Lehigh Valley R. Co. of New Jersey v. Martin

• Decision Date: 15 November 1938
• Docket Number: No. 6431-6439.,6431-6439.
• Citation: 100 F.2d 139
• Parties: LEHIGH VALLEY R. CO. OF NEW JERSEY et al. v. MARTIN, Tax Com'r, and eight other cases.
• Court: U.S. Court of Appeals — Third Circuit

100 F.2d 139 (1938)

LEHIGH VALLEY R. CO. OF NEW JERSEY et al. v. MARTIN, Tax Com'r, and eight other cases.^*

Nos. 6431-6439.

Circuit Court of Appeals, Third Circuit.

November 15, 1938.

COPYRIGHT MATERIAL OMITTED

Thomas Raeburn White, of Philadelphia, Pa., Maximilian M. Stallman, of Newark, N. J., Robert J. Bain, of Jersey City, N. J., and Alexander H. Elder, of New York City, for appellants.

David T. Wilentz, Atty. Gen., of N. J., and Duane E. Minard, Sp. Asst. Atty. Gen., for appellees.

Before BUFFINGTON, THOMPSON and BIGGS, Circuit Judges.

BIGGS, Circuit Judge.

The appeal numbered upon our docket as 6431 is that of the Lehigh Valley Railroad Company of New Jersey, a corporation of New Jersey, Lehigh Valley Harbor Terminal Railway Company, a Corporation of New Jersey, and Lehigh Valley Railroad Company, a corporation of Pennsylvania, lessee, v. J. H. Thayer Martin, State Tax Commissioner of New Jersey, Frank J. Murray, Comptroller of the State of New Jersey, William H. Albright, Treasurer of the State of New Jersey, and David T. Wilentz, Attorney General of New Jersey. The appeal numbered 6432 upon our docket is that of the Central Railroad Company of New Jersey, a corporation of New Jersey, v. the officers of the State of New Jersey just named. These appeals concern sums assessed and taxed by the State of New Jersey for the year 1932 upon the properties of the appellants within the State of New Jersey.

Seven other appeals are also presented for determination. In No. 6433 upon our docket the appellant is Central Railroad Company of New Jersey, a corporation of New Jersey. In No. 6434 the appellant is Delaware, Lackawanna & Western Railroad Company, a corporation of Pennsylvania. In No. 6435 the appellant is New York Central Railroad Company, a corporation of New York. In No. 6436 the appellant is New Jersey & New York Railroad Company, a corporation of New Jersey. In No. 6437 the appellant is New York, Susquehanna & Western Railroad Company, a corporation of New Jersey and Pennsylvania. In No. 6438 the appellant is Erie Railroad Company, a corporation of New York. In No. 6439 the appellant is Lehigh Valley Railroad Company, a corporation of Pennsylvania. In all of these appeals the appellees are identical with those named in Nos. 6431 and 6432. The seven appeals concern sums assessed and taxed by the State of New Jersey for the year 1933 upon the properties of the appellants within the State of New Jersey.

As to the Merits of the Controversy.

Setting aside procedural questions, the gist of the controversies lies in the method and manner of assessment employed by the taxing authorities of New Jersey. The parties have stipulated that the 1932 cases shall be determined on the record made upon the 1933 assessments at the hearing before the State Board of Tax Appeals and reviewed by the Supreme Court of New Jersey in Central R. R. Co. v. Thayer-Martin, 114 N.J.L. 69, 175 A. 637, it being further stipulated, however, that the court below should determine all questions of admissibility and competency of the testimony taken in the proceedings before the State Board of Tax Appeals.

The statutes of New Jersey providing for the assessing and taxation of railroad property (P.L. 1888, p. 269, and the various supplements and amendments thereto, which will be referred to hereafter as the Railroad Tax Act, R.S.N.J.1937, 54:19-1 et seq.) provide that the taxing authorities of New Jersey shall ascertain the "true value" of the properties of each railroad company within the State, and in making such ascertainment, shall also ascertain "I. The length and value of the main stem of each railroad * * * II. The value of the other real estate used for railroad * * * purposes * * * III. The value of all the tangible property of each railroad * * * and IV. The value of the remaining property, including the franchise." R.S.N.J.1937, 54:22-1. The Railroad Tax Act was itself passed pursuant to the authority of Article 4, Section 7, par. 12, of the Constitution of the State of New Jersey, which requires all property subject to taxation within the State to be assessed "* * * for taxes under general laws, and by uniform rules, according to its true value."

