Original Document
Original Document
Governor John W. Geary, "Protest against the Evasion of Taxes by the Credit Mobilier of America", 1872.

"By the fourth section of the act approved May first, 1868, taxing corporations, it is declared: "That the capital stock of all companies whatever, incorporated by or under any law of this Commonwealth, . . . shall be subject to pay a tax into the Treasury of the Commonwealth annually, at the rate of one half mill for each one per cent, of dividend made or declared by such company,' The taxes received during the last four years from corporation stocks have annually exceeded one million dollars, and are now about the one-sixth part of the revenue of the State. "The Credit Mobilier of America' is a corporation created by the Legislature of Pennsylvania; and under the vast powers conferred by its charter, it undertook the construction of that great national work, the Union Pacific Railroad. The first contract was made with a Mr. Hoxie for two hundred and forty-seven miles, at the eastern terminus of the road, and east of the one-hundredth meridian, for the consideration of fifty thousand dollars per mile. This contract was assigned by Hoxie to the Credit Mobilier, and the road was built by that company. In the execution of the contract certain profits were made and dividends divided by the corporation; and the taxes due thereon to the State of Pennsylvania were voluntarily paid into the Treasury. Soon afterwards another contract was made with Mr. Oaks Ames, for the construction of six hundred and sixty-seven miles of said road west of the one-hundredth meridian, for aggregate consideration of forty-seven million nine hundred and fifteen thousand dollars. This part of the road was constructed under the latter contract; and out of the profits arising there from about the sum of nine million dollars was declared as dividends, and paid to the stockholders of the Credit Mobilier. But when the State demanded her taxes on these immense profits, payment was refused by the corporation, on the grounds that the dividends though paid to, and received, by, the stockholders of the corporation, and in the precise amounts and proportions in which they severally held stock in the company, were yet paid to them as individuals, and not as stockholders. To make good this defence sundry papers, agreements and contracts were produced, and especially a tripartite agreement between Oaks Ames of the first part, sundry trustees therein appointed of the second part, and the Credit Mobilier of the third part, by which, and the accompanying parole evidence, it was contended the corporation was not responsible for the taxes claimed, amounting to about one million dollars. The accounting officers of the State, with counsel employed by the Auditor General, associated with the Attorney General, prosecuted the claim with zeal and ability, and on the two separate trials in the court of common pleas of Dauphin county recovered verdicts and judgments against the corporation. "The first was obtained November 25, 1869, for $407,483.39, and the second, December 23, 1870, for $4,610,391.03. The defendant took writs of error; and the Supreme Court reversed the judgments, and in the opinion of a majority of the judges certain principles are declared which are considered fatal to a recovery by the State. If this corporation, created by the laws of Pennsylvania, by the legerdemain of a tripartite agreement, and other contracts and proceedings to which the Commonwealth was not a party, can thus evade taxation upon its capital stock, I can imagine no good reason why every other corporation may not, by a resort to the same ingenious contrivance, escape the payment of taxation on their capital stock, and thus over a million dollars annually be lost to the State Treasury. In view of this impending danger, I earnestly invoke your prompt and careful consideration of this whole subject, and recommend such action as will in the future effectually protect the interests of the Commonwealth."

Credit: Commonwealth of Pennsylvania
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