Opinion ID: 2610922
Heading Depth: 1
Heading Rank: 3

Heading: applicability of sections 2 and 3 of article xiii to section 4 of article xiii

Text: We turn first to the issue of whether § 59-5-57 is constitutional as a matter of law. In its counterclaim against Kennecott, the County alleges that much of Kennecott's property escaped taxation due to the use of an unconstitutional methodology of assessment. The County asserts that § 59-5-57 establishes a value that has no relationship to the full cash value of Kennecott's mining properties and therefore violates article XIII, sections 2 and 3 of the Utah Constitution. The County also argues that the Commission's method of assessment under § 59-5-57 allowed Kennecott's properties to escape assessment altogether and that it is entitled to a reassessment. In its brief, Salt Lake County alleges that in 1981 Kennecott had $570,000,000 worth of minerals that the Commission valued at zero. Kennecott and the Commission rejoin that § 59-5-57 cannot be unconstitutional because it was enacted pursuant to the authority granted the Legislature by article XIII, section 4 of the Utah Constitution and that section 4 is not subject to the limitations of sections 2 and 3 of article XIII. [3] Clearly, however, not every statute that purports to have been enacted pursuant to legislative authority granted by article XIII, section 4 is ipso facto constitutional. When the people of this state grant authority by the Constitution to the Legislature to enact legislation, the Legislature may enact only those laws which are consistent with and effectuate the purpose of the authorization and are otherwise consistent with other applicable constitutional provisions. Article XIII, section 2 of the Utah Constitution provides, All tangible property in the state ... shall be taxed in proportion to its value, to be ascertained as provided by law. Article XIII, section 3 provides: The Legislature shall provide by law a uniform and equal rate of assessment and taxation on all tangible property in the state, according to its value in money, and shall prescribe by law such regulations as shall secure a just valuation for taxation of such property, so that every person and corporation shall pay a tax in proportion to the value of his, her, or its tangible property... . Sections 2 and 3 of article XIII of the Utah Constitution establish the basic state policy concerning the taxation of all tangible property. Cunningham v. Thomas, 16 Utah 86, 90, 50 P. 615, 616 (1897), stated that the underlying objective of sections 2 and 3 is to insure that all taxable property should bear its just proportion of the burdens of taxation. To achieve that objective, the market or cash value of all property must be ascertained and used as the common denominator for all assessments. The Court explained in Cunningham: It is evident that the term according to its value in money [article XIII, section 2] means that all property shall be valued, for the purposes of assessment, as near as is reasonably practicable, at its full cash value; in other words, that the valuation for assessment and taxation shall be, as near as reasonably practicable, equal to the cash price for which the property valued would sell in the open market, for this is doubtless the correct test of the value of property. 16 Utah at 90, 50 P. at 615-16. Although different formulas may be employed in determining the cash or market value of different types of property, such as mines, utilities, railroads, personal residences, etc., each formula must be reasonably designed to achieve that result. The fundamental principle that assessments reflect fair market value so that each property is assessed in proportion to the value of all property applies equally to mines, even though article XIII, section 4 specifically concerns the assessment of mines. United States Smelting, Refining & Mining Co. v. Haynes, 111 Utah 172, 181, 176 P.2d 622, 627 (1947), stated with respect to the applicability of sections 2 and 3 to the assessment of mines: It will be observed that these provisions [i.e., article XIII, sections 2, 3, and 4] require that all tangible property, including metalliferous mines, shall be subjected to a uniform and equal rate of assessment according to its value in money. The method or yardstick by which the valuation in money is to be determined shall be prescribed by the legislature. It is not required that the same yardstick or method of determining value shall be used with respect to all kinds of property. But the different formulae which may be applied to different kinds of property must be such that they aim and tend to secure for assessment purposes a valuation fair and equitable in comparison with and commensurate with the valuation of other kinds of property. When the valuation thus secured is such that if the uniform and equal rate of taxation is applied to the valuation the property is taxed in the same proportion to its value as is all other tangible property, the method of arriving at the assessed valuation is not subject to constitutional objections as violative of Article XIII. The Court held that a statute that provided for the taxation of metalliferous mines pursuant to section 4 of article XIII must also comply with the requirement of uniformity and the standard of valuation based on the common denominator of fair cash value, as specified by sections 2 and 3 of article XIII. 111 Utah at 181-84, 176 P.2d at 627-28. Given the unavoidable imprecision that is inherent in all valuations, this Court has recognized that the assessment of property is built on the art of economic practicability. Thus, sections 2 and 3 of article XIII require that all property assessments represent approximations of market value. Rio Algom Corp. v. San Juan County, 681 P.2d 184 (Utah 1984); State ex rel. Cunningham v. Thomas, 16 Utah 86, 90, 50 P. 615, 616 (1897). Reasonable uniformity of assessment is essential if every person and corporation is to be taxed in the same proportion to his, her, or its tangible property. See Harmer v. State Tax Comm'n, 22 Utah 2d 324, 328, 452 P.2d 876, 879 (1969). In this context, Rio Algom Corp. declared that uniformity must be achieved in terms of what is practicably attainable: Thus, §§ 2 and 3 of Article XIII permit the Legislature to adopt means to achieve that degree of uniformity in valuation that is practicably attainable within the general confines of the term market value. The objective is to assure that the taxes that are levied in a given county will result in each property's being accountable for its pro rata share of the burden of local government. 