CITY AND COUNTY OF DENVER ET AL. v. LEWIN, TRUSTEE.
No. 14,652.
Supreme Court of Colorado
June 3, 1940
Rehearing denied September 23, 1940
105 P.2d 854 | 106 Colo. 331
Messrs. DINES, DINES & HOLME, Mr. ROBERT E. MORE, Mr. MILTON J. KEEGAN, for defendant in error.
Mr. BYRON G. ROGERS, Attorney General, Mr. HENRY E. LUTZ, Deputy, amici curiae.
En Banc.
MR. JUSTICE OTTO BOCK delivered the opinion of the court.
THIS controversy relates to a proceeding under
The property in question is lots one and two, block 207 (Plaza Hotel), located at the corner of Fifteenth and Tremont streets in Denver. The assessor valued the property in question as follows: Valuation of land,
The court, after a hearing extending over a period of approximately six weeks, found that the assessment of $84,020 was manifestly excessive in the sum of $49,011.67, and entered judgment in favor of taxpayer in the amount of $1955.57, with interest as provided by law. Plaintiffs in error, hereinafter designated as the city, or assessor, assign error and seek reversal.
The record discloses that the improvements are valued separately throughout “the territorial limits of the authority levying the tax,” at their cost of production, less depreciation. This was followed in the valuation of the Plaza Hotel, and the assessment before us is based thereon. The assessed valuation of the improvements is $25,490, based upon a reproduction cost of $90,000, with due allowance for depreciation since 1904. The building in question is situated in the downtown business area, in which a general revaluation was had in 1926. This revaluation related to land values and was based on taking the corner of Sixteenth and Stout streets as a starting point, and relating thereto all other land values in the downtown business area. The fairness of the 1926 basic value survey is not challenged. Yearly adjustments were made by considering various elements of value in this area, when justified by changed circumstances. About 1932 a general reappraisal of values was made in this area, using the same method, perhaps not with the same detail as in the 1926 survey, by relating values to specific corners, consulting real estate men, and taking into consideration traffic count and other checks. The board of equalization made a general reduction in land values in 1931 and 1933 amounting to a total of fifteen per cent, in which the land in question was a beneficiary. Some slight adjustment was made in the valuation of the improvements thereafter. Taxpayer, to sustain his complaint, presented voluminous testimony relating to numerous properties on Fifteenth
Because of the importance of the case, we first direct attention to certain basic legal concepts applicable to taxation, as follows:
“The power of taxation is an essential and inherent attribute of sovereignty, belonging as a matter of right to every independent government. It is possessed by the government without being expressly conferred by the people. * * * Constitutional provisions relating to the power of taxation do not operate as grants of the power of taxation to the government but instead merely constitute limitations upon a power which would otherwise be practically without limit. * * *.” 1 Cooley on Taxation (4th ed.), pp. 149, 150, §57. “The legislature must determine all questions of state necessity, discretion or policy involved in ordering a tax and in apportioning it; must make all the necessary rules and regulations which are to be observed in order to produce the desired returns, and must decide upon the agencies by means of which collections shall be made. The courts cannot review the determination of the legislature in regard thereto. * * * So long as the legislation in form and substance conforms to the constitution, and is not colorable merely, but is confined to the enactment of what is in its nature strictly a tax law, and so long as no constitutional limitations are exceeded, or the constitutional rights of the citizen violated in the directions prescribed for enforcing the tax, the legislation is of
supreme authority, and the courts, as well as all others, must obey. Taxes may be, and often are, oppressive to the persons and corporations taxed; they may appear, to the judicial mind, unjust and even unnecessary but this can constitute no reason for judicial interference.” Ibid., pp. 165, 167, §67. “The taxing power of the state is exclusively a legislative function, and taxes can be imposed only in pursuance of legislative authority, there being no such thing as taxation by implication. Subject to the fundamental or organic limitations on the power of the state, the legislature has plenary power on the matter of taxation, and it alone has the right and discretion to determine all questions of time, method, nature, purpose, and extent in respect of the imposition of taxes, the subjects on which the power may be exercised, and all the incidents pertaining to the proceedings from beginning to end; and the exercise of such discretion, within constitutional limitations, is not subject to judicial control. * * *.” 