Court Opinion

ID: 7144232
Source: CourtListenerOpinion
Date Created: 2022-07-24 15:32:40.721488+00
Date Added: 2024-06-11T16:14:55.723136
License: Public Domain

*49Dissenting Opinion sy
Judge O'akroll.
The opinion of the court holds (1) that intangible property, such as cash, bonds, and stocks, which a corporation omits to list in its report, cannot be assessed as omitted property by the state at the suit of a revenue agent; and (2) that such omission should be treated merely as an under-valuation of its intangible property by the corporation, and hence the omitted property cannot be assessed by the state at the suit of a revenue agent.
I do not agree to either of these propositions, and as the questions involved are of public interest, I think it proper to state the reasons for my dissent. The amount in controversy in this case is not of much moment, but as the principles announced in the opinion are applicable to great numbers of corporations, big and little, some of them being required to make reports involving items of property the value of which runs up into millions of dollars, it will at once be seen that the questions at issue, are of far-reaching importance in the fiscal affairs of the state, and should on account of their importance be correctly determined. This should be so to the end that corporations disposed to avoid taxation by making false and fraudulent reports will understand that these methods will not accomplish the purpose intended, and in order that the fiscal officers of the state may know what remedy is available when cases of this kind arise.
For the purpose of arriving at the value of the intangible property of corporations subject to what is commonly but incorrectly called a franchise tax, they are required to submit to the Board of Valuation and Assessment verified reports stating in detail the value of various items of personal property concerning which it is necessary the board should have correct information if it is to fix a fair and just valuation on this intangible property. When items of property are omitted by the corporation, it is plain that the board cannot on the report assess all of the intangible property at its fair cash value, and as a necessary result the corporation will escape taxation on the items of property it has omitted from the report if the board acts on the report alone and there can be no reassessment. This was the reason why certain items were omitted from the report submitted to the board in this case, and, encouraged by this opinion so to do, this will be the reason why items of property will be omitted from reports in the future that are made by other corporations.
*50It is perfectly plain that every corporation knows the character of property it owns and the reasonable valne thereof, if it has a valne, or, at any rate, knows whether or not it owns the character of property specified in the report, and equally plain that when a corporation omits from its report valuable items, of property, the only purpose of the omission is to escape taxation on this class of property. For example, if a corporation owns bonds or stock in other corporations worth say a million dollars, and it reports that it owns no bonds or stock, the Board of Valuation and Assessment, acting on the report alone, cannot consider this item of property in assessing the value of its intangible property, and to this extent the assessment of this class of property may be one million dollars less than it should be. It is very true that the Board of Valuation and Assessment may adopt two or three different methods of arriving at the value of this property, but whichever method is adopted it is necessary to a correct assessment that the corporation should make full and truthful answers in its report to the questions propounded by the board.
It is said, however, that the board is not Confined to the report, but may, independent of it, and on other information, ascertain the character of the property owned by the corporation and the value of it, although it may be omitted in the report. It is true the board is not limited in making the assessment to the information contained in the report, but may seek and get other information, and if it appeared that the board did this and actually considered the omitted property in fixing the value of the intangible property, the omission contained in the report would not affect the result. But the board has a right to presume that these verified reports are correct and to act on them, and I may with propriety add that such is the practice of the board.
Nor need there be any apprehension that if property omitted from the report should be afterwards assessed in the county court at the instance of a revenue agent, it might subject the corporation to double taxation, because the assessment in the county court, as I will later show, must be submitted to and acted on by the board before any tax can be levied on account of it. All that the revenue agent can do is to bring to the attention of the board by the judgment of the county court the value of the omitttd property, and whether the board makes an assessment on this omitted property so brought to its *51attention by the revenue agent is a matter for the board to determine. If the board has outside of the report obtained correct information as to the value of these omitted items of property and considered them in making its original assessment, of course the board could not and would not make another assessment on account of them. [But, as I have stated, the fair presumption is that the board acted on the report, as it had a right to do, without seeking outside information, and so when it is attempted to assess property of a corporation omitted from its report, the burden should be on the corporation not only in the county court, but thereafter before the board, to show that notwithstanding the omission in the report, the board did not act altogether on the report, but received independent of it information of the .omitted property and considered its value in making the original assessment.
In other words, the burden is on the Commonwealth in the suit of the revenue agent to show that there was omitted from the report made by the corporation property that should have been reported, and the nature and value of such property, and when it does this, the burden is on the corporation to show that notwithstanding the omission the board in making its original assessment considered and estimated the value of the omitted property on information gathered from sources outside of the report. Hillman Land & Iron Co. v. Com., 148 Ky. 331; Kentucky Heating Company v. City of Louisville, 174 Ky. 142.
