all because we try to handle lots of business back and forth from them. But they are not the only States and we have property in a lot of States that do have central assessment agencies, and to which we could reach in this fashion which States do assess our railroads at a substantially higher proportion than other properties are assessed. Mr. DINGELL. I am sympathetic with your problem but I want to be sure you have the right device. Mr. ROGERS of Florida. Under the State of Michigan, would you proceed against the local assessing body? Mr. OGDEN. If it were warranted, yes. It is whatever body assessed the railroad property. Mr. ROGERS of Florida. Whoever is assessing is the man you would proceed against, if it is in question. Certainly that was my understanding of it and I thought it was very clear. Thank you, Mr. Chairman. Mr. ROGERS of Texas (presiding). Are there any other questions of Mr. Ogden? I have just one thing before we close, with regard to this assessment situation. What this bill actually does is to bring into one forum, the Federal court, the power to proceed against a situation where the railroads are assessed on a 75-percent basis, and another group, corporate group or individual group, is assessed on a 40- or 50-percent basis. Now, Mr. Ogden, if you turn this thing around and you simply said that everybody is assessed on a 50-percent basis but they are going to charge you a higher rate than they do somebody else, it would be actually unconstitutional, would it not? Mr. ŎGDEN. I would think that it would, but you could certainly get the same results. Mr. ROGERS of Texas. Your action will be against in some instances, I would presume, levying authority? Mr. OGDEN. No, sir; it would only be against the assessing authority. The common denominator is the assessment of property, comparing assessments of property where the tax rates are the same. Mr. ROGERS of Texas. But where the levying authority was undertaking to collect taxes on a false assessment, it might be necessary for you to seek relief to prevent this until your determination of your other suit could be reached? Mr. OGDEN. That is correct. Mr. ROGERS of Texas. In other words, as you say, the common denominator is the assessment, and if it is any of these agencies, it makes no difference who the assessing agency is. The question is whether or not they have the basic authority to make an assessment. Mr. OGDEN. That is correct. Mr. ROGERS of Texas. Once they make the assessment, you can proceed if your assessment under this bill is based upon a percentage higher than the assessment that is made against property other than common carrier property. Mr. OGDEN. That is right. Mr. ROGERS of Texas. I think the committee will come back at 2 o'clock and I think the first witness scheduled at that time is Mr. Charles Conlon, of the National Association of Tax Administrators. The subcommittee will stand in recess until 2 p.m. 60-661-666 (Whereupon, at 12 o'clock noon, the committee was recessed, to be reconvened at 2 p.m. the same day.) AFTERNOON SESSION The CHAIRMAN. The committee will come to order. We have been having hearings on H.R. 4972 and related bills. The witness this afternoon will be Mr. Charles Conlon, National Association of Tax Administrators, of Chicago, Ill. Mr. Conlon, will you come to the witness stand. You have a prepared statement. If you wish to have it inserted in the record, in will be inserted in total and you may summarize it, or you may read it. STATEMENT OF CHARLES CONLON, EXECUTIVE SECRETARY, NATIONAL ASSOCIATION OF TAX ADMINISTRATORS, CHICAGO, ILL. Mr. CONLON. Thank you, Mr. Chairman. I would like to refer to a number of parts of it, if I may. (The prepared statement of Mr. Conlon follows:) STATEMENT OF CHARLES F. CONLON, EXECUTIVE SECRETARY, NATIONAL ASSOCIATION OF TAX ADMINISTRATORS I am Charles F. Conlon, Chicago, executive secretary of the National Association of Tax Administrators, and I present this statement in opposition to H.R. 4972 and 12 identical bills on behalf of the tax departments of the States of: Arkansas California Idaho Illinois Michigan The tax departments of these States oppose the bills first, because they would put any property owned by a common carrier subject to the Interstate Commerce Act in a special category for purposes of State and local property taxes; and second, because these bills would establish a special injunctive procedure in the Federal courts to review assessments of property owned by ICC carriers and thus bypass existing administrative and judicial remedies by which other property taxpayers are bound. PREFERRED STATUS FOR CARRIER PROPERTY Paragraph 1 of the bills would have the effect of prohibiting the inclusion of any property owned by an ICC common carrier in any regularly authorized classification system except presumably at the lowest assessment ratio provided for any class. This is a most important point because the classification of property for property tax purposes is already authorized by the constitution or statutes of several States and is under consideration in others. The rapid increase in the burden of property taxes since World War II has renewed interest in the possibility of wider acceptance of a classified rather than a uniform property tax system. One possible basis of classification that might be considered is that of the owner-occupied residence versus business, commercial, or rental property. This is supported on the ground that the owner-occupier of a residence must bear the brunt of property tax increases whereas the owner of business or commercial property can pass them along the same as any other cost. Where classification is legally permissible and adopted, the property of ICC regulated carriers should be treated in the same manner as the property of others in the same classification. Under these bills, however, carrier property would be frozen into a preferred status. Whether property should be classified, and how, is a matter of State policy and so long as the classifications are reasonable, there is no warrant for Federal intervention in this field. In passing, it should be noted that these bills include any property owned or used by a common carrier of persons or property subject to ICC regulation. They would apply to office