American Bank and Trust Co. v. Dallas County

Citation679 S.W.2d 566
Decision Date23 July 1984
Docket NumberNo. 20915,20915
PartiesAMERICAN BANK AND TRUST COMPANY, et al., Appellants, v. DALLAS COUNTY, et al., Appellees.
CourtCourt of Appeals of Texas

Marvin S. Sloman, Brian M. Lidji, Carrington, Coleman, Sloman & Blumenthal, Dallas, for appellants.

Earl Luna, Dallas, for appellees.

Before GUITTARD, C.J., and AKIN and ROWE, JJ.

GUITTARD, Chief Justice.

The tax assessments involved in this suit have been declared illegal by the Supreme Court of the United States. American Bank and Trust Co. v. Dallas County, 463 U.S. 855, 103 S.Ct. 3369, 77 L.Ed.2d 1072 (1983). The principal question now presented on remand from that court is whether a taxpayer is entitled to injunctive relief from an illegal assessment without proof that a proper assessment based on true market value would result in a lower tax on the property in question. We hold that even though the illegality results from disregard of a federal statute, the case falls within the settled Texas rule that illegality is not sufficient without proof that a lower tax would be due under a proper assessment, and no such proof is shown in this record. Consequently, we affirm the judgment insofar as it denies injunctive relief, but we modify the judgment by declaring the assessments in question illegal, in accordance with the opinion of the Supreme Court.

This case is one of several pending in this court on remand from the Supreme Court of the United States. All concern the validity of ad valorem assessments of the shares of banking corporations. We had upheld the assessments in Bank of Texas v. Childs, 615 S.W.2d 810 (Tex.Civ.App.--Dallas 1981, writ ref'd n.r.e.). The Supreme Court reversed on the ground that the formula used in making the assessments is contrary to REV.STAT. § 3701, 31 U.S.C. 742, as amended in 1959, which provides that federal government obligations are exempt from taxation under State or local authority. American Bank & Trust Co. v. Dallas County, 103 S.Ct. 3369. By an amendment in 1959, this exemption was extended "to every form of taxation that would require that either the obligation or the interest thereon, or both, be considered, directly or indirectly, in the computation of the tax...." Act of Sept. 22, 1959, § 105(a), 73 Stat. 622. The Supreme Court held that the use by the tax assessors of the "equity capital formula" of computing the assessed value is contrary to section 3701 because it takes into account the federal obligations held by the banks. The Court did not hold, however, that the Texas statute imposing the tax on bank shares, former TEX.TAX.-GEN.ANN. art. 7166 (Vernon 1960) is unconstitutional. 1

On remand the taxing authorities contend that the judgments of the trial court upholding the assessments should be affirmed because the record fails to show that the appellant shareholders were substantially injured by use of the illegal formula as opposed to a proper method of valuation. The shareholders respond that section 3701 forbids any method of computing the assessed value that does not deduct from the value of the shares the proportionate value of the federal securities held by the bank, and, therefore, injury is conclusively established.

We do not agree that substantial injury is shown. The shareholders made no attempt to prove the market value of their shares or what a proper valuation would be after an appropriate deduction for the federal securities held by the banks. Instead, they objected to this evidence when offered by the taxing authorities and relied on their renditions, which were based on book value of the banks' assets--that is, the "equity capital formula"--excluding the value of the federal securities. 2 These renditions were accepted by the tax assessor as to the value of the bank's assets, although, as the Supreme Court has held, the assessors improperly added the value of the federal securities. So far as the present record shows, if the assessors had based their assessments on the true market value rather than book value and had made a proportionate deduction for the value of the federal securities, the taxable value would have been equal to or greater than the assessments under attack. Our question is whether the assessors were bound to accept the book value of the stock as shown by the renditions or whether the shareholders have the burden to show the true value of their shares in order to establish injury entitling them to injunctive relief from an illegal assessment.