681 P.2d at 192 (citing Appeal of Johnstown Assoc., 494 Pa. 433, 438, 431 A.2d 932, 934 (1981)). The same principle applies to state-assessed properties. Inherent lack of precision in the assessment process does not justify abandonment of the requirement that uniformity be attained. While absolute equality and uniformity in the assessment of property is not practicable, a requirement of reasonable uniformity and equality is essential. Harmer v. State Tax Comm'n, 22 Utah 2d 324, 328, 452 P.2d 876, 879 (1969). See also Cunningham, 16 Utah at 99, 50 P. at 618 ([P]erfect equality in valuations and assessments is unattainable, owing to the fallibility of the human judgment.). Where it is impossible to achieve perfectly both the standard of true value and the standard of uniformity and equality, the latter standard should prevail. Rio Algom Corp., 681 P.2d at 194. Even though section 4, article XIII specifically authorized the use of a net proceeds formula for the assessment of mines for a number of years, it does not follow that all net proceeds formulas are constitutional. The specific elements of such a formula have never been set out in section 4, although it has in the past expressly provided for the taxation of mines according to a general net annual proceeds formula. See Tintic Standard Mining Co. v. Utah County, 80 Utah 491, 495-96, 15 P.2d 633, 634-35 (1932) (history of article XIII, section 4). As originally adopted in 1896, article XIII, section 4 stated that the net annual proceeds of all mines and mining claims, shall be taxed as provided by law. Subsequent amendments to section 4 have modified that provision. For example, a 1908 amendment changed the phrase shall be taxed as provided by law to read shall be taxed by the state board of equalization. Section 4 was again amended in 1918 to provide explicitly for the valuation of mines by a net annual proceeds formula: All metalliferous mines or mining claims, both placer and rock in place shall be assessed at $5.00 per acre, and in addition thereto at a value based on some multiple or sub-multiple of the net annual proceeds thereof. In 1930, section 4 was amended to virtually its present form [4] to allow the Legislature broader latitude in devising a formula for the assessment of mines. The 1930 amendment does not mandate a specific formula for mine valuation; it simply provides: All metalliferous mines or mining claims, both placer and rock in place, shall be assessed as the Legislature shall provide... . The 1930 amendment also stated, however, that the basis and multiple now used, i.e., a net proceeds formula, should not be changed until 1935. Against this background, United States Smelting declared that the statutory method of valuing metalliferous mines for taxation purposes at $5 per acre plus a multiple or sub-multiple of the net proceeds is a proper and constitutional formula for determining the value of the mines for assessment purposes. 111 Utah at 181, 176 P.2d at 627. Nevertheless, the constitutionality of the particular type of net proceeds formula at issue in United States Smelting was neither raised nor decided, nor has the Court ever squarely ruled on the constitutionality of a particular net proceeds formula. If sections 2 and 3 of article XIII did not apply to the assessment of mines, as Kennecott now contends, the taxation of mines could be wholly arbitrary and discriminatory. For example, if the Legislature set the multiple annual net proceeds at a fraction of one, that would be the same as saying that all mines in the state have virtually no value, and they would escape paying their fair share of the tax burden. By the same reasoning, if the Legislature set the net annual proceeds multiple at fifty, Kennecott would no doubt assert that that was not a uniform and equal rate of assessment and taxation. Furthermore, the absence of a uniformity requirement could result in gross disparity within the mining industry itself. Copper mines could be valued at ten times their net proceeds, while lead mines could be valued at two times their net proceeds. Thus, a net proceeds formula can be a constitutional method of valuation, but whether a particular net proceeds formula yields a result that permits the conclusion that an assessment is uniform in result on a pro rata basis with other property assessments is the question that must be answered in this case. Salt Lake County may be able to prove that the specific valuation formula in § 59-5-57 and/or the procedures and formulas the Tax Commission uses to implement that section do not produce a result that conforms to the requirements of article XIII, sections 2 and 3. Although the Legislature and the Commission do have some discretion in fashioning and implementing a net proceeds formula, that discretion is limited and is no greater than practicability and sound judgment require. In sum, we hold that the valuation formula enacted pursuant to article XIII, section 4, such as § 59-5-57 and the procedures and formulas used to implement it, must conform to the limitations in article XIII, sections 2 and 3 and that the County is entitled to adduce proof of the unconstitutionality of the statute at a trial on the merits.