KANSAS CITY, FT. S. & M. R. CO. v. KING, Comptroller, 120 F. 614

DAY, Circuit Judge, after making the foregoing statement, delivered the opinion of the court. A preliminary question is made as to the right of a court of equity to entertain jurisdiction of the bill for injunction in this case. The objections raised in this proceeding to the legality of the assessment do not appear upon the face of the proceedings, but arise because of facts-set forth in the bill, which show, as is alleged, unlawful discrimination in the assessment of the property of the complainant. This tax, by the law of Tennessee, becomes a lien upon the property.

It creates an apparently valid incumbrance, which casts a cloud upon the title. We think it is settled that in such case the federal courts in equity may entertain a bill to inquire into the validity of the proceedings, and remove the cloud if the assessment shall turn out to be illegal. Ogden City v. Armstrong, 168 U. S. 224, 238, 18 Sup. Ct. 98, 42 L. Ed. 444. Upon this branch of the case nothing need be added to the full discussion of the subject in the opinion of Judge Taft, speaking for this court, in Taylor v. Railroad Co., 31 C. C. A. 537, 88 Fed. 350.

The complainant seeks an injunction against the collection of the taxes assessed upon the grounds that the method pursued by the assessors in reaching a valuation was unauthorized by law, and contrary to the uniform practice of the assessors in valuing other railroad property in Tennessee. It is claimed that this property, other than the localized property, should have been assessed by following the method pointed out in

section 7 of the act above quoted; that is, by dividing $13,434,000, the assessed value of the entire distributable property, by 675.19, the number of miles of main line, excluding side track, and multiplying this by 2, the number of miles of main line in Tennessee; this 2 miles being arrived at by treating the two pieces of .4 of a mile and 1.6 miles, used for making connections with other railroads and reaching its depots, as the length of main line in Tennessee, the remainder of the 18.18 miles in Memphis to be regarded as side tracks and spurs for yard and freight purposes, and not to be considered in determining the length of the road as defined in

section 7. The purpose of this statute is to provide a scheme of assessment which shall provide an adequate means of taxing railroad property in Tennessee. In a general way it is intended to classify this kind of .property into the “distributable property” described in

section 7, consisting of roadbed, rolling stock, franchises, choses in action, and personal property having no actual situs, and the “localized property,” consisting of depot buildings and other property, real, personal, and mixed, having an actual situs. The valuation of that embraced in the former class is to be distributed along the entire length of the road, according to the mileage in the respective taxing districts for state, county, and municipal purposes. The latter class is to be taxed according to its actual situs in the county or town where it is located.

The tax assessors, as shown in their report, recognized that they were dealing with a peculiar situation. The terminal property of the appellant is composed of a large number of tracks, a network in fact, used to make connections, and to afford storage room for cars, and the means of handling, receiving, and delivering freight and making connections— a situation which may be generally described as embracing the terminal facilities of this railroad at Memphis.

It is insisted for the railroad company that only that small portion of some two miles connecting with other roads can be regarded as main .line, and included in the “entire length of the road,” for the purpose of tax distribution under the statute. It is claimed that in this way the statute is consistently carried into effect, and this company taxed by the method which prevails in assessing other railroads in the state.

It appears that in assessing a railroad traversing the state, which it is claimed the complainant’s does, it has been the practice to find the “length of the road” without including side tracks, and assess the distributable property by multiplying the value per mile by the number of miles in the state included in the length of the road as thus ascertained. The practice of taxing distributable property by this mileage method is quite common, and is prescribed by statute in a number of the states.

This means of reaching and distributing the value of railroad property for the purposes of taxation has met with approval in a number of Supreme Court decisions. They are collected in the opinion of Mr. Justice Brewer in Railroad Co. v. Backus, 154 U. S. 421, 14 Sup. Ct. 1114, 38 L. Ed. 1031.

Conceding the fairness of the mileage basis under usual circumstances, the learned justice adds: “It is true, tliere may be exceptional cases — and tbe testimony offered on the trial of this case in the Circuit Court tends to show that this plaintiff’s road is one of such exceptional cases — as, for instance, where the terminal facilities in some large city are of enormous value, and so give to a mile or two in such city a value out of all proportion to any similar distance elsewhere along the line of the road, or where in certain localities the company is engaged in a particular kind of business requiring for sole use in such localities an extra amount of rolling stock.

If testimony to this effect was presented by the company to the state board, it must be assumed, in the absence of anything to the contrary, that such board, in making the assessment of track and rolling stock within the state, took into account the peculiar and large value of such facilities and such extra rolling stock.

But whether, in any particular case, such matters are taken into consideration by the assessing board does not make against the validity of the law, because it does not require that the valuation of the property within the state shall be absolutely determined upon a mileage basis.” These observations are pertinent to the present inquiry. The statute of Tennessee must be considered in all its parts as a means of carrying into practical effect the requirement of the state constitution that all property shall be taxed according to its value, so that taxes shall be equal and uniform throughout the state.

It is the primary duty of the assessors to ascertain the value of the property for taxation.

Section 4, Act 1897. In arriving at the valuation, the assessors are enjoined to have in view and look to the capital stock, the corporate property, franchises, and gross receipts of the company. To this end they are authorized to examine persons under oath, require the production of books and papers, and issue summons for witnesses.

Section 5, Id. Testimony may be taken in addition to the

schedule furnished by the company, to enable the assessors to better arrive at the true value of the property. These powers are conferred for the purpose of enabling the assessors to arrive at the true value of the property.

Section 10, Id. For like purpose rules are laid down in sections 6 and 7 of the act of 1897. In

section 6 it is provided that the road of any railroad shall include all “said” (side) tracks, switches, bridges, trestles, ties, rails, and superstructure of every kind.

Section 7 provides a rule for distribution of the valuation of the property having no actual situs. Undoubtedly, wherever applicable, this rule must be followed, and in most cases it will work substantial justice; but as was said by Mr. Justice Brewer in Railroad Co. v. Backus, 154 U. S. 421, 14 Sup. Ct. 1114, 38 L. Ed. 1031, the law does not require that the valuation of the property within the state shall be absolutely determined upon the mileage basis. In the case in hand we cannot perceive any reason for calling the connecting part of these terminal tracks main line and the balance side tracks.

We have a situation where the “length of the road” rule, as construed in practical application to other roads differently situated, will not afford a means of reaching the value of the property of this company in Tennessee. To treat the two miles as main line, and as furnishing a number by which to multiply the total valuation,, divided by the number of miles of main line of the whole road, will value this property at about $39,000 — a sum which the testimony discloses to be so far below its true value as to give an absurd preference to this property in taxing railroads in Tennessee.

This situation was apparent to the assessors, as their report discloses. While the mileage rule was inapplicable, they were, nevertheless, authorized by the statute to value this and all other property of the company in Tennessee for taxation. This property was not to be valued as a. distinct and separate entity, but was to be treated as a part of the system to which it belonged. The principle had frequently been-recognized by the courts. In Franklin Co. v. Nashville, C. & St. L. Ry.

Co., 12 Rea, 521, 539, it was said: “The value of the roadway at any given time is not the original cost, nor, a fortiori, its ultimate cost, after years of expenditure in repairs and improvements. On the other hand, its value cannot be determined by ascertaining the value of the land included in the roadway, assessed at the-market price of adjacent lands, and adding the value of the cross-ties, rails, and spikes. The value of the land depends largely upon the use to which it can be put and the character of the improvements upon it.

The assessable value for taxation of a railroad track can only be determined by looking at the elements oh which the financial condition of the company depends, its traffic, as evidenced by the rolling stock and gross earnings in connection with its capital stock. No local estimate of the fraction in one county of a railroad track running through several counties can be based upon sufficient data to make it at all reliable, unless, indeed, the local assessors are furnished with the means of estimating the whole road.” This language was quoted with approval in Railroad Co. v. Wright, 151 U. S. 470, 479, 14 Sup.

Ct. 396, 38 L. Ed. 238, and in Railroad Co. v. Backus, 154 U. S. 429, 14 Sup. Ct. 1114, 38 L. Ed. 1031. The report of the assessors shows that the distributable property was valued upon the basis of the net earnings of the road at $13,434,000. No complaint is made of this valuation, and it is less than an assessment would be based upon either the cost of the road or its stock and bonds.

In their report the assessors say: “While we have not and could not very well value this property in Tennessee on a mileage basis, it consisting of terminal facilities, and being very valuable, if estimated on a mileage basis, it would be at §14,000 a mile.” One of the railroad assessors, in giving testimony, says of the method pursued in valuing this property: “Under our construction of the assessment law for 1897, the railroad commissioners were of opinion that, if they could arrive at the value of all the property belonging to a corporation in the state of Tennessee by dividing the aggregate value of all said property by the main mileage, that they could do so, but that they had the right, if they saw proper, in arriving •at the value of all the property of a railroad corporation in Tennessee, to divide the aggregate value of the property by its entire mileage, main and side track included; and in assessment of the Kansas City, Ft.

Scott & Memphis Railway, as it was impossible to arrive at the value of the distributable property of this corporation in the state of Tennessee by assessing only .4 of the mile of main track, they assessed it with 18 miles of -track, according to Mr. Bonteeou’s deposition, which was the main and side track of said road in the state of Tennessee.

The commission took the aggregate value of the property, as arrived at by them, and divided it by the entire mileage of the railway, as set out in the annual statement, both main and side track, thereby arriving at the value of the road per mile, and multiplying the sum thus found by the mileage in Tennessee (18.18 miles), thus arriving at the assessable value of the property.

This was the plan pursued for 1897 and 1898, was accepted by the railroads, and the commission did the same for 1899 and 1900.” In other words, the assessors treated the 18.18 miles of the Memphis terminals as so many miles of the entire road, and gave it a proportionate part of the distributable property.

As the mileage plan, which would distribute this assessment by the number of miles of the length of the main line, was wholly inapplicable, and as the assessors were given ample authority to fix a valuation upon this property, it must be assumed that the Legislature intended to grant .sufficient authority as to ways and means to the assessors to enable .them to reach the true valuation of the property to be taxed in Tennessee, considered as a part of the whole property.

It is shown without contradiction that the valuation placed upon the terminal property is not excessive, either as regards its intrinsic worth or by comparison with the assessments of other railroad property in the state. A court of equity will only interfere in clear cases to enjoin -the levy and collection of taxes. It has no power to set up its own methods, and order taxes to be levied as it may see fit. As was said by Mr. Justice Miller, speaking of the right to interfere by injunction, in State Railroad Tax Cases, 92 U. S. 613-615, 23 L. Ed. 663, quoted with approval by Mr.

Justice Gray in Pittsburg, C., C. & St. L. R. Co. v. Board of Public Works, 172 U. S. 32-39, 19 Sup. Ct. 90, 43 L. Ed. 354: “One of the reasons why a court should not thus interfere, as It would In any transaction between individuals, is that it has no power to apportion the tax or make a new assessment, or to direct another to be made by the proper officers of the state. These officers, and the manner in which they shall exercise their functions, are wholly beyond the power of the court when so acting. The levy of taxes is not a judicial function.

Its exercise, by the Constitutions of all the states, and by the theory of our English origin, is exclusively legislative. A court of equity is, therefore, hampered in the exercise of its jurisdiction by the necessity of enjoining the tax complained of, in whole or in part, without any power of doing complete justice by making or causing to be made a new assessment on any principle it may decide to be the right one.

In this manner it may, by enjoining the levy, enable the complainant to escape wholly the tax for the period of time complained of, though it be obvious that he ought to pay a tax if imposed in the proper manner.” In this case the method adopted by the commissioners has not resulted in any overvaluation of complainant’s property, or discrimination against it as compared with other railroads whose property is taxed in the same state, and is within the powers conferred by statute upon the assessors. We perceive no ground for interference by injunction in a court of equity. Decree affirmed.