A tax law of Arkansas (Acts 1911, p. 233), providing for the
valuation of all the property of railroad companies, tangible and
intangible, with assessment of buildings and side tracks, as real
estate, in the town or district where located, and of main line,
also as real estate, to be apportioned according to actual mileage
in each town or district, declares that the franchises of such
companies, "other than the right to be a corporation," are
property, and "shall be considered" in assessing their property.
Held that this does not necessarily import an addition of
franchise value, viewed as personal property, to the assessment of
tracks and buildings in a particular district, but requires these
to be assessed at their value as realty, but having regard to their
use as part of a railroad, and that a special improvement tax,
based on an assessment presumably so made, cannot be declared
invalid upon the ground of being so unequal, compared with
assessments on other real estate of the district, as to violate the
equal protection clause of the Fourteenth Amendment. P.
251 U. S.
185.
A legislative determination that lands will be benefited by a
public improvement for which a special tax is authorized is
conclusive unless it is arbitrary and wholly unwarranted. P.
251 U. S.
189.
A declaration by a state legislature that real estate of a
railroad company, consisting of main and side tracks and buildings
in a road improvement district, will be benefited by a road
improvement is not arbitrary or unwarranted where there is
reasonable ground for concluding that the railroad's traffic will
thereby be increased. P.
251 U. S.
190.
248 F. 377 reversed.
The case is stated in the opinion.
Page 251 U. S. 183
MR. JUSTICE CLARKE delivered the opinion of the Court.
By act of the General Assembly, the State of Arkansas created
"Crawford County Road Improvement District No. 2," a body
corporate, and prescribed its boundaries. Special & Private
Acts of Arkansas 1911, p. 642.
To pay the cost of the road improvement contemplated, the act
provided that it should be made a charge upon all of the real
property, railroads, and tramroads in the district. Bonds were
sold, and the road completed before this suit was commenced to
enjoin the collection of taxes charged against the property of the
railway company, of which the appellee, hereinafter designated the
company, was receiver. The tax objected to was imposed upon the
assessed value of the main track, side tracks, rolling stock,
buildings, and material of the company apportioned to the road
district under a state law for the valuation of railroad property,
and in the bill it is alleged to be invalid because the assessment
conflicts with many provisions of the Constitutions of the United
States and of Arkansas. The rate was the same for all real property
in the district.
The district court permanently enjoined the tax to the extent
that it was imposed on personal property -- the rolling stock and
materials of the company. From this part of the decree, no appeal
was taken, and thereafter all question as to the invalidity of the
assessment because including rolling stock and materials
disappeared from the case. But, for want of equity, the bill was
dismissed so
Page 251 U. S. 184
far as applicable to the real estate "designated in the bill as
main track, side track and buildings." On appeal by the company
from this part of the decree, the circuit court of appeals reversed
the decree of the district court and enjoined the collection of the
tax on the real estate on two grounds:
(1) Because the including of the franchise and other intangible
property of the company in the assessment results in "a higher rate
of taxation" on the property of the railway company than on the
other property in the district, and
(2) Because the evidence fails to show that the company would
derive any benefit from the improvement of the road.
In this Court, the plaintiffs in error, hereinafter referred to
as the road district, assign as errors these two holdings of the
circuit court of appeals, and we shall consider them in the order
stated.
All property of the railway company in the state was assessed by
a state tax commission under an act, the validity of which is not
assailed, providing:
"The franchises (other than the right to be a corporation) of
all railroads . . . are declared to be property for the purpose of
taxation and the value of such franchises shall be considered by
the assessing officers when assessing the property of such
corporations."
Acts of Arkansas 1911, p. 233, ยง 2.
The act also required the commission to "determine the total
value of the entire property of the corporation, tangible and
intangible;" that the buildings and side tracks should be assessed
as real estate in the town or district where located, but that the
main track, also to be assessed as real estate, should be
apportioned among the several towns and districts through which the
road ran according to the "actual mileage in each town or
district."
Page 251 U. S. 185
The circuit court of appeals did not hold either the railroad
valuation or the district road improvement law unconstitutional,
both being types of laws often upheld by this Court (
State
Railroad Tax Cases, 92 U. S. 575,
Cleveland, etc., R. Co. v. Backus, 154 U.
S. 439, and
Houck v. Little River Drainage
District, 239 U. S. 254),
but the first ground of its decision was only that the assessment
of the main track under the former law, as applied to the case of
taxation by benefits provided for by the latter, resulted in
unequal taxation to an extent amounting to a denial of the equal
protection of the laws.
The court was carried to its conclusion by this process: the act
creating the road district, and the general law applicable to local
assessments in proportion to benefits, both required that only real
estate should be assessed to pay for the improvement here involved;
only the real estate of the other property owners of the district
was assessed, and therefore, when the franchises, personalty, of
the railroad company were "considered" in making the assessment
complained of, the company was taxed a "higher rate," a greater
amount than other property owners, and by such discrimination was
denied the equal protection of the laws.
It is argued by the road district that this conclusion is
erroneous for the reasons following:
The assessment law which we have quoted provides that the
franchises of railroad companies ("other than the right to be a
corporation") "shall be considered" by officials when assessing
their property.
