Chicago & N.W. Ry. Co. v. Iowa State Tax Commission
| Decision Date | 21 September 1965 |
| Docket Number | No. 51600,51600 |
| Citation | 257 Iowa 1359,137 N.W.2d 246 |
| Parties | CHICAGO AND NORTH WESTERN RAILWAY COMPANY, Appellee, v. IOWA STATE TAX COMMISSION et al., Appellants. |
| Court | Iowa Supreme Court |
Lawrence P. Scalise, Atty. Gen., and George W. Murray, Des Moines, for appellant Iowa State Tax Commission.
Marion Hirschburg, and Donald L. Smith, Ames, for appellants county treasurers.
Davis, Huebner, Johnson & Burt, Frank W. Davis, and Frank W. Davis, Jr., Des Moines, for appellee.
Pursuant to the action of the Iowa State Tax Commission, hereafter referred to as the commission, in fixing the assessed value of the property of the Chicago and North Western Railway Company, hereafter referred to as the North Western, for the year 1963, the North Western filed an original petition and first amendment thereto in the Polk County District Court seeking (1) a judgment declaring null and void that assessment and (2) a writ of mandamus commanding the defendant commission to equalize such assessed value of the North Western with the assessed value of other railroad companies subject to Chapter 434, Code of Iowa, 1962, and with the assessed value of other properties subject to taxation in the state.
It was alleged the commission acted in an arbitrary, capricious, illegal and fraudulent manner (1) in fixing the North Western's property value for tax purposes in excess of its 'actual value' as defined in the Code, (2) in assessing the North Western property at a higher percentage of its actual value than the property of other railuroads in Iowa, and (3) in assessing the North Western property at a higher percentage of its actual value than was done generally with other property subject to taxation in Iowa. The commission filed a denial of the allegations and alleged plaintiff had failed to exhaust its administrative remedies. Plaintiff's prayer for auxiliary remedy by way of a temporary injunction restraining county auditors and county treasurers from collecting the 1963 taxes so assessed by the commission was denied and the action dismissed as to them. Thereafter, the cause was tried in equity on March 23, 1964, and on August 5, 1964, the trial court entered its findings of fact, conclusions of law, and decree.
The court found plaintiff had exhausted all administrative remedies, had no plain or adequate remedy at law, was entitled to maintain this action and have a determination of the issues on the evidence presented (Pierce v. Green, 229 Iowa 22, 294 N.W. 237, 131 A.L.R. 335), concluded its province in this cause was to pass on the validity of the commission's exercise of discretion and not to fix the value of plaintiff's property, and that it could only require the commission to perform its legal duty, found the term 'actual value' as used in the Iowa statutes on taxation must be the 'fair cash equivalent of the property', and held the evidence failed to establish that the commission acted in an arbitrary manner in fixing the 1963 valuation of the North Western property. It further held the evidence sufficent to prove the commission had assessed the North Western property at a higher percentage of its actual value than other comparable railroads in Iowa, and did so arbitrarily, and that while the North Western property was assessed at 60% of its actual value, other property in Iowa was generally assessed at less than 30% of its actual value, and that this discrimination was willfully done in an arbitrary and capricious manner. A reassessment was ordered. The defendants appealed.
On September 28, 1964, this court, on application of plaintiff-appellee, entered an order making the county treasurers of 55 Iowa counties in which the North Western has operating property parties to this action, and enjoining them from collecting the second half of the 1963 taxes, collectible in 1964, pending final determination of the case.
The issues raised by this appeal concern the correctness of the trial court's conclusions of law that (1) 'actual value' as used in the statutes on taxation in the Code must be the 'fair cash equivalent of the property,' (2) the commission assessed the property of the North Western to a higher percentage of its actual value than the property of the four other major railroads in Iowa and, in doing so, acted in an arbitrary and capricious manner, (3) the commission assessed the property of the North Western at 60% of its actual value when other property in Iowa was generally assessed at less than 30% of its actual value, and, in so doing, acted in an arbitrary and capricious manner, and also concern its finding of fact in support of those conclusions.
