Appendix — Chicago, Burlington & Quincy Railroad v. State Tax Commission of Missouri

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SUPREME COURT. UO. & |

JAN 1 1 1969 §

| JOHN F. DAVIS, CLERK!

No. a |

IN THE

Supreme Court of the United States

Octosix TERM, 1968

CHICAGO, BuRLINGTON & QuINCY RaATLROAD COMPANY,

Petitioner,

SratTe Tax CoMMISSION OF MissourI, HUNTER PHILLIPS,

Chairman, CARL E. Davis and J. RatpH HutcuHison,

Members, J. R. Towson, Secretary, Respondents.

APPENDIX TO

PETITION FOR A WRIT OF CERTIORARI TO THE :

SUPREME COURT OF MISSOURI a

Tee 2a et 2 . | Se

TABLE OF CONTENTS

Page

Opinion of Missouri Supreme Court .........-..-- Al

Judgment of Missouri Supreme Court .........-.+-- Al5

Findings of Fact, Conclusions of Law and Decision of

State Tax Commission of Missouri ...........--- Al6

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APPENDIX

IN THE SUPREME COURT OF MISSOUBI

DIVISION NUMBER ONE

No. 53,500

Curcaco, BurLtineton & Quincy Rattzoap Company,

a Corporation, Appellant,

Vv.

State Tax Commission or Missourt, Hunter Pxtiiips,

Chairman, Cart E. Davis and J. Raten Hurcutson,

Members, J. R. Towson, Secretary of the State Tax

Commission, Respondents.

Appeal from the Circuit Court of Cole County

The Honorable James T. Riley, Judge

Proceeding under Section 536.100, et seq., V.A.M.S., for

judicial review of a final decision of the State Tax Com-

mission of Missouri. The circuit court affirmed the

decision, and the railroad’s appeal involves construction

of the revenue laws of the state.

On June 23, 1966, the State Tax Commission of Missouri

assessed the distributable property in Missouri of the

Chicago, Burlington & Quincy Railroad Company for 1966

at $33,429,871. C. B. & Q. sought a review of that decision

alleging, among other things, that the Commission had

denied the railroad a hearing at which to present its theory

of assessment. The circuit court remanded the case to

the Commission with directions that C. B. & Q. be granted

a hearing.

C. B. & Q. filed Commission Form No. 1, ‘‘Statement of

Taxable Property owned by the C. B. & Q. Railroad Com-

pany on the first day of January, 1966, required to be made

to the State Tax Commission, as provided in Section

151.020, R.S. Mo., 1959.’? Section 151.020, V.A.MS.,

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requires the statement to be made under oath and to con-

tain ‘‘in detail the total length of * * * road * * * in-

eluding branch or leased roads, the entire length in this

state, and the length of double or sidetracks, with depots,

water tanks and turntables, the length of such road, double

or sidetracks, in each county (and other specified tax

districts) * * *; the total number of engines and cars of

every kind and description * * * and all other moveable

property owned, used or leased * * *, and the actual cash

value thereof.’’

At the hearing C. B. & Q. presented its theory of assess-

ment of the property returned on Form No. 1 through wit-

nesses Broley E. Travis, a consulting valuation engineer

and former valuation engineer in the Valuation Depart-

ment of the Public Utilities Commission of the State of

California, and James P. Reedy, general tax agent for

C. B. & Q. Their testimony and the railroad’s theory are

summarized in this reproduction of C. B. & Q. Exhibit T:

CEICAGO, BURLINGTON & QUINCY RAILROAD COMPANY

1966 Missouri Tax Value Based on Use of Three Factor Formula: (I) Capitalized Earnings,

(II) Market Value of Stock & Debt and (III) Depreciated Investment in Road and

Equipment

System Missouri*

“ , . (000) (000) (000)

I Net Railway Operating Income: as

reported to I.C.C. $ 22,553

(5-year average—1961-1965)

Capitalized at 7% $322,186 $ 48,392

II Stock & Debt Value:

(5-year average—1961-1965)

Stock at Market Value ($152.61) $260,718

Mige. & Equipment Trust Debt 223,372

Total $484,090

Less Value of Non-Opr. Prop. 141,484 $342,606 $ 51,459

III Depreciated Investment in Transportation

Property 12/31/65: $714,821 $107,366

Total I, II and III $207,217

IV Average Above 3 Factors $ 69,072

Vs Pull Value Equalized at 30%, $ 20,722

“* Allocation to Missouri is on Road Miles Operated Basis—15.02%.

eh aligy ee.

Mr. Travis and Mr. Reedy were of the opinion that the

theory presented by Exhibit T was the best method of

valuing a railroad for tax purposes, and Mr. Reedy stated

the request for a hearing before the Commission was to

show the Commission indicators of value other than those

employed by the Commission; however, Mr. John Street,

of counsel for C. B. & Q. at the hearing, stated that the

railroad did ‘‘not contend that you (members of the Com-

mission) are required to use it.””

C. B. & Q. also presented J. Edward Connell, former

supervisor of ad valorem taxes with the State Tax Com-

mission of Missouri to establish the equalization factor of

30 percent.

The Commission’s assessment of the property returned

on Form No. 1. rejected the method suggested by C. B. & Q.

and the method used was explained through the testimony

of Carl A. Norfleet, supervisor of taxes for the Commis-

sion. He made the Commission’s computations and stated

that in assessing railroads and utilities market value is

rarely known because there were rarely any sales of rail-

roads between a willing buyer and a willing seller. There-

fore, any assessment is an estimate under any method and

no valuation will be scientifically exact. The Commission

employs a method to meet requirements that an assess-

ment be reasonable and nondiscriminatory.

As with all railroads operating in Missouri, he (and the

Commission) used a method under which a value per mile

was placed upon each type of C. B. & Q. track reported by

C. B. & Q. in Missouri; a value per acre was placed upon

the number of acres of C. B. & Q. right of way reported

to be in Missouri; a value was placed upon the C. B. & Q.

buildings and other fixed property reported by C. B. & Q.

in Missouri; a value was placed upon the rolling stock of

Cc. B. & Q., Missouri’s portion being ascertained by

calculating the ratio (15.02%) between the number of miles

of first main-line.and branch-line track used by C. B. & Q.

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in Missouri and these items in the entire system. The

aggregate value thus determined was reduced by an

economic obsolescence factor. The acreage value, $60 per

acre, was the same as employed in 1964 and 1965 assess-

ments. The railroad’s report of buildings and other fixed

property was returned by C. B. & Q. at $384,859. This

was adjusted to $399,913 and ‘‘trended upward’’ by the

Commission by a factor of 226.566, resulting in a value of

$906,067. The factor is used to bring reported values up

to current reproduction cost and to offset lew values

reported in Form No. 1.2

Main line value was first set at $22,625 per mile but

reduced to $20,000 per mile at the request of Mr. Reedy.

Valuation of other types of track was made using values

per mile employed in previous years.

Rolling stock reported by C. B. & Q., according to units,

type, age, and original costs, was depreciated 5% per year

unti! a base of 25% of original cost was reached, not to

be reduced further so long as the wnit remains in service.

The depreciated cost was then equalized by a factor of 47%,

i.e., 47% of 25% of original cost after 15 years, an ultimate

valuation of 11.75% of original cost of such units.

The depreciated original cost of C. B. & Q. rolling stock,

including leased rolling stock, was found at $205,649,935,

and equalized at 47%, resulting in an equalized value of

$96,665,469 for taxation on rolling stock. Application of

the 15.021% ratio factor resulted in Missouri’s allocated

portion of rolling stock at $14,518,618 to which was added

$8,337 for leased cars, an ultimate value of $14,526,955.

Addition of $19,350,233, value of roadbed, fixed property,

1 E.G., in testifying relative a particular depot building Witness

Reedy of C. B. & Q. stated: ‘‘Where the building freight depot

was built in 1961 at an original cost of $666,397, the depreciated

cost was $664,021. I returned $95,000 as the value of that freight

depot knowing that there would be a $223,000 assessment placed

upon it utilizing the historical 226 point multiplier.”’

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$906,067, rolling stock, $14,526,955, less economic obsoles-

cence, $1,353,384, resulted in an aggregate assessment of

all distributable property of C. B. & Q. for 1966 of

$33,429,875.

The economic obsolescence factor was calculated from a

consideration of the railroad’s total investment in trans-

portation property compared to net railway operating

income for 1965, as reported by C. B. & Q. on Form No. 1

in 1966. This calculation found net operating income at

$20,423,802, subtracted the resulting percentage, 1.99%,

from a desired income yield of 10%, which developed a

factor of 8.01% for economic obsolescence. Mr. Norfleet

stated that employment of the 47% equalization factor

reduced the value of rolling stock to the level of 30% of

value which the Commission tries to achieve in assess-

ments. He stated also that the formula used for the

entire assessment brought C. B. & Q., and railroad property

generally, to the desired 30% level of value. Also in the

opinion of Mr. Norfleet the assessment theory of C. B. & Q.,

based on stock and debt, should be rejected because

C. B. & Q. is closely held by two other railroads and because

only some 2,000 of 1,708,391 shares of stock had been

traded in the previous year and these were not open market

transactions.

In addition to the $33,429,871 total assessment first cal-

culated by the Commission from Form No. 1 as filed by

C. B. & Q., the Commission developed unreported properties

and additional values at the hearing. Through testimony

of L. Glenn Key, general land agent for C. B. & Q., the

Commission adduced evidence that C. B. & Q. had, in recent

years, sold certain tracts of locally assessed real estate

which it owned adjacent to its right of way in North Kansas

City and in St. Louis, Missouri; that these tracts had

sold for an average price in excess of $10,000 per acre and

that, through use of these sales as comparisons, 224.47

_geres of right of way, located on similar land in the

ee ne ee ee RI ia el OL BO a hos, tne Pete U2 Fone Ue Re Ee allie Pree POR TS ie

C. B. & Q. yards in North Kansas City and 107.67 acres

in the St. Louis yards should be valued at an additional

$3,080 per acre based on a 30% level assessment, an addi-

tion of $677,899. Unreported distributable property used

in the railroad’s ‘‘piggyback’’ operation was assessed at

an additional $731,791. Similarly twelve unreported diesel

locomotives were assessed at $197,774. After application

of the economic obsolescence factor, a total additional

valuation of $1,777,824 was added to the previous assess-

ment of $33,429,871. This resulted in the final assessment

for 1966 of $35,207,695 affirmed by the circuit court on

review.

Appellant contends: Points I and II, that it was not

given a fair, unbiased and impartial hearing, and was

denied due procss by exclusion of testimony and exhibits;

Points ITI, IV, and VII, that the assessment did not follow

legal principles and was made without authority, con-

trary to Chapter 151, RSMo., is not supported by com-

petent evidence, and results from arbitrary, capricious

and unreasonable conduct on the part of the Commission;

Points V and VI, that the assessment is invalid because

the Commission failed to receive and consider evidence

relating to appellant’s method of valuation of railroad

property and concerning actual cash value of its property;

and, Point VIII, that the assessment discriminates against

appellant.

Pursuant to Article 10, Section 5, Constitution of

Missouri, Chapter 151, V.A.M.S., provides for ad valorem

taxation of railroad companies.

Section 151.010 provides that all railroads and all real

property, tangible and intangible personal property, owned,

hired, or leased in Missouri, shall be subject to taxation,

‘‘and taxes levied on real property, and tangible personal

property, shall be levied in the manner herein set forth,

and the taxes on intangible property shall be levied and

collected in the manner otherwise provided by law.’’

4.2626 @.*

The provisions of Section 151.020 concerning the rail-

road’s report of its distributable property to the State

Tax Commission already have been stated.

Section 151.060 provides that the Commission ‘*shall 4

assess, adjust and equalize the aggregate valuation of the

property’’ of each railroad in the state; shall have power

to summon witnesses; and ‘‘shall have the power, upon :

their knowledge, or such information as they can obtain,

to increase or reduce the aggregate valuation of the

property of any railroad company included in the state-

ments and returns made by the railroad companies * * *,

and shall assess, adjust and equalize any other tangible

property belonging to said railroad companies, * * *

upon which no returns have been made, which may be

otherwise known to them, as they deem just and right.’’

The Commission ‘‘may arrive at its finding, conclusion |

and judgment, upon its knowledge, or such information ‘

as may be before it, and shall not be governed in its find-

ings, conclusions and judgment by the testimony which may }

be adduced, further than to give to it such weight as the a

commission may think it is entitled to; provided, that when

any railroad shall extend beyond the limits of this state

and into another state in which a tax is levied and paid

on the rolling stock of such road, then the said commission :

shall assess, equalize and adjust only such proportion of

the total value of all the rolling stock of such railroad

company as the number of miles of such road in this state

bears to the total length of the road as owned or con-

trolled by such company.’’

Section 151.090 provides that the Commission shall

certify its action (assessment) to the railroad company.

“The certificate shall set forth the entire length of the :

railroad, including sidetracks, in the state, and the valua-

tion thereof per mile; the total value of the rolling stock

of the railroad; the total length of the roadbed, including

_«-3idedvacks, in each county (and other specified tax dis-

RAMADAN RT Re ok AAS hs meet

tricts) * * *; also the total value of roadbed and side-

tracks and rolling stock as assessed, adjusted, equalized,

and apportioned to such county, ete. * * *.’’

Section 151.100 provides that real property, or tangible

personal property, including lands, buildings, goods,

chattels and office furniture of the railroad shall be assessed

by the proper assessor.

In respect to appellant’s Points I and II, there is no

question that the Comraission as an administrative agency

owed C. B. & Q. a fair hearing, National Labor Relations

Board v. A. Sartorious & Co., 2 Cir., 140 F. 2d 203, 205[2],

Local No. 3, etc. v. N.L.R.B., 8 Cir., 210 F. 2d 325, 329-330,

Jones v. State Dept. of Public Health and Welfare, Mo.

App., 354 S.W. 2d 37, 39-40[2-6], 41[10], and due process,

Donnelly Garment Co. v. National Labor Relations Board,

8 Cir., 123 F. 2d 215, 224[12-14], The Chicago Junction

Case, 264 U.S. 258, 265, Morgan v. United States, 298 U.S.

468, 480. However, the statements which those cases pro-

voked are not applicable here because the record and the

Commission’s findings do not demonstrate a studied re-

jection of or hostility to one side of the case before the

Commission. It is true that the Commission gave greater

and prevailing weight to the evidence of its own witnesses,

but this is in accord with statutory authority. It is true

also that the record and findings show that some of the

testimony and exhibits offered by C. B. & Q. were received

over Commission objection ‘‘for what it (or they) might

be worth,’’ but this, too, is consistent with the authority

given the Commission. The Commission’s findings demon-

state a detailed recital and examination of the testimony

of the railroad’s witnesses and exhibits, and upon such

examination that evidence was found to lack the credibility

attached to the Commission’s own presentation in arriving

at the assessment. Appellant’s charges of refusal to con-

sider its case and protestations of unfair treatment are

refuted by this record of nearly 900 pages and the Com-

mission’s findings of fact of nearly 62 pages which provide

graphic attestation to ample opportunity for C. B. & Q. to

present its theory to the Commission and full consideration

of that theory by the Commission. The hearing procedure

was thus in accord with the provisions of Section 151.060,

supra, and appellant’s citations. ‘‘The Commission could

disbelieve plaintiff’s evidence of value, even without other

evidence * * *, although it may not * * * act upon whim

and without reason,’’ May Department Stores Co. v. State

Tax Commission, Mo., 308 S.W. 2d 748, 761[16]; and the

Commission’s findings make plain why it did not consider

the railroad’s witnesses and exhibits credible in the cir-

cumstances presented by this case. Cupples-Hesse Corp.

v. State Tax Commission, Mo., 329 S.W. 2d 696, 701[12] ;

State ex rel. Kahler v. State Tax Commission, Mo., 393

S.W. 2d 460, 465[7].

Appellant’s contention under Points Ill, IV, and VII,

is-that the Commission’s assessment method does not

follow Section 151.060, supra, to achieve ‘‘aggregate

valuation,’? because it values separate parts of the rail-

road; that it does not comport with Section 151.020, supra,

requiring a railroad to report its distributable property

at ‘‘actual cash value,’? and therefore fails to meet the

requirement of construing taxing statutes in favor of the

taxpayer. See Green Fire Brick Co. v. State Tax Com-

mission, Mo., 277 S.W. 2d 544, 545; United Air Lines, Inc.

vy. State Tax Commission, Mo., 377 S.W. 2d 444, 448;

Union Electric Co. v. Morris, Mo., 222 S.W. 2d 767, 770;

State ex rel. Halferty v. K. C. Power & Light Co., Mc.,

145 S.W. 2d 116, 121; State ex rel. Moore v. Wabash R.

Co., Mo., 208 S.W. 2d 223, 226. The argument is that the

Commission failed to heed these citations in rejecting the

railroad’s theory of assessment and employed a theory

of assessment not supported by the evidence.

It has already been demonstraied that the railroad’s

theory of assessment was received, fairly considered, and

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rejected upon credibility findings, leaving for determina-

tion whether the Commission’s method followed the statute,

wae reasonabie, and supported by evidence.

The theory of the Commission and the evidence in

support of that theory have already been stated in detail

in a review of the testimony of Mr. Norfieet. Again,

despite protestation to the contrary, the steps followed in

the method employed by the Commissior show that the

Commission did arrive at an aggregate valuation of the

railroad’s property 2s a unit in that valuation of the

aggregate necessarily cannot be Lroken into divisible parts

as by county lines, but is necessarily # valuation of the

total of the railroad’s component parts,? i.e., a unit com-

posed of ‘‘tracks, depots, water tanks, turntables, rolling

stock, etc., known in common parlance and denominated

in thie statute (now Section 153.060) as a railroad.’’

State ex rel. Murphy v. Stone, Mo. 28 S.W. 211, 213;

State Railroad Tax Cases, 92 U.S. 575, 606; Hannibal & St.

