Johnson v. Wells Fargo & Co.

Background

Two express companies (Wells Fargo and American Express) were assessed large taxes by South Dakota’s Board of Assessment and Equalization for 1910 after the Board used company reports, railroad payments, and gross earnings to value their property. The companies said the taxes took property without due process and violated the state constitution’s rule that taxes be uniform and that corporate property be assessed as near as may be by the same methods as individual property. A federal district court dismissed the suits; the federal appeals court reversed and enjoined collection, and the case came to this Court.

Reasoning

The Court examined whether the Board’s practice of valuing the companies mainly by gross earnings and amounts paid to railroads matched the state requirement to assess corporate property like individual property. The record showed the Board in practice used gross receipts as the principal basis for valuation rather than a fair market property valuation. Because the South Dakota constitution then in force required similar methods for individuals and corporations, relying principally on earnings made the assessments invalid. The Court also accepted that the companies alleged fraud or gross mistake in how the assessments were made, which supported equitable relief, and therefore affirmed the appeals court’s judgment.

Real world impact

The decision prevents collection of the challenged 1910 taxes as assessed and limits state power to tax corporations primarily by gross receipts when the constitution requires valuation like individual property. It turns on how the law was administered, so different assessment methods or clearer statutory procedures could lead to different results in the future.