Chicago & N.W. Ry. Co. v. Gillis
| Decision Date | 14 February 1967 |
| Docket Number | No. 10313,10313 |
| Citation | 148 N.W.2d 581,82 S.D. 470 |
| Parties | CHICAGO AND NORTH WESTERN RAILWAY COMPANY, a corporation, Appellant, v. Bruce D. GILLIS et al., Respondents. |
| Court | South Dakota Supreme Court |
George M. Hollander, Chicago, Ill., M. T. Woods, Sioux Falls, for appellant.
Frank L. Farrar, Atty. Gen., John P. Dewell, Asst. Atty. Gen., Pierre, for respondents.
This appeal involves the 1963 value of a railroad for tax purposes. Pursuant to SDC 57.1305 the Commissioner of Revenue (SDC 1960 Supp. 57.01A05) having the powers of Director of Taxation fixed the true and full value thereof. Appellant railroad appealed to the State Board of Equalization and from its ruling to the Circuit Court of Lincoln County. From a decision of that court affirming the Board, appellant railroad has appealed to this court. The legislative guide for this assessment which has been in effect without change since 1939 appears in SDC 57.1305 which is set out in the margin. 1
Some earlier proceedings involving that section are pertinent here. SDC 57.1306 requires the assessing authority to give notice of the assessment made (value fixed) by it and a time to appear and be heard thereon before the State Board of Equalization. It appears to have been the practice of the Director of Taxation, now the Commissioner of Revenue, to determine such value, which he termed a 'Tentative' value, give notice thereof and the Board to determine a 'Final' value at the hearing. That has resulted in the following:
YEAR TENTATIVE FINAL
------------------------ ----------------------- -----------------------
1955 $ 8,211,334 $ 7,921,547
1956 7,921,547 7,925,469
1957 (1) 12,393,289 7,404,695 (3)
(7,889,411 (1)
1958 (1) 10,137,764 7,494,836
1959 (1) 10,916,924 7,195,041
1960 (1) 11,599,994 6,988,160
1961 (2) 11,947,723 7,281,292
1962 (2) 12,010,546 6,573,984
1963 (2) 9,361,737 5,617,042 (4)
(1) These figures include the Omaha Railroad property (never valued at
over $500,000) commencing in 1957
(2) and include the M&StL property commencing in 1961
(3) C&NWRyCo alone valued at $7,404,695 in 1957
(4) Department of Revenue Data Work Sheets show 60% factor first
expressly applied in 1957 in Exhibit P 26 A
Effective March 18, 1957 the Legislature amended SDC 57.0334 by adding the clause emphasized therein as follows:
* * * ' SDC 1960 Supp. 57.0334.
For the year 1957 when this statute became effective it appears the Director increased the Tentative value about 60% Over that of 1956. Two railroads, the Milwaukee and appellant brought original mandamus actions in this court against Gillis and others to require them to apply the 60% Factor provided in the quoted amendment which Gillis contended did not relate to railroad operating property. This court held it did apply and as to Milwaukee required the Director to apply it and accordingly reduce the taxable value. Chicago M. St. P. & P.R.R. Co. v. Gillis, December 7, 1962, 80 S.D. 50, 118 N.W.2d 313. Under the narrow issues presented in mandamus and the stipulated facts as to the North Western, the court denied the writ because it was not shown (see 1962 figures) the taxable value was in excess of 60% Of true and full value. Chicago & N.W. Ry. Co. v. Gillis, 80 S.D. 57, 118 N.W.2d 316. See also Chicago & N.W. Ry. Co. v. Gillis, 80 S.D. 617, 129 N.W.2d 532 where the court held this action challenging the 1962 assessment was barred by the prior mandamus judgment. The record here now (Exhibit P 27 A) shows the 1962 computations and results reached were:
Tentative Value:
Five year average of stocks and bonds allocated to
S.D. (3.68%) $ 6,300,234 (48%)
Net revenue capitalized at 7% allocated to S.D. 2,247,523 (17%)
------------
These two figures were then added & total $ 8,547,757
This sum was then divided by 2 and is $ 4,273,879
To the figure was added 33 1/3% of the Public
Utilities Commission (P.U.C.) depreciated
cost of $23,210,000 or 7,736,667
------------
Resulting in a Tentative value of $ 12,010,546
* * *
Appellant was notified that on this basis its
equalized taxable assessment was $ 6,594,879
