131 F. 282 | U.S. Circuit Court for the District of Kentucky | 1903
This is a suit to enjoin the defendants, members of the Board of Valuation and Assessment for this state, from apportioning and certifying a portion of an assessment for taxation of the intangible property of complainant in this state for the year 1902. The amount of that assessment is $10,974,899.50, and that portion thereof is all over $4,017,194.66. The ground upon which this relief is sought is that said assessment is based upon a valuation by defendants of complainant’s entire property in this state at the sum of $33,788,-724.50, whereas it should have been based upon a valuation thereof at not exceeding $27,030,979.66; that is, 80 per cent, of the former sum. The mode of assessing the intangible property of a corporation subject to assessment is first to value its entire property in this state, and then to deduct therefrom the assessment of its tangible property made by the officials who have to do therewith. The balance is the amount at which the intangible property should be assessed. The tangible property of complainant in this state was assessed by the. railroad commissioners for the year 1902 at $23,013,825. This sum, deducted from the sum at which defendants have valued its entire property in this state for that year, leaves $10,974,899.50, the amount of said contemplated assessment of its intangible property. Deducting it from the sum at not exceeding which complainant contends it should be valued, leaves $4,017,154.66, the portion thereof that is not complained of.
The reason why complainant contends that its entire property in this state should not have been so valued, but should have been valued at
The taxable property in this state may be divided into tangible and intangible. Tangible pruperty may itself be divided into that owned by steam railroad corporations, distilled spirits, and all other tangible property. Intangible property subject to assessment is limited to that of certain enumerated corporations, including steam railroad corporations. It is assessed by the Board of Valuation and Assessment, of which defendants are members, and no other officials have anything to do with its assessment. Its mode of assessment has been heretofore indicated. The total assessment thereof, including that in question herein, for the year 1902, amounted to the sum of $24,059,211. The tangible property of steam railroad corporations is assessed by the railroad commissioners, and no other officials have anything to do with its assessment. The total assessment thereof for that year amounted to the sum of $51,944,384. Distilled spirits are assessed by said Board of Valuation and Assessment, and the total amount thereof for said year amounted to $16,209,856. All other tangible property consists of three classes, to wit, lands, town lots, and personalty. And personalty is divided into that subject to equalization and that not so subject; that not so subject consisting of cash, accounts, notes, bonds, and stocks. This kind of tangible property is primarily assessed by the assessors of the various counties. The assessment made by each assessor is subject to the supervision of the board of supervisors in each county, which has power and whose duty it is to change any assessment to what it should properly be. And the assessment of each county, save as to personal property not subject to equalization, is subject to equalization by said Board of Equalization, which has power and whose duty it is to equalize the assessment of the various counties. It has nothing to do with equalizing particular assessments. It has only to do with equalizing the total assessments of lands, town lots, and personalty, in so far as it is subject to equalization, in each county with each other, and with the total assessments thereof in the other counties of the state. The total assessment of this kind of tangible property subject to equalization for the year 1902 amounted to tire sum of $534,417,279; that not subject to equalization amounting to $04,412,354. It is this latter kind of tangible property, in so far as it is subject to equalization, which, as the figures show, constitutes more than 77 per cent, of the taxable property of the state, that complainant contends was not assessed for the year 1902 at more than 80 per cent, of its value. Defendants dispute this contention, and claim that it was assessed at its full value. At the outset, then, it is to be considered and determined which of the parties hereto is correct in this matter. If the defendants are, nothing else remains to be considered, and that is an end of this case.
It will aid in the solution of this question to first take a historical survey of the legislation of this state as to how tangible property of the kind under consideration, in so far as it is subject to equalization,
In the case of Spalding v. Hill, 86 Ky. 656, 7 S. W. 27, decided shortly after the passage of this act, to wit, February 11, 1888, the Court of Appeals of Kentucky construed and determined the constitutionality of the previous act of May 10, 1884. It grew out of the action of the State Board of Equalization in raising the assessment of Marion county as to lands 13 per cent, and as to personalty 30 per cent. It was contended that it was unconstitutional, because it made no provision for notice to the taxpayer of a contemplated raise in an assessment, in order that they might be heard in regard thereto. It was held to be constitutional, because it specified the time and the place of the meeting of the board. As to the power conferred on the board by that act, Judge Bennett said that it was “its duty to examine into the assessments of the several counties, and, in case the assessment of one or more counties is found to be relatively higher or lower than other counties,
Thus stood the law when the Constitution of 1891 went into force. It was in quite an inconsistent shape. The taxpayer was required to give his property in under oath at its fair cash value; the assessor was required to swear that he would assess it at that value, to so assess it; and, before he could get his pay, to swear that he had so assessed it; and the supervisors were required to swear that, if they found that the assessor had not so assessed it, they would correct his error, and to so assess it. On the other hand, the Board of Equalization was required to equalize it in masses at 70 per cent, of its fair cash value. That Constitution was a radical departure from the Constitution of 1850 in its provisions in relation to taxation. The former had few, if any, provisions on that subject. The latter had quite a number. Amongst them was one (section 172) prescribing the value at which “all property not exempted from taxation” should be “assessed for taxation,” and a criterion of such value. That value was the “fair cash value,” and that criterion was '“the price it would bring at a fair voluntary sale.” As to the effect of this constitutional provision on existing law, Judge Day, in the case of Louisville Trust Co. v. Stone, 107 Fed. 305, 46 C. C. A. 299, said:
“It established a rule for taxation inconsistent with the prior statutes, and must be taken as repealing those statutes which are in conflict with the constitutional xwovisions.”
This could only have had reference to the provisions of the act of 1888 as amended by the act of 1890, for they were the only prior statutes prescribing a different rule, and therefore inconsistent or in conflict with that provision. It would seem, however, that it did not repeal those statutes in toto, but simply substituted a different standard of equalization, to wit, the fair cash value, instead of 70 per cent, thereof. This was so held by the Court of Appeals of Kentucky in the case of Louisville R. Co. v. Com. (Ky.) 49 S. W. 486. Judge Paynter there said:
*289 “Tbe act creating tlie Board of Equalization and Assessment is not in force in so far as section 172 of the Constitution and section 4028 of the Kentucky Statutes are in conflict therewith. In other words, the Board of Valuation and Assessment cannot equalize except upon a basis of the cash value of tlie property assessed.”
The next Legislature after the adoption of said Constitution enacted a comprehensive law on the subject of revenue and taxation, which went into force November 11, 1892. Acts 1892, p. 277, c. 103. It contained a general provision (section 4020, Ky. St. 1903) to the effect that all property in this state not exempt from taxation should be assessed at its fair cash value, estimated at the price it would bring at a fair voluntary sale. The special provisions therein in regard to the taxpayer, the assessor, and the board of supervisors were substantially the same as in the said act of May 17, 18S6, save that in each instance it was the fair cash value, estimated at the price it would bring at a fair voluntary sale, that the property was to be valued in assessing it; that the oath of the taxpayer was to be in writing, and signed by him, and the assessor was required to read it over to him before signing it, and to make oath beforehand that he would administer the prescribed oath to him, and after-wards that he had done so; and a penalty was prescribed for the assessor violating this requirement, and the taxpayer was made liable to punishment for false swearing if he made a false statement in his oath. No provision was contained in this act in relation to the State Board of Equalization.
And finally came the act of March 29, 1902 (Acts 1902, p. 281, c. 128). It, too, is a comprehensive one on the subject of revenue and taxation. It contains all the provisions of the acts of May 17, 1886 (1 Acts 1886-86, p. 140, c. 1233), and November 11, 1892 (Acts 1891-93, p. 277, c. 103), hereinbefore referred to, but it goes beyond them in that in article 16 thereof it covers the ground of a State Board of Equalization — the same covered by the acts of May 10, 1884, and May 4, 1888, as amended by the act of 1890. This article consists of the same provisions as the act of May 4, 1888, as so amended, save that as to the qualifications of the appointed members of the board it is provided that no person should be eligible to appointment who was under 30 years old, and that he should be a Housekeeper, and the owner of real estate located in this state. Like the act of May 27, 1890, it provides that the board shall equalize assessments at 70 per cent, of fair cash value. Of course, in so far it is a violation of said constitutional provision. But in it we have a continuance of the legislative inconsistency of requiring the taxpayer and one set of officials to value property in assessing it for taxation at its fair cash value estimated at the price it would bring at a fair voluntary sale, and another set of officials to equalize the primary assessments thereof on the basis of 70 per cent, of the fair cash value of the property assessed.
Such, then, has been the legislation in this state since before the Constitution of 1850 as to the value at which and the persons by whom property, assessments of which have since May 10, 1884, been subject to equalization by the equalizers, should be assessed. The only period of time that there was valid legislation in existence provid
“It is tbe settled doctrine of this state that for the purpose of taxation property must be assessed according to its true value; that equality of burden is essential to the correct administration of the government But it is a fact known by all that for years past the grossest inequalities have existed in the values fixed upon all kinds of property by the county assessors, and that the county boards of supervisors have failed to correct the evil. In some counties it is said that assessors secure their election by pledges made to assess the property in the county, or certain kinds of it, at a low value. In creating the State Board of Equalization the object was to correct this evil, and to have the assessment of taxes in the several counties equalized according to the value of the property therein, so that the state government might be supported by just and equal taxation.”
Further, there is in the act of May 4, 1888, a note of helplessness and despair, to wit, that it was regarded by the Legislature that it was well-nigh impossible by mere legislation, no matter how stringent, to secure an assessment of said property at its fair cash value. It is hard to understand why it was not provided that the equalizers should exercise a supervision over the action of the assessors as corrected by the supervisors, and bring the assessment of each class of said property in each county up to its fair cash value, and in that way bring about an equalization on any other idea than that it was felt that this could not readily be brought about by mere legislation.
So forcible is the evidence thus afforded as to these two matters, confirmed, to a certain extent, as to one of them, by the opinion
We are warranted, therefore, in entering upon a consideration of the evidence bearing upon the question as to the valuation at which said property after equalization had was assessed for that year from this standpoint of incredulity. That evidence, in our opinion, shows beyond question that it was so assessed at not more than 80 per cent, of its fair cash value. It is possible that the assessments have been worked up 10 per cent. — that is, from 70 to 80 per cent. — but certainly not higher than 80 per cent. That this is so results from a comparison of the total assessments of said property after equalization had for the year 1902 with the year 1891. However it may have been after the latter year because of said Constitution and act of November 11, 1892, it is certain that for said year said property was not assessed after equalization had at more than 70 per cent, of its fair cash value. The then existing law, as to whose validity there can be no question, required that assessments should be equalized on a 70 per cent, basis. There is no evidence tending to rebut the presumption that the law was complied with in this particular. L. C. Norman, auditor for that year, testified that it was. In the report of the equalizers for the year 1896, is this answer to certain criticisms of a “few public speakers and newspapers of the state” — evidently made in the campaign in the fall of 1895 for state officers — to wit:
“The principal charge brought against this board, and to which it objects, is, in effect, that ‘unreasonable and unlawful additions have been made to the assessed valuation in the state, that revenue may be created to refill an empty treasury.’ The facts and figures disproving anj- such charge are these: For the years 1889, ’90. ’91, and ’92 — the last four years under the law which requires all real estate to be assessed at 70 per cent, of its ‘fair cash value’ — the average equalized value of lands in this state was $237,888,310. It will be admitted that lands are very rarely, if ever, either assessed or equalized for taxation at more than the law requires. Then it is safe to assume that the average equalized value above given was not greater than ‘70 per cent, of the fair cash value’ of lands in this state. Mow, if $237,888,310 was only 70 per cent, of the average ‘fair cash value’ of said lands for the years 1889, ’90, ’91, ’92, then it necessarily follows that the ‘average fair cash value’ of lands for*293 P'ose years was $339,840,404, which amount is $85,023,275, or more than 33 per cent, greater than $254,817,129, the amount at which the board has this j ear equalized the value of the lands of the state for taxation.”
