Court Opinion

ID: 9794301
Source: CourtListenerOpinion
Date Created: 2023-08-31 03:03:30.36105+00
Date Added: 2024-06-11T08:14:22.107631
License: Public Domain

MR. JUSTICE ADAIR
dissenting:
I dissent.
Two important questions are presented on this appeal. The first concerns the validity of the assessment of these particular Pipe Line Companies by the State Board of Equalization.
The second concerns the validity of the equalization process employed by the State Board of Equalization to arrive at the taxable value of such Pipe Line Companies before classification.
The Assessment. Assessment of inter-county pipe lines is a responsibility of the State Board of Equalization. The statute, R.C.M. 1947, § 84-905, provides that these pipe lines and other intercounty utilities are to be assessed by the State Board of Equalization and not by the county assessors.
The standard of value supplied in R.C.M. 1947, § 84-401, provides:
*635“All taxable property must be assessed at its full cash value. * * *”
This statutory standard controls all assessments regardless of who makes the assessment. In assuming to perform its statutory duties of assessing these intercounty Pipe Line Companies the State Board of Equalization adopted what it terms a imit method of assessment. In following this method and in assessing, pursuant to such unit method, the Board should have determined a value according to three following factors, viz.:
(1) Stock and debt value, (2) plant and equipment value, and (3) capitalized earnings value.
The application of this unit method of assessment may be demonstrated by setting out the actual assessment procedure employed by the Board.
Yellowstone Pipe Line. The Board’s procedure in assessing the Yellowstone Pipe Line was as follows:

*636An allocation factor for Montana operations of 85 percent was then applied and the assessed value of the Yellowstone Pipe Line in Montana was arrived at being, $11,440,684.
Oil Basin Pipe Line. In assessing the Oil Basin Pipe Line, the Board’s procedure was as follows:
Stock and Bond Value
First Mortgage Bonds 3,600,000.00
First Mortgage Bonds due in one year $300,000.00.
These not considered since due in one year.
Sinking fund debentures 1,360,000.00
Common Stock 350,000 shares at 1 cent par. Taken at actual value as distinguished from market value given in evidence as 1,750,000.00 70,400.00
5.030.400.00
Value of Plant & Equipment 5,115,416.00
No capitalized value for the reason that company had only been operating 6 weeks.
These figures were then totaled with this result:
5.030.400.00
5.115.416.00
and divided by 2 .................................................... /10,145,816.00
equalling 5,072,908.00'
From the above, the Board determined the assessed value of the Oil Basin Pipe Line to be $5,072,908.
The right to use the unit method is not here questioned. The unit method, combining as it does the three factors above enumerated when properly used, constitutes an honest method of valuing property for tax assessment purposes and I find no evidence in this case tending to show the method here used by the Board, overvalued any of the properties here involved. However, attention must be directed to the fact the Board did not make proper use of the unit method with the attendant *637result that these pipe line properties were grossly under assessed. This, for the reason that the so-called unit method of assessment attempts to combine and reach an average value by employment of three distinct valuation procedures. The averaging of these values so obtained by three separate methods is for the purpose of putting within a proper prospective the respective valuations. However, the valuations to be averaged must, of necessity, be the fair and correct valuation obtained under the proper valuation procedure. It is improper to tamper with any of the valuation procedures.
If values are determined separately under all three methods, and then an average obtained, a value will be arrived at which most closely reflects the fairest assessed value sought to be determined under the applicable tax statute. With this in mind, it is obvious that the use of the unit method forecloses the assessing body form juggling the values which are to be averaged. The unit method as such is designed to level out the disproportionate valuations if any exist, yet what the Board did here was to render ineffective the procedure adopted.
The assessment by the Board, as set out here, is not a unit value assessment at all because the Board deliberately misstated the values of the factors to be averaged. The Board discriminated in favor of the taxpayer, and did not make a valid and honest assessment. An examination of the Board’s assessment clearly demonstrates this.
Yellowstone Pipe Line’s stock and debt value was $20,500,-000. It was not anything less than that figure. Yet the Board subtracted $6,813,850 in value from actual stock and bond valuation. The adjustment of over 6.8 million dollars is improper and illegal under the unit method and amounts to an abandonment by the Board of the unit method as a means of assessing the property. While the Board attempts to excuse this illegal adjustment by urging the line had been built over difficult terrain, yet the Board ignores the fact that actually the line being built over and through such difficult terrain gave and *638gives the Pipe Line Company a competitive advantage worth far more in actual value than the additional cost of construction which the difficult terrain entailed. If this additional cost were disproportionate, the averaging.of all the factors was designed to put it in its proper perspective. The action of the Board in distorting the factor of the stock and bond value of the Yellowstone Pipe Line Company destroys the validity of the Board’s assessment. When the Board thus edits the factors to be used in the assessing formula then the assessment thereafter found is not an honest and legal assessment.
