15 Haw. 29 | Haw. | 1903
Lead Opinion
OPINION OF THE COURT BY
(Galbraith, J., dissenting.)
The appellant returned for taxation for tlie year 1902 its 'leasehold interest in certain parcels of land, and the buildings thereon, at $36,902.98, merchandise, cash in hand and ether personal property at $45,302.18 and gross insurance premiums received during the year 1902 at $24,832.99, and the total of these separate items, $107,038.15, as the “aggregate value of the combined real and personal property which is the basis of the business enterprise known as 0. Brewer & Co., Limited.” The assessor, on the other hand, assessed the combined property, under Section 820, C. L., at $1,121,137, reaching that figure "by the following method:
Xess assessed value of Hawaiian Stocks and Bonds owned by the Company. 2,851,700.00
$1,273,300.00
in Less 10%, probable reduction
.$127,330.00 sales of large blocks.
. 23,833.00 and insurance premiums. . .
- 152,163.00
$1,121,137.00
The Court of Tax Appeals held that the assessment was ■correctly made under Section 820 and approved the method pursued by the assessor in ascertaining the aggregate value, ■deducting, however, 15 % in place of 10 %, from the market value of a few shares to ascertain the market value of the whole •and computing such percentage on the total before deducting •the value of the exempt property and not after, as was erroneously done by the assessor. The total valuation fixed by that court was $629,717.00, i.e.:
10,000 shares at $412.50. $4,125,000.00
Less 15 %.$ 618,750.00
.Less Hawaiian stocks and bonds.' 2,851,700.00 and insurance premiums... 24,833.00
- 3,495,283.00
$ 629,717.00
Section 820 of the Civil Laws, under which the assessment was made and sustained, reads as follows: “All real and personal1 property and the interest of any person in any real or personal property shall be assessed separately as to each item thereof for its full cash value.
“Provided, however, that in all cases where real and personal property, or several classes or kinds or parcels of real or per
“In estimating the aggregate value of each such enterprise for profit, there shall be taken into consideration the net profits made by the same, also the gross receipts and actual running expenses; and where it is a company being a corporation whose stock is quoted in the market, the market price thereof, as well as all other facts and considerations which reasonably and fairly bear upon such valuation.
“In ascertaining the aggregate value of the property constituting an enterprise for profit for the purpose indicated by this Section there shall be excluded therefrom the value of shares, in other Hawaiian Corporations, held or owned by such enterprise, and all property on which specific taxes are levied.
“And further provided, that when 'any real estate or house is leased or rented, the sum of eight years’ rental thereof shall be the assessment value of such real estate or house, unless such valuation shall be manifestly unfair or unjust.” Eor the appellant it is 'contended that that section does not authorize the taxation of any property n'ot included within the definition of the term “real property” or of “personal property” as set forth in Sections 818 and 819, that the Tax Court therefore erred in including in the total valuation the value of certain classes of property or elements not within those definitions, to wit, stocks aiid bonds in private corporations, bills and accounts receivable, good will, business experience and ability and integrity. Eor the assessor, on the other hand, the contention is that the aggregate value referred to in Section 820, is of all the property of the enterprise of whatever kind and whether defined in the two preceding sections or not. Sections 818 and 819 read: “The term Neal Property’ for the purposes of this Act, shall mean and include all lands, and town lots and house lots with the buildings, structures, fences, wharves, improvements and other things erected on or affixed to the same.
*33 “The term ‘Personal Property’ for the purposes of this Act,, shall mean and include all household furniture and effects, Jewelry, watches, goods, chattels, wares and merchandise, machinery, Hawaiian ships or vessels, whether at home or abroad, all moneys in hand, leasehold and chattel interest in land and real property, franchises, patents, contracts, growing crops, public stocks and bonds not exempted by law from taxation, and all animals not herein specifically taxed.”
