Natural Gas Pipeline Co. of America v. State Bd. of Equalization and Assessment

• Decision Date: 01 March 1991
• Docket Number: 89-902,Nos. 89-901,s. 89-901
• Citation: 237 Neb. 357,466 N.W.2d 461
• Parties: NATURAL GAS PIPELINE COMPANY OF AMERICA, Appellant, v. STATE BOARD OF EQUALIZATION AND ASSESSMENT, Appellee. TRAILBLAZER PIPELINE COMPANY, Appellant, v. STATE BOARD OF EQUALIZATION AND ASSESSMENT, Appellee.
• Court: Nebraska Supreme Court

Page 461

466 N.W.2d 461

237 Neb. 357

NATURAL GAS PIPELINE COMPANY OF AMERICA, Appellant, v. STATE BOARD OF EQUALIZATION AND ASSESSMENT, Appellee.

TRAILBLAZER PIPELINE COMPANY, Appellant, v. STATE BOARD OF EQUALIZATION AND ASSESSMENT, Appellee.

Nos. 89-901, 89-902.

Supreme Court of Nebraska.

March 1, 1991.

Syllabus by the Court

1. Taxation. The power to tax is exercised when the tax is levied.

2. Constitutional Law: Taxation. Commutation of taxes in any form whatever is prohibited by Neb. Const. art. VIII, § 4.

3. Statutes: Legislature. The Legislature may, for the purpose of legislating, classify persons, places, objects, or subjects, but such classification must rest upon some difference in situation or circumstance which, in reason, calls for distinctive legislation for the class.

4. Statutes: Legislature. A legislative classification must operate uniformly on all within a class which is reasonable.

5. Constitutional Law: Taxation: Railroads. The classification of railroad rolling stock as exempt in Neb.Rev.Stat. §§ 77-202.47 and 77-202(11) (Reissue 1990) is not based on any real distinction between railroads and other common carriers and is invalid as special legislation in violation of Neb. Const. art. III, § 18, and the uniformity clause of Neb. Const. art. VIII, § 1.

6. Federal Acts: Taxation: Railroads. The federal Railroad Revitalization and Regulatory Reform Act of 1976 prohibits only discriminatory taxation of railroads and does not prohibit the nondiscriminatory taxation of railroads by a state.

7. State Equalization Board: Taxation: Valuation. If the State Board of Equalization and Assessment arbitrarily undervalues a particular class of centrally assessed property, so that another class of such property is valued disproportionately higher, the valuation of the latter class of property must be lowered so that it will be equalized with the other property.

William R. Johnson, of Kennedy, Holland, DeLacy & Svoboda, and Bruce J. McWhirter, of Ross & Hardies, for appellants.

Robert M. Spire, Atty. Gen., and L. Jay Bartel, for appellee.

Before HASTINGS, C.J., and BOSLAUGH, WHITE, CAPORALE, SHANAHAN, GRANT and FAHRNBRUCH, JJ.

PER CURIAM.

This is an appeal from the findings and order of the State Board of Equalization and Assessment (Board) dated August 15, 1989, denying claims for property tax relief submitted by various centrally assessed and locally assessed claimants. Pursuant to this court's order of September 11, 1989, the parties filed a "case stated" in accordance with Neb.Ct.R. of Prac. 5L (rev. 1989), separately setting forth the rulings of the Board complained of by the appellants and the exceptions and contentions of the parties with respect to those issues. In view of a community of issues and counsel, we have consolidated the appeals of Natural Gas Pipeline Company of America (NGPL) (case No. 89-901) and Trailblazer Pipeline Company (Trailblazer) (case No. 89-902) for disposition.

I. BACKGROUND

NGPL and Trailblazer are the owners of centrally assessed property in the State of Nebraska and operate natural gas transmission pipelines in Nebraska. The appellants' property in Nebraska includes real estate and personal property.

After our opinion in Northern Natural Gas Co. v. State Bd. of Equal., 232 Neb. 806, 443 N.W.2d 249 (1989), cert. denied 493 U.S. 1078, 110 S.Ct. 1130, 107 L.Ed.2d 1036 (1990), was filed on July 14, 1989, NGPL and Trailblazer sought equalization by the Board of the value of their property for Nebraska taxation. See Neb.Rev.Stat. § 77-506 (Reissue 1990).

A. 1988 TAX YEAR

In Northern Natural Gas Co., this court considered the effect of Trailer Train Co. v. Leuenberger, 885 F.2d 415 (8th Cir.1988), which construed § 306(1)(d) of the Railroad Revitalization and Regulatory Reform Act of 1976, Pub.L. 94-210, 90 Stat. 31, 54, codified as amended at 49 U.S.C. § 11503(b)(4) (1988) (the 4-R Act). Section 306(1)(d) prohibits the states from imposing a tax on transportation property when the tax "results in discriminatory treatment of a common carrier by railroad...."

