Burlington Northern Railroad Company v. Oklahoma Tax Commission – Oral Argument – March 25, 1987

Media for Burlington Northern Railroad Company v. Oklahoma Tax Commission

Audio Transcription for Opinion Announcement – April 28, 1987 in Burlington Northern Railroad Company v. Oklahoma Tax Commission

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William H. Rehnquist:

I’ll proceed with the arguments in Burlington Northern v. Oklahoma Tax Commission.

Mrs. Christian.

Betty Jo Christian:

Mr. Chief Justice, and may it please the Court:

This case involves the interpretation of Section 306 of the Railroad Revitalization and Regulatory Reform Act of 1976.

This Act was passed by Congress in response to a major financial crisis in the railroad industry.

In addition to providing an immediate infusion of federal funds, the Act took the first steps toward deregulation at the federal level and placed restrictions on the powers of the states with respect to the railroads.

In Section 306, Congress declared state tax discrimination against railroads to be an undue burden on interstate commerce and in an express exception to the Tax Injunction Act, granted the federal courts jurisdiction to remedy any violations.

The key substantive provision is Section 306(1), which appears at page 20-A to the Appendix to the Petition for Certiorari.

Subsection 1 declares that it is unlawful for the states to engage in any of a series of prohibited acts.

Subsection A and B are directed to the assessment of railroad property at a percentage of that property’s true market value which is higher than the percentage of assessed value to true market value of other commercial and industrial property.

Subsection C is directed to and prohibits tax rights which are higher for railroads than for non-railroad property and subsection D prohibits any other tax which results in discriminatory treatment of a railroad.

The specific issue in this case is whether Section 306 gives the federal courts jurisdiction over a claim of tax discrimination resulting from the overvaluation of a railroad’s property.

In its complaint in this case, Burlington Northern alleged that in 1982 the state of Oklahoma had over-valued its property.

And that as a result of that overvaluation, its property had been assessed at a percentage of assessed value to true market value which was higher than the percentage of assessed value to true market value for other commercial and industrial property.

The District Court dismissed the complaint for lack of jurisdiction.

The 10th Circuit, relying on its own prior decision in the Lennen case upheld the dismissal of the complaint, holding that generally Section 306 does not grant the federal courts jurisdiction over state tax discrimination which results from overvaluation of a railroad’s property.

It carved out one exception holding that the federal courts would have jurisdiction if the railroad could make a strong showing prior to trial of purposeful overvaluation with discriminatory intent and upheld the District Court’s conclusion that Burlington Northern’s affidavits have failed to make such a showing.

The same issue has been considered by two other Circuits.

Both the 8th Circuit and the 9th Circuit have held that Section 306 grants the federal courts jurisdiction over all claims of state tax discrimination, specifically including discrimination resulting from the overvaluation of a railroad’s property and that no showing of discriminatory intent is required.

Before I turn to the text of the statute I believe it is important to emphasize one point and that is that it is clear from the reports of Congress that its goal in enacting this statute was to put an end to state tax discrimination against railroads.

As a practical matter, discrimination can result just as readily from the overvaluation of the railroad’s property as it can from undervaluation of other commercial and industrial property or from higher tax rates.

Thus if Section 306 does not encompass discrimination which results from overvaluation of the railroad’s property the statute will be left with a gaping hole and will not accomplish its purpose.

William H. Rehnquist:

Mrs. Christian, there is a pretty well recognized distinction in state property tax law isn’t there between valuation relief or valuation and equalization?

Betty Jo Christian:

I believe that those terms are misleading and confusing, Mr. Chief Justice.

Because we–

William H. Rehnquist:

Well why do you think they’re misleading and confusing?

Betty Jo Christian:

–Equalization essentially refers to equalizing the percentages of assessed value to true market value.

Now, the need for equalization can arise either from the undervaluation of commercial and industrial property or the overvaluation of the railroad’s property.

William H. Rehnquist:

Well, I had thought that valuation was the determining what the fair market value of the property was and that equalization meant the desire to assess at the same percentage of fair market value all classes of property.

Do you think that’s wrong?

Betty Jo Christian:

No, it is directed to the desire to assess at the same percentage of true market value–

William H. Rehnquist:

Well why do you think–

Betty Jo Christian:

–all classes of property but–

William H. Rehnquist:

–Why do you think the terms are misleading then?

Betty Jo Christian:

–The petitioners, the respondents in this case have used the term equalization as synonymous with undervaluation.

We believe that equalization refers to the process of reaching the same percentage of assessed value to true market value for all classes of property.

William H. Rehnquist:

But as you have used the term and perhaps as, I think I have used it the same, do you find that confusing?

Betty Jo Christian:

No, not as we have used the term here.

Turning now to the text of the statute, we believe that the Section 30C on its face encompasses federal court jurisdiction over discriminatory assessments which result from overvaluation of railroad property.

Subsection 1(a), on its face prohibits the assessment of transportation property at a value which bears a higher ratio to the true market value of that property than the ratio of assessed value to true market value of other commercial and industrial property.

The only way that the District Court can determine whether that requirement has been met is to make a determination as to what is the assessed value and what is the true market value of both railroad property and other commercial and industrial property.

This is the only way that the District Court can determine the percentages to make the mathematical comparison required by the statute.

And indeed, in subsection 2(d) of the statute it goes on to provide that the burden of proof with respect to both assessed value and true market value shall be that declared by applicable state law.

There is nothing in the statute to indicate that this does not apply to a determination of the true market value of the railroad property as well as other commercial and industrial property.

The only textual support offered by the 10th Circuit for its conclusion that the District Court must accept the true market value found by the state as determinative and may not make its own inquiry into the facts, is the fact that there is a proviso to subsection 2(e) that prescribes a particular sampling technique for use in the valuation of other commercial and industrial property.

But that carries no connotation that the true market value of railroad property is not to be determined at all and indeed that the very proviso of subsection 2(e) goes on to provide that in the event the true market value of the other commercial and industrial property cannot be decided, be determined to the satisfaction of the court through the sales assessment ratio, the sampling technique, then the comparison should be made to the true market value of all other property.

And just as in the case of the railroad property there is no direction as to how that determination should be made.

We believe that the–

William H. Rehnquist:

Your claim here is that 306 Section 28(a) was violated.

Betty Jo Christian:

–Subsection 1(a), that is correct.

William H. Rehnquist:

1(a).

Betty Jo Christian:

That is correct, Mr. Chief Justice.

We believe that the language of the statute–

Sandra Day O’Connor:

Mrs. Christian, there is certainly some indication in the legislative history that the representatives of the railroad industry seeking this legislation did not expect it to be applied as you would have us apply it today.

Betty Jo Christian:

–We do not believe that that is a correct characterization of what the railroad witnesses actually said, Justice O’Connor.

What the railroad witnesses who were quoting, quoted by respondents actually were saying is that the statute does not require any uniform valuation methodology.

This is an entirely different matter from saying that the court cannot inquire into true market value.

And indeed the statute does not prescribe a particular methodology of valuation.

States are free to use any methodology they choose as long as it results in true market value.

In particular the witness most frequently cited by respondents,–

Sandra Day O’Connor:

Mr. Lanier.

Betty Jo Christian:

–Mr. Lanier, expressly stated in written testimony subsequent to the oral exchanges recited by respondents that in his view the valuation of railroad property would be an issue.

This same opinion was expressed by the Interstate Commerce Commission and by various congressional sponsors of the bill.

Beyond this, Justice O’Connor, it is apparent that the states themselves did not interpret Mr. Lanier and other railroads’ testimony at the time, as constituting any promise that railroad valuation would not be an issue because subsequent to those remarks the states continued to vehemently oppose enactment of this legislation, stating as one of their principal reasons the fact that it would require the federal courts to become involved with state railroad property valuation.

Antonin Scalia:

Mrs. Christian, what does it mean to say, as you just have, that the statute does not require any particular valuation methodology so long as it produces real market value.

What does that mean?

I mean, if the federal courts are going to decide this uniformly presumably they’re going to have to use one methodology.

The reason you use different methodologies is that they tend to produce different results.

Now there’s a broad range of results which you might say are fair even though the methodologies come up with different outcomes, you can say well, they’re different but it’s arguable that any one of them is the fair market value.

But when the federal courts are going to have to review it to determine whether it is in fact the fair market value, doesn’t there have to be some uniform federal methodology.

Aren’t we getting the federal courts involved in federal railroad rate making and in order to do that doesn’t there have to be some standard federal methodology if your case is correct?

Betty Jo Christian:

I see no reason why that would necessarily be the result, Justice Scalia.

In valuing railroads virtually all states use what is called the unitary method.

That is they determine a value for the system wide property of the railroad.

And there are generally three methodologies which are in common use by virtually all states.

The original cost depreciated method, capitalized income and the stock and bond method.

Now the Burlington Northern and the railroads generally have never taken the position that any one of these is the only appropriate methodology.

Indeed most states adopt a weighting of two or sometimes three.

The state of Oklahoma uses a weighting average of original cost depreciated and the capitalized income methodologies.

Now,–

Antonin Scalia:

Which one produces the fair market value?

When they come out with different results we have a statute that says fair market value.

You tell us that federal courts have to determine what is fair market value.

We have three different methodologies.

Each of them produce significantly different figures.

Which is, will the true fair market value please stand up.

How do you know which one of them is the true?

Betty Jo Christian:

–First, Justice Scalia, if properly applied all of these methodologies will yield results that are very close together.

Not identical perhaps, but there should not be any wide range if they are applied properly and the appropriate adjustments are made to take into account the facts of the particular situation.

What the District Court would do would be to hear expert testimony, witnesses produced by both the state and the railroad with respect to the application of the various methodologies to the facts of the particular case before him and then make a determination on the basis of the evidence in that particular case what the true market value has been shown to be with the burden of proof as imposed by state law which would normally be with the railroad carrying the burden of proof.

Antonin Scalia:

So you concede then that all the federal court would have to do is use whatever methodology the state used, assuming that was a reasonable methodology?

Betty Jo Christian:

We think the door would have to be open for the railroad to challenge a particular methodology as not being a reasonable methodology.

Antonin Scalia:

Right.

Betty Jo Christian:

But given that caveat, yes his role would be to determine on the basis of the evidence before him, which would include the evidence of the state’s expert and the railroad’s expert as to whether these methodologies have been properly applied.

It would not necessarily result in any uniform methodology of revolving.

I would like to turn now very briefly to the–

John Paul Stevens:

May I ask before you leave the methodology point.

What’s wrong with the methodology in this case?

Betty Jo Christian:

–In this case, Burlington Northern would be raising two contentions.

First with respect to the capitalized income of methodology as applied by the state of Oklahoma.

It is Burlington Northern’s contention that the capitalization rate chosen by the state was improper because it does not accurately reflect the actual experience of cost of capital for the railroads in this time period.

With respect to original cost depreciated, Burlington Northern’s position is that the state of Oklahoma in 1982 erred by refusing to apply a deduction to take account of the fact that much of its property is now obsolete because it was built decades ago for other traffic, despite the fact that it had granted such a deduction for obsolescence in past years.

John Paul Stevens:

In other words, both methodologies were permissible but they were misapplied in this particular case for the reason–

Betty Jo Christian:

In this particular case, Burlington Northern is claiming that they were misapplied.

Very briefly before you–

Antonin Scalia:

–Would the federal court give any deference to the state’s judgment on those matters, or, in other words, would the federal court be reviewing the state’s rate making or assessments similar more or less the way it would review a rate making by the ICC, giving the agency the benefit of the doubt.

Or, does the federal court have to de novo make those determinations?

Betty Jo Christian:

–The federal court has to de novo make those determinations.

Antonin Scalia:

It’s a lot of work.

Betty Jo Christian:

It would of course determine on the basis of the experience and expertise of the individual expert witnesses what degree of deference should be given to each witness but it would not give deference to the state merely because it was the state.

Indeed, one of the principal bases for Congress’ enactment of this legislation was stated to be its perception of the inadequacies of state remedies.

And one of those inadequacies to which it specifically pointed was the fact that the states determination was generally accorded a presumption of validity xxx–

Antonin Scalia:

How do you square that with your concession that you have to accept whatever method of valuation the state uses.

Betty Jo Christian:

–Justice Scalia, we certainly remain free to challenge a particular valuation as totally unreasonable.

But there–

Antonin Scalia:

How about within the range of reasonable ones you have, you say we have to, the federal court has to accept the methodology that the state chooses.

Why wouldn’t you by similar logic have to say that within the possible, reasonable, factual outcomes you have to accept whatever factual outcome the state chooses.

Betty Jo Christian:

–Justice Scalia, I apologize if I said the state would have, the court would have to accept the methodology.

Certainly the railroad’s witnesses would be free to state that they believe other methodologies were preferable.

But generally, in most cases, the methodologies used by the state and by the railroads are essentially one of the three that we have just discussed and if properly applied they will essentially lead to the same, to the result of true market value.

Antonin Scalia:

And I think they will lead to the result, the same results system wide.

But if you have a railroad system that’s going through several states the result that they might produce in a particular state could vary significantly, couldn’t it?