buildings, hotels, resort property, oil and mineral interests, and other kinds of property coming under the general category of nonoperating property. Accordingly, if property is presently, or were by constitutional amendment or statute to be classified by type or use, such a classification would not apply to similar property owned by or used by a carrier. To the extent that nonoperating property owned or used by a carrier would be given a special tax status under these bills, contrary to a general applicable State law, they are probably objectionable on constitutional grounds. THE SPECIAL INJUNCTIVE PROCEDURE The proposal to substitute a special injunctive procedure in the Federal courts for the administrative and review procedures now provided by State law raises two questions. The first one is whether there is really any necessity for establishing a new Federal procedure. The second concerns the extent to which the alleged discrimination against carrier property exists compared to assessments of all other property. REMEDIAL PROCEDURES IN STATE COURTS Boiled down to its essentials, the request for a special remedy in the Federal courts is based on the assumption that there is no speedy, effective remedy in the State courts to deal with cases of alleged discrimination in property tax' assessments. Twenty years ago, this might have been said with some justification but it is not true today. Where the issue has been presented, the courts of the several States have now practically without exception recognized the necessity of giving predominant consideration to the element of uniformity of assessment rather than to compliance with the legal standard. Consequently, specific relief is now granted by the courts in cases involving discriminatory assessments-where the taxpayer proves that his property is assessed at a higher ratio of its true value than the property of other taxpayers even though the contested assessment is concededly less than the constitution or the statute. calls for. In the following States, among others, there have been court decisions where this principle of relief has been applied either directly or indirectly by the sanction given to assessment equalization programs: Alabama, Arizona, Connecticut, Florida, Georgia, Idaho, Illinois, Iowa, Kansas, Kentucky, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana, Nebraska, New Jersey, New York, Ohio, Oregon, South Dakota, and pending in Tennessee (favorable lower court decision). DISCRIMINATION IN RAILROAD ASSESSMENTS No one who is familiar with property tax assessment practices would deny that in many States assessments are not uniform over the whole range of properties taxed. This is a general problem and one by no means limited to common carrier property. Insofar as there is criticism based on the allegation that business property is unfairly assessed compared to residential property, it should be noted that railroad property constitutes a relatively small proportion of all business property. Locally assessed commercial and industrial real property amounted to $75 billion in 1961; State-assessed public utility property other than railroad property amounted to $18.7 billion in the same year while Stateassessed railroad property was $5.9 billion. Of the total of $100 billion represented in these three property classes, about 6 percent was railroad property and this proportion would be even less if locally assessed personal property used in business were included in the total of the commercial and industrial property assessment figures. The special remedy proposed in the bills would thus apply only to a small proportion of the property involved in this general problem of unequal property tax assessments. The major premise of the argument for H.R. 4972 and similar bills is that railroad property is assessed in a discriminatory basis compared to other property. The existence of this discrimination is sought to be demonstrated by a comparison of the assessed values of railroad property, generally at assumed legal standards, with the U.S. Bureau of the Census sales-asessment ratios of transferred properties by States in 1961.1 1 Hearings, H.R. 736, before the Subcommittee on Transportation and Aeronautics, Committee on Interstate and Foreign Commerce. July 28, 1964. It is difficult, though, to accept this demonstration as proof of either the existence of or the extent of the discrimination alleged. First of all there is no evidence which shows how railroad property assessments compare with those of other businesses. Second, in the case of locally assessed property, the average level of assessment may be determined within acceptable limits by sales comparison methods because some types of property involved usually change hands frequently and sales prices and tax assessments can be compared. (Most of these sales, incidentally, involve residential property.) The property of carriers and other public utilities is not subject to such a sales comparison test because public utility companies are very infrequently sold as going concerns. Thus while the assessment ratios applicable to property generally are based on objective standards derived from Bureau of the Census data, the assessment ratios attributed to the carrier properties are subjective. At the very least, they are not subject to the acid test of the market as are the ratios with which they are compared. Moreover, it should be pointed out that the Bureau of the Census sales-assessment ratios, and any other State or local assessment ratio studies which are based exclusively on sales of properties, are bound to have only a relatively small number of commercial and industrial properties in the sales sample. Actually, the sales-assessment ratio studies in the 1962 Census of Governments report show only 6 States where basic sales information was obtained for 25 or more sample industrial properties. Also, it should be understood that the census survey was limited to locally assessed property and that no attempt was made to measure the relationship between locally assessed and State assessed property. This is explicitly stated in the census report: "The survey was limited to sales of real estate listed on local property tax rolls. No study of the relation between assessed value and market worth has been attempted for State-assessed property or for locally assessed personal property. What this all suggests is that if the estimates of the ratios of railroad assessments to assessments on other property are to have any probative value, they must be tested preferably in some sort of adversary procedure, as to two fundamental points: (1) the basic full value appraisal of the property, and (2) the percentage of that full value which actually is put on the assessment roll. A final point in this connection is the trend in property tax assessments on railroad property compared with public utility property other than railroad and with all locally assessed property. The Census of Governments property tax studies indicate that between 1956 and 1961 State assessed railroad property valuations declined moderately while all other assessments rose substantially: 3 Much of the increase in asessed valuations of nonrailroad utility property and locally assessed property is the result of new investment. However, the railroads also made substantial investments in new plant and equipment-in the 5 years from 1956 to 1960 inclusive, these amounted to $5.3 billion. It is significant, therefore, that in a period of improving economic activity featured by generally rising prices, the assessments of railroad property by State agencies showed not only a relative but an absolute decline. Incidentally, between 1961-62 and 1963–64 the annual percentage increase in expenditure for plant and equipment by the railroad industry was higher than for any other industry and about three times the average annual increase for all industries combined." 2 Census of Governments, 1962. "Taxable Property Values," p. 9. 3 Census of Governments, 1957, "Taxable Property Values," table 2; same, 1962, table 2. 4 Survey of Current Business, July 1959, p. 30, table V-7; September 1961, p. 6, table 1. 5 Survey of Current Business, March 1965, table 1, p. 1. ADMINISTRATIVE ACTIONS TO PROMOTE UNIFORMITY The tax departments of the several States are aware of the need to make all property tax assessments conform to the standards of uniformity required by the constitutions and statutes of the States and have done much to forward such a program. For example, working through the National Association of Tax Administrators, the tax departments of the several States have formulated standard procedures for the conduct of sales-assessment ratio studies and these are now widely used. This is a most-important activity and one that has done much to improve the degree of uniformity achieved in the assessment process generally. Actually, the effectiveness of the judicial remedy in discrimination cases stems directly from the use of assessment ratio studies because the courts accept these findings. In the more specialized public utility assessment field, a committee of this association has formulated extensive procedures for the valuation of public utility property including railroad property; it has also recommended standards to be followed in allocating an appropriate portion of the taxpayer's property to each State in which the enterprise operates. 8 The figures shown earlier comparing the trends in railroad and other public utility assessments for property tax purposes between 1956 and 1961 demonstrate that these programs have had wide acceptance and that they have been effective. IMPACT OF THE BILLS ON PROPERTY TAX ADMINISTRATION In appraising H.R. 4972 in the light of these developments, some consideration must be given to its potential impact on the whole process of property tax administration. As a practical matter, progress toward an acceptable standard of uniformity has to be gradual. The predominant position of the property tax in the State-local revenue system (it accounts for almost half of all State and local taxes) is such that to attempt to remedy all inequities overnight, so to speak, would be disastrous to local government finance. This is something, it should be emphasized, which involves not only public utility property but all types of propery: Business and nonbusiness; real and personal; tangible and intangible; residential, farm, vacant lots, commercial and industrial; inventories, work in progress, stock in trade, and such other classifications and types. If property under one type of ownership or use is singled out for special treatment under a Federal statute, there is no reason to deny similar treatment in the long run to any owner of property that is used in or becomes the subject of trade in interstate commerce. Such a policy would be tantamount to Federal supervision of the local property tax through Federal judicial procedures, a function for which the Federal judiciary has no particular qualifications and, judging from the statements appearing now and then in U.S. Supreme Court opinions, no desire to undertake. On the other hand, the States and local governments have achieved a good deal of improvement in this field in recent years and the prospects are that they can do a great deal more if the responsibility and means for dealing with the problem are left in their hands. SOME SPECIFIC OBJECTIONS TO THE BILLS There are several points about the bills which should be singled out for mention. One has been suggested already, that they apply to all property owned or used by a carrier whether or not that property is operating property used in the regulated business and not merely investment property. Second, in those instances where relief is sought directly against the State agency making the property tax assessment, these bills raise a constitutional question because under the typical State statute authorizing suits for refunds and reviews, the consent to sue the State is limited to proceedings in State courts. This difficulty, however, would not arise in connection with suits against local governments. "Guide for Assessment-Sales Ratio Studies," report of the Committee on Sales Ratio Data of the National Association of Tax Administrators. "Appraisal of Railroad and Other Public Utility Property for Ad Valorem Tax Purposes," report of the Committee on Unit Valuation, National Association of Tax Administrators. s "Report of the Committee on Railroad Allocation," National Association of Tax Administrators. |