Appeal of Railbox Co.

• Decision Date: 30 November 1989
• Docket Number: No. 17087,17087
• Citation: Appeal of Railbox Co., 788 P.2d 180, 117 Idaho 365 (Idaho 1989)
• Parties: In the Matter of the Appeal of RAILBOX COMPANY, a Delaware Corporation, from the Determination of the State Tax Commission Property Tax Liability for the Tax Year 1982. IDAHO STATE TAX COMMISSION, Appellant/Cross-Respondent, v. RAILBOX COMPANY, a Delaware corporation, Respondent/Cross-Appellant.
• Court: Idaho Supreme Court

Page 180

788 P.2d 180

117 Idaho 365

In the Matter of the Appeal of RAILBOX COMPANY, a Delaware Corporation, from the Determination of the State Tax Commission Property Tax Liability for the Tax Year 1982 IDAHO STATE TAX COMMISSION, Appellant/Cross-Respondent, v. RAILBOX COMPANY, a Delaware corporation, Respondent/Cross-Appellant.

No. 17087.

Supreme Court of Idaho.

Nov. 30, 1989.

ORDER DENYING PETITION FOR REHEARING

The Appellant having filed a PETITION FOR REHEARING on September 18, 1989, and supporting BRIEF on October 16, 1989, of the Court's Opinion entered August 28, 1989, 116 Idaho 909, 782 P.2d 32; therefore, after due consideration,

IT IS HEREBY ORDERED that Appellant's PETITION FOR REHEARING be, and hereby is, DENIED and the dissent on Denial of the Petition for Rehearing by BISTLINE, J., be, and hereby is, RELEASED.

BISTLINE, Justice, dissenting on Denial of Petition for Rehearing.

I.

The Appeal of Railbox Co., 116 Idaho 909, 782 P.2d 32 (1989) majority opinion stated that "the Tax Commission has submitted no authority for the proposition that it may disregard its own regulation." 116 Idaho 909, 910, 782 P.2d 32, 33 (1989) (emphasis added). The answer to that statement is readily provided by the Tax Commission's brief filed in support of its petition which correctly reminds its readers that K Mart Corp. v. Idaho State Tax Com'n, 111 Idaho 719, 727 P.2d 1147 (1986), was relied upon in the first brief which the Tax Commission filed in this Court, as is readily found at pages 11, 26, 27, and 33 of the brief. In particular, it is not only cited, but is specifically quoted in Part IV, 3A, of that brief which part begins at page 24, and is captioned: "THE REGULATION IS NOT SUFFICIENT AUTHORITY TO JUSTIFY THE DISTRICT COURT'S CONCLUSIONS" and continues at page 25-28:

The District Court's valuation rests only on the proposition that the Commission is bound by its regulation to include the Lewis County cars in the 'standing count' factor of the formula. Railbox made no effort at the hearing to show that the Tax Commission's count of cars was wrong as a matter of fact. The District Court made no factual finding that the Tax Commission's count of cars was in error. In fact, the District Court expressly found that the formula 'operates to reduce by almost one-half the number of boxcars allocated to Idaho for the year over the numbers of cars actually within the state during the year.' R. 22.

The fallacy with the District Court's conclusion is that it assumes that the Tax Commission can, by regulation, somehow exempt property from tax or can discriminatorily value property contrary to constitutional and legislative authority. Such a result is clearly beyond the power of the Tax Commission to accomplish, by regulation or otherwise.

As applied by the District Court to Railbox, the regulation would conflict with both constitutional standards and taxing statutes of the state. The conflict is not with the enabling statute, Idaho Code § 63-804, but with the statutory and constitutional requirement for clear legislative grant of an exemption. The drafters of the Idaho Constitution were clear that the legislature, and only the legislature, have the power to exempt property. Simmons v. State Tax Commission, 111 Idaho 343, 723 P.2d 887 (1986). The District Court's Memorandum Decision attempts to finesse this argument by limiting the analysis to conflict between the enabling statute and the regulation. This is an improper analysis. A regulation conflicting with any statute must fall. K Mart Corp. v. Idaho State Tax Commission, 111 Idaho 719, 727 P.2d 1147 (1986), appeal dismissed 480 U.S. 942, 107 S.Ct. 1597, 94 L.Ed.2d 784 (1987). Certainly, a result which violates constitutional requirements can not be justified by reliance on an agency's regulation.

If the results of a regulation do not comply with the statutes or constitution, the Commission is not mandated to follow the regulation. While it is unquestionable that the Commission must follow its regulations, when the results are constitutionally and statutorily valid, the Commission can modify invalid results reached by its otherwise valid regulation.

