Chicago & N.W. Ry. Co. v. Prentis

• Decision Date: 05 September 1968
• Docket Number: No. 52494,52494
• Citation: 161 N.W.2d 84
• Parties: CHICAGO AND NORTH WESTERN RAILWAY COMPANY, Appellant, v. X. T. PRENTIS et al., Appellees. CHICAGO AND NORTH WESTERN RAILWAY COMPANY, Appellant, v. Lynn POTTER et al., Appellees.
• Court: Iowa Supreme Court

Page 84

161 N.W.2d 84

CHICAGO AND NORTH WESTERN RAILWAY COMPANY, Appellant, v. X. T. PRENTIS et al., Appellees.

CHICAGO AND NORTH WESTERN RAILWAY COMPANY, Appellant, v. Lynn POTTER et al., Appellees.

No. 52494.

Supreme Court of Iowa.

Sept. 5, 1968.

Rehearing Denied Nov. 12, 1968.

Frank W. Davis and Frank W. Davis, Jr., Des Moines, and George M. Hollander, Chicago, Ill., for appellant.

Richard C. Turner, Atty. Gen., and George W. Murray, Asst. Atty. Gen., for appellees.

SNELL, Justice.

Two cases involving the Chicago and North Western Railway Company's 1964 and 1965 ad valorem tax assessments determined by Iowa State Tax Commission were consolidated for trial and appeal. The Railway Company sought relief in the district court and appealed from adverse rulings.

Plaintiff railway company will be referred to as North Western. Plaintiff is authorized to do business in Iowa as a foreign corporation.

Defendant Iowa State Tax Commission is the administrative agency of the State of Iowa created under the provisions of chapter 421, Code of Iowa, 1962. The other defendants are the members of the commission and 56 county treasurers. The issues here involve the acts of the commission and its members. The defendants will be referred to as the Commission.

The actions arose under the Code of 1962. Unless otherwise indicated references will be to the Code of 1962.

North Western sought two remedies arising out of single factual situations. In Division I of its petitions in equity North Western sought writs of mandamus and prayed that the court direct the commission to convene, fix the assessed values of the property of the North Western for its 1964 and 1965 assessments at twenty-seven percent (27%) of the current fair market value of said property and to equalize and adjust the percentage of current fair market value at which the property of the North Western is assessed with percentages of current fair market value at which other railway companies and other properties in the State of Iowa are assessed.

In Division II North Western sought declaratory judgments declaring the actions of the commission in failing to equalize and adjust the 1964 and 1965 assessed values of its property with the 1964 and 1965 assessed values of other railway companies and other properties in the State of Iowa were null, void and of no effect, not done in an exercise of honest discretion, done in an arbitrary, illegal, fraudulent and capricious manner, constructive, if not actual and intentional fraud, and compelling North Western to bear an undue, unfair and disproportionate share of the tax burden of the State of Iowa.

As indicated the controversy arises from the dissatisfaction of North Western with the assessment of its property by the commission.

Operating property of railway corporations is assessed annually by the commission under the provisions of chapter 434 of the Code. The chapter does not provide for appeal to review the wisdom of the discretionary acts of the commission. We agree with this from the trial court's conclusions of law:

This is an action of mandamus and not an appeal from an assessment. It is not the province of this court to fix or determine the value of plaintiff's property for tax purposes, but only to determine if the 1964 and 1965 assessments by the commission were arbitrary, capricious, fraudulent, and not the result of the exercise of discretion. If so determined, the court can only compel the commission to perform its legal duty. It is the burden of the plaintiff to establish not only that its assessment is excessive or that it is inequitable with respect to other property, but also that it is the result of arbitrary and capricious action of the assessor, and not the result of the exercise of discretion. The taxpayer must show more than mere difference of opinion as to values in order to sustain its burden.

As is frequently the case the litigants took divergent views of the trial court's approach and conclusions. Appellant claims the trial court, although recognizing the limitations on review, nevertheless performed assessment functions. The appellee praises the trial court for his thorough review of the voluminous record of highly technical testimony and complicated exhibits and ability as 'an excellent statistician and a better than average accountant.' We agree with appellee as to the trial court's diligence and ability.