Indeed, it seems to be conceded by defendants that .said property was not assessed, after equalization had for the year 1891, at more than 70 per cent, of its fair cash value. Another fact which seems to be conceded is that there was as much property in quantity, and it was of as great a fair cash value, in 1902 as in 1891. There is no reason to contend the contrary. For some reason there was a less acreage of lands assessed in 1902 than 1891. In 1891 there were 25,095,554 acres and in 1902 24,416,479 acres, or 679,075 acres less. But the town lots were more. In 1891 there were 82,483 and in 1902 114,420, or 21,987 more. As to personalty subject to equalization, the only items as to which quantity is given are live stock,, stores, diamonds, and steamboats. The quantity of live stock and diamonds was greater in 1902 than in 1891, and of stores and steam-, boats less. As to the comparative fair cash value of the assessable property subject to equalization of the two years the only evidence, is affidavits of five individuals, residents of Louisville, and experi-enced real estate men, to the effect that the value of the lands in the state had increased from 1891 to 1902 20 to 25 per cent. Accepting as facts, therefore, that said property was assessed in 1891 after equalization had at not more than 70 per cent, of its fair cash value, and that in 1902 it was at least of as great a fair cash value as. it was in 1891 — both of which are practically conceded by defends ants — a comparison of the assessments after equalization had for, the two years yields this result :
For the year 1891, the assessments of the different classes were as follows, to wit:
Lands ............................................. $230,133,808
Town lots........................................... 155,490,480
Personalty subject to equalization..................... 89,300,329
Total of all...................................... $480,930,023
For the year 1902, they were as follows, to wit:
Lands .............................................. $258,040,303
Town lots........................................... 203,819,427
Personalty subject to equalization..................... 72,557,539
Total of all...................................... $534,417,269
If, then, $480,930,623 was 70 per cent, of the fair cash value in 1891, then $687,043,747 was the full fair cash value. Eighty per cent, of the latter sum is $549,634,997.60, or $15,217,718.60 more than the assessment for the year 1902. Or, limiting the comparison to the assessments of lands, the largest of the three classes, and making it by the acre, we have this result: Lands after equalization had were assessed in 1891 at $9.58 per acre, and in 1902 at $10.57 per acre. If $9.58 per acre was 70 per cent, of the fair cash value of lands in 1891, then the full fair cash value was $13.68 per acre. Eighty per cent, thereof is $10.94 per acre, or 37 cents per acre more than in 1902. In the year 1896, when, in defense of the attack» made on it the previous fall, it was shown by the equalizers how
The conclusion announced as to the question in hand results also from a consideration of the evidence bearing more directly on- it. There were furnished to the equalizers for use in making the equalization for the year 1902 tabulated statements as to lands from 116 of the 119 counties of the state, and as to town lots from 112. After the equalizers had purged them of such sales as they had reason to believe were for fictitious considerations, of commissioners’ sales, of exchanges, and of conveyances for natural love and affection, the number of sales of land exceeded 9,500, of which over 4,000 were cash sales, and of town lots exceeding 7,250, of which over 2,275 were cash sales. There is no good reason to doubt that the sales that were not entirely for cash were, in so far as not for cash, for that which was equivalent thereto, to wit, interest-bearing notes. The lowest number of sales from any one county was 12 of lands alone from Jackson county. In 77 of the 115 counties furnishing tabulated statements as to lands the percentage that the total of the assessments of the lands sold was of the total of the prices at which same sold was 80 and under, and in 39 it was over 80. In 24 of the latter it was over 85; in 12 over 90; in 5 over 95; in 2 just 100; and in three over 100, the percentages of which 3 were, respectively, 114, 116, and 133. In 1 of the 77 counties where the percentage was 80 and under it was under 50, to wit, 46; in 8 it was under 60; in 24 it was under 70; in 67 it was under 80; and in 10 it was just 80. In 67 of the 112 counties furnishing such statements as to town lots the percentage that the total of the assessments of the town lots sold was of the total of the prices at which same sold was 80 and under, and in the other 45 it was over 80. In 28 of the latter the percentage was over 85; in 15 over 90; in 11 over 95; in 6 just 100; and in 3 over 100, the percentages of which 3 were, respectively, 104, 120, and 149. In 2 of the 67 counties where the percentage was 80 and under it was under 60; in 14 it was under 70; in 52 it was under 80; and in 15 it was just 80. In 29 of the counties furnishing such statements as to both lands and town lots the percentage was above 80 as to both; in 6 of these the percentage was exactly the same as to both; and in 13 thereof the percentages were within 1 and 2 per cent, of each other. This is what these tabulated .statements show as to the action of the local assessing officials as to lands and town lots sold in the counties furnishing them. There is evidence to the effect that in some, if not in many, of those counties lands and town lots not sold were assessed at a less percentage of fair cash value than those that were sold; or, in other words, that those sold were purposely assessed at a greater percentage than those not sold, in order to affect the action of the equalizers, and prevent them from- raising the assessment of the county in which it was done. That in the course of the assessment of property for taxation in this state local assessing
“The object of this was to make a showing on the transfers which would keep the State Board of Equalization from raising the entire county; it being deemed good business to let a few transfers bear for one year the increase, rather than the entire assessable property of the county.”
