1. The Court is reluctant to place constructions upon state
statutes of doubtful meaning, or to decide other questions of state
law as to which there may be substantial controversy, in advance of
decision by the state courts of last resort. P.
293 U. S.
104.
2. The ascertainment of the value of a railway system is not a
matter of arithmetical calculation, and is not governed by any
fixed and definite rule. Facts of great variety and number,
estimates that are exact and those that are approximations,
forecasts based on probabilities and contingencies, have bearing
and properly may be taken into account to guide judgment in
determining what is the money equivalent -- the actual value -- of
the property. P.
293 U. S.
109.
3. An apportionment of system value of a railroad for taxation
in one of several States traversed by its lines cannot be adjudged
arbitrary merely because the mileage basis was used, although the
average value per mile in that State was much less than for the
system as a whole, where the mileage ratio was applied not singly,
but combined with others, such as the ratios of the traffic units,
use of rolling stock, and average of gross and net operating
revenue in that State to the system totals, where the computation
was tested by other criteria, such as the relations between cost of
reproduction less depreciation of the local property and system
value and between operating net revenues derived from that property
and those earned by the system, and where there is nothing to show
that the assessment was excessive. P.
293 U. S.
110.
Page 293 U. S. 103
4. Overvaluation by state tax officials resulting from error of
judgment will not support a claim of discrimination. There must be
something that amounts to an intention, or the equivalent of
fraudulent purpose, to disregard the fundamental principle of
uniformity. P.
293 U. S.
111.
5. Upon finding in an injunction suit that a state tax violates
the equal protection clause of the Fourteenth Amendment because of
discrimination in assessment, the federal court should leave the
State free to reassess; it is without jurisdiction to fix the base
and amount of the tax that may be lawfully exacted . P.
293 U. S. 112.
68 F.2d 527 reversed.
Certiorari, 292 U.S. 618, to review the affirmance of a decree
of the District Court holding state taxes on the Railway Company's
property in Wyoming arbitrary and excessive and enjoining
collection upon the condition that the Company pay taxes on a
reduced valuation made by the court.
MR. JUSTICE BUTLER delivered the opinion of the Court.
This suit was brought in the district court for Wyoming by the
company against the treasurers of four counties to enjoin
collection of a part of the taxes for 1931 levied upon its railroad
property therein. The laws of that State required all taxable
property to be assessed on the basis of its actual value.
See State Constitution, Art. XV, § 11; Wyoming Revised
Statutes, 1931, §§ 115-119, 115-511, 115-1804. The complaint rests
upon the
Page 293 U. S. 104
claim that, for a number of years, including the one here
involved, the State, acting through its board of equalization and
other taxing authorities, systematically and intentionally
discriminated against respondent's railroad and in favor of all
other property, in violation of the equal protection clause of the
Fourteenth Amendment, in that it regularly taxed the railroad at
about 133 1/3%, while taxing all other property at about 60% of
actual value. Respondent tendered and paid to the treasurer of each
county the amount it claimed would have been levied against it if
all taxable property had been assessed upon the same basis of
valuation. The total claimed by the four counties was $168,606.12;
respondent paid $101,163.67, leaving in controversy $67,442.45.
Petitioners' answer denied discrimination. There was a trial at
which much evidence was introduced. The district court, upon
specific findings of fact, concluded that respondent's railroad
property in Wyoming had been substantially and arbitrarily
overvalued. It found that, with exceptions that are here
immaterial, all other property had been assessed at its actual
value. It entered a decree requiring respondent to pay additional
taxes amounting in all to $33,519.46, and enjoining collection of
any part of the balance.
Petitioners seek reversal upon the ground that respondent failed
to exhaust an administrative remedy open to it by appeal from the
determination of the state board of equalization to the district
court under § 115-512, Wyoming Revised Statutes, 1931. They also
maintain that, under § 115-311, respondent had an adequate remedy
at law, and therefore was not entitled to relief in equity. These
contentions depend upon serious questions of Wyoming law which have
not been decided by its highest court. This Court is reluctant, in
advance of decision thereon by the state courts of last resort, to
construe state
Page 293 U. S. 105
statutes of doubtful meaning or to decide other questions of
state law as to which there may be substantial controversy.
In this case, it is not necessary, for, upon an analysis of the
grounds of the decision below, it is clear that respondent was not
entitled to an injunction. Respondent does not challenge the
finding that other property was assessed at actual value, and so
there remains only the claim that its railroad was intentionally
and arbitrarily overvalued by about 33 1/3%
The company had 278.35 miles of main line track in Wyoming, and
that constituted 3.29% of the main line track included in its
system extending into nine States. Neither it nor the board dealt
with that in Wyoming as a separate line; both appraised it as a
part of the system. They took the value of the whole, attributed to
Wyoming a portion, and divided it among the four counties. The only
matter in controversy is the amount to be assigned to that
State.
