Omaha Daily Bee Newspaper, July 17, 1902, Page 7

THE OMAHA DAILY BEE: THURSDAY, RAILROAD TAXATION IN COURT Arguments of Counsel on the Case Before Nebraska Supreme Court= Argument by B. T. White, curias for the respondents: It your honors please, it Is fortunate for us that in the division of government we bave a tribunal. which above the din wnd turmoil may retire for the considera- tion of important questions that may be submitted to it for determination. It is fortunate, also, that we have comstituting such tribunals those who are learned in the law, 80 that when the final conclusion #hall have been made it will not bave re- sulted from extraordinary appeals, but from cold analysis and calm logic. This is & serious question, and will grow more serions as time goes on. 80 far as I am concerned, it has been somewhat of an enigma to me as to just where our friends stand—our friends who represent the relators. I understood a: the fnception of this controversy before the State Board of Equalization sthat it was the contention then and there that the franehises of the class of corporations within sections 39 and 40 should be sepa ately valued, but when I peruse the alter- native writ which is the pleading upon which the relators stand in this court I somewhat annoyed—I find it somewhat difficult to say just where they stand upon this proposition. For, while they claimed to Lave been entitled to an assessment of the franch! separate and rt from the physical property before the State Board of Equalization the writ in its con- clusion seems to point to the thought that there should be one assessment of all of the railroad property of the respective s companies. But when I look at the briot of the relators I am Inclined to belleve that they insist on a proposition for which I will contend today, which is, that when the essment of this property is made to the raliroad companies in the terms which are set out in section 39 it comprehends All of the valuation of rallroad property; that when you take into consideration the main track, the side track and the rolling stock denominated as such in that sec- tion, then that the board should, and it is contemplated by law that they should take into consideration everything which ente: fnto the value of that property. But today I am not exactly clear in the copfusion which has resulted from the dif- ferent positions which it seems to me they pave takem, whether it is claimed that these franchises should be assessed sepa- rately or whether they should be simply considered and the sment made on the aggregate value of all of the property. Perhaps the statement of my brother Har- rington would indicate that they intend to stand on both propositions. But before we come to this there are some things which e must consider with reference to the situation and the duties of the State Board of Equalization. As 1 read the law, the board is organized #nd constituted for certaln purposes and r the performance of certaln dutles. The tute defines those dutl Under sec- tions 39 and 40 it is to value the rallroad property, and is not the mere instrumental- ty which may be guided hither and thither y every branch of the government, but i'B is to be controlled by the law which de- nes its duties. The law reposes in that a certain discretion. It is clothed <'with. a quasi-judicial function, and when It enters upon the consideration of the duty entrusted to it—when it undertakes to make an assessment of raliroad property ander the law it has undertaken to exerclse that diseretion as it is imposed upom it by law, and its decision upon that subject, 3 1t rendered—after it has entered tpon the exercise of its discretion and has exercised the tunctions which are imposed wpon it by law Is as inviolable as that of any court upon any subject. If there is fraud In its deliberations, it may be true that the courts may take cognizance of it and may compel the board to act agaln. It may be that if there is fraud in its sonduct or fraud inheres in the determina- tion, then the courts may call it back to perform its duty; but that right even then depends, in my judgment, upon w whether or mnot there is another * remedy for the person who seeks to (nvoke the power of this court for the pur- bose of directing the State Board of Equali- kation as to the method of exercising its Judgme It the 1 has provided a way for a review of the action of that board, tLen, it there is fraud In that action, and Ihat fraud was known, or if the circum- stances indicating it were known at the time when the judgment was rexdered, .1 take It that under the law the remedy which is polnted out by statute must be yrsued by the person who has appeared fore that board and sought by evidence o influence its action. That applies to as amicus " oounty boards of equalization, and why dhouldn’t ‘it apply to the State Board of EBqualization? The statute is broad enough to comprehend both. It seems to provide . ind comprebend the idea that a judgment " bf the State Board of Equalization may be reviewed upon error by the distriot court. Bection 680 of the Code Is as follows: A judgment rendered or final order made by a probate court, justice of the peace or other tribunal, ‘board or officer, exer- judicial functions and inferfor in iction to the district court, may be vacated or modified by the dis- et court. Then it 1s further provided under the latute with reference to settlement of a Bill of exceptions, being the latter part of vection 811, which was enacted by the legls- v,lll\ln of 1895, that: + Any person or officer or the presiding officer of any board or tribunal before proceeding may be had shall, on of ty thereto, seitle, 1 of exeeptions of all or given on the hear- s 1 said before, all of the clrcumstances entering into the making of the assessment of this property was as well known on the day when the judgment ‘was rendered by this board as it is now, ©Or as it was on the day when application was made to this court for the alternative writ of mandamus. Knowing these facts, they could have taken that record into the district court, and If there was any error on the part of this board they could have bad it remedied there; If there were any wset of facts or circumstances which they sought to get in evidence which were ex- cluded by the board (I understand it Is the claim of th parties here that