Case Title: DEPT OF REVENUE v BN INC

Citation: 

Docket Number: 

State: montana

Court: Montana Supreme Court

Date: 1976-01-29T00:00:00Z

Document:
No, 13090 I N THE S U P R E M E COURT O F THE STATE O F MONTANA 1975 THE D E P A R T M E N T O F REVENUE O F THE STATE O F M O N T A N A , Appellant, BURLINGTON NORTHERN I N C , , Respondent. ORIGINAL PROCEEDING: Counsel of Record: For Appellant : R. Bruce McGinnis argued, Helena, Montana Poore, McKenzie, Roth, Robischon & Robinson, Butte, Montana Robert Poore argued, Butte, Montana For Respondent: Gough, Booth, Shanahan and Johnson, Helena, Montana Ward Shanahan argued, Helena, Montana Submitted : December 9, 1975 ? , 7, 4- % - - , Filed : 14 tit M r . Chief J u s t i c e James T. Harrison delivered t h e Opinion of t h e Court. This i s an appeal from an order and judgment of t h e d i s t r i c t c o u r t , Lewis and Clark County, affirming t h e o r d e r of t h e S t a t e Tax Appeal Board s e t t i n g a s i d e t h e 1974 assess- ment made by t h e Department of Revenue of t h e operating r a i l r o a d p r o p e r t i e s of t h e Burlington Northern r a i l r o a d system i n Montana. Burlington Northern (BN) operates an i n t e r s t a t e r a i l r o a d system, with l i n e s extending i n t o f o r t y - e i g h t counties of Montana. Each year t h e Department of Revenue (Department) makes an assess- ment of t h e r a i l r o a d operating p r o p e r t i e s of BN. A s required by s t a t u t e , s e c t i o n 84-801, R.C.M. 1947, BN provided t h e Department with a v e r i f i e d statement of t h e e x t e n t and values of B N 1 s operating p r o p e r t i e s . The Department assessed B N 1 s f r a n c h i s e , roadway, roadbed, r a i l s and r o l l i n g stock pur- suant t o s e c t i o n 84-802, R.C.M. 1947. The assessment was made by t h e u n i t method, whereby t h e e n t i r e . i n t e r s t a t e BN system i s valued by t h r e e d i s t i n c t and d i f f e r e n t methods: (1) c a p i t a l i z e d income; (2) property and p l a n t ; ( 3 ) stock and debt. Under t h e c a p i t a l i z e d income method t h e Department averaged B N 1 s earnings f o r t h e p a s t two years and c a p i t a l i z e d such earnings by 8.25%. The t o t a l depreciated c o s t of t h e system gives t h e property and p l a n t value. To f i n d t h e stock and debt value, t h e Department uses t h e accounting theory t h a t l i a b i l i t i e s are matched by assets with t h e stock valued a t i t s p r i c e on n a t i o n a l stock exchanges and d e b t valued a s shown on B N ' s books. The t h r e e values a r e weighted depending on t h e type of industry and t h e economics of t h e t i m e . The 1974 weighted f a c t o r s w e r e : 35% f o r revenue, 35% f o r p l a n t , and 30% f o r stock and debt. The t o t a l value of t h e system i n 1974 w a s determined t o be $1,272,557,576. This t o t a l was f u r t h e r factored by 17.55% t o determine t h e proportion of t h e system i n Montana ($223,233,855). This Montana value w a s equalized a t 40% t o g i v e BN a t o t a l assessment of $89,333,542. Despite a s e r i e s of conferences between BN and t h e Department, t h e f i n a l assessment d i d n o t r e s o l v e a l l t h e d i f - ferences between t h e p a r t i e s . BN requested a formal hearing before t h e Department t o show why t h e assessment should be lowered. Section 84-802. The hearing was held June 19, 1974. A t t h e hearing BN was represented by two o f f i c e r s know- ledgeable i n t h e property t a x a r e a , but n o t by l e g a l counsel. BN objected t o i n c l u s i o n as debt t h e amount owed by BN t o its wholly owned subsidiary, Spokane, Portland and S e a t t l e Railway and objected t o t h e nonuse of an economic obsolescence f a c t o r . A t t h e hearing a f i v e page l e t t e r from BN was introduced and t h e company o f f i c e r s answered questions from t h e hearing o f f i c e r and t h e Department a t t o r n e y p r i o r t o r e s t i n g . Other e v i d e n t i a r y m a t e r i a l may have been given t o t h e Department a t t h e series of meetings conducted during t h e assessment process. The assessment was upheld by t h e