State v. Royal Mineral Association
| Decision Date | 04 February 1916 |
| Docket Number | 19,470 - (17) |
| Citation | 156 N.W. 128,132 Minn. 232 |
| Parties | STATE v. ROYAL MINERAL ASSOCIATION |
| Court | Minnesota Supreme Court |
In the matter of proceedings to enforce the collection of personal property taxes for the year 1913 delinquent in 1914 defendant filed an answer. The matter was heard before Cant J., who made findings and ordered judgment against defendant for $107.18. From the judgment entered pursuant to the order for judgment, defendant appealed. Reversed.
Mining lease.
1. Instruments called mining leases involved in this action are leases in fact as well as in name, and the amounts stipulated to be paid by the lessees are rents.
Mining lease -- unaccrued rents not personalty.
2. Unaccrued rents are not personal property. They are incorporeal hereditaments. They are an incident to the reversion and follow the land. Though separable from the land, they are, until such separation, part of the land.
Taxation -- "credits" do not include unaccrued rents.
3. Our statutes provide for the separate assessment of real and personal property. By the terms of the statutes, real property includes the land and all privileges thereto belonging; credits include every claim and demand for money and every sum of money receivable at stated periods, due or to become due. Credits are, however, personal property and they include only such demands as are classed as personalty. The term does not include unaccrued rents to issue out of land.
Taxation -- unaccrued rents not taxable.
4. Rents due in July, for the period from April 1 to July 1, are not taxable as credits May 1.
Washburn, Bailey & Mitchell, for appellant.
Charles E. Adams, for respondent.
The defendant was assessed for the year 1913 for "credits" at a valuation of $30,000. The alleged credits were made up of the minimum amounts agreed to be paid under certain iron mining leases of land owned by defendant in this state. These instruments are nine in number. They run for a fixed term, in most cases for 50 years from their date, but are terminable by the lessees on notice. Eight of them are terminable on 30 days' notice, one of them on 90 days' notice. One of these instruments is submitted as a fair sample of all. It is a lease in form. It grants possession to the lessee. It provides that the lands are leased for the purpose of exploring for, and mining and taking out, ore, and authorizes the lessee to construct all buildings, ditches, drains, wagon roads, railroads and other improvements on said land incident to such mining operations, and gives the right to cut certain of the timber on the land for fuel and other purposes incident to such operations. The lessee agrees to mine and remove at least 150,000 tons of ore annually and to pay a royalty of 25 cents per ton upon all ore mined, or at his option to pay "an advance royalty, which shall be treated and considered as ground rent," of 25 cents per ton on said minimum, though less than the minimum is mined, or none is mined at all. This "advance royalty" is payable in advance, it may be, of mining operations. It is not, however, payable in advance as that term is commonly used in leases, but it is payable in the months of January, April, July and October of each year for the three months next preceding.
The trial court held that the amounts to fall due in the future on these mineral leases were "credits," within the meaning of our tax laws, and were taxable as personal property. The propriety of this ruling is the question before this court.
1. At the outset it is important to consider the nature of these socalled mining leases. Their nature is not an open question in this state. It is settled that they are leases in fact, as well as in name. State v. Evans, 99 Minn. 220, 108 N.W. 958, 9 Ann. Cas. 520; Boeing v. Owsley, 122 Minn. 190, 142 N.W. 129. These decisions are in accord with the great weight of authority. Raynolds v. Hanna, 55 F. 783; Tennessee Oil, Gas & Mineral Co. v. Brown, 131 F. 696, 65 C.C.A. 524; Gartside v. Outley, 58 Ill. 210, 11 Am. Rep. 59; Consolidated Coal Co. v. Peers, 150 Ill. 344, 37 N.E. 937; Kissick v. Bolton, 134 Iowa 650, 112 N.W. 95; Austin v. Huntsville Coal & Mining Co. 72 Mo. 535, 37 Am. Rep. 446; Genet v. G. & H.C. Co. 136 N.Y. 593, 32 N.E. 1078, 19 L.R.A. 127; Denniston v. Haddock, 200 Pa. St. 426, 50 A. 197; Coolbaugh v. Lehigh & Wilkes-Barre Coal Co. 213 Pa. St. 28, 62 A. 94, 4 L.R.A. (N.S.) 207; Gallagher v. Hicks, 216 Pa. St. 243, 65 A. 623; Hollenback Coal Co. v. Lehigh & Wilkes-Barre Coal Co. 219 Pa. St. 124, 67 A. 987; Girard Trust Co. v. Delaware & H. Co. 246 Pa. St. 161, 92 A. 129; Ganter v. Atkinson, 35 Wis. 48; Quoon v. Westbrook, 10 Q.B. 178, 205; see also Hyatt v. Vincennes Bank, 113 U.S. 408, 5 S.Ct. 573, 28 L.Ed. 1009; United States v. Gratiot, 14 Pet. 526, 10 L.Ed. 573.
