Equity has jurisdiction to enjoin unlawful tax proceedings which
cloud the plaintiff's title and threaten irreparable injury and a
multiplicity of suits.
The principle settled in
Ex Parte Young, 209 U.
S. 123, to the effect that a suit to restrain state
officials from enforcing an unconstitutional state statute in
violation of plaintiff's rights and to his irreparable damage is
not a suit against the state, applies also when the statute itself
is constitutional, but the attempted administration of it is
not.
In a case in which the jurisdiction of the district court is
properly invoked upon a substantial controversy arising under the
Constitution of the United States, the jurisdiction of that court,
and of this Court on appeal, extends to the determination of all
questions involved, including questions of state law, irrespective
of the disposition that may be made of the federal question and of
whether it be found necessary to decide it at all.
Where the relief to which plaintiff might be entitled under the
Fourteenth Amendment is the same as that allowed him by the federal
court upon a proper construction and application of the state
constitution and laws, the question whether the acts complained of
violate the Amendment need not be decided.
Under the so-called franchise tax provisions of Kentucky
(Ky.Stats., §§ 4077-4079) relating to railroad and other
corporations exercising special or exclusive privileges or
franchises, what is termed the "capital stock of the corporation"
(§ 4079) includes its entire property,
Page 244 U. S. 500
tangible and intangible, and what is termed a "franchise tax" is
nothing else than a tax upon the intangible property of the
corporation in Kentucky.
Semble that no provision is made by the Kentucky
statutes for taxing franchises under §§ 174 and 181 of the state
constitution.
The provision in § 182 of the Kentucky Constitution, permitting
the General Assembly to provide by law "how railroads and railroad
property shall be assessed, and how taxes thereon shall be
collected," relates only to the mode of assessment and collection,
and does not authorize a departure from the uniformity in valuation
and rate required by §§ 171 and 174.
Discrimination resulting from an assessment of the intangible
property of a railroad corporation by the Board of Valuation and
Assessment at 75 percent of its actual value, while the property of
individuals and other classes of corporations, taxed at the same
rate, is generally and systematically assessed by other and
independent taxing authorities of the state at not more than 60
percent of actual value, is violative of the provisions of the
Kentucky Constitution requiring uniform taxation in proportion to
value and an identical rate as between corporate and individual
property (§§ 171, 174), and this has been recognized by the supreme
court of the state.
A decision of the state supreme court holding that such
discrimination is not subject to correction in the courts of the
state, and that the equality and uniformity provisions of the state
constitution may be enforced only by selection of proper assessing
officers, is not binding upon the federal courts.
The courts of the United States, their jurisdiction being
properly invoked, may afford relief against discriminatory state
taxation contravening the state constitution when the
discrimination results from divergent action of different assessing
boards whose assessments are not subject to any process of
equalization established by the state, and where the diverse
results are the outcome not of express agreement, but of
intentional, systematic, and persistent undervaluation by one body
of officials, presumably known to and ignored by the other body, so
that, in effect, the two bodies act in concert.
Sections 171 and 174 of the Constitution of Kentucky require
uniform taxation according to value, and an identical rate as
between corporate and individual property, and the provision of §
174 that " all corporate property shall pay the same rate of
taxation paid by individual property" means that not only the
percentage of the rate, but the basis of the valuation, shall be
the same.
Page 244 U. S. 501
Uniformity in taxing implies equality in the burden of taxation,
and this equality cannot exist without uniformity in the basis of
assessment, as well as in the rate of taxation.
The principal, if not the sole, reason for adopting "fair cash
value" as the standard for valuations is as a convenient means of
securing equal taxation, and since, when the standard is
systematically departed from in respect of certain classes of
property, its observance in respect of others (the tax rate being
uniform) would serve to frustrate its very object, it follows that
in such cases the duty to assess at full value is not supreme, but
yields to the duty to avoid discrimination.
Section 162, Kentucky Statutes, does not afford an adequate
legal remedy against discriminatory assessments for both state and
local taxes, because, as construed by the Kentucky Court of
Appeals, it does not authorize correction of erroneous assessments,
and also because it applies only to state, and not to local, taxes.
Singer Sewing Machine Co. v. Benedict, 229 U.
S. 481, distinguished.
When the bill seeks relief as to state and local taxes based on
the same assessment, and an adequate legal remedy exists as to the
former class only, equity will retain and dispose of the entire
case, doing justice completely and avoiding multiplicity of
suits.
A railroad company whose intangible property is assessed by the
Board of Valuation and Assessment, and which is subjected to
discrimination through undervaluation of other property by county
assessors, is not afforded an adequate remedy through §§ 4115-4120,
4123, Ky.Stats., providing for readjustment of the latter class of
assessments through the County Board of Supervisors.
Affirmed.
The cases are stated in the opinion.