By stipulation, records and documents including Steam Reports, Form A.I.C.C. Reports, Annual Stockholders' Reports, assessment rolls, and data sheets (Exhibits PT 1-15), for the North Western, Milwaukee, Burlington, Rock Island and Illinois Central Railroads for the years 1960, 1961, and 1962, subject to their materiality and competency, were usable without formal identification, as well as records in all recorder and assessor offices and proceedings in local boards of review and the State Board of Review, and data relating to a Real Estate Assessment Ratio Study and instructions to assessors for reports made under Code section 441.45 for 1961 and 1962. These and other included exhibits are now before us.
Data sheets used by the commission in assessing the North Western in 1960, 1961, 1962 and 1963, were identified by Mr. Provo, vice president of finance for the plaintiff. They reveal a generally-approved three-factor formula used in Iowa as well as in most states over many past years, for determining a formula value for railroads operating in more than one state. Exhibit P-22 disclosed these calculations for the North Western for the year 1963. The first factor is average annual net operating income of the railroad system for the preceding five years, capitablized at 6 per cent. A portion of total capitalized income is then attributed to the value of operating property in Iowa by an allocation formula based on the extent of the railway's operation in Iowa--in this case, 20.983%. The second factor is the average net stock and bond value of the entire system for the preceding five years, with the portion attributable to Iowa determined by application of the above-stated allocation formula. The third factor is the reproduction cost of operating property actually situated in Iowa, less depreciation, less a uniform 40 per cent deduction for obsolescene, also allocated. These three factors are everaged together and result in the so-called 'formula value' of the North Western system in Iowa of $29,493,221. To this figure is applied a judgment factor by the taxing authority after an overall consideration of the railroad's Iowa operation, and the result here, $27,516,361, is taken as the actual value of the property which is then assessed at 60% to obtain the assessed value under provisions of Section 434.15, Code of Iowa, 1962. Also to be considered is Section 441.21 of the 1962 Code, which provides that all property subject to taxation shall be valued at its actual value and shall be assessed at sixty per cent of such actual value, and that the actual value in such cases shall be one and two-thirds times the assessed value.
Under this record there are five major or Class I railroads operating in Iowa. In compliance with the requirements of Code Chapter 434, each on or before April 1st filed with the commission annual reports on forms furnished by the commission, and from this and other data available to it the commission's employees prepare a tentative formula value and work out the proposed 60 per cent assessed value therefrom. The railroad affected is notified of this proposed value and a hearing is granted, if desired, sometime in the following June, affording the failroad an opportunity to point out elements not given adequate consideration in the computations. This hearing is before the commission, which also has before it the work sheets, the data, and the proposed assessment. Generally, this was done. Thereafter, the commission proceeds to fix the final assessment. There are no provisions for a further hearing before the commission thereon, but they are sometimes granted, as was done in this case for the North Western, after the assessment had been certified to the various counties. However, no change in its assessment was made. The trial court found the system used in Iowa was proper and, as the record fully justifies that conclusion, we concur in that determination.
Exhibit P-47 shows the ratio of the 1963 assessed values of the five Class I railroads determined by the commission to the formula values, after application of the required 60%, as follows:
Assessment by Assessment determined
Railroad formula only by commission Ratio
----------- ------------- --------------------- -----
C. & N.W. $17,013,089 $16,510,417 97%
C.R.I. & P. 26,886,823 19,171,306 71%
C.B. & Q. 26,577,493 17,952,953 68%
I.C. 12,158,019 8,146,043 67%
Milwaukee 31,582,061 20,186,196 64%
The North Western points out that for 1963 and prior years only a slight deviation from the formula value appears as to it, while for all other Class I railroads, which it contends have like equipment and like operations in Iowa, substantial reductions from the commission's formula values appear. It appears the North Western's assessed value was reduced only 3% by the application of the commission's judgment factor, while the other alleged comparable railroads showed a 29% to 36% reduction for 1963.
There was considerable evidence that the North Western stands in a position inferior to the other four Class I railroads, that its mileage was large due to numerous branch lines with low density of traffic and short average haul. Logically, ap...
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