State v. Wells Fargo & Co.

• Decision Date: 01 October 1920
• Docket Number: 21,919
• Citation: 179 N.W. 221,146 Minn. 444
• Parties: STATE v. WELLS FARGO & COMPANY
• Court: Minnesota Supreme Court

179 N.W. 221

146 Minn. 444

STATE v. WELLS FARGO & COMPANY

No. 21,919

Supreme Court of Minnesota

October 1, 1920

Action in the district court for Ramsey county under Laws 1913 chapter 454, to recover gross earnings taxes for the years 1914 to 1917, both inclusive. In its answer defendant among other matters alleged that these taxes constituted an unlawful interference and burden upon interstate commerce and operated to deprive defendant of its property without due process of law, contrary to article 1, section 8, subdivision 3, of the Federal Constitution and of section 1 of the Fourteenth Amendment thereto. The case was tried before Olin B. Lewis, J., who made findings and ordered judgment against defendant in the sum of $47,355.98. Defendant's motion for amended findings was granted in part and denied in part. From the judgment entered pursuant to the order for judgment defendant appealed. Affirmed.

SYLLABUS

Gross earnings tax on carriers -- no abatement authorized.

1. The Minnesota Tax Commission has no power to abate any part of the percentage of gross earnings tax fixed by statute.

Gross earnings tax on carriers -- Constitution not violated.

2. The system of gross earnings taxation as applied to transportation companies violates no provision of the state or Federal Constitution.

Gross earnings tax on carriers -- form of taxation on express companies valid.

3. The legislature has the power, since the constitutional amendment of 1906, as well as before, to impose this form of taxation upon express companies.

Commerce -- property used, not the commerce, taxable -- tax on express companies valid.

4. A state may in good faith tax property engaged in interstate commerce. It may not tax the commerce itself. The statute of this state imposing a gross earnings tax of 8 per cent upon express companies is a good faith exercise of the taxing power.

Taxation -- classification of property -- inequality of taxation.

5. Matters of classification of property for taxation are matters of state policy. The state may resort to unequal taxation so long as the inequality is not based upon arbitrary distinctions.

Taxation -- gross earnings tax and ad valorem tax.

6. A gross earnings tax is not required to be an exact equivalent of the ad valorem tax imposed on other property.

Taxation -- tangible and intangible property.

7. The state may tax defendant's entire property, tangible and intangible, as used within its limits, at its real value as part of a going concern.

Taxation -- valuation of property may be computed by capitalizing net earnings.

8. There is evidence that defendant's property had substantial in tangible value. The market value of defendant's stock and bonds is not conclusive evidence of the value of its property used in the express business which is only part of its whole property. A recognized method of arriving at property value, including intangible value, is that of capitalizing net earnings. There is evidence that the value of defendant's property computed on this basis largely exceeded the value of its tangible assets, and the evidence sustains the finding of the court that the tax is a fair and reasonable exaction.

H. S Marx and Davis, Severance & Morgan, for appellant.

In the case of all commuted or substituted systems of taxation, if the method employed is but a fair means of measuring a tax upon the value of the property employed in interstate commerce, it is valid; but if it results in producing a tax exceeding that which would be levied against the property on an ad valorem basis, it is invalid as a burden upon the commerce. The Minnesota gross earnings tax on the earnings of express companies is, or purports to be, a substituted form of taxation. U.S. Express Co. v. Minnesota, 223 U.S. 335, 32 S.Ct. 211, 56 L.Ed. 459. Only as such can it be upheld. It represents a system, presumably more convenient to administer, of reaching the same result as an ad valorem property tax. Unless it does produce an equivalent result, it cannot be justified. The theory is that the earnings themselves are not taxes at all, but that they are merely taken into account as a convenient measure of the value of the property from the use of which they arise. On its face such a system is a tax upon earnings. It should therefore be held to be a burden upon interstate commerce in the absence of some showing that the receipts are used only as a fair and reasonable measure of the actual property value. The Supreme Court of the United States has taken a similar view of the burden of proof in a case in which it held that an alleged inspection fee was void as a burden upon interstate commerce. Foote & Co. v. Maryland, 232 U.S. 494, 34 S.Ct. 377, 58 L.Ed. 698.