MR. JUSTICE PITNEY delivered the opinion of the court:
These are companion cases, involving similar questions, were
argued together, and may be disposed of in a single
Page 244 U. S. 502
opinion. Appellees are corporations organized under the laws of
the State of Kentucky, one of which (the Louisville &
Interurban Railroad Company) operates, as a common carrier,
passenger and freight lines of railroad in three of the counties of
that state and in various municipalities and taxing districts in
those counties, while the other (the Louisville Railway Company)
operates, as a common carrier, passenger and freight lines of
street railway in the City of Louisville and in Jefferson County,
outside of that city. They filed their several bills of complaint
in the district court against Henry M. Bosworth and others, then
constituting the Board of Valuation and Assessment of the Kentucky
(Bosworth being also auditor of public accounts), and against the
attorney general of the state and his assistants, suing them all,
both individually and in their official capacities, for an
injunction to restrain steps looking to the certification and
enforcement of what are called "franchise taxes" attempted to be
assessed upon the respective complainants for the year 1915 under §
4077 and succeeding sections of the Kentucky Statutes, upon the
ground of discrimination in the valuation of the franchises, they
having been assessed, as alleged, on the basis of 75 percent of
actual values, while taxable property in general was assessed
systematically and intentionally at not more than 52 percent of
actual values. There being no diversity of citizenship, the
jurisdiction of the district court was invoked, under the first
paragraph of § 24, Judicial Code, upon the ground that the suits
arose under the "due process" and "equal protection" clauses of the
Fourteenth Amendment of the Constitution of the United States, and
that the matter in dispute in each case was in excess of the
jurisdictional amount. Plaintiffs also relied upon certain
provisions of the constitution of the state that require uniform
taxation of property according to value and at the same rate for
corporate as for individual property. By supplemental bills,
Page 244 U. S. 503
the successors in office of the original defendants were made
parties in both their individual and official capacities. In each
case, there was a motion to dismiss, equivalent to a general
demurrer to the bill, upon the following grounds: (1) that there
was no federal question involved, and therefore the court was
without jurisdiction; (2) that the bills stated no cause of action
under the laws of the state or of the United States; (3) that the
plaintiffs had an adequate remedy at law; (4) that the bills showed
no equity on their face, and (5) that the suits were suits against
the State of Kentucky. After a hearing, the court overruled these
motions, defendants declined to plead further and made no objection
to the submission of the cases for final decrees, the allegations
of the bills, not being denied, were taken as true, and final
decrees were made granting relief against the enforcement of the
disputed assessments and restraining the imposition of franchise
taxes upon plaintiffs for the year 1915, based on assessments to
their franchises at greater values than those conceded in the
respective bills of complaint, which were 60 percent of actual
values. The court, in reaching this conclusion, followed its own
previous decisions in
Louisville & N. R. Co. v.
Bosworth, 209 F. 380, 230 Fed.191. Defendants appealed
directly to this Court under § 238, Judicial Code.
The cases were submitted here at the same time with cognate
cases this day decided,
viz.: Nos. 778 and 779,
Louisville & Nashville R. Co. v. Greene, post,
244 U. S. 522, and
Nos. 642-645,
Illinois Central R. Co. v. Greene, post,
244 U. S. 555.
In the present cases, the assignments of error and the argument
for appellants are based upon the refusal to dismiss the bills of
complaint, no criticism being made as to the particular relief
granted by the final decrees.
The bills are substantially identical in form, and an outline of
the one filed by the Louisville & Interurban Railroad Company
(No. 617) will suffice. Following a prefatory statement of
jurisdictional matters and a description
Page 244 U. S. 504
of the parties, it avers in substance that the State Board of
Valuation and Assessment, having ascertained by a process not here
criticized what, in their judgment, was the fair cash value of
plaintiff's "capital stock," took 75 percent of the result, and
thus fixed the valuation of the capital stock for the purposes of
the assessment for the year 1915 at $2,250,000; deducted therefrom
the amount of plaintiff's tangible property assessed for state
taxes -- $813,619 -- thus fixing the value of the "franchise" at
$1,436,381, and ascertained the state taxes thereon as follows:
state tax, generally at 50 cents, $7,181.90; state road tax at 5
cents, $718.19; a total of $7,900.09. That plaintiff protested, but
to no avail. That the assessment subjects plaintiff to state taxes
upon the whole of its capital stock, and to county taxes in the
three counties on proportionate parts of it, and to additional
taxes in the cities and other municipalities and taxing districts
through which its railroad runs. Plaintiff avers that, for many
years past, including the taxing year 1914-1915, the taxes for
which are here in controversy, the local assessors and other
assessing officers of the State of Kentucky have habitually,
intentionally, systematically, and generally assessed the property
of individuals and of corporations within their sphere of duty,
comprising 80 percent of the total taxable property at not
exceeding 52 percent of its fair cash value, estimated at the price
which it would bring at a fair and voluntary sale; that the fact of
such systematic assessment upon that basis annually for many years
past has been a matter of public notoriety in the state
"whereas the said Bosworth, Rhea, and Crecilius, acting as the
State Board of Valuation and Assessment, after ascertaining what,
in their judgment, was the fair cash value of plaintiff's capital
stock, reduced said value only to the extent of taking 75 percent
thereof, instead of taking 52 percent, the average rate applied by
assessing officers to the vast body of property in this state."
