Cochise County v. Southern Pacific Co.

McFarland, Justice.

The Southern Pacific Company, hereinafter referred to as plaintiff, brought suit in three counts. Counts one and two sought to recover taxes paid under protest for the first half of the fiscal year 1959, and to enjoin future discriminatory assessments. Plaintiff appealed from a judgment granting a motion to dismiss counts one and two of its complaint, and this case was decided separately by this court in 92 Ariz. 395, 377 P.2d 770. Count three was against the same defendants — namely nine counties in which plaintiff does business, the county assessors of said counties, individually and as assessors, and the members of the State Tax Commission, individually, as members of the State Tax Commission and as members of the State Board of Equalization.

Plaintiff is a Delaware corporation owning and operating an interstate railroad system in the State of Arizona, a portion of which is located in the respective defendant counties. Plaintiff, under count three, sued for the total sum of $24,904.92, plus interest and costs which it had paid under protest to the county treasurers of said counties. Both plaintiff and defendants moved for summary judgment. The lower court granted summary judgment in favor of plaintiff which judgment was appealed, and the Court of Appeals, Div. 1, reversed the judgment, 1 Ariz.App. 199, 401 P.2d 153. This court granted plaintiff’s motion for review.

A.R.S. § 42-301 provides, in part:

“B. On the second Monday of August each year, the state board of equalization shall levy upon the real and personal property within the state such amount of money as is necessary, with all other sources of revenue as estimated by the state board of equalization and all unencumbered balances on hand at the close of the preceding fiscal year, as fixed by law, to defray the necessary expenses of the state for the current fiscal year, including interest and principal of the bonds of the state, and shall fix the rate of taxation required to produce the amount of such levy.”

A.R.S. § 15-1211 as amended, in effect in 1959-60, provided, in part:

“A. The legislature shall appropriate for common school and high school education one hundred seventy dollars per capita per annum, computed according to average daily attendance in common and high schools as shown by the records of the superintendent of public instruction. [The amount so computed and appropriated shall constitute the aggregate sum to be raised by state taxation for the support of common and high school education.] The legislature may designate the source of the revenue and prescribe the method of apportionment.” [Emphasis added. § 15-1211 was amended in 1965 to exclude bracketed portion.]

A.R.S. § 15-1212, in effect in 1959 and 1960, provided, in part:

“B. Apportionments of the state school fund shall be made on the second Monday in July, October, January and April and, as nearly as possible, shall equal one fourth of the amount to be apportioned during the fiscal year. The superintendent of public instruction shall furnish the treasurer and the school superintendent of each county an abstract of the apportionment, and shall certify the apportionment to the state auditor, who shall draw his warrant in favor of the county treasurer of each county for the amount apportioned thereto. Upon receipt of the warrant the county treasurer shall notify the county superintendent that the amount thereof, together with any other monies standing to the credit of the county school fund, is subject to apportionment as prescribed by law.¹

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“E. Any determination of average daily attendance shall be based on the records of the superintendent of public instruction.”

In the case of Long v. Dick, 87 Ariz. 25, 347 P.2d 581, 80 A.L.R.2d 949, petitioner Robert H. Long brought the following action:

“Petitioner, a resident of Maricopa County, Arizona, and a real property taxpayer in the Buckeye Union High School District, filed this original application in mandamus to compel respondent, the State Superintendent of Public Instruction, to compute the pupils in high school districts by actual attendance, and to certify and apportion monies in the state school fund to the respective counties in accordance therewith.” 87 Ariz., at 26, 347 P.2d, at 582.

We then set forth the reasons why this petition should be granted, and held:

“For the foregoing reasons, it is directed that the peremptory writ of mandamus issue.” 87 Ariz., at 29, 347 P.2d, at 584.

In that case we recognized the duty of the superintendent of public instruction to compute the average daily attendance for high school students and to certify that number to the state board of equalization, and we set forth the basis for the computation.

In the instant case, which was brought in January 1960, after the decision in Long v. Dick, supra, decided in December of 1959, it is alleged that the state board of equalization purportedly acted pursuant to A.R.S. § 15-1211 and A.R.S. § 15-1212, and that the figure of $10,115,170.00, the needed allocation for high school students, as set forth was incorrect in that it included a sum of $170.00 per student for average daily high school attendance in the amount of 59,501 students, which had been computed by the superintendent of public instruction upon the basis of enrollment, or membership, in high schools, whereas it should have been based upon actual attendance in the number of 56,001, which would have made the amount of state taxes $1.-6590 per $100.00 assessed valuation rather than $1.70 for $100.00 assessed valuation, and that this actually increased the taxes of plaintiff in the amount for which sued.

Mr. W. E. Bissett, secretary of the state tax commission and the state board of equalization, whose deposition “was taken as an adverse party deposition” by the plaintiff, testified that the computation of 59,501 was taken from the certification of W. W. Dick, superintendent of public instruction. It does not appear from the depositions or the records in this case that the board of equalization had any information other than that contained in the certification of the records of the average daily attendance of pupils eligible for state aid in the Arizona public schools as furnished to the state board of equalization.

The deposition of G. W. Harrell, director of research and finance for the state board of public instruction, which also was “taken as an adverse party deposition,” was to the effect that the figure of 59,501 was based upon enrollment rather than actual attendance, and there was attached to his deposition as plaintiff’s exhibit the certification of the average daily attendance of students eligible for state aid in Arizona public schools, giving the figure of 59,501 for high schools. At no place in the certification does the method appear upon which the total number was based, nor does it appear from the records or in the depositions that the board of equalization had any knowledge of the basis of the computation used by the superintendent of public instruction in arriving at 59,501.

The state board of equalization, on the basis of this certification and in accordance with provisions of A.R.S. § 42-301, in the August meeting fixed the tax rate at $1.70 per $100 valuation, which it determined was sufficient to raise the $10,115,-170.00 needed for high schools. The superintendent of public instruction filed a corrected certification on April 11, 1960, in accordance with the decision of this court in Long v. Dick, supra, listing the average daily attendance of high school students at 56,173, and the total allocation for high school students at $9,549,410.00.

The records and decision of this court on the first two counts — Southern Pacific Company v. Cochise County, 92 Ariz. 395, 377 P.2d 770 — show that plaintiff appeared before the board of equalization and objected to the value of its property as assessed, stating that it was discriminatory, and requested that the board of equalization equalize the assessment either by lowering it to the average of other properties or raising other assessments to full cash value. But at no time did plaintiff object to the method of determining the average daily high school attendance by the superintendent of public instruction, as certified to the state board of equalization, or to the amount to be levied therefor. The record shows that payments made to respective high school districts were on the basis of the corrected number of average daily attendance certified by the superintendent of public instruction, and that the money received as a result of the difference between these rates went into the general fund as surplus. W. E. Bissett, secretary to the state tax commission and the state board of equalization, testified by deposition that pursuant to A.R.S. § 42-301, subsec. B a surplus at the end of the fiscal year is carried over to reduce the property tax rate for the subsequent year. Hence, in the instant case the sums of money unexpended for school purposes — being money derived from taxes paid by all taxpayers — necessarily resulted in a reduction of the property taxes to all taxpayers, including plaintiff.

The question then is whether, under these facts, plaintiff is entitled to judgment against the counties, the assessors, the state tax commission, and the state board of equalization for the amount of the tax.

A.R.S. § 42-341 provides, in part:

“A. The county treasurer shall be ex officio tax collector and shall collect all state and county taxes and apportion the taxes to the several funds at the end of each month.”

Under this provision of law the monies in question were collected by treasurers of the respective counties, and paid to the state treasurer.

A.R.S. § 42-351 provides, in part:

“C. The treasurer shall keep separate and distinct his accounts as ex officio tax collector and as county treasurer. As tax collector he shall turn over all collections to himself as county treasurer on the last day of each month and his books, both as tax collector and as county treasurer, shall so indicate.”

It will be noted that under these two sections the respective counties made defendants in this case did not receive any part of the money in question because it was collected by the county treasurer as ex officio state tax collector, kept in a separate and official account, and remitted to the state treasurer. The county assessors were properly made parties to the suit on counts one and two of the complaint, but not in the instant case, inasmuch as they had nothing to do with the money under count three. The state tax commission or the state board of equalization did not receive any part of the money, and had no way of making corrections in regard to the same.

In Riggins v. County of Maricopa, 60 Ariz. 168, 133 P.2d 759, plaintiff sued the county of Maricopa, the county assessor, and the county treasurer for money paid under the “vehicle privilege license tax.” The statute made it the duty of the county assessor to transmit these taxes to the state treasurer through the state auditor for the credit of the general fund. In ruling on the right of plaintiff to recover money thus paid, we held:

“The trial court denied plaintiff any relief and dismissed his complaint. From such judgment he has appealed. He bases his right to recover upon the court’s decision in County of Maricopa v. Hodgin, 46 Ariz. 247, 50 P.2d 15, 101 A.L.R. 793. In the Hodgin case we held that a tax unit, such as a county or one of its officers, that has collected a tax on property exempt under the constitution, is a proper party defendant in an action to recover such tax, even though it may have been collected for different tax units and distributed to them.

“Here, while it was the duty of the county assessor to receive the tax, it was his duty to remit it to the state treasurer. The county and its officers had no control or right of control of the tax sued for. Such fund is now, and all the time has been, in the possession of the state treasurer. The fund did not belong to the county or county assessor or any other county officer and they had no power over its use or disposition.” 60 Ariz. at 169, 133 P.2d at 760.

As will be noted from A.R.S. § 15-1212, subsec. B, supra, the funds are distributed by this procedure: The state superintendent of public instruction furnishes the state treasurer and the school superintendent of each county an abstract of the apportionment, and certifies the apportionment to the state auditor, who draws a warrant in favor of the county treasurer of each county for the amount apportioned thereto. The state treasurer is not a party to the suit in the instant case. However, there are other facts which we feel should be decisive of the appeal.

We have not passed upon the question of an excessive tax rate under identical facts as in the instant case; however, we have held the board of equalization, in carrying out its tax-setting power, acts judicially, and cannot be attacked in the absence of a showing that the board acted in bad faith, or so arbitrarily as to amount to constructive fraud. In the early case of United Globe Mines v. Gila County, 12 Ariz. 217, 100 P. 774, an increase in valuation by the territorial board of equalization was attacked on the ground that the board, in making such increase in valuation of certain mining claims, used as the basis for same, abstracts of assessment rolls furnished by the boards of supervisors in the counties involved, and not upon inspection or examination of the assessment rolls from which the abstracts were taken. The territorial court upheld the increase in valuation for territorial taxes based upon the abstract upon the ground that it was not alleged or shown that the board of equalization had acted in bad faith, or so arbitrarily as to amount to fraud. The court, in thus holding, used the following language:

“ * * * While the action of the hoard may undoubtedly be subject to review in a suit brought to enforce a tax or to restrain the collection of a tax based thereon, the court may only inquire into such action for the purpose of ascertaining whether the territorial board of equalisation had jurisdiction to make the order, or to determine, when the issue be raised, whether the board of equalisation acted in bad faith or so arbitrarily as to amount to constructive fraud in adopting its scale of valuation. If the method adopted by the board be that which the statute directs, and it does not appear that the board acted thus arbitrarily or fraudulently, we may not inquire into the question whether the evidence which was before the board was sufficient to establish the justness of the scale of valuation found and applied in equalizing the taxes between the various counties for any year. Boards of equalization act judicially, when within their jurisdiction, and their determinations are not open to collateral attack. Stanley v. Supervisors [of Albany County], 121 U.S. [535] 550, 7 Sup.Ct. 1234, 30 L.Ed. 1000. The complaint does not show the existence of any act which indU cates that the territorial board of equalization in making its order increasing the valuation of patented mines in Gila county based upon the scale of valuation ascertained by it from an inspection of the abstracts returned from the counties of Graham, Pima, Pinal, Maricopa, and Santa Cruz acted in bad faith or arbitrarily, and without reference to the facts disclosed by said abstracts; nor does it appear from the complaint that the scale of valuation applied in Gila county and the other counties in which increases were ordered was not the same as that disclosed by the abstracts furnished by the boards of supervisors from the said counties of Graham, Pima, Pinal, Maricopa and Santa Cruz.” [Emphasis added.] 12 Ariz. at 222, 100 P. at 776.

There the board used the abstract of assessment rolls instead of the actual assessment rolls in ascertaining the valuation. Here the state board of equalization unknowingly used incorrect figures furnished by the state superintendent of public instruction.

Other states have fixed the limitations for a recovery in holding that levies must be arbitrary or fraudulently made. In People ex rel. Thompson v. Chicago & N. W. R. Co., 397 Ill. 266, 73 N.E.2d 418, there was a levy of some $2,000 more than the difference between the estimated expenditure of some $20,000 and an amount to be received from the state, $14,000. In sustaining the levy the court stated:

“ * * * The mere circumstance that, in estimating in advance the amount necessary for any purpose, a larger amount is levied than actually required affords the taxpayer no grounds for objection unless the amount levied is so grossly excessive as to show a fraudulent purpose. People ex rel. Wilson v. Wabash Railway Co., 368 Ill. 497, 14 N.E.2d 650; People ex rel. Stuckart v. Chicago & Alton Railway Co., 289 Ill. 282, 124 N.E. 658. The levy has not been shown to be unreasonable, and, in the absence of a showing of an abuse of discretion, we will not interfere with the decision of a taxing body on the question of the amount to be levied. * * * ”

73 N.E.2d at 421.

The case of State ex rel. and to Use of Johnson v. St. Louis-San Francisco Ry. Co., 315 Mo. 430, 286 S.W. 360, involved a suit to recover a tax levied to pay interest on bonded indebtedness. The claimants contended the levy was invalid, based on the ground that it was grossly excessive in that there was a balance to the credit of the bonded debt fund and a surplus when at a later date the bonds were taken up. The court, in passing on this question, said:

“ * * * 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. * * * ” 286 S.W. at 362.

While the court in this decision referred to the method of estimating the tax, the principle of law in regard to fraudulent levies is the same.

In State ex rel. Woodward v. Peal, 136 Kan. 136, 13 P.2d 302, which was a mandamus proceeding involving validity of property taxes, the court held:

“This reduces the question involved to whether the county commissioners acted arbitrarily, capriciously, or fraudulently. It is stipulated as a fact that the county commissioners exercised their judgment and discretion, taking into consideration their previous experience and available records. The cost of government is not a fixed charge, nor are the assets out of which taxes are to be raised always uniform. The county commissioners must take into consideration, in making a levy, any change that will be apparent in the needs of a particular fund, the amount of taxes that may be received from miscellaneous sources, and the amount of taxes that may not be paid. It was their responsibility, and they had the authority to determine the amount necessary to maintain the county government, and, in the absence of a clear abuse of this discretionary power, their action cannot be interfered with, unless the amount is so grossly excessive as to show a fraudulent purpose in making the levy. The agreed facts obviate any suggestion of fraud or bad faith, or lack of consideration on the part of the county commissioners. Under such circumstances, we cannot say that the levy is so excessive as to render it void.” 13 P.2d at 306.

Examination of the facts in the instant case shows that the state board of equalization did not act arbitrarily or fraudulently, because it acted as the statute directed on the certification of the state superintendent of public instruction. He was acting upon the advice of the attorney general. The attorney general was, by law, his legal advisor, hence there could be no claim of bad faith or fraud in this case. A.R.S. § 41-192, § 41-193. The levy was not grossly excessive, arbitrary, or fraudulent, because, as indicated by the record, use of average daily attendance in high schools calculated on the basis of attendance rather than enrollment, for the year 1959, in fact resulted in a tax rate of only $1,661 instead of $1.70.

The board of equalization has the duty of fixing the rate of levy for state taxes as prescribed in A.R.S. § 42-141 et seq. Unless this rate was so grossly excessive as to show it was arbitrary or fraudulent, as held in United Globe Mines v. Gila County, supra, and other cases cited herein, such a levy cannot be set aside. Although the board acted on incorrect information, there was no showing that the rate was grossly excessive, or that the action of the board was in fact arbitrary or fraudulent.

The judgment of the superior court is reversed, and the case remanded with directions to enter judgment in favor of defendants.

STRUCKMEYER, C. J., and UDALL, J., concurring.

1 . A.R.S. § 15-1212 was amended in 1961 in Para. B as to dates and amounts of apportionment.