Referring specifically to the method of assessment employed in the cases at bar, the case for New Jersey rests principally upon the testimony of Focht, Chief Engineer of the Division of Railroad Valuations and Taxes of the New Jersey Tax Department. This witness testified that he was a civil engineer of over thirty years continuous employment and experience in assessing railroad properties and that he had walked over every foot of railroad in the State. He stated that valuations of railroad properties in the State of New Jersey, and of the appellants' properties in particular, were arrived at under the four enumerated classifications as follows. The "yardstick" used in ascertaining the value of the main stem properties of each railroad was the value of adjacent property. Buildings and structures on the main stems and other lines were valued at cost of reproduction, less depreciation, and the tangible personal property of the appellants, including rolling stock, received similar valuation. As to the valuation of franchises, the witness testified in respect to the valuation of the franchise of the Central Railroad Company of New Jersey that the sum of $800,000 represented "* * * our idea of the value of the right to do business in the State and covering that section of the railroad. * * * It is an appraisal, a personal appraisal of the value of that class of property. In a way, it has a definite relation to the market value of the stock and bond or the net earnings. * * * Those elements were considered in arriving at or in formulating our judgment with respect to that amount. * * * We couldn't apply the stock and bond method on franchise rigorously to the value which we put down there. We considered the net income method. We didn't use it, but we considered it. We considered the stock and bond method. We didn't use the stock and bond method in order to arrive at the value and didn't use the net earnings method to arrive at the value, but we considered it."

It further appears from Focht's testimony that the "bare-bones" method of valuation (see Southern R. R. Co. v. Kentucky, 274 U.S. 76, pages 81 and 82, 47 S. Ct. 542, 71 L.Ed. 934) was not followed strictly even in respect to the physical assets of the appellants. The witness testified that "The basis of fact for the assessment is what we consider the taxable value of the property. The railroads make returns annually, of capital stocks and bonds, par value, on a blank which we furnish for each company, also of earnings and expenses, the last being for the year ended December 31, 1931, reported according to the Interstate Commerce Commission classification of accounts. The form calls for the amounts applicable to New Jersey. * * * The statement also calls for mileage of the system in and out of New Jersey. The next item on the statement calls for the statements of lands and structures owned outside the state of New Jersey as to cost and valuation * * *".

The witness testified that he examined all principal items himself. He testified:

"For instance, for a dock in the harbor we get the plans and make an estimate of our own just as a contractor would make it, and after we get it done we determine what in our opinion is a fair taxable value of the property. We do not use the cost as the valuation for tax purposes; we apply a certain factor to it, depending on the circumstances.

"Cost includes a lot of elements, such as conducting transportation during construction, and we take those elements into consideration. We have to depend on our judgment for the taxable value and have been doing that for thirty-five years."

He further testified: "In going over the railroads, I have noticed plenty of idle equipment, freight and locomotives, some of them will never be put in use on the road again. On this account we have had to depart from our rigid scale of depreciation to allow for that condition of lack of use." He also stated: "In valuing structures on railroad property we have to consider the parts of the whole and that has been the practice and they have been valued accordingly. For taxation purposes, I make no difference between such structures in railroad use and in industrial use."

None the less it is not an exaggeration to say that physical valuations constitute the assessments, valuation of franchises aside, as contended by the appellants, and it is obvious that many items which could properly be considered in estimating valuations for tax assessments have not been considered by the taxing authorities at all. System values have been disregarded except to the very slight degree indicated in arriving at the valuations of franchises. Capitalized average income and capital charges have not been considered. Revenue ton miles, passenger and freight miles, both as to the entire systems and as to trackage in New Jersey, have been disregarded. Little emphasis has been placed upon the functional values of the appellants' properties. The record now before us convinces us that the method of assessment employed by the State of New Jersey for railroad properties may be justly criticized and might well be subject to revision.

None the less the methods of assessment and valuation employed in the case at bar have received the sanction of the Courts of New Jersey and are now firmly embodied in its laws. Central R. R. Co. v. Thayer-Martin, 114 N.J.L. 69, 175 A. 637; Central R. R. Co. v. State Tax Department, 112 N.J.L. 5, 169 A. 489; State Board v. Central R. R. Co., 48 N.J.L. 146, 4 A. 578. Central R. R. Co. v. State Board, 49 N.J.L. 1, 7 A. 306.

No single technique or method has ever been adopted for valuation of railroad properties by taxing authorities and a wide variety of methods has been employed. The Supreme Court of the United...