Another ground strongly relied on in the opinion is that the omission of items in the report should be treated merely as an under-valuation of its property by the corporation and consequently the rule adopted in Commonwealth v. J. M. Robinson, Norton & Co., 146 Ky. 218, should be applied. In that case it was held that only items of property that were wholly omitted from an individual assessment list could be assessed by revenue agents, and that items of property that had been assessed but on an under-valuation could not be assessed at the instance of a revenue agent; and it is said in the opinion in this case that as all the property owned and reported by the corporation was considered by the board in putting a value on its intangible property, its omission of one or more items of property merely resulted in an under-valuation of its assessable property. In other words, that the omission of some items of property is not to be treated as an omission in the sense that it becomes omitted) *52property, but merely as an under-valuation of its property. But, plainly, this argument is not sound, because in the first place a total omission to .list an item of property cannot under any reasonable view be treated as an under-valuation of this item. There can be no under-valuation where there is a total omission. An under-valuation can only exist when the item of property has been reported but at a value less than its real value. If it has not been reported at all, it is an omission, and the same rule should be applied to corporations as is applied to individuals. If the individual assesses all his property, but at an under-valuation, the revenue agent cannot have it assessed, but if he fails to assess some class of property, this class becomes omitted property and the revenue agent may have it assessed. And to say that a corporation may omit from its report the most valuable items of property it owns, leaving a few insignificant ones to be considered by the board, and thereby escape taxation on these omitted items on the theory that it was only an under-valuation, is utterly untenable. I concede that if a corporation in its report to the board under-values items of its property, the revenue agent cannot have these under-valued items assessed as omitted property, but when it omits them entirely, it is perfectly clear to my mind that these items may be reassessed or rather once assessed.
It is of course true that when the board comes to fix the value of the intangible property of a corporation subject to what is commonly called a franchise tax, all the items of property mentioned in the report are considered, and it is equally true that if the corporation omits some items of property, there would be an under-valuation of the total of its intangible property, but this under-valuation would necessarily be the result of the omission to list certain species of property. When some items are omitted, the mere fact that the total amount will be an under-valuation does not answer the argument that the omitted items should be treated as omitted property. If an individual‘omits an item of his property, it lessens the value of his total assessment, and if a corporation omits an item of its property, it lessens the value of its total assessment, and yet we are told.that although the omitted item in the assessment list of the individual can be assessed in the suit of a revenue agent, the omitted item in the assessment list of a corporation cannot be so assessed because it amounts to an under-valuation and not an omission. The necessary result of this conclusion' *53is to discriminate against the individual in favor of the corporation and to let the corporation but not the individual escape taxation on omitted property.
The next question is, how can the value of these omitted items be retroactively assessed after an assessment has once been made by the Board of Valuation and Assessment In the opinion it is said the state has a remedy in a case like this, and that the remedy is a direct suit to surcharge the original assessment made by the Board of Valuation and Assessment, but that this cannot be done at the suit of a revenue agent in the manner provided in section 4260 of the Kentucky Statutes. This is an important question and I think it can be demonstrated that the statement in the opinion that the original assessment of the board cannot be opened up in the suit of a revenue agent under section 4260 of the Kentucky Statutes for the purpose of correcting’ fraud practiced by the corporation in failing to list items of -its property, is unsound in principle and wholly unsupported by authority.
I readily concede that the general rule, in the absence of a statute controlling the subject, is that judgments or final findings of assessing boards cannot be attacked or opened up in a collateral proceeding. But I am very sure that this rule has no application whatever to the matter in hand, because the practice in this class of cases is controlled entirely by the statutes. It is not subject to or controlled by the general principles of law-which provide that judgments can be vacated or opened up only in a direct proceeding. "When the statutes point out a remedy, that remedy must be followed. It excludes all other remedies. And the statutes provide in section 4260 that “It shall be the duty of the revenue agent .... to cause to be listed for taxation all property omitted by the . : . Board of Valuation and Assessment . . . for any year or years. ’ ’ This statute, which was intended to and does furnish an ample remedy for the correction of any mistake made or any fraud practiced by a corporation in the omission of its property, was also intended to and does furnish the only means by which omitted property can be assessed. Thus it was said in Com. v. Helm, 163 Ky. 69:
“But every suit and every proceeding instituted in the name of the Commonwealth and- for its benefit must of necessity be brought on the relation of some person authorized to act for the Commonwealth. There is no doubt that, where the Commonwealth is the injured party, *54it has the right to sue for redress, but yet it cannot sue unless through the instrumentality of an agent or person designated by statute or empowered by recognized principles of law to act for it. McAlister v. Com., 6 Bush 581; Com. v. McGovern, 116 Ky. 212; Respass v. Com., 131 Ky. 807; People v. City of St. Louis, 5 Gilman (Ill.) 351, 48 Am. Dec. 339. So that when a suit to assess omitted property or to collect omitted taxes is brought in the name of the Commonwealth, as it must be, it can be brought only on the relation of some person authorized to use its name for the purpose of maintaining the suit. In short, there must be a relator. Com. v. Columbia Trust Co., 162 Ky. 825.