they did offer evidence and that they were notified that that evidence would mot be consid- " ered) then it was thelr duty to hav plied tor a bill of exceptions from the p i 8iding officer of that board, as provided in section 311, had that settled and allowed and taken it to the dlstrict court and in that court had the matter reviewed. They have not seen fit to do that. This court bas determined time and §me again—you bave fterated and reiterated the fact that s writ of mandamus is an extraordinary THE GENUINE EAU de COLOGNE < §obann Marcia Farina ] e ¥or sale by o R. BENNETT CO. ‘W, Cor. 16th and Harney Bts writ, and should only be resorted to at the last moment, at the time when all other remedies have been exhausted and when there {s no other remedy of which the party can avail himself. Chiet Justice Sulllvan—Does it appear that this corporation, the Bee company, has any matter appearing before the board? Mr. White—] understand that that was the Institution that appeared before the board. Chief Justice Sulllvan—I don’t know. Mr. White—That Is a fact, isn't it? Mr. Simeral—It filed a protest there. Mr. White—They filed their protest and asked that the franchises be assessed, and they say in the alternative writ that the members ‘of this board said they had no right to consider the franchise and that they dla not consider it. Now, I say they knew that, and they could have had all ot those facts and circumstances put Into a bill of exceptions, taken it to the district court and there had the matter reviewed. So I say there are two things to consider hers as preliminary. First, it there was no fraud in the actfon of this state board this court cannot send forth the ex- traordinary writ of mandamus and cause these people to reconvene and reassess railroad property. They have already done what is required of them under the law. They did meet. They did move. They have exercised thelr discretion. They have per- formed thei~ judicial function ia determin- ing the value and assessment of this rail- road property. But second, even If there is fraud here, then we say it was just as ap- parent to these men on the day when that judgment was entered as it is now, and they ought to have taken the proceedings provided in the statute for reviewing it in the district court. They have not done that. But suppose we eliminate those questions in the further progress of the argument. Suppose we enter upon the consideration of fraud here. Let us see then where we stand. Fraud is not to be lightly pre- sumed. This board s composed of honor- ble men, who have been regarded as stand- fng well in the communities in which they bave resided. This court, then I , will not lightly presume that fraud has been attendant upom their action or that they have had any other intention than that of fairly and honestly performing their du- ties, and the mere fact that in the valuation of this property the board has placed it lower than this court would have placed it should not (nfluence this court in determining that these men—that this board was gullty of fraud. I have referred to a number of cases In my brelt here which I will mot undertake to read, but which are quite pertinent to this line of argument, and in which it le held that even were the aseessed valuations con- siderably lower, or were they considerably greater thau the court would have assessed it it had been considering valuations, yet, 80 long as they appear to be the expression of an honest exercise of judgment of the board, the valuations canmot be interfered with, 1 desire now to refer more particularly to the Elkhorn company for the purpose of showiog that there is no fraud eo far as it is concerned. Under the evidence that has been introduced here, I have tabulated the earnings of that road for eight years. I find that the total net earnings of that road for those years as shown by Poor’s Manual, 1901, page 207, aggregate about $10,062,592, making the average per year per mile—our mileage being 1,363 miles—$922.83. Now mind you, that is for the whole system and we take into consideration South Dakota, Wyoming and Nebraska. I think it would be in the nelghborheod of $950 or $1,000, if ‘we confined It simply to Nebraska. Now, then, adopting the method used by relator, and you might capitalize that at 4 per cent and it would make $23,000 per mile in round numbe! One-sixth of $23,000 per mile would be something like $3,845. mind you that s at 4 per cent. If it was one-seventh it would be $3,206 a mile, But 4 per cent is not . beca the Elkhorn company hes outstanding about $21,000,000 worth of bonds, of which almost $2,000,000 bear € per cent interest, matur- ing In 1933. Thero are about $18,000,000 worth of bonds which bear 6 per cent, maturing some time in the future, upon which only 4 per cent Interest is pald by Teason of this. These bonds are guaran- teed by the Northwestern' Rallway com- pany. The latter places its own bonds 4 per cent, secured by the Elkhorn bonds above mentioned as collateral. The North- ‘western simply requires of the Elkhorn bond the payment of 4 per cent interest thereon, hence there is only about 000 upon which. the Elkhorn pays 6 per cent interest. Om the balance of the $21,- 000,000 worth of bonds it pays only 4 per cent, but this {s not a falr ri of interest to the Blkhorn company. I simply refer to the 4 per cent because that is the ex- tremely low rate which the relators claim railroad property is entitled to earn. Cap- italizing at 5 per cent the value per mile would be about $18,457, one-sixth of which for the purposes of assessment would make the value $3,076. The sssessment of the Elkborn company is $3,600 per mile. seventh of the valuation, and the board say they assessed railroad property between one-sixth and onme-seventh, it should have been assessed at $2,637. If $950 or $1,000 is capltalized € per cent the valuation would be measurably less per mile. Even at the low rate of interest contended for by the relators the assessment of the ETk- horn company shows upon its face th: there was mo fraud upon the part of the board. Another thing to take Into considera- tion is that the members of the board say they had evidence before them showing that this road could be reproduced for be- tween $19,000 and $20,000 per mile. One- sixth of $19,000 would be about $3,100 per mile, and at $20,000 per mile it would