In Market Street Ry. v. California State Board of Equalization, 137 Cal.App. 2d 87, 290 P.2d 20 (1955), a railway company failed to pay sales taxes to the state of California. In doing so, the company relied upon a specific administrative ruling to the effect that the sales were exempt. After the sales in question were made, the state taxing authority reversed its position and sought to collect the taxes. The company asserted the state was estopped, by reason of its own administrative ruling, from asserting the tax liability. The California Court rejected the taxpayer's contention:

The state board cites many cases from this and other jurisdictions to the effect that an estoppel based on reliance on an erroneous construction of the statute by an administrative ruling will not lie against the government, particularly in a tax matter. As a general proposition, this is sound law. Obviously, a tax administrator should not be permitted by an erroneous ruling to exempt a tax payer from the obligation to pay taxes.

[Market Street Ry. v. California State Board of Equalization,] 290 P.2d at 28.... [The Market Street court also conceded that] 'An administrative regulation which is in conflict with the statute is invalid and the government is not bound thereby.' (Emphasis added.)

The Idaho Supreme Court has quoted this language with apparent approval in Ware v. State Tax Commission, 98 Idaho 477, 483, 567 P.2d 423, 429 (1977). The Court's decision then indicates that ordinary rules of estoppel apply.

The Idaho Court subsequently followed this rationale in K Mart Corporation v. Idaho State Tax Commission, 111 Idaho 719, 727 P.2d 1147 (1986), appeal dismissed 480 U.S. 942, 107 S.Ct. 1597, 94 L.Ed.2d 784 (1987):

If a taxpayer owes tax under a statutory scheme that is constitutional, assessment of the tax pursuant to a regulation that does not comport with the constitution or with the statutory scheme does not defeat the taxpayer's statutory liability. The tax statutes are fully enforceable even if no tax regulation interpreting them exists. Statutes control interpretive regulations. To the extent a regulation is unconstitutional, it is inconsistent with the constitutional statute it purports to interpret and is, therefore, of no effect to the extent of such inconsistency.

In K Mart, the Idaho Supreme Court struck down a regulation which the taxpayer argued was valid. If the court had not voided the regulation, K Mart would have been exempt from taxation.

(Some emphasis in original, emphasis added.)

Also in Part IV, B, the Tax Commission's initial brief thoroughly explained why the Commission cannot constitutionally allow itself to be bound by a regulation, even one promulgated by it, which contravenes statutory and constitutional provisions:

The essence of the District Court's ruling is that the Tax Commission promulgated the formula by regulation, the taxpayer relied on it, so now the Commission is bound by the regulation to accept the value reached by including the Lewis County cars in the formula. However the Commission is not bound to apply the formula in the manner Railbox seeks.

First, regulations like statutes, must be construed to reach constitutional results. Bingham Memorial Hospital v. Idaho Dept. of Health and Welfare, 112 Idaho 1094, 739 P.2d 393 (1987); Higginson v. Westergard, 100 Idaho 687, 604 P.2d 51 (1979).

Second, regulations are intended to express rules of general application. Idaho Code § 67-5201(7). Regulations cannot be expected to fully anticipate every set of facts with which an agency may be confronted.

In 1982, the Idaho Tax Commission assessed the property of 184 railroad car companies like Railbox. See, Thirty-eighth Annual Report of the Idaho State Tax Commission (1982) pp. 77-83. The formula provided by Regulation 804 is intended to be generally applicable to companies with fleets of railcars in ACTIVE service. Railbox's witness at the BTA hearing admitted it is the company's goal to have as many cars running as possible. T. 16. So long as the formula is applied to fleets of railcars in active use, the formula reaches a reasonable result. But the facts of an individual taxpayer's operations may not lend themselves to the assumptions inherent in a formula of general applicability. Long ago, the U.S. Supreme Court, in a similar case, observed:

The problem of apportionment is a difficult one. It is impossible to formulate a rule generally applicable. Controlling conditions vary greatly from time to time. Allocations to be sufficiently accurate for practical purposes must be arrived at by the exercise of sound judgment based on facts that fairly reflect the relation between value of the system as a whole and value of the part within a state. Rowley v. Chicago & N.S. Ry. Co., supra, 293 U.S. 102, 109-110, 55 S.Ct. 55 [58-59], 79 L.Ed. 222. (Emphasis added.)

Great Northern Ry. Co. v. Weeks, 297 U.S. 135, 56 S.Ct. 426, 80 L.Ed. 532 (1936).

In cases relating to property valuation for tax purposes, this Court has recently observed that usual appraisal methods may not be applicable to unusual facts:

We have previously noted that assessments pursuant to an approved method of appraisal may still be arbitrary, and capricious and unreflective of market value in the actual and functional use of the property.

Fairway Development Co. v. Bannock County, Idaho , 750 P.2d 954 (1988). See also, Merris v. Ada County, 100 Idaho 59, 593 P.2d 394 (1979).

Railbox's witness at the BTA hearing admitted that storing more than 300 cars in Idaho was an unusual occurrence. T. 34.

It is the Tax Commission's duty to ensure that all property is assessed uniformly at its full market value. Idaho Code § 63-515 and Idaho State Tax Commission v. Staker, 104 Idaho 734, 663 P.2d 270 (1982). The Commission's...