State v. Fawkes , 210 Minn. 587 ( 1941 )

¹ Reported in 299 N.W. 666. This case comes here on appeal by the state from a judgment holding certain real estate in Minneapolis not to be subject to an ad valorem tax. The defendant has a 100-year lease from Edward L. Estabrook on lots 63, 64, and 65, Auditor's Subdivision 137, Hennepin county, by the terms of which defendant is to pay the real estate taxes. Defendant, in turn, has leased the entire building erected upon said premises to the Railway Express Agency, Inc., which, under our law, pays a gross earnings tax in lieu of all ad valorem taxes upon its property. 1 Mason Minn. St. 1927, § 2268, as amended by 3 Mason Minn. St. 1940 Supp. § 2268. The trial court held that because the building was in the exclusive use of the express company the gross earnings tax paid by it paid the taxes on this property, and that it was, while in such use, not subject to the usual ad valorem taxes.

The respondent concedes that there is no question before this court except that of whether the taxes have been paid by means of the gross earnings payment; that the principal question is one of legislative intent; and that the constitutional questions are merely incidental to that of statutory construction. In State v. Railway Exp. Agency, Inc. 210 Minn. 556,299 N.W. 657, the distinction between the statute imposing a gross earnings tax upon railway companies and that imposing such a tax on express companies is carefully pointed out. In that case this court holds that the earnings of property used by the express company exclusively in a pick-up and delivery service handled for the railway companies are properly included in the gross earnings of the express company, which are the measure of the taxes imposed upon it, notwithstanding that the railway companies included the cost of this service in their charges to their customers and consequently pay a tax measured by earnings which included the charge for the express company service.

We have so frequently discussed the nature of these gross earnings taxes and the subject is so thoroughly covered in State v. Railway Exp. Agency, Inc. supra, that it would be a work of supererogation again to go over that subject here. We must always bear in mind that the gross earnings tax is a tax upon property and that the earnings are merely the convenient yardstick or measure by which that property tax is determined. It is just as much a property tax as if it were assessed advalorem.

Does the express company's payment of its property tax cover the defendant's property? We think it does not. As stated in State v. Railway Exp. Agency, Inc. supra, the express company's tax covers its property only. 1 Mason Minn. St. 1927, § 2268, as amended, does not in any way make the tax one upon propertyoperated, as distinguished from that owned, by express companies. In that respect it differs from the tax imposed upon railroad companies, and the cases involving railroad taxation are not in point. The defendant still has his property in the real estate here involved, and it earns him a substantial return. The express company has only a leasehold interest in the property. If that leasehold is of any value to the express company or subject to taxation, it is included in the coverage of its gross earnings tax.

The respondent relies upon the case of Hopkins v. Southern Cal. Tel. Co. 275 U.S. 393, 48 S. Ct. 180, 72 L. ed. 329, where the Supreme Court adopted a construction of the California statute which did not permit the ad valorem taxation of telephone instruments leased by the American Telephone Telegraph Company to the California company. It did so because, in a previous case, the California court had held such property subject to the ad valorem tax, but had granted a rehearing, leaving the construction of their statute at large. There is no report of any further California decision in the case. The Supreme Court concluded its opinion with the statement [275 U.S. 403, 48 S. Ct. 183]: "Without an authoritative holding by the State Supreme Court to the contrary, we must conclude the leased speaking sets are not subject to local taxation." Therefore the case is of no help to us here.

If the express company's property were taxed ad valorem on each piece, there could be no contention that it would be obliged to pay the tax on the building here involved. The mere fact that it leases it and uses it exclusively in its business does not change the taxable status of the property, nor does the fact that its taxes are measured by its gross earnings. The corporation's tax, measured by gross earnings, covers no more property than would be covered by an ad valorem tax assessed against its property piece by piece. That answers the question. The legislative purpose as to the property covered by the gross earnings tax on express companies is clear. Defendant's property is liable to the ad valorem tax, and there is no double taxation and no unconstitutional discrimination.

There may be advantages or disadvantages incidental to ownership in fee or to the leasing of property by the express company, but they are no greater than those to which other taxpayers are subject and do not constitute constitutional objections to taxing defendant's property. Money paid for rent is an expense of operation. State v. Railway Exp. Agency, Inc.supra. Practical uniformity is all that is required of the legislature.

The judgment is reversed.