The earlier Pennsylvania cases announced the doctrine that such instruments were sales of the mineral in place. Hope's Appeals, 3 A. 23, 29 W.N.C. (Pa.) 365; Caldwell v. Fulton, 31 Pa. St. 475, 72 Am. Dec. 760; Tiley v. Moyers, 43 Pa. St. 404, 410; Eley's Appeal, 103 Pa. St. 300, 303; Delaware, L. & W.R. Co. v. Sanderson, 109 Pa. St. 583, 1 A. 394, 58 Am. Rep. 743. On this point these earlier cases are overruled by the later cases above cited, which hold, in substance, that while a contract regarding mineral in place may be a sale, or a lease, or a license, depending on its terms, an instrument such as the instruments we have here under consideration is "at common law a lease without impeachment of waste;" that the amount paid by the lessee is rent and not the purchase price of mineral in place; that the lessee is in the position of a lessee of a house, bound to pay rent whether he occupies it or not. Denniston v. Haddock, 200 Pa. St. 426, 428, 429; Girard Trust Co. v. Delaware & H. Co. 246 Pa. St. 161, 92 A. 129. Few, if any, state courts follow the early Pennsylvania decisions. They have been followed in some Federal cases arising under the laws of Pennsylvania. Plummer v. Hillside Coal & Iron Co. 104 F. 208, 43 C.C.A. 490; Wilmore Coal Co. v. Brown, 147 F. 931. Von Baumbach v. Sargent Land Co. 219 F. 31, 134 C.C.A. 649, follows the same rule.
We adhere to the doctrine of the Evans and Boeing cases, and hold these instruments leases. It follows logically that the amounts stipulated to be paid by the lessees are rents, and they were expressly held by this court to be rents in the Boeing case, supra, a case which involved a construction of the very leases now before the court. They are "the compensation which the occupier pays the landlord for that species of occupation which the contract between them allows." Lord Dennison, in Queen v. Westbrook, 10 Q.B. 178, 205.
2. Having determined that the unaccrued payments on these leases are rents, the remaining questions are easy of solution. If these amounts are rents, we are unable to distinguish them from any other ground rents. If these rents while not yet due are taxable as credits, then all other unaccrued ground rents are so taxable.
Unaccrued rents are not personal property. They are incorporeal hereditaments. They are an incident to the reversion and follow the land. Burden v. Thayer, 3 Metc. 76, 37 Am. Dec. 117; Mahoney v. Alviso, 51 Cal. 440; Broadwell v. Banks, 134 F. 470. They pass with a sale or devise of the land. Martin v. Royer, 19 N.D. 504, 125 N.W. 1027; Stone v. Snell, 86 Neb. 581, 125 N.W. 1108; Hammond v. Thompson, 168 Mass. 531, 47 N.E. 137. If transferred apart from the land, the provision of the statute of frauds relating to sales of land applies. Brown v. Brown, 33 N.J.Eq. 650, 659; King v. Kaiser, 3 Misc. (N.Y.) 523, 23 N.Y.S. 21; Browne, Statute of Frauds (5th ed.) § 230. In fact, although separable from the reversion, they are, until such separation, part of the land (Scully v. People, 104 Ill. 349; Pollock v. Farmers' Loan & Trust Co. 157 U.S. 429, 580, 15 S.Ct. 673, 39 L.Ed. 759); "for what is the land but the profits thereof?" 1 Co. Lit. 4b.
3. The power of the legislature in classifying subjects for taxation is, under present constitutional provisions, exceedingly broad. Const. art. 9, § 1. It is not controverted that the legislature could impose a tax upon these rents or royalties in addition to the general tax upon the land. The question here is, has the legislature done so?
Our statutes provide for the separate assessment of real and personal property. Real estate is defined as follows:
"Real property, for the purposes of taxation, shall be construed to include the land itself * * * and all rights and privileges thereto belonging or in any wise appertaining, and all mines, minerals * * * under the same." G.S. 1913, § 1972.
Provision is made for the separate assessment of real property and for levy and collection of taxes upon it.
Section 1974 defines personal property and includes in the definition "credits." Section 1975 defines credits as follows:
"'Credits' shall mean and include every claim and demand for money or other valuable thing, and every annuity or sum of money receivable at stated periods, due or to become due, and all claims and demands secured by deed or mortgage, due or to become...
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