No. 90-212 IN THE SUPREME COURT OF THE STATE OF MONTANA 1990

PACIFIC POWER & LIGHT COMPANY, PORTLAND GENERAL ELECTRIC COMPANY, ,p*'~"- a WASHINGTON WATER POWER COMPANY, PUGET SOUND POWER & LIGHT COMPANY, and THE MONTANA POWER COMPANY, +' - Plaintiffs and Appellants, JQ$

### 1?

### 1991

-vsMONTANA DEPARTMENT OF REVENUE, et al., Defendants and Respondents.

APPEAL FROM: District Court of the First Judicial District, In and for the County of Lewis and Clark, The Honorable Henry Loble, Judge presiding.

COUNSEL OF RECORD: ForAppellants: Donald R. Murray,Jr.; Murphy, Robinson,Heckathorn & Phillips, P.C., Kalispell, Montana Thomas

### H. Nelson;Stoel,Rives,Boley,Jones & Grey, Portland, Oregon For Respondents: David W. Woodgerd, Chief Legal Counsel, Department of Revenue, Helena, Montana Paul VanTricht,TaxCounsel, Departmentof Revenue, Helena,Montana Larry G. Schuster, Department of Revenue, Helena, Montana

Filed: Submitted: December 6, 1990 Decided: January 10, 1991

ClerkJustice Diane G. Barz delivered the Opinion of the Court. Appellants appeal an order of the First Judicial District Court, Lewis and Clark County, in a consolidated proceeding for declaratory and injunctive relief, upholding the validity of the Montana Department of Revenue's (DOR)assessment of beneficial use taxes against the appellants pursuant to 

### 5 15-24-1203, MCA. Appellants are challenging the beneficial use taxes for tax years 1985, 1986, and 1987, upon certain federally-owned 500 kilovolt (KV)transmission lines located between Townsend, Montana, and the Idahoborder. The District Court granted DORISmotion forpartial summary judgment on res judicatagroundsandheld that thisCourt's earlier decisions in Pacific Power and Light Company v. Montana Department of Revenue (1989), 237 Mont. 77, 773 P.2d 1176, and Portland General Electric Company

### v. Montana Department of Revenue

(1989), 237 Mont. 324, 773 P.2d 1189,were dispositive of some of the issues before the District Court. On January 25, 1990, following trial on theremaining issues, theDistrict Court entered

an order denying the appellants' claims. The District Court held that the Colstrip Owners had not sustained the burden of proving that the assessment of the beneficial use taxes had violated any statutory or constitutional rights. We affirm. The factual background leading up to this case has been previously set forth in Pacific Power and Lisht and Portland General Electric, therefore, we will discuss only the facts necessary to dispose of the relevant issues. The appellants (Colstrip Owners) are five investor-ownedI i

I , utilities which own undivided interests in coal-fired generating plants at Colstrip, Montana. The Colstrip Owners (Pacific Power & Light Company (PPL), Puget Sound Power & Light Company (Puget), Washington Water Power Company (WP), Portland General Electric Company (PGE)