Betty Jo Christian:

The states, Justice Scalia, do the valuation of the railroad property on a system wide basis and then they allocate a portion of that to the state on the basis of track miles, or some other technique.

Antonin Scalia:

Or–

Betty Jo Christian:

So that the valuation of each state is–

Antonin Scalia:

–Well, I’m including that in the methodology though.

I mean, you say on the basis of track miles or some other technique.

Isn’t that part of the whole methodology?

How much you allocate to the state.

Betty Jo Christian:

–That is not normally considered a part of the methodology.

Antonin Scalia:

Oh.

Betty Jo Christian:

That would be considered something separate.

The allocation.

Antonin Scalia:

I see.

Well what about that?

Does the federal court have to accept the method of allocation that the state uses?

Betty Jo Christian:

In this particular case, Justice Scalia, there is no challenge as to the allocation factor and that is true of all of the cases I’m familiar with.

But I would think the railroad would have to be free to challenge the allocation if it is unreasonable.

Antonin Scalia:

What if it’s… but there, but you know, I mean there are a lot of different reasonable ways of allocating.

I really want to know what the railroads expect the federal courts xxx.

Betty Jo Christian:

The railroads expect the federal courts to engage in a de novo determination of whether the true market value has been properly determined.

Now in this there normally will not be a serious dispute over the methodology provided that the states have used one of the recognized systems, There could be in individual cases.

Antonin Scalia:

There normally will be over the allocation.

Betty Jo Christian:

Thus far, in the cases litigated to date, Justice Scalia, to the best of my knowledge none of the cases has involved a dispute over the allocation to the state.

But that certainly could arise.

At this juncture, I would like to turn my time over to, yes Justice–

Byron R. White:

Could I ask you, I take it that the earlier Burlington case in Kansas, with respect to Kansas–

Betty Jo Christian:

–Yes.

Byron R. White:

–I thought that the Court of Appeals said that this kind of a suit would be entertained if the railroad could make out a decent claim of intentional and purposeful overvaluation?

Betty Jo Christian:

That is correct, Justice White.

Byron R. White:

Well, isn’t it almost inherent in your claim that it was intentional.

Betty Jo Christian:

We think that it was and that we made that showing.

But fundamentally, Justice White, the basic issue in the case is whether the courts have jurisdiction over discrimination resulting from overvaluation at all.

Byron R. White:

Well,–

Betty Jo Christian:

We certainly–

Byron R. White:

–Was there a finding about intentional discrimination in this case?

Betty Jo Christian:

–In this case, Justice White, the District Court received affidavits but did not conduct a hearing, and concluded on the basis of those affidavits that Burlington Northern had not made a strong showing of overvaluation with discriminatory intent.

That was upheld by the 10th Circuit.

Byron R. White:

So they said with discriminatory–

Betty Jo Christian:

Purposeful overvaluation with discriminatory intent.

The District Court held that Burlington Northern’s affidavits did not constitute such a showing.

That was upheld by the 10th Circuit.

Byron R. White:

–And so, both courts seemed to say that even if there was overvaluation it wasn’t discriminatory, intentionally discriminatory?

Betty Jo Christian:

Both courts upheld that, Justice White.

Sandra Day O’Connor:

Mrs. Christian do you defend, or support, or agree with the requirement of intentional discrimination as being an element.

Betty Jo Christian:

We believe that intent is not a relevant element at all, Justice O’Connor.

The statute itself on its face, speaks in terms of acts and results, and in particular subsection 1(a), which we believe covers this case does not even use the term discrimination.

It simply declares it unlawful for the state to assess railroad property at a percentage of fair market value higher than that for other property and defines it in terms of a mathematical percentage.

We believe there is nothing in either the statute or the legislative history to support the intent requirement.

William H. Rehnquist:

Thank you, Mrs. Christian.

We’ll hear now from you, Mr. Lauber.

Albert G. Lauber, Jr.:

Mr. Chief Justice, and may it please the Court:

The 10th Circuit invented its intentional discrimination test in order to solve what it perceived to be a problem with the statute.

The problem it perceived was that letting federal courts inquire into the true market value of railroad property would unduly interfere with state taxing prerogatives and would burden the federal courts, both by increasing their work load and by requiring them to undertake difficult or inappropriate tasks.

Sandra Day O’Connor:

Both those things are likely to be true of course, aren’t they, Mr. Lauber.

Albert G. Lauber, Jr.:

Well I hope to show that they are not both true.

I think that Mrs. Christian has shown that the intentional test was a wrong solution and I hope to show there was really no problem to begin with.

In fact, Section 306 is a limited measure that Congress carefully designed to avoid intruding on state tax prerogatives to the greatest possible extent consistent with achieving the objective of eradicating discrimination against railroads.

First of all, Congress enacted a three year delay in the effective date of the statute to avoid any kind of shock effect on the states and to give them plenty of time to bring their law into compliance with the statute.

Secondly, Congress adopted in the statute the state’s rules governing burden of proof as to true market value and that means the railroad is going to have to shoulder whatever difficulties are inherent in proving true market value.

Albert G. Lauber, Jr.:

Thirdly, the statue only bars discriminatory overvaluation of railroad property.

Thus, the railroad can’t come into federal court as if it were a home owner and simply argue that my property has been assessed too high in absolute terms.

William H. Rehnquist:

Where do you find this requirement in the statute, Mr. Lauber?

Albert G. Lauber, Jr.:

Of the discrimination?

William H. Rehnquist:

Yes.

Albert G. Lauber, Jr.:

Well, it comes from the fact that you have these two fractions, the two assessment ratios that have to either be equivalent or not.

The railroad has got to show that its property has been over-valued vis-a-vis non-railroad property.

That is the test for discrimination.

This mathematical disparity of the two fractions.

William H. Rehnquist:

Well then you’re not using discrimination in any intentional sense at all.

Albert G. Lauber, Jr.:

Exactly right.

William H. Rehnquist:

A disparity is what you’re–

Albert G. Lauber, Jr.:

Exactly right.

When Congress defined discrimination in objective terms as a disparity in these two assessment ratio fractions.

William H. Rehnquist:

–So your point is if all the property in the state is valued wrong, but it’s not done in any way that discriminates against the railroad that would not be an object of xxx.

Albert G. Lauber, Jr.:

Exactly right.

So a mere overvaluation per se is not a cause of action.

We must have relative over-valuation.

William H. Rehnquist:

Well did you read the word assessment, the second word in subsection (a) as being the same as valuation?

Albert G. Lauber, Jr.:

Well assessed value–

William H. Rehnquist:

Well, but it doesn’t say assessed value.

It says assessment of transportation property.

