Gulf & Ship Island Railroad v. Hewes

Background

A railroad company challenged state tax assessments after relying on a charter passed in 1882 that promised a twenty-year exemption from taxation. The company argued the 1882 charter (and earlier acts from the 1850s) created a contract preventing the State from taxing its property. The State and its tax collector said later state law, including the Annotated Code of 1892, had repealed any such exemption, and the Mississippi Supreme Court concluded the exemption had been repealed.

Reasoning

The Court examined whether the charter created an irreversible contract protected by the Constitution’s protection against laws impairing contracts. It concluded the 1882 law was not an unchangeable contract because the state constitution of 1869 made corporate property “subject to taxation” and prior state decisions treated exemptions as revocable bounties. Because the claimed exemption was legally subject to repeal, the federal courts could not overturn the state court’s construction that the 1892 Code had repealed the exemption.

Real world impact

The decision leaves in place the Mississippi court’s ruling that the railroad’s claimed tax immunity was repealed, so the company cannot avoid the tax assessment. It confirms that special corporate tax exemptions in Mississippi can be revoked under state law and that privilege or franchise taxes count as property taxes for this purpose. The judgment of the state court was affirmed.