Joseph R. Co. v. State Board of Equalization, 64 Me. 294,

306; Eiliott on Railroads, 3d Ed., Val. 2, Sec. 883; and in

respect to rolling stock in particular, see St. Louis South-

western Ry. Co. v. State Tax Commissien, Mo., 319 S.W.

2d 559, 561[1}. In assessmenis there is ro such thing as

an absolate “‘true value,’’ ‘‘true cash value,’’ or “actual

cash value,’’ because an sssessmeni is at best an estimate

and it is presumed correct unless preved by the taxpayer

to be arbitrary or discriminatory. Civnles-Hesse Corp. v.

State Tax Commission, supra, 329 &.W. 2d le. 700[3].

uezal eash vaiue ‘‘is the amount of cash that goods will

bring on the market,** Bouvier Law Dictionary, p. 1209,

and rarely, if ever, is a railroad assessed under circum-

stances where such a cash price can be shown. Nashville,

C. é St. L. Rhy. v, Browning, 310 U.S. 362, 370.

2 In order to certify its action to the railroad in compliance with

Section 151.090, supra, the Commission necessarily must determine

the value per mile of tracks, the value oi rolling stock, and the

value of roadbed, etc., of the railroad.

All

In addition to the contentions in Points I and II relating

to fair hearing and due process, appellant contends,

Points V and VI, that the assessment is invalid because of

refusal to consider evidence on the railroad’s theory of

valuation and actual cash value.

It already has been shown that the Commission did

receive and consider such evidence. Yet this contention,

despite the record and, more particularly, in the face of

the previously quoted representation of Mr. Street as

counsel for C. B. & Q., suggests that the railroad’s theory

of assessment should have been used to the exclusion of

the Commission’s theory.

Appellant characterizes its theory as a ‘‘unii rule’’

which determines ‘‘actual cash value’”’ of a railroad ‘‘by

consideration of the economic measures of value which are

customarily employed in the market place, to-wit: (1) the

net earnings of the railroad as a whole capitalized at some

realistic rate determined in the light of then existing

market conditions and (2) the market value of the out-

standing shares of capital stock of the railroad plus the

value of its debt— * * *. Sometimes consideration is

also given by the tax appraisers in arriving at the value

of the railroad to some form of cost, which must be tem-

pered, however, by reasonable allowances for depreciation

and economic obsolescence * * *.”’

Capitalization of earnings, stock and debt, depreciated

investment, ard an average of these three items (as in

c. B. & Q. Exhibit T) have been recognized as criteria for

determining the value of railway property. See State

Railroad Tax Cases, supra, 92 U.S. Le. 604-606; Adams

Express Co. v. Ohio, 166 U.S. 185, 222; Chicago & N.W.

Ry. Co. v. Eveland, 8 Cir., 13 F. 2d 442, 443 [1,2]; Batley

v. Megan, 8 Cir., 102 F. 2d 651, 655[7]; City of Detrott v.

Detroit & Canada Tunnel Co., 6 Cir., 92 F. 2d 833; C. B. &

Q. R. R. Co. v. Dept. of Revenue, 17 Ill. 2d 376, 161 N.E. 2d

838; Chicago St. ¢ P., M. € O. Ry. Co. v. State Board, Neb.,

eres:

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276 N.W. 391. However, in determining an assessment

the Commission is not bound by any single formula, rule

or method, but is free to consider all pertinent facts and

estimates and to give them such weight as reasonably they

may be deemed entitled, Great Northern Ry. v. Weeks,

297 U.S. 135, 139; and an assessment even if reflective of

overvaluation will not be set aside unless shown by the

taxpayer to be the product of ‘‘an intentional plan or

design of discrimination’’ or ‘‘so grossly excessive ‘as to

be entirely inconsistent with an honest exercise of judg-

ment.’’’ Cupples-Hesse Corp. v. State Tax Commission,

supra, 229 S.W. 2d lc. 700[6], which briugs this case to

a consideration of appellant’s Point VIII, that this

assessment does discriminate against C. B. & Q.

An assessment whereby the property of one taxpayer is

knowingly valued at a higher percentage of its value in

money than the percentage of value at which another’s

property is assessed cannot be allowed to stand because

such would constitute unconstitutional discrimination.

See Sioux City Bridge Co. v. Dakota County, 260 U.S. 441;

People v. Union Station Co., 383 Tl. 153, 163, 48 N.E. 2d

524; Boonville Nat. Bank v. Schlotzhauer, Mo., 298 S.W.

732, 737; Jefferson City Bridge & Transit Co. v. Blaser,

Mo., 300 S.W. 778, 785; Columbia Terminals Co. v. Koeln,

3 S.W. 2d 1021; Brinkerhoff-Faris Trust & Savings Co.

v. Hill, Mo., 19 S.W. 2d 746; Koplar v. State Tax Commis-

sion, Mo., 321 S.W. 2d 686.

Appellant’s argument is that the Commission’s assess-

ment is greater than the 30% level of value intended for

assessment of all properties in Missouri for 1966, amount-

ing to at least 51% of the actual cash value of the railroad’s

distributable property in Missouri, and is thus approx-

imately 70% excessive with relation to other property.

This theory presupposes that the railroad’s theory of

assessment is the exclusive method and that the Commis-

sion is bound by its assumptions and values, and by the

result, $20,722,00C, which it obtains.

A13

The record demonstrates an absence of an intentional

plan of discrimination and that the assessment is reason-

able and uniform.

In addition to those matters previously stated, there

was evidence before the Commission on recent costs of

construction of main track which would support track

values well above those set for C. B. & Q. by the Commis-

sion. A Commission exhibit showed that the value per

mile placed on main line, second main line, branch line,

and sidetracks of C. B. & Q., compared to 27 other rail-

roads assessed by the Commission, was neither the highest

nor the lowest and that the figures were near the average

of all railroads and near the values placed on tracks of

similar roads. A similar exhibit compared each railroad’s

valuation of right of way per acre and again the same

figure was used for each roai except for unique situations

such as that of C. B. & Q. in connection with its North

Kansas City and St. Louis yards. Other railroads were

shown to have similar unique situations, such as Union

Pacific in its Kansas City yards, and the various Terminal

Railroad yards. An exhibit containing average value of

distributable property per mile for each railroad showed

an average for all roads of $31,238 compared to $26,035

for C. B. & Q. Mr. Norfleet also valued C. B. & Q. by its

Three Factor Formula using figures taken from C. B. & Q.

exhibits and arrived at a valuation of $36,612,877. By

another exhibit, Mr. Norflee: demonstrated that under the

Commission’s assessment, C. B. & Q. would pay 14.41% of

its taxes on distributable property in Missouri where

15.02% of the C. B. & Q. system is located. By comparison,

C. B. & Q. would pay 29.69% of its taxes in Illinois where

but 19.15% of the system is located. Similarly, in Iowa

C. B. & Q. would pay 13.99% of its taxes on 11.70% of its

system. Another exhibit showed average taxes per mile

in the fourteen states in which C. B. & Q. operates.

Missouri taxes per mile paid by C. B. & Q. of $1,057 com-

pared to the average of $150, and the highs of Illinois,

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$1,780, and Wisconsin, $1,938. The average was brought

down by Kansas which has no C. B. & Q. main line.

Appellant had no evidence to show any of the Commis-

sion’s values to be inaccurate, excessive or discriminatory,

or to refute Mr. Norfleet’s opinion that the values used

represented a 30% level of valuation as the Commission

would hope to achieve on all property. The same methods

were applied to all problems of distributable property.

Appellant complains of the formula whereby rolling stock

is never reduced to 100 percent; however, it is elementary

that a railroad car after 15 years, if still in service, is of

some value as part of a system.

These are not the circumstances indicative of an inten-

tional plan of discrimination but, to the contrary, are those

of a reasonable and uniform assessment.

The judgment is affirmed, and the stay order previously

entered by this court in connection with that part of

appellant’s 1966 assessment in excess of $20,722,000 is

dissolved.

ANDREW Jackson Hicerns,

Commissioner

Houses, C., Concurs.

Wetsorn, C., Concurs.

Per Curtmam: The foregoing opinion by Higgins, C.,

is adopted as the opinion of the court.

All of the Judges Concur.

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Ald

Judgment of the Supreme Court of Missouri

And thereafter on the 9th day of September, 1968, the

following proceedings were had and entered of record in

said cause, to-wit:

53500

Chicago, Burlington & Quincy Railrcad Company,

a Corporation, Appellant,

vs.

State Tax Commission of Missouri, Hunter Phillips,

Chairman; Carl E. David and J. Ralph Hutchison,

Members; J. R. Towson, Secretary of the State Tax

Commission, Respondents.

Appeal from the Circuit Court of Cole County.

Now at this day come again the parties aforesaid, by

their respective attorneys, and the Court here being now

sufficiently advised of and concerning the premises, doth

consider and adjudge that the judgment aforesaid, in form

aforesaid, by the said Circuit Court of Cole County

rendered, be in all things affirmed, and stand in full force

and effect; and that the said respondents recover against

the said appellant their costs and charges herein expended

and have therefor execution.

It is further ordered by the Court that the stay order

previously entered by this court in connection with that

part of appellant’s 1966 assessment in excess of $20,722,000

be dissolved. (Opinion filed.) —

A16

May 24, 1967

BEFORE THE STATE TAX COMMISSION OF MISSOURI

In the Matter of the Assessment of

DisTRIBUTABLE Property of the

Cuicaco, Burtineton & Quincy Ramroap Company,

for the year 1966.

Findings of Fact, Conclusions of Law and Decision

Frnprines or Fact

The State Tax Commission, pursuant to Chapter 151

V.A.M.S., did proceed to assess the distributable property

of the Chicago, Burlington & Quincy Railroad Company,

located within the State of Missouri as of January 1, 1966,

and said Commission did place an assessment of $33,429,871

as the taxable value of the distributable property of said

Railroad within the time required by law.

Thereafter the Chicago, Burlington & Quincy Railroad

Company, hereinafter referred to as Railroad, did file in

the Circuit Court of Cole County, Missouri, a petition and

the said Court did on July 8, 1966, in its Cause Number

23106 enjoin said State Tax Commission, hereinafter

referred to as Commission, and its members, employees

and agents from certifying any assessments to the various

political subdivisions in the State of Missouri urtil further

ordered by said Circuit Court.

Said Order was continued until Octcber 17, 1966, when

the aforesaid Court remanded it to the Commission for a

hearing before it after due notice of the time and place

of hearing. The Stay Order issued by the Court on July 8,

1966, remaining in full force and effect until the Court is

advised by the State Tax Commission that such hearing

has been held and final determination made by said State

Tax Commission.

BRE AL RRL IRB ATY es BLO bbe AE AMEE SAU A NGA Naat Same a

A17

Thereafter the Order of aforesaid Court, dated October

17, 1966, was amended on November 21, 1966 by the Court

on motion of the Railroad to read as follows:

‘Ty Is, THEREFORE, ORDERED, ADJUDGED AND DECREED

that Plaintiff’s Motion for an order remanding this

proceeding to the State Tax Commission is sustained.

This cause is hereby remanded to the State Tax Com-

mission for a hearing before that agency after due

notice of the time and place of such hearing. The

stay order issued by this Court on July 8, 1966, shall

remain in full force and effect until this Court and

the Plaintiff is advised by the State Tax Commission

that such hearing has been held and a final determina-

tion. made by the said State Tax Commission, and for

further order of Court.

S/C James T. Rizy

Judge of Circuit Court

Cole County, Missouri’

Pursuant to said Order, the Commission did on January

3, 1967, notify said Railroad that a hearing would be held

at 801 Jefferson State Office Building, 100 East Capitol

Avenue, Jefferson City, Cole County, Missouri, office of

said State Tax Commission of Missouri, at 10:00 a.m., in

the forenoon, on February 6, 1967, in the matter of the

1966 distributable property of the Railroad within the

State of Missouri, for the purpose of taxation in assessing

value thereof as of January 1, 1966.

The Railroad appeared at the time and place designated

in said notice, by its Attorneys, John Street, of Denver,

Colorado; Richard T. Cubbage, of Chicago, Illinois; Clyde

J. Linde, of Kansas City, Missouri; and Forrest P. Carson,

of Jefferson City, Missouri; and officers and employees as

hereinafter set out, and the hearing was commenced at

said time and place. Virgil Wright, General Freight

Agent and General Passenger Agent for Missouri, 153

SiG hs at ae PS A ce TS hie PEABO SIGE ERS

A18

West 14th Avenue, North Kansas City, Missouri; and

William Loos, Yardmaster in the State of Missouri, 107

Franklin Avenue, St. Louis, Missouri, appeared pursuant

to ssubpoenaes duces tecum issued by the Commission,

served upon them by the Sheriff of their respective

counties.

Subpoena duces tecum issued by the Commission for the

appearance of Glenn L. Key, Real Estate Manager for

Missouri and its Registered Agent, R. B. Langworthy,

300 Union National Bank Building, 900 Walnut, Kansas

City, Missouri, ordered their appearance February 6, 1967,

at 10:00 a.m., before the Commission and that they bring

and produce at said hearing the record of Chicago,

Burlington & Quincy Railroad Company of real property

owned, improvements thereon, sales and acquisitions of

real property within the State of Missouri for the year

ending December 31, 1965. Said subpoena served by the

Sheriff of Jackson County, Missouri and return made that

he had served same by delivering to R. B. Langworthy,

Registered Agent for the Railroad Company, a corporation,

failing to find Glenn L. Key (employed in Chicago).

Neither Mr. Langworthy nor Mr. Key appeared, nor were

the records as aforesaid produced for the hearing, the

same being Exhibit 5.

The Commission issued subpoena duces tecum to the

Railroad Company, and its Vice President and Comptroller,

W. N. Wernzen, and its Registered Agent, R. B. Lang-

worthy, 300 Union National Bank Building, 900 Walnut,

Kansas City, Missouri, ordering their appearance Feb-

ruary 6, 1967, at 10:00 a.m., before the Commission and

that they bring and produce at said hearing the records

of Chicago, Burlington & Quincy Railroad Company, .

accounting for purchases and retirement of rolling stock

for the year ending December 31, 1965, including, but not

exclusively, locomotives, work equipment, miscellaneous

equipment, cost of rebuilding 432 cars, and all other rolling

A19

stock in 1965. Said subpoena served by the Sheriff of

Jackson County, Missouri and return made that he had

served same by delivering to R. B. Langworthy, Regis-

tered Agent for the Railroad, a corporation, failing to find

W. N. Wernzen (employed in Chicago).

Neither W. N. Wernzen nor R. B. Langworthy appeared,

nor did they bring any of said records as aforesaid, this

being Exhibit 6.

The Commission issued subpoena duces tecum to the

Railroad Company, and its Chief Engineer, E. J. Brown,

and its Registered Agent, R. B. Langworthy, 300 Union

National Bank Building, 900 Walnut, Kansas City,

Missouri, ordering their appearance February 6, 1967,

at 10:00 a.m., before the Commission and that they bring

and produce at said hearing records of acquisition and

costs of right-of-way and roadbed, including ties and rails

in Missouri, mileage of track including main line, branch

line, side track, switch track, and lead track, in Missouri.

Said subpoena served by the Sheriff of Jackson County,

Missouri and return made that he had served same by

delivering to R. B. Langworthy, Registered Agent for the

Railroad Company, a corporation, failing to find EB. J.

Brown (employed in Chicago).

Neither Mr. Langworthy nor Mr. Brown appeared, nor

were the records as aforesaid produced for the hearing, the

same being Exhibit 7.

The Commission finds that the refusal of the Railroad

and its officers and registered agent to appear, was willful

and arrogant and that the Commission was greatly

hampered in attempting to ascertain the property of the

- Railroad for taxation and the value thereof. John Street,

General Attorney for the Railroad, 615 Johnson Build-

ing, Denver, Colorado, a member of the Colorado Bar,

and Chief Trial Attorney in this hearing, stated (Tr. 35)

that he had not been in Chicago before commencing this

De ee a Q AL ORTE Ns SES UME ee at TW) PET ae

Ba SBN. SERA CITA 0 MNT ie leita NA Wa wae |

OTL Th wien

hearing and had made no effort to ascertain what the

records of the Railroad were.

The Commission further finds that the records sub-

poenaed are kept in Chicago, Illinois and that the officers

who did not appear and are in charge of the records are

also in Chicago, Illinois; and that the Commission might

have struck the Kailroad’s application for rehearing and

sustained the assessment previously made, because of the

willful and arrogant refusal of the Railroad and its officers.

All records of the Commission were open at all times to

the Railroad’s representatives and were examined and

photographed by them at will, without and before motion

to produce.

The Railroad served subpoenaes upon State Tax Com-

mission employees, Cecil B. Allison, J. R. Towson and

Carl A. Norfleet and they appeared pursuant to subpoena.

Broley E. Travis was produced by the Railroad and

testified that he was a consulting valuation engineer, a

resident of Sacramento, California since October 14, 1924,

being employed by the California Railroad Commission,

becoming Senior Valuation Engineer and later Assistant

Chief until he retired in 1962 from State service; that he

made studies cof railroads in California, Oregon, and was

on loan for a very short time to New York State Board

of Equalization, study of procedures in Colorado. Since

retirement he had made extensive analyses of state

assessing boards in the States of Idaho, Utah and

Nebraska.

The Commission finds Mr. Travis had not made a

detailed study of the value of the Railroad in Missouri

nor had he made a detailed study of any other railroad

in Missouri, but arrived at his conclusions and attempted

to testify from information supplied him by the Railroad,

‘and attempted to testify that the Commission should use

the so-called ‘‘unit’’ method of assessment rather than

A21

Chapter 151 V.A.MS. in arriving at its railroad assess-

ments. The Commission finds that Mr. Travis was not

qualified to testify as an expert on railroad taxation within

Missouri; that though he stated he had examined the

physical property of the Railroad in Missouri he had no

idea of how many bridges the Railroad had across the

Missouri River or their value in the State of Missouri;

nor did he have any idea or knowledge as to the cor ‘truc-

tion of any railroad righ. of-way by the Railroad within

the State of Missouri made in the past fifteen years, or of

the cost of construction; nor did he have any idea of the

cost of rebuilt cars or Diesels or their value at any par-

ticular time after being placed in service.

