I dissent. This action was brought to recover taxes imposed by the State Board of Equalization under sections 2097 to 2110, Revised Codes, against defendant, a freight line company for the years 1931 to 1939, inclusive.
The essential facts are these: Defendant, during the years in question owned certain freight cars which it rented to common-carrier railroads at a specified rental fixed by the Interstate Commerce Commission. Defendant is not a carrier and does not engage in the transportation of commodities. The lessees use the cars chiefly for interstate traffic in, out of, and through the state of Montana, with but a small part of the use being devoted strictly to intrastate business. *Page 197
During the period here involved there were common-carrier railroad companies doing business in Montana, and who owned and operated freight cars of the same kind as those owned by defendant. Likewise, during the same period, there were railway companies who did not operate in Montana, but who furnished freight cars to railroad companies who were operating in Montana of the same kind and used for the same purposes as the cars owned by defendant. Defendant has not paid any taxes during the time involved in the action.
The State Board of Equalization assessed the cars owned by defendant and habitually operated in the state of Montana at their full and true value and determined the rate of tax levy as provided in sections 2097-2110, Revised Codes. The rate of the levy was fixed under section 2103 so as to equal as nearly as possible the average of all rates upon all property in the state during each year. As thus computed the rates varied from year to year between the extremes of 64 and a fraction mills to 71 and a fraction mills. During these years the state did not assess any taxes against similar freight cars owned by common-carrier railroad companies not operating in Montana, and which they furnished to railroads operating in Montana. Railroads operating in Montana were assessed during the years in question as provided by sections 2131 to 2137, inclusive, as amended by Chapter 13, Laws of 1939, on their freight cars which were of the same kind as those of defendant and the assessment apportioned to the several counties, cities, towns, school districts and other taxing subdivisions as therein provided.
The tax rates, as against railroads operating in more than one county, were fixed and levied by the local authorities. Some of such taxes were for local needs and some for state purposes. The rate for state purposes ranged from four and a fraction to seven and a fraction mills. These rates were not based upon the average rates prevailing throughout the state as in the case of the levy against defendant.
It was agreed that in a large number of taxing subdivisions in the state there are no railroads and no freight cars; that the *Page 198 value of property in incorporated cities and towns is higher in respect to the area thereof than in outside territory, and that defendant's cars were located outside incorporated cities and towns more than within them, and that they were not taxed in proportion to their presence and use within the several taxing districts or on the basis of railroad mileage therein.
Freight cars owned by other than "freight line companies" were taxed as required under sections 2131 to 2133 so that only that portion of their value was taxed in each taxing subdivision of the state as represented the ratio between the railroad track mileage in each taxing subdivision and the total railroad track mileage in the state. The taxes levied against defendant for the years 1931 to 1934, inclusive were credited to the state common school income and interest fund, and for subsequent years to the state public school general fund.
The first point urged by defendant is that the statute, sections 2097 to 2110, Revised Codes, places the property of freight line companies in a distinct class for the purpose of taxation and that the statute is lacking in uniformity contrary to sections 1 and 11 of Article XII of our Constitution. It is competent for the legislature to classify property for the purpose of taxation. Hilger v. Moore, 56 Mont. 146, 182 P. 477. And while "classifications must be based upon substantial distinctions which make one class really different from another" (State ex rel. Northern P. Ry. Co. v. Duncan, 68 Mont. 420,219 P. 638, 640), yet the test is, does the classification preclude the assumption that it was made in the exercise of legislative judgment and discretion. Bank of Miles City v. Custer County,93 Mont. 291, 19 P.2d 885; Montana Beer Retailers' Protective Ass'n v. State Board, 95 Mont. 30, 25 P.2d 128. Two identical articles may be placed in different classes for tax purposes. Wheir v. Dye, 105 Mont. 347, 73 P.2d 209.
It is conceded that defendant corporation does not maintain an office or transact business in Montana otherwise than by leasing its cars to railroads operating in Montana. It thus employs no men in Montana, and spends no money in conducting *Page 199 any business in Montana. Whatever revenue is derived from its business of leasing freight cars to railroads operating in Montana is diverted from the state. The defendant is, in these respects, different from the railroads operating in Montana and we cannot say that these differences are not sufficient to warrant the legislature in according different treatment in the matter of taxation. In other words these differences were sufficient to indicate that the legislature proceeded in the exercise of judgment and discretion and not arbitrarily and capriciously in prescribing a different method of taxation. We point out too that there is nothing in the record to indicate that the rate of taxation as against defendant's cars is substantially greater than that against similar cars of railroads, so far as the total tax liability for the cars is concerned. There is some difference in the sum total because defendant's cars are taxed on the average rate while railroad cars take the precise rate for each taxing district. How much difference that difference makes in the total tax liability the record does not reveal. It does not appear to me, however, that the different treatment of defendant's cars indicates such hostile discrimination as to compel a holding that it is prohibited by our Constitution. The fact that foreign railroad companies lease cars to carriers operating in Montana without paying a tax thereon is no justification for exempting defendant's property from taxation. Neither the statute nor the Constitution exempts from taxation the cars of foreign railroad companies leased to carriers operating in Montana.
There is no constitutional objection to the plan of applying the average rate of taxation of all property against a certain class of property. This plan has been upheld by the United States Supreme Court in Michigan Central R. Co. v. Powers, 201 U.S. 245,26 S. Ct. 459, 50 L. Ed. 744. The Michigan constitutional provisions involved in that case were different from ours but the court reached the conclusion it did on the theory that the state may, if it chooses, treat its entire territory as one taxing unit. That is what the Montana legislature did as to freight cars owned by freight line companies by section 2098, *Page 200 Revised Codes. I see no constitutional provision prohibiting the legislature from so doing. Other cases supporting this method of fixing the rate are the following: Pacific Fruit Growers Express Co. v. City of Yuma, 32 Ariz. 601, 261 P. 49; Wyatt v. State Board of Equalization, 74 N.H. 552, 70 A. 387. Defendant relies upon the cases of Pingree v. Auditor General, 120 Mich. 95,78 N.W. 1025, 44 L.R.A. 679; Layman v. Iowa Tel. Co., 123 Iowa 591,99 N.W. 205; and Ewert v. Taylor, 38 S.D. 124, 160 N.W. 797. These cases had to do with constitutional provisions commanding a uniform rule of taxation, and where classification such as was sustained in Hilger v. Moore, supra, would not be sustained. These features of the Ewert case were pointed out by the United States Supreme Court in Puget Sound Power Light Co. v. King County, 264 U.S. 22, 44 S. Ct. 261, 68 L. Ed. 541. I think the majority opinion is in error in condemning the tax in question as unjustly discriminatory.
It is contended and the majority opinion holds that the classification violates the due process and equal protection clauses of the state and federal constitutions. "`The equal protection clause does not require the state to maintain a rigid rule of equal taxation to resort to close distinctions, or to maintain a precise scientific uniformity; any possible differences in tax burdens not shown * * * to be arbitrary or capricious, do not fall within constitutional prohibitions.' Lawrence v. State Tax Commission of State of Mississippi,286 U.S. 276, 52 S. Ct. 556, 559, 76 L. Ed. 1102 [87 A.L.R. 374]." Merchants Nat. Bank v. Dawson County, 93 Mont. 310,19 P.2d 892, 898.
"It is enough that there is no discrimination in favor of one against another of the same class, and the method for the assessment * * * of the tax is not inconsistent with natural justice." Citizens Tel. Co. v. Fuller, 229 U.S. 322,33 S. Ct. 833, 835, 57 L. Ed. 1206.
"Nothing in the 14th Amendment imposes any ironclad rule upon the states with respect to their internal taxation, or prevents them from imposing double taxation, or any other form of unequal taxation, so long as the inequality is not based upon *Page 201 arbitrary distinctions." St. Louis S.W.R. Co. v. Arkansas,235 U.S. 350, 35 S. Ct. 99, 104, 59 L. Ed. 265.
In New York Rapid Transit Co. v. City of New York,303 U.S. 573, 58 S. Ct. 721, 724, 82 L. Ed. 1024, it was said:
"Indeed, it has long been the law under the Amendment that `a distinction in legislation is not arbitrary, if any state of facts reasonably can be conceived that would sustain it.' Rast v. Van Deman Lewis Co., 240 U.S. 342, 357, 36 S. Ct. 370, 374,60 L. Ed. 679, L.R.A. 1917A, 421, Ann. Cas. 1917B, 455; Borden's [Farm Products] Co. v. Baldwin, 293 U.S. 194, 209, 55 S. Ct. 187,191, 79 L. Ed. 281; Metropolitan Casualty Ins. Co. v. Brownell,294 U.S. 580, 584, 55 S. Ct. 538, 540, 79 L. Ed. 1070; `The rule of equality permits many practical inequalities.' Magoun v. Illinois Trust Savings Bank, 170 U.S. 283, 296, 18 S. Ct. 594, 599,42 L. Ed. 1037; Breedlove v. Suttles, 302 U.S. 277, 281,58 S. Ct. 205, 82 L. Ed. 252; Carmichael v. Southern Coal Coke Co.,301 U.S. 495, 509, 57 S. Ct. 868, 872, 81 L. Ed. 1245, 109 A.L.R. 1327. `What satisfied this equality has not been, and probably never can be, precisely defined.' Magoun v. Illinois Trust Savings Bank, supra, 170 U.S. 283, 293, 18 S. Ct. 594, 598, 42 L. Ed. 1037.
"The power to make distinctions exists with full vigor in the field of taxation, where no `iron rule' of equality has ever been enforced upon the states. Bell's Gap R. Co. v. Pennsylvania,134 U.S. 232, 237, 10 S. Ct. 533, 33 L. Ed. 892; Giozza v. Tiernan,148 U.S. 657, 662, 13 S. Ct. 721, 37 L. Ed. 599."
In my opinion there is no merit in the contention that the statutes in question conflict with the due process and equal protection clauses of the state and federal constitutions.
It is my opinion that the majority are in error in holding that the levy on the freight cars conflicts with section 9 of Article XII of our Constitution which limits the rate of taxation for state purposes to 2 1/2 mills and when the taxable property amounts to $600,000,000 to 2 mills unless increases are authorized by a vote of the people. *Page 202
It is conceded that no vote of the people authorized increases to the number of mills levied against defendant's property.
The fallacy of defendant's argument rests in the supposition that the rate of the tax levy is the state rate only. In fixing the rate of the tax levy the State Board is commanded by section 2103 to make it "equal, as nearly as may be, to the average rate of all general taxes, state, county, municipal, school and local, levied throughout the several taxing districts of the state for the preceding year." The rate is thus the average rate for all purposes, i.e., for state, county, municipal and school purposes. The State Board of Equalization is merely the agency that makes the calculation of this average rate. The rate in each local tax unit that is used to make up the average is imposed by the local taxing units and not by the State Board of Equalization. The average rate depends upon the action of the local taxing units and not upon anything done by the State Board of Equalization. The average represents not alone the state rate but the combination of the state, county, municipal and school district rates.
Defendant contends that it is improper to pay the proceeds of the tax into the school fund if the levy is for all purposes. A sufficient answer to this contention is that if that part of the law directing where the money goes is unconstitutional, it would not affect any right or interest of this defendant to the extent of relieving it of the duty to pay the tax. The remedy to test the validity of that part of the law would be by appropriate proceedings by one sufficiently interested to have the proceeds of the tax go elsewhere than where the law now directs.
Other contentions of defendant have not been considered in the majority opinion and will not therefore be discussed here.
I find no justification for disturbing the ruling of the trial court in upholding the statute and the tax, and in my opinion the judgment should be affirmed.