Source: https://supreme.justia.com/cases/federal/us/244/522/
Timestamp: 2019-04-24 12:44:01+00:00

Document:
Greene v. Louisville & Interurban R. Co., ante, 244 U. S. 499, followed in holding: (1) that the federal court has power to decide all questions, its jurisdiction being properly invoked on federal grounds, (2) that this suit, to restrain subordinate state officers from enforcing an unlawful and discriminatory assessment made under color of a valid state law, is not a suit against the state, (3) that plaintiff has not an adequate remedy at law under § 162, Ky.Stats., (4) that unlawful discrimination in taxation resulting from general, systematic undervaluations of other property is remediable by the courts, and (5) that whether such an assessment violates the "equal protection" clause of the Fourteenth Amendment need not be decided by the federal court when full relief is grantable under the state constitution and laws.
The right to relief by injunction against unlawful discrimination by taxing officials exists in respect of state, as well as local, taxes; if what was said in Coulter v. Louisville & Nashville R. Co., 196 U. S. 599, 196 U. S. 608, imports that an injunction can under no circumstances be awarded with respect to state taxes, it must be deemed to have been overruled by Raymond v. Chicago Union Traction Co., 207 U. S. 20.
Proof comprising a body of official admissions and direct and circumstantial evidence from unimpeached public and private sources, and which fully sustains a finding that the great mass of property in Kentucky, embracing all tangible property except railroad property and distilled spirits -- during a period of years -- was systematically and notoriously assessed at not exceeding 60 percent of its fair cash value, held not overcome by general presumptions arising from the duty of assessors to assess at fair cash value, or by numerous stereotyped affidavits of former assessors asseverating their obedience thereunto.
The findings of an official body such as the Kentucky Board of Valuation and Assessment, made after a hearing and upon notice to the taxpayer, are quasi-judicial, and, in the absence of fraud, are not to be set aside or disregarded by courts unless it is made to appear that the body proceeded upon an erroneous principle or adopted an improper mode of estimating value.
Under the Kentucky law respecting the taxation of the intangible property of railroad and other public service corporations (§§ 4077-4081, Ky.Stats.), the particular method to be pursued by the Board of Valuation and Assessment in ascertaining from the evidence the value of the "capital stock" (i.e., the entire tangible and intangible property) of a railroad system, partly within and partly outside of the state, is left to the sound discretion of the Board.
In estimating the value of plaintiff's "capital stock," the Kentucky Board of Valuation and Assessment capitalized the plaintiff's income upon a 6 percent basis, and, in excluding shares held by plaintiff in other corporations owning and paying taxes on property in Kentucky, it estimated their value in the same way -- i.e., by capitalizing on a 6 percent basis the income derived therefrom. Held: (1) that this method of valuing the shares could not be held fundamentally wrong, although there was evidence that their intrinsic value was much greater than the estimate thus obtained; (2) that the adoption of the 6 percent rate instead of a higher "composite" rate based on the mileage of plaintiff's railroad in each of thirteen states and the legal rates of interest in those states, respectively, was likewise a matter for the judgment of the Board.
basis, but merely to consider relative mileage, among other pertinent factors, in the process of valuing that proportion of the property which is situate within the state.
Section 4081, supra, applies to both foreign and domestic corporations, and is not to be construed as requiring the taxation of tangible assets outside of the state, which clearly, as to foreign corporations, would render it obnoxious to the due process clause of the Fourteenth Amendment.
Under § 4081, supra, the apportionment of "capital stock" to Kentucky is first made upon a mileage basis (with such allowances as may be required because of unequal distribution of tangible property within and without the state), and the value of the tangible property in the state is then subtracted and the tax computed on the difference, representing the intangible property in Kentucky.
Total assets, situate partly within and partly without a state but organically related, may be taken into consideration as a means of reaching the true cash value of the part within the state, and, in the case of a railroad, the mileage factor may be given its proper weight.
Section 4081, supra, requires the Board to take into consideration not only the mileage operated, but also the mileage controlled, by the railroad company within and without the state.