The decision in the case of the I. I. S. Navigation Co., 10 Haw. 624, has much that is applicable in the case at bar. In that case, as in this, the taxpayer contended that “the new law like the old, in so far as it bears upon the present case, provides for a tax upon property only; that a business or enterprise-is to be distinguished from the property which forms its basis, in that the value of the former may depend a great many things besides the property, as, for example, upon labor, skill, experience, rapid turning of capital, want of competition and especially good will; that all these elements combine to producethe earnings and determine the market value of the stock,, as well as the value of the enterprise; * * * that the assessor-by considering chiefly, almost entirely, the earnings and the-market value of the stock, proceeded on a wrong principle and really estimated the value of the enterprise, and erroneously took this as the value of the property, as if there were no distinction between the two.” The court said, at page 630, “It is true, these considerations” (the Warnings, the market value of the stock and others) “are referred to in Section 17” (C. L., Section 820) “(third paragraph) only in connection with the value of the ‘enterprise,’ but we have no hesitation in holding that ‘enterprise’ as here used was intended to mean ‘the property forming the basis of an enterprise’ as in the preceding paragraph, or ‘the property constituting an enterprise’ as in the succeeding paragraph; this is also obvious from the language of Sec. 68 which requires the person making the return to set forth the aggregate value of the combined property of the enterprise, after taking these and other things into consideration. This is holding, not that the words ‘combined property’ in other
The second paragraph of Section 820 shows clearly what the combined property referred to is. The language used is, "“Provided, however, that in all cases where real and personal property, or several classes or kinds or parcels of real or personal property respectively, are combined and made the basis of an enterprise for profit, the combined property forming such basis of such enterprise for profit, shall be assessed,” etc. The “combined property” naturally and obviously means the real and the personal property or the several classes or kinds or parcels of real and personal property. Any other construction would be forced. What is real and what is personal property is set forth in Sections 818 and 819. “The term ‘Neal Property’ for the purposes of this Act shall mean and include * * * The term ‘Personal Property’ for the purposes of this Act shall mean and include” * * * . This express declaration of the meaning of those terms must govern unless, indeed, there is sufficient elsewhere in the Act to show that the •words are used in another sense. It is argued that in the fourth ■paragraph of Section 820 the provision requiring the exclusion -.from the aggregate value of “the value of shares, in other Hawaiian Corporations, held or owned by such enterprise,” shows "by implication that under that section it was intended to tax property not included in the definitions set forth in the preceding-sections, because Hawaiian stocks- are not in' the list there contained and therefore it would he unnecessary to expressly direct their exclusion. The argument, while not wholly without force, seems to us insufficient to warrant a disregard of the express (definition given “for the purposes of this Act.” The provision
The capital stock of C. Brewer & Co. is divided into 10,000 shares of the par value of $100 per share. The market value of the shares, in small lots, is agreed to have been, on January 1, 1902, $412.50. Just what the selling price of large blocks or of the whole stock would have been at that time, is, of course, difficult to determine; but no reason is apparent for holding that the Tax Court erred in fixing upon 15% as the rate of deduction. As so ascertained, the market value of the 10,000 shares was $3,506,250. The total of bills payable and books debts owing by the corporation was $475,125.43. The market value of the shares represents the value of the property of the corporation subject to its debts whether secured by note or otherwise. Adding, then, the amount of the indebtedness to the selling price of the shares, the aggregate value of all of the property of- the corporation, of whatsoever nature, is found to be $3,981,375.43. The assessed value of the stocks and bonds of private corporations, Hawaiian and others, and of certain land, situate on Maui, owned by the appellant and used in the “enterprise” but not taxable to the appellant in this Territory, or, as to the land, on this Island is $3,214,802, of the taxable leaseholds and other taxable property as returned, $82,205.16,
As to the agency contracts. It appears from the evidence that the company entered into an agreement, in writing, with the Onomea Sugar Company, whereby it undertook to make certain advances of money to be used in carrying on the business of sugar planting and manufacture, to make purchases and sales for the principal and otherwise to act as agent, its compensation being a percentage of the proceeds of the sugar sold. This agreement was for a definite period of time of which seven years remained unexpired at the date of the hearing below. The company also holds a. similar agreement with the Ookala Sugar Company (one year of the term unexpired at the date of the trial) and four others, with other corporations, which are verbal and not for any specified period of time. These agreements, whether written or verbal and whether for a definite period or terminable at will, are certainly all “contracts’7 within the meaning of Section 819. Whether or not they have any substantial value is another question. Those terminable at will, as also that with the Ookala Sugar Company for a term of one year only, have of themselves no cash value,— nothing could be realized upon an attempted sale of a privilege to act as agent which privilege carried with it no assurance of its continuance for a definite length of time. The “full cash value” under the tax law means the value for purposes of sale, if the property is salable, and not the value to the owner. In re Assessment of Taxes, James B. Castle, ante, p. 1. If a con
Accounts receivable, like promissory notes, are not, in common language, spoken of as contracts although technically they are contracts whether express or implied. Upon reasoning similar to that in the case of promissory notes, they must be held not to be “contracts” within the meaning of the statute.
