Signed 12/3/90







Petitioner, ) FINDINGS OF FACT,





Respondent. )




This matter came before the Utah State Tax Commission for a formal hearing on XXXXX, and XXXXX, before Commissioners G. Blaine Davis and Joe B. Pacheco, and Joseph G. Linford, Hearing Officer. Present and representing the Petitioner was XXXXX, Attorney at Law. Present and representing the Respondent was XXXXX, Assistant Attorney General.

Based upon the evidence and testimony presented at the hearing, the Tax Commission hereby makes its:


1. The tax in question is property tax.

2. The period in question is the tax year XXXXX.

3. Petitioner is a Utah Corporation engaged in the XXXXX, XXXXX, and XXXXX of XXXXX in Utah, XXXXX. Its principle place of business is located in XXXXX, Utah. Petitioner is subject to the rate making and other regulatory functions of the Federal Energy Regulatory Commission (FERC). At the time of assessment, Petitioner was a wholly‑owned subsidiary of XXXXX, which was a wholly‑owned subsidiary of XXXXX. This made the Petitioner a second level subsidiary to XXXXX. Petitioner has no publicly held securities, whereas XXXXX is publicly held. During the period in question, Petitioner constituted approximately XXXXX of the total plant property and equipment of XXXXX. Petitioner's revenues were approximately XXXXX of the total gross revenues of XXXXX and Petitioner's payroll was approximately XXXXX of XXXXX's total payroll.

4. In a stipulation entered into between the parties, dated XXXXX, the parties agreed that the three approaches to value for the Petitioner's property are those known as the "cost method," the "income approach," and the "market (or stock‑and‑debt) method." The parties agreed further that the values per each of these methods for the year in question are as follows:

a. Cost approach: $$$$$

b. Income method: $$$$$

c. Market (or


method: $$$$$

5. The single remaining issue, which is the subject of this case, is the correlation or reconciliation of the three values as determined in the different approaches, as just outlined, from which a single assessed valuation is to be determined for the entire company.

6. It is the Petitioner's position that a 78.8% weight should be placed upon a cost method of valuation with 10.6% being placed upon each of the other two approaches. When these weights are applied to the stipulated values, then the correlation renders a result of $$$$$ as Petitioner's value for its property. Petitioner asserts that the cost approach is the most applicable to Petitioner's situation because FERC regulations set the rate base on the depreciated cost of Petitioner's facilities. Petitioner's expert witness, XXXXX, presented a technically oriented, statistical analysis in support of Petitioner's position and in an effort to attack Respondent's analysis. Petitioner feels that the cost approach is more objective and analytical than the income or market sales approaches and is therefore a more reliable indicator of market value.

7. It is Respondent's position that XXXXX's methods are not in accord with the established and accepted principles and practices of the appraisal profession and that his estimates are based upon his own judgments, which are subjective and are not as objective as XXXXX asserts. Respondent states that the quality of the data available, as well as the strengths and weaknesses of each approach, are what should determine the weighting to be given to each approach in the final correlation of value. Respondent feels that in this case, the market and income approaches more accurately reflect the conditions of the market than does Petitioner's approach, which depends on a mechanical, mathematical weighting that does not reflect the fluctuations and conditions of the actual market. Based upon these facts, Respondent, in placing more weight on the market and income approaches to value than the cost approach, renders a correlated value for the subject properties of approximately $$$$$.

8. The Tax Commission finds that in a case such as this, the market and income approaches to value are more reflective of actual market conditions than is the cost approach to value. This is because the cost approach is generally considered in the appraisal profession as a reliable indicator of value only when sufficient data and conditions are not present for the other two approaches. In this case, there is a more than sufficient amount of data to support a valuation based upon the market and income approaches. While the cost approach may appear to some, in a strict mathematical sense, to be more technically correct, it does not necessarily follow that approach is also the most reflective of actual market conditions. Market values do not always conform to precise mathematical formulations.

9. The Tax Commission finds, therefore, based upon the evidence before it, that the cost approach is the least reliable and the income approach is the most reliable. The stock and debt approach tests the reliability of the other two approaches. In applying these principles to the facts of this case, it is the opinion of the Commission that the correlated value is $$$$$.


1. The Tax Commission is required to oversee the just administration of property taxes to ensure that property is valued for tax purposes according to fair market value. (Utah Code Ann. '59‑1‑210(7).)

2. Petitioner takes the position that the market (or stock‑and‑debt) method should not be used in this case where Petitioner is a second tier subsidiary of XXXXX. Petitioner cites XXXXX vs. Property Tax Division of the Utah State Tax Commission, Appeal Numbers 85‑0074 and 86‑0255 (Utah Tax Commission XXXXX) in support of this position. Page six of that decision states as follows:

The stock and debt indicator of value is difficult to apply to the Petitioner. Petitioner is a wholly owned subsidiary of the XXXXX Company, a privately owned, non‑public corporation. The parent corporation raises capital by the issuance of its own debt and that capital is then utilized in the business operations of the XXXXX Company and its several subsidiaries, including Petitioner. Therefore, it is very difficult to determine what portion of the stock and debt of the XXXXX Company should be allocated to Petitioner. Further, there is no specific information available concerning the market value of the non‑public stock. Because of the difficulties associated with accurately allocating a portion of the equity value of the parent company's non‑publicly traded stock to Petitioner, two tiers down, we find that the stock and debt indicator is the least reliable of the three traditional indicators and will be given little, if any, weight.

That case does not change the result here. The parent company in XXXXX was a non‑public corporation, whereas here, XXXXX is publicly traded. There is also some indication that Petitioner's portion of the total business of its parent corporation is a larger portion than that which was present in XXXXX. The difficulties present in that case, which rendered the stock‑and‑debt approach inappropriate, are not present here.


Based upon the foregoing, it is the decision and order of the Utah State Tax Commission that the value of the subject property for the tax year XXXXX is $$$$$. The Property Tax Division of the Utah State Tax Commission is hereby ordered to adjust its records in accordance with this decision.

DATED this 3 day of December, 1990.


R. H. Hansen Roger O. Tew

Chairman Commissioner


Joe B. Pacheco G. Blaine Davis

Commissioner Commissioner



NOTICE: You have ten (10) days after the date of the final order to file a request for reconsideration or thirty (30) days after the date of final order to file in Supreme Court a petition for judicial review. Utah Code Ann. ''63‑46b‑13(1), 63‑46b‑14(2)(a).