Court Opinion

ID: 3503666
Source: CourtListenerOpinion
Date Created: 2016-07-05 22:13:33.032957+00
Date Added: 2024-06-11T12:54:23.857644
License: Public Domain

I cannot subscribe to the opinion of the majority of the court.
This decision presents no difficult legal question, but does possess far-reaching social and economic implications. It is clearly settled in the law that the burden is on the defendants to prove that the *Page 411 
valuations placed by the tax commission on their properties are clearly and manifestly excessive. State v. Koochiching Realty Co. 146 Minn. 87, 177 N.W. 940; In re Potlach Timber Co.160 Minn. 209, 199 N.W. 968; State v. Trask, 167 Minn. 304,209 N.W. 18.
The defendants sought relief through the courts from what they claimed to be excessive valuations placed on their properties by the tax commission, and secured it. The sole problem for this court is to determine whether or not there is credible evidence presented by the defendants to support the trial court's decision. In my opinion, clearly there is not.
The rock on which we split (and on which the lower court divided) is the Lake Erie base price. It is the foundation stone upon which defendants' entire case rests, and no other question is of more than incidental importance. It is therefore unnecessary for the purpose of a dissent to discuss or consider the many other questions presented on this appeal, among which are the Hoskold formula, penalties, discount and sinking fund rate, exhaustion period, moisture and silica content, and selling commission.
The Lake Erie base price is a device through which the defendants are in effect here permitted to fix the amount they are to pay the state in taxes, not only ad valorem but also occupational. (The eminently practical result that it is possible for the mining companies to achieve if they are permitted to peg the Lake Erie price low is shown in the fact that for the year 1923 they paid to the state occupational taxes in the amount of $6,126,443, and in the year 1929, when the shipments were higher and the pegged price lower, they paid only $3,786,352. Minn. Tax Comm. Rep. 1932, P. 81.)
As far as can be ascertained, this is the first time in our courts that the Lake Erie base price has ever been the subject of judicial scrutiny. What, therefore, is the Lake Erie base price? What is its significance? How is it arrived at? What does it mean in this case? Judge Martin Hughes, one of the trial judges in the court below, in a well considered dissenting memorandum, thus characterizes it: *Page 412 
"The so-called Lake Erie base price is fixed in a peculiar manner. The first chance sale of ore at the opening of the season fixes the maximum base price at Lake Erie ports. The price paid at that sale is published in the trade magazines and from that the sellers of iron ore learn the maximum price that they are to receive for their ore during that season. It is plain that such price is not one that is arrived at in a free, open market, but is, on the contrary, a fixed, fictitious and artificial price which the ore companies themselves have made."
In my opinion, there is no foundation in the record for the statement in the majority opinion that all parties recognized the Lake Erie base price as an appropriate means for ascertaining value. The position of the state respecting the Lake Erie base price is stated as follows:
"That Lake Erie published prices are artificial and unreal and do not reflect or indicate the market price or true value of iron ore, is completely demonstrated in the proposition that the published Lake Erie price of all classes of ore was the same in each of the years 1929, 1930, 1931 and 1932, although there was shipped from Minnesota in 1929, 47,478,167 tons of ore; in 1930, 34,881,010 tons; in 1931, 17,309,211 tons; and in 1932 approximately 2,250,200 tons. (Minn. Tax Com. Rep. 1932, p. 51). And Minnesota produces about sixty per cent of all iron ore consumed in the steel industry of the United States.
"To say the least, there can be no fair certainty that the Lake Erie price indicates the true value of iron ore. If that be so, no calculation which assumes the value of a ton of iron ore to be that stated in Lake Erie published prices can have sufficient certainty to overthrow any valuation placed upon iron ore for assessment purposes; using such a factor, no one can know whether the result arrived at is right or wrong. * * * This testimony is based upon rumor or hearsay; no witness knew definitely or exactly where the trade papers got the figure which they posted as the Lake Erie price for the year." *Page 413 
The arbitrary and artificial character of the Lake Erie price cannot better be illustrated than to observe that the Lake Erie price of ore has remained exactly the same for the past six years, whereas pig iron, which is no more than smelted ore, has fluctuated in price from year to year during the same period, the price per ton never being the same for any two consecutive years. There is and has been a continuing free market for pig iron, the market price of which varies from day to day.
