NO. 95-130 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1995 

FARMERS UNION CENTRAL 

EXCHANGE, INCORPORATED, 

d/b/a CENEX, 

Petitioner and Appellant, 

v. 

THE DEPARTMENT OF REVENUE 

OF THE STATE OF MONTANA, 

~~~-~~~~~~~~ 

CbG4K OF sljWli&ME &uwa 

and THE STATE TAX APPEAL 

BOARD OF THE STATE OF MONTANA, 

Respondents and Respondents. 

APPEAL FROM: District Court of the Thirteenth Judicial District, 

In and for the County of Yellowstone, 

The Honorable William J. Speare, Judge presiding. 

COUNSEL OF RECORD: 

For Appellant: 

David A. Veeder; Veeder Law Firm, Billings, Montana 

For Respondents: 

Lawrence G. Allen, Special Assistant Attorney 

General, Montana Department of Revenue, Helena, 

Montana 

Filed: 

Submitted on Briefs: June 20, 1995 

Decided: August 17, 1995 

ClerK 
Justice Karla M. Gray delivered the Opinion of the Court. 

The Thirteenth Judicial District Court, Yellowstone county, 

affirmed a decision of the State Tax Appeal Board (STAB) concerning 

the proper tax classification of certain property owned by Farmers 

Union Central Exchange, Inc., d/b/a Cenex. Cenex appeals. We 

affirm. 

The issues before us are whether the District Court applied 

the correct standard of review and whether it erred in affirming 

STAB's conclusion that the disputed property was class eight 

property rather than class four property. 

This action involves the classification, for state tax 

purposes, of equipment and machinery added to the Cenex oil 

refinery complex near Laurel, Montana, in 1991. The refinery 

complex is comprised of a raw material storage facility, a refinery 

processing facility, and a product blending and storage facility. 

An industrial appraiser for the Department of Revenue (DOR) 

classified and appraised the new property for the year 1992. He 

determined that the property here in dispute was class eight 

property pursuant to § 15-6-138(l) (c) and (o), MCA. 

Section 15-6-138(l) (c), MCA, provides that "all manufacturing 

machinery, fixtures . . [and1 equipment" is class eight 

property. The items of property so classified included a boiler 

house fuel gas manifold, cooling tower header improvements, a coal 

filter bed upgrade, three parts of a hydrocarbon loss recovery 

system, a plant air drier, an opticrom ADV gasoline chromatograph, 

a Grabner CCA-V, an alky unit KOH scrubber, two oxygen analyzers, 

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asphalt product handling improvements, a crude truck unloading 

system for tank storage, a heavy product flash point tester, and 

two spare fuel oil pumps. 

Section 15-6-138(l) co), MCA, provides that "all other property 

not included in any other class in this part" shall be taxed as 

class eight property. The DOR appraiser placed eight hydrogen 

sulfide and carbon dioxide monitors, a breathing air compressor, a 

manlift, and tank level gauges in this category. 

Cenex appealed the DORIS assessment, arguing that some items 

of property had been improperly classified as class eight property. 

It contended that these items are components of a storage facility 

and, as a result, are class four property under 5 15-6-134, MCA. 

The rate of taxation is significantly lower for class four property 

than for class eight property. 

The Yellowstone County Tax Appeal Board granted Cenex the 

class four classification it requested on most of the disputed 

property, with the exception of some computer software. The DOR 

then appealed to STAB, which reversed the decision of the Yellowstone County Tax Appeal Board and affirmed the DOR's appraisal and 

classification regarding the twenty-eight items at issue here. 

Cenex petitioned the District Court for judicial review. The 

District Court affirmed STAB's decision, thus upholding the DORIS 

appraisal and classification. Cenex now appeals to this Court. 

Issue 1 

Did the District Court apply the correct standard of review? 

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The standards for judicial review of administrative decisions, 

such as those of STAB, are set forth in § 2-4-704, MCA. This court 

has interpreted § 2-4-704, MCA, to mean that an agency's findings 

of fact are subject to a "clearly erroneous" standard of review, 

while an agency's conclusions of law are reviewed to determine 

whether they are correct. Steer, Inc. v. Department of Revenue 

(1990), 245 Mont. 470, 474, 803 P.2d 601, 603. 

In the present case, STAB specifically concluded as a matter 

of law that "[t]he disputed properties have been properly classified in class eight." In reviewing that determination, the 

District Court reasoned: 

At the outset this Court finds that despite [Cenex's] 

contentions that there are no disputes with the Tax 

Appeal Board's Findings of Fact, this Court disagrees. 

The whole matter of fixing a classification of property 

is factual as well as legal. In short it is a mixed 

