Arkansas Corporation Commission v. Thompson

• Decision Date: 28 April 1941
• Docket Number: No. 715,715
• Citation: 85 L.Ed. 1244,61 S.Ct. 888,313 U.S. 132
• Parties: ARKANSAS CORPORATION COMMISSION et al. v. THOMPSON
• Court: U.S. Supreme Court

313 U.S. 132

61 S.Ct. 888

85 L.Ed. 1244

ARKANSAS CORPORATION COMMISSION et al.

v THOMPSON.

No. 715.

Argued April 4, 1941.

Decided April 28, 1941.

Messrs. Leffel Gentry, of Little Rock, Ark., and Joseph M. Hill, of Fort Smith, Ark., for petitioners.

[Argument of Counsel from page 133 intentionally omitted] Mr. James M. Chaney, of St. Louis, Mo., for respondent.

[Argument of Counsel from pages 134-136 intentionally omitted] Mr. Justice BLACK delivered the opinion of the Court.

This case raises questions concerning the right and power of a federal bankruptcy court to revise and re- determine for state tax purposes the property value of a railroad (Missouri Pacific) in reorganization under section 77 of the Bankruptcy Act, 11 U.S.C.A. § 205, the state (Arkansas) having already determined such value through its own taxing officials and in accordance with the procedure prescribed by valid state legislation.

Over the objections of Arkansas officials, the District Court sitting in bankruptcy held that it did have such power. In re Missouri Pac. R. Co., 33 F.Supp. 728. The Circuit Court of Appeals affirmed. 8 Cir., 116 F.2d 179. In so holding, both courts relied on section 64, sub. a of the general bankruptcy act, 11 U.S.C. § 104(a) (Supp.1939), 11 U.S.C.A. § 104, sub. a, as the source of this power. That section, so far as pertinent here, provides 'The debts to have priority, in advance of the payment of dividends to creditors, and to be paid in full out of bankrupt estates * * * shall be * * * (4) taxes legally due and owing by the bankrupt to the United States or any State * * *: Provided, * * * That, in case any question arises as to the amount or legality of any taxes, such question shall be heard and determined by the (bankruptcy) court * * *.'

Petitioners contend that section 64, sub. a is in its entirety inconsistent¹ with the aims and purposes of section 77, 11 U.S.C. § 205 (Supp.1939), 11 U.S.C.A. § 205, and that it therefore has no application here. That question we need not decide. For we are of opinion that the Congressional language giving to the bankruptcy court power to determine the 'amount or legality' of taxes does not mean that the court is given power to redetermine and revise the property value finally fixed by a state under the circumstances revealed by the trustee's petition, even though that value is the basis used in computing the amount of taxes 'legally due and owing.'

An explanation of the power, functions, and action of the Arkansas Corporation Commission is essential to a clear understanding of this case. That Commission is a state agency created pursuant to state constitutional requirements.² It is vested with broad authority in the regulation of railroads, canals, turnpikes, public utilities, motor vehicles, sleeping cars, telephone and telegraph companies, and companies transmitting and distributing gas, oil and electricity.³ Also, in the administration of the state tax laws the Corporation Commission has general and complete supervision and control over the valuation, assessment and equalization of all property. Before entering upon his duties in the assessment of property, each member of the Commission must subscribe to an oath that he will well and truly value and assess all property required to be assessed.⁴ The Commission has full power to summon witnesses and hear evidence, but further, before assessments are finally determined, all persons interested have the right, on written application, to appear and be heard.

The Missouri Pacific has been in reorganization under section 77, with respondent as trustee, since 1933. In 1939, as in the preceding years, the railroad's properties were being operated by the trustee. The Commission, after a hearing in which the trustee participated, fixed the value of the railroad's Arkansas property, and levied an assessment for 1939. The trustee's motion for rehearing was heard, considered, and overruled by the Commission. The trustee concedes here that the hearing granted by the Commission was in 'full compliance with all the administrative steps required by the Arkansas statute.' Under controlling Arkansas law, it is provided that 'Within thirty days after the entry on the record of the said Arkansas Corporation Commission of any order made by it, any party aggrieved may file a written motion with any member of such commission or with the secretary thereof praying for appeal from such order to the circuit court of Pulaski County; and thereupon said appeal shall be automatically deemed as granted as a matter of right without any further order.'⁵ Any party aggrieved by the Circuit Court's decision may then obtain as a matter of right an appeal to the Supreme Court of the state.⁶ It is provided by statute that preferential standing on the docket be given to appeals from the Commission to the Circuit Court, and from the Circuit Court to the Supreme Court.