Under §§ 4079, 4081, supra, in determining the percentage apportionable to Kentucky, the whole of the controlled mileage within and without the state is to be treated as part of the aggregate "capital stock" not only in fixing the mileage, but also in fixing the valuation, upon which the apportionment is based.
To avoid double assessments, the value of so much of the controlled mileage as is within Kentucky, and therefore separately assessed in that state, should be deducted (in addition to the value of the tangible property there situate) from the Kentucky apportionment of the " capital stock."
A supplemental bill, filed, after hearing and decision, by permission of the court but apparently disregarded, is not to be taken as confessed by the defendant for want of answer when no rule to answer was made upon him and his failure to do so is not explained by the record; nor, in the silence of the record, is error to be imputed to the trial court for not paying heed to material allegations thus presented.
A party attacking a tax assessment is not to be held in default for omission to introduce evidence on matters which were not deemed material by the taxing authority or in the litigation until found so by the judge in his decision.
result of following a method substantially erroneous because not in accordance with the governing statute, it is error for the court to presume that a like valuation would have been reached by following the correct method.
30 F. 191 reversed in part and affirmed in part.
of plaintiff's property without due process of law and a denial of the equal protection of the laws, contrary of § 1 of the Fourteenth Amendment. By a supplemental bill, Robert L. Greene and others were brought in as successors in office of the original defendants. There being no diversity of citizenship, the jurisdiction was rested upon the ground that the suits arose under the cited provisions of the federal Constitution; but plaintiff relied also upon the provisions of the constitution and laws of the state. A chief ground of complaint, based upon the equal protection provision of the Fourteenth Amendment, and also upon the requirement of equal taxation prescribed by §§ 171, 172, and 174 of the state constitution, [Footnote 1] was that the plaintiff had been subjected to illegal discrimination in that its property had been assessed at more that its actual value, whereas the property of all other taxpayers in the state was assessed uniformly and intentionally at much less than actual value -- in fact, at not exceeding 60 percent thereof. It was alleged besides that the method of assessment followed by the Board of Valuation was inconsistent with the provisions of the statutes of Kentucky, and, for that further reason, the assessment was illegal.
A previous suit of the same character had been brought by the same plaintiff in the same court for relief against the assessment for the year 1912, in which, after a hearing on motion for preliminary injunction and demurrer to the bill, the court delivered a very elaborate opinion allowing a temporary injunction upon condition that plaintiff should pay franchise taxes to the state and subordinate taxing districts upon a valuation of $22,899,200. Louisville & N. R. Co. v. Bosworth, 209 F. 380, 465.
the bill in the present case, allowed a preliminary injunction upon the payment of taxes, based upon the same valuation. The cause proceeded to final hearing, and the court, having found plaintiff to have been subjected to discrimination by the valuing of other property at approximately 60 percent of actual values, but having overruled the other grounds of relief asserted, applied an equalizing factor to the valuation of plaintiff's franchise, with the result of finding $25,808,493.60 to be the amount at which it was legally taxable, or $2,909,293.60 in excess of the amount upon which payment was made at the inception of the suit. Therefore, a final decree was made enjoining defendants from enforcing the assessment complained of, on condition that plaintiff should pay taxes, state and local, on the excess amount named. 230 F. 191, 232.
Plaintiff appealed to this Court upon the ground that it ought not to be required to pay franchise taxes upon any amount in excess of $22,899,200. Defendants took a cross-appeal upon the ground that plaintiff was entitled to no relief. The cases were argued together with kindred cases this day decided, viz., Nos. 617 & 618, Greene v. Louisville & Interurban R. Co., ante, 244 U. S. 499, and Nos. 642-645, Illinois Central R. Co. v. Greene, post, 244 U. S. 555.
There are numerous assignments of error by each party, but, without specifying these, the questions raised will be disposed of in the order of convenience. Of course, the federal jurisdiction, having been invoked upon substantial grounds of federal law, extends to the determination of all questions involved in the case, whether resting upon state or federal law. 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.
