BEFORE THE UTAH STATE TAX COMMISSION
Petitioner, : FINDINGS OF FACT,
: CONCLUSIONS OF LAW
: AND FINAL DECISION
PROPERTY TAX DIVISION OF THE : Appeal No. 87-0599
UTAH STATE TAX COMMISSION, :
STATEMENT OF CASE
This matter came before the Utah State Tax Commission for a formal hearing on the XXXXX. James E. Harward, Hearing Officer, heard the matter for and in behalf of the Tax Commission. XXXXX appeared representing the Respondent. XXXXX was present representing the Petitioner. Based on the recommendation of the Presiding Officer and the facts and evidence presented at the hearing, the Tax Commission makes its:
FINDINGS OF FACT
1. The tax in question is property tax.
2. The period in question is XXXXX.
3. The subject property is known as XXXXX, Federal #XXXXX.
4. The subject well began producing in XXXXX.
5. Typically, gas wells such as the subject property decline 8% to 20% a year. This particular well declined 87% the first year of production. In XXXXX the subject well produced XXXXX cubic feet of gas. In XXXXX it produced XXXXX cubic feet.
CONCLUSIONS OF LAW
1. The Tax Commission is required to administer and supervise the tax laws of the State of Utah, Utah Code Ann. §59-1-210(5).
2. Rule R884-10P provides the formula for determining the valuation of property such as the subject property for any given tax year. The rule provides "the taxable value of the underground gas rights shall be 400% of the proceeds from the sales of gas production from each such property during the calendar year prior to the date of assessment, less applicable exempt Federal, State, and premium royalties."
DECISION AND ORDER
In the facts before the Tax Commission, the Petitioner's value for the XXXXX tax year was based upon the production for the XXXXX year. During XXXXX, the subject property produced approximately XXXXX cubic feet of gas. In XXXXX, production drastically fell off. Eventually, in XXXXX the well was capped. The Petitioner argues that the value for the well for XXXXX is substantially reduced and therefore should be reflected in the market value used for computation for tax purposes. To best examine Petitioner's argument, the Tax Commission first reviewed the assessment for the XXXXX tax year during which this large volume of production was made. In XXXXX, the taxable value was determined by taking the production for XXXXX and multiplying that by four. In XXXXX, the production was very small due to the fact that the well did not even come into production until XXXXX. Thus, the taxable value for XXXXX was substantially lower than the actual value of the subject property. This is the inherent problem with the formula used in the rule. However, this problem was recognized by the Tax Commission in that the last year of production the valuation problem would be equalized. For XXXXX the taxable value of the subject property was substantially lower than its actual value. For XXXXX when the production dropped off, the value was substantially higher. Taking the two years into consideration with the way the rule operates, the values equalize over the period of production. Despite this lagtime created by the application of the rule as promulgated by the Tax Commission, no other alternative method was presented by the Petitioner which would justify any other valuation method for the tax year XXXXX or for any other tax year. Therefore, the Petitioner's request is denied. The assessment of the Respondent is affirmed. It is so ordered.
DATED this 21 day of June, 1989.
BY ORDER OF THE UTAH STATE TAX COMMISSION.
R. H. Hansen G. Blaine Davis
Joe B. Pacheco Roger O. Tew