TOPIC E-DIVISION BETWEEN INTERSTATE AND INTRASTATE BUSINESS. § 463. Alternative theories of apportionment. Where a road runs through several States, it is quite obvious that in determining the reasonableness of a rate established by one of the States the situation of the whole line must be considered. One of two plans must be adopted: If the income of the whole line is taken as a basis of inquiry, then the possibility of the other States fixing a similar rate must be considered; or if, on the other hand, the one rate is considered its reasonableness must be determined by an examination of the capitalization and income of the road within the particular State. This was pointed out by Mr. Justice Brewer in the leading case of Chicago & Northwestern Railway v. Dey: "Defendant's road runs through other States; these States may impose no schedule of rates; part of its business is interstate, and only Congress can limit that; so that from the business elsewhere revenues may be earned which will enable it to make up any deficiency in this State. But the invalidity of this schedule does not depend upon legislation or action elsewhere. If this schedule may be put in force here, a similar one may be in Illinois, Minnesota, and other States through which the company's road runs. For some purposes its property in this State is separate and distinct from its property elsewhere, and out of this property within this State it is entitled to receive some compensation. Robbing Peter to pay Paul has never received judicial sanction." 464. Whether State lines are arbitrary. The first alternative that the reasonableness of the rate must be determined upon the assumption that the same rate will be adopted throughout the whole system was that applied in 135 Fed. 866, 1 L. R. A. 744, 2 Int. Com. Rep. 325 (1888). Mr. Justice Canty Steenerson v. Great Northern Railway.2 said: "It seems to us that there is scarcely any good reason why a railway system should be divided on State lines at all, for the purpose of fixing rates. After rejecting the portions that are not self-supporting, the balance of the system may be considered as a whole; and, in fixing rates in one State, it will only be necessary to see that, if rates are properly adjusted throughout so as to correspond with the rates thus fixed, the whole of such balance of the system will yield a reasonable income on the cost of reproducing the same. In determining what is a proper adjustment of rates between the different portions of the system, every case must depend on its own circumstances." 465. Constitutional requirement for division. The Supreme Court of the United States, however, has adopted the other alternative, and has separated the value of the plant used for merely intra-state business and the net earnings from such business, thus determining the reasonableness of the rate fixed by the State. The leading case on this point is Smyth v. Ames.3 Mr. Justice Harlan said in that case: "It is further said, in behalf of the appellants, that the reasonableness of the rates established by the Nebraska statute is not to be determined by the inquiry whether such rates would leave a reasonable net profit from the local business affected thereby, but that the court should take into consideration, among other things, the whole business of the company, that is, all its business, passenger and freight, interstate and domestic. If it be found upon investigation that the profits derived by a railroad company from its interstate business alone are sufficient to cover operating expenses on its entire line, and also to meet interest, and justify a liberal dividend upon its stock, may the legisla 2 69 Minn. 353, 72 N. W. 713 (1897). 3 169 U. S. 466, 42 L. Ed. 819, 18 Sup. Ct. 418 (1898). ture prescribe rates for domestic business that would bring no reward and be less than the services rendered are reasonably worth? Or, must the rates for such transportation as begins and ends in the State be established with reference solely to the amount of business done by the carrier wholly within such State, to the cost of doing such local business, and to the fair value of the property used in conducting it, without taking into consideration the amount and cost of its interstate business, and the value of the property employed in it? If we do not misapprehend counsel, their argument leads to the conclusion that the State of Nebraska could legally require local freight business to be conducted even at an actual loss, if the company earned on its interstate business enough to give it just compensation in respect of its entire line and all its business, interstate and domestic. We cannot concur in this view. In our judgment, it must be held that the reasonableness or unreasonableness of rates prescribed by a State for the transportation of persons and property wholly within its limits must be determined without reference to the interstate business done by the carrier, or to the profits derived from it. The State cannot justify unreasonably low rates for domestic transportation, considered alone, upon the ground that the carrier is earning large profits on its interstate business, over which, so far as rates are concerned, the State has no control. Nor can the carrier justify unreasonably high rates on domestic business upon the ground that it will be able only in that way to meet losses on its interstate business. So far as rates of transportation are concerned, domestic business should not be made to bear the losses on interstate business, nor the latter the losses on domestic business. It is only rates for the transportation of persons and property between points within the State that the State can prescribe; and when it undertakes to prescribe rates not to be exceeded by the carrier, it must do so with reference exclusively to what is just and reasonable, as between the carrier and the public, in respect of domestic business. The argument that a railroad line is an entirety; that its income goes into, and its expenses are provided for, out of a common fund; and that its capitalization is on its entire line, within and without the State, can have no application where the State is without authority over rates on the entire line, and can only deal with local rates and make such regulations as are necessary to give just compensation on local business."4 466. Methods of division. The method of procedure in such a case is to find what part of the gross receipts is derived from business within the State, and then find the actual cost of doing the business. This cannot be found by taking a proportionate part of the cost for the entire line, since the cost of moving local freight is greater than that of moving through freight. "Additional fuel is consumed at each station where there is a stop. The wear and tear of the locomotive and cars from the increased stops and in shifting cars from main to side tracks is greater; there are the wages of the employees at the intermediate stations, the cost of insurance, and these elements are so varying and uncertain that it would seem quite out of reach to make any accurate comparison of the relative cost. And if this is true when there are two separate trains, it is more so when the same train carries both local and through freight. It is impossible to distribute between the two the relative cost of carriage. Yet that there is a difference is manifest, and upon such difference the opinions of experts familiar with railroad business is competent testimony, and cannot be disregarded." The fact that an exact mathematical computation of the cost is impossible is immaterial; the cost must be found, as best it may, before the reason 4 Accord Chicago, M. & St. P. Ry. v. Thompkins, 176 U. S. 167, 44 L. Ed. 418, 20 Sup. Ct. 336 (1900), affirming s. c. 90 Fed. 363 (1898); Chicago, M. & St. P. Ry. v. Smith, 110 Fed. 473 (1901); State v. Atlantic Coast Line et al. (Fla.), 37 So. 652 (1904); State v. Seaboard Air Line (Fla.), 37 So. 658 (1904). "There are many ableness of the local rate can be determined. things that have to be determined by court and jury in respect to which mathematical accuracy is not possible." 5 In a late case, the problem was discussed in this manner: "The other issue the respondent has likewise failed to meet. Taking the figures from the brief filed by the respondent, we find that the local business alone produces a net earning of at least 3 per cent. on the total value of the road in Florida, charging against such income the whole of the taxes. While a State is not permitted to offset local business against interstate business, and to justify low local rates by reason of the profitableness of the latter, yet the interstate and foreign business may and should be considered in determining the proportion of the value of the property of the company assignable to local business. There is no proper showing of the interstate and foreign business, so that we may determine on what fraction of the whole. value of the property in Florida the company might be entitled to earn an income from local business. There is, however, a showing that the interstate and foreign business is large, and on a proper showing and a proper proportioning of the service between domestic and foreign business this percentage of net income would be largely increased. Under the scheme of distribution of the earning of the whole road between the several States through which it runs, a ton of Florida oranges or early vegetables is allowed the same credit as a ton of coal in Virginia, and no more. We have examined with care all the rate cases decided by the Supreme Court of the United States, and see nothing therein to conflict with the views expressed above." 5 Chicago, M. & St. P. Ry. v. Tompkins, 176 U. S. 167, 44 L. Ed. 418, 20 Sup. Ct. 336 (1900), reversing s. c. 90 Fed. 363 (1898). 6 State v. Atlantic Coast Line (Fla.), 37 So. 657 (1904). |