NORFOLK & W. R. CO. v. TAX COMM'N.
Legal provision: Due Process
Argument of William H. Allen
Chief Justice Earl Warren: Number 324, Norfolk and Western Railway Company et. al, versus Missouri State Tax Commission.
You may take the time to get ready.
Mr. William H. Allen: Mr. Chief Justice, may it please the Court.
In this case, the Norfolk and Western Railway is challenging an assessment of its rolling stock by the Missouri State Tax Commission.
In brief, its claim is that the assessment is so greatly in excess of the actual value of Missouri, of Norfolk and Western rolling stock that was in Missouri, that Missouri has placed out of state values on its tax rolls and that this is in violation of both the Due Process Clause and the Commerce Clause.
The question arises in this way.
Ordinarily, in the case of the of an interstate railroad, no particular unit of its rolling stock will be in a particular state permanently and yet it is said to be permanent presence in the state that gives a state jurisdiction to tax an object.
But it's been recognized that it's proper for a state to be able to tax and reach in some manner the rolling stock that is constantly passing through it.
So in recognition of this, this Court long ago reframed situs doctrines so as to permit the states to tax an average amount of rolling stock that was in the state, a fraction which will be constantly changing in content but which will be more or less stable in size of the entire uh complement of locomotives and cars that are on there, otherwise controlled by the railroad.
The next step was to permit the states to determine the size of this fraction by the use of formulas.
Missouri assesses rolling stock according to one formula a form of the mileage or trackage formula.
Under this formula, a railroad's mileage, branch line and main line in case of Missouri, mileage is computed as a total, as a percentage of its total such mileage and this percentage is then applied to a value ascertained for the entirety of the carrier's fleet of rolling stock.
In other words, if a railroad had a 10% of its mileage in Missouri, Missouri would attribute to itself for property tax purposes 10% of that carrier's -- the value of that carrier's rolling stock.
The premise for the use of this formula in both the Missouri Supreme Court and this Court has recognized this is that rolling stock is roughly, evenly divided throughout a railroad system.
Missouri mileage formula was first applied in the Norfolk and Western in 1965.
That was after the N&W had acquired by lease all the properties of the Wabash Railroad.Before the -- before that lease, which took back at October 16, 1964, the Norfolk and Western did not operate in Missouri, although the Wabash and Lines in operations there.
The Missouri statute and terms applies to property owned hired or leased by a railroad.
On this basis, the Missouri's Tax Commission asked and received from the N&W a detailed statement of its mileage owned or leased in Missouri and elsewhere and of its units of rolling stock and their value at cost less accrued depreciation.
Most of the cars and locomotives that the N&W returned in this manner to the Tax Commission were coal carrying equipment used in the well known N&W coal operation from the mines of Virginia, West Virginia and Kentucky, to Tide Water and the Great Lakes.
As it turned out, the Missouri mileage was about eight and a quarter percent of the N&W's total mileage.
The Commission took 47% of this cost less depreciation figures that the N&W had supplied as the value of its-- of its rolling stocks as the assessed or equalized value of the entire fleet of rolling stock.
It used that same 47% factor for all railroads in the state in that year and when applied to the equalized value of the entire fleet, the eight and a quarter percent mileage factor yielded an assessment of nearly $20 million.
It is that assessment of rolling stock that's in issue here.
It appeared suspect at once that assessment because in the previous year, the rolling stock of the Wabash in the hands of the Wabash had been assessed at only a little more than $9 million and there had been no change in the Missouri operations as a result of the lease of the properties to the -- to the N&W such as would logically it was thought lead to any such inquiries in the value of the fleet that was in Missouri.
Chief Justice Earl Warren: Well, how would the -- how would the value of the Wabash affect the value of the Norfolk.
Mr. William H. Allen: The purpose of the Missouri formula is to get at the value of the rolling stock within the state.
Chief Justice Earl Warren: I understand that.
Mr. William H. Allen: The -- in the previous year, it was quite true, only Wabash rolling stock was sought to be valued but it was thought and indeed the evidence at the hearing before the State Tax Commission showed that the most of the rolling stock of the N&W that was in Missouri in 1965 was that rolling stock which had been leased from the Wabash.
Chief Justice Earl Warren: I see.
Mr. William H. Allen: So that the two complements of rolling stock were roughly comparable.
Justice William J. Brennan: Well was the -- was the valuation factor in the hands of Wabash different?
Mr. William H. Allen: It was the same 47%.
Justice William J. Brennan: Same 47%.
Mr. William H. Allen: The same 47%.
Justice William J. Brennan: And I take it the N&W has returned that is the cost less depreciation figure on the Wabash holding stock.
Would it have been the same?
Mr. William H. Allen: That would've been the same with one year further advance a particular car can be.
Justice William J. Brennan: Then this all -- then this increase from $9 to $20 million you're talking about --
Mr. William H. Allen: To nearly 20 --
Justice William J. Brennan: -- because of the increase in the trackage factors?
Mr. William H. Allen: Because in the increase of the trackage factor.
Justice William J. Brennan: Well now what trackage in addition to the Wabash trackage did the N&W have in Missouri?
Mr. William H. Allen: None but that trackage was a -- a percentage of the entire N&W.
I should not have said Mr. Justice Brennan that that was an increase in the trackage factor.
That trackage factor was a per -- in 1965 was a percentage of the total N&W trackage and was applied to the entire value of the N&W fleet which is in four five times the size of the Wabash fleet.
Now, the trackage factor in the previous year had been a percentage of the total Wabash trackage and applied to the total equalized value --
Justice William J. Brennan: Do you know what that was?
Mr. William H. Allen: -- the Wabash fleet.
Justice William J. Brennan: Do you know what that was in the hands of Wabash?
What was the trackage factor in the hands of Wabash?
Mr. William H. Allen: I do not know the answer of that.
25% I believe.
Justice Byron R. White: But if the N&W had built, had always owned the Wabash, had always owned those lines had built them and had built them up and was operating them, had been operating them like the Wabash had been, why N&W always would have paid this much on this formula?
Mr. William H. Allen: If the formula had been valuably applied through the years of the N&W that's quite true and the assertion is not that the mere inquiry shows that it is enough to prove the formula is invaluably applied but when there is no real change in what is sought to be measured by the formula, it is an indication that something is wrong.
Justice William J. Brennan: What was N&W's submission as to what the correct text should have been?
Mr. William H. Allen: The N --
Justice William J. Brennan: Was it something in the excess of $9 million but less this one?
Mr. William H. Allen: No.
The -- the N&W presented evidence concerning valuation or the hearing that was held on its protest.
The basic evidence on this score was a count of cars that were in Missouri on tax day and on various days in 1964.
Now, the -- the number of cars on Missouri on tax day came to somewhat less than 3% and not more than 8% of the N&W's total fleet, and by value, they represented something a little bit more than 3% and not a percent of the N&W's total fleet.
Justice William J. Brennan: And roughly what would that compute out to in fact?
Mr. William H. Allen: And if you computed that in the same way that the Tax Commission computed the value for the entire fleet that is by taking 47% of the cost less depreciation.
It would come to somewhat more than $7.5 million dollars.
Justice William J. Brennan: Not much less that had been paid by the Wabash, is that it?
Mr. William H. Allen: That is correct, Your Honor.
That is correct.
And there were studies as I say for other days during 1964 and those studies indicated that tax day was by no means unrepresentative of the average presence of Missouri of N&W rolling stock.
Justice William J. Brennan: Well, was there any finding as a matter of state law that the N&W approach was not permissible on the state statute.
Mr. William H. Allen: The Tax Commission said it was bound to tax all railroads in the same manner under the mileage formula.
Justice William J. Brennan: Did the Supreme Court disagree?
Mr. William H. Allen: The Supreme Court did not disagree with that.
Justice William J. Brennan: But are we just going to take that is the state law.
Mr. William H. Allen: I think although the Supreme Court suggested at one point in its opinion on a slightly different manner that the -- that the Tax Commission was free to consider other matters.
It's not clear to me whether this is an expression of state law but they are --
Justice William J. Brennan: Well, how are we --
Mr. William H. Allen: Well in event, well, the state law has been so applied as to amount to a mere mechanical application of mileage formula.
Justice William J. Brennan: So you stand therefore under constitutional attachment?
Mr. William H. Allen: That is correct.
That is correct.
In addition to the evidence of the car counts on tax day and other days, there was a study of traffic density in Missouri which the indicated reason why there was this discrepancy because the density study showed that each mile of track in Missouri was responsible for about half the traffic of the average mile of track on the N&W system which according to the man who sponsored, the study showed that there would be that much less equipment in Missouri to handle that most ton miles of traffic.
And finally, there was -- there was general evidence of the kind I've suggested that the operations in Missouri have not in fact changed as a result of the Wabash becoming a part of the larger N&W system and this evidence on behalf of the N&W at the hearing before the Tax Commission was uncontroverted and it was in response to that the Tax Commission said that it was bound to assess all railroads in the same way according to the mileage formula, the N&W had not shown that the assessment was grossly excessive.
The N&W petitioned for review of the tax court's decisions and the Missouri state courts and ultimately the Missouri Supreme Court rejected the constitutional claims that were renewed in those courts and primarily because of I think primarily because of a misconception of a doctrine that's established by decisions of this Court concerning the entitlement of states to a -- in their -- exercise their taxing powers take a share of the total enterprise value of a railroad or other interstate enterprise.
Justice Abe Fortas: Mr. Allen, how many states used the mileage approach?
Do you know?
Mr. William H. Allen: The pure mileage approach?
Justice Abe Fortas: Yes.
Mr. William H. Allen: There are only two others on the N&W system that due.
As among the 50 states, Your Honor, I attempted to get published information on this and it's virtually impossible to come by.
I would think no more than ten.
Justice Abe Fortas: On the N&W system, how many states are involved?
Mr. William H. Allen: There are --
Justice Abe Fortas: You said only two.
Mr. William H. Allen: Only two.
Justice Abe Fortas: And how many are there --
Mr. William H. Allen: There will be 14 states involved.
Justice Abe Fortas: 14.
Mr. William H. Allen: Only three in addition to Missouri, I should have said.
Now, I'd get to that misconception that the Supreme Court entertained in a moment.
But first I want to discuss the basic proposition on which we rely in this case.
The premise as I've said of any valid mileage formula has to be that the property that is being allocated to the state in this case rolling stock is more or less evenly divided throughout the system and or at least that there is no concentration of value outside the taxing state that the mile -- so that the miles of track in the taxing state are not representative of the division of value throughout the system.
Justice William J. Brennan: Does it work this way, Mr. Allen?
Is your constitutional premise that of course they're entitled in effect to tax a thousand cars a day if it works out that there are thousand cars a day in the State of Missouri, they won't be the same cost.
That's in effect what it is.
By the way this taxing scheme has worked, as applied in any event, you had only a thousand cars a day but in the effect, you've been taxing two thousand.
Mr. William H. Allen: That's exactly the point Mr. Justice Brennan.
This is a -- this is a -- as common sense of point, as Your Honor's question makes it and it has been established by decisions of this Court applying this common sense that where a mileage formula produces that kind of result, it does amount to an attempt to tax out of state property and that violates the Due Process Clause.
Justice Byron R. White: But you're -- you're -- the premise for that argument is that there's only thousand cars in Missouri which they were permitted to -- were within the jurisdiction of Missouri and your proof of that in this case is that well last year the Wabash only takes paid some, only paid X.
Mr. William H. Allen: No Mr. Justice White.
Justice Byron R. White: Where do you get the thousand cars factor.
Mr. William H. Allen: The proof -- the proof of that is to count of cars on tax day and on days throughout 1964.
Justice Byron R. White: I see.
Chief Justice Earl Warren: Would you mind stating that premise again what Mr. Justice Brennan was talking about?
Mr. William H. Allen: The way Mr. Justice Brennan phrased the point is this that a state is entitled by a formula if that proves convenient to get at the fraction of a carrier's rolling stock that is always in the state.
The certain number of cars will be -- they won't be the same cars, although there would be some of them that are permanent layer and virtually present in the state.
Let us say that figure is a thousand cars, the mileage formula may or may not result in reaching that fraction.
Where it results in reaching or in attributing to the state 2000 cars, it is in effect bringing into the state out of state values because the extra thousand cars have no such relationship with the state as to make them taxable.
Justice Byron R. White: So the number of cars has no relationship to mileage which is the factor they apply.
Mr. William H. Allen: That's right.
That is right Your Honor.
Justice Byron R. White: So that say West Virginia or Kentucky where you're carrying coal did the state used the same formula they're liable to under tax.
Mr. William H. Allen: If the state used the same formula, they would be likely undertaxed and the case that originally proved the use of the mileage formula, a case decided by this court that approved its general validity.
The Pullman's Palace Car Company against Pennsylvania back in 1891, the Court said that if every state used the formula, things would work out fine.
Although the tank carrier cannot be taxed on more than 100% of its property but the fact is because of the very reason that the mileage formula is an inaccurate method of getting at this permitted fraction of property.
Not all states do use it and states like West Virginia.
Justice Byron R. White: Especially states that would under the statute.
Mr. William H. Allen: States like West Virginia have more sophisticated formulas that take into account density of traffic.
Justice William J. Brennan: Well of course, Mr. Allen, I don't understand that you're asking us to say that per setting this formula is unconstitutional.
Mr. William H. Allen: That --
Justice William J. Brennan: You're just addressing your case to the application of that point.
Mr. William H. Allen: That is correct.
Justice William J. Brennan: Producing this.
Mr. William H. Allen: That is correct and there -- this has a tradition in this Court and there are cases in which the general validity of mileage formula has been sustained but in which subsequently in cases involving those same statutes that were sustained, they have been invalidated in application.
Justice Abe Fortas: Mr. Allen, suppose the state -- this is statutory, this method is --
Mr. William H. Allen: This method is statutory.
Justice Abe Fortas: So it's not something a Commission invented.
It's something that a statute provides.
Mr. William H. Allen: That is correct.
Justice Abe Fortas: Now suppose the statute has provided only this that all railroads in Missouri shall be subject to a tax and that when the railroad is an interstate road, and the railroads to be subject to a tax based upon the mileage of tracks not the number of miles of tracks that they have in the state and when the railroad has track in the state and outside of the state, it shall determine it by this precise formula.
In your judgment would that presume a question under the United States Constitution?
Mr. William H. Allen: I'm not quite clear what the measure of the tax is Your Honor.
Justice Abe Fortas: Your track to mileage.
Just as it is in this case.
Mr. William H. Allen: But what value are you using or what value are you dividing by --
Justice Abe Fortas: To drive out of exactly the same way, instead of calling it a tax on rolling stock, they call it a tax on trackage to the state.
Mr. William H. Allen: No, I -- no, Your Honor.
Indeed there, the early -- the cases I think of which this Court has validated mileage formula have been in effect of doubt where it tribute so much value to each mile of track, as it what it amounts to and where values of the whole system are concentrated out of the state, it's the same as if rolling stock, it's concentrated out of the state.
Justice Abe Fortas: Why would that be a violation of the United States Constitution now?
Mr. William H. Allen: For the reason that you are -- that in that case the state is in substance justice in this one taking out of state values into its taxing power.
Justice William J. Brennan: This isn't just an ad valorem tax?
Mr. William H. Allen: This is an ad valorem tax in this case.
Justice William J. Brennan: There's nothing known but at least, the principles that have the franchise, or the other types that -- no concerns us here.
Mr. William H. Allen: Well they don't -- they don't concern us directly.
I will say that among the cases that we have relied upon, discussed in our brief, that invalidate mileage formulas in their application, there are some that deal with franchise taxes, with taxes on total capital, taxes on total property.
Justice Byron R. White: I suppose in a particular case, the mileage formula, if that's all that was would might be even held valid.
Mr. William H. Allen: Yes.
Justice Byron R. White: Or do you just say that on its phase it's that no matter what.
Mr. William H. Allen: Oh no.
No, there's no such argument.
The day for making that argument is long past.
Justice Byron R. White: Yes, but today is also long past with saying that it can't be counted in any case.
Mr. William H. Allen: I -- I submit that it has long passed.
Yes, Your Honor, since 1904.
The basis on which Missouri Supreme Court sustained the assessment by the state Tax Commission was to say that the excess of value between the $20 million or nearly $20 million that the mileage formula produced and the actual value of N&W rolling stock in Missouri was justified by so called enhanced or augmented value given to the rolling stock by its becoming a part of the N&W system.
Now, there are certainly cases in which this Court as I say has talked about the power of states to get out entire enterprise value or enhance value and some of those cases have also involved mileage formulas but there is no necessary connection between a mileage formula and enhanced values.
The mileage formula maybe used as this mileage formula simply to allocate to a state its share of the value of rolling stock computed on a cost less depreciation method.
Justice Byron R. White: But what is this argument?
A due process argument or commerce clause argument?
Mr. William H. Allen: It is both and in all the cases, that in which -- in which the issue has arisen or either the case has --
Justice Byron R. White: Either, either?
This is either one of both or does it have to both?
Mr. William H. Allen: I assume it doesn't have to be both.
I think the same facts established the violation of both, yes.
Justice Byron R. White: Now, why does it establish the burden on commerce?
Mr. William H. Allen: Because the carrier has been subjected to the risk of multiple taxation on its --
Justice Byron R. White: Why shouldn't they -- why waive to prove a multiple burden?
Mr. William H. Allen: Well, I don't think that has been the approach to waive for actual multiple burden.
The fact is that one can look at the formulas that other states used with which to tax the N&W and see that there is -- that there is a multiple burden.
Justice Byron R. White: Haven't you already agreed that if all the states have this formula, there would be no burden.
Mr. William H. Allen: But there -- but the problem Mr. Justice White is that not all the states do have this formula.
Justice Byron R. White: Well, is that in this record?
Mr. William H. Allen: It --
Justice Byron R. White: That's what I mean, I'm just waiting -- I'm just wondering if you can say it's a burden until you've actually demonstrated that it's a burden.
Mr. William H. Allen: No I think you can demonstrate it by reference to the taxing laws and practices of the other states in which the N&W operates, I think they can be noticed.
Justice Byron R. White: Is there not too destructive to conclude that your coal cars and (Voice Overlap) in West Virginia are being taxed not only by those two states but by Missouri?
Mr. William H. Allen: I cannot say that it appears in the record before the state Tax Commission.
I can't say it appears in published materials that --
Justice William J. Brennan: Well tell me Mr. Allen, I -- could New Jersey impose an ad valorem tax against Grand Central Station in New York City?
Mr. William H. Allen: I think not.
Justice William J. Brennan: Why?
Constitutionally why not?
Mr. William H. Allen: I would look to the Due Process Clause.
Justice William J. Brennan: You wouldn't look to the burden on commerce in that case, would you?
Mr. William H. Allen: I would -- I would -- my instinct is to say --
Justice William J. Brennan: How does this differ?
Mr. William H. Allen: How does this differ?
Justice William J. Brennan: Well then otherwise, why do you have to go to the burden on commerce?
Mr. William H. Allen: You may not have to Your Honor.
It's simply that we have relied on both clauses and the Court has relied on both clauses in all the cases decided at this point.
Well we would respect to the Missouri Supreme Court's discussion of enhancement of value, we merely submit that the Court has in that discussion has confused the two separate problems of valuation and allocation that the valuation here is unquestioned, cost less depreciation of the entire fleet.
It is the method of allocation that that is an issue and one cannot say that there was any particular enhanced value attributed to the N&W's fleet of rolling stock before that allocation was made.
Chief Justice Earl Warren: Mr. Peterson.
Argument of William A. Peterson
Mr. William A. Peterson: Mr. Chief Justice, may it please.
Mr. Allen's statement of the issue here I agree with.
The issue precisely before the Court we feel is whether or not the 1965 ad valorem tax is grossly excessive.
The only part --
Justice William J. Brennan: Is what?
Mr. William A. Peterson: Excuse me.
Justice William J. Brennan: Is what?
Mr. William A. Peterson: Is grossly excessive and if it is grossly excessive within the standard of the case that attribute constitutional problems to this then undoubtedly it would be or could be a burden under state commerce and or violates a Due Process Clause as it applies to the states.
Justice Potter Stewart: It's not -- it's not quite that blunt measurement, is it?
You speak as though this is something like the cruel and unusual punishment clause of this Constitution.
It's not this what it's grossly excessive whether in our judgment it's too high or is it?
Mr. William A. Peterson: Mr. Justice Stewart --
Justice Potter Stewart: As a matter of the constitutional limitation of the state that it either sometimes framed than do in our cases in due process terms, sometimes in interstate commerce terms that the state is exactly more than it can constitutionally can from this interstate.
Mr. William A. Peterson: If I understand you correctly -- your question correctly sir, it would be whether or not I suppose the tax is reasonably related to the commerce conducted in the state, do I understand you?
Justice Potter Stewart: The state has, if this Court has said I think that many times powered a tax what is within or rationally connected with that state.
Mr. William A. Peterson: Yes.
Justice Potter Stewart: And you wouldn't I suppose contend that Missouri could impose a tax on things out in California even though for a very low tax.
Mr. William A. Peterson: Oh not at all.
Not at all Your Honor.
Justice Potter Stewart: So it's not really whether it's in our judgment grossly excessive, that's not quite, that's all I ask.
Mr. William A. Peterson: Well this is -- yes, Mr. Justice Stewart.
This is of course the appellant's contention that it is.
And the state Tax Commission is taking the position consistently and has been sustained by the Circuit Court of Cole County on judicial review and by the Supreme Court of Missouri that it is not and the point that we would like to raise today is that there is complete authority both in the laws as handed down by this Court and the laws of the State of Missouri for the tax.
It is not a matter of an arbitrary tax, unsupported by findings or hearings at all.
The -- and I would like to reiterate the facts just briefly here, not trying to fall with Mr. Allen's.
Assessments by the Missouri Tax Commission are made based on information submitted by the railroad companies for doing business in the State of Missouri.
It is at this time, if they disagree with the assessment that a hearing is held pursuant to Missouri law.
It was at this time a hearing was held in this particular care and the evidence, purported evidence which Mr. Allen has discussed was submitted to the Commission.
Now the Commission did hear that evidence.
The Commission did make a finding which is incorporated in the appendix to the record.
At that time based on the contentions there raised and these contentions as well as others were raised.
The Circuit Court of Cole County in judicial review did examine this and the Supreme Court of Missouri did examine.
Now the --
Justice Hugo L. Black: Examined the findings?
Mr. William A. Peterson: Examined the findings.
Yes Mr. Justice Black.
Justice Hugo L. Black: Where is this finding?
Could you refer to them?
Mr. William A. Peterson: On page 55 in the appendix to the record I believe.
Justice Hugo L. Black: 55.
Mr. William A. Peterson: Starting on 52, I'm sorry Mr. Justice Black.
Justice Hugo L. Black: What?
Mr. William A. Peterson: 52, page 52.
Justice William J. Brennan: Well may I just ask Mr. Peterson.
This Court say as I gather as Mr. Allen said the old fashioned ad valorem property tax.
Mr. William A. Peterson: Yes it is Mr. Justice.
Justice William J. Brennan: And I take that Missouri would not claim any power constitutionally, the tax rolling stock, in fact outside the State of Missouri.
Mr. William A. Peterson: Not at all.
Not at all.
In fact the -- if I may just enlarge an answer.
Supreme Court of Missouri in Southwest Railroad versus Missouri Tax Commission I believe in 1959, 1956 fully adhered to the cases handed down in this Court, Johnson Ore Refining case, the Union Tank Co. disscussed the entire line of cases and the reasoning was not that the Missouri does have a power by virtue of its laws to tax property located in other states.
Not at all.
Justice William J. Brennan: Now then I take it if in fact a formula resulted in the tax of property outside the state, you take the same position if constitutionally this could not be dealt with.
Mr. William A. Peterson: Certainly.
Justice William J. Brennan: So that really, what you're coming down to is that on all of the findings made by the tax and agencies and courts of your state concerned with this, they have reached the conclusion that actually, the application of this point that did not result in the tax of any rolling stock of N&W outside the state.
Mr. William A. Peterson: That's correct.
Justice Byron R. White: Suppose not and you will.
I gather the -- your opponents in the railroad claims that if you took the proportion of the total value available of the rolling stock that happened, took that proportion of which the rolling stock present on the certain day represented of the total rolling stock, you had come out with X percent of the total rolling stock that's here on that day and whereas -- whereas and Y percent of value, whereas your formula says there are three times that much by value in the state.
Mr. William A. Peterson: This is what they're contending Mr. Justice White.
Justice Byron R. White: You mean those are not the facts.
Mr. William A. Peterson: We do not feel they are.
Mr. Allen has stressed that the theory upon which the Missouri Supreme Court ultimately sustained the Missouri Tax Commission was the theory of enhanced value.
Now the theory of enhanced value certainly doesn't knew those been constantly confirmed by this Court and as a matter of fact they don't know that it's ever been rejected.
Now the theory of enhance value or augmented value is precisely what this case was sustained on in the Missouri Supreme Court not the fact that Missouri had to power to tax three times the amount of the traffic in the state, of the rolling stock in the state.
That's not the --
Justice Byron R. White: That just goes to rebutting the point that you will be -- that peripheral factor of the Wabash value the year before.
It doesn't reach the fundamental premise that you only got a thousand cars in the state and that railroads got 3000 cars total and each car is worth a dollar.
You got a thousand dollar worth of cars in Missouri and the railroad says that you end up showing that there are three thousand dollars worth of cars in Missouri.
In the application of your formula, though.
Mr. William A. Peterson: If I may sir, the formula of course is the trackage percentage not -- it's not proportion number of cars.
It's the --
Justice Byron R. White: I understand that but applying your trackage percentage, is the number of cars gives you $3000.00 worth of cars instead of $1000.00 worth of cars.
If you use the percentage of cars, well you come out with the same result they do.
You apply the trackage percentage to the total rolling stock value.
Mr. William A. Peterson: Yes total depreciated equal less.
Justice Byron R. White: Wholly aside from what the daily car count is.
Mr. William A. Peterson: Yes.
Yes, we do.
Justice Byron R. White: So you could -- you could easily come out if they have pure cars per mile at Missouri than they have at all the other states but had the same number of miles in Missouri as they have in all the other states, you're going to come out taxing cars that aren't in Missouri.
Mr. William A. Peterson: Mr. Justice White, that is correct if you assume that that has happened.
But we know from the teachings of this Court that if it is a grossly excessive amount that it cannot stand, therefore, it is a rule of thumb formula.
It is not precise and it has been acknowledged that it cannot be précised and this is an area in which precision is virtually impossible.
Justice Thurgood Marshall: Mr. Peterson, is it true that the same track of the same number of cars here as when the Wabash was operating independently?
Mr. William A. Peterson: Mr. Justice Marshall, I would say that there are evidence in the Commission hearing evidence that was true.
Somewhat greater number but not any large number.
Justice Thurgood Marshall: And so merely by being leased by Norfolk and Western without more the evaluation went up.
Mr. William A. Peterson: Yes.
Justice Thurgood Marshall: Missouri evaluation went up.
Mr. William A. Peterson: Yes.
Justice Thurgood Marshall: Well suppose Penn Central now takes over N&W, they'll go up again?
Mr. William A. Peterson: May I answer this way, Mr. Justice Marshall.
The Missouri law sets down the formula, I mean sets down how the Commission will reach a total valuation figure.
Now on rolling stock, the way the Commission reaches its valuation is to depreciate and equalize the entire rolling stock so in that respect, in answer to your question well it would be yes, that there would be a larger valuation.
Well we have one more thing to do.
First of all, we apply the equalization factor which 45, 47% then we apply the track formula.
So the chances of getting a larger figure would depend on the total of depreciated figure that we began with and unless that figure was obviously excessive, it would be applied.
Justice Abe Fortas: What's the function of the equalization factor in this situation?
Mr. William A. Peterson: Mr. Justice Fortas the Missouri Tax Commission in its findings explains the equalization factor.
That's also on page 52, through 55 or 56 but the point is to equalize the tax on the property fairly consistently with taxes on property throughout the state.
The Commission explains --
Justice William J. Brennan: In other words, you don't assess at full value at 47% of full value.
Mr. William A. Peterson: Yes, that's correct.
Justice William J. Brennan: Now that's pretty much what the general level of assessment says for other types of property.
Mr. William A. Peterson: This -- that percentage figure is not Mr. Justice Brennan but it's an attempt by the Tax Commission to make it assessed.
To just talk in terms 47% would not be the whole story.
Justice William J. Brennan: Yes.
Mr. William A. Peterson: And it is set out in their finding, how they arrived with that.
Justice Abe Fortas: Does the 47% across the board is applicable to the whole railroad properties in the state?
Mr. William A. Peterson: Yes Mr. Justice Fortas and that also in their finding.
47% is applied to all railroads.
The depreciation and equalization schedules are applied straight across the board.
As was an economic factor in this case of an excess $300,000.00 which is in appreciation of any other financial things that haven't been covered, this is also authorized by the statute.
Justice Abe Fortas: You mean what they haven't done -- if what they have done is in otherwise alright in the taking of another $300,000.00?
Mr. William A. Peterson: Not exactly Mr. Justice Fortas but it is an attempt to take into consideration there are certain depreciations and so forth that are not within the schedules.
Justice William J. Brennan: Now Mr. Peterson I'm sorry I didn't had a chance really to study your (Inaudible) so perhaps you will recover this.
Now have we any information one of the states do that have ad valorem taxes against rolling stock in the way of allocating rolling stock to their states?
Mr. William A. Peterson: That is not in our brief Mr. Justice Brennan.
Mr. Allen covers that.
Justice William J. Brennan: Well then, don't bother.
I'll get it from his brief.
Mr. William A. Peterson: Now I'd like to if I may continue on one point.
Mr. Allen has contended has contended that there's no relationship between enhanced value and allocation by a trackage format and they cannot be applied and I'm not quite sure whether he means a wholly inconsistent or whether it's a (Inaudible) account but that isn't true and has not been true since I think probably the Union Tank Line Company versus Wright because that same contention was made in that case.
That you cannot use a proportion formula to allocate both intangible and tangible properties and this Court will not specifically deciding on that issue did reaffirm enhanced value so I don't think that that particular point has any validity whatsoever.
In other words, it is our position that enhanced value does sustain it, that that is what the Missouri Supreme Court has recognized and we feel that it is very definitely a factor that at least must be considered.
Now, the appellants have not even recognized it, have not said how can it be computed.
They assert that it should be computed at some other phase of the assessment.
But they have not shown us what it should be.
And apparently it either has no value or they are not recognizing it as having a value.
And certainly, there's no question about it that it -- that there is enhanced value that accrues to the separate pieces of equipment being assessed when they're part of a going concern.
That particularly there is absolutely no surprise.
So it is directly on that point that Missouri Supreme Court has affirmed this case and it is on that point that we feel that this Court should sustain this case.
Rebuttal of William H. Allen
Mr. William H. Allen: May it please the Court.
The Missouri I assume could have attributed a greater value to the total rolling, fee of rolling of the N&W by reason of -- very reason of --
Justice William J. Brennan: To the thousand cars, you're referring.
Mr. William H. Allen: To the 3000 cars.
But the fact is that only 3% of those cars were in Missouri.
Justice William J. Brennan: Now could -- could Missouri do this Mr. Allen?
Suppose they had attributed this 47 -- there are only a thousand cars.
That's wholly taxed in the hands of Wabash.
That's wholly taxed in the hands of N&W.
They say in the hands of the Wabash it's worth 47%, in the hands of the N&W after the leasing it's now worth 75%, could they do that?
Mr. William H. Allen: It might raise a different question.
We would not raise this question.
I assume they may be able to do something about, so that as long as it's equitable under the treatment of the railroads.
Justice Byron R. White: They can't tax 2000 cars, but now as they merge with the Wabash --
Mr. William H. Allen: You can't tax the 2000 cars merely because of a merger.