10 Haw. 624 | Haw. | 1897
By the provisions of the general internal tax law of June,. 1896, a portion thereof was to take effect upon publication,, and the remainder December 31, 1896; and the prior general internal tax law, that of 1892, was repealed, the repeal to take effect as to a portion of the law upon the publication of the new law, and as to the remainder on said December 31, 1896. Under these provisions the statutory law governing this case, which relates to the assessment of the plaintiff’s property as of July 1, 1896, consists of the law of 1892 (Oh. 61) except Section 26 thereof, and Sections 17, 68, 82, 83, 84 and 85, of the law of 1896 (Act 51). The principal changes introduced by these sections of the new law are: (1) Whereas previously the special tax appeal court (consisting of three persons) created by the tax law, had been the only court of appeal in assessment cases, now a further appeal, (on both the law and the evidence) is allowed to the Supreme Court from decisions of the special tax appeal court; and (2) Whereas previously, in practice and by general understanding rather than by the express provisions of the statute, real and personal property, or several classes or kinds or parcels of real or personal property, when combined and made the basife of an enterprise for profit, had been assessed separately, now it is expressly provided that such property shall be assessed as a whole. The principal point involved in this case is the construction and effect of this last mentioned provision of the new law. Each law, the old and the new, provides for a tax upon real property and upon personal property, and defines what is included under each of those terms. The sections that prescribe the methods of ascertaining the value of the property, which are the sections in question in this, case, are the following:
“Section 26. (Old law, now repealed.) The full cash value' of all real property and all personal property and of the interests of any person in real or personal property, within the:*626 meaning of this Act, shall be estimated at a sum which such .real or personal property or such interest therein might reasonably be expected to bring at a sale by public auction for cash. ^Provided, always, that when any real estate or house is leased or rented, the sum of eight years’ rental shall be the assessment value of such real estate or house, unless such valuation shall be manifestly unfair or unjust.
“Section 17 (new law). All real and personal 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 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 as a whole on its fair and reasonable aggregate value.
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.
“Section 68 (new law). If any of the property by this Act directed to be returned shall consist of real and personal prop
lie shall state what, if any, the net profits as well as the gross proceeds and actual running expenses of such enterprise have been during the twelve months next preceding; and if known, what sale or' sales of stock or other interest in such enterprise have taken place during the twelve months next preceding, giving the name of the person selling, the person buying, the number of shares or proportion of interest sold upon each sale; and, when known, the purchase price thereof.”
The plaintiff, a corporation, returned its tangible property, consisting chiefly of steamships, ship chandlery, coal and real estate, at $269,590.48, as the aggregate value of the combined property forming the basis of its business enterprise. This amount, however, was merely the sum of the values of the different items valued separately as under the old law. The assessor raised this to $471,300. This amount he obtained according to his testimony before the tax appeal court, by taking the capital stock (then consisting of 4250 shares, of the par value of $100 each) at its market value, $145 per share; reducing this fifteen per cent, as an allowance for a probable reduction in the price of the shares if sold in large quantities; and then making a further reduction of ten per cent, as a means of equalization, with reference to the property of other corporations; he also considered the gross receipts ($618,745.07), the running expenses ($556,686.58), the net earnings (over $62,000, or over fourteen per cent, on the capital stock) and
It is contended for the plaintiff 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 upon a great many things besides the property, as, for example, upon labor, skill, experience, rapid turning over of capital, want of competition and especially good will; that all these elements combine to produce the earnings and determine the market value of .the stock, as well as the value of the enterprise, so that although the earnings and the market value of the' stock may be regarded as fair criteria of the value of the enterprise, they should not be considered in ascertaining the value of the property, since this is only one of many elements which go to determine the amount of the earnings or the market value of the stock or the value of the business; that not only is this a truth aside from the statute, but that the statute in question itself recognizes it, for it expressly provides for the assessment of the property, and that portion of it (the third paragraph of Sec. 17) which directs the consideration of the earnings and the market value of the stock, does so only for the purpose of estimating 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. It is also contended, that the return made by the plaintiff is correct, not only because “aggregate value,” at which combined property is required by the statute to be assessed, means merely
