State v. Wells Fargo & Co.
179 N.W. 221
Minn.
1920
Check Treatment
Hallam, J.

This action is brought to recover the unpaid gross earnings tax for the years 1914, 1915, 1916 and 1917, assessed against the defendant, under chapter 454, p. 664, Laws of 1913, G. S. 1913, § 2241, et seq. The tax imposed by this act is a tax “equal to 8 per cent of its gross earnings,” after deducting payments to railroads for the transportation of goods. Fifty-five per cent of defendant’s revenue was in fact paid for this purpose. This tax is “in full and in lieu of all taxes and assessments upon its property.”

The state demands 8 per cent of the gross earnings from express business done within this state, including a proper proportion of earnings from interstate business No question is raised as to the propriety of the proportion.

1. At the outset we may say that the Minnesota Tax Commission has no power to abate any part of the percentage of gross earnings tax fixed by the statute. The commission has power to receive complaints and to examine cases where property has been improperly or unequally assessed. G. S. 1913, § 2344, and “to grant such reduction or abatement of assessed valuations or taxes and o'f any costs, penalties or interests thereon as it may deem just and equitable,” and, “in the case of gross earnings taxes, the application in the premises may be made directly to the tax *453commission.” G. S. 1913, § 1978. This gives the tax commission jurisdiction to make reductions or abatements in the matter of gross earnings taxes as in case of, other taxes. The commission may doubtless reduce the amount charged to earnings just as it may reduce the amount or valuation of property charged with ad valorem taxation, but it may not reduce the rate of taxation which the. legislature has fixed by law. It could not abate the percentage at which particular property may he subject to ad valorem taxation as provided in G. S. 1913, § 1988. No more can it reduce the percentage of gross earnings to be exacted.’ Either the statute must stand as it reads or it is altogether void.

2. Defendant contends that a tax imposed by statute measured solely by gross earnings, has no reference to the value of the property, cannot therefore be a property tax, and is invalid, or, in other words, that our whole system of gross earnings taxation is void.

It is not clear to us just what constitutional provision defendant contends inhibits this form of taxation as applied to transportation companies. We know of none. The validity of this form of taxation, as applied to property employed in transportation, seems to us no longer an open question. When railroads first came to Minnesota Territory, this form of taxation was agreed upon by the state and the railroad companies as the most practicable -and equitable system of taxation of railroad property. After Minnesota became a state this form of taxation was imposed upon railroad companies which had not by contract agreed to accept it, until 1871 with doubtful constitutional authority, State v. Luther, 56 Minn. 156, 57 N. W. 464, but so satisfactory was the system that its constitutionality was never challenged by the railroad companies interested. The amendment of 1871, art. 4, § 32a, provided for this form of taxation of railroad property and the Constitution has ever since so provided. The validity of this provision has been sustained. State v. Great Northern Ry. Co. 106 Minn. 303, 119 N. W. 202. Property of railroad companies, freight line companies, sleeping car companies, telephone companies ánd, trust companies are now taxed in this manner. The United States Supreme Court has applied legislation providing for this system of taxes in many cases. Many years ago this mode of taxation of interstate railroads was sustained • and held not a tax upon interstate *454commerce. State Tax on Railway Gross Receipts, 15 Wall. 284, 21 L. ed. 164. We sustain this method of taxation of express companies.

3. Defendant contends that our state Constitution does not authorize the taxation of express companies in this manner. Prior to 1906 the Constitution provided for this form of taxation of express companies. Section 17, art. 9. The amendment of 1906 repealed section 17, and, it is contended, took away with it the power to impose this form of taxation. The answer to this contention is that the taxing power is not conferred by the Constitution, but is only limited by it. The power to tax property in this manner is, in our opinion, inherent in the state, unless some constitutional provision deprives the state of the power. Before the adoption of the amendment of 1906, the provision of section 1, art. 9, that all taxes “shall be as nearly equal as may be” restricted the taxing power of the legislature, and it was deemed necessary to adopt section 17 in order to preserve the right of imposing this form of taxation. But the amendment of 1906, providing that “taxes shall be uniform upon the same class of subjects,” is, in our opinion, broad enough to permit the taxation of express companies in a class by themselves, and by this form of taxation. Section 17 was omitted from the amendment of 1906 because no longer necessary.

