Klein v. Jefferson County Board of Tax Sup'rs

Citation230 Ky. 182,18 S.W.2d 1009
PartiesKLEIN et al. v. JEFFERSON COUNTY BOARD OF TAX SUPERVISORS et al.
Decision Date21 June 1929
CourtCourt of Appeals of Kentucky

Appeal from Circuit Court, Jefferson County, Common Pleas Branch First Division.

Junius C. Klein, for himself and others, applied to the Board of Tax Supervisors of Jefferson County for relief from an assessment. The board refused to modify it, the quarterly court sustained the action of the assessor and of the board and the circuit court, on appeal, sustained the judgment of the quarterly court, and Klein appeals. Affirmed.

Matt O'Doherty and John P. Haswell, both of Louisville, for appellant.

J. W Cammack, Atty. Gen., Sam B. Kirby, Jr., Asst. Atty. Gen., and Harris Coleman, Co. Atty., of Louisville, for appellee.

HOBSON C.

Junius Klein in the year 1925 owned a large block of stock in the Standard Sanitary Manufacturing Company. The assessor, in making the assessment for that year, valued the stock at $95 a share. Klein, and other taxpayers similarly situated applied to the board of tax supervisors of Jefferson county for relief from the assessment. The board refused to modify it. They then appealed to the Jefferson quarterly court. The quarterly court heard the case, and on December 4, 1925, entered a judgment sustaining the action of the assessor and of the board of supervisors. Klein appealed to the Jefferson circuit court. The case was finally heard in the Jefferson circuit court on April 2, 1928. The circuit court sustained the judgment of the quarterly court. Klein appeals to this court. The case was submitted on September 19, 1928, but time was given the appellees to file brief, and the final briefs were not filed until June 7, 1929. The case was then sent out to the court.

The Standard Sanitary Manufacturing Company is a corporation formed under the laws of the state of New Jersey. It had outstanding, in 1925, 805,106 shares of stock, of the par value of $25. Over three-fourths of the total properties of the corporation are located outside of Kentucky, and a little less than one-fourth is located within the state of Kentucky. The book value of the common stock of the company on December 31, 1924, was $41.93 per share. But the stock was in fact selling in the market for about $100 per share in July, 1925. In February 1925, it sold as high as $145 a share. The corporation paid its taxes in the state of Kentucky. Klein contends: (1) The stockholders cannot be taxed under the Constitution of Kentucky. (2) The assessment at $95 a share is not warranted. (3) The assessment is a denial to him of the equal protection of the law, under the Fourteenth Amendment of the Constitution of the United States.

Section 171 of the Constitution provides: "Taxes shall be levied and collected for public purposes only and shall be uniform upon all property of the same class subject to taxation within the territorial limits of the authority levying the tax; and all taxes shall be levied and collected by general laws. The general assembly shall have power to divide property into classes and to determine what class or classes of property shall be subject to local taxation."

Section 4088, Kentucky Statutes, passed pursuant to this provision of the Constitution, provides: "The individual stockholders of a corporation, at least seventy-five per cent. (75%) of whose total property is taxable in Kentucky, shall not be required to list their shares for taxation so long as the corporation pays taxes on all its property in Kentucky (including the corporate franchise when the franchise is required to be assessed), provided the shareholder furnishes satisfactory proof to the taxing authorities that at least three-fourths of the total property of such corporation is taxed in Kentucky."