be a $3,600 per mile aud is one-seventh of $25,- 200. It is true that the road has probably cost more, but the greater portion of that road w bullt years ago, when it could mot be bullt as cheaply as now. It can now be reproduced for about $20,000 per mile 8o, 1 say that anyway you figure it it shows that there is no reason for charging fraud upon the board in the assessment of the Eikhorn property. Page 130 in the last auditor's report shows the mileage of the Elkhorn road, and it shows the value, and it shows the net earnings per mile. I am not golug to stop to figure that out to your homors, but I say it ap- pears to be an average of $848 per mile taken for tem y The figures upon which I have based the estimate just given to your honors is taken from Poore's Manual, which has been introduced by the relators. Now, if you estimate the earn- ings per mile according to the figurss which appear on page 130 of the auditor's report practically the same result will be reached. Eo far as the contention of thes gentlemen is concorned, If anything were to be doi the Elkhorn company ought to have a decrease in its valuation. Why, in one year, in 1895, we bad a deficit of §337,000—more than it ever has put to surplus in any ome year before or rince. 80 much for fraud, as it may be consid- Issues Raised in the Mandamus ered with reference to the Elkhorn road. Now, let us go fnto this question of fran- chise a little further, for the purpose of seeing whether or not there is any fraud with reference to the valuation of fran- chises. That involves the consideration of what a franchise is, whether or mot it posseeses this great value—this incaleulable value which these gentlemen have attached to it. What is a franchise? First, there is & franchise to exist. Second, there is a franchise to do business as a corporation Third, there may be a franchise which ear- ries with it peculiar privileges which can- not be enjoyed by any other person or by any other corporation. Those are the three clasees of franchises we will say, The first, the right to exist as & corpora- tion, is of no value separate and apart by itself. It could not be sold upon the mar- ket. It could not be sold upon adverse process, nor can the right to do business as a corporation be sold upon the market. It camnot transfer it. Separate and apart from the tangible property it is not worth a dollar, and it s so held in the Detroit street raillway case, 125 Mich., page 673, which goes over similar facts With reference to the third franchise, it 1s sald that these railroad companies have a great franchise, in that they are per- mitted to charge ratcs and fares for hauling passengers and freight. They say it Is also a great franchise to be permitted to condemn real estate—to exercise the right of eminent domain. How valuable? We must remember that the people have their compensation for these franchises and for these rights. We cannot take a foot of land but we have to respond In damages for the taking of It and often times to pay more than the land wouid bring for any other purpose, and not only that, but are com- pelled to respond in damages for every dollar of damages that accrues to abutting property. Railrond companies must respond in damages for that even though the advent of the railroad in that community may in- crease the value of such property. say that the public has {ts compensation with reference to this privilege. The right of eminent domain in and of itself has no great value. It has no tangible value in and of itself. It must be considered with ing of the road. And you might say this, too, that this right exists simply by virtue of the will of the legislature. It might be enjoyed by an individual who is engaged in a public enterprise and for the public bene- At If the legislature felt inclined to grant it to him. The only reason that it may not be granted to a private person is because in the organization and operation of these great corporations it has been found that ©o single Individual has ever undertaken to control or own onme. There has been no necessity to appear before the legislature to get such a right in favor of an individual for carrying on a public enterprise. With reference to the right to charge rates and fares, the public has its compen- sation. Legislative invasion may hold rates and fares down to & point where the return upon the investment will be reason- able and the line may be paralleled at any time, 80 that no exclusive right s given. It cannot go beyodd what is reasonable. 80 we do not get any great right there. But the man who operates a private business—who runs a gre mewspaper, If you please—or any pri- vate corporation, has the liberty of making as much money as he or it mdy, limited only by the liberality of their more aggressive competitors. So that this tranchise is not so very valuable in and of itself except as it is considered with reference to the/ tangi- ble property. What gives to the tangible property its value as rallroad property? Would there be any value to the Union Pa- clfic Rallway company, to the Burlington Rallway company, to the Elkhorn Railway company if they allowed the ralls to ace cumulate rust, and if they allowed the ties to rot in the ground, if they operated no trains? Would there be anything of value In rallroad stock if trains did not move? Then what is it that gives life and vitality to this property? What makes it of value? Why s it that this board did not assess it as mere dead material? Why, because they e the right to operate the rallroad, be- cause they have the right to exercise the rights and privileges given to them under the constitution and laws of the state of Nebraska. That is what imparts value to rallroad property, and it is not this intangi- ble thing that has such great value sepa- rate and apart by itself. But it is the lve and operated plant. If you do not have a live and operated plant your franchis ave no value, This Is llustrated very forcibly to one's mind by the case on which these gentlemen seem to depend with so much vigor. The case in the 154 United States, of Backus against Rallroad Companies. That was a case based upon a law which was passed by the legislature of Indiana in 189 vided for an assessment of property gem- erally, minutely and specifically; it pro- vided for the assessment of stocks and bonde; it provided for the assessment of railroad property; it provided specifically for reports which were to be made by rallroad companies to the auditor, and it provided among other things that there should be listed with the auditor a list of stocks and bonds, differing from our statute. 1t provided directly that those stocks and bonds should be listed with the auditor for the purpose of being considered by the board in the assessment of railroad prop- erty. Section 137 of the Indiana law pro- vided that the board should assess rallroad property as rallroad track and rolling stock. It was assessed as such in this particular case.. An action was brought by the rallroad companies to have the law declared unconstitutional, and for the purpose of wiping out the assessment made because it was inequitable. Among other things, it was claimed that it allowed the State Board of Equalization to go over into Ohio and Illinols and take the values there and commingle them with the value of property in Indiana and make an asse ment upon such valuation. They also claimed it was a tax or burden upon inter- state commerce. These contentions were found not correct, and were not considered by the court as valid. In pussing upon the Indiana law Justice Brewer uses this lan- guage: Counsel sought in argument to narrow the meaning of the words 'raliroad track” and “rolling stock” as though the two di not include the entire rallroad property but evidently the supreme court of (i state constried, and as we think properly. the two terms as embracing all which goes to make up what is strictly rallroad prop- erty. By section 3 of the act it s provided that all property in the state shall be sub- ject to taxation unless expressly exempted. 3y section 4, that when the property of u corporation {s taxed to the corporation the shares held by individuais shall not be sub- ject to taxation. There is in terms no exemption of any raliroad property nor any part thereof: and there is no provi- sion of the tax law reaching that which is strictly rallroad property, braced within the two track” and ‘rolling stock.” Obviously it was assumed by that court, though the matter i3 not discussed in the opinion, that by these two descriptive terms the legis- lat carrying out the declared purpose biecting all property within the siate to laxation, not expressly exempted, meant to include all the property owned or used by the ralload compaanies in the operation of their roads, and which may fairly be called i property.” And when the statute 8o I| the exercise of the right and with the bulld- | Part VIL provides that such property shall be as- sessed at its “true cash value” it means to require that it shall be assessed at the value which it has, as used, and by reason of its use. Nothing is sald about the assessment of franchises. Why? Because within the two terms “railroad track” and ‘“rolling stock” was comprehended everything of value of railroad property. That sugges- tion finds force from & subsequent case in the same volume, commencing at page 439, in which the contention was more vigor- ously made that it was a tax upon inter- state commerce, in which the direct ques- tion was put to ope of the state officials on hie examination a& a wifness, It he as- sessed anything for the franchise of o cer- tain road, and he answered he did not. Justice Brewer comments upon that in his opinion and says or notices distinctly that the franchise was not assessed. And, by the way, we might say here that of course franchises are property, and the fact that a franchise Is named in the constitution does mot give it any additional force. By way of paren- thesis we might say here it might just as well have been left out. Justice Brewer #avs in that opinion, at page 44: The rule of property taxation fs that the value of the property Is the basls of taxa- tion. 1t does not mean a tax upon the earnings which the property makes nor for the privilege of using the property, but rests solely upon the value. But the value of the property results from the use to which it is put and varies with the profitableness of that use’ present and prospective, actual and anticipated. There is no pecuniary value oatside of that which results from such use. The amount and profitable character of such use determine the value and if roperty is taxed at its actual cash value t {8 taxed upon something which s cre- ated by the uses to which it is put. So we say that this decision contemplates when the board assessed the rallroad prop- erty under the designation “railroad track’ and “rolling stock,” they included every- thing of value in railroad property. Now this is borne out by another case which I did not cite in my brief. It is the case of De- | trolt Citizens' Street Rallway Company | against Common Councll of City of Detroit, | 85 N. W. 96. I will not attempt to read any great portion of that case, but here is the glst of it. It Is found In the fourth para. graph of the syllabi: If property may be assessed as a unit Prop there is no obligation to value its separate elements. Now that would naturally dispose of all this cross-firlng at these men who were put upen the stand and ked If they separately valued the franchises of these corporations, because under the etatutes of the etate of Nebraska they are not obligated to assess the franchises of the corporations separately. In this Kentucky case read here it is proper to eay that they have a distinct statute requiring that the franchises shall be asseesed separate and apart frem t tangible property. Sectlon 4077 of the laws of that state provides as follows: Every rallway company or corporation and every Incorporated bank, trust com- pany, guaranty or security company, gas company, water company, ferry company, brid company, street rallway company, expre: company, electric 1 electric power company pany, press dispatch com company, turnplke compal company, dining car col 8l company, chalr car company and every other like cBmPIll‘. corporation or associa- tion, also every ot y or assoclation having or exerclsing any special or exclusive privilege or franchise not allowed by law to natural persons, or erforming any public gerVigs, shall, in ad- Ition to the other taxes imposed on it law, annually pay & tax on its franchise to the state and a local tax thereon to the county, incorporated city, town and taxing d'lslalcl where its franchise may be e clsed. It is a legislative enactment and entirely different from ou: Your Montana law is the same. ‘They simply have the value of the use of the property valued by it- self and then the value of the tangible property valued by itself, and then aggre- gated. In other words, they are separated. here we combine them and assess them to- gether. I want to call your attention to this section 32 just for a moment. I do not u derstand that section 32 contemplates the aggregation of stocks and bonds for the pur- pose of finding the value of the property of corporations under the construction this placed upon it. It does not say anything about adding the value of stocks and bonds. The fifth and sixth items de- duct the debts and value of real and per- sonal property. The method these gentl men contend for is not found in that stat- ute. Of course that statute is not applica- ble here because, if I am correct in my premises that the value of the property as & used, going concern 1s to be valued, then it could not be legzlly mssessed under sec- tion 32 for many reasons. You would get the franchise twice, and it was never in- tended, And again, the 'y fact that the law was passed in 1879 and eection 32 being the part referring to stocks, and sections 39 and 40 referring rallroad property, passed at one time and at the same sessio Upon the face of these respective statut it appears that the unit idea was in the minds of the legislators; they wanted to assess the rallroad property as a umit by one tribunal, with a view of avoiding the annoyance and inconvenience invelved in assessing rallroad property and the many incongruous results produced by local as- sessments, and I say, if you construe sec- tion 32 with sections 30 and 40, it wholly 4 stroys the unit idea, because, under section 32, is assessed the value of the franchise by the local assessor, or State Board of Equalization, without the latter being named in the statute. The local assessor makes one essment under section 32, and the state board another under sections 39 and 40. This was not contemplated, and it is not the law. -Sectlons 13, 26 and 137 of the Indiana law, and sections 32, 39 and 40 of the Nebraska law are parallel statutes. It was no more contemplated that there should be a separate valuation of the fran- chftses under the Nebraska law than under the Indiana law. I by the Backus case tioned. If that is true, thenm th were justified in saying “We assessed this property with reference to its use. We assessed It as a live golng property. assessed it with reference to its earnings. I want to call your attention to Mr. Stusfer's testimony. He sald he found the rologs of the Unlon Pacific main line to be $6,000 or $7,000 per mil You will find on pi 130 of the auditor's report where he got those figures. So these intangible things, these franchises, ot to be valued parate and apart. Let us go a& step farther. friend says, “Your franchises are worth $200,000,000; your tangible property is worth $200,000,000. Your whole property is worth $400,000,000. This appears irom the al- ternative writ. Eight per cent of 400,000,000 Is $32,000,000 and 6 per cent is $24,0000,000. The raliroad companies of Nebraska bave er earned § per cent of $40,000,000, which would be $20,000,000. The rallroads of the state of Nebraska have never netted $20,- 000,000. Four per cent of $400,000,000 would be $16,000,000 and the rallroads of Nebraska per cent of $400,0000,000 would be $12,000,000. The rallroad companies of Nebraska have never netted $12,000,000 over and above operating expenses. Two and one-half per cent of $400,000,000 would be $10,000,000; $10,000,000 as shown on page 13 of the au- JULY 17, 1902. dltor's report is the utmost that has ever been earned by all the railro Out of this paid fixed charges, taxes and fn- terest. Then, my friend Harrington has a proposition. He Is going to reduce rates 16 per cent. Now, them, I say this un covers a little of this moonshine on the shovel. It is interesting to find gentle- men who have time to engage in such abstruse questions—interesting to listen to this new school of philosophers, whose time has heretofore been limited to trac Ing the distinction between a “living hero" end a dead “Jackass'—dilate upon the question of valuation of raflroad proper- ties. Another polnt I want to make here fs this. The rule of taxation in this state provided by the constitution Is upen the valuation of property. It is upon nothing else. It is mot upon brains, meither s it upon the value of labor nor the value of anything intellectual, nor the value of energy, but upon the value of property The constitution determines that taxes shall be raised upon the value of property and nothing else. We have no bueiness to levy taxes upon any other basis. The constitu- tion of this etate by section 1 of article ix, provides for the raising of revenue by taxation upon the value of property. It does not provide for the assessment and taxation upon the value of mental or phys- feal labor employed in the use of property. The different enterprises of the present day, with reference to the production of pecuniary returns, may be classified about follow L Enterprises which depend more upon the capacity for management and_ the ap. plication of mental and physical labor an_upon the use of tangible propert: 2. Enterprise in which profita accrue more largely through the use of propert; than of Jabor employed e 3. Enterprises In which profits are re- turned through the employment of prop- erty and labor in about equal parts. In the operation of raliroads it is falr to say that from 65 to 70 per cent of the gross Income thereof is expended In the cost of operation. The compensation of employes of rallways represents from 65 to 60 per cent of the operating expenses of the road, and 39 per cent of thelr gross earnings, as s stated in tho fifteenth an- nual report of the Interstate Commerce commission for 1901, page G4, distributed among trackmen, brakemen, conductors, firemen, engineers, shopmen, machinists and operating and managing officlals. When one considers the army of em- ployes in the service of the Burlington, Unton Pacific and Elkborn companies, the truth of this statement will hardly be dis- puted. Therefore, to the extent that interest payments are made upon bonds, dividends declared upon stocks, or met earnings are derived from the operation of rallroad property, {t must be remembered tha. about one-half thereof is contributed by labor, and only onme-half by the prop- erty used. Hence, If assessments of value are to be placed upon the aggregate worth of securities, or met earnings are to be capltalized, it is clear that only about one- half of the fesult thus obtained can be truly traced to the value of the property used. The balance of the result is due to the labor employed. When values thus ascertained are used for the purpose of sessment and taxation, the companles are thereby compelled to pay taxes not only upon property used in their business, but upon earnings resulting far more largely from the employment of labor than the value of property, thus doing violence to the constitutional requirement that taxes shall be derived from a property valuation. In {llustration of the three classes above referred to, I will present one under the first class. We will suppose that a party organizes a dlstrict messenger service. The only property used in the businbss consists of desks, chals nd books for the purpose of keeplng memoranda and ac- counts. This would be & business in which there was little or no tangible property, and in which the dependence for results must be placed upon the good management of the proprietor, and the faithful service and intelligence of the boys employed as meseengers. In the first instance the busi- ness is conducted by one man, who hire .the boys and takes all of the proceeds and enjoys the profits. He may hire twenty boys from whom he makes 20 cents aplece, which would be §¢ a day. It is apparent from this that the profita accrue from the physical and intellectual labors of the manager or owner of the business and those whom he employs. Now, will it be contended for a moment that in order to ascertain the value of the man’s property invested in the business it is to be ascertained by capitalizing his net earnings for the year at 6 or 8 per cent? If this could be done it would be an instance in which the entire taxable value is that which results from the em- ployment of labor and not from the prop- erty itself. After conducting the busing in this way for awhile he finds it advisable to in- corporate. Thereupon the required num- ber form & corporation, and the services thereafter are rendered by a greater num. ber of boys employed by the new company —an increase of mental and physical labor. Relatively no greater amount of tangible property is used in the transaction of the business than before the formation of the new company. But the net profits may be double what they were before, all resulting from the increase In labor, mental and physical, employed in the transaction of the busin There is no more reason now, since the iustitution has become a corporation, for capitalizing the business on the net profits and using the sum thus asce ned for the purpose of valulng the property of the corporation for the pur- poses of taxation, than when it was con- ducted in the name of a private party, nor is the comstitutional objection ob« viated that the tax is not made upon prop- erty because of the business being con- ducted by a corporation. It capital stock is authorized, issued and dividends declared, the dividends simply measure the right of the holder of the stock to participate in the earnings of the company through the dividends. It in mo manner measures the value of the prop- erty used by the corporation, because such value is no greater relatively now than it was when carried on In the name of one individual. 1 will take another fllustration. Sup- pose a person is occupying & house, in which he lives with his family. If the property be occupled simply as a family residence, no earniugs are made upon the property. If, on the of hand, the sa house is used for an excellent and succ ful boarding house, in which a score of servants may be employed under skillful and competent management for the conduct of the boarding bow business therein, large earnings may result; but they come not pearly so much from the property as from the labor of the manager and em- ployes of the business conducted on the property. Can it be said for a moment that these earnings from the business af- ford & basis for ascertalning the value of the premises? Certalnly not. The premi- ses are the same, whether used for & dwell fog or a boarding house business. The iandlord's rent in the case of the property being used as & residence, truly measures the earning power of the property itself, but the profits of the boarding house keeper, in the other case, measure, beside the mere value of the passive use of the property, the larger and more important factor of the returns for the large amount of work dens on the premises. This latter factor Is as much & return for labor as are the wages of any working man, whether he drives & dray, or is & car penter, or railroad ecgineer, or a switch- man. Suppose, further, that the boarding house business {s conducted by a stock company. What will be the market price of the stoek in this company, which we will suppose to be conducting the same successful and profitable business? The price will be de- termined by the value of the stockholders' right to participate, through dividends, in the profits bf the boarding house business, and those profits we have seen to be the outcome only in part of what may truly be regarded as rent, and much more the outcome of earnings through labor, akilled and unskilled. This market price of the stock in the boarding house, If its business be successtul, will be much higher than would be the price of the stock of a com- pany merely owning the premises and renting them as a resldence; for in tho latter case the stockholders would merely participate In the rent, while in the case of the boarding house, the stockholder participates in the additional earnings trom the business conducted on the prem- ines. A real ostate agency conducted by a pe son or corporation it also within this class. He, or it may be in the business of buying or selling real estate, employing a number of clerks and solicitors, and yet, not at any time be the owner of any prop- erty except the office furniture used in the conduct of the business. Profits from a well conducted business of this character may be considerable, yet thelr value could not be assessed and taxed. Rallroads come within.the second class. We may use one as an illustration. Let us suppose that the lines of the Burlington company in Nebraska (we refer to the Bur- llngton company for the reason that It has a greater mileage Within the state of Nebraska than any other company) should come to be owned by a company not like- wise owning the Burlington system of rail- roads in other stat The Burlington property in Nebraska would remain the same as it is today, but the business con- ducted thereon by the new owner would undoubtedly be very much less than the business which the Burlington company now does upon that property, for the reason that the mew owner would not have the advantage of all the trafic which the Bur- lington company is able to procure for its Nebraska lines through it control of other rallroad property in adjacent states. As respects carnings, the result would be that the new owner would earn very much less on its Nebraska rallroad than the Bur- lington company does today. The market price of stock in the new company owning this Nebraska road would be much less than the market price of the Burlington company’ stock. Would that difference in the market price of the two stocks be due, except in a relatively of the railroad in Nebraska, being the same raflroad in all its features, whether owned by the Burlington company or by the new purchaser? Surely mot. The dif would be due, rather, to the difference of earnings of the two companies through the reduction of business thereon in the hands of the new company. That I8 to say, the Burlington company runs two and perhaps three times as many trains, car- rles two or three times as much freight, considerably more passengers and employs 50 per cent more men than the new com- pany would with its diminished volume of business. The difference in earnings, there- fore, chiefly amounts from the different amount of labor done on the property and this element, while it is all important as respects the profits of the business and the consequent market price of the stock, is not In any y & measure or test of the value of the property on which the business is conducted. That property Is the same whether owned by the Burlington company or the supposed new purchaser and its fitness ‘for use in business is same in the two cases, but the difference a8 respects earfilngs and, consequently, as respects market price of the company's stock lles in the fact that in one case a very much larger business {s done through the possession of extraneous advantages and opportunities for obtaining business and a very much larger amount of labor {8 consequently expended than in the other case. As an {llustration of the third class we might take a large department store, owned and conducted either by an individual or by a corporation. In either event we will assume the indlvidual or corporation to be tho owner of the bullding and a large stock and varlety of goods such are usually found in the department stores of great citfes. The bullding is of great value. The stock is constantly being depleted and supplied, turned over two or three times a year. There may be the usual number of department managers and clerks, but the profits, it made, will result to a greater extent from the property used and sold than from the labor employed, although the latter may be of considerable value and form quite a factor in the production of earnings. It 1s no more lawful to find the value of rallroad property by aggregating the market value of stock and bonds or capitalizing the net earnings than it is to find the value of the property of the engineer, the firem: the clerk or day laborer by capitalizsing thelr earnings. In elther case it is an in- come tax. Under the constitution the as- sessment and collection of taxes must be upon & property valuation and not upon the value of the labor which proceeds from an effort of the brain or the.application of the hands and the feet, or all combined. The truth is that stock and bond prices do not measure the value of a railroad prop- erty for the purpose, either of taxation or of rate making. Such prices do not {ndi. cate the value of raliroad property at all; but rather the value of the right of a stock or bondholder to participate in the earnings through the company's dividends or the stipulated interest on bonds, and these earnings, the right to participate in which is the basis of stock and bond prices, pro- ceed, as has been already indicated, far more largely and far more truly from the labor of thousands of men than from the mere use of the property. In other words, a rallroad company's earnings in much the larger part, If it be prosperous, represents compensation for the labor of large num- bers of men, rather than the mere rental value of the property by the partial help of which the work is done. You cannot arrive at the falr value of rallroad property in the aggregate by this method of combining the market value of stocks and bonds or by capitalising net The result does not, as inti- mated, represent the franchise in the case of & corporation any more than in the case of an individual. A corporation may be in the exercise of all its rights and privileges ~—its franchises—all the time and yet its stocks and bonds be below par. It may have no net earnings, but it is in the exer- cise of its franchises. The truth ls, earnings increase with the increase in the amount of labor employed. The value of the franchise is’as of the value of the prop- erty and has no value separate and apart from the property. Labor may be valued by itself. There is much in this proposi- tion for study. I do met think & valuation for the purposes of taxation which is based upon the aggregate market value of stocks and bonds, or one that is based upon net earnings capitalized, is a fair value either for the earning of revenue by the company or for the purposes of taxation. The valu- ation for the purpose of taxation ought to be the same as that for rate earsing pur- poses. It would be considersble of a task to make our friends, Rosewater, Judge Howe, Harrlugton and Simeral belleve that the raliroad companies were itled to earn rates upon $400,000,000, the amount which they name 1n the alternative writ as The Dinner Pail Of the American working man is gen. erally well filled. 1In some cases it is too well filled. It contains too many kinds of food, and very often the food is of the wmnr kind—hard to digest and containing little nutri- tion. As a conse. quence many a work- ing man develops some form of stomach trouble which inter- feres with his health :ud reduces his work- ng capacity, Sw‘ll:n there is indi, ion or any er indi- cation of dis- ease of the stom- ach and its allied organs of digestion and nu. trition, the use of Dr. Pierce's Golden Medical Disco will almost invari. ably produce a per- fect and perman. ent cure, Mr. Thomas A. tion nd my scarcely get around. plaints at once, the g0t ‘\"“l“ wix Poorly 1 cou aid of a chair, fo die, thinkis, one of my neig! take Dr. ree’ 1 tSought Snother, and aher 1 had taken cight otties'ta about six weeks, | was hed, d found 1 had gained twenty-seven 10 1am as Stoutand Bealthy Toduy T TRl 4s T ever wass Frex. Dr. Plerce's Common Sense Medical Adviser, paper covers, is sent free on ncelyt“ol :.xm one-et?k n.:;g: to E” expense m: only. 3 R. V. Pierce, lufl:'n. N.’VA the value of rallroad property in this state No rate case which has ever been tried, that I know of, has considered the value of franchises separate and apart from the u of the tangible property. When the value of a railroad company is testified to in these rate cases it is reproduced at its value with reference to its physical con- struction, use and operation, which Includes everything. The stock and bond and net earning theory is no better for the purpose of fixing tax- able values than it fs for the purpose of fixing rates and it ia just as proper for the purpose of fixing rates as it is for the pur- pose of taxation. But it is not proper in either case. In all the cases that have been tried, either with referemce to ri or taxation, it has never been determined that the valuation of stocks and bonds or net earnin, capitalized should be ex- clusive ftems of evidence upon which rates may be fixed or valuations for taxation de- termined. A multitude of items are to be conald- ered by a court In arriving at a conclusion 8 to the value of rallroad property. It should not be confined to stocks and bonds alone nor earnings alone. Allowance must be made for the part which labor plays in fixing the value of stocks and bonds and in producing net earnings. You must consider the condition of the country through which the railroad passes, the phyeical condition of the rallroad property and its connec- tions. If the valuations for the purposes of taXation were fixed by the stock and bond or net earnings theory, then to be lngleal one ehould say when stocks and bonds are be- low par or there are no net earnings, that then the property ought not'to be taxed, but these extreme advocates would never consent to this. If it is unfair to value it this way when the stocks and bonds are below par or there are no net earnings, it ought not to be recognized as the method when stocks and bonds are above par or there are net earnin, e val of the physical property as used in case the property s operated at a loss it ought to be the value of that property which should control for the purpose of fixing the value for taxation when the property is at a profit. The truth is, you arri value of raliroad property as you do in the case of any other enterprise—the same you would arrive at the value of a manu- facturing plant that may employ 1,000 men and has Invested millions of dollars. The property ls valued as property for the pur- pose of taxation and that is the only way that the falr valie can be arrived a If you simply take the one item of stocks d bonds or met earnings, you will arrive At an erroneous value of the property. You will adopt & method that Is not recognized or authorized by the constitution. It may be that there are constitutions and statutes in some of the states in this union in which this method is recognized, however wrong it may be. Of this I do not know. But in this state the assessment for taxation must be made upon a property valuation. It can- not be upon the value of Intellectual or physical labor. This item of stocks and bonds and net earnings is about all that has been int duced here before this court for the purpose of proving that the members of this board ectoA fraudulently. How uncertaln and (" ive it 18 must be plain. Courts have A tared time and time again that it is only one i‘em of evidence to be considered, and some have sald that it is the most unsat- isfactory and uncertain, as it is in fact. e————————————————————— How to Prevent Sunstroke. The heated term is withstood without u whimper by those people who have a healthy stomach. Hot weather cannot hurt the man or woman whose stomach and di- gestive organs are perfectly healthy. But you go into July and August with & dis- ordered stomach and see what the result will be. Sunstroke attacks only the man or woman whose stomach and digestive or- gans are too feeble to protect the streagth physical power to resist n. Summer diet, with all its vegetables and unripe fruits, adds is unstable influence to the depressing effects of hot weather, caus- ing & still greater decline in one's strength and vitality. Ninety-nine of every one hundred people ‘whose health and strength runs down in summer, allow thelr stomach or digest! organs to get out of order. This is easy enough—in fact, it is hard to prevent with- out the use of some thoroughly rellable digestant. Kodol after meals is pot only & thor- oughly reliable digestant, but it comtains great tonic and roconstructive properties as well. This famous remedy enables the stomach and digestive organs to thoroughly digest, assimilate and contribute to the tis- sues all of the mourishment that is cou- tained in such food as may be eate Kodol clears the way and makes sure the jourpey from sickness to health and weak- ness to strength. If the stomach is disor- dered Kodol will correct it. If diseascd Kodol will cure it. Kodol lays the foundation for hoalth, and the upbullding of strength by cleansing, purifylng and sweetening the glands and membranes of the stomach, and by supply- ing natural julces necessary to perfect di- gestion, assimiiation and putrition. Kodol prevents colic, cholers, diarrboes, flux, dys- entery and summer complaints generally, d its use will cure indigestion and chronic dyspepeia permanently. Kodol is good alike for young and old. Your druggist sells it.