4,478.61 miles, of which 1,574.47 miles, or 35.15 percent, were in Kentucky, and an aggregate of roads owned, operated, and controlled, extending to 7,907.83 miles, of which 1,952.45 miles, or 24.69 percent, were in Kentucky. It is subject to taxation in Kentucky upon its tangible property as assessed by the State Railroad Commission, and, in addition, to taxation, state and local, upon its intangible property or "franchise" under § 4077, Ky.Stats. and succeeding sections (set forth below in margin), the valuation to be fixed by the Board of Valuation and Assessment.
(1) Defendants contend that the district court was without jurisdiction because the suit was in effect a suit against the State of Kentucky. It is said that the sole basis of a suit to enjoin state officers from the performance of duties pursuant to a statute must be that the statute itself is unconstitutional; that, since the statute in question here is constitutional, an action may not be maintained in a court of the United States (there being no diversity of citizenship) for what is done by subordinate officers of the state in executing the statute in an unconstitutional manner, and that for misconduct of this sort there is no remedy except in the state courts. These contentions are disposed of adversely in Greene v. Louisville & Interurban R. Co. supra.
(2) It is contended that the plaintiff has an adequate remedy at law under § 162, Ky.Stats. This likewise is negatived by the case just mentioned.
admitted facts, because of the provisions of the constitution and laws of the state. In this case as in that, we find it unnecessary to pass upon the merits of the question whether a like result would be reached by the application of the "equal protection" clause of the Fourteenth Amendment.
"If the defendant had been about to take some step under color of the law, tending to complete the assessment, or if he had been authorized to seize property and was about to do so, then he was, assuming the case to be with the complainants on the merits, about to commit a trespass for which he would be individually liable, and, in a proper case, equity might enjoin his proposed action upon the ground of his want of legal authority. But this is not the case made in respect to the tax due the state, and the bill, so far as it sought relief against the state tax, must be dismissed without regard to the merits."
from public officers or other persons, due to the commonwealth. However, we need not rest upon this point, since, in the present case, the attorney general and his assistants are joined as parties, and the final decree under review restrains all of the defendants from taking any steps to collect the excessive taxes due to the state or to any of its subdivisions, and from instituting or prosecuting any proceedings against the plaintiff, either by indictment or civil action, because of any alleged delinquency or failure of the plaintiff to pay taxes upon its franchise on a valuation above the amount found by the court to be proper. The decree, with respect to the state as well as the local taxes, is clearly within the authority of Ex Parte Young, 209 U. S. 123, 209 U. S. 156, where Fitts v. McGhee, 172 U. S. 516, 172 U. S. 530, was distinguished upon the ground that, in that case, no state officer who was made a party had to do with the enforcement of the statute alleged to be unconstitutional.
If what was said in Coulter v. Louisville & Nashville R. Co., 196 U. S. 599, 196 U. S. 608, imports that an injunction can under no circumstances be awarded with respect to state taxes, it must be deemed to have been overruled by Raymond v. Chicago Union Traction Co., 207 U. S. 20, where the collection of taxes based upon an unconstitutional assessment was enjoined, a part of these being state taxes, as appears by the report, pp. 207 U. S. 22, 207 U. S. 27.
for the years 1910, 1911, 1912, and 1913; report of the State Tax Commission of 1913; testimony of a member of the State Board of Equalization who served in the years 1908 to 1911, inclusive; affidavits of nearly 200 individuals from 47 counties in different parts of the state, and much besides. The evidence is too voluminous to be adequately reviewed within reasonable limits of space, and we content ourselves with saying that it comprises a body of official admissions and direct and circumstantial evidence from private and public sources that are unimpeached, fully sustaining the finding of the trial court that the great mass of property in the state, so far as assessed by the county assessors under the review of the county boards of supervisors and the State Board of Equalization -- and this embraces all tangible property except railroad property and distilled spirits -- during a period of years prior to and including the year 1913, was intentionally, systematically, and notoriously assessed far below its actual value, and at certainly not exceeding 60 percent of its fair cash value. There is little to the contrary except the general presumptions arising from the statutory duty of assessors to assess at fair cash value and from the oath customarily required of individual taxpayers, and a large number of stereotyped affidavits made by former assessors to the effect that they endeavored to follow the law and assess all property at its fair cash value, and if any property was otherwise assessed, it was unintentional, and not pursuant to any agreement between the assessor and the taxpayer. In our judgment, this does not materially detract from the convincing effect of plaintiff's proofs. The evidence is analyzed briefly in the opinion of the district judge, 230 F. 227-231, and nothing more need be added to his comments upon it.
This disposes of all the points raised by defendants.
proceeded upon erroneous principles and adopted an improper method not only in failing to equalize the assessment so as to make it conform to the basis generally adopted by other assessing officers in assessing other kinds of property, but also in failing to follow the course prescribed by the Kentucky statute, and that, with respect to its complaint in this regard, the decree of the district court gave inadequate relief.
In order to pass upon this contention, we must consider the nature of the so-called "franchise tax," the method prescribed by the statute for valuing the franchise, the method that was pursued by the Board, and the manner in which the district court dealt with it.
They originated in the first general assembly after the new constitution, being §§ 1 to 5 of Article III of Chap. 103 (Nov. 11, 1892; Acts 1891-1893, p. 299), which were amended by Chap. 217 of the same session (June 9, 1893, p. 990), by Act of March 29, 1902 (Acts 1902, Chap. 128, pp. 281, 305-309), and by Act of March 15, 1906 (Laws 1906, Chap. 22, pp. 88, 126-130). One of the amendments, having to do with one of the questions we are to consider, will be mentioned below.
"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."
It has been held by the Kentucky Court of Appeals, and by this Court, that the "capital stock of the corporation" includes its entire property of every kind and description, tangible and intangible, and that what is called its "corporate franchise" is 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.
between $94,500,000 and $92,181,766. But the Board had no sooner made this reduction than it made a further reduction from this sum in round numbers to another sum, not in round numbers, to-wit $75,139,402, as the value of the portion of the unit in Kentucky, and there it stayed. On the assumption that this sum was reached by reducing from $94,500,000, there is no accounting for how it reached it, rather than any other sum. The only account of it which it gave was that it so did"
"to be conservative, and out of an abundance of caution, to the end that no injustice may be done respondent in arriving at the value of the corporate franchise of respondent in this state."
"And it noted the fact that this sum was 'less than 80 percent of that which it believes to be the fair cash value of Kentucky's proportion of the entire capital stock of respondent.' It then deducted from this last sum the assessed value of the tangible property in Kentucky, to-wit, $29,500,772, which left the sum of $45,658,630 as the value of the franchise. Such is what the Board did on the face of things."
"the said board will fix the value of the capital stock as hereinbefore provided, and that proportion of the value of the capital stock which the length of the lines operated, owned, leased, or controlled in this state bears to the total length of the lines owned, leased, or controlled in this state and elsewhere, shall be considered in fixing the value of the corporate franchise of such corporation liable for taxation in this state."
The only previous provision to satisfy the reference "will fix the value of the capital stock as hereinbefore provided" is the provision of § 4079 that the Board shall fix it "from said statement and from such other evidence as it may have."
principal steps in the process of ascertaining the value of the intangible property, taxable in Kentucky, of companies operating lines of railroad extending within and beyond the limits of the state. These are: (1) the fixing of the value of "the capital stock of the corporation," which, as construed in previous cases, means the total value of all its net assets, tangible and intangible, within and without the state; (2) the apportionment to Kentucky, and (3) the elimination of the value of the tangible assets. Whether the second step shall precede the third, or vice versa, is one of the matters in dispute.
