
    The People of the State of New York ex rel. Hudson and Manhattan Railroad Company, Respondent, Appellant, v. The State Board of Tax Commissioners, Respondent, and The City of New York, Appellant, Respondent.
    Third Department,
    January 4, 1911.
    Tax — special franchise tax — evidence—presumption as to validity — burden of proof — certiorari — insufficient return — remedy of relator —■ railroad—taxation of franchise of uncompleted road — grant of right of way from State — equalization of assessment.
    The court in reviewing the assessment of a special franchise tax will assume that the assessment was correct. The parties assailing its validity must make it conclusively appear that the method by which the assessors arrived at the result was incorrect and that the assessment does not represent the fair value of the property.
    Where- the return to a writ of certiorari to review the assessment of a special franchise tax does not set forth the grounds for the valuation'made by the assessing officers, the court will not determine that the assessment was erroneous. The relator should require an amended or additional return which should set forth the grounds for the valuation as required by section 393 of the Tax Law. - u .
    A railroad corporation engaged in building and equipping its line may be assessed for a special franchise tax, although the road is not yet in actual operation so as to earn revenue. But as the road is not in operation' the net earnings rule cannot be applied in fixing the value. That rule is only one of the many ways in which the value of the property may be measured.
    A railroad company constructing a tunnel under the waters of the Hudson river is not relieved from a franchise tax by the fact that the State has granted it a - right of.way.
    Where a railroad has been assessed for the full value of its franchise while other real property in the locality has only been assessed for a percentage of its value, the assessment should he reduced to equalize it with that placed upon other property.
    Smith, P. J., dissented.
    Cross-appeals by the relator, the Hudson and Manhattan Railroad Company, and the City of New York, intervenor, from an order of the Supreme Court, made at the Albany Special Term and entered in the office of the- clerk of the county of Albany on the 17th day of September, 1910, as amended and resettled by an order 'entered on the 22d day .of October, 1910, reducing the special, franchise tax of the relator for the year 1908-from $6,900,000,.as fixed by the State Board of Tax Commissioners, to $3,596,326.35, and confirming the assessment as so reduced.
    
      Stetson, Jennings & Russell [Lewis E. Carr and Frederic B. Jennings of counsel], forthe relator.
    
      Archibald R. Watson, Corporation Counsel [Curtis A. Peters and Addison B. Scoville of counsel], for the City of New York.
    
      Edward R. O'Malley, Attorney-General, for the State Board of Tax Commissioners.
   Kellogg, J. :

“ In the consideration of this case we are bound to assume at the outset that the valuation of the relator’s special franchise as fixed by the state board of tax commissioners was correct. ‘It is essential that a party assailing the validity of an assessment should make it conclusively appear that the method by which the assessors arrived at the result complained of was incorrect, and that the assessment does not represent the fair value of the property assessed.’ ” (People ex rel. Jamaica W. S. Co. v. Tax Comrs., 196 N Y. 39, 53.)

Section 252 (now 292) of the'Tax Law requires the return to. set forth the grounds for the valuation made by the assessing officers. The return in this case does not really set forth any grounds, and upon that subject consists mainly of many words. But that does not authorize the court to act as an assessing body, and does not bring any benefit to those questioning the assessment. It is difficult to determine that a tax is based upon erroneous grounds when the grounds upon which it is based do not appear. The relator had ample remedy by requiring an amended or additional return which should comply with the requirements 'of the law. (People ex rel. Buffalo Gas Co. v. Tax Comrs., 199 N. Y. 162; People ex rel. Lehigh Yalley R. R. Co. v. Woodbury, Id. 167.)

The relator must, therefore, stand pretty well within its petition, which assumes that the value of the special franchise is so indefinite and uncertain that it is impossible to be shown. In other words, that there is no real basis upon which it can be valued, and, therefore, it should be treated as valueless.

The evidence given by the Tax Commissioners fixes the probable cost of the tangible property at abont the amount of. the assess- • inent. The relator shows that the actual cost' of the tangible property was less than one-half of the assessed value of the franchise, and claims that only its.scrap value, which is merely nominal, should be considered. .The fact that the road was not in actual operation as a revenue producer at the time of the assessment does not show that, the intangible property has no value. The relator obtained the franchise, and is spending many millions of dollars in boring the tunnels and building and equipping the railroad with' the expectation that it will prove a profitable investment. It estimates that the whole line -will carry 77,000,000 of people in a year at five cents each, with a probability that it may carry 100,000,000, and that the probable cost of operation will be about forty per cent of the gross earnings. This would show that the value of the special franchise within this State, with the road in the condition in which it was at the time of the assessment, would be very much more than the assessed value. If the road will earn many million dollars next year or the year after, and produce a large net revenue over interest upon the capital actually invested, the intangible part of the franchise is of great value now, although the net-earnings rule cannot be applied to fix the value. The net-earnings rule is- only one of many ways in which the value of property may be measured. It will not do to say that a special franchise is not valuable because the road is not completed- and not in actual operation so as to earn revenue. The fact that millions of dollars are being spent to build and equip a road proves that in its present condition its tangible as well as its intangible property-has a value. The record does not disclose anything showing that the Tax Board acted upon a wrong basis, or assessed the relator’s property at more than its actual value. '

Apparently the Pennsylvania tunnel cost much more per mile,' and is assessed at a lower rate per mile. But it is not a like property. It is built to accommodate and furnish a terminal in New York city for the Pennsylvania Bailroad Company’s, system of several thousand miles of railroad, and in its operation will become substantially a part of that, system. The record does, not disclose that it is, or is intended to be, in itself a distinct revenue producer. It does.not appear that each person riding Upon it will pay a fare for that privilege, or whether the Pennsylvania Railroad Company will charge a greater fare to and from New York city than before. The only real value of the terminal may be as an additional convenience to the public and to the Pennsylvania Railroad'system, and an advertisement and an indirect benefit to the system of which it is a part. • The tangible part of its franchise cost more, but the value of a special franchise depends upon the cost and the uses to which the property is to be put. The relator’s business is a separate business, intended as a distinct revenue earner by itself, and its probable revenue and earnings can be more easily estimated.

The other properties, the, cost and assessment of which were shown upon the hearing, are not of a like nature in themselves or in their business, and a fair comparison cannot be drawn between them.

The fact that.the relator has a grant from the State of a right of way under the waters of the Hudson river for operating a railroad does not relieve it from this tax.

It appears that the relator was assessed the amount which the Tax Board deemed 'the full valne of its franchise, and that other real property in New York city is assessed only eighty-nine per cent of value. The relator’s property, therefore, should be reduced accordingly, so that it will stand on an equality with the other property.

The order of the Special Term should, therefore, be reversed upon the law and the facts, and the determination of the Tax Board should be modified by reducing the valuation as indicated, and as so modified confirmed, without costs to either party.

All concurred, except Smith, P. J., dissenting.

Order of the Special Term reversed on law'and facts, and the determination of the Tax Board modified by reducing the valuation as indicated in opinion, .without costs.  