In Shinkle's Estate v. Kenton County Board of Supervisors, 216 Ky. 60, 287 S.W. 210, this court thus stated its conclusion under these provisions: "It seems to be well settled that it is within the legislative power to tax the property of a corporation at its fair cash value, including its franchise, and at the same time require the stockholders to list and pay taxes upon the shares of stock held by them without violating any of the provisions of our Constitution or of the federal Constitution. Franklin County v. Bank of Frankfort, 87 Ky. 370 [9 S.W. 212, 10 Ky. Law Rep. 506]; McElroy, Sheriff, v. Walsh's Trustee, 133 Ky. 113 [106 S.W. 240, 117 S.W. 398]. In the last case above cited the court observed: 'While it is true the state may have taxed the franchise, which includes the capital of the corporation, and taxed also the shareholder upon his shares, it has not done so.' The principle was well expressed by the Supreme Court of the United States in New Orleans v. Houston, 119 U.S. 265 [7 S.Ct. 198, 30 L.Ed. 411], where it was said: 'It is well settled by the decisions of this court that the property of shareholders in their shares, and the property of the corporation in its capital stock, are distinct property interests, and, where that is the legislative intent clearly expressed, that both may be taxed.' See, also, Tennessee v. Whitworth, 117 U.S. 129 [6 S.Ct. 645, 29 L.Ed. 830]; Bank of Commerce v. Tennessee, 161 U.S. 134 [16 S.Ct. 456, 40 L.Ed. 645]; Cooley on Taxation, vol. 1, § 246."

The same question was reconsidered in Siler v. Board of Supervisors, 221 Ky. 100, 298 S.W. 189. The court again said: "The Fourteenth Amendment to the federal Constitution is not a protection in all cases against unwise state legislation. It imposes no fixed rule of taxation upon the states. It protects against such discrimination as amounts to a denial of the equal protection of the law or a deprivation of property without due process of law. There is nothing in that amendment that forbids states enacting laws providing for double taxation so long as the law bears uniformly on all property within the particular class and do not discriminate against one taxpayer in favor of another. It is not double taxation, however, in our judgment, to require the assessment of the property of a corporation as a corporate entity and also require the assessment of the shares of stock of the corporation in the hands of individual holders."

In that case it was contended by Siler that it was a discrimination to require the assessment of shares of stock in the hands of individual holders if the corporation owned less than 75 per cent. of its total property in Kentucky, and to exempt the shares of stock in a corporation from assessment where it owned 75 per cent. or more of its total property in Kentucky. The court, after considering a number of cases, rejected this contention in these words: "After a careful consideration of the facts alleged in appellant's petition and the law applicable thereto, we have reached the conclusion that the action of the board of supervisors was correct, and that appellant was entitled to no relief from the assessment thus imposed upon him." Page 106 of 221 Ky. (298 S.W. 192).

Upon reconsideration of the question, the court adheres to the conclusion it then reached. Under the Constitution the Legislature is expressly authorized to classify property. The classification here made rests upon a reasonable foundation, and necessarily in such matters the question must be left to the judgment of the Legislature.

Appellant complains that his property is assessed at $95 a share, when land in Jefferson county is only assessed at about 70 per cent. of the average sale value, in voluntary sales. In the classification of property land is placed in one class, corporate stock in another. They are taxed at different rates. Appellant cannot at least complain that property in a different class from his property is assessed too low, unless the inequality is gross, or such as to show an unreasonable discrimination. This is not shown. The proof shows that the purchaser of land is generally a person who wants that property, and is willing to pay more for it than one who does not need it. Private sales are usually made on credit, and people will pay more for property on credit than for cash. The board of tax supervisors, sitting in Louisville and acquainted with local conditions, judged that 70 per cent. of the sale values represented about fairly the cash value of real estate. Some weight must be given to their judgment, for after all this is a matter of judgment. On the other hand, appellant's stock is valued according to the price it was bringing day by day on the stock market. He does not deny that his stock was selling at $95 a share day by day. There is no better way of fixing the actual cash value of a thing than the average of such daily sales for cash. The Constitution of the state requires that all property shall be assessed at its fair cash value, at voluntary sale. The court is unable to see, therefore, that appellant is entitled to any relief under the Constitution of Kentucky.

He earnestly insists that he is denied by the statute the equal protection of the law and relies on the case of Louisville Gas Co. v. Coleman, 277 U.S. 32, 48 S.Ct 423, 72 L.Ed. 770. In that case the Supreme Court reversed this court, and held that the statute taxing mortgages running over five years and not taxing mortgages running five years or less was invalid, on the ground that the classification was arbitrary. It is insisted that...

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