No specific method being prescribed by the statute for fixing the value of the "capital stock" of the entire system, except a requirement to the effect that the Board shall have before it, with other evidence, a statement by the corporation setting forth the kind of business engaged in, the amount of capital stock, the number of shares, the par and real value thereof, with highest price at which it has sold recently, the amount of surplus and undivided profits, the value of all assets, the total amount of indebtedness, the gross and net earnings or income, the amount and kind of tangible property within the state, and its location and fair cash value, it follows that the particular method to be pursued in ascertaining from this and other evidence the aggregate capital value is left to the sound judgment and discretion of the Board. In such cases, there are (at least) two recognized methods, known as the "stock and bond" plan and the "capitalization of income" plan. In the present case, the latter was followed.
"so long as said corporation pays the tax on all its property of every kind, the individual stockholders shall not be required to list their shares in said corporation,"
to say that the Board merely carried out the "capitalization of income" plan of valuation, perhaps to its logical extreme, but certainly not in a manner that enables this Court to say that they pursued a fundamentally wrong method.
(8) The second point, the adoption of a 6 percent interest rate as the basis of capitalization, instead of the higher rate, called in the testimony the "composite percentage," reached by taking plaintiff's mileage in each of the thirteen states in which it operates, multiplying this by the legal rate of interest in that state, and dividing the total of the products by the total mileage, is, like the first, a criticism merely of the conclusion of the Board upon a question of fact which is not properly subject to review by the courts.
Therefore we concur in the opinion of the district judge that, upon this record, the value of the capital stock must be taken to be at least as great as $262,252,566, the amount found by the Board.
(9) The Board's next step was to apportion to Kentucky a certain part of this total value, which, of course, included both tangible and intangible assets, after which it proceeded to deduct the assessed value of the tangible assets in Kentucky. Plaintiff insists that these steps should have been reversed -- that the Board, having valued the total capital stock of the company, including assets tangible and intangible, should first have deducted the entire tangible assets, wherever situate, and next have assigned a proper portion of the intangible to Kentucky.
"that proportion of the value of the capital stock which the length of the lines operated, owned, leased, or controlled in this state bears to the total length of the lines owned, leased, or controlled in this state and elsewhere shall be considered in fixing the value of the corporate franchise of such corporation liable for taxation in this state."
mileage to system mileage a factor that must be considered, but not necessarily given conclusive weight. Section 4081 says nothing about deducting the value of tangible property, and the preceding sections speak of deducting only such tangible property as is located within the state. Indeed, there is no provision requiring the corporation to report its tangibles outside of the state. And, if all tangibles were deducted before apportionment, then the deduction of "all tangible property assessed in this state," specifically required by the proviso to § 4079, obviously would result in a double deduction. The sections are inartfully drawn in this as in some other respects. The district court, upon elaborate consideration in the case of the 1912 assessment (209 F. 418-429), reached the conclusion that, by the proper construction, the entire value of capital stock should be first apportioned, having regard to the mileage, and that, from Kentucky's portion of the whole, the assessed value of the tangibles within the state should then be deducted, and that the Kentucky Court of Appeals had so decided in Commonwealth v. Covington & Cincinnati Bridge Co., 114 Ky. 343.
beyond the limits of the state, that their intangible property should be assessed on the basis of the mileage of their lines within and without the state. But from the valuation on the mileage basis, the value of all tangible property is deducted before the taxation is applied."
The matter of apportionment was not there involved, nor what method or order was prescribed by the statute; the question at the moment being whether the tax was a true franchise tax, or merely a property tax upon intangible property. The significant thing was that the value of tangibles was to be deducted; whether before or after apportionment was a matter of no present significance. And the last sentence quoted, in the expression "valuation on the mileage basis," indicates an apportionment of the entire capital stock, mile for mile, prior to the deduction of tangibles.
"Neither is the injunction in reference to a deduction of the value of tangible taxable property from the gross value of the whole corporate property limited to such as is situated within the State of Kentucky. If tangible property having a situs outside the state be included in the valuation of the company's intangible property, the purpose of the law, being to tax only intangible property, is defeated. We therefore read the act, as the Supreme Court seems to have read it in Adams Express Co. v. Kentucky, as requiring the deduction of tangible property from the gross value of all corporate assets, whether such tangible property be within or without the state."
