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