San Francisco-Oakland Terminal Railways v. Johnson

The first four of the above-entitled actions were consolidated by agreement for the purpose of trial. The fifth of said actions was by stipulation submitted to the trial court on the record established at the trial of the consolidated actions. While a separate transcript in each action has been prepared and filed in this court under the alternative method, the briefs and arguments of counsel have been addressed to the actions as a group.

These actions were instituted to recover taxes levied upon certain gross receipts of the plaintiff: during the years 1921 to 1925, inclusive, and paid under protest. They involve the same grounds of protest, except as to one item of gross receipts which is peculiar to the year 1925, and which will later be given separate consideration. During the later years under discussion the business involved in these actions was operated by the Key System Transit Company, a corporation, and in the earlier years the same business was carried on in the same way by its predecessor, the San Francisco-Oakland Terminal Railways, a corporation, and by a reorganization committee of that company. The change in control, however, had no effect on the management and operation of the business. It will be noted that the Key System Transit Company is the plaintiff in four of these actions, and its predecessor in interest, the San Francisco-Oakland Terminal Railways, is the plaintiff in the other of said actions. For convenience we will refer to these companies as the plaintiff.

Plaintiff, during all of the time covered by the five-cases, was an electric railway company engaged in the transportation of persons between San Francisco and East Bay points in Alameda County. As such it was subject to state taxation under section 14, article XIII of the state Constitution, in an amount levied as of the first Monday in March of each year, based upon the .gross receipts from the operation, during the preceding calendar year, of all property exclusively used by the company in its railway business. A tax was levied annually during each of the years covered by the five suits. In- making each payment the plaintiff complained of the inclusion of certain receipts in the calculation by the state board of equalization of the aggregate gross receipts from plaintiff’s operative property upon

It was plaintiff's contention then, as well as now, that certain property was improperly classified by the state board of equalization as property devoted exclusively to railway use, and that the gross earnings of that certain property should not have been included in the tax base.

The property of plaintiff alleged by it to have been nonoperative in character, or otherwise expressed, not exclusively used by plaintiff in its railway business, is (1) the ferry-boats of the plaintiff plying between the Key Route pier on the east side of San Francisco Bay and the city of San Francisco; (2) the commissary and news-stand in the Ferry Building in San Francisco, at Adeline Street and Alcatraz Avenue in Oakland, and in the Key Route Inn at Oakland, and (3) store space at University and Shattuck Avenues in the city of Berkeley, at Twenty-second and Broadway (the Key Route Inn) in the city of Oakland, and in the Ferry Building, San Francisco.

The question to be submitted in each case is whether the property above enumerated was properly classified by the state board of equalization as operative property.

If the classification made by the board was proper, then the entire tax levied during each of the five years (1922 to 1926, inclusive) was legally payable and plaintiff has no cause of action against the state.

If the board erred in the classification, and all of the property above enumerated was nonoperative property, then it was not taxable by the state, and plaintiff would be entitled to judgment for the recovery of so much of its taxes as were paid under protest.

If the board erred in its classification of less than all of the items of property in dispute, then plaintiff would be entitled to judgment only for so much of the amount sued for as the gross earnings of the improperly classified property contributed to the total tax levied by the state board.

Before passing to the discussion of the real points in controversy, it might be well to further set out in detail a more complete description of plaintiff’s property, the manner of its operation, and the different uses to which it was being put by the plaintiff. As before noted, the plaintiff, during the years mentioned above, has been engaged in the business

Besides these suburban passengers using both the railroad and ferry-boats of the plaintiff, there is a second class of passengers who do not use plaintiff’s trains at all in reaching or departing from the Oakland pier, but who are carried by the San Francisco-Sacramento Railway Company, generally referred to as the “Sacramento Short-Line,” which railroad runs from the Oakland pier to Sacramento and other eastern points. This line is operated entirely by the latter company. By an agreement with the plaintiff the . Sacramento Short-Line operates its trains from Shafter and . Fortieth Streets, in the city of Oakland, to the Oakland •pier, a distance of about seven miles, over the tracks of the ■ plaintiff’s interurban railroad between said two last-named points. • All passengers of this class to and from San Francisco use plaintiff’s ferry-boats, and travel over the tracks

There is a third class of passengers who make use of plaintiff’s boats in traveling to and from Goat Island and San Francisco. Goat Island, or, to speak correctly, Yerba Buena Island, is situated in San Francisco Bay, and is not far distant from the Oakland pier of the Key System Transit Company. These passengers make no use of the rail lines of plaintiff, but in traveling to and from Goat Island are conveyed in boats not operated by plaintiff. No tax has been paid on fares collected from them, but the circumstances surrounding this traffic are of importance, according to plaintiff’s contention, as bearing upon the question as to whether the ferry-boats of the plaintiff are used exclusively for railroad purposes.