The Commission's final order fixing the value of the railroad's property for tax assessment was entered on December 4, 1939. The trustee did not appeal to the Circuit Court of Pulaski County within thirty days as authorized by Arkansas law, and the assessment of the Corporation Commission thereupon became final. Thus tested by Arkansas taxation legislation, the assessed taxes were, in the language of section 64, sub. a, 'legally due and owing' to the state in the 'amount' fixed by the Commission, and were not subject to further judicial review, unless the special cir umstance that a taxpayer is in bankruptcy or reorganization places it in a separate tax classification different from that of all other Arkansas taxpayers.

But three months after the expiration of the time allowed by the state for the trustee to appeal from the Commission's order specifically, on April 11, 1940—the trustee petitioned the bankruptcy court, sitting in Missouri, to determine the 'amount or legality' of the Arkansas tax by revising the property value found by the Corporation Commission and upon which the amount was based. The basis of the trustee's petition was that the Commission had made an overassessment, in that after a hearing it had determined the property to be worth far more than its actual value. This argument rested upon a contention that the Commission had overvalued the property by giving 'predominant weight * * * to original cost and to cost of reproduction, and wholly inadequate consideration * * * to the market value of the railroad's stocks and bonds and to an enormous reduction in earnings occasioned by general business consideration and to rapid increase of competition from buses, trucks, water and air.' The bankruptcy court was asked to find the Commission's tax assessment illegal upon three grounds: (1) The value determined by the Board was greatly in excess of the fair market value of the railroad's property and therefore there was a violation of that section of Arkansas law which provides that the assessment shall be 'upon the consideration of what a clear fee simple title thereto would sell for under conditions under which that character of property is usually sold.'⁷ (2) The assessment was in violation of Section 5 of Article 16 of the Constitution of Arkansas which provides that all property shall be taxed according to its value and that no one species of property from which a tax may be collected shall be taxed higher than another species of property of equal value, and that all values shall be ascertained so as to make the same equal and uniform throughout the state. (3) The alleged excessive valuation fixed by the Commission was in violation of the Fourteenth Amendment of the Constitution of the United States.

It is thus obvious that the trustee's petition, which the bankruptcy court refused to dismiss, rested entirely upon the assumption that section 64, sub. a(4) gave the bankruptcy court power to hold a completely new hearing in order to set its own value on the property, regardless of the value fixed by the state through its expert and specially constituted quasi-judicial agency.⁸

But we do not so interpret section 64, sub. a(4). What section 64, sub. a(4) relates to is 'taxes legally due and owing by the bankrupt.' And what that section further provides is that 'in case any question arises as to the amount or legality of any taxes, such question shall be heard and determined by the court; * * *.' Nothing in this language indicates that taxpayers in bankruptcy or reorganization are intended to have the extraordinary privilege of two separate trials, one state and one federal, on an identical issue of controverted fact—the value of the property taxed. Manifestly, whether or not taxes are 'legally due and owing' to a state depends upon the valid laws of that state. Ad valorem taxes depend upon a determination of value. The governmental function of fixing the value for tax purposes has rarely, if ever been a judicial function. The 'legality' of the action of Arkansas in entrusting the determination of value to its Corporation Commission is not challenged here, as of course it could not be. If the Commiss on properly found the value of the property, the 'amount' of the taxes is not in question. For it is not asserted that the Commission made an improper arithmetical computation in applying the legal tax rate to the determined property value. It is in this respect, as well as with regard to the dissimilar duties and functions of the state administrative agencies involved, that this case differs from that of New Jersey v. Anderson, 203 U.S. 483, 27 S.Ct. 137, 141, 51 L.Ed. 284, upon which the trustee here strongly relies. In that case, as here, the relevant provision of section 64, sub. a was relied on as authorizing the bankruptcy court to determine the 'amount or legality' of taxes. New Jersey had imposed a franchise tax upon the outstanding—not the authorized—capital stock of corporations, varying in proportion to the number of shares. A...