In reviewing the 4-R Act, the U.S. Court of Appeals noted that the act prohibits imposition of a tax which discriminates against railroads, and considered personal property tax exemptions in determining whether there was discriminatory tax treatment of railroads by the Nebraska tax structure. The court concluded: "When the exemptions apply to three-fourths of the commercial and industrial property in Nebraska, and do not apply to rail cars, the tax system in Nebraska discriminates against Trailer Train and violates § 306(1)(d) of the 4-R Act." 885 F.2d at 418. The federal court then affirmed the injunction, granted by the trial court, which prevented the State of Nebraska from "collection of the discriminating tax." Id.

In Northern Natural Gas Co., supra, considering the effect of the Trailer Train Co. decision, we concluded that disproportionality in taxation within a class of property required this court to

correct [a] constitutional inequity by lowering the complaining taxpayer's valuation to such an extent so as to equalize it with other property in the state. [Citations omitted.] This being the case, no logical reason exists why the same requirement of valuation reduction should not be imposed when the disproportionality is brought about by a final judgment of the federal court exempting the personal property of the railroads and car companies from the imposition of a state tax.

232 Neb. at 815, 443 N.W.2d at 256.

In Northern Natural Gas Co., we also considered whether a gas transmission pipeline was a fixture and, therefore, real estate taxable pursuant to Neb.Rev.Stat. § 77-103 (Reissue 1986). To resolve that issue, we employed a three-part common-law test to determine whether an item was a fixture: "(1) actual annexation to the realty, or something appurtenant thereto, (2) appropriation to the use or purpose of that part of the realty with which it is connected, and (3) the intention of the party making the annexation to make the article a permanent accession to the freehold." 232 Neb. at 817, 443 N.W.2d at 257. Applying the foregoing test, we concluded that a natural gas transmission line was not a fixture, since "the pipeline is not adapted to the use to which the ground in which it is embedded is applied," 232 Neb. at 821, 443 N.W.2d at 259, and concluded that the taxpayer's intention "was not to convert its annexations into fixtures. Consequently, we find the pipelines to be personal property," 232 Neb. at 822, 443 N.W.2d at 259.

Therefore, this court reversed the decision of the Board, which had refused Northern Natural Gas Company and Enron Liquids Pipeline Company's request that their property be equalized with property of railroads and car companies operating in Nebraska, and remanded the matter to the Board for further proceedings.

In the companion cases of Trailblazer Pipeline Co. v. State Bd. of Equal., 232 Neb. 823, 442 N.W.2d 386 (1989), also decided July 14, 1989, this court held the rights of Trailblazer and NGPL regarding their equalization requests in 1988 were determined by Northern Natural Gas Co. v. State Bd. of Equal., 232 Neb. 806, 443 N.W.2d 249 (1989), and remanded those causes to the Board for further proceedings.

B. 1989 TAX YEAR

In the proceedings after remand of the appellants' causes, the Board received evidence on August 11, 1989, pursuant to a stipulation among the parties, regarding the appellants' requests for equalization. Much of the stipulated evidence was the same as that presented in the 1988 hearing which was the basis for Trailblazer's and NGPL's previous appeals reported in Trailblazer Pipeline Co., supra. The parties have stipulated that NGPL's property in Nebraska was valued at $19,147,520 and that Trailblazer's property was valued at $95,070,376. Approximately 92 percent of NGPL's property in Nebraska is personal property and approximately 99 percent of Trailblazer's property in Nebraska is personal property.

At the equalization hearing on August 11, the Board set the equalization rate at 91.91 percent of actual value and, in its order of August 15, 1989, construed the appellants' requests for equalization as applications for tax exemption, stating:

Equalization is the process by which the State Board assures that all tangible property and franchises, which are subject to tax, are assessed at a uniform level of value. The State Board does not have the authority to consider a claim for equalization of one class or subclass of property to a level of another class or subclass of property that is exempt or is not subject to tax, as this is a claim for exemption. While a claim as to the propriety of an exemption may have merit, it is not properly raised before the State Board, and the claimants should seek other avenues of redress.

The claims brought before the State Board ... are ... claims to have the valuation of a subclass of personal property, commonly known as business personal property, equalized to the level of value of the personal property of car companies and railroad companies....

The State Board finds that the state of Nebraska is preempted from taxing the personal property of car companies and railroad companies pursuant to a federal adjudication of section 306(1)(d) of the Railroad Revitalization and Regulatory Reform Act, commonly referred to as the 4-R Act. 49 U.S.C. section 11503(b)(4). As a result of such federal preemption, the State Board finds that the personal property of car companies and railroad companies is not subject to tax and, therefore, cannot be the basis for a claim of equalization.

The State Board finds that in reality the claims of these centrally assessed claimants and locally assessed claimants are claims requesting to have their business personal property and/or real property exempt from taxation. The State Board finds that it has no statutorial [sic] or constitutional authority to rule upon such...