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Peo. Ex Rel. Korzen v. C.b. & Q.r.r. Co.

OPINION FILED MAY 20, 1965.

THE PEOPLE EX REL. BERNARD J. KORZEN, COUNTY COLLECTOR, APPELLEE,

v.

CHICAGO, BURLINGTON & QUINCY RAILROAD CO., APPELLANT.



APPEAL from the Circuit Court of Cook County; the Hon. THADDEUS V. ADESKO, Judge, presiding.

MR. JUSTICE HOUSE DELIVERED THE OPINION OF THE COURT:

The Chicago, Burlington & Quincy Railroad (Burlington) filed an objection to an application by the county collector of Cook County for judgment for taxes paid under protest by it for the year 1957. The trial court found that locally assessed property in Cook County was assessed at a level no higher than 50% of its fair cash (full) value, that the Department of Revenue did not assess the railroad property at full value, that the objector failed to prove discrimination and constructive fraud and denied the objection. The railroad appeals directly to this court since the cause relates to the revenue.

No appeal was taken from the portion of the order finding undervaluation of locally assessed property so that the sole issue before us is whether the proof overcomes the presumption that the Department of Revenue complied with the statute and assessed the railroad's property at full value. In this respect the case at bar is similar to the cases of People ex rel. Musso v. Chicago, Burlington and Quincy Railroad Co. Nos. 38859-38904 consolidated, (33 Ill.2d 88) but the approach is entirely different. In Musso evidence was offered in support of the theory that the assessed value of railroad property was debased to contain the spread between it and locally assessed property, while here the collector's theory is that the evidence of sales of other railroads between 1947 and 1961 demonstrates that the assessments made by the Department of Revenue were far lower than full value and that there is no evidence to sustain full value of the railroad's property.

It is now settled that where a railroad's assessment is at full value and locally assessed property is so undervalued as to result in gross discrimination against the railroad, the assessment is constructively fraudulent. (People ex rel. Kohorst v. Gulf, Mobile and Ohio Railroad Co., 22 Ill.2d 104; People ex rel. Hillison v. Chicago, Burlington and Quincy Railroad Co., 22 Ill.2d 88; People ex rel. Dallas v. Chicago, Burlington and Quincy Railroad Co., 26 Ill.2d 287; People ex rel. Wenzel v. Chicago and North Western Railway Co. 28 Ill.2d 205; People ex rel. Enrietta v. Gulf, Mobile and Ohio Railroad Co. 29 Ill.2d 605.) As stated in Hillison and Kohorst, the measure of recovery in such case is the difference between the amount of taxes extended against a railroad and the amount which would have been extended had the locally assessed property (at the county level) been equalized at full value.

The only testimony offered by the collector was that of two witnesses who prepared graphs and identified exhibits and that of Harry F. Hulman, Director of Revenue, who defined salvage value and answered several hypothetical questions on cross-examination. The Collector introduced in evidence all of the Department of Revenue's data sheets for all Illinois assessed railroads for each year from 1951 to 1960. From the data sheets the straight average (the average without application of a judgment factor) of capitalized earnings, stock, debt and reproduction cost was computed and the percentage of assessed value to that average was obtained. Graphs were then prepared from the results obtained and are in evidence.

The Collector also introduced certified copies of Interstate Commerce Commission reports concerning sales and acquisitions of railroads from which various data were taken and introduced in the form of exhibits, including charts, analyzation of the reports, and the Collector's deductions therefrom as to the market value of the operating property of those roads. A summary chart shows the so-called "allocated market value" from the deductions, the amount of the assessment and the "assessment ratio" which is the percentage which assessed valuation bears to such allocated market value. The assessment ratio thus obtained varied from slightly over 50% to about 87%.

Briefly, the exhibits introduced by the Collector with respect to the 12 railroad transactions (which will be numbered consecutively for ready reference) reveal the following:

1. The Calumet Western Railway was wholly owned by three corporations. In 1959 the Pennsylvania Railroad purchased the 25% block of Calumet's stock from its subsidiary, Pennsylvania Company, at a contract price of $108,000 which was the cost of the stock to the seller's corporate predecessor, there being no known market value. A value of $432,000 was then allocated to all of the capital stock by multiplying the 25% value by four. The assessed value for the year 1959 was $330,000.

2. The St. Louis & Ohio River Railroad with 18.42 Illinois miles leased its property to the Alton & Southern Railroad. Both were wholly owned subsidiaries of Aluminum Corporation of America. The operating property was transferred to the Alton & Southern for $1,165,450 while the assessed value was $432,000.

3. The Baltimore & Ohio Chicago Terminal Railroad Co. was wholly owned by Baltimore & Ohio Railroad Company and in addition the B. & O. owned $32,000,000 in first mortgage 4% bonds. The B. & O. was paying 5% and 6% on its own bonds, so it refinanced by selling the B. & O.C.T. bonds, and selling the stock for $2,500,000 with the option of an early repurchase. The value used was $26,886, 579 while the assessed value was $20,200,000.

4. The Belt Railway Company of Chicago with 376.30 track miles was owned by 12 railroads and used by them for switching over facilities of Chicago & Western Railroad, which the Belt had under a lease with an option to purchase. The option price fixed in 1912, with adjustments, was used and amounted to $35,096,271 in 1961 while the assessed value was $21,950,000.

5. The Peabody Short Line (11 track miles) was sold in 1955 to a subsidiary of Peabody Coal Corporation for $1,650,000 and resold by it in 1960 to Illinois Central Railroad Company for $2,265,995, while the assessed value for those years was $1,325,000 and $1,425,000 respectively.

6. The Chicago River & Indiana Railroad leased 139 miles of trackage from Chicago Junction Railway in 1922 and purchased the leased road and properties of two other interlocking corporations with first mortgage bonds. The net sale price attributed by the Collector to this transaction was $22,700,000 and the assessment was $19,700,000.

7. In 1953 the St. Louis & O'Fallon Railway was granted permission by the Interstate Commerce Commission to abandon operations and the Commission fixed the scrap or salvage value at $210,000. The Department then assessed the property at that figure. Thereafter, it was leased by Chicago & Eastern Illinois for a period of 10 years with quarterly rental of $7,124.04 or a ...


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