It is
Page 244 U. S. 505
averred that Bosworth, Rhea, and Crecilius have denied to
plaintiff the benefit of equalization, and that thereby plaintiff
has been deprived of its property without due process of law and
denied the equal protection of the laws, in violation of the
Fourteenth Amendment and the Constitution and laws of the state;
that plaintiff has paid the state and county taxes upon its
tangible property for the year in controversy so far as they have
been demanded, and also has paid the state taxes upon its franchise
as arrived at by taking the value of its capital stock and taking
60 percent of such valuation and deducting therefrom the valuation
of plaintiff's tangible property; that Bosworth, Rhea, and
Crecilius, unless enjoined, will certify to the county clerks of
the three counties mentioned the amounts claimed to be due to said
counties and the taxing districts thereof by reason of the
valuation they have assumed to make as above stated; the county
clerks will thereupon certify said assessments respectively to the
tax collectors for the said counties and the taxing districts
therein for collection, and said collecting officers will proceed
to make collections and to institute unwarranted, vexations, and
multitudinous suits and proceedings at law against plaintiff; that,
unless enjoined, the said Bosworth or his deputy will enter in
account with the treasurer of the state the amount of taxes based
upon the valuation aforesaid, and the said attorney general and his
assistants will institute civil or penal actions or procure
indictments against plaintiff based upon its supposed delinquency
in the payment of taxes, and that the unauthorized and illegal
valuation constitutes a cloud, and, as claimed by defendants,
constitutes a lien upon plaintiff's property in the commonwealth,
and unless defendants are enjoined numerous and vexatious suits
will be instituted to enforce or foreclose such lien. There is an
appropriate prayer for injunction and for general relief.
It does not appear, from any express averment in the
Page 244 U. S. 506
bills, that other property owners have been subject to
discrimination precisely like that of which plaintiffs complain;
but the entire argument for defendants, in these cases and others
argued with them, proceeds upon the theory that the Board of
Valuation and Assessment treated all taxpayers alike over whom they
had jurisdiction; hence, it is fair to assume that plaintiff's
franchises were assessed on the same basis of valuation applied by
the Board to other property generally that came within the range of
their official duty.
(1) It is convenient to state at this point what, indeed, is not
controverted -- that, if the suits be otherwise maintainable, the
last-mentioned averments of the bills show sufficient special
grounds for invoking the equity jurisdiction under the rule
established by repeated decisions of this Court.
Dows v.
Chicago, 11 Wall. 108,
78 U. S.
110-112;
Hannewinkle v.
Georgetown, 15 Wall. 547;
Union Pacific Railway
v. Cheyenne, 113 U. S. 516,
113 U. S.
525-526;
Ohio Tax Cases, 232 U.
S. 576,
232 U. S.
587.
(2) A fundamental contention of appellants is that the present
actions, brought to restrain them in respect of the performance of
duties they are exercising under the authority of the State of
Kentucky, are in effect suits against the state. Questions of this
sort have arisen many times in this Court, but the matter was set
at rest in
Ex Parte Young, 209 U.
S. 123,
209 U. S. 150,
209 U. S. 155,
where it was held that a suit to restrain a state officer from
executing an unconstitutional statute, in violation of plaintiff's
rights and to his irreparable damage, is not a suit against the
state, and that
"individuals who, as officers of the state, are clothed with
some duty in regard to the enforcement of the laws of the state,
and who threaten and are about to commence proceedings, either of a
civil or criminal nature, to enforce against parties affected an
unconstitutional act, violating the federal Constitution, may be
enjoined by a federal court of equity from such action. "
Page 244 U. S. 507
In repeated decisions since
Ex Parte Young, that case
has been recognized as setting these questions at rest.
Western
Union Telegraph Co. v. Andrews, 216 U.
S. 165,
216 U. S. 166;
Herndon v. Chicago, Rock Island & Pacific Ry. Co.,
218 U. S. 135,
218 U. S. 155;
Philadelphia Co. v. Stimson, 223 U.
S. 605,
223 U. S. 621;
Home Telephone & Telegraph Co. v. Los Angeles,
227 U. S. 278,
227 U. S. 293;
Truax v. Raich, 239 U. S. 33,
239 U. S. 37.
And see Hopkins v. Clemson Agricultural College,
221 U. S. 636,
221 U. S.
642-644.
The principle is not confined to the maintenance of suits for
restraining the enforcement of statutes which, as enacted by the
state legislature, are in themselves unconstitutional.
Reagan
v. Farmers' Loan & Trust Co., 154 U.
