U.S. District Chief Judge Bruce S. Jenkins ruled Tuesday that Utah officials discriminated against railroads in assessing property tax in 1984 and 1985 - a decision that may cost the state millions of dollars in revenues.
"It is clear that the state of Utah has discriminated against the plaintiff railroads for the years 1984 and 1985 in that it has assessed them at a higher rate than it assessed all other commercial and industrial property within the state for the same period," he wrote.That the state violated a 1976 federal law requiring states to tax transportation property at the same ratio as other industrial and commercial property, Jenkins wrote.
Lee Shaw, spokesman for the state Tax Commission, said the commission's property tax experts were studying Jenkins' decision and did not know yet how much money is involved.
In a 67-page decision, Jenkins ruled that Union Pacific's rail property in Utah was worth $184.6 million in 1984 and nearly $169 million the next year. At the same time, the property of the Denver & Rio Grande Western Railroad was worth $90.8 million and $85.8 million for the two years.
All other types of commercial and industrial property were valued for tax purposes at 15.4 percent and 16.13 percent of their true market value for the two years. But, he said, the state Tax Commission cited a much higher proportion of assessed valuation for the railroads those years.
In 1984, the state's assessed valuation for Union Pacific was 19.46 percent of the true market value of its property in Utah, he wrote. The next year, it was 23.53 percent.
For the D&RGW, the ratio of assessed value to true market value was 21.35 percent for 1984, and 23.38 percent for 1985.
A flaw in the state's reasoning was that it allows a 20 percent discount in locally assessed property - but not on centrally assessed property. That is so that county assessors can tax property owners only on what they might expect to receive from a sale of their property and not on a hypothetical gross sales price.
Because railroads have property in several counties, they are assessed centrally. Therefore, they don't get the same break as locally assessed property.
"In arriving at the railroads' true market value, the state relies in part on a cost-appraisal method, yet it does not reduce its final cost indicator of value by 20 percent," Jenkins wrote.
With another method of figuring the railroads' value, the "stock-and-debt approach," the state still does not reduce its indicator of value by 20 percent, he wrote.
The Railroad Revitalization and Regulatory Reform Act of 1976 allows the railroads to receive a refund if their valuation is at least 5 percent higher than that of other types of property.
UP's assessment was 26 percent too high in 1984 and it was 46 percent too high. For the D&RGW, the values were inflated by 38 percent in 1984 and 45 percent the next year.
"The defendants (state and county tax collectors) are hereby enjoined from collecting property taxes from the plaintiffs for assessment years 1984 and 1985 based on assessed values that bear a greater ratio to true market value than 15.4 percent and 16.13 percent, respectively," he wrote.
The suit was filed in 1984 and trial lasted from Feb. 9 to March 17 this year, with 788 exhibits and testimony from a number of experts. Earlier, Southern Pacific Railroad settled its case against the state.