Burlington Northern R. Co. v. Huddleston, 95-1316

• Decision Date: 26 August 1996
• Docket Number: No. 95-1316,95-1316
• Citation: 94 F.3d 1413
• Parties: BURLINGTON NORTHERN RAILROAD COMPANY, Plaintiff-Appellee, v. Mary HUDDLESTON, in her capacity as Property Tax Administrator of the State of Colorado, and Division of Property Taxation of the Department of Local Affairs of the State of Colorado, Defendants-Appellants.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1413

94 F.3d 1413

BURLINGTON NORTHERN RAILROAD COMPANY, Plaintiff-Appellee, v. Mary HUDDLESTON, in her capacity as Property Tax Administrator of the State of Colorado, and Division of Property Taxation of the Department of Local Affairs of the State of Colorado, Defendants-Appellants.

No. 95-1316.

United States Court of Appeals Tenth Circuit.

Aug. 26, 1996.

Rehearing Denied Nov. 8, 1996.

Richard A. Malm of Dickinson, Mackaman, Tyler & Hagan, P.C., Des Moines, Iowa (Walter J. Downing of Knudsen, Berkheimer, Richardson & Endacott, Denver, Colorado, and Stephen D. Goodwin of Baker, Donelson, Bearman & Caldwell, Memphis, Tennessee, with him on the brief), for Plaintiff-Appellee.

Larry A. Williams, First Assistant Attorney General, State Services Section (Gale A. Norton, Attorney General, with him on the brief), Denver, Colorado, for Defendants-Appellants.

Before BALDOCK, LOGAN, and BRISCOE, Circuit Judges.

BALDOCK, Circuit Judge.

Pursuant to its taxing power under Colo. Const. art. X, the Colorado legislature has enacted procedures for the taxation of personal property within the State. Colo.Rev.Stat. §§ 39-1-101 to 39-2-131 (1994). Colorado law generally exempts from taxation the value of intangible personal property including computer software. Id. § 39-3-118. Colorado law, however, does not exempt from taxation the value of intangible personal property owned by public utilities. Id. § 39-22-611. For property tax purposes, Colorado law defines a public utility as any "railroad company, airline company, electric company, rural electric company, telephone company, telegraph company, gas company, gas pipeline carrier company, domestic water company ..., pipeline company, coal slurry pipeline, or private car line company." Id. § 39-4-101(3). Section 306 of the Railroad Revitalization and Regulatory Reform Act of 1976 (4-R Act) proscribes certain forms of state taxation deemed to unreasonably burden rail carriers engaged in interstate commerce. The issue presented is whether the Defendant Colorado Property Tax Administrator's refusal to exempt the value of the Plaintiff Burlington Northern Railroad's computer software from taxation constitutes tax discrimination under § 306 of the 4-R Act. Under the unique procedural posture of this case, we hold that it does. We therefore uphold the district court's judgment permanently enjoining Defendant from assessing an ad valorem tax against the value of Plaintiff's computer software.

I.

Under Colo.Rev.Stat. §§ 39-4-101 & 106 (1994), Defendant annually assesses Plaintiff's rail transportation property for ad valorem tax purposes. Defendant bases the assessment on the value of Plaintiff's rail transportation property located within the State of Colorado. Defendant apportions the assessed value of the property among the State's various counties. The counties thereafter apply a tax levy and collect taxes from Plaintiff.

In 1994, Plaintiff requested a tax exemption based upon the value of its computer software. Defendant denied Plaintiff's request. Plaintiff then instituted this action in the district court seeking declaratory and injunctive relief under § 306(1)(d) of the 4-R Act. ¹

Section 306(1)(d) prohibits a state from levying "another tax that discriminates against a rail carrier" engaged in interstate commerce. According to the complaint, the "imposition of a property tax on the value of [Plaintiff's] intangible computer software, where the computer software of other commercial and industrial taxpayers in Colorado is not taxed, results in discriminatory treatment of a common carrier by rail in violation of Section 306(1)(d)." Plaintiff alleged the value of its computer software located in the State of Colorado was at least $8,000,000, which entitled Plaintiff to a property tax deduction of at least $2,250,000. Defendant did not dispute Plaintiff's factual allegations, and never submitted an answer to the complaint. Rather, Defendant filed a motion to dismiss which disputed only as a matter of law Plaintiff's conclusion that the failure to exempt the value of Plaintiff's computer software from the property tax assessment constituted tax discrimination in violation of the 4-R Act. According to the Defendant, § 306 would not afford Plaintiff relief under any set of facts because in Department of Revenue of Oregon v. ACF Industries, Inc., 510 U.S. 332, 114 S.Ct. 843, 127 L.Ed.2d 165 (1994), the Supreme Court held that the 4-R Act did not apply to tax exemptions. Thereafter, Plaintiff filed a motion for a preliminary injunction seeking to enjoin Defendant from collecting the disputed tax. The parties agreed that the amount of disputed tax totaled $184,767.89. Plaintiff deposited that amount in the district court's registry pending resolution of the case.

