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State of Colorado
To the Honorable,
JAMES H. PEABODY,
Governor of the State of Colorado.
Sir-In compliance with the constitutional and statutory requirements, I have the honor to submit the following report of my official actions, from the 13th day of January, A. D. 1903, to the 15th day of November, A. D. 1904:
This report is made up largely of opinions requested by the heads of the several departments of State.
The most important of these opinions concerned public printing, appropriations, power of the State Board of Land Commissioners, corporations and the powers of certain of the boards governing the State institutions.
During this administration of the Legal Department of State a large number of important suits have been commenced. As a result of the recommendation of previous governors, the Legislature, in 1902, passed a new revenue act. The additional rev. enue provided for by that measure comes from the liquor license tax, the annual state corporation license tax and the inheritance tax. These provisions of the statute were resisted and it was necessary to bring suits in order to determine their validity. The liquor license law was sustained by the Supreme Court in the case of Parsons vs. People, 76 Pac. Rep., 666. The inheritance tax was sustained in the case of Brown vs. Whitney Newton, 77 Pac. Rep., 853. The annual State corporation license tax was sustained by the decision of the Hon. S. G. Carpenter, Judge of the District Court of the City and County of Denver, in a case entitled The People vs. American Smelting & Refining Company. The latter case was appealed to the Supreme Court and is now ready for oral argument.
Suits have been commenced to test the right to subject the railroads to this same tax. The enforcement of the statute against the railroads is opposed on the ground that they are instruments of inter-state commerce and that a tax can not be exacted from such a company for the privilege of doing business in the State. The railroad cases are pending in the Federal Court at Denver. I do not care to express an opinion on the probable outcome of these cases, as they are awaiting trial.
Generally, I feel free to say that the annual State corporation license tax has been resisted because of the manner in which it is assessed. To illustrate: The American Smelting and Refining Company is capitalized for $100,000,000. Considering the market value of the stock, about one-fifth of its property is located in the State of Colorado. The manager testifies that the works of this company can be reproduced in Colorado for $7,000,000, and this would be about one-fifth of the market value of the stock at the time of the hearing. It is contended that only the proportion of the capital invested in Colorado should be made the basis of this tax. On the other hand, it is urged that the State of Colorado has the power to say that it is unwise and inexpedient to permit immense concerns to enter the State and practically terminate all competition.
From a legal standpoint, the Legislature has the power to assess this tax upon the entire capital and to so levy it for the purpose of discouraging the entrance of such corporations in the State. The wisdom of such legislation, however, is for the Legislature to pass upon. My own opinion is that this was purely a revenue measure and was not enacted for the purpose of police regulation, and it will not be willingly complied with unless it is founded on a just basis. I think, therefore, that the act should establish the basis of the tax upon the amount of capital stock invested in the State. This may be determined from the report filed by the corporation and by giving the Auditor power to investigate and determine the proportion of the capital stock of the company invested in property in this State.
The New York law imposing a tax upon the railroads for the privilege of doing business within the State is limited strictly to the domestic business of the railroad company. The Colorado law imposing a tax upon the entire capital stock of such roads as the Atchison, Topeka & Santa Fe Railroad Company, capitalized for $250,000,000, seems manifestly unfair. The tax should be based upon the proportion of the capital stock represented by the mileage of the road within the State. I doubt, even in that case, whether the license tax would be good against an instrument of inter-state commerce. All the cases which I have been able to examine on this subject have been decided against the State, except where the tax was limited strictly to the domestic business of the railroad company, and then it was not a tax upon the privilege of doing an inter-state business.
On August 29, 1892, the Pullman's Palace Car Company filed articles of incorporation in the office of the Secretary of State for the sum of $100,000. These articles show that it is a foreign corporation, organized under the laws of the State of Illinois. At the date of its filing it was incorporated for the sum of $30,000,000, and under the statute in force at that time it should have paid $3,000.00.
Since then it has increased its capital stock to $74,000,000, and our statute, at the time it commenced doing business in the State of Colorado, and at the time it designated its principal place of business in the State, required it to pay on all successive increases in its capital stock. The company has failed to do this, although requested by the Hon. Charles S. Thomas. Suit was commenced under the direction of Governor Thomas for such refusal, but the same has remained untried.
I endeavored to bring this suit to trial during the summer, but was unable to do so for reasons beyond my control. The case is now set for hearing and will be disposed of during the present month.
The defense which the company makes is that it is an instrument of inter-state commerce and that it can not be compelled to pay a fee for doing business in the State. It has paid the sum of eleven dollars to the Secretary of State for the privilege which it enjoys of having a principal place of business in the State and an agent to look after its business.
I briefed this case during the month of June, but, owing to pressure of business in court, could not get it set until the pres ent month.
The suit brought by the State of Kansas against the State of Colorado is still pending in the United States Supreme Court. An order was entered on the 2d day of June, 1904, appointing Granville Richardson, of Roswell, New Mexico, referee for the purpose of taking testimony at any place in the United States where the same might be deemed advisable. The State of Kansas was given until the 15th of September to introduce testimony. Subsequently, the time was extended until the first of October. Evidence has been offered by Kansas at hearings which took place at Wichita, Arkansas City, Kinsley, Garden City, Pueblo and Denver. The State of Colorado has only commenced to introduce testimony. The chief witness in behalf of Colorado has been the State Engineer, the Hon. L. G. Carpenter. The Hon. T. C. Henry has also been examined on behalf of the State, for the purpose of illustrating the practical working of irrigation.