The question of apportionment, or of the particular method to be pursued in making the assessment, was not involved in this case, any more than in Adams Express Co. v. Kentucky, supra.
It is true, as the court said, that, if tangible property having a situs outside the state were included in the valuation, the purpose of the law to tax only intangible property would be defeated. The same result would follow if tangible property within the state were included in the valuation. But it does not follow that tangibles, within or without the state, are to be included in the valuation because included in the apportionment. Any excess of tangibles, without or within the state, properly may be given its due weight as a factor modifying the tentative result reached by mere mileage apportionment. In the absence of special circumstances, this is not of itself necessarily an unjust method of apportioning such a tax. Western Union Telegraph Co. v. Massachusetts, 125 U. S. 530, 125 U. S. 552-553,; Western Union Telegraph Co. v. Taggart, 163 U. S. 1, 163 U. S. 18, 163 U. S. 20-22, 163 U. S. 26.
"It is insisted for the state that the proper way to arrive at the valuation of the franchise is to take the total value, $1,330,000, and get 59 percent of it, which is $782,700, and that this presents the total of the tangible property and of the franchise in Kentucky. Therefore, if we deduct from this total $782,700, the assessment of the tangible property in Kentucky, $452,000, the balance, $330,700, is the value of the franchise. The Board fixed the value of the franchise at $278,349, or considerably less than the result thus obtained."
"We therefore conclude that the basis urged by appellant [the state] is the proper one for the assessment of the property under the agreed facts, and, the Board having fixed a lower assessment than this would make, the court erred in not enforcing the collection of the tax on the assessment made by the Board."
This was a precise answer to the equally precise contention urged in behalf of the state, affecting each of the two questions that were submitted for decision, and it seems to us that it is binding upon the federal courts as a construction of the statute.
92 U. S. 608; Pullman's Palace Car Co. v. Pennsylvania, 141 U. S. 18, 141 U. S. 26; Pittsburgh &c. Railway Co. v. Backus, 154 U. S. 421, 154 U. S. 430-431; Western Union Telegraph Co. v. Taggart, 163 U. S. 1, 163 U. S. 26-27; Fargo v. Hart, 193 U. S. 490, 193 U. S. 499.
"the length of entire lines operated, owned, leased or controlled in this state, and in each county, incorporated city, town or taxing district, and the entire line operated, controlled, leased or owned elsewhere."
"that proportion of the value of the capital stock which the length of the lines operated, owned, leased, or controlled in this state bears to the total length of the lines owned, leased or controlled in this state and elsewhere, shall be considered in fixing the value of the corporate franchise of such corporation liable for taxation in this state."
the value of the franchise of the controlling company in the State of Kentucky."
(11) The district court (230 Fed.199 et seq.) acceded to the contention of the plaintiff that the action of the Board in adding at first $2,468,612, and, finally, $2,318,244, to the Kentucky proportion of the value of the unit, on account of the excess value of the portion of the Kentucky intangibles over the mileage proportion thereof, was not warranted, basing this decision upon the ground that the Board did not follow the only possible method that would have determined this excess with any certainty, and did not have before it the data that would have enabled it to do do so. The point, perhaps, is covered by one of defendants' assignments of error, but no argument has been addressed to it, and we express no opinion upon it.
total, but only a proportion corresponding to the amount of stock held by plaintiff in the controlled roads. The matter is not free from doubt, but we concur in the view of the district judge that it was the legislative intent that, in fixing the percentage apportionable to Kentucky and to be taken into consideration in valuing the taxable franchise, the whole of the controlled mileage within and without the state was to be treated as a part of the aggregate "capital stock" not only in fixing the mileage, but also in fixing the valuation, upon which the apportionment is to be based. It is not to be supposed that the legislature intended to require that, in making the mileage apportionment, which, as already shown, is not conclusive, but evidential upon the valuation of the taxable franchise, fractional interests in the controlled roads should be taken into the account, but rather that a controlled road should be treated the same as a road owned.
