Atchison, Topeka & Santa Fe Ry. Co. v. State of Ariz.
| Decision Date | 18 March 1983 |
| Docket Number | No. CIV 81-1279 PHX CLH,CIV 81-1298 PHX CLH.,CIV 81-1279 PHX CLH |
| Citation | 559 F. Supp. 1237 |
| Parties | The ATCHISON, TOPEKA & SANTA FE RAILWAY COMPANY, a Delaware corporation, Plaintiff, v. The STATE OF ARIZONA; Arizona Department of Revenue; Counties of Apache, Coconino, Maricopa, Mohave, Navajo, Yavapai and Yuma, Defendants. SOUTHERN PACIFIC TRANSPORTATION COMPANY, a corporation, Plaintiff, v. STATE OF ARIZONA; Arizona Department of Revenue; Counties of Cochise, Gila, Graham, Greenlee, Pima, Pinal, Santa Cruz and Yuma, Defendants. |
| Court | U.S. District Court — District of Arizona |
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A. Philip E. von Ammon, B. Andrew S. Friedman, Phoenix, Ariz., for plaintiffs.
Anthony B. Ching, Sol. Gen., James Winter, Asst. Atty. Gen., Phoenix, Ariz., for defendants.
This case involves two actions by railroad companies seeking relief from allegedly discriminatory tax practices of the State of Arizona (State). In the first action, Atchison, Topeka & Santa Fe Railway Co. (Santa Fe) seeks relief under Section 306 of the Railroad Revitalization and Regulatory Reform Act of 1976 (the 4-R Act), 49 U.S.C. § 11503. In the second action Southern Pacific Transportation Co. (Southern Pacific) seeks relief under the 4-R Act, the 14th Amendment and 42 U.S.C. § 1983, and Section 42-204 of the Arizona Revised Statutes. Cross motions for partial summary judgment have been filed by the parties on the question of whether Arizona's scheme for assessing railroad property, A.R.S. § 42-227, complies with the 4-R Act. The State has also filed a motion to abstain which urges the Court to abstain from considering Santa Fe's claims that Arizona is guilty of (1) de facto discrimination against it in assessing its property, (2) violating 42 U.S.C. § 1983, and (3) Section 42-204 of the Arizona Revised Statutes. Because the legal issues relating to the claims of Santa Fe and Southern Pacific under the 4-R Act are the same, the motions were consolidated for oral argument.
Partial summary judgment will be entered decreeing that A.R.S. § 42-227 does not comply with the 4-R Act, although not to the extent urged by the railroads. The State's motion to abstain from considering the Sections 1983 and 42-204 claims will be granted, but the motion to abstain from considering the 4-R Act claim of de facto discrimination will be denied.
PART I. THE FACTS
Santa Fe and Southern Pacific are railroads that own property in numerous counties of Arizona. Accordingly, they are subject to the State's system of ad valorem property taxation.
For many years the railroads have contended that the State has placed illegally a heavier tax burden on them than on other property owners. In Southern Pacific Co. v. Cochise County, 92 Ariz. 395, 377 P.2d 770 (1963), the Arizona Supreme Court held that the State's property classification system whereby railroad property was assessed at 89% of full cash value rather than the 20% of full cash value applied to all other properties was discriminatory and illegal under the Arizona Constitution. This ruling caused the State to adopt a new property classification system. Four categories were created according to use and the railroads were placed in the category receiving the highest rate of assessment. This assessment system was challenged by Santa Fe in Apache County v. Atchison, Topeka & Santa Fe Railway Co., 106 Ariz. 356, 476 P.2d 657 (1970), appeal dismissed, 401 U.S. 1005, 91 S.Ct. 1257, 28 L.Ed.2d 542 (1971) and was found to be constitutional.
Responding to rulings by state and federal courts similar to that in Apache County, supra, Congress passed the 4-R Act. The purpose of the 4-R Act is to encourage the revitalization of the railroad industry by prohibiting discriminatory property taxation of railroads by the states. State of Arizona v. Atchison, Topeka & Santa Fe Railway Co., 656 F.2d 398, 400 (9th Cir. 1981).
The 4-R Act1 may be summarized as follows: A state or its subdivisions are prohibited from:
49 U.S.C. § 11503(b). The term "commercial and industrial property" as it is used in the Act is defined as "property, other than transportation property and land used primarily for agricultural purposes or timber growing, devoted to a commercial or industrial use and subject to a property tax levy." 49 U.S.C. § 11503(a)(4). The 4-R Act provides the district courts with jurisdiction to prevent violations of the Act, "notwithstanding section 1341 of title 28 the Tax Injunction Act, only if the ratio of assessed value to true market value of rail transportation property exceeds by at least 5 percent, the ratio of assessed value to true market value of other commercial and industrial property in the same assessment jurisdiction." 49 U.S.C. § 11503(c). The preferred method of determining the ratio of assessed value to true market value of commercial and industrial property is use of the "random-sampling method known as a sales assessment ratio study."2 Id.
To comply with the 4-R Act, the State was forced to alter its property tax system. The State first took the position that the 4-R Act prohibited the State from making an assessed valuation of railroad property that was 5% higher than all other commercial and industrial property. This interpretation was rejected in Arizona v. Atchison, Topeka & Santa Fe Railway Co., supra. Instead, the 4-R Act requires that the assessment ratio for railroads not exceed by 5% the average of the assessment ratios for all other commercial and industrial property. Id.
In response to this ruling, the State enacted the present property tax system. Property taxes in Arizona are divided into two types: primary, or the basic property tax, and secondary, or those taxes levied to pay off bonded indebtedness. A.R.S. § 42-201(7), (9). Primary and secondary taxes are exacted in the same manner. The first step is to arrive at a value for the property to be taxed. For secondary tax purposes, this value is the "full cash value" or the market price of the property. A.R.S. §§ 42-201(4), 42-227(A). For primary tax purposes, this value is the "limited property value." The limited property value in primary tax computation was created when the State enacted a ceiling on the amount that any real property can increase in value for assessment purposes in a given year. Ariz. Const., art. IX, § 18. By law the growth limit applies only to real property and is not available to properties within classes one and two discussed below. A.R.S. § 42-201.02(G), (H).
Once the limited property value or the full cash value is determined, an assessed value is calculated according to an assessment percentage. Arizona law divides real and personal property into eight assessment categories. A.R.S. § 42-136. Classes one, two and seven are assessed centrally by the State, and the remaining five classes are assessed locally by each county. The property in each category is assessed at a statutorily-fixed percentage of its full cash or limited property value, whichever is applicable. The statutory assessment scheme can be summarized for the relevant years as follows:
Assessment
Class Property Type Percentage
1 Flight Property, Mines, Standing
Timber 52%
2 Utilities 44%
3 All Commercial and Industrial
Property not in classes 1, 2, 4, 5(b
& c), 6 and 7 25%
4 Agricultural 16%
5 Residential 10%
6 Leased Residential 18%
7 Railroads see formula below
8 Historical 8%
A.R.S. §§ 42-136, 42-227. A uniform rate of tax3 is applied to the assessed value to determine the amount of tax owed.
A.R.S. § 42-227 B.7(i) & (ii).
PART II. THE RAILROADS' CLAIMS
Southern Pacific's claims against the State are in five counts. The first claims that, for the year 1980,...
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