This was in turn arrived at on the basis of the
following formula
50% of stock and bonds and
capitalized revenue above $ 4,273,879
To which was added 10% of P.U.C
depreciated cost or 2,321,000 (35%)
------------
For a total and taxable value of $ 6,594,879
The Board of Equalization deducted from this 20,895
------------
Leaving the equalized taxable value of $ 6,573,984
For 1963 appellant was notified by the Commissioner of a Revised true and full value of $9,410,020 which on appeal and hearing by the Board of Equalization reduced to $9,361,737 with a resultant 60% Taxable value of $5,617,042. This 1963 value was based on a different formula and computation shown by record Exhibit P 26A as:
Railroad System:
Stock and Bonds--5-year average $ 161,756,000 (23%)
Capitalized value of net railway
operating income at 6 1/2% 47,102,500 (6%)
I.C.C. depreciated costs* 507,672,589 (71%)
--------------
Total 716,531,089
Divided by 3 equals 238,819,812
Apply a 3.92% factor of road
in S.D. (not here in dispute) .0392
--------------
$ 9,361,737
60%
--------------
Taxable Value $ 5,617,042
*I.C.C. instead of P.U.C.
The evidence in the trial court was voluminous, including over 75 exhibits with sub-exhibits showing capitalization, earnings, debt, tonnage hauled, traffic density and other data of appellant and of railroads in this state and the United States, appellant's Annual Reports to the South Dakota Department of Revenue of over 200 pages and charts showing its property and affairs, its Report to the Interstate Commerce Commission of similar scope and other books and reports. Any review of the hundreds of pages of evidence or exhibits would extend the opinion to undue length; even a brief mention would omit much. Some facts were stipulated and other testimony by deposition and witnesses at the trial covered a wide field ranging from statistical matters and records, the history and changing economic position of railroads as well as the proper guides for valuing railroad property and the value of appellant's property. Appellant's witnesses were William Krucks, H. Clyde Reeves, Browley Travis and Charles M. Chapman. Generally all were competent, had many years experience and study in the field of accounting and taxation of utilities and railroads, as members or counsellors for state and national tax officials and were nationally recognized authors of texts and experts on the subject. Their qualifications, experience, employment and offices held were set out in separate exhibits of from one to three pages.
Their opinions of the value of the operating property of that part (3.92%) of the North Western system in South Dakota were:
Krucks -- $4,000,000 to $4,100,000
Reeves -- $4,100,000
Travis -- $3,770,000 to $4,000,000
Chapman -- $3,770,000 to $4,000,000
They gave little or no consideration for cost and based their values mainly on the guides expressly named in SDC 57.1305, i.e., the 5-year average of stock and bonds and net operating income. Their opinions reflected a thorough study and knowledge of the company's records, property, equipment and roadbed.
The Board of Equalization [here referred to as Board] witnesses were Douglas Misfeldt and Paul Schmitt, Board employees, defendant Bruce Gillis, Commissioner of Revenue and Sterling Clark, Board Chairman. Schmitt's testimony generally was assessed value and sale prices of property sold by North Western; these were bought and sold as nonoperating property so the evidence was not relevant and is not here considered. 2 The other witnesses testified as to their roles in making calculations, preparing and approving the formulae. North Western's evidence, perhaps more in detail and of wider scope, its contentions and argument generally resemble those made by it in their Nebraska and Illinois litigations and appearing in the opinions hereafter mentioned.
Appellant's first contention the valuation is more than the 'true and full value', these words appearing in statutes relating thereto, SDC 1960 Supp. 57.0334 as to all property and SDC 57.1305, supra, as to railroad operating property. SDC 57.0301 defines...
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