In the language used in Postal Telegraph Cable Co. v. Adams, 155 U.S. 688, 15 S.Ct. 360, 39 L.Ed. 311, and Galveston, H. & S.A.R. Co. v. Texas, 210 U.S. 217, 28 S.Ct. 638, 52 L.Ed. 1031, the court clearly had in mind that the ordinary property tax which the substituted tax must not exceed, was an ordinary single ad valorem tax upon the property, and there could be no clearer expression of the proposition that the gross earnings tax or any substituted tax would be held invalid if it had no relation to the value of the property upon which it was imposed. The same principle was followed and the language of the Adams case was quoted in Western Union Tel. Co. v. Kansas, 216 U.S. 1, 27, 30 S.Ct. 190, 54 L.Ed. 355, where a tax of a given per cent of authorized capital, imposed by a statute of Kansas, was held unconstitutional as a burden upon interstate commerce, the court there refusing to be concluded as to the fact of such a burden being imposed by "the disavowal by the state of any purpose to burden interstate commerce." The case of U.S. Express Co. v. Minnesota, 223 U.S. 335, 32 S.Ct. 211, 56 L.Ed. 459, involved the validity of taxes imposed under a statute similar to that under consideration, save that the tax rate was 6 per cent. The items of the earnings involved were of the same character as those in the present case. The court referred to Fargo v. Michigan, 121 U.S. 230, 7 S.Ct. 857, 30 L.Ed. 888, and Philadelphia & S.M.S.S. Co. v. Pennsylvania, 122 U.S. 326, 7 S.Ct. 1118, 30 L.Ed. 1200, the Galveston Case and others, saying (p. 346): "The supreme court of Minnesota construed the tax to be a property tax, measured by the gross earnings within the state, which, under their construction of the tax, included the earnings here in question. That court held that the statute was part of a system long in force in Minnesota, passed under the authority of the state Constitution, and was intended to afford a means of valuing the property of express companies within the state. While the determination that the tax is a property tax measured by gross receipts is not binding upon this court, we are not prepared to say that this conclusion is not well founded, in view of the provisions and purposes of the law. * * * There is no suggestion in the present record, as was shown in Fargo v. Hart, 193 U.S. 490, that the amount of the tax is unduly great, having reference to the real value of the property of the company within the state and the assessment made. * * * Upon the whole we think the statute falls within that class where there has been an exercise of good faith of a legitimate taxing power, the measure of which taxation is in part the proceeds of interstate commerce which could not, in itself, be taxed, and does not fall within that class of statutes uniformly condemned in this court, which show a manifest attempt to burden the conduct of interstate commerce, such power, of course, being beyond the authority of the state."

In Fargo v. Hart, 193 U.S. 490, 24 S.Ct. 498, 48 L.Ed. 761, referred to in the passage just quoted, the court placed a limitation upon the use of the so-called unit rule of valuation, so as to prevent the taking into account by the taxing authorities of property outside of the state which in no way contributed to the value of the property within the state. In that case express business was involved, and the taxing authorities were urging that bonds held in another state entered into the value of the property within the state. It was held that the tangible assets outside of the state, although they contributed to the value of the express company's capital stock, could not be admitted to contribute anything in the way of credit, good will or otherwise, to the value of the company's system as a whole, or proportionately to the value of that part of it within the state. We do not suppose that it will be seriously contended by the state in the case at bar that the assets of the appellant located outside of Minnesota, such as stocks, bonds and other investments, can in any way be considered as contributing to the value of the property within the state.

It is apparent that in the United States Express Company case, the Supreme Court considered the question whether the statute on its face was a tax upon earnings, a doubtful one, and that it was only because of the interpretation placed by this court upon the statute there involved, and because of the fact that there was no objection to the tax as unduly great "having reference to the real value of the property," that the court, with obvious hesitancy, concluded that "upon the whole" the tax must be deemed one upon the property, and not one upon the earnings of the express company. There can be no other legitimate inference from the reference to Fargo v. Hart and the value of the property, than that if it had appeared from the record and had been urged that the tax was unduly great, it would have been held invalid as a burden upon commerce. That the court attributed the greatest importance to the absence of...