_ Still further, the chairman of the equalizers for the year 1902 on direct examination testified that sometimes the transfer sheets were doctored by the supervisors or by the assessor of a county, and rendered wholly worthless as evidence before them; and, when asked on cross-examination as to what he meant by saying that certain transfer sheets had been doctored by said officials, he testified that those officials had concluded that this element of evidence some' times led to counties being raised by the equalizers, and, in order to obviate this, the assessor, when he found that a man had bought a piece of property for a certain price — say, $2,500 — he would insist on the purchaser listing it at exactly what he had paid for it, and where that was overlooked by the assessor it was attended to by the supervisors; that he was sure that in the year 1902 there were several counties that had been listed exactly at the prices recited in the transfers; and that his board “rapped the knuckles” of those fellows about the matter, and indicated that they could not deceive it in that way. This testimony is concurred in by that of other of the equalizers. And in their report for the year 1902 the equalizers have this to say concerning this practice, to wit:
*296 “We desire also to call attention to tlie injustice practiced in some of the counties of the state of listing the lands and lots sold during the year at a valuation out of any proportion to the valuation fixed upon the other lands and lots in the same county. The price which real estate in a community brings upon the market affords a very fine index to the correct valuation of property in that locality, and should greatly aid the assessor and supervisors in arriving at a fair valuation not only of the property transferred, but of other property similarly situated. It is manifestly unjust, however, to require the owner of real estate which has been sold during the year to list it at its full cash value, and at the same time allow his neighbors, with property equally valuable, to escape with valuations grossly out of proportion. Nor does this injustice in any way enable the counties practicing it to escape detection by this board, where their other property is not valued up with the transferred realty. By a system gradually perfected and elaborated by years of experience and study of the question, this board has found it possible always to detect an effort to escape the. just operation of the law by this species of ‘doctoring’ the list of transferred property. The custom is so manifestly unjust both to a class of taxpayers and to this board that we trust this year the supervisors will see that the real estate not sold in the several counties is listed as well as that portion of it which is transferred.”
Just to what extent the assessments for the year 1902 were doctored in this way the evidence does not disclose. The fact that in as many as 29 of the counties where the percentage of assessment to fair cash value exceeded 80 this applied to both assessment of lands and town lots, that in 6 of these the assessments of lands and town lots were exactly of the same percentage, and in 13 others they were within 1 and 2 per cent, of each other, is calculated to make one suspicious as to the assessments of a large majority of the counties whose percentage exceeded 80. But that the doctoring was not confined to those counties whose percentage exceeded 80 is shown by the affidavit of the assessor referred to, the percentage pf whose county, according to his statement, was 80 as to all real estate sold, but according to other evidence in the record was 78 as to lands and 75 as to town lots.
In view, then, of the presence in the assessments of lands and town lots sold and embraced in the tabulated statements of this element of doctoring, it is reasonable to conclude that in but few, if any, of the counties furnishing such statements, were the assessments of lands and town lots not sold by the local assessing officials at a greater percentage of fair cash value than the average percentage of fair cash value at which all the lands and town lots sold in all of said counties were assessed. This percentage may be ascertained in either of two ways. One is by adding together the percentages of the various counties, and dividing their sum by the total number •of counties. According to this method the average percentage as to lands was 77 and as to town lots 80. The other is by adding together the prices and assessments of all the lands and town lots sold, and ascertaining the percentage that the sum of the latter is of the sum of the former. The total of the prices of the lands sold was $13,235,249, of which $3,917,874 was for cash sales; and the total of the assessments of .said lands was $10,381,009, or 78 per cent, of the former sum. The total of the prices of town lots sold was $10,257,710, of which $1,827,189 was for cash sales. The total of the assessments of said town lots was $8,140,721, or 79 per cent.
It is likewise reasonable to conclude that in those counties furnishing tabulated statements personal estate subject to equalization was assessed by the local assessing officials at no greater percentage of fair cash value than real estate, and that in those counties not furnishing such statements, of which there were three that furnished no statement as to lands and seven that furnished none as to town lots, all of the assessable property subject to equalization was assessed at no greater percentage of fair cash value than either of the average percentages given above. The upshot of this line of reasoning, therefore, is that, so far as the action of the local assessing officials was concerned in relation to the assessment for 1902, but little, if any, of said property outside of that whose assessments were doctored in the manner indicated, was assessed by them at a greater percentage of fair cash value than 80.
Then, as to the action of the equalizers in relation thereto. Heretofore the tabulated statements have been availed of to determine the percentage of fair cash value at which the real estate embraced in them was assessed by the local assessing officials, and as a basis of inference as to the percentage of fair cash value at which the real estate not embraced in them and personal estate subject to equalization was so assessed. They may be availed of for another purpose, and that in connection with the matter in hand; i. e., action of the equalizers. They contained, after being purged as aforesaid, a statement of the cash prices which the lands and town lots embraced in them brought at fair voluntary sales, and hence show the fair cash value thereof. If, then, the average fair cash value of the lands and town lots not embraced in them can properly be assumed to be the same as the average fair cash value of the lands and town lots embraced in them, the fair cash value of all the lands and town lots in each of said counties can be readily obtained. Having in this way obtained the fair cash value of all such lands and town lots, the total assessments thereof after equalization had can be compared therewith, and the action of the equalizers as to the percentage of fair cash value at which they put the assessments can be determined. Pursuing this course, the result is that in all but 17 of the 116 counties furnishing tabulated statements as to lands sold for the year 1902 the assessments of lands therein after equalization had were 80 per cent, and under of the fair cash value thereof. As to the 17, a comparison of the final assessments of lands therein with such assessments thereof for the year 1891 and with the average of the assessments thereof for the previous five years indicates that the average of the fair cash value of the lands sold therein was below the average fair cash value of all the lands of said counties, just as undoubtedly in the counties where the percentage was greatly less than 80 the average of the fair cash value of the land sold must have been greater than the average fair cash value of all the lands of said counties. This indicates that in all cases the average fair cash value shown by the tabulated statements cannot be accepted as the average fair cash value of all the lands and town lots in the counties fur
But a comparison of the assessment of 1902 with that of 1891, and the line of reasoning just pursued, are not the only considerations that lead us to the conclusion which we have announced. It is what one would expect from the course of procedure followed by the equalizers as shown by the evidence. So far as they made use of the tabulated statements at all in determining what their action should be, it was upon an 80 per cent, basis; i. e., they treated 80 per cent, prices shown by the statements as the fair cash value of the lands and town lots embraced in them, and compared therewith the assessments thereof by the local assessing officials in order to determine the percentage of fair cash value at which they had made their assessments. This they did in every case. The evidence is uniform to this effect. Such is the testimony of 6 of the 7 appointed equalizers, of the auditor, of 2 of the secretaries of the board, and of 46 of citizens of 28 different counties, who appeared before the equalizers to protest against tentative action on their part. There is no evidence to the contrary. But as a matter of fact they made but little use of the tabulated statements, even on this 80 per cent, basis. Instead of itsing these statements, the main guides they availed themselves of in determining what their action should be were the previous years’ assessments, and the average of the previous five years’ assessments, or of the previous four years’ assessments, and that of 1902. The evidence does not make clear which of these two alternatives is true. That such was their course of procedure we know from their own statements in this • case under oath and a detailed consideration of their work. Their testimony in regard, to the tabulated statements is as follows: One equalizer testified that those statements were very little help to them, and afforded very little information; another that he had never, in. his work on the
The result of this detailed consideration of the work of the equalizers in relation to lands is to bear out their testimony that they gave but little effect to the tabulated statements, even on the 80 per cent, basis, and to show that their action was practically controlled and determined by the previous year’s assessment. A like consideration of their work as to town lots will show substantially the same result, and a comparison with the five-year average as to both lands and town lots will not differ greatly from the comparison with the previous year’s assessment.
