special franchise upwards of $900,000, a result far in excess of the assessment.

The referee further found that the ratio of assessed value to the actual or full value of the real estate in the borough of Queens in the year 1907 was 89%.

The Appellate Division held in substance, in reversing the order of the Special Terin based upon these conclusions of the referee, as follows: (1) That in determining the net earnings of the relator all taxes should be deducted from the gross earnings, including the amount of the special franchise tax to be assessed; (2) that a reasonable and proper fund to be ascertained upon a further hearing for keeping up and replacing the plant, should also be deducted from the gross earnings; (3) that 6% instead of 5% should be allowed as a proper return on the tangible property and deducted in order to ascertain the net earnings and that this percentage should be calculated on the present value of the tangible property instead of upon its original cost; (4) that the surplus earnings should then be capitalized at 6% and the result would represent the fair value of the intangible rights in the streets which, when added to the value of the tangible property in the streets, would represent the whole value of the special franchise; and (5) that the total value of the special franchise should be reduced by 11% in order to equalize the assessment with the assessed value of other property in the same locality.

The other facts, so far as material, are stated in the opinion.

Edward R. O'Malley, Attorney-General (Edward H. Letchworth and James S. Kiley of counsel), for State Board of Tax Commissioners, appellant. The net earning theory, so called, is not an absolute rule for valuing special franchises, but merely one element among many which the commissioners may consider in exercising their judgment. It, therefore, follows that the valuation made by the commissioners should not be overturned, even if it should be in excess of the result reached by this or any other one theory or rule,

unless it is also proved to be excessive in fact. The commissioners are bound by no rule or theory, but are simply required to exercise their sound judgment and discretion, taking into consideration all the information which they may be able to obtain. (People ex rel. U. V. C. Co. v. Feitner, 54 App. Div. 217; People ex rel. R., W. & O. R. R. Co. v. Hicks, 105 N. Y. 198; People ex rel. E. G. Co. v. Barker, 144 N. Y. 94; C. S. R. Co. v. Common Council, 125 Mich. 673; State R. R. Tax Cases, 92 U. S. 575; People ex rel. K. F. Ins. Co. v. Coleman, 107 N. Y. 541; People ex rel. M. S. Ry. Co. v. Tax Comrs., 174 N. Y. 417; People ex rel. O., etc., R. Co. v. Pond, 13 Abb. [N. C.] 1.) The relator is not entitled to have special franchise assessment equalized with the assessed valuation of real estate in the same county. (Otten v. M. Ry. Co., 150 N. Y. 395, 401; Heerwagen v. C. S. Ry. Co., 179 N. Y. 99; American Guild v. Damon, 186 N. Y. 360; People ex rel. Spaulding v. Supervisors, 170 N. Y. 93; M. Nat. Bank v. Mayor, etc., 172 N. Y. 35; Matter of Corwin, 135 N. Y. 245; People ex rel. R. T. Co. v. Priest, 101 App. Div. 223; People ex rel. B. Ry. Co. v. Priest, 41 Misc. Rep. 548; L. Ry. Co. v. Comm., 20 Ky. L. R. 1509; C. Ry. Co. v. Bd. of Assessors, 48 N. J. L. 1; Wagoner v. Loomis, 37 Ohio, 571.) The form of the order of the Appellate Division should be modified in any event so as to remit the matter to the Special Term instead of to the state board of tax commissioners. (People ex rel. B. Ry. Co. v. Priest, 41 Misc. Rep. 548.)

Francis K. Pendleton, Corporation Counsel (David Rumsey, Curtis A. Peters and Addison B. Scoville of counsel), for City of New York, appellant. The underlying principle, adopted in this case, of determining the value of a special franchise from evidence of earning capacity, is correct. (People ex rel. M. R. Co. v. Barker, 146 N. Y. 304; People ex rel. M. R. Co. v. Barker, 165 N. Y. 305; People ex rel. Powers v. Kalbfleisch, 25 App. Div. 432; 156 N. Y. 678; People ex rel. N. Y. C. II. B. Assn. v. Barker, 31 App.

Div. 315; 158 N. Y. 709; New York v. Barker, 179 U. S. 279; People ex rel. D., L. & W. R. Co. v. Clapp, 152 N. Y. 490; People ex rel. C. Gas Co. v. Wells, 193 N. Y. 614; People ex rel. O., etc., Co. v. Pond, 13 Abb. [N. C.] 1; People ex rel. A. & G. B. Co. v. Weaver, 34 Hun, 321; People ex rel. W. V. R. R. Co. v. Keator, 36 Hun, 592; A. E. Co. v. Ohio, 166 U. S. 220.) The question of the proper rate of capitalization of earnings is a question of fact, governed by no legal presumption, but susceptible of determination only from evidence produced. (Wilcox v. C. G. Co., 212 U. S. 19.) The determination of the referee and Special Term in this case should not have been disturbed. (People ex rel. M. S. Ry. Co. v. Tax Comrs., 174 N. Y. 438.) The relator is not entitled to have the assessment of its special franchise reduced so as to equalize it with the ratio of assessments of real estate other than special franchises in the same tax district. (M. Bank v. Pennsylvania, 167 U. S. 464; B. G. R. R. Co. v. Pennsylvania, 134 U. S. 232; M. C. R. R. Co. v. Powers, 202 U. S. 245; Paddell v. City of New York, 211 U. S. 446; M. Nat. Bank v. Mayor, etc., 172 N. Y. 35; People ex rel. M. S. R. R. Co. v. Tax Comrs., 174 N. Y. 438.)

William W. Webb, Corporation Counsel (B. B. Cunning ham of counsel), for City of Rochester, intervening. The provisions of the Tax Law show clearly that it is not the intention thereof that the valuations of special franchises and real estate should be equalized. (People ex rel. N. Y. C. & H. R. R. R. Co. v. Priest, 169 N. Y. 432; People ex rel. Zollikoffer v. Feitner, 34 Misc. Rep. 299; 63 App. Div. 615; 168 N. Y. 674; People ex rel. Chambers v. Wells, 110 App. Div. 336; People ex rel. Horton v. Ferguson, 120 App. Div. 563; R. T. Co. v. Priest, 181 N. Y. 300; C. R. Co. v. State Board, 48 N. J. L. 1; L. Ry. Co. v. Comm., 20 Ky. L. R. 1509.)

F. II. Van Vechten and Warren Leslie for respondent. A valuation of a special franchise by apportioning net earnings is arbitrary, misleading, and necessarily includes in the

assessment intangible elements contributing to such earnings not constituting a part of the special franchise. (People ex rel. Johnson Co. v. Roberts, 159 N. Y. 50.) The court at Special Term adopted an erroneous basis of valuation. (State of California v. C. P. R. R. Co., 127 U. S. 1; Co. of Santa Clara v. S. P. R. R. Co., 118 U. S. 394.) The right to a reduction of a franchise assessment upon the ground of inequality is statutory. (Heerwagen v. C. S. Ry. Co., 179 N. Y. 105.)

Paul D. Cravath, Walker D. Hines, Joseph P. Cotton, Jr., and Jarvis P. Carter for receivers of Metropolitan Street Railway Company et al., intervening. It is essential to deduct taxes in order to ascertain the net earnings which the plant of a public service corporation will produce. (C. U. T. Co. v. State Board, 114 Fed. Rep. 557; Raymond v. C. T. Co., 207 U. S. 20; Wilcox v. C. G. Co., 212 U. S. 19.) The Appellate Division properly pointed out the necessity for taking into consideration, in addition to current operating expenses, any depreciation allowances that it might be necessary to set aside in order to provide a renewal fund to replace the tangible property of the plant when it shall wear out. (People v. Pond, 13 Abb. [N. C.] 1; S. D. L. & T. Co. v. National City, 174 U. S. 739; Knoxville v. Water Co., 212 U. S. 1; S. V. Water Works v. City of San Francisco, 124 Fed. Rep. 574; M. E. Ry. & L. Co. v. City of Milwaukee, 87 Fed. Rep. 577; Cotting v. K. C. S. Co., 82 Fed. Rep. 839; K. W. District v. Waterville, 97 Me. 185; C. U. T. Co. v. State Board, 114 Fed. Rep. 557; Raymond v. C. U. T. Co., 207 U. S. 20.) The Appellate Division adopted the extreme minimum when it adopted six per cent per annum as an adequate rate of return upon the property, both tangible and intangible, of the relator. (C. U. T. Co. v. State Board, 114 Fed. Rep. 557; Raymond v. C. U. T. Co., 207 U. S. 20; C. G. Ry. Co. v. R. R. Comm., 161 Fed. Rep. 925; People ex rel. O. & L. C. R. R. Co. v. Pond, 13 Abb. [N. C.]1; C. G. Co. v. City of New York, 157 Fed. Rep. 849; Wilcox v. C.

G. Co., 212 U. S. 19; Saratoga Springs v. S. G., etc., Co., 122 App. Div. 203; L., etc., R. R. Co. v. Brown, 123 Fed. Rep. 946; Brymer v. B. W. Co., 179 Penn. St. 231.) The referee erred in allowing a return upon only the original cost, instead of the much greater present value of the relator's land. (Wilcox v. C. G. Co., 212 U. S. 19.)

Henry J. Hemmens for the New York Edison Company, intervening. The rule laid down by the Appellate Division in the case of the Jamaica Water Supply Company, to wit, that the surplus earnings after the deductions for maintenance, operating expenses, taxes, depreciation and the allowance of six per cent upon the value of the real estate in use and upon the value of the tangible property in the street should be capitalized on the basis of six per cent to represent the value of the "intangible rights" in the streets is erroneous. If such rule is meritorious it must apply to every public service corporation, without discrimination and without regard to actual conditions. As the conditions vary such a rule cannot exist. (U. T. Co. v. Coleman, 126 N. Y. 433; W. U. T. Co. v. Poe, 61 Fed. Rep. 449; People ex rel. C. S. Co. v. Dederick, 161 N. Y. 210.) The return allowed on the tangible property outside of the streets should not be limited to six per cent. (Saratoga Springs v. S. G. Co., 122 App. Div. 220; Wilcox v. C. G. Co., 212 U. S. 19.) A public service corporation is entitled, and even under legal necessity, yearly to deduct from its earnings a proper fund for replacement or depreciation after deducting expenses for operation, taxes, maintenance, etc., and before its net earnings are capitalized. (City of Knoxville v. K. W. Co., 212 U. S. 1; R. R. Com. v. C. T. & T. Co., 212 U. S. 414.) The assessments made by the state board of tax commissioners against the public service corporations are made at full value. The assessments made in the city of New York upon the same tax rolls for the same years as the assessments made by the state board of tax commissioners are made at less than full valuation. This inequality should be equalized. (Heerwagen v. C. C. T. Ry. Co., 179 N. Y. 106.)