstate commerce clause and multiple taxation · Trial court ruling: admitted · Reasoning: Court found assessments valid under California law · Challenged on appeal: false · Appellate outcome: not applicable

Objects of relevance

89 cars and locomotive engines (railroad rolling stock) valued at $56,810

Policy considerations

State sovereignty in taxation matters
Need for uniform tax collection mechanisms for railroad property spanning multiple counties
Balance between state taxing power and interstate commerce

Authorities

Cited authorities (4)

Marye v. Railroad Co., 127 U. S. 117, 8 Sup. Ct. 1037

followedprecedent

Cited for proposition that interstate commerce use does not exempt property from state taxation

Pullman's Palace-Car Co. v. Pennsylvania, 11 Sup. Ct. 876

followedprecedent

Cited for proposition that interstate commerce use does not exempt property from state taxation

People v. Sacramento Co., 59 Cal. 325

followedprecedent

Cited for proposition that California constitution Article 13, Section 10 is self-executing

People v. Central Pac. R. Co., 105 Cal. 587, 38 Pac. 907

distinguishedquoteddistinguished

Discussed but distinguished; involved different question about classification of railroads

Justice Harrison's remarks about franchise as unit not applicable to tax exemption issue

Related cases (4)

Marye v. Railroad Co., 127 U. S. 117, 8 Sup. Ct. 1037

precedent

Cited for proposition that interstate commerce use does not exempt property from state taxation

Pullman's Palace-Car Co. v. Pennsylvania, 11 Sup. Ct. 876

precedent

Cited for proposition that interstate commerce use does not exempt property from state taxation

People v. Sacramento Co., 59 Cal. 325

precedent

Cited for proposition that California constitution Article 13, Section 10 is self-executing

People v. Central Pac. R. Co., 105 Cal. 587, 38 Pac. 907

precedent

Discussed but distinguished; involved different question about classification of railroads

Statutes

Political Code of California §3669
California Constitution Article 13, Sections 1 and 10

Standards & doctrines

Interstate commerce clause tax immunity doctrine
State taxation power over property within borders

Legal principles applied

Property used in interstate commerce is not exempt from state taxation
State may tax property within its borders regardless of ownership
Federal courts may hear suits against state officers under state statutes when jurisdictional grounds exist

Notable quotes

“The right of suit against the treasurer of the state being given, it may be brought in the federal courts when other grounds of jurisdiction exist, as they do in this case.”

McKENNA, Circuit Judge — Discussion of jurisdiction over suit against state treasurer

Establishes federal court jurisdiction over state tax challenges under state statutes

“The California constitution, therefore, applies to property without regard to its kind or ownership. It is only necessary that it should be 'of the state.'”

McKENNA, Circuit Judge — Interpretation of California constitution's tax provisions

Broad interpretation of state's taxing power over all property within its borders

Index terms67

Summary terms

Legal mechanisms

Various actions

Various actors

Legal concepts

Legal outcomes

Legal issues

Legal procedures

Legal remedies

Legal evidence

Legal arguments

Legal defenses

Legal penalties

Legal procedural steps

Geo locations

Judges

Attorneys

Procedural terms

Entities and documentation

Legal actions

Action type

sustained

Target

defendant's demurrer to complaint

Appealed from

Circuit Court, N. D. California

Context

Court sustains demurrer on grounds that plaintiffs' claims for tax exemption fail as matter of law

Scope

full

Further instructions

Plaintiffs granted 20 days to amend complaint if they wish

Disposition vote

unanimous

Action type

denied

Target

motion to dismiss

Appealed from

Circuit Court, N. D. California

Context

Court denies motion to dismiss, finding federal court has jurisdiction over the suit

Scope

full

Disposition vote

unanimous

Search facets

Parties

Courts

Locations

Statutes cited