The Commission finds that Mr. Travis’ assumption in

the capitalizing of income that the remaining life of all

property is twenty years, is unwarranted and inaccurate,

and unworthy of belief.

Mr. Travis testified that the Railroad had 208 leased —

cars from information furnished him by Mr. Reedy. Mr.

Travis later testified from Page 405 of the Form A Report,

that there were 245 leased cars and stated he could not

explain the discrepancy of 37 cars. His testimony is not

worthy of belief.

Mr. Travis testified he spent five days in calculations

and three days in inspection in making the valuation of

the Railroad and he did not have any estimate as an expert

of the value of the land owned by the Railroad in North

Kansas City; and that he was not interested in that detail.

Mr. Travis testified that in California valuation of rail-

roads since 1950, only two systems of approach to estab-

lish value of railroads were used.—Capitalized income and

stock and debt; that historical cost less depreciation of

railroads, was not used.

The Commission finds stock approach is not valid in its

application to the Chicago, Burlington & Quincy Railroad

Company. Only three percent being publicly held and in

1965, 2,116 shares wexe sed of a total 1,708,387 shares

issued; and that the sali] percentage of sales does not

constitute a market fv taxation valuation purposes, being

12 of 1% of the issued stenkk,

The stock and debi aypipiexcth is not applicable to the

Chicago, Burlingtom & Quite Railroad Company.

Witness Travis testified (Nr. 164), practically all the

securities including debi Were privately held by pension

funds, insurance companies And nO prices are available,

or are occasionally tieged ever the counter. His term

‘‘securities’’ covered beth Aebt and equity capital.

Witness Travis testified (fi. 169), that the market value

of the Railroad woud) he ¥558/000,000, being read from

the Chicago, Burlingtem & Quincy Railroad Report of

December 31, 1965, that it as expended in the last three

years $308,874,388 om ned and general equipment; that

in his opinion the Railiexd would only have a value of

$50,000,000 more thar tex had spent in the last ten years.

The Commission fxd this testimony is not worthy of

belief.

Witness Travis. testified (Ty. 177), for the purpose of

his valuation of nen-opennitive property, that he computed

the value of the steck @wned hy the Railroad and the

Missouri-inois Bridge and Belt at $940,000; and on

referring to the ICC neyeit, Page 210, investments shown

by the Railroad at S4Q5Q00. He used the value of P & I

Railroad Company ((f:. 178), $798,000, and on cross

examination it show ‘he #1/678,000, the amount now

carried. This is conyecied iy the Witness (Tr. 179) at the

prompting of Mr. Reedy, it) $3,333,000, as book value of

investments at the chess of the year. The testimony of

the Witness with negand to walnes of the stocks for his

computation purposes Wes HOt worthy of belief. The

Commission finds the gugid total of the beok, undepreciated

A238

book of the transportetion property to be $1,023,000,000

(Tr. 184).

The Commission finds that the testimony of Broley

Travis, as a whole, is not worthy of belief.

J. Edward Connell was produced as a witness by the

Railroad. He had been employed as a bookkeeper by the

Central Utilities, Inc., St. James, Missouri, since September

1, 1965, and had heen employed up to that time by the

State Tax Commission of Missouri, as supervisor of ad-

valorem taxes since May 1949. The Commission finds that

he was not required to have any qualifications as an

assessor and that he did not qualify as an expert; that

he was not employed by the Commission on January 1,

1966, the advalorem taxing date.

The Witness, Connell, testified from memory that around

the first of July, 1966 for three or four days he visited

Bates, Cass, Ray, Henry, Carroll and Johnson counties.

(Tr. 202). He had notes made for five counties. He

stated, over objection, the level of personal property

assessment in his opinion was twenty-five percent or less.

The objection to his testimony as to the level of real estate

assessments was sustained and he was not accepted as an

expert by the Commission.

Witness Connell, siated there was no ratio study of

assessments on personal property made by the State Tax

Commission of Missouri while he was employed by it, or

for the purpose of any assessment purposes,

The Commission finds that the Witness, Connell, did not

make any valid study of assessments in 1966 and that his

testimony, as a whole, is not worthy of belief.

James P. Reedy, of Chicago, Tlinois, General Tax

Agent for the Chicago, Burlington & Quincy Railroad

Company, for eight years and previously employed by

them since 1946 in the Tax Department, testified for the

Railroad stating that the Railroad operates in eleven

434a@s

states, pays advalorem taxes in ten states and gross

receipts tax to the eleventh state, (Minnesota) in leu of

advalorem taxes; that he prepares all reports to various

state taxing authorities and local taxing; that he is charged

with checking accuracy of the levy and seeing that the

taxes are paid before becoming delinquent, including the

State of Missouri; that as chairman of the National Com-

mittee of Railroads and Utility Tax Representatives, which

meets once a year to discuss the problems of taxation

common to utilities and railroads; that. its purpose

primarily is to exchange information and discuss new ideas

in the field of taxation, litigation and legislation; that he

is President of the National Association of Railroad Tax

Commissioners which performs the same function as

previously mentioned group, entirely in the area of rail-

roads; that this group meets annually; that he is President

of the Missouri-Arkansas Association of Tax Representa-

tives, an organization similar to the other two previously

mentioned, dealing primarily in advalorem taxation in the

States of Missouri and Arkansas; that he is an officer of

the Iowa Association of Tax Commissioners which is a

regional organization dealing with matters in the State of

Towa. No other qualifications of Mr. Reedy were shown.

Mr. Reedy testified that he received a letter dated

June 2, 1966 from the State Tax Commission setting the

Railroad’s assessment from distributable property in the

State of Missouri for 1966 at $34,817,172. Said letter was

marked as Exhibit G and Mr. Reedy upon examining it

said he didn’t nevessarily mean the word **tentatively’’

was in the notice. Exhibit G@ also notified that the Com-

mission would meet with the Railroad at its office in

Jefferson City, Missouri, on Monday, June 20, 1966 and

Tuesday, June 21, 1966 for discussion relative thereto;

this letter was replied to by Exhibit H, stating that repre-

sentatives of the Railread would appear on said date;

thereafter Exhibit I was introduced, dated June 23, 1966,

notifying the Railroad that the Commission placed a final

A25

assessment of $33,429,871 on the distributable property of

that Railroad in Missouri for 1966; said Exhibit is stamped

received June 24, 1966 by the Railroad’s Land and Tax

Department.

Thereafter Exhibit J was introduced, it being Objections

to and Against, and Request for Oral Hearing on said

assessment in the amount of $33,429,871 pursuant and

following a hearing and discussion of the assessment of

$34,817,172 dated June 2, 1966 by the Commission, being

taxpayer’s Exhibit G. Exhibit J was sworn to by J. P.

Reedy before a notary public in Cook County, Illinois on

July 1, 1966.

Exhibit K was introduced, it being a letter from the

State Tax Commission dated July 5, 1966, notifying the

Railroad that their request for a hearing received by them

on July 5, 1966, is granted, stating:

‘*Your request for a hearing, which we have received

today, July 5, 1956, is granted and will be heard

July 7, 1966, at 1:30 p.m. (DST), here at the State

Tax Commission office.

You, no doubt realize that the values have to be

certified and in the hands of the counties on July 11,

1966.°’

The Railroad’s stamp of receipt of said letter is

obliterated thereon, other than the words ‘‘received 1966

land and tax department’’. Mr. Reedy handwrote on said

notice ‘‘received 9:15 a.m., July 7, 1966 J. P. Reedy’’.

Thereafter the Tax Commission received a telegram,

marked Tax Commission’s Exhibit 14, sent by Western

Union 1:17 p CDT, to Henter Phillips, Chairman, Mo.

State Tax Commission, Jefferson City, Missouri; marked

received by Western Union July 7, 1966, 1:54 p.m., which

reads as follows:

‘“‘Tried unsuccessfully reach you by phone yester-

day and this morning. Notice of hearing 1:30 this

AZO

afternoon received by me 9:15 am. this morning,

making it impossible obtain witnesses and counsel to

appear today.

Respectfully request that you withhold certification of

contested amount of assessment, namely $12.7 million,

ana give us hearing as to that amount next week. No

objection to certification of $20.7 million. J. P. Reedy,

General Tax Agent, CB&Q RR Co.”

The Commission finds that Exhibit L by the Taxpayer,

is not a true copy of the original telegram sent by the

Railroad and said original telegram being introduced and

being the best evidence by the Commission and marked

‘*Tax Commission’s Exhibit 14’’, above fully quoted.

Thereafter on July 7, 1966, the Railroad filed in Circuit

Court of Cole County, Missouri, a Petition for Review of

the assessment of $33,429,871, dated July 1, 1966. The

Commission finds the attorneys and representatives of the

Railroad did not appear before it on July 7, 1966, before

filing the Petition for Review on July 7, 1966 in Circuit

Court, Cole County, Jefferson City, Missouri; this hearing,

as previously set out, being held pursuant to the order of

the Circuit Court of Cole County, Missouri.

The Commission finds that the taxpayer’s Exhibit N

correctly states the mileage of main line, main and branch

line trackage miles and branch lines in Missouri totaling

1,283.61 miles, but finds it was compiled to confuse the

Commission as to the actual condition and age of the

construction existing as of January 1, 1966. The Com-

mission finds that Exhibit O, P, Q, R, S, T, U, V, W, X,

Y, Z, AA and BB are not original records or verified

transcripts of figures appearing on original records of the

Railroad; that they are argumentative, inaccurate and not

worthy of belief and not considered by the Commission

as evidence, as are, also, Exhibits DD, Ii, KK, MM, NN,

OO, PP, QQ, RR, SS.

A27

Taxpayer’s Exhibit 0, marked for identification depicts

the line from Francis Junction, just East of Mexico,

Missouri, to Old Monroe, Missouri, as branch line. The

Commission finds that said mileage from Old Monroe to

Francis is part of the Railroad’s main line from Kansas

City, Missouri to St. Louis, Missouri; and that Mr. Reedy’s

testimony or Exhibit is not worthy of belief and is not

credible. The Commission finds that at the time Witness

Reedy testified with regarc to the aforementioned ex-

hibits, he did not produce the records of the Railroad to

substantiate the figures anc data contained in the exhibits

and that the records were not produced pursuant to sub-

poena therefore. (Tr. 343, 344, 345, and 346.)

Exhibit II was produced and marked. Mr. Reedy

testified it was a recapitulation of total Missouri assess-

ments for years 1961 through 1965. This was taken from

the Annual Report of the Proceedings and Decisions of

the State T'ax Commission of Missouri and shows that the

taxable wealth for 1961, of the State of Missouri, was

$7,995,000,000; for 1962, $8,169,000,000, an increase of 2.17

percent. In 1963, total taxable wealth was $8,460,000,000,

an increase of 3.56 percent over the total for 1962. In

1964, the taxable wealth was $8,743,000,000, an increase of

3.34 percent over the previous year. In 1965 the total

taxable wealth in the State of Missouri was $9,061,000,000,

or an increase of 3.64 percent over taxable wealth of

previous year. The Witness did not offer figures for 1966

but Counsel produced them at the request of the Commis-

sion and this was marked Exhibit JJ, which indicated an

increase of one-half billion dollars taxation for 1966 in

Missouri without the assessment of the Chicago, Burling-

ton & Quincy Railroad Company, said assessment having

been enjoined by the Circuit Court of Cole County,

Missouri.

Witness Reedy testified (Tr. 365) that there was a

twenty percent increase from 1961 through 1966; that this

EPG LEE ELI: A OR

weer

2ST IEG ia 1mm

MOLLE A IL OLE DE DLO IY OTR RRR ETE

A28

in dollars and cents in 1963 and 1964 was $280,000,000 to

$300,000,000; 1964 to 1965, $318,000,000; 1965 to 1966, an

increase of $497,000,000; that the increase from 1965 to

1966 was $200,000,000 more, or an increase of 80 percent,

rather than 25 percent previously testified to. (Tr. 367).

The Commission finds the testimony of Mr. Reedy is in-

accurate, deceptive and not worthy of belief, as are exhibits

previously so found on which his testimony was based.

Mr. Reedy testified as follows: (Tr. 372)

‘*Mr. Brannock: I want to ask some questions pre-

liminary to a possible objection.

Mr. Reedy, will you read over to yourself para-

graph B in Exhibit KK?

Witness Reepy: Yes, sir.

Mr. Brannock: Do you say that that is a true state-

ment of the procedure of the State Tax Commission

of Missouri?

Witness Reepy: To the best of my knowledge, yes.

Mr. Brannock: Are you using this as a factual

statement or is it true?

Witness Reepy: Excuse me. I was reading B. In

fact, I was relating it to the overall procedure.

Mr. Brannock: I asked you to read paragraph B.

Is that paragraph true?

Witness Rezepy: No, I have indicated in the para-

graph that there have been changes from Missouri

Commission procedures.

Mr. Brannock: I just asked you one thing: Is it

true or untrue?

Witness Reepy: It is not the procedure used by the

Tax Commission.”’

A29

The Commission finds that the testimony and Exhibit

KK are not worthy of belief.

Witness Reedy stated (Tr. 380) that taxpayer’s Exhibit

B-3, from which Mr. Travis previously had testified, was

prepared from figures Mr. Reedy furnished Mr. Travis.

However, Mr. Reedy did not produce the original records

of the Railroad to substantiate the figures used in Exhibit

B-3. The Commission finds the exhibit and testimony in

regard thereto of both Broley Travis and Mr. Reedy are

not worthy of belief.

Taxpayer’s Exhibit MM was testified from by Mr. Reedy

and said exhibit and testimony based thereon is found

by the Commission to be of no value and not worthy of

belief for the reason that records of the Railroad were not

produced to substantiate said exhibit or testimony with

regard thereto. The merger agreement was not produced;

the testimony of Mr. Reedy concerning merger agreement

and the value of the Railroad was hearsay, not the best

evidence, and totally unsubstantiated. (Tr. 389, 390, 391,

392, and 393).

Mr. Street stated (Tr. 394) that the merger, referred to

in the previous exhibit and tesiimony, had been rejected

by the ICC; after objection has been made to such testi-

mony and the exhibit stating that the merger referred to

had been rejected by the ICC.

Mr. Reedy’s testimony in this regard is not worthy of

belief for up to that time he did not divulge that the merger

had not been effected and based his entire testimony and

exhibit from a transaction that had never been con-

summated.

There vas a discrepancy in the number of leased cars

under the heading ‘‘Equipment Leased from Others’? (Tr.

396) of thirty-seven cars which were not reported to the

State Tax Commission of Missouri but were reported to

panto killa ried te

A30

the ICC on its Form A, the latter being 245 leased cars

and the former being 208 leased cars.

Witness Reedy also stated (Tr. 397, 398 and 399) that

twenty-five cars leased from Fruit Growers Express Com-

pany are not shown in the report to the State Tax Com-

mission of Missouri; and twelve freight cars which ap-

peared on ICC, Form A, that were not reported by the Rail-

road to the State Tax Commission of Missouri, being leased

from the General American Car Company.

Mr. Reedy also stated (Tr. 399, 400, 401, 402, and 403)

that the Railroad was leasing twelve Diesel locomotives ;

that he had just the day before found a discrepancy in not

reporting them to the State Tax Commission of Missouri

and that their locomotive fleet contains twelve more units

than he had reported for 1966 tax purposes in Missouri.

The Burlington Refrigerator Express Company is a

wholly owned subsidiary of the Chicago, Burlington &

Quincy Railroad Company; the first paid the latter

$2,197,000 in 1965 under contract of rental—such charges

are determined between the parent and the subsidiary and

are not set by the ICC. (Tr. 448, 449) Witness Reedy

testified that it was deducted by Mr. Travis on Exhibit

B-3. The value of non-operative property on taxpayer’s

Exhibit B-3 is $135,763,000.

The Commission finds that the ‘Petition for Rehear-

ing’? was subscribed and sworn to by Mr. Reedy in

Chicago, Cook County, Dlinois on Friday, July 1, 1966,

and because there was no mail delivery on Saturday,

July 2, Sunday, July 3, and Monday, July 4, 1966, a holiday,

it was not received until July 5, 1966; and that the Rail-

road was notified in writing on J uly 5, 1966, that hearing

would be had on July 7, 1966, 1:30 p.m., at which time the

Railroad nor any of its attorneys, agents, officers or em-

ployees appeared before the Commission, nor did they

appear at any time during that day; that on J uly 7, 1966,

Chairman Phillips of the State Tax Commission of

A31

Missouri did answer a phone call left for him by Mr.

Reedy on July 7, 1966 at the Commission’s office, but Mr.

Reedy was not available to speak to him. Mr. Reedy

stated (Tr. 454) that he was in Chicago and kad the

operator place the call to the Chairman on July 7, 1966.

Referring to Exhibit O for the year 1957 and the year

1966, the assessment per mile for the ten states listed

therein was not given. Mr. Reedy had no record of the

mileage to testify from. (Tr. 456).

Mileage used in the ICC Report, Exhibit 11, Page 401,

Schedule 412, Column H, is the total of all miles of all

types of tracks, of all types of mileage. (Tr. 456).

A lower Assessment valuation can be offset by a high

tax rate and vice versa, Mr. Reedy agreed. The Com-

mission finds that the valuation of taxable property is not

solely determinative of taxation but must be considered

with, and the tax rate applied thereto, to ascertain the

actual taxation, and the number of dollars paid in taxes.

The levy against per mile of track for the year 1965,

using Schsdule P, shows the total taxes paid. (Tr. 461).

The resulting computation computes the tax per mile of

road operated in ten states through which the Railroad

operates. The tax cost per mile in the State of Missouri

is $1,135.66. (Tr. 462).

Colorado $1,022.04

Tllinois 1,833.51

Iowa 1,414.40

Kansas 361.67

Montana 799.40

Nebraska 852.97

South Dakota 414.33

Wisconsin 1,964.89

Wyoming 1,128.03

The main line in the State of Kansas is 12.85 miles, the

branch !ine in the State of Kansas is 187.02; trackage

A32

miles operated in Kansas, total 18.12, or a grand total of

218 miles operated in Kansas of which 12.85 are main line,

On cross examination (Tr. 468) with regard to Exhibit

Q, entitled ‘1965 Freight Revenue Per Mile of Line

operated in Missouri’’, the revenue per mile of the Rall

road is shown to be $21,177; and that of the Santa Ie

Railrorad Company is shown to be 882,582. The Witness

stated (Tr. 468, 469) that he agrees with the crons

examination of question; that the industrial district ef

the Railroad in North Kansas City generates or originates

more freight than at any point on the Santa Fo Railroad

in Missouri and that wouki be true beeause the Santa fe

has practically all main line miles across the State of

Missouri, a ‘‘bridge state’’, The Santa Fo has no yarde

in Missouri; the only large city they pass through ta

Kansas City and their yards for servicing Kanaan Olty

are in Wyandotte County, Kansas, Me Santa Ko panier

through Kansas City, Missouri on the Kansas Oity Ter:

minal Railroad tracks, The Southwest Torminal of the

Burlington Railroad, of all the line they own in Mixnonrl,

ia in North Kansas City, (lay Cwanty, Missouri, The

Witness agreed that the Railroad had moro froight Into

Missouri than the Santa Ba vet the Railroad's Exhibit Q

indicates revenue of $92,589 yer mile for the Santa Fe

Railroad and $21,177 for the Chicago, Burlington &

Quiney Railroad.

The Witness did not pratwee rooords or facta to anb-

stantiate Exhibit Q, and the (\wmission finds it tx not

worthy of belief, nor the testimony given therefrom worthy

of belief.

On cross examination, the aeeeement of the Railroad

per main line of mite ia shown tw be 800,000; the Miaronri-

Kansas and Texas 81K. the Missouri Pacifle—

$20,000; Norfolk & Weatern (leased from WabashS —

$20,553; St. Louie & Southwestern #23595; Santa Ke—

$26,250.

ASS

Witness Roody stated (Dr. 478), that the road bed condi-

tion of the “RKaty’? is rot comparatle with the Chicago,

Hurtington & Quirer Railroad.

‘ho Raithead constrected T8235 miles of main line

botwoon IMS avd {QW on its Kansas City-Chicago short

line within the State of Missowri, The best recollection

of the Witness was that it cost 419,000,000. He had no

record at the Railvoad with him, on the exact cost. The

Commission Mniis from Witness Reedy’s best recollection,

that the cast of the eighty miles of rehabilitated and new

line in Misewart eorstreeted in 1948-1950, was approxi-

Tratoly SEOQOQ QUA, wr £200,000 per mile.

ao Raitsoad votarned wire ae to the State Tax Com-

misisan of Micsowei at 283 per mile. Witness Reedy

tostifleat he wit wot Reow how mach the Railroad he

oxponded on tes communication system in the last year.

When qiectionad on cross examination if he knew of any

place ta Missouri where tax had been paid on the com-

niunications eestem, Witness stated this was included in

the ‘Pax Couumission’s valvation per mile for roadbed and

LUPO UE NOE

Witnoae Reedy testified (Tr. 487) that 97% of Chicago,

Burlington & Quiney Railroad is owned equally between

the Creat Northern ard Northern Pacific Railroad Com-

panioe: that of the total outstanding shares, 1,708,387, in

LES, anty YOY were traded in, The Commission finds

thia does Wok corstitate a market to be used in computing

value of the Railwoad: that 97% ownership of a corpore-

tion constitutes efective control of said corporation, its

dividends its Expenditane of money for salaries and that

it woukt alect the selling price of any available shares

that wight be offered for sale: that only 48,000 shares are

available, those Reine the mamber not owned by the Great

Northern aad Northern Pacifie; that only one employee,

ar divecton, ie & Majority shareholder owning 110 shares

of the Company.

ia | BPE A OE fA

—— ee

2 —aaa———cscr—O~O~O—eeOoreee

ASM

On cross examimati@n, eforring to taxpayer’s Exhibit

P, Item 3, the Witwess @id not give consideration to

appreciation of the teHeawed value of land over acquisi-

tion price; some of Whigh Was acquired over one hundred

years ago. Witness Reedy farther stated (Tr. 493) that

much of the land they eipeiated over, they have operating

deeds only, that is, when thoy ceased operating the Rail-

road the land revents t® pieperty owners; that there is

some question, Compsell xdvived, as to whether or not the

Railroad has tithe t@ any of its right-of-way in the State

of Missouri; that the Railiead has no revisionary right to

this land and that it aitaally has no value other than the

easement value tq epeiate the Railroads; that land in

St. Louis City (‘P. 494) paichased back before the turn

of the century alone the River had a tremendous value;

since that day the wale has depreciated quite con-

siderably.

The Commission fiads this testimony of Mr. Reedy not

worthy of belief.

On cross examination, the Witness stated that the lands

in the Murray Yau@s ta Kansas City are not owned in

fee title. The Commission finds this statement is not

worthy of belief.

Witness Reedy testified the Railroad retains possibly

145 acres of land acqaiied im 1947, as non operative

property as distingwinked fiom operating property; that

on the report reqwied 4 the Commission in 1966, it is

shown of acquisition price only as $213,970; and that it was

shown on the 1968 repext t the Commission as its value.

Witness Reedy testified What 199.83 acres have been typed

into the report to the Commission. The Witness stated

that 16.62 acres of right-of-way land were reported to the

State Tax Commission of Missouri in 1966 as a part of the

16,343.35 acres thal were Yeported as right-of-way in

Missouri; that the vale ax shown on the report is $52.86

per acre; that the nor-eperating property in Clay County

A35

had been sold at $14,006 to $15,000 per acre and that he,

for the Railroad, put a value on the 16 operating acres of

this same addition of $52.00 an acre.

On cross examination, Witness Reedy stated (Tr. 506)

the assessment on land held by the Railroad for industrial

property is roughly $375.00 an acre, on land that sells for

$15,000 per acre; that ‘‘it is a specific type of property

and it would have a tendency to distort the results of a

study.’’ (Ratio study.)

On cross examination, Witness Reedy stated that Murray

Yards is the West operation of the Railroad in North

Kansas City; that the Railroad gave title to ground in

North Kansas City not in the Paseo district and reserved

easement rights for train operations.

Witness Reedy stated (Tr. 513), ‘‘The steel companies

say the price of steel is less today than it was 50 or 100

years ago.’? The Commission finds that this is not worthy

of belief. It takes judicial notice of the large increase in

steel and all prices in the last 50 or 100 years.

The Witness did not answer a question as to whether

appreciation of repairs they have made te the cars is

shown in any of their exhibits. (Tr. 515). On cross

examination, Witness Reedy testified (Tr. 518-519) that

there were 835 cars built in 1965 in Railroad shops and

that 651 cars were purchased, or a total of 1,486 put in

service in 1965. This, added to the 482 cars purchased

from the Chicago Freight Car Company, totals 1,918. He

testified (Tr. 519-520) ‘*Many of these cars will be pur-

chased or built, but they will not be getting into our

accounts during the year 1965;’’ that he showed in his

report to the State of Missouri 1,785 cars. The Commis-

sion finds that 138 new cars placed in service in 1965 were

not reported to the State Tax Commission in the Railroad’s

report to the Commission,

Witness Reedy was wmnable to substantiate Exhibit Z,

headed ‘‘Age of Commercial Freight Cars’’, which gave

A36

number of units as 44,909, while on taxpayer’s Exhibit NN

the total units owned by the Railroad, year ending 12-31-65

was 43,157, which coincides with the number of units

reported to the ICC as of the same date. Mr. Reedy then

testified the difference might be in cabooses and on referring

to Exhibit NN, 417 cabooses were shown as freight train

cars. Mr. Reedy was unable to explain the difference in the

figures and the difference in the exhibits and said he

would have to go to the records of the Railroad which he

had not brought pursuant to subpoena duces tecum. He

further testified on Exhibits 1-A and 1-B, reporting a total

of 40,369 freight train cars (Tr. 523) and was unable to

reconcile that figure or explain the difference between it

and the other two exhibits other than that the 40,369 shown

on the State Tax Commission Form 1-A and 1-B does

not include 2,741 refrigerator cars, 30 insulated box cars,

or a total of 2,788 cars. He admitted there was a dis-

crepancy of 2,788 cars in his exhibits. (Tr. 524).

In attempting to explain the discrepancy in the number

of cars, Mr. Reedy stated ‘‘Exhibit Z was prepared not

based on the number of cars of 12-31-65.’’ ‘‘We were

not particularly interested at the time of the preparation

of this as to the accuracy of number of units.’? The Com-

mission finds that the exhibits prepared for testimony

before the Commission and the testimony of the Witnesses

Broley Travis and James Reedy therefrom, are not worthy

of belief.

Mr. Reedy testified, (Tr. 526-527) referring to the ICC

Report on Page 405, that this is units owned, including

investment account and leased cars; in Column B, is the

total of units in service at the beginning of the year, 1966

and in Column C, the new units purchased or built; and

Column BK, is rebuilt units acquired and rebuilt units re-

written into property accounts 432; that in adding Column

C and E the total 1,783 cars and Account F, are units that

are purchased or leased from others.

A37

Mr. Reedy further testified (Tr. 529), that the Railroad’s

report to the State Tax Commission ‘‘is not correct by

the 12 cars’’.

Mr. Reedy was asked (Tr. 530) if there was any way

that the figures given to the Commission could be recon-

ciled with the report to the ICC. He made no answer.

He was asked also if the Exhibits NN and Z could be

reconciled with the ICC Report. He made no answer.

On further cross examination, (Tr. 530 and 531) he

answered he could reconcile Commission Form 1-A and

1-B with the ICC Report, but he then immediately stated,

‘Well, I can have the work done and the reconciliation

brought to you at a later date. ...”’

With reference to the ICC Report, Page 404 (first

testified to at Tr. 526), Column G, entitled ‘‘Units Retired

from Service’’, the Witness was unable to explain the

931 cars listed in that category; and he did not have the

information as to how or why he used such number.

Mr. Reedy testified (Tr. 533), in his form filed for 1965,

to the Commission, he confirms that said return showed

835 units as cars built in 1959; in return filed in 1966, the

number of units constructed in 1959 were shown to be 931

units. He was asked to explain the difference of 96 cars.

He stated, ‘‘this difference would have to be checked with

our records in Chicago to find out why this came about.

I cannot answer that.’’? (Tr. 534).

Mr. Reedy stated (Tr. 535) there would be some ‘‘carry-

overs’? of equipment that had been received but not

accounted for.

Witness Reedy testified (Tr. 536) that in the 1965

report, 1,485 cars were shown for 1964 construction; that

in the 1966 report he showed 1,529 cars of 1964 construc-

tion. The number of cars taken out of service by their

1966 ICC Report, is 2,144. (Tr. 537).

Pe rape rEey

OP eet ALD Ri

A38

Mr. Reedy was cross examined concerning Taxpayer’s

Exhibit T, Depreciated Investment in Transportation, of

$714,821, and stated those expenses are iunen out of

current expenses. He was also referred to the ICC Report

on Page 306, and was asked the amount the Railroad

spent in the year 1965 for the repair of Diesel locomotives,

to which he replied $11,419,096. They operate 618 Diesel

locomotives all of which is charged directly to expense and

nothing to improvements of the operating equipment.

Witness Reedy was asked (Tr. 538) what was expended

by the Railroad on freight train cars, referring to repairs,

and his answer was $12,418,716; and none of it had been

added to capital improvement accounts, nor does any go

into the Railroad’s investment and transportation account.

The same is true of passenger train car expenditures of

$5,063,889.

Mr. Reedy was referred to Commission’s Exhibit 12, the

** Annual Report of 1965’’, Page 3, and stated that the gross

capital expenditures showed thereon for new equipment

was $39,633,981. Mr. Street, Counsel for the Railroad,

called this answer to the attention of the Witness who

then said that ‘‘road in general’’, in ten years spent some

$90,742,175; that these were expenditures in the road

accounts of the Railroad, 1 through 47, those being ICC

Account numbers. He was asked if this was added to the

Railroad’s capital improvement account as shown by the

Railroad’s investment and transportation property as of

12-31-65, and he gave no answer. He was then asked if

it included expense items or accounts, to which he stated,

$4,975,000 would have been amounts added to the book

capital accounts of the Railroad in 1965; and that the

$90,000,000 would have been added to the Railroad’s road

accounts in the ten year period.

On cross examination he further stated that in ten years

the Railroad spent $308,874,388, which would go into the

transportation account; that $308,000,000 had been added

A39

over a ten-year period and the depreciated capital account

of the Railroad is shown on their books as $714,000,000.

Witness Reedy testified (Tr. 546) they had bee report-

ing to the Commission that the Railroad had 99.45 miles

in Clay County and a re-check showed 96.75 miles; there

was also the same discrepancy in Jackson County; that

the total mileage for the state does come out with thé

mileage that the Railroad reported as the total side track

in the state.

Mr. Reedy was referred back to Exhibit T, Column V;

he quoted statements of previous Commissions; other

members of the Commission’s staff, newspapers and legis-

lators. The Commission finds that this is not the proper

method in which to arrive at an equalized figure of 30%.

Mr. Reedy testified (Tr. 549) that the ratio studies he had

seen indicated that 30 percent is a general level of the

equalization on a statewide basis; and that he had seen no

ratio studies with regard to the assessment of equipment

in the State of Missouri; that he did not know the assessing

practice of the three larger subdivisions in Missouri with

regard to equipment; that equipment of the Railroad is

depreciated to 25 percent of original cost over a fifteen

year period and then 47 percent is taken on that figure,

leaving, roughly, an assessment of 1114 percent, and off

that amount was taken an economic adjustment factor.

On cross examination, Mr. Reedy stated (Tr. 556) it was

a general conclusion that personal property is not assessed

at more than real estate; that this was arrived at by dis-

cussion of this matter with others.

Mr. Reedy testified (Tr. 559) he could not give the -

basis for the $700 value he turned in for a 1965 Ford with

closed cab, 64.8 horsepower, 8-cylinder, 4-ton truck; nor

how a $10,000 or $12,000 truck could be assessed, in less

than a year, for $700. He stated that he turned in for $200

as a minimum assessment, a 10-ton trailer with steel

— PEI LONE E

WSEAS

EV IROPERG PY OOM

LEIA E BEE OO IES ENO LEE LITE IDEAS te

POSER

See

A40

siding, 23 feet 8 inches long, 1959 model; that he did not

take the value off of any records, or books or depreciated

cost, or original cost of equipment.

Witness Reedy testified (Tr. 564) in his filing with the

Burlington Truck Line of North Kansas City, he did not

use any cost, original cost, depreciated cost, book value or

any other manner in attempting to set the value turned

in for assessment; that the filing was the same as in the

other counties he had looked at. The Commission finds

that Mr. Reedy put a valuation of $9,000 on ten new trucks

purchased in the year 1965, for a value, January 1, 1966,

without going to any guide book, ‘thout comparing with

the records of the Burlington Truck Lines to find what the

depreciated value would be, without attempting to find the

original cost; that it was a judgment decision on his part

as to the taxable value and would be comparable with the

taxable property of other property in the jurisdiction. The

Commission finds that Mr. Reedy’s return of taxable

property herein referred to, under oath, is not worthy of

belief.

The Commission finds that it issued an automobile

assessment book for use by the assessors of the State of

Missouri for the valuation of automobiles and automotive

equipment as of January 1, 1966, Commission’s Exhibit 13;

that Mr. Reedy said he knew of said book (Tr. 567) and

that he did not pay any attention, or follow this valuation

book in making his returns of such equipment.

The Commission’s inquiry as to returns of all types of

property, including automotive equipment, was also made

to test the veracity of the Witness and the exhibits from

which he testified; that the Commission finds that the testi-

mony, exhibits and returns made by James P. Reedy, Tax

Agent for the Railroad, are not worthy of belief and are

not credible.

Mr. Reedy produced maps (Tr. 569) showing the Rail-

road’s ownership of land in the State of Missouri and

A41

thereon is marked ‘‘Indicates fee simple property’’. Such

ownership being shown in red on the maps so produced

by the Railroad.

Mr. Reedy identified Commission Exhibit 14 (Tr. 5%.)

as being the telegram dispatched out of Chicago by him

via Western Union Telegraph, at 1:17 p.m., central day-

light time, and received at 1:54 p.m.

Mr. Reedy testified with regard to taxpayer’s Exhibit U,

headed ‘‘Chicago, Burlington and Quincy Railroad Com-

pany—1966 Missouri Assessment based on iowa Formula’’;

that it showed that the assessment of the State of Missouri,

if the Iowa practice had been followed, would be

$21,106,894; that the equalizing factor in Iowa is 27 per-

cent.

Mr. Reedy was cross examined, (Tr. 573) with regard to

‘* Adjusted Net Railway Operating Income’’ and explained

that the Railroad reports the net railway operating income

as certified to the ICC and certain adjustments are made

to the reported net railway operating income to reflect

items that are carried as operating income in the ICC

report, ‘‘or that are not truly operating income items.

They are more closely related to non-operating income.’’

The Witness stated that as an example, the lease rental

income received by the Railroad from Burlington

Refrigerator Express does not involve itself in the opera-

tion of the Railroad; that refunds of taxes from Illinois

for 1961-1965, used in the average of net railway operating

income which increased the net income by that amount

should not have been included in ICC Account 532.

On cross examination regarding taxpayer’s Exhibit T

(Tr. 573) and taxpayer’s Exhibit V, and the difference of

average net operating income between Exhibit T and Ex-

hibit V, which resulted in a net railway operating income

difference of $1,775,000, the Commission finds that the

Witness attempted to mislead the Commission by using

LP LALLO IESE AMS CELINE

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ELM OLE OE Bhi ee BP

A42

taxpayer’s Exhibit T and Exhibit V and that they were

not worthy of belief; that the amount of dollars difference,

(Tr. 574) between the value as shown for the system on

taxpayer’s Exhibit T and Exhibit V is $49,452,000; that

using the i.verage for Missouri at 15.02 in both exhibits

produced a difference allocated to the State of Missouri

by each formv’:. The Witness stated that the stock and

debt value alone differential is 7.4 million dollars; that

the difference of Item No. 3, the ‘‘Net Investment in

Plant’’, and the one for Missouri using the Iowa Formula,

is $8,000,000 (Tr. 576); that there has been no apprecia-

tion shown in the Railroad’s reports from the original

purchase of the land. (Tr. 579). :

On cross examination (Tr. 583), Mr. Reedy had been

asked to determine the tax dollars that would have been

paid in the State of Iowa, using the formula as developed

for the State of Missouri, by their procedure, and in

answering he referred to taxpayer’s Exhibit V, stating

that if the Iowa tax rate were applied against the value

determined under the Iowa formula, for the State of

Missouri, as equalized at 30 percent, the taxes would be

$1,615,000; that the $21,106,000 assessment, when the

Missouri average rate of $4.02 is applied, produces

$848,500 of taxes; a difference of approximately $775,000,

($766,500).

On further cross examination, Mr. Reedy was asked to

compute the assessment of the State of Missouri to bring

it to the same amount as arrived at by the State of Iowa,

on the same assessment, and stated, ‘‘ Well, it would have

to be close to double.’? (Tr. 584.)

The Commission finds that the yield of given tax dollars

can be many combinations of assessments and levies,—a

high assessment, a low levy—a high levy and a low

assessment—will yield the same amount of tax dollars.

Witness Reedy stated that in Iowa the Railroad is

equalized at $7.65 rate and in Missouri at $4.02 rate.

A43

On cross examination (Tr. 590) Witness Reedy was

referred to taxpayer’s Exhibit U and stated that based

on the Colorado Formula, the Missouri assessment would

be $18,288,556. Applying the Colorado tax rate of $5.63

to that taxable value produces a tax of $1,029,645. Apply-

ing the Missouri rate of $4.02 to that taxabie value as

equalized, produces a tax of $735,200.

Applying the Colorado Formula to taxpayer’s Exhibit

U, Mr. Reedy was asked to explain where he obtained the

figure of $405,871,000, as shown on Line 4. (Tr. 592). He

stated it was a weighted arithmetic figure (Tr. 593), when

asked to explain the figure of $60,961,855, represented to

be the Missouri market value allocated at 15.02 percent;

that it was a ‘“‘weighted’’ system value. (Tr. 594).

Referring to Taxpayer’s Exhibit V, under the Iowa

formula, the Witness was asked what the Missouri market

value would have been and he stated $70,356,316. He was

referred to taxpayer’s Exhibit W and asked what the full

value, equalized at 30 percent under the formula, would be

allocated to Missouri and he stated it would be $58,907,715.

(Tr. 595). He was referred to taxpayer’s Exhibit T and

asked about, what he called, ‘‘Average Above 3 Factors’’

allocated to Missouri, would amount to and he stated

$69,072,000. The Commission finds there was a great dis-

crepancy in the exhibits and the deduction made therefrom,

by Witness Reedy.

On cross examination, Mr. Reedy was referred to tax-

payer’s Exhibit W, the 1966 Missouri assessment based on

the Nebraska formula, and he stated he had no reason for

not following, in ‘‘A’’, the net operating income and that

this was a reversal; (Tr. 597); that the stock and debt

value was $403,144,000, (Tr. 598), compared with taxpay-

er’s Exhibit T, which shows a system market value of $343

million. Mr. Reedy’s attention was called to taxpayer’s

Exhibit V which reflects a stock and debt value of $293,-

Aaa

154,000 and he toatithat Meat Yeo @ierence between it and

Exhibit W, for the same items, was 8110 million (Tr. 598).

The Witnoas was refered ty Yom B, of Exhibit W, and

asked to explain how it Wax advod at. Ho stated it was

an average over & four Yoav poydod, 1962 through 1966, of

operating ineame, then eapihalived at 7 percent to produce

a aystem indicated waarked Vale wider the capitalized in-

come approach; and that hic prodneed §100,000,000 lens

than was shown on ethos Edits TV, UL (Tr. 600)

The Witness stated that welt Yhe Nebraska formula, ap-

plication of the Nebradka yale of 86.57 to the equalized

full value of the propery ef 817,672,000, produces a tax

of $1,161,000; that wadliaadeon wt the Missouri rate thereto,

produces a tax of QT QW Aly.

Tin being referred ta kaynaver’s Exhibit X, Mr. Reedy

stated that @TLASQLOLY yeenoeents The amount shown on

the Railroad's Para \ wept as depreciated investment

in read and equipmert o Yansportation property. Mr.

Reedy atatedt he tit wel Dave Gepreciation schedule (Tr.

HO9); that the steam Rearorie Investment is $346,382,

undepresiated, ax cheney vn Page 221; and as shown on

Form tA and LR Bhd wah the State Tax Commission

Report, the amount i ROHS. The Witness was unable

to reconcile the Dixceepaeios in the ficures contained in

the two reperta (CE) Aaa),

Witnewe Reedy wax telthind to taxpayer’s Exhibit X

and atated that properdr salos in the industrial district,

(North KRanaas (Vix. (ia Conny, Missouri), has been seii-

ing at @14,000 an aces Yhat ho did not know the amount

of profit upen cach eaoc: Phat right-of-way in North

Kanane City be wabredd ah 8)2:00 an rere; that in the Murray

and Harlem Vande thee ayo 204.47 rors; (Tr. 610); that

the main time rari ef eae Phrongh the Murray Yard is

included in the DAAD weros dn the Murray and Harlem

Varia, The Withee eta (Py. 612) that the Railroad has

107.87 acres ia Sh. Lic OWoy: that the Railroad owns other

real prapertiy than this acreage; that the records ef the

other aereage wowkd be in [Kansas] Chicago; (Tr. 613) ;

that the wrap given the Commission of the St. Louis City

Praparties ie wm Rcewrate map. The Wimess stated he

caukt Hat give ane examples of depreciation of land in the

City @f St. Luowiss that he had left it in Chicago; that such

recarets Were swbpoonaed bat were not at the Hearing.

(‘Ke BLD. Wiitthoss Reedy was asked if there had been any

attompt te aotormine if there had been a gain when he

repartet te the Commission an? he stated he had not teken

that inte comsiktoration.

Witmess Reidy stated that parchases at Palmyra (Mis-

sound), daring 19S) and 1966, amounted to 165 acres, an

AVERRRE OF MASAO por acre; that there was a purchase in

North Kaweas Oltr by the Railroad of .34 of an acre for

WLYT.Odhe tat QUIS weres were sold between Cameron and

Kearnex, (Missowri}, at $56.38 per acre, being abardoned

right ofa, We was unable to state whether the prop-

erty had & teversionary clanse In deed of acquisition; that

ever EP praperty Loverts, people come along and buy up a

«tot Bra tke Railroad In order to get a perfectly clear

tithes that there are some abandoned miles from Green City

to Mika (Missoni), at S20.88 per acre. He was asked if

there Rad Meon any abandonment in Jackson, Clay, Bu-

ohana oe St. Sworis City and stated there was some North

af Liberix, ie Chor Qoanty, on the Cameron to Kearney

lime, averrd telt. The Commission finds such was rural

brane time amd side track,

The Witness stated (Ty. 619), that the majority of the

Hailvoad's 482.56 mites of side track in the State of Mis-

waned, fe Raeatad ia major metropolitan areas in which the

Railroad bas wand Peotities—Clay and Buchanan Counties,

Si, Lewis Gite and West Quincy, Marion County all in

Miswarnd, eomsisting of S388 miles in Buchanan County;

YOAES writes Oe CRay County; 1447 miles in Jackson County;

41.08 waiters iy St. Lowis City; 8.28 miles in St. Louis County.

Pore

Ala iA AUE AP hae we OP ih tank ab My atl

i Sind OO NN ASB lad se OR ts) pit Yee PS las

The Witness stated the side tiadk looated in the foregoing

five counties had the same wallae as the side track in the

outstate area of Macon, Biookfield and Cameron; but that

he did not believe What he amount of income generated

therefrom had any relevancy. (Tr. 620-624).

The Commission fies Uhat My. Reedy’s statement that

side track in the fixe cqwaties had the same value as out-

state Missouri, is not worthy of belief.

Mr. Reedy was refed t@ Page 220, of 1965 Annual

Report of the Railroad, Commission Exhibit 12, and was

asked where the two-way adios, place in 51 locomotives,

were turned in for tax panpores; and he stated that he

could not specifically state whether they had been turned in

for taxes and that his amxwer would also apply to all com-

munications within the system. (Ty. 624-625). He further

stated that they were mowhere itemized that he knew of,

in the report to the Commission. He stated the Railroad

purchased 12 locomotives ta 1965 for $1,579,878. (Tr. 627).

He stated that 51 radios were placed in older locomotives;

that when asked for comparixon of the cost, turned in on

locomotives to the State Tax Commission, that he ‘did not”’

make any change im the figaies. (Ty. 628-629). He was

unable to state where ““Dixpatcher-Controlled Wayside

Radios were installed at nine locations between. Quincy,

Illinois and Kansas City, Missouri’, Annual Report, Tax

Commission Exhibit 12, after referring to Page 22, of the

Chicago, Burlington & Quaiacy Railroad Company’s 1965

Annual Report, ox that they had been reported and taxes

assessed thereon im Missowri in 1966,

Mr. Reedy was next refered to Exhibit PP (Tr. 632).

800 box cars had been sed to the Chicago Freight Car

Company at $400 each, totaling $320,000, during the year

at a flat price of $400 eagh inexpective of the year of con-

struction, from 1940-1947 tacluxive. These care were taken

out of the reporting accounts to TOC and the Commission.

The Witness further testified (Tr. 634) that a Diesel ac-

SS eho oad

Ad?

quired in 1947 carrying total $163,734 investment, was sold

for $20,500; that $163,734 represented the total investment

in that piece of equipment from date of acquisition to date

of disposition, all betterments and all additions, such as

radio and the like, would be shown in the $163,734 figure.

At (Tr. 637-640), Mr. Reedy was asked about Exhibit UU

with regard to leased cars and stated that the Railroad was

charged the same lease rate for a car constructed in 1927 as

for a car constructed in 1953; and that all such oars were

were usable and in service. The Witness again stated that

twenty-five care were leased from Fruit Growers Express

Company which were not turned in to the State of Missouri

for tax purposes, and later stated they were not reported

in a rider to the report to the Commission, (Tr. 641).

For the purpose of ascertaining the veracity of the Wit-

ness and the accuracy of reports filed in the State of Mis-

souri, Mr. Reedy was asked (Tr. 644) to produce a copy

of the returns and he did produce St. Louis City, Clay

County, Hannibal (Marion County), St. Joseph, (Buchanan

County) ; but on questioning was unable to show trucks, ete,

had been reported and assessed in Missouri, althuagh used

or dispatched from fourteen or fifteen points in Missouri.

The Witness stated (Tr. 648) that he filed in North Kansas

City, Clay County, Missouri, a personal tax return listing

$400 for desks, chairs, typewriters, business machines, ete.,

and that the $400 figure was an arbitrary figure. The Wit-

ness stated (Tr. 650) he had no knowledge about how much

shop equipment was in Clay County, Missouri, gasoline,

nor the number of typewriters, or offices, or time clocks;

that he had not made a personal inspection before making a

judgment figure of $400 on property in Clay County, Mis-

souri. (Tr. 651-652),

Mr. Reedy was asked (Tr. 653) for the record of the Rail-

road’s equipment cost and depreciated value as turned in

for assessment purposes in Clay County and Buchanan

County and St. Louis City, Missouri and all other counties

where returns had been made.

SED tA ot. A i EN RE cir a ER ine AE Benesch bniiibtigighs

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A48

The Witness stated (Tr. 656) that lubricating oil and

other supplies in North Kansas City at $16,660 are stocks

on hand in North Kansas City at the Murray Yards for use

in the operations there. He was unable to give the Com-

mission any specific information as to amount of equipment

or property. (Tr. 657-658).

The Witness referred to the Railroad’s report to the

Commission for 1966, (Tr. 659) reporting the Railroad had

a total of 16,343.35 acres of right-of-way. He was asked

if there was any reversionary clause in any deed or title

to land owned by the Railroad in Murray Yards, on such

land having been reported in Missouri at $52.00 an acre, and

stated he had not inspected the deeds but that he had, never-

theless, set the value of the land at $52.00 per acre; that

he had no knowledge of any abandoned right-of-way in

the Murray Yards (North Kansas City, Clay County, Mis-

souri). He did state that adjacent to their Harlem area,

Murray Yards, the Railroad made some sales several years

ago on approximately twenty acres, at $5,000 and $6,000 an

acre; that they presently own no industrial property ad-

jacent to Murray Yards—it all having been sold by the

Railroad.

The Witness was questioned (Tr. 663) with regard to

property in St. Louis and stated he had no knowledge of

the present value of the property in St. Louis. Mr. Reedy

stated (Tr. 666) that for original cost in the Form required

by the Commission, in its report, he had not filed original

cost less depreciation, because ‘‘there has never been any

specific instructions to that effect.’? (Tr. 667). He further

stated he had been reporting 30 percent of the depreciated

value of structures and that is the figure that he had de-

termined as the value; that the same procedure was fol-

lowed for Accounts 16 through 35 (ICC Report) ; that Ac-

count 35, ‘‘Miscellaneous’’, consists of miscellaneous build-

ings along the right-of-way; that this would be all buildings

except those listed in 16, 17, 18, 19, 20 and 31.

Rowe

A49

The Commission finds the return figure of $273,000 to

not be worthy of belief.

Witness Reedy was asked concerning twelve locomotives

previously testified to, and not reported to the Commission

for taxation, and stated they should have been reported

as leased equipment and should be taxed. (Tr. 669-671).

Witness was questioned regarding trailers and stated

they were shown on the ICC Report, Page 414, as ‘‘com-

pany vehicles’’; and also was asked concerning 1,087 ‘‘trail-

ers and semitrailers’’, which he stated were piggyback

trailers and carried under the heading of miscellaneous

equipment in their return to the State of Missouri; that

it had been returned to the State of Missouri for taxation

on Form 1-C, Miscellaneous Equipment, in the total of

$10,870,000, and a total of 1,812 units. The Witness stated

that the Railroad had not paid any taxes on any piggyback

equipment in Missouri; that the 1,087 trailers and semi-

trailers were included in the total value of all equipment

shown in Form 1-C, revenue and non-revenue, in the amount

of $10,870,379, which represents all equipment as carried in

Account 58 (ICC Report).

The Witness stated containers, (the character of which is

explained at Tr. 677) are a part of the miscellaneous equip-

ment (Tr. 678) and that the State of Missouri has not

been collecting tax on any containers, the same as on trail-

ers, nor had any tax been paid in Missouri on bogies (the

character of which is also explained at Tr. 677).

Mr. L. Glenn Key was allowed to testify out of turn

(Tr. 680) before Mr. Reedy’s cross examination had been

concluded, and he was called as a Commission witness. He

is General Land Agent for the Railroad, also for the Ft.

Worth and Denver Railway Company, and Colorado and

Southern Railway Company. On referring to the maps of

Railroad land, Commission Exhibit 26A, 26B, 27, 28, 29, 30,

31, 32, 33, 34; Track No. 30 is Murray Yards, Commission

Exhibit 28; as is Parcel No. 27, or tract No. 27, Commis-

CURR re 4

asad ich Phe ete Face tae sei or,

A50

sion Exhibit 28, being a land ownership map of the Railroad.

The Witness stated that the Railroad ownership was out-

lined in one long dashed line and two dots, not necessarily

as shown in red; and on further examination, stated that

the Railroad claimed ownership to two parts shown in red

as well as the parts within the two dotted lines. Witness

Key stated (Tr. 686) that the maps indicated, in the judg-

ment of the men who entered the records in the years from

1883 to 1966, the type deed as indicated in their judgment

after reading the deed; that the warranty deed recorded in

Book 692, Page 105, general warranty deeds, Recorder of

Deeds’ Office, Clay County, was a Holiday Inn site sold

to Industrial Land & Airport property, Inc.; that the war-

ranty deed shows August 16, 1960, $42,763.50, consisting of

5.031 acres; that in the South and East part of Murray

Yards, near the turn-off going into the airport (Municipal

Airport, Clay County, Missouri).

The Witness testified (Tr. 698) that the Railroad sold

on October 19, 1960, to H. N. and A. W. Zimmer III, part

of the northwest quarter of Section 24, Township 5. ‘‘That

shows we gave the warranty to 10 acres, the price $80,000”’ ;

that on September 20, 1961, the Railroad sold 5.50 acres in

Clay County for $46,750; that as a general statement of

the three transactions checked for 1961, they averaged

roughly $8,000 per acre; that Henry Wurst was sold 10

acres by the Railroad, for $100,000, by warranty deed that

is indicated and that is in the Paseo District, (Clay County,

Missouri) ; and in the same Paseo District, 1.16 acres for

$11,600 to T. W. Mast, et al; en September 5, 1962, the Rail-

road sold to the Belger Warehouse Company (Tr. 699-670),

‘‘five acres by warranty, $50,000’. The Witness agreed

that the sales in 1962 were at the rate of $10,000 per acre

and included putting streets, curbs, water and improve-

ments to the property but included no buildings; that the

ground sold in 1961—1962 had the curbs and streets in-

stalled when sold.

A51

Witness Key stated (Tr. 701) that the street at the

Holiday Inn site, previously testified to was already in

and that it was not put in by the Railroad at the time of

the sale.

With regard to 1963, the witness testified the Railroad

sold in 1963, to Sears Roebuck & Company, out of the

Paseo District, 39.117 acres for $327,127.95. The Witness

testified that on August 7, 1963, the Railroad conveyed to

City Investors, Inc. in the Paseo District, three acres for

$36,000; that sales in 1963 were around $12,000 per acre;

that in 1964 they were approximately $12,000 per acre; in

1965, approximately $14,000; in 1966, the average was ap-

proximately $15,000 per acre.