We cannot agree that the book value of a bank's assets is a proper method of determining the market value of its shares. The taxing statute, former TEX.TAX-GEN.ANN. art. 7166 (Vernon 1960) provides that bank shares be taxed on their "actual cash value," but makes no provision as to how that value should be determined. It does not require that assessors use the "equity capital formula," or that the assessment take into account the value of any of the bank's assets, although it does require a specific deduction for the assessed value of the bank's real estate, which is otherwise subject to ad valorem taxation. "Value" as that term is used in article VIII, section 1, of the Texas Constitution and in Texas taxing statutes is uniformly held to mean reasonable cash market value. Whelan v. State, 155 Tex. 14, 282 S.W.2d 378, 380 (1955); Jones v. Hutchinson County, 615 S.W.2d 927, 931 (Tex.Civ.App.--Amarillo 1981, no writ). This value is the price the property would bring if offered at a free sale on the market. Polk County v. Tenneco, Inc., 554 S.W.2d 918, 921 (Tex.1977); West Texas Hotel Co. v. City of El Paso, 83 S.W.2d 772, 775-77 (Tex.Civ.App.--El Paso 1935, writ dism'd). Book value is not a proper measure of taxable value when the evidence shows that it differs from market value. Polk County, 554 S.W.2d at 923. Thus the Court of Appeals of Kentucky has held that the book value of stock is an improper measure of fair market value for taxation when better evidence, such as the selling price, is available. Board of Supervisors v. State National Bank, 300 Ky. 620, 189 S.W.2d 942, 945 (1945). At most, book value is recognized as only an indication or approximation of true value. See Stanley v. Board of Supervisors, 121 U.S. 535, 548-549, 7 S.Ct. 1234, 1238-1239, 30 L.Ed. 1000, 1003 (1887). Intrinsic value likewise is considered a proper basis for valuation only when there is evidence that the property has no market value. Whelan, 282 S.W.2d at 381.

Since under these authorities the market value of the shares is the only proper basis for assessment, the shareholders have the burden to prove the market value of their shares in order to establish substantial injury entitling them to injunctive relief from the illegal assessment. The Texas law on this point is well settled. In City of Arlington v. Cannon, 153 Tex. 566, 271 S.W.2d 414, 417 (1954), the trial court issued an injunction restraining the city from collecting a tax because different classes of property were assessed at different percentages of value and certain classes of property were not assessed at all. The Supreme Court of Texas recognized that the board of equalization had not followed the statutory mandates and that its procedures were "wholly unlawful and fundamentally wrong." Nevertheless, the supreme court reversed the injunction on the ground that substantial injury was not shown in that the taxpayers had failed to prove that their property was assessed at a higher percentage of its true market value than other property. Writing for a unanimous court, Justice Calvert stated:

It is now settled, however, that to obtain relief from taxes arrived at through the use of an arbitrary, illegal and fundamentally erroneous plan of valuation, the taxpayer must show substantial injury.

* * *

* * *

The general plan followed by the board was to assess some classes of personal property at a greater percentage of value than that adopted for real property and at a greater percentage of value than that adopted for other classes of personal property. In so far as relief is sought by the owners of personal property upon the basis that higher percentages were applied to the property of the litigants, only those owners who can establish that their personal property was actually assessed at a substantially higher percentage of its market value than that used for other property would be entitled to relief, and then only to the extent of the excess. [Emphasis by the court.]

271 S.W.2d at 417. The supreme court expressly held that the trial court's finding of substantial injury to different classes of taxpayers as a result of the unlawful methods of assessment was not sufficient for injunctive relief:

From what has been said it must be apparent that the injunction cannot stand in favor of the class of plaintiffs in the first category. Where proof of excessiveness or of substantial injury is required as a prerequisite to the granting of relief, that proof must be made as to each taxpayer who seeks relief.

271 S.W.2d at 418.

In support of this holding, Justice Calvert cited with approval Montgomery County v. Humble Oil & Refining Co., 245 S.W.2d 326, 335-36 (Tex.Civ.App.--Beaumont 1951, writ ref'd n.r.e.). In that case uncontradicted evidence established that the plan of taxation adopted by the board of equalization was to assess mineral properties at one-third of market value and other real estate at one-tenth of market value. The trial court granted an injunction, holding that under the evidence there could be no issue of the true market value of the property in question. This holding was reversed and the injunction was dissolved because of the exclusion of evidence offered by the county concerning the true market value. The court of civil appeals held:

When the appellee brought suit in the district court of Montgomery County to enjoin the collection of 1950 taxes from it except upon renditions originally made by it, it...

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