Norfolk & W. Ry. Co. v. Com.

• Decision Date: 08 March 1971
• Citation: 179 S.E.2d 623,211 Va. 692
• Court: Virginia Supreme Court
• Parties: NORFOLK AND WESTERN RAILWAY COMPANY v. COMMONWEALTH of Virginia, et al.

Page 623

179 S.E.2d 623

211 Va. 692

NORFOLK AND WESTERN RAILWAY COMPANY v. COMMONWEALTH of Virginia, et al.

Supreme Court of Appeals of Virginia.

March 8, 1971.

Rehearing Denied April 27, 1971.

John H. Riely, Richmond (H. Merrill Pasco, David R. Goode, Roanoke, Guy K. Tower, Hunton, Williams, Gay, Powell & Gibson, Richmond, on brief), for appellant.

Preston C. Shannon, A. C. Epps, Richmond (Andrew P. Miller, Atty. Gen., Henry M. Massie, Jr., Asst. Atty. Gen., Stuart B. Carter, J. Edward Betts, Carter & Roe, Fincastle, Hullihen W. Moore, Christian, Barton, Parker, Epps & Brent, Richmond, on brief), for appellees.

Before SNEAD, C. J., and I'ANSON, CARRICO, GORDON, HARRISON, COCHRAN and HARMAN, JJ.

HARMAN, Justice.

This is an appeal by the Norfolk and Western Railway Company (N. & W.) from an order entered on November 21, 1969, by the State Corporation Commission (the Commission) denying N. & W.'s application for correction of the assessment for 1968 made by the Commission on certain properties of N. & W. which are subject to taxation by the local taxing authorities of the political subdivisions of the Commonwealth.

The petition for correction sought a reduction in the assessment on two classes of property, namely:

(1) the roadbed and track, exclusive of land, (track properties or track) and

(2) signal, car retarder and interlocker equipment (signal properties).

In its petition before the Commission N. & W. alleged that the Commission had erroneously valued its track properties at $141,851,035 and its signal properties at $11,661,001 when the fair cash value of these properties should have been fixed at $34,368,774 and $2,000,000 respectively.

Real estate and tangible personal property are required to be assessed for taxation at their fair market value under § 169 of the Constitution of Virginia. Section 168 of the Constitution requires such assessments to be uniform on the same class of subjects within the territorial limits of the authority levying the tax. Southern Ry. Co. v. Commonwealth, 211 Va. 210, 214, 176 S.E.2d 578, 580 (1970).

Under § 176 of the Constitution a duty is imposed upon the Commission to annually ascertain and assess the real estate and personal property of each railway company '(except its franchise and the nontaxable shares of stock issued by other corporations)'.

The annual franchise tax upon railroads, based on gross receipts, is imposed by § 177 of the Constitution and the rate at which such tax is computed is fixed by Code § 58-519. Since the franchise tax is based on gross receipts no provision is made for an appraisal or determination of the fair market value of the franchise either by the Constitution or by statute.

Section 177 of the Constitution provides that the annual franchise tax shall be in lieu of all other taxes imposed on the corporation's franchise and all shares of stock issued by it. Code §§ 58-516 and 517 provide that such franchise tax shall be in lieu of a state tax on intangible personal property and money.

As we pointed out in Southern Ry. Co. v. Commonwealth, Supra,

'The 'fair market value standard', as required by the Constitution, has been the subject of countless decisions, editorials and articles. It has had the consideration of the General Assembly, the courts, the State Corporation Commission and numerous study commissions. All recognize that assessment of property is not an exact science. The value of land, buildings and tangible personal property is dependent upon many factors which cannot be prescribed by any general rule. And this court has said that the mandate of Section 169 of the Constitution has been so honored in the breach that no assessors feel called upon to apply it in practice. Washington County National Bank v. Washington Co., 176 Va. 216, 10 S.E.2d 515 (1940).