Aside from the allegations of the complaint, at no time did either party seek to introduce any factual evidence tending to establish or negate the alleged discriminatory effect of the State of Colorado's intangible property tax exemption. By failing to submit an answer or other pleading denying the factual allegations of Plaintiff's complaint, Defendant admitted those allegations, thus placing no further burden upon Plaintiff to prove its case factually. Fed.R.Civ.P. 8(d) ("Averments in a pleading to which a responsive pleading is required ... are admitted when not denied in the responsive pleading."). Defendant certainly would have been entitled to file an answer upon the district court's denial of the motion to dismiss, Fed.R.Civ.P. 12(a)(4)(A), but chose not to. Instead, the parties' requested the court to decide the case as a matter of law on the record they presented. The court entered an order "permanently" enjoining Defendant from assessing a tax based on the value of Plaintiff's computer software. ² The court reasoned that because Defendant excluded only public utilities as an "isolated and targeted group" from the State's general exemption on intangible property, the tax Defendant imposed upon the value of Plaintiff's computer software was discriminatory in violation of § 306(1)(d). Defendant appealed. Our jurisdiction arises under 28 U.S.C. § 1291. We review questions of law turning on the interpretation and application of a federal statute de novo. Dikeman v. National Educators, Inc., 81 F.3d 949, 951 (10th Cir.1996). We affirm. ³

II.

Prior to 1994, Defendant exempted the value of Plaintiff's computer software from Plaintiff's property tax assessment because Defendant believed § 306(1)(d) of the 4-R Act mandated the exemption. In January 1994, however, the Supreme Court decided Department of Revenue of Oregon v. ACF Industries, Inc., 510 U.S. 332, 114 S.Ct. 843, 127 L.Ed.2d 165 (1994). Since ACF, Defendant has asserted that the State of Colorado lawfully may deny public utilities, including Plaintiff, the general exemption for intangible property.

In ACF, the Supreme Court addressed the issue of whether the State of Oregon violated § 306(1)(d) of the 4-R Act "by imposing an ad valorem tax upon railroad property while exempting various other, but not all, classes of commercial and industrial property." Id. at 335, 114 S.Ct. at 846 (emphasis added). In that case, Oregon imposed an ad valorem tax upon all real and personal property within its jurisdiction, except property granted an express exemption. Various classes of business personal property were exempt, including agricultural machinery and equipment; nonfarm business inventories; livestock; poultry; bees; fur-bearing animals; and agricultural products in the possession of farmers. ACF, 510 U.S. at 335, 114 S.Ct. at 846 . Companies which leased railroad cars to railroads and shippers claimed that the tax constituted "another tax that discriminates against a rail carrier," in violation of § 306(1)(d), because the state exempted certain classes of commercial and industrial property, but taxed railroad cars in full. Id. at 337, 114 S.Ct. at 847.

The Court held that "a State may grant exemptions from a generally applicable ad valorem property tax without subjecting the taxation of railroad property to challenge under the relevant provision of the 4-R Act, § 306(1)(d)...." Id. at 335, 114 S.Ct. at 846. Interpreting the 4-R Act as a whole, the Court concluded that railroads may not challenge property tax exemptions to a generally applicable ad valorem property tax under § 306. Id. at 342-44, 114 S.Ct. at 849-50. That, Defendant claims, should be the end of our inquiry, and necessarily, Plaintiff's challenge to the State of Colorado's intangible property tax exemption for all commercial and industrial taxpayers other than public utilities must fail.

The Court recognized, however, that ACF was "not a case in which the railroads--either alone or as part of some isolated and targeted group--are the only commercial entities subject to an ad valorem tax." Id. at 346, 114 S.Ct. at 851. The Court explained that "[i]f such a case were to arise, it might be incorrect to say that the State 'exempted' the nontaxed property. Rather, one could say that the State had singled out railroad property for discriminatory treatment." Id. at 346, 114 S.Ct. at 852. Relying on this language, Plaintiff claims that the State of Colorado has unlawfully "isolated and targeted" railroads and other public utilities as a group, and subjected them to an intangible personal property tax, from which all other commercial and industrial taxpayers within the State are "exempt."

III.

Given the Supreme Court's qualifying language in ACF that state tax "exemptions" denied to an "isolated and targeted group," might violate § 306(1)(d), we reject Defendant's assertion that no "property tax exemption," regardless of its nature or effect, is subject to challenge under § 306. Otherwise, states could circumvent § 306 simply by enacting a tax of "general application," and then "exempting" from the tax all but a certain class of taxpayers, which, as the Court noted in ACF, is really not an ...