Chicago, B. & Q. R. Co. v. State Tax Commission
| Decision Date | 09 September 1968 |
| Docket Number | No. 53500,No. 1,53500,1 |
| Citation | 436 S.W.2d 650 |
| Parties | CHICAGO, BURLINGTON & QUINCY RAILROAD COMPANY, a Corporation, Appellant, v. STATE TAX COMMISSION of Missouri, Hunter Phillips, Chairman, Carl E. Davis and J. Ralph Hutchison, Members, J. R. Towson, Secretary of the State Tax Commission, Respondents |
| Court | Missouri Supreme Court |
Richard T. Cubbage, Chicago, Ill., John C. Street, Denver, Colo., Forrest P. Carson, Jefferson City, Clyde J. Linde, Kansas City, for appellant, Linde, Thomson, VanDyke, Fairchild & Langworthy, Kansas City, of counsel.
Norman H. Anderson, Atty. Gen., Walter W. Nowotny, Jr., Asst. Atty. Gen., Jefferson City, for respondents.
HIGGINS, Commissioner.
Proceeding under Section 536.100 et seq., V.A.M.S., for judicial review of a final decision of the State Tax Commission of Missouri. The circuit court affirmed the decision, and the railroad's appeal involves construction of the revenue laws of the state.
On June 23, 1966, the State Tax Commission of Missouri assessed the distributable property in Missouri of the Chicago, Burlington & Quincy Railroad Company for 1966 at $33,429,871. C.B. & Q. sought a review of that decision alleging, among other things, that the Commission had denied the railroad a hearing at which to present its theory of assessment. The circuit court remanded the case to the Commission with directions that C.B. & Q. be granted a hearing.
C.B. & Q. filed Commission Form No. 1, 'Statement of Taxable Property owned by the C.B. & Q. Railroad Company on the first day of January, 1966, required to be made to the State Tax Commission, as provided in Section 151.020, R.S.M.o., 1959.' Section 151.020, V.A.M.S., requires the statement to be made under oath and to contain 'in detail the total length of * * * road * * * including branch or leased roads, the entire length in this state, and the length of double or sidetracks, with depots, water tanks and turntables, the length of such road, double or sidetracks, in each county (and other specified tax districts) * * *; the total number of engines and cars of every kind and description * * * and all other moveable property owned, used or leased * * *, and the actual cash value thereof.'
At the hearing C.B. & Q. presented its theory of assessment of the property returned on Form No. 1 through witnesses Broley E. Travis, a consulting valuation engineer and former valuation engineer in the Valuation Department of the Public Utilities Commission of the State of California, and James P. Reedy, general tax agent for C.B. & Q. Their testimony and the railroad's theory are summarized in this reproduction of C.B. & Q. Exhibit T:
CHICAGO, BURLINGTON & QUINCY RAILROAD COMPANY
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1966 Missouri Tax Value Based on Use of Three Factor Formula
(I) Capitalized Earnings, (II) Market Value of Stock & Debt
and (III) Depreciated Investment in Road and Equipment
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System Missouri*
-------- ---------
(000) (000) (000)
I Net Railway Operating Income
as reported to I.C.C. $ 22,553
(5-year average--1961-1965)
Capitalized at 7% $322,186 $ 48,392
II Stock & Debt Value
(5-year average--1961-1965)
Stock at Market Value ($152.61) $260,718
Mtge. & Equipment Trust Debt 223,372
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Total $484,090
Less Value of Non-Oper. Prop. 141,484 $342,606 $ 51,459
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III. Depreciated Investment in Transportation
Property 12/31/65: $714,821 $107,366
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Total I,II and III $207,217
IV Average Above 3 Factors $ 69,072
V Full Value Equalized at 30% $20,722
* Allocation to Missouri is on Road Miles Operated Basis--15.02%
Mr. Travis and Mr. Reedy were of the opinion that the theory presented by Exhibit T was the best method of valuing a railroad for tax purposes, and Mr. Reedy stated the request for a hearing before the Commission was to show the Commission indicators of value other than those employed by the Commission; however, Mr. John Street, of counsel for C.B. & Q. at the hearing, stated that the railroad did 'not contend that you (members of the Commission) are required to use it.'