In order to avoid a double assessment of the franchise of so much of the controlled mileage as was within the state, the court found it necessary to deduct from the Kentucky apportionment of the "capital stock" the value of the Kentucky portion of the controlled mileage (in addition to the assessed value of the tangible property there situate), since these local franchises would be assessed against each of the separate organizations. In this view we concur.
But the court was unable to apply the proper correction to the Board's valuation (p. 232), because of there being nothing in the record to show either the value of the portion of plaintiff's total capital stock not considered by the Board (that is, the value of the outstanding interests in the controlled roads), or the value of that portion of the controlled mileage which was in Kentucky.
controlled roads, and to demonstrate that the result of adopting the process indicated by the court's opinion would be to reduce the assessment below the amount upon which the company already had paid taxes, and this whether the valuation were made on the "stock and bond" plan or on the "capitalization of income" plan. It appears that defendants never filed any answer to this, and it is urged that, because of their failure to do so, its allegations must be taken as confessed. But there is nothing to show that defendants were ordered to answer, and inasmuch as this supplemental bill was filed after the hearing and decision of the cause, and the record contains nothing to show why its averments were ignored, we are not able to say either that defendants were in the position of admitting those averments, or that the court erred in failing to give effect to them. But at least it can be said that plaintiff was not in default for omitting to introduce evidence at the hearing respecting these matters, they not having been considered by the Board, nor set up in the original pleadings, nor, so far as appears, deemed by any of the parties to be material until the court rendered its decision. Yet, as will appear presently, the court in effect decided the case against plaintiff because there was nothing in the record to show the facts concerning the controlled mileage.
"The board has found the fair cash value of the portion of plaintiff's unit in this state to be $92,181,766, without any excess value. They have not gone at it in the right way. But they have in fact found such to be its value. It is possible that, if they had gone at it in the right way, they would have found such to be the value thereof. . . . I will therefore dispose of the case on the basis that it was that much. This is not such an exactness as I always like to attain, but the case is one where exactness is not, and only approximation is, attainable. Taking 60 percent of $92,181,766 would give $55,309,059.60 as the value of the portion of plaintiff's unit in Kentucky. Deducting $29,500,566, the assessed value of the tangible property, leaves $25,808,493.60 as the value of the franchise. And deducting from this balance $22,899,300, the amount on which payment has been made, leaves $2,909,192.60 on which payment should yet be made. "
This rough-and-ready reasoning had the effect of depriving plaintiff of the benefit of having controlled mileage taken into consideration in making the apportionment, instead of operated mileage only, and this because of the assumption that the same valuation reached by the Board through an erroneous method possibly might have been reached had they pursued a correct method. We think the court here fell into error. It being shown that the valuation made by the Board was the result of following a method substantially erroneous because not in accordance with the statute, there is no presumption that a like valuation would have been reached by following a correct method. As the difference is so great -- more than $27,000,000 -- there is a strong presumption to the contrary. If any of the facts necessary to enable the court to determine what result would have been reached by the application of a correct method were absent from the record, the court might have opened the proofs, in its discretion; otherwise, it should have proceeded to base its judgment upon such proofs as already were in the record. The result of the method adopted in making up the decree was to deprive plaintiff of the relief it was entitled to, upon the basis of the facts as found, because of a surmise that, upon other facts not shown by the record, a conclusion sustaining the Board's action might have been reached.
The decree under review, so far as defendants' assignments of error are concerned, should be affirmed. Upon plaintiff's assignments of error, it should be reversed, and the cause remanded to the district court for further proceedings in conformity with this opinion.
Set forth in full in the opinion in Greene v. Louisville & Interurban R. Co., ante, 244 U. S. 499.