matter of fact and law. This becomes important when the 

Court makes its determination as to the standard of 

review. 

The District Court applied the three-part "clearly erroneous" 

standard of review for findings of fact set forth in State Comp. 

Mut. v. Lee Rest Logging (1992), 252 Mont. 97, 102, 827 P.2d 85, 

88. 

This Court has stated: 

In reviewing conclusions of law, questions of law, or 

legal components of ultimate facts, or mixed questions of 

law and fact, we will decide if the . . . determination 

as to law is correct. 

Maguire v. State (1992), 254 Mont. 178, 182, 835 P.2d 755, 757-58. 

Maquire clarifies that only "pure" findings of fact are reviewed 

under the clearly erroneous test. The issue of the proper 

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classification of property is reviewed under the "correct interpretation" standard. See United Grain v. Department of Revenue 

(1991), 248 Mont. 297, 301-03, 811 P.2d 555, 558-59. 

The District Court should have reviewed STAB's conclusion that 

the DOR had properly classified the property in class eight for its 

correctness as a matter of law. We conclude, therefore, that the 

District Court applied the wrong standard of review. 

We have stated, however, that where a district court reaches 

the correct result, the decision will be affirmed regardless of the 

court's reasoning. See Lindey's, Inc. v. Goodover (19941, 264 

Mont. 449, 453, 872 P.2d 764, 766 and Tisher v. Norwest Capital 

Mgt. & Trust (1993), 260 Mont. 143, 153-54, 859 P.2d 984, 990. We 

proceed, therefore, to an analysis of whether STAB's decision was 

correct as a matter of law. 

Issue 2 

Did the District Court err in affirming STAB's conclusion that 

the disputed property was class eight property rather than class 

four property? 

The parties agree that the property at issue in this case is 

properly classified as either class four or class eight property. 

The property within these classes is set forth in §§ 15-6-134 and 

15-6-138, MCA, respectively. 

Class four property includes, in pertinent part, "all improvements, including trailers or mobile homes used as a residence, 

except those specifically included in another class." Section 15- 

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6-134(l) (b), MCA. ARM 42.22.1303 further elaborates that "all 

storage facilities shall be treated as improvements to land." 

Class eight property includes, in pertinent part, "all 

manufacturing machinery, fixtures, equipment . [and] all other 

property not included in any other class in this part." Section 

15-6-138(l) (c) and (o), MCA. 

STAR determined that the Cenex property did not constitute 

class four "improvements." It reasoned that the property was part 

of an overall manufacturing process and was not part of a storage 

facility which might then warrant consideration as improvements to 

land. Therefore, STAR classified each of the twenty-eight items as 

class eight property, under 5 15-6-138(c) and (01, ,MCA. 

Cenex argues that the disputed property is not directly used 

in the manufacturing process and, as a result, that it is class 

four property rather than class eight property. It cites the 

testimony of its expert witness, Martin Perga, a chemical engineer 

employed by Cenex for many years. He testified to the specific use 

of each item of disputed property. Cenex contends that examining 

the use of each of the twenty-eight disputed items of property 

establishes that the property either is not used in the manufacturing process or is part of a storage facility. 

At the STAB hearing, Cenex bore the burden of proving that the 

DORIS classification was incorrect. See Western Airlines, Inc. v. 

Michunovich (1967), 149 Mont. 347, 353, 428 P.2d 3, 7, cert. denied 

389 U.S. 952 (1967). Perga, Cenex's sole witness as to the actual 

classification of the property, admitted he did not have experience 

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in property tax classification and had not reviewed the relevant 

Montana property tax classification statutes. On the other hand, 

during his testimony, the DORIS appraiser substantiated the 

statutory and administrative rule bases for his classification of 

each item of contested property. Thus, we conclude that to the 

extent its argument is based upon Perga's testimony, Cenex failed 

to overcome the presumption that the DOR's classifications are correct. 

Cenex also relies heavily upon this Court's language in United 

Grain, where we stated that 'I§ 15-6-134, MCA, together with ARM 

42.22.1303, requires that if the machinery is used in a storage 

facility it is properly classified as class four." United Grain, 

811 P.2d at 557. Cenex argues that seventeen items were incorrectly classified under § 15-6-138(l) cc), MCA, as part of a manufacturing, rather than a storage, facility. 