S. 362,
154 U. S. 390,
was a case not of an unconstitutional statute, but of confiscatory,
and therefore unconstitutional, action taken by a state commission
under a constitutional statute. The Court, by Mr. Justice Brewer,
said:
"Neither will the constitutionality of the statute, if that be
conceded, avail to oust the federal court of jurisdiction. A valid
law may be wrongfully administered by officers of the state, and so
as to make such administration an illegal burden and exaction upon
the individual. A tax law, as it leaves the legislative hands, may
not be obnoxious to any challenge, and yet the officers charged
with the administration of that valid tax law may so act under it
in the matter of assessment or collection as to work an illegal
trespass upon the property rights of the individual."
In
Raymond v. Chicago Union Traction Co., 207 U. S.
20,
207 U. S. 38,
the Court upheld the right of action in a federal court to restrain
the collection of taxes that had been assessed at a different rate
and by a different method from that employed with respect to other
taxpayers of the same class, in defiance of the provisions of a
constitutional statute that required equalization, and also in
denial of the equal protection of the laws within the meaning of
the Fourteenth Amendment.
Page 244 U. S. 508
(3) The contention of plaintiffs, set forth in their respective
bills of complaint, that the action of the Board of Valuation and
Assessment in making the assessments under consideration and the
threatened action of defendants in respect of carrying those
assessments into effect constituted action by the state, and, if
carried out, would violate the equal protection provision of the
Fourteenth Amendment, presents, without question, a real and
substantial controversy under the Constitution of the United
States, which (there being involved a sum and value in excess of
the jurisdictional amount) conferred jurisdiction upon the federal
court, irrespective of the citizenship of the parties. This being
so, the jurisdiction of that court extended, and ours on appeal
extends, to the determination of all questions involved in the
case, including questions of state law, irrespective of the
disposition that may be made of the federal question, or whether it
be found necessary to decide it at all.
Siler v. Louisville
& Nashville R. Co., 213 U. S. 175,
213 U. S. 191;
Ohio Tax Cases, 232 U. S. 576,
232 U. S.
586.
(4) Taking up first the question of state law, we should at the
outset briefly consider the pertinent provisions of the
Constitution and laws of the state. By § 171 of the Constitution,
it is prescribed:
"The General Assembly shall provide by law an annual tax which,
with other resources, shall be sufficient to defray the estimated
expenses of the Commonwealth for each fiscal year. Taxes shall be
levied and collected for public purposes only. They shall be
uniform upon all property subject to taxation within the
territorial limits of the authority levying the tax, and all taxes
shall be levied and collected by general laws."
By § 172:
"All property not exempted from taxation by this Constitution
shall be assessed for taxation at its fair cash value, estimated at
the price it would bring at a fair voluntary sale, and any officer
or other person authorized to assess values for taxation who shall
commit
Page 244 U. S. 509
any willful error in the performance of his duty shall be deemed
guilty of misfeasance, and, upon conviction thereof, shall forfeit
his office and be otherwise punished, as may be provided by
law."
By § 174:
"All property, whether owned by natural persons or corporations,
shall be taxed in proportion to its value, unless exempted by this
Constitution, and all corporate property shall pay the same rate of
taxation paid by individual property. Nothing in this Constitution
shall be construed to prevent the General Assembly from providing
for taxation based on income, licenses, or franchises."
Section 181 provides as follows:
"The General Assembly may, by general laws only, provide for the
payment of license fees on franchises, stock used for breeding
purposes, the various trades, occupations, and professions, or a
special or excise tax;"
etc. And § 182 declares:
"Nothing in this Constitution shall be construed to prevent the
General Assembly from providing, by law, how railroads and railroad
property shall be assessed and how taxes thereon shall be
collected."
Under statutory provisions, property is valued for purposes of
taxation, both state and local, in the following manner: all
property in the state, real and personal, tangible and intangible,
except the property of railroads, the franchises of certain
corporations, shares of stock in banks, and distilled spirits, is
assessed by county assessors, subject to the review of county
boards of supervisors and a State Board of Equalization. Tangible
railroad property is assessed by the State Railroad Commission.
Bank shares and distilled spirits are assessed by the Board of
Valuation and Assessment, composed of the auditor of public
accounts, the treasurer of state, and the secretary of state. And,
by § 4077, Ky.Stat. it is provided:
"Every railway company or corporation . . . , also every other
corporation, company, or association having or exercising any
special or exclusive privilege or franchise not allowed by law to
natural persons, or performing any
Page 244 U. S. 510
public service, shall, in addition to the other taxes imposed on
it by law, annually pay a tax on its franchise to the state, and a
local tax thereon to the county, incorporated city, town, or taxing
district, where its franchise may be exercised."
