1. The fact that a public utility, such as a street railway, may
reach financial success only in time, or not at all, is a reason
for allowing a liberal return on the money invested in the
enterprise, but it does not make past losses an element to be
considered in deciding what the base value is and whether a rate
fixed is confiscatory. P.
258 U. S.
395.
2. A so-called "going concern value and development cost" based
on calculations, for various periods, of past deficiencies of net
income, allowing 4 percent for annual depreciation and 8 percent
compound interest on the value of the property used as a fair
return, should not be included in the base value of appellant's
street railway in determining whether an existing rate is
confiscatory. P.
258 U. S.
395.
3. Neither should an allowance for hypothetical brokerage fees
based on a percentage customarily obtained by bankers for financing
such enterprises. P.
258 U. S.
397.
4. In determining the sufficiency of such rates, the amount
normally required for maintenance, not necessarily the amount
expended, annually, should be allowed, and many items included in
overhead cost of original construction may be excluded in
calculating depreciation annuity. P.
258 U. S.
398.
5. Appellant's request that prospective cost of maintenance
deferred during the war at the wish of the government be allowed
from earnings of future years in testing the rate was an attempt to
capitalize past losses, and rightly refused. P.
258 U. S.
399.
6. In calculating whether a rate fixed will yield an adequate
return, income taxes which would be payable if a fair return were
earned are appropriate deductions from gross revenue. P.
258 U. S.
399.
7. But, where the federal corporate income tax (Act of February
24, 1919, c. 18, §§ 230-238, 40 Stat. 1057, 1075-1080) is thus
deducted, the exemption of the stockholder from the "normal" tax on
dividends received from the corporation must be taken into
consideration in determining what rate of return to the corporation
shall be deemed fair. P.
258 U. S.
399.
Page 258 U. S. 389
8. An ordinance rate inadequate when adopted will be valid when,
through change of conditions, it yield a fair return. P.
258 U. S.
400.
9. The Court knows judicially that price, in general, and
current rate of return on capital have declined since the
conclusion of the war, but not the extent to which the economic
changes occurring have affected the gross revenues or the net
return of the appellant company . P.
258 U. S.
402.
10. A decree of the district court dismissing without prejudice
the bill of a street railway company to restrain enforcement of an
ordinance rate as confiscatory
affirmed where an operation
test of more than a year and a half was inconclusive because of
abnormal economic conditions then existing, and where the lower
court's view of the probable future adequacy of the rate was
necessarily based largely on prophecy, and was free from
substantial error as to the elements to be considered, and where
the actual facts were substantially undisputed and the evidence did
not compel a contrary conviction. P.
258 U. S.
401.
272 F. 147 affirmed.
Appeal from a decree of the district court dismissing without
prejudice a bill brought by the appellant to restrain the appellees
from enforcing a rate fixed for its street railway.
MR. JUSTICE BRANDEIS delivered the opinion of the Court.
The street railway system of Galveston was started as a horse
car line in 1881. It was electrified about 1890, and, after the
hurricane of 1900, was largely rebuilt. Upon sale on foreclosure,
the railway passed in 1901 to a new company, and in 1905 it was
purchased by the Galveston Electric Company, which supplies to the
inhabitants of the city also electric light and power. At no time
has the full fare on the railway been more than five cents,
Page 258 U. S. 390
except during the period of eight months, from October 1, 1918,
to June 5, 1919, when six cents was charged. This higher fare was
authorized by ordinance of the municipal Board of commissioners,
which possesses regulatory powers, and on June 5, 1919, the same
Board reduced the maximum fare to five cents. The latter ordinance
was passed after a hearing and a finding by the Board that with the
reduced rate the company would continue to earn a fair return.
Under the 1919 ordinance, the company operated for eleven months.
Then it brought this suit in the Federal Court for Southern Texas
to enjoin its enforcement. The company contends that the fare
prescribed is confiscatory, in violation of the Fourteenth
Amendment, the city, that it is sufficient to yield a return of 8
percent on the value of the property used in the public
service.