“It is also, we think, apparent that if the Commonwealth indicate who must be the relator in proceedings like this, only the person designated by the Commonwealth to act as relator may do so. In other words, if the Commonwealth, through its legislative department, declares that certain classes of suits or proceedings shall be prosecuted by designated persons or officers, the class of suits thus described, although brought in the name of the Commonwealth and for its benefit, must be brought on the relation of the persons or officer invested with this • authority. . . .
“This brings us directly to consider whether the Commonwealth has by statute directed in whose name as relator this class of suits may be brought. If it has, they must be brought in the manner prescribed and by the person designated, and, if they are not brought in the manner'prescribed and by the person designated, the defendant has the same privilege as any other defendant would have in other cases to question the right of the Commonwealth to maintain the suit.
“The act of 1912, now sections 4258 and 4260 of the Kentucky Statutes, and which was in effect when these proceedings were had, provides for the assessment of omitted property by .revenue agents, and sheriffs. It specifically points out the powers and duties of these officers as collectors of omitted taxes, and has vested in them-the exclusive authority to institute and prosecute such proceedings as may be necessary to assess omitted property and enforce the collection of omitted taxes. This being the state of the law, we think that all suits brought in the name of the Commonwealth for this purpose must be brought on the relation of a sheriff or revenue agent, *55and that no other officer or person is authorized to either institute or prosecute such proceedings.”
It is also worthy of notice that although this court has written a great number of opinions deciding cases in which suits were brought by revenue agents for the purpose of assessing property alleged to have been omitted by corporations in their reports to the Boards of Valuation and Assessment, in no one of these cases was it held that such a suit could not be maintained, although in' many of them the suits were dismissed because there had been no omission. Chicago, St. L. & N. O. Ry. Co. v. Com., 115 Ky. 278; Com. v. C. & O. Ry. Co., 131 Ky. 661; Com. v. Southern Pacific Co., 134 Ky. 421; Com. v. L. & N. R. R. Co., 142 Ky. 663; Com. v. Southern Pacific Co., 144 Ky. 803; Com. v. Southern Pacific Co., 150 Ky. 97. In all these cases and many others it was recognized that omitted property of this kind could be assessed at the suit of a revenue agent, and I cannot understand how this proposition can be successfully disputed in view of the statute expressly providing that “It shall be the duty of the revenue agent .... to cause to be listed for taxation all property. omitted by the .... Board of Valuation and Assessment .... for any year or years.”
This statute specifically points out how omitted property may be assessed. It furnishes ample means and the only means for its assessment, and it should be followed.
I do not, of course, contend that the county court, when it comes to assess at the suit of a revenue agent omitted items of property, may review the action of the board or re-assess property reported to the board by the corporation. All that the revenue agent can do is to have this omitted property assessed in the county court, and when it has been so assessed, the clerk of the court that fixed the value must certify the assessment of the property and its value, as provided in section 4260 of the Kentucky Statutes, to the Auditor of Public Accounts, who' is chairman of the Board of Valuation and Assessment. The board can then investigate the matter, and _if it appears that the omitted items called to its attention were omitted by it in making the original assessment, it may, upon a consideration of the value of these omitted items, increase the assessment as originally made and certify the increased assessment to the proper officers for the' collection of taxes thereon. If, on the other hand, it determines that the items of property omitted from the re*56port were considered hy it in making its original assessment, or if it determines on a consideration of the whole -matter that the original assessment should not he increased on account of the omitted items, then it should,' not make any increase in the original assessment. Under this plan the corporation will not he harassed hy various suits or subjected to a double tax, nor will it he required to pay more than it should have paid in the first instance if it had made a correct report.
