18 Haw. 15 | Haw. | 1906
ORAL OPINION.
The first of these cases relates to the income taxes for the latter half of the year 1905 of the Honolulu Rapid Transit and Land Company, which conducts an electric street railway in .Honolulu and whose franchise expires in 1928. The company returned its gross income for the half year at $169,296.82 and deductions at $180,822.67 leaving no net income for taxation. Among the deductions was an item of $40,925.43 under the head of “losses otherwise actually incurred” as having been written off at the end of the year for depreciation of property during the entire year due to climatic and other conditions of wear and tear and not included in “necessary expenses actually incurred” in carrying on the business or for repairs, etc. The assessor disallowed this item, thereby leaving a net income of $29,409.58 for taxation, and the company appealed. Since this item was for depreciation during the entire year and since half of it if allowed for the half year in question would still leave a net income, the company endeavored to show before the tax appeal court that the actual depreciation for the year amounted to $57,827, which was the aggregate of various percentages estimated as depreciation on different portions of the property. It contended also that it was entitled to deduct $45,510.68 as “sinking fund,” although it had not actually set aside that as sinking fund or claimed any such deduction in its return. This contention was based on section 17 of its franchise act (Rev. Laws, Sec. 851), which provides that the company may charge upon its income (1) operating expenses, etc., (2) dividends not exceeding 8 per cent., (3) a sinking fund for the redemption of bonds or other record debt'and the capital upon the expiration of the franchise, (4) the excess of income to be divided equally between the Territory and the stockholders, (5) a quarterly account to be rendered by the corpora
The second of these cases relates to the property taxes of tho* same company assessable as of January 1, 1906. The company returned its property as separate items aggregating in value-$752,912.58, less an exemption amounting to $8,930.81, leaving, a net valuation of $744,041.77 for taxation. It made no return of its property as a whole valued as property combined and made the basis of an enterprise for profit. The assessor added' new items not returned and increased the values of certain items-returned separately, the only change of much consequence being' the addition of an item of $500,000 for the franchise of the corporation, and then assessed the entire property as a whole at $1,831,000, which was the amount of the company’s stock and bonds less $9,000 exemption. ITe contended that he was-required to do this by section 1216 of the Revised Laws as., amended by Act 88 of the Laws of 1905, which provides that, the combined property of a corporation of this class shall be assessed at not less than the total amount of the “par value of. the capital issues emitted” by it, the contention contra being, that “capital issues” within the meaning of this statute does not include bonds and also that whether it includes bonds or. not the statute is unconstitutional as placing an arbitrary valuation upon the property and making unreasonable discrimina-tions. The tax appeal court held that capital issues did not. include bonds and reduced the valuation below the assessment and the assessor appealed to this court. The tax court did not pass on the validity of the act, in case capital issues should be held to include stock, because it placed the valuation of the property at an amount greater than the capital stock of the; company.
On the question of aetual value, that is, aside from the provisions of the act just referred to, the assessor at the hearing; before the tax court introduced evidence of new items and;
The foregoing statement of the case was prepared by the •chief justice, who, at the close of the argument, the court not ■calling upon the assessor on the company’s appeal in the second ■case, rendered the opinion of the court orally as follows:
There are two cases before the court, one involving the income tax and the other the property tax of the Honolulu Rapid Transit and Land Co., there being cross appeals in the latter case.
In the first case two questions are raised,. One is whether the company may write off a certain amount annually for depreciation in its property — in cases in which repairs cannot be made annually, as where certain portions of the property are used for a number of years before it completely wears out and requires replacing. In the opinion of this court this cannot be done. Such depreciation does not come under “losses actually sustained or otherwise actually incurred during the year,” within the meaning of the statute on income taxes. If this loss may be deducted at all, it is when the repairs are made or the property replaced by substituting new property for it. It would then come within the provision of the statute allowing a deduction of “necessary expenses actually incurred,” etc. This ruling is required by implication at least from the reasoning ■of the court in the Hawaiian Commercial case, 14 Haw. 601 and, on rehearing, 687, and by the ease there cited from the United States Supreme Court, Grant v. Hartford & N. H. Ry. Co., 93 U. S. 225.
The court is clearly of the opinion that the other point also is not well taken — that an amount may be deducted for a sinking fund. That provision of the statute — relating to a sinking fond — was inserted merely with a view to ascertaining in what income the government should participate, not with a view to
We now come to the second case, that involving the property tax, taking up first the appeal of the assessor. This, as we understand it, is based upon the statute enacted by the legislature of 1905, act 88, which provides that “the combined property of every corporation holding a public utility franchise and occupying the public streets or highways of the Territory, other than any such corporation that by the terms of its franchise is required to pay a percentage of its gross income to the Territory, shall be valued and assessed at not less than the total amount of the par value of the capital issues emitted by such corporation.” The court is of the opinion that the phrase “capital issues” is of such ambiguity and uncertainty that it ought not to be held to include bonds issued by a corporation or other evidences of indebtedness. There is no doubt that statutes of this nature should be construed strictly. That has often been held by this court — there are a great many cases in the Hawaiian reports as well as elsewhere — and it is particularly applicable in a case like this in which there is at least very grave doubt as to the constitutionality of the statute.
In view of this ruling and other rulings that we are about to make it will be unnecessary to go into the question of the constitutionality of the statute.
Coming to the appeal of the taxpayer, the main question is whether the franchise is taxable. We see nothing in the act itself which would exclude the franchise from taxation. The imposition of a property tax upon the combined property of the company, including the franchise, would not be inconsistent with the franchise itself or the provisions of sections 1Y and 80 of the franchise act. The court is also of the opinion that this is not a federal franchise such as could not be taxed by the Territory. The franchise act was passed by the Republic of Hawaii, and congress, if its act (section Y3 of the organic act)
So far as the actual value found by the tax appeal court is concerned, we see no reason to alter it. The amount is only slightly greater than was fixed by this court in a previous case, and the property, all things considered — the combined property — seems to be worth that amount from whatever standpoint we look at it. Certainly, considering the amount of the bonds and stock, the latter at a fair valuation, we would be justified in fixing that amount.
Mr. Justice TIartwell suggests that I may have implied that the court meant to hold that in the act of 1905 the phrase “capital issues” includes stock although we do not hold that it includes bonds. We, at least speaking for myself and for Mr. Justice Wilder, express no opinion upon that question.
HaRtwell, J. My own opinion is that the phrase appears absolutely insensible. It is the most elusive phraseology that I have ever tried to interpret. Some people seem to understand what it means, but I think that is because they know, but as I do not know what was intended by “capital issues emitted” there seems to me to be an absolute confusion of thought.
Erear, C. J. There is a further point that I did not refer to. The case is before this court on general appeal and the court can make the assessment on the basis of an enterprise for profit.