A temporary injunction having been denied, the court appointed a
master to take the evidence and make advisory findings. There was
substantially no dispute concerning the facts past or present. It
was assumed, in view of then prevailing money rates, that 8 percent
was a fair return upon money invested in the business. The experts
agreed on what they called the estimated undepreciated cost of
reproduction on the historical basis -- that is, what the property
ought to have cost on the basis of prices prevailing at the time
the system and its various units were constructed. They agreed also
on the amount of gross revenue, and on the expenditures made in
operation and for taxes, except as hereinafter stated. The
differences between the parties resulted mainly either from
differences in prophecy as to the future trend of prices or from
differences in legal opinion as to the elements to be considered in
determining whether a fair return would be earned. These
differences affected both the base value and the amount to be
deemed net revenues. The master, who heard the case in October,
1920, and
Page 258 U. S. 391
filed his report in November, made findings in which he advised
that the fare was confiscatory. The district judge, who heard the
case in January, 1921, found a much smaller base value and much
larger net revenues; stated that he did not deem it necessary to
determine whether the ordinance "will produce exactly 8 percent or
a little more or a little short of it;" declared that he was
"not satisfied that the ordinance produces a return so plainly
inadequate as to justify this court in interfering with the action
of the municipality in the exercise of its ratemaking
function,"
and, in March, 1921, entered a decree dismissing the bill
without prejudice. In April, he denied a petition for rehearing.
272 F. 147. The case comes here on appeal under § 238 of the
Judicial Code.
The undepreciated reproduction cost on the historical basis
[
Footnote 1] -- which seems to
be substantially equivalent to what is often termed the prudent
investment [
Footnote 2] -- was
agreed to be $1,715,825. The parties failed to agree in their
estimates of the depreciation accrued up to 1921. The master
estimated that, based on the 1913 price level, it was $390,000, and
this estimate the court accepted. Thus measured, the value of the
property, less depreciation, was $1,325,825. The court found that
the net earnings under the five-cent fare for the year ending June
30, 1920,
Page 258 U. S. 392
had been $90,159, and for the year ending December 31, 1920,
$109,286, and estimated that, for the year ending June 30, 1921, it
would be at least $111,285. The return so found for the year ending
June 30, 1920, is 6.8 percent of $1,325,825; for the calendar year
1920, 8.2 percent, and for the year ending June 30, 1921, 8.4
percent. The master made calculations only for the year ending June
30, 1920, and, mainly [
Footnote
3] because he allowed an amount for maintenance and
depreciation equal to nearly 18 percent of the prudent investment
for the depreciable property (less accrued depreciation), found the
net earnings to be only $50,249.60. This sum is 3.8 percent on the
prudent investment value, less depreciation. But neither the
district judge nor the master reached his conclusion as to net
return by a calculation as simple as that indicated above.
First. As the base value of the property, master and
court took, instead of the prudent investment value, the estimated
cost of reproduction at a later time less depreciation, and, in
estimating reproduction cost, both refused to use as a basis the
prices actually prevailing at the time of the hearings. These had
risen to 110 percent above those of 1913. The basis for calculating
reproduction cost adopted by all was prophecy as to the future
general price level of commodities, labor, and money. This
predicted level, which they assumed would be stable for an
indefinite period, they called the new plateau of prices. As to the
height of this prophesied plateau, there was naturally wide
difference of opinion. The company's expert prophesied that the
level would be 60 to 70 percent above 1913 prices, the master that
an increase of 33 1/3 percent would prove fair, and the court
accepted
Page 258 U. S. 393
the master's prophecy of 33 1/3 percent. [
Footnote 4] Thus, both master and court assumed a
reproduction cost, after deducting accrued depreciation, of about
$1,625,000. On this sum, the net earnings found by the court
yielded, after deducting a 4 percent depreciation annuity on
property subject to depreciation a maintenance charge, and a charge
for taxes, other than the federal income tax a net return of 5 1/2
percent for the fiscal year ending June 30, 1920, of 6.7 percent
for the calendar year 1920, and the promise of more for the fiscal
year ending June 30, 1921. But, to fix base value, the master
added, and the court disallowed, items aggregating nearly $600,000,
which must now be considered.
The most important of these items is $520,000 for "development
cost." The item is called by the master also "going concern value
or values of plant in successful operation." He could not have
meant by this to cover the cost of establishing the system as a
physically going concern, for the cost of converting the inert
railway plant into an operating system is covered in the agreed
historical value by items aggregating $202,000. These included,
besides engineering, supervision, interest, taxes, law expenses,
injuries and damages during construction, the sum of $73,281 for
the expenses of organization and business management. The going
concern value for which the master
Page 258 U. S. 394
makes allowance is the cost of developing the operating railway
system into a financially successful concern. The only evidence
offered or relied upon to support his finding is a capitalization
of the net balance of alleged past deficits in accordance with what
was said to be the Wisconsin rule. [
Footnote 5] The experts calculated this sum in various
ways. One estimate placed the development cost at $2,000,000; a
more moderate estimate by the company's expert was $575,300, and
the city's expert made a calculation by which he estimated this
so-called cost at $212,452.
