Court Opinion

ID: 6485041
Source: CourtListenerOpinion
Date Created: 2022-06-26 23:08:21.948531+00
Date Added: 2024-06-11T15:54:18.144911
License: Public Domain

OPINION OP
ROBERTSON, C.J.,
DISSENTING IN THE CASE OP WAILUKU SUGAR COMPANY.
I agree that the valuation of the Paauhau plantation should remain, as fixed by the tax appeal court, at $1,500,000, but I think that $3,600,000 is too low a valuation for Wailuku plantation, and it is altogether out of proportion to the Paauhau assessment.
In deciding the cases reported in 11 Haw. 235 et seq. this court went very carefully into the consideration of the matter of assessing enterprises for profit, particularly sugar plantations, and laid down certain rules to be followed in valuing sugar properties which I believe have ever since been followed and which ought not to be departed from now. Applying those rules to the evidence in this case and giving the appellant the full benefit of every legitimate allowance I do not see how its property can be valued at less than $4,000,000.
In Inter-Island Steam Nav. Co. v. Shaw, 10 Haw. 624, 639, it was held that while the earnings and the market value of the stock of a corporation should not be taken as the sole test in the valuation of its property, yet those are very important,matters *363to be considered, and they furnish in most cases the best datum, to start from. And in 11 Haw. 244, it was said that “Just as the effect of many factors that go to determine the value of the property is shown largely by the net profits, so the effect of all the factors is shown largely by the actual sales of stock for this shows what persons who-actually invest consider the property to be worth.”
The two sales of stock referred to, one at $165 and another at $172.50, were of small blocks and it is not to be supposed that the entire capital stock of the corporation could have been sold at those rates. Three hundred thousand shares at the first named rate would show a total valuation of $4,950,000 and at the latter rate, $5,175,000. Assuming that the second sale should not be taken into consideration, it would be fair and the appellant should not complain, if from the valuation of $4,950,-000 a discount of fifteen per cent, should be allowed. That would show a total net valuation of $4,207,500. As a matter of fact actual sales of stock need not be shown. The statute requires that when the stock of a corporation is quoted.on the market the market price thereof is to be taken into consideration in assessing the company’s property. The stock of a company may seldom be dealt in but that fact does not necessarily show that the company is not a prosperous one. Frequently it indicates the opposite. Evidence of &o?ia fide sales is valuable as showing what investors are ready to pay and have paid for the stock.
The net profits of a corporation show its earning power, and consideration must always be given to the amount of dividends, if any, which in past years have been paid to the stockholders. In the case of a sugar company the element of good-will does not figure and the amount of its profits have a direct relation to the intrinsic value of its property. But where a plantation has been developed, rehabilitated and put upon a new footing, its earning power as newly established is the important consideration. Eor this reason the profits of Wailuku plantation prior *364to the year 1909 should uot be taken into the calculation. This 'phase of the subject was dealt with in 11 Haw. 239 as follows: “In some cases, a plantation may have apparently just taken a fresh start or entered upon a new lease of life, as it were, through the acquisition of additional lands or water supply or a change in its variety of cane or a more extensive use of fertilizers, or for some other reason. In such a case the net profits of the past would not be of the same weight as they would be in other cases.” This plantation was valued on January 1st, 1907 at $2,000,000 with an intimation that it might well have been regarded as being worth more than that stun. In re Assessment of Wailuku Sugar Co., 18 Haw. 422. Since then the company has doubled its output and its capital stock, and trebled its profits, and its stock has been sold upon the market at more than sixty per cent, above par. In view of these circumstances it would be rather strange if the property was not worth double what it was at that date. The future outlook was no darker on January 1, 1912, than on January 1, 1907. This plantation’s yield in 1906 was 7828 tons, and in 1907, 7426 tons, and its yield per acre during those years was less than six tons. Since then it has “entered upon a new lease of life.” In 1910 the company doubled its capital stock, its plantation is in a position to put out between 16,000 and 17,000 tons of sugar annually, and since 1908 its average yield per acre has exceeded seven tons. It owns a large area of land in fee, but a small fraction of its cane land being held under lease. It is an irrigated plantation and has its own water supply. The plantation is well situated, in good physical condition, and has good prospects of maintaining its output, the estimated yield for 1912 being 17,-000 tons. Considered on the basis of capitalization of profits such a plantation, according to the rule laid down in 11 Haw. 244, should be subjected to a rate of 12 or 12y2 per cent. The court there said, “It seems to us that a sugar plantation under favorable conditions, as, for example, one that owns its land in fee, has for a period of years paid say, 12 or 12y2 per cent and *365has besides been maintained in a state of efficiency and has every prospect for doing as well in the future as it has done in the past, would generally be considered to be worth par.” And in fixing the values of0 the plantations which were then under consideration special reference was made to the amount of dividends paid to the stockholders during a number of years. What the court there said as to a plantation’s “prospect for doing as well in the future as it has done in the past” is to be understood as applying to the condition and situation of the plantation, and, not as counsel for the appellant would have it, as referring to the effect