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: 

For Appellants: 

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 Van Tricht, Tax Counsel, Department of Revenue, 

Helena, Montana 

Larry G. Schuster, Department of Revenue, Helena, 

Montana 

Filed: 

Submitted: December 6, 1990 

Decided: January 10, 1991 

Clerk 
Justice 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 

Idaho border. The District Court granted DORIS motion for partial 

summary judgment on res judicata grounds and held that this Court'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 the remaining issues, the District 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-owned 
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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) , and Montana Power Company (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 line between Townsend and Garrison, Montana, and 

for tax years 1986 and 1987 with regard to the 500 KV federallyowned transmission lines between Hot Springs, Montana and the Idaho 

border and between Garrison and the Idaho border. 

The Colstrip Owners constructed Colstrip Units 3 and 4 in 1983 

and 1985 respectively. Units 3 and 4 each generate 700 megawatts 

of electricity for transmission west. 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 interconnect with the Bonneville Power Administration's (BPA) 

500 KV transmission lines. BPA constructed a substation on the Hot 

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 

interconnecting 500 KV line west fromthe Garrison substation. The 

Garrison to Taft 500 KV line became operational in October, 1985, 

and was declared available for service in January, 1986. Colstrip 
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power first flowed fromthe Garrison substation across the Garrison 

to Taft line during October, 1985. At the Garrison 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 Garrison prior 

to BPAfs construction of the Garrison to Taft 500 KV line. 

The transmission of Colstrip energy from the Garrison 

substation west, is governed by a series of agreements referred to 

as the IfGarrison Westn 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 the Colstrip Owners as a ratio of each 

Colstrip Ownersf transmission demand over the total 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 (MPC was not assessed 

beneficial use taxes for the facilities west of the Garrison 

substation) were assessed the tax on this basis for the use of the 

Garrison to Taft substation segment ofthe transmission 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. PPL was 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 District Court 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 

States Constitution by discriminating against the United 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 line were unlawful or illegal. 

5. Whether DORgs methodology erroneously assumes that all 

power transmitted west 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 to properly determine the constitutional issues were not 

yet decided. We disagree. 
This Court has previously held that questions of 

llconstitutional and statutory correctnessw are properly 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 is unconstitutional, either on its face or as 

applied, such determination can certainly be made independent and 

apart from any analysis of whether the tax is excessive. Therefore 

the constitutional issues presented by this appeal do not hinge 

upon the determinations STAB makes 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 States v. City of Manassas (4th 

Cir. 1987), 830 F.2d 530, affirmed (1988), 485 U.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 State 
property are exempt from taxation. City of Manassas, 830 F.2d at 

534. The test to determine whether a State tax is unconstitutionally discriminatory was first set out by the United States Supreme 

Court in Phillips Chemical 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 I1must be justified by significant differences between 

the two classes. Phillips Chemical Co., 361 U. 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 

beneficial use 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 (Colstrip Owners). 

Chapter 591, 1987 Laws of Montana, was intended to exempt from 

beneficial use taxation two proposed tourist railroads which were 

to be run by non-profit corporations. See Senate Comm. 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 thirty miles 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 railroadst situation 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 transmission 
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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 State to tax government property, 

used by a private party, in the course of the party's own business. 

This is precisely what is *being done in this case. The Colstrip 

Owners are being taxed for their use of federal property. his 

Court has already determined that I1beneficial uset1 does not 

necessarily require Itphysical possession, exclusive use or control 

of the facilities." See Portland General 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 Smith v. 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 a different cause of action. There are three elements that must 

be satisfied in order 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 

have been made in the prior adjudication. Third, the party 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 claims raised in Pacific Power and Liqht, 237 Mont. 

77, 773 P.2d 1176, for the 1984 tax year, and Portland General 

Electric, 237 Mont. 324, 773 P.2d 1189, for the 1985 tax year, are 

again being asserted in this litigation. The appellants now 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 to raise the same challenges 

to the same tax each subsequent tax year serves no purpose. If 

such were 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 judgment with respect to 

those claims in Pacific Power and Liqht, 237 Mont. 77, 773 P.2d 

1176, and Portland General Electric, 237 Mont. 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 Owners would have us do, at a much later time such as 
now, would not be correct. 

The third element is also satisfied. In both the prior 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 

Ownersv previous constitutional claims have been adjudicated and 

are barred by collateral estoppel from being raised a second time. 

The fourth issue is whether the taxes assessed for tax year 

1986 on the Garrison 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 

transmitted west of ~arrison passes over the 500 KV 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 challenging the method 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 to exhaust the available 

administrative remedies before proceeding to the courts. See 5 15- 

1-402 (2), MCA. The Colstrip Owners chose to bring 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 because 
these issues were initially brought before STAB, they must be first 

dealt with at that level. Any decision STAB makes may 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 

Colstrip Owners' Motion for Leave to File First Amended Complaints, 

under § 15-8-601(3) (c) , MCA, challenges to revisions in assessments 

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