Wisconsin & Michigan Railway Co. v. Powers
Headline: A railroad tax change is upheld, as the Court allows Michigan to repeal an earlier exemption and lets the State tax railroads operating inside its borders, including apportioning interstate earnings.
Holding: The Court ruled that Michigan’s 1893 statute did not create a binding, irrevocable contract and therefore the 1897 law repealing that exemption and taxing railroads within the State is constitutional.
- Allows states to repeal tax exemptions for new railroads.
- Permits states to apportion and tax the in-state share of railroad earnings.
- Stops companies from treating general tax laws as irrevocable contracts.
Summary
Background
A Wisconsin railroad company bought and built a line in Michigan north of the 44th parallel after a 1893 Michigan law promised a tax break for new railroads meeting certain conditions. The railroad’s earnings never reached the stated threshold, but the company argued the 1893 law created a binding contract that barred later taxation. In 1897 Michigan passed a new law imposing a specific tax on railroad property and business and setting a method to apportion interstate income to the portion earned in Michigan; the railroad sued to stop the tax as unconstitutional.
Reasoning
The core question was whether the 1893 statute created an irrevocable contract preventing later taxation. The Court said it did not: the 1893 law was part of a general public revenue and development plan, not a private bargain with the company, and the State did not clearly and adequately express an intent to bind itself irrevocably. The Court also found the form of the 1897 tax — taxing in-state property and apportioned in-state earnings — proper under controlling principles cited in earlier cases.
Real world impact
The decision leaves Michigan free to tax the railroad under the 1897 law and prevents private parties from treating broad tax statutes as permanent, enforceable contracts. Railroads operating in the State must abide by the tax and the apportionment method for interstate income. The ruling affirms that states may change general tax and revenue rules unless they clearly create a binding, express contract.
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