To ascertain system value, respondent made calculations based on
a five-year period ending with 1930. It found the average market
value of its stocks and bonds, deducted nonoperating property
locally taxed, added the remainder ($385,800,085) to an amount
produced by capitalizing at 6% average net operating income
($364,771,720). The sum divided by two produced $375,285,902, which
the board accepted for the purposes of its calculation, though one
of its members testified "there are certain flaws in it."
To ascertain the value to be taxed in Wyoming, respondent found
for each year, and also the average for the five-year period, the
percentages that Wyoming traffic units (ton miles and passenger
miles) bore to the system total, the corresponding relation of use
of rolling stock (car miles and engine miles), and of gross
operating revenues,
Page 293 U. S. 106
and, by the calculations printed in the margin,{1} arrived at
$5,849,570.
In pursuance of § 115-1803, respondent filed a return showing
"grand total valuation $8,281,950." It attached a statement which
includes the following:
"The valuations shown in this return are based upon the
estimated cost of reproduction new of the physical properties . . .
less depreciation, and without further
Page 293 U. S. 107
reference to the market value of such properties or . . . of the
stocks and bonds . . . or the present earnings . . . or the present
or future earning capacity or possibilities of such properties. It
is claimed that the valuations stated in this return do not
represent the fair cash value of the property for purposes of
taxation. The value as to the system . . . and as to the part in .
. . Wyoming is clearly and fairly set [forth] by the figures
contained in the exhibits attached to this return . . . and which .
. . show that the total true value . . . in . . . Wyoming, or
properly allocated to the State, does not exceed $5,849,570."
After receiving the return, the board found cost of reproduction
new less depreciation of respondent's railroad properties in
Wyoming on the basis of an appraisal by the Interstate Commerce
Commission as of 1917 plus later betterments to be $11,724,126,
depreciated that at the annual rate of 2.5% for 13 years, and so
produced $8,436,076; ascertained the Wyoming 1930 net operating
income to be 2.23% of the total for that year, applied that ratio
to system value ($375,285,902) and produced $8,368,876. Each of the
two last mentioned indications of value is substantially more than
the reproduction cost less depreciation given by respondent in its
return. The board, in order to equalize the valuation of
respondent's property with other Wyoming railroad properties, made
the assessment $7,989,587, which is 2.13% of system value. This is
considerably less than the cost figures stated in the return. After
notice of the assessment, there was a hearing at which respondent
presented the theory and bases of its appraisal. It appears that,
upon further consideration, the board took into account the facts
that, for the five-year period, Wyoming net revenue was 2.114% of
the system total; respondent's estimated cost of reproduction less
depreciation of the Wyoming property was 2.21% of the system value,
and that one-half the sum of these
Page 293 U. S. 108
percentages is 2.162%. Of the percentages used by the
respondent, the board accepted those based on traffic units and use
of rolling stock, rejected that based on gross operating revenues,
substituted for it one-half of the sum of the gross operating
revenue percentage plus the net operating revenue percentage,
introduced the percentage that Wyoming mileage is of system mileage
and divided the total by four, producing 2.1%. Its ascertainment of
the ratio used follows:
Traffic Units . . . . . . . . . . . . . . . 1.58%
Use of Rolling Stock. . . . . . . . . . . . 1.65%
Average between gross and net operating
revenues. . . . . . . . . . . . . . . . . 1.89%
Main track mileage. . . . . . . . . . . . . 3.29%
-----
Divided by 4. . . . . . . . . . . . . . . . 8.41%
-----
Percentage to be allocated to Wyoming . . . 2.10%
The board applied this percentage to system value, and so
established the final assessment, $7,881,003.94, which is less than
the earlier one by more than $100,000. This is about 63% of the
mileage proportion of agreed system value.
The district court rejected, as without support, respondent's
use of the gross operating revenue percentage. It found that the
board used the mileage basis, 3.29%, without taking into account
the fact that respondent's property in Wyoming measured on a
mileage basis, was greatly less in quantity, quality, cost, and
value than the portion of its operating system located outside that
State. It was upon that ground that the court concluded that
respondent's property "was substantially and arbitrarily
overassessed." And it condemned as unreasonable and arbitrary the
board's use of the mileage percentage. Then proceeding to correct
what it held to be the error of the board, the court found
one-third of the sum of the percentages based on Wyoming and system
traffic units, rolling
Page 293 U. S. 109
stock, and the average between gross and net operating revenue
to be 1.673%.{2} It applied that ratio to the admitted system
value, and so produced $6,278,534.14 -- being a reduction of the
assessment by $1,602,468.90 -- directed respondent to pay taxes on
that basis, and enjoined petitioners from collecting more.