Neither under the law of 1886, which also made “contracts” taxable, nor under the present statute, enacted in 1896, have promissory notes or accounts receivable been returned or assessed for taxation. The fact that the legislature, which may be presumed to have been aware of the construction thus placed upon the law by the executive officials of the government and by the public generally, has taken no steps to amend the law
The question concerning the other elements, unity of use, .good will, etc., which tend to increase the total of the value of .the separate parts, has been already decided in the Inter-Island Steam Navigation Co. case. “The questions of greatest difficulty,” said the court in that case, “are whether the ‘aggregate value of the combined property, of an enterprise, though consisting chiefly of personal property capable of indefinite multiplication, may materially exceed the sum of the values of the parts taken separately and if so, how far the earnings or the market value of the stock may be considered in determining ■such value. In the first place, the word ‘aggregate’ as here used in the expression ‘aggregate value’ does not mean merely '‘sum’ or ‘total.’ That is not necessarily its only meaning in common usage, and in this statute the words ‘as a whole’ used in the same clause show that the word ‘aggregate’ was intended to qualify the word ‘value’ so as to make it mean the value ■ of the property as a unit and not merely as a collection of •separate items. This is obvious also from other portions of ■these sections of the statute. In the second place, it is evident •that the legislature regarded the value of the property as a whole as materially greater than the sum of the values of the parts considered separately. In the third place, it is evident that the legislature thought that the earnings and, in' the case of a corporation, the market value of the stock, of an enterprise, were important considerations in determining the value of the property as a whole. These views of the legislature should be given effect, if possible, and, in our opinion, they are well founded in reason and amply supported by authority.” The court then proceeded to discuss the three classes of statutes which have been enacted in the United States in recent years, “as a result of a belief that the properties of large enterprises, especially corporations, possess a considerable value from the very fact of their magnitude or the relations of their different parts to each other, and that such increment of value escapes
We now quote further from St. v. Jones, supra: “It will, we think, be conceded that the earning capacity of real estate owned by individuals may be considered in fixing its value for taxation. Take an office building on 'a prominent street in one-of our large cities. It will not be doubted, that by care in the selection of tenants, and in the preservation of the reputation of the building, by superior elevator service, by vigilance in guarding and protecting the property, by the exercise of skill and knowledge in the general management of the premises, a good will of the establishment will be promoted, which will tend to an extra increase in the earning capacity and value of the building. Eor the purpose of taxation, it would be none-the less the true value in money of the building, because contributed to by the operative causes that gave rise to the good' will. We discover no satisfactory- reason why the same rule should not apply to the valuation of corporate property — why the selling value of the capital stock, as affected bv the good will of the business, should be excluded from the consideration
In Sanford v. Poe, 69 Fed. 546, the U. S. Circuit Court of Appeals, in considering the validity of the same Ohio law with reference to the commerce clause of the Federal Constitution, held that “tax imposed is not a license tax, nor a tax on the* business or occupation, nor on the transportation of property.. * * * It purports to provide for a tax upon property within the State of Ohio,” and on appeal the United States Supreme* Court (165 U. S. 194, 226) said of this: “The line of reasoning thus pursued is in accordance with the decisions of this-court already cited. Assuming the proportion of capital employed in each of several states through which such a company conducts its operations has been fairly ascertained, while taxation thereon, or determined with reference thereto, may be said in some sense to fall on the business of the company, it is only indirectly. The taxation is essentially a property tax, and, as such, not an interference with interstate commerce.”
