The Southern Pacific Company brought this action in the superior court seeking to recover taxes paid under protest for the first one-half of the fiscal year 1959 and to enjoin future discriminatory assessments arising from alleged systematic undervaluation
Appellant is a Delaware corporation owning and operating an interstate railroad system, a portion of which is located in the appellee counties of the state. In June 1959 the State Tax Commission assessed the taxable property of appellant in the state at $65,397,243.50. Pursuant to the applicable statutes appellant appeared before the State Tax Commission acting in its capacity as the State Board of Equalization and objected to the assessment. It offered to show that the full cash value of its property in Arizona was $73,000,000 and that its property was assessed at not less than 89 per cent of full cash value but that other property subject to assessment by the respective county assessors was assessed at no more than 20 per cent of full cash value on the average. The Board was requested to equalize the assessment by either lowering it to the average of other properties or by raising other assessments to full cash value. Appellant alleged that the Board wilfully, intentionally and fraudulently rejected its request for equalization refusing to take any action. Thereafter the taxes assessed were paid to the respective county treasurers accompanied by written protests. In January, 1960, appellant commenced suit seeking to recover a portion of the taxes paid and to enjoin defendants from making similar discriminatory assessments in the future.
The State Tax Commission in its capacity as State Board of Equalization is invested with the duty to equalize the valuation and assessment of property throughout the state. Its power of equalization is practically unlimited. To that end it may equalize the assessment of all property between persons of the same assessment district, between cities and towns in the same county, and between different counties of the state and the property assessed by the Commission in the first instance, A.R.S. § 42-141.
The Board of Equalization, having plenary power to consider and correct discriminatory practices presented to it, has the positive duty to exercise such power when its authority is invoked by one claiming discriminatory assessments.
It is urged that appellant has not followed the proper remedy afforded to it by the statute. A.R.S. § 42-146, subd. A requires:
Where the "amount of the assessment" is questioned, this section is exclusive. Valley National Bank of Phoenix v. Apache County, 57 Ariz. 459, 114 P.2d 883.
Appellant concedes that it has not complied with the statutory procedure. Fundamentally, its position is that by the inequality in assessments, namely 89 per cent of full cash value as against 20 per cent of full cash value, it bears an unfair and discriminatory share of the tax burden. Thus, while superficially it would appear that appellant's complaint is with the "amount of its assessment", the issue presented actually encompasses a broader sweep. It is sought to compel the State Board of Equalization either to equalize all assessments in the respective counties at full cash value or to equalize appellant's assessment at an amount commensurate with the valuations of property assessed by the county assessors, and, to recover taxes paid under protest occasioned by the unequal treatment.
The statutory appeal under § 42-146, supra, is limited to a determination by the superior court of the valuation of the applicant's property.
In the statutory appeal the superior court is only authorized to raise appellant's assessment from 89 per cent of full cash value to 100 per cent, an existing difference admitted by appellant. Such a judgment would not
We said in McCluskey v. Sparks, 80 Ariz. 15, 291 P.2d 791, where the complaint was of discrimination in assessment of properties as compared to other like properties in a county:
Here, it is equally plain that the statutory procedures are inadequate, in fact, providing less than no remedy at all. Appellant is compelled to either seek relief in an original action in the superior court, as it has, or it can not escape the consequences of the asserted systematic undervaluation practices.
Appellees question whether the allegations of appellant's complaint asserting systematic and intentional discrimination states a claim for relief urging that the state may properly classify the subjects of taxation, treating such subjects differently and that the legislature has created such a classification in the case of railroads by A.R.S. Title 42, Chapter 4, Art. 4. There can be no doubt that the state may classify the subjects of taxation. Brophy v. Powell, 58 Ariz. 543, 121 P.2d 647; Powell v. Gleason, 50 Ariz. 542, 74 P.2d 47, 114 A.L.R. 838; Peoples Finance & Thrift Company v. Pima County, 44 Ariz. 440, 38 P.2d 643; State Tax Commission v. Shattuck, 44 Ariz. 379, 38 P.2d 631. We said in Powell v. Gleason, supra:
The language of the Constitution, Sec. 1, Art. 9, A.R.S. provides "All taxes shall be uniform upon the same class of property within the territorial limits of the authority levying the tax." This does not mean that taxes shall be uniform on all classes of property. Property of the same value but of different character need not be taxed the same. Yellowstone Pipe Line Company v. State Board of Equalization, 138 Mont. 603, 358 P.2d 55, cert. denied, 366 U.S. 917, 81 S.Ct. 1095, 6 L.Ed.2d 241. But we need not pause to consider further whether the legislature could establish a classification permitting the assessment of appellant's property
A casual reading of the articles of the Revised Statutes on taxation discloses a general legislative scheme that assessments on all species of property shall be at full cash value. By A.R.S. § 42-227 "All taxable property shall be assessed at its full cash value." By A.R.S. § 42-123 the State Tax Commission is charged with exercising general supervision over the administration of the tax laws of the state and over county, city and town assessors and all local boards of levy and assessment "for the purpose of insuring that all assessments of property are made at its full cash value, and shall require assessors and county boards of equalization to assess all property at its full cash value." Again, by A.R.S. § 42-143 the State Board of Equalization is required to examine and compare the abstracts of assessments of the property in the several counties and "equalize them so that all taxable property is assessed at its full cash value."
There are admittedly some specific legislative exceptions from the uniform general scheme, notably Machinery and Equipment of Manufactories, A.R.S. § 42-228, Producing Oil and Gas Interests, A.R.S. § 42-227.01 et seq. Railroads have not, however, been excluded from the general uniform scheme of assessment. The classification to be found in A.R.S. § 42-761 et seq. is principally a special method by which the value of railroad properties may be determined. There the legislature has directed that the State Tax Commission shall meet to appraise and assess the taxable property of railroad companies which "property shall be valued at its full cash value." A.R.S. § 42-762. Thus, while there is no constitutional limitation on the assessment of appellant's property on a basis different from other property generally, the legislative prohibition is clearly apparent.
In Sparks v. McCluskey, 84 Ariz. 283, 287, 327 P.2d 295, we applied the principle equally applicable here:
The Tax Commission in failing to assess appellant's property at full cash value and thereafter to equalize the assessment with other property has not acted within the authority conferred upon it by law. Taxing officials may not under the pretense of enforcing a taxing act impose taxes not authorized thereby. Crane Co. v. Arizona State Tax Commission, 63 Ariz. 426, 163 P.2d 656,
In considering what relief is appropriate appellant is met with the contention that its claim for injunctive relief can not be granted because it requests the lower court to require the county assessors to increase the assessment on other taxable property in their counties without giving notice to the owners thereof or joining them as parties to this action. We are unable to accept this contention. The Rules of Civil Procedure, 16 A.R.S., require only that persons having a joint interest shall be made parties, Rule 19(a). In speaking of this rule we have said the test is whether the absent person's interest in the controversy is such that no final judgment or decree can be entered which will do justice between the parties actually before the court without injuriously affecting the rights of others not brought into the action. Bolin v. Superior Court, 85 Ariz. 131, 333 P.2d 295.
The absent persons here are the other taxpayers in the state and the counties affected. There rights can not be injuriously affected by a decree of court in this litigation since they have no right other than that the tax laws be administered as written, fairly and without discrimination. Were the ultimate judgment to go against appellees, taxpayers would have no right injuriously affected thereby for they have no right to perpetuate discriminatory acts by public officials even though in a measure they profit therefrom.
In view of our discussion concerning Rule 19 and the plenary power lodged in the State Board of Equalization to equalize all property assessments throughout the state, it is sufficient to say that the county boards of supervisors acting in their capacity as County Boards of Equalization need not be joined in this action.
Appellees urge that by the express language of A.R.S. § 42-204, subd. B state and county officials may not be enjoined in this tax litigation. That section provides:
Appellant, however, does not seek to prohibit or enjoin the collection of a tax. It seeks to enjoin the Commission and the County Assessors in the future from assessing appellant's properties in an amount in excess of the percentage of the full cash value at which other properties are assessed or in the alternative to compel in the future the assessment of all properties at full cash value. Appellant is seeking to compel the
While we conclude that appellant's claim for injunctive relief states sufficient facts which if established would authorize a court to grant relief of some kind, we do not at this point in the litigation pass upon what form the relief may take when all the facts have been developed. If appellant establishes that its property is being assessed at a higher percentage of full cash value than other properties, then under the existing statutes discrimination within the 14th Amendment to the United States Constitution will have been shown. Sioux City Bridge Co. v. Dakota County, 260 U.S. 441, 43 S.Ct. 190, 67 L.Ed. 340, 28 A.L.R. 979; McCluskey v. Sparks, supra, 80 Ariz. 15, 291 P.2d 791.
In the analogous situation in Sioux City Bridge (the complaining taxpayer was there assessed at 100 per cent of its true value, while others were assessed at a much lower rate), the Supreme Court of the United States resolved the dilemma with this statement:
Hence, unless or until the legislature exercises its authority and establishes classifications of property which permit an assessment at a different percentage of full cash value, courts have no alternative other than to prohibit officials from assessing appellant's properties at a different percentage of full cash value from other properties.
We now address ourselves to the most difficult aspect of the litigation. Appellant seeks to recover from the state and appellee counties 77 per cent of the first half of its taxes paid in 1959. Our conclusion that
There is a suggestion from appellees' brief that the State Tax Commission has the power to classify appellant's properties so that it bears a greater share of the tax burden than other properties generally throughout the state. Appellees quote to us from the language of the Supreme Court of the United States:
While the legislature of this state in the case of railroads has not taxed its property at a higher rate than others the State Tax Commission has been expressly authorized to classify property for the purposes of taxation. "The commission shall have full power to classify all property * * *." A.R.S. § 42-122. But we do not think that the Commission under this statute may carve out a special classification which repeals specific enactments contrary to the express uniform scheme of the legislature.
Under the Constitution the legislative authority of the state can only be exercised by the legislature, Art. 4, Pt. 1, Sec. 1, Constitution of Arizona, and this power can neither be relinquished nor delegated, Loftus v. Russell, 69 Ariz. 245, 212 P.2d 91; Hernandez v. Frohmiller, 68 Ariz. 242, 204 P.2d 854. Although the light of a legitimate grant of power for administrative action is often quite dim, it may safely be said that a statute which gives unlimited regulatory power to a commission, board or agency with no prescribed restraint offends the Constitution as a delegation of legislative power. State v. Marana Plantations, 75 Ariz. 111, 252 P.2d 87. What the legislature cannot do is to delegate to an administrative body or official not only the power to fix a rate of taxation according to a standard but also the power to prescribe the standard. Duhame v. State Tax Commission, 65 Ariz. 268, 179 P.2d 252, 171 A.L.R. 684.
We do not, however, find it necessary to reach the question whether the delegation of power can be sustained constitutionally for in no event can it be construed to give unlimited power to change the uniform method of assessment prescribed by the
Appellant pleads as the basis for the recovery of the excess taxes paid under protest:
Neither the "public notoriety" of the practices pleaded nor that they have continued "for many years" can be doubted. In 1903, nine years prior to statehood, an appeal was perfected to this Court asserting gross inequalities in assessments by reason of similar practices of the Territorial Board of Equalization. County of Cochise v. Copper Queen Consolidated Mining Co., 8 Ariz. 221, 229, 71 P. 946. In a speech before the Constitutional Convention on November 19th, 1910, in opposition to a proposed amendment, later rejected, to Art. 9, Sec. 1, Mr. E.E. Ellinwood, a delegate to the Convention, stated:
The rule at the common law was that taxes voluntarily paid could not be recovered, Maricopa County v. Arizona Citrus Land Co., 55 Ariz. 234, 100 P.2d 587. Overvaluation of property is not a ground of action at law for the excess of taxes paid beyond what should have been upon a just valuation, Stanley v. Supervisors of Albany, 121 U.S. 535, 7 S.Ct. 1234, 30 L.Ed. 1000. Public policy discourages suits for the refund of taxes even where illegally collected. State ex rel. S.S. Kresge Co. v. Howard, 357 Mo. 302, 208 S.W.2d 247, and if the taxpayer desires to raise a question as to his taxes he is compelled to scrupulously follow the statutory procedures, Smotkin v. Peterson, 73 Ariz. 1, 236 P.2d 743, for the refund of taxes paid is by virtue of governmental grace rather than by reason of any legal right which the taxpayer has to such a refund. State v. Airesearch Manufacturing Co., 68 Ariz. 342, 206 P.2d 562.
We take judicial notice that the taxing subdivisions of the state have long predicated their fiscal affairs upon the practices alleged in appellant's complaint. For example, school districts have been organized and have issued bonds for capital improvements pursuant to the authority granted by the Constitution, Art. 9, Section 8, in anticipation of continued revenues derived from the taxation practices now complained of. The refund which appellant seeks together with other similar claims threatens the financial solvency of many taxing units of the state, particularly those in rural and undeveloped areas.
Appellees urge upon us that where a statute is ambiguous we will not disturb long established administrative interpretation and the acts of public officials predicated thereon, Long v. Dick, 87 Ariz. 24, 347 P.2d 581, 80 A.L.R.2d 949; Maricopa County v. Trustees Ariz. Lodge, 52 Ariz. 329, 80 P.2d 955. We do not find here an ambiguity and cannot countenance the wilful, systematic and intentional violation of the law no matter how long continued. To do otherwise would be to deny the equal protection of the law to appellant. We can, however, make our decisions prospective in application where great hardship will result if caused from long continued failure to exert a legal right.
Appellant pleads, in effect, that during the period of the many years the assessors continued the stated practice, it has repeatedly objected and protested; yet, its protests
The principle that the decision will be made prospective only is not unknown. Where judicial interpretations of taxing acts have been overruled resulting in hardship, we have not hesitated to direct the decision to the future only. Arizona State Tax Commission v. Ensign, 75 Ariz. 376, 257 P.2d 392; Duhame v. State Tax Commission, 65 Ariz. 268, 179 P.2d 252, 171 A.L.R. 684; O'Malley v. Sims, 51 Ariz. 155, 75 P.2d 50, 115 A.L.R. 634. We hold that administrative interpretations are subject to the same rule where neglect results in great economic hardship.
The order of the trial court dismissing plaintiff's first claim for relief is affirmed. It is reversed as to appellant's second claim for relief. If appellant establishes the facts alleged in its second claim, the court below is directed to enter an injunction compelling action in compliance with this decision and from and after the taxable year in which the superior court enters injunctive relief appellant may pursue the statutory remedies for recovery of taxes occasioned by any further misapplication of the law to the assessment of its property.
BERNSTEIN, C.J., UDALL, V.C.J., and JENNINGS and LOCKWOOD, JJ., concur.