in the State bears to the entire business done by the company, or the mileage of tracks of a railway company, or of wires, of a telegraph or telephone company, bears to the entire mileage of tracks or wires of the company taxed.

§ 535. The Unit Rule.

As to railroad, telegraph, and sleeping-car companies engaged in interstate commerce the rule thus is, as stated by the court in Adams Express Co. v. Ohio State Auditor,33" that their property in the several States through which their lines of business extends may be valued as a unit for the purposes of taxation, taking into consideration the uses to which it is put and all the elements making up aggregate value, and that a proportion of the whole fairly and properly ascertained may be taxed by the particular State, without violating any federal restriction. The valuation is, thus, not confined to the wires, poles, and instruments of the telegraph company; or the roadbed, ties, rails, and spikes of the railroad company; or the cars of the sleeping-car company, but includes the proportionate part of the value resulting from the combination of the means by which the business was carried on, a value existing to an appreciable extent throughout the entire domain of operation. And it has been decided that a proper mode of ascertaining the assessable value of so much of the whole property as is situated in a particular State is, in the case of railroads, to take that part of the value of the entire road which is measured by the proportion of its length therein to the length of the whole (Pittsburg, C., C. & St. L. R. Co. v. Backus, 154 U. S. 439; 14 Sup. Ct. Rep. 1114; 38 L. ed. 1031); or taking as the basis of

33 165 U. S. 194; 17 Sup. Ct. Rep. 305; 41 L. ed. 683.

34 Citing Western U. Tel. Co. v. Mass., 125 U. S. 530; 8 Sup. Ct. Rep. 961; 31 L. ed. 790; Mass. v. Western U. Tel. Co., 141 U. S. 40; 11 Sup. Ct. Rep. 889; 35 L. ed. 628; Maine v. Grand Trunk R. Co., 142 U. S. 217; 12 Sup. Ct. Rep. 121; 35 L. ed. 994; Pittsburg, C. C. & St. L. R. Co. v. Backus, 154 U. S. 421; 14 Sup. Ct. Rep. 1114; 38 L. ed. 1031; Cleveland, C. C. & St. P. R. Co. v. Backus, 154 U. S. 439; 14 Sup. Ct. Rep. 1122; 38 L. ed. 1041; Western U. Tel. Co. v. Taggart, 163 U. S. 1; 16 Sup. Ct. Rep. 1054; 41 L. ed. 49; Pullman Palace Car Co. v. Penn., 141 U. S. 18; 11 Sup. Ct. Rep. 876; 35 L. ed. 613.

assessment such proportion of the capital stock of a sleeping-car company as the number of miles of railroad over which its cars are run in a particular State bears to the whole number of miles transversed by them in that and other States (Pullman's Palace Car Co. v. Pennsylvania, 141 U. S. 18; 11 Sup. Ct. Rep. 876; 35 L. ed. 613); or such a proportion of the whole value of the capital stock of a telegraph company as the length of its lines within a State bears to the length of its lines everywhere, deducting a sum equal to the value of the real estate and machinery subject to local taxation within the State (Western U. Tel. Co. v. Taggart, 163 U. S. 1; 16 Sup. Ct. Rep. 1054; 41 L. ed. 49)." 35

§ 536. Adams Express Co. v. Ohio.

This “unit in use" principle of valuation received an extensive application in the case of Adams Express Co. v. Ohio State Auditor,36 decided in 1897, for there the actual tangible property within the State was inconsiderable, whereas the value of the entire concern measured by the amount of business done was very great. Furthermore, there was there lacking that physical unity of plant which is found in railroad and telegraph companies. The court, however, said:

Doubtless there is a distinction between the property of railroad and telegraph companies and that of express companies. The physical unity existing in the former is lacking in the latter: but there is the same unity in the use of the entire property for the specific purpose, and there are the same elements of value arising from such use.

"The cars of the Pullman company did not constitute a physical unity, and their value as separate cars did not bear a direct relation to the valuation which was sustained in that case. The cars were moved by railway carriers under contract, and the taxation of the corporation in Pennsylvania was sustained on the theory that the whole property of the company might be regarded as a unit plant, with a unit value, a proportionate part of which

35 In the earlier part of this quotation the tense has been changed. 36 165 U. S. 194; 17 Sup. Ct. Rep. 305; 41 L. ed. 683.

value might be reached by the state.authorities on the basis indicated.

"No more reason is perceived for limiting the valuation of the property of express companies to horses, wagons, and furniture, than that of railroad, telegraph, and sleeping-car companies, to roadbed, rails, .and ties, poles and wires, or cars. The unit is a unit of use and management, and the horses, wagons, safes, pouches, and furniture, the contracts for transportation facilities, the capital necessary to carry on the business whether represented in tangible or in intangible property in Ohio, possessed a value in combination and from use in connection with the prop erty and capital elsewhere, which could as rightfully be recog nized in the assessment for taxation in the instance of these companies as the others.

"We repeat that while the unity which exists may not be a physical unity, it is something more than a mere unity of ownership. It is a unity of use, not simply for the convenience or pecuniary profit of the owner, but existing in the very necessities of the case resulting from the very nature of the business."

A strong dissenting opinion, concurred in by four justices, was rendered in this case. In a petition for a rehearing of the case,3 Mr. James C. Carter, of counsel for the express company, declared: "The step now taken by the present decision is to evolve a new general proposition, not declared or distinctly discussed in any of the prior cases, that where there is what is called a unity of use between several pieces of property not united together by any physical tie, some of the pieces situated within and some without the State, the value of the parts within may be determined by the value of the whole, even though the part within be physically separable, and is, as separated, an ordinary thing, having an ordinary market value based upon its capability of similar uses in a multitude of different businesses, differing in nothing, so far as the ascertainment of value is concerned, from the thousand other classes of chattels which form the usual subjects of taxation."

27 Adams Express Co. v. Ohio State Auditor, 166 U. S. 185; 17 Sup. Ct. Rep. 604; 41 L. ed. 965.

In the opinion refusing the rehearing prayed for, Justice Brewer said: "The Adams Express has, according to its showing, in round numbers $4,000,000 of tangible property scattered through the different States, and with that tangible property thus scattered transacts its business. By the business which it transacts, by combining into a single use all these separate pieces and articles of tangible property by the contracts, franchises, and privileges which it has acquired and possesses, it has created a corporate property of the actual value of $16,000,000.

Where is the situs of this intangible property? Is it simply where its home office is, or in the State which gave it its comporate franchise; or is that intangible property distributed wherever its tangible property is located and its work is done? Clearly, as we think, the latter. Every State within which it is transacting business and has its property, more or less, may rightfully say that the $16,000,000 of value which it possesses springs not merely from the original grant and corporate property by the State which incorporated it, or from the mere ownership of the tangible property, but it springs from the fact that that tangible property it has combined with contracts, franchises, and privileges into a single unit of property, and this State contributes to that aggregate value not merely the separate value of such tangible property as is within its limits, but its proportionate share of the value of the entire property. . In conclusion let me say that this is eminently a practical age; that we must recognize things as they are and as possessing a nature which is accorded to them in the markets of the world, and that no fine-spun theories about situs should interfere, to enable these large corporations whose business is carried on through many States to escape from bearing in each State such burden of taxation as a fair distribution of the actual value of their property among those States requires."

" 38

38" As incident to this unit rule of valuation with mileage apportionment, the corporation has the right to show by all proper evidence that the application of the mileage rule of apportionment to such valuation is for any reason imperfect and unjust. Thus it may show that it holds property included in such valuation, as an entirety which is exempt from taxation. It

§ 537. Taxation of Capital Stock of Companies Operating in Two or More States.

In taxing the property within the State of a company operating in two or more States the not unusual practice has been to levy the tax on the capital stock of the company, taking as the basis of assessment such proportion of its capital stock as the amount of its business within the State bears to the entire business done; and in railroads, telegraph and telephone companies, determining this proportion by the proportion of the total mileage of track or wires lying within the State. This, for example, was the method employed in the leading case of Pullman's Palace Car Co. v. Pennsylvania, decided in 1891. This also, was the method employed in Delaware, L. & W. R. Co. v. Pennsylvania,40 in which it will be remembered it was held that in appraising the capital stock, tangible property located in other States might not be included.

39

§ 538. Taxation of Movables.

In a series of cases the Supreme Court has held that in taxing the rolling stock of railway, sleeping-car and refrigerator companies, a State may estimate the number of cars upon the average kept and used within the State, and for the determination of this average may use. any reasonable rule, the .one ordinarily employed being that of mileage Conversely that part of the property of a corporation which upon an average is kept and employed outside of the State may not be taxed.12

41

may also show that its property in other States is of disproportionate value, as, for instance, that it is located in a more densely settled community, where it is disproportionately more productive, or consists of terminals in large cities or other States. All such facts are relevant as bearing upon the value of the State's portion of the entire property. A state statute or a procedure by a State under a statute which denied the company the opportunity of proving such facts, would doubtless be held invalid." Judson, Taxation, § 261.

39 141 U. S. 18; 11 Sup. Ct. Rep. 876; 35 L. ed. 613.

40 198 U. S. 341; 25 Sup. Ct. Rep. 669; 49 L. ed. 1077.

41 Pullman's Palace Car Co. v. Pennsylvania, 141 U. S. 18; 11 Sup. Ct. Rep. 42 Union Refrigerator Transit Co. v. Kentucky, 199 U. S. 194; 26 Sup. Ct. Rep. 36; 50 L. ed. 150; New York v. N. Y. C. & H. R. R. Co., 202 U. S. 584; 26 Sup. Ct. Rep. 714; 50 L. ed. 1155.