hearing o f f i c e r . BN appealed t h e Department's holding t o t h e S t a t e Tax Appeals Board (STAB). A hearing was held before STAB on August 28, 1974. BN w a s represented a t t h i s hearing by l e g a l counsel. BN introduced f i v e w r i t t e n e x h i b i t s , which were allowed i n t o evidence over t h e o b j e c t i o n of t h e l e g a l counsel f o r t h e Depart- ment. The Department argued t h e m a t e r i a l and a d d i t i o n a l arguments were a t r i a l de novo beyond t h e appeal power of STAB a s contained -- i n s e c t i o n 84-709, R.C.M. 1947. O n September 18, 1974, STAB reversed t h e Department's assessment and ordered t h e BN system's t o t a l value be reduced by 25% f o r economic obsolescence; t h e SP&S debt was t o t a l l y eliminated; and t h e c o s t of p l a n t was augmented t o include t h e n e t value of leased equipment. The Department sought and w a s granted,under s e c t i o n 82-4216, R.C.M. 1947, j u d i c i a l review of t h e STAB f i n d i n g s , con- c l u s i o n s and order. The d i s t r i c t c o u r t found STAB, not t h e D e - partment, had replaced t h e S t a t e Board of Equalization; d e -- novo trials by STAB were provided f o r by s e c t i o n 84-709, R.C.M. 1947; t h e assessment made by t h e Department was not e n t i t l e d t o any presumption of correctness; and STAB could hear such evidence a s it d e s i r e d and form its own conclusions a s t o assessment values. The Department appeals from t h e d i s t r i c t c o u r t order and judgment t o t h i s Court under s e c t i o n 82-4217, R.C.M. 1947. The i s s u e s presented f o r review by t h i s Court a r e : (1) Did STAB r e p l a c e t h e o l d S t a t e Board of Equalization o r d i d t h e Department r e p l a c e t h e o l d s t a t e board with STAB coming i n t o s e p a r a t e and d i s t i n c t a p p e l l a t e board s t a t u s with powers of review over appeals from t h e Department? (2) Does STAB have t h e power t o conduct t r i a l s d e -- novo on appeals from t h e Department? (3) Are t h e f i n d i n g s and conclusions of t h e Department e n t i t l e d t o a presumption of correctness? This Court has been asked t o i n t e r p r e t t h e provisions of t h e 1972 Montana C o n s t i t u t i o n and t h e laws enacted pursuant t o t h a t provision c r e a t i n g an independent appeal procedure f o r aggrieved taxpayers. A r t i c l e V I I I , Section 7, 1972 Montana C o n s t i t u t i o n , provides: "Tax appeals. The l e g i s l a t u r e s h a l l provide in- dependent appeal procedures f o r taxpayer grievances about a p p r a i s a l s , assessments, e q u a l i z a t i o n , and taxes. The l e g i s l a t u r e s h a l l include a review procedure a t t h e l o c a l government u n i t l e v e l . " Chapter 405, Laws of 1973, w a s enacted t o implement t h e c o n s t i t u t i o n a l d i r e c t i o n s . Chapter 405 i s e n t i t l e d : "An A c t t o Provide f o r a General Revision of t h e Tax Laws of Montana t o Implement A r t i c l e V I I I , Sections 3 and 7 of t h e 1972 Montana Constitution by Designating the State Department of Revenue as the Tax Administration Agency for the State of Montana, by creating a State Tax Appeal Board, by Designating County Assessors as Agents of the State Department of Revenue and by Pro- viding for County Tax Appeal Boards; and to Repeal * * *." Under the 1973 Act, the old State Board of Equalization (SBE) ceased to exist, its members becoming the first STAB, sec- tion 84-701, R.C.M. 1947. In section 84-402(3), R.C.M. 1947, the Department was given: " * * * full charge of appraising all property subject to taxation and equalizing values * * *." The Department's powers and duties include the following as set forth in section 84-708.1, R.C.M. 1947: "(1) To annually assess the franchise, roadway, roadbeds, rails, and rolling stock, and all other property of all railroads * * * constituting a single and continuous property operated in more than one (1) county in the state, and to apportion such assessments to the counties in which such properties are located on a mileage basis * * *." "(3) To adjust and equalize the valuation of taxable property