BEFORE THE UTAH STATE TAX
COMMISSION
_____________________________________
XXXXX )
Petitioner, : FINDINGS OF FACT,
: CONCLUSIONS
OF LAW,
v. : AND FINAL DECISION
PROPERTY TAX
DIVISION OF THE : Appeal No. 91-1144
UTAH STATE TAX COMMISSION, :
Respondent. :
_____________________________________
STATEMENT OF CASE
This
matter came before the Utah State Tax Commission for hearing on XXXXX. S. Blaine Willes, Commissioner, and Alan
Hennebold, Presiding Officer, heard the matter on behalf of the Commission. A. XXXXX, appeared for Petitioner. XXXXX, Assistant Utah Attorney General,
appeared for Respondent. XXXXX appeared
for XXXXX.
Based
upon the evidence presented at the hearing, the Commission hereby makes its:
FINDINGS OF FACT
1. The tax in question is property tax.
2. The period in question is XXXXX.
3. The subject properties are XXXXX, and
appurtenant personal property.
4. Respondent has determined the subject
properties' fair market value to be $$$$$.
In reaching its determination of value, Respondent relied upon the
Commission's then-existing Administrative Rule R884-24O-1P ("former Rule
1Op" hereafter). The rule required
that the fair market value of XXXXX be determined by multiplying annual
proceeds from such properties, less exempt royalties, by 400%. The rule further required that appurtenant
tangible personal property be valued at fair market value.
5. The parties stipulate that Respondent
properly applied former Rule 10p in computing the value of the subject
properties' oil and gas rights.
6. XXXXX purchased all Petitioner's stock for
$$$$$ on XXXXX, following lengthy negotiations. Both buyer and seller were fully aware of the nature and
prospects of the subject properties.
The properties had also been offered for sale to other prospective
buyers. At the time of sale,
Petitioner's assets consisted of all the subject properties, and nothing else.
7. Petitioner has submitted a reserve study
which uses a discounted cash flow analysis ("dcf" hereafter) to
estimate the fair market value of the subject properties' XXXXX rights. Using historical production curves,
historical expenses, a discount rate of 15%, XXXXX and XXXXX, the reserve study
arrived at a value of $$$$$ for the XXXXX.
8. The reserve study used an in-house valuation
guide to estimate the fair market value of the subject personal property. The study then deducted the estimated costs
of XXXXX. Because the estimated XXXXX were greater than estimated value of the
personal property, the reserve study attributed no value to the personal
property.
CONCLUSIONS OF LAW
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).)
Petitioner
has the burden of proof to establish that the fair market value of the subject
properties is other than as determined by Respondent.
The
method for determining the fair market value of productive mining property is
the capitalized net revenue method or any other valuation method the Commission
believes, or the taxpayer demonstrates to the Commission's satisfaction, to be
reasonably determinative of the fair market value of the mining property. (Utah Code Ann. §59-2-201(2).)
The
taxable value of underground oil and/or gas rights shall be 400 percent of the
proceeds from the sale of such oil or gas production from each such property
during the calendar year prior to the date of the assessment, less applicable
exempt federal, state, Indian royalties, and windfall profits tax. (Utah
Administrative Code, R884-24O-1P, as in effect on January 1, 1991 and until
January 1, 1992.)
DECISION AND ORDER
Petitioner
contends that the subject properties have been grossly overvalued by Respondent
for the year in question. According to
Petitioner, the alleged overassessment results from the application of former
Rule 10P, requiring that XXXXX be valued at 400% of their annual net sales.
While conceding that Respondent correctly applied former Rule 10p in this case,
Petitioner argues that the rule does not account for differing production costs
among different properties or reflect actual market judgments as to the value
of XXXXX properties. Petitioner
contends that a lower value for the subject properties is supported both by the
price paid for the properties as well as the reserve study commissioned by
Petitioner.
With
respect to purchase price, the subject properties were purchased on XXXXX for
$$$$$. The transaction was arm's
length, between knowledgeable buyer and seller, neither under compulsion to buy
or sell. The transaction appears to
have been a fair market exchange.
Petitioner
also submits a reserve study prepared by an independent consulting firm. The reserve study uses a dcf analysis based
upon historical data and generally acceptable assumptions to arrive at a value
of $$$$$ for the subject properties' XXXXX rights.
Under
Utah's Property Tax Act, the Commission is responsible to oversee the just
administration of property tax. (Utah
Code Ann. §59-1-210.) In determining the value of XXXXX properties, the
Commission is authorized to apply such valuation methods as are demonstrated to
be reasonably determinative of fair market value. (Utah Code Ann. §59-2-201.)
On
the evidence before it, the Commission concludes that application of former
Rule 10p has resulted in an over-valuation of the subject properties' XXXXX
rights.
A
second issue before the Commission is the valuation of personal property used
in operating the subject properties. Petitioner
has attributed a value to the personal property that is lower than the value
assessed by Respondent. However,
Petitioner has not substantiated the basis for its lower estimate of value.
In
view of the foregoing, the Commission finds that the subject properties have
been overvalued as a result of Respondent's use of "former Rule
10P". This matter is remanded to
Respondent for reassessment of the subject properties in conformity with the
dcf methodology of the current Rule 10P.
It is so ordered.
DATED
this 21 day of April, 1993.
BY ORDER OF THE UTAH STATE TAX COMMISSION.
R. H. Hansen Roger
O. Tew
Chairman Commissioner
Joe B.
Pacheco S.
Blaine Willes
Commissioner Commissioner