Chicago & N. W. Ry. Co. v. Hillard, 4013

• Decision Date: 25 October 1972
• Docket Number: No. 4013,4013
• Citation: 502 P.2d 189
• Parties: CHICAGO AND NORTH WESTERN RAILWAY COMPANY, a Wisconsin corporation, Appellant (Appellant below), v. Francis HILLARD et al., Appellees (Appellees below).
• Court: Wyoming Supreme Court

Page 189

502 P.2d 189

CHICAGO AND NORTH WESTERN RAILWAY COMPANY, a Wisconsin corporation, Appellant (Appellant below), v. Francis HILLARD et al., Appellees (Appellees below).

No. 4013.

Supreme Court of Wyoming.

Oct. 25, 1972.

Robert R. Rose, Jr., Casper, for appellant.

Robert J. Oberst, Special Asst. Atty. Gen., Cheyenne, for appellees.

Before McINTYRE, C. J., and PARKER, McEWAN, and GUTHRIE, JJ.

Mr. Justice GUTHRIE delivered the opinion of the court.

This appeal involves the assessment of C. & N. W. Railway property for the tax year 1968. The State Board of Equalization employed Justin H. Haynes & Company, a firm of professional appraisers, to appraise, for determining the true value for tax purposes, all railroads operating in Wyoming for the tax years 1967 and 1968. Insofar as this case is concerned, although it is profusely discussed and an extensive showing was made before the board, no attack has been made upon evaluation for the year 1967. The value of all these railroad properties was determined for the tax year 1968 by applying a flat reduction of 3.9 percent; or stated conversely, placing an evaluation of 96.1 percent of the valuation as determined for the year 1967 to arrive at the valuation for the year 1968. Appellant objects strenuously to the determination of this tax value for this year, contending that the 3.9 percent reduction is discriminatory and unfair. It is admitted by the board that the figure of 3.9 percent is based upon a computation involving the Union Pacific Railroad.

Appellees seek to sustain this action and justify the result by contending that no single approach or formula for the determination of railroad value can be applied to this appellant because of the wide variance in result if any one of the standard approaches were applied to appellant (or for that matter to any other railroad in Wyoming except Union Pacific); ¹ that to avoid this consequence the board determined in 1967 that the best way to arrive at the true value was to first determine the replacement cost-less physical and functional loss-and reduce the same by economic loss as indicated by the stock and debt and capitalized earnings approach. According to appellees, the exact amount of economic loss in each case was the result of exercise of the appraisers' judgment from their examination and consideration of the sharply varying results of the stock and debt and capitalized earnings approaches.

The first step in the 1968 appraisal was the obtaining of reports submitted by the railroads to both the board and their stockholders and other information deemed necessary. This data indicated no significant change in physical property and, hence, no change in replacement costs. The replacement cost, stock and debt, and capitalized earnings approaches to valuation were all again calculated and examined in 1968 for the various railroads. These various approaches to value in 1968 again yielded, as they did in 1967, a similar result for the Union Pacific property and wide variations with regard to all other Wyoming railroads. In the opinion of the appraisers since there had been no significant changes in physical property any difference in value from 1967 to 1968 would consist solely of economic gain or loss to railroad property generally, and they concluded that the economic loss for the one-year period 1967 to 1968 indicated for Union Pacific property was a valid and reliable measure of one-year economic loss of all railroad property in Wyoming. The record indicates that if there was sole reliance upon that formula used to determine the proper reduction for the Union Pacific and it was applied to the C. & N. W. it would have resulted in a reduction in excess of 36 percent. It may well be suggested when we consider the basis of this tax as being ad valorem that in the absence of some substantial change of the physical plant and property this result would be rediculous.

Appellants herein protested the allowance of the 3.9 percent reduction and after hearing on this protest the board found as follows:

'That after investigation and analysis of the factors of stock and debt, capitalized earnings and replacement cost less depreciation (depreciation for physical, functional and economic loss, as established by the appraisal as of January 1, 1967) for all operating railroads in the State of Wyoming, it was determined by Justin H. Haynes & Co. that the best indication of economic change from the January 1, 1967, value, which equally affected all operating railroads, was demonstrated by the computation of stock and debt and capitalized earnings applied to replacement cost less depreciation found in the Union Pacific Railroad valuation in which all three factors were approximately equal and that the resultant 3.9% decline in value was applicable to all operating railroads in Wyoming.'

In its review the district court found the method was correct and did not discriminate against appellant; the board acted upon necessary and proper information; the findings of fact were supported by competent and substantial evidence; and the board did not act capriciously or arbitrarily, or abuse its discretion.

It appears that the material question presented to this court is whether the board from the record had a proper basis for the application of the 3.9 percent reduction as applied to this appellant. The answer lies in the record.

The principal witnesses for the State were Ainsworth, an employee of the board, and Leet, representing Justin H. Haynes & Company. It is their testimony upon which this determination rests and which must be examined.

Ainsworth states this reduction of 3.9 percent as it affects appellant was based upon an analysis made of stock and debt and capitalized earnings value and the physical depreciation value. No explanation thereof or the results of such analysis, particularly as applied to this appellant, were ever submitted. The work sheets appearing in evidence do not reveal the basis of any reduction insofar as it affects appellant nor the correlation between examination of the appellant's reports and the proposed reduction, and we can find nothing appearing in these sheets which would have permitted the board to determine why this figure was a proper reduction for C. & N. W. Ainsworth also testified the board was advised that the factors of physical value, capitalized earnings, and stock and debt value were all considered in arriving at this figure as applied to appellant, but the details of this advice are not set out; that no formula was used; that C. & N. W. figures were not closely enough related to be indicative of value. The 3.9 percent figure was applied as a matter of Leet's appraisal judgment. Ainsworth worked under the supervision of Leet and with him.

Because the Ainsworth opinion and work are dependent almost entirely upon Leet, his testimony is of particular importance. After considerable testimony as to the method used in preparing the 1967 appraisal, which is used as a basis for the 1967 tax valuation, Leet explained that in the case of Union Pacific all indexes of value lead to this final conclusion. He stated it was a so-called 'textbook case.' He testified that he arrived at a reduction of 3.9 percent for this appellant after an analysis of all the indexes of value; that as a matter of equity this reduction was applied to other railroads as reflecting a change in value from the previous year; and that the same work was done in 1968 as in 1967. His testimony does show that upon a comparative basis the C. & N. W. value was very low for assessment purposes. It is to be noted the 1967 appraisal showed appellant's property exclusive of land to be 14.5 percent of replacement cost as contrasted to Union Pacific's 38.63 percent. He testified that in updating this appraisal he exercised judgment in not slavishly following a formula. A great deal of his testimony and his cross-examination was directed to the 1967 evaluation, which was not under attack.

Leet's testimony further states the same material was analyzed for all railroads for that year but that the 3.9 percent was ascertained from Union Pacific calculations; that the records of C. & N. W. were examined but no calculations were ever worked out in detail; that after examination of all the same material of the other railroads it was determined to use the...