of possible unfavorable legislation. There were broad uncertainties depending on national action existing at the time those cases were decided and they were adverted to in another part of the opinion of the court. The condition of the cane sugar industry in these islands is no less stable now than it was in 1897 when the cases referred to were decided. It is generally acknowledged that all business and industry in this Territory was put upon a sounder basis when these islands were annexed by the United States. In 1897, as now, there seemed to be considerable uncertainty as to what the future would bring forth. Uncertainty has prevailed ever since it was conceived that protection is essential to the profitable prosecution of the sugar industry and the feeling becomes acute whenever agitation is made for the removal or reduction of the tariff on raw sugar. This uncertainty affects to some extent nearly all values in this Territory, but especially those of sugar properties. On January 1st, 1912, as it is now, it was impossible to predict what, if any, change might be made in the sugar tariff. As to market prices, the prospects at that time were that fair prices would be obtained for the 1912 crop. The market price of sugar fluctuates considerably and sometimes unexpected events cause sudden changes in the world’s market. Yet comparatively small fluctuations in the world’s price may make the difference between a profit and a loss to a Hawaiian sugar plantation. It is because of these uncertainties that this court has recog*366nized. the fact that it would be unfair to base the value of a sugar plantation upon a consideration of the profits of a single profitable year, or to assume that large profits are assured for the future because they have been realized for several years past. And it is because of this that in hasing an estimate of value upon the capitalization of past profits very liberal rates are authorized. If Wailuku’s last year’s dividend of $540,000 was assured indefinitely it would be absurd, bf course, to think of assessing the property at only four million dollars. What effect upon the intrinsic value of sugar properties threatened tariff legislation will have cannot be calculated until the legislation has been accomplished and its nature ascertained. In the mean time at least the carefully considered rules laid down by this court in 1897 should he adhered to.
It is true, as held in 11 Haw. 237, that assessments should not be changed from year to year for light reasons, but under our system of taxation property is valued each year and assessments may he and should be increased or decreased to meet’ changes in conditions which materially affect values. If, as it is contended it will happen, the cost of production of sugar will continue to increase, market prices decline, and profits shrink good reason will doubtless be furnished for reducing the assessments on sugar properties in future years.
The average annual yield,of the Wailuku plantation for the past three years was 16,964 tons, and the estimated yield for the present-year was placed by the manager at 17,000 tons. Its net profits for the last three years averaged $536,158. The dividends paid to its stockholders during the three years averaged annually the sum of $517,500. The capitalization, of those dividends according to the rule heretofore held applicable to a plantation such as this, i. e. at the rate of 12% per cent., will show a value of $4,140,000.
A comparison of Wailuku plantation with Paauhau plantation and the valuation fixed upon the latter shows that an assessment of the former at $4,000,000 would be very fair to the *367company. Paaubiau paid no dividend in 1911 bnt it made a net profit of $117,708 in that year. Regarding that "sum as available for dividends during that year and adding it to the dividends paid during the five years next preceding it wopld show an average annual dividend over a period of six years of $190,451, which capitalized at the rate of 12% Per cent, would show a valuation of $1,523,608. Its assessment has been fixed at $1,500,000. In the Paauhau ease the evidence of sales of stock is entitled to little or no weight. The purchase made by C. Brewer & Company was for a special reason, and the company’s corporation exhibit which, to put it very mildly, was highly inflated and misleading may have deceived purchasers and paved the way to stock juggling. To assess Wailuku plantation at $3,600,000 is, upon the capitalization of profits basis, at the rate of about 14 1/3 per cent. But Wailuku plantation is in situation, condition and stability far superior to Paauhau and its future prospects are much brighter. To assess Paauhau at $1,500,000 and Wailuku at $3,600,000 is to do a gross injustice either to Paauhau in its case or to the government in the Wailuku case, or, possibly, to one and the other in each case. It is true that as the Paauhau company did not appeal from the valuation fixed by the tax appeal com’t this court cannot reduce the assessment. But the Paauhau company returned its property at $1,400,000, and even if it should be conceded that that company is over assessed at $1,-500,000 it would not prove that Wailuku would be over valued at the sum of $4,000,000. There is nothing in the record that will warrant the inference that the property could have been purchased on the first of January last at less than that figure, or at the rate of $133.33 per share of stock. The statute provides that property shall be assessed at its full cash value. Discrimination between different taxpayers, unless based on real differences in circumstances, is even more objectionable than general excessive taxation. 11 Haw. 242. In the cases at bar the more stable plantation is assessed upon a basis more favor*368able to the company than that applied to the less fortunate concern. It seems to me that the majority opinion, while purporting to follow the principles laid down in the cases in 11 Hawr., in effect repudiates some of them, and tends to set adrift the whole subject of sugar plantation assessment. No new rules are enunciated which might serve as future guides to tax assessors, and taxpayers in place of those which have been set aside.