                               No.     90-212

            IN THE SUPREME COURT OF THE STATE OF MONTANA
                                     1990



PACIFIC POWER & LIGHT COMPANY,
PORTLAND GENERAL ELECTRIC COMPANY,                       , p*'~ "-   a



WASHINGTON WATER POWER COMPANY,
PUGET SOUND POWER & LIGHT COMPANY,
and THE MONTANA POWER COMPANY,                                               +'    -
            Plaintiffs and Appellants,                                   JQ$ 1?   1991
     -vs-
MONTANA DEPARTMENT OF REVENUE, et al.,
            Defendants and Respondents.



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


COUNSEL OF RECORD:
            For Appellants:
                Donald R. Murray, Jr.; Murphy, Robinson, Heckathorn
                & Phillips, P.C., Kalispell, Montana
                Thomas H. Nelson; Stoel, Rives, Boley, Jones & Grey,
                Portland, Oregon
            For Respondents:
                David W. Woodgerd, Chief Legal Counsel, Department
                of Revenue, Helena, Montana
                Paul Van Tricht, Tax Counsel, Department of Revenue,
                Helena, Montana
                Larry G. Schuster, Department of Revenue, Helena,
                Montana


                                            Submitted:     December 6, 1990
                                             Decided:      January 10, 1991
Filed:



                                     Clerk
Justice Diane G. Barz delivered the Opinion of the Court.

     Appellants appeal an order of the First Judicial District
Court, Lewis and Clark County, in a consolidated proceeding for
declaratory and injunctive relief, upholding the validity of the
Montana Department of Revenue's (DOR) assessment of beneficial use
taxes against the appellants pursuant to 5         15-24-1203, MCA.
Appellants are challenging the beneficial use taxes for tax years
1985, 1986, and 1987, upon certain federally-owned 500 kilovolt
(KV) transmission lines located between Townsend, Montana, and the
Idaho border.   The District Court granted DORIS motion for partial
summary judgment on res judicata grounds and held that this Court's
earlier decisions in Pacific Power and Light Company v. Montana
Department of Revenue (1989), 237 Mont. 77, 773 P.2d 1176, and
Portland General Electric Company v. Montana Department of Revenue
(1989), 237 Mont. 324, 773 P.2d 1189, were dispositive of some of
the issues before the District Court.       On January 25, 1990,
following trial on the remaining issues, the District Court entered
an order denying the appellants' claims.   The District Court held
that the Colstrip Owners had not sustained the burden of proving
that the assessment of the beneficial use taxes had violated any
statutory or constitutional rights.   We affirm.
     The factual background leading up to this case has been
previously set forth in Pacific Power and Lisht and Portland
General Electric, therefore, we will discuss only the facts
necessary to dispose of the relevant issues.
    The appellants    (Colstrip Owners) are five investor-owned
    I        i


         I
                                                                        ,

utilities which own undivided interests in coal-fired generating
plants at Colstrip, Montana.            The Colstrip Owners (Pacific Power
&       Light Company (PPL), Puget Sound Power     &   Light Company (Puget),
Washington Water Power Company (WP), Portland General Electric
Company (PGE), and Montana Power Company (MPC))          , have been   assessed
beneficial use taxes under 5 15-24-1203, MCA, for tax years 1985,
1986, and 1987 with regard to the use of the 500 KV federally-
owned transmission line between Townsend and Garrison, Montana, and
for tax years 1986 and 1987 with regard to the 500 KV federally-
owned transmission lines between Hot Springs, Montana and the Idaho
border and between Garrison and the Idaho border.
             The Colstrip Owners constructed Colstrip Units 3 and 4 in 1983
and 1985 respectively.            Units 3 and 4 each generate 700 megawatts
of electricity for transmission west. The energy from the Colstrip
units            is transmitted   over the Colstrip Ownersf two         500 KV
transmission lines to its substation at Broadview, Montana, and
from the Broadview substation over the Colstrip Ownerst 500 KV
lines to a point near Townsend, Montana.           At Townsend, the 500 KV
lines interconnect with the Bonneville Power Administration's (BPA)
500 KV transmission lines. BPA constructed a substation on the Hot
Springs to Idaho border 500 KV line (referred to as the I1Taft
substationI1) and a Garrison to Taft 500 KV line, to accommodate
the increased energy from Colstrip Units 3 and 4.               Prior to the
completion of the Garrison to Taft 500 KV line, there was no
interconnecting 500 KV line west fromthe Garrison substation. The
Garrison to Taft 500 KV line became operational in October, 1985,
and was declared available for service in January, 1986. Colstrip
                                                                  .
                                                                  I




power first flowed fromthe Garrison substation across the Garrison
to Taft line during October, 1985. At the Garrison substation, two
230 KV lines run north and interconnect with the Hot Springs
substation.   These 230 KV lines were known as the ffbottleneckff
                                                               and
were the only means of transmitting power west from Garrison prior
to BPAfs construction of the Garrison to Taft 500 KV line.
     The   transmission   of   Colstrip   energy   from   the   Garrison
substation west, is governed by a series of agreements referred to
as the IfGarrison Westn agreements, entered into by each of the
Colstrip Owners with BPA.        The transmission demands of each
Colstrip Owner as set forth in their respective Garrison-West
agreements served as the basis       for DORfs allocation of the
beneficial use tax.       The total cost of the BPA transmission
facilities were allocated to the Colstrip Owners as a ratio of each
Colstrip Ownersf transmission demand over the total capacity of the
lines.   This allocated cost was then multiplied by 50% and added
to each Owner's respective allocated Montana value.             All the
Colstrip Owners were assessed the beneficial use tax on this basis
for use of the Townsend to Garrison segment in tax years 1985,
1986, and 1987. Four of the Colstrip Owners (MPC was not assessed
beneficial use taxes for the facilities west of the Garrison
substation) were assessed the tax on this basis for the use of the
Garrison to Taft substation segment ofthe transmission line system
for tax years 1986 and 1987, and for the use of the Taft to Idaho
border segment for tax years 1986 and 1987. PPL was also assessed
the tax on this basis for its use of the Hot Springs to Taft
transmission line system for tax years 1986 and 1987.
     Appellants raise six issues on appeal:
        1.    Whether the District Court erred by assuming jurisdiction
to decide the legality of the tax assessments prior to a final
determination by the State Tax Appeals Board (STAB).
        2.     Whether the assessment of beneficial use taxes pursuant
to 5 15-24-1203, MCA, violates the Supremacy Clause of the United
States Constitution by discriminating against the United States or
the Colstrip Owners.
        3.    Whether the Colstrip Ownersg previous constitutional
claims are barred by the doctrine of collateral estoppel.
     4.       Whether the taxes assessed for tax year 1986 on the
Garrison-Taft       5 0 0 KV   line were unlawful or illegal.
     5.       Whether DORgs methodology erroneously assumes that all
power transmitted west of Garrison passes over the               5 0 0 KV   federal
lines and thereby discriminates against interstate commerce by
imposing disproportionate taxes.
     6.       Whether DORIS new assessment methodology (50% weighting)
is unconstitutional.
     The Colstrip Owners contend that the lower court could not
properly evaluate the constitutional questions before it, until
after        STAB   had   made    a . final   determination     concerning     the
methodology and amount of the assessments.                It is the Colstrip
Ownersg position          that    the   taxes   imposed   are    excessive     and
discriminatory and, therefore, since questions of discrimination
are often questions of degree, the underlying considerations
necessary to properly determine the constitutional issues were not
yet decided.        We disagree.
      This    Court   has     previously   held    that       questions    of