The attitude of the equalizers towards previous assessments, and how they regarded them, is indicated by the testimony of one of them that they assumed that property had theretofore been assessed at its fair value, and of another that they presumed that it had been assessed in previous years on a 100 per cent, basis. How unwarranted this assumption or presumption was is shown by the consideration that in previous years down to and including the year 1896— for at least four years after the Constitution of 1891 and the act of November 11, 1892, went into effect — property subject to equalization had been assessed at not more than 70 per cent, of its fair cash value; that the evidence does not warrant the conclusion that between 1896 and 1902 there was any material change in the percentage of valuation at which property was assessed; and that if in those years the equalizers acted upon the same assumption or presumption, and looked back to previous years’ assessments, rather than to the tabulated statements, as the guides for their action, property for said years as well as for the previous years could not have been assessed at its fair value, or on a 100 per cent, basis, but must have been assessed at not much, if any, greater per cent, of its value than 70 per cent.
It is questionable whether the equalizers had the right to make use of these previous years’ assessments to any extent in determining what their action should be. If there is any authority at all for their use thereof for this purpose, it is to be found in the provision in the act of May 27, 1890, incorporated in section 6, art. 16, p. 388, of the act of March 29, 1902, that the equalizers should have authority to obtain and use other evidence as to values than said tabulated statements. But if authority so to use said previous years’ assessments was thus conferred upon the equalizers, it certainly was not intended that they should practically set aside the tabulated statements, and depend almost entirely upon previous years’ assessments, in determining what their action should be. It was expressly provided that, if there had not been as many as five sales of land in any county, the assessment of lands and personalty should remain as fixed by the local assessing officials, and that the same rule should apply as to town lots. It could not have been intended that, where there were not the requisite number of sales, there was no jurisdic
The evidence discloses no justification for the treatment afforded these statements by the equalizers, or for the characterization of them made in their testimony herein. One accounts for their placing them upon the 80 per cent, basis, so far as they used them at all, by the fact that in them were sales and conveyances of the kind of which they purged them as hereinbefore stated. This, however, will not do, for they were not put on that basis until after they had been so purged. Another accounts for their action in this particular on the ground that many of the sales were upon time, and it did not appear in many, if not in a large majority, of instances that the deferred payments bore interest. Neither will this do. In only two instances did it appear affirmatively that the deferred payments bore no interest. As a rule, the statement as to the terms of payments of the consideration was briefly “cash and notes” or “cash.” It is reasonable to infer, nothing else appearing, that these notes bore interest, and hence were equivalent to cash.
It is to be noted that in the report of the proceedings of the equalizers for the year 1902 a communication is addressed to the county clerks, and their attention is called to the provisions of the act of March 29, 1902, prescribing their duties in relation to the equalizers. They are called upon to carefully, accurately, and promptly make out and furnish to the auditor the tabulated statements; but nowhere is their attention directed to the fact that these statements which had been furnished were not sufficiently definite as to the terms of payment of the consideration so as to enable the equalizers to determine the cash prices at which the property listed had been sold, and requesting them to make them more definite in this particular. It is hard to understand why, if the equalizers had felt much difficulty along this line, they would not have directed the attention of the county clerks to it, in order that it might be removed as to the future work of the equalizers. But if either of these two reasons, or any other conceivable one, was sufficient justification for the equalizers concluding that 80 per cent, of the prices at which the real estate was represented as having been sold was the fair cash value
Such, then, are the reasons upon which we base our conclusion that the property in this state subject to jurisdiction of the State Board of Equalization was assessed after equalization had at not more than 80 per cent, of its fair cash value. The only things to the contrary are the testimony by affidavit of 25 assessors, stating in general language that they assessed the property of their counties at the fair cash value thereof, and the testimony by deposition of 6 of the 7 appointed equalizers that they equalized the assessments subject to their jurisdiction on the basis of the fair cash value of the property assessed. Testing the truth of the testimony of these assessors by the showing made by the tabulated statements as to the percentage which the assessments of the lands and town lots embraced in them bore to the cash prices at which they sold, we have this result: In only one county was the percentage as much as 100. As to this county the percentage was that much as to both lands and town lots, and according to the testimony of the equalizers the assessment as to this county was doctored in the manner indicated. In the other counties the percentages as to land range from 60 to 93
Then as to the testimony of the equalizers. However sincere they may have been in their belief that they equalized the assessments on the basis of the fair cash value of the property assessed, and by whatever assumptions or presumptions they induced such belief on their part, it seems to us that it is as certain as certain can be that they did not do so, and that, on the contrary, they equalized them on the basis of not exceeding 80 per cent. Our real conviction is that it is liberal to say that they equalized them on a basis as great as that.
But, in order that complainant may be entitled to the relief which it seeks, it is not sufficient that such be the fact. It is essential that its property in this state should have been valued by the Board of Valuation and Assessment at its full fair cash value in the process of determining the amount at which its intangible property should be assessed. Here complainant and defendants exchange positions. The former contends that its said property was so valued; the latter that it was not. This dispute, therefore, demands settlement at our hands.
