Publication 216, The First 100 Years


The Challenge of the Railroads

The most powerful adversary ever to confront the Board was the railroad industry. In litigation for many years, the railroads challenged the Board’s authority to assess their properties, and created serious financial problems for the counties by refusing to pay their property taxes. Although the Board determined the assessed valuations, the county tax collectors were responsible for collecting the taxes on railroad properties. Often it was the counties who assisted the railroad companies in resisting the payment of taxes. In desperate need of funds, the counties were all too willing to compromise with the railroads for whatever money they could get. In one report the State Controller stated:

“It is not surprising that the failure of railroads to pay their taxes should have caused widespread consternation. The whole revenue system of the several counties was disarranged thereby; the ordinary obligations of the counties could not be fully met, and in many of the counties the public schools were closed for want of funds.” 31

In a few counties (Alameda, San Mateo, Yolo, and Sacramento) the county boards of supervisors went so far as to attempt a reduction of the valuation of railroads as apportioned to the counties by the State Board of Equalization. This attempt was successfully blocked by action of the State Supreme Court in the case of The People v. The Supervisors of Sacramento County, 59 Cal. 321. Having thus failed, the supervisors authorized their collectors to accept 60 percent of the amount due the state and county as payment in full. In an effort to negate such action, State Controller D. M. Kenfield recommended that the Controller collect taxes on railroad property, and that in the event the railroads prove delinquent in their taxes, the Controller, rather than the assessors, bring suit against such companies.32 The Controller’s recommendation was made law in 1883. Thereafter, the Controller, and not the county tax collectors, was to bring action against delinquent companies.

Even this action was not sufficient to deter the railroads in their efforts to avoid taxation. It took fifteen years of litigation to resolve the major issues arising from the actions of the railroads. A review of all of these cases would go beyond the scope of this history, so we list only the most significant court cases of this period, as follows:

  1. The San Francisco and Northern Pacific Railroad Company v. The State Board of Equalization, 60 Cal. 12 (January 1882)
  2. The Central Pacific Railroad Company v. The State Board of Equalization, 60 Cal. 35 (January 1882)
  3. San Mateo County v. The Southern Pacific Railroad Company, 13 Fed. 722 33
  4. San Mateo County v. D.J. Oullahan, State Treasurer, 69 Cal. 647 (May 1886)
  5. California v. Central Pacific Railroad Company and California v. Southern Pacific Railroad Company, 127 U.S. 1 (October 1887)
  6. The People v. The Central Pacific Railroad Company, 105 Cal. 576 (January 1895)
  7. The Central Pacific Railroad v. California, 162 U.S. 91 (March 1896)

The main problems resolved by these cases were:

“First, the courts upheld the provision in the Constitution of California for a special method of assessing the franchise, road way, roadbed, rails and rolling stock of all railroads operated in more than one county; second, that the State Board of Equalization could assess no other property than that mentioned in the Constitution; third, that franchises granted by the State of California were distinct from franchises granted by the federal government and were subject to taxation; and fourth, that the railroads, in case of being dissatisfied with the valuation of property for taxation, must seek relief from the State Board of Equalization before appealing to the courts.” 34

Although these decisions did not end railroad litigation, they did resolve the major issues, which, in turn, gave the Board a firmer footing in future dealings with the railroads.

31 Biennial Report of the Controller of State, for the 32nd Fiscal Year ending June 30, 1881, and the Fiscal Year ending June 30, 1882, p. 24

32 Ibid. p. 26

33 This, and six more cases that might bring all related questions before the court, were requested by the United States Supreme Court. But before the Supreme Court reached any final decision, the Court received an affidavit (dated November 11, 1885) declaring that a certificate of settlement had been given to San Mateo's Auditor. The Court dismissed all the cases. This payment (of which State Controller John P. Dunn could find no record) left many questions unresolved.

34 Fankhauser. op, cit., p. 310