We may readily concede that, as contended for the plaintiff, the sections in question as well as numerous other portions of the statute, show that the legislature intended to tax only the property forming the basis of an enterprise for profit, and did not intend to tax the enterprise as such itself. We may also concede that there may be a great difference between the value of an enterprise and the value of the property which constitutes its basis, especially if such property is considered not as a whole but as a mere aggregate of isolated parts; also that the earnings or the market value of the stock of an enterprise may not alone be a correct criterion of the value of the property which forms its basis. It is easy to see that owing to good will, skillful management, respectability and popularity of the proprietors, lack of competition, or other causes, the capitalized earnings or even the market value of the stock of an enterprise may greatly exceed the value of its tangible property, especially if regarded as separate items; or, on the other hand, that the market value of the stock may be much less than the value of the tangible property, whether regarded as a whole or as separate items, as for instance, if the enterprise were greatly in debt, for then the market value of the stock would represent only the excess of the value of the enterprise over the indebtedness.
But while neither the earning power nor the market value of the stock of an enterprise is necessarily alone a correct criterion of the value of the property, it by no means follows that these may not be considered, with other things, in determining the value of the property. As well might it be said that the cost of production of personal property or the price paid for real prop
The questions of greatest difficulty in this case are whether
In considering the cases that hear upon the subject, it is important to keep in mind the different classes of statutes under which they were decided. The most common form of statute is, of course, that which, like our fonner statute, simply imposes taxes on property, without any provision that combined property shall be assessed as a whole. But in a number of 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 taxation under the ordinary statutes,
The cases relied on for the plaintiff, of which the principal are: Chicopee v. Hampden, 16 Gray 38; Com. v. Hamilton Co., 12 Allen 298; Com. v. Cary Co., 98 Mass. 19; People v. Dolan, 126 N. Y. 166; People v. Coleman, Ib. 433; Porter v. Rockford Co., 76 Ill. 561; Coite v. Conn. Co., 36 Conn. 512; State v. Metz, 31 N. J. L. 378; De Witt v. Hays, 2 Cal. 463; were none of them decided under statutes like ours, and we find nothing in them contrary to the principles above set forth. We need comment on only one of them, the one most relied on for the plaintiff, People v. Dolan, 126 N. Y. 166. In that case the court held that the portion of a telegraph line in a particular town should be assessed as isolated property, not as a part of a whole, or as used for telegraph purposes or with reference to connections or productive capacity; that, therefore, the market value of the stock was not a proper test of the value of the property, but that, since it was personal property capable of infinite production, the proper measure of its value was its cost of production. This case is relied on to show that
We can see no difference in principle between the case of a railroad company and the case of a telegraph company for the purposes of assessment under a statute which requires the
An Ohio statute provided for a tax upon the property of telegraph, telephone and express companies, without referring to the franchise or intangible property at all. It required the companies to return the amount of their capital stock, the par and market value of the stock, a statement in detail of their property, &c. It also provided that in determining the value of such part of the property as was in the State of Ohio, the assessors should “be guided by the value of the entire capital stock” of the companies and “such other evidence” as would enable them to arrive at the value of the “entire property” of such companies within the state, in the proportion that the same bore to the “entire property” of the companies as determined by the value of their stock and other evidence. Thus the statute was substantially the same as ours, so far as this case is concerned. It differed from our statute in this, (1) that it was confined to certain classes of corporations, instead of extending as our statute does to all enterprises for profit, and so was open to an argument against its constitutionality under the Ohio constitution, and (2) that it required the market value of the entire stock of a company having property in different states to be considered in determining the value of that part of the tangible property that was in one state, while our statute requires this only in determining the value of the entire property. In other words, the Ohio statute went further than our statute, and yet, as we shall see, it was fully sustained.