There is also a fourth class of passengers using plaintiff’s ferry-boats, referred to in the briefs of counsel as “pier to pier” passengers. These passengers board plaintiff’s boats at the Ferry Building at San Francisco and travel thereon to the Oakland pier and return to San Francisco in the same way on plaintiff’s ferry-boats. The number of these passengers appears to be so insignificant that no special rate was fixed for them, nor was any account kept of the amount received as fares paid by them. No tax has been paid on such fares, and the only importance attached to this evidence by the plaintiff bears upon the contention that the ferryboats were not used exclusively for railroad purposes.

Plaintiff also maintained what it chose to call “commissaries” on its boats and also in its waiting-rooms at the Ferry Building in San Francisco, in the Key Route Inn in Oakland, and at its Alcatraz junction in Oakland, In thq

In addition to the commissary service on its Boats, already described, the plaintiff company at all times prior to May 1, 1925, maintained three news-stands, one at the Ferry Building at San Francisco, another at the Key Route Inn at Oakland, and the third at Adeline Street and Alcatraz Avenue in Oakland. These news-stands were all located in waiting-rooms maintained by the plaintiff, but they were accessible to and were patronized by the general public as well as by patrons of the plaintiff. The entire gross receipts therefrom were treated by the state board of equalization as one of the elements of gross receipts of the plaintiff from the operation of its railroad business, and the taxes levied thereon constitute one of the items involved in these actions. On May 1, 1925, these news-stands were acquired by the Key System Service Company in the same manner that the company acquired the commissaries on plaintiff’s boats, and ever since' that date have been operated by the Key System Service Company.

The only other item over which there is any dispute relates to receipts from rental of space in the Ferry Building at San Francisco to the owners of a candy-store; of space at Twenty-second Street and Broadway (the Key Route Inn) in Oakland for telephone booths, and of a storeroom at University and Shattuek Avenues in Berkeley. In each of these three cases the plaintiff holds the lease of the premises, and the receipts for rent are from tenants occupying the premises under subleases from the plaintiff. Appellant practically concedes that the rentals so received by the

The principal item of dispute involved in these five actions concerns the receipts of plaintiff from its regular passengers using its ferry-boats between the Oakland pier and the Ferry Building in Ban Francisco. As we have seen, plaintiff apportioned these receipts equally between its strictly railroad system and its line of ferry-boats, or as stated above, between its “rail haul” and its “water haul.” It makes no claim but that the one-half of these receipts apportioned to its “rail haul” was properly included by the board of equalization for state taxation purposes, but it vigorously contends that one-half of said receipts apportioned to its “water haul,” or ferry-boat system, was erroneously so included.

It bases this contention upon the fact that its ferry-boats, in addition to being used to carry its own regular passengers, are also used for the purpose of transporting (1) passengers from the Sacramento Short-Line, (2) passengers from Goat. Island, and (3) “pier to pier” passengers who travel only between the Oakland pier and San Francisco and who make no use of any railroad.

We will first consider the use by plaintiff of its ferryboats for the carriage of the passengers of the Sacramento Short-Line. Plaintiff contends that this use of its ferry system renders its ferry-boats nonoperative property and not subject to taxation for state purposes, in that while they are used for hauling its own passengers, they are also used for hauling passengers received from an entirely different and independent company, the Sacramento Short-Line. Hence, plaintiff contends that its ferry-boats are not used exclusively in the operation of its own railroad business as required by section 14 of article XIII of the state Constitution.