If the rule were that a prescribed rate is to be held
confiscatory in case net earnings are not sufficient to yield 8
percent on the amount prudently invested in the business, there
might be propriety in counting as part of the investment such
amount, if any, as was necessarily expended at the start in
overcoming initial difficulties incident to operation and in
securing patronage. But no evidence of any such expenditure was
introduced, and the claim of the company does not proceed upon that
basis. What was presented by the witnesses are studies, on various
theories, of what past deficiencies in net income would aggregate
if 4 percent were allowed as a depreciation annuity and 8 percent
compound interest were charged annually on the value of the
property used. These calculations covered, on one basis, the period
of 39 years since the original horse car line was built; on
another, the period of 15 years since the appellant purchased the
property as a going concern. If net deficits so estimated were made
a factor in the rate base, recognition of 8 percent as a fair
return on the continuing investment would imply substantially a
guarantee by the community that the
Page 258 U. S. 395
investor will net on his investment ultimately a return of 8
percent yearly, with interest compounded on deferred payments;
provided only that the traffic will, in course of time, bear a rate
high enough to produce that amount. [
Footnote 6]
The fact that a utility may reach financial success only in time
or not at all is a reason for allowing a liberal return on the
money invested in the enterprise, but it does not make past losses
an element to be considered in deciding what the base value is and
whether the rate is confiscatory. A company which has failed to
secure from year to year sufficient earnings to keep the investment
unimpaired and to pay a fair return, whether its failure was the
result of imprudence in engaging in the enterprise or of errors in
management, or of omission to exact proper prices for its output,
cannot erect out of past deficits a legal basis for holding
confiscatory for the future rates which would, on the basis of
present reproduction value, otherwise be compensatory.
Knoxville v. Knoxville Water Co., 212 U. S.
1,
212 U. S. 14.
Nor is there evidence in the record to justify the master's
finding that a business brought to successful operation "should
have a going concern value at least equal to one-third third of its
physical properties." Past losses obviously do not tend to prove
present values. The fact that a sometime losing business becomes
profitable eventually through growth of the community or more
efficient management tends to prove merely that the adventure
was
Page 258 U. S. 396
not wholly misconceived. It is doubtless true, as the master
indicated, that a prospective purchaser of the Galveston system
would be willing to pay more for it with a record of annual losses
overcome than he would if the losses had continued. But would not
the property be at least as valuable if the past had presented a
record of continuous successes? And shall the base value be deemed
less in law if there was no development cost because success was
instant and continuous? Or, if the success had been so great that,
besides paying an annual return at the rate of 8 percent, a large
surplus had been accumulated, could the city insist that the base
value be reduced by the amount of the surplus?
Compare Newton
v. Consolidated Gas Co., ante, p.
258 U. S. 165.
In determining the value of a business as between buyer and
seller, the goodwill and earning power due to effective
organization are often more important elements than tangible
property. Where the public acquires the business, compensation must
be made for these, at least under some circumstances.
Omaha v.
Omaha Water Co., 218 U. S. 180,
218 U. S.
202-203;
National Waterworks Co. v. Kansas
City, 62 F. 853, 865. And they, like past losses, should be
considered in determining whether a rate charged by a public
utility is reasonable.
Compare Venner v. Urbana
Waterworks, 174 F. 348, 352. But, in determining whether a
rate is confiscatory, goodwill and franchise value were excluded
from the base value in
Cedar Rapids Gas Co. v. Cedar
Rapids, 223 U. S. 655,
223 U. S. 669,
and
Des Moines Gas Co. v. Des Moines, 238 U.
S. 153,
238 U. S. 169,
and the expressions in
Denver v. Denver Union Water Co.,
246 U. S. 178,
246 U. S. 184,
246 U. S. 191,
and in
Lincoln Gas Co. v. Lincoln, 250 U.
S. 256,
250 U. S. 267,
are not to be taken as modifying in any respect the rule there
declared. Going concern value and development cost, in the sense in
which the master used these terms,
Page 258 U. S. 397
are not to be included in the base value for the purpose of
determining whether a rate is confiscatory.