In this record, nowhere has there been any attempt to show the relationship between the Lake Erie annual pegged price for iron ore and the pig iron price variations, the prices of which should be, if they are true prices, as clearly and patently related as are the market prices of wheat and flour. We would not listen in patience to a value fixed on a pegged, artificial, or arbitrary price of wheat which totally disregarded a fluctuating market value for flour. Nowhere has there been any effort made by the defendants to give to the court those figures and facts in their possession which would show the relationship between iron ore values and pig iron prices. On the contrary, the defendants sought to sustain values by showing the Lake Erie pegged or artificial price of iron ore and sought to support this fictitious price with expert opinion where fairness should have required them to place in the hands of the court all facts and figures which would have thrown light upon the full and true market value of iron ore. It will not do for the defendants to hide behind expert opinion and fail to produce facts. Their position taken respecting the Lake Erie base price characterizes their entire attitude throughout this lengthy hearing, the purpose of which should have been to arm the court with facts so as to permit it to determine whether or not the taxes assessed were in truth excessive and therefore unfair.
The tax here imposed is the same tax as that imposed on other real property in the state. There is no statute setting up a different method of valuation for mining property. In this connection again I quote from Judge Hughes' dissenting memorandum:
"Computing the value of ore bodies upon the present worth of the net profits to be made therefrom, while all other real property in *Page 414 
the state is assessed upon its real value, seems unfair. By that method of valuation the owners of ore bodies are placed in a special, favored class; there is no other property in the state that is assessed for ad valorem tax purposes in the same manner as are the ore bodies."
The power to tax has been defined as the power of the state to enforce proportional contribution from persons and property for the support of the government for all public needs. The power is essential to the existence of an organized political community. In the language of Nicol v. Ames, 173 U.S. 509,515, 19 S. Ct. 522, 525, 43 L. ed. 786:
"The power to tax is the one great power upon which the whole national fabric is based. It is as necessary to the existence and prosperity of a nation as is the air he breathes to the natural man."
There is no room in the law of taxation for the bestowal of special favor. There is no basis in the law and no sound reason why the mining companies should be treated differently than are other taxpayers. Again quoting from the dissenting memorandum of Judge Hughes bearing upon the position of defendants that they should pay taxes based on the present worth of net profits computed on the basis of ore values as determined by the Lake Erie price:
"If all real property in the state were assessed upon that basis from whence would the revenues be derived to pay the running expenses of the state and its political subdivisions?
"I have no doubt that the farmers, who as a class have been operating at a loss for the last 15 years and have been headed toward bankruptcy, would be pleased if they had been permitted to pay taxes on the present worth of their net profits. They have been paying taxes upon the valuation of their farms although there were no profits. The owner of an office building which now and for some time past has been sparsely tenanted would undoubtedly prefer to pay taxes upon the basis of the present worth of his net profits instead of upon the value of his building. The home owner, and in fact all other property owners would undoubtedly be pleased *Page 415 
at the opportunity to exchange the present method of valuation upon their properties for the one that has been applied to the mines.
"The defendants claim that owing to there being but few sales of ore bodies there is no other means of determining their values except by the use of their method. It is true that ore bodies are not frequently the subject of purchase and sale. Many other classes of property are likewise very infrequently sold. Large buildings in the big cities are rarely sold; sales of farms, except by judicial process, have been rare for some years; but this has not necessitated the introduction of a unique method for determining their values."
The objections to basing tax values on the Lake Erie price are not answered by stating that it is a price that is pegged high. Whether it is pegged high or pegged low, it still is admittedly artificial, fictitious, and arbitrary. On this first opportunity given to the courts of this state to inquire into the facts respecting the Lake Erie price and its relationship, if any, to a fair valuation of mining properties, that inquiry should have been made fully and fairly. This was not done. The result is that those most vitally interested are by this decision placed in the singular position of being able to control the amount of tax revenue to be paid the state.
To allow the defendants to overturn a tax valuation without requiring them to product all facts and figures and all evidence of real probative value to which they alone have access showing the full and true value of their properties offends my sense of fairness and justice and is totally wanting in legal precedent. No court anywhere has ever overturned a state tax valuation when the attack upon such valuation has been based upon a pegged, fictitious, and artificial value, unrelated to values fairly arrived at in a free and open market.
As a matter of law, the defendants herein have, in my opinion, in every respect failed to sustain the burden of proof which the law imposes upon them. They have failed to produce information upon which accurate values could have been determined. They have relied upon pegged prices sustained by expert testimony when they possessed every fact and figure needed for an intelligent and fair determination of their claim of excessive valuation. They are entitled *Page 416 
to no relief for the plain reason that they produced no credible testimony upon which the court could find that the valuation as fixed by the tax commission was unfair or excessive.
The orders of the trial court should be reversed.