Chicago & North Western Railway Co. v. Gillis

• Decision Date: 03 June 1968
• Docket Number: No. 10469,10469
• Citation: 159 N.W.2d 293,83 S.D. 332
• Parties: In the Matter of the Appeal of Chicago and North Western Railway Company from the decision of the State Board of Equalization. CHICAGO AND NORTH WESTERN RAILWAY COMPANY, a corporation, Appellant, v. Bruce D. GILLIS et al., Respondents.
• Court: South Dakota Supreme Court

Page 293

159 N.W.2d 293

83 S.D. 332

In the Matter of the Appeal of Chicago and North Western

Railway Company from the decision of the State

Board of Equalization.

CHICAGO AND NORTH WESTERN RAILWAY COMPANY, a corporation, Appellant, v. Bruce D. GILLIS et al., Respondents.

No. 10469.

Supreme Court of South Dakota.

June 3, 1968.

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.

RENTTO, Judge.

This appeal brings before us for a second time the 1963 valuation for tax purposes of the operating railroad property of the Chicago and North Western Railway Company in the State of South Dakota as made by the Commissioner of Revenue and equalized by the State Board. Our decision in the first case is reported in 148 N.W.2d 581. The background of this litigation is therein extensively detailed.

That valuation was determined by the Commissioner and the board by using the following formula and figures:

                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
                

This was approved by the court on the first trial.

In the opinion deciding that case, at page 590 we stated that 'the trial court gave insufficient consideration to the evidence of obsolescence in accepting the I.C.C. cost at its stated figure without deduction of any obsolescence, resulting in a value in excess of full and true value.' We further held that the court did not otherwise err in refusing to reduce the railroad's valuation for tax purposes. The cause was remanded to the trial court with directions to make findings of fact which would include the full and true value of North Western's operating property and conclusions of law on the record then before the court and within the guidelines of that opinion and enter an appropriate judgment.

When the matter came on to be heard on remand the trial court modified its former decision by making additional Findings of Fact XI, XII and XIII and an additional Conclusion of Law all as proposed by the Commissioner. In attempting to carry out the mandate of this court the trial court in Finding XI determined obsolescence in this manner:

'That 16.46% Of the stated Interstate Commerce Commission cost depreciated, represents obsolescence of the Appellant's systemwide properties.'

Accordingly in its revaluation it deducted the obsolescence so determined from the I.C.C. original cost depreciated, but otherwise utilized the same formula and figures that it had on the first trial. By applying the 60% Factor as provided in SDC 1960 Supp. 57.0334, the railroad's operating properties in South Dakota were determined to have a taxable value of $4,962,470 for the year 1963. Judgment to this effect was entered.

North Western's appeal from this judgment assigns the adoption of Finding of Fact XI as error claiming there is no basis for using 16.46% As a factor for or representing obsolescence. This same objection challenges Findings XII and XIII and the additional Conclusion of Law, since they are all predicated or Finding XI.

The North Western has lines in 9 states, including South Dakota. When such is the situation our statute requires that the Commission shall determine the value of the entire operating property of such railroad and shall allocate or assign a part of said value to the state by use of such factors or methods as are reasonable and equitable. SDC 57.1305. In other words, the value that we utilize for tax purposes is a proportionate part of the systemwide value. This is generally known as the unit method of assessment.

The directions in that statute for determining the systemwide value by the Commissioner are...