State v. v. T. R. R. Co.

46 P. 723, 23 Nev. 283

• Court: Nevada Supreme Court
• Decided: October 5, 1896
• Docket: No. 1473.
• Status: Published

Opinion

By act of March 9, 1895 (Stats. 1895, 39), section 52 of the revenue law was amended so as to permit a defendant sued for delinquent taxes to answer "that the assessment is out of proportion to and above the actual cash value of the property assessed." Prior to that amendment this defense could not have been made. (State v. C. P. R. R. Co., 21 Nev. 172, 178.) The defendant answered under this amendment, but the jury found against it, and the question presented upon the appeal is, what was the actual cash value of the defendant's road in Washoe county?

The respondent first contends that the evidence as to value is conflicting, and that consequently this court cannot interfere with the verdict. That is undoubtedly the general rule, but for it to have this effect there must be a substantial conflict. It is not sufficient that there is some evidence supporting the verdict, if it is so weak and inconclusive as not to raise a substantial conflict with that produced against it. (Hayne, New Trial and Appeal, sec. 288;Watt v. Nev. Cent. R. R. Co., 23 Nev. 155.) We think that is the case here. While there is some evidence in support of the verdict, it is so weak and is so completely upset by the undisputed facts that it does not raise a substantial conflict as to the true value of the road.

The constitution of Nevada, art. X, provides that all property, both real and personal, shall be assessed and taxed at an equal and uniform rate, and shall receive a just valuation By Stats. 1893, p. 110, sec. 4, it is provided: "In ascertaining, assessing and fixing the value of any railroad for taxation, the assessor shall assess it the same as other property, and shall consider, treat and assess the portion thereof at its value within his county as an integral part of a complete, continuous and operated line of railroad, and not as so much land covered by the right of way merely, nor as so many miles of track consisting of iron rails, ties and couplings." By Stats. 1891, 137, 138, it is directed that all property shall be assessed at its actual cash value, and that the "term `full cash value' means the amount at which the property would be appraised if taken in payment of a just debt due from a solvent debtor."

A railroad then, the same as every other class of property, is to be assessed at its true cash value — at such an amount as it would be appraised if taken in payment of a just debt due from a solvent debtor — but this does not necessarily mean that the same rules and principles are to be applied to all the different kinds in determining what their true cash value is. The true value of each class is to be determined by evidence applicable to that class. Wherever property has a well-defined market value, which is usually the case with personal property, with town and farm property, the market value is usually the best criterion of its value for purposes of taxation. It is fair to presume that property to be taken in payment of a just debt from a solvent debtor would be appraised at what it is reasonably worth in the market — at what it would probably bring. So one rule is really the equivalent of the other.

But there are many other kinds of property to which this test would be entirely inapplicable. It cannot be said, although sometimes bought and sold, that they have a market value. Such, for instance, is a water ditch, a salt marsh, a borax field, or a mine of any kind. A toll road is another instance. Take, for example, the famous Geiger grade, which must have cost many thousands of dollars, and have been, at one time, a wonderfully productive piece of property, but which now would probably not pay the wages of a toll-keeper. The market cannot be appealed to to fix a value upon such property, but its value may be and must be fixed by other obvious considerations. A railroad comes within this class. Railroads are bought and sold so seldom, and the value of each road depends so entirely upon its surroundings, that in determining the amount at which such property would be appraised if taken in payment of a debt, we must resort to other principles.

Railroads are usually constructed and operated for profit. They are not valued, as men sometimes value a beautiful home, a horse or a diamond, for the pleasure that comes from their ownership, but from the returns that can be obtained from them as a business investment. Neither are they usually held for speculative purposes as much other property — particularly unimproved lands, town and city property — is so often held. The value of a railroad is generally strictly prosaic and utilitarian.

To obtain any return from it, either present or prospective, a railroad must be operated. It cannot lie idle and at the same time increase in value through the natural increase of population and business. As it must be operated, expense must be constantly incurred, and the result is that its true value as a railroad depends very largely — almost entirely — upon what its net income can be expected to be.

It is reasonable to suppose that the owners of a road will operate it to their own best advantage; that they will obtain all the income possible, and keep the expense of operation as low as possible. This should certainly be the presumption in the absence of a showing to the contrary; and it follows, where a road has been operated for a number of years, that what it has done in the past is a very good criterion of what it may be expected to do, under the same conditions, in the future.

Then, after ascertaining this net return, it is necessary to take into consideration the surrounding conditions, which also cut some figure in the problem, such as the condition of the road, in order to determine whether the expense of keeping it in repair will be greater or less than in the past, and the condition of the country tributary to the road, in order to form a judgment of whether its business is likely to increase or decrease or remain stationary. In fact, the true cash value of the property — its value for taxation — should be determined by the same matters that would be considered by one who wished to purchase and who was simply endeavoring to ascertain what the road was worth.

