### No, 13090 INTHE SUPREME COURT 

### OF THE STATE OF MONTANA 1975

THE 

### DEPARTMENT OF REVENUE 

### OF THE 

### STATE OF MONTANA, Appellant,

BURLINGTON NORTHERN INC,, 

### Respondent.

ORIGINAL PROCEEDING: Counsel of Record: ForAppellant: 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: 

### 14titMr. Chief Justice James T. Harrison delivered the Opinion of the Court. This 

### is an appeal from an order and judgment of the districtcourt, Lewis and Clark County, affirming the order of the StateTax Appeal Board setting asidethe 1974 

### assessment made by the Department of Revenue of the operating railroad properties of the Burlington Northern railroad system inMontana. Burlington Northern (BN) operates an interstate railroad system, with lines extending into forty-eight counties of Montana. Each year the Department of Revenue (Department) makes an assessment of the railroad operating properties of BN. Asrequired by statute, section 84-801, R.C.M. 1947, BN provided the Department with a verified statement of the extent and values of BN1soperating properties. The Department assessed BN1sfranchise, roadway, roadbed, railsand rolling stock pursuant to section 84-802, R.C.M. 1947. The assessment was made by the unitmethod, whereby the entire. interstate BN system 

### isvalued by threedistinctand differentmethods: 

### (1)capitalized income; (2) property and plant; (3) stock and debt. Under the capitalized income method the Department averaged BN1searnings for the past two years and capitalized such earnings by 8.25%. The total depreciated cost of the system gives the property and plant value. To find the stock and debt value, the Department uses the accounting theory that liabilities 

### are matched by 

### assets with the stock valued at 

### itsprice on national stock exchanges and debt valued as shown

on BN's books. The three values areweighted depending on the type of industry and the economics of the 

### time. The 1974 weighted factors

### were: 35%for revenue, 35% forplant, and 30%for stock and debt. The totalvalue of the system 

### in 1974 

### was determined tobe $1,272,557,576. This total

was further factored by 17.55%todetermine the proportion of thesystem inMontana ($223,233,855). This Montana value 

### was equalized at40%togive BN a total assessment of $89,333,542. Despite a seriesof conferences between BN and the Department, the final assessment did not resolve allthe differences between the parties. BN requested a formal hearing before the Department to show why the assessment should be lowered. Section 84-802. The hearing was held June 19, 1974. Atthehearing BN was represented by two officers knowledgeable in the property tax area, but not by legal counsel. BN objected toinclusion 

### as debt the amount owed by BN to

### its wholly owned subsidiary, Spokane, Portland and SeattleRailway and objected tothe nonuse of an economic obsolescence factor. Atthe hearing a fivepage letter from BN was introduced and the company officers answered questions from the hearing officer and the Department attorney prior toresting. Other evidentiary material may have been given tothe Department atthe 

### series of meetings conducted during the assessment process. The assessment

was upheld by the hearing officer. BN appealed the Department's holding tothe StateTax Appeals Board (STAB). A hearing was held before STAB on August 28, 1974. BN 

### was represented atthishearing by legal counsel. BN introduced fivewritten exhibits, which were allowed into evidence over the objection of the legal counsel for the Department. The Department argued thematerial and additional arguments

were a trialde novo beyond the appeal power of STAB ascontained 

### -- in section 84-709, R.C.M. 1947. On September 18, 1974, STAB reversed theDepartment's assessment and ordered the BN system's totalvalue be reduced by 25%for economic obsolescence; the SP&Sdebt was totally eliminated; and the cost of plant was augmented to include the net value of leased equipment.The Department sought and 

### was granted,under section 82-4216, R.C.M. 1947, judicial review of the STAB findings, conclusions and order. The districtcourt found STAB, not the Department, had replaced the StateBoard of Equalization; de 

### -- novo 

### trials by STAB were provided for by section 84-709, R.C.M. 1947; the assessmentmade by the Department was not entitled toany presumption of correctness; and STAB could hear such evidence

as 

### it desired and form 

### itsown conclusions astoassessment values. The Department appeals from the districtcourt order and judgment to this Court under section 82-4217, R.C.M. 1947. The issues presented for review by thisCourt are: (1)Did STAB replace the old StateBoard of Equalization

or did the Department replace the old stateboard with STAB coming into separate and distinct appellate board statuswith powers of review over appeals from the Department? (2) Does STAB have the power toconduct trialsde 

### -- novo

on appeals from the Department? (3)Are the findings and conclusions of the Department entitled to a presumption of correctness? This Court has been asked tointerpretthe provisions of the 1972 Montana Constitution and the laws enacted pursuant to that provision creating an independent appeal procedure for aggrieved taxpayers. Article VIII, Section 7, 1972Montana Constitution, provides: "Tax appeals. The legislature shallprovide independent appeal procedures for taxpayer grievances about appraisals, assessments, equalization, and taxes. The legislature shall include a review procedure atthe local government unit level." Chapter 405, Laws of 1973, 

### was enacted to implement the constitutional directions. Chapter 405 is entitled: "An Act toProvide for a General Revision of the Tax Laws of Montana toImplement ArticleVIII, Sections 3 and 7 of the 1972Montana 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 CountyAssessors asAgents of the State Department of Revenue and by Providing 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, section 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 continuousproperty operated inmore than one (1) county in the state,and to apportion such assessments to the counties inwhich 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 taxableproperty 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 taxable property among counties between the different 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 fromdecisions of the county appeals boards; "(3) To hear appeals fromdecisions of the department of revenue in regard to business licenses, property assessments, taxes and penalties.



