Atchison, Topeka and Santa Fe Ry. Co. v. Lennen

• Decision Date: 15 April 1982
• Docket Number: No. 80-4172,80-4181 and 80-1690.,80-4173,80-4176,80-4172
• Citation: 552 F. Supp. 1031
• Parties: The ATCHISON, TOPEKA AND SANTA FE RAILWAY CO., et al., Plaintiffs, v. Michael LENNEN, et al., Defendants.
• Court: U.S. District Court — District of Kansas

552 F. Supp. 1031

The ATCHISON, TOPEKA AND SANTA FE RAILWAY CO., et al., Plaintiffs, v. Michael LENNEN, et al., Defendants.

Nos. 80-4172, 80-4173, 80-4176, 80-4181 and 80-1690.

United States District Court, D. Kansas.

April 15, 1982.

COPYRIGHT MATERIAL OMITTED

Laurence E. Garrett, J.B. Reeves, Topeka, Kan., for plaintiff in No. 80-4172.

Jim Marquez, U.S. Atty., Topeka, Kan., for plaintiffs in Nos. 80-4172, 80-4173 and 80-4181.

Carol B. Bonebrake and John P. Quinlan, Dept. of Revenue, Topeka, Kan., Regan & McGannon, Wichita, Kan., for defendants in all cases.

Chester A. Arterburn, Jr., Sabatini, Waggener, Vincent & Arterburn, Topeka, Kan., for plaintiffs in No. 80-4173.

Mark L. Bennett, Jr., Davis & Bennett, Topeka, Kan., for plaintiffs in Nos. 80-4176 and 80-4181.

Alan F. Alderson, Steven C. Montgomery, Clarence J. Malone, Dept. of Revenue, Topeka, Kan., for defendants in No. 80-4176.

Robert C. Foulston, Stanley G. Andeel, Foulston, Siefkin, Powers & Eberhardt, Wichita, Kan., for plaintiffs in No. 80-1690.

Patrick J. Regan, James J. McGannon, Regan & McGannon, Wichita, Kan., for defendants in No. 80-1690.

Wm. D. Rustin, County Counselor, Paul M. Buchanan, Asst. County Counselor, Wichita, Kan., Lloyd R. Graham, Asst. Geary County Atty., Junction City, Kan., Robert J. O'Connor, Jeff A. Roth, Wichita, Kan., Bert R. Hopper, Seward County Counselor, Smith, Greenleaf & Brooks, Liberal, Kan., Douglas L. Baker, Pittsburg, Kan., Robert J. Frederick, Kearny County Atty., Lakin, Kan., Tom R. Smith, Liberal, Kan., Gale & Gale, Robert H. Gale, Jr., Syracuse, Kan., Douglas S. Brunson, Kiowa County Atty., Greensburg, Kan., Grant M. Glenn, Donald J. Horttor, Cosgrove, Webb & Oman, Topeka, Kan., Gordon A. Harness, Comanche County Atty., Coldwater, Kan., Thomas L. Wilson, Woodson County Atty., Yates Center, Kan., B.A. Lightfoot, Hodgeman County Atty., Jetmore, Kan., Hathaway & Kimball, Ulysses, Kan., John L. Weingart, Asst. Brown County Atty., Hiawatha, Kan., Wm. Rex Lorson, Saline County Atty., Salina, Kan., John R. Martin, Topeka, Kan., for county defendants.

MEMORANDUM AND ORDER

ROGERS, District Judge.

INTRODUCTION

This is an action brought by eleven interstate railroad companies¹ alleging that the State of Kansas² discriminated against rail transportation property in 1980 in the assessing and collecting of property taxes in violation of Section 306 of the Railroad Revitalization and Regulatory Reform Act of 1976 (the 4-R Act), now codified at 49 U.S.C. § 11503.³ Section 306 prohibits discriminatory state taxation of railroads and provides that railroad property may not be assessed at a higher ratio of assessed value to true market value than the ratio of assessed value to true market value at which commercial and industrial property within the state is assessed. The railroads allege that commercial and industrial property in Kansas in 1980 was assessed at 12.1 percent of true market value while their property was assessed at 30 percent of true market value. Accordingly, they seek an order prohibiting the defendants from assessing or taking any action to collect 1980 taxes based on assessments that exceed those permissible under law. This action was tried to the court beginning on February 1, 1982. The parties have since filed extensive briefs containing suggested findings of fact and conclusions of law and the court is now prepared to rule.

This is one in a series of cases filed across the country by various railroads seeking relief under Section 306 of the 4-R Act.⁴ However, unlike prior cases, this action focused upon a number of issues which had not previously been considered.⁵ Thus, this litigation was much lengthier and most probably more expensive than previous similar actions.

