Central Railroad v. Pennsylvania

Background

A Pennsylvania railroad company owned 3,074 freight cars in 1951. The company operated only within Pennsylvania but its cars were used three ways: on its own tracks, by a New Jersey railroad (CNJ) on fixed routes, and by other railroads under an industry car‑sharing agreement. Pennsylvania applied a capital stock (property) tax to the full value of the cars. The railroad asked that the value be reduced to reflect time cars spent outside Pennsylvania.

Reasoning

The Court addressed whether Pennsylvania could tax the full value of the cars when many spent part of the year out of state. It said the railroad must prove that some cars had a tax “situs” elsewhere. The Court found the record showed 158 cars ran on CNJ’s fixed routes and regular schedules in New Jersey; those cars could not be taxed by Pennsylvania. But the record did not show that other cars had a definable tax situs in any other State. Therefore Pennsylvania could constitutionally tax the remainder at full value. The Court also rejected the railroad’s equal protection claim and said the taxpayer bears the burden of proving a nondomiciliary taxing right.

Real world impact

States can tax the full value of domiciled companies’ movable equipment unless the taxpayer proves specific portions of the property are taxable in another State. Railroads and other carriers must present evidence showing particular cars were regularly and predictably located in other States to obtain exemptions. The Court vacated part of the state‑court judgment (as to CNJ cars) and remanded for further proceedings consistent with this opinion.

Dissents or concurrances

A concurrence agreed on burden placement but questioned the Due Process basis. A dissent argued many more cars were regularly used outside Pennsylvania and should be taxable elsewhere to avoid double taxation.