Washington County v. State Tax Commission , 103 Utah 73 ( 1943 )

In this original proceeding it is in substance alleged by Washington County and others in their petition for a writ of prohibition that the Southern Utah Power Company owns electrical generating plants, transmission lines, and other electrical properties and facilities within Washington County and Iron County; that part of the energy generated and transmitted is used for pumping water for irrigating lands within the State of Utah, and part has been and is now used for other purposes.

In the petition, it is claimed that the Tax Commission is without jurisdiction to exempt from taxation any part of the power company property not used for pumping water for the irrigation of lands in Utah. It is further claimed that the Tax Commission has assessed all the property without regard to whether such property is used for the pumping of water for irrigation purposes, and that the Tax Commission will, unless prohibited make deductions from the total assessed value to the extent that the power used for pumping water bears to the total power used for all purposes.

Certain communities, pumpers, and the Tax Commission have joined as parties. There appears to be agreement as to the facts. Reference is made to the facts in the discussion.

The answer of the Power Company presents the theory adopted by the prevailing opinion, which is that all of the company system, whether or not it distributes electrical energy to different counties, municipalities or other taxing units, is operated as a unit. The Company is ready and willing and prepared to pay its taxes, so the amount of the tax is not questioned. The basis and system of apportioning property value and exemptions is questioned.

Three questions are presented for determination. In the language of plaintiffs, they are:

"(1) Do the provisions of Section 2, Article 13, of the Constitution of Utah permit a deduction of exemption from taxation for the support of any taxing unit any property owned by a power company unless such property is a necessary part of and is used for generating and delivering electrical power for pumping water for the irrigation of lands within the State of Utah?

"(2) When a power company operates its plants, distributing systems, meters and other electrical facilities as a unit may the State Tax Commission either with or without legislative sanction permit the deduction or exemption from taxation by a taxing unit property within the taxing unit where the property within such taxing unit is not necessarily used for either generating or delivering electrical power which is used for pumping water for irrigation without offending against the provisions of Article 13, Section 2, of the Constitution of Utah?

"(3) May the provisions of R.S.U. 1933, 80-2-7 and 80-2-8, be construed as being in harmony with Section 2, Article 13, of the Constitution of Utah or are such legislative enactments in conflict with such constitutional provisions so as to render the legislative enactments unconstitutional?"

In this dissent, the questions will be treated together. The meaning and purpose of a part of Article 13, Sec. 2, of the Constitution of Utah are involved. That part of the Article and Section reads as follows:

"Water rights, ditches, canals, reservoirs, power plants, pumping plants, transmission lines, pipes and flumes owned and used by individuals or corporations for irrigating lands within the State owned by such individuals or corporations, or the individual members thereof, shall not be separately taxed as long as they shall be owned and used exclusively for such purposes. Power plants, power transmission lines and other property used for generating and delivering electrical power, a portion of which [property? power?] is used for furnishing power for pumping water for irrigation purposes on lands in the State of Utah, may be exempted from taxation to the extent that such property is used for such purposes." (Italics added and bracketed questions mine.)

The foregoing language with other language not pertinent to this case became a part of the Constitution by amendment approved November 4, 1930. During the whole period of State and Territorial history, the State has been divided into governmental and taxing units. Counties have taxing powers and their burdens are carried on by the means raised from county taxation. There are cities and towns and school districts, and other units having power to collect taxes upon the property within the boundaries of each of such districts, cities, counties, etc.

Section 5 of Article 13 provides:

"The Legislature shall not impose taxes for the purpose of any county, city, town or other municipal corporation, but may, by law, vest in the corporate authorities thereof, respectively, the power to assess and collect taxes for all purposes of such corporation."

Recurring to the part quoted above from Sec. 2, Art. 13, of the Constitution, relating to the italicized words, property and power, it may make a difference as to whether the wordwhich has for its antecedent the word property or the wordpower. The antecedent of which must be property, as it makes a ridiculous rendition to say, "a portion of which [power] is used for furnishing power." The construction requires the language to be read, "a portion of which [property] is used for furnishing power." It thus seems to be clear that it is the portion of the property that may be exempted.

Sec. 80-2-6, R.S.U. 1933, puts into effect that part of Sec. 2 of Article 13 which says power plants, etc., "may be exempted," as follows:

"Power plants, power transmission lines and other property, used for generating and delivering electrical power, a portion of which [property] is used [to furnish power] for pumping water for the irrigation of lands in this state, are exempted from taxationto the extent that such property is used for such purposes." (Italics and brackets added.)

Then follows a troublesome sentence:

"Such exemption shall accrue to the benefit of the users of water so pumped."

More as to this thought later.

The language of both the Constitution and the statute exempts power plants to the extent of the portion of the property used, and not upon the portion of the power used. There is thereby provided an exemption, more accurately speaking a transfer of a portion of the taxes paid upon the property of the power plant owner to certain other taxpayers who have had to pay for the use of property used in generating and delivering power to them. It may make no difference to the power company as to the amount of taxes, and yet it may. Washington County may require a different rate of assessment of all property subject to assessment for county purposes than its adjoining counties. Thus, the net result is that by unit assessment or valuation of power company property for taxation for county or municipal purposes, taxes due to the county may be paid to individuals in another county, and the individuals to whom it is paid have paid more to their own county or municipality because of enhanced land values than either the amount received, or, more or less, than his neighbor farmer who obtains water by other means or from other sources upon comparable lands. The income from taxes of the various taxing units is thus made to vary depending upon the quantity or amount of power used by pumpers and their location by assessing and collecting the taxes upon a power plant by the unit system.