Albert G. Lauber, Jr.:

–At a higher ratio.

William H. Rehnquist:

Yes.

Albert G. Lauber, Jr.:

xxx assess it, it means, yes the value–

William H. Rehnquist:

Well, why doesn’t that refer to the equalization process rather than the valuation process?

Albert G. Lauber, Jr.:

–Well what the two fractions represent is perfect equalization.

You have these two fractions of assessed value over fair market value for railroads and everybody else.

And the statute says those must be equal.

That is equalization.

Albert G. Lauber, Jr.:

And we think the court has got to look at both denominators of each fraction, to figure out if those fractions are equal or not, if there is equalization.

And, getting the value right for both the railroads and everybody else is a necessary step in getting the fractions right and seeing if they’re equal or not.

And that’s what the federal court, we think, has got to do.

Antonin Scalia:

The thing doesn’t really work if you read it literally and if you assess the property higher but tax it at a lower rate.

You follow me?

Albert G. Lauber, Jr.:

Well, taxing at a higher rate–

Antonin Scalia:

There would not be any discrimination against the railroad if although you violated subsection A by assessing the property too high.

Nonetheless, you tax it at a lower rate.

Albert G. Lauber, Jr.:

–Well, the rate disparity is a separate offense xxx.

Antonin Scalia:

You taxed it at a lower rate, the railroad property at a lower rate.

You assess it higher, but tax it lower.

Albert G. Lauber, Jr.:

It could be–

Antonin Scalia:

It would still violate A wouldn’t it, even though the railroad isn’t being discriminated against.

Albert G. Lauber, Jr.:

–It could be a railroad might, a railroad might be able to defend, the state might, be able to defend on the ground that any over-assessment was cured.

Any relative over-assessment was cured by a rate disparity, but frankly that was not the problem Congress had.

I mean, there was never a case in history where railroads were taxed at a lower rate than everybody else.

It simply, historically was not the problem we were dealing with.

Furthermore, even after–

Antonin Scalia:

One would hope not.

[Laughter]

Albert G. Lauber, Jr.:

–Even after a railroad proves discrimination in objective terms, the court cannot grant relief unless the railroad proves that the disparity in the two assessment ratios is greater than five percent.

This five percent tolerance factor was plainly designed by Congress to keep out trivial or de minimis disputes about overvaluation and to keep the federal court jurisdiction confined to relatively egregious cases of discrimination.

Now as far, fifthly, the statute grants the court jurisdiction only to enjoin the discriminatory portion of the tax, not the entire tax.

And that means that the state can then go on to assess and collect the balance of the tax so there will be no interruption of its main revenue flow.

Now as to the burden on the federal courts there have been only about three dozen cases brought under Section 306 as a whole in the eight years since the statute became effective.

Whereover only about ten of those have involved overvaluation claims of the kind involved here.

That is so even though only the 10th Circuit has imposed a threshold intent test as a means of discouraging the bringing of overvaluation claims.

We don’t think ten lawsuits in eight years is particularly burdensome on the federal courts.

Sandra Day O’Connor:

Mr. Lauber, do you think the statute would permit states to impose a burden of proof by clear and convincing evidence on the railroads in these cases?

Albert G. Lauber, Jr.:

I don’t think the statute would permit that.

Albert G. Lauber, Jr.:

I mean, it doesn’t speak to it.

Sandra Day O’Connor:

Why not?

Doesn’t it say that the burden of proof will be as determined by the applicable state law?

Albert G. Lauber, Jr.:

Oh, so you’re saying if state law itself imposed a clear and convincing burden of proof that would be–

Sandra Day O’Connor:

On the railroads.

Albert G. Lauber, Jr.:

–incorporated into federal law.

Sandra Day O’Connor:

Right.

Albert G. Lauber, Jr.:

I don’t think that was the intent of the statute.

Sandra Day O’Connor:

Well, now why doesn’t the statute provide exactly that in subsection 2(d): the burden of proof with respect to the determination of assessed value and true market value shall be that declared by the applicable state law.

Albert G. Lauber, Jr.:

Well I would read that, the words

“with respect to the determination of. “

simply to refer to who has the burden of proof, not to the manner in which you must discharge your burden of proof.

I don’t know if Congress, and like I said, history discussed this question, but the thrust of the statute was to have the federal court undertake de novo review of this because Congress was convinced that the deck was stacked against–

Sandra Day O’Connor:

I think I might be inclined to give it its ordinary meaning and say it would encompass the level of the burden.

Albert G. Lauber, Jr.:

–Well, the problem is that the state could then have it be beyond a reasonable doubt and kind of get at the railroads that way.

And that would completely defeat the purpose of the statute.

I mean, Congress thought, the reason they let the federal courts take on these cases is because they thought the deck was stacked against the railroads in the states and that the state assessment boards didn’t give them a fair shake and they state courts rubber stamped what the assessment boards did.

And if you let the state gin up an impossible burden of proof standard and then bring it into federal court it would be quite a nugatory remedy that Congress can’t really have intended.

So I would read this as referring to simply who has the burden of proof.

Let me make one other point about what I think is a fundamental flaw in the other side’s position.

They would agree that if a railroad had an undervaluation claim, that is that its property was valued okay but everybody else’s was too low that it can bring that claim to federal court.

Now it could–

Sandra Day O’Connor:

Mr. Lauber, oh I’m sorry, go on.

Albert G. Lauber, Jr.:

–It could very well be that the state would respond by saying yes.

Well in fact, we have undervalued other people’s property, but we’ve also undervalued your property.

We think we made mistakes in assessing your property originally and we would like to prove that we undervalued your property by an equal degree and therefore you have not proven discrimination.

We think that a state could surely do that.

The state, we think, could definitely interject the true market value of railroad property into litigation as a defense to an undervaluation claim.

Antonin Scalia:

Mr. Lauber–

Albert G. Lauber, Jr.:

If that is right, it would be crazy if the railroad couldn’t do the same thing.

Antonin Scalia:

–Do you agree with Mrs. Christian as to what has to be accepted?

That the federal court has to accept any manner of assessment adopted by state, methodology adopted by the state if it’s a reasonable one?

Albert G. Lauber, Jr.:

I would agree that there are probably some methodologies like underappreciated book cost, that simply would be ridiculous.

But I think there is xxx–

Antonin Scalia:

I understand.

But more in the range of reasonable-ones, the federal court has to accept whatever the state applies?

Albert G. Lauber, Jr.:

–I would say it ought to accept it.

It should listen to arguments that they’re out of line, but ought to normally accept the state’s methodology.

Antonin Scalia:

And what about the factual determinations under each of those?

You don’t give any deference to the state on those, but you do on which methodology?

Albert G. Lauber, Jr.:

Well generally speaking, you won’t really have a lot of factual determinations about how much is that hopper car worth.

It’ll be more accounting questions.

Should you be given an obsolescence allowance?

What’s the proper capitalization rate?

Antonin Scalia:

Whatever.

Albert G. Lauber, Jr.:

Under those questions the court would hear expert testimony about what the ICC would require, the federal tax law would require–

Antonin Scalia:

Any deference to the state?

Albert G. Lauber, Jr.:

–Pardon me?

Antonin Scalia:

Any deference to the state if there are various reasonable positions that could be taken.

Albert G. Lauber, Jr.:

I would think there would be no deference to the state on the subsidiary questions.

William H. Rehnquist:

Thank you, Mr. Lauber.

Mr. Lee, we’ll hear now from you.

David W. Lee:

Mr. Chief Justice, and may it please the Court:

The petitioner in this case, Burlington Northern has filed this federal lawsuit asking a federal district court to enjoin the Oklahoma Tax Commission and the Oklahoma State Equalization Board from assessing ad valorem tax based on what Burlington Northern claimed was an overvaluation of its property for the year 1982.

The federal district court dismissed this case finding after reviewing affidavits and interrogatories and depositions submitted by the railroad and the state that the only dispute was over the value that the state was placing on the railroad’s property.

The 10th Circuit affirmed that ruling holding that Section 306 of the 4-R Act which clearly gives the federal district court the authority to equalize assessment ratios and tax rates that are being applied to railroad property does not give a federal court the right to revalue the railroad’s property and become what the 10th Circuit has previously referred to as state assessment boards.

It is our contention that Congress, in fact, never did intend for a federal court to become a state assessment board, a fact that is supported by the language of the Act and by its legislative history.

Of course, I speak not only for Oklahoma in this regard but also on behalf of 23 other states who ask this Court to reject the petitioner’s interpretation of Section 306 which would cause massive federal court intrusion into their state revenue gathering processes.

I agree with–

John Paul Stevens:

May I ask, General Lee on that, you mentioned the other states’ cooperation.

John Paul Stevens:

When you have the initial valuation of the railroad which has multi-state operations and you all, as I understand the procedure, you start with the total value and then you apportion a part to the taxing–

David W. Lee:

–Yes, Your Honor.

John Paul Stevens:

–jurisdiction.

Do the states have some common agency for determining what the value is and do they all start with the same figure or does each state go about it separately?

David W. Lee:

The valuation of a railroad varies from state to state.

John Paul Stevens:

It does?

David W. Lee:

And also–

John Paul Stevens:

You don’t use a multi-state tax commission approach of any kind?

David W. Lee:

–No, there is tremendous disagreement with the methodology that should be applied and I–

John Paul Stevens:

Isn’t it true that most states start with a system-wide value figure and then work back from that?

David W. Lee:

–That’s correct, Your Honor.

They start with the unit appraisal method which has been noticed by this Court previously in the Rowley Case in 1934.

John Paul Stevens:

So if we got a case involving this particular railroad from Kansas or Missouri, we might find a dramatically different figure as the starting point?

David W. Lee:

Yes, I think it so.

And I disagree with what Mrs. Christian said that there would be a close agreement on what the true market value would be with regard to the experts.

There has been a tremendous disagreement between experts in this present case as to what the true market value of the railroad would be.

The railroad’s expert filed an affidavit saying that the true market value of the railroad would be $1.4 billion.

We filed an affidavit by an outside appraiser, Mr. Goodwin, who has done appraisal for Kansas that said the true market value of the railroad would be $3.4 billion.

Antonin Scalia:

Well, that isn’t what she said.

She didn’t say that there wouldn’t be disagreement, she said that the difference in the methodologies would not necessarily produce great disagreement.

David W. Lee:

Well, our methodology that we used in 1981, we attributed 25 percent to the income, Kevlaw’s income method.

The next year we moved up to 40 percent.

They filed an affidavit saying they disagreed with that.

Now we’re up to giving 60 to 90 percent to the capitalized income.

I disagree with her when she says that there is not much disagreement about methodology.

And, of course, that’s why we feel like that it’s our contention that a federal court should not make these decisions.

And we think that Congress never intended for a federal court to make that decision.

I agree with Mrs. Christian, that the critical portion of this statute is the subsection (1), subparagraphs (a) and (b) by my reading make it unlawful to apply a different assessment ratio to railroad property than is applied to similar commercial and industrial property in that jurisdiction and to collect a tax based on that unequal assessment.

Subparagraph three prohibits a state from applying a different ad valorem tax rate to railroad property.

Subparagraph (d) is a catch all provision prohibiting unspecified and un-named taxes from being discriminatorily applied to railroad property.

David W. Lee:

And I agree with Mrs. Christian that their dispute, their contention falls within subparagraph (a).

They’re claiming that their overvaluation can be interpreted from subsection (a), Section 306.

However, we contend that nowhere in Section 306 and in particularly in subsection (a) does the law give a federal court the authority to revalue the value, redetermine the value of a railroad property for ad valorem tax purposes.

Sandra Day O’Connor:

Well, Mr. Lee, part of the equation referred to in subsection (a) is the ratio in relation to true market value isn’t it?

David W. Lee:

Yes, Your Honor.

Sandra Day O’Connor:

I mean, that’s part of the equation.

David W. Lee:

Yes, Your Honor.

Sandra Day O’Connor:

And then when you come down to part 2(d) of this section where it deals with burden of proof, it does refer to burden of proof of true market value, so apparently Congress did envision some inquiry into true market value–

David W. Lee:

We think that–

Sandra Day O’Connor:

–as part of the assessment equation.

David W. Lee:

–We think that they meant the inquiry into true market value is to be made only with regard to a determination of the sales assessment ratio study.

They set forth a specific means of determining what the appropriate assessment ratio that is being used and being applied to non-railroad property is in that jurisdiction.

And they specified the specific manner of making that determination, the sales assessment ratio study.

That’s a means of determining the value of property by looking at a sampling of sales that have taken place in a county and comparing it with the assessed value.

Sandra Day O’Connor:

Well, do you think that it’s open to the federal court to inquire into the true market value of the commercial and industrial property in the tax jurisdiction?

David W. Lee:

Yes.

Congress specifically said that if the sales assessment ratio study is not adequate then the court can conduct its own study, or adopt whatever study it thinks is appropriate.

Sandra Day O’Connor:

So as part of the inquiry into subsection (1)(a), the court can examine the true market value by the sampling technique of the commercial and industrial property?

David W. Lee:

That’s correct, Your Honor.

But that’s–

Sandra Day O’Connor:

But where in the statute do you see that the court is prohibited from making the same inquiry as to the railroad’s true market value?

David W. Lee:

–Well, we think that this is not a plain meaning case.

We think that the statute is not clear as to what exactly it means.

There was tremendous confusion all 15 years in Congress as to what these various bills would mean.

We think there’s a particularly, early on in the legislation there’s a letter from then Deputy Attorney General Warren Christopher–

Sandra Day O’Connor:

Well the language of the statute itself could at least support the reading given it by the railroad and the Solicitor General, could it not?

David W. Lee:

–If you take that single sentence out of context.

But this Court in the Kelly v. Robinson Case with regard to interpretation of federal bankruptcy laws with regard to their impact on criminal justice systems said that in interpreting a statute like this you don’t take a single sentence out of the context of the statute, you look at the entire statute and its object and its policy.

We think that looking at subsection (a) in conjunction with the rest of the statute which–

Sandra Day O’Connor:

If its overall object is to prevent singling out the railroads unfairly in the ad valorem property tax structure of the various jurisdictions then it wouldn’t necessarily support you, would it?

David W. Lee:

–We think the Congress was advised that there were only two problems with the way that railroads were being treated.

One with the regard to the assessment ratio that was being applied to railroad property and the other was with the unequal taxation rights.

That was the entire testimony given throughout the 15 years.

I disagree with Mrs. Christian when she said that Mr. Lanier wrote a letter later on saying that this, that it meant to cover valuation.

That’s mentioned on page 11 of her reply brief, but you read the entire letter and he also says in that letter that the legislation would not mean to change the judicial review that is being applied to state taxation systems.

So we think that Congress was confronted with two problems, they crafted a statute which deals with these problems and set forth the specific means for dealing with equalizing assessment ratios.

And we think that the fact that they were silent when they had gone into such detail about prescribing the means of determining the assessment ratio, that their silence and the fact that they didn’t even talk about what proper methodology is to be used by a federal court in determining the value of the railroad is very significant.

Sandra Day O’Connor:

Well if you are right about the interpretation it certainly leaves it open to the states to recoup all the money they otherwise would lose by jacking up the value of the railroad property.

David W. Lee:

Well, I think that’s the concern of the 10th Circuit and why they said what they did with regard to their rule.

That there is a showing of purposeful discrimination with intent.

They meant to insure if they intentionally retaliated against a railroad because of earlier success with regard to 4-R legislation that they wouldn’t–

Sandra Day O’Connor:

Do you support the requirement of finding intentional discrimination and if so where do you find that in the statute?

David W. Lee:

–Well we, Kansas spoke to this in detail in their amicus brief and they felt, their contention was, and we agree with it, that a federal court sits as a court of equity and if there has been a blatant or an egregious retaliation or circumvention of the assessment ratio equalization requirements that a federal court should not cover its eyes to that and can act to prevent a state from doing that.

And we think that’s what the 10th Circuit was doing.

We have problems with that rule though because we fear that it would allow the railroad in every case to delve into the subjective intentions of our taxing authorities.

Antonin Scalia:

I think you’re right.

It doesn’t make much sense to me.

Isn’t it true that it’s rather strange to have a statute which says you can’t discriminate intentionally beyond doing so for five percent?

That’s a very strange statute.

I mean, that five percent requirement doesn’t seem to me to go along at all with the notion that intentional discrimination is the only thing that it’s directed at.

David W. Lee:

Well, and we think–

Antonin Scalia:

I mean, I can see two different statutes.

Statute one says, no intentional discrimination.

I can see another one that says, doesn’t matter whether the discrimination is intentional or not, just so long as it’s no more than five percent.

But here you’re telling us, or the 10th Circuit was telling us that you have a statute which says you can’t intentionally discriminate beyond five percent.

You can intentionally discriminate five percent, that’s okay.

Why would you write a statute like that?

That’s very strange.

David W. Lee:

–Well, we think that the five percent provision of the statute refers strictly to equalization of the assessment ratio.

And we agree that equalization is a common legal term.

David W. Lee:

It has a meaning in our state under our state law with regard to our county assessors and our state equalization board.

We think that the five percent gives the states five percent flexibility in equalizing the assessment ratio of commercial property with that of the railroad.

That give in the statute, we think it applies strictly to equalizing assessment ratios and has nothing to do with overvaluation.

We think that was Congress’s intention and we think that the legislative history supports our rating.

And what I’ve said here, I think is a reasonable explanation of the statute which is squares and is supported by the fifteen years of the legislative history of the Act.

And–

Antonin Scalia:

Why would it make any sense to conduct the inquiry of fair market valuation of non-railroad property, if you don’t have the authority to conduct fair market valuation of railroad property?

David W. Lee:

–Well, because they prescribe the means by which that the inquiry into the true market value of non-railroad property is to be made.

The sales assessment ratio’s study which is done by sampling.

The–

Antonin Scalia:

Well what difference does that make?

The fact that you prescribe a means by which it is to be done, does not show why it is at all useful to do it, if you don’t do it for the railroad property as well.

David W. Lee:

–Well,–

Antonin Scalia:

Because the ratio depends upon the comparison of the one to the other.

And you’re telling us the federal courts can inquire into the valuation of the non-railroad property and it doesn’t matter what that valuation ends up as because we’re only looking for a ratio.

It’s only a ratio that’s important not an absolute.

But then you tell us we can look into the fair market valuation of the railroad property.

So then what’s achieved doing fair market valuation of this other property?

Nothing.

David W. Lee:

–Well the sales assessment ratio study is a sampling.

It’s a very easy way to determine what is the uniform assessment ratio that has been established for non-railroad property.

Antonin Scalia:

I know it’s easy, but what’s the purpose of doing it?

David W. Lee:

Because that sets the standard that the federal court is to look at in equalizing the ratio that is to be applied to non-railroad property with that of railroad.

They said, here is what the federal judge is to do.

He’s supposed to conduct a trial on what is the proper sales assessment ratio study and there has been litigation about what components comprise that.

Do you include personal property into the sales assessment ratio study?

Do you include centrally assessed property in it?

Do you use the weighted means, or the median, or the mean in conducting it.

Once you have a trial on that the federal judge either adopts what the state has done, and in Oklahoma we do one every year.

And in this case there is no disagreement with our sales assessment ratio study and what came out with as 10.7 percent.

David W. Lee:

And once that’s been established then the federal judge just simply looks to the assessment ratio that’s being applied to railroad property and equalized and that is, there is a lot of discussion in congressional history about the sales assessment ratio study.

It’s of no value whatsoever with regard to valuation of a railroad because railroads don’t sell.

And the sales assessment ratio study is a good indicator of true market value because you look at the selling price of a random, of pieces of property in the counties and that’s what true market value is.

And then you compare that with–

Antonin Scalia:

I see what you mean.

David W. Lee:

–the assessed value and you come out with a ratio.

Antonin Scalia:

But generally–

David W. Lee:

And our state wide ratio is 10.87 percent.

John Paul Stevens:

–What you’re saying, if I understand you is that in, I’m thinking in terms of burden on the courts and the like, that it would be permissible for the railroad to come in and say that the state has to follow the general policy of undervaluing all other commercial and industrial property, and that’s how they get a 10.87 ratio, because they’re really undervalued it all.

And so they could prove, they could try to prove what you’ve done in all other types of property to show that your level was generally lower than it should have been.

David W. Lee:

Well, I don’t think they can.

I don’t think we said that in our brief.

John Paul Stevens:

I thought that was what you just said?

David W. Lee:

No.

John Paul Stevens:

Didn’t you say that it is, the issue of the valuation of non-railroad commercial property can be addressed by a federal court?

David W. Lee:

That’s correct.

John Paul Stevens:

And the reason for doing it would be to show that that property was all undervalued?

Is that not correct?

David W. Lee:

Well, I guess if you mean assessment value as being undervaluation–

John Paul Stevens:

Yes.

David W. Lee:

–you’re correct.

Assessed value by our state law, our state constitution, you cannot assess property in excess of 35 percent.

John Paul Stevens:

All right.

David W. Lee:

So all properties under–

John Paul Stevens:

But it’s 35 percent of X, of true market value.

But if they proved that your true market value people went out and regularly used out of date figures or didn’t take obsolescence into account, and consistently came up with a lower figure than the experts would say was appropriate that would be the converse of what they’re alleging here?

David W. Lee:

–Well, a trial–

John Paul Stevens:

As I understand, you’re saying that would be permissible.

David W. Lee:

–Well, a trial on the validity and the proper ratio as determined by a sales assessment ratio study has not been a problem and there has been some litigation about it, but it’s just not anything compared to what would follow if the federal courts were allowed to look at the entire methodology that a state has applied.

And I disagree with Mrs. Christian when she said that they’re going to defer to what the state has done generally with regard to the methodology.

David W. Lee:

That has not been done at all.

They affidavits submitted–

John Paul Stevens:

I thought all she said was that there are three general methodologies that are used and both the states and the railroads all agree that any one of the three is generally acceptable.

They may be misapplied in particular cases and–

David W. Lee:

–Well there have been disagreements about how much weight to accord each one of them within the different methodologies and income value indicators there’s enormous disagreement, tremendous disagreement.

And this Court has recognized itself as recently as the Norfolk case in 1968, this is just an estimation of value.

And in our case the total bottom line has disagreed, there’s been enormous disagreement about.

The same way in the 9th Circuit and the same way with the 8th Circuit.

All the litigation that’s taken place so far with regard to valuation methodology and valuation litigation has been extremely complex.

It amounts to a federal judge just listening to expert witnesses testify about incredibly complex methodology for the railroad and then listening to the outside appraisers on behalf of the state testifying.

And then the judge having to make a decision based on things that are tremendously complex and are–

John Paul Stevens:

–I suppose once he’s decided it for 1982, it probably wouldn’t be as hard to do it in 1983.

David W. Lee:

–Well, that depends.

I mean value on all property differs from year to year.

John Paul Stevens:

Yes, but I mean you’ve got some basic disagreements that probably would be ironed out after a few years, I would think.

David W. Lee:

Well, in this particular case the railroad said that, they said that we disagree with what they’re saying about our valuation of the property.

They’re saying that we’ve valued it at $2.1 billion.

We’re saying that the valuation was $3.6 billion.

William H. Rehnquist:

Well does the federal judge when he hears all these experts, simply sit as a finder of fact and decide what he thinks the right value is?

David W. Lee:

That’s what they want.

And that’s what we think is one of the great problems with this and we think that Congress, when they asked Mr. Lanier and Mr. Ogden about this they said, no that’s not what would happen.

We only want equalization of assessment ratios.

We only want equalization of tax rates.

And, of course, this practice has gone on because the Supreme Court in 1940 in the Nashville v Browning case said it was okay for states to classify, to give different assessment ratios to different classification of property xxx.

William H. Rehnquist:

Clearly the statute rules that out, doesn’t it?

David W. Lee:

Yes.

There is no question.

We agree and we’ve done that.

We lowered our assessment ratio that was being applied to railroads from–

Byron R. White:

And promptly raised the valuation.

Byron R. White:

[Laughter]

David W. Lee:

–No, we didn’t do that.

We didn’t do that.

Our full system valuation, and I know there’s a dispute about what the record reveals–

Byron R. White:

You didn’t, you mean you raised it, but not immediately.

David W. Lee:

–No, we didn’t.

No.

[Laughter]

It has gradually gone down, our valuation has gradually evolved in the direction that they wanted, the railroads want more weight to be given to the capitalized income indicator of value.

We started at 25 percent in 1981 and we’ve slowly evolved in the direction they want it because it lowers the full system value of their railroad.

And every year, ’81, ’82, our full system value and assessed value and taxes imposed on the railroad have gone down.

So the 4-R Act has worked with regard to lowering the tax burden on states, on railroads.

Byron R. White:

Then why are the railroads complaining?

David W. Lee:

Well, because they want more.

They made their agreement with Congress and now they’re trying to get considerably more out of the courts.

And what they’re arguing now is completely different than what they told Congress for years.

Byron R. White:

Do you agree that if the railroad made a decent case out of the fact that there was an intentional overvaluation of their property that you could really inquire into the reasonableness of the valuation?

David W. Lee:

Well, we think there’s a real problem with that.

In this case–

Byron R. White:

Well, yes or no.

Do you–

David W. Lee:

–No, we don’t.

Byron R. White:

–I would think you’re argument would say it doesn’t make any difference what they allege.

They have to allege a difference in the assessment ratio or they’re out of court.

David W. Lee:

That’s correct.

That’s correct, Your Honor.

We’ve had a real problem and this particular case demonstrates what could happen.

In this case all of three of our tax commissioners were deposed, had lengthy depositions about the methodology that was used.

Byron R. White:

So you don’t defend the Court of Appeals for the 10th Circuit then in that respect?

David W. Lee:

If it’s interpreted in such a way which would allow them every year to delve into the intention of our tax commissioners or our ad valorem division director–

Byron R. White:

Well that sounds like what they mean.

David W. Lee:

–Well, we can live with the Lennen rule if it’s properly applied and if the same protections with regard to summary judgment are given to our tax officials that are given to public employees generally–

William H. Rehnquist:

Well wouldn’t the 14th, or wouldn’t the equal protection clause give the railroads some constitutional claim in the event of intentional discrimination and without the 4-R statute?

David W. Lee:

–I don’t think so.

I think the Browning case in 1940 eliminated an equal protection clause, a challenge with regard to that.

William H. Rehnquist:

Even in a showing of intentional discrimination?

David W. Lee:

I, Your Honor, I really think that and the fair assessment case in 1982 mean that they really can’t do that.

That the only relief they can get is from Section 306.

It’s more relief than other taxpayers have.

We have a number of other taxpayers in Oklahoma, public utilities that are taxed on the unit system valuation who go through our state system and go through our state procedures.

And The 10th Circuit noted that there was no claim in this particular case that our state procedures were inadequate.

What they, they got back their valuation and they went directly and filed a federal lawsuit against us.

Byron R. White:

I would think you really take this 10th Circuit seriously in saying that it’s open to proof whether there was an intentional overvaluation, intentional discriminatory overvaluation.

I would think that part of the evidence would be what the valuation was.

Because if it was gross enough you certainly could infer an intent.

David W. Lee:

Yes.

Yes, Your Honor, I agree with that.

Byron R. White:

And so I, so I just don’t understand the 10th Circuit–

David W. Lee:

Well we think that–

Byron R. White:

–saying that you can’t get into valuation, but you can get into intent.

David W. Lee:

–Yes.

we think that there would be a situation that overvaluation would be such that it would meet the test in the Norfolk case in 1986 that if the state is shown to be grossly over-reaching, or if there is not a rational basis for what they’ve done.

But in this case the valuation that we did was under the book value of the railroad.

And just because they want to use a methodology which would give them a lower value for the railroad, we don’t think that they should be able to go to federal court and get a federal judge to agree with them.

John Paul Stevens:

It is correct, is it not that your 1982 value was a great deal higher than your 1981 system value, a $2 billion to $3.5 billion–

David W. Lee:

That’s where we have a disagreement.

They have used the figure $2.1 billion which we don’t think they should be using.

What happened was that was a negotiated figure.

The original valuation that was sent out to the railroad was based on a $3.6 billion figure which the appraisers had done.

Burlington Northern asked for a negotiation conference with Mr. Barr, who was the Ad Valorem Tax Division Director at that time.

David W. Lee:

They had a conference and he just got the book value of the railroad which was $4.2 billion and during the process of the negotiations, wrote off 50 percent for obsolescence.

Just gave them a 50 percent break on obsolescence and moved the assessment ratio–

John Paul Stevens:

–However he arrived at it, that was the final figure that the tax was based on, wasn’t it?

David W. Lee:

–Yes, but–

John Paul Stevens:

Absent the negotiation it would have been $3.6.

David W. Lee:

–Well, he said even in his deposition that the valuation of that railroad is $3.6 billion.

He said that the $2.1 billion is, and they get that only from his handwritten notes, computations he made during this negotiation conference.

John Paul Stevens:

Did he retain his position after…–

[Laughter]

David W. Lee:

No.

The deposition of Mr. Nance makes clear that that was one of the reasons why Mr. Barr is no longer the head of the Ad Valorem Division–

Antonin Scalia:

[Laughter]

David W. Lee:

–is because he was engaging in these and they–

Antonin Scalia:

Not working for the railroads now, is he?

President of the railroad.

[Laughter]

Mr. Lee, I don’t understand.

I guess we probably ought to have the 10th Circuit here.

Nobody likes the 10th Circuit’s position, right?

David W. Lee:

–We like it better than the 8th and the 9th.

Antonin Scalia:

I understand.

[Laughter]

If I understand your case correctly, you… you acknowledge that federal courts have to get into the evaluation of commercial and industrial property, there is no way to avoid that under your interpretation of the statute?

David W. Lee:

But Congress told them how to do that.

Antonin Scalia:

Well, they told them how to do it, but sometimes that doesn’t work.

And then they have to conduct a full fledged investigation into the value of commercial and industrial property, right?

David W. Lee:

Well, or they could adopt another ratio study.

I mean, they might–

Antonin Scalia:

Well, whatever, I mean.

David W. Lee:

–Appoint their own appraiser to conduct a ratio study.

Antonin Scalia:

But, I’m sure you can evaluate railroad property by a ratio study or by some other study.

I mean you’re just talking about the methodology of valuation.

But the fact is that the interpretation you’re urging on us tells us that federal courts were under this statute given the authority to come to their own decision about the value of non-railroad property, but they are to close their eyes to the valuation of railroad property.

That just seems to me a very strange result when what you’re worried about is discrimination against the railroads.

David W. Lee:

It’s consistent with the, with what Congress intended.

Because there were discussions in Congress about the sales assessment ratio study and how that’s conducted and of how that cannot be done with regard to railroads, because railroads don’t sell.

They don’t sell like regular commercial and industrial property.

So it’s very easy to do a sales assessment ratio study and set the standard and then equalize the assessment ratio that is to be applied to railroads with that that the ratio study that are previously being conducted.

If the federal court doesn’t think that it’s a good ratio study it can adopt its own, or listen to experts that might have a better one.

But, like I say, in our case there was no disagreement with it.

Our assessment ratio was 10.8 percent.

It’s relatively low.

The railroads have never challenged that as the assessment ratio.

And it’s resulted in decreasing assessment values and taxes every year.

And we are changing our methodology in accordance with what they want.

We’re giving more weight to the capitalized income method.

They didn’t like the fact and we got sued because we didn’t give them this enormous break for obsolescence that they got from Mr. Barr for that one year.

That’s why they–

Antonin Scalia:

Now how do you explain the burden of proof provision?

The burden of proof with respect to the determination of true market value shall be that declared by the applicant.

That only applies to true market value of other commercial and industrial property, is that–

David W. Lee:

–But the next sentence says that if the correct ratio cannot be established by using the sales assessment ratio study then the federal court is to be left on its own.

The Clinchfield case out of the Fourth Circuit–

Antonin Scalia:

–No, I’m not sure you answered my question.

You assert that that burden of proof provision only applies, the reason it’s in there is because you have to determine the true market value of non-railroad property.

David W. Lee:

–That’s correct.

And it’s who has the burden of proof under state law.

And as I was saying, the Clinchfield decision out of the Fourth Circuit has a very good discussion of, under North Carolina law in that case, they said that the taxpayer has the burden of showing the proper assessment ratio which is to be used.

William H. Rehnquist:

Thank you, Mr. Lee.

The case is submitted.