In Com. v. Adams Express Co., 118 Ky. 312, a revenue agent sought to have assessed as omitted property the intangible property of the Adams Express Co. for certain years in which it had failed to make any report of its property to the Board of Valuation and Assessment. In holding that the intangible property of the company could be assessed at the suit of a revenue agent, and in answer to the argument of the express company that a practice like this would subject it to suits hy revenue agents in every county in the state in which it operated, the court said:
“The county court first assuming would have jurisdiction, and an action in that court would be a bar to any action in any other county court in the state as to that particular franchise for the years named in the statement filed. This construction of the statutes obviates the appellee’s fears of fragmentary taxation, as the clerk of the court having jurisdiction of the case is required to certify the value of the franchise, as fixed hy the court, to the Auditor of the state, he being chairman of the Board of Valuation and Assessment, and this hoard will apportion this assessment among the different counties in the state through which the franchise is operated.”
As fully supporting the views I have expressed, that intangible property which a corporation omits to list in its report may he assessed as omitted property hy the state at the suit of a revenue agent, I call attention to the case of the Com. v. Louisville Gas Co., 135 Ky. 324. That case, as stated in the opinion, was “A proceeding begun in the Jefferson county court to assess as omitted property certain stocks and bonds of another corporation owned hy appellee gas company.” The court held that the stocks and bonds sought to he assessed as omitted property had not, in fact, been omitted, and therefore affirmed the judgment of the lower court dismissing the revenue agent’s suit; hut in the course of the opinion the court fully recognized the right of a revenue’ agent to have *57omitted property assessed, and held.that when a corporal tion omitted items of property from its report it was an omission and not an under-valuation. In answer to the argument of counsel for the gas company, who insisted that it was not omitted property, the court said:
“Appellee contends that the action of the State Board of Valuation and Assessment in valuing a franchise for taxation is one act, not severable, and whether it considered all the evidence bearing upon the value of the franchise, or omitted to take some evidence that it might have required, cannot be reviewed by the courts in a proceeding to list omitted property; that the thing being now considered, i. e., whether the bonds were included in the gas company’s report and the board’s estimate, might be omitted evidence, but not omitted property, as there was no war'rant for the board to assess the bonds in any event as property. This franchise tax is new. It is substitutional as a method of valuation only. Its like existed under the old statutes of this state where choses in action and the like were grouped as ‘miscellany.’ Then a taxpayer could have reported, say $10,-000.00 in ‘miscellany,’ which was supposed to embrace all his notes and accounts; but suppose he had notes to the amount, and solvent, of $20,000.00, not an erroneous valuation of those reported as $10,000.00, but $10,000.00 in addition. It would scarcely have been contended that the failure to list C. D.’s notes for $10,000.00 was merged in the listing of the A. B. notes.”
And in further holding that the suit by the revenue agent to assess the stocks and bonds as omitted property could be maintained, said:
“The legislature could have required corporations to1 pay on each item of their intangible property,' on their notes, bonds, accounts, capital stock, and so forth, in detail; but it allowed all these properties to be grouped for purposes of taxation, as a more convenient and just method of assessing. It was not contemplated that _the privilege thus accorded the taxpayer was to be a shield for his neglect or fraud in omitting a material part of his property. If, for example, a railroad corporation owns two different lines of railroad in this state, but reports only one of them, and the earnings of but one, it must be apparent that the failure to report the other is something more than an omission of evidence. It would be an omission of property. It is not true that the bonds .in appellee’s hands are not taxable. They are. The con*58stitution prohibits their exemption (section 174). But the manner of assessing them is to have them reported to the state board, and there valued as a part of the owner’s ‘franchise.’ When they are omitted, property liable to taxation is omitted. It may be brought in and assessed as omitted property under section 4260 of the Kentucky Statutes.”
I submit that this case, which it is said in the opinion is not applicable, is directly in point and should have been either overruled or followed.
Nor have I any doubt that the Board of Valuation and Assessment may reconsider its action in making an assessment for the purpose of correcting a fraud practiced on it by the corporation in the omission in its report of valuable items of property. It cannot for a moment be tolerated that a corporation by intentionally omitting valuable items of property from its report can escape taxation on this property, when its fraudulent omission has been discovered and suit to correct it has been brought within five years from the date of the original assessment by the board.
It is true, as stated in numerous opinions of this court, many of which are reviewed in the case of the Kentucky Heating Co. v. City of Louisville, 174 Ky. 142., that the finding of the board, when all the facts are before it, and in the absence of fraud or mistake, is conclusive, but it is equally true, and was so held in the cases referred to in that opinion, that when the board, through fraud or mistake, is led to make an erroneous assessment, this fraud or mistake may be corrected and a just assessment made, no matter whether the mistake is made or- the fraud practiced by the board or by the corporation.
The true rule is that the fraud or mistake, whichever it may be, can be corrected at the instance of the state or the corporation, in order that justice may be done to the state and the corporation. The action of these assessing boards is open to review when it is made to appear that by fraud or mistake injustice has been done either to the state or corporation. When injustice has been done to the corporation by the fraud or mistake of the board, it may bring a suit and have the- error corrected, as was held in Hager, Auditor, v. American Surety Co., 121 Ky. 791; and so when an injustice has been done to the state by the fraud or mistake of the corporation, the state should be allowed to bring a suit through its revenue agent to. have this fraud or mistake corrected. The same *59principles of law should be applied to the state and the corporation. The same rules of equity and justice that would remedy a wrong committed by the state against the corporation should remedy a wrong committed by the corporation against the state. This is the rule applied to the individual taxpayer who omits to list his property. Why should it not be applied to the .corporation?
This court has held in a number of cases that the action of the board in making a final assesment cannot be reviewed in the absence of fraud or mistake. Coulter, Auditor, v. Louisville Bridge Co., 114 Ky. 42; First National Bank v. Hopkinsville, 128 Ky. 383; Southern Pacific Company v. Com., 134 Ky. 410; Com. v. Southern Pacific Company, 144 Ky. 803. But in no case has it ever ruled that the action of the board was final or conclusive when it was shown that its decision was influenced by either fraud or mistake on the part of the board or the corporation. Nor can any sound reason be advanced why the action of the board should not be opened up when it is made to appear that through fraud or mistake on the part of the corporation or the board an erroneous assessment, either too high or too low, was made. Why should the action of the Board of Valuation and Assessment be more conclusive than the final judgment of a court, when it is settled law that judgments may be opened up for mistake or fraud practiced by the party who has benefited by the mistake or fraud?
In holding that the action of the state board cannot be opened up and reviewed in a state of case in which it is made to appear in the suit of a revenue agent that the corporation made a false and fraudulent report for the purpose of escaping the payment of taxes that it would have been compelled to pay if a correct report had been made, the opinion sets down a rule out of line with numerous opinions of this court and directly in conflict with the principles announced in the Louisville Gas Company case, supra.
I further insist that it leaves the state helpless to correct frauds that may be practiced by corporations on its assessing officers, because the only remedy the state has the opinion denies. It gives to the corporation the right to obtain relief from an excessive assessment made through fraud or mistake on the part^of the board, but denies to the state any relief from an inadequate assessment procured through the fraud,or. mistake of the corporation.
*60Heretofore the law applicable to the assessment of omitted property had been made plain by the statute I have quoted, and the practice had been made plain by the opinions to which I have referred. The officers charged with the duty of having assessed , property omitted by corporations knew exactly what procedure to follow. But now the statute has been set aside and the opinions ignored, or rather overruled by implication; and so when it is sought to assess the omitted property of these franchise corporations no one will know who can sue or how to proceed. Uncertainty, confusion and doubt will take the place of what was once certainty in the law and simplicity in the practice. The inevitable result of this radical departure from the paths that had been laid out by the legislature and this court will be much new, expensive and troublesome litigation in an effort to find a way by which the frauds that corporations may practice in making their reports may be corrected. I submit that no sound or other reason has been or can be given to authorize or justify this abandonment of settled rules of law and practice.
To sum up, my views are: (1) That when the board, on a full and fair report, makes an assessment, its decision is final and cannot be reviewed at the suit of the state or the corporation on the ground that there has been either an under-valuation or an over-valuation, unless the action taken is the result of fraud or mistake- on the part of the board; (2) The action of the board in all cases is subject to review by both the state and the corporation when it is made to appear by clear and convincing evidence that its decision was the result of either fraud or mistake; (3) When a corporation omits from its report any item of property that it should have reported, this omitted item may be assessed at the suit of a revenue agent in the county court, and in such suit the burden is on the Commonwealth to show that the corporation owned the property omitted, and its value, and upon the corporation to show that notwithstanding the omission the board considered the omitted item in making its valuation in the original assessment: (4) When an omitted item has been assessed by the county court, and the as- • sessment has been certified to the board, it is the duty of the board to reassemble and go over its former assessment and make such reassessment as in its judgment may be necessary to include the items found to be omitted; (5) No action can be brought by the- Common*61wealth, to assess omitted items of property after the expiration of five years from the date of the original assessment by the board.