1. That by the twelfth section of the act of December 25th, 1852, the company was exempted from the payment of the tax in question.
2. That by the act of February 10th, 1864, the entire earnings of the road were appropriated to other purposes, wholly inconsistent with the payment of the tax in question, and that they were actually paid to the agent of the State as therein required, and by him paid out under the authority of the said act.
Messrs. Montgomery Blair and F. A. Dick, with whom was Mr. A. H. Buckner, contra, contended:
1. That the twelfth section of the act of 25th December, 1852, referred to tax for general purposes, and applied only to tax on the corporate property, road-bed, machinery, buildings, &c.; and that the act would not prevent a tax on the franchise or on the earnings of the company.
2. That the ordinance did not impose a tax, since it merely applied the income of the company to the payment of debts which were alike debts of the State and of the company.
Mr. Justice HUNT delivered the opinion of the court.
The first question is this: By the acts organizing this company, and by the acts loaning the credit of the State and the proceedings under the same, was an agreement created on the part of the State that the Pacific road should not be taxed until it was built and finished and had declared a dividend, and that for two years after it was finished it should be liable to taxation only in common with other property of the State and at the same rate?
The right of taxation is a sovereign right, and presumptively belongs to the State in regard to every species of property and to an unlimited extent. The right may be waived in particular instances, but this can only be done by a clear expression of the legislative will. The cases of Tomlinson v. Branch, and Tomlinson v. Jessup, in this court, and many others referred to in those cases, show that when a contract of exemption from taxation is thus established it is binding upon the State, and the action of the State in the passage of laws violating its terms will not be sustained. The principles of law are sufficiently settled. The real question arises upon their application to the facts of the case.
Upon the facts presented by the agreed case before us we are of the opinion—
1st. That the twelfth section of the act of 1852 created a contract between the State and the railroad company, by which the railroad was exempt from taxation until it was completed and put in operation, and until it should declare a dividend on its capital stock, not, however, extending longer than two years after its completion.
2d. That the ordinance of 1865, imposing a tax of ten per cent. upon its gross earnings before the road was completed and in operation, and had declared a dividend, was a violation of this contract, and that the levy for its enforcement was illegal.
We omit a reference to other questions which have been argued and express no opinion upon them. We base our opinion upon the effect of the statutes already cited.
The authorities which have been referred to show that a State legislature may make a contract to exempt a corporation from taxation by which it will be bound.
That the facts recited constitute such an agreement we think sufficiently plain. The Pacific corporation was unable to raise funds for completing its road. To induce it to go on with its work and to induce individuals and counties to subscribe for what the legislature evidently deemed an enterprise of public benefit, it made loans of the credit of the State from time to time. To make the franchise still more valuable to the company, and to the end that individuals and counties should be induced to subscribe to the stock, the legislature added an exemption from taxation until the road should be completed and in operation, and should have declared a dividend. That the money value of this exemption was great is evident from the fact that the tax imposed for a single year, commencing October 1st, 1866, amounted to $253,644.