tax. The following are abstracts from the Commissioner's synopsis of decisions:

43. Profits realized on sale of real estate during the year, also increase in value of unsold property, if taken up on the books of the corporation, to be included in income.

62. In the case of lands bought prior to January 1, 1909, and sold during any subsequent year, the profits arising from such sale, if no accounting of increased value of land was made in returns for previous years, should be prorated in accordance with the number of years the land was held by the corporation and the number of years the law was in effect.

86. Where increase or decrease during the year in the value of real estate acquired in previous years, sold or held for sale, is taken up on the books and the rate cannot be accurately determined with respect to individual years, such increase or decrease may be prorated as provided by regulations in cases of sale of capital assets.

96. In case of corporations whose business consists in part or wholly of mining, producing, and disposing of deposits of nature (ores, coals, gas, petroleum, and sundry minerals) the conduct of such business will be understood to comprehend two classes of gains or losses, viz.:

(a) The gain or loss resulting from the sale of capital assets, i. e., either the increment, or the loss, arising through possessing over a period of time the investment in the same.

(b) The trading or commercial gain attached to the conduct of the industry, the employment of working capital, the effort and risk involved.

§ 124. Income method considered.

The reproduction cost of structures and equipment fluctuates with changes in prices of labor and materials. The movement, however, is not one-sided. It is as likely to favor the consumer as the company. Experience has shown, however, that the general trend in city land values is toward appreciation. Under the reproduction

theory the movement is therefore entirely one-sided. It is always to the advantage of the company. If the relations between the consumer and the company are to be based on equity it would seem that, accepting the reproduction method in valuations for rate purposes, some exception should be made in the case of land. The company is entitled to a reasonable return on the property it devotes to a public use: but it is not equitably entitled to a reasonable return plus an additional return brought about by the appreciation of land. Such appreciation is clearly a part of the return that the company is receiving on its property. In treating the annual appreciation as so much income and permitting the company to earn a fair return on the present appreciated value of its property, the New York Public Service Commission has adopted a just and logical method.

§ 125. Actual cost v. present value.

The treatment of appreciation as income in a rate case is a necessary adjustment of the reproduction method to make it conform to fundamental principles of equity. Substantially the same result would be obtained but more directly and logically by making an exception of land and taking original cost instead of present value. As noted above (§§ 81-84) there is good authority for the rule that in applying the reproduction method, cost of reproduction shall be based on actual conditions under which the present plant was produced and not on present conditions. Carry this reasonable process a step further and the actual conditions can be assumed to include the actual conditions as to cost of land. Conceived in this way the reproduction method would still be true to at least one of the theories on which it is based and because of which it has received much of its authoritative support. The reproduction method receives much of its support

from the fact that it is difficult or impossible to determine actual cost owing to the complications arising from improvements, reconstruction, and supersession and the absence or unreliability of construction accounts. Therefore the only satisfactory substitute is an estimate of replacement cost. But these difficulties do not arise in connection with land values. It is not necessary, while adopting the reconstruction method for the determination of structural value, to apply it also to land in spite of the injustice to the consumer thereby produced. If, however, as is often the case, the theory of reproduction cost is based squarely on the investment that would be required at the present time to provide a given service, and this in absolute disregard of past investments, vested interests and equities of every kind, then of course land must be taken at its present value. (See above, §§ 7075, 96.) But if this theory is adopted it will still be just to include the probable income from land appreciation with other income in estimating returns under proposed

rates.

2. COST OF REPRODUCTION OF RAILROAD RIGHT OF WAY § 134. Reproduction cost same as present estimated condemnation cost.

Usually in the general state railroad appraisals the value of land taken for right of way has not been limited by the market value of adjacent land. An allowance has been made for the higher price that the railroad would have to pay on account of damages to land not taken and on account of the fact that in condemning land for railway purposes the railway company is usually required to pay an amount in excess of market value. Certain instructions issued to appraisers by the Wisconsin State Board of Assessment in its valuation of

railroads for tax purposes in 1903 contain the following: 6

The strip of land usually taken for railroad right of way is not generally along or parallel to the boundaries of the land. The proper construction of the road often makes access from the land on one side to the land on the other side more difficult, and such access at more than one crossing is often impossible on account of right of way fences, deep cuts, or high fills. The natural drainage is oftentimes interfered with. Roads and streets may be closed or changed. The noise, smoke, danger, and inconvenience from the operation of railroads may not be distinct subjects of damage, yet in so far as they depreciate the market value of the remainder of the premises they should be considered. These considerations always make the right of way value more, oftentimes much more, than its market value for other purposes.

To determine the value of the land in the present right of way, such lands must be deemed as belonging to the owners of the adjoining lands and to be acquired by negotiations with such owners or under the power of eminent domain, whereby the owners are entitled to just compensation for the land actually taken and for depreciation in the market value of the residue in consequence of the railroad crossing the part taken. In ordinary language, the inquiry will be first, what is the fair average market price per acre for ordinary purposes of the land taken, and second, how much is the depreciation in the saleable value of the residue of the parcel, lot, or tract with the buildings thereon from which the right of way is severed. The sum of the two items, first, the market price of the land taken, and the second item, depreciation in the saleable market value of the residue, will constitute the right of way value.

§ 135. Multiples used in various state appraisals.

In the Michigan railroad appraisal, 1900, it was es

Report Wisconsin Tax Commission, 1907, p. 274.

timated that railways would have to pay from two to two and one-quarter times the market value of adjacent property, and the estimated cost of reproducing the right of way was fixed accordingly. A fixed charge of $3 to $8.50 per acre was also added to cover expense of acquiring abstracts, recording deeds, etc.

In the Wisconsin railroad appraisal the method used has been described by Chief Engineer Taylor as follows: 7

In farming lands, small towns, and suburban and residence property, the right-of-way value was taken to be 250% of the market value for other purposes.

In city property, the right-of-way value was taken to be 133% of the market value for other purposes, where the land was owned in strips of 100 ft. width or less, and 110% of the market value for other purposes, where the land was owned in blocks, or in widths greater than 100 ft.

This is still the general method followed in railroad land appraisals made under authority of the Wisconsin Railroad and Tax Commissions.

The Washington Railroad Commission, in valuing the Northern Pacific Railroad in 1908, states that in order to reproduce the right of way, it would be necessary to pay prices ranging from the actual market value of the land to 500% in excess thereof and that this fact was considered by the Commission in fixing the reproduction cost of railroad land. In the Texas Railroad appraisals very little allowance was made on account of added cost for railway purposes, but Chief Engineer Thompson states

7 Discussion of paper by R. A. Thompson on "Valuation of Railroad Property," published in Transactions American Society of Civil Engineers, Vol. 52, p. 360 (1904).

Finding of fact No. 33, in second and third annual reports, Railroad Commission of Washington, 1907-1908, p. 157.