In the Inter-Island case the court perhaps went no further than to hold that where good will, skill and experience contribute incidentally only to the value of the taxable property of the corporation, such increased value cannot be said not to be the value of such taxable property, and it may be that under the statute, correctly construed, the intangible elements just named in a case in which they do not contribute incidentally only to the value but constitute the main or a substantial and clearly distinguishable part of the property should be excluded in determining the aggregate taxable value of the enterprise.
Out of a total market value of the enterprise as a whole of $3,961,315.43, $562,655.31 is accounted for in bills and accounts receivable and $3,297,007.16 in other specific property (including both taxable and non-taxable property), leaving only $121,712.96 as the increase of'value due. to unity of ownership and use of all the property and" to good will,.
The valuation of +he taxable property is fixed at $82,205.16, • as returned. In addition to this the amount of gross insurance premiums received by the company is, of course, subject to the :'specific tax provided by the statute.
Dissenting Opinion
I understand that one proposition in particular was settled, by the decision of this Court in Inter-Island Steam Navigation Co. v. Shaw, 10 Haw. 624, namely, that real and personal property combined and used in an enterprise for profit can be properly valued as a whole or unit, for taxation purposes, under Section 820, C. L., and that when so valued the value of the combined property or unit may be much greater than the-sum of the values of the several items forming the unit. In other words that the value of whole (the combined property) may be greater than the sum of the values of all of its parts-
From this proposition it follows as a necessary deduction that by whatever sum the value of the unit or whole enterprise exceeds the sum of the values of its several parts to that extent intangible property i« valued for taxation under this statute- and to that extent Section 820 provides for and creates a new and distinct class of property for taxation purposes, namely, intangible property, a class of property not included in real estate as defined in section 818, or personal property as defined in section 819. It can make no material difference so far as this proposition is concerned whether the increased value results from intangible elements in tangible property or from intangible property altogether.
As was said by the Supreme Court in the Express Companies ease. “The burden of the contention of the Express companies is that they have within the limits of the State certain tangible-property, such as horses, wagons, etc.; that that tangible property is their only property with the State; that it must be valued as other like property, and upon such valuation alone can taxes be assessed and levied against them.
But this contention practically ignores the existence of intangible property, or at least denies its liability for taxation. In the complex civilization of to-day a large portion of the wealth of a community consists in intangible property, and there is nothing in the nature of things or in the limitations of the Federal Constitution which restrains a state from taxing at its real value such intangible property. Take the simplest
This theory of valuation ought to be well established in this jurisdiction since in the Inter-Island case intangible property -was valued at $211,109.52, the difference between the return of 'the taxpayer of the aggregate values of the several items of -property and the valuation of the whole approved by the Court,
The decision in this case is a conclusive answer to the contention of the taxpayer that no property can be valued or considered in estimating the value of the combined property as defined in the Section 820 except real and personal property as defined in the preceding sections. It will be remembered that Section 820 providing for valuing combined property and Section' 871, providing for returning the same, were engrafted on the tax law by the revision of 1896. (See Session laws, 1896, Act 51, Secs. 17 and 68) and that prior to that time no similar provisions were found in the tax laws of the islands while the definitions of real and personal property as given in sections 818 and 819. were carried forward from the tax laws of 1892 and 1882, with little change in the language except that the last definition of personal property is extended to include “contracts.”