The Witness testified (Tr. 704) that there had been ap-

preciation of value of land of the Railroad in North Kansas

City, but that he had no record of what the Railroad had

paid for the land; that efforts were being made by the

Flour Mills of America to sell ten acres adjacent to the

Murray Yard for $600,000; that on part of the land is a

mill and an old milling house. He stated that the probable

value (Tr. 708) of a 600 acre wheat field, known as Norman

Beaman property, to be worth about 20¢ a foot, but that

it could not be bought—it was not for sale; that the City

wants considerably more than 20¢ a foot; that he thought

it could be bought at about 50¢ a foot; that 50¢ a foot

would be around twenty to twenty-five thousand dollars

an acre. The Witness testified that the Railroad sold

233,616 square feet, at $175,212. (Tr. 212).

‘The Witness was referred to parcel marked No. 84 (Com-

mission Exhibit 33) and stated it should be shown in red,

and parcel No. 84 and No. 83 were sold from Adelaide

south to approximately Prairie to Shell Oil Company. The

Witness testified that in 1964 they sold two acres to Cum-

mins Diesel Sales Corporation, by quit-claim and special

warranty deed for $34,848; that this property is north of

the Burlington Railroad roundhouse; that the Railroad

;

SSCP ORE ee |

Die Dic itt Mn ie Ct ihn i teas LPT OR gt a

‘ Ri aisbe :

A52

owns the land east thereof; it owns parcel No. 19; that

said parcel is next to land sold for $17,000 an acre (Tr.

717).

Witness Key testified that the Railroad’s 6.87 acre tract

in St. Louis City, previously testified to, was transferred

to Burlington Truck Lines cost on book—$8,256. (Tr.

718).

Witness Key testified (Tr. 720) that on October 7, 1960,

the Railread gave the City of St. Louis a quit-claim deed

to approximately 15.975 acres, for $43,530; that this was

in the dump area of the land previously testified to. The

Witness stated he had the cost of this land in Chicago, but

did not have it with him; that for $3,750 they bought

roughly 95,000 square feet of land—‘‘actually, these were

clearance of title;’’ that 361,990 square feet, just under

9 acres, was quit-claimed to the City of St. Louis in 1961,

for $129,716.23.

Mr. Reedy’s cross examination was continued at (Tr.

724). He stated (Tr. 726) that there are 1,480 units of

revenue equipment included in Account 58, made up of

trailers, vans, containers, flatbed trailers, chassis, pole

trailers, bogies, in which the investment is $8,602,220, orig-

inal cost. (Tr. 727).

The Commission finds there has been no tax paid on

this property in the State of Missouri.

Mr. Reedy was asked where the communication was re-

ported in the State of Missouri for taxation and he stated

it was reported at Question 16, Page 2, of Commission

Form, which asks for miles of telephone and telegraph

lines in Missouri, and the value per mile; and that this

information had been filled in by the Railroad. He was

then questioned as to where he received $283 value per

mile as shown on the report. He stated he did not have

any record of where he arrived at the $283 per mile. (Tr.

729).

A53

Mr. Reedy’s attention was called to Page 220, (ICC

Report), where original cost of communications system

was given as $29,560,000; and to Railroad’s 1965 Annual

Report, Page 22, Dispatcher-controlled wayside radios in-

stalled at nine locations between Quincy, Illinois and

Kansas City. Witness stated this meant this went under

the heading of ‘‘Communications’’—and that it goes into

telephone and telegraph. He was asked if he added any-

thing to the value of this for these improvements and

stated that the value per mile was adjusted for between

the 1965 report and the 1966 report for communications

system. He was referred to the 1965 report which shows

$283 per mile; the 1966 report indicated $283 per mile.

(Tr. 730-731).

Witness Reedy said the $283 figure did not come off of

any book; that for the figure to be the same amount of

dollars and cents each year, would be impossible. He

stated (Tr. 732) he had never previously been asked to

give information of this nature before the Commission,

except last year, he was asked what the cost per mile

was to build a railroad.

~ At (Tr. 734), Mr. Reedy was referred to Clay County

Assessment on small tools, shop machinery and equipment.

He stated that roadway small tools, Account 38, has an

investment of $197,000 at the start of the year. He stated

he could not furnish the details of that amount; (Tr. 735) ;

that he had no knowledge of the amount in this account

in Clay County, North Kansas City, Missouri, at the Mur-

ray Yards. He was then asked concerning an Account 44,

Shop Machinery, and stated this would be car building,

Diesel repair facility and coach shop; and that no shop

of this type was operated in Missouri. (Tr. 736). The

Witness was asked concerning the 584 cars that went into

service in the year 1964 and stated he did not have a

breakdown of the cost of these cars; that he just had a

breakdown of the cars that went into service in 1965,

‘

ITS EE 4

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A54

which was $25,776,816, on freight train cars. A compa-

rable figure on the ICC Report is $30, 684,315, (Tr. 736).

Mr. Reedy said two items should be deducted from the

$30,684,315 figure—six gallery cars, cab-controlled gallery

cars used in suburban service in Illinois and 28 gallery

cars used exclusively in suburban Illinois and the 12 loco-

motives. (Tr. 737). Mr. Reedy did not have the figures

of foregoing equipment broken down.

Witness Reedy was next referred to warehouse and ele-

vator in North Kansas City and/or Clay County, Missouri,

which refers, on Page 230 B, to $700,000 investment.

$1,400,000 is shown as the value of this elevator and Mr.

Reedy was asked to explain the difference between these

returns. He stated that the cost of rebuilding the elevator

after the explosion and fire in the 1920’s and various minor

charges, have been capitalized over the years that have

accrued, were not included.

In the Report to the Commission, he stated that a valua-

tion was made by the Clay County Board of Equalization

in 1963. He was asked why he did not report on Form

13-C the owner’s original cost of land and buildings and

he stated that ‘‘I have not included all of the items in the

cost of structure.’’ (Tr. 738).

The Commission finds that the Railroad did not follow

the form in reporting the value of the grain elevator as

prescribed by the State Tax Commission of Missouri.

Mr. Reédy was then questioned by Commissioner Davis

and referred to Exhibit J (Tr. 740-751), which is the Rail-

road’s petition to the Commission for this year stating

that he signed it under oath and stating in part, ‘The

Commission intentionally, or under such circumstances

that it would not have resulted from an error in judgment,

and under conditions resulting in constructive fraud as

to this taxpayer for said year 1966, has failed to take

into consideration all factors which relate to the value of

A55

Protestant’s said properties, and has given too much

weight and consideration, to the exclusion of other rele-

vant and important factors, to some factors relating to

value.’? The Commission finds he did not have proper

cause to make such a statement and that he did not ex-

plain what he meant by such a statement, alleging con-

structive fraud or that he was unable to state where con-

structive fraud existed.

Carl A. Norfleet was called by the Commission as a wit-

ness (‘I'r. 757) stating he was Supervisor of Taxes of the

State Tax Commission of Missouri for the past two

years and for the previous six years had been supervisor

of Excise Taxes and previous to that Agent and Supervisor

of Franchise Taxes; that he had computed public utilities

distributable property taxes and in so doing, made com-

putation and value of distributable property of railroads ;

that the market value of such property is not known and

possibly never will be known as such a value could be

definitely determined only through an actual sale between

a willing and able buyer and a willing seller, not under

compulsicn to buy or sell, and sales of real property of

the type and size of the roads operating in Missouri are

extremely rare and practically non-existent, and, there-

fore, the Commission value is an estimate and any other

value placed upon the property by anyone using any method

they may devise is also an estimate; that no taxable value

can be determined that is entirely factual and any ap-

praisal for tax purposes is not an exact science; that the

responsibility of the Commission in regard to the assess-

ing of a factual value of such property lies mainly in two

areas: One, that the method of assessment as employed

should not be discriminatory as compared to assessments

of like property. Two, that the valuation determined by

the Commission must be a reasonable one; and that this

is the policy of the Commission followed by the Witness in

making the tax assessment of the distributable property

of all railroads in Missouri. This procedure is set out at

ABE

(Te, TIS TRAD wad Ghe Commission finds that they correctly

stated the preeeare Benmined by the Commission in the

naxqaament wf wd Ratrord property; that the final assess-

ment ix wate Ye tke Clmmission after Mr. Norfleet has

applied Uke Comriesion’s Yrothad to the property of the

Railroad

Mr. Naveed eehorend to Commission Exhibits 15 and 16,

stating the Wateton on Heidi 16, was taken from reports

of the prevtoac eae WiFhORt Adjustment. The valuations

om RxXiiitt BS were Wade HpoN those records but show a

redaction Ba wate, Pho Witross stated (Tr, 761-762) that

BXRit BD ik te wae Weed Pn Fhe determination of the valun-

tion af SQUAT, & Behe For the Railroad’s distributable

property Ree BAAR Peo eAhject of this hearing. Mr. Nor-

eet stated Chat aa wore Valo Was taken from the ree-

ards showte Ge wateation 27 860 per acre that had been

weeeed Ta RRR aed WDD): Phat Phis was prosent in the records

but Be GL wet Rew erecth how such value was detor-

waiteeads URAt BE Was WORT WITh YORAM to Value of buildings

wrt ether Reed Prapenge Which were reported by the Rail-

read te Rave & Wateo of RIVWANVHB,: that fi had been reported

as arigtaal ea Ye FRis Riere Boze adjustments were

made avd wees aeaoad Qo the addition of the values which

hart Beem teed Ae Phe Reload and restored by the Com-

mission, Da Preaek Hho POP, Pesulting in the figuro of

SIBAMIA WAR was HroNdad upward by the Commission,

wetag the Perrerea Rare of 226.566, which resulted in

& taxade wake ef SQHOET for the buildings and other

fixed spi a Bae Wet oh way in Missouri. He stated

be Rat we WANT Hehe? Soet ax reported in the build-

ings are ether Med Property on the right-of-way, is not

earreekty Shows PAT PW straying this year’s report and

reperts ef Past Weare, the amount brought forward is

shown aa the Race ef same of the Railroad's reports under

Urrighaed Cast, a Pe WRG vt, is a total of the amounts

reparted Ry the eawneies oh Horm 2 and under the heading

there aan that Rowe ot watea, on the various county shoots

A57

it ix woted that certain pieces of property have been re-

ctucedt Boma Yeat to pear. The original cost of a turntable

ik TMED was Wow to be $15,000. Tn 1966, as $8,180. The

Depat at Likerin, Missouri was reported in 1962 to have

& value of 3893, dr 1966 it was incladed in the original

Cort AMAL wt BLES: Chat Daildings and other fixed prop-

erty Oh Hghtofway on a mileage percentage was com-

prtect te Be Rees than Il percent of the apportioned value of

buiktinge amd other fixed property to Missouri by allova-

tion Baetlkend,

At (Ds. THO), We. Norflect stated a reduction in main

tine wale a 1866 Prom $22,665 per mile to $20,000 per

waite; that Uke tedheetion Was made on the main line valua-

tio at the teqrest of Mr. James P. Reedy.

Mu. Neowteet was asked to explain Exhibits 17, 18, 19,

art 20 ad Pow Re weed them in his calculations, stating

WxXhidtt IT ws a Breakdown In valuation of each type of

track of all vallraads i Missouri and offered for the pur-

pose af chewing wo Giserimination against the Railroad on

the Basis of Wee walkes; Exhibit 18 is an extract from the

CORMMIRMION Hecords Showing cxact value used on each type

of Kine Ra the past five years. Te was not used in this

year's cabbwhation, exeapt for the 1966 figures, and it

shows tat the wrain Ye valve has been reduced beginning

in I9GD with a wale of 29.863 por mile. (Tr. 766), that

in LOOK, A Was RAO per mile; that it shows a slight

raike DR second Wade Bre, and a reduction in branch line

ir TES aud WS: wad Phat it shows the value of side track

AX LOMRATATAR COMStAMt throughout the years. Exhibit 19

ix am extiact Dom the Commission records of ‘Le valua-

tion par acre Of Wiehtofway used in making the 1966 as-

KORROMES WR Lhe Haltoads shown. Tt is used purely for

infararatiion te whow the valve used iin the original caleula-

tion af the Raitroad was consistent with the value of other

raihroads, ‘Me Bartington Railroad value is $60 per acre;

the mata Dae of fret Glass railroads are about the same.

The Witness, in explanation of Exhibit 20, stated it was

the average value of the Gixtibatable property per mile

in Missouri and shows Bwaber of Miles main and branch

lines of each railroad operated ia Missouri; that it shows

the Missouri distribatable property value as determined by

the Commission and it breaks down on an average per

mile. The Exhibit inchades all distributable property which

includes rolling stock, Daildings, fixed property, on the

right-of-way. The parpere of this Exhibit was stated to

be that no discrimination im determining assessed value

was exercised on the Bartington Railroad.

Mr. Norfleeg stated that the average distributable prop-

erty per mile as showa da Exhibit 20, is $31,238; that the

average of the Bariiagton Railiwad is $26,085 and the

valuation of the other yoads ave as shown from a low of

the Missouri-Kansas-Texas of $17,718, to a high for the

Santa Fe, of $51,311, and the Norfolk & Western, of

$55,052. Mr. Norfleet stated that on Page 543, of the

1966 Transportation Manual published by Moody’s In-

vestors Service, Ine, it shows that in 1952, the Burlington

Railroad issued bonds ia the amount of $25,000,000. Under

the heading showing the purpose of this issue is this nota-

tion, that $12,460,100 be waxed t retire some outstanding

obligations at that time, and that the remainder be used

according to the wording of the purpose for acquisition

and construction of new Hine Wetween Missouri City June-

tion and Needles Junction, Missouri, leaving in excess of —

$12,500,000 available for the construction of this new main

line track, of T4 miles; and that baxed on this information,

the minimum ¢ost of this Tine at that time would have

been $169,918 pex mile,

When asked concerning availiable knowledge of any other

construction of new railyoads iy Missouri, the Witness

stated the Annual Report of the St. Louis & San Francisco

Railroad, as of Deceraber 31, 1965, etates they were build-

ing 32.7 miles of new fine ta the recently owned mineral

8 Su pee ae

WA URE ON fennel ~~ 9A AA ON) NU NOR an

A59

development in Crawford and Iron Counties, Missouri;

and that this track would cost $6,500,000, or an average

construction cost per mile of $198,776, which would be

classitied as branch line as it is merely an extension of an

existing branch line of this railroad into that area.

Mr, Norfleet was asked as to computation in valuing the

rolling stock of the Railroad and stated that the Railroad

reported the number of units of rolling stock, the type,

age and the original cost of these units; and that the Com-

mission allowed depreciation of rolling stock of the Rail-

road and all railroads at the rate of 5 percent per year

until a base of 25 percent of original cost is reached, which

is not reduced further as long as such items remain in

service, except that this depreciated cost is then equalized

at 47 percent, which means 47 percent of 25 percent on

the original cost after fifteen years, or an ultimate valua-

tion of 11.75 of original cost on such property.

The further procedure was that the depreciated original

cost of the Railroad was $205,440,024, and to this was added

the value of leased rolling stock in use by the Railroad

totaling $209,911, or a total of $205,649,935, which was then

equalized at 47 percent, causing an equalized value for

the purpose of taxation of $96,665,469 on rolling stock.

The Railroad has 8545.12 miles of track everywhere;

in Missouri, 1,283.61 miles; the Missouri miles being 15.021

of all the Railroad’s miles. This 15,021 was applied to

$96,665,469 rolling stock valuation, thus making the Mis-

souri allocated portion of the rolling stock $14,518,618. To

this total was added $8387 representing Missouri’s por-

tion of the value of 37 leased cars valued by the Commis-

sion at $1,500 each, which were shown in the ICC Report

of the Railroad but were not shown in their report to the

State "ax Commission of Missouri, making the total value

of rolling stock of the Railroad for 1966, $14,526,955.

The value of roadbed previously testified to, is

$19,350,233. To this is added the fixed property on the

IEE ett Oe ROR Re Se ce

te eet en ee

A60

Railroad right-of-way, $906,067, rolling stock $14,526,955;

from this amount an economic obsolescence deduction was

made by the Commission of $1,353,384, resulting in a total

taxable value for 1966 on distributable property of the

Railroad within the State of Missouri for the purposes

of taxation of $33,429,871.

Mr. Norfleet stated that the economic obsolescence ad-

justment used in 1966 was calculated by considering the

Railroad’s total investment in transportation property,

$1,023,057,867, comparing this with its net railway operat-

ing income, all for 1965, from the report submitted in 1966.

The 1966 report of the Railroad to the State Tax Com-

mission is accompanied by the Form A, or ICC report

for the previous year ending December 31, 1965. (Tr.

775.)

Mr. Norfleet testified that with its net railway operating

income in the amount of $20,423,802 and then subtracting

the resulting percentage of 1.99 from a desired potential

income yield of 10 percent, this developed an economic

obsolescence percentage of 8.01 per cent and resulted in

the deduction or economic obsolescence of $2,913,281.

The assessment of the Railroad for 1966 was first set

by the Commission at $34,817,172, which was reduced by

the foregoing calculations to $33,429,871; even though the

rolling stock of the Railroad had increased considerably

in the year 1966 over the year 1965. The same pattern

and formula was followed in the development of computa-

tions of all of the railroads in the State of Missouri. (Tr.

776).

Mr. Norfleet was asked what he had done in regard to

developing valuations since July 8, 1966, when the matter

was sent to the Commission on remand for further hearing

by the Circuit Court of Cole County, Missouri, and he

stated he had been checking the value of the acreage of

the right-of-way of the Railroad, and that he had found

A61

from information in the Recorder’s Office in Clay County,

Missouri, the following transactions: 1. Exhibit 36, (Tr.

777-782, inclusive) sale of 39.177 acres to Sears Roe-

buck and Company, February 11, 1963; consideration

$327,127.95.

Item No. 2: Sale date January 5, 1962, from Burlington

Railroad to National Bellas Hess, 13 acres; consideration

$110,500.

Item No. 3: Sale date September 26, 1962, to Printing

Park Corporation, 10 acres; consideration $100,000.

Item No. 4: Sale date, May 29, 1962, consideration

$950,000. The Commission finds that this sate included

some improvements and is not for land alone.

Item No. 5: Sale date July 9, 1965, to the City Inves-

tors, Inc., 3.94 acres ; consideration $55,500.

Item No. 6: Sale date, August 7, 1963, to City Inves-

tors, Inc., 3 acres ; consideration $36,000.

Item No. 7: Sale date August 10, 1966, to John W. and

Larry B. Belger, 3.96 acres; consideration $59,160.

Item No. 8: Sale date June 8, 1966, to Stephenson Yost

Steel Company, 4 acres, plus fraction; consideration

$60,000.

Item No. 9: Sale date January 4, 1966, to Weyerhauser,

Inc., 4 acres, plus fraction ; consideration $60,380.

Item No. 10: Sale date December 30, 1965, 5 acres; con-

sideration $70,000.

Item No. 11: Sale date March 11, 1954, from B. Fleming

Company to Equitable Life Insurance Company, 8 acres ;

consideration $60,000.

Item 12: Sale date August 1, 1957, Clorox Company, 214

acres ; consideration $26,000.

Item No. 13: Sale date June 12, 1959, to H. J. Cole Com-

pany, 1.83 acres ; consideration $60,000.

CRNA ARB ee ALO tilly 3 AG aR Pee. SBibesibe A ra pay Limca ihe hy So ¥ Vex

eh pe th AM Sle AIT ah Rl a oe

ne: ail Se

ee ee

A62

The Commission finds that all of these properties border

on or are adjacent to the right-of-way and are served by

the Chicago, Burlington & Quincy Railroad. Witness

stated he had knowledge of comparable railroad property

in Missouri, that being Terminal Railroad Association in

St. Louis and the Kansas City Terminal Railroad Com-

pany in Kansas City, Missouri. He was asked whether

he had knowledge of any comparable property to the Mur-

ray Yards of the Burlington Railroad property and he

stated that the St. Louis Terminal Railroad Association

and the Kansas City Terminal Railway Company were

not comparable; that while they had large assemblages of

switch tracks and various railroad tracks, there was a

difference in that the Murray Yards is operated in direct

conjunction with a large industrial area to which this Rail-

road (Burlington) has an exclusive or a monopolistic entry

and right to do business through the control of the access

to the industrial area surrounding it.

The Witness stated (Tr. 784) that he had been in, and

examined, and was familiar with the Murray Yard, St.

Louis Terminel and the Kansas City Terminal yards and

to his knowledge they were the three largest in the State

of Missouri; that they have main lines as well as side

tracks and second main lines and in his opinion, the North

Kansas City Yards of the Railroad, is the most valuable

not only because of the value of the land itself, but also by

comparison of sales; and it also has another large value in

that where this yard lies in itself almost creates a mo-

nopoly of doing business within that large industrial

district.

Witness Norfleet testified the Burlington bridge at the

North Kansas City yards and the ASB Bridge (Armour,

Swift, Burlington) are the only accesses between Kansas

City, Missouri and North Kansas City, Clay County, Mis-

souri, for rail purposes. The Wabash has a main line

through this area but uses the Burlington bridge and has

f renttesows

A63

no access to the industrial district; merely passes through

the area. The Burlington also has its main line running

through the district in addition to its second main switch,

branch and side lines, previously testified to, in this

district.

At (Tr. 786) Mr. Norfleet was referred to Exhibits 27,

28, and 29, which are maps of the Murray Yards furnished

by the Railroad, and stated the valuation of the right-of-

way of the Kansas City Terminal Railway consisted of

258 acres on which the Commission placed a value of

$3,080 per acre; that the right-of-way of Terminal Asso-

ciation of St. Louis consists of 480.58 acres, valued at

$3,080 per acre; that the valuation on the Murray Yards

property identified on Exhibits 27, 28, and 29, had been

valued in 1962, 1963 and 1964 at $55.00 per acre; and in

1965 and 1966 it was valued at $60.00 per acre. (A cor-

rection was made that the Exhibits are 28, 29 and 30 rather

than 27, 28 and 29, and was agreed that the testimony was

pertinent to Exhibits 28, 29 and 30.) (Tr. 787).

Witness Norfleet stated that the land, lead track and

right-of-way in the North Kansas City Railroad Yards is

almost always owned by the Burlington Railroad, except

for a line of the Wabash which leads through there, with

limited access; that the value of the North Kansas City

Railway land is in excess of the value of the St. Louis

Terminal and Kansas City Terminal right-of-way. (Tr.

789).

The Railroad did not file with the Commission a report

of any of its so called ‘‘piggyback’’ equipment or leased

piggyback equipment, The ICC Report submitted by the

Railroad, on Page 316, shows 350 semi-trailers purchased

by the Railroad cost $2,323,550 an average of $6,638 per

unit; and also shows the purchase of 100 refrigerator

trailers for a total amount of $1,142,300 or an average per

unit of $11,423. The Burlington Truck Lines., Inc, has

A64

not filed a return for advalorem tax purposes with the

Commission.

Rolling stock of the Railroad, fifteen or more years old,

is assessed as low as 11.75 percent of original cost. (Tr.

790) 60.72 percent of the total number of rolling stock

units of the Railroad were assessed by the Commission

at 11.75 percent of original cost, or a total of 27,646 units.

There are 921 units, including cars and locomotives, in

the 14.10 percent bracket; 3,079 units in the 16.45 percent

bracket; 350 units in the 18.80 percent bracket; 856 units

in the 21.15 percent bracket; 847 units in the 23.5 percent

bracket; the total number of units reported to the Com-

mission being 33,669 units. 74.01 percent of the total re-

ported rolling stock of the Railroad, 45,530, was valued for

tax purposes by the Commission at less than 24 percent

of original cost. (Tr. 791).

No appreciation was added to value by the Railroad for

tax purposes for rebuilt rolling stock or for repair and

rebuilding of locomotives.

The equipment of all other utilities assessed by the

Commission is at original cost or higher and then equal-

ized at 34 percent. No depreciation is allowed and it is

not valued for assessment at less than 34 percent of the

original cost. (Tr. 792).

Mr. Norfleet was asked to explain Exhibit 21, which re-

flects a selection by the Witness from the Railroad’s own

Exhibits, samples and approaches to values used by the

Railroad. From those Exhibits, the Witness combined

them all in equal proportion to produce the figure which

would substantiate the previous assessment. The Witness

stated that by a sampling of the Burlington Railroad’s ex-

hibits to show that by using capitalized income, stock and

debt, and a cost factor, the Commission could have come up

with a factor equal to, or in excess of, the one arrived at

by its use in actually making the assessment of the Rail-

A65

road for 1966, of its distributable property for the pur-

poses of taxation.

Commission Exhibit 22, based on Railroad’s Exhibits T,

X, U, W, and MM, and are explained by Witness Norfleet.

(Tr. 794-795). Exhibit 23 is explained by the Witness,

(Tr. 796) as showing the total mileage operated in each

state, taken from Page 401, ICC Report of Chicago, Bur-

lington & Quincy Railroad Company, dated December 31,

1965.

The second column on this exhibit is taken from the

Railroad’s Exhibit P, showing amount of taxes paid for

the year 1965 in each state.

The third column is a division of amount of tax paid

by the number of miles operated, to show the average tax

dollars paid per mile of main and branch line operated in

each state.

The Commission finds that if the reduction in assess-

ment was granted as requested by the Railroad, the tax

per mile in the State of Missouri for the Railroad, would

be $533.76. The Missouri tax per mile operated is $1,034;

in other states in which the Railroad operates are from a

low in Kansas, of $361 per mile; to a high in Illinois of

$1,833 per mile, and Wisconsin of $1,964 per mile.

Witness Norfleet was asked to compute what the tax per

mile would be for the Railroad, if given the relief re-

quested in the Circuit Court of Cole County, and stated

the tax per mile in the State of Missouri would be. $533.76.

(Tr. 797).

The Witness was handed Commission Exhibit 24, which

shows the percentage total tax paid by the Railroad, by

state, compared with the percentage of main and branch

line operated in each state. The taxes paid were taken

from the Railroad’s Exhibit P. The percentage of rail-

read system operation, by state, was determined from the

main and branch line operated, Page 401, ICC Report,

A66

Chicago, Burlington & Quincy Railroad, as of December

31, 1965.

The Railroad paid 14.41 percent of taxes in Missouri and

the percentage of the Railroad’s system operation in the

State of Missouri is 15.02 percent, that being the percent

of the Railroad’s Missouri trackage compared with its

total trackege everywhere located within the State of

Missouri. The comparable figures per State are as follows:

Percentage

of System Percentage of

Operated Taxes Paid

Colorado 4.35 5.04

Illinois 19.15 29.69

Towa 11.70 13.99

Kansas 2.55 .78 of one percent

Montana 2.15 1.45

Nebraska 30.94 22.31

South Dakota 2.15 75

Wisconsin 2.58 4,29

Wyoming 8.30 7.92

Mr. Norfleet was handed Exhibit 25 and testified there-

from (Tr. 802-803) and the Commission finds, as he stated,

that the assessed value and the tax rate must be considered

together to be significant and to arrive at the amount of

money paid in taxes upon property; that column 5 of the

Exhibit is based upon a $100 unit of valuation; that an

assessed value might be high, and the rate low, or the rate

high and the assessed value low and in each instance the

tax dollars paid on the same property would be equal.

Mr. Norfleet’s calculations were taken from figures from

the Railroad’s Exhibits, without element of judgment.

(Tr. 804). The assessed valuation is divided by the num-

ber of miles in the State involved. Column V is the tax

levy per hundred dollar unit of valuation. Column VI,

is the taxes paid per mile in the states shown in the Ex-

A67

hibit and the state taxes per mile as shown on the Exhibit

are as follows:

Missouri $1,057 Montana $ 782

Colorado 906 Nebraska 831

Illinois 1,780 South Dakota 406

Towa 1,316 Wisconsin 1,938

Kansas 362 Wyoming 1,125

Witness stated in Kansas, the Railroad does not have

any main line; in Wisconsin all Burlington line is main

line; in Missouri, the main and branch lines are approxi-

mately fifty percent. As shown in the lower right hand

corner of this Exhibit, all Missouri system produces a very

minor difference from the unit valuation system as ap-

plied over these other Burlington states when the tax levy

is considered, as well as the valuation. (Tr. 808) Ac-

cording to Mr. Norfleet’s calculation, the average tax per

mile main and branch line operated in the states using

unit valuation was $1,050 per mile and the comparable

figure for Missouri was $1,057 per mile.

Mr. Norfleet was referred to Railroad’s Exhibit T

through X and also MM, and stated these exhibits dealt

with theoretical approaches to value that are usually used

in conjunction with the unit system of valuation; and

that they are not in conformity with the accepted theory

pertaining to such appreaches to value; that stock and

debt approach would not be applicable, es 97 percent of

the Railroad’s stock being closely held by two other com-

panies is not on the market and stock sales of 2,000 shares

out of 1,708,391 shares of outstanding stock, loses any

semblance of true market valuation and is, therefore, not

clearly applicable.

The Witness referred further to a statement of Mr.

Broley Travis, who had appeared in this hearing as an

expert witness for the Railroad and in his report to the

Colorado Legislative Council recommended on Page 22,

ove OP OP IE Or ee

~ Te ia od ae |

Ws cenod ven a

ASS

the stock wad 2a wethad he seed in valnetion, and he

rejeoted HS aeamMAR When ho ptated that occasional sales

Over The CAAA Wore vot WHAde and whould not be used

da Tals ARR DARA TY),

Wittaeas Noadhed stated his doneription correot}y fits the

stock sates ef Ge RA Ned that another clement misa-

tmgt Dae the Raeads srowk wale ie the eyeence of any ole-

wrents ef eontred WRG bs comeidered to de an important

facter De steek wad Gh velaation; fhat the purchase of

stock “hous ciate Pho Deer’? to contemplate he might

ARSENE SARAY DARD PR Fe Al-oeeion and contol of the com-

paar davelred, CMR NV).

Tre Witness Saad bo hed @xamined various exhibits of

the Rateeadt Maar aa ith eanitatized income approach

to vabe Wag her MAY SapPoration which is under complete

conten, af Rae VRhoP Copmeios fn Ee aame business, and

Wihease qpematians 7A, ik AAAS cuspeet, for the pur-

POSS Oe GANRAR A WRDMO AYpPYoRen fo velee, a5 is the

Radread BR. is SHH OT poreont by the Great North-

ere ake Nero, TRB: Ralpords, and the net income of

the Raittoad & ef eeendary importance to its principal

OWRARR PATRON GoM HN ipeures the owners access to

BRA PARA ANY Me,

The Racewad’s HAMA V (Ty. 818) based on the Rail.

roads @aa Qe, wehoor The poproduction cost of their

plant kh Missaant Ro FR own depreciation, less their

OWR PRECAREE VT Steolemeones, ix B115,022,219, which

equation’ at Ae percent ax weed hy the Commission in as-

SeeReRy af ewer WHHRES And Pailpords, would pi ‘ace a

taxedts vaio ce Wane for the Railroad of 639,170,554;

Or OF eQUAReed ALPE Prenat, would produce 834,506,665.

(Ra SMA BPM V projects obeolercence frito the eal- -

culation There Reiko, avd anderetates the value that

wort Be eskhad oy proper ure of the income ap-

PI,

aes

AGS

My. Neweed was referred ito Railroad's Exhibit A, Page

ST, waiter ““Muahanias of the Stock and Debt Method”

Whioh states, “perhaps it is needless to emphasize at the

util Ral Uke stk wnd debt apprensh finds its essential

justification iy Whe Ract that shares of stock and units of

Long tener Tentelvrediees of the larger carrier and other

Wtikity Conponalions aie common objects of exchange in the

reacting: Gaawalal wontons.” (Dr, 815)

‘The batter pant of he Raihroad’s Exhibit A has several

sohectudes cond tees entitled "Appendix E?’ and Page 105

shows caunbiveatiions Of the capitalized earnings of stock

art debh appreadies to value. Therein were considered

thinty-six switiemds Yy Che sommittee making this report

on weit wakeation to which the eapitalized earnings stock

andl deri apanreadhes Were applicable,

‘Tae Racking tered of railroads to which this system is

CousiMHEE ARM, @oes Not Inclade the Chicago, Bur-

ington aad Qaoney Raiiroad. (Tr, 816).

The Commaieaion wernedad the $030,000 for 10 acres of

lanet soht te Carpenters Paper Company, shown as Item

No 4, seed yinwe Of Exhibit 36, was an error, that it

ShOURE Rare Deen BERRA v Tr. 898).

Witwenn Nowfeee, again testified (Tr. 827) that the de-

preckated’ Kekae ef WORg stock is taken down to 25 per-

Cont at the vale OF D yereent per year for 15 years; and

that of wait Qapieeiated valea, 47 percent is taken as the

waaeenedt Kale after king the Railroad’s percentage of

KUO PLAY De Niiesotri, which is 15.02 pement.

Mr Novteet teutified Chat the 47 percent (the equalized

factor prerigadty weRermed to) is the reduction factor to

recluce the Kaleo of Chis dase of railyoad property to the

loved of QO yereont oF waleo, Which the Commission wants

to aahiene Oy wecewements: that the 47 percent is applied

to the Harter wedtaction of the depreciated value which

= Ce

has been depreciated down as low as 25 percent in the

case of 15-year old equipment.

Mr. Norfleet testified (Ty. 832), on cross examination by

Mr. Street, that on other wtilitios, 34 percent of original

cost was used which was then trended to bring it up to

the present day cost of reproduction; thereafter, a de-

preciation factor wax weed and after finding depreciation

factor of trended cost, it was Then equalized at 34 percent ;

and that, in his opinioa, it resulted in the final figure of

30 percent. Mr, Norfleet at that time was asked to obtain

the formula used by the Commission upon electric power

and light companies ip amessing them on their distrib-

utable property and stated that a trending factor of

1.35598 was applied to the original cost of distributable

property and then a percentage condition of 77 percent

was applied and equalization vate thereof of 34 was ap-

plied, which actually produced an assessment that, based

on the original ees¢ of this power and light company, was

35 percent of original coat of dixtibatable property.

Mr. Norfleet stated that in his Opinion, this brought the

assessment down to 30 percent of valve and that a formula

had been used to make railvoads assessed at 30 percent;

(Tr. 834); that being the objective of the Commission.

On cross examination, My. Novfleet explained how pipe

line property is assessed by the Commission, stating that

the equipment other than the line, the pamp equipment, all

of the things that go t make wp the complete operation,

are assessed by the Commission at 34 percent of original

cost; that the pipe originally ix walwed at $1,000 per inch,

per mile, or a mile of 10” pipe would be valued at $10,000;

or a 30” pipe would be vwalwed at $30,000 per mile; that

depreciation thereon is allowed down to the level of 50

percent, at the rate of twe percent per year, which is the

minimum value of the pipe tine formula. He was asked

what percentage that resulted ia and stated in the area

of 30 percent assessment, WAKA ix the objective of the

~ eee

Commission. ~ All equipment other than the line itself,

whether it is pumping equipment or metering equipment,

or buildings or whatever, is on the pipe line right-of-way

and state assessed, by the Commission, at 34 percent of

full original cost. (Tr. 887).

Mr. Reedy was called to the stand and identified Exhibit

XX, stating it was a tabulation of sales of abandoned right-

of-way in the area of Cameron Junction to Kearney. This

was the former main line into the City of Kansas City,

across the State of Missouri, and was superceded by the

Centennial Cutoff which goes from Brookfield diagonally

into Kansas City; that through 1965-66, the Railroad dis-

posed of 218 acres of abandoned right-of-way for total

consideration of $12,271, or $56.28 per acre, and that it

was disposed of through quit-claim deeds.

Mr. Street stated (Tr, 839) that the Railroad reserved

the mineral rights as a company policy; and he further

stated that during the same period of time, 1965-66, an

additional 40.85 acres of the abandoned right-of-way,

Green City to Milan, were sold for a total consideration of

$851, or $20.83 per acre.