The determination of the fair cash value of that portion of complainant’s property located in this state cannot be readily accomplished. All that can be expected is an approximation more or less near thereto. Its determination involves the determination of two sub-matters. One is the fair cash value of all complainant’s property, and the other the proportion thereof belonging to this state. Two ways of ascertaining the fair cash value of such properties have been resorted to in the course of valuing them for taxation. One is known as the “stock and bond plan,” and the other as the “capitalization plan.” ikccording to the former, the market value of the stock and bonds of the corporation owning the property is ascertained, and, as such stock and bonds represent every interest in the property, such valuation is assumed to be the value of the property. According to the other, the net income derived by the corporation from the property is ascertained, and such sum as that is 6 per cent, of is assumed to be such value. The particulars in which these two methods, especially the stock and bond one, do or may come short of leading one to the fair cash value of the property, have been fully set forth by Judge Clark in the case of Railroad & Telephone Co. v. Board of Equalizers (C. C.) 85 Fed. 311, and by Judge Grosscup in the case of Chicago U. T. Co. v. State Board of Equalization (C. C.) 112 Fed. 607. In the former case Judge Clark expressed preference for the capitalization plan. Both have been used by the Board of Valuation and Assessment of this state. The capitalization
“But this action of that board did not prevent another board for another year from adopting a different line if the law warranted it. There is nothing, therefore, in any of these cases, determining that the board did not have a right to adopt another basis of assessment.”
In the view we take of this case we do not find it necessary to express a preference between these two plans. It does seem to us, however, reasonable to hold that, if the stock and bond plan is adopted, the Board of Valuation and Assessment should, as a rule, not confine itself to the market value of the stock and bonds at the moment of assessment, or even to the average market value thereof for a year previous thereto, or, if the capitalization plan is adopted, it should not, as a rule, confine itself to the net income for the year previous to the date of assessment; but that in each case it should look to the average showing made by a series of years — say, not less than five. This because this is what we conceive that one proposing to purchase such a property would do in order to determine its fair cash value, and what he could afford to give for it, and we think a board of valuation and assessment in making a valuation thereof for taxation should place itself in the shoes of such a person. It should always hold before itself that the ultimate thing which it is attempting to do is to determine the fair cash value of the property in question, and that the market value of the stock and bonds or the net earnings are simply aids to that end. And that either may be a real aid to such an end, it is essential that it should cover a sufficient period to show the settled conditions of things. In the decision of Judge Grosscup, referred to above, he expressed the opinion that under the stock and bond plan a five-year period should be adopted. In saying that the showing of a series of years — and that for as many as five years — should be looked to, we would not be understood as laying down any hard and fast rule to be applied in every case. It is possible that in some cases it would not be reasonable so to do, and perhaps it is beyond our province to be laying down any rules for the guidance of said board. All that we would be understood as saying is that, in our opinion, it is reasonable, as a rule, to pursue such a course in making the valuation of such property for taxation, and that, if such a course is pursued, it cannot be said, nothing else appearing, that the result does not represent the fair cash value of the property.
Then, as to the plan to be pursued in ascertaining the proportion of the fair cash value of the entire property of complainant which properly belongs to this state. If the mileage of its property in and out of this state were of like character and equal value, no doubt
“That proportion of the value of the capital stock which the length of the lines operated, owned, leased or controlled in this state bears to the lines owned, leased or controlled in this state and elsewhere shall be the value of the corporate franchise of such corporation liable for taxation in this state.”
But by the amendment thereto of June 9, 1893 (Acts 1893, p. 991, c. 217, § 4), it was enacted that the words “considered in fixing” should be inserted after the words “shall be,” so that it was provided that such proportion should be considered in fixing such value, rather than should be the value thereof. This amendment was, no doubt, passed in order that the board should not be bound absolutely to accept such proportion of the cash value of the entire property as the value of that part of it in this state, and might be at liberty, in determining the value of such part, to consider the difference in character and value, if any, between the mileage in and out of this state.
Having thus indicated the matters to be determined in ascertaining the fair cash value of complainant’s property in this state and the methods to be pursued in determining them, it is in order now to consider whether the defendants valued said property at its fair cash value. They put the fair cash value of the entire property at the sum of $129,566,063. They ascertained such to be its fair cash value on the capitalization plan, and in pursuing this method took into consideration the average net earnings of the entire property for the preceding four years; in other words, they capitalized the average net earnings for said four years. So doing, it gave the sum at which they valued the entire property. Had they taken into consideration the average net earnings for five years, and capitalized it, the valuation of the entire property would have been $7,625,447 less than what they put it at. Had they adopted the stock and bond plan, and taken into consideration, according to showing made by Financial Chronicle, as stated by counsel for complainant in their brief, the average market value of the stock and bonds for the preceding five years, the valuation of the entire property would have been $6,326,003 less than what they put it at. It seems that in making the tentative assessment they adopted the stock and bond plan, but considered only the average market value of the stock and bonds for the preceding year. This gave a valuation of $138,178,660, or $8,611,997 in excess of what they finally decided upon. But, after healing complainant, they decided upon the capitalization plan on the four-year basis. And, as stated, had they pursued either plan on the five-year basis, it would have given a valuation less than that which they made. There is hardly room, then, for defendants to contend that the fair cash value of complainant’s entire property was
Then, as to the proportion of the fair cash value of the entire property, which defendants took as the fair cash value of that part thereof in this state. They took 26 per cent, thereof. The facts in regard to this matter are these: Complainant operated in Kentucky 1,192.34 miles of road. It owned the Cecelia Branches, leased to the Illinois Central, and 46 miles long; the Clarksville & Princeton Division, leased to the Illinois Central, and 20.7 miles long; and a part of the Paducah & Memphis Line, leased to the Nashville, Chattanooga & St. Louis Railway, and 49.23 miles long; and controlled in a certain sense, if not in that of the statute, a part of the Nashville, Chattanooga & St. Louis Railway, 8.06 miles long. Adding these four sums to the mileage operated, makes a total of 1,316.33 miles of railroad operated, owned, leased, or controlled by complainant in this state. Out of this state complainant operated 2,238.86 miles of road. It owned the rest of the Paducah & Memphis Line, leased as above stated, 204.97 miles long. It held under a lease the Georgia Railroad, a one-half interest in which it had sublet to the Atlantic Coast Line, 624 miles long; and it controlled as aforesaid the rest of the Nashville, Chattanooga & St. Louis Railway, 933.60 miles long. Adding these three sums to the mileage operated, makes a total of 4,001.43 miles of railroad operated, owned, leased, or controlled outside of the state. Adding the mileage in and out of the state together makes a total mileage of 6,317.76. The per cent, that the mileage in Kentucky is of this sum is 24.75, or 1.25 per cent, less than the defendants took. They contend, however, that the mileage of the Georgia Railway and that of the Nashville, Chattanooga & St. Louis Railway Company should not be treated as part of complainant’s mileage under the statute. If both are deducted, the percentage is 34.86; if the mileage alone of the latter is deducted, the percentage is 29.89; if the mileage alone of the former is deducted, the percentage is 27.87. So that it must be maintained that both mileages should be included in order to warrant a percentage as low as 26, though the whole of both mileages is not essential to bring it that low.
As to the Nashville, Chattanoog’a & St. Louis Railway Company, it is not contended that it was operated, owned, or leased by it. The right to include it is based solely upon the claim that it was controlled by complainant. The facts in regard to its control are that it owns over three-fifths of its capital stock, and thereby elects
“It will not do to say that, so long as each railroad company has its own board of directors, they operate independently, and are not controlled by the owner of the majority of their stock. It is the common experience of mankind that the acts of corporations are dictated and their policy is controlled by those who own the majority of their stock. Indeed, one of the favorite methods in these days, and about the only method, of obtaining control of a corporation, is to purchase the greater part of its stock. It was the method pursued by the Northern Pacific and Great Northern Companies to obtain control of the Chicago, Burlington & Quincy Railroad. And, so long as directors are chosen by stockholders, the latter will necessarily dominate the former, and in a real sense determine all important corporate acts. The fact that the ownership of a majority of the capital stock of a corporation gives one the mastery and control of the corporation was distinctly recognized and declared in Pearsall v. Great Northern Railway, 161 U. S. 646, 671, 16 Sup. Ct. 705, 710, 40 L. Ed. 338. The same fact has been recognized and declared by other courts. Pennsylvania R. Co. v. Commonwealth (Pa.) 7 Atl. 368, 371; Farmers’ Loan & Trust Co. v. New York & N. Ry. Co., 150 N. Y. 410, 425, 44 N. E. 1043, 34 L. R. A. 76, 55 Am. St. Rep. 689; People ex rel. v. Chicago Gas Trust Co., 130 Ill. 268, 22 N. E. 798, 802, 8 L. R. A. 497, 17 Am. St. Rep. 319. In opposition to this view counsel cite Pullman Car Co. v. Missouri Pacific Co., 115 U. S. 587, 596, 6 Sup.*309 Ct. 194, 29 L. Ed. 499, but in that case tbe meaning of the word ‘controlled,’ as used in private contract, was the point under consideration, and what was said on the subject cannot be held applicable to cases arising under the anti-trust act, when the point involved is whether the ownership of all the stock of two competing and parallel railroads vest the owner thereof with the power to suppress competition between such roads. We entertain no doubt that it does. Indeed, we regard the suppression of competition, and to that extent a restraint of commerce, as the natural and inevitable result of such ownership.”
Then, as to the Georgia Railroad. That comes within the strict terms of the statute. It was leased to the complainant. The only possible question could be as to whether the whole or only one-half of the mileage should be included. If the entire mileage of the Nashville, Chattanooga & St. Louis Railway and one-half that of the Georgia Railroad are included, then the percentage that the Kentucky mileage is to the whole mileage is 26.13, or just 13/ioo more than the board put it at. If only that proportion of the former mileage which complainant’s stock bore to the total stock and one-half of the latter is included, the percentage is 28.03.
In view of all considerations, the determination of the fair cash value of that portion of complainant’s property being at best a matter of great difficulty, we feel constrained to hold that such fair cash value did not exceed the per cent, of the fair cash value of the whole propertv at which the defendants fixed it when acting as a board. According to their testimony herein, they fixed it as the fair cash value thereof. The auditor testifies that they fixed the franchise at what they conceived tO' be its full value, and the treasurer that the value they fixed they adopted as the true value of the property. The Secretary of State testified that they arrived at it as 100 per cent, of the value, but that they used the most liberal means of reaching 100 per cent., and that it was fixed lower than, in his judgment, it ought to have been.
The result, then, of our consideration of the two matters of fact that are in question herein is that the property in this state subject to equalization after equalization had was assessed for the year 1902 at not exceeding 80 per cent, of its fair cash value b}r those who had to do with its assessment — first the local assessing officials, and then the State Board of Equalization; and that complainant’s intangible property in this state has been assessed for that year at its fair cash value— at least at what must be accepted as its fair cash value — -by the Board of Valuation and Assessment. There is here, then, a distinction between complainant and the owners of the former property of at least 20 per cent. Is or not this a denial to complainant of the equal protection of the laws within the meaning of those words in the fourteenth amendment to the federal Constitution, and hence an unlawful discrimination against it, which entitles it to the relief which it seeks ? There is a difference or distinction between the owners of property subject to taxation in the valuation at which it is assessed that is not a violation of the fourteenth amendment, and therefore an illegal discrimination; and, on the other hand, there is such a difference or distinction that is. The question here is, on which side of the line does the difference or distinction involved herein belong? The rule on the subject has been laid down by the Sixth Circuit Court of Appeals in the cases of Taylor v. Louisville & N. R. Co., 88 Fed. 350, 31 C. C. A. 537; Louisville
“Equity will not relieve against an assessment merely because it happens to be at a higher rate than that of other property; that such inequalities, due to mistake, to the fallibility of human judgment, or to other accidental causes, must be borne, for the reason that absolute uniformity cannot be obtained: * * * in other words, what may be called ‘sporadic cases of discrimination’ cannot be remedied by the chancellor. He can only interfere when it is made clear that there is, with respect to certain species of property, systematic, intentional, and unlawful undervaluations for taxation by the taxings officers, which necessarily affect an unjust discrimination against the species of property of which the complainant is an owner. The reason for this distinction is obvious. The occasional and accidental discriminations are inevitable in every assessment, and are not likely to continue, because not the result of an illegal purpose on the part of any one. If equitable interference in such cases could be invoked, the obstruction to the collection of taxes would be so frequent as to be intolerable. More than this, an action to enjoin a tax is a collateral attack upon the judgment of a quasi judicial tribunal, and it cannot be justified except on the ground of an obvious violation of law, or something equivalent to fraud. It does not where the injury complained of arises only from the erroneous, but honest, judgment of the lawfully constituted tax tribunal. The interference by the chancellor in the case at bar and in the Cummings Case rests on something equivalent to fraud in the tribunal imposing the tax. The various boards whose united action is by law intended to effect a uniform assessment on all classes of property are to be regarded as one tribunal, and the whole assessment on all classes of property is to be regarded as one judgment. If any board which is an essential part of the taxing system intentionally, and therefore fraudulently, violates the law by uniformly' undervaluing certain classes of property, the assessment by other boards of the other classes of property at the full value, though a literal compliance with the law, makes the whole assessment, considered as one judgment, a fraud upon the fully assessed property. And this is true although the particular board assessing the complainant’s property may have been wholly free from fault or intentional discrimination.”
In the other case Judge Day said:
“It may be conceded that, if the allegations of the bill are made out, there exists in respect to the property of complainant and others similarly situated, a systematic, intentional, and illegal undervaluation of other property by the taxing officers of the state, which necessarily effects an injurious discrimination against the property of which the plaintiff is the owner, and a bill in equity will be to restrain such illegal discrimination, and in such cases federal jurisdiction will arise because of the equal protection of the laws guarantied by the fourteenth amendment.” .
These two decisions are binding upon us as to what is the true rule applicable to such cases. Counsel for defendants cite a number of authorities, principally from the Supreme Court of the United States, in which the rule is laid down in different phraseology. It is unnecessary for us to consider these cases, and see whether they lay down any different rule, for those cases were considered in the two specially referred to, and it was therein determined that the rule as herein laid down was authorized and required by those cases. From these statements of the rule we gather that, in order that one whose property has been fully valued may complain of an undervaluation of other property, and entitled to have the valuation of his property cut down to such undervaluation, two things are essential. One is that the undervaluation should have been intentional. By this is meant that the valuation at less than the full value should have been intended. This,
The quotations cited from certain authorities which lend color to these two positions should be construed in the light of the facts of the particular cases in which the language quoted was used.
Does this case, then, present an illegal discrimination within the requirements of the rule as thus laid down? We think it does. The property subject to equalization, being 77 per cent, of the taxable property in this state, was systematically, habitually, and intentionally undervalued to at least the extent of 20 per cent, for the year 1902, first by the local assessing officials and then by the equalizers. Not only this, but the Legislature of the state, by its latest expression on the subject, provided that it should be undervalued as much as 30 per cent, by the equalizers. So far as complainant having company in being fully valued is concerned, that is immaterial, as we have stated. But, though the evidence does not disclose how, relative to value, the intangible property of other corporations subject to the jurisdiction of the Board of Valuation and Assessment was assessed for the same year, it is reasonable to infer that they have been assessed on the same basis as complainant; i. e., at what the board considered to be the full value of said property. It is so alleged in the bill, and there is no evidence to the contrary.
It remains to consider several reasons urged by counsel for defendants why, notwithstanding the conclusions already reached, the complainant should be denied the relief it seeks.
1. It is claimed that the bill does not allege facts sufficient to bring the discrimination complained of within the rule as to what is essen
2. It is claimed that the bill should be dismissed because before bringing suit complainant did not pay or tender the amount which would be coming to the various counties, cities, towns, and taxing districts on account of that portion of the assessment of the intangible property not complained of herein. It did pay the amount of the tax due thereon to the state, but did not pay or tender to said local divisions the amounts which would be coming to them, respectively, on account of said portion of the assessment. Complainant advances two reasons why it was not bound to make such tender. One is that there has been no apportionment of said assessment, or any part thereof, by the Board of Valuation and Assessment, whose duty it was to make the apportionment. Hence the taxes on account of said portion of said assessment cannot be said to be due, and the amount thereof is not ascertainable until said apportionment. The other is that the question as to whether such an assessment is subject to apportionment had been put in suit, and had not then been decided by the court. We presume that reference is had to the case of Southern Ry. in Kentucky v. Coulter (Ky.) 68 S. W. 873. This case, however, was decided by the Court of Appeals June 10, 1902, which was before the bringing of this suit. But we think that for the first reason the point urged by defendants in this particular is not well taken.
3. It is urged that the ordinary taxpayers of the state have paid 50 cents on the $100 under the act of March 29, 1902, and complainant only 47Y¿ cents, and that, therefore, complainant should not be entitled to the relief it seeks. This makes a difference only of $250 on the million, and is insignificant as compared with the difference complained of herein. But, to sav the least, it is questionable whether the ordinary taxpayers were bound to pay more than 47 cents, and it will take a lawsuit to settle the question. We do not think that complainant should be denied relief sought on this ground.
This disposes of every question made in this case. We are aware that perfect uniformity and perfect equality of taxation is a baseless dream; that the fourteenth amendment was not intended to compel the states to adopt an iron or cast-iron rule of equal taxation, and that, as said by Mr. Justice Harlan in the case of King v. Mullins, 171 U. S. 436, 18 Sup. Ct. 925, 43 L. Ed. 214: “The judiciaries should be very reluctant to interfere with the taxing'system of a state, and' should
We conclude, therefore, that complainant is entitled to the relief it seeks.