Burlington Northern, Inc. v. Department of Revenue
| Citation | 635 P.2d 347,291 Or. 729 |
| Parties | BURLINGTON NORTHERN, INC., Oregon Trunk Railway, and Oregon Electric Railway Company, Appellants, v. DEPARTMENT OF REVENUE, State of Oregon, Respondent. TC 1098, 1181; SC 26684. |
| Decision Date | 20 October 1981 |
| Court | Supreme Court of Oregon |
Roger J. Crosby, Seattle, Wash., argued the cause for appellants. With him on the briefs were Steven L. Wood, Seattle, Wash., and Delbert W. Johnson, Portland.
Alfred B. Thomas, Asst. Atty. Gen., Salem, argued the cause for respondent. With him on the brief was James M. Brown, Atty. Gen., Salem.
Burlington Northern operates a railroad in Oregon along the Columbia River between Portland and Astoria. Oregon Trunk Railway Company, a wholly-owned subsidiary of Burlington Northern, operates a railroad along the Deschutes River from the Columbia River into southern Oregon. Oregon Electric Railway Company, also a wholly-owned subsidiary of Burlington Northern, operates a railroad running through the Willamette Valley from Portland to Eugene. The primary issue before this court is the factual determination of the market value of these railroad operating properties for ad valorem tax purposes.
Burlington Northern, Inc., is a Delaware corporation doing business in the state of Oregon. It operates a multi-state railroad network in Oregon and 16 other states and two provinces of Canada. Oregon Trunk Railway is a Washington Corporation with its principal place of business in Portland, Oregon. It operates as a common carrier by railroad in Washington and Oregon. Oregon Electric Railway Company is an Oregon corporation with its principal place of business in Portland.
In addition, Burlington Northern has substantial nonrailroad operations including a common carrier truck line; an air freight forwarding operation; a substantial natural resource business which includes the sale of timber and the manufacture and sale of other forest products; oil, gas, coal, taconite and other mineral operations; a small telephone company; and the development and management of industrial, agricultural, and commercial lands.
ORS 308.515(1)(a) requires that the Department of Revenue make an annual assessment of all railroad transportation property in the state of Oregon. Defendant did so. The plaintiffs were dissatisfied with the defendant's assessment, and filed proceedings in the Oregon Tax Court to contest the assessment.
This case involves the valuation of the railroad operating properties covering years 1976 and 1977. By appropriate orders, the Department of Revenue had determined the market value of the plaintiffs' properties as follows:
1976 $42,085,201
1977 40,570,036
The plaintiffs filed complaints in the Tax Court alleging that the market value of the assessed properties was substantially less than the assessment of the Department of Revenue. Separate complaints were filed for each tax year, and the cases were consolidated for trial. At the commencement of trial, defendant said that it was abandoning its initial appraisal and would be seeking an increase in assessed valuation. After a lengthy trial before the Tax Court, the Tax Court issued its decision on February 14, 1979. 1 In its opinion, the Tax Court made no determination as to value, but indicated that of the three possible approaches to valuation of a railroad operating unit (Cost, Stock and Debt and Income), "(t)he parties and the court agree that the income approach is the most useful of the three approaches in light of the facts developed by the testimony." 8 OTR at 59. The Tax Court also stated general agreement with the defendant's method of computation of the income to be considered, 8 OTR at 59, while disagreeing with defendant's computations in several specific respects. Therefore, the Tax Court, pursuant to its TC Rule 26, 2 withheld the entry of its decree pending a recomputation by defendant in each of seven areas, following which the case would proceed, pursuant to TC Rule 26. 8 OTR at 75-76. After the defendant submitted its recomputations, a further hearing was held, following which the Tax Court ordered:
"IT IS FURTHER ORDERED that defendant recompute its proposed computations filed in this court on March 21, 1979, by determining the January 1, 1976, and 1977 allocated Oregon values, based solely upon defendant's income approach to value (continuing to comply with the requirements numbered 1, 4, and 7, found on pages 83-85 (8 OTR at 76) of the court's decision of February 14, 1979), together with the distribution of such values in Oregon of the three plaintiffs in this suit, and thereupon to prepare a form of decree to be submitted to the court pursuant to the court's Rule 27."
The defendant filed revised Income approach calculations. Thereafter, the court entered a decree finding the true cash value of the plaintiffs' Oregon properties to be consistent with the defendants' final submission.
As we stated in Bend Millwork v. Dept. of Revenue, 285 Or. 577, 580, 592 P.2d 986 (1979), in appeals from the Tax Court, this court performs two separate appellate functions. One is to try the case "anew upon the record." ORS 305.445 and ORS 19.125(3). In addition, the court sits as an "error correcting" court, in performing ordinary appellate functions of deciding whether the trial court committed an error of law. In this case we are largely involved with the former function, the fact-finding function of trying this case "anew upon the record" in order to determine the "true cash value" of the subject properties.
ORS 308.205 defines "true cash value" as " * * * market value as of the assessment date." The Department of Revenue's Rule OAR 150-308.205-(A)2 provides:
It is permissible for the court (both the Tax Court and this court) to use one, more than one, or all these approaches in determining valuation of property. Pacific Power & Light Co. v. Dept. of Rev., 286 Or. 529, 533, 596 P.2d 912 (1979).
The parties are in general agreement as to several important matters. The plaintiffs and the defendant followed similar procedures in which they first attempted to determine the total market value of the railroad operating properties of Burlington Northern and the two subsidiaries here involved, and then apportion a percentage of the total value to Oregon. The parties made a diligent and generally successful effort to separate the operating railroad properties from the nonrail operating properties. All appraisers were initially close to agreement as to the capitalization rate to be applied under the Income approach. The main issue is whether defendant's Income approach valuation using an "annuity" technique, which was approved and adopted by the Tax Court, is appropriate to the valuation of plaintiffs' ongoing railroad operations.
The plaintiffs mainly relied upon the testimony of two experienced appraisers, John Green and Arlo Woolery. John Green testified that the Income approach was the most reliable approach; that neither Stock and Debt nor Cost were as reliable. His opinion of value of the total operating system was $750,000,000. 3 Mr. Woolery utilized all three approaches and concluded that the value of the total operating system was $760,000,000.
The defendant called an experienced appraiser, Richard Green, who agreed that the Stock and Debt approach was inappropriate. Giving the Cost approach a weighting of 30 percent and the Income approach a weighting of 70 percent, Richard Green concluded that the total market value of the plaintiffs' Oregon operating properties was $59,960,000.
Following the "split decision" of the Tax Court, the defendant submitted revised computations which were further revised at the request of the Tax Court. The decree ultimately entered by the Tax Court determined the value of the Oregon properties to be:
1976 $50,630,000
1977 50,254,000
It is apparent, both from the written opinion of the Tax Court and from comments made by the Tax Court at the final hearing, 4 that the Tax Court believed that the value determination should be made using the Income approach. We are inclined to agree that the Income approach is the more reliable approach to be used in this case, but we disagree that the "annuity" technique applied by the defendant's appraiser is appropriate in this case, and we disagree as to some important assumptions made in the defendants' appraisal.
For reference, we have prepared a table summarizing the opinions of the various expert witnesses and the court's findings relative to the determinations of value.
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