The Board, in assessing this property, was not merely trying to arrive at a correct assessment, but it sought and made an under assessment. While the Board asserts it was using a unit method of valuation, in truth and in fact, it was so juggling the essential factors of the method as to forsake and abandon the method itself. Such juggling is further apparent in the Yellowstone Pipe Line assessment when the capitalized valuation which the Board used as a factor is examined. The Board took the earnings of the Company for its initial 90-day period, but it never examined such earnings to ascertain whether they represented maximum possible earnings or partial use earnings. Next, the Board projected these 90-day earnings to represent a year’s earnings at the same rate. In so doing, the Board was not assessing hut merely guessing. The Board then capitalized these earnings at a 6 percent figure without a scintilla of evidence that such percentage is or ever would be the rate of return to the Company. Again, this is but a mere guess, not an assessment. The assessment of Yellowstone Pipe Line was not either an honest or legal assessment.
What then did the Board do in assessing the Oil Basin Pipe Line? In this particular assessment, the Board considered only two factors.
No capitalized value was set out for Oil Basin Pipe Line for the reason that such Company had been operating but six weeks prior to the time of the assessment. Accordingly, the *639capitalization value factor was considered too uncertain to be a valid criteria of value. Here again, however, the Board was not content to let its adopted valuation procedures alone determine the level of assessment, but felt it had to help such figures along. To accomplish this the Board first understated the stock and bond values in the amount of $300,000. It asserts that this was done because the bonds in that amount would soon be due and payable. This procedure is similar to deducting a short term mortgage from the value of property which of course is highly improper. For example, if a person were to buy a house for $11,000, paying $1,000 in cash and giving a $10,000 mortgage for one year, the value of the house would nevertheless be and remain at $11,000.
Tinder the Board’s procedure, however, the assessed value would be only $1,000, as the Board would subtract from the actual price paid the amount of the short term mortgage of $10,000. Next the Board juggled the value of the common stock of the Oil Basin Pipe Line Company. In its report to the State Board of Equalization the Oil Basin Pipe Line Company submitted three separate values which it had placed on its common stock. Par value, the Company stated to be one cent a share. Actual value the Company stated to be $70,400. Market value the Company stated to be $1,750,000.
The evidence given by a witness for the Board explaining how the stock value to be used by the Board was selected is most enlightening. When questioned about values selected by the Board, the witness testified:
“Q. And in the case of Plaintiff’s Exhibit 7, which is the Oil Basin, you used actual value! A. In that year they did, and I can’t tell you why because apparently if they used market value it would have given a terrific value $1,750,000 and it would be my opinion, and I think it was the Board’s opinion that that was a little bit out of line.”
In setting out the patent flaws in the Board’s assessment of these properties it is not my purpose to usurp the function of *640the Board or to assess the property. We fully appreciate that decisions of this court hold it is not within this court’s power to perform the assessing functions given to the Board. Nevertheless, the question is presented here as to whether the method of assessment adopted and employed by the Board constituted an “honest and lawful” assessment and, on this appeal, it becomes this court’s duty to examine the assessment procedure used by the Board and to answer the question so posed by the appeal. While this court will not assess we must determine whether the assessment was honestly and lawfully made. If found not to be an honest and lawful assessment then it becomes this court’s duty to point out the defects in the assessing procedure employed, and return the cause to the trial court for further proceedings that shall conform to the law.
The assessments of these properties by the Board was improper, illegal and designed to fix a fictitious value and to understate the value of these pipe line properties, rather than to ascertain, set out and determine the full cash value as provided by law. Clearly the Board’s assessment does not constitute an honest assessment.
Inter-county Assessment. In assessing inter-county properties of the two Pipe Line Companies, the Board seeks to assess the value of the properties as going businesses. The value of the business as a whole, as distinguished from the value of the component parts is what is sought to be assessed. The unit method of assessment seeks to find that business Avalué. As heretofore set forth, the unit method combines various factors Avhich in themselves are combinations of various types of property such as real property, personal property, cash, credits, etc., and the final average A'alue determined by the Board becomes a combination of all such factors, hence, the average value determined can only be classified as Class Seven or “All property not included in the six preceding classes” of R.CALI947, § 84-301.
The second question presented concerns what the State *641Board terms its “equalization process”. What this involves is best illustrated by reviewing the procedure adopted following the ascertaining of the value of these properties.
Having determined, in the case of Yellowstone Pipe Line, that the property had the value of $11,440,684, the Board then applied what it termed “an equalization factor” of 74.02 percent of the $11,440,684 value and by this method arrived at another value of but $8,468,250, which latter sum then constitutes the value before classification against which such taxes were to be levied.
In the case of Oil Basin Pipe Line, however, after the Board had determined a property value of $5,072,908, the Board then applied a different “equalization factor” amounting to over 76 percent of the $5,072,908, and by this different method arrived at another value of but $3,856,166 which latter sum then constitutes the value before classification against which taxes were to be levied.
In addition to the above-outlined procedure employed by the Board, evidence was presented at the trial which showed that certain other similarly classified property had been given an “equalization factor” by the Board of 62 percent of its property value as fixed by the Board. These arbitrary percentage figures represent the proportion of the value found and determined by the Board, and which the Board considers it must take into account for tax purposes in order to provide uniformity between the classes of the various kinds of property in the state.
The question of whether or not the equalized value as between properties of different classes must be uniform to comply with Article XII, §§ 1 and 11, of the Montana Constitution, is not presented on this appeal. However, it is quite apparent that Montana’s Constitution requires that property of the same class be taxed uniformly. While a difference of but 3.8 percent may not appear significant to some yet this shows discrimination and inequality and is therefore violative *642of the mandates of the Montana Constitution which require uniformity.
While assessors and assessing bodies are accorded a great deal of latitude in arriving at assessed values, and while such assessed values ordinarily will not be disturbed by this court on appeal where it appears the assessment is honestly made, yet where it appears the assessed value has been determined and thereafter only an arbitrary percentage of such assessed value is to be subject to tax, then and in such event the arbitrarily selected percentage must be identical for all taxpayers of the same class.
In view of this court’s recent decision in Yellowstone Bank v. State Board of Equalization, 137 Mont. 198, 351 P.2d 904, upholding as valid, discriminations made as to taxpayers of the same class, we shall here consider only whether or not the type of discrimination here shown is violative of the Fourteenth Amendment to the Constitution of the United States. At the outset the remedy available to these taxpayers because of the patent discrimination here disclosed is not affected by the fact that this property is not taxed at 100 percent of its assessed value.
In Sioux City Bridge Co. v. Dakota County, 1923, 260 U.S. 441, 43 S.Ct. 190, 191, 67 L.Ed. 340, there was a discriminatory assessment which exceeded the assessed value of other properties. As a justification for such unequal assessment, it was contended that the complaining taxpayer’s only remedy was petition to have the lower assessments brought up to his own level. As to such contention, the Supreme Court of the United States said: “The dilemma presented by a case where one or a few of a class of taxpayers are assessed at 100 per cent, of the value of their property in accord with a constitutional or statutory requirement, and the rest of the class are intentionally assessed at a much lower percentage in violation of the law, has been often dealt with by courts and there has been a conflict of view as to what should be done. There is no doubt, however, of the view taken of such cases by the *643federal courts in the enforcement of the uniformity clauses of state statutes and constitutions and of the equal protection clause of the Fourteenth Amendment. The exact question was considered at length by the Circuit Court of Appeals of the Sixth Circuit in the case of Taylor v. Louisville & N. R. Co., 88 Fed. 350, 364, 365, 31 C.C.A. 537, and the language of that court was approved and incorporated in the decision of this court in Greene v. Louisville & Interurban R. Co., 244 U.S. 499, 516, 517, 518, 37 S.Ct. 673, 61 L.Ed. 1280. The conclusion in these and other federal authorities is that such a result as that reached by the Supreme Court of Nebraska is to deny the injured taxpayer any remedy at all because it is utterly impossible for him by any judicial proceeding to secure an increase in the assessment of the great mass of under-assessed property in the taxing district. This court holds that the right of the taxpayer whose property alone is taxed at 100 per cent, of its true value is to have his assessment reduced to the percentage of that value at which others are taxed even though this is a departure from the requirement of statute. The conclusion is based on the principle that where it is impossible to secure both the standard of the true value, and the uniformity and equality required by law, the latter requirement is to be preferred as the just and ultimate purpose of the law. ’ ’
It is obvious then that these taxpayers, who have shown that discrimination and inequality exist, as between themselves, and as between themselves and other members of the same class, have the right to have their assessment reduced to the percentage corresponding to the lowest percentage of assessment value assigned to any other member of the same class to the end that the just and ultimate purpose of the uniformity law shall be accomplished and maintained.
The question remaining is this: Does the record herein disclose a discrimination that is prohibited by law?
As heretofore shown, the employment of an arbitrary equal*644izing percentage is not an assessing procedure, lienee, the assessing body when equalizing does not enjoy the same latitude as when • assessing property.
In the instant case, after the assessed value had been determined all that was then required to equalize was to employ the same percentage factor against such assessed value found as had been applied to the other taxpayers of the same class. However this was not done. Here the equalizing percentages employed were different for practically every taxpayer within the class. It is obvious that such discrimination was intentional and systematic and that the employment of these equalizing factors by no stretch of the imagination may be said to have been errors in judgment made while using a valid and uniform method.
The situation, here presented, is controlled by Cumberland Coal Co. v. Board, 284 U.S. 23, 52 S.Ct. 48, 50, 76 L.Ed. 146, wherein uniform coal bodies were assessed at uniform values notwithstanding the fact that certain of the coal bodies, because of location near a river were more accessible to transportation, and thus more valuable than those at more remote distances from the river and wherein the court said:
“It is established that the intentional, systematic undervaluation by state officials of taxable property of the same class belonging to other owners contravenes the constitutional right of one taxed upon the full value of his property. Sunday Lake Iron Co. v. Wakefield, supra; Sioux City Bridge Co. v. Dakota County, supra; Raymond v. Chicago Union Traction Co., supra; Chicago Great Western Ry. Co. v. Kendall, supra. In Sioux City Bridge Co. v. Dakota County, supra; (at page 446 of 260 U.S., 43 S.Ct. 190, 192), this Court, referring to the dilemma presented by a ease where one or a few of a class of taxpayers are assessed at 100 per cent of the value of their property pursuant to statutory requirement and the rest of the class are intentionally assessed at a lower percentage, *645stated the rule to be as follows: ‘This court holds that the right of the taxpayer whose property alone is taxed at 100 per cent, of its true value is to have his assessment reduced to the percentage of that value at which others are taxed even though this is a departure from the requirement of statute. The conclusion is based on the principle that where it is impossible to secure both the standard of the true value, and the uniformity and equality required by law, the latter requirement is to be preferred as the just and ultimate purpose of the law.’
“In applying this principle, the fact that a uniform percentage of assigned values is used, cannot be regarded as important, if, in assigning the values to which the percentage is applied, a system is deliberately adopted which ignores differences in actual values so that property in the same class as that of the complaining taxpayer is valued at the same figure (according to the unit of valuation, as, for example, an acre) as the property of other owners which has an actual value admittedly higher. Applying the same ratio to the same assigned values, when the actual values differ, creates the same disparity in effect as applying a different ratio to actual values when the latter are the same. If the commissioners, in the instant case, had taken the basis of 100 per cent, instead of 50 per cent, of the assigned values, but had adopted the same method of assessment by which all the coal in a township (aside from active coal) was assessed at the same value an acre, despite well-known and important differences in value, the result would have been an undervaluation of similar coal belonging to other owners, which would have brought the case of the petitioners within the principle of the decisions cited. In such case, if the petitioners’ property had been valued at 100 per cent, of its actual value, the like property of the other owners, having a higher actual value, would in effect have been valued at *646less than 100 per cent. The discrimination is essentially the same, and is equally repugnant to constitutional right, when both assessments are made on the basis of 50 per cent, of assigned values and differences in actual values are deliberately and systematically disregarded. The undervalued property is in effect valued at less than 50 per cent, of its actual value; for example, coal of the same description worth twice as much as that of the Cumberland Coal Company was really valued at 25 per cent, of its actual value.
“The petitioners are entitled to a readjustment of the assessments of their coal so as to put these assessments upon a basis of equality, with due regard to differences in actual value, with other assessments of the coal of the same class within the tax district.”
In the instant appeal, this court has before it the same type of systematic, intentional discrimination by the employment of different so-called equalizing percentages of the assessed values to like properties of the same class, for the purpose of levying the tax. Such obvious discrimination and inequality clearly violates the Fourteenth Amendment of the Constitution of the United States.
In disposing of this appeal, I would enter an order directing the State Board of Equalization to reassess these properties in conformity with the law as above-stated to the end that uniformity and equality be achieved and maintained as is required by our Constitution, both State and Federal.