Case Name: GREAT NORTHERN RAILWAY COMPANY, Appellant, v. WHITFIELD, County Treasurer, Respondent
Court: South Dakota Supreme Court
Jurisdiction: South Dakota
Decision Date: 1937-04-16
Citations: 65 S.D. 173
Docket Number: File No. 7890
Parties: GREAT NORTHERN RAILWAY COMPANY, Appellant, v. WHITFIELD, County Treasurer, Respondent.
Judges: PO'LLEY and WARREN, JJ., concur.
Reporter: South Dakota Reports
Volume: 65
Pages: 173–190

Head Matter:
GREAT NORTHERN RAILWAY COMPANY, Appellant, v. WHITFIELD, County Treasurer, Respondent.
(272 N. W. 787)
(File No. 7890.
Opinion filed April 16, 1937)
Judge' & Chapman, of Sioux Falls, for Appellant.
Walter Conway, Atty. Gen., James Brown and Herman Bode, Asst. Attys. Gen., and Louis N. Cri'll, Sltate’s Atty., of Sioux Falls, for Respondent.
H. Van Ruschen, of Salem, amicus curise.

Opinion:
RUDOLPH, P. J.
Following the decision of this court in the case of Simmons v. Ericson, 54 S. D. 429, 223 N. W. 342, the Legislature of 1929 'by a joint resolution submitted to the people of this state a proposed constitutional amendment (see Laws 1929, c. 85), as follows:
"Section 2. That Section 15 of Article 8 of the 'Constitution of the State of South Dakota be amended to read as follows:
"Section 15. The Legislature shall make such provision by general taxation and by authorizing the school corporations to levy such additional taxes as with the income from the permanent school fund shall secure a thorough and efficient system of common schools throughout the state. The Legislature is empowered to classify properties wlithin school districts for purposes of school taxation, and may constitute agricultural lands a separate class. Taxes shall be uniform on all property in the same class."
This proposed constitutional amendment carried by a substantial majority at the general election in 1930, and the Constitution was thus amended. The 193,1 Session of the South Dakota Legislature, purporting to act in conformity with the authority granted by the constitutional amendment just referred to, enacted chapter 256 Laws 19,31. This act is in all material respects -the same as chapter 102, Laws 1903, which was invalidated by the decision in the Simmons v. Ericson Case. Said chapter 256, including the title thereof reads, as follows:
"An Act Entitled, An Act Classifying and Defining Agricultural Lands and Other Real Estate for the Phrpose of 'School Taxation and Fixing a Maximum Levy of Eight (8) Mills on Agricultural Lands to Which the Act Applies, and Requiring the County Auditor to Certify the Amount of Assessed Valuation of Agricultural Lands and Amending 'Section 7567 of the South Dakota Rjevised 'Code of 1919, as Amended ¡by Chapter 50 of the Laws of 1fhe Special 'Session of 1920.
"Be it enacted 'by the Legislature of the State of South Dakota:
"Section 1. For the purposes of school taxation, real property within school districts is hereby classified into two separate classes, to-wit:
"First — Agricultural lands.
"Second — Other real estate.
"Section 2. Agricultural lands within school districts include all real estate not platted in the city or town lots' or blocks, and not used or occupied for other than agricultural purposes.
"Section 3. The assessor in listing and assessing real property situated within any school district to which this act applies shall designate opposite each description the class to which it belongs as defined herein.
"Section 4. No agricultural lands, as herein defined, shall in any one year, be taxed1 to exceed! eight (8) mills on the dollar for school purposes, exclusive of levies for interest and sinking funds provided, however, that an independent consolidated school district in which there is no incorporated town shall not be included in the provisions of this act.
"Section 5. It shall be the duty of the county auditor to transmit to the clerk of each school district to' which the provisions of this act apply his certificate under the seal of his office, on or before the first Tuesday in September, which certificate- shall show the number of acres of agricultural lands within such school district and the average assessed valuation per acre, including improvements thereon, figured on the basis of the assessment, as equalized by the 'State Tax Commission.
"Section 6. That Section 7567 of the Revised Code of 1919, as amended by 'Chapter 50 of the 'Session Laws of 1920, is hereby amended to read as follows:
"Section 7567. The board of education or school board, in school -districts where this act applies, shall not later than the second Tuesday in September, or w-ithin ten days thereafter, levy a tax for the support of the schools of the school district, for the fiscal year next ensuing, not exceeding in any one year twenty-five mills on the dollar o-f the assessed valuation of all taxable property within the district, provided that in a school district where there are the two classes of real estate as herein -defined, the levy for the support o-f the schools within the district shall not exceed in any one year eight (8) mills on the dollar of the assessed valuation of agricultural lands therein; provided, that if such levy is insufficient for the support of the schools within the district and the levy already made on property other than agricultural land' is- less than 25 mills, the school board shall levy an additional tax not exceeding, inclusive of what has already been levied, 25 mills on the dollar of the assessed1 values on all taxable property other than agricultural land within the district.
"The clerk of the school board shall certify the levy to the county auditor, who is authorized and required to- place the same on the tax roll of the county, to be collected by the county treasurer as the taxes of the county, and paid over' by him to the treasurer of the school district, of whom he shall take a receipt in duplicate, one of which he shall file in his office and the other he shall transmit to the -clerk o-f the board of education. Such receipt shall show the proportionate amounts- belonging to- -the several funds of the board of such school -district, apportioned1 by the treasurer thereof according to the relative amounts levied by such board for the current year.
"Section 7. The provisions of this act shall not apply in school districts where the average assessed valuation in any year of agricultural lands, as herein defined-, -is Twenty-seven 'Dollars ($27.00) per acre or less.
"Section 8. If any section or part or parts of this act are declared- to be unconstitutional the remaining sections or parts of this act shall remain in full force and effect.
"Section 9. All acts or parts of acts in conflict with the pro visions of this act are hereby repealed.
"Approved February 16, 1931."
Plaintiff and appellant commenced this present action asserting the invalidity of the 1931 law1 and alleging that it owned1 and operated a line of railroad within certain independent school districts located in Minnehaha county of this state, each of which school districts contains within its borders an incorporated town and in each of which said school districts the average assessed valuation of agricultural lands exceeds $27 per acre. Plaintiff further alleges that the taxing authorities in the school districts mentioned in the complaint have levied' and assessed the taxes in the various school districts under the terms of the act of 193a, herein above set out, limiting the levy of agricultural lands located in said school districts to the 8-mill levy provided in the act, and' levying on other lands, [plaintiff's land included, in excess of 8 mills. Plaintiff paid its taxes under protest and has brought Chis action to- recover Chat portion of the tax which plaintiff alleges was- illegal because of the invalidity of the 1931 act. See Chicago, R. I. & P. Ry. Co. v. Young, 60 S. D. 291, 244 N. W. 370. From an order sustaining a demurrer to the complaint plaintiff has appealed.
Plaintiff first contends that the act of 1931 Is invalid because of a defective title. It is plaintiff's, contention that under the terms of this act the levy limit on lands in common school districts is increased from the 15-mill limit provided in section 146, chapter 138, Laws of 1931, to 25 mills. We doubt the validity of this premise upon which- the appellant rests this contention, but, even conceding that the premise is sound, we, nevertheless, are convinced that the contention is without merit. Appellant argues that the increase of this levy limit on lands located in common school districts is not reflected in the title to- the act, and 'hence section 21 of article 3 of the 'State Constitution is violated. If the levy limit on lands in common s-c'hool districts is raised by virtue of this 1931 act, it is accomplished through the amendment of section 7567, Rev. Code 1919., as amended by chapter 50 of the Special Session Laws of 1920. The amendment of this amended section of our -Code is specifically referred to- in the title of the 193-1 act (chapter 256).
The complaint fails to disclose that appellant has any lands located! -in common school- districts which- are affected by the alleged levy limit -increase- in such districts or that a 15-mill levy has been exceeded' in any common school district, and hence appellant is not -in a position to raise this- constitutional question. There is no showing that any substantial interest of appellant is or will be affected, even conceding that the levy limit on lands in common school districts is increased by the provision of the act. Rowe v. Stanley County, 52 S. D. 516, 219 N. W. 122; State v. Urban, 60 S. D. 614, 245 N. W. 474.
Appellant next contends that the Legislature has not properly exercised the authority -granted 'by the amendment of section 15 of article 8 of the 'State Constitution. The gist of this contention is to be found in a paragraph in appellant's brief as follows:
"It may 'be conceded that the statement in the amendment that the Legislature 'may' classify properties, was, before the Legislature undertook to act under its provisions, directory rather than mandatory. However, once the Legislature has undertaken to exercise the power granted, its action must be in conformity with the grant. We contend that if, under the constitutional autho-ritv here involved, any property (properties) is -classified, then all property (properties) must be classified."
We -fail to find any merit in this argument of appellant. The constitutional amendment specifically provides that the Legislature may "constitute agricultural lands a separate -class," and it appears that the Legislature has done this very thing. Certainly, there is no requirement in this constitutional provision to make any other classification. Appellant cites a Minnesota case, State ex rel. St. Paul City Ry. Co. v. Armson, 128 Minn. 384, 150 N. W. 1087, wherein it appears that the Legislature of Minnesota 'had -created for the purposes of taxation three classes of property and then r fourth class embracing all other property and suggests that our Legislature ought to make some similar classification. It might be that the Legislature would be justified in classifying the property in school districts for the purpose of school taxation in four -classes or twenty-four classes, but the Legislature has seen fit, so> far as t-his act is concerned, to classify by making agricultural lands one class and all other properties another -class. We believe this to be clearly within the authority granted1 in the Constitution. The -constitutional amendment does not mean that the Legislature must, if it acts at all, make every conceivable classification within its power. Any such construction of the constitutional amendment, in our opinion, would be unreasonable.
Appellant further contends that the 1931 act wherein lit makes a separate'classification of agricultural lands violates the /uniformity clause of our State 'Constitution (article 11, § 2)<, and I the Fourteenth Amendment of the Federal Constitution'. We think it clear that since the passage of the constitutional amendment in 193°, the classification made by the Legislature by the act of 1931 was within its power under the State 'Constitution. The inquiry then concerns itself with the question of whether the 1931 act constitutes, under the Fourteenth Amendment, an allowable classification for the purposes of school taxation. Certain general principles governing the question here under consideration have been evolved through the many decisions of the United States Supreme Court where similar questions have -been presented. These general principles are summarized in the comparatively recent opinion of the United States Supreme Court in Colgate v. Harvey, 296 U. S. 404, 56 S. Ct. 252, 255, 80 L. Ed. 299, 102 A. L. R. 54, as follows:
"This court has frequently said that absolute equality -in taxation cannot be obtained, and is not required under the Fourteenth Amendment. This, of course, is not to say that, because some degree of inequality from the nature of tilings must be permitted, gross inequality must also be allowed. The boundary between what is permissible and what is forbidden >by the constitutional requirement has never been precisely fixed, and is incapable of exact delimitation. In the great variety of cases which have arisen, decisions may seem to' be difficult of reconcilement; but investigation will generally cause apparent conflicts to disappear when due weight is given to material circumstances which distinguish the cases. If the evident intent and general operation of the tax legislation is to adjust the burden with a fair and reasonable degree of equality, the constitutional requirement is satisfied. We think the provision now under consideration meets this test. Cf. State Railroad Tax Cases, 92 U. S. 575, 612, 23 L. Ed. 663 [669, 673]; Tappan v. Merchants' Nat. Bank, 19 Wall. 490, 504, 22 L. Ed. 189 [195] ; Merchants' & M. Nat. Bank v. Pennsylvania, 167 U. S. 461, 464, 17 S. Ct. 829, 42 L. Ed. 236 [237].
"Second'. It is settled ¡beyond the admissibility of further inquiry that the equal protection clause of the Fourteenth Amendment does not preclude, the states from resorting to' classification for the purposes of legislation. F. S. Royster Guano Co. v. Virginia, 253 U. S. 412, 415, 40 S. Ct. 560, 561, 64 L. Ed. 989 [990].