The ascertainment of the value of a railway system is not a
matter of arithmetical calculation, and is not governed by any
fixed and definite rule. Facts of great variety and number,
estimates that are exact and those that are approximations,
forecasts based on probabilities and contingencies, have bearing,
and properly may be taken into account to guide judgment in
determining what is the money equivalent -- the actual value -- of
the property.
Mississippi & R. Co. Boom Co. v.
Patterson, 98 U. S. 403,
98 U. S. 407
et seq.; Cleveland, C.C. & St.L. Ry. Co. v. Backus,
154 U. S. 439,
154 U. S. 445;
Adams Express Co. v. Ohio, 166 U.
S. 185,
166 U. S. 220;
Brooklyn City R. Co. v. New York, 199 U. S.
48,
199 U. S. 52;
Omaha v. Omaha Water Co., 218 U.
S. 180,
218 U. S.
202-203;
Minnesota Rate Cases, 230 U.
S. 352,
230 U. S. 434,
230 U. S. 454;
Branson v. Bush, 251 U. S. 182,
251 U. S.
185-188;
Southwestern Bell Tel. Co. v. Pub. Serv.
Comm'n, 262 U. S. 276,
262 U. S. 287;
United States v. New River Collieries Co., 262 U.
S. 341;
Brooks-Scanlon Corp. v. United States,
265 U. S. 106,
265 U. S.
123-126;
Standard Oil Co. v. Southern Pacific
Co., 268 U. S. 146,
268 U. S. 155
et seq.; McCardle v. Indianapolis Water Co., 272 U.
S. 400,
272 U. S. 410,
272 U. S. 414;
Olson v. United States, 292 U. S. 246,
292 U. S. 255
et seq. The apportionment of system value between Wyoming
and the rest of the system involves the finding of the value of the
portion of the railroad that is located in that State. The problem
is quite like the ascertainment of the value of the whole. The
determination
Page 293 U. S. 110
is to be made in the exercise of a reasonable judgment based on
facts so pertinent and significant as to be of controlling weight
as indications of the value of the property.
Where, as in this case, the evidence requires a finding that the
railroad in one of the States reached by the system is clearly
shown to be worth much less than the average value per mile of the
system, an apportionment on mileage necessarily assigns an
excessive amount to that State, and the use of that basis as the
sole measure for apportionment must be condemned as arbitrary.
Fargo v. Hart, 193 U. S. 490,
193 U. S. 500;
Union Tank Line v. Wright, 249 U.
S. 275,
249 U. S.
282-283;
Wallace v. Hines, 253 U. S.
66,
253 U. S. 69.
Cf. Chicago & N.W. Ry. Co. v. Eveland, 13 F.2d 442,
447. In arriving at the relation between value in Wyoming and
system value, the State board did not confine its calculation to
relative mileage. That percentage, combined with the other ratios
used in the calculation, produced 2.1%, finally adopted. Nor did it
limit its consideration of the problem to the elements employed to
make that computation. Among other things, it took into account the
cost of reproduction less depreciation of the Wyoming property; the
relations between that figure and the agreed system value and
between operating net revenues derived from the Wyoming property
and those earned by the system for the five-year period and for
1930. Each of these is an indication that the value of the Wyoming
property is substantially more than the assessment in question.
The record shows that the board considered respondent's
calculation. Refusal to accept that formula as the measure was not
arbitrary. Respondent's use of the average of three ratios
indicates that it realized that there were substantial objections
against each as the sole test. It is obvious, even when results of
operation over a substantial
Page 293 U. S. 111
period are considered, that, as a matter of fact, the value of
respondent's Wyoming line does not rise and fall with decline and
increase of ton miles, passenger miles, car miles, engine miles, or
gross revenue in any other State, or upon the balance of the
system. Moreover, by the use of its formula, respondent failed to
take into account facts that justly may be considered to have
significant bearing upon the relation between Wyoming value and
system value. Such, for example, are the length of line to be
assessed and the net operating revenues. The other factors that are
shown to have been considered by the board give substantial support
to the percentage finally adopted as the basis of the
assessment.
There is nothing in this record to suggest any lack of good
faith on the part of the board. Overvaluation resulting from error
of judgment will not support a claim of discrimination. There must
be something that amounts to an intention, or the equivalent of
fraudulent purpose, to disregard the fundamental principle of
uniformity.
Sunday Lake Iron Co. v. Wakefield,
247 U. S. 350;
Sioux City Bridge v. Dakota County, 260 U.
