In re Assessment of Taxes on Sugar Plantations
| Decision Date | 18 November 1897 |
| Parties | IN THE MATTER OF THE ASSESSMENT OF TAXES ON THE FOLLOWING SUGAR PLANTATIONS: LIHUE PLANTATION COMPANY; GROVE FARM, (G. N. WILCOX); WAIAKEA MILL COMPANY; HILO SUGAR COMPANY; ONOMEA SUGAR COMPANY; PEPEEKEO SUGAR COMPANY; HAKALAU PLANTATION COMPANY; HAMAKUA MILL COMPANY; PAAUHAU PLANTATION COMPANY; UNION MILL COMPANY; R. R. HIND, (HAWI MILL); HUTCHINSON SUGAR PLANTATION COMPANY; HAWAIIAN AGRICULTURAL COMPANY; WAIMANALO SUGAR COMPANY; EWA PLANTATION COMPANY. |
| Court | Hawaii Supreme Court |
Submitted October 4, 1897.
APPEALS FROM TAX APPEAL COURTS.Kinney & Ballou for the plantations on Hawaii and Kauai and Waimanalo Plantation.
A. S Hartwell for G. N. Wilcox.
Thurston & Stanley and G. K. Wilder for H. C. Austin, Assessor for Hawaii.
Thurston & Stanley for J. K. Farley, Assessor for Kauai.
W. R Castle for Ewa Plantation Co.
A. G M. Robertson for Jonathan Shaw, Assessor for Oahu, in Ewa Plantation case; Thurston & Stanley for Assessor in Waimanalo Plantation case.
OPINION
These are appeals under the general tax law of 1896, (Act 51), the scope and effect of which were set forth at some length in Inter-Island Steam Nav. Co. v. Shaw, 10 Haw. 624. The distinguishing feature of the Act, so far as it relates to the present cases, is that it requires several kinds or parcels of property when combined as the basis of an enterprise for profit to be assessed as a whole, whereas previously the several parts of such property had been assessed separately. In 1896, the year the law went into effect, the sugar planters for the most part returned their property as under the old law, and the several assessors raised the valuations to the amounts which they deemed proper under the new law. Thereupon, from various considerations, compromise valuations were agreed upon in most cases. This year also the planters, at least those involved in these cases, for the most part returned their property as under the old law, giving merely the valuations of the separate items. The assessors raised the valuations and the planters appealed to the tax appeal courts of their respective districts, two on the Island of Kauai, eleven on the Island of Hawaii, and two on the Island of Oahu. In most of these cases the planters appealed only on the amount of the assessment in excess of the compromise valuation of last year. The appeal courts in some cases sustained the assessor, in others they sustained the taxpayer, adhering to the compromise valuation, but in most cases they fixed the valuation at an amount between the two. The present appeals were then taken to this court, in some cases by the assessor, in others by the taxpayer, in some by both parties. The assessments last year were made as of July 1, 1896, those now in question as of January 1, 1897. In order to avoid repetition we shall first consider a number of general questions that have arisen in these cases and then give the more prominent characteristics of each plantation and our conclusion.
The first question that naturally arises relates to the status of a tax appeal case in this court. In our opinion the decision of a tax appeal court is to be regarded in this court, not in the light of a verdict of a jury or of the court in a jury waived law case, but rather in the light of a decision by a Circuit Judge at Chambers. In other words, this court while giving a certain weight to a decision of a tax appeal court, is authorized to form its own estimate of the proper assessment as shown by the evidence. A tax appeal occupies about the same position as an equity appeal in this court. This is substantially the view taken in the Inter-Island case above cited. See pp. 625, 639. See, upon an equity appeal, Cha Fook v. Lau Piu, Ib. 308. Of course, this court can in no case place a valuation outside of the limits fixed by the appeals.
