Union Pacific Railroad Company v. Peniston
APPEAL from the Circuit Court for the District of Nebraska; the case being thus:
By act of Congress of July 1st, 1862,  entitled 'An act to aid in the construction of a railroad and telegraph line from the Mississippi River to the Pacific Ocean, and to secure the government the use of the same for postal, military, and other purposes,' Congress incorporated certain individuals, their associates and successors, as the 'Union Pacific Railroad Company,' with authority to build a continuous railroad and telegraph from a point on the one hundredth meridian to the western boundary of Nevada Territory. The act fixed the amount of the capital stock and shares, and declared that 'the stockholders should constitute said body politic and corporate.' The government had no stock in the road, though through the President of the United States it was to appoint two directors, not stockholders, out of fifteen, which the charter provided for as the number to be appointed in all. Annual reports were to be made to the Secretary of the Treasury. The act granted to the company the right of way through the public lands, and 'for the purpose of aiding in the construction of said railroad and telegraph line, and to secure the safe and speedy transportation of the mails, troops, munitions of war, and the public stores thereon,' made to it an extensive grant of lands, and provided for the issuing of patents therefor. And for the same purposes the United States agreed to, and did issue its 6 per cent. bonds, payable in thirty years, to the company, to the amount of $16,000 per mile, for each section of forty miles; which bonds the original act declared 'shall, ipso facto, constitute a first mortgage on the whole of the railroad and telegraph, together with the rolling stock, fixtures, and property of every kind,' and made specific provision as to proceedings on the failure of the company to redeem the bonds.
By an act of July 2d, 1864,  this was changed, and the company authorized to issue its 'first mortgage bonds to an amount not exceeding the bonds of the United States,' and the lien of the bonds of the United States was declared to be subordinate to the bonds so issued by the company, with the exception relating to the transportation of dispatches, troops, mails, &c., for the government.
The grants to the company were declared by the original act to be made upon condition that the company shall (1) pay the bonds of the United States at maturity; (2) keep their line and road in repair and use; (3) 'transmit dispatches over said telegraph line, and transport mails, troops, and munitions of war, supplies, and public stores upon said railroad for the government,' & c., giving the government the preference at fair and reasonable rates of compensation, not exceeding those charged to private individuals, the amount thus earned to be applied in payment of the bonds, as well as 5 per cent. of the net earnings of the road after its completion.
By the seventeenth section of the same act it was provided that if the road, when finished, should for any unreasonable time be permitted to remain out of repair, or unfit for use, Congress should have authority to put the same in repair and use, and from the income of the road reimburse the government for expenditures thus caused.
The eighteenth section provided that when the net earnings of the road should exceed 10 per cent. of its cost, Congress might reduce, fix, and regulate rates of fare thereon, and declared that 'the better to accomplish the object of this act, to wit, to promote the public interest and welfare by the construction of said railroad and telegraph line, and keeping the same in working order, and to secure the government at all times (but particularly in times of war) the use and benefits of the same for postal, military, and other purposes, Congress may at any time, having due regard for the rights of said companies named herein, add to, alter, amend, or repeal this act.'
The act also contained provisions, that so far as the public and government were concerned the railroad and branches should be worked as one connected and continuous line.
There was no provision, in any act of Congress relating to this company, respecting the taxation of it or its property by the States through which its roads might run.
The road was completed and put in operation in May, 1869, and with the Central Pacific Railroad formed a continuous line from the Missouri River and the Eastern States to California and the Pacific, thus uniting the extremities of the country. At the time of granting the charter, the territory over which this line was projected all belonged to the United States. But Nevada was admitted into the Union as a State in 1864, and Nebraska in 1867, and the road, as constructed, crosses the latter State in its whole breadth, from east to west.
So far as to the history of the Union Pacific Railway. Now as to a certain tax laid upon it, the subject of this suit.
On the 15th of February, 1869, the legislature of Nebraska passed an act 'to define the western boundary of Lincoln County,' which, after defining it, provided,
'That all the unorganized country lying west of the western boundary of Lincoln, and east of the east line of Cheyenne County, and south of the North Platte River be, and the same is hereby, attached to the said county of Lincoln, for judicial and revenue purposes, and that the county of Cheyenne be, and the same is hereby, attached, for judicial and revenue purposes, to said county of Lincoln.' 
In this state of things the authorities of Lincoln County, in the State of Nebraska, under a revenue law of the State, passed on the same 15th of February, 1869, laid a tax upon the property of the railroad company, embraced within the taxation, upon the valuation of $16,000 per mile, for a length of one hundred and seventy-six miles. 
The property of the company thus rated and taxed consisted of its road-bed, depots, wood-stations, water-stations, and other realty; telegraph-poles, telegraph-wires, bridges, boats, books, papers, office furniture and fixtures, money and credits, movable property, engines, &c.
The population of Lincoln County and all the attached territory, by the census of 1870, was 1352 persons. The whole amount of the tax list was $4,081,904, of which was
Property of the company, $3,936,000
Property of other taxpayers, 145,904
The tax levied by the county was $41,328 upon the company's property, and $6350.45 upon the property of other taxpayers.