The amendment of 1906 contained a provision that “nothing herein contained shall be construed to affect, modify or repeal any existing law providing for the taxation of the gross earnings of railroads.” Defendant contends that, by the application of the rule “expressio unius est ex-clusio alterius,” this provision is indicative of a purpose to abolish this form of taxation as applied to other property than that of railroad companies. We see no force in this contention. The express reservation of existing laws for taxation of railroads was not necessary to preserve the right to tax railroads on the gross earnings plan, but was doubtless inserted to preserve the features of the provision for taxation of railroads which requires submission to the people of any proposed change in the laws enacted for that purpose.

4. Defendant contends that the gross earnings tax imposed on defendant largely exceeded the equivalent of an ad valorem property tax and that it is therefore a burden upon interstate commerce.

*455A state may tax property engaged in interstate commerce. It may not tax interstate commerce itself. Property engaged in interstate commerce is subject to the same measure of state authority as any other property, so long as it is taxed in the good faith exercise of the taxing power. It is not an easy matter to draw the line between taxes that burden interstate commerce and those which simply impose a valid property tax. We will not undertake to do so. But it seems to us that the statute involved in this case falls within the class where there has been an exercise in good faith of the taxing power.

5. The Federal Constitution imposes no iron clad rule upon the stales in respect to their internal taxation. The state has large power in the matter of classification of property for purposes of taxation. As said in one case: “These matters of classification are of state policy, to be determined by the state, and the Federal Government is not charged with the duty of supervising its action.” Florida Cent. & P. R. Co. v. Reynolds, 183 U. S. 471, 22 Sup. Ct. 176, 46 L. ed. 283. A state may exempt property from taxation, such as property used for religious, educational or benevolent purposes. It may make exemption in order to encourage industries. It may exempt real estate and tax personalty or tax real estate and exempt personalty. It may impose double taxation or any other form of unequal taxation, so long as the inequality is not based upon arbitrary distinctions. “Doubtless it (the Federal Constitution) would prohibit a state from selecting some obnoxious person and casting upon his property the sole burden of taxation, or a burden differing from that cast upon others whose property was similarly situated, but it does not prevent a state from exercising its judgment as to the property to be taxed and the mode of taxation, provided that property similarly situated is treated in the same way.” Florida Cent. & P. R. Co. v. Reynolds, 183 U. S. 471, 22 Sup. Ct. 176, 46 L. ed. 283; Ohio R. & W. Ry. Co. v. Dittey, 232 U. S. 576, 592, 34 Sup. Ct. 372, 58 L. ed. 737; St. Louis S. W. Ry. Co. v. Arkansas, 235 U. S. 350, 35 Sup. Ct. 99, 59 L. ed. 265. We have no thought that the Federal Constitution invalidates the provisions of our statute by which iron ore is taxed 50 per cent of its value, household goods 25 per cent, property up to the value of $200 not at all, real estate mortgages not at all, or the' provision by which cred*456its are taxed at a fiat rate of three mills, while other property is taxed, in some districts, at a rate twenty times as great.

6. A gross earnings tax is not required to be an exact equivalent of the ad valorem tax imposed on other property. If there must be a valuation of the property taxed and an exact comparison of results, then the whole purpose of the gross earnings tax is defeated, for it is usually resorted to because, as to the property involved, it is not practicable to make such a valuation or to impose an ad valorem tax.

And with what class of property taxed on an ad valorem basis must we compare it? With iron ore taxed at 50 per cent of its value, household goods at 25 per cent or agricultural products at 33^-á per cent? The Federal Constitution does not require that all property be taxed at like rate. In Coulter v. Louisville & N. R. Co. 196 U. S. 599, 25 Sup. Ct. 342, 49 L. ed. 615, it was held that the state of Kentucky might tax the franchise of a Kentucky corporation at a different rate from tangible property so far as the Constitution of the United States is concerned.