As to whether the compromise valuations of last year should be adhered to in the absence of proof that a material change in values occurred between July 1, 1896, and July 1, 1897, we are of the opinion that some weight should be given to the compromises and yet not so much weight as counsel for the Hawaii plantations contends for. Those compromises were made under peculiar circumstances. It does not appear how fully or carefully the questions involved were considered. Apparently the assessors were not altogether satisfied with the compromise valuations, but yielded to some extent to the advice of the Executive Council. The planters themselves also apparently did not regard those valuations as of a continuing nature. Not only did they not return their plantations at those valuations this year, but they, at least those on Hawaii to whom the offer was made, refused last year to agree upon those valuations for January 1, 1897, as well as for July 1, 1896.
We however fully agree with counsel that valuations should not be changed from year to year for light reasons. Under the old law when the various items of property composing a plantation were assessed separately, the total valuation of the plantation, which was merely the sum of the values of the parts regarded separately, naturally would change from year to year even if only to a very slight extent in some cases. But under the new law the value of the property as a whole should not vary with every little change in the sum of the values of the parts regarded separately. For instance the value of the plantation as a whole would not vary materially merely because there was on hand more sugar or fertilizer, or because the price of sugar was higher, or because there were more acres of matured cane, at one time than at another time. No doubt such changes as these may properly be considered, but not only is it desirable that valuations for the purposes of taxation should be of a somewhat lasting character, but in valuing the property of an enterprise as a whole, intending purchasers consider chiefly the earning power of the property in the long run as shown by its past history and future prospects and possibilities.
The main consideration is the future; the past being of importance chiefly as a help in determining what the future is likely to be. And in considering the past, although the statute (Sec. 68) requires the taxpayer to state in his return " what the net profits as well as the gross proceeds and actual running expenses of such enterprise have been during the twelve months next preceding, " yet the assessor is not limited to a consideration of these factors for the preceding twelve months, for not only is there no attempt to so limit him in the statute (see Sec. 17) but it would be highly improper to consider these matters for one year only, if he could ascertain them for a longer period. An enterprise may pay handsomely one year and even suffer a loss another year, and yet the value of its property may vary but little during the two years. The tax in question is not an income tax, depending for its amount upon the income for the year preceding, but a tax on property the earning power of which is one of the most potent factors in determining its value. Nor is any single or arbitrary rule prescribed in the statute for estimating the value of the property. Not only could no one rule be justly followed in all cases, so varying are the factors that go to determine the values in the different cases, but the statute itself provides that " there shall be taken into consideration, " besides the matters specially enumerated " all other facts and considerations which reasonably and fairly bear upon such valuation." The question is, what is the fair and reasonable value of the property as a whole, all things considered; not, what is the arbitrary amount (which could scarcely be called value) that would be obtained by considering only certain things.
A distinction should be made between properties yielding steady profits for a number of years and those the profits from which are variable.
Dividends should not be confounded with net profits. In most of the cases now before us we have the net profits for only one or two years, and only the dividends for other years. In some cases planters have returned as running expenses what is really capital expenditure, as, for example, sums expended in purchasing lands or otherwise increasing the permanent property or earning power of the plantation. In valuing properties, therefore, in so far as earnings are considered, dividends alone are not a correct criterion. What is expended by way of investment as distinguished from running expenses should be added to dividends. Further there may be a distinction between plantations even in respect of what is expended for running expenses. No doubt a planter may include in running expenses whatever is necessary to maintain the plantation efficiently. Now, if one plantation is kept at the top notch of efficiency and another is allowed to run down through failure to replace worn or antiquated machinery with new or improved machinery or otherwise, although the two plantations may pay equal dividends, yet the latter really pays as dividends what should have been put into running expenses, and an allowance should be made on that account. In other words, as what is laid out in capital expenditure should be considered in addition to dividends, so what should have been, but has not been, laid out in maintaining proper efficiency should be allowed for in the other direction. Of course this cannot be accurately estimated, but can be allowed only in a general way. Some plantations are evidently kept up properly and others have been neglected-sometimes probably through lack of means.
An important question in considering the past of a plantation is whether it has been a growing or a...
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