61 C.J., pp. 81-83, §10. “Absolute or perfect equality and uniformity in taxation, being impossible of attainment, is not required, and so long as there is substantial uniformity in the application of taxing statutes, it has been held that the constitutional provisions relating to equality and uniformity are not violated. * * * The test in all legislative enactments affecting taxation is that their aim be toward equality and uniformity, by approximation at least, and the courts will not pronounce a statute invalid on this ground unless it appears that it was framed on a plan or principle not calculated to produce equality and uniformity, or that its administration will result in such flagrant injustice as to evidence an entire disregard of the constitutional requirement; nor will they interfere to grant relief except where the inequality is the result of a misapplication of the law, or of such gross carelessness as to imply fraud, or of a willful discrimination.” Ibid., pp. 105, 106, §33. “The rule of taxation according to value has no direct relation to the methods prescribed for appraising and assessing property, and is satisfied by any plan or system which is intended and calculated to result in fixing the fair and true value of the property. * * * A statute is invalid which sets up an arbitrary and inflexible standard for the valuation of property, such as to prevent the assessing officers from exercising their judgment and knowledge upon it. * * *.” Ibid., pp. 150-152, §89. “The due process clause in the federal constitution contains no specific limitation upon the right of taxation in the states, and statements are to be found in judicial opinions to the effect that the Fourteenth Amendment of the federal constitution , and similar provisions of the state constitutions, have no reference to, and constitute no limitation on, the taxing power of the state governments. * * *.” Ibid., p. 156, §95. “In fixing the valuation of property, a board of assessors and the assessor may take into consideration their own knowledge and information acquired by their investigations, and may compare the value of the property with other property of the same character so as to form an honest judgment as to the value to be fixed. * * *” Ibid., p. 586, §728. “Courts are reluctant to disturb values fixed by taxing authorities, and when it can be reasonably done, acts of public officials in raising revenue should be sustained. * * *.” Ibid., p. 611, §746. “The legislature may determine the method or manner in which different forms of property may be valued for taxation, and the method prescribed by it must be followed, unless shown to be impossible or impracticable in the particular case. * * *.” Ibid., p. 638, §789. “While a tax assessor has a wide discretion in valuing property, and an error or mistake on his part is immaterial where it does not result in an excessive or discriminatory valuation, nevertheless he must exercise his discretion prudently, and make valuations which are not arbitrary, but are fair and impartial, and the result of honest judgment, rather than of mere will. An assessment will not be held void by reason of anexcessive valuation placed on the property by the assessor, where it was the result of an error of judgment on his part and not of dishonesty or want of good faith; but it is otherwise if the overvaluation was made fraudulently or maliciously, although the mere fact of an excessive valuation is not sufficient to establish fraud or absolute nullity, unless it is so grossly excessive as to indicate that the assessor must have acted dishonestly. * * *.” Ibid., p. 641, §791. “In estimating the value of land, an assessor should take into consideration all of its elements or incidents, such as location, quality, condition, improvements, and use, which affect market value or would influence the mind of a purchaser. Also, the adaptability or availability of the land for a particular use may be considered in so far as it enhances the present actual value of the land. * * *.” Ibid., pp. 643, 644, §793. “Except in some jurisdictions, the rental or net income producing-capacity of real property which is rented or produces income is an important element to be considered in determining the actual or market value of the property for purposes of assessment, but it is not the only element to be considered, and in many instances the amount of rental received would be wholly misleading.” Ibid., pp. 644, 645, §794. “Improved real estate is to be valued not according to its intrinsic value, but according to its market or selling value, which is to be arrived at by considering all of the various circumstances which affect it. The original cost of construction, or the estimated cost of reproduction, less depreciation, or, in other words, the present structural value, of either a commercial or residential building may be considered; but it may be considered only in arriving at market value; it is not to be adopted as a sole or conclusive criterion of value; and it is not to be given undue weight. * * *” Ibid., pp. 645, 646, §795.