Our statute imposes a 3 per cent gross earnings tax on telephone corporations, 5 per cent on railroad corporations, 5 per cent on trust companies, 6 per cent on freight line companies, 5 per cent on sleeping car companies. These differences are within the scope of the power of the legislature to classify property for purposes of taxation. The classifications are legitimate ones. For example, there are reasons why the rate in case of express companies should be higher than in case of railroad companies. The cost of transportation is deducted in the case of express companies before the percentage is computed, but it is not, in the case of railroads.

7. Defendant contends that the result of the operation of the statute is to tax the property of defendant at a rate arbitrarily high. Defendant offered evidence of the value of its tangible property. The tax imposed is a high percentage of such value. But this is not decisive. In Cudahy Packing Co. v. Minnesota, 246 U. S. 450, 38 Sup. Ct. 373, 62 L. ed. 827, the contention was made that the usual tax rate, if applied to the cash value of the cars of the Cudahy Packing Company, would result in an appreciably lower rate, and that therefore the tax imposed was in excess of what would be legitimate as an ordinary tax on property. “But the *457contention,” the court said, “proceeds on an erroneous assumption. The state is not confined to taxing the ears or to taxing them as separate articles. It may tax the entire property, tangible and intangible, constituting the ear line as used within its limits, and may tax the same at its real value as part of a going concern.” This is precisely the situation here.

8. Defendant contends that its property had no intangible value. It contends that the proper method of reaching intangible value of a corporation’s property is by using the market price of its stock, and that the evidence shows that the market value of defendant’s stock is less than the asset value thereof.

It is true the market value of the company’s stock and bonded debt furnishes good evidence of the real value of the aggregate of its assets. This lias been recognized in many cases. Adams Express Co. v. Ohio, 166 U. S. 185, 222, 17 Sup. Ct. 604, 41 L. ed. 965; State Railroad Tax Cases, 92 U. S. 575, 605, 23 L. ed. 663. But such evidence is not conclusive. It is a matter of common knowledge that market quotations of stock sometimes vary widely without material changes as to the productive capacity of the property. In this case it is impossible to use this standard with anything like conclusive effect, for the reason that, only about one-fifth of defendant’s property is used in its express business, The balance consists of property held by the “investment department” of the company. Since the whole property of the company goes towards making up the value of the stock, it is apparent that the stock value gives no decisive information as to the market value of the assets, tangible or intangible, used in the express business.

.Another method of determining aggregate property value; including intangible value, is that of capitalizing the net earnings of the corporation. In Louisvlle & N. R. Co. v. Greene, 244 U. S. 522, 37 Sup. Ct. 683, 61 L. ed. 1291, Ann. Cas. 1917E, 97, the court speaks of this as one of the “recognized methods” of ascertaining the aggregate capital value of the' company’s stock, which means the total value of all its assets, tangible and intangible. See also Board of Assessment v. Alabama Central R. Co. 59 Ala. 551; State v. Virginia & T. R. Co. 23 Nev. 283, 46 Pac. 723, 35 L.R.A. 759, 24 Nev. 53, 49 Pac. 945, 50 Pac. 607.

*458Defendant lias furnished the court with no evidence for the ascertainment of value based on capitalization of net earnings. The state has furnished some figures, from a process of deduction, not complete, and not altogether certain, from which the court might well find that the earning capacity of defendant largely exceeded the earning capacity of its tangible assets, and that the value of the intangible assets largely exceeded the value of its tangible assets, and tending to show that the rate of taxation upon the property of defendant “is not in excess of what would be legitimate as an ordinary tax on the property taken at its real or full value” (quotation from Cudahy Packing Co. v. Minnesota, 246 U. S. 450, 38 Sup. Ct. 373, 62 L. ed. 827). The trial court found the tax imposed to be a fair equivalent of any tax which the state might lawfully assess and collect from defendant upon its property subject to taxation in this state and a reasonable exaction. We think the finding is sustained by the evidence.

The statute imposing a tax of 8 per cent upon the gross earnings of express companies is valid.

Judgment affirmed.