The values of such franchises (except as to turnpike companies,
otherwise provided for) are to be fixed by the Board of Valuation
and Assessment. By § 4078, verified statements are to be delivered
annually to the auditor, showing certain facts respecting the
company, including the amount of capital stock, with its par and
real value, and the highest price at which it was sold within
twelve months preceding, the amount of surplus funds and undivided
profits, the value of all other assets, the amount of indebtedness,
the gross or net earnings or income, the amount and kind of
tangible property in the state, the fair cash value thereof,
estimated at the price it would bring at a fair voluntary sale, and
such other facts as the auditor may require. Section 4079 provides
that, "where the line or lines of any such corporation, company, or
association extend beyond the limits of the state or county," the
statement shall, in addition to other facts, show the length of
entire lines operated, owned, leased, or controlled in the state
and in each county, incorporated city, town, or taxing district,
and the entire line operated, etc., elsewhere. There is a proviso
that the Board, from the statement furnished to it by the
corporation and from such other evidence as it may have, is to
"fix the value of the capital stock of the corporation . . . ,
and from the amount thus fixed shall deduct the assessed value of
all tangible property assessed in this state, or in the counties
where situated. The remainder thus found shall be the value of its
corporate franchise subject to taxation as aforesaid.{1} It has
been held by the Kentucky Court of Appeals,
Page 244 U. S. 511
and by this Court, that the 'capital stock of the corporation'
here referred to includes its entire property, of every kind and
description, tangible and intangible, and that what is called a
'franchise tax' is nothing else than a tax upon the intangible
property of the company in Kentucky.
Henderson Bridge Co. v.
Commonwealth, 99 Ky. 623, 639, 641;
Henderson Bridge Co.
v. Kentucky, 166 U. S. 150,
166 U. S.
154;
Adams Express Co. v. Kentucky,,
166 U. S.
171,
166 U. S. 180;
Louisville Tobacco Warehouse Co. v. Commonwealth, 106 Ky.
165, 167;
Marion National Bank v. Burton, 121 Ky. 876,
888. In view of these decisions, no serious attempt is made to
sustain the assessments in question as a taxation of franchises
under §§ 174 or 181 of the Constitution. There seems to be no
provision of law for taxing franchises under either of those
sections.
Marion National Bank v. Burton, 121 Ky. 876,
885."
To recapitulate: real estate and personal property of
individuals and of non-franchise corporations are assessed by the
county assessors, both for state and county purposes; tangible
railroad property by the Railroad Commission; bank shares,
distilled spirits, and corporate franchises by the Board of
Valuation and Assessment. It is important to be observed that the
latter board has no authority or control over the actions of the
county assessors, the county boards of supervisors, or the State
Board of Equalization, and, on the other hand, these officials have
no authority or control over the actions of the Board of Valuation
and Assessment. Nor is there any statutory
Page 244 U. S. 512
provision for equalizing assessments, as between the property
which is assessed by the county assessors and that which is
assessed by the Railroad Commission and the Board of Valuation and
Assessment.
It hardly is open to serious dispute that, if the legislature
had confided to a single body the determination of the basis of
assessment of the real estate and personal property of individuals
and non-franchise corporations, on the one hand, and of the
tangible and intangible property of public service corporations, on
the other, a valuation of property of the latter class on the basis
of 75 percent of its actual value, while property of the former
class was assessed systematically at 52 percent, or not more than
60 percent, of its actual value, would be inconsistent with the
sections we have quoted from the Kentucky Constitution. For the
provision of § 182 permitting the General Assembly to provide by
law "how railroads and railroad property shall be assessed, and how
taxes thereon shall be collected" relates merely to the mode of
assessment and collection, and manifestly does not permit a
departure from the requirements of uniform taxation in proportion
to value, and an identical rate as between corporate and individual
property, contained in §§ 171 and 174. The latter section permits
the General Assembly to provide for taxation based on income,
licenses, or franchises. But, as already stated, at least at the
time these suits arose, there was no provision of law for a
taxation of franchises in any other sense than that already
explained.
Marion National Bank v. Burton, supra.
The fact should be emphasized that the Kentucky court of last
resort, far from holding that discrimination such as is here
complained of is in accord with the constitution and laws of the
state, has recognized distinctly that it is not, but has felt
constrained to hold that, under circumstances similar to those of
the present cases, there is no redress in the courts of the state,
and that the constitutional
Page 244 U. S. 513
provisions for equality and uniformity are capable of being put
into execution only through the selection of proper assessing
officers.
Louisville Railway Co. v. Commonwealth, 105 Ky.
710, 719. This, while admitting the wrong, merely denies judicial
relief, and is not binding upon the federal courts.
In
Cummings v. Merchants' National Bank, 101 U.
S. 153, the bank brought its bill in equity in a circuit
court of the United States to enjoin the collection of a tax
assessed against the shares of its stockholders, not because of
inconsistency with the act of Congress relating to the taxation of
such shares (§ 5219, Rev.Stats.), but upon the ground of a
violation of the Constitution and laws of the State of Ohio, which
required the taxation of all moneys, credits, and investments, and
also all real and personal property, to be by a uniform rule and
according to its true value in money. The supreme court of the
state (
Exchange Bank v. Hines, 3 Ohio St. 1, 15) had held
that they required uniformity not only in the rate of taxation, but
also in the mode of the assessment upon the taxable valuation. But
the legislature had adopted a system of valuation under which there
were different bodies acting independently of one another in regard
to different classes of property in the process of estimating
values for taxation, with one board of equalization having charge
of the valuation of the real estate of the whole state once in
every ten years, another having charge of the valuation of railroad
property every year, a third of the valuation of shares of
incorporated banks every year, but with no common superior to
secure equalization as between the different classes of property.
