History and Legal Dispute
At the California Constitutional Convention of 1878-79, the state legislature drew up a new constitution that denied railroads "the right to deduct the amount of their debts from the taxable value of their property, a right which was given to individuals." Southern Pacific Railroad Company refused to pay taxes under these new changes. The taxpaying railroads challenged this law, based on a conflicting federal statute of 1866 which gave them privileges inconsistent with state taxation (14 Stat. 292, ยงยง 1, 2, 3, 11, 18).
San Mateo County, along with neighboring counties, filed suit against the railroads to recoup the massive losses in tax revenue stemming from Southern Pacific's refusal to pay. After hearing arguments in San Mateo County v. Southern Pacific Railroad Company, the California Supreme Court sided with the county. Using the Jurisdiction and Removal Act of 1875, a law created so black litigants could bypass hostile southern state courts if they were denied justice, Southern Pacific was able to appeal all the way to the U.S. Supreme Court.
Read more about this topic: Santa Clara County V. Southern Pacific Railroad
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