The other item included by the master in determining base value,
but disallowed by the court, is $67,078 for brokerage fees. There
is no evidence that any sum was in fact paid as brokerage, and
there was included, as above shown, the sum of $73.281 for
organization and business management in calculating the historical
reproduction cost. The finding of the master rests upon testimony
that bankers customarily get, in some form, compensation equal to 4
percent on the money procured by them for such enterprises.
[
Footnote 7] But compensation
for bankers' services is often paid in the lessened price at which
they take the company's securities, and is thus represented in the
higher rate of interest or dividend paid on the money actually
received by the company as capital. The reason given by the master
for including the allowance for an assumed brokerage fee, is that a
brokerage fee is "a normal incident of large industrial
investments, and has not been amortized," since "the record shows
that the plant has been operated at a loss." If base value were to
be fixed by the money expended, brokerage fees actually paid might
with propriety be included, as are taxes paid pending construction.
But, as the base value considered is the present value, that value
must be measured by money, and the customary cost of obtaining the
money is immaterial. We cannot say that the court erred in refusing
to include in base value an allowance for hypothetical broker's
fees.
The appellants insisted also that the base value should be
raised by assuming that the future plateau of prices would be 60 to
70 percent above the historical reproduction
Page 258 U. S. 398
value instead of 33 1/3 percent, as the master and the court
assumed. The appellees insisted, on the other hand, that an item of
$142,281 for grade raising included by master and court in the
historical cost should be eliminated. We cannot say that there was
error in overruling these contentions.
Second. Concerning deductions to be made from gross
revenue in order to determine net earnings, the court differed from
the master in regard both to the yearly charge for maintenance and
to the depreciation annuity. It appeared that, in the 15 years
since appellant acquired the system in 1905, the average annual
expenditure for maintenance had been $42,771; that, during the war,
the property had been admittedly undermaintained; that the
expenditure was $64,108 in the calendar year 1919, $80,322 in the
fiscal year ending June 30, 1920, and $90,861.28 in the calendar
year 1920. The court estimated the proper charge for current
maintenance at $70,000, and allowed, in addition, a depreciation
annuity of $45,245 (that is, 4 percent on property subject to
depreciation) to provide a fund out of which annual replacements
and renewals could be made. Thus, the court allowed for the year's
depreciation and maintenance $115,245, which is nearly 14 percent
of the historical reproduction value, and about 10 percent of the
assumed reproduction cost, of the depreciable part of the system.
The master allowed $147,146.40 for maintenance and depreciation
during the year ending June 30, 1920. This larger figure was
arrived at partly by charging as cost of maintenance the full
$80,322 expended during that year and partly by including as
depreciable property expenditures for overhead items which the
court excluded. The proper annual charge for maintenance is the
amount normally required for that purpose during the period; it is
not necessarily the amount actually expended within the year. Many
items included in the overhead cost of original construction
Page 258 U. S. 399
may properly be excluded in calculating the amount of the
depreciation annuity. We cannot say that the court erred in
limiting the year's maintenance and depreciation allowances to an
aggregate of $115,245.
The company asked to have allowed as a further charge $29,500 a
year on account of what it called deferred maintenance. The
contention is that, during the war and two years following, the
company had deferred maintenance, pursuant to a policy established
at the express request of the government, to the end that material
and labor might be released for war purposes; that, to make good,
this deferred maintenance would cost $197,000, and that, in order
to amortize this amount, an annual allowance from earnings of
$29,500 should be made for five years. This is an attempt, in
another form, to capitalize alleged past losses, and the request
was properly refused both by the master and the court.
