Martineau v. Clear Creek Oil & Gas Company

• Decision Date: 19 January 1920
• Docket Number: 130
• Citation: 217 S.W. 807,141 Ark. 596
• Parties: MARTINEAU v. CLEAR CREEK OIL & GAS COMPANY
• Court: Arkansas Supreme Court

217 S.W. 807

141 Ark. 596

MARTINEAU v. CLEAR CREEK OIL & GAS COMPANY

No. 130

Supreme Court of Arkansas

January 19, 1920

Appeal from Sebastian Chancery Court, Fort Smith District; J. V Bourland, Chancellor; affirmed.

Decree affirmed.

John D Arbuckle, Attorney General, and C. A. Starbird and C. M Wofford, for appellants.

The court erred in overruling the demurrer and enjoining the collection of taxes, as the facts alleged and conceded by the demurrer amount in substance to an honest mistake only on the part of the Tax Commission as to the value of appellee's property. Chancery has jurisdiction to correct excessive assessments, but the complaint alleges grounds sufficient, at most, if at all, to support an overvaluation, an error in judgment on the part of the Tax Commission.

The commission derives its power from act 257, Acts 1909, and act 251, Acts 1911. Its powers are broad--unlimited--and are made to depend upon the statement furnished by plaintiff as therein required and which it did furnish as alleged in the complaint. In determining the issues the facts alleged in the complaint are taken as true, but the conclusions of law are not so taken. The determination of the Legislature is conclusive unless it is arbitrary and without foundation in justice and reason. 98 Ark. 113-117; 94 Id. 217.

There is no right of appeal from assessments by the Tax Commission. 2 Cooley on Taxation, p. 1382; 1 Desty on Taxation, p. 605; 49 Ark. 518; 90 Id. 413; 63 Id. 576. The legal presumption is that the Tax Commission performed its duty. 96 Ark. 477. No appeal being provided, the action of the assessing body is conclusive. 52 Ark. 529. See also 90 Ark. 413; 106 Id. 248; 110 Id. 34; 63 Id. 576-588; 154 U.S. 421; 164 Id. 599 611; 204 Id. 585, 593-6; 174 U.S. 739, 754. An overvaluation or mistake of judgment in assessments can not be received by the courts. Supra. When the commission made its assessment it acted fairly, justly and according to law and the method pursued was correct and the cause should be reversed.

Hill & Fitzhugh, for appellee.

1. The method adopted by the Tax Commission for ascertaining the value of appellee's property was fundamentally wrong, and resulted in excessive valuation. The commission followed some method of its own based on capitalization of earnings as reflecting the value of the property. The method is contrary to the Constitution and our statutes, and the method erroneously refused to allow as operating expenses the cost of drilling wells and interest on indebtedness incurred for development, thereby swelling the apparent earnings and producing an excessive valuation. The capitalization of earnings is not in common use and is not recognized as a proper basis of ascertaining value, but is condemned as radically wrong and contrary to our law. 164 Penn. St. 284; 119 Ark. 362; 166 Pa.St. 453; 214 F. 180; 239 U.S. 234. These authorities conclusively settle the proposition that an assessment on a basis of capitalization of earnings is illegal.

2. The proper remedy is in equity. 49 Ark. 518; 110 Id. 34; 63 Id. 588; 204 U.S. 585; 244 Id. 499-522; L. R. A. 1916 A, 972. The action of the Tax Commission is not conclusive, and if a mistake or error has been made equity can correct cases. Supra.

OPINION

HUMPHREYS, J.

Appellee instituted suit against appellants in the Fort Smith District of the Sebastian Chancery Court to enjoin a taxation of its personal property in excess of $ 1,599.55 in Crawford County, and $ 1,292.95 in Sebastian County.

The jurisdiction of the court over the subject-matter and parties and the sufficiency of the bill were challenged by demurrer. The court overruled the demurrer, to which ruling appellants excepted and elected to stand on their demurrer. The court thereupon rendered a decree in accordance with the prayer of the bill, from which an appeal has been prosecuted to this court.

The bill alleged, in substance, that appellee is a private corporation, producing and selling natural gas; that it is domiciled in Fort Smith and owns a plant and equipment consisting of pipe lines, etc., of the value of $ 140,222.71 gas wells of the value of $ 29,950.73, gas leases of the value of $ 10,000, and supplies of the value of $ 11,682.18, or assets in a total value of $ 191,855.62; that it owns no intangible property; that in accordance with the requirements of the law, it returned the value aforesaid of all the property owned by it of date June 1, 1918, to the Tax Commission of the State of Arkansas, and, in addition, upon request furnished said commission with an auditor's report of its business in detail, including its gross receipts, gross operating expenses and net results from operation; that the corporate stock of appellee is $ 45,000, $ 15,000 of which was exchanged for leases on land, a large part of which was relinquished as being unprofitable territory; $ 15,000 sold at par value, and $ 15,000 at five for one; that its investments consisted of $ 105,000 derived from sales and exchange of stock, $ 97,000 borrowed, for which it bonded its property, $ 30,000 borrowed and treated as a floating debt; that the value of the corporate stock, including franchises, etc., was less than the value placed upon its property returned as of date June 1, 1918; that the amount paid in by the stockholders and borrowed, which had been invested in the plant, including pipe lines, etc., and in developing gas wells, was $ 232,700, but that the unpaid investment was of less value than the amount actually invested, because about $ 40,000 of said sum represented dry holes and unprofitable leased territory which had been surrendered; that the stockholders had received no dividends and the bonded and floating indebtedness had not been paid; that the Kibler gas field, in which appellee's wells are located, were discovered in 1915, but, since that time, have gradually decreased in the profitable production of gas, on account of the decline of rock pressure, the natural pressure propelling gas; that the value of its plant and other assets is dependent on its present and prospective supply of gas, a large part of which has been exhausted in the operation of the business; that the Tax Commission established a basis of fifty per cent. of the actual value of property for assessment purposes and upon that basis, appellee's property should have been assessed at $ 95,927.91, according to its actual and returned value; that, instead of so assessing appellee's property, the commission arrived at the value thereof upon the basis of a capitalization of its net earnings, and, in applying the rule so adopted, refused to allow as operating expenses the cost of drilling wells and interest paid upon the bonded and floating indebtedness; that the rule adopted resulted in swelling the value of the property of appellee from its actual and returned value of $ 191,855.62 to $ 439,592, for taxation purposes, in fraud of the rights of appellee, and in arbitrarily extending an unjust and grossly erroneous tax against the property of appellee in the sum of $ 3,488.22 in Crawford County, and $ 2,812.77 in Sebastian County, contrary to section 5, article 16, of the Constitution of the State of Arkansas, and the Fourteenth Amendment to the Constitution of the...