among the several counties, and the different classes of taxable property in any county and in the several counties and between individual taxpayers; * * * and exercise such authority and do all things necessary to secure a fair, just and equitable valuation of all tax- able property among counties between the differ- ent classes of property and between individual taxpayers." The STAB was formed pursuant to section 84-708, R.C.M. 1947, and given the following powers and duties: "(1) To prescribe rules and regulations for the tax appeal boards of the different counties * * * "(2) To hear appeals from decisions of the county appeals boards; "(3) To hear appeals from decisions of the de- partment of revenue in regard to business licenses, property assessments, taxes and penalties. " (5) The state tax appeal board shall have the d u t i e s of an appeal board r e l a t i n g t o such o t h e r matters a s may be provided by law." Following t h e assessment of r a i l r o a d s by t h e Department, i n s e c t i o n 84-802.1, R.C.M. 1 9 4 7 , it states: " * * * any aggrieved p a r t y may appeal t o t h e s t a t e t a x appeal board according t o t h e r u l e s and r e g u l a t i o n s of s a i d board." The Department asks t h i s Court t o make a determination a s t o which bodies received t h e powers of t h e o l d S t a t e Board of Equalization. The Department contends it is t h e successor t o t h e SBE i n a l l r e s p e c t s , b u t a reading of t h e c l e a r language of t h e p r e s e n t and former revenue s t a t u t e s i n d i c a t e s otherwise. The Department received t h e a d m i n i s t r a t i v e powers of t h e SBE contained i n former s e c t i o n 84-708. See s e c t i o n 84-708.1, and t h e t i t l e t o Chapter 405, Laws of 1973. The a p p e l l a t e powers of t h e SBE were t r a n s f e r r e d t o STAB by t h e new s e c t i o n 84-708. The i n t e n t of t h e l e g i s l a t u r e t o maintain c o n t i n u i t y and t r a n s f e r S B E ' s t a x a p p e l l a t e powers t o STAB is shown by Section 51, Chapter 405, Laws of 1973: "Section 84-707, R.C.M. 1947, i s amended t o read a s follows: "'84-707. Continuity of a c t i o n of former board. A l l records, books, documents, r e p o r t s , and correspondence r e l a t i n g t o t a x appeals, received and kept by t h e former s t a t e board of equaliza- t i o n , s h a l l immediately, upon t h e organization of t h e new board [STAB], be t r a n s f e r r e d t o it f o r its use and convenience. The board s h a l l continue and complete any and a l l work r e l a t i n g t o t a x appeals undertaken o r commenced and not completed by i t s predecessor.'" Unfortunately, t h e l e g i s l a t u r e had e a r l i e r repealed s e c t i o n 84- 7 0 7 , R.C.M. 1947, i n Section 58, Chapter 1 0 0 , Laws of 1973. Sec- t i o n 43-515, R.C.M. 1947, provides: "An a c t amending a s e c t i o n of an a c t repealed is void." This is t r u e , even i f t h e r e p e a l w a s inadvertent. I n re Naegele, 7 0 Mont. 1 2 9 , 224 P. 269; S t a t e v. Brennan, 89 Mont. 479, 300 P. 273. The c o n t i n u i t y s t a t u t e i s void, but t h e i n t e n t of t h e l e g i s l a t u r e t o t r a n s f e r t h e a p p e l l a t e power t o STAB i s shown by t h e attempted amendment of t h e s t a t u t e . The l a s t a c t of t h e l e g i s l a t u r e i n d i c a t e s i t s i n t e n t . I n re Naegele, supra. STAB is independent of t h e Department. A r t i c l e V I I I , Section 7, 1972 Constitution, mandated t h e t a x appeal procedures be independent. STAB was t r a n s f e r r e d t o t h e Department of Ad- m i n i s t r a t i o n f o r a d m i n i s t r a t i v e purposes only. Section 84- 702, R.C.M. 1947. It i s s t a t e d i n 82A-108(1)(a), R.C.M. 1947, t h a t an agency a l l o c a t e d t o a department f o r a d m i n i s t r a t i v e purposes only s h a l l : "Exercise i t s q u a s i - j u d i c i a l , q u a s i - l e g i s l a t i v e , l i c e n s i n g , and policy-making functions independ- e n t l y of t h e department and without approval o r c o n t r o l of t h e department." W e a r e required by s t a t u t e , s e c t i o n 93-401-16, R.C.M. 1 9 4 7 , t