89-0819 - Centrally Assessed

 

BEFORE THE UTAH STATE TAX COMMISSION

_____________________________________

XXXXX

:

Petitioner, : FINDINGS OF FACT,

: CONCLUSIONS OF LAW,

v. : AND FINAL DECISION

:

PROPERTY TAX DIVISION OF THE :

UTAH STATE TAX COMMISSION : Appeal No. 89-0819

Respondent. :

_____________________________________

STATEMENT OF CASE

This matter came before the Utah State Tax Commission for a formal hearing on XXXXX. G. Blaine Davis and Joe B. Pacheco, Commissioners, and Joseph G. Linford, Administrative Law Judge, heard the matter for and on behalf of the Commission. Present and representing the Petitioner was XXXXX. Present and representing the Respondent were XXXXX, Assistant Attorney General, and XXXXX and XXXXX of the Property Tax Division of the Utah State Tax Commission. XXXXX, attorney at law, appeared representing the interests of XXXXX and XXXXX Counties.

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

FINDINGS OF FACT

1. The tax in question is property tax.

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

3. It is Petitioner's position in this case that the subject property should be valued according to a discounted cash flow (DCF) analysis rather than according to the method outlined in Tax Commission RuleR884-24P-10 relied upon by Respondent. In support of this assertion, Petitioner submitted schedules showing its discounted cash flow analysis of the subject property. No witnesses were presented to testify regarding how those schedules were calculated or whether they arrived at a correct or incorrect result. The Respondent and appearing counties did not have an opportunity to cross examine the preparer of those documents. Therefore, the Commission cannot form an opinion as to the validity of that purported appraisal.

4. Petitioner's witnesses testified that DCF is the accepted standard in the oil and gas industries, and is used by some other states for determining values for property tax purposes.

5. Respondent's witnesses testified that DCF is an acceptable methodology but is not the only acceptable methodology. They further testified that the DCF method requires that forecasts and assumptions be made, whereas, the 400 percent method used by Respondent relies on known actual data for the prior year.

6. Respondent's witnesses also testified that the risks with the DCF method are that: (1) the future is not known, (2) DCF does not give consideration to inflation, and (3) it assumes oil prices will not change. Referring specifically to the DCF valuation presented by Petitioner in its exhibits, Petitioner did not give any consideration to inflation, had assumed stable oil prices, and failed to decrease its operating expenses even though it assumed declining oil production.

7. The Commission, therefore, finds that even if DCF were an accepted methodology the Petitioner has not sustained its burden of proof to show that its proposed application of that methodology arrives at the correct valuation of the property.

8. The values determined by the application of RuleR884-24P-10 are reasonable estimates of the fair market value, and the application of the rule tends to stabilize those values over time.

CONCLUSIONS OF LAW

l. 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. Tax Commission RuleR884-24P-10(B)(3) provides:

The taxable value of the underground oil rights shall be 400 percent of the proceeds from the sale of oil production from each such property during the calendar year prior to the date of assessment, less applicable exempt federal, state, XXXXX royalties, and windfall profits tax.

Subsection (B)(4) also applies this same methodology to underground gas rights. Subsection (B)(5) provides as follows:

The reasonable taxable value of productive underground oil and gas rights shall be determined by the method described in Subsections (B)(1) or (B)(2) of this rule or such other valuation method that the Tax Commission believes to be reasonably determinative of the property's fair market value.

3. The Tax Commission finds that the methodology of the rule is appropriate in this case. It is reasonably determinative of the property's market value. This method may react more slowly during periods of declining oil prices or increasing oil prices, but that gives stability to the values.

The DCF model supplied by Petitioner made assumptions and used procedures which impair its reliability as an indicator of market value. Based upon these facts, the Tax Commission finds that the method outlined in the rule is more reasonably determinative of the subject property's fair market value than is the appraisal of the Petitioner, and is appropriate in this case.

DECISION AND ORDER

Based upon the foregoing, it is the decision and order of the Utah State Tax Commission that Petitioner's request is denied and the determination of the Property Tax Division is sustained.

DATED this 28th day of June, 1991.

BY ORDER OF THE UTAH STATE TAX COMMISSION.

R. H. Hansen Roger O. Tew

Chairman Commissioner

Joe B. Pacheco G. Blaine Davis

Commissioner Commissioner