llconstitutional
               and statutory correctnessw are properly decided by
the courts.    Larson v. State (1975), 166 Mont. 449, 457, 534 P.2d
854, 858.     The question of whether the tax itself is unconstitu-
tional bears upon the statutory language of the tax.           On the other
hand, the question of whether the tax is unconstitutional                 as
applied pertains to the circumstances under which the tax is
imposed.     The interpretation of either the statutory language or
the   circumstances   surrounding     imposition   of     a    tax   is   not
necessarily associated with the amount of that tax.
determine that a tax is unconstitutional, either on its face or as
applied, such determination can certainly be made independent and
apart from any analysis of whether the tax is excessive. Therefore
the constitutional issues presented by this appeal do not hinge
upon the determinations STAB makes concerning the methodology and
amount of the assessments.
      The second issue raised by appellants is whether the 1987
amendment to 5 15-24-1203, MCA, violates the Supremacy Clause of
the United States Constitution, Article VI, 5 2, as construed by
the U.S. Supreme Court in United States v. City of Manassas (4th
Cir. 1987), 830 F.2d 530, affirmed (1988), 485 U.S. 1017, 108 S.Ct.
1568, 99 L.Ed.2d 884.       The ~olstripOwners argue that because the
1987 amendment results in exempting from beneficial use taxes
State-owned property used for railroad transportation, it thereby
violates the rule in City of Manassas.      The Fourth Circuit stated
in City of Manassas that it is unconstitutional for States to tax
users of federal property when similarly situated users of State
property are exempt from taxation.    City of Manassas, 830 F.2d at
534. The test to determine whether a State tax is unconstitution-
ally discriminatory was first set out by the United States Supreme
Court in Phillips Chemical Co. v. Dumas School District (1960), 361
U.S. 376, 80 S.Ct. 474, 4 L.Ed.2d 384.    The Court held that where
those dealing with federal property are subject to greater use
taxation than those dealing with State property, the statutory
distinction I1mustbe justified by significant differences between
the two classes.    Phillips Chemical Co., 361 U.S. at 383, 80 S.Ct.
at 479, 4 L.Ed.2d at 389.    It is true that the 1987 amendment to
5 15-24-1203, MCA, exempts users of State-owned rail lines from
beneficial use taxes. However, after a thorough examination of the
legislative history supporting this amendment, it becomes evident
that there are I1significantdifferences" between the railroads and
the utilities (Colstrip Owners).
     Chapter 591, 1987 Laws of Montana, was intended to exempt from
beneficial use taxation two proposed tourist railroads which were
to be run by non-profit corporations. See Senate Comm. on Business
and Industry, Minutes on S.B. 272, 50th Leg., 4-5 (Feb. 18, 1987).
     The State-owned railroad line in question had been acquired
                            property under 5 60-11-111, MCA, and
by the State as l'abandonedll
consisted of a combined distance of thirty miles of track. The two
non-profit railroads were designed to promote tourism in the form
of an added attraction to parts of historic Montana.
     The railroadst situation is much different than that of the
Colstrip Owners. The Colstrip Owners' primary business purpose is
to make a profit.     The use of the federally-owned transmission
                                                             I




lines provide the Colstrip Owners the potential to significantly
increase revenues.     The United States Supreme Court in City of
Detroit v. Murray Corp. (1958), 355 U.S. 489, 78 S.Ct. 458, 2
L.Ed. 2d 441, held it proper for a State to tax government property,
used by a private party, in the course of the party's own business.
This is precisely what is *being done in this case.    The Colstrip
Owners are being taxed for their use of federal property.        his
Court has already determined that I1beneficial uset1 does not
necessarily require Itphysicalpossession, exclusive use or control
of the facilities." See Portland General Electric Co., at 329, 773
P.2d at 1192.   Therefore, we hold that 5 15-24-1203, MCA, and the
1987 amendment does not discriminate against the United States or
the Colstrip Owners.
     The third issue is whether the Colstrip Ownersv previous
constitutional claims raised in Pacific Power and Lisht, 237 Mont.
77, 773 P.2d 1176, and Portland General Electric, 237 Mont. 324,
773 P.2d 1189, are barred by the doctrine of collateral estoppel.

As we recently stated in Smith v. Schweigert (1990), 241 Mont. 54,
785 P.2d 195, collateral estoppel is a form of res judicata, and
whereas res judicata bars the same parties from relitigating the
same cause of action, collateral estoppel bars the same parties
from relitigating identical issues that have already been decided
in a different cause of action. There are three elements that must
be satisfied in order for collateral estoppel to apply. First, the
issue must be identical to an issue that has been decided in a
prior adjudication.    Second, a final judgment on the merits must
have been made in the prior adjudication. Third, the party against
whom the plea is made must have been a party, or have privity to
the party, in the prior adjudication.     Smith at 58, 785 P.2d at
197.    In applying each element in turn to the facts of this case
it becomes clear that collateral estoppel should be applied.    The
Colstrip Owners do not dispute the fact that the previous
constitutional claims raised in Pacific Power and Liqht, 237 Mont.
77, 773 P.2d 1176, for the 1984 tax year, and Portland General
Electric, 237 Mont. 324, 773 P.2d 1189, for the 1985 tax year, are
again being asserted in this litigation. The appellants now assert
the identical claims for the 1985, 1986 and 1987 tax years.     The
fact that different tax years are being challenged makes no
difference. The constitutional challenges remain the same, and it
is the substance of these challenges that have failed.    The year
in which they were brought has no bearing upon their lack of
success. Allowing the ~olstripOwners to raise the same challenges
to the same tax each subsequent tax year serves no purpose.      If
such were the case, each new year would provide a clean slate for
any and all previous claims to be readjudicated.    The challenges
are identical to the issues raised in the previous cases before
this Court and thus satisfy the first element.
       Likewise, this Court issued a final judgment with respect to
those claims in Pacific Power and Liqht, 237 Mont. 77, 773 P.2d
1176, and Portland General Electric, 237 Mont. 324, 773 P.2d 1189,
thereby satisfying the second element.     That judgment was made
after oral argument and at a time much closer to our thorough
consideration of the issues.    Reconsideration of those issues as
the Colstrip Owners would have us do, at a much later time such as
now, would not be correct.
      The third element is also satisfied. In both the prior cases
and the case at bar, DOR is the party against whom these issues
were raised.         In fact, all parties in this lawsuit have been
parties in the prior adjudication.         Consequently, the Colstrip
Ownersv previous constitutional claims have been adjudicated and
are barred by collateral estoppel from being raised a second time.
      The fourth issue is whether the taxes assessed for tax year
1986 on the Garrison to Taft 500 KV line were unlawful or illegal.
This issue will be discussed concurrently with the fifth issue,
whether DORIS methodology erroneously assumes that all power
transmitted west of ~arrisonpasses over the 500 KV federal lines.
Section 15-1-406, MCA, was enacted by the legislature in 1981 to
provide an aggrieved taxpayer with an alternative means of
challenging the imposition of a tax.        Likewise, 5 15-2-307, MCA,
was enacted to provide an aggrieved taxpayer an alternative means
of challenging the method or procedure of assessment.       Under both
sections a taxpayer may proceed directly to district court in the
form of a declaratory judgment action. However, if a challenge is
initially brought under Title 15, Chapter 2 of the MCA, pursuant
to 5 15-1-402, MCA, a taxpayer is required to exhaust the available
administrative remedies before proceeding to the courts. See 5 15-
1-402 ( 2 ) , MCA.   The Colstrip Owners chose to bring issues four and
five before STAB in accordance with Title 15, Chapter 8, MCA, and
Title 15, Chapter 2, MCA, respectively. Had the issues been raised
directly to district court in the form of a declaratory judgment
action, they would properly be before this Court.          But because
these issues were initially brought before STAB, they must be first
dealt with at that level.       Any decision STAB makes may be appealed
through district court to this Court.
     The       final   issue   deals   with    a   revision   of   assessment
methodology.       As the District Court stated in its denial of the
Colstrip Owners' Motion for Leave to File First Amended Complaints,
under   §   15-8-601(3) (c), MCA, challenges to revisions in assessments

must be made by appeal to STAB.               The District Court correctly
refused to hear this issue and, therefore, we will not hear it
either.       Once the issue has been brought before STAB a proper
judicial review will then be available to the appellants.
     The decision of the District



We Concur:


        '   chielf Justice
