Southern Railway Co. v. Greene
Headline: Court blocks Alabama law imposing extra franchise taxes on out-of-state railroad companies, ruling such discriminatory taxation unconstitutional and reversing the state court decision that had upheld the tax.
Holding: The Court held that Alabama may not impose a much heavier privilege tax on an out-of-state corporation that lawfully entered and owns permanent in-state property, because that discriminatory tax violates the Fourteenth Amendment’s equal protection guarantee.
- Stops states from charging heavier privilege taxes on compliant out-of-state companies with permanent in-state investments.
- Protects businesses that paid property and franchise taxes from arbitrary, origin-based tax increases.
- Reverses state-court approval of the 1907 Alabama tax and sends the case back for further proceedings.
Summary
Background
An out-of-state railroad company that had lawfully entered Alabama, acquired large fixed railroad property, and paid property and franchise taxes challenged an Alabama statute of March 7, 1907. The State had treated the measure as an extra privilege tax on the continued exercise of corporate franchises. Alabama’s highest court sustained the law, and the railroad argued the tax denied it equal protection and took property without due process under the Fourteenth Amendment.
Reasoning
The Court asked whether a foreign corporation that entered under state law, ran a long-term business, and owned permanent property could be singled out for a much heavier privilege tax than domestic companies doing the same work. The majority held that such a corporation is a “person” under the Fourteenth Amendment and must receive equal protection. The Court rejected Alabama’s classification argument because there was no real, substantial basis for taxing the foreign company far more heavily than in-state counterparts doing identical business.
Real world impact
The decision prevents a State from imposing a specially heavier privilege tax on out-of-state companies that have complied with its laws and established permanent in-state investments when domestic companies are taxed less. The Supreme Court reversed the state court and sent the case back for further proceedings consistent with this ruling, protecting long-term in-state investments from arbitrary, discriminatory taxation.
Dissents or concurrances
Three Justices dissented, disagreeing with the majority’s conclusion that the tax denied the company equal protection under the Fourteenth Amendment.
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