C.B. & Q. also presented J. Edward Connell, former supervisor of ad valorem taxes with the State Tax Commission of Missouri to establish the equalization factor of 30 percent.
The Commission's assessment of the property returned on Form No. 1 rejected the method suggested by C.B. & Q. and the method used was explained through the testimony of Carl A. Norfleet, supervisor of taxes for the Commission. He made the Commission's computations and stated that in assessing railroads and utilities market value is rarely known because there were rarely any sales of railroads between a willing buyer and a willing seller. Therefore, any assessment is an estimate under any method and no valuation will be scientifically exact. The Commission employs a method to meet requirements that an assessment be reasonable and nondiscriminatory.
As with all railroads operating in Missouri, he (and the Commission) used a method under which a value per mile was placed upon each type of C.B. & Q. track reported by C.B. & Q. in Missouri; a value per acre was placed upon the number of acres of C.B. & Q. right of way reported to be in Missouri; a value was placed upon the C.B. & Q. buildings and other fixed propery reported by C.B. & Q. in Missouri; a value was placed upon the rolling stock of C.B. & Q., Missouri's portion being ascertained by calculating the ratio (15.02%) between the number of miles of first main line and branch line track used by C.B. & Q. in Missouri and these items in the entire system. The aggregate value thus determined was reduced by an economic obsolescence factor. The acreage value, $60 per acre, was the same as employed in 1964 and 1965 assessments. The railroad's report of buildings and other fixed property was returned by C.B. & Q. at $384,859. This was adjusted to $399,913 and 'trended upward' by the Commission by a factor of 226.566, resulting in a value of $906,067. The factor is used to bring reported values up to current reproduction cost and to offset low values reported in Form No. 1. 1
Main line value was first set at $22,625 per mile but reduced to $20,000 per mile at the request of Mr. Reedy. Valuation of other types of track was made using values per mile employed in previous years.
Rolling stock reported by C.B. & Q., according to units, type, age, and original cost, was depreciated 5% per year until a base of 25% of original cost was reached, not to be reduced further so long as the unit remains in service. The depreciated cost was then equalized by a factor of 47%, i.e., 47% of 25% of original cost after 15 years, an ultimate valuation of 11.75% of original cost of such units.
The depreciated original cost of C.B. & Q. rolling stock, including leased rolling stock, was found at $205,649,935, and equalized at 47%, resulting in an equalized value of $96,665,469 for taxation on rolling stock. Application of the 15.021% ratio factor resulted in Missouri's allocated portion of rolling stock at $14,518,618 to which was added $8,337 for leased cars, an ultimate value of $14,526,955. Addition of $19,350,233, value of roadbed, fixed property, $906,067, rolling stock, $14,526,955, less economic obsolescence, $1,353,384, resulted in an aggregate assessment of all distributable property of C.B. & Q. for 1966 of $33,429,875.
The economic obsolescence factor was calculated from a consideration of the railroad's total investment in transportation property compared to net railway operating income for 1965, as reported by C.B. & Q. on Form No. 1 in 1966. This calculation found net operating income at $20,423,802, subtracted the resulting percentage, 1.99%, from a desired income yield of 10%, which developed a factor of 8.01% for economic obsolescence. Mr. Norfleet stated that employment of the 47% equalization factor reduced the value of rolling stock to the level of 30% of value which the Commission tries to achieve in assessments. He stated also that the formula used for the entire assessment brought C.B. & Q., and railroad property generally, to the desired 30% level of value. Also in the opinion of Mr. Norfleet the assessment theory of C.B. & Q., based on stock and debt, should be rejected because C.B. & Q. is closely held by two other railroads and because only some 2,000 of 1,708,391 shares of stock had been traded in the previous year and these were not open market transactions.
In addition to the $33,429,871 total assessment first calculated by the Commission from Form No. 1 as filed by C.B. & Q., the Commission developed unreported properties and additional values at the hearing. Through testimony of L. Glenn Key, general land agent for C.B. & Q the Commission adduced evidence that C.B. & Q. had, in recent years, sold certain tracts of locally assessed real estate which it owned adjacent to its right of way in North Kansas City and in St. Louis, Missouri; that these tracts had sold for an average price in excess of $10,000 per acre and that, through use of these sales as comparisons, 224.47 acres of right...
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