The phrase “for the purposes of this Act” in each of the sections defining property is found in the earlier tax laws, those that existed prior to 1896, and was brought forward with the definitions from those laws, such use of this phrase cannot properly be held to indicate an intention on the part of the legislature to restrict the use of the words real and personal property in section 820 within the definitions given prior to its ■enactment. Section 820 is the later expression of the legislative will on the question and ought to control. At any rate, this court has held as above indicated, that no such limitation was intended to be made.
Under my view of the question it is immaterial whether or not the investment in the stock and bonds of California Corporations amounting at par value to $363,102.00 is personal property within the definition given in Section 819, although it seems to me that there can be no serious doubt as a matter •of law that the word “chattels” used in the definition is broad enough to include stock and bond within the definition of personal property. Bouvier; 2 Kent. 340; Terhume v. Height,
Contracts are specifically enumerated in the definition of personal property in Section 819 and are proper subject of taxation at their true cash value the same as other kinds of personal property.
The captial stock of the taxpayer is $1,000,000, its gross income for the year ending December 31, 1901, was $461,-044.38, expenses for the same period were $31,629.50, and net income or profits for that period $429,414.88.
It appears from the evidence that there were six plantation agency contracts held by the taxpayer and not returned for taxation. These it is admitted come within the definition of personal property and should be taxed the same as other personal property but it is found by the majority of the court that the evidence fails to show the value of these contracts and “that justice will be more nearly accomplished by regarding the contracts, for the purposes of this ease, as of no value.”
It may be admitted that the evidence does not offer as satisfactory data as might be desired for measuring the value of these contracts. But who is to blame for this? The facts were in the possession of the taxpayer. It was its duty to give them to the assessor or to the Tax Appeal Court. It did not do so. I submit that it is not in the interest of the “accomplishment” of “justice” to give to this taxpayer a premium for withholding information. In other words to hold that certain of its property, which we know is subject to taxation, exempt from taxation for the reason that tbe taxpayer failed to furnish exact evidence for fixing the value of the property, especially since there is evidence from which a valuation may be placed on this property.
It is a well-settled rule of law that income, or-the source of income, or capacity to produce income, is almost universally made the basis upon which taxes are estimated. Cooley Taxation, 16. Adams Express Company v. Ohio, 165 U. S. 194; Adams Express Company v. Kentucky, 166 U. S. 171. Why should these agency contracts not be valued for taxation purposes by the amount of income or profit that the agents receive from them ? It does not lessen their value that only a person of large means or a wealthy corporation could act as agent. Since the agent does not wish to part with the agency or to sell it, particularly so long as it is so profitable.
Applying the above rule to the scant fact relative to these contracts the court possibly would be justified in fixing a valuation on them for taxation purposes equal to the sum which, at interest, at the rate of 10 % per annum would produce an amount equal to that realized from them annually by the taxpayer, or $91,-110.00, however, this -would undoubtedly be a valuable guide in arriving 'at their true taxable value. To say that these contracts have no ascertainable value is to close one’s eyes to the fact of the annual profit derived from them and that this is almost equal to ten per cent, on the par value of the taxpayer’s entire c'apital stock. There is nothing in the record to warrant the inference that these contracts are of peculiar value to this taxpayer and that they would not be of equal value to any other person of ordinary business capacity. The fact that they are given as a favor by the plantation does not detract from their taxable value. The Tax Appeal Court fixed the value
Considering tbe fact tbat tbe taxpayer did not produce tbe •evidence tbat would bave made it possible to fix tbe real value •of these contracts and tbat tbe valuation placed on its property .by tbe Tax Appeal Court does not appear to exceed tbe possible taxable value of these contracts alone I am convinced tbat tbe ends of justice would be subserved by tbe affirmance of tbe judgment of the. Tax Appeal Court. Tbis I think ought to be •done.