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LEHIGH VALLEY R. CO. v. MARTIN

DISTRICT COURT, D. NEW JERSEY


December 14, 1936

LEHIGH VALLEY R. CO. OF NEW JERSEY et al.
v.
MARTIN, State Tax Com'r of State of New Jersey et al.; CENTRAL R. CO. OF NEW JERSEY v. SAME

The opinion of the court was delivered by: FORMAN

FORMAN, District Judge.

These cases are here on final hearing for a permanent injunction to enjoin the State Taxing Commissioner, the Comptroller, the Treasurer, and the Attorney General of the state of New Jersey, from collecting or enforcing certain taxes levied under the Railroad Tax Act of New Jersey (P.L.1888, c. 208, p. 269 [4 Comp. St.N.J.1910, p. 5260, § 445 et seq.]) as amended and supplemented, for the year 1932 (Comp.St.Supps.N.J. § 208 -- 445 et seq.) on the property of the Lehigh Valley Railroad Company and the Central Railroad Company of New Jersey.

The plaintiff railroads own or lease and operate interstate systems of transportation that lie partly in New Jersey.

 These suits are the first of a series of actions similar in nature brought by these and other plaintiffs against the same defendants concerning taxes alleged to be due in each succeeding year following 1932, up to and including 1935. We will deal here with the suits involving the year 1932 only.

 The parties have stipulated that the 1932 cases shall be determined on the record which was made at the hearing before the State Board of Tax Appeals of New Jersey and reviewed by the Supreme Court of New Jersey in the cases concerning taxes for the year 1933. The parties stipulated further that this court should determine all questions of the admissibility and competency of the evidence offered in the record before the State Board of Tax Appeals. (See stipulation on file dated February 1, 1935.)

 The Constitution of New Jersey (art. 4, § 7, par. 12) requires that "property shall be assessed for taxes under general laws, and by uniform rules, according to its true value."

 Section 1 of the Railroad Tax Act provides: "That all the property of any railroad or canal company not used for railroad or canal purposes shall be assessed and taxed by the same assessors and in the same manner and at the same rate as the taxable property of other owners in the same municipal division or taxing district; all other property of any railroad or canal company shall be assessed and taxed as hereinafter directed; the tax imposed by this act shall be in lieu of all other taxation upon the property subject to taxation under the provisions of this act; in all cases where the real estate, tangible personal property and franchise of any company are assessed and taxed under this act, the shares of stock and the bonds and certificates of indebtedness of such company shall not be taxed in the hands of the shareholders, bondholders or creditors, except as hereinafter provided. (P.L.1888, p. 269.)" 4 Comp.St.N.J.1910, p. 5260, § 445.

 Section 3 provides:

 "That it shall be the duty of the board of assessors to * * * proceed to ascertain the true value of all property used for railroad or canal purposes of each railroad and of each canal company in this state, including its franchises, and they shall, in such ascertainment, ascertain:

 "I. The length and value of the main stem of each railroad, and of the waterway of each canal and the length of such main stem and water-way in each taxing district;

 "II. The value of the other real estate used for railroad or canal purposes in each taxing district in this state, including the roadbed (other than main stem), water-ways, reservoirs, tracks, buildings, water tanks, water works, riparian rights, docks, wharves and piers, and all other real estate, except lands not used for railroad or canal purposes;

 "III. The value of all the tangible personal property of each railroad and of each canal company;

 "IV. The value of the remaining property, including the franchise." 4 Comp. St.1910, p. 5264, § 447.

 The principal contentions of the railroads are that their properties have been excessively valued by the use of improper principles which result in the denial of due process and subject interstate commerce to an undue burden, and that they have been discriminated against in that their properties have been assessed on the basis of full valuation while other property in the state is assessed at less than full valuation and results in the denial of equal protection of the law.

 On the other hand, the defendants deny these contentions and further contend that these suits should have been presented to a court consisting of three judges, constituted under section 266 of the Judicial Code (28 U.S.C.A., § 380), and that an injunction granted in these suits would violate section 265 of the Judicial Code (28 U.S.C.A. § 379), for the reason that it would, in effect, restrain judicial proceedings of a state court.

 The problems of taxation here are of vital consequence to the state and the several railroads involved. The railroads have naturally been an important source of revenue for the state, since they represent such considerable investments.

 For the purpose of taxation the properties of the railroads are classified in the Railroad Tax Act of New Jersey as main stem, other real property, personal property and remaining property including the franchise.

 Briefly, the lands on which the railroads operate are divided into parcels corresponding to the municipalities in which they are located, and each parcel is assessed on the basis of the valuation of contiguous lands for whatever purpose used; structures are assessed on the basis of the cost of reproduction less depreciation; personal property, such as engines, cars, machinery, is assessed on the basis of its physical condition, marine property being assessed on the basis of being in the state one-half of the time; and the franchise is apparently assessed without the application of formulae but at a figure which represents the judgment of the State Tax Commissioner. The aggregate of the four classes is the system value or, more properly, unit value, in New Jersey. The financial reports which are required by law are considered collaterally. (See record pages 70, 97, et cetera.)

 The assessments made and the taxes levied for 1932 involved in these cases were reviewed on appeal by the State Board of Tax Appeals, which entered judgments against the railroads and for the state.

 In the 1932 cases, the railroads involved filed bills of complaint in the District Court for the District of New Jersey. The cases came on before a court of three judges on an application for a temporary injunction, and the court held that it had no jurisdiction, as required by section 266 of the Judicial Code, 28 U.S.C.A. § 380. (See order filed January 25, 1933.)

 Thereupon the cases came on before a single judge, who granted motions to dismiss the bills of complaint. Central R. Co. of New Jersey v. Martin (D.C.) 3 F.Supp. 477. On appeal to the United States Circuit Court of Appeals for the Third Circuit, the decrees dismissing the bills of complaint were reversed and temporary injunctions granted. Central R. Co. of New Jersey v. Martin (C.C.A.) 65 F.2d 613.

 The methods used in assessing railroad taxes in the state of New Jersey have been in effect for approximately fifty years. During that period of time the railroads have brought over one hundred suits attacking the laws under which the taxes are assessed. It appears, however, that for the first time in this series of cases the railroads have brought suits in which they contend that the methods of assessment used by the taxing authorities of the state violate the due process of law and the equal protection of the law clauses of the Fourteenth Amendment of the Constitution of the United States. Heretofore, the railroads have not questioned the methods by which the taxes have been assessed, and in the 1933 cases the Supreme Court of the state of New Jersey upheld the methods used by the State Tax Commission in fixing the valuation of railroad properties. Central R. Co. of New Jersey v. Thayer Martin, 114 N.J.Law, 69, 175 A. 637. Those cases came before the Supreme Court to review the determination or judgment of the State Board of Tax Appeals, which upheld the assessments made by the State Tax Commission. The Supreme Court dismissed the writs of certiorari. "Thus, notwithstanding that this contest has been waging for almost fifty years, and that almost every possible phase of this litigious question has been brought to our courts (it is estimated that it has been so brought in excess of 100 times) and received their consideration, it is not at all surprising that the prosecutors should, at this late stage of the contest, challenge the method employed and so firmly established in the making of these assessments." 114 N.J.Law, 69, at page 73 et seq., 175 A. 637, 639.

 Defendants at the outset contend that this court, sitting as a single judge, has no jurisdiction over the issues herein involved. This is a repetition of their contention heretofore made before the three-judge court assembled upon their first application. They submit that the action of the State Board of Tax Appeals is tantamount to an administrative order and that as such the same cannot be restrained except in accordance with Section 266 of the Judicial Code (28 U.S.C.A., § 380). This section provides that "No interlocutory injunction suspending or restraining the enforcement, operation, or execution of any statute of a State by restraining the action of any officer of such State in the enforcement or execution of such statute, or in the enforcement or execution of an order made by an administrative board or commission acting under and pursuant to the statutes of such State, shall be issued * * * by any district court of the United States, or by any judge thereof, * * * upon the ground of the unconstitutionality of such statute, unless the application for the same * * *, shall be heard and determined by three judges."

 Prior to July 1, 1931, the power to assess the value of railroad property for the purpose of taxation and to review the assessments was placed in the State Board of Taxes and Assessment. The action of the Board was reviewable by certiorari. P.L.1888, p. 269, as amended. It was abolished and the State Tax Department and the State Board of Tax Appeals were established.It was provided that the latter Board should succeed to the power of the State Board of Taxes and Assessment to review appeals concerning assessments, collections, etc., of taxes. The State Tax Commissioner, as chief officer of the State Tax Department, succeeded to all the duties of the old Board except that of review. P.L.1931, cc. 100, 101 and 336, pp. 166, 170 and 823; N.J. St.Annual 1931, § 208 -- 66d (705) et seq., § 208 -- 37a (19) and § 208 -- 37a (20) et seq.

 Section 10 (P.L.1931, p. 166 at p. 169; N.J.St.Annual 1931, § 208 -- 66d (714) empowers the Board "to review, hear and determine all appeals * * * and to make such orders upon the final determination of such appeals as will effectuate said final determination according to law."

 The State Tax Commissioner is required to certify to the Comptroller of New Jersey the valuation of all railroad property. Unless the assessments are reviewed, the certificate of assessment is conclusive and has "the force and effect of a judgment of a court of record having competent jurisdiction." On written complaint and notice either the railroads, the Attorney General, or the local taxing authorities, as to second-class property, may appeal to the Board of Tax Appeals on the ground of illegal discrimination in the assessment or levy of the tax; and if such shall appear the Board shall correct, adjust, and equalize the assessment and tax. The Board then certifies its final determination to the State Tax Commissioner, who must forthwith certify any changes to the Comptroller.

 The "final determination" of the Board may be contested by certiorari to the Supreme Court. If it appears that the final determination of the Board is illegal, excessive, msufficient, or discriminatory the court may correct, adjust, or equalize such "assessment and tax," or refer it back to the State Tax Commissioner so to do.

 If any tax remains unpaid ten days after it becomes due, the Attorney General is required to apply to a Justice of the Supreme Court for an order that the "tax" shall be of record in the Supreme Court and judgment entered in the name of the state against the railroad. The order is made on a certified copy of the certificate and report of the State Tax Commissioner from the Comptroller. The Attorney General is required to apply also for an order that execution shall issue on the "said judgment." Application for the order requires notice but the proceeding is summary.

 The question of whether an assessment by a board similar to that of the State Board of Tax Appeals is an order of an administrative body has been decided by the United States Supreme Court in the case of Ex parte Williams, 277 U.S. 267, 48 S. Ct. 523, 72 L. Ed. 877. The following is the language used:

 "A case does not fall within section 266 [ 28 U.S.C.A. § 380], unless a statute or an order of an administrative board or commission is challenged as contrary to the Federal Constitution. Oklahoma Gas Co. v. Russell, 261 U.S. 290, 43 S. Ct. 353, 67 L. Ed. 659; Ex parte Buder, 271 U.S. 461, 465, 46 S. Ct. 557, 70 L. Ed. 1036. Here, there was no question as to the validity of the taxing statute. It was the assessment which the railroad challenged. And an assessment is not an order made by an administrative board or commission, within the meaning of that section. The function of an assessing board is not that of issuing orders. Its function is informational. Its duty is to make findings of fact, and thereby furnish the basis on which other officials are to act in individual instances in levying and collecting the taxes. An assessment does not command the taxpayer to do, or to refrain from doing anything; does not grant or withhold any privilege, authority, or license; does not extend or abridge any power or facility; does not determine any right or obligation. Compare Standard Computing Scale Co. v. Farrell, 249 U.S. 571, 577, 39 S. Ct. 380, 63 L. Ed. 780; Pennsylvania R.R. Co. v. United States Railroad Labor Board, 261 U.S. 72, 43 S. Ct. 278, 67 L. Ed. 536; United States v. Los Angeles & Salt Lake R.R. Co., 273 U.S. 299, 310, 47 S. Ct. 413, 71 L. Ed. 651; Southern Bell Telephone & Telegraph Co. v. Railroad Commission (D.C.) 280 F. 901. An assessment is directed by one officer of the state to another. Compare Great Northern Ry. Co. v. United States, 277 U.S. 172, 48 S. Ct. 466, 72 L. Ed. 838. Though in Nebraska the railroad property is, in the main, assessed by a state board and the value of the part within each county is then determined on a pro rata basis, the function of assessing property within a county remains the same as it would be if the valuation of all the property were made by a county board. Whatever the scope of the jurisdiction of the assessing body and whatever the method of valuation pursued, the function to be performed remains simply that of fact finding.

 "For the purpose of jurisdiction in federal courts, the difference between the function of regulating, expressed in orders of a railroad or like commission, and the function of fact finding is vital. Determinations of an administrative board which are merely findings of fact are not reviewable, Keller v. Potomac Electric Co., 261 U.S. 428, 43 S. Ct. 445, 67 L. Ed. 731. Assessments become reviewable judically only when they are translated into action, as by levy of the tax based on the assessment. From this difference between regulatory orders of administrative boards or commissions, which constitute action, compare Prentis v. Atlantic Coast Line Co., 211 U.S. 210, 226, 29 S. Ct. 67, 53 L. Ed. 150, and assessments by tax commissions or local assessors, which form merely a basis for action, flows the difference in the method of review in cases brought here under section 237 of the Judicial Code (28 U.S.C.A. § 344). A judgment of a state court sustaining the validity of a regulatory order of a public utilities board is reviewable by writ of error, like a judgment sustaining the validity of a statute. Bluefield Water Works & Improvement Co. v. Public Service Commission, 262 U.S. 679, 683, 43 S. Ct. 675, 67 L. Ed. 1176; Northern Pacific Ry. Co. v. Department of Public Works, 268 U.S. 39, 42, 45 S. Ct. 412, 69 L. Ed. 836; Live Oak Water Users' Association v. Railroad Commission, 269 U.S. 354, 356, 46 S. Ct. 149, 70 L. Ed. 305; Sultan Ry. & Timber Co. v. Department of Labor and Industries, 277 U.S. 135, 48 S. Ct. 505, 72 L. Ed. 820. But a judgment of a state court sustaining a tax alleged to be illegal because there has been discrimination in assessing property, can be reviewed only on certiorari. Jett Bros. Distilling Co. v. City of Carrollton, 252 U.S. 1, 5, 40 S. Ct. 255, 64 L. Ed. 421. This is true whether it was the determination of a state or local assessing body, or, as in the case at bar, of both combined, which is alleged to have produced the discrimination. Baker v. Druesedow, 263 U.S. 137, 44 S. Ct. 40, 68 L. Ed. 212.

 "Obviously an assessment which is not 'a statute of or an authority exercised under any state,' within the meaning of section 237, before amended by the act of 1925, cannot be a statute or an order of an administrative board or commission under section 266. The orders contemplated by section 266 are directed to railroads or others, of whom action, or nonaction, is commanded, as it is by a statute. Compare Sultan Ry. & Timber Co. v. Department of Labor and Industries, 277 U.S. 135, 48 S. Ct. 505, 72 L. Ed. 820. Since an assessment by a state board of equalization has none of the qualities that would be associated with 'orders,' it cannot have been the sort of state administrative function which Congress had in mind when by the amendment of 1913, it declared the scope of section 266, so as to include suits in which the injunction was sought on the ground of the unconstitutionality of an administrative order." 277 U.S. 267, at page 271 et seq., 48 S. Ct. 523, 525, 72 L. Ed. 877.

 Here as there the action of the State Board of Tax Appeals is simply an assessment and has "none of the qualities that would be associated with 'orders'" contemplated by section 266 of the Judicial Code (28 U.S.C.A. § 380) supra. It therefore appears that the order of the statutory court originally convened in these cases, by which it was held that the issues should be tried by a single judge, was proper and should not now be disturbed.

 Defendants further submit that any injunction granted by this court is violative of section 265 of the Judicial Code (28 U.S.C.A. § 379). That section provides as follows: "The writ of injunction shall not be granted by any court of the United States to stay proceedings in any court of a State, except in cases where such injunction may be authorized by any law relating to proceedings in bankruptcy."

 In these cases the action terminated with the dismissal of the appeals by the State Board of Tax Appeals.

 The hearings before the State Board of Tax Appeals did not constitute "proceedings in any court of a State" as contemplated by the federal statute involved. The line of demarcation between administrative proceedings and judicial proceedings as contemplated by the statute is definitely drawn in the recent cases of City Bank Farmers' Trust Company v. Schnader, 291 U.S. 24, 54 S. Ct. 259, 78 L. Ed. 628, and Hill v. Martin, 296 U.S. 393, 56 S. Ct. 278, 80 L. Ed. 293.

 For a further discussion of this topic see opinion in Central Railroad Company of New Jersey v. J. H. Thayer Martin, State Tax Commissioner, et al. (1933 Tax Cases), and six other cases filed on even date herewith. (D.C.) 19 F.Supp. 82.

 The railroads contend that the evidence establishes beyond a doubt, and indeed that the fact is so notorious as to entitle the court to take judicial notice, that while the property of railroads is intentionally assessed at its full and true value, other property throughout the state is assessed at considerably less than true value as is required by the Constitution of New Jersey.

 It is well settled that the federal courts will relieve against such discrimination as is alleged in these cases, even if the State Constitution requires all property to be assessed at true value; but only if a clear case of intentional and systematic undervaluation is made.

  In Sunday Lake Iron Co. v. Wakefield Tp., 247 U.S. 350, 38 S. Ct. 495, 62 L. Ed. 1154, the Supreme Court said: "The purpose of the equal protection clause of the Fourteenth Amendment is to secure every person within the state's jurisdiction against intentional and arbitrary discrimination, whether occasioned by express terms of a statute or by its improper execution through duly constituted agents. And it must be regarded as settled that intentional systematic undervaluation by state officials of other taxable property in the same class contravenes the constitutional right of one taxed upon the full value of his property. Raymond v. Chicago Union Traction Co., 207 U.S. 20, 35, 37, 28 S. Ct. 7, 52 L. Ed. 78, 12 Ann.Cas. 757. It is also clear that mere errors of judgment by officials will not support a claim of discrimination. There must be something more -- something which in effect amounts to an intentional violation of the essential principle of practical uniformity. The good faith of such officers and the validity of their actions are presumed; when assailed, the burden of proof is upon the complaining party. Head Money Cases, 112 U.S. 580, 595, 5 S. Ct. 247, 28 L. Ed. 798; Pittsburg, etc., Ry. Co. v. Backus, 154 U.S. 421, 435, 14 S. Ct. 1114, 38 L. Ed. 1031; Maish v. Arizona, 164 U.S. 599, 611, 17 S. Ct. 193, 41 L. Ed. 567; Adams Express Co. v. Ohio State Auditor, 165 U.S. 194, 229, 17 S. Ct. 305, 41 L. Ed. 683; New York ex rel. New York Clearing House Bldg. Co. v. Barker, 179 U.S. 279, 284, 285, 21 S. Ct. 121, 45 L. Ed. 190; Coulter v. Louisville & Nashville R.R. Co., 196 U.S. 599, 608, 25 S. Ct. 342, 49 L. Ed. 615; Chicago, Burlington & Quincy Ry. Co. v. Babcock, 204 U.S. 585, 597, 27 S. Ct. 326, 51 L. Ed. 636." 247 U.S. 350, at pages 352 and 353, 38 S. Ct. 495, 62 L. Ed. 1154.

 Likewise, the court said in Southern Railway Co. v. Watts, 260 U.S. 519, 526, 43 S. Ct. 192, 195, 67 L. Ed. 375: "The rule is well settled that a taxpayer, although assessed on not more than full value, may be unlawfully discriminated against by undervaluation of property of the same class belonging to others. Raymond v. Chicago Union Traction Co., 207 U.S. 20, 28 S. Ct. 7, 52 L. Ed. 78, 12 Ann.Cas. 757. This may be true, although the discrimination is practiced through the action of different officials. Greene v. Louisville & Interurban R.R. Co., 244 U.S. 499, 37 S. Ct. 673, 61 L. Ed. 1280, Ann.Cas.1917E, 88. But, unless it is shown that the undervaluation was intentional and systematic, unequal assessment will not be held to violate the equality clause. Sunday Lake Iron Co. v. Wakefield Tp., 247 U.S. 350, 353, 38 S. Ct. 495, 62 L. Ed. 1154; Chicago, Burlington & Quincy Ry. Co. v. Babcock, 204 U.S. 585, 27 S. Ct. 326, 51 L. Ed. 636; Coulter v. Louisville & Nashville R.R. Co., 196 U.S. 599, 25 S. Ct. 342, 49 L. Ed. 615; Sioux City Bridge Co. v. Dakota County, 260 U.S. 441, 43 S. Ct. 190, 67 L. Ed. 340 [28 A.L.R. 979]."

 The principle asserted here by the railroads is clear enough. But there is no evidence that the local assessors were intentionally and systematically valuing property at less than its true value. At the best the railroads have shown that the assessments of nonrailroad properties are unequal in the several counties of the state.

 Central Railroad Company v. Martin, 65 F.2d 613 (C.C.A.3) is not binding. That case came before the Circuit Court of Appeals on an application for preliminary injunction to restrain the state authorities from collecting the remainder of the railroad taxes due for the year 1932. The application was supported by ex parte affidavits submitted by the railroads. The affidavits were not even controverted by opposing affidavits from the state authorities. Thus, the court had only to decide the question of law of whether or not the averments in the affidavits showed discrimination in assessing railroad property at true value and intentionally and systematically valuing other property at less than true value. This, the averments clearly did.

 It appears to be commonly supposed that the practice in New Jersey is to assess nonrailroad property at less than its true value. This has been recognized by the state in its several departments and some efforts made to remedy the condition. Several acts have been passed by the Legislature to equalize the assessment ratio in the subdivisions of the State. P.L.1905, p. 123 (4 Comp.St.N.J.1910, p. 5110, § 37a); P.L.1921, c. 350, p. 952 (Comp.St.Supp.N.J.1924, § 208 -- 37f); P.L.1923, c. 98, p. 188 (Comp.St.Supp.N.J.1924, § 208 -- 37f (1). The agent of the State Board of Taxes and Assessment estimated that the assessments were from 35 per cent. to 60 per cent. of true value. His report was rejected as evidence and he was not permitted to testify as to his findings by the Board of Tax Appeals, on the ground that his records were hearsay.

 The State Board of Taxes and Assessment recognized the existence of the condition in their annual report required by law. In 1928 the Board reported that "This investigation has disclosed that an apparent percentage of assessed to true value ranging from thirty-five percent to sixty percent has been found in the twenty-one counties when the same test has been impartially applied to all." (Report of 1928, p. 11.)

 From the reports of the Board of Taxes and Assessment up to 1932 these conditions were being slowly corrected. In 1934 the Legislature passed an act requiring the State Tax Commissioner and the County Boards of Taxation to determine the percentage of full value at which property is assessed. P.L.1934, c. 191, p. 465, N.J.St.Annual 1934, § 208 -- 66d (404) et seq.

 At the hearing before the State Board of Tax Appeals the railroads brought on some thirty-eight witnesses who compositely testified that in their opinions in the years 1929 to 1932 property was considerably underassessed in each of the twenty-one counties of the state. They testified that the ratio of assessed to true value averaged in the several counties approximately 50, 53, 57, and 70 per cent. respectively in those years.

 Defendants offered a number of expert witnesses to rebut this testimony but in the case of seven counties no testimony was given. In no instance did the defendants' witnesses give an opinion as to the ratio of assessed to true value throughout the county. The witnesses admitted that in at least ten other counties the rural districts were underassessed. They testified that in a few cities or larger towns the assessments were at true value or over. Their evidence, where assessments were stated to be at true value, was based on certain of the sales of real estate of which the witnesses had knowledge. In a considerable number of cases even those picked sales tended to show underassessments.

 The president member of the State Board of Tax Appeals in his opinion (record p. 43, at p. 55) dissented from the majority opinion and went so far as to state: "that there is conclusive evidence of undervaluation of rural property assessed under the General Tax Act as of October 1, 1932, in all taxing districts of the State with few exceptions where proof was offered."

 However, the Supreme Court of New Jersey disagreed with the minority of the Board of Tax Appeals and, relying on the opinion of the Court of Errors and Appeals in Central Railroad of New Jersey v. State Tax Department, 112 N.J. Law, 5, 8, 169 A. 489, held that the proofs did not support the contention of discrimination in the valuation of railroad property.

 The Supreme Court of the United States denied certiorari to review the decision of the Court of Errors and Appeals. 293 U.S. 568, 55 S. Ct. 79, 79 L. Ed. 667. In that case, the evidence submitted by the railroad for taxes involving the year 1931 was substantially the same as that before this court for the taxes involving the year 1932.

 It seems that the court can no more rely on the proof submitted by the railroads than that offered by the taxing authorities to the effect that nonrailroad property is taxed at more than true value because so many thousands of appeals were successfully submitted to the County Boards of Tax Appeals in each of the years preceding these cases. The mass of the testimony is not evidence and only leads to confusion after any attempt to draw a conclusion from it. At the best, it only permits suspicions on which the court has no right to comment and certainly not to rely.

 The crux of these cases is whether or not the methods used in assessing the value of railroad property are so fundamentally erroneous as to violate the due process clause of the Fourteenth Amendment of the Constitution of the United States or place an undue burden on interstate commerce.

 The Railroad Tax Act does not provide for specific methods of assessing railroad property.Section 3 of the act provides that the true value of all property used for railroad purposes shall be ascertained, and shall be ascertained separately, in the following classes (P.L.1884, p. 143 [reenacted, P.L.1888, p. 270, 4 Comp.St.N.J.1910, p. 5264, § 447]): (1) Main stem; (2) other lands and structures; (3) tangible personalty; (4) remaining property including the franchise. The act requires the railroad to furnish certain information to the taxing authorities concerning its stock, the market value thereof and its indebtednesses. The method by which true value is determined is left to the discretion of the State Tax Commissioner. There are no questions involved as to methods of assessments used by the defendants.

 The testimony of Mr. Louis Focht, Chief Engineer of the Division of Railroad Valuations and Taxes of the State Tax Department, who has been attached to the Department and its predecessors since 1898, and under whose supervision assessments of the railroad properties have been made, is uncontradicted. It is evident from his testimony that the main stem lands or the right of way outside of yards and other lands including yards are valued on the basis of the valuation of contiguous lands, no matter for what purposes they may be used; that structures on both the main stem and other lands are valued on the basis of cost of reproduction less depreciation; that tangible personal property, such as rolling stock and equipment, is valued on the basis of cost of reproduction less depreciation, and that the franchise was valued on the basis of the Department's judgment of the worth of the privilege to do business in New Jersey, after collaterally considering other factors such as earnings and stock and bond values.

 The taxing authorities make no effort to consider the system value of the interstate railroads. The physical valuation of the property is made only on the railroad property within the state of New Jersey.

 On the other hand, the railroads have offered a considerable mass of statistics from which they attempt to show the system value of the several railroads, using the stock and bond method and the capitalization of earnings method, to show the valuation of the particular railroad system as a unit, and by the use of several factors have attempted to allocate the portion of the system value to which they contend New Jersey is entitled.They insist that only by the use of the combination of the factors that they have proposed can the true value of railroad properties of New Jersey be ascertained, and that in ascertaining true value physical valuations can have no place. The following table shows a summary of the valuations which the railroads propose: Line Item Lehigh Valley C.R.R.N.J. (1) Assessment for 1933 45,637,628 102,351,077 (2) Tax for 1933 1,712,173 3,842,726 (3) Rate (1933) (2) (1) 3.75 3.754 (4) Average Income 1922-31 1,902,942 5,993,752 (5) Ratio of taxation to average income (2) (4) 90% 64% (6) Capital charge 6.00 6.00 (7) Tax rate (1933) (3) 3.75 3.754 (8) Total charges on income 9.75 9.754 (9) Capitalized average income (4) (8) 19,520,000 61,450,000 (10) System stock and bond value 195,179,800 122,227,202 (11) New Jersey proportion 16.30% 50.68% (12) amount 31,814,300 61,944,748 (13) Average of Income (9) and Securi- ties (12) values 25,667,150 61,397,628 (14) Assessed at (1) 45,637,628 102,351,077

19361214

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