Standard Oil Co. v. Howe

257 F. 481, 168 C.C.A. 485, 1919 U.S. App. LEXIS 2226

• Court: Court of Appeals for the Ninth Circuit
• Decided: May 5, 1919
• Docket: No. 3248
• Status: Published

Opinion

LIUNT, Circuit Judge

(after stating the facts as above). [1] The requirement of the several statutory provisions quoted being that the property of the appellant corporation shall be taxable at its full cash value, has the board exceeded its authority, or has it proceeded upon a fundamentally erroneous pr'fí-.dple, in making the assessments involved herein? From the facts heretofore stated, it is evident that the rule of assessment expressed and adopted by the board was that appellant oil company should be “allowed” to earn 25 per cent, on the assessed value of its property. The basis for such a rule was found in the consideration of what were called by the board “excessive earnings,” or what was regarded as “intangible” property, not included in the term “real estate.” The position of the hoard is that the method followed was “what is known as the capitalized income plan” for ascertaining or valuing the intangible property of the corporation assessed, and it is argued that the board used the term “excessive earnings” in its ordinarily accepted meaning, intending to convey the information that the increase was on that part of the capitalized income over and above the value of the tangible property, and it is said that such method resolves itself into a simple assessment of intangible valuation.

But there is no statutory authority in Arizona for taxation of the earnings of the appellant corporation; nor is there any provision which authorizes the board to judge of what earnings are excessive, or as to how heavily such earnings may be taxed. As a general tiling, intangible property includes franchises, credits, choses in action, and the like. Commonwealth v. Cumberland Co., 124 Ky. 535, 99 S. W. 605. None of these is included in the present matter; and apparently there was no attempt to bring the assessment within any such inclusions. There was no indication given by the board of any valuation placed upon taxable, intangible property, other than as heretofore indicated, and the increase ordered upon “tangible and intangible valuation of the real and personl property,” based on excessive earnings, was made upon the real and personal property en bloc. The judgment of the board seems to have been exerted merely with the purpose of fixing a percentage on the assessed value which, in the opinion of the board, the appellant should be allówed to earn. Having determined that point, the board proceeded to capitalize appellant’s earnings at the rate fixed. The next step was to increase the assessment of the corporation to the figure thus arrived at without regard to the cash value of the property owned by the corporation. According to the record, the valuations which were originally put upon the real and personal property by the county authorities were not changed as they appeared upon the several assessment rolls, and the language used by the board with respect to the valuation based on excessive earnings and quoted in the statement of the case appears upon each assessment roll, followed by tire distributive share of the total raise in each county. It is impossible to ascertain what value is meant to be put upon the real or personal property of the appellant, or upon its stocks of merchandise, or to say what amount of taxes was meant to be levied upon any of the property of the appellant for city, county, or municipal purposes.

The board argues that its action is not to be judged by the descriptive words used in placing the added assessment on the tax rolls as “tangible and intangible valuation”; that this would, at most, be irregularity, as also were the words “based on excessive earnings.” We readily grant that the inapt use of words ought not to render an official assessment void. But when, in the scheme of assessment, we find the careful and, continued use of language, and such language has been followed by the distributed portion of the total increase, that argument does not square with the expressions used and the acts done. In the Opinion of the Justices, 220 Mass. 613, 108 N. E. 570, the Supreme Judicial Court of Massachusetts held that property in that state must be taxed upon an ad valorem basis, and that a statute which would undertake to require the valuation of certain classes of property for taxation by capitalizing the income produced thereby at certain rates would be invalid. The court said of such a proposed measure:

“It does not rest tide assessment upon any uniform method. It enables the Legislature or a public officer to readjust the multipliers according to a fluctuating judgment of what may be desirable, even to the extent of accomplishing in practice great disproportion. The theory behind the bill would permit manifold classifications of diverse kinds of real as well as personal estate. If extended to its logical conclusions, it would be difficult to trace any remaining constitutional protection to the taxpayer.”

[2, 3] Upon the foregoing branch of the case we place our decision that the action of the board was fundamentally erroneous in principle, the assessment was unwarranted in law, and we think appellant should not be denied equitable relief. Assuming that there is a remedy provided by the statutes of the state, an assumption which appellant has forcibly argued is not justified, the enforcement of such remedy would, under paragraph 4887 already referred to, involve a multiplicity of suits involving a question of law common to all of them. A single action at law would not suffice. Union Pacific R. Co. v. Weld County, 247 U. S. 282, 38 Sup. Ct. 510, 62 L. Ed. 1110; Fargo v. Hart, 193 U. S. 490, 24 Sup. Ct. 498, 48 L. Ed. 761; Raymond v. Chicago Traction Co., 207 U. S. 20, 28 Sup. Ct. 7, 52 L. Ed. 78, 12 Ann. Cas. 757; Oelrichs v. Williams, 15 Wall. 211, 21 L. Ed. 43; Johnson v. Wells Fargo, 239 U. S. 234, 36 Sup. Ct. 62, 60 L. Ed. 243. Nor are the federal courts, in the exercise of their equity jurisdiction, bound by paragraph 4939, heretofore quoted, which forbids injunction against the state or any officer thereof to prevent the collection of a tax levied under provisions of law. In re Tyler, 149 U. S. 184, 13 Sup. Ct. 785, 37 L. Ed. 689; Western Union Tel. Co. v. Trapp, 186 Fed. 114, 108 C. C. A. 226.

