BEFORE THE STATE TAX
COMMISSION OF UTAH
_____________________________________
XXXXX, )
:
Petitioner, )
:
v. ) INFORMAL DECISION
:
)
PROPERTY TAX
DIVISION OF THE : Appeal No. 86 0306
STATE TAX
COMMISSION OF UTAH, )
:
Respondent. )
_____________________________________
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.
FINDINGS
Respondent
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
Chairman Commissioner
Joe B.
Pacheco G.
Blaine Davis
Commissioner Commissioner