## ,andMontana PowerCompany (MPC) )

## ,have been assessed beneficial use taxes under 

### 5 15-24-1203,MCA, for tax years 1985, 1986, and 1987 with regard to the use of the 500 KV federallyowned transmission linebetweenTownsendandGarrison,Montana,and for tax years 1986 and 1987 with regard to the 500 KV federallyowned transmission linesbetweenHot Springs,Montana and the Idaho border and between Garrison and the Idaho border. The Colstrip Owners constructed ColstripUnits 3 and 4 in 1983 and 1985 respectively. Units 3 and 4 each generate 700 megawatts of electricity for transmissionwest. The energy from the Colstrip units is transmitted over the Colstrip Ownersf two 500 KV transmission lines to its substation at Broadview, Montana, and from the Broadview substation over the Colstrip Ownerst 500 KV lines to a point near Townsend,Montana. At Townsend, the 500 KV lines interconnectwith theBonnevillePower Administration's (BPA) 500KV transmission lines. BPA constructeda substation on theHot Springs to Idaho border 500 KV line (referred to as the I1Taft substationI1)and a Garrison to Taft 500 KV line, to accommodate the increased energy from Colstrip Units 3 and 4. Prior to the completion of the Garrison to Taft 500 KV line, there was no interconnecting500KV linewest fromtheGarrison substation. The Garrison to Taft 500 KV line became operational in October, 1985, and was declared available for service in January, 1986. Colstrip.I power first flowed fromtheGarrison substation across theGarrison to Taft lineduringOctober, 1985. At theGarrison substation,two 230 KV lines run north and interconnect with the Hot Springs substation. These 230 KV lines were known as the ffbottleneckff and

were the only means of transmitting power west from Garrisonprior to BPAfsconstruction of the Garrison to Taft 500 KV line. The transmission of Colstrip energy from the Garrison substationwest, is governed by a series of agreements referred to

as the IfGarrisonWestn agreements, entered into by each of the Colstrip Owners with BPA. The transmission demands of each Colstrip Owner as set forth in their respective Garrison-West agreements served as the basis for DORfs allocation of the beneficial use tax. The total cost of the BPA transmission facilities were allocated to theColstripOwners as a ratio of each ColstripOwnersftransmissiondemand over thetotal capacity of the lines. This allocated cost was then multiplied by 50% and added to each Owner's respective allocated Montana value. All the Colstrip Owners were assessed the beneficial use tax on this basis for use of the Townsend to Garrison segment in tax years 1985, 1986,and 1987. Four of the Colstrip Owners (MPCwas not assessed beneficial use taxes for the facilities west of the Garrison substation) were assessed the tax on this basis for theuse of the Garrison toTaft substation segmentofthetransmission line system for tax years 1986 and 1987, and for the use of the Taft to Idaho border segment for tax years 1986 and 1987. PPLwas also assessed the tax on this basis for its use of the Hot Springs to Taft transmission line system for tax years 1986 and 1987.Appellants raise six issues on appeal: 1. Whether the DistrictCourt erred by assuming jurisdiction to decide the legality of the tax assessments prior to a final determination by the State Tax Appeals Board (STAB). 2. Whether the assessment of beneficial use taxes pursuant to 5 15-24-1203, MCA, violates the Supremacy Clause of the United StatesConstitutionby discriminating against theUnited States or the Colstrip Owners. 3. Whether the Colstrip Ownersg previous constitutional claims are barred by the doctrine of collateral estoppel. 4. Whether the taxes assessed for tax year 1986 on the Garrison-Taft 500 KV linewere unlawful or illegal. 5. Whether DORgsmethodology erroneously assumes that all power transmittedwest of Garrison passes over the 500 KV federal lines and thereby discriminates against interstate commerce by imposing disproportionate taxes. 6. Whether DORIS new assessment methodology (50%weighting) is unconstitutional. The Colstrip Owners contend that the lower court could not properly evaluate the constitutional questions before it, until after STAB had made a.final determination concerning the methodology and amount of the assessments. It is the Colstrip Ownersg position that the taxes imposed are excessive and discriminatory and, therefore, since questions of discrimination are often questions of degree, the underlying considerations necessary toproperly determine the constitutional issues were not yet decided. We disagree.This Court has previously held that questions of llconstitutional and statutory correctnesswareproperly decided by the courts. Larson v. State (1975), 166 Mont. 449, 457, 534 P.2d 854, 858. The question of whether the tax itself is unconstitutional bears upon the statutory language of the tax. On the other hand, the question of whether the tax is unconstitutional 