"§ 4077. (1) Franchise -- assessment of. 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 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 Auditor, Treasurer, and Secretary of State are hereby constituted a Board of Valuation and Assessment for fixing the value of said franchise, except as to turnpike companies, which are provided for in § 1  of subdivision 4 of this article. . . . The Auditor shall be chairman of said board, and shall convene the same from time to time as the business of the board may require. It shall be the duty of the Attorney-General, when requested by the Board of Valuation and Assessment, to attend said board at its meetings and advise with same in its proceedings."
"§ 4078. (2) Corporations to report to Auditor to determine value of franchise. In order to determine the value of the franchises mentioned in the next preceding section, shall, annually, between the 30th day of June and the 1st day of October, make and deliver to the Auditor of Public Accounts of this state a statement, verified by its president, cashier, secretary, treasurer, manager, or other chief officer or agent in such form as the Auditor may prescribe, showing the following facts, viz.: the name and principal place of business of the corporation, company, or association; the kind of business engaged in; the amount of capital stock, preferred and common; the number of shares of each; the amount of stock paid up; the par and real value thereof; the highest price at which such stock was sold at a bona fide sale within twelve months next before the 30th day of June of the year in which the statement is required to be made; the amount of surplus funds and undivided profits and the value of all other assets; the total amount of indebtedness as principal, the amount of gross or net earnings or income, including interest on investments, and incomes from all other sources for twelve months next preceding the 30th day of June of the year in which the statement is required; the amount and kind of tangible property in this state, and where situated, assessed, or liable to assessment in this state, and 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."
"§ 4079. (3) Value of franchise -- how determined -- lines extend beyond state or county. Where the line or lines of any such corporations, company, or association extend beyond the limits of the state or county, the statement shall, in addition to the other facts hereinbefore required, show the length of entire lines operated, owned, leased, or controlled in this state, and in each county, incorporated city, town, or taxing district, and the entire line operated, controlled, leased, or owned elsewhere. If the corporation, company, or association be organized under the laws of any other state or government or organized and incorporated in this state, but operating and conducting its business in other states as well as in this state, the statement shall show the following facts in addition to the facts hereinbefore required: the gross and net income or earnings received in this state and out of this state, on business done in this state, and the entire gross receipts of the corporation, company, or association in this state and elsewhere during the twelve months next before the 30th day of June of the year in which the assessment is required to be made. . . . Provided, That said board, from said statement, and from such other evidence as it may have, if such corporation, company, or association be organized under the laws of this state, shall fix the value of the capital stock of the corporation, company, or association, as provided in the next succeeding section, 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."
"§ 4080. (4) Foreign corporations -- franchise -- how determined. If the corporation, company, or association be organized under the laws of any other state or government, except as provided in the next section, the Board shall fix the capital stock in this state by capitalizing the net income derived in this state, or it shall fix the capital stock as hereinbefore provided, and will determine from the amount of the gross receipts of such corporation, company, or association in this state and elsewhere, the proportion which the gross receipts of this state, within twelve months next before the 30th day of June of the year in which the assessments were made, bears to the entire gross receipts of the company, the same proportion of the value of the entire capital stock or the capitalizing of the net earnings in this state, less the assessed value of the tangible property assessed, or liable to assessment, in this state, shall be the correct value of the corporate franchise of such corporation, company or association for taxation in this state."
"§ 4081. (5) Interstate carrier -- franchise -- how fixed. If the corporation organized under the laws of this state, or of some other state government, be a railroad . . . company or a corporation performing any other public service, the lines of which extend beyond the limits of the state, the said board will fix the value of the capital stock as hereinbefore provided, and that proportion of the value of the capital stock which the length of the lines operated, owned, leased, or controlled in this state, bears to the total length of the lines owned, leased or controlled in this state and elsewhere shall be considered in fixing the value of the corporate franchise of such corporation liable for taxation in this state, and such corporate franchise shall be liable to taxation in each county, incorporated city, town, or district through or into which such lines pass or are operated in the same proportion that the length of the line in such county, city, town. or district bears to the whole length of lines in this state. . . ."

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