The Commission finds that Mr, Reedy’s testimony that

the foregoing property has been sold, is not worthy of

belief. The Commission finds the Railroad executed quit-

claim deeds without warranty and reserved any mineral

righis to itself and that the consideration as stated by the

Witness is not the total consideration, nor a correct de-

scription of the conveyance and his testimony is not worthy

of belief, nor is Exhibit XX. (‘Tr. 839, 840, 841).

Witness Reedy testified that on November 22, 1965, the

Railroad sold a 8.73-acre tract adjacent to the socalled

Centennial Cutoff (Brookfield to Kansas City); that the

excess right-of-way that was purchased was sold by quit-

claim deed for $750; that this was in Carroll County,

Missouri.

CL Mie VO SOLOS oda AEA DO Nah at 7 SA Nahe ct sat ast aiis abeamsi daly vibe

ee ee ee ee

OD lic ttl aE OE it OEM TRNL ATT iat AS: 48 aha tthe pe Pa Na ebb atlas dhe Chae abe Sag te ¥

AT72

Mr. Reedy stated the correct sale price for the Carpen-

ter Paper Company real estate sale in 1962, Item No. 4,

Exhibit 36, for 10 acres, was $95,000. (Tr. 842).

Mr. Reedy testified that the total value of rail and ties

on hand as of January 1, 1966, was approximately $22,000;

and that they had been turned in for taxation at approxi-

mately $2,203, (Tr. 844); that with regard to road nia-

terials and supplies in North Kansas City, there were no

ties included; that the second-hand rail on hand was re-

ported by the taxpayer’s valuation at $215; that $2,130

is the book value of this rail from the Railroad’s records ;

(Tr. 834); that a value of $14,660 in North Kansas City

was reported; that miscellaneous items reported at a total

of $90,371 is the book value carried by the Railroad in the

State and the reported value was $22,605; that $58,648 of

inventory was in North Kansas City; that the furniture

and fixtures of major structures, the depots and such, the

investment in these furniture and fixture items have been

drawn out by the Railroad’s Valuation Engineers and

shown separately from the building.

The Witness testified (Tr. 846) that in terms of the

Kansas City freight house, there was a total of $660,000

invested in that property and included *~ the Railroad’s

records was the value of the items of personal property;

and that, right or wrong, they were still included in that

figure; that approximately $117 ,000 of those items of per-

sonal property were included; that they consisted of the

system of transferring the freight from one loading dock

to another, the dock carts, and the machinery and equip-

ment that was tied in with that totaled up to a greater

share of this $117,000. Something like $90,000, and other

items included in that were the value of the typewriters

and fixtures, desks, billing machines, things of that nature;

that the report of the $117,000 personal property is part

of $660,000 building also inadvertently reported. The Wit-

ness stated he did not bring the cost of building with him

’ 2A alii eet ee RAPT ek LS

A73

but that it would be right at $660,000. (Tr. 847). He

further stated investment shown into the State of Mis-

souri as original cost of all stations to be $273,920.

The Witness stated (Tr. 848) that the Kansas City

Freight Depot was built in 1961 at an original cost of

$666,397, the depreciated cost was $664,021; and that he

returned $95,000 as the value of that freight depot, know-

ing that there would be a $223,000 assessment placed upon

it utilizing the ‘‘historical 226 point multiplier’’. He then

was asked, ‘‘The original cost you turned in of the

$273,220%’? Answer, ‘‘Yes’’, Witness then stated that

the Railroad’s investment in building Accounts 16 and 17,

totaled $4,231,000, that being original cost. (Tr. 849).

Mr. Reedy was asked (Tr. 854) if he could give the

amount of the 1 \ilroad’s original investment in land and

buildings in the State of Missouri, including furniture and

fixtures carried therein by the Railroad’s accounting sys-

tem. He stated (Tr. 855) that investment in building is

$4,231,780; investment in outside facilities is $1,368,094.

There was a contents figure of $783,670, which was the

furniture and fixtures account.

Mr. Reedy agreed at (Tr. 856) that the figures the Rail-

road turned in to the State of Missouri for locally assessed

land and buildings amounted to $1,922,048; that furniture

and fixture account turned in was for a value of $18,955;

and he also agreed that leaves the original investment of

building accounts in Missouri, exclusive of land, $3,658,871 ;

and this amount was turned in to the Commission in the

amount of $384,859, and the Commission raised this to

$906,067.

Mr. Reedy was asked (Tr. 857) about the local returns

he ccmpiled for the Burlington Transportation Company

and returned on trucks a value of $700 for tax purposes,

and stated that the investment the Burlington Truck Lines

had in this type of truck was $8,616.58, that being original

EA © ote hs

ON ie Be GR Pal” Sat 9 mF

PEE Bie Pd PS Se OEE LE fe AOS LAY GES OREO TL th 5a ON

AT74

cost without depreciation; that these trucks were 1965

models; that there were ten of them and that he turned in

trucks, one year old, that cost $8,616 each, at $700 each.

(Tr. 857).

Mr. Reedy stated (Tr. 858) he turned in at between 10

and 11 percent, materials and supplies to local assessors.

He was asked about 8.73 acres sold and located in

Carroll County and previously testified to, and he stated

he did not know if there were any reversionary clauses in-

volved in this property; that he had no particular knowl-

edge about this eight acre tract.

Carl A. Norfleet was re-called as Witness by the Com-

mission (Tr. 861) and was asked if he had prepared a new

worksheet of taxation for 1966 distributable property of

the Chicago, Burlington & Quincy Railroad to submit to

the Commission. He stated he had and that it had been

marked Exhibit 37-A, consisting of three pages. The

gross valuation shown is not the same as on the previous

worksheet and that it had been prepared for submission

and recommendation to the Commission; that the amount

of increases and reasons therefor, and the computations

thereon, show how they are arrived at; and that this

worksheet deals with additional values developed in this

hearing of omitted property and under-assessed property.

(Tr. 862).

The increase in the value of the acreage in North Kansas

City Yards of the Railroad is based on 224.47 acres of land

and on recalculating it, is put in at a value of $3,020 per

acre. It was originally valued at $60 an acre, and is in

the original computation at $60 an acre. This is an addi-

tional value to that $60, giving a total value of acreage

in the North Kansas City Yards of the Railroad of $677,899

additional. The total value would be that, plus $60 an

acre.

The next item is the additional value of the acreage in

the St. Louis City Yards of the Railroad, which consists

gaya eatin | 5

LAM BROADEN 4 RS Ne CLEA SA apis AN 8 8 iia Poche Rest 1 Raed. FO an oe tab NCE

of 107.67 acres, which is valued on this sheet at $3,020 per

acre, which is in addition to the $60 included in our original

valuation of distributable property, the additional amount

being $325,163.

The next item is 12 Diesel locomotives leased and in

service, brought out in the hearing. The original cost was

furnished by Mr. Reedy and put in at 95 percent of con-

dition, with a reduction factor of 47 percent, and the

Missouri rolling stock mileage applied. This item in-

creases the distributable property value in Missouri by

$197,774. The cost figure was $2,948,832, previously testi-

fied to.

The next item is entitled ‘‘Revenue Equipment’’, which

is carried under railroad Account No. 58, commonly re-

ferred to as piggyback equipment in the ICC Report and

referred to in previous testimony. The Witness had de-

termined depreciated value of this equipment of $4,871,788,

which, times the Missouri rolling stock percentage, 15.02

percent, gives an additional value in this category of $731,-

791. (Tr. 864).

Revenue equipment was reported under Miscellaneous

Equipment. It was not identified as such, as piggyback or

trailer and truck equipment, and no tax had heretofore been

computed on those items. Additional value on revenue

equipment, just identified as ICC Account No. 58, is $731,-

791. The Witness stated that the total of value of omitted

equipment and the adjusted values on under-assessed prop-

erty is $1,932,627. To this, he then applied the economic

obsolescence percentage which was applied to all the prop-

erty in the prior valuation, obsolescence factor being 8.01

percent, causing a reduction of $154,803 and reducing the

value to $1,777,824. This, plus the valuation established

previously, gives a 1966 valuation of the distributable prop-

erty of the Railroad in Missouri of $35,207,695.

Mr. Norfleet recommended that assessment to the Com-

mission (Tr. 866). He was asked to proceed with his ex-

pO Ne el ANNE Gls Pe 0 bad bp. hit Bs

OS a ee aay tie

DD ntact aie ta REA. a

A76

planation of Exhibit 37-C, which shows the computation

of the value of revenue equipment entitled ‘‘ Miscellaneous

Equipment’’. He had obtained the figures from Mr. Reedy

the day previous and had taken the original investment in

this equipment and depreciated it at the rate of 10 percent

per year, beginning with 1965. Following this process, he

arrived at a net depreciated value of this equipment of

$4,871,788, and that, times the Missouri rolling stock per-

centage, gives the figure of $731,791 as tax value.

Mr. Norfleet was handed Commission’s Exhibit 38 and

testified it was photostatic copy of the records in the of-

fice of the St. Louis City Assessor, of City Block 238; that

the Assessor has a card for each city block as an original

record; that City Block 238 shows assessed value of this

property, per acre, in 1966, 1965, 1964 and 1963, was $24,-

765; that value having been established in 1962.

Exhibit 39, is City Block 3470, per acre assessment is

$1,580 and improvement assessment thereon is $3,350, first

made in 1960 and has not been changed. (Tr. 870). The

next assessment shown, per acre $5,400; the next $8,530;

the next $1,530, the next $1,500; the next $1,530, This prop-

rety is along the bank of the Mississippi River and adja-

cent to wharves thereon and along the high water level

mark thereon of the river. ‘The letters ‘“S T C’’? mean

State Tax Commission and said tracts therein are shown

to be property of the Railroad. (Tr. 872).

Mr. Norfleet was referred to Exhibit 40, which referred

to City Block 3334, owned by the Railroad and is locally

assessed at $3,500 per acre.

Exhibit 41 refers to City Block 3327. It, likewise, is

owned mostly by the Railroad and is being assessed locally

at $2,667 per acre.

Exhibit 42 refers to City Block 3470, mostly owned by the

Railroad, one tract therein owned by the St. Louis Grain

Company, and land in this City Block 3470 is assessed at

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$2,330 per acre. Ground adjacent to this block is being

assessed by the Commission and was originally assessed

at $60 per acre and the same tract, 3280.

Exhibit 43 refers to City Block 241, owned by the Rail-

road and is locally assessed except for an acre on the

Kast side which is assessed by the Commission. The local

assessor placed an assessment of $13,200 per acre. The

Commission assessed it at $60 per acre.

Exhibit 44 refers to City Block 3470, the owner is Shell

Oil Company, and Chicago, Burlington & Quincy Railroad.

Local assessment thereon is $3,370 in one area; $5,860 in

another area; $5,860 in another area. (Tr. 876).

The Witness stated he had been present during the testi-

mony of the Real Estate Agent for the Railroad, who testi-

fied in regard to the location of the property sold by the

Shell Oil Company and remembered part of the testimony

pertaining to the fact it was dump and is now being as-

sessed at $5,860.

Exhibit 45 refers to City Block, entirely owned by the

Railroad and assessed locally at $3,500 per acre.

Exhibit 46 refers to City Block 3328 owned partly by the.

Railroad and partly by the Metropolitan St. Louis Sewer

District. The assessed value by the City Assessor in this

block is $2,776.

Exhibit 59 refers to City Block 3470 and shows the City

of St. Louis owns one parcel; the remainder is owned by

the Railroad. The local assessor placed an assessed value

on the land next te the river of $1,500 per acre and the

land adjoining this to the west at $5,400 per acre, and in

another area at $1,530 per acre.

Exhibit 47 was withdrawn by the Commission. (Tr.

878).

On cross examination, Mr. Norfleet was referred to Ex-

hibit 37, land in the North Kansas City yards, having 232.47

le El oe ee

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acres, referred to as the Murray Yards, being a railroad

freight yard occupied mainly by railroad tracks, switches

and other appurtenant facilities connected with the Rail-

road.

Mr. Norfleet stated (Tr. 881) he did not know whether or

not the land referred to in Exhibits 39-46 was laid off in

streets and had improvements, such as sewers, etc. He was

not physically familiar with the property.

The State Tax Commission of Missouri has adopted uni-

form procedures and methods to determine the true value

in money of the railroad property for assessment purposes

within the State of Missouri. Such procedures and methods

are designed to value all railroad property within the State

of Missouri uniformly and equally with all other property

within the State of Missouri. Such procedure and methods

were used in assessing and valuing the petitioner’s prop-

erty as of January 1, 1966. The evidence failed to disclose

that the property of the Railroad was ever placed on sale

in the open market.

Valuations are made by the State Tax Commission as

to the distributable property and rolling stock of railroads

while other properties are assessed locally by county and

township assessors. The relative values ef sales ratio

assessment and utility assessment are separate and distinct

in that there are two methods used in arriving at values,

and there is no basis for comparison between the valuation

of the sale of a farm or a home based on revenue stamps

attached to the deed and the vaiuation of utility property

which is not being sold frequently, or ever. There is no

similarity in these two types of property or in the method

of arriving at the valuations for assessing purposes thereof.

Conczuustions or Law

All railroads now constructed, in the course of construc-

tion, or which shall hereafter be constructed in this State

and all property, tangible personal property, and intangible

] segura bates

A79

personal property owned, hired, or leased by any railroad

company or corporation in this State shall be subject to

taxation, and taxes assessed on real property, and tangible

personal property shall be assessed in the manner set forth

in Chapter 151, R. S. Mo.

Property «..all be assessed for tax purposes at its true

value in money or such percentage of its true value in

money as may be fixed by law. There is no such thing as

an absolute true value of property. The values mentioned

in the Statutes are the valuations of officials whose duty

it is to make them. Property, including railroad property,

is not a commodity which has fixed market value at a

given period. The value is determined always by the esti-

mate of the party who values it; all presumptions will faver

the correctness of the valuations of the officials whose duty |

it is to make them; and their good faith and the validity

of their acts is presumed. The State Tax Commission of

Missouri is the sole judge of the credibility of witnesses ap-

pearing before it.

The testimony oi James P. Reedy and Broley E. Travis

is not credible and is not worthy of belief.

Every owner, lessor or party having an interest in prop-

erty shall have the right to appeal and to a rehearing under

rules prescribed by the State Tax Commission. The said

Commission shall investigate all such appeals or motions

for rehearing or protests of assessments and shall correct

any assessment which is shown to be unlawful, unfair, im-

proper, arbitrary or capricious.

In assessing, adjusting-amd-equatizing—a-railroad-prop-——-——

erty for any year or years, the State Tax Commission may

arrive at its finding, conclusion and judgment, upon its

knowledge, or such information as may be before it, and

shall not be governed in its findings, conclusions and judg-

ment by the testimony which may be adduced, further than

to give to it such weight as the Commission may think it

A80

is entitled to; provided, that when any railroad shall ex-

tend beyond the limits of this State and into another state

in which a tax is levied and paid on the rolling stock of

such road, then the said Commission shall assess, equalize

and adjust only such proportion of the total value of all

the rolling stock of such railroad company as the number

of miles of such road in this state bears to the total length

of the road as owned or controlled by such company.

In determining the total length of the road of railroad

company for the purpose of determining its tax assess-

ment, the Commission is required to take into consideration

the track which is operated partially under the control of

the railroad under trackage agreements as well as that

which is owned by the railroad, even though such trackage

agreement does not provide for the exclusive use by the

railroad of the track in order to require it to be taken into

consideration.

The assessment of the rolling stock of the Petitioner was

determined in accordance with Chapter 151, R. S. Mo., par-

ticularly Section 151.060-3, in that said assessment was

determined by taking that percentage of the total value

of all the rolling stock of the Petitioner that the number of

miles of the trackage of Petitioner in this State bears to

the total length of the road as owned or controlled by

Petitioner wherever situated.

Section 151.060-3 R. S. Mo., which prescribes the formula

by which the Commission determined the assessed valua-

tion on Petitioner’s rolling stock in the State of Missouri,

provides a fair and reasonable method to determine that

amount of rolling stock of any railroad which extends be-

yond the limits of the State which may be taxed by this

State and does not constitute a violation of any of the rights

or privileges guaranted by the Constitution of Missouri

or the Constitution of the United States.

This Formula, as used in conjunction with the deter-

mination of value using depreciation and a forty-seven per-

A81

cent equalization factor together with the deduction of the

economic factor as set out in the Findings of Fact, were

used uniformly by the Commission to arrive at assessments

of the rolling stock of the various railroads in this state,

and to apply this formula to some railroads and not to

others would be arbitrary and discriminatory.

The evidence adduced by the Petitioner does not show

that the evaluation placed upon the rollirg stock of Peti-

tioner was grossly excessive, nor that such assessment re-

sulted in an unlawfu! or unconstitutional taxation-of any

property of Petitioner, nor does the evidence adduced by

the Petitioner show that in applying the formula herein

indicated that the Commission acted in an unlawful, unfair,

improper, arbitrary or capricious manner.

DEcISION

The Commission, after giving due consideration and

study to the records, evidence and data submitted on behalf

of the Commission and studying the transcript of the pro-

ceedings before it, finds that the valuation of the Peti-

tioner’s property for the year 1966 should be as follows:

$35,207,695.

Strate Tax ComMmMIssion oF Missouri

Hunter PHILLIrs

Hunter Phillips, Chairman

Cart E. Davis

Carl E. Davis, Commissioner

ATTEST:

J. R. Towson

J. R. Towson, Adm. Secretary

‘

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an er) eee eee

A82

CERTIFICATE OF SERVICE

I hereby certify that I have on the 24th day of May,

1967, forwarded by registered mail, return receipt required,

postage prepaid, a copy of the above and foregoing to

Forrest P. Carson, Attorney for Chicago, Burlington, &

Quincy Railroad Company, 211 East Capitel Avenue, Jef-

ferson City, Missouri.

ARNOLD BRANNOCK

Arnold Brannock, Attorney

State Tax Commission

of Missouri

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.