BEFORE THE UTAH STATE TAX COMMISSION
Petitioner, : FINDINGS OF FACT,
: CONCLUSIONS OF LAW,
v. : AND FINAL DECISION
PROPERTY TAX DIVISION OF THE : Appeal No. 91-1144
UTAH STATE TAX COMMISSION, :
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
Joe B. Pacheco S. Blaine Willes