Susquehanna Power Co. v. State Tax Commission

Offutt, J., delivered the opinion of the Court. The Susquehanna River, prior to the construction of the Conowingo dam, flowed in a series of pools and rapids over a rocky bed through a narrow basin or valley from the McCall’s Perry dam in Pennsylvania to Share’s Landing in Maryland, a distance of some fourteen miles. In that distance the fall of the river was about one hundred feet. That fall, the shape of the basin through which the river flows, and the volume of its flow, combined to give to that basin a peculiar value because of its potential utility for the construction of an artificial lake or pool which might be controlled and applied to the manufacture of electric energy.

Many years ago a group of men, who had the vision to see the power latent in that little valley, had also the genius to conceive a plan for converting the possibilities patent to them into living fact, and the resource to carry their plans to a successful fruition. And as a result of their efforts there was substantially completed in 1928 the plant of the Susquehanna Power Company, consisting of a dam at Shure’s Landing, a lake or pool containing the waters impounded by that dam, the land covered by its waters and land adjacent thereto, power houses, structures and machinery to convert ftie "wafer power into elecfmc energy, fransmission ^mes fo transmit the energy thus generated to its market, and such other structures, tools, machinery, and equipment as are appropriate or convenient to the production and sale of electric energy by that plant. So much of the plant as has been completed is capable of generating electric energy equivalent to 385,000 horse power, and when four additional units for which foundations have been constructed are added it will, in the opinion of George P. Roux, the company’s engineer, be the largest hydro-electric project in the world. On September 25th, 1928, so much of the project as was to be immediately constructed was nearing completion, and ³³⁸ on that day the County Commissioners of Harford County addressed to the Susquehanna Power Company and Mr. Stevenson A. Williams, its attorney, a notice stating that they had placed on the property of the company in Harford County the following assessment: “Electrical transmission system......... $109,293.

Land submerged and rights............ 6,622,816. Buildings (dam and power house)...... 12,003,156. Total...................... $18,735,265.” and that they would hear objections to that assessment on October 4th, 1928. Following that notice, on the day named, objections were filed by the company and it was heard as to them by the county commissioners.

Those objections were in part based upon the contention that'the description given by the county commissioners of the property assessed was too “vague, indefinite and general,” and in response to that objection the county commissioners in their answer itemized the assessment as follows: “Electric transmission system in Harford County, exclusive of Delta line....... $109,293. Transmission line, Delta Conowingo Dam: 4.16 Miles wire at $40........$ 166. 117 Poles at $6.25............ 1,043. 2 Towers at $100............ 200. - 1,409. Portion of dam located in Harford County, and power house........... 12,003,156. Railroad: 3.16 Miles at $10,000........$31,600. ’ 132.37 Acres of land. ..'..... 4,500. 36,100.

Water towers....................... 4,50(J. 2 Dwelling houses................... 19,000. Islands, 3.58 acres at $50.00........... 175. Rocky hillside, 569.81 acres at $20.00.. . 11,396. Wooded land, 882.67 acras a.t $30.00.. 24,460. ³³⁹ 34,538.

Tillable land, 690.77 acres at $50.00.... 15,840. Buildings........................... 6,620,786. Submerged lands, 2,110 acres, and rights therein........................... $18,882,653. “The assessment on the submerged lands, amounting to 2,110 acres and rights therein includes all the land that was submerged before and is now submerged by the construction of the dam, and is based on figures submitted by The Susquehanna Power Company,” From that assessment the company appealed to the State Tax Commission of Maryland which, after a hearing, reversed the action of the County Commissioners of Harford County, and assessed the property as follows: “Transmission system..............”... $94,800. Railroad, 3.16 miles at $5,000 per mile. 15,800.

Water towers........................ 4,500. 2 Dwelling houses..................... 19,000. 3.58 Acres of islands at $50 per acre.... 179. 569.81 Rocky hillside at $30 per acre.... 11,396. 888.67 Acres woodland at $30 per acre. . 26,460. 690.77 Acres tillable land at $50 per acre. 34,538. Buildings........................... 15,840. 2,110 Acres (more or less) submerged land............................. 2,349,300. Power house and portion of dam located in Harford County................ 9,413,350. Secohd Disteict. 114.99 Acres land and buildings........ 3,650. 3.35 Miles railroad at $5,000 per mile.. 16,750.

Sixth Disteict. 64.47 Acres of land and buildings, less 48.7 acres of land used by railroad. . 10,770. Railroad warehouse.................. 750. 1.31 Miles railroad at $5,000 per mile. .. 6,550. Total $12,023,633.” ³⁴⁰ Thereafter the company filed in the Circuit Court for Harford County a petition in the nature of an appeal from the order of the State Tax Commission, in which, referring to the assessment made by that commission, it alleged that it was illegal and erroneous. “(a) Because said submerged land, and any rights of your petitioner therein, constitute an essential or integral part of its ‘complete unit’ and ‘project area’ or of the pool to be formed by it on the Susquehanna River .under the terms of the license from the Federal Power Commission above mentioned, and the saime are exempt from assessment and taxation for State and County purposes, because in constructing, maintaining and operating the same under said license your petitioner is acting as an agency or instrumentality of the Federal Government for the promotion of navigation and development of the navigable capacity of the water power of said river, and the taxing by the State of Maryland or by said county of such part of its property will operate to defeat the objects and purposes of said license and the rights reserved to the United States thereunder. “(b) Because in so valuing and assessing said submerged land, at such excessive rate, the Tax Commission of Maryland arrived at such excessive valuation in an erroneous and illegal way, by including in such valuation the value of your petitioner’s franchises (Federal or State) and also by including in such valuation elements of value which belong to your petitioner’s property outside of Harford County and outside of the State of Maryland, thereby arriving at an excessive valuation or assessment for the submerged land owned by your petitioner which is now located in and a part of the bed of such pool, formed by the waters in the Susquehanna River. “(c) Because in so valuing and assessing submerged lands owned by your petitioner, which were at the time of the said assessment and are now a part of the bed of the Susquehanna River, the State Tax Commission of Maryland included in said assessment, to give it such ³⁴¹ value, the waters of the Susquehanna River, which waters at the time of the said assessment were not the property of your petitioner and were not subject to taxation by the State of Maryland. “(d) Because said Commission at said hearing refused to grant the rulings on legal points or prayers submitted by your petitioner at said hearing, as authorized by law, and numbered 3, 4, o, 7, 8 and 9 (a copy of which said prayers and the rulings thereon is attached to this petition as part thereof and marked Exhibits B and C), and refused to followed the legal principles laid down in said prayers or requests and arrived at said valuation or assessment in disregard thereof.” That appeal was heard upon a transcript of the proceedings before the State Tax Commission, and upon the conclusion of the hearing, the order of the commission was affirmed. This appeal is from that order.

The appeal to the Circuit Court for Harford County did not challenge the propriety of the entire assessment made by the county commissioners, but involved only the item of 2,110 acres of land submerged by the water impounded by the dam, and this court on this appeal is limited to a consideration of that item alone. The appeal raises three questions, which may be thus -stated: (1) Is the property taxable at all by the State of Maryland? (2) if it is, was the assessment validly made? and (3) if not, can the mischief be remedied in this proceeding ? These three questions will be considered in their order.

(1) The appellant, hereinafter referred to as the Power Company, contends that the property is exempt from taxation by the State (a) because it is a federal agency, (b) because it is covered by an exemption granted to the proprietors of the Susquehanna Canal by Chapter 66 of the Acts of 1874, and (c) because the Power Company has no “absolute title” to the submerged lands, that it acquired from the state by chapter 268 of the Acts of 1908 the right to erect its dam and lay its pool upon the bed of the river, “a de ³⁴² .dared public highway,” that therefore the assessment was not .upon the submerged land but upon the flowing water of the • river, which cannot be validly assessed for the purpose of taxation. 1. The claim that the property is exempt from taxation .as a federal agency is based upon the fact that the Power Company was licensed by the Federal Power Commission to construct and operate its project on the Susquehanna River for a term of fifty years. That license was predicated upon the assumption that that part of the river upon which the project is located is a navigable stream, and subject to the jurisdiction of the commission. That it is a navigable stream within the definition of “Navigable Waters” found in the “Water Power Act,” June 10th, 1920, ch. 285, sec. 3, Barnes Federal Code Cum.

Supp., 1919-1924, sec. 9531c, in view of appellants’ concessions, may for the purposes of this case be assumed. Whether the Susquehanna River is in law or in fact navigable is a question not presented by this record and not considered by this court, and nothing in this opinion contained is to be construed as in .any sense determining that question or determining the validity of any legislation relating thereto. But assuming for the purposes of this case that the project is subject to the Federal Water Power Act, it is also subject to the condition .stated in section 14 of that act, Barnes Code, Cum. Supp. 1919-1924, sec. 9531n, that upon or after the expiration of the license the United States shall have power to take it over upon the payment of just compensation as defined in that section.

Both by the licensing agreement and the Water Power Act the Federal Power Commission is given extensive and important regulatory and supervisory powers over the •construction, maintenance, operation, financing, rates, and .service of the project coterminous with the license, and the licensee agreed except as otherwise authorized that it would '“•retain the possession of all project property covered by this license as issued or as hereafter amended, including the project area, the project works, and all franchises, easements, water rights, and rights of occupancy and use; and that none ³⁴³ of such properties valuable and serviceable to the project and to the development-, transmission, and distribution of power therefrom will be voluntarily sold, transferred, abandoned,, or otherwise disposed of without the approval of the commission; Provided, That a mortgage or trust deed or judicial sales made thereunder, or tax sales, shall not be deemed voluntary transfers within the meaning of this article.” It is also undisputed that the Power Company is a Maryland corporation, engaged in a public service, maintained and operated for private gain, and the immediate question is whether such a corporation, under the conditions stated, is-such an agency of the federal government as to place its property beyond the taxing power of the state in which its property is located. Although the phrase of the Maryland Bill of Rights, stating the just and salutary principle that “every person in the-State, or person holding property therein, ought to contribute-his proportion of public taxes for the support of the government, according to his actual worth in real or personal property,” was omitted from the article as amended by chapter 390 of the Acts of 1914, ratified November 2nd, 1915, yet it is implicit in the following language of the article as amended: “And all taxes thereafter provided to be levied by the State for the support of the general State Government, and by the counties and by the City of Baltimore for their respective purposes, shall be uniform as to land within the-taxing district, and uniform within the class or sub-class of improvements on land and personal property which the respective taxing powers may have directed to be subjected to the tax levy.” And while it is axiomatic that no tax may be-imposed by a state upon property of the federal government, or upon agencies of that government when the effect of the tax would be to impair the efficiency of such agencies “in performing the functions by which they serve” it (Cooley on the Law of Taxation [4th Ed.], secs. 606, 607), that exemption does not exist in the absence of the reasons for the rule. So that the right of the Power Company to have its property in this state exempted from taxation by the state ³⁴⁴ depends upon two factors; one, whether it is a federal agency, the other whether, if it is, such a tax would impair its efficiency in discharging functions by which it serves the federal government. For as a person owning property in the state, it rests under the obligation common to all holding property therein, of contributing its proportionate share of the public taxes for the support of the government, unless such contribution would to some extent impair its capacity to perform duties and functions imposed upon it as a federal agency.

But, assuming that it is a federal agency, after careful •consideration of the very forcible and able arguments offered in support of it, we are unable to find any substantial support for the Power Company’s contention that it is such a ■federal agency as is necessarily exempt from state taxation, or that the payment to the State of just and reasonable taxes •on its property will to any extent prevent it from discharging ■every duty and performing every function imposed upon it either by its agreement or by law with respect to the federal government. The mere fact that the impounding of water by its dam may to some extent facilitate navigation for a short distance is incidental and secondary to its primary purpose of manufacturing and selling electric energy for profit, and it is not xequired to do any act or thing in aid of the federal government except that it is permitted or licensed to complete a project for its own profit which incidentally may affect beneficially or otherwise the navigability of the river. But it is •contended that the United States has a “power coupled with an interest” in the project. Just what is meant by that expression or how it affects the question under consideration is not apparent.

That the federal government, has an interest in the project and that it may exercise certain powers in respect to its operation and maintenance in aid of navigation ■cannot well be denied. For “whenever” the United States •desires to install navigation facilities, the licensee is required to grant to it such of its lands and rights of way, and permit •such control of its pools, as may be required for that purpose, .and as already stated the United States may, upon the ex- ³⁴⁵ piratical of the terra of the license, take over the project upon the payment of just compensation therefor. It has therefore' in a sense an interest in the project, and certain optional powers in respect to its control and operation. But such powers and interest are nothing more than a consideration for the license, and do not in themselves constitute the licensee' a federal agency.

The interest is essentially reversionary, and the powers, except such as refer to service and rates, are for the most part contingent upon an event which may never occur, to wit, the installation of navigation facilities by the' federal government. The principal and controlling facts are-that the licensee desired to establish on the Susquehanna River a power project to make money for its stockholders,, that to accomplish that purpose it required a federal license,, and that the federal government, in consideration for that license, exacted of the licensee certain concessions which may be valuable or meaningless accordingly as they may be affected by conditions which cannot now be predicted. But even though the licensee is required to do every act required by the license, there is nothing in the nature or the extent of its obligations which can support the inference that the payment by it of its proportionate share of the public taxes will in any degree impair its capacity to render to the United States the full service stipulated as a consideration for the license. That the numerous and extensive power projects located on navigable waters, licensed by the Eederal Power Commission, in the aggregate representing vast capital expenditures, and earning for their proprietors liberal returns on their investment, should under the conditions stated be regarded as federal agencies and as such exempt from the burden of taxation common to all who receive the benefits and the protection of state governments it is imposed to support, would be a wholly unreasonable and arbitrary conclusion.

And no such result appears to have been contemplated by 'Congress in the enactment of the Water Power Act, for not only does it throughout characterize persons authorized to construct power projects under its terms, as “licensees,” but it inferenti ³⁴⁶ ally concedes that the property of a licensed project may be taxed, for in section 8, Barnes Code Cum. Supp. 1919-1924, sec. 9531h, in prohibiting the voluntary transfer of any license or rights thereunder granted, it exempts from the scope of the term “voluntary” tax sales. Nor, as we understand it, is it the policy, if it is within the power, of the federal government to embarrass and injure the states by depriving them -of taxes which should be applied to the support of their governments, merely to increase the profits of money making projects which the states themselves have created. In our opinion therefore the power company is not such a federal .agency as is by its very nature exempt from state taxation.

Its capacity to perform such duties and functions in the .service of the federal government- as are imposed upon it, either by its own acts or by law, will not be impaired by the imposition upon it of its proportionate share of the public .taxes of the State, and it is not exempt from taxation by the State. Cooley on Taxation (4th Ed.), sec. 607 ; Thompson v. Union Pac. R. Co., 9 Wall. 591 ; Union Pac. R. Co. v. Peniston, 18 Wall. 5 ; 26 R. C. L. 105; Baltimore Shipbuilding etc. Co. v. Baltimore, 195 U. S. 375 , 97 Md. 97 . 1b.

The Proprietors of the Susquehanna Canal was incorporated by chapter 23 of the Acts of 1783, for the purpose of constructing a canal not less than thirty feet wide and three feet deep between Love Island and tidewater in the -Susquehanna River. Chapter 66 of the Acts of 1784 amended that charter, and among other things provided: “That the said canal, locks and other works, with their profits and .•advantages respectively, shall be and the same are hereby vested in the proprietors of the Susquehanna Canal, their heirs, successors and assigns, forever as tenants in common, according to their respective shares, and the same shall be deemed real estate, and shall not be subject or liable to pay .any tax, imposition, duty or assessment, whatsoever; * * * that is to say, provided always, that such exemption from taxation shall extend to such works as relate merely to, ,and are necessary for, the navigation of said canal.” Chapter 99 cf the Acts of 1797 declared that “the bed of the river Sus ³⁴⁷ quehanna, from the Maryland line to tide water, shall be considered a public highway, free for any person or person® whatever to work thereon in clearing the obstructions to its navigation; provided always, that nothing herein shall be taken or considered to permit any person or persons whatsoever to do any act repugnant to the power given by law to-the said corporation over the waters of said river, so far as-the same may be necessary for the purpose of supplying* the said canal and the water-works thereon, or repugnant to the pow*er given by law of excluding others from cutting any other canal or canals along the side, without the margin of the said river, to the injury of the said canal.” The canal company some time prior to 1817 found itself' in financial difficulties and its property was sold, at the instance of the Bank of Baltimore, by the sheriff of Cecil County to Samuel Sterrett, acting for himself and others.. There being some doubt as to the validity of that sale, the Legislature, by chapter 150 of the Acts of 1817, authorized a majority of the stockholders to sell the canal property and confirmed and transferred to such persons as might purchase it the privileges and immunities of the original company, and incorporated such prospective purchasers under the same name. Under that authority the directors of the company,, by and with the consent of a majority of its stockholders, sold its property to Robert Oliver and others.

The stock in-the company constituted by these purchasers was subsequently acquired by the- McCall’s Ferry Power Company and by it assigned to the appellant. In 1894 the property of the canal company was sold under mortgage foreclosure at the suit of the State to Eben J. D. Cross, and through him by variousmesne conveyances it too has become vested in the appellant. The canal property at one time contained about 280 acres of’ land along the river shore in Cecil County, but from time to time, in different parcels, 127 acres of that total were conveyed away. The record fails to disclose when the canal was completed, how long it was operated, or indeed whether if was ever successfully operated.

Its career was brief, gloomy and while- ³⁴⁸ '“some of the remains of it” were until the construction of .appellant’s dam still visible, the canal itself has long been .abandoned, and a part of it, until the construction of the darn was commenced, used by the Columbia & Port Deposit Railroad ■ Company for its railroad, and all of it is now submerged. The expressed purpose and reason for the exemption declared in chapter 66 of the Acts of 1784 was to aid the operation and maintenance of the canal, and it was limited to '“'such works as relate merely to, and are necessary for, the navigation of the canal.” The canal has long since disappeared, its value as a means of transportation has been destroyed by later systems, such as the railroad and the automobile truck, and the canal company has for many years existed for no other apparent purpose than to serve as