### as applied pertains to the circumstances under which the tax is imposed. The interpretation of either the statutory language or the circumstances surrounding imposition of a tax is not necessarily associated with the amount of that tax. determine that a tax isunconstitutional, either on its face or as applied, such determination can certainlybe made independent and apart fromany analysis of whether the tax is excessive. Therefore the constitutional issues presented by this appeal do not hinge upon the determinations STABmakes concerning the methodology and amount of the assessments. The second issue raised by appellants is whether the 1987 amendment to 

### 5 15-24-1203, MCA, violates the Supremacy Clause of the United States Constitution, Article 

### VI, 

### 5 2, as construed by the U.S. Supreme Court in United Statesv. City of Manassas (4th Cir. 1987), 830F.2d 530,affirmed (1988), 485U.S. 1017, 108 S.Ct. 1568, 99 L.Ed.2d 884. The ~olstrip Owners argue that because the 1987 amendment results in exempting from beneficial use taxes State-owned property used for railroad transportation, it thereby violates the rule in City of Manassas. The Fourth Circuit stated in City of Manassas that it is unconstitutional for States to tax users of federal property when similarly situated users of Stateproperty are exempt from taxation. City of Manassas, 830 F.2d at 534. The test to determine whether a State tax is unconstitutionally discriminatorywas first set out by theUnited States Supreme Court in PhillipsChemical Co. v. Dumas School District (1960)

## , 361 U.S. 376, 80 S.Ct. 474, 4 L.Ed.2d 384. The Court held that where those dealing with federal property are subject to greater use taxation than those dealing with State property, the statutory distinction I1mustbe justified by significant differences between the two classes. PhillipsChemical Co., 361U.S. at 383, 80 S.Ct. at 479, 4 L.Ed.2d at 389. It is true that the 1987 amendment to 

### 5 15-24-1203, MCA, exempts users of State-owned rail lines from beneficialuse taxes. However,after a thorough examination of the legislative history supporting this amendment, it becomes evident that there are I1significant differences"between the railroads and the utilities (ColstripOwners). Chapter 591, 1987 Laws of Montana,was intended to exempt from beneficial use taxation two proposed tourist railroads which were to be runby non-profit corporations. See SenateComm. on Business and Industry,Minutes on S.B. 272, 50th Leg., 4-5 (Feb. 18, 1987). The State-owned railroad line in question had been acquired by the State as l'abandonedll property under 

### 5 60-11-111, MCA, and consisted of a combined distance of thirtymiles of track. The two non-profit railroads were designed to promote tourism in the form of an added attraction to parts of historic Montana. The railroadstsituation is much different than that of the Colstrip Owners. The Colstrip Owners' primary business purpose is to make a profit. The use of the federally-owned transmissionI lines provide the Colstrip Owners the potential to significantly increase revenues. The United States Supreme Court in City of Detroit v. Murray Corp. (1958), 355 U.S. 489, 78 S.Ct. 458, 2 L.Ed.2d 441,held it proper for a Statetotax governmentproperty, used by aprivateparty, in the course of theparty's ownbusiness. This is precisely what is *beingdone in this case. The Colstrip Owners are being taxed for their use of federal property. 

### his Court has already determined that I1beneficial uset1does not necessarily require Itphysical possession, exclusiveuse or control of the facilities." See PortlandGeneral Electric Co., at 329,773 P.2d at 1192. Therefore, we hold that 5 15-24-1203,MCA, and the 1987 amendment does not discriminate against the United States or the Colstrip Owners. The third issue is whether the Colstrip Ownersv previous constitutional claims raised in Pacific Power and Lisht, 237 Mont. 77, 773 P.2d 1176, and Portland General Electric, 237 Mont. 324, 773 P.2d 1189, are barred by the doctrine of collateral estoppel. As we recently stated in Smithv. Schweigert (1990), 241 Mont. 54, 785 P.2d 195, collateral estoppel is a form of res judicata, and whereas res judicata bars the same parties from relitigating the

same cause of action, collateral estoppel bars the same parties from relitigating identical issues that have already been decided in 

### adifferent cause of action. There are three elements thatmust be satisfied inorder for collateral estoppel to apply. First,the issue must be identical to an issue that has been decided in a prior adjudication. Second, a final judgment on the merits must havebeenmade in theprior adjudication. Third, theparty against

### whom the plea is made must have been a party, or have privity to the party, in the prior adjudication. Smith at 58, 785 P.2d at 197. In applying each element in turn to the facts of this case it becomes clear that collateral estoppel should be applied. The Colstrip Owners do not dispute the fact that the previous constitutional claimsraised in Pacific Power and Liqht, 237Mont. 77, 773 P.2d 1176, for the 1984 tax year, and Portland General Electric, 237Mont. 324, 773 P.2d 1189, for the 1985 tax year, are againbeing asserted inthis litigation. Theappellantsnow assert the identical claims for the 1985, 1986 and 1987 tax years. The fact that different tax years are being challenged makes no difference. The constitutional challenges remain the same,and 

### it is the substance of these challenges that have failed. The year in which they were brought has no bearing upon their lack of

success. Allowing the~olstrip Owners toraise the samechallenges to the same tax each subsequent tax year serves no purpose. If suchwere the case, each new year would provide a clean slate for any and all previous claims to be readjudicated. The challenges

are identical to the issues raised in the previous cases before this Court and thus satisfy the first element. Likewise, this Court issued a final judgmentwith respect to those claims in Pacific Power and Liqht, 237 Mont. 77, 773 P.2d 

### 1176,and Portland General Electric, 237Mont. 324, 773 P.2d 1189, thereby satisfying the second element. That judgment was made after oral argument and at a time much closer to our thorough consideration of the issues. Reconsideration of those issues as the Colstrip Ownerswould have us do, at amuch later time such as

### now, would not be correct. The third element is also satisfied. Inboth theprior cases and the case at bar, DOR is the party against whom these issues

were raised. In fact, all parties in this lawsuit have been parties in the prior adjudication. Consequently, the Colstrip Ownersvprevious constitutional claims have been adjudicated and are barredby collateralestoppel from being raised a second time. The fourth issue is whether the taxes assessed for tax year 1986 on theGarrison to Taft 500 KV 

### line were unlawful or illegal. This issue will be discussed concurrently with the fifth issue, whether DORIS methodology erroneously assumes that all power transmittedwest of ~arrison passes over the 500KV 

### federal lines. Section 15-1-406, MCA, was enacted by the legislature in 1981 to provide an aggrieved taxpayer with an alternative means of challenging the imposition of a tax. Likewise, 5 

### 15-2-307, MCA,

was enacted to provide an aggrieved taxpayer an alternative means of challengingthemethod or procedure of assessment. Under both sections a taxpayer may proceed directly to district court in the form of a declaratory judgment action. However, if a challenge is 

### initially brought under Title 15, Chapter 2 of the MCA, pursuant to 5 

### 15-1-402, MCA, a taxpayer is required toexhaust the available administrative remedies beforeproceeding to thecourts. See 5 

### 15- 1-402(2),

### MCA. The Colstrip Owners chose tobring issues four and five before STAB in accordance with Title 15, Chapter 8,

### MCA, and Title 15,Chapter 2,

### MCA, respectively. Had the issues been raised directly to district court in the form of a declaratory judgment action, they would properly be before this Court. But becausethese issues were initially brought before STAB,theymust be first dealtwith at that level. Any decision STABmakesmay be appealed through district court to this Court. The final issue deals with a revision of assessment methodology. As the District Court stated in its denial of the ColstripOwners' Motion forLeave to FileFirstAmended Complaints, under § 15-8-601(3) (c)

## ,MCA, challenges torevisions inassessments must be made by appeal to STAB. The District Court correctly refused to hear this issue and, therefore, we will not hear it either. Once the issue has been brought before STAB a proper judicial review will then be available to the appellants. The decision of the District

We Concur:

'chielf Justice