Norfolk & Western Railway Co. v. North Carolina Ex Rel. Maxwell

Background

A Virginia railroad with branch lines in North Carolina reported no taxable income for 1927–1929. North Carolina’s tax commissioner reassessed the company and fixed amounts for each year, which the railroad paid and then sued to recover. The State’s law calculated taxable net income by taking the railroad’s gross operating revenues within North Carolina (counting an equal mileage share of interstate business) and subtracting a proportionate share of system operating expenses based on the Interstate Commerce Commission accounts.

Reasoning

The central question was whether applying that mileage-apportionment formula to this railroad violated the Constitution by unfairly burdening its North Carolina operations. The Court said the formula is not invalid on its face, though it can be unfair in particular cases. The railroad produced evidence that actual operating expenses in North Carolina were higher, but it did not present matching evidence about actual revenues there. Because the assumed relationship between revenues and expenses must be disproved on both sides, the trial judge found the State’s evidence persuasive and the courts below rightly affirmed the reassessments.

Real world impact

The decision lets the State keep the reassessments here and confirms that mileage-based apportionment remains a permissible method unless a taxpayer makes a full, clear showing the formula produces oppression. Businesses challenging such formulas must present evidence on both revenues and expenses to prevail. The Court did not decide every possible situation where a formula might be impossible to apply.