"All tangible property in the State, not exempt * * * shall be taxed in proportion to its value."

Sec. 80-2-6, R.S.U. 1933, may not be questioned. It is cast in the same language as a part of Sec. 2 of Article 13 of the Constitution. The legislature is authorized to provide for the exemption of a proportion of the property of power companies when part of the property is used for generating and delivering power for pumping water for irrigation. The difficulty arises out of Secs. 80-2-7 and 80-2-8, R.S.U. 1933, and raises the questions here involved. For exemption purposes the power load used for pumping can bear no reasonable relation to or measure of the property located and used in several taxing districts when theproperty in part of the several districts is not used for pumping purposes in those districts.

"The State Tax Commission shall administer and supervise the tax laws of the State. It shall assess mines and public utilities and adjust and equalize the valuation and assessment ofproperty among the several counties." Sec. 11, Art. 13 of the Constitution.

Sec. 10, Art. 13, provides:

"All corporations or persons in this State, or doing business herein, shall be subject to taxation for State, County, School, Municipal or other purposes, on the real and personal property owned or used by them within the Territorial limits of the authority levying the tax."

And Sec. 5, Art. 13, provides:

"The Legislature shall not impose taxes for the purpose of any county, city, town or other municipal corporation, but may, by law, vest in the corporate authorities thereof, respectively, the power to assess and collect for all purposes of such corporation."

The fundamentals of the structure of our State government are the perpetuation, maintenance and support of strong local, self-governing units. Destroy or take away the taxing power of local governmental units and their existence becomes merely a name without power or substance. The Constitution safeguarded these local powers and rights further by the provisions of Sec. 29, Art. 6, as follows:

"The Legislature shall not delegate to any special commission, private corporation or association, any power to make, supervise or interfere with any municipal improvement, money, property or effects, whether held in trust or otherwise, to levy taxes, to select a capitol site, or to perform any municipal functions." (Italics added.)

These sections, including Sec. 2 of Article 13, must be construed together and full effect be given thereto.

Sec. 11 of Art. 13 directs the State Tax Commission to assess public utilities and adjust and equalize the valuation and assessment of property among the several counties. There is no power to exempt the property of an electric power company unless the property, not the power, is used for generating or distributing power for pumping water for the irrigation of lands within the State of Utah. There should be no difficulty in finding what property is to be assessed in Washington County or in Iron County and preserve an equalization of assessment of property in each county and the other municipal taxing units therein. This precludes the use of the power formula for either assessment or collection of taxes in the respective governmental units.

There may be and no doubt is some relation between property used in generating and distributing electrical power as a unit and the total power produced, yet even that is variable; but what relation there is between the property used for all purposes and the amount used for pumping purposes is difficult to comprehend; hence, county and municipal revenue, when the formula developed by Sec. 80-2-7 is applied, would seem to defeat other constitutional provisions as to the assessment and equalization of property values in counties and their contained municipalities for taxation purposes.

I now turn attention to that troublesome sentence hereinbefore referred to, viz:

"These exemptions shall accrue to the benefit of the users of water so pumped under such regulations as the legislature may prescribe."

This is a well-intentioned provision. What it really amounts to is that the power company will pay back to the pumper the amount he has paid and then deduct that amount from what is called an exemption. It would seem self-evident that if the Tax Commission exempts a part of the property in Washington County that may not be exempted from taxation because not used for pumping water for agricultural purposes, the county will be deprived of the taxes it is entitled to collect upon property located within its boundaries. To use the power produced and the power used for pumping for irrigation is to use a variable having no certain relation to the property values in different counties. The proportion is ascertainable only after the power has been produced and prevents the counties and municipalities from determining the values upon which their taxes may be levied for governmental or other purposes.

In the recent case of Sinclair Refining Co. v. State TaxCommission, 102 Utah 340, 130 P.2d 663, 665, while no exemption clause was involved, the matter of a fair apportionment of the taxes raised by the Tax Commission's valuations on tank cars moving in different counties was considered. It was there said:

"These provisions manifest an intent to give to each county through which a railroad is operated a tax upon the per cent of its rolling stock used within it. * * *

"That such cars are for tax purposes no different from railroad rolling stock is evident. That its value, inseparably connected with its use and business is derived from all counties in which it is used, or may be used, is equally evident. No county can legally be entitled to the benefits of any portion of an assessment on the property used in another county."

This case suggests a final point for comparison: The freight or passenger rates or the revenue produced therefrom, as a whole, would not be considered a reasonable basis upon which to apportion to the taxing units the taxable property of a railroad, a bus line, or a transmission line where each or all passed through two or more counties. Neither is the power produced and the proportion thereof used for pumping purposes a reasonable basis to apportion assessments or exemptions of power plants. I think such apportionment as contemplated by the unit assessment is contrary to the fundamental principles of property taxation under the Constitution of Utah.

For the reasons stated, I think the writ of prohibition should be made permanent.