The evidence showed that, in the county where complainant's bank
was situate, the assessors of real property, the assessors of
personal property, and the county auditor (who was the assessing
officer for bank shares) concurred in establishing a rule of
valuation by which real and personal property, except money,
were
Page 244 U. S. 514
assessed at one third of actual values, and money or invested
capital at six tenths of its value; that this rule was followed,
and that, for the year in question, the state Board of Equalization
increased the assessment upon the bank shares to their full cash
value. This Court held (p. 157) that
"when a rule or system of valuation is adopted by those whose
duty it is to make the assessment, which is designed to operate
unequally and to violate a fundamental principle of the [state]
constitution, and when this rule is applied not solely to one
individual, but to a large class of individuals or corporations,
that equity may properly interfere to restrain the operation of
this unconstitutional exercise of power,"
and that, this being the case made by the bill, and being
supported by the evidence, while the statute could not be declared
unconstitutional, the discriminatory rule must be held void, and
the injustice produced under it remedied so far as the judicial
power could give remedy.
(5) Is discriminatory taxation contravening the express
requirements of the state constitution beyond redress in the courts
of the United States, their jurisdiction being properly invoked,
when the discrimination results from divergent action by different
assessing boards whose assessments are not subject to any process
of equalization established by the state, and where the diverse
results are the outcome, not, indeed, of any express agreement
among the officials concerned, but of intentional, systematic, and
persistent undervaluation by one body of officials, presumably
known to and ignored by the other body, so that in effect the two
bodies act in concert? In our opinion, the answer must be in the
negative.
Appellants' contention that there is no remedy by injunction
against the assessments imposed by the Board of Valuation and
Assessment places undue emphasis upon the requirement contained in
§ 172 of the constitution that all property shall be assessed for
taxation at its fair
Page 244 U. S. 515
cash value, estimated at the price it would bring at a fair
voluntary sale -- a provision that is repeated in § 4020,
Ky.Stats., which deals with the duties of assessing officers. The
averments of the bills of complaint, admitted on this record, are
that the Board did not assess the property of plaintiffs at fair
cash value, but at 75 percent thereof, and that this resulted in
unequal taxation only because the county assessments were at a
still lower percentage. But, laying this aside, and assuming for
the moment that the Board performed its duty strictly in accordance
with § 172 by assessing plaintiff's properties at fair cash value,
what is the effect of that action, in view of the systematic
undervaluations by the assessing officers charged with valuing
other classes of property? This question cannot be answered without
considering the relation of § 172 to §§ 171 and 174, which require
uniform taxation according to value and an identical rate as
between corporate and individual property. The operation and effect
of such a taxing system, both in respect to raising the necessary
moneys and in distributing the burden among the taxpayers, depend
upon two considerations: first, the rate of taxation, and,
secondly, the basis of valuation of the property to be taxed.
Plainly, the provision of § 174 that "all corporate property shall
pay the same rate of taxation paid by individual property" means
that not only the percentage of the rate, but the basis of the
valuation, shall be the same.
"Taxing by a uniform rule requires uniformity not only in the
rate of taxation, but also uniformity in the mode of the assessment
upon the taxable valuation. Uniformity in taxing implies equality
in the burden of taxation, and this equality of burden cannot exist
without uniformity in the mode of the assessment, as well as in the
rate of taxation."
Exchange Bank of Columbus v. Hines, 3 Ohio St. 1, 15,
quoted in
Cummings v. National Bank, 101 U.
S. 153,
101 U. S.
158.
It is equally plain that it makes no difference what basis
Page 244 U. S. 516
of valuation -- that is, what percentage of full value -- may be
adopted,
provided it be applied to all alike. The adoption
of full value has no different effect in distributing the burden
than would be gained by adopting 75 percent, or 50 percent, or even
10 percent as the basis, so long as either was applied
uniformly.{2} The only difference would be that, supposing the
requirements of the treasury remained constant, the rate of
taxation would have to be increased as the percentage of valuation
was reduced. (Under § 171 of the Constitution, the rate of taxation
may be varied by the General Assembly from year to year, according
to requirements.) Therefore, the principal, if not the sole, reason
for adopting "fair cash value" as the standard for valuations is as
a convenient means to an end -- the end being equal taxation. But
if the standard be systematically departed from with respect to
certain classes of property, while applied as to other property, it
does not serve, but frustrates, the very object it was designed to
accomplish. It follows that the duty to assess at full value cannot
be supreme in all cases, but must yield where necessary to avoid
defeating its own purpose.
A substantially identical question was presented to the Circuit
Court of Appeals for the Sixth Circuit in
Taylor v. Louisville
& Nashville R. Co.,88 F. 350, where the Constitution of
Tennessee declared that all property should be taxed according to
its value, to be ascertained as the legislature should direct, "so
that taxes shall be equal and uniform throughout the state," and
the statutes required that the real value of the property be
adopted, and where, as here, railroad property and
Page 244 U. S. 517
some other kinds were valued by one set of officials, and
property in general by another, without provision for equalization
as between the two classes. The court, by Circuit Judge Taft, said
(p. 364):
"The sole and manifest purpose of the Constitution was to secure
uniformity and equality of burden upon all the property in the
state. As a means of doing so (conceding that defendant's
construction is the correct one), it provided that the assessment
should be according to its true value. It emphasized the object of
the section by expressly providing that no species of property
should be taxed higher than any other species. We have before us a
case in which the complaining taxpayer, and other taxpayers owning
the same species of property, are taxed at a higher rate than the
owners of other species of property. This does not come about by
legislative discrimination, but by the intentional and systematic
disregard of the law by those charged with the duty of assessing
all other species of property than that owned by complainant and
its fellows of the same class. . . . [P. 365]. The question
presented is, then, whether, when the sole object of an article of
the Constitution is being flagrantly defeated, to the gross
pecuniary injury of a class of litigants, and one of them appeals
to a court of equity for relief, it must be withheld because the
only mode of granting it will involve an apparent departure from
the method marked out by the constitution and the law for attaining
its sole object. We say 'apparent' departure from the
constitutional method because that instrument contemplated a system
in which all property should be assessed at its real value. . . .
The court is placed in a dilemma from which it can only escape by
taking that path which, while it involves a nominal departure from
the letter of the law, does injury to no one, and secures that
uniformity of tax burden which was the sole end of the
constitution. To hold otherwise is to make the restrictions of the
constitution
Page 244 U. S. 518
instruments for defeating the very purpose they were intended to
subserve. It is to stick in the bark, and to be blind to the
substance of things. It is to sacrifice justice to its
incident."
After pointing out the similarity of the case to
Cummings v.
Merchants' National Bank, supra, and declaring (p. 372):
"An intentional undervaluation of a large class of property,
when the law enjoins assessment at true value, is necessarily
designed to operate unequally upon other classes of property to be
assessed by other taxing tribunals, who, it may be presumed, will
conform to the law,"
the court further said (p. 374):
"The various boards whose united action is by law intended to
effect a uniform assessment on all classes of property are to be
regarded as one tribunal, and the whole assessment on all classes
of property is to be regarded as one judgment. If any board which
is an essential part of the taxing system intentionally, and
therefore fraudulently, violates the law by uniformly undervaluing
certain classes of property, the assessment by other boards of
other classes of property at the full value, though a literal
compliance with the law, makes the whole assessment, considered as
one judgment, a fraud upon the fully assessed property. And this is
true although the particular board assessing the complainant's
property may have been wholly free from fault of fraud or
intentional discrimination."
The justice of this view has been recognized by the state courts
of last resort in many cases.
Bureau County v. Chicago &c.
R. Co., 44 Ill. 229, 239;
Cocheco Mfg. Co. v.
Strafford, 51 N.H. 455, 482;
Manchester Mills v.
Manchester, 58 N.H. 38;
Randell v. Bridgeport, 63
Conn. 321, 324;
C., B. & Q. R. Co. v. Atchison C., 54
Kan. 781, 792;
Ex Parte Fort Smith &c. Bridge Co., 62
Ark. 461, 468;
Burnham v. Barber, 70 Ia. 87, 90;
Barz
v. Board of Equalization, 133 Ia. 563, 565;
Iowa Cent. Ry.
Co. v. Board of Review (Iowa,
Page 244 U. S. 519
1916), 157 N.W. 731;
Lehigh & Wilkes-Barre Coal Co. v.
Luzerne Co., 225 Pa. 267, 271;
People v. I.C. R. Co.,
273 Ill. 220, 244-250. There are declarations to the contrary
(
Central R. Co. v. State Board of Assessors, 48 N.J.L. 1,
7;
Lowell v. County Commissioners, 152 Mass. 372, 375),
but they take little or no account of the rights of aggrieved
taxpayers.
(6) The next question in order is whether the assessments have
the effect of denying to plaintiffs the equal protection of the
laws within the meaning of the Fourteenth Amendment. It is obvious,
however, in view of the result reached upon the question of state
law, just discussed, that the disposition of the cases would not be
affected by whatever result we might reach upon the federal
question, for no other or greater relief is sought under the "equal
protection" clause than plaintiffs are entitled to under the
provisions of the constitution and laws of the state to which we
have referred. Therefore, we find it unnecessary to express any
opinion upon the question raised under the Fourteenth
Amendment.
(7) It is objected that appellees had an adequate remedy at law,
and
Singer Sewing Mach. Co. v. Benedict, 229 U.
