State Ex Rel. Johnson v. St. Louis-San Francisco Railroad , 315 Mo. 430 ( 1926 )

This is a suit to recover a special tax levied by the County Court of Cass County, in 1920, to pay the annual interest on a certain bonded indebtedness of that county and create a sinking fund for the payment of the principal when it became due. The bonds on account of which the tax was levied were issued in full settlement and satisfaction of certain judgments which had been rendered against Cass County on bonds theretofore issued by it in aid of the Clinton and Kansas City Branch of the Tebo Neosho Railroad. There were 390 of these funding bonds, all dated June 1, 1902; each was for the sum of $1,000 and each bore four per cent per annum interest from date, payable semi-annually. All were due and payable twenty years after date, but the county reserved the option of paying one-third of them at any time after five years from date, another third at any time after ten years from date and the remainder at any time after fifteen years from date. The bonds were issued pursuant to the provisions of what is now Article IV, Chapter 8, Revised Statutes 1919, and in due conformity therewith. At the time of their issuance the county court made and entered of record the following order:

"And it is further ordered by the court that in order to meet the interest accruing on said three hundred and ninety bonds, as the same become due, and to create a sinking fund for the payment of the principal thereof, as said bonds become due and payable, there is hereby levied and assessed an annual tax of twenty-five cents on each one hundred dollars assessed valuation of all the taxable property of said county."

At its May term, 1920, the county court levied a tax of fifty cents on the $100 valuation on all taxable property in the county to pay the interest on the funding bonds and create a sinking fund for their redemption at maturity. At that time there were $76,000 of the bonds outstanding, of which $30,000 had been called for payment. There was then a balance in the county treasury from previous levies belonging to the bonded-debt fund the sum of $23,686.17. The total assessed valuation on which the levy was made was $18,238,111. The total tax levied was therefore $91,190.55. The tax against defendant's railroad property under the levy was $2,306.41. Of this defendant paid, December 29, 1920, the sum of $1,522.23, which would have been the amount of the tax had it been levied at the rate of thirty-three cents on the $100 valuation. This suit is to recover the balance with interest and costs.

At the trial, in 1923, the defendant showed from the county records that the proceeds of the 1920 levy, together with the balance on hand at the time the levy was made, greatly exceeded the amount required to retire the outstanding bonds; that all of these bonds were either paid on presentation, or bought by the county on the open market, prior to August 1, 1922, at which time there remained in the bond fund a balance of approximately $39,000, which was turned over to the county's general revenue fund.

Plaintiff offered to show that at the time the levy was made the bank which was the county depository, and with which the bonded debt fund had been deposited, had been closed and was in the hands of a receiver; that the conditions of the bank were such as to then indicate that its assets would not pay upon final liquidation as much as twenty-five cents on the dollar; and that the solvency of the sureties on the bond given by the bank to secure the county's funds was, or at that time appeared to be, wholly destroyed by the bank's failure. All of the evidence so proffered was rejected by the trial court, on defendant's objection.

The defenses pleaded and pressed in argument and brief are essentially these: (1) fifty cents on the $100 valuation, in addition to other county taxes which were levied, exceeded the maximum rate for county purposes as fixed by the Constitution; (2) the order of the county court, made at the time of their issuance, fixed the rate at which taxes were to be levied for the payment of the annual interest on the bonds and the creation of a sinking fund for their redemption when due; and (3) the levy was grossly excessive, and therefore violative of designated provisions of both State and Federal Constitutions.

From a judgment for defendant in the circuit court plaintiff prosecutes this appeal.

I. The Constitution contains no express limitation on the amount of taxes which may be levied annually to pay such a bonded indebtedness as was owing by Cass County in 1920. SectionTax 11, Article X, in terms excepts from its operation taxesLimit. to pay valid indebtedness existing at the time of the adoption of the Constitution, or bonds which might thereafter be issued in renewal of such indebtedness. The funding of such an indebtedness and the levying and collecting of taxes to pay the bonds issued pursuant thereto, are governed exclusively by Article IV, Chapter 8, Revised Statutes 1919. Section 1042 of that article provides that no such funding bonds shall be payable "in less than five nor more than thirty years from the date thereof." And Section 1045 commands that any county issuing such bonds, "shall, at the time of issuing the same, provide in the express manner provided by law for the levy and collection of an annual tax sufficient to pay the annual interest on such funding bonds as it falls due, and a sufficient sinking fund for the payment of the principal of such bonds when they become due." The only limitation imposed by the statute as to the amount of the annual tax is contained in the language: "sufficient to pay the annual interest on such funding bonds as it falls due, and a sufficient sinking fund for the payment of the principal of such bonds when they become due."

II. The order of the county court heretofore quoted, concluding, "there is hereby levied and assessed an annual tax of twenty-five cents on each one hundred dollars valuation of all the taxable property of said county," did not constituteAdvance an actual levy of taxes. The reasoning of the SupremeLevy. Court of Illinois in dealing with an analogous situation is just as applicable under our system of taxation as it was under theirs:

"There can be no lawful levy of a tax except upon an assessment, and under our system all assessments are made annually. How can a lawful levy of a tax be made in 1899 for a year ten years in the future? Admittedly the value of the taxable property of Alexander County for each of the years after 1899 is impossible of ascertainment now. Therefore the mere order of the county commissioners that a levy be made in those future years amounts to nothing as an actual levy of a tax. A tax cannot be said to be levied until it has been extended against assessed taxable property." [Hodges v. Crowley, 186 Ill. l.c. 312.]

It could not have been the purpose of the Legislature in enacting Section 1045 to require the county court to fix in advance an annual rate of taxation which could not be changed during the life of the bonds, whether that was a period of five years or one of thirty. So many unknown factors are involved in every such situation that it could by no possibility be foreseen what annual rate throughout the entire period such bonds would run would yield an annual tax "sufficient to pay the annual interest . . . and a sufficient sinking fund for the payment of the principal . . . when they become due."

One of the dominant purposes of the Constitution of 1875 and of legislation immediately following its adoption, was to extricate the counties from the morass of debts in which most of them were involved, put them on a cash basis and keep them on it. Pursuant to that general purpose they were permitted to fund their old indebtedness, but were required at the time of doing so to provide ways and means for promptly liquidating it. The County Court of Cass County would have complied with both the letter and spirit of Section 1045 if at the time of issuing its funding bonds it had made an order that thereafter there should be levied upon all the taxable property of the county an annual tax "sufficient," etc. The order as made was not therefore a limitation on the power of future county courts to fix such a rate from time to time as would yield under existing conditions an annual tax conforming to the requirements of the statute.

III. Exactions from the people, as taxes or otherwise, in advance of any needs of the government are not only condemned by sound public policy but are violative as well of fundamental rights guaranteed by our organic law. The County Court of Cass County was therefore without power to levy a tax clearly in excess of what could at the time have been reasonably anticipated as necessary to pay the interest and principal of the funding bonds. However, the authority to determine what amount would be necessary for that purpose was vested in it, and unless there was a clear abuse of this discretionary power, its action in the premises cannot be interfered with. In other words the amount levied must have been so grossly excessive as to constitute, constructively at least, a fraud upon the taxpayers. [St. Louis Electric Bridge Co. v. Koeln, ante, page 424; 3 Cooley on Taxation (4 Ed.) sec. 1031, p. 2088.]

"The presumption is that all public officials having connection with the taxes have properly discharged their proper duties as to levying the same. This presumption can only be overcome by clear testimony." [People v. Sandberg Co., 277 Ill. 567, 570.]

Respondent argues that the levy was excessive because only $30,000 of the bonds had been called and the remainder were not due for eight years thereafter, and not even payable at the county's option for more than three years after that time. But the bonds had to be paid sometime. If they could be bought up before maturity at such prices that the taxpayers would thereby be entirely relieved of further interest payments, why should it not be done? Private interests in the exercise of sound business judgment frequently follow that course with respect to their own bonded obligations. It certainly cannot be said that the county court in employing in the county's business a method that has long obtained in the industrial and commercial world abused the discretion with which it was invested.

It is pointed out, however, that with only $76,000 of the bonds outstanding and with a balance to the credit of the bonded debt fund of $24,000 in the county treasury, the court levied a tax of $91,000. These figures in connection with the additional fact that two years later, after all the bonds were taken up, there was a $39,000 surplus to turn into the general revenue fund of the county demonstrates beyond cavil, it is said, that the levy was grossly excessive. Whether, however, the levy was so excessive as to be constructively fraudulent must be judged not from the fact that it subsequently developed that a larger amount was levied than was actually required, but from the entire situation which confronted the county court at the time the levy was made. The amount required for the redemption of the bonds, principal and interest, as well as the amount that would be realized from the levy, had to some extent to be estimated in advance. In doing so it would be necessary to consider, among other things, the amount and availability of funds already on hand, and the probable loss and the cost of collection of the tax to be levied. When a court is called upon to determine whether a given levy was so excessive as to be fraudulent, or the result of a gross abuse of discretion, not only should proof of such matters as these be received, but every existing fact and condition which the county court might have properly taken into consideration in fixing the amount is relevant and admissible in evidence. Defendant made no offer to show the net amount of the tax which could reasonably have been expected to be realized upon the levy at the time it was made. Not only that, but it caused the court to exclude the offer of plaintiff that the balance to the credit of the bonded debt fund appeared at the time to be wholly lost to the county. Of course facts which are required by law to be made a matter of record can be shown only by the record, but the evidence excluded by the trial court was not of that character.

The judgment of the circuit court is reversed and the cause remanded for further proceeding in harmony with the views herein expressed. All concur, except Graves, J., absent.