96-1034

Centrally Assessed

Signed 3/31/97

BEFORE THE UTAH STATE TAX COMMISSION

____________________________________

COMPANY B, :

Petitioner, : FINDINGS OF FACT,

: CONCLUSIONS OF LAW,

v. : AND FINAL DECISION

PROPERTY TAX DIVISION OF THE : Appeal No. 96-1034

UTAH STATE TAX COMMISSION, :

STATE OF UTAH, :

Respondent. : Tax Type: Centrally Assessed

_____________________________________

STATEMENT OF CASE

This matter came before the Utah State Tax Commission for a Formal Hearing on March 6, 1997, to determine whether Petitioner’s property should be assessed as centrally assessed property. The presiding officer was Commissioner Joe B. Pacheco. Also present was Commissioner Alice Shearer. Present by telephone and representing Petitioner were PETITIONERS REP. of XXXXX, PETITIONERS REP., PETITIONERS REP., and PETITIONERS REP.. Present and representing Respondent was Kelly Wright, Assistant Attorney General. Present and representing the affected counties was COUNTRIES REP. Based upon the oral and written documentation submitted at the hearing, the Tax Commission hereby makes and enters its:

FINDINGS OF FACT

1. The tax involved in these proceedings is the ad valorem property tax.

2. The year involved is the tax year 1996.

3. XXXXX was put in the ground in the State of Utah during 1991. Petitioner bought some of the pipe (the section between Salt Lake and Wendover) and the company installed some pipe (the section between Salt Lake City and the Colorado border). The conduit pipe is continuous from the Nevada border to the Colorado border.

4. The company started a telephone service resale business in the last part of 1993 in Salt Lake County.

5. The State of Utah issued a request for proposal (RFP) for provision of telephone services for the state in 1995. In approximately August, 1995, the company responded to the state’s (RFP) by filing a Certificate of Necessity with the Public Service Commission (PSC) of the State of Utah in order to become a telephone service company to qualify as a bidder on the state RFP. The company successfully received the certificate they applied for but have never put the certificate to use because the State of Utah later withdrew its (RFP) for the telephone services. The company anticipates they will complete the process to provide full telephone services sometime in the future.

6. Since the receipt of the certificate from the PSC, the company has only been involved in the reselling of telephone services in the State of Utah, which is based on access to other carrier lines.

7. Prior to the lien date, January 1, 1996, Petitioner’s property was assessed by local county assessors.

8. When the Property Tax Division of the Utah State Tax Commission discovered the Certificate of Necessity, the Division responded by assessing Petitioner’s property as Centrally Assessed property. Nothing had changed in the services Petitioner was providing. However, the Division upon finding the Certificate filed before the PSC, classified the Petitioner as an operating company and made a central assessment of the property for the year 1996.

9. Petitioner believes that the company should remain in the jurisdiction of the local county assessors and have their property locally assessed until the company starts providing services as an operating telephone service company in Utah.

10. The conduit that is laid across the State of Utah is part of a nationwide network of conduit pipe. The conduit pipe in Utah is empty. It has no wires and there are no means of providing telephone services.

11. Petitioner has no communication equipment in Utah as of the lien date, January 1, 1996.

APPLICABLE LAW

Article XIII, 2(1) of the Utah Constitution requires that “. . . .[a]ll tangible property in the State, not exempt under the laws of the United States, or under this Constitution, shall be taxed at a uniform and equal rate in proportion to its value, to be ascertