large towns, is not disputed. . . . Cities may also be authorized to construct gasworks in order to furnish their citizens with light as well as to supply the corporate needs.

The principle laid down by the cases above referred to and others, is stated in 10 American and English Encyclopaedia of Law, p. 865, as follows: "It is generally agreed that the legislature has the power to authorize a municipality to own and operate an electric-light plant which shall furnish not only the lights needed by the municipality for lighting the streets and public places, but lights to the inhabitants for their private purposes." 1

1

1 See also the cases of Mitchell vs. City of Negaunee, 113 Mich., 359; Linn vs. Borough of Chambersburg, 160 Pa., 511; Levis vs. City of Newton, 75 Fed., 884; Norwich Gas and Electric Co. vs. Norwich, 76 Conn., 565.

CHAPTER VI

EXEMPTION FROM TAXATION OF MUNICIPAL PROPERTY

USED FOR SUPPLYING PUBLIC UTILITIES

THE facility with which a municipal corporation may increase its sphere of activity by assuming the operation of public utilities is largely affected by the attitude of the government towards the property devoted to these purposes as expressed in the law with regard to their taxation. For even where taxes are imposed with the single idea of securing revenue, which of course is usually the case, a municipality whose waterworks or other public utilities owned and operated by it are not subject to either federal, state, or local taxation can perform the desired service much more easily than it could were such property subject to taxation. The attitude of the courts with regard to the taxation of municipal property has therefore an important bearing on the subject under consideration.

1

This subject may be treated from the point of view of constitutional power and from that of judicial construction of existing statutes. Since the decision of the United States Supreme Court in the case of South Carolina vs. United States, it must be accepted as the law that the United States government has the power to tax all business undertakings of municipal corporations. In this case it was held that the state dispensaries for the sale of liquor were subject to the tax imposed by the law of Congress taxing the sale of liquor.

52

1 199 U. S., 437.

[52

There is also no doubt as to the power of the states under the ordinary state constitutions to tax the property of municipal corporations. But generally such constitutional provisions do not require the taxation of even what is regarded as the private property of municipal corporations. The court of Kentucky however has taken the other view of the constitution of that state.1

When we consider the law as laid down by the courts in the absence of pertinent constitutional provision, we must distinguish between the property of municipal corporations which is used for a distinctly governmental purpose and that which is used in connection with the operation by such corporations of a municipal public utility.

The rule of law is universally accepted by all our courts to the effect that public property and the instrumentalities of government, whether pertaining to the federal, state, or municipal government, which are held for public or governmental purposes, are not, in the absence of a statute to that effect, subject to taxation. Although this immunity from taxation is generally confirmed expressly by constitutional provisions or statutory grants it is based on one of the most fundamental principles of government and good business methods and, in the absence of any express provision, is implied by our courts from the necessity of preventing the functions and activities of government from being interfered with or impeded. This principle is strictly adhered to for the further practical purpose of avoiding the useless and inconsistent formality of permitting the government to tax itself to pay itself money which could only be finally secured by other taxation. It is evident that no benefit could accrue from such a proceeding except to

2

1 Clark vs. Louisville Water Co., 90 Ky., 515.

2 People ex rel. vs. Assessor of City of Brooklyn, 111 N. Y., 505.

the taxing officers whose compensation would simply add so much more to the net amount necessary to be raised for the support of the government.1

While the authorities are uniform in exempting from taxation by implication property held and used by the municipality for public and governmental purposes, all the courts cannot be said to be of the opinion that property of municipal corporations which is used by them in their private business capacity in furnishing such public utilities as gas, water and electric light is entitled to such exemption. In fact as has been said the court of one jurisdiction has held a statute expressly exempting such property from taxation to be unconstitutional.2

It is submitted, however, that, if within the meaning of the constitution, the provision of these utilities is a public purpose and the property so used is devoted to a public trust, for the acquisition of which money may be raised by taxation because the purpose is a public or municipal one, the property so acquired and used should be entitled to exemption from taxation the same as other city property. As a matter of reason if the purpose is such a municipal one that these plants of the city providing public utilities may be acquired and maintained by taxation, it remains public or municipal from the point of view of the law of taxation; and as a practical business principle the taxing of such property which is acquired and maintained wholly at the public expense by taxation, except as some revenue may be derived from its use and operation, is simply taxing the property of the city for its own support with the necessary result that nothing of any net value to the city is acquired to offset the expense of such taxation.

1 Cooley, Taxation, p. 263.

2 Clark vs. Louisville Water Co., 90 Ky., 515.

Nor should the fact that revenue may be derived from the operation of such plants by the city change the principle of their exemption from taxation, for in no sense can that fact alter the nature of the use to which such property is put nor the purpose accomplished by such use. And this is the test of its being a proper subject of support by taxation and of exemption from taxation. That revenue may be realized from such plants, tending to make them self-supporting, is no reason for subjecting them to the payment by taxation for their own support and that of the government to which they belong. This incidental matter of revenue does not change the nature of the use or purpose of such property from a public governmental one to one that is private and conducted for the sole purpose of pecuniary profit and so liable to taxation, as is contended in some of the cases to which reference will be made.

That public property yielding revenue is not a proper subject for taxation on that account is well illustrated in the case of People ex rel. vs. Assessor of City of Brooklyn,' where the court passed upon the matter of the right of the defendant city to tax property within its limits belonging to the city of New York and used by such city for a landingplace for its ferry which was being operated between the two cities. The reasoning of the court in refusing such right of taxation follows: "We think the landing-place was not taxable, upon the principle that property used for public purposes, is not a taxable subject, within the purview of the tax laws, unless specially included. . . . There would be manifest incongruity in subjecting to taxation for public purposes property dedicated to or acquired under legislative authority for public and governmental use. The fact that the city of New York operates the ferry

1 III N. Y., 505.