Ada County v. Red Steer Drive-Ins of Nevada, Inc.

• Decision Date: 03 April 1980
• Docket Number: No. 13075,DRIVE-INS,13075
• Citation: 101 Idaho 94,609 P.2d 161
• Parties: The COUNTY OF ADA, Assessor of Ada County and Treasurer of Ada County, Appellants and Cross-Respondents, v. RED STEEROF NEVADA, INC., Respondent and Cross-Appellant.
• Court: Idaho Supreme Court

Page 161

609 P.2d 161

101 Idaho 94

The COUNTY OF ADA, Assessor of Ada County and Treasurer of Ada County, Appellants and Cross-Respondents, v. RED STEER DRIVE-INS OF NEVADA, INC., Respondent and Cross-Appellant.

No. 13075.

Supreme Court of Idaho.

April 3, 1980.

Jim C. Harris, Ada County Pros. Atty., Boise, for appellants, cross-respondents.

Richard A. Cummings, Cummings, Davis & Isley, McKee & Harwood, Boise, for respondent, cross-appellant.

DONALDSON, Chief Justice.

This is an appeal by Ada County from a decision of the district court which affirmed the holding of the Idaho Board of Tax Appeals. The Board decided that the valuation of improvements on respondent, cross-appellant Red Steer Drive-Ins' property for the tax year 1975 should be reduced by 27%, and that property taxes paid on such improvements should be refunded by that percentage. We affirm the decision of the district court as to its assessment of damages, but reverse and remand on the issue of interest.

Red Steer Drive-Ins of Nevada owns commercial property in Ada County. In 1975 it appealed to the Ada County Board of Equalization for an adjustment on said property, following an appraisal of the improvements on it by the Ada County Assessor's Office. The Board of Equalization informed Red Steer that the assessor's appraisal would be sustained. Red Steer appealed that decision to the Idaho State Board of Tax Appeals, requesting a reversal of the Board's decision and a lowering of the appraisal on the improvements, thereby reducing its taxes. Red Steer claimed that it suffered discrimination as a result of the method of assessment used by the county assessor.

The Board of Tax Appeals found there was discrimination in the valuation methods used by the assessor, in that improvements on residential and farm properties were assessed at 73% of their market value whereas commercial properties, such as Red Steer's, were assessed at 100% of the market value of such improvements. In order to achieve uniformity in tax assessments, the Board of Tax Appeals ordered that the value of commercial property should be readjusted by reducing the valuation of the improvements by 27%. This order was appealed by the county to the district court.

By pre-trial orders the parties agreed that the issues to be determined at the district court trial were:

(1) Whether the Ada County Assessor's valuation of Red Steer's property for the 1975 tax year was impermissibly discriminatory;

(2) If the valuation method was impermissible, whether Red Steer was entitled to damages for the return of all or part of the taxes assessed;

(3) If Red Steer was found to have a remedy available, what the proper measure of recovery should be;

(4) Whether Red Steer was entitled to interest on the taxes paid in excess of the amount found to be due on Red Steer's property.

The parties agreed that issues 1 and 2 would be decided at the first hearing of a bifurcated trial, with issues 3 and 4 reserved for a future hearing. Prior to the first hearing, the parties also stipulated to the fact that the Ada County Assessor's Office had reduced the market value of residential and farm property improvements by 27%, which reduction was not applied to improvements on commercial property. The parties also agreed that the improvements on Red Steer's property were correctly valued at a market value of $93,500.

At the first hearing the district court concluded that the valuation of Red Steer's real property improvements was impermissibly discriminatory and that it was entitled to a return of taxes in 1975 to the extent that they exceeded what would have been assessed had the 27% discount not been applied to the improvements on farm and residential properties. Ada County does not challenge these conclusions on the part of the district court.

The county does, however, challenge the issue of the measure of damages, which was the subject of the second hearing, and it is from this decision of the district court that the county presents its appeal. At the second trial the county presented a theory of damages based on reconstruction of the 1975 tax roll. It sought to eliminate the 27% discriminatory factor by increasing the valuation of improvements on farm and residential properties to 100% of their true market value, similar to the valuation imposed on commercial properties. In effect, this would result in an overall reduction of the mill levy rate, and would result in a refund of $196.33 to Red Steer.