### "(5) The state tax appeal board shall have thedutiesof an appeal board relating to such other 

### matters asmay be provided by law." Following the assessment of railroads by the Department, in section 84-802.1, R.C.M. 1947, it 

### states: 

### " 

## * * * any aggrieved partymay appeal to the statetax appeal board according tothe rules and regulations of said board." The Department asks thisCourt tomake a determination

astowhich bodies received thepowers of the old StateBoard of Equalization. The Department contends it 

### is the successor to the SBE inallrespects, but a reading of the clear language of the present and former revenue statutes indicates otherwise. The Department received the administrative powers of the SBE contained informer section 84-708. See section 84-708.1, and the title to Chapter 405, Laws of 1973. The appellate powers of the SBE were transferred toSTAB by the new section 84-708. The intent of the legislature tomaintain continuity and transfer SBE's tax appellate powers toSTAB 

### is shown by Section 51, Chapter 405, Laws of 1973: "Section 84-707, R.C.M. 1947, isamended toread as follows: "'84-707. Continuity of action of former board. Allrecords, books, documents, reports, and correspondence relating totax appeals, received and kept by the former stateboard of equalization, shall immediately, upon the organization of the new board [STAB], be transferred to

### it for 

### its use and convenience. The board shall continue and complete any and 

### allwork relating totax appeals undertaken or commenced and not completed by 

### itspredecessor.'" Unfortunately, the legislature had earlier repealed section 84- 707, R.C.M. 1947, inSection 58, Chapter 100, Laws of 1973. Section 43-515, R.C.M. 1947, provides: "An actamending a section of an actrepealed is void." This 

### is true, even if the repeal 

### was inadvertent. In

### re Naegele, 70Mont. 129, 224 P. 269; Statev. Brennan, 89 Mont. 479, 300 P.273. The continuity statute isvoid, but the intent of the legislature totransfer the appellate power to STAB is shown by the attempted amendment of the statute. The lastactof the legislature indicates 

### its intent. In

### re Naegele, supra. STAB 

### is independent of the Department. Article VIII, Section 7, 1972 Constitution, mandated the tax appeal procedures be independent. STAB was transferred tothe Department of Administration for administrativepurposes only. Section 84- 702, R.C.M. 1947. It 

### is stated in 82A-108(1)(a), R.C.M. 1947, that

an agency allocated to a department for administrative purposes only shall: "Exercise 

### itsquasi-judicial, quasi-legislative, licensing, and policy-making functions independentlyof the department and without approval or control of the department." Wearerequired by statute, section 93-401-16, R.C.M. 1947, tolook to the plain language of the legislative enactment to find the intent of the legislature. Statev. Midland Nat'l. Bank, 132 Mont. 339, 317 P.2d 880; Morrison v. Farmers' Etc. StateBank, 70 Mont. 146, 225 P. 123. The clear intentof the legislature, as set forth in Chapter 405, Laws of 1973, was to place the tax administrativepowers inthe Department and the tax appellate powers in STAB. We must now determinewhether STAB, as the tax appeals body, has the authority toreceive, during a hearing on an appeal from a decision by the Department, evidence not presented tothe Department during the tax assessment procedure. Aswas stated above, STAB is allocated tothe Department of Administration for administrativepurposes only. Section 84- 702. The hearing procedures provided in theAdministrative Procedure Act (Chapter 42, Title82, R.C.M. 1947) does not apply to STAB since section 84-709, R.C.M. 1947, 

### limitsthe effect of the Acton 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 ProcedureAct, this section shall supersede the Montana Administrative ProcedureAct. 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-administrative rule or requlation full effect unless the board finds any such rule or requlation arbitrary, capricious or otherwiseunlawful." (Emphasisadded.) The Department places great emphasis on the fact that the final four sentences of section 84-709 (addedby Chapter 277, Laws of 1974) do not contain language permitting additional statements or testimony,as does the preceding portions of the statute. We cannotplace the same emphasis on this language. We must presume the legislature knewwhat it was doing and was cognizant of the statutes of Montana as then enacted. Helena Valley Irrigation Dist. 