In the case of State v. C. P. R. R. Co., 10 Nev. 47, this whole matter was very thoroughly considered by as able a bench as it has ever been the good fortune of this state to have. From the opinion by Beatty, J., we make the following short extract: "To determine the value of a railroad, then, the very first inquiry is as to its actual cost. That, prima facie, is its value. But if it appears that the actual cost was in excess of the necessary cost, the necessary cost is its proper standard. If it further appears that the net income of the road does not amount to current rates of interest on its necessary cost, and is not likely to do so, or if the business of the road is likely to be destroyed or impaired by competition or other cause, or, in short, if the utility of the road is not equal to its cost, then its value is less than its cost, and must be determined by reference to its utility alone."

It is claimed, however, that what was said in that case as to the correct rule for fixing the valuation of a railroad was dictum.

We do not so regard it, as the defense in that case was that the road had been fraudulently over-valued. In considering this defense the first point to be determined was whether there had been any over-valuation at all. Upon its theory of how a road should be valued, the defendant had established that there had, and this brought the question of what was a correct theory squarely before the court. But no matter. Whether what was there said was necessary to the decision of that case or not, we regard it as a substantially correct statement of the law, and we find it supported by many other cases.

Thus, in People v. Keator, 67 How. Pr. 278, the court held as follows: "In complying with this provision of the law, as a railroad property cannot as a dwelling have any fancy value by reason of its location or the expenditure thereon of large sums of money which would conduce to the comfort of the owner, it is evident that the assessors, in fixing its value, must be very largely controlled by its ability to earn money, and the productiveness of its use for the purposes of a railroad. As an original question it would seem to be reasonably clear that the value of a railroad property must almost entirely depend upon its capacity to earn money for its owners, and that therefore no creditor would receive from a solvent debtor in payment of his debt railroad property at a greater price than that which would be a fair one based upon its earning capacity." In People v. Weaver, 67 How. 479, a case involving the value of a bridge, the same court said: "In determining the value of the property of the relator in the mode which the statute directs, it is an evidently sound proposition that the true criterion of such value must be its earning capacity."

In People v. Hicks, 40 Hun, 601, we find the following, which we adopt as a very careful statement of the law: "The estimate of value of any portion of the road cannot be intelligently made without some knowledge or information of it as a whole, and its business, earnings and ordinary expenses. Railroads are constructed with a view mainly to revenue and profit upon investments. And hence the productive capacity and its earnings are matters for consideration in the estimate of their value. And the extent to which actual net earnings of a road should govern or aid such estimate is dependent upon circumstances. No arbitrary method can be prescribed of ascertaining value. In some cases the earnings of a road may be entitled to much more consideration than in others. The cost of the road is also usually to be taken into account, and the value depends much upon relations present, and in reasonable contemplation, because the value of property may considerably be dependent upon defined unappropriated means and facilities for increased business connections and relations and the importance of the consequences to follow." To the same effect are Trustees CincinnatiSouth. Railway v. Guenther, 19 Fed. 395;People v. Pond, 6 Abb. Nev. Cases, 1. See, also,People v. Fredericks, 48 Barb. 173;State v. C. P. R. R. Co., 7 Nev. 99.

Perhaps, to avoid a misunderstanding of our decision, it should be stated in this connection that the value of a portion of a road is not necessarily a fractional part of the whole. Owing to local considerations, it may be greater or less. But we find nothing in the evidence in this case indicating any difference, and it is only mentioned to avoid a misconstruction of the opinion.

Without contradiction, the evidence in this case shows the following facts: That the cost of construction of the road was $3,780,452 96; but that it could now be replaced, exclusive of the right of way, for $1,500,000. That for the year ending June 30, 1894, the net earnings were $8,642 52; for the year ending June 30, 1895, $27,449 53; and for the year ending June 30, 1896, of which the last three months were estimated upon the basis of the receipts for the preceding nine months, $21,077 71, from which should be deducted, at least, $6,898 23, the amount the defendant admitted to be due Storey and Washoe counties for taxes for the year 1895, and possibly more, depending upon the result of this, and a similar action in Storey county, leaving net for that year $14,179 50, or less. It is not claimed that these figures are incorrect, nor that the gross receipts of any year might have been increased by proper management, or the amount of expense decreased.

It was also shown, without contradiction, that the current rate of interest in Washoe county was 8 per cent per annum. Whether a broader view should not have been taken upon this point, and the rate of interest fixed at a lower figure, we have no data upon which to form a conclusion. There was no evidence that it was too high, and, for the purpose of this appeal, it must consequently be accepted as correct.