[4 j There is another important phase of the case to which we advert. We do not mean to dispute the proposition that, in arriving at the cash value of property subject to taxation, income product may properly be regarded; but it would appear that in this matter the state board considered, not merely the earnings and income produced by the property of the Standard Oil Company in Arizona, but “in far greater part” has taken into consideration the earnings and income produced by the properties of the appellant situate in California. Counsel for appellee cites Adams Express Co. v. Ohio State Auditor, 165 U. S. 194, 17 Sup. Ct. 305, 41 L. Ed. 683, as authority for what is called the unit rule of valuation. In that case the Supreme Court was considering a special law of the state of Ohio which provided for a valuation of the properties of express companies upon a mileage basis. Property situated outside of Ohio was carefully excluded, but there were provisions which prescribed a method of valuation of properties as units, and directed a distribution of the unit valuation among the various counties of the state. Analogies to this legislation may be found in the statutes of Arizona, which provide for the unit rule of value in the taxation of private car lines, of railroad property, and of telegraph and telephone lines. Paragraphs 4951 to 4962, 4963 to 4970, and 4971 to 4979, Revised Statutes of Arizona 1913. The unit rule applicable to assessment of such property, however, rests upon a mileage basis, which avoids the taxation of any property outside of the state. But we are cited to no statute which authorizes the valuation of the property of the appellant oil company under the unit rule, or for the distribution of the unit value between counties in which such property is situate. In Adams Express Co. v. Ohio State Auditor, supra, it is to be noted that the Supreme Court said that—

“While the unity which, exists may not be a physical unity, it is something more than a more unity of ownership. It is a unity of use, not simply for tbe convenience or pecuniary profit of the owner, but existing in the very necessities of tbe case—resulting from tbe very nature of the business The same party may own a manufacturing establishment in one state and a store in another, and may make profit by operating the two; but the work of each is separate. The value of the factory in itself is not conditioned on that of the store, or vice versa; nor is the value of the goods manufactured and sold affected thereby. The connection between the two is merely accidental and growing out of the unity of ownership. But the property of an express company distributed through different states is as an essential condition of the business united in a single specific use. It constitutes a single plant, made so by the very character and necessities of the business.”

The court did not lay down a rule which would uphold a proceeding to assess the value of appellant’s Arizona properties without attempting to ascertain what proportion of appellant’s capital was employed in Arizona or California or elsewhere, or which authorized the fixing of the value of the Arizona properties of the appellant by capitalizing the income and profits produced by the California properties of the appellant. In Fargo v. Hart, supra, the Supreme Court reviewed an assessment of exress company properties in Indiana. There, in arriving at the total value of the property to be distributed upon a mileage basis, the taxing huthorities included dertain real and personal property not necessarily used in the actual business of the express company and which was outside the state of Indiana. The court said it was obvious—

“That this notion of organic unity may be made a means of unlawfully taxing the privilege, or property outside the state, under the name of enhanced value or good will, if it is not closely confined to its true meaning. * * * That would be taxing property outside of the state under a pretense. * * * The difference is not a mere difference in valuation; it is a difference in principle, and in our opinion the principle adopted by the board was wrong.”

In Louisville, etc., R. R. Co. v. Greene, 244 U. S. 522, 37 Sup. Ct. 683, 61 L. Ed. 1291, Ann. Cas. 1917E, 97, the principle was again established that a state may not, consistently with the due process provision of the Fourteenth Amendment, include, at least as against any foreign corporation, any part of its tangible property lying without the state for purposes of taxation. Looney v. Crane, 245 U. S. 178, 38 Sup. Ct. 85, 62 L. Ed. 230.

Referring again to the averments of the complaint before us, it appears .that the income which has been considered by the officials of the state represented in greater part earnings and income produced by appellant’s California properties. For example, it is to be taken as true that the income included appellant’s entire profits upon all crude petroleum produced by it and sold in Arizona; also the whole profit upon the appellant’s manufacture and sale of manufactured products distributed in Arizona. It may become of vital importance at some time to inquire whether a tax levied upon a capitalization of a profit is not a tax upon the profit, and whether a tax in Arizona upon profits produced by California properties would not be a tax on the California properties. Looney v. Crane, supra; Fargo v. Hart, supra; Union Tank Line v. Wright, 249 U. S. 275, 39 Sup. Ct. 276, 63 L. Ed. —, decided since the submission of this proceeding.

For the reasons discussed in the first branch of the case, the decree of the District Court, denying the temporary writ of injunction and dismissing the bill, must be reversed, with costs in favor of appellant. The cause is remanded, with instructions to issue a temporary injunction.