In Western Un. Tel. Co. v. Poe, 61 Fed. R. 449, as in the case at bar, the assessors in determining the value of the property took the value of the stock as a basis, and but lightly regarded the intrinsic or cost value of the property. The Circuit
These decisions were upon demurrers, but before final decrees were entered the same questions were raised in the Supreme Court of Ohio, in State v. Jones, 51 Oh. St. 492, the case of an express company, and that court came to the opposite conclusion and sustained the law. It held that the statute did not proceed on the principle that the value of the entire property was the same as the value of the capital stock; but merely required the value of the stock to be taken as a guide, or datum; it held also that in estimating the value of the tangible
* * * “If by reason of the good will of the concern, or the skill, experience, and energy with which its business is conducted, the market value of the capital stock is largely increased, whereby the value of the tangible property of the corporation, considered as an entire plant, acquires a greater market value than it otherwise would have had, it cannot properly be said not to be its true value in money within the meaning of the constitution, because good will and other elements indirectly entered into its value. The market value of property is what it will bring when sold as such property is ordinarily sold in the community where it is situated; and the fact that it is its market value cannot be questioned because attrib
In consequence of this decision, Circuit Judge Taft reversed his decisions upon demurrer above mentioned, and sustained the validity of the law, without however stating whether he was convinced of the correctness of the reasoning of the Ohio court, and upon a further hearing upon the question of fact as to whether the assessors had followed the law as construed by the Ohio court, he held that they had “kept well within the law.” See Sanford v. Poe, 69 Fed. R. 546, 547. On appeal however, in the express company case, to the Circuit Court of Appeals, consisting of another Circuit Judge and two Distinct Judges, the court followed the Supreme Court of Ohio with the utmost approval, lb. And upon the question whether it made any difference that the property of an express company was mainly personal property and did not form a continuous line as in the case of a railroad company, the court said: “The value of property depends in a large degree upon the use to which it is put. If a railroad may be valued at a unit, rather than as a given number of acres of land plus so many tons of rails and so many thousands ties and a certain number of depots, shops, etc., there is no sufficient reason why the property of an express company should not be treated as a unit plant. * * * That an express company owns no line of railway, and operates no railroad, does not prevent the value of its property from being affected by the relation of each part to every other part, and the use to which a part is put as a factor in a unit business. The same court decided the same way on the appeal in the case of the telegraph company, Western Un. Tel. Co. v. Poe, 69 Fed. Rep. 557. On further appeals to the Supreme Court of the United States, the decisions of the Supreme Court of Ohio and the Circuit Court of Appeals were sustained, if we may rely on a telegraphic communication to this effect dated the 1st of this month and published in the San Francisco papers just received. The following recent decisions
We therefore hold, against the main contentions for the plaintiff, that, under the present statute in valuing combined property as a whole, not only may the earnings and, in the case of a corporation, the market value of the stock, be taken into consideration, but that these are very important matters to be considered, and furnish in most cases the best datum to start from; also that the cost of production of the several parts is not the proper test of the value of such combined property even when it consists chiefly of manufactured personal property. From this it follows that the return made by the plaintiff cannot be sustained. Whether the assessment made by the assessor and sustained by the tax appeal court is correct or not, is not so easy to say, but, on the whole, we are of the opinion that we cannot disturb it on the evidence before us. It is true; the earnings and the market value of the stock should not be taken as the sole or conclusive test in the valuation of the property, and that as required by the statute “all other facts and considerations which reasonably and fairly bear upon such valution” should “be taken into consideration.” But in this case the assessor took into consideration various other matters besides the earnings and the market value of the stock, and the" plaintiff was unable at the hearing before the tax appeal court, although the attempt was made, to show that the assessor omitted to consider anything that necessarily would have led to a different result.
There remains to be considered a question of the admissi
Tbe decision of tbe tax appeal court is sustained and tbe appeal dismissed.