We think there is no merit in the contention. While the Sacramento Short-Line did not use the cars of the plaintiff in reaching or leaving Oakland pier, this company did use

While plaintiff has not conceded, it has not seriously questioned, the claim of the appellant that if its ferry-boats were used exclusively in carriage of passengers to and from its own railroad line, such ferry-boats would form a part of its railroad system and would accordingly be subject to taxes for state purposes. While section 14 of article XIII of the Constitution does not mention ferry-boats, it does give to the legislature power to pass all “laws necessary to carry this section into effect.” The legislature, acting upon the authority and power thus conferred, has, among other enactments, passed section 3665b of the Political Code which provides, among other things, that “the term ‘operative’ property as used in any section of this code shall include, in the case of railroad companies, . . . ferry boats, tugs and car floats used exclusively in the operation of railroad business.” Plaintiff has not attacked the constitutionality of this code section, nor advanced any argument, nor cited any authority, to the effect that its enactment was not strictly in accordance with the power conferred upon the legislature by the Constitution. It has confined. its argument almost in its entirety in support Of its claim that plaintiff’s boats were not used exclusively in the operation of its railroad business. In so far as this argument has been directed to the use by plaintiff of its boats for the carriage of the so-called Short-Line passengers, we are of the opinion that it is unsound for the reason, as already stated, that these passengers occupy practically the same status as

We will now pass to the discussion of the use of plaintiff’s ferry-boats by the Goat Island and “pier to pier” passengers. •These passengers admittedly do not use plaintiff’s railroad for the purpose of reaching plaintiff’s ferry-boats or upon leaving them. There is no evidence as to the number of the so-called “pier to pier”- passengers. Evidently no record was kept of this item of plaintiff’s business. The representative of plaintiff when pressed for an answer stated that less than one per cent of the passengers were of this class. This, of • course, proves nothing. There might be no more than a dozen or even only one such passengers a year, and still the above answer would be truthful. We will, therefore, dismiss this class of passengers from further discussion. As to the Goat Island passengers, a record was kept which showed that on an average 50,000 fares annually were sold to this class of passengers during the five-year, period covered by these actions. While this number standing by itself appears large, yet when compared with the total number of passengers carried by plaintiff during the same period of time, it is not so formidable. Leaving out of consideration the Short-Line passengers, which amounted to about 250,000 passengers each year, plaintiff carried an average, during said five-year period, of over ten million regular passengers per annum. The proportion of Goat Island passengers to these regular passengers was less than one-half of one per cent. It, therefore, appears that over ninety-nine- and one-half per cent of the use. to which plaintiff’s ferry-boats were put was in the operation of its railroad business, and less than one-half of one per cent of said use was not strictly of that character.

Under, these circumstances can it be said that plaintiff’s ferry-boats were not used exclusively in the operation of its railroad business 1 In support of an affirmative answer to this question, plaintiff relies on the case of Lake Tahoe Ry. & Transp. Co. v. Roberts, 168 Cal. 551 [Ann. Cas. 1916E, 1196, 143 Pac. 786 ], In that case the plaintiff therein owned a railroad running from the town of Truckee to the town of Tahoe, situated on Lake Tahoe, in this state. At Truckee its railroad connected with the Southern Pacific

We think plaintiff places too great a reliance upon the Lake Tahoe ease in support of its contentions herein. That case must be read in the light of the facts then before the court, and it was never intended by this court in its decision therein to settle all questions which might arise in the future as to the status of property primarily, used as opera-

This court has also held that it will not be governed by any narrow rules of interpretation in construing the above section of the Constitution, but, on the other hand, will give to that section a broad and liberal construction in deciding “questions relating to property which the state claims the exclusive right to tax.” In San Bernardino v. State Board of Equalization, 172 Cal. 76 , this court said, on page 78 of its opinion [ 155 Pac. 458 , 460]: “The words relieving public service and certain other corporations from the local taxation must be given fair and reasonable interpretation ‘without any definite leaning to the side of the taxing power. ’ This court has followed the liberal interpretation given by the Supreme Court of the United States to the federal Workmen’s Compensation Act in classifying instrumentalities which are used in interstate commerce. A similarly broad and reasonable policy should be followed in deciding questions relating to property which the state claims the exclusive right to tax. The prime requisite for property properly classified as ‘operative’ is that it shall be used in the conduct of the business of one of the corporations enumerated in subdivision (a) of section 14 of article XIII of the Constitution. (Lake Tahoe Ry. etc. Co. V. Roberts, 168 Cal. 553 [Ann. Cas. 1916E, 1196, 143 Pac. 786 ].) ” The case of San Bernardino v. State Board of

