Pierce Butler

“ They may not substitute their opinions for the findings of assessing officers or boards. But, when the jurisdiction of the District Court is appropriately invoked, it is its duty to decide upon the merits of the taxpayer's claim that the assessment of his property was arbitrarily made and is grossly excessive. It clearly appears that the board failed to give reasonable weight to the falling off of petitioner's traffic, gross earnings, operating income, the extraordinary shrinkage in values of railroad properties, the prices of commodities, and securities generally. ”

“ In 1932 the tax commissioner made and presented to the board computations based upon a determination of system value by the use of a composite of the average stock and bond values of the petitioner for a period of five years preceding the assessment and the average value ascertained by capitalizing net earnings for the same period; by apportioning the system value to North Dakota upon the basis of the average of five factors: (1) Miles of all track, (2) physical property, (3) car and locomotive miles, (4) ton and passenger miles, (5) gross earnings, there was produced a value of $76,115,715 ”

“ The full and true value of the property is the amount that the owner would be entitled to receive as just compensation upon a taking of that property by the state or the United States in the exertion of the power of eminent domain. ”

“ It has long been recognized that discrimination between taxpayers, if intentional or so persistent as to be systematic, is a denial of equal protection, whether the discrimination is in the application of different rates to property in the same class or in inequality in its valuation. ”

“ Economic return from farm property, being about 65 per cent. of all that is taxable in North Dakota, decreased about 75 per cent. from the 1924-1928 average. Assessments on values indicated by capitalization of average net income for the five years ending in 1932 would result in giving preferential treatment to railroads as compared with other properties. Where properties have been operated at a loss over a period of years, there are no earnings to capitalize. Yet they have present and prospective value which would be reflected by use of the stock and bond valuation method. ”

“ He was engaged in this litigation in behalf of respondents and spent much time in making computations and in the preparation of exhibits that were put in evidence by respondents. In substance he testified:
The first step in the valuation of railroad property within a state is to determine the value of the entire system. There are two cases of evidence ordinarily considered: The average market price of stock and bonds, and the past earnings over a period of years. As the stock and bond prices reflect value of the entire railroad, it is necessary to eliminate the value of nonoperating property. ”

“ Even if the valuation of the Board be erroneous, the errors of a state judicial officer, however gross, whether of law or of fact, are not violations of the Constitution and are not open to review in the federal courts merely because they are errors. ”

“ It assumes that the average price reflects value, but rarely is controlling interest bought or sold on the exchange. Where control is sought, prices advance sharply. The method also assumes that purchasers act on accurate knowledge of conditions; it ignores the influence of pure speculation. In applying the method, taxing boards, economists, and railroad men have always adopted five-year periods immediately preceding the assessment in order to give stability to the tax value. ”

“ The most valuable terminals and costly construction are in other states and, while these include little mileage, they contribute as much to system value in proportion to cost as do the cheaper stretches of the road where the same investment is spread over much greater mileage.
The problem of apportionment is a difficult one. It is impossible to formulate a rule generally applicable. Controlling conditions vary greatly from time to time. ”

“ Allocations to be sufficiently accurate for practical purposes must be arrived at by the exercise of sound judgment based on facts that fairly reflect the relation between value of the system as a whole and value of the part within a state. ”

“ The answer further alleged that 'upon this evidence and upon all other evidence and matters of common knowledge before it the Board did in the year 1932 fix the valuation of plaintiff's property in North Dakota at $78,850,024' ”