“Whenever the legislature provides for an appeal to a court from a decision of a reviewing board or officer, the court, no matter what may be its grade, is
The only constitutional limitation upon the taxing power of the state is contained in
The following statutory law has some bearing on this controversy: “All taxable property shall be listed and valued each year, and shall be assessed at its full cash value; land to be listed and valued separate and apart from the personal property and improvements thereon.”
“In all cases where the amount of the total assessed valuation assessed against such taxpayer exceeds the
“Both the assessor and the said county or district court, in considering such statement of grievance by any such taxpayer, shall take into consideration the value as fixed by the assessor upon other similar assessable property similarly situated.”
“In all cases where the amount of the total assessed valuation assessed against such taxpayer does not exceed the sum of $7,500, * * * the said court shall not review or give relief against an assessment merely because excessive, unless it shall appear manifestly fraudulent, erroneous, or oppressive.”
Involved, primarily in this litigation, is the question of whether the assessor has acted fairly and honestly in overruling the taxpayer‘s objections, and within the constitutional limitations of uniformity in making the assessment. Mere error of judgment or over valuation is not sufficient to permit a review, nor is exactness necessary in working out a relative uniformity. Great Northern Ry. Co. v. Weeks, supra; Colorado Tax Com. v. Colorado Central Power Co., supra. Unless the record discloses that the assessor had no basis in law to make the 1938 assessment, or that he arbitrarily overruled the objections thereto, it must be sustained.
A misconception of the issues before the court is disclosed in the opening statement of counsel for taxpayer, in which they said there are but two general issues involved: first, uniformity, and, second, “assess-
To determine whether the assessor, in overruling taxpayer‘s objections, acted honestly and fairly upon the facts before him, we look to the record. The presumption of official regularity applies to all of his acts. He was presented with numerous statistics of net income of numerous properties, primarily those on Fifteenth street, prepared by experts representing fifty-one taxpayers on that street seeking a reduction in taxes. The problem presented to him required considerably more than the assessment of the Plaza Hotel property; it involved a resurvey of all of the property on Fifteenth street, from Broadway to Arapahoe street. This necessarily called for a further consideration by the assessor of the assessments in all of the downtown area. The one legislative mandate necessary for the assessor, as well as the court, to consider when objections are made, is found in the following language of
“Their claim is ‘that said valuations and assessments are illegal, erroneous, excessive, discriminatory, and confiscatory, and greatly exceed the true value of said property.’ It is true that they have provided figures to substantiate their claims as to the properties being unprofitable investments. A similar condition, I am satisfied, exists on a great many other properties involved in our downtown district, a good many on which we do not at this time have figures comparable to those submitted by the Fifteenth Street Owners.
“In my opinion there is only one way to solve this problem, and that is to have a complete survey made of the downtown district for the purpose of reappraisal and placing valuations upon the properties that we feel will be equitable and fair for assessment purposes.”
In submitting this letter to representatives of taxpayer, the chairman of the board made the following statement:
“We have considered your request for reduction of assessment on 15th Street property, and have discussed the matter with the Assessor. It is our opinion that there has been a general decline in value of downtown business property and that there should be an immedi-
“We have requested the assessor to make an immediate survey of the downtown area with the idea of making a general equalization of taxes to take effect in the coming year. We are enclosing a letter from him assuring us that such action will be taken.”