In the light of these recent decisions, we are of the opinion that it would not conform to the policy therein announced by the court to hold that the exceedingly limited use to which plaintiff’s ferry-boats are put in the carriage of the few Goat Island passengers should determine and fix this class of property as nonoperative property and not subject to taxation for state purposes. We are fully persuaded that it never was the intent of the framers of this constitutional amendment, nor of the people when they adopted it, to enact a law by the terms of which a line of ferry-boats that devoted its entire service to the transportation of its railroad passengers should be classed as operative property and accordingly subject to taxation for state purposes while another system of ferry-boats, devoted to precisely the same use as the first, except that an occasional nonrailroad passenger might travel thereon, would be held to be property taxable exclusively for local purposes. One of the fundamental and basic principles of taxation is that a tax to be valid should be equal in its burdens and uniform in its operation. (County of El Dorado v. Meiss, 100 Cal. 268 [ 34 Pac. 716 ]; San Benito Co. v. Southern Pac. R. R. Co., 77 Cal. 518 [ 19 Pae. 827 ].) The construction which the plaintiff asks us to place upon this section of the Constitution would be in direct conflict with this salutary and just rule.

For the reasons herein expressed the ferry-boats of the plaintiff must be held to be a necessary and constituent part of plaintiff’s railroad system and, therefore, they were correctly classified by the board of equalization as operative property subject to taxation for state purposes.

We are not without precedent' in refusing to give to the term “used exclusively” the narrow interpretation insisted upon by plaintiff. Other courts, when confronted with the problem of determining the meaning of this term, have declared that the term should be reasonably construed, having in mind the object of the provision, and in furtherance of its underlying intent. This is well illustrated in those cases in which tax exemption was sought for property used

In Shaarai Berocho v. Mayor etc. of City of New York, 60 N. Y. Super. Ct. 479 , 18 N..Y. Supp. 792 , the court held that a Jewish synagogue was used exclusively for purposes of public worship, so as to be exempt from taxation, though the janitor with his wife and grandchild had living quarters on the top floor of the synagogue. In so holding the court said: “The object of the statute was to foster incorporated religious societies, and it must be reasonably construed, according to its spirit, in furtherance of the legislative intent. It cannot be frustrated by a technicality so finely drawn as that urged against the plaintiff’s right to exemption. Effect must be given to the principal thing the legislature had in view — the policy that dictated the act. These should not be subordinated to mere incidents required to give it efficacy and life. The former control; the latter follow.”

In First Unitarian Soc. v. Hartford, 66 Conn. 368 [ 34 Atl. 89 ], under a statute exempting from taxation, “buildings exclusively occupied as churches” a building owned by a religious society and regularly used for its religious services was held to be exempt from taxation, although the building was available for hire and was rented for entertainments which consisted of lectures, concerts, mesmeric performances, dramas by amateurs and, at times, political conventions.

' In interpreting these terms in constitutional or statutory provisions by which exemption is granted to property “used exclusively” for educational purposes, the same broad interpretation has been given by the courts as that given under the “religious, purpose” exemption. Thus, in Kansas Wesleyan University of Salina v. Board of Commrs. of Saline County, .. 120 Kan. 496 [ 243 Pac. 1055 ], under a constitutional provision of Kansas which. granted exemption from taxation to property .‘‘used exclusively . . . for . . . educational . . . purposes,” a nine-room home across the street from the campus, occupied by the president of the school and-his family, was declared to be exempt. In State ex rel.

To the same effect was the decision of the Supreme Court of Illinois in the case of People ex rel. Pearsall v. Catholic Bishop of Chicago, 311 Ill. 11 [ 142 N. E. 520 ], In that case it was held that the property of a Catholic seminary preparing young men for the priesthood was exempt from taxation under constitutional and statutory provisions exempting property used exclusively for “school or religious purposes.” It was held to come within the exemption despite the fact that 140 acres of the grounds consisted of a lake which had been dredged and which was used for swimming, boating and skating, that several acres' constituted a baseball diamond and tennis courts, and that 80 acres was intended as a golf course.

The following cases are to the same effect: Dunne v. Rock Island County, 283 Ill. 628 [ 119 N. E. 591 ]; Sisters of Third Order of St. Francis v. Board of Review of Peoria County, 231 Ill. 317 [ 83 N. E. 272 ] ; Board of Commrs. of Tulsa County v. Sisters of the Sorrowful Mother, 141 Okl. 32 [ 283 Pac. 984 ]; Salt Lake Lodge No. 85, B. P. O. F., v. Groesbeck, 40 Utah, 1 [Ann. Cas. 1914C, 940, 120 Pac. 192 ]; Horton v. Colorado Springs Masonic Bldg. Soc., 64 Colo.

We will now pass to the other classes of property which the state board of equalization classified as operative property and which the plaintiff contends was erroneously classified as such. In this class of property are the commissaries maintained and conducted by the plaintiff on its ferry-boats prior to May 1, 1925. Plaintiff has made the same argument regarding these commissaries as it made against the classification of its ferry-boats as operative property; that is, that the commissaries were not used exclusively in its railroad business in that they were patronized by the Sacramento Short-Line, the Goat Island, and the so-called “pier to pier” passengers. What we have already said upon this subject we think is a sufficient answer to plaintiff’s claim regarding these commissaries.

Plaintiff, however, makes the further contention that these receipts from the commissaries on its ferry-boats cannot be taxed for the reason that the tax on gross receipts, as provided by the Constitution, is only applicable to public utilities and that the sale of food, magazines, papers and tobacco is not a public utility business. In support of this contention plaintiff relies upon Story v. Richardson, 186 Cal. 162 [ 18 A. L. R. 750 , 198 Pac. 1057 ]. That case simply holds that the plaintiff, who was the owner of a large business block, which was supplied with electrical energy and steam from a private plant maintained by plaintiff for that purpose, could not be said to be conducting a public utility in the maintenance and operation of said plant by reason of the fact that he sold the surplus electrical energy and steam from his plant to an adjoining building for the use of the tenants therein. We cannot see that that case helps us to any extent in solving the question before us. Plaintiff is unquestionably conducting a public utility. Its ferry-boats we have held to be a necessary and constituent part of its property e used in conducting said public utility. The restaurants and news-stands maintained on said ferry-boats are for the use and convenience of its passengers. The revenue received therefrom is exclusively from passengers using plaintiff’s ferry-boats. This being so, we think it necessarily follows that such receipts were properly classified by the board of equalization as operative receipts.

As stated above, these “commissaries” on the ferryboats and those in plaintiff’s three waiting-rooms, above referred to, were on May 1, 1925, .purchased and thereafter operated by the Key System Service Company, a corporation organized for that purpose. As the stock in this corporation, except that held by qualifying directors, was all issued to the plaintiff in consideration of the transfer by plaintiff of the furniture, equipment and stock, used in operating said commissaries, the receipts from this business after May 1, 1925, were by the board of equalization treated in the same manner as the receipts before said transfer.

The three “commissaries” maintained by the plaintiff in its waiting-rooms — one in the Ferry Building in San Francisco, one at the Key Route Inn in Oakland and one at Adeline Street and Alcatraz Avenue in Oakland, were also classified as operative property. The evidence as to the particular location of these places of business and as to their accessibility by the general public is exceedingly meager, uncertain and unsatisfactory. The same may be said regarding the floor space rented by plaintiff, in its three waiting-rooms maintained in Berkeley, Oakland and San Francisco, respectively. The combined amount involved in these items is small, and it may be for that reason- that no particular effort was made to bring before the court the full evidence upon this branch of these actions. As the judgments in each of these actions must be reversed, it would serve no useful purpose for us to attempt to determine the status of this property upon the meager evidence before us. Upon a retrial, if one is had, the evidence in respect to these two classes of property can be produced in greater detail and sufficiently certain as to enable the court to act intelligently upon the questions presented.

Upon the main branch of the case the trial court found in each of these five actions that the ferry-boats of plaintiff were not used exclusively in the operation of plaintiff’s railroad business, and that none of the receipts from any of the commissaries or news-stands maintained upon plaintiff’s ferry-boats were receipts from property used exclusively, or at all, in the operation of the railroad business of the plaintiff. Upon these findings a judgment was entered in each of said actions in favor of the plaintiff. These findings, in our opinion, are not supported by the evidence.

The judgments therefore are, and each of them is, reversed.

Shenk, J., Richards, J., Seawell, J., Preston, J., Langdon, J., and Waste, G. J., concurred.

Rehearing denied.