Red Steer objected to this theory of damages, presenting a theory based on the 1977 tax roll as adjusted to reflect a theoretical 1975 tax roll. Red Steer contended that, because the original assessment was intentional and systematic, it was therefore unconstitutionally invalid and the entire amount of tax paid by it $4525.44, should be refunded. Alternatively, it argued that, if required to pay taxes, its improvements should only be assessed at 62% of their market value, contending that, when all exceptions and inequities in valuation were removed from the 1975 tax roll, all non-commercial properties were being assessed at 62% of their market value. Accordingly, it argued that its refund should amount to 38% of the tax paid on the assessment value, or $1720.44.

The district court denied Red Steer's primary prayer that it be exempted entirely from paying any tax, finding that the valuation methods used were discriminatory but were not so systematically applied that they made all taxes collected invalid. Instead, it concluded that the Board of Tax Appeals was correct in all aspects and affirmed the Board's decision, granting a refund in the amount of a reduction on the valuation of Red Steer's improvements by 27%. It also determined that interest on the amount of the tax refund was not recoverable, referring to the case of American Oil Co. v. Neill, 90 Idaho 333, 414 P.2d 206 (1966) in which the Idaho Supreme Court indicated a preference for denial of such interest.

In addition to Red Steer, the decision affected 48 other property owners who had appealed from the Board of Equalization and who, by stipulation, agreed to be bound by the decision of the highest court to which an appeal might be taken. Thus, the outcome of this case will dispose of these other appeals as well.

Ada County appeals the district court's decision, arguing that a reduction on the value of Red Steer's improvements is neither constitutionally mandated nor legally correct. Red Steer cross-appeals, contending that the district court erred in not reducing the assessment value of Red Steer's property to the lowest common assessment value shared by other property owners in Ada County 62% of the market value. It also seeks interest on the excess taxes paid by it, as well as costs, and seeks attorney fees under the theory that, as private attorney general, it represented the public interest by challenging the unconstitutional actions of Ada County.

In determining the correct formula for compensation in an ad valorem tax case we are mindful of several general principles of taxation. The Idaho Constitution has always required that a tax be proportional to the value of the property, Id. Const. art. 7, § 2, and that it be levied uniformly upon the same class of subjects within the taxing district. Id.Const. art. 7, § 5. The requirement of uniformity is violated not only when the tax is levied unevenly within the same class of subjects but also when one class of property is systematically assessed at a higher percentage of actual cash value, subjecting the taxpayer to a higher rate of taxation, than applies to other property within the taxing district. Idaho Telephone Co. v. Baird, 91 Idaho 425, 429, 423 P.2d 337, 341 (1967); Boise Community Hotel, Inc. v. Board of Equalization, 87 Idaho 152, 160, 391 P.2d 840, 844 (1964); Chastain's, Inc. v. State Tax Commission, 72 Idaho 344, 349-50, 241 P.2d 167, 169-70 (1952); Anderson's Red & White Store v. Kootenai County, 70 Idaho 260, 265, 215 P.2d 815, 818 (1950).

Where discrimination has occurred, this Court has held that the aggrieved taxpayer is entitled to relief where the valuation fixed by the assessor is manifestly excessive, fraudulent or oppressive, or arbitrary, capricious and systematically discriminatory. Merris v. Ada County, 100 Idaho 59, ---, 593 P.2d 394, 399 (1979); Appeal of Sears, Roebuck & Co., 74 Idaho 39, 46, 256 P.2d 526, 530 (1953); Anderson's Red & White Store v. Kootenai County, supra at 264, 215 P.2d at 817. Since Ada County does not dispute the finding of discrimination, the central issue turns upon the correct form of relief to be granted to the aggrieved taxpayers.

In Idaho, the formula for recovery of damages in tax assessment cases has traditionally been to reduce the aggrieved taxpayer's assessments to the same level as shared by all other property owners. In Washington County v. First National Bank, 35 Idaho 438, 206 P. 1054 (1922), this Court affirmed the actions of the district court which had enforced the requirement of uniformity of taxation by reducing the taxes on capital stock, which had been assessed at 100% of its full cash value, to 50%, which was the assessment rate at which all other property in the county was being charged. In that case the Court held:

"Where certain property is assessed at a higher valuation than all other property, the court will enforce the requirement of uniformity by a reduction of the taxes on the property assessed at the higher valuation, if it be shown that the difference is the result not of mere error in judgment, but of fraud or of intentional and systematic discrimination." 35 Idaho at 444, 206 P. at 1056.

This rationale was continued in McGoldrick Lumber Co. v. Benewah County, 54 Idaho 704, 35 P.2d 659 (1934), where it was held that if any property in a county had been assessed too high or too low as compared with other assessments, and its assessment was above or below the full cash value, it was required to be...