'The courts, in trying to resolve this problem, while recognizing the general custom of undervaluing property and the difficulty of enforcing the standard of true value, have sought to enforce equality in the burden of taxation by insisting upon uniformity in the mode of assessment and in the rate of taxation. Skyline Swannanoa, Inc. v. Nelson County, 186 Va. 878, 44 S.E.2d 437 (1947); Greene v. Louisville and Interurban R.R. Co., 244 U.S. 499, 37 S.Ct. 673, 61 L.Ed. 1280 (1917). And we have said the practice of the Commission in assessing the properties of public service companies at 40% Of their fair market value does not constitute an abuse of the authority and discretion imposed on it by the Constitution and statutes of Virginia. City of Richmond v. Commonwealth, 188 Va. 600, 50 S.E.2d 654 (1948).' 211 Va. at p. 214, 176 S.E.2d at pp. 580-581.

In 1966 the General Assembly, recognizing the inequities which resulted to public service corporations from the practice of some localities in undervaluing property assessed locally for tax purposes and applying a high tax rate, enacted Code § 58--512.1 designed to equalize, over a twenty-year period, the assessment of the property of public service corporations with the ratios in force in the localities where the properties are located.

Section 156(f) of the Constitution provides that upon appeal the action of the Commission shall be regarded as 'prima facie just, reasonable and correct.'

In addition it is well settled that there is a presumption in favor of the correctness of a tax assessment and the burden is upon the property owner who questions it to show that the value fixed by the assessing authority is excessive. City of Richmond v. Chesterfield Apartment Co., 206 Va. 22, 25, 141 S.E.2d 703, 706 (1965); City of Norfolk v. Snyder, 161 Va. 288, 291, 170 S.E. 721, 722 (1933).

The effect of this presumption is that even if the assessor is unable to come forward with evidence to prove the correctness of the assessment this does not impeach it since the taxpayer has the burden of proving the assessment erroneous. Shaia v. City of Richmond, 207 Va. 885, 897 (fn. 7), 153 S.E.2d 257, 263 (1967).

N. & W., therefore, has the burden of showing that the assessment by the Commission is excessive.

In 1967, at the request of local taxing authorities, the Commission undertook to study and review its valuation and assessment of track properties.

In October, 1967, the railroads were advised that the Commission was undertaking such a study and each railroad was requested to provide the Commission with a statement showing the original cost of its track properties when first placed in service.

N. & W. was unable to furnish this information from its books which are kept and maintained under the system of uniform accounts established and made mandatory under the regulations of the Interstate Commerce Commission.

Under this system of accounting the track properties are carried on the books of the railroad at their cost of construction and betterments. No depreciation is charged to the capital account but replacement of existing components is charged as an expense of operation as these components are replaced. The capital account is added to only where there is a betterment, such as replacement of 100 pound rail with 130 pound rail, and then only the difference in cost is added to the capital account as a betterment.

N. & W. did undertake, with the assistance of an accounting firm, to make an estimate of the original cost of its track properties. This original estimate of cost of $177,800,335 was furnished to the Commission in January, 1968. Later, in evidence before the Commission, the accountants revised this estimate to $187,985,461 and the evidence established that cost of cuts, fills and grading in the construction of the track properties, which amounted to a total of $50,514,301 as of December 31, 1967, was not included in either the original or revised estimate of cost.

Prior to 1968 there had not been a general reappraisal and reassessment of the track properties of railway companies by the Commission since 1926. In 1926 the Commission conducted an extensive study and evaluation of the track properties of each of the railway companies operating in the Commonwealth for each of the classifications of track used by the Commission as the basis of its assessment. As a result of these studies fair cash values or fair market values per mile were established for each of these classifications of track property for each railroad. Thereafter until 1968 the values established by the 1926 studies were the basic values used in computing assessments made by the commission of track properties. The single exception to this procedure appears to be a small downward adjustment in the value of double main line track of each of the railroads which was first effective for the tax year 1933.

The evidence establishes that the Commission, in making its 1968 valuation of track properties of N. & W., depreciated the cost, as originally reported by N. & W., by 20% And arrived at a fair cash value or fair market value of $142,240,268 for N. & W.'s track properties. This procedure resulted in an increase in the fair cash value or fair market value of N. & W.'s track properties from $91,644,710 in 1967 to $142,240,268 in 1968, an increase in fair cash value of approximately 55%. The fair cash value fixed by the Commission...