o look t o t h e p l a i n language of t h e l e g i s l a t i v e enactment t o f i n d t h e i n t e n t of t h e l e g i s l a t u r e . S t a t e v. Midland N a t ' l . Bank, 132 Mont. 339, 317 P.2d 880; Morrison v. Farmers' E t c . S t a t e Bank, 70 Mont. 146, 225 P. 123. The c l e a r i n t e n t of t h e l e g i s l a t u r e , a s s e t f o r t h i n Chapter 405, Laws of 1973, was t o place t h e t a x a d m i n i s t r a t i v e powers i n t h e Department and t h e t a x a p p e l l a t e powers i n STAB. W e must now determine whether STAB, a s t h e t a x appeals body, has t h e a u t h o r i t y t o r e c e i v e , during a hearing on an appeal from a d e c i s i o n by t h e Department, evidence n o t presented t o t h e Department during t h e t a x assessment procedure. A s was s t a t e d above, STAB i s a l l o c a t e d t o t h e Department of Administration f o r a d m i n i s t r a t i v e purposes only. Section 84- 702. The hearing procedures provided i n t h e Administrative Pro- cedure Act (Chapter 4 2 , T i t l e 8 2 , R.C.M. 1947) does not apply t o STAB s i n c e s e c t i o n 84-709, R.C.M. 1947, l i m i t s t h e e f f e c t of t h e A c t on STAB. Section 82-4223, R.C.M. 1947. The STAB hearing procedures are contained in section 84-709: "Appeal to state tax appeal board--hearing. Any person, firm or corporation or the department of revenue in behalf of the state, or any municipal corporation, aggrieved by the action of any county tax appeal board, may appeal to the state board * * * at the time of giving notice [to the county board and appellant] the state board may require the county board to certify to it the minutes of the proceedings resulting in such action and all testimony taken in connection therewith, and the state board may, in its discretion, determine the appeal on such record if all parties receive a copy of the transcript and are permitted to submit additional sworn statements, or may hear further testimony. * * * In connection with any appeal the state board shall have the authority to affirm, reverse, or modify any decision appealable to the state tax appeal board; the decision of the state tax appeal board shall be final and bindinq upon all interested parties unless reversed or modified by judicial review. To the extent this section is in conflict with the Montana Administrative Procedure Act, this section shall supersede the Montana Administrative Procedure Act. The state tax appeal board shall not have authority to amend or repeal any administrative rule or regulation. The state tax appeal board must give an-adminis- trative rule or requlation full effect unless the board finds any such rule or requlation arbitrary, capricious or otherwise unlawful." (Emphasis added.) The Department places great emphasis on the fact that the final four sentences of section 84-709 (added by Chapter 277, Laws of 1974) do not contain language permitting additional statements or testimony, as does the preceding portions of the statute. We cannot place the same emphasis on this language. We must presume the legislature knew what it was doing and was cognizant of the statutes of Montana as then enacted. Helena Valley Irrigation Dist. v. St. Hwy. Comm'n, 150 Mont. 192, 433 P.2d 791. STAB had been transferred to the Department of Administration by Chapter 405, Laws of 1973, for administrative purposes only. Therefore, the executive reorganization statutes (Chapter 82A, R.C.M. 1947) would apply to STAB. The following two definitions in section 82A-103, R.C.M. 1947, apply to STAB: "(2) 'Agency' means an office, position, com- mission, committee, board, department, council, division, bureau, section, or any other entity o r i n s t r u m e n t a l i t y of t h e executive branch of s t a t e government. " ( 9 ) 'Quasi-judicial function' means an adjudi- c a t o r y function exercised by an agency, involv- ing t h e e x e r c i s e of judgment and d i s c r e t i o n i n makins determinations i n controversies. The d t e r m includes, b u t is not l i m i t e d t o , t h e func- t i o n s of i n t e r p r e t i n g , applying, and enforcing e x i s t i n g r u l e s and l a w s ; g r a n t i n g o r denying p r i v i l e g e s , r i g h t s , o r b e n e f i t s ; i s s u i n g , sus- pending, o r revoking l i c e n s e s , permits, and c e r t i f i c a t e s ; determining r i g h t s and i n t e r e s t s of adverse p a r t i e s ; evaluating and passing on f a c t s ; awarding compensation; f i x i n g p r i c e s ; ordering a c t i o n o r abatement of a c t i o n ; adopt- ing procedural r u l e s ; holding hearings; and any o t h e r a c t necessary t o t h e performance of a quasi- j u d i c i a l function. " (Emphasis added. ) The Department argues STAB i s n o t a q u a s i j u d i c i a l body; w e agree. S T A B does n o t q u a l i f y a s such a body a s defined i n s e c t i o n 82A-112(1), R.C.M. 1947. But, q u a s i j u d i c i a l functions can be performed by agencies which a r e n o t q u a s i j u d i c i a l bodies. I f t h i s were not so, t h e t r a n s f e r of STAB t o t h e Department of Administration would be meaningless. Section 84-702 r e f e r s t o s e c t i o n 82A-108 a s specifying t h e l i m i t s of t h e t r a n s f e r . The l a t t e r s e c t i o n provides f o r t h e e x e r c i s e of q u a s i j u d i c i a l , quasi l e g i s l a t i v e , l i c e n s i n g and policy making functions inde- pendently of t h e Department. O f t h e denoted functions, STAB c l e a r l y can perform none of these, except t h e q u a s i j u d i c i a l function. Therefore, w e must presume t h e l e g i s l a t u r e intended STAB t o perform q u a s i j u d i c i a l functions o r render t h e s t a t u - t o r y a c t i o n meaningless. A s s t a t e d i n Kish v. Mont. S t a t e Prison, 161 Mont. 297, 301, 505 P.2d 891, w e have held many t i m e s : "The l e g i s l a t u r e does not perform u s e l e s s a c t s . " See a l s o , Helena Valley I r r i g a t i o n D i s t . v. S t . Hwy. Comrn'n, supra; Missoula Rural F i r e D i s t r i c t v. C i t y of Missoula, Mont . I STAB i s empowered t o e x e r c i s e i t s judgment and d i s c r e t i o n . To a s s i s t i n t h e e x e r c i s e of t h i s power STAB may do t h e follow- ing, pursuant t o s e c t i o n 84-708, R.C.M. 1947: " ( 4 ) Hearings, witnesses, contempt, f e e s and subpoenas. Oaths t o witnesses i n any i n v e s t i - g a t i o n by t h e s t a t e t a x appeal board may be ad- ministered by a member of t h e board o r h i s agent. I n case any witness s h a l l f a i l t o obey any summons t o appear before s a i d board, o r s h a l l r e f u s e t o t i o n s , o r t o produce records, books, papers, o r documents when required t o do so, such f a i l u r e o r r e f u s a l s h a l l be reported t o t h e a t t o r n e y general, who s h a l l thereupon i n s t i t u t e proceedings i n t h e proper d i s t r i c t c o u r t t o punish t h e witness f o r such n e g l e c t o r r e f u s a l . * * *I1 (Emphasis added.) I f a witness refusing t o t e s t i f y o r provide documents can be held i n contempt, STAB must have t h e power t o call witnesses t o t e s t i f y o r p r e s e n t documents, not only on appeals from county boards, b u t a l s o on s u b j e c t s not presented t o t h e Department dur- ing t h e assessment procedure. I f t h i s were n o t t h e case, STAB could only decide m a t t e r s on t h e record forwarded by t h e Depart- ment, with s e c t i o n 84-708(4), R.C.M. 1947, l i m i t e d t o appeals from county boards. W e have already discussed t h e presumption t h e l e g i s l a t u r e knows t h e l a w a s then enacted, t h e r e f o r e t h e l e g i s l a t u r e must have intended STAB under Chapter 277, Laws of 1974 ( t h e l a s t four sentences of s e c t i o n 84-709) would have t h e use of t h e o a t h and contempt powers of s e c t i o n 84-708(4). To do so, STAB must be a b l e t o t a k e a d d i t i o n a l testimony and r e c e i v e a d d i t i o n a l evidence. The Department contends t h e hearing before STAB w a s a t r i a l d e novo. I n t h e i n s t a n t c a s e t h e r e was no de novo t r i a l . -- -- STAB heard evidence a d d i t i o n a l t o t h a t presented t o t h e Depart- ment, but d i d not d i s r e g a r d t h e Department's findings. The evi- dence was supplementary t o , n o t i n replacement o f , t h e record provided