Was the action taken by the assessor, in overruling the objections, arbitrary? In view of the problem that the assessor had before him, that the objection involved a valuation and reassessment of the entire downtown area for 1938, and that it required a reappraisal of considerable property, we cannot say that it was. That it was made in good faith is evidenced by the fact that, following this reappraisal, the assessment for 1939, involved here, was reduced twenty-five per cent. That the court, in the early part of the trial, had a correct conception of his authority appears from this statement, made on the first day of the hearing: “I believe that the court must determine, as I stated before, first, whether there is an abuse of discretion.” In Colorado Tax Com. v. Midland Terminal Ry. Co., supra, speaking through Mr. Justice Bouck, we said (pp. 110, 113): “No tax system that has yet been devised eliminates all errors of judgment made by such a body as the commission, or enables the work of the assessing officers to be verified by accurate scientific tests. All that can be expected under our system of government is that these officers shall act honestly upon the facts before them and in accordance with the law. It is not for the court to control the reasonable discretion of the commission or attempt to correct mere errors in the exercise thereof. * * * There was no attempt to question the good faith or integrity of any commission member.”
See, also, Colorado Tax Com. v. Colorado Central Power Co., supra. In the instant case the trial court, in his opinion, stated: “It is apparent that the assessor‘s
The city contends that the trial court committed grievous error in permitting taxpayer, over objections, to introduce voluminous testimony of net income of numerous properties other than the one involved in this case. It is conceded that the factors that may be used to determine the true value of taxable property are found in
The rulings of the court clearly indicate that, at first, it was inclined to sustain such objections, but subsequently permitted all of such evidence to be introduced. The result was confusion and a misconception of the issues. Objections to evidence as to net or gross income of other properties than the one involved should have been sustained, and it is apparent that the admission of such evidence led the court into the error of substituting its own judgment for that of the assessor. From language in the trial court‘s opinion it clearly appears that it did so, and while it perhaps considered some other testimony, the opinion clearly shows that in arriving at the conclusion of what it considered to be an excessive tax, it relied upon the testimony which capitalized the net income of all the Fifteenth street properties of the committee. The following statement is some evidence of this fact: “Giving consideration to all of the factors previously referred to in the opinion, the court is of the opinion that a fair assessed valuation of the Plaza Hotel would result from a capitalization of the net income for the intersection at eight per cent, or approxi-
The opinion also indicates that had the court eliminated all of the testimony as to net income except as to the property before it, there would have been no substantial basis for its judgment, especially in view of presumptive validity of the assessment. Until it was clear beyond a doubt that the assessor acted arbitrarily in overruling the objections, or that the assessment manifestly was excessive and oppressive, it was not incumbent upon the trial court to entertain any other evidence upon which to reduce it. Unless the evidence clearly disclosed that the assessor had no basis in law to overrule the objections made by taxpayer, the assessment could not rightfully be impeached. It was not necessary for the assessor, at the hearing on the objections of taxpayer, to consider any evidence of net income, if he otherwise had reasonable grounds upon which to overrule such objections.
Taxpayer contends that there was discrimination under
Our previous reference to the reason given by the assessor for overruling the objection of taxpayer may be repeated here. In his “return of proceedings,” filed by the assessor in compliance with
This indicates that the assessor was primarily concerned with the constitutional mandate of uniformity. If the trial court had given this phase similar consideration, it would have reached a different conclusion. That the consideration given by the assessor to uniformity was made necessary is indicated by the fact that numerous other taxpayers on Fifteenth street were seeking the same relief. Confusion on this issue also resulted from the consideration by the court of net income from other properties. If on this factor of uniformity the relevancy of such net income to assessment valuations is permitted to play a part, no uniformity can be maintained. The numerous factors involved in obtaining a net income applied differently by various owners would make the assessed value derived therefrom a speculative criterion, which would result in destroying any uniformity. Attention also is directed to
“The Court: * * * In regard to the materiality of this other proposition, it is rather difficult, in view of the absence of findings from the Assessor, to determine just what he did consider. For that reason, I think that I must assume that although the collecting of these
“In passing on the evidence, as I said, we cannot be too specific about this declaration of the statute, because all properties are different, of course, but we have got to take some particular standard of similarity, and it seems that a downtown area of the character of Fifteenth Street is a reasonable standard for that purpose.”
