BEFORE THE STATE TAX COMMISSION OF UTAH
v. ) INFORMAL DECISION
PROPERTY TAX DIVISION OF THE : Appeal No. 86 0306
STATE TAX COMMISSION OF UTAH, )
STATEMENT OF CASE
This is an appeal to the Utah State Tax Commission from the XXXXX assessment of property owned by XXXXX (Petitioner). An Informal Hearing was held on XXXXX, in the offices of the Utah State Tax Commission. Roger O. Tew, and G. Blaine Davis, Commissioners, represented the Commission. XXXXX and XXXXX represented the Petitioner. XXXXX represented the Respondent.
XXXXX is a cellular telecommunications company. The main switch of a 6 cell cellular system is the object of this appeal. Respondent assessed Petitioner's operating property at $$$$$ as of XXXXX. Petitioner asked for relief of $$$$$ from the assessed value.
Petitioner asserted that economic obsolescence existed in the present switch because of a newer cellular telephone switch which is less expensive than the present switch. Petitioner noted that, in the cellular industry, costs are dropping because the number of suppliers is increasing and the cellular switching technology is improving. Petitioner stated that a XXXXX switch, having the same size and capacity as the existing switch, could be bought today (1 1/2 years later) at nearly half the cost of the XXXXX switch which was installed in XXXXX. The difference in cost between the two switches is economic obsolescence. Depreciation tables do not accurately reflect the fair market value of the existing XXXXX 10 switch without proper consideration of economic obsolescence. Petitioner stated that the functional obsolescence is not in dispute. The present system is adequate for current needs and does the same job as would a new system.
Respondent stated that the taxable value of $$$$$ represented the net book value of Petitioner's operating property plus the present value of Construction Work in Progress. Petitioner did not use the income indicator of value because XXXXX was Petitioner's first year of operation. Petitioner did not use the stock and debt indicator of value because Petitioner's stock is not publicly traded and allocation of stock and debt from XXXXX (the parent company) would be arbitrary. Respondent stated that obsolescence resulting from technological change has been accounted for in Petitioner's accelerated depreciation rate. A 15.54% depreciation rate was applied to Petitioner's plant equipment; this is a depreciable life of 6.4 years. Respondent noted that the telephone industry in general, uses lives of from 6 to 12 years to reflect current technological change.
properly used the cost indicator of value to assess Petitioner's property. The income approach and the stock and debt
approach are not appropriate in this case.
The Commission finds that Petitioner's accelerated depreciation rate
accounts for any obsolescence resulting from technological change. Depreciation is defined as:
the loss in value of an item due to all causes. Sometimes it is meant to be physical deterioration, but in a strict sense it would include functional and economic obsolescence.
Addendum to Western States Association of Tax Administrators Report of Committee on Railroad Utility Valuation. See also, Real Estate Appraisal Terminology, compiled and edited by XXXXX., (Ballenger Publishing Company, Cambridge, Massachusetts, 1975). Depreciation is here defined as "a loss of utility and hence value from any cause. An effect caused by deterioration and/or obsolescence. . . . Obsolescence is divisible into two parts, functional and economic."
Petitioner had the burden of proof to establish that Respondent assessed the subject property in error. Petitioner failed to meet this burden of proof.
DECISION AND ORDER
It is the Decision and Order of the Utah State Tax Commission that Petitioner's Petition for Redetermination of the taxable value of the subject property as of XXXXX, be denied.
The XXXXX assessment by the Property Tax Division of the Utah State Tax Commission is hereby affirmed.
DATED this 21 day of January 1987.
BY ORDER OF THE STATE TAX COMMISSION OF UTAH.
R. H. Hansen Roger O. Tew
Joe B. Pacheco G. Blaine Davis