by t h e Department. The assessment functions remained i n t h e Department, while STAB reviewed t h e assessment ( a s it may under s e c t i o n 84-708(3), R.C.M. 1947), augmenting t h e record so it might better perform its duty, as stated in section 84- 709: " * * * to affirm, reverse or modify any decision appealable to the state tax appeal board * * *I!. To perform this function, STAB may have a complete de novo -- hearing, for the infrequent case in which the board is of the opinion that it should examine all of the record of the Depart- ment, and additional evidence, on a firsthand basis, so as to reach a fair, just and equitable holding. In the instant case STAB did not affirm nor reverse the decision of the Department; it modified the decision to include or exclude matters which it, in its judgment and discretion, believed should be taken into consideration in the process of assessing BN for its property in this state. The Department argues it should have a presumption of correctness, thereby saddling BN with the burden of proving the Department's conclusions were arbitrary or capricious or illegal. The Department does have a presumption of correctness if its decisions are pursuant to an administrative rule or regulation, and the rule or regulation is not arbitrary, capricious or other- wise unlawful. Section 84-709. The Department has not promul- gated a rule or regulation prescribing the method to be used in assessing railroad property. Without such a rule or regulation, STAB has the discretion to examine the procedures used by the Department, with any additional evidence it may receive, to deter- mine whether the procedures, and decisions based on such procedures, are fair, just and equitable. The Department contends a rule or regulation describing the method of assessment of railroads would freeze the weight given each assessment factor. We do not agree. The Department can draft a rule or regulation setting forth the assessment methods without freezing the factor weights, if the method used to determine the weights on a year to year basis is in- cluded in the rule or regulation; e.g. a listing of the con- siderations to be used to determine the weights given each factor. The Department also raises the issue of whether a full de novo hearing allows sufficient time to complete the tax -- assessment and allocation procedures in the time prescribed by statute (section 84-802). The legislature, in its wisdom, has decreed that the procedure as described in this opinion be used in assessing and contesting tax cases. If insufficient time to complete the procedure is a reality, the legislature may take action to correct the problem. The Department has the duty to recommend such legislation. Section 84-708.1(14), R.C.M. 1947. To summarize, we hold the powers and duties of the old SBE were divided between the Department (administrative) and STAB (appellate). STAB has the authority to receive, during a hearing, testimony and evidence not presented to the Department during the tax assessment procedure. STAB performs quasi judicial functions, although not a quasi judicial body. While performing these functions, it may conduct a de novo hearing in the event -- the Department has (a) not promulgated administrative rules or regulations covering the tax matter over which the appeal arises, and (b) STAB is of the opinion firsthand knowledge of all facts of the matter is necessary. A decision of the Department is not entitled to a presumption of correctness if the decision is not pursuant to an administrative rule or regulation, or the decision, rule or regulation is arbitrary, capricious or otherwise unlawful. A rule or regulation describing the method of assessing rail- roads need not freeze the weight given assessment factors. Only the legislature may correct any problem arising due to any lack of s u f f i c i e n t t i m e t o complete assessment and a l l o c a t i o n pro- cedures under t h e s t a t u t o r y scheme set o u t i n T i t l e 3 4 , R.C.M. W e a f f i r m t h e judgment and o r d e r of t h e d i s t r i c t c o u r t , except t h e holding t h a t STAB replaced t h e o l d SBE a s w e have held both t h e Department Chief J u s t i c e W e concur: