Chicago & N.W. Ry. Co., In re

• Citation: 101 N.W.2d 873,170 Neb. 106
• Decision Date: 18 March 1960
• Docket Number: No. 34714,34714
• Parties: In the Matter of the Assessment and Valuation of the Property of the CHICAGO AND NORTH WESTERN RAILWAY COMPANY, etc. CHICAGO AND NORTH WESTERN RAILWAY COMPANY, Appellant, v. STATE BOARD OF EQUALIZATION AND ASSESSMENT, Appellee.
• Court: Supreme Court of Nebraska

Page 873

101 N.W.2d 873

170 Neb. 106

In the Matter of the Assessment and Valuation of the Property of the CHICAGO AND NORTH WESTERN RAILWAY COMPANY, etc CHICAGO AND NORTH WESTERN RAILWAY COMPANY, Appellant, v. STATE BOARD OF EQUALIZATION AND ASSESSMENT, Appellee.

No. 34714.

Supreme Court of Nebraska.

March 18, 1960.

Syllabus by the Court

1. An appeal from an assessment of railroad property by the State Board of Equalization and Assessment is required to be considered and decided de novo on the record presented to this court.

2. The Legislature has not defined a specific method by which railroad property in the state shall be valued for taxation by the State Board of Equalization and Assessment and it may, within legal limitations and restrictions, resort to any appropriate method by which a reasonable and just determination of actual value of such property can be ascertained.

3. Generally there is a presumption that when an assessing authority values property for taxation purposes it acts fairly and according to law upon sufficient evidence to sustain its conclusion but the presumption disappears if there is evidence to the contrary and thereafter the reasonableness and legality of the valuation made by the assessing authority is one of fact to be decided from evidence, unaided by presumption, and the burden of establishing an illegal assessment is upon the complaining party.

4. It was the duty of the State Board of Equalization and Assessment to value railroad property in Nebraska in 1959 at its actual value and to assess it at 35 percent thereof and any departure therefrom was a noncompliance with the legislative mandate and constitutes an arbitrary valuation and assessment of the property of appellant.

5. A formula for determining the value of tangible property for taxation purposes must be appropriate to produce the result required by statute; and if an arbitrary basis is used which is not uniformly applied to all tangible property, the result is an arbitrary one and will not sustain a valuation for taxation purposes.

6. It is an unlawful discrimination, prohibited by the Constitution and the statutes of the state, to assess the property of a railroad at not less than 47 1/2 percent of its actual value when all other tangible property is assessed at not more than 35 percent of its actual value.

7. Taxing authorities may not withdraw any property from the principle of uniformity of taxation as provided by the Constitution and statutes of the state, and one owner of property cannot be compelled to pay a greater proportion of taxes according to the value of his property than another property owner of the same class is required to pay.

8. It is generally permissible for assessment authorities in ascertaining the value of the interstate operating property of a railroad for taxation purposes to consider its investment in transportation property determined, according to the rules of the Interstate Commerce Commission, in conjunction with the average value of its stocks and bonds during a reasonable period antecedent to the time of the valuation of the property and the capitalization at a reasonable rate of the average net operating income of the railroad during a like period, and it was not arbitrary or unreasonable for the State Board of Equalization and Assessment to do so in its 1959 assessment of railroad property.

9. The assessing authorities in determining the proportion of the value of the entire operating property of an interstate railroad allocable to its interstate property in a single state may consider the percentage that the intrastate traffic units, gross earnings, car locomotive mileage, and current mileage bear to the total railroad system.

10. A computation of system value based upon average market price of stocks and bonds and a computation based upon a capitalization of net earnings reflect the effect, upon actual value, of obsolescence, of the competition of other means of transportation, and of all factors affecting earnings.

11. The capitalization by the State Board of Equalization and Assessment of the average net income of a railroad for a 5-year period immediately antecedent to the time of the assessment of the property of the railroad at the rate of 6 percent as one factor in ascertaining the value of the entire property of the railroad for taxation was not arbitrary or unreasonable.

Gaines, Spittler, Neely, Otis & Moore, Omaha, for appellant.

Clarence S. Beck, Atty. Gen., H. G. Hamilton, Asst. Atty. Gen., for appellee.

Heard before CARTER, MESSMORE, YEAGER, CHAPPELL, WENKE and BOSLAUGH, JJ.

BOSLAUGH, Justice.

This litigation concerns assessment of the property of appellant in Nebraska by appellee for the purpose of all ad valorem taxes, except municipal taxes, for the year 1959. Appellant made a return or schedule of its property as of March 31, 1959, to appellee in all respects as required by the statute. Section 77-603, R.R.S.1943. Appellant appeared at a hearing before appellee on May 4, 1959, and evidence was produced on behalf of and by appellant relative to the value of its property. Appellee on July 15, 1959, found and determined that the actual value of the property of appellant in Nebraska subject to assessment for taxation purposes by appellee was $20,422,068 and it assessed the property, after deducting locally assessed property of appellant, at the sum of $7,065,723.

The complaint of appellant concerning the assessment was in substance the following: The assessment of $7,065,725 was unjust, discriminatory, and unlawful because it was not less than 62 1/2 percent of the actual value of the property in 1959 and all other tangible property in Nebraska was assessed at not to exceed 35 percent of the actual value thereof. Thirty-five percent of the actual value of the Nebraska property of appellant in 1959 did not exceed the sum of $3,722,170. The finding of appellee that the property of appellant in 1959 had an actual value of $15,047,540 was contrary to and was not sustained by the evidence. The 1959 assessment thereof was made by the use of erroneous and unlawful methods, formulas, and devices. The item or factor of 'Investment in transportation property' used by appellee in computing the actual value of the property was erroneous and unlawful because it represents the estimated original cost as determined by the Interstate Commerce Commission as of June 30, 1917, plus subsequent additions and betterments at cost, less retirements since that date without any allowance for depreciation on about $230 million or 40 percent of such investment at December 31, 1958, which is subject to wear and tear. The historical cost bears no relation to and is not legal evidence of the actual value of the property. The effect of the obsolescence of the branch lines of appellant which comprise a large portion of the railroad system of appellant in Nebraska and the development of other forms of transportation and the effect thereof on traffic carried and revenue earned by appellant in relation to the effect upon the value of the railroad property of appellant are not reflected or recognized in the investment account. This item or factor was first used by appellee in 1954 in deciding the actual value of railroad property for assessment purposes and its use has resulted in unreasonable and illegal discrimination in favor of all tangible property other than railroad property. The value of the property involved results from the use thereof by the public. The earnings produced by the use and the value of the property are measured and determined solely by the selling prices of its stocks and bonds and its earnings, and the net income should be capitalized at not less than 8 percent instead of 6 percent. Appellee in 1958 ascertained what it termed computed value which in fact was actual value of the property, deducted 5 percent from it, and purported to convert the remainder or 95 percent of the computed value into actual value of the property by multiplying it by 1.4286 as a conversion factor. The application of the conversion factor to a base of 95 percent of actual value instead of a base of 70 percent of actual value as applied to all other tangible property, resulted in the valuation of the property of appellant at 135.75 percent of actual value. The equalization by appellee of 35 percent of the purported actual value as determined by it resulted in a final assessment of the property of appellant at 47.5 percent of the actual value thereof while all other tangible property in the state was assessed at not to exceed 35 percent of its actual value. The major portion of the property of appellant in Nebraska, because of the lack of traffic density in the state, was below 500,000 net tons per mile of road which is indicative of economic obsolescence. As a result thereof, as compared to traffic handled in other states in which appellant operates, the use of all track miles as an allocation factor in computing and determining the actual value of the Nebraska property of appellant imports value into Nebraska which cannot be sustained by an equitable appraisal of the railroad property and results in an unjust, inequitable, and discriminatory assessment of the actual value of the property of appellant in Nebraska. The prayer of the complaint was that the 1959 assessment of the property be set aside and that it be valued and assessed for purposes of taxation at the same proportion of its actual value as all other tangible property was assessed in 1959 for taxation purposes but not in excess of $3,722,170.

A hearing was held by appellee on July 28, 1959, at which time additional evidence was introduced on behalf of appellant. Its complaint was that day denied and the original assessment of the property of appellant was affirmed by appellee. This appeal is a challenge of the legality of the recited actions of appellee.

The authority of this court in a proceeding of this...