[239 U.S. 234, 235] Mr. Clarence C. Caldwell, Attorney General of South Dakota, and Messrs. L. T. Boucher, M. H. O'Brien, and Mr. Royal C. Johnson, former Attorney General, for appellant.
[239 U.S. 234, 236] Messrs. Charles O. Bailey, Charles W. Stockton, John G. Milburn, and John H. Voorhees for appellees.
Mr. Justice Day delivered the opinion of the court:
These cases were argued at the same time and may be considered together. They are appeals from the decision of the circuit court of appeals of the eighth circuit, by [239 U.S. 234, 237] which the present appellant, as treasurer of the state of South Dakota, was enjoined from assessing certain taxes levied against the appellees by the state board of assessment and equalization of the state of South Dakota, for the year 1910. The bills, brought for the purpose of enjoining the collection of such taxes, were dismissed in the district court (205 Fed. 60), which decrees were reversed in the circuit court of appeals, and decrees entered remanding the case to the district court with instructions to enter decrees for the appellees, restraining the collection of the taxes (L. R. A. 1916C, 522, 130 C. C. A. 528, 214 Fed. 180).
Under the law of South Dakota, Wells Fargo & Company made a statement showing that its gross earnings within the state for the year ending April 30, 1910, were $131,096.28, and that the value of its office furniture, fuxtures, and real estate was $18,473.98. The board assessed the value of the property of Wells Fargo & Company at $289,877, and imposed a tax of 28 mills on the dollar, making a total tax of $8,116.55. Similarly, the board assessed the value of the American Express Company at $193,260, and levied a tax of $5,411.28. The bills averred a tender of taxes upon the returns, and charged that the assessments made were in violation of the state Constitution, and, if enforced, would have the effect to take the property of the express companies without due process of law, in violation of the Federal Constitution.
The Constitution of the state of South Dakota, as the same was in force at the time of these assessments, provided (article 11, 2), as follows:
From an analysis of this section, it appears that taxes to be valid must be uniform upon all real and personal property; that the legislation providing for the assessment and collection of taxes must be such that every person and corporation may be taxed in proportion to the value of his, her, or its property; and that the general laws which provide for the assessing of taxes on corporation property shall be, as near as may be, by the same methods as are provided for the assessing and levying of taxes on individual property. 2
While this Constitution was in full force and effect, the legislature passed an act providing for the assessment of taxes upon express and sleeping car companies (chap. 64, Laws of South Dakota, 1907, as amended by chap. 162 of the Laws of 1909). In 16 of this act, express companies are required to transmit statements to the auditor of state, showing the number of employees engaged by the company in the state, and the number in each county; [239 U.S. 234, 239] the number of offices maintained within the state, and in each county; the value of all office furniture, fixtures, and real estate owned in the state; the number of miles of railroad over which it conducted its business, and the number of miles in each county; the number of express cars owned by the company and used within the state, and the number of such express cars leased and controlled, but not owned, by such company, and used within the state, or operated under lease or contract in any manner; the gross earnings of the total business of such company transacted within the state for the year ending April 30th preceding, and the value of all the property of such company used in the state. Section 17 of the act makes provision for assessing the property of express and sleeping car companies, and requires the board of assessment and equalization to take into consideration the gross earnings of the company within the state for the year ending the 30th of April preceding, statements made by the company and by the Board of Railway Commissioners, and any and all other matters necessary to enable them to make a just and equitable assessment of the property in the same ratio as the property of individuals, and provides that the statement and information received shall be laid before the board of assessment and equalization, which board shall review such statement or information, and may change the valuation given, or add to the statement any property omitted therefrom, and the board shall levy a tax upon such property, which tax shall be equal to the average amount of state, county, school, municipal, road, bridge, and other local taxes levied upon other property for the preceding year.
There is testimony in the record on the part of the state treasurer, tending to show that the express companies did not comply with the law as to the making of their returns for the year 1910; that in making the assessment upon the property of the companies within the [239 U.S. 234, 240] state, the state auditor, and, as he believed, the other members of the state board, considered the reports and annual statements of the companies, the reports of the railway companies, the reports and records of the railway commissioners, the contracts for express privileges of the express companies in the state, the earnings of the companies in the state, the various lines of business done by the companies in the state, the length of the companies' systems in the state, the number of their offices, the bulk and value of their fugitive property in the state, not reported in the annual statement, the total value of the property, tangible and intangible, in the state, the amount of money which, in the judgment of the auditor and other members of the board, must have been necessary to carry on the various lines of the companies' business in the state, and all other facts which he or the other members of the board could obtain, tending to throw light upon the value of the companies' property.
On the other hand, the court of appeals reaches the conclusion from the testimony that the express companies doing business in the state in 1909 and 1910 were under contracts with the railroad companies to pay to the latter from 45 per cent to 55 per cent of their gross earnings from the transportation of express business over their lines, and that as the amounts paid to the railroad companies by the respective express companies were approximately one half of the amounts of their gross earnings from these railroads in South Datoka, the amounts so paid furnished a measure of the gross earnings of the respective companies, and finds that the board of assessment and equalization, in making the assessment, adopted practically the same percentage of the amounts paid to the railroad companies by each of the express companies as a basis of assessment of the companies respectively. The court reached the conclusion that there was but one rational explanation of this fact, which was that the [239 U.S. 234, 241] board measured the assessment of the companies by the amounts they had paid to the railroad companies respectively; that is to say, by their gross earnings from their transportation business over the railroads. Otherwise, the court concluded, it would be incredible that the board could have estimated the taxable value of these companies so that the estimates would come within one one hundred and sixtieth of the same percentage of the respective amounts which the express companies had paid to the railway companies. The court of appeals further held that this uniform relation of the assessments of the three principal express companies doing business in the state to the respective amounts paid to the railroad companies was more persuasive than the testimony of many witnesses as to the things which were taken into consideration by the board in determining the amount of the assessments.
It is enough to say upon this point that, in our opinion, the record does show that the payment to the railroad companies, if not the only basis of the assessments made by the board, was the principal factor in fixing the value of the property of the express companies for taxation in the state, and the question arises, Was such administration of the statute contrary to the requirement of the South Dakota Constitution, already quoted, requiring all taxation to be in proportion to the value of the property assessed, and corporation property to be assessed, as near as may be, by the same methods as are provided for assessing the value of individual property? It appears that the South Dakota statutes, other than those relating to railroads, telephone, telegraph, express, and sleeping car companies, do not authorize a valuation which considers gross income, and that individuals and other corporations are taxed according to the value of their property, without reference to the income derived therefrom. In other words, property owned by other corporations and individuals is [239 U.S. 234, 242] assessed for what it is fairly worth, and a valuation for taxation is not fixed by a method which gives controlling effect to the amount of the gross income derived therefrom. We concur with the court of appeals that such procedure is in violation of the provision of the South Dakota Constitution, specifically requiring that all taxes levied and assessed upon corporation property shall be as near as may be by the same methods as are provided for the assessment of taxes upon individual property.
The stringent provisions of the Constitution of South Dakota, then in force, required the adoption of a rule of valuation, as near as might be, of like character in assessing individual and corporate property in the state, and here, the record shows, the valuation of the property of the express companies was based principally upon their gross incomes, determined by the method already described. Such administration of the statute would be illegal, although the law upon its face be unobjectionable. Reagan v. Farmers' Loan & T. Co. 154 U.S. 362, 390 , 38 S. L. ed. 1014, 1021, 4 Inters. Com. Rep. 560, 14 Sup. Ct. Rep. 1047
It is said that this conclusion is not consistent with the decision of the supreme court of South Dakota, construing its own Constitution with final authority, in State ex rel. American Exp. Co. v. State Board, 3 S. D. 338, 53 N. W. 192. In that case, while the method of making assessments and valuations by the state board was considered, and the court refused to interfere with such assessments under the circumstances shown, there was no discussion or decision of the constitutionality of the act when administered as in this case. In that case the constitutionality of the act does not seem to have been raised. In Re Opinion of Judges, 34 S. D. 650, 147 N. W. 729, the judges of the supreme court of the state declined to give an opinion to the governor as to the constitutionality of the law in question.
In Adams Exp. Co. v. Ohio State Auditor, 165 U.S. 194 , 41 L. ed. 683, 17 Sup. Ct. Rep. 305, the so-called Nichols law, which had been sustained by the supreme court of the state of Ohio, was sustained by this [239 U.S. 234, 243] court as against an attack thereon under the 14th Amendment to the Federal Constitution. In that case, the manner of taxation was entirely different from the one now under consideration. The law permitted the taking into consideration of the value of the property as a unit, and then ascertaining and assessing the proportion thereof within the state of Ohio, and it was held that such proportionate taxation did not violate the 14th Amendment to the Federal Constitution. Another case greatly relied upon by appellant is United States Exp. Co. v. Minnesota, 223 U.S. 335 , 56 L. ed. 459, 32 Sup. Ct. Rep. 211, in which a statute of the state of Minnesota which undertook to tax express companies upon their property employed within the state, measured by the gross receipts within the state, from which certain deductions were made, was attacked as in violation of the commerce clause of the Federal Constitution, as the receipts which were the basis of the tax were derived in part from interstate transportation. In that case, the law was specifically authorized by the Constitution of the state, as a means of reaching a proper valuation of the express companies' property within the state, in lieu of all other taxes. There was no contention in the case that the method used resulted in an excessive valuation. The tax was sustained, as against the attack under the commerce clause, upon the ground that, so far as interstate commerce receipts were referred to, they were in part the measure of a tax within the legislative power of the state, and not in any just sense a burden upon interstate commerce.
We reach the conclusion that the circuit court of appeals did not err in holding this tax as in fact levied and assessed to be in violation of the Constitution of the state.
The contention is made that there was no ground for equity jurisdiction, and that therefore the bill should have been dismissed. This court has frequently held that a bill will not lie in the Federal courts to enjoin the collection [239 U.S. 234, 244] of state taxes where a plain, adequate, and complete remedy at law has been given to recover back illegal taxes, and the attack upon the assessment is based upon the sole ground that the same is illegal and void. See Singer Sewing Mach. Co. v. Benedict, 229 U.S. 481 , 57 L. ed. 1288, 33 Sup. Ct. Rep. 941, where many of the previous cases in this court are reviewed. But in the present case, it was alleged not only that the assessment was unwarranted by the law, but that the manner of making the assessment amounted to fraud upon the constitutional rights of the express companies, or such gross mistake as would amount to fraud, thus averring a distinct and well-recognized ground of equity jurisdiction. It also appears that the tax of 1909 had been enjoined similarly, and that from the decree in that case no appeal had been taken. Such continuing violation of constitutional rights might afford a ground for equitable relief. See Cummings v. Merchants' Nat. Bank, 101 U.S. 153, 157 , 158 S., 25 L. ed. 903-905; Stanley v. Albany County, 121 U.S. 535, 550 , 30 S. L. ed. 1000, 1003, 7 Sup. Ct. Rep. 1234; Fargo v. Hart, 193 U.S. 490, 503 , 48 S. L. ed. 761, 767, 24 Sup. Ct. Rep. 498; Taylor v. Louisville & N. R. Co. 31 C. C. A. 537, 60 U. S. App. 166, 88 Fed. 350.
We find no error in the judgment of the Circuit Court of Appeals, and the same is affirmed.
[ Footnote 1 ] Death of James C. Fargo suggested, and appearance of George C. Taylor, individually and as president of the American Express Company, filed and entered October 12, 1915, as the party appellee herein.
[ Footnote 2 ] This constitutional provision was in force at the time the taxes in question were assessed, but was changed by the amendment of 1912, which provides: