                              No.    90-441

            IN THE SUPREME COURT OF THE STATE OF MONTANA
                                    1991


UNITED GRAIN CORPORATION,
                 Petitioner and Appellant,
     -vs-
                                                              MAY 2 0 1991
THE DEPARTMENT OF REVENUE OF THE STATE OF
MONTANA, AND THE STATE TAX APPEAL BOARD OF
THE STATE OF MONTANA,                                     S L E ~ K SUPREME COURT
                                                                  OF
                                                               STATE OF M O N ~     ~   ~   ~
                 Respondent and Cross-Appellant.



APPEAL FROM:     District Court of the First Judicial District,
                 In and for the County of Lewis & Clark,
                 The Honorable Dorothy McCarter, Judge presiding.


COUNSEL OF RECORD:
            For Appellant:
                 Terry B. Cosgrove; Luxan     &   Murfitt, Helena, Montana
            For Respondent:
                David L. Nielsen, Legal Counsel, Dept. of Revenue,
                Helena, Montana



                               Submitted on Briefs:        April 11, 1991

Filed:
Justice John Conway Harrison delivered the Opinion of the Court.


     The taxpayer, United Grain Corporation (United), appeals, and
the Department of Revenue (DOR) cross-appeals an order of the First
Judicial District Court, Lewis and Clark County, which reclassified
certain property owned by United        and which affirmed a prior
valuation of said property.    The District Court's holding reversed
in part, remanded in part, and affirmed in part a prior decision
of the State Tax Appeal Board (STAB).       We affirm the District
Court's order.
     United raises the following issue on appeal:

     (1) Whether DOR has properly determined the market value of
United's grain elevators.
     DOR raises the following issues on appeal:
     (2)   Whether the District Court erred in holding that the
machinery in United's elevators is taxable as class four property
rather than class eight property.
     (3)   Whether the District Court erred in ordering STAB to
recalculate the value of the elevators based on the findings of the

District Court regarding the rating of the facilities.
                                FACTS
     This appeal resulted from a dispute over DORIS tax assessment

of three grain elevators owned by United.    These elevators are all
located in eastern Montana; one is in Macon, one is in Sprole, and
the other is in Kershaw.      United appealed DORIS 1986, 1987, and
1988 valuations of the elevators to the County Tax Appeal Board of
the appropriate counties. United then appealed each county board's
decision to STAB. The separate appeals were consolidated and tried
before STAB.   STAB issued three separate decisions with separate
findings of fact and conclusions of law.     United then appealed
STAB'S orders to the District Court. United moved to consolidate;
the District Court granted the motion on September 13, 1989.
     On June 21, 1990, the District Court issued its order on
United's appeal.     First, the District Court reversed STAB'S
conclusion of law I and concluded that United's grain elevator
machinery should be classified as class four rather than class
eight.   STAB'S conclusion of law I states: "The Board finds that
the machinery and equipment is properly classified by the DOR as
class eight personal property, based on its use in moving raw
material through an industrial distribution process." The District
Court held that the machinery was not used in a manufacturing
process, and, therefore, concluded that it could not be properly
classified as class eight.   From this decision, DOR appeals.
     Second, the court reversed and remanded STAB'S valuation of

the machinery which is part of the Macon and Kershaw elevators,

and held that STAB'S finding of fact I11 was clearly erroneous and
prejudiced United.   The District Court held the following:
          The appraiser [for DOR] also rated the elevator
     [Kershaw] as excellent because he assumed that the
     elevator was capable of loading out 30,000 bushels of
     grain per hour.



     [N]o evidence substantiates accepting DORIS figure
     incorporating Kershawls alleged 30,000 bushel per hour
     capacity. This is clearly erroneous and substantially
     affects the rights of United Grain.


     [Tlhe value of what STAB terms "personal property111
     should be adjusted to reflect that Macon [and Kershaw]
     has only a 15,000 bushel per hour capacity and not a
     30,000 bushel capacity. The Court will not pursue this
     calculation in either the Kershaw or Macon case but
     leaves it to STAB to perform the mathematical gymnastics.
From this decision, DOR appeals.
          Third, the court affirmed STAB in all other respects,
including STAB'S adoption of DOR1s valuation method.        From this
particular decision, United appeals, arguing that its proposed
llincomen
        method should have been used to value its elevators rather
than the "cost replacement" method proposed by DOR.     Additional
facts will be discussed as necessary.


                          STANDARD OF REVIEW
     This Court has interpreted 5 2-4-704, MCA, the standard for
judicial review of an administrative ruling, to mean that an
agency ' s findings of fact are subject to a ''clearly erroneous1'

standard while an agency's conclusions of law are subject to the
broader    "correct   interpretation1' standard.   Steer,    Inc.   v.
Department of Revenue (Mont. 1990), 803 P.2d 601, 603, 47 St.Rep.
2199, 2200. Under the 'Icorrect interpretation" standard as applied
to conclusions of law, our standard of review will be merely to
determine if the agency's interpretation of the law is correct.

     I~he court refers to STAB'S finding of fact I11 and resulting
order which incorporates DOR1s appraisal of United's ''personal
property1'at $205,689 for 1986, $216,169 for 1987 and at $181,102
for 1988.
          '
          I
  1




Steer at 603.




        The first issue for review is whether DORIS valuation of
United's elevators was proper.   United contends that DOR erred in
using the cost replacement method to evaluate United's three
elevators, and asserts that the income method should have been
used:
      We will not evaluate the advantages and disadvantages of
      a particular assessment method as applied to a taxpayer.
      "Tax appeal boards are particularly suited for settling
      disputes over the appropriate valuation of a given piece
      of property or a particular improvement, and the
      judiciary cannot properly interfere with that function."
      (Citations omitted) Assessment formulations are within
      the expertise of the State Tax Appeal Board and we will
      not overturn their decisions unless there is a clear
      showing of an abuse of discretion.
Northwest Land v. State Tax Appeal Board (1983), 203 Mont. 313,
317, 661 P.2d 44, 47. DOR has determined that the cost replacement
method is the most appropriate method of measuring the value of
hard assets and has promulgated rules to that effect.      We have
reviewed the entire record and find that United has not overcome
its burden to show clear abuse in DORIS application of the cost

replacement method to determine the market value of the elevators.
Therefore, we hold that the District Court properly affirmed STAB'S
valuation of United's elevators based on the cost replacement
method.



                                 I1

      The second issue is whether the District Court erred in
                                 5
holding that the machinery used           in conjunction with United's
elevators is taxable as class four, rather than class eight,
property.

     All taxable property in Montana is classified under Title 15,
Chapter 6, Part 1, MCA, according to its use and type, for the
purpose of determining the taxable value of the property.            Section
15-6-138, MCA, provides:
     (1) Class eight property includes:


     (c) all manufacturing machinery, fixtures, equipment,
     tools that are not exempt under 1-6-201(1) (r), and
     supplies except those included in class five.
On the other hand, 5 15-6-134, MCA, together with ARM 42.22.1303,
requires that if the machinery is used in a storage facility it is
properly classified as class four.
     The machinery that moves the grain in and out of the elevator

storage bins is at the heart of this dispute.           This machinery is
used to carry grain from the trucks into the storage bins and out
again.   It is much like a conveyor belt with buckets which carries
the grain from one place and dumps it off at another.                   The
machinery is designed specifically for a particular elevator.

    United argues that the machinery is part and parcel of the
storage facilities and, therefore, an improvement to the land
pursuant    to   ARM   42.22.1303   and    classified   as   class    four.
Furthermore, United argues that the machinery is not involved in
a manufacturing process and, therefore, cannot be classified as
class eight.     DOR, on the other hand, contends that the machinery
should be within class eight, arguing that it is part of a
manufacturing process.
     The    fact that the grain elevators are used             as storage
facilities is not contested by either party.       What is contested is
whether the conveyor belts and other machinery, which are used to
merely transport the grain into and out of the storage facilities,
are involved in a manufacturing process.        We think not.
     The outcome here depends upon the definition of the word
llmanufacturinguin     §   15-6-138, MCA.    Manufacturing machinery is
that flused to transform raw or finished materials into something
possessing a new nature or name and adapted to a new use."             ARM
42.22.1305.    Therefore, the question is whether or not the subject
machinery     fits   within    the   above   definition   of    the   word
"manufacturing. l1
     Regarding the machinery of the Sprole elevator, the record
shows that United used this facility for the sole purpose of
storing its crop.       No other activity went on at this elevator.
Grain was merely dumped into this elevator for storage until it was
finally sold on the market at a later date.         The simple movement
of grain from the truck to a storage bin does not constitute
manufacturing.       Manufacturing property requires more than mere
movement of grain from one place to another; there must be a
transformation.      ARM 42.22.1305.   Such an activity does not occur
at the Sprole elevator.        Therefore, STAB1s conclusion that this
machinery belongs to class eight is incorrect.        As such, we hold
that the District Court properly reversed STAB1s decision in this
regard.
     considering the Macon and Kershaw elevators, the grain at
these elevators is stored, as well as mixed, occasionally, in order
to obtain a grain of a particular protein content.       DOR contends
that this mixing      is enough to constitute manufacturing.        We
disagree, and hold otherwise.
     A    review of   case law   indicates that whether     a   process
constitutes llmanufacturingfl
                           turns upon whether the end product of
the disputed process is flsignificantly
                                      changedfffrom the original
substance.    Reynolds Metal Co. v. State Tax commission (Wash.

1965), 400 P.2d 310, 314; Bornstein Sea Foods, Inc. v. State Tax
Commission (Wash. 1962), 373 P.2d 483, 486.       The statutes do not
define llmanufacturingfl the administrative regulations define
                      but
ffmanufacturing
              property" as that Ifusedto transform raw or finished
materials into something possessing a new nature or name and
adopted to a new use.f1 ARM 42.22.1305.         Furthermore, Webster
defines Iltransf~rrn~~ l1to change in composition or s t r u ~ t u r eor
                    as                                                ~~
"to change in character or condition.If     Webster s New Collegiate
Dictionary
     The District Court concluded that:

          No transformation takes place at the Macon and
     Kershaw elevators. The grain is not cleaned, aerated,
     or milled.   Occasionally, grains of differing protein
     content may be mixed to create a grain of a desired
     content but the grain is not mixed with other chemicals
     or incorporated into some other material. The product
     that goes into the storage bins is virtually identical
     to the product that comes out. There is no new name,
     nature, or use. While some type of processing may go on
     at the elevators, ffmanufacturingll it is defined in ARM
                                      as
     42.22.1305 does not. Therefore, it is the opinion of
     this Court that the disputed property cannot be placed
          in class eight as manufacturing property. Rather it is
          part and parcel of the storage facilities and belongs in
          class four as an improvement to land.
          Mixing grains of varying protein contents does not produce an
end product that is        significantly changed.      We, therefore, agree
with the District Court's reasoning and holding as set out above.
The       Macon   and   Kershaw    elevators are   storage tanks and     the
occasional mixing of the grain does not turn these facilities, or
the respective machinery, into manufacturing property.
          In the alternative, DOR argues that the machinery should be
class eight property under the catch-all provision of 5               15-6-
138(1) (g), MCA (1985).           Section 15-6-138, MCA (1985) states:
          (1) Class eight property includes:


          (g) all other machinery except that specifically included
          in another class.
DOR argues that the District Court erred because it did not
consider this provision when classifying the machinery.             To the
contrary, the District Court specifically held that the machinery
Itispart and parcel of the storage facilities and belongs in class
four as an improvement to land.''             As such, the District Court
concluded that the machinery is lgspecifically
                                             included in another
class1'and, therefore, does not fall within the catch-all provision
of    §   15-6-138(1) (g), MCA (1985).       We have adopted the District
Court's holding and, therefore, conclude that the machinery is
specifically included in class four as an improvement to land.
                                 I11
     The last issue raised by DOR is whether the District Court
erred in ordering STAB to recalculate the value of the elevators
based on the findings of the District Court regarding the rating
of the facilities.
     With    regard to the elevators at Kershaw and Macon, the
department's appraiser, Gary Spaulding, rated the elevators as
excellent.      The record shows that the appraiser based     this
llexcellentll
            rating on his mistaken belief that these elevators,
together with their machinery, could unload grain into freight cars
at a rate of 30,000 bushels per hour.     Apparently the appraiser
assumed that because there were two legs2 that each could run
15,000 bushels per hour, the facility had a 30,000 bushel per hour
capacity.     United contends that its elevators can only load at a
rate of 15,000 bushels per hour.   At 15,000 bushels, the equipment
would be rated as I1goodl1rather than llexcellentll
                                                  and its value
would drop.

     At the STAB hearing, Bill Rittal of Great Falls, Montana,
supervisor for United, testified that the capacity was rated at
15,000 bushels per hour, even though the elevators had two legs
each of which where capable of handling 15,000 bushels per hour.
He explained that even though the legs can run simultaneously, only
one is capable of moving grain at any particular time because the
conveyor from the two adjacent tanks can only run into one leg at


      he lllegsll the elevator function much like a conveyor
                  of
belt; they transport grain into and out of each particular storage
bin.

                                 10
a time. He testified that without major design changes neither the
Macon nor the Kershaw elevator has the capacity to load 30,000
bushels per hour.
     DOR admits in its brief that the elevators have a load
capacity of less than 15,000 bushels per hour:
     Even though the maximum capacity might be 15,000 rather
     than 30,000, there is still the ability of the elevator
     to load out two-52 car trains in a 24 hour period.
Although it is not obvious at first glance, simple arithmetic
establishes the fact that an elevator which can load out two 52-
car trains     in a   24-hour period   can load   out at   a   rate of
approximately 14,000 bushels per hour.     This fact is illustrated
by Mr. Rittal's testimony at the STAB hearing as follows:

     There are elevators with more than two legs in them and
     they don't take the combination of those legs . . .
     testimony was given yesterday that it takes 12 hours to
     load a 52 car unit train. There's 172,000 bushel in a
     52 car unit train. If it takes 12 hours, that computes
     out to about a little over 14,000 bushel per hour. That
     is what our houses are rated at . . . .
     The foregoing evidence was ignored by STAB in its findings and
conclusions.    Further, no evidence substantiates accepting DORIS
figure which incorporates this alleged 30,000 bushel per hour
capacity.    We, therefore, conclude that STAB'S finding in this
regard is clearly erroneous.    Since this finding directly impacts
on the amount of taxes United owes, we also conclude that the
erroneous finding substantially affects the rights of United.
Therefore, we hold that this finding, according to Rule 52 (a),
M.R.Civ.P., was properly set aside by the District Court in favor
of its own finding, which is supported by substantial, credible
e v i d e n c e , t h a t t h e s u b j e c t e l e v a t o r s have a l o a d c a p a c i t y of 15,000

bushels p e r hour.              F u r t h e r m o r e , w e h o l d t h a t t h e D i s t r i c t Court

p r o p e r l y remanded t h i s c a s e t o STAB w i t h i n s t r u c t i o n s t h a t t h e

v a l u e of what STAB t e r m s v v p e r s o n a lp r o p e r t y v v s h o u l d b e p r o p e r l y

a d j u s t e d , i n e v e r y r e s p e c t , t o r e f l e c t i t s f i n d i n g s t h a t t h e Macon

and Kershaw e l e v a t o r s have a l o a d c a p a c i t y of o n l y 1 5 , 0 0 0 , r a t h e r

than 3 0 , 0 0 0 , bushels p e r hour.             W have reviewed t h e e n t i r e r e c o r d
                                                    e

on    appeal      and     find     no    error.         The     ~ i s t r i c t Court      is    hereby

affirmed.




W concur:
 e



         V~hie'Justice
               f