In our order of July 7, 1981, 531 F.Supp. 220, we detailed the complicated and extended procedural history of this litigation. The court, therefore, finds it unnecessary to review that background except to note the current status of this action. The court has previously granted the plaintiffs' motions for preliminary injunctions. In those orders, we enjoined the State defendants and their agents from collecting 60% of each half of each railroad's 1980 taxes.⁶ This money was paid into the court pending final resolution of this action. The remaining 40% of the taxes was paid to the counties.

This court has discussed and determined many of the issues raised by the parties herein during the course of this litigation.⁷ The court will attempt to refrain from discussing issues which have been previously considered. However, in order to provide some background, the court will again discuss the ad valorem taxation system in Kansas and the legislative history of Section 306.

KANSAS AD VALOREM TAX SYSTEM

The Constitution of the State of Kansas provides for a "uniform and equal rate of assessment and taxation." Article 11, § 1. All real and personal property situated in Kansas is subject to ad valorem taxation, unless expressly exempted by statute. K.S.A. 79-101. All property subject to taxation is to be assessed at thirty percent of its fair market value. K.S.A. 79-1439.

In Kansas, railroad property is valued annually pursuant to the unitary approach. K.S.A. 79-5a04. Under this approach, a railroad is valued as a "going concern." The Director of Property Valuation is required to determine the unit valuation of the entire railroad company for each railroad running through Kansas by examining the following factors: (1) original cost; (2) original cost less depreciation; (3) market value of all outstanding capital stock and debt; (4) utility operating income; and (5) any other available information or evidence. After a weighing process involving these factors, the Director arrives at a value for each of the railroads. The Director then makes a determination of the value of each railroad to be allocated to the State of Kansas based upon such factors as track miles and tonnage miles. Prior to the time the Director arrives at the final valuation figure, each railroad has an opportunity to appear before the Director and be heard on the issue. K.S.A. 79-5a05. The value that is finally arrived at is then distributed among the counties where rail transportation property is located. Thus, the value of each railroad is determined by an examination of it as an entire system rather than by a determination of the summary of each piece of property it owns within the state. The entire valuation procedure is performed at the state level and the counties are not involved in any part of the process.

Valuation of other property in Kansas, excluding utilities, is performed at the local level, by the county appraisers, under the guidance of the Director of Property Valuation. K.S.A. 79-1404. Personal property is valued annually in each county. Each year, the Department of Revenue provides the local county appraisers with a multitude of manuals to aid them in the valuation of personal property. Almost all personal property in Kansas is assessed through the use of guides provided by the state. County appraisers are required to follow the guides as long as they provide fair market value for the particular item of personal property. If a guide does not provide fair market value on a given piece of property, the county appraiser is allowed to deviate from the guide in order to achieve the proper value. Thus, each year personal property in each county in Kansas is reassessed in an effort to tax at thirty percent of the fair market value of the property.

Real property, on the other hand, has not been reappraised in Kansas for a number of years. Reappraisal of real property was last ordered in 1963. The reappraisal was carried out over an eight year span with the last county finishing the reappraisal process in 1971. Presently, Kansas law prohibits a county from conducting a mass reappraisal. K.S.A. 79-1451. Thus, real property in each county is now carried on the tax rolls at the "fair market values" determined at the time of the last reappraisal.

LEGISLATIVE BACKGROUND OF SECTION 306

The legislative background on Section 306 is a lengthy one. For many years, railroads have contended that they were being subjected to gross discrimination by the states in the area of ad valorem taxation. In 1961, the Report of the Senate Committee on Interstate and Foreign Commerce on National Transportation Policy, S.Rep. No. 445, 87th Cong., 1st Sess. (hereinafter referred to as the "Doyle Report"), confirmed that state and local assessment procedures in many states did, in fact, discriminate against railroads. Therein, it is stated:

The Association of American Railroads was requested to submit any pertinent information available on relative tax discrimination in the matter of State and local taxes. A Table was submitted by the Association of American Railroads ... showing the extent of overpayment of railroad ad valorem taxes resulting from the assessment of railroad property at a percent of its value that is higher than the percent which the assessment of other taxpayer property is to the value of such other property. This confirmed the findings of this committee that there is a studied and deliberate practice of assessing railroad property at a proportion of full value substantially higher than other property subject to the same tax rates.

Id. at 458. The Doyle Report recommended passage of federal legislation that would prohibit discriminatory valuation and assessment of railroad property and would provide railroads with a federal remedy against such discrimination.

Following the publication of the Doyle Report, congressional committees considered a series of legislative proposals designed to eliminate discriminatory state taxation of interstate carriers⁸ and held extensive hearings on many of these proposals. Based upon such investigations, congressional committees issued several comprehensive reports in which they concluded that state tax discrimination against...