"And ' the power of the state to classify for purposes of taxation is of wide range and flexibility.' Louisville Gas & E. Co. v. Coleman, 277 U. S. 32, 37, 48 S. Ct. 423, 425, 72 L. Ed. 770 [773]. But the classification 'must be reasonable, not arbitrary, and must rest upon some ground of difference having a fair and substantial relation to the object of the legislation, SO' that all persons similarly circumstanced shall be treated alike.' F. S. Royster Guano Co. v. Virginia [253 U. S. 412, 40 S. Ct. 560, 64 L. Ed. 989] supra; Airway Electric Appliance Corp. v. Day, 266 U. S. 71, 85, 45 S. Ct. 12, 69 L. Ed. 169 [177]; Schlesinger v. Wisconsin, 270 U. S. 230, 240, 46 S. Ct. 260, 70 L. Ed. 557 [564], 43 A. L. R. 1224. The classification, in order to avoid the constitutional prohibition, must be founded upon pertinent and real differences, as distinguished from irrelevant and artificial ones. The test to be applied in such cases as the present one is: Does the statute arbitrarily and without genuine reason impose a burden upon one group of taxpayers from which -it exempts another group, both of them occupying substantially the same relation toward tihe subject-matter of the legislation? 'Mere difference is. not enough'.' Louisville Gas & E. Co. v. Coleman [277 U. S. 32, 48 S. Ct. 423, 72 L. Ed. 770] supra; Frost v. Corporation Commission, 278 U. S. 515, 522, 49 S. Ct. 235, 73 L. Ed. 483 [488]."
It should also be kept in mind as stated in the case of Bell's Gap Railroad Company v. Pennsylvania, 134 U. S. 232, 10 S. Ct. 533, 535, 33 L. Ed. 892, that:
"The provision in the fourteenth amendment, that no' state shall deny to any person within its jurisdiction the equal protection of the laws, was not intended to prevent a state from adjusting its system of taxation in all proper and reasonable ways. It may, if it chooses, exempt certain classes of property from any taxation at all, such as churches, libraries, and the property of charitable institutions. It may impose different specific taxes upon different trades and professions, and may vary the rates of excise upon various products; it may tax real estate and personal property in a different manner; it may tax visible property only, and not tax securities for payment of money'; it may allow deductions for indebtedness, or not allow them. All such regulations, and those of like character, so long as they proceed within reasonable limits and general usage, are within the discretion of the state legislature, or the people of the state in framing their constitution. But clear and hostile discriminations against particular persons and classes, especially such as aré of an unusual character, unknown to the practice of our governments, might be obnoxious to the constitutional prohibition. It would however, be impracticable and unwise to attempt to- lay down any general rule or definition on the subject that would include all cases. They must be decided as they arise. We think that ¡wé are safe in saying that the fourteenth amendment was not intended to compel the states to adopt an iron rule of equal taxation. If that were its proper construction, it would not only supersede all those constitutional provisions and laws of some of the states, whose object is tO' secure equality of taxation, and which are usually accompanied with qualifications deemed material, but it mould render nugatory those discriminations which the best interests of society require; which are necessary for the encouragement of needed .and useful industries, and the discouragement of intemperance and vice, and which every state, in one form or another, deems it expedient to adopt."
It would appear, therefore, that a state may adjust its tax system to- meet its necessities in all proper and reasonable- ways. School taxes in South Dakota are a necessity. This state, under its compact ¡with- the United States as expressed in paragraph 4 of article 22 of the State Constitution, has obligated itself as follows: "That provision shall be made for the establishment and maintenance of systems of public schools, which shall be open to all the children of this state."
Is the adjustment of the school tax -base provided in the 1931 act reasonable and1 proper? This court in 1929 could see no proper distinction between agricultural land and other real estate for the purposes of school taxation. However, in 1923 and again in 193-1 the State Legislature saw a distinction, and in 1930 the people of this state saw the distinction so plainly that they were willing to write it into the Constitution of this state. The late Judge Brown was the author of the Simmons v. Ericson opinion and later, while acting as an assistant attorney general, was the author of respondent's brief herein. In that 'brief Judge Brown said: "But the people of the state saw wihat the Supreme Court was unable to see, and in consequence of that very decision, they adopted the amendment of 1930. " We can no longer abide by the decision in 'Simmons v. Ericson, in SO' far as its language relates to the application of the Federal Constitution to the facts' now before us. Since 1929 the severity of the adverse conditions affecting agriculture in this state, of which we are now fully aware, makes complete our realization that this court failed to' see in 1929 that which was apparently then plainly visible to the Legislature and the people. Commencing some time prior to 1923 and continuing until this very time, the agricultural industry in this state has been in a serious condition and fighting desperately for its existence. The prices for agricultural products have been far 'below normal. On the other hand, during this same period school costs have not materially decreased. This court knows that as a part of the general adverse conditions affecting agriculture in this state, prior to the enactment of the 19JI law, the taxes levied for school purposes meant practical confiscation of agricultural lands in many school districts, and especially in those school districts where assessed valuations were high and in which there were higib costs' of operation due to a large number of children living in an incorporated town or city within the school district boundaries. True, a general economic depression has affected all business and industry, but the Legislature in making this present classification is presumed to have acted upon adequate information, and from what we know of general conditions in South Dakota we cannot say that the classification is either unreasonable or arbitrary.
If this state is going to maintain its compact with the United States and maintain a system of public schools throughout the state comparable with schools of other states, taxes must be paid as well as levied. We believe the Legislature could with reason conclude that, if it insisted upon taxing agricultural lands at the same rate as other real estate for school purposes in those districts where the assessed valuations are 'high and which have an incorporated town within their boundaries, the net result would be no income from much of this agricultural land for the reason that this land could not sustain any such tax.
The distinction which the Legislature has drawn is between tracts of agricultural land in relation' to school taxes, and lands used for other' purposes in such relation. The case is here upon a demurrer to the complaint, and all we have before us is the law itself. The passage of the law !by the Legislature raises a presumption of its constitutionality. Bradley v. Richmond, 227 U. S. 477, 33 S. Ct. 318, 57 L. Ed. 603. To- overcome this presumption there must be facts of which we will take judicial notice which will permit us to' say that there is no> rational basis for the distinction. The facts within our knowledge compel just the opposite conclusion. True, in the Simmons v. Ericson Case there were pointed out some common characteristics between agricultural land and other real estate in relation to^ school taxes, but iwe do not believe the named characteristics are all-inclusive, or that it was without the range of reason for the Legislature to say that there are certain characteristics inherent in agricultural land that differentiates it from other land in relation to these taxes. We have referred to one of these characteristics, that is, that at the present time at.least, we cannot say that it is unreasonable for the Legislature to conclude that agricultural land cannot bear the same burden in relation to school taxes as other land.
We believe it true also that the Legislature could reasonably conclude that the benefit to agricultural land from school taxes is less than the benefit to other lands from the same source. See Clark v. Kansas City, 176 U. S. 114, 20 S. Ct. 284, 44 L. Ed. 392, which held valid a statute which excepted from its operation lands used! exclusively for agricultural purposes if owned by individuals, but not if owned by corporations. It is conceivable that the benefits from education so far as real estate is concerned, whether it be the enhanced value of that real estate due to> the adequate educational facilities offered or some other benefit, reflects itself less in real estate used exclusively for agricultural purposes than any other land. Eor example, a merchant's business or even a railroad's business, which is dependent somewhat upon real estate in the operation of the business, might well be quite differently affect ed by an adequate educational system located in the community, than the business' of agriculture. So far as concerns real estate, which is set apart primarily for homes or residences by being platted, obviously educational advantages reflect themselves in that real estate differently from the manner in which they reflect themselves in land used exclusively for agriculture. Land used exclusively for agriculture consists of a comparatively large tract which is the whole base of the business. This is not true of land used in other businesses. It seems to us that repeatedly courts have sustained classifications' founded upon reasons much more obscure than those here presented.
We believe it reasonable for a Legislature, in an agricultural state, to offer inducements to agriculture through its tax laws. Southwestern Oil Co. v. Texas, 217 U. S. 114, 30 S. Ct. 496, 54 L. Ed. 688; American Sugar Refining Company v. Louisiana, 179 U. S. 89, 21 S. Ct. 43, 45 L. Ed. 102; Bell's Gap Railroad Co. v. Pennsylvania, supra.
' In all probability other considerations occurred to the Legislature in making the distinction, but the possible considerations herein pointed out are sufficient in our opinion to prevent us from holding that there could be no possible rational basis for the legislative classification. This opinion is further confirmed by a-reading of the case of Heisler v. Thomas Colliery Co., 260 U. S. 245, 43 S. Ct. 83, 67 L. Ed. 237, wherein it was held that the differences between bituminous coal and anthracite forms a just basis for their different classification under the tax laws, and the case of State Tax Board of Com'rs v. Jackson, 283 U. S. 527, 51 S. Ct. 540, 75 L. Ed. 1248, 73. A. L. R. 1464, wherein it was held that the differences between chain store operation and the conduct of a single store was a sufficient basis for legislative classification for taxation;
The order appealed from is affirmed.
PO'LLEY and WARREN, JJ., concur.
ROBERTS, J., concurs specially.
SMITH, J., did not sit.