### v. St. Hwy. Comm'n, 150Mont. 192, 433 

### P.2d 791. STAB had been transferred to the Departmentof Administration by 

### Chapter 405, 

### Laws of 1973,for administrative purposes only. Therefore, the executive reorganization statutes

(Chapter82A,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, commission, committee,board, department,council, division, bureau, section, or any other entityor instrumentalityof the executive branch of stategovernment.

"(9) 'Quasi-judicial function' means an adjudicatory function exercised by an agency, involving the exercise of judgment and discretion in makins determinations incontroversies. The

d 

### termincludes, but 

### is not limited to, the functions of interpreting, applying, and enforcing existing rules and 

### laws; granting or denying privileges, rights, or benefits; issuing, suspending, or revoking licenses, permits, and certificates; determining rights and interests of adverse parties; evaluating and passing on facts; awarding compensation; fixingprices; ordering action or abatement of action; adopting procedural rules; holding hearings; and any other actnecessary tothe performance of a quasi-judicial function.

### " (Emphasis added.) The Department argues STAB isnot a quasijudicial body;



### we agree. STAB does not qualify as such a body asdefined in section 82A-112(1), R.C.M. 1947. But, quasi judicial functions

can be performed by agencies which arenot quasijudicial bodies. If thiswere not so, the transfer of STAB tothe Department of Administration would be meaningless. Section 84-702 refers to section 82A-108 as specifying the 

### limitsof the transfer. The latter sectionprovides for the exercise of quasijudicial, quasi legislative, licensing and policy making functions independently of the Department. Of the denoted functions, STAB clearly can perform none of these, except the quasi judicial function. Therefore, 

### we must presume the legislature intended STAB toperform quasi judicial functions or render the statutory actionmeaningless. As stated inKish v. Mont. StatePrison, 161Mont. 297, 301, 505 P.2d 891, 

### we have held many 

### times: "The legislature does not perform useless acts." See also, Helena Valley Irrigation Dist. 

### v. St. Hwy. Comrn'n, supra; Missoula Rural Fire District v. City of Missoula, Mont

# . I

STAB is empowered to exercise itsjudgment and discretion.To assist inthe exercise of thispower STAB may do the following, pursuant to section 84-708, R.C.M. 1947: "(4) Hearings, witnesses, contempt, fees and subpoenas. Oaths towitnesses inany investigation by the statetax appeal board may be administered by a member of the board or his agent. In case any witness shall failtoobey any summons toappear before said board, or shall refuse to tions, or toproduce records, books, papers, or documents when required todo so, such failure orrefusal shallbe reported tothe attorney general, who shall thereupon instituteproceedings inthe proper districtcourt topunish thewitness for such neglect or refusal. 

## * * *I1 (Emphasis added.) If a witness refusing totestifyorprovide documents

can be held incontempt, STAB must have the power to

### callwitnesses to testify orpresent documents, not only on appeals from county boards, but alsoon subjectsnot presented tothe Department during the assessment procedure. If thiswere not the case, STAB could only decidematters on the record forwarded by the Department, with section 84-708(4), R.C.M. 1947, limited toappeals from county boards. Wehave already discussed the presumption the legislatureknows the 

### lawasthen enacted, therefore the legislaturemust have intended STAB under Chapter 277, Laws of 1974 (the

### last four sentences of section 84-709) would have the

use of the oath and contempt powers of section 84-708(4). To do so, STAB must be able to take additional testimony and receive additional evidence. The Department contends the hearing before STAB 

### was a trialde novo. In the instant case therewas no de novo trial. 

## -- -- STAB heard evidence additional tothatpresented tothe Department, but did not disregard theDepartment's findings. The evidence was supplementary to, not inreplacement of, the record provided by the Department. The assessment functions remained inthe Department, while STAB reviewed the assessment (as

### itmay under section 84-708(3), R.C.M. 1947), augmenting the record

### so itmight 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, STABmay have a 

### completede novo 

### -- hearing, for the infrequent case in which the board is of the opinion that it should examine all of the record of the Department, 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; itmodified 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, capriciousor otherwise unlawful. Section 84-709. 

### The Departmenthas not promulgated 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 itmay receive, to determine 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 factorweights, if the method used to determine the weights on a year to year basis is included in the rule or regulation;e.g. a listing of the considerations 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 (section84-802). The legislature, in itswisdom, 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 legislaturemay take action to correct the problem. The Departmenthas 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 assessmentprocedure. STAB performs quasi judicial functions, although not a quasi judicial body. While performing these functions, itmay 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 knowledgeof 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 railroads need not freeze the weight given assessment factors. Only the legislaturemay correct any problem arising due to any lackof sufficient 

### timeto complete assessment and allocationprocedures under the statutory scheme 

### set out inTitle 34, R.C.M.

We affirm the judgment and order of the districtcourt, except the holding that 

### STAB replaced the old 

### SBE as

### we have held both the Department

Chief Justice Weconcur: