CSX v. Georgia Board of Equalization (Decision on Dec. 4)

A unanimous Supreme Court, speaking through Chief Justice Roberts, reversed the 11th Circuit and the federal district court by deciding that the federal courts must consider the figures yielded by different assessment methods (of the State and the entity suing) before making its determination of how much tax is owned by the business entity. Rather than yielding to GA's argument that this would yield a hopeless conflict between experts, the Court declared that this indeed was the business of courts--to weigh the credibility of competing expert testimony. What is striking to me as I read the Chief Justice's opinion, however, is that its logic and direction is derived not from prior case law or legal sources at all, but from a sense of "let's be reasonable," and "let's consider all the 'evidence' before making a decision" approach. As a result, it seems to me that state department of revenues will have to be hiring a lot more new people--whose job it will be to learn how to rebut valuation methods and calculations of taxpayers who disagree with revenue department assessments. So, consider that as you think about your future.

Justice Roberts' Words

Let's hear Justice Roberts, in his own words:

"We do not see how a court can go about determining true market value if it may not look behind the State's choice of valuation methods. Georgia insists there is a clear and important distinction between valuation methodologies and their application. As the State would have it, the statute allows courts to question only the latter. We find no distinction between method and application in the language of the Act, and see no passage limiting district court factfinding in the manner the State proposes. The total lack of textual support for Georgia's position is not surprising. The dichotomy the State presses would eviscerate the statute by forcing courts to defer to the valuation estimate of the State, when discriminatory taxation by States was the very evil the Act aimed to ban."

There is that favorite word again--eviscerate--which you have to say twice daily if you hope ever to become a Supreme Court Justice. He went further:

"Georgia's position is untenable given the way market value is calculated. Valuation is not a matter of mathematics, as if the district court could prevent discriminatory taxation simply by doublechecking the State's assessment equations. Rather, the calculation of true market value is an applied science, even a craft. Most appraisers estimate market value by employing not one methodology but a combination. These various methods generate a range of possible market values which the appraiser uses to derive what he considers to be an accurate estimate of market value, based on careful scrutiny of all the data available. Appraisal Institute, The Appraisal of Real Estate 49 (12th ed.2001)."

Speaking more about the assessor's "craft," he says:

"Appraisers typically employ a combination of methods because no one approach is entirely accurate, at least in the absence of an established market for the type of property at issue. The individual methods yield sometimes more, sometimes less reliable results depending on the peculiar features of the property evaluated. As the variation in the state appraiser's market-value range reveals, different methods can produce substantially different estimates. W. Kinnard, Income Property Valuation: Principles and Techniques of Appraising Income-Producing Real Estate 52 (1971)."

His conclusion follows:

"Given the extent to which the chosen methods can affect the determination of value, preventing courts from scrutinizing state valuation methodologies would render § 11501 [i.e., the section of the law permitting challenge to assessment under certain circumstances] a largely empty command. It would force district courts to accept as “true” the market value estimated by the State, one of the parties to the litigation. States, in turn, would be free to employ appraisal techniques that routinely overestimate the market worth of railroad assets. By then levying taxes based on those overestimates, States could implement the very discriminatory taxation Congress sought to eradicate. On Georgia's reading of the statute, courts would be powerless to stop them, and the Act would ultimately guarantee railroads nothing more than mathematically accurate discriminatory taxation. We do not find this interpretation compelling. Instead, we agree with Judge Fay in dissent below: “Since the objective of any methodology is a determination of true market value, a railroad should be allowed to challenge the method[s] used [by the State] in an attempt to prove that the result ... was not the true market value of its property.”

Conclusion

Whether it ever is possible to arrive at a "true market value" of something as big and unwieldy as railroad properties is a philosophical question that law is probably unable to answer. But one thing is certain--the federal district courts will be the locus for future squabbles on valuation methods for tax assessment purposes.

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