We again emphasize that the consideration required relates to values fixed by the assessor, not to values based on the capitalized net income on fifty-one properties located on Fifteenth street. All of these properties could not be “similar assessable property similarly situated.” A statement that a hotel property on the corner of Fifteenth and Tremont is similar assessable property similarly situated, to a market located six blocks therefrom, at Fifteenth and Arapahoe, cannot possibly be correct. The issue here involved is narrower than that. The record discloses that the court received and considered evidence of properties considerably different than required under
The question of confiscation, as it arises under the due-process-of-law clauses, was urged by taxpayer and considered by the court. It found that taxpayer was entitled to a net return of at least 6.5 per cent on the assessed value. The theory seems to have been that unless the tax base permits a reasonable return on a capitalized income—in this instance 6.5 per cent—confiscation occurs, and the assessed value must be reduced to a figure such that the taxpayer may realize such a return. This is a novel theory, applied to the taxation of private property, especially when no public interest is involved. Except as to procedural questions, the due-process-of-law clauses have no application to ad valorem taxation. 61 C.J., p. 156, §95. Counsel for taxpayer cite Great Northern Railway v. Weeks, supra, to support their contention. In that case the court was concerned with the assessment of one of the largest utilities in the state of North Dakota. The action was one in equity to enjoin the collection of taxes on valuations, including properties located outside the state, and in other respects excessive and arbitrary, so as to violate due-process and equal-protection clauses under the
The dissenting opinion of Mr. Justice Stone in that case, in which Justices Brandeis and Cardozo concurred, help to clarify the issues before us. The only constitutional limitations on the taxing power are equality and uniformity. In considering the element of confiscation on the record before us the trial court committed error.
Counsel for taxpayer urge that if there is any competent evidence to sustain the court‘s finding, the judgment must be affirmed. From what we have already said, this rule has no application here. Most of the evidence on net income, and capitalized net income, as applied to other property, was immaterial. That this evidence dominated the court to such an extent that it substituted its judgment for that of the assessor, clearly appears from its opinion. Moreover, the action of the assessor in overruling the objections to the assessment
This proceeding was brought under
The judgment is reversed and the case remanded, with directions to dismiss the complaint.
MR. JUSTICE FRANCIS E. BOUCK, MR. JUSTICE YOUNG and MR. JUSTICE KNOUS dissent.
MR. JUSTICE KNOUS dissenting in part.
While I do not oppose a reversal herein, I am unable to concur in the disposition made by the majority opinion.
In the case at bar the taxpayer was of the opinion that “his property had been assessed too high” (
I do not believe, however, the court erred in receiving evidence of the net income of the property here involved and concerning other comparable properties. Net income is one of the factors properly to be considered in fixing value for ad valorem taxation. See
I am also convinced that other fallacious theories permeate the majority opinion, which if followed as precedents in future cases in the determination of these questions will jeopardize the efforts of taxpayers suffering from excessive, fraudulent or oppressive assessments in attempting to secure relief through the procedure adopted by the taxpayer in the present case.
The majority opinion recites that one of the controlling questions involved in a case of this character is: “Was the action taken by the assessor in overruling the objections arbitrary?” It then proceeds to demonstrate that in denying the protest of the taxpayer, made under
Next, where no actual fraud is charged, I am unable to conceive how the good faith of the assessor in making the original assessment can have any relation to the question of whether such valuation was manifestly excessive. It seems to me that an excessive assessment, even though made in the best of faith, would be just as oppressive to the taxpayer and certain to effect the confiscation of his property as if maliciously imposed.
Further, as I understand the majority opinion, more threatening than all others is the promulgated theory that the excessive assessment of a given property may be justified by the circumstance that other property of similar character in the same area also is admittedly likewise excessively valued for taxation purposes. This declaration purportedly is based upon the uniformity clause of the Constitution.
I am, therefore, of the opinion that the case should be remanded with directions to the district court to proceed to determine, in accord with
MR. JUSTICE FRANCIS E. BOUCK and MR. JUSTICE YOUNG concur in this dissenting opinion.