United States v. Chicago, Burlington & Quincy Railroad Company

PETITIONER: United States
RESPONDENT: Chicago, Burlington & Quincy Railroad Company
LOCATION: Paris Adult Theater

DOCKET NO.: 72-90
DECIDED BY: Burger Court (1972-1975)

CITATION: 412 US 401 (1973)
ARGUED: Feb 26, 1973
DECIDED: Jun 04, 1973

Richard Schreiber - for respondent
Richard B. Stone - for petitioner

Facts of the case


Media for United States v. Chicago, Burlington & Quincy Railroad Company

Audio Transcription for Oral Argument - February 26, 1973 in United States v. Chicago, Burlington & Quincy Railroad Company

Warren E. Burger:

-- first this morning in 72-90, United States against Chicago, Burlington and Quincy Railroad.

Mr. Stone, you may proceed whenever you are ready.

Richard B. Stone:

Thank you, Mr. Chief Justice and may it please the Court.

This is a corporate income tax case here on the writ of certiorari to the United States Court of Claims.

The sole issue presented in the Government’s petition for certiorari is whether the respondent railroad is entitled to take depreciation deductions with respect to certain to properties paid for by governmental agencies for the purpose of improving safety and traffic flow at highway -- railroad intersections.

The issue is governed as I shall explain by provisions of the Internal Revenue Code of 1939 which are no longer applicable under the Internal Revenue Code of 1954.

The resolution of this question of construction of the 1939 Code, however, will continue to effect tax returns filed for many future years, especially with respect to the railroading utility industries because the relevant amendments to the 1954 Code do not apply to properties paid for as for those in issue here prior to 1954 and most of these properties have very long useful lives, in some cases, as many as 50 or 60 years.

The background of the properties with respect to which respondent seeks depreciation deductions here is as follows.

Beginning in the early 1930s, respondent and many other railroads entered into agreements with various State Governments for construction of facilities to improve the safety and traffic flow conditions at highway-railroad intersections.

The initial agreements between the railroads and the States provided that the states would substantially, though not entirely, reimburse the railroads for those facilities which it was the railroad’s obligation to construct.

Shortly after these initial agreements were reached, Congress passed a series of statutes which authorized the Federal Government to pay at least part of the state share of the construction cost of these facilities.

This is set forth in the National Industry Recovery Act at 48 Stat. 195, Section 203 and is a 1933 statute.

In the years following the initial agreements and the initial authorization of partial federal reimbursement of state expenses, the railroads who presumably felt that these facilities designed to improve highway traffic conditions were tangential to the profitable operation of their railroad business displayed great reluctance to share substantially in the construction costs and disputes between the railroads and the states were quite frequent over allocation of the costs.

In order to settle these disputes, the Congress passed the Federal Highway Act of 1944 which was basically a stepped version of the prior act and this act authorized the Federal Government to reimburse the States for the entire cost of the facilities such as those at issue here, subject only to the limitation that to the extent that the railroad was deemed to receive direct benefit from these facilities, it should reimburse the Federal Government on a pro rata basis up to a maximum of 10% of the cost of any particular facility.

The result was that the States initially absorbed all or most of the cost of the facilities for which they were reimbursed by the Federal Government and the railroads paid only so much as was deemed to reflect the benefit which the railroad derived from the facilities and this Court in no event exceed 10% of the cost.

Now, although there is some question as to whether respondents or the States have title to the facilities under the terms of these agreements.

The agreements do provide that respondent is obligated to maintain the facilities “directly related to railroad use,” such as rail bridges and roadbeds and tracks and the states are correspondingly required maintain the facilities directly related to motor vehicle use such as highway bridges and approaches.

The majority of the Court of Claims here appears to have assumed that the obligation to maintain these facilities includes the obligation to replace worn out equipment.

Judge Davis found that questionable proposition, but he Court of Claims appears to have found the respondent had the obligation here to maintain and replace those, at least those facilities, most directly related to railroad use.

And at this point, I should point out that the Government and respondent appear to be in some disagreement as to precisely the type of facilities which respondent seeks here to depreciate.

The Court of Claims did not make a specific finding as to what percentage of the facilities at issue here were of the type closely related to the railroad business and correspondingly what percentage were closely related to highway use and this would bear for example, upon the question whether respondent was obligated to maintain and replace the facilities that it seeks to depreciate, a question which to be sure, we do not believe to be dispositive of this case.

The Court did find and this finding is at page 55a of our certiorari petition that about a million and a half or a somewhat more than $2 million of property at issue here, was in the category of “Highway under crossings or highway over crossings.”

We assumed perhaps in some haste, that highway under crossings and highway over crossings referred to highway facilities over railroad tracks and concluded on that basis that at least 71% of the amount in controversy represented facilities in the category most directly related to highway use.

Judge Davis appears to have assumed the same thing and I refer you in that connection to footnote 2 on page 48a of the petition.

Respondent now asserts in his brief that it is not claiming any highway structures here and that the items in its account 6 which the Court of Claims described as highway under crossings are in fact railroad bridges of some sort.

In this connection, it cites the joint exhibit found at page 51 of the appendix in which the items in account 6 are described simply as bridges.

Respondent claims that the bridges in this account are all rail bridges and that in spite of the finding of the Court of Claims, it has not sought to depreciate any highway under crossings or over crossings.

Now, our examination of the record in this case including an inspection of the tax returns filed by respondent does not provide a satisfactory answer to the question whether the items in account 6 include highway crossings and if so, to what extent and the litigation as I think quite rightfully not focused closely on this point.

We felt it is desirable to bring this discrepancy between our reading of the record and respondent’s assertion to the Court’s attention, but for reasons which I shall refer to several times in the course of this argument, hopefully, our position is in no way dependent upon the answer to the question whether the bulk of the facilities in question were directly related to highway use or railway use.

William H. Rehnquist:

As a matter of terminology both highway under crossing and highway over crossing could refer to the railroad structures.