No. 90-441 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1991 

UNITED GRAIN CORPORATION, 

Petitioner and Appellant, 

-vsTHE DEPARTMENT OF REVENUE OF THE STATE OF 

MAY 2 0 1991 

MONTANA, AND THE STATE TAX APPEAL BOARD OF 

THE STATE OF MONTANA, SLE~K OF SUPREME COURT 

STATE OF MON~~~~ 

Respondent and Cross-Appellant. 

APPEAL FROM: District Court of the First Judicial District, 

In and for the County of Lewis & Clark, 

The Honorable Dorothy McCarter, Judge presiding. 

COUNSEL OF RECORD: 

For Appellant: 

Terry B. Cosgrove; Luxan & Murfitt, Helena, Montana 

For Respondent: 

David L. Nielsen, Legal Counsel, Dept. of Revenue, 

Helena, Montana 

Filed: 

Submitted on Briefs: April 11, 1991 
Justice John Conway Harrison delivered the Opinion of the Court. 

The taxpayer, United Grain Corporation (United), appeals, and 

the Department of Revenue (DOR) cross-appeals an order of the First 

Judicial District Court, Lewis and Clark County, which reclassified 

certain property owned by United and which affirmed a prior 

valuation of said property. The District Court's holding reversed 

in part, remanded in part, and affirmed in part a prior decision 

of the State Tax Appeal Board (STAB). We affirm the District 

Court's order. 

United raises the following issue on appeal: 

(1) Whether DOR has properly determined the market value of 

United's grain elevators. 

DOR raises the following issues on appeal: 

(2) Whether the District Court erred in holding that the 

machinery in United's elevators is taxable as class four property 

rather than class eight property. 

(3) Whether the District Court erred in ordering STAB to 

recalculate the value of the elevators based on the findings of the 

District Court regarding the rating of the facilities. 

FACTS 

This appeal resulted from a dispute over DORIS tax assessment 

of three grain elevators owned by United. These elevators are all 

located in eastern Montana; one is in Macon, one is in Sprole, and 

the other is in Kershaw. United appealed DORIS 1986, 1987, and 

1988 valuations of the elevators to the County Tax Appeal Board of 
the appropriate counties. United then appealed each county board's 

decision to STAB. The separate appeals were consolidated and tried 

before STAB. STAB issued three separate decisions with separate 

findings of fact and conclusions of law. United then appealed 

STAB'S orders to the District Court. United moved to consolidate; 

the District Court granted the motion on September 13, 1989. 

On June 21, 1990, the District Court issued its order on 

United's appeal. First, the District Court reversed STAB'S 

conclusion of law I and concluded that United's grain elevator 

machinery should be classified as class four rather than class 

eight. STAB'S conclusion of law I states: "The Board finds that 

the machinery and equipment is properly classified by the DOR as 

class eight personal property, based on its use in moving raw 

material through an industrial distribution process." The District 

Court held that the machinery was not used in a manufacturing 

process, and, therefore, concluded that it could not be properly 

classified as class eight. From this decision, DOR appeals. 

Second, the court reversed and remanded STAB'S valuation of 

the machinery which is part of the Macon and Kershaw elevators, 

and held that STAB'S finding of fact I11 was clearly erroneous and 

prejudiced United. The District Court held the following: 

The appraiser [for DOR] also rated the elevator 

[Kershaw] as excellent because he assumed that the 

elevator was capable of loading out 30,000 bushels of 

grain per hour. 

[N]o evidence substantiates accepting DORIS figure 

incorporating Kershawls alleged 30,000 bushel per hour 

capacity. This is clearly erroneous and substantially 
affects the rights of United Grain. 

[Tlhe value of what STAB terms "personal property111 

should be adjusted to reflect that Macon [and Kershaw] 

has only a 15,000 bushel per hour capacity and not a 

30,000 bushel capacity. The Court will not pursue this 

calculation in either the Kershaw or Macon case but 

leaves it to STAB to perform the mathematical gymnastics. 

From this decision, DOR appeals. 

Third, the court affirmed STAB in all other respects, 

including STAB'S adoption of DOR1s valuation method. From this 

particular decision, United appeals, arguing that its proposed 

llincomen method should have been used to value its elevators rather 

than the "cost replacement" method proposed by DOR. Additional 

facts will be discussed as necessary. 

STANDARD OF REVIEW 

This Court has interpreted 5 2-4-704, MCA, the standard for 

judicial review of an administrative ruling, to mean that an 

agency ' s findings of fact are subject to a ''clearly erroneous1' 

standard while an agency's conclusions of law are subject to the 

broader "correct interpretation1' standard. Steer, Inc. v. 

Department of Revenue (Mont. 1990), 803 P.2d 601, 603, 47 St.Rep. 

2199, 2200. Under the 'Icorrect interpretation" standard as applied 

to conclusions of law, our standard of review will be merely to 

determine if the agency's interpretation of the law is correct. 

I~he court refers to STAB'S finding of fact I11 and resulting 

order which incorporates DOR1s appraisal of United's ''personal 

property1' at $205,689 for 1986, $216,169 for 1987 and at $181,102 

for 1988. 
1 'I 

Steer at 603. 