It is to be noted that this law does not provide for the
assessment of the franchises of railroad companies separately as
personal or intangible property, as the laws of some states
require, but only declares that they are "property" which "shall be
considered by assessing officers when assessing the property of
such corporations," and they are not valued separately in the
Page 251 U. S. 186
assessment complained of, as it is itemized in the bill of
complaint.
It is not easy to define just what is meant by the "franchise"
of a railroad company "other than the right to be a corporation"
and the record does not attempt a definition.
Morgan v.
Louisiana, 93 U. S. 217,
93 U. S. 223.
The record is also silent as to what, if any, value was placed upon
the franchises of the company here involved by the state tax
commission, and as to what extent, if at all, they were
"considered" in arriving at the assessment objected to, and
therefore it is contended that the conclusion of the circuit court
of appeals that personal property value was included in the
assessment of the real estate of the district has no foundation on
which to rest other than the assumption that the tax commission
conformed to the law and "considered" the franchises when assessing
the real estate, and that this necessarily resulted, in fact if not
in form, in such inclusion -- an unusually meager basis surely for
invalidating a tax of the familiar character of this before us.
If, however, the distinction sometimes taken between the
"essential properties of corporate existence" and the franchises of
a corporation (
Memphis & Little Rock R. Co. v.
Commissioner, 112 U. S. 609,
112 U. S. 619)
be considered substantial enough to be of practical value, and if
it be assumed that the distinction was applied by the state
commission in making the assessment here involved, this would
result not in adding personal property value to the value of the
real estate of the company in the district, but simply in
determining what the value of the real property was -- its right of
way, tracks and buildings -- having regard to the use which it made
of it as an instrumentality for earning money in the conduct of
railroad operations. This, at most, is no more than giving to the
real property a value greater as a part of a railroad unit and a
going concern
Page 251 U. S. 187
than it would have if considered only as a quantity of land,
buildings and tracks.
This is the method of assessing railroad property often approved
by this Court, specifically in
Cleveland, etc., R. Co. v.
Backus, 154 U. S. 439,
154 U. S. 445,
saying:
"The rule of property taxation is that the value of the property
is the basis of taxation. It does not mean a tax upon the earnings
which the property makes, nor for the privilege of using the
property, but rests solely upon the value. But the value of
property results from the use to which it is put, and varies with
the profitableness of that use, present and prospective, actual and
anticipated. There is no pecuniary value outside of that which
results from such use. The amount and profitable character of such
use determines the value, and if property is taxed at its actual
cash value, it is taxed upon something which is created by the uses
to which it is put. In the nature of things, it is practically
impossible -- at least in respect to railroad property -- to divide
its value and determine how much is caused by one use to which it
is put and how much by another."
And long experience has confirmed the statement by Mr. Justice
Miller in
State Railroad Tax Cases, 92 U. S.
575,
92 U. S. 608,
that:
"It may well be doubted whether any better mode of determining
the value of that portion of the track within any one county has
been devised than to ascertain the value of the whole road and
apportion the value within the county by its relative length to the
whole."
And see Kentucky Railroad Tax Cases, 115 U.
S. 321, in which also the contention is disposed of that
the railroad track should be valued by the same officials and on
the same basis of acreage as farm lands adjacent to it.
Thus, the assessment complained of was made under valid laws and
in a manner approved and customary in arriving at the value of that
part of railroad tracks
Page 251 U. S. 188
situate in a state, county, or district. So far as this record
shows, the assessment, modified by the decree of the district court
not appealed from, is not a composite of real and personal property
values, but is the ascertained value of the real estate -- the
tracks and buildings -- of the company within the taxing district,
enhanced, no doubt, by the special use made of it, but still its
value as a part of the railroad unit, resulting from the inherent
nature of the business in which it is employed, a value which will
not be resolved into its constituent elements for the purpose of
defeating contribution to a public improvement. No attempt was made
to prove fraudulent or capricious or arbitrary action on the part
of any officials in making the assessment, the only evidence upon
the subject being the opinions of four employees of the company
that the improvement of the road would not benefit the railroad
property, and if inequality has resulted from the application of
the state law in a customary manner to a situation frequently
arising in our country, it is an incidental inequality resulting
from a valid classification of railroad property for taxation
purposes which does not fall within the scope of the Fourteenth
Amendment, which "was not intended to compel the states to adopt an
iron rule of equal taxation."
Bell's Gap Railroad Co. v.
Pennsylvania, 134 U. S. 232,
134 U. S. 237.
And see French v. Barber Asphalt Paving Co., 181 U.
S. 324;
Cass Farm Co. v. Detroit, 181 U.
S. 396,
181 U. S. 398;
Detroit v. Parker, 181 U. S. 399.
Thus, the basis for assuming that the franchises of the railroad
company were added as a separate personal property value to the
assessment of the real property of the company becomes, upon this
record, much too unsubstantial to justify invalidating the tax
involved if it be otherwise valid, and the first assignment of
error must therefore be sustained.
But the holding of the circuit court of appeals that
Page 251 U. S. 189
"the evidence fails to show that the railroad company derives
any benefit from the road" is also assigned as error.
In the act of the General Assembly creating this road district
it is provided:
"Sec. 5. It is ascertained and hereby declared that all real
property within said district, including railroads and tramroads,
will be benefited by the building of the said highway more than the
cost thereof as appropriated in the county assessment of each piece
of property within the district, for this and the succeeding years,
and the cost thereof is made a charge upon such real property
superior to all other mortgages and liens except the liens for the
ordinary taxes, and for improvement districts heretofore organized.
. . ."
Special and Private Acts of Arkansas 1911, pp. 642, 645.
Where, in laws creating districts for local improvements and
taxation, there is such a legislative declaration as this, as to
what lands within the district will be benefited by the
improvement, the law with respect to the extent to which such
determination may be reviewed by the courts is so well settled, and
has so lately been reexamined and restated by this Court, that
extended discussion of the subject is not justified.
In
Spencer v. Merchant, 125 U.
S. 345 -- a decision often cited and approved -- it is
decided that, if the proposed improvement is one which the state
had authority to make and pay for by assessments on property
benefited, the legislature, in the exercise of the taxing power,
has authority to determine, by the statute imposing the tax, what
lands which might be benefited by the improvement are in fact
benefited by it, and if it does so, its determination is conclusive
upon the owners and the courts, and the owners have no right to be
heard on the question whether their lands have been benefited or
not.
The subject was carefully reexamined and the law
Page 251 U. S. 190
restated in cases so recent as
Wagner v. Baltimore,
239 U. S. 207, and
Houck v. Little River Drainage District, 239 U.
S. 254, with the result that the rule as we have stated
it was approved, with the qualification, which was before implied,
that the legislative determination can be assailed under the
Fourteenth Amendment only where the legislative action is
"arbitrary, wholly unwarranted," "a flagrant abuse, and by reason
of its arbitrary character a confiscation of particular property."
And see Withnell v. Ruecking Construction Co.,
249 U. S. 63,
249 U. S. 69;
Hancock v. Muskogee, 250 U. S. 454,
250 U. S. 457;
Embree v. Kansas City Road District, 240 U.
S. 242,
240 U. S.
250.
The decisions relied upon by the company,
Norwood v.
Baker, 172 U. S. 269;
Myles Salt Co. v. Iberia Drainage District, 239 U.
S. 478;
Gast Realty Co. v. Schneider Granite
Co., 240 U. S. 55, are
not in conflict with the rule, but plainly fall within, and are
illustrations of, the qualification of it.
An application of this rule to the case before us renders not
difficult the decision of the second assignment of error.
The road to be improved was "a little less than three and a half
miles miles in length," and extended from Alma, a considerable
village, on the north, southerly to an east and west road which had
its western terminus at the city of Van Buren, eight miles west of
the junction of the two roads. It was the principal road to and
from Alma, the travel on it being greater than on all the other
roads which served that village combined. In wet seasons, the road
was practically impassable for wagons, sometimes for three or four
months together. People living south of the east and west road, who
made Van Buren their trading point in wet weather, after the road
was improved, traded exclusively at Alma, it being four and a half
miles nearer for many of them. The railway of the appellee was the
only
Page 251 U. S. 191
one at Alma, but at Van Buren there was a competing road, with a
line 250 miles shorter than that of the appellee to St. Louis, the
chief market for the staples of the region.
On the question of benefits which would come to the railroad
property from the construction of the road, the appellee receiver
called four witnesses, three of them engineers and one a
superintendent of the company. Two of these were familiar with the
location of the road, and the other two testified that they knew of
its location in a general way. All four testified in general terms
that the road was not and never would be of any benefit to the
railroad. It is significant that no traffic man was called and that
no evidence was introduced showing the extent of business done at
Alma before and after the improvement of the road.
For the district, three witnesses were called, one a doctor, one
a merchant, and one a long-time resident of the Village of Alma.
Each of these testified that, in his opinion, the road, by making
the Village of Alma more accessible, particularly in the wet
seasons of the year, and by developing the adjacent country, would
increase the business of the railway company and would divert
business from Van Buren, where there was a competing railroad, to
Alma, where appellee had the only line. It was in evidence also
that, after the act was passed but before the road was completed, a
large gas-producing district was discovered not far south of the
southern terminus of the improved road which was tributary to
it.
To this must be added the obvious fact that anything that
develops the territory which a railroad serves must necessarily be
of benefit to it, and that no agency for such development equals
that of good roads.
This discussion of the record makes it clear that it is
impossible to characterize as arbitrary, capricious, or
confiscatory the action of the General Assembly in declaring
Page 251 U. S. 192
that the property of the railroad company within the district
would be benefited by the construction of the contemplated road
improvement, but, on the contrary, it makes it apparent that the
case is one so fully within the general rule that the holding of
the circuit court of appeals that the railroad would not be
benefited by the improvement cannot be sustained.
It results that the decree of the circuit court of appeals must
be reversed, and that of the district court affirmed.
Reversed.
MR. JUSTICE McREYNOLDS dissents.