It was also shown, again without contradiction, that there is no prospect in the near future that the business of the road will increase. In fact, it seems quite probable that, if anything, for some time to come, the receipts must decrease. In this connection it is argued that the jury had a right to exercise their own judgment in determining whether there was a probability of future improvement; that they could take judicial notice of the condition of the country, and determine as well as an expert whether business was likely to increase, and that having done so, their judgment cannot be revised by this court. Admitting, without deciding, that they could take such notice of surrounding conditions, then this court has the same right and the same knowledge that the jury had, and the same as a finding upon any other point, there must be something substantial upon which to base it. If the jury can take judicial notice of a thing, it must be of something that exists, not of something that does not, and there can be no question that there is nothing now except pure speculation upon which to base such a belief. There are no improvements contemplated and in process of construction, and no new mining camps discovered and developed to such an extent in the region of country tribuutary to the defendant's road as make it reasonably certain that they will add materially to the income of the road in the near future. To affect the present value of the road such prospective improvement must be more than a possibility. It must be so near and so certain that a business man purchasing the road would take it into consideration. (People v. Weaver, 67 How. Pr. 477.) It is present, and not prospective, value that is in question. (People v. Roberts,38 N. Y. Supp. 724.)

It is very probable that in time new mining discoveries will be made, or present ones further developed, and new enterprises opened up that will bring in an increased population and add to the business of this road, and we certainly believe that such will be the case, and when this happens it will add to its value, but this possibility does not, as a business proposition, add materially to its present value.

From the foregoing data, which certainly, in the main, cover the elements to be taken into consideration in determining the value of this road, there can be no question that the portion of the road in Washoe county is not of the true cash value of $254,321, as fixed by the verdict.

It does not seem reasonable that the value of a road should be fixed in view of the net receipts for any one year, which, owing to abnormal conditions, may be greater or less than the average, but we are not called upon to consider that point here. We should certainly not go back beyond the railroad fiscal year 1893-4, because the evidence shows that the conditions which produced a net profit the year before of $102,341 52 no longer exist, and if we should put the years 1893-4, 1894-5, and 1895-6 together, the average would not be less than the receipts of 1894-5. So considering that year alone, the net receipts were $27,449 53. That sum capitalized at 8 per cent represents $343,119 12, as the value of the entire road, not taking into account the rolling stock and other personal property, consisting of 51.75 miles of main track and 26.14 miles of side track, of which amounts there are 25.65 miles of main track and 3.55 miles of side track in Washoe county. Several different ways of figuring Washoe county's proportion of the entire valuation may be adopted — depending upon the view taken of the side track — but under none of them can it amount to near the sum of $254,321, as fixed by the verdict.

In making the above estimate, and in basing it entirely upon the earning capacity of the road, we do not wish to be understood, as we have stated before, as holding that there may not be other considerations, which in some cases would cut quite a material figure. We simply hold that the earning capacity is the main consideration, and that as shown in the evidence in this case, as reported to us, we discover no others of sufficient importance to affect the result.

The only evidence tending to support the verdict is that of the assessor. He testified that in his judgment the road in Washoe county was worth what it was assessed for. It appeared, however, that he had no special knowledge of the value of a railroad, nor was he any better qualified to testify to the value of one than almost any other man in the community. He stated that in making the assessment he had taken into consideration the business the road seemed to be doing, certain mining developments which, at the time of the trial, had turned out to be worthless, the material in the road and its condition; that he did not examine the reports of the road, nor did he make any inquiry to ascertain what business it was or had been doing; that he did not take into consideration any decrease in the earnings of the road, and that if he had known they had greatly decreased, it would not have made any difference in his judgment of its value; that in making up his judgment he did not take into consideration what the business had been nor what it might be in the future.

In making the assessment he seems to have looked the property over, and to have come to the general conclusion it was worth the value he placed upon it. This would be all right so far as the assessment was concerned, if he hit it right, because the law does not require the assessor to act upon any-particular kind of evidence; but when it comes to testifying as an expert, he must be able to give some reason for his conclusions, or they are not entitled to much weight. Certainly he was able to give none here, and we cannot consent to the claim that such evidence creates a substantial conflict with the undisputed facts shown by the defendant.

There is also a question as to whether a part of the cost of a steel bridge across the Truckee river, erected in the year 1894, should be deducted as a part of the expense of that year. As we understand the facts relating to that matter, they are as follows: The old wooden bridge had become decayed to such an extent that it was necessary to replace it with a new one. The cost of a new wooden bridge would be $6,018; of a new steel bridge $7,812 79. The company concluded to put in a steel bridge, and it now claims that what it would have cost to build a wooden bridge should be deducted as a part of the annual expense of keeping up the road, and that only the difference between the cost of the two should be charged to construction account. We see no reason why this is not correct. Replacing a worn-out bridge would seem to be as much an expense of keeping a road in repair as would replacing old ties, old rails or old culverts, and in our statement of the net earnings of the road we have accordingly deducted it. As this expense will not have to be incurred again, it is fair to suppose that the future net earnings will be increased by that fact.

Judgment and order reversed, and cause remanded for a new trial.