S. 441;
Chicago G.W. Ry. Co. v. Kendall,
266 U. S. 94;
Iowa-Des Moines Nat. Bank v. Bennett, 284 U.
S. 239,
284 U. S. 245;
Cumberland Coal Co. v. Board, 284 U. S.
23,
284 U. S. 28.
There was no discrimination against respondent by undervaluation of
the property of others. We find no substantial support in the
findings of the district court or in the evidence for the
conclusion that the use that the state board made of relative
mileage to ascertain the value of respondent's Wyoming railroad
property was arbitrary or unreasonable, or indeed erroneous, or for
its conclusion that the property was substantially or arbitrarily
overvalued. Respondent was not entitled to an injunction.
The trial court was not called upon, and it was no part of the
judicial function, to determine the base or amount
Page 293 U. S. 112
of the tax that, in its view, might legally be exacted as a
result of the assessment in question.
State Railroad Tax
Cases, 92 U. S. 575,
92 U. S.
614-615;
Thompson v. Allen County, 115 U.
S. 550.
Cf. Central Kentucky Nat. Gas. Co. v.
Railroad Comm'n, 290 U. S. 264,
290 U. S. 271,
et seq. If that assessment were illegal, the State,
notwithstanding any adjudication against its validity as repugnant
to the Federal Constitution, should have been left free again to
value the property.
Norwood v. Baker, 172 U.
S. 269,
172 U. S. 293.
And see French v. Barber Asphalt Paving Co., 181 U.
S. 324,
181 U. S.
344.
The district court may cause to be corrected the error in
calculation referred to in marginal note 2.
*
* The final sentence was added by order of December 3, 1934.
bwm:
----------------------------------------------------------------------------------------
Value of en- Assigned to State of Wyoming on basis of
tire line as
-------------------------------------------------
represented
Year by market
values of Traffic Operating Use of roll- Average
stocks and units revenues ing stock of 3 bases
bonds
(1) (2) (3) (4) (5)
----------------------------------------------------------------------------------------
1 1926 $ 342,767,737 $ 5,827,052 $ 5,038,686 $ 5,929,882 $
5,508,540
2 1927 398,490,108 7,212,671 6,057,050 7,372,067 6,880,596
3 1928 397,772,006 6,085,912 5,847,248 6,284,798 6,072,653
4 1929 398,555,050 6,699,337 5,579,771 6,018,181 5,765,763
5 1930 391,415,526 5,558,100 5,714,667 6,027,799 5,766,855
-------------- ----------- ----------- -----------
-----------
6 Aggregate $1,929,000,427 $30,383,072 $28,237,422 $31,632,727
$30,084,407
7 Aver. 5 Yrs. $ 385,800,085 $ 6,076,614 $ 5,647,484 $ 6,326,545
$ 6,016,881
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
Value of en- Assigned to State of Wyoming on basis of
tire line as
---------------------------------------------------
represented
Year by income
capitalized at Traffic Operating Use of roll- Average
6% units revenues ing stock of 3 bases
8 1926 $ 371,585,653 $ 6,316,956 $ 5,462,309 $ 6,428,432 $
6,069,232
9 1927 337,628,225 6,111,071 5,131,949 6,246,122 5,829,714
10 1928 387,094,715 5,922,549 5,690,293 6,116,096 5,009,646
11 1929 437,002,491 6,249,136 6,118,035 6,598,738 6,321,970
12 1930 290,547,517 4,125,775 4,241,994 4,474,432 4,280,734
-------------- ------------ ----------- -----------
-----------
13 Aggregate $1,823,858,601 $28,725,487 $26,644,580 $29,863,820
$28,441,296
14 Aver. 5 Yrs. $ 364,771,720 $ 5,745,097 $ 5,328,916 $
5,972,764 $ 5,682,259
----------------------------------------------------------------------------------------
Ratio used Entire line State of Wyoming
----------------------------------------------------------------------------------------
15 1926 100.00% 1.70% 1.47% 1.73%
16 1927 100.00% 1.81% 1.52% 1.85%
17 1928 100.00% 1.53% 1.47% 1.58%
18 1929 100.00% 1.43% 1.40% 1.51%
19 1930 100.00% 1.42% 1.46% 1.54%
----------------------------------------------------------------------------------------
Miles of Per mile
road of road
----------------------------------------------------------------------------------------
20 Average for 1930 only 278.35 $18,085 $5,023,795
21 Average for Five Years 278.35 $21,015 $5,843,570
----------------------------------------------------------------------------------------
ewm:
The court also corrected an admitted error of the board by
substituting 1.79% for 1.89% average between gross and net
operating revenues.