Third. The remaining item as to which the master and
the court differed relates to the income tax. The company assigns
as error that the master allowed, but the court disallowed, as a
part of the operating expenses for the year ending June 30, 1920,
the sum of $16,254 paid by the company during that year for federal
income taxes. The tax referred to is presumably that imposed by Act
Feb. 24, 1919, c. 18, §§ 230-238, 40 Stat. 1057, 1075-1080, which,
for any year after 1918, is 10 percent of the net income. In
calculating whether the 5-cent fare will yield a proper return, it
is necessary to deduct from gross revenue the expenses and charges,
and all taxes which would be payable if a fair return were earned
are appropriate deductions. There is no difference in this respect
between state and federal taxes, or between income taxes and
others. But the fact that it is the federal corporate income tax
for which deduction is made must be taken into consideration in
determining what rate of return shall be deemed fair. For, under §
219, the stockholder
Page 258 U. S. 400
does not include in the income on which the normal federal tax
is payable dividends received from the corporation. This tax
exemption is therefore, in effect, part of the return on the
investment. [
Footnote 8]
It is thus clear that both in the year ending June 30, 1920, and
in the calendar year 1920, the net earnings of the system were less
than 8 percent of its value, whether the value be estimated on the
basis of prudent investment or on the basis of the reproduction
cost actually adopted. When the court rendered its decision, the
ordinance had been tested for more than a year and a half -- a
period ample in ordinary times to test the current effect of the
rate prescribed and to indicate its probable effect in the near
future. The times here involved were, however, in a high degree
abnormal. It did not follow that, because the system had earned
less than 8 percent in 1919 and in 1920, that it would earn less
than 8 percent in 1921. A rate ordinance invalid when adopted may
later become valid, just as an ordinance valid when made may become
invalid by change in conditions.
Municipal Gas Co. v.
Page 258 U. S. 401
Commission, 225 N.Y. 89, 96.
Compare Willcox v.
Consolidated Gas Co., 212 U. S. 19;
Newton v. Consolidated Gas Co., ante, 258 U. S. 165.
The district judge was obliged to form an opinion as to the
probable net earnings in the future. All relevant facts, except as
stated, and all applicable arguments were fully and clearly
presented by the parties and were carefully considered by the
court. Although the district judge treated the master's report as
advisory merely, he passed upon the numerous exceptions taken to
the master's findings in order to indicate his view on the precise
points raised. He allowed some exceptions, and disallowed others.
Upon petition for rehearing, further careful consideration was
given to the case. Views expressed in the first opinion on some
matters were modified, but these changes did not call for any
change in the decree. The district judge had before him some
evidence not before the master, for the company's expert was
recalled and testified both to the result of operations of later
months in which there was a large increase in travel and to the
heavy decline in prices which occurred after October. Concerning
actual facts, there was substantially no controversy. On the
elements to be considered in determining whether the rate would be
confiscatory, no error was made which could substantially affect
the result. His determination whether the prescribed rate would be
confiscatory was necessarily based largely on a prophecy, for
normal condition had not been restored. He found that gross
revenues were steadily increasing, and that they were larger under
the five-cent fare than they had been during the preceding year
when the six-cent rate was in effect. He was convinced that
operating costs would decrease largely during the year. His two
opinions show that every element upon which his prophecy should be
based received careful consideration. We cannot say that the
evidence compelled a conviction that the rate would
Page 258 U. S. 402
prove inadequate.
Compare San Diego Land & Town Co. v.
National City, 174 U. S. 739,
174 U. S. 754;
San Diego Land & Town Co. v. Jasper, 189 U.
S. 439;
Knoxville v. Knoxville Water Co.,
212 U. S. 1,
212 U. S. 17.
The occasion for the suit was solely the extraordinary rise in
prices incident to the war. There was no suggestion that the action
of the Board evidenced hostility to the utility, or that the Board
was arbitrary or hasty. It had been theretofore considerate of the
company's rights and needs. When prices rose rapidly in 1918, it
raised the fare limit to six cents, although the franchise
ordinance prescribed the five-cent fare. And this was before our
decision in
San Antonio v. San Antonio Public Service Co.,
255 U. S. 547. Its
reduction of the fare by ordinance of June 5, 1919, was made after
hearing, and was doubtless due to the conviction, shared by many,
that, with the cessation of hostilities and the negotiation of the
Peace Treaty, prices and operating cost would fall abruptly. This
prophecy, if such there was, proved false. But nearly three years
have elapsed since the Board adopted the ordinance, and more than a
year since entry of the decree below. We know judicially that the
period has, in general, been one of continuous price recession, and
that the current rates of return on capital are much lower than
they then were. [
Footnote 9]
But we cannot know to what extent the important changes occurring
have affected either gross revenues or the net return. There is no
reason to believe that the Board would not give full and fair
consideration to a proposed change in rate if application were now
made to it. And the district judge stated in his opinion (272 F.
147) that the decree to be entered would be vacated or amended in
case it should later appear that the regulating Board declined such
adjustment of rates as the actual
Page 258 U. S. 403
experience of the utility might show it entitled to, and the
decree was thereupon entered without prejudice.