S. 481, is cited as a controlling authority. There, the
suit was brought to enjoin the collection of taxes levied by the
City and County of Denver, in the State of Colorado, and because of
the act of Congress (Rev.Stats. § 723) and familiar decisions
applying and enforcing it, since it appeared that a local statute
required the board of county commissioners to refund taxes paid and
thereafter found to be erroneous or illegal, "whether the same be
owing to erroneous assessment, to improper or irregular levying of
the tax, to clerical or other errors of omission," with a
correlative right on the part of the taxpayer to enforce that duty
by action at law, and the decisions of the supreme court of the
state interpreted the statute so as to give an adequate remedy at
law, this Court affirmed a decree dismissing the bill.
Page 244 U. S. 520
The statute that is here invoked is § 162, Ky.Stats., which
reads as follows:
"§ 162. Taxes wrongfully collected refunded. When it shall
appear to the auditor that money has been paid into the treasury
for taxes when no such taxes were in fact due, he shall issue his
warrant on the treasury for such money so improperly paid, in
behalf of the person who paid the same. . . ."
But, by a line of recent decisions in the Kentucky Court of
Appeals, the effect of this section has been confined to cases
where the taxes paid either were wholly without warrant in law or
were based upon a mistake as to the rate of taxation upon the
amount assessed, and it has been held not to authorize the auditor
to correct erroneous assessments, since that official is not
entrusted with authority to make assessments.
German Security
Bank v. Coulter, 112 Ky. 577, 584, 587;
County v.
Bosworth, 160 Ky. 312;
Bosworth v. Metropolitan Life Ins.
Co., 162 Ky. 344, 348;
Louisville Gas & Electric Co.
v. Bosworth, 169 Ky. 824, 829-830.
But, were it otherwise, § 162 clearly applies to state taxes
alone, while the bills of complaint herein have to do with both
state and local taxes. A remedy at law cannot be considered
adequate, so as to prevent equitable relief, unless it covers the
entire case made by the bill in equity. Were we to require a
dismissal of these bills as to the state taxes, retaining them as
to the local taxes, we should multiply suits, instead of preventing
a multiplicity of suits. It is a familiar maxim that "a court of
equity ought to do justice completely, and not by halves," and, to
this end, having properly acquired jurisdiction of a cause for any
purpose, it should dispose of the entire controversy and its
incidents, and not remit any part of it to a court of law.
Camp
v. Boyd, 229 U. S. 530,
229 U. S.
551-552;
McGowan v. Parish, 237 U.
S. 285,
237 U. S.
296.
(8) It is contended that appellees, if aggrieved, had
Page 244 U. S. 521
another and more equitable remedy than a suit for injunction;
that the law of the state provides a method by which, instead of
lowering the assessments upon the property of appellees, they could
by proper procedure compel the assessment of the property of other
taxpayers to be increased so as to come within the constitutional
requirement as to fair cash value, and hence that it was the duty
of appellees to adopt that method. The reference is to §§
4115-4120, Ky.Stats., which require the county board of supervisors
to convene annually and make a careful examination of the
assessor's books and each individual list thereof, empowering them
to increase or decrease any list, "but the board shall not reduce
or raise any assessment unless the evidence be clear and
unmistakable that the valuation is not a fair cash value." By §
4123, they may hear complaints, summon and swear witnesses, and
require them to testify. There is nothing in these provisions to
indicate that parties in the situation of the present appellees,
who have no different interest in the undervaluation by the county
assessors than that which might be possessed by any other citizens
of the state, are entitled to be heard to complain that the county
assessments are too low. Nor is any case cited where such a
complaint has been entertained. The remedy of reassessment appears
to be a public, not a private, remedy.
We conclude that the decrees of the district court must be, and
they are,
Affirmed.
MR. JUSTICE HOLMES, MR. JUSTICE BRANDEIS, and MR. JUSTICE CLARKE
dissent.
The particular method of fixing the value of "capital stock" and
of "corporate franchise" is not in issue in the present cases. The
district court, in
Louisville & N. R. Co. v. Bosworth,
209 F. 380, 409-411, reading §§ 4077-4079 together, seems to have
considered that the method prescribed by the proviso in § 4079 was
applicable to all public service corporations organized in
Kentucky, including those which operate and conduct their business
and have their property wholly in that state. And this appears to
have been the view of the Kentucky Court of Appeals in
Louisville Railway Co. v. Commonwealth, 105 Ky. 710,
714.
A few of the states have enacted laws adopting percentages of
full value as bases of taxation; Iowa, 25 percent (Code Supp. 1907,
§ 1305); Illinois, 20 percent (Hurd's Stat. 1898, p. 1365e),
afterwards 33 1/3 percent (Hurd's Stat. 1909, p. 1882, § 312;
Hurd's Stat. 1912, p. 1963, § 312); Nebraska, 20 percent
(Rev.Stats. 1913, § 6300); Alabama, 60 percent (Gen. Acts 1915, p.
393, § 9).