I. Many of the same issues here presented were involved and decided in litigation over the 1963 assessment. See Chicago and North Western Railway Company v. Iowa State Tax Commission, 257 Iowa 1359, 137 N.W.2d 246, decided in 1965. Points of law therein recognized need not be extensively discussed here. These points include:

. Considerable discretion is vested in taxing authorities in determining actual value of property. (loc. cit. 1370, 137 N.W.2d 246)

. The law contemplates the application of a just and reasonable judgment factor and defies any absolute mathematical formula for testing. The result can only be approximately correct. (loc. cit. 1371, 137 N.W.2d 246)

. Taxpayer's burden is not met by showing a difference of opinion between witnesses and assessing authority. Unless the valuation is grossly excessive and the result of the will and not the judgment the assessment will be sustained. (loc. cit. 1371, 137 N.W.2d 246)

. Equality of taxation requires a uniform rate of tax and uniformity in valuation. (loc. cit. 1371-1372, 137 N.W.2d 246)

. A sales-assessment survey is admissible and entitled to consideration. Its probative value depends on its scope and is not conclusive as a matter of law. (loc. cit. 1377, 137 N.W.2d 246)

. Actual value, market value and sales value, are not synonymous terms. (loc. cit. 1378, 137 N.W.2d 246)

(7). A 3--factor formula is used in Iowa and most states for determining a formula value for railroads operating in more than one state:

(a) The first factor is average annual net operating income for the preceding five years capitalized at 6%. A portion based on the extent of the operation in Iowa is then attributed to the value of the operating property in Iowa.

(b) The second factor is the average net stock and bond value for the entire system for the preceding five years with the portion attributable to Iowa determined by the same allocation formula.

(c) The third factor is the reproduction cost of operating property actually situated in Iowa, less depreciation, less a uniform 40% Deduction for obsolescence, also allocated.

The three factors averaged together result in the so-called 'formula value' in Iowa.

To this figure is applied a judgment factor by the taxing authority and the final result is taken as the actual value which is then assessed at 60% To obtain the assessed value under the provisions of section 434.15, Code of Iowa. (loc. cit. 1365, 137 N.W.2d 246.)

In applying these rules in the former case we held there was discrimination between the North Western and other railroads but the evidence was insufficient to show discrimination between North Western and other real estate (locally assessed real estate).

II. North Western, appellant, stated the issues in the present case as follows:

1. Is North Western valued at its current fair market value?

2. Is the property of North Western assessed at a higher percentage of its current fair market value than the percentage of current fair market value at which the property of other railway companies is assessed?

3. Is the property of North Western assessed at a higher percentage of its current fair market value than the percentage of current fair market value at which other real property subject to taxation, both urban and rural, is assessed?

4. Has North Western sustained its burden of proving that the acts of the Commission were done in an erroneous, arbitrary, illegal, fraudulent and capricious manner?

5. Is North Western entitled to a declaratory judgment and a writ of mandamus?

This statement of the issues is correct if it is kept in mind that we may not substitute our reaction to the evidence for the factual conclusions and discretionary acts of the commission. To reverse we must find that the commission acted in an arbitrary, capricious, illegal and fraudulent manner. The fact that we might disagree with the commission is not enough.

The plaintiff's burden is heavy.

Fourteen witnesses were called by plaintiff. Two were called by defendant. Voluminous exhibits and statistical data were offered and received. The witnesses were highly qualified and experienced in their fields.

The printed record before us is in 9 volumes with over 3300 pages. Detailed analysis of the testimony of the several witnesses is not justified or possible within reasonable space limitations.

Exhibit #221 entitled 'Appraisal of Railroad and Other Public Utility Property for Ad Valorem Tax Purposes', a unit valuation report prepared by a committee of National Association of Tax Administrators, was received in evidence by stipulation (Exhibit $1.) This exhibit discusses in detail the many facets of the factors involved in fixing assessed valuations and the problems involved. The different formulas depending on the approach to the problem were discussed. We quote from pages 8 and 9:

'From what has just been said, it is clear that the Committee does not believe in slavish adherence to a formula. But we are equally sure that good results will not flow from the total rejection of formulas. We subscribe, rather, to the viewpoint aptly expressed by the late Thomas S. Adams when he said: 'A method of valuation taking the various factors into account in a rigid mechanical way should be used as a datum line or point of departure. The valuation so secured would have a presumption in its favor and should be changed only for cause.' As long as formulas are used to crystallize the assessor's judgment and not to stifle his judgment, we would agree that they are essential to an orderly, equitable...