The district judge refused a temporary injunction, and did not
exact a bond. Hence, the only relief we can grant is such as
operates
in futuro. Compare Duplex Printing Press Co.
v. Deering, 254 U. S. 443,
254 U. S. 464.
An injunction should not issue now, unless conditions are such that
the prescribed rate is confiscatory. As, by the reservation in the
decree, appellant may secure protection against the ordinance if,
under existing conditions, the five-cent rate appears to be
inadequate, the decree should be affirmed.
Compare Lincoln Gas
& Electric Co. v. Lincoln, 250 U.
S. 256,
250 U. S. 268;
Ex parte Lincoln Gas & Electric Co., 256 U.
S. 512;
257 U. S. 257 U.S.
6.
Decree affirmed.
[
Footnote 1]
That is,
"the estimated undepreciated cost of reproduction of railway
property of the company on the historical basis, exclusive of
franchise value, going concern value, bond discount and brokerage
fee,"
but with land and right of way which cost about $15,000
estimated at their present value of $58,836. It was also agreed,
for the purpose of dividing joint items, that one-fifth of the
property of the company was devoted to its light and power
business.
[
Footnote 2]
See Richberg, 31 Yale Law Journal, 263, 266, 279; Hale,
30 Yale Law Journal, 710, 720; Henderson, 33 Harvard Law Review,
902, 1031; Friday, 36 Quarterly Journal of Economics, 197, 211.
[
Footnote 3]
He allowed also on account of federal income taxes a sum of
$8,008, which the court disallowed.
[
Footnote 4]
From the agreed valuation of $1,715,825, the court deducted
$425,117 for property not subject to this appreciation -- land,
already given its market value, and capital acquired recently (all
acquisitions before January 1, 1915, being assumed to have been at
the 1913 price level, all since that date at the new level). The
balance was appreciated one-third; the $425,117 was added again,
and accrued depreciation, likewise appreciated one-third, was
subtracted. The court thus obtained a base value of $1,626,061. The
master's figure was slightly smaller (but for his inclusion of
development cost and brokerage), for he excepted more property from
this 33 1/3 percent appreciation.
[
Footnote 5]
Hill v. Antigo Water Co., 3 Wis.R.Com. Reports 623, 705-723.
But see Cunningham v. Chippewa Falls Water Co., 5
Wis.R.Co.Reports 302, 315; Appleton v. Appleton Waterworks Co., 5
Wis.R.Co.Reports 215, 277; In re Purchase Racine Waterworks Plant,
19 Wis.R.Co.Reports 83, 140.
[
Footnote 6]
On the other hand, if what is to be considered in determining
the net deficit is not the result of operations from the beginning
of the enterprise, but the result of operations since the present
owner acquired it -- in other words, the return on its investment
-- we are left without the data necessary to determine the fact.
For the record does not disclose what the present company paid when
it purchased the property in 1905 as a going concern. For aught
that appears, appellant has received full 8 percent annually on
that amount and later additions to capital.
[
Footnote 7]
The record cost of the property was originally used as the base
for this calculation. But the figure $67,076 was tacitly agreed by
both parties to be the amount, if any, that should be allowed for
brokerage.
[
Footnote 8]
It is difficult to see how, on the facts presented, so large a
sum as $16,254 could have been paid on account of the year's
operation. Indeed, the court, in disallowing the item of federal
income tax, deducted not $16,254, but $8,008. Even this seems too
large, for the net earnings, without deduction of the $16,254
attributed to income tax, for the year ending June 30, 1920, as
found by the master, were $66,503.60. From this, interest paid or
accrued on indebtedness is to be deducted before computing the net
income on which the tax is payable. A large part of the capital of
utility companies is ordinarily represented by interest-bearing
bonds and notes, and there is evidence that such indebtedness of
the appellant was "in the neighborhood of $1,400,000." The interest
on this debt chargeable to the railway system would be at least
$50,000. There is further an exemption from tax of $2,000 of the
net income. So a 10 percent tax on the balance would amount to less
than $1,500.
In the record and briefs elsewhere, the income tax is reckoned
at between $8,000 and $10,000, which is a proper figure if there be
an 8 percent return on $1,626,061.
[
Footnote 9]
See Federal Reserve Bulletin, January, 1922, pp. 5, 79,
113; February 1922, pp. 156, 157.