People ex rel. Cent. Hudson Gas & Elec. Co. v. State Tax Comm'n

• Decision Date: 14 February 1928
• Citation: 160 N.E. 371,247 N.Y. 281
• Court: New York Court of Appeals Court of Appeals
• Parties: PEOPLE ex rel. CENTRAL HUDSON GAS & ELECTRIC CO. v. STATE TAX COMMISSION.

247 N.Y. 281

160 N.E. 371

PEOPLE ex rel. CENTRAL HUDSON GAS & ELECTRIC CO.

v.STATE TAX COMMISSION.

Court of Appeals of New York.

Feb. 14, 1928.

For special franchise proceedings by the People on the relation of the Central Hudson Gas & Electric Company, against the State Tax Commission, relating to the taxes for the years 1916, 1917, 1918, and 1919. Orders entered on the report of the referee in relator's favor were modified and affirmed by the Appellate Division (219 App. Div. 227, 219 N. Y. S. 445; 218 App. Div. 44, 217 N. Y. S. 707; 218 App. Div. 60, 217 N. Y. S. 722), and defendant appeals.

Orders of Appellate Division modified and affirmed.

See, also, 218 App. Div. 865,219 N. Y. S. 890, 891.Appeal from Supreme Court, Appellate Division, Third Department.

Albert Ottinger, Atty. Gen. (John M. Farell, of Oswego, and Frederic J. Merriman, of Madrid, of counsel), for appellant.

R. L. von Bernuth, John L. Wilkie and Morrell S. Lockhart, all of New York City, for respondent.

CRANE, J.

The facts in these cases are fully set forth in the opinions below. 218 App. Div. 44, 60, 217 N. Y. S. 707, 722,219 App. Div. 227, 219 N. Y. S. 445. We agree with the Appellate Division except in two particulars.

These are special franchise proceedings relative to the years 1916, 1917, 1918, and 1919. The relator is a corporation organized under the Transportation CorporationsLaw (Consol. Laws, c. 63), engaged in the manufacture and sale of gas, electricity, and steam. Its main office is located in Poughkeepsie, and it serves a territory comprising Duchess, Orange, and Ulster counties. It has two electric generating stations, one of Poughkeepsie and the other at Newburgh. The transmission and distribution systems of the company are both located in and outside of streets, highways, and public places.

The method used in arriving at the valuation of the relator's special franchises for the use of the streets and highways in the various cities and villages was the application of the net earnings rule. People ex rel. Jamaica Water Supply Co. v. State Board of Tax Com'rs, 196 N. Y. 39, 89 N. E. 581. It is conceded that the net earnings rule is the formula for determining the special franchise values in question, this being the basis on which the assessments under review were made by the state tax department, and on which the cases were tried by both parties.

After having determined, according to this rule, the net earnings, the Appellate Division by a divided court apportioned them according to the relative user of the streets and highways with the use of private property or privately owned rights of way. As the wires of the company, being its transmission system, carried electricity from its distributing stations over a large territory, its wires or mains crossed private property as well as streets and highways. The Appellate Division has said that the net earnings figured according to this rule represent the whole length of the transmission system, and not the earnings from the franchises only. They have apportioned them by length of wires. By this rule of thumb they have allocated that portion of the net income which they say represents the user of the streets. To quote from the opinion of the Appellate Division:

‘The relator's business is to deliver electric current to the buildings of its customers situate at divers places in three different counties. It is carried upon wires strung over private rights of way owned by relator as well as over public streets and public waters. The distance which it is carried over private far exceeds the distance which it is carried over public ways. Every foot of carrying wire is as essential to relator's business as every other foot. * * *

‘It [the franchise tax] is merely a tax upon a property right-the right to cross a street. The right so to cross is no more valuable than the right to cross land privately owned. The public character of the right certainly gives it no added value.’

In other words, if a wire crosses the relator's private right of way for 100 feet, and also crosses a public highway for 100 feet, the value of the user is equal, and the net earnings of the company under the net earnings rule must be divided in half.

[1] In my judgment the Appellate Division has misconceived the nature of a special franchise. In no way is it to be compared to a private right of way, or the right to cross private property, whether owned by the company or by strangers. A street crossing franchise consists of the right to cross a street, and to use it, when but for a grant of the right to do so from competent public authority it would be a trespass. The franchise is created by grant, and cannot be acquired by purchase or condemnation. People ex rel. New York Cent. & H. R. R. Co. v. Woodbury, 203 N. Y. 167, at page 176,96 N. E. 431. And the franchises so obtained to use or cross streets are not merely to be valued according to the length or extent of the user. Their value depends upon many conditions. Under the rule adopted by the Appellate Division, all the street crossings of the relator would be valued according to the same unit rule. It is the duty if necessary of the state tax commission to value each crossing or user, and allocate the franchise tax to the particular tax district. Under the rule adopted here the value would depend upon the lineal foot user. I fail to find any case upholding such a rule. In fact, we said in People ex rel. New York Cent. & H. R. R. Co. v. Gourley, 198 N. Y. 486, 493,92 N. E. 398, 401:

‘The valuation of each crossing depends upon various elements; such as its character, the extent to which it is occupied by the relator, the situation and public use of the street, or way, and other facts bearing upon the advantage to the relator of the use at that point.’

Surely the user of wild Adirondack or Catskill mountain lands is not as valuable as the user of a street or highway in a populous city, and the value of a street franchise may be many times more valuable at a congested point than in that part of a city which is sparsely settled. The relator's wires run over private property through vast country districts, and yet the court has held that the value of each lineal foot of such user is as valuable as a foot of wire crossing a street. The mere statement of this proposition to me indicates that the Appellate Division has misconstrued the nature of a franchise, and the rule by which a franchise is valued for assessment and taxation purposes.

[2][3] The right to use a street is a special privilege. The right to use private property is not a special franchise, and is to be valued as any other property is valued, whether it be corporeal or intangible. Easements of all kinds are intangible, and yet they are...