The tax levied upon the company's property was distributed under the following heads or purposes of taxation:
For State general fund, $7,872
For State sinking fund, 3,936
For State school fund, 3,936
For county general fund, 19,680
For county sinking fund, 3,936
And for district school purposes, 1,968
The length of the company's road lying within the territory ascribed to Lincoln County for taxation, was as follows: In Lincoln County, eight miles; in Cheyenne County (unorganized), one hundred and five miles; between the two counties, sixty-three miles; making a total of one hundred and seventy-six miles.
In this state of things, one Peniston, Treasurer of Lincoln County, being about to collect the tax laid, the Union Pacific Railroad Company filed a bill in the Circuit Court of the United States in the District of Nebraska against him, to restrain his doing so; assigning as grounds for the bill among others--
That the State of Nebraska had no power to subject to taxation for State purposes the road-bed, rolling-stock, and other property necessary for the use and operation of the road; such power resting, as it was asserted by the bill, exclusively in the government of the United States.
That Lincoln County was not by law authorized to tax any portion of the road-bed or property of the company, except such as was situate within its geographical limits.
The cause was heard upon pleadings and agreed proofs, and the Circuit Court refused to restrain the collection of the tax against the one hundred and seventy-six miles of the road, holding the same to have been lawfully imposed, and the property of the company to be open to State taxation. Upon this decree being brought here by the present appeal, the following errors were assigned:
First. That it was error to hold the tax a valid imposition upon the property of the Union Pacific Railroad Company subjected to it, such property being exempt from State taxation, by virtue of the incorporation of the company by the United States as a means for the performance of certain public duties of the government, enjoined and authorized by the Constitution.
Second. That it was error to hold the rating and taxing of the property of the company, outside the county of Lincoln, by the authorities of that county, valid and lawful under the legislation of the State.
Mr. W. M. Evarts, for the appellant:
I. The tax and the statute of Nebraska, so far as it authorized the tax, were void, and the company's property should have been relieved, and protected therefrom by the judgment of the court.
1. The railroad company was created and endowed by Congress, with its franchises, powers, and property, as a means, instrument, and agency for the execution of the powers vested in the General government by the Constitution of the United States.
2. At the time of the passage of the act of Congress, under which the corporate powers were created and conferred, the government of the United States exercised the sole and undivided dominion over the territories to be traversed by the railroad, or affected by the powers of this corporation or their administration.
3. The tax here authorized by the statute of Nebraska, and actually laid by the county of Lincoln, is rated and assessed upon whatever constitutes the property and the means of the company as collected, combined, prepared, and worked (under or by authrority of the act of Congress) as the instrument and agent of the General government, for the execution of its constitutional powers and the performance of its constitutional duties, so far as this instrument and agent has its structure, capital in any and every form of use or investment, and its operations within the local range of the taxing power.
The theory of the taxation is an apportionment of the total and aggregated means of the corporation per mile of its railroad, and a valuation and taxation of the ratable share of the length of the railroad found within the different counties of the State.
4. If the tax be looked at in its circumstances as well as in its principle, it is not too much to say that the introduction and operation of this means and agency of the General government within the territorial limits of what now constitutes the State of Nebraska, is made the occasion, and the means and agent made the subject, of taxation for local and general State purposes, in exoneration of the property of the population which should bear those burdens.
II. The settled doctrines of this court, in expounding the relations which the means, instruments and agencies, created by the General government for the execution of its constitutional powers bear to the States, and taxation under the authority of the States, exempt the Union Pacific Railroad Company from the taxation to which it is sought to be subjected.
The principles established in the celebrated cases of McCulloch v. Maryland,  and Osborn v. Bank of United States,  stand unbroken and impregnable. Neither the force of their reason, nor the weight of their anthority, is, in the least, abated by any subsequent adjudications in pari materia.
The late Chief Justice Chase thus speaks of these decisions: 
'That Congress may constitutionally organize or constitute agencies for carrying into effect the National powers granted by the Constitution; that the agencies may be organized by the voluntary association of individuals, sanctioned by Congress; that Congress may give to such agencies, so organized, corporate unity, permanence, and efficiency; and that such agencies in their being, capital, franchises, and operations, are not subject to the taxing power of the States, have ever been regarded, since those decisions, as settled doctrines of this court.
'Those decisions were the judgments of great men and of great judges. They were pronounced by the most illustrious of their number, and are distinguished by his peculiar clearness and cogency of reasoning. For nearly half a century the principles vindicated by them have borne the keen scrutiny of an enlightened profession and the sharp criticism of able statesmen, and they remain unshaken. All the judges who concurred in them have descended long since into honored graves, but their judgments endure, and gathering vigor from time and general consent, have acquired almost the force of constitutional sanctions.'
A concise and authoritative statement of what principles were decided in mcCulloch v. Maryland, and Osborn v. Bank of the United States, is given by this court in its opinion, as delivered by Marshall, C. J., in Weston v. Charleston. 
^1 12 Stat. at Large, 489.
^2 13 Stat. at Large, 356.
^3 Laws of Nebraska, 1869, p. 249.
^4 The tax was, in fact, laid on two hundred and forty-six miles; but, as it was admitted by the defendant that there was seventy miles of excessive computation, the only question here was as to the tax on the remaining one hundred and seventy-six miles.
^5 4 Wheaton, 316.
^6 9 Id. 738.
^7 Van Allen v. The Assessors, 3 Wallace, 591.
^8 2 Peters, 466.