112 N.Y.S. 392 | N.Y. App. Div. | 1908
The report of the referee sustaining the assessment fixes the value of the tangible property of the relator in the streets at $396,244.90, its tangible property outside the streets at $316,018 28 and the gross revenues of the company at $102,055.62, from which, is deducted: Salaries, $8,000 ; clerks and office expenses, $4,114.01; legal expenses, $1,185.55; pumping expenses, $12,229.56; general expenses, $2,596.82; maintenance, $3,789.37. Total deductions, $32,005.91, leaving net earnings, $70,049.71; from which the referee deducted five per cent return (which includes taxes) on cost to reproduce tangible real estate in streets in Queens county 1 ($417,099.90), $20,854.99. He also deducts five per cent return (which includes taxes) on cost to reproduce buildings and machinery, stand pipe, etc. (pumping stations 1 and 2) ($245,000), $12,250. He also deducts five per cent return (which includes taxes) on original cost of all land owned by relator ($25,162.01), $1,258.10. Total deductions, $34,363.09, leaving final net return of $35,686.62; which said last sum he capitalized at seven per cent giving the value of the relator’s intangible part of the special franchise in the county of Queens, $509,808.85; to which, is added the tangible property in the street, making the total value of the special •franchise $906,053.75.
The relator’s real e'state was found to be actually worth $71,018.28, exclusive of the plant, but its actual cost was $25,162.01.
The 17th finding of fact is as follows: “That the increment of value of the relator’s land, which accrued to the relator and which amounts- to $45,856.27, is a further sinking fund owned by the relator.”
The increase in value arose from the general improvement of real estate values in that locality, and not by any special uses to which the real estate was put.
The special franchise tax was not intended as an instrument for
It was, therefore, clearly error to refuse to recognize the actual value of the real estate owned by the relator. The intangible prop- • erty in the street has no market value, and there is no way to deter- ' mine. its true value except by basing its value upon the earnings
The water company has no exclusive right to occupy the streets. The same privilege may be granted to another water company and ruinous competition may follow. A public water plant may be established, or condemnation proceedings may be instituted to acquire the relator’s property for public use. The prosperity of the relator is limited by circumstances and local conditions; its rates and kind of service may be more or less within the regulation of the public. If by competition or otherwise its business is rendered unprofitable, its plant has little value for use elsewhere. It is evident that the stock of such a company, with such an uncertain tenure, to be marketable at par ..should produce a greater return than a first-class bond. Perhaps, without discussing it, we may assume, until the evidence shall furnish us a better guide, that such a stock must earn at least six per cent in order to be worth par, or in order that the business may be considered profitable or successful. If a water company can pay but six per cent upon the actual value of its tangible property, it is probable that the intangible lights yhich it has in the streets would not be very desirable and could not be considered as revenue producers. Such intangible property is given a value for taxation, because it is supposed to be earning an income for the company, but if the company earns no adequate return with good management, such intangible rights have but little value. The intangible rights attach to the fixed property in the streets and form the special franchise which is to be taxed, and if the business is a losing venture and is not producing, an income of at least six per cent it is perhaps accorded a full value- in treating the tangible property in the streets as producing equally with the other tangible property of the company.
The net income of a corporation for dividend purposes cannot be determined until all taxes, depreciation, maintenance and up-keep expenditures have been deducted. Otherwise the dividend is not
In this case the special franchise tax is fixed at $10,597.55 ; the tax. upon other real estate was $1,022.51; the taxes paid the State Comptroller, $609.85. These items were not deducted from the gross earnings in determining the net earnings of the company. .It is manifestly impossible to determine what the net earnings of the company are until all taxes and charges are first deducted or provision made therefor.
It is apparent from the report and the opinion of the referee that in allowing the relator five per cent return upon the actual cost of • its real estate and five per cent return upon the value of its other tangible property, he feels that the relator can afford to pay the taxes from such return. Such conclusion is not in accord with the ordinary business experience of the country, when we see the best industrial and manufacturing stocks .paying from six to seven per cent free of tax, with a reasonable allowance for up-keep and maintenance, selling at par or less. In determining the value of. property based principally upon its earnings, the earnings and expense for one year cannot alone be considered, but it is the average earnings and expense for a series of years, or for such time as is reasonably available. Perhaps the evidence would justify the conclusion that the amount allowed for maintenance is. sufficient to replace from time to time as may be necessary, the mains, hydrants and some of the other tangible property of the company. But it must have expensive pumps and machinery and other property which is liable to serious depreciation by use, and in time to actual destruc
For the purposes of this case these conclusions lead to the following basis as a correct means of arriving at the value of the intangible property in the street: In addition to the items deducted by the referee from the earnings, there should also be deducted all taxes, including approximately the amount of the special franchise tax to be assessed. There should also be deducted such percentage of earnings as the evidence upon a further hearing may show to be a reasonable and proper fund for the replacement and up-keep of the plant in respects which are not ordinarily covered by the current maintenance account, and the balance of earnings remaining should be treated as the actual net earnings of the company for the purpose of determining the value of its intangible property in the street. Six per cent should then be deducted as a fair return upon the value of the real estate and other tangible property. The surplus earnings should then be capitalized at six per cent, and the result represents the fair value of the intangible rights in the streets, to which should be added the value of the tangible property in the streets, and the result represents the value of the special franchise. The record shows that the property in the locality is assessed at eighty-nine per cent of its actual value. Eleven per cent, therefore, of the value of the special franchise should be deducted to equalize it with the assessed value of other property. This latter result is the value of the special franchise for the purpose of taxation.
The order appealed from and the determination of the State, Board of Tax Commissioners should be annulled and the matter remitted to the State Board of Tax Commissioners for further consideration.
All concurred, except Cochrane, J., not voting.
Order reversed on law and facts and determination of State Board of Tax Commissioners annulled and the matter remitted to the State Board of Tax Commissioners for .further consideration.