Cenex’ s reliance on United Grain ignores the important 

distinction we drew in that case between storage and manufacturing 

facilities. The distinction is based on whether the end product 

was "significantly changed" from the material entering the 

facility: 

A review of case law indicates that whether a 

process constitutes "manufacturing" turns upon whether 

the end product of the disputed process is "significantly 

changed" from the original substance. The statutes do 

not define "manufacturing" but the administrative 

regulations define "manufacturing property" as that "used 

to transform raw or finished materials into something 

possessing a new nature or name and adopted to a new 

use. (8 

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United Grain, 811 P.2d at 558 (citations omitted). Thus, our 

resolution of this case depends in large part on whether STAB erred 

in concluding, based on the evidence before it, that the disputed 

property which the DOR classified under § 15-6-138(l) (c), MCA, was 

part of a manufacturing facility as we defined it in United Grain. 

Perga testified that the refinery at Laurel receives crude oil 

by pipeline or truck and stores it in tanks. The processing unit 

draws on the crude oil contained in the storage tanks to make a 

number of intermediate products. Several product streams are then 

blended to achieve a final product. According to Perga, the 

blending of five product streams to produce a finished product with 

a grven octane ratio was not a "transformation." 

While Perga's opinion that no transformation occurred may be 

correct within the purview of chemical engineering, it is not 

correct within the purview of the law. Indeed, Perga's testimony 

supports STAB's conclusion that the process which involved the 

disputed property is a manufacturing process rather than a storage 

process under United Grain. 

Cenex receives crude oil, processes it into intermediate 

products which differ from the crude oil received and then blends 

those products into a finished product. Cenex does not market any 

of the intermediate products separately; the blending is a 

necessary process for achieving a finished product marketable by 

Cenex. Thus, "the end product . is 'significantly changed' 

from the original substance" received by Cenex. See United Grain, 

811 P.2d at 558. The property the DOR classified as class eight 

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under 5 15-6-138(l) (cl, MCA, is used in connection with the process 

of transforming materials into something possessing a new nature 

and, therefore, it constitutes manufacturing property. See United 

Grain, 811 P.2d at 558. STAB cogently summarized the dissimilarity 

between the facility in this case and the facility we determined to 

be a storage facility in United Grain as follows: 

The most conclusive disparity in attempting to use 

United Grain as a probative foundation for Cenex, lies in 

the contrasts between the two firms in the performance of 

the acts of storage. United Grain is a storage business; 

it can provide a storage service for customers or for 

itself; it may accept products from a large clientele; it 

does no manufacturing; it sells its product to a large 

class of potential buyers and users. 

By contrast, from the record, Cenex does not have or 

solicit storage customers; no businesses bring materials 

or products to be stored; Cenex does not sell intermediate products for itself or others for purposes not 

related to its refinery function and activities, including the processing and sale of waste products. Cenex is 

an integrated manufacturer; its products are designed to 

be produced by it and to be sold through its own network 

of outlets. . . We repeat, Cenex performs storage 

functions but it is not a storage facility. 

Finally, Cenex incorrectly asserts that class eight property 

includes only property used directly in a manufacturing process. 

While it is true that § 15-6-138(l) cc), MCA, specifically includes 

manufacturing machinery, fixtures, equipment, and tools, § 15-6- 

138(l) (o), MCA, includes as class eight property "all other 

property not included in any other class in this part." The words 

"in this part" clearly relate to all of Title 15, Chapter 6, part 

1, MCA, which is captioned "Classification" and includes class one 

property through class twelve property. Thus class eight property, 

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including the eleven items here classified under subsection (1) 

Co), is not limited to property used directly in a manufacturing 

process. 

We conclude that STAE? did not err in classifying the disputed 

items of Cenex property as class eight property. Therefore, we 

hold that the District Court did not err in affirming STAB's 

decision. 

Affirmed. 

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