Consolidated Gas Co. v. Mayor of Baltimore

Pearce, J., delivered the opinion of the Court This is an appeal from an order of the Baltimore City Court adjudging and ordering that an assessment of $6,000,000 be imposed for the year 1906 on the mains and pipes of the Consolidated Gas Company of Baltimore City, in and under the streets and highways in Baltimore City, in addition to the assessments of $1,127,075 and $158,000 for mains and service pipes respectively, previously imposed. In the year 1904 ⁴⁵ an assessment of $6,000,000, in addition to the then existing assessment of $4,026,997, upon the tangible property of the company, was imposed by the Appeal Tax Court of Baltimore City for the year 1905, in these words: “Additional assessment on mains, pipes, and other construction, located in, on or over public highways of Baltimore City, so as to include the valuation of the easement enjoyed by said company in said highways $6,000,000.” The validity of this assessment was before this Court in the case of the Consolidated Gas Company v. The Mayor and City Council of Baltimore, reported in 101 Md. 542 , in which it was held that “the property or estate which the Gas Company has in the highways of Baltimore City is an easement which may be properly assessed to the company as real estate,” but it was further held in that case that the assessment was irregular and invalid, 1st, because it appeared from the record that the Appeal Tax Court had charged the Gas Company with the amount of its bonded indebtedness in ascertaining the value of its property for taxation, which under the Maryland statutes it was without authority to do; and, 2nd, because it also appeared from the record that the valuation had been imposed by an arbitrary and capricious method, instead of by the exercise of such judgment as the law contemplates shall be exercised by an assessor, and that such valuation could not be regarded as an assessment at all. After this decision the Appeal Tax Court abated the assessment thus declared to be invalid, and after due notice to the Gas Company of its purpose to reassess said company for the year 1906 for its pipes, mains and structures located in the streets and highways of the city, made an abatement of $4,565 upon 3.58 miles of three inch mains, abandoned by the Gas Company since 1905, and entered a new assessment in the following words: “Additional assessment on mains and other structures attached to and located in or under the roads, ways, and highways in Baltimore City (including 22.993 miles of new mains), $6,000,000.” From this action of the Appeal Tax Court, the Gas Company appealed to the Baltimore City Court, which ⁴⁶ action was affirmed by said Court in the order appealed, from in this case. Twenty-six exceptions were taken to the rulings upon evidence, and eleven prayers were submitted by the Gas Company, all of which were refused except the 7th, which was granted. 'The counsel of the city declined the request of the company that they should formulate and submit prayers outlining their standard of valuation of the easement in question, whereupon the Gas Company moved the Court to require the submission of such prayers, which the Court overruled, and the 27th exception was taken to the overruling of this motion, and the refusal of the prayers of the Gas Company.

It has been decided in Mayor v. Bonaparte, 93 Md. 159 , that this Court cannot be required or allowed to sit as a board of review to revise the amount of the valuation placed by tax officials upon property for the purposes of taxation, and this was repeated in 101 Md., supra. We have therefore no warrant for interference in this case upon that ground, however great the apparent magnitude* of the interests involved. After a very careful reading of the record and the able briefs of counsel, we have reached the conclusion that the order of Court affirming the action of the Appeal Tax Court and imposing an assessment of six million dollars for the year 1906 on the mains and service pipes of the Consolidated Gas Company of Baltimore City attached to and located in, on or under the roads, ways, and highways in Baltimore City, in addition to the assessments previously imposed for mains and service pipes respectively upon said company for the year 1906, must be reversed for error in the rejection of the fourth and eighth prayers, which are as follows: “4th. The petitioner prays the Court to rule as matter of law that the opinions as to the value of the mains and pipes of the Gas Company, including the easement therein in the streets of Baltimore City, as expressed by the witnesses Purdy and Bemis, are inadmissible, and must be disregarded by the Court, as the method of calculation of the value of said mains and pipes and easement by said witnesses, is substantially the ⁴⁷ same as the method adopted by the Appeal Tax Court in the valuation of said property for the year 1905, which method has been declared illegal by the Court of Appeals.” 8th. “The petitioner moves the Court to strike from the record all expressions of opinion made by the witnesses Purdy and Bemis in regard to the valuation of the mains and pipes of the Gas Company, including the easement therewith associated, on the ground: 1st.

That said witnesses not having any knowledge of the value of real estate in Baltimore City were incompetent to express an opinion as to the value of said mains and pipes and easement; and 2nd. Because said expressions of opinion by said witnesses were based on a method of computation of value which is not warranted by Maryland statutes in regard to taxation of the property of corporations.” It will be seen later on that the error in the rejection of the 8th prayer has to do solely with the 2nd ground therein stated. The method pursued in "the former case was condemned by this Court because under existing Maryland statutes, “the Appeal Tax Court was without authority to charge ' the Consolidated Gas Company with its own outstanding obligations” in ascertaining the value of its property for taxation, as it had' done to the amount of ten millions and fifty thousand dollars. For the purpose of comparison of the methods adopted in the two cases we have reproduced them here, as they appear .in the respective records.

Method in First Case, as Testified to by Judge Leser. (See Record in first case, page 23, etc. Capital stock (10,700 shares at $70).....................................$ 7,500,000 Bonds (7,000,000 at $110).................................................... 7,700,000 Certificates of Indebtedness ($1,500,000 at $90)..................... 1,350,000 Bonds (4J4 per cent) $1,1000.............................................. 1,000,000 Total value of assets of Gas Co.............................$17,550,000 From this they deducted assessed valuation of real estate in Baltimore City and county allowing liberally for margins..... 4,300,000 Leaving residum.................................................$13,250,000 ⁴⁸ From this they deducted their valuation of the persoual property......................................................................... 1,250,000 Leaving...........................................................$12,000,000 This sum they considered represented the company’s franchise derived from the State and also the easement in the streets. They, therefore, divided it in half, making an assessment for the easement of...............................................................$ 6,000,000 Method in Present Case as Testified to by Purdy and Demis. (See Record, pages 195-6.) Miles of Mains and pipes, Baltimore City.............................. 478,492 Miles of mains and pipes, Baltimore County.......................... 49,201 527,693 9-33 Per cent outside City*. 90.67 per cent in City.

Stock issued, 107,710 shares. Value of City real estate exclusive of mains and services........$ 2,843,418 Value of real estate outside the City..................................... 262,766 Value of personal estate...................................................... 879,458 Total value of personal property and real estate exclusive of mains and services...........................................................$ 3,985,642 Divided Profits. Interest.............................................................................$ 497,57° Dividends......................................................................... 430,840 $ 928,410 Total value of company’s property 1905.............................,..$ 928,410 Capitalized at 5 per cent...................................................... 18,568,200 Real estate and personal property exclusive of mains and services............................................................................... 3,985,642 Total mains, services and easement.......................$14,582,558 Deduct 9.33 per cent for proportion outside City..... 1,360,552 Value mains, services and easement in City..........................$13,222,006 Former assessment of mains, services..................... 1,285,035 Increase......................................................_• ....$11,936,971 To ascertain the assessed value after-the assessment is increased and a tax levied on new assessed value, the present value must be diminished by such an amount that the assessed value will coincide with market value when subject to the increased tax. When the divided profits are capitalized at 5 per cent and the tax rate is 2.235 the increase in the assessed value must be reduced to 69.1 per cent of the present value.

Increased value above former assessment.............................. 11,936,971 69.1 per cent of above increase in the true increase of assessment.............................................................................8,248,446.9 Former assessed value of mains and services........................ 1,285,035 True assessed value of mains, services and easement.............. 9,533,48i ⁴⁹ In the first case the stock and certificates of indebtedness were reckoned at their respective market values and the resulting aggregate was $17,550,000 as the total value of the assets of the Gas Company. In the present case, Mr. Purdy explained in his testimony in detail how he and Mr. Bemis arrived at their valuátion. He ascertained first from the company’s report to the State Tax Commissioner, and from the agreed statement of facts filed in the cáse, the interest paid on the bonded indebtedness, and the dividends paid to the stockholders, for the year 1905, which he designated divided profits. He then capitalized that aggregate at five per cent, a‘rate he testified to be a conservative rate for the cities of the-Eastern Seaboard, and thus found the total value of the company’s property to be $18,568,200.

From that he deducted the assessed value of the company’s real estate and personal property, exclusive of the mains, services and easement, as also 9.33 per cent of all the mains and services, that being the proportion of mains and services outside of the city limits. He further deducted the former’assessment of mains and services, and thus found an increased value of $11,936,971 by reason of said easement. He then further reduced this amount by an allowance, for the diminution of the value of the total property by reason of the tax upon the assessment, this allowance being an amount equal to the capitalized value of that tax, capitalized at five per cent, the rate of tax for 1905 being 2.235 in the hundred dollars. This required the reduction of the increased value of the total mains and services and easement to 69.1 per cent of that value, making the true increase......;..........................$8,248,446 and adding the former assessed value of mains, and services........................... 1,285,035 he concludes the true value of mains and services and easements to be.......................$9,533,481 Without at all analyzing this method, its result is so strikingly close to that reached in the former case, as respects the total value of the company’s property as to be most significant ⁵⁰ in itself.

But when analyzed, the substantial identity of the two mfe'thods at once becomes apparent. In the present case the bonds and stock do not appear eo nomine, but the interest páid on these same bonds, and the dividends paid on the same stock, do appear. The rate of dividend for 1905 was four per cent, and the rate of interest paid on the total bonded indebtedness was about 4.95 per cent. Messrs.

Purdy and Beniis assumed that something was laid aside for emergencies before making the four per cent dividend. Their method of calculation therefore essentially and necessarily involves the value of these bonds. There is no substantial or actual distinction between these methods as respects the dealing with the bonded indebtedness of the company, whether the amount of the bonded indebtedness is ascertained directly from the statement of the company by reference to the corpus of this indebtedness as shown in that statement, or whether it is reached indirectly by a capitalizing process based upon the interest paid on the same corpus. In both, the bonded indebtedness of the company is treated as part of its assets, in contravention of the Maryland statutes which require them to be “valued and assessed for State, county and municipal taxation to the owners thereof in the county or city in which such owners may respectively reside. ” Argument could not strengthen the conclusion which we think follows from a careful examination of the details of the method in this case.

It may not be amiss to observe that if the capitalized value of the interest paid on this bonded indebtedness be eliminated from the method pursued by Messrs. Purdy and Bemis, the result will be found to be strikingly close to that obtained by Mr. Caughey’s method. If the capitalized value of this bonded indebtedness be thus eliminated, the total value of the "company’s property would be reduced by. . . $9,950,000 leaving such value....................: . . . $8,618,200 and if from this the same deductions be made as in their method, viz..................... 6,631,229 There will remain only.................... $1,986,971 Reducing this to 69.1% of that ⁵¹ amount, to allow the capitalized amt. of the increased tax to be imposed, we should have...... $i,372^997 To this, add, as they did, the former assessed value of mains and services.................. 1,285,035 and we have as the true assessed value of mains, services and this easement................... $2,658,032 Mr. Caughey, in his method, took the assessed value of mains and services for the year 1904..... $1,131,640 Plus the full fee value of the land occupied by the mains and services as estimated by comparison with the value of adjacent lands 1,396,921 making a total of.............. $2,528,261 and showing a difference between the results of the two methods of only about, in round numbers, $130,000. We do not mean to say however that in assessing the real property of a corporation subject to mortgage, that the corporation is entitled to any credit for the mortgage debt, nor are we to be understood as approving the method of Mr. Caughey, and it will be seen hereafter that we do not regard it as the correct method, but the closeness of the results of the two methods, if the capitalized value of the interest on the bonded indebtedness of the company, be eliminated from the method of Messrs.

Purdy and Bemis, is so striking as to be worthy of notice. The error in their method was in treating the bonded indebtedness of the company as an asset for the purpose of taxation, which we have said they practically did. That -error was inseparably connected with their opinions as to the aggregate value of the mains and pipes, in connection with the easement in question, and their valuation, thus reached, was an indivisible quantity, and therefore these prayers should have been granted; but we are not to be understood as meaning that their opinions would have been inadmissible, and should ⁵² have been disregarded, if the result of their method of valuation had been free from the error indicated. It will not be necessary to notice in detail all the numerous exceptions to the admission or exclusion of testimony, nor to review in detail all the rejected prayers, but some of these must be considered.

It would appear reasonable to hope that no further appeal, to this Court at least, will be required in order to reach a satisfactory assessment of this easement, but as in event of another appeal, some of the questions raised in this case might be raised again, we will consider them now. And first, as to whether it was competent to inquire from the members of the Appeal Tax Court themselves what were their methods and mental processes in reaching the assessment they made for the purpose of showing either that it was illegal or excessive. The appellees have cited in their brief numerous, respectable and eminent authorities from other jurisdictions to sustain the proposition that the method of assessors in arriving at their conclusions is a matter absolutely committed to their discretion, and that the members of such a tribunal cannot be put upon the stand to testify as to the operation of their minds in doing the work entrusted to them, and many of those authorities are collected in 27 Amer. & Eng. Ency. of Law, 2nd ed., page 689.

After careful consideration of these authorities however, and with due respect to the eminent Courts by which they are announced, we do not think the law can be so declared in this State. No proceeding more closely analogous to the present can be found, than that employed in condemning land under the principle of eminent domain, and in such cases ever since the case of Tide Water Canal Co. v. Archer, 9 G. & J. 317 , the practice in Maryland has allowed the examination of jurors, who signed the inquisition as witnesses, on return of such inquisition for confirmation, “upon all subjects whatever relating to the controversy, as fully as any other persons who might be sworn as witnesses in the cause, that they may be examined ⁵³ as to the grounds and motives for their finding, in order to ascertain whether in coming to their conclusions they had not mistaken facts as well as the law.” That case was heard only in the Circuit Court for Harford County, there being no appeal to this Court from such a proceeding, but the opinion there delivered was deemed worthy of full publication in 9 G. & J. and the case has been at last twice cited in the Md. Reports — in 10 Md. 87 and in 44 Md. 607 , and has ever since controlled our practice. In the opinion referred to the Court considered the question at length (p. 487 to 493), and explained very clearly and satisfactorily the difference which exists between a body of men proceeding under a law of that kind, and a common law jury and the reasons which permit and require the examination as witnesses, of members of a jury making such an inquisition, while it forbids the examination as witnesses of the members of a common law jury; but it is unnecessary to recite those reasons here. It is sufficient to say that they apply in their full force to the case we are now considering.

Moreover sec. 170 of the new charter of Baltimore City, which provides for an appeal to the Baltimore City Court from any assessment made by the Appeal Tax Court, gives the city Court full power “to require the Judges of the Appeal Tax Court, their clerks, surveyors or other agents or