National Can Corp. v. State Tax Commission

Henderson, J.,

filed the following dissenting opinion.

The majority opinion properly observes that this case is a sequel to the case of Sears, Roebuck v. State Tax Comm., 214 Md. 550 . It was there held that an assessment practice of the Tax Commission, which gave more favorable treatment to the owners of real property than to the owners of personal property, was invalid, and that an owner of personal property had standing, under the equal protection clause of the Fourteenth Amendment, to raise the question of discrimination, citing Hillsborough Township v. Cromwell, 326 U. S. *443 620 . Moreover, this Court held the taxpayer was entitled to have its assessment reduced to the lower level accorded to others, although in earlier cases it had been indicated that its only remedy would be to require the taxing authorities to raise the level of the assessments of others. To this extent, it would seem that this Court felt constrained in the Sears case to modify or reverse the rule laid down in Baltimore Steam Packet Co. v. Baltimore, 161 Md. 9, 21 . See also Board of County Comm’rs of A. A. Co. v. Buch, 190 Md. 394, 399 . For a discussion of the effect of the Hillsborough case, see Hellerstein, Judicial Review of Property Tax Assessments, 14 Tax L. Rev., 327 , 344 et seq., citing particularly the case of Baldwin Construction Co. v. Essex County Bd. of Tax., 108 A. 2d 598 (N. J., 1954), which drastically altered the assessment procedures in New Jersey.

The State Tax Commission was then faced with the alternatives of either raising all assessments to the level of full cash value prescribed by the statute, or reducing the assessments of personal property. It did neither. Instead, it sought legislative approval of its prior practice in the guise of classification. The question presented is whether the statute validly accomplishes its avowed purpose, declared in a recital to be “to effectuate the policy of the State Tax Commission and of other taxing authorities of this State as it existed prior to the decision in the Sears case, this policy being to allow for inflationary factors in the assessment of real property but not to allow for such inflationary factors in the assessment of personal property.” A recital is not law, although it may be looked to as bearing upon legislative intent. The key language of the enactment is found in subsection 14 (b) (1) which defines “full cash value”, as applied to real estate, as “current value less an allowance for inflation, if in fact inflation exists”. Subsection 14 (b) (2) defines “full cash value”, as applied to personal property, as “current value without any allowance for inflation”.

I would agree that the present Article 15 of our Declaration of Rights does not require that there be uniformity in the tax rates applicable to the various classes of property *444 therein mentioned. For present purposes I may assume that the legislature itself may validly accord to some kinds of property exemptions or deductions not accorded to property in another class or subclass. Statutes in some states which themselves. fix the percentage of assessment values have been sustained, when uniform as to class, and where state constitutions permit. But the majority opinion does not attempt to meet the objection, raised on this appeal, that the vague and general reference to “inflation” is an invalid delegation of legislative power to an administrative agency, and that, if delegable at all, the power is controlled by no ascertainable or intelligible guides or standards. Instead, the majority opinion assumes the invalidity of the Act, as regards real estate, and holds that even if subsection 14 (b) (1) were deleted from the Act, the appellant cannot complain of being taxed at “current value without any allowance for inflation”, when the statute, as modified, requires that real estate be taxed in the same manner. I think the conclusion is unsound for several reasons.

The' argument that the legislature would have passed the Act with the subsection as to real estate omitted, and hence that the Act is saved by the separability clause, seems untenable. The declared purpose was to continue the disparity. If both real and personal property were to continue to be assessed according to the same standard of full cash value, there would have been no occasion to amend the pre-existing law. The vice found in the Sears case was that the State Tax Commission had deliberately undervalued, or permitted the undervaluation, of real estate. If statutory authority for the practice is stricken down, we are just where we were before, unless the Sears case is to be overruled. If Sears is overruled we are faced with the question of the Fourteenth Amendment.

The majority opinion seems to hold, however, that the difference in treatment can be supported on the ground that real estate and personal property are now placed in different classes. But such “classification”, to my mind, is wholly illusory if, as the Court assumes, real and personal prop *445 erty are to be taxed at the same rate and upon the same assessable basis. If real and personal property are required to be treated alike for tax purposes, a mere legislative declaration that they are different in other respects is meaningless. The complaint that they are not treated alike in practice goes to the heart of the matter and raises again the question decided in the Sears case.

I revert to the question as to the validity of subsection 14 (b) (1), left unanswered in the majority opinion for reasons which I think are unsound. The term “inflation” is not defined in the Act, and accordingly the word must be taken in its common or popular meaning. Although economists may differ as to its causes, such as the pressure for wage increases, governmental policies, and the expansion of money supply and credit, the term in its popular sense connotes the decline in the purchasing power of the dollar, coincident to the general rise in prices, which has been continuous, though not constant in rate, at least since 1939, the year of the outbreak of the second World War. It is sometimes measured by the so-called “cost of living” index. Of course, the amount of inflation, or the price level, at any given time depends upon the initial or base time or year with which it is compared. A directive to the taxing authorities to make “an allowance for inflation, if in fact inflation exists”, sets up no guide or standard. The amount to be allowed would depend in each case upon the point of reference, which is not designated. Inflation exists both as regards real and personal property. Its amount depends on the arbitrary selection of a previous price level. As I see it, the legislative directive is an open invitation to the taxing authorities to reduce assessments on real estate to whatever percentage of full cash value they please. This was precisely the vice we found in the Sears case. The directive supplies no point of reference, and hence leaves the matter to the uncontrolled discretion of the taxing authorities, without any objective standard at all.

The appellee argues that the standard in regard to inflation is no more vague than that of full cash value itself. I cannot agree. The latter term, over the years, has acquired a rather *446 definite meaning. An accepted test is current market value, based on a compilation of comparative sales, to determine a value based on the present conditions as reflected in the market place. No doubt, much must be left to the honest judgment of the assessors. Valuation is not an exact science. Actual sales prices should be evaluated to determine whether they are normal or forced according to the test laid down by the courts of a willing buyer and a willing seller. The particular property should also be considered in the light of its age, size, desirability, potential uses, and other factors. Appraisals may take into account original cost and reproduction cost; in some instances, a capitalization of income. Still, the tests are objective. This is a far cry from the deliberate undervaluation of property at some undisclosed and arbitrary percentage of full cash value.

The record in the instant case does not disclose what yardstick was applied by the State Tax Commission to the assessment of real property. It is conceded that it applied the test of full cash value to personal property. The Secretary to the Commission testified that “roughly speaking, real estate was assessed at 60% of the assessed value”. There was no effort to justify the end result in terms of “inflation”, or to explain the basis for its selection of that average figure. I cannot see how a deliberate undervaluation of this sort can be other than arbitrary and capricious. It is simply an example of the unsound assessment practice of “trending back”, which seeks to solve the problem by selecting a supposedly “normal” base year, in the hope that prices may eventually decline to that level. The hope seems vain in the light of the experience of the past twenty years. The result is to shift the tax burden from one class to another, or from one group to another, without any objective standard, making it difficult, if not impossible, for any taxpayer to successfully challenge his own assessment, by proving that others are more favored. For a discussion of the problem, see the extensive note on Tax Assessments of Real Property in 68 Yale L. J. 335. See also Johnson, Should Property Be Assessed at Full Current Value? 7 Journal Of Taxation, 316. For the reasons *447 stated I think the appellant is entitled to the relief indicated in the Sears case, to which it would clearly have been entitled in the absence of the retroactive statute under consideration. Cf. Cromwell v. Jackson, 188 Md. 8, 29 ; State v. Rice, 115 Md. 317, 327 .