People ex rel. Joline v. State Board of Tax Commissioners

New York Supreme Court

People ex rel. Joline v. State Board of Tax Commissioners

145 N.Y.S. 226

DecidedNovember 27, 1912

StatusPublished

This text of 145 N.Y.S. 226 (People ex rel. Joline v. State Board of Tax Commissioners) is published on Counsel Stack Legal Research, covering New York Supreme Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

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People ex rel. Joline v. State Board of Tax Commissioners, 145 N.Y.S. 226 (N.Y. Super. Ct. 1912).

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Opinion

DAVIS, J.

These proceedings are brought under section 46 of the

Tax Law (Consol. Laws, c. 60) by the relators to review assessments for taxation of special franchises of the Metropolitan Railway Company and its subsidiary roads for the year 1911, made by the State Board of Tax Commissioners. The total of assessments as laid is $49,-057,000: At the rate of 1.72248, the tax for 1911 amounts to $844,-997.02. The writs of certiorari commanded the respondents to include in their return a specific statement as to the modus operandi by which they arrived at the assessment made by them. The return, however, fails to .give information from which the court can conclude that the respondents acted in accordance with any rule whatever'. Therefore, after full consideration of the matter, aided by the valuable briefs of counsel, I have decided that the case is one in which the court ought to examine into and test the fairness of the assessment to see if it is justified by the principles adopted in assessing this kind of property, as laid down in recently decided cases.

[229]*229m The “net earnings rule” has been applied in similar inquiries with the approval of the Court of Appeals. People ex rel. Jamaica Water Supply Co. v. Tax Com’rs, 196 N. Y. 39, 89 N. E. 581. It will be applied here as being peculiarly appropriate to the special circumstances and likely to result in a fair assessment. In the language of Judge Bartlett:

“The net earnings rule contemplates a valuation upon the basis of the net earnings of the corporation which are attributable to its enjoyment of the special franchise. The' method is thus applied: (1) Ascertain the gross earnings. (2) Deduct the operating expenses. (3) Deduct a fair and reasonable return on that portion of the capital of the corporation which is invested in tangible property. The resulting balance gives the earnings attributable to the special franchise. If this balance be capitalized at a fair rate, we have the value of the special franchise."

Here I find the gross earnings from fares to be $12,872,755.71. In estimating gross earnings the cash fares received from the operation of the local cars on the Williamsburgh Bridge have been excluded, as they appear to me not to be the result of the operation of any of the special franchises of the relator companies.

[2, 3] We next consider the claims as to the operating expenses of relator. In Exhibit 187 the relator claims that the operation expenses for year ending December 31, 1910, were between $8,000,000 and $9,-000,000. In this amount are included expenditures for improvements and betterments. Such expenditures properly belong to capital account. and are therefore to be excluded from operating expenses. But it is proper to include in operating expenses the sum of $61,006.63 (Exhibit B), representing the cost of changing curves in tracks and other special work of like character not generally classified as additions to capital. The amounts spent for renewals and replacements will also be excluded, inasmuch as a proper deduction trom the net earnings will be allowed for depreciation. As the cash fares received from the operation of the local cars over the Williamsburgh Bridge have been excluded from the gross earnings, the expenses of operating those cars will be deducted from operating expenses. The difference between the gross earnings and the operating expenses is the net earnings from operation. The relator, however, was in receipt of other income, attributable to the enjoyment of its franchise, which should be added to these net earnings.

[4, 5] The relator claims that rents received by it from the Central Park, North & East River Railroad Company for the use of cars and horses owned by the relator should not be included in the item of income derived from the operation of its franchise. On this point the finding must be against the relator, as the cars and horses are manifestly a part of the property used by the relator in the exercise of its franchise. The interest on bank balances, amounting to $34,655.38, should also be included in the income. This interest is paid on the operating cash of the relator. It is not the return from an investment. It is interest on the deposited fares. We may regard each fare as being worth somewhat more than its face value, the additional value being represented by the interest earned by it in the banks during the period between the date of the receipt of the fare and the disbursement of it for expenses of operation. The receipts from advertising

[230]*230in the local bridge cars will be excluded from income,- In order to arrive at the final net income, certain deductions should be made from the gross income.

The relator claims the right to deduct the following: (1) Special franchise tax already paid for 1910, amounting to $300,000; (2) percentage of gross receipts paid to the city, amounting to $221,212.97; (3) stipulated rents paid to the city, $41,000; (4) car license fees paid to the city, amounting to $39,980; (5) amount paid as.bridge tolls for through cars on Williamsburgh Bridge, $22,775.90. - The city concedes the right to deduct the first item ($300,000), but contests the claim to deduct the other items. I think the city’s position is right. .

[6] Under section 48 of the Tax Law, the disputed items must be deducted from the actual tax as finally laid. Therefore they should not be treated as operating expenses.' The money so paid is ultimately refunded under section 48. If these items were included in the operating expenses, it would make a material reduction in the tax. Thus these items would be used to effect a twofold reduction in the tax, one before the fixing of-the tax and the other after. It cannot be an expense to the relator if the state reimburses the relator for the payment. Such seems to be the view taken by the court in the case of Heerwagen v. Crosstown Co., 179 N. Y. 99-106, 71 N. E. 729. The amount to be deducted from net income to cover depreciation is fixed at $1,665,934.16. The a'mount of the net income derived from both tangible and intangible property thus having been determined, it becomes necessary to fix the present value of the tangible, property in and out of the streets.

[7] This value being determined, the relator should be.allowed to deduct from its total net income as above ascertained a fair return on the value of that tangible property.

• [8] Among the properties of the relator are various horse tracks and roadways, the present value of which is claimed, to be. $662,795 (Exhibit 197). The city, claims that this value should be reduced to $371,165.20, because, as admitted by relator, about 46.39 per cent, of these horse tracks and roadways is not used for any franchise purpose and is not producing any income (minutes, pp. 265, 266). The city’s claim seems reasonable. . The amount will be reduced to $383,-336 (see relator’s Exhibit 237). The object of deducting from the total net income a return on the value of the tangible property is to identify the earnings properly attributable to the intangible property. Under the evidence it is obvious that these unused tracks contribute nothing to the amount of the total net income.

[9] It seems reasonable that there should-be no deduction from total net income so far as the present value of those unused tracks and roadways is concerned.

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