The first issue for review is whether DORIS valuation of 

United's elevators was proper. United contends that DOR erred in 

using the cost replacement method to evaluate United's three 

elevators, and asserts that the income method should have been 

used: 

We will not evaluate the advantages and disadvantages of 

a particular assessment method as applied to a taxpayer. 

"Tax appeal boards are particularly suited for settling 

disputes over the appropriate valuation of a given piece 

of property or a particular improvement, and the 

judiciary cannot properly interfere with that function. " 

(Citations omitted) Assessment formulations are within 

the expertise of the State Tax Appeal Board and we will 

not overturn their decisions unless there is a clear 

showing of an abuse of discretion. 

Northwest Land v. State Tax Appeal Board (1983) , 203 Mont. 313, 

317, 661 P.2d 44, 47. DOR has determined that the cost replacement 

method is the most appropriate method of measuring the value of 

hard assets and has promulgated rules to that effect. We have 

reviewed the entire record and find that United has not overcome 

its burden to show clear abuse in DORIS application of the cost 

replacement method to determine the market value of the elevators. 

Therefore, we hold that the District Court properly affirmed STAB'S 

valuation of United's elevators based on the cost replacement 

method. 

I1 

The second issue is whether the District Court erred in 

5 
holding that the machinery used in conjunction with United's 

elevators is taxable as class four, rather than class eight, 

property. 

All taxable property in Montana is classified under Title 15, 

Chapter 6, Part 1, MCA, according to its use and type, for the 

purpose of determining the taxable value of the property. Section 

15-6-138, MCA, provides: 

(1) Class eight property includes: 

(c) all manufacturing machinery, fixtures, equipment, 

tools that are not exempt under 1-6-201(1) (r), and 

supplies except those included in class five. 

On the other hand, 5 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. 

The machinery that moves the grain in and out of the elevator 

storage bins is at the heart of this dispute. This machinery is 

used to carry grain from the trucks into the storage bins and out 

again. It is much like a conveyor belt with buckets which carries 

the grain from one place and dumps it off at another. The 

machinery is designed specifically for a particular elevator. 

United argues that the machinery is part and parcel of the 

storage facilities and, therefore, an improvement to the land 

pursuant to ARM 42.22.1303 and classified as class four. 

Furthermore, United argues that the machinery is not involved in 

a manufacturing process and, therefore, cannot be classified as 

class eight. DOR, on the other hand, contends that the machinery 
should be within class eight, arguing that it is part of a 

manufacturing process. 

The fact that the grain elevators are used as storage 

facilities is not contested by either party. What is contested is 

whether the conveyor belts and other machinery, which are used to 

merely transport the grain into and out of the storage facilities, 

are involved in a manufacturing process. We think not. 

The outcome here depends upon the definition of the word 

llmanufacturingu in § 15-6-138, MCA. Manufacturing machinery is 

that flused to transform raw or finished materials into something 

possessing a new nature or name and adapted to a new use." ARM 

42.22.1305. Therefore, the question is whether or not the subject 

machinery fits within the above definition of the word 

"manufacturing . l1 

Regarding the machinery of the Sprole elevator, the record 

shows that United used this facility for the sole purpose of 

storing its crop. No other activity went on at this elevator. 

Grain was merely dumped into this elevator for storage until it was 

finally sold on the market at a later date. The simple movement 

of grain from the truck to a storage bin does not constitute 

manufacturing. Manufacturing property requires more than mere 

movement of grain from one place to another; there must be a 

transformation. ARM 42.22.1305. Such an activity does not occur 

at the Sprole elevator. Therefore, STAB1s conclusion that this 

machinery belongs to class eight is incorrect. As such, we hold 

that the District Court properly reversed STAB1s decision in this 
regard. 

considering the Macon and Kershaw elevators, the grain at 

these elevators is stored, as well as mixed, occasionally, in order 

to obtain a grain of a particular protein content. DOR contends 

that this mixing is enough to constitute manufacturing. We 

disagree, and hold otherwise. 

A review of case law indicates that whether a process 

constitutes llmanufacturingfl turns upon whether the end product of 

the disputed process is flsignificantly changedff from the original 

substance. Reynolds Metal Co. v. State Tax commission (Wash. 

1965), 400 P.2d 310, 314; Bornstein Sea Foods, Inc. v. State Tax 

Commission (Wash. 1962), 373 P.2d 483, 486. The statutes do not 

define llmanufacturingfl but the administrative regulations define 

ffmanufacturing property" as that Ifused to transform raw or finished 

materials into something possessing a new nature or name and 

adopted to a new use.f1 ARM 42.22.1305. Furthermore, Webster 

defines Iltransf~rrn~~ asl1to change in composition or stru~ture~~ or 

"to change in character or condition. If Webster s New Collegiate 

Dictionary 

The District Court concluded that: 

No transformation takes place at the Macon and 

Kershaw elevators. The grain is not cleaned, aerated, 

or milled. Occasionally, grains of differing protein 

content may be mixed to create a grain of a desired 

content but the grain is not mixed with other chemicals 

or incorporated into some other material. The product 

that goes into the storage bins is virtually identical 

to the product that comes out. There is no new name, 

nature, or use. While some type of processing may go on 

at the elevators, ffmanufacturingll as it is defined in ARM 

42.22.1305 does not. Therefore, it is the opinion of 

this Court that the disputed property cannot be placed 
in class eight as manufacturing property. Rather it is 

part and parcel of the storage facilities and belongs in 

class four as an improvement to land. 

Mixing grains of varying protein contents does not produce an 

end product that is significantly changed. We, therefore, agree 

with the District Court's reasoning and holding as set out above. 

The Macon and Kershaw elevators are storage tanks and the 

occasional mixing of the grain does not turn these facilities, or 

the respective machinery, into manufacturing property. 

In the alternative, DOR argues that the machinery should be 

class eight property under the catch-all provision of 5 15-6- 

138(1) (g) , MCA (1985). Section 15-6-138, MCA (1985) states: 

(1) Class eight property includes: 

(g) all other machinery except that specifically included 

in another class. 

DOR argues that the District Court erred because it did not 

consider this provision when classifying the machinery. To the 

contrary, the District Court specifically held that the machinery 

Itis part and parcel of the storage facilities and belongs in class 

four as an improvement to land.'' As such, the District Court 

concluded that the machinery is lgspecifically included in another 

class1' and, therefore, does not fall within the catch-all provision 

of § 15-6-138(1) (g), MCA (1985). We have adopted the District 

Court's holding and, therefore, conclude that the machinery is 

specifically included in class four as an improvement to land. 
I11 

The last issue raised by DOR is whether the District Court 

erred in ordering STAB to recalculate the value of the elevators 

based on the findings of the District Court regarding the rating 

of the facilities. 

With regard to the elevators at Kershaw and Macon, the 

department's appraiser, Gary Spaulding, rated the elevators as 

excellent. The record shows that the appraiser based this 

llexcellentll rating on his mistaken belief that these elevators, 

together with their machinery, could unload grain into freight cars 

at a rate of 30,000 bushels per hour. Apparently the appraiser 

assumed that because there were two legs2 that each could run 

15,000 bushels per hour, the facility had a 30,000 bushel per hour 

capacity. United contends that its elevators can only load at a 

rate of 15,000 bushels per hour. At 15,000 bushels, the equipment 

would be rated as I1goodl1 rather than llexcellentll and its value 

would drop. 

At the STAB hearing, Bill Rittal of Great Falls, Montana, 

supervisor for United, testified that the capacity was rated at 

15,000 bushels per hour, even though the elevators had two legs 

each of which where capable of handling 15,000 bushels per hour. 

He explained that even though the legs can run simultaneously, only 

one is capable of moving grain at any particular time because the 

conveyor from the two adjacent tanks can only run into one leg at 

 he lllegsll of the elevator function much like a conveyor 

belt; they transport grain into and out of each particular storage 

bin. 

10 
a time. He testified that without major design changes neither the 

Macon nor the Kershaw elevator has the capacity to load 30,000 

bushels per hour. 

DOR admits in its brief that the elevators have a load 

capacity of less than 15,000 bushels per hour: 

Even though the maximum capacity might be 15,000 rather 

than 30,000, there is still the ability of the elevator 

to load out two-52 car trains in a 24 hour period. 

Although it is not obvious at first glance, simple arithmetic 

establishes the fact that an elevator which can load out two 52- 

car trains in a 24-hour period can load out at a rate of 

approximately 14,000 bushels per hour. This fact is illustrated 

by Mr. Rittal's testimony at the STAB hearing as follows: 

There are elevators with more than two legs in them and 

they don't take the combination of those legs . . . testimony was given yesterday that it takes 12 hours to 

load a 52 car unit train. There's 172,000 bushel in a 

52 car unit train. If it takes 12 hours, that computes 

out to about a little over 14,000 bushel per hour. That 

is what our houses are rated at . . . . 

The foregoing evidence was ignored by STAB in its findings and 

conclusions. Further, no evidence substantiates accepting DORIS 

figure which incorporates this alleged 30,000 bushel per hour 

capacity. We, therefore, conclude that STAB'S finding in this 

regard is clearly erroneous. Since this finding directly impacts 

on the amount of taxes United owes, we also conclude that the 

erroneous finding substantially affects the rights of United. 

Therefore, we hold that this finding, according to Rule 52 (a), 

M.R.Civ.P., was properly set aside by the District Court in favor 

of its own finding, which is supported by substantial, credible 
evidence, that the subject elevators have a load capacity of 15,000 

bushels per hour. Furthermore, we hold that the District Court 

properly remanded this case to STAB with instructions that the 

value of what STAB terms vvpersonal propertyvv should be properly 

adjusted, in every respect, to reflect its findings that the Macon 

and Kershaw elevators have a load capacity of only 15,000, rather 

than 30,000, bushels per hour. We have reviewed the entire record 

on appeal and find no error. The ~istrict Court is hereby 

affirmed. 

We concur: 

V~hie'f Justice