BEFORE THE UTAH STATE TAX COMMISSION
v. : ORDER
PROPERTY TAX DIVISION OF THE : Appeal No. 92-1347
UTAH STATE TAX COMMISSION :
: Tax Type: Centrally Assessed
STATEMENT OF CASE
The above-captioned matter involves an appeal to the Utah State Tax Commission from the assessment by the Property Tax Division on the subject property. Petitioner asserted that the subject property should have a lower market value as of the lien date XXXXX. Petitioner and Respondent have agreed to an adjustment of the valuation from $$$$$ to $$$$$ for the XXXXX tax year. For the reasons set out in this decision, the Commission accepts the stipulation as an accurate representation of fair market value as of the XXXXX lien date.
XXXXX filed a Petition for Redetermination on XXXXX, rejecting the XXXXX assessment. On XXXXX the Commission granted XXXXX County's Motion For Intervention. On or about XXXXX, XXXXX County served XXXXX with a Request for Production of Documents and Interrogatories. On XXXXX a Stipulation was reached between XXXXX and the Property Tax Division of the Utah State Tax Commission. XXXXX and the Property Tax Division filed a Motion seeking Issuance of an Order To Show Cause why the Commission should not accept the new assessment . On or about XXXXX, XXXXX County objected to the Motion for Issuance of an Order To Show Cause. On XXXXX, a Prehearing Conference was held before former Administrative Law Judge, Alan Hennebold, concerning XXXXX County's Objection and the Request For Protective Order regarding XXXXX County's Discovery Request. Counsel for XXXXX County has explained that he received a telephone call from XXXXX stating that XXXXX would not be required to respond to the Discovery Request, and that a written Order would not be issued.
On XXXXX, an Order To Show Cause was issued by the Commission as to why the settlement should not be approved. On XXXXX, all objecting counties filed an Objection To Order To Show Cause . On XXXXX, a hearing on the counties' Objections was held.
XXXXX and Property Tax Division have raised the following concerns regarding the Counties' Objections: (A.) the Counties have failed to establish "good cause" why the stipulated agreement should be adjusted; (B.) Counties' submissions alleging "good cause" can only be considered by the Commission if received within 30 days of the Order To Show Cause; (C.) no issues arising from the original assessment, which were not at issue in arriving at the stipulated agreement, are open for dispute by the Counties; and (D.) the testimony of XXXXX as a witness for the Counties is improper on the grounds that XXXXX worked for the Property Division during the time of the original assessment and in fact had substantial involvement in that assessment.
The Counties are arguing that: (A.) the Commission lost jurisdiction of this matter on XXXXX; (B.) the Commission should not change the original assessment since the stipulated figure is within 10% of the original assessment; and (C.) that if Counties are held to a threshold showing of "good cause" to proceed, then the Petitioner is held to a similar standard and the initial Petition by Petitioner was deficient.
Utah Code Annotated § 59-2-1007 provides as follows:
ORIGINAL APPEAL AND INTERVENTION:
(1) If the owner of any property assessed by the Commission, or any county with a showing of reasonable cause, objects to the assessment, either party may, on or before June 1, apply to the Commission for a hearing. Both the owner and the county, upon a showing of reasonable cause, shall be allowed to be a party at any hearing under this section.
(2) The owner shall
include in the application under Subsection (1) the owner's estimate of the
fair market value of the property.
(3) The Commission shall set a time for hearing the objection and render a written decision no later than October 1. At the hearing the Commission may increase, lower, or sustain the assessment if:
(a) the Commission finds an error in the assessment; or
(b) it is necessary to equalize the assessment with other similarly assessed property.
(4)(a) If the Commission proposes to adjust an assessment which was made pursuant to Section 59-2-201, the Commission shall furnish notice, sent by first class mail, of its intent to adjust the assessment to the county auditor of any county whose tax revenues may be affected by the decision if the county has not already been made a party pursuant to Subsection(1). The notice shall request the county to show good cause, within 30 days from the postmarked date of the notice, why the assessment should no be adjusted.
(b) If a county files a response to the Commission's request, the Commission shall hold a hearing or take such other action as it considers appropriate to consider the good cause alleged by the county and shall then issue a written decision increasing, lowering, or sustaining the assessment with respect to such county.
(c) If a county does not file a response to the request issued by the Commission within 30 days, the Commission shall adjust the assessment and send a copy of its written decision to that effect to the affected county.
(5) The provisions in
Subsection (4) do not limit the rights of any county as outlined in Subsection
XXXXX timely filed an appeal in this matter, establishing the jurisdiction of the Tax Commission. The Tax Commission retains jurisdiction to resolve the appeal filed by the Petitioner, including proper intervention by XXXXX County, and timely objections by the remaining Counties to the Order To Show Cause.
FINDINGS OF FACT
1. In the original assessment the Division employed three indicators of value: the Cost Approach, based upon historical cost less depreciation; the Income Approach, based upon direct capitalization of net operating income ("NOI"); and the Stock and Debt Approach, based upon the market value of the debt capital attributed directly to XXXXX electric utility, and an allocation of the stock market value of XXXXX common stock to the electric utility operations. The three value indicators were reconciled to arrive at an estimated market value of XXXXX electric utility property. Using generally accepted formulae adopted by the Division, a portion of the system value was allocated to Utah.
2. After the original assessment, no changes were made in methodology. The changes, which resulted in the settlement, were:
(1) Corrections of errors made in the original assessment.
(2) adjustments in areas reserved for appraiser judgment
(3) adjustments made based on additional information which became available.
3. Corrections made by the Division relate to the Stock and Debt approach. This approach uses the value of a company's Stock and Debt in the capital markets to determine value. In its original assessment the Division incorrectly included in the Stock and Debt approach the stock market value of minority holdings in two nonelectric subsidiaries of XXXXX. The value of the minority holdings added about $$$$$ to this indicator. The Division also failed to make an adjustment for the nonoperating property of the electric utility that resulted in an overstatement of approximately $$$$$. Combined, these two corrections account for about $$$$$ of the difference in the Stock and Debt approach between the original and the settlement assessments.
4. Changes due to matters of appraiser judgment affecting the Stock and Debt indicators included the use of the annual average stock price to calculate XXXXX common stock market value. Use of the average price resulted in a $$$$$ cents per share reduction or about $$$$$ from the original assessment. The remainder of the difference in the Stock and Debt Approach between the original and settlement assessment was due to an evaluation of the allocation factor that relates the common stock value of XXXXX to its electric utility segment. This evaluation established that the original allocation may have been unsound because it mixed financial information from different accounting sources, i.e., figures derived from XXXXX regulatory report were matched with figures from its shareholders' report. The Division agreed to match numbers only from the same accounting source and to look at an additional allocation factor (net cash flow).
5. Changes due to appraiser judgment affecting the income approach include the use of earnings-to-price (E/P) ratios based upon average annual stock prices. This had the effect of increasing the direct capitalization rate from XXXXX percent to XXXXX percent. The direct capitalization rate was divided into an income estimate to derive the income value indicator. Besides having a reasonable basis, the income estimate must match the capitalization rate with respect to type of earnings and the time period covered. The capitalization rate used in the settlement assessment is appropriate to net operating income. Both the capitalization rate and the net operating income estimate were derived from calendar year XXXXX data.
6. Late in XXXXX XXXXX purchased a generation plant in Arizona. While this plant was included on the balance sheets, little income had accrued to the Company in the historical period preceding the lien date. Originally the Division was going to propose a settlement based upon net operating income of $$$$$ which reflects the reported NOI for XXXXX. After county representatives pointed out that the $$$$$ did not include approximately $$$$$ in NOI expected to be earned from the new plant, the Division used a $$$$$ figure for NOI in the income approach and modified its settlement figures accordingly.
CONCLUSIONS OF LAW
The valuation methodologies adopted and employed by the Division are accepted methods for estimating fair market value for ad valorem property tax purposes. The overall approach used in the original assessment was designed to arrive at a fair market value estimate. Errors which came to the Division's attention in the settlement process mandated correction. Other adjustments made in the settlement assessment fall well within the framework of appraiser judgment and were properly employed within the appropriate appraisal method. The proper application of appraisal methods resulted in appraisal value within the reasonable range of fair market value of the operating property of XXXXX.
Careful consideration has been given to all the contentions of the County, namely that:
(1) The valuation upon which the settlement is based improperly relies on an average annual stock price in the Stock and Debt indicator of value;
(2) The valuation upon which the settlement is based improperly relies on an average annual Price-to-Earnings ratio in the calculation of the capitalization rate in the income indicator of value;
(3) The valuation upon which the settlement is based uses electric utility properties which are not comparable to XXXXX electric utility property in the calculation of the capitalization rate in the income indicator of value;
(4) The valuation upon which the settlement is based uses an inferior cost indicator of value (Historical Cost Less Depreciation) when information contained in XXXXX filings allows for the calculation of a superior cost indicator;
(5) The valuation upon which the settlement is based gives excessive weight (30%) to the cost indicator.
While some of these arguments address the original assessment and not the Stipulation, the Commission has considered them on the basis that XXXXX County has made the arguments as an Intervener in this case. None of the arguments, however, persuade the Commission that the Stipulation does not represent a reasonable and acceptable statement of fair market value for XXXXX property. The issues raised do not rise to the level of establishing a material mistake of fact or law in deriving fair market value. The arguments highlight differences in appraiser judgment, but do not establish a misapplication of generally accepted appraisal theory in deriving fair market value of XXXXX for the XXXXX assessment year.
Having heard all of the arguments of the Intervening Party and the Objecting Counties, and having determined that the figure presented in the Stipulation ($$$$$ is an accurate representation of fair market value of XXXXX property, the Utah State Tax Commission hereby accepts the Stipulated Agreement. This decision renders the outstanding Motions and Objections, directed at the County, a moot issue.
The Property Tax Division is hereby ordered to adjust its records in accordance with this decision. The county auditors of the affected counties are authorized to adjust their records in accordance with the revised notice of assessment.
DATED this 12th day of December, 1994.
BY ORDER OF THE UTAH STATE TAX COMMISSION.
W. Val Oveson Roger O. Tew
Joe B. Pacheco Alice Shearer