Story Case

The state of Pennsylvania passed a law taxing the receipts on transportation within the state, including such transportation as lay between two points within the state, although part of the route lay in the state of New York. The law, however, was to the effect that the tax in the latter case should be only upon the proportion of the transportation within the state of Pennsylvania. The Hudson Valley Railroad Company transported goods from Philadelphia to other points in Pennsylvania along their tracks, which ran for only a few miles in New York State. The state of Pennsylvania attempted to fix tax on practically the entire rates covering this transportation, since only a small part of the route lay in New York. The Hudson Valley Railway Company refused to pay any of this tax on the ground that it was an interference with interstate commerce and unconstitutional. What should the judges decide on an appeal to the Supreme Court?

Ruling Court Case. Kansas City Southern Railway Company Vs. Hanley, Volume 187 United States Reports, Page 618

The Kansas City Railway Company owns a road running through several states and territories. Goods were frequently shipped from Fort Smith, Arkansas, to Graniss, Arkansas, as one continuous shipment. This particular route was partly in Arkansas and partly in the Indian Territory, but the two points of the route - the beginning and the end - were in Arkansas. For a shipment over this route the railroad commissioners of Arkansas had fixed a certain rate. The railroad company now brings this bill, asking that the commissioners be restrained from proceeding to enforce these rates so fixed.

The commissioners assert their right to fix rates for continuous transportation between two points in Arkansas, even when a large part of the route is outside the state through the Indian Territory.

Mr. Justice Holmes said: "The transportation of these goods certainly went outside of Arkansas, and we are of the opinion that in its aspect of commerce it was not confined within the state. Suppose that the Indian Territory were a state and should try to regulate such traffic; what would stop it! Certainly not the fiction that the commerce was confined to Arkansas. If it could not interfere, the only reason would be that this was commerce among the states. But, if this commerce would have that character as against the state supposed to have been formed out of the Indian Territory, it would have it equally as against the state of Arkansas. If one could not regulate it, the other could not." Judgment was given for the Kansas City Railway Company.

Ruling Law. Story Case Answer

By the weight of state authority, where the route between two points within one state lies partly in another state, the commerce, is nevertheless, purely internal. Iowa and Texas, however, hold with the United States that such traffic is interstate, and subject to Federal control only. Of course, in such cases the railroads carry their point to the Federal Courts, and ultimately win.

The Ruling Court Case should, however, be carefully distinguished from the Story Case. Even the United States courts agree that the tax in the Story Case is not an interference with interstate commerce and is not illegal. In the case of Lehigh Valley Railroad Company vs. Pennsylvania, upon which the Story Case is based, Mr. Justice Holmes said: "that was the case of a tax, and should be distinguished from an attempt of the state to regulate the transportation while outside of its borders." The tax was determined in respect of receipts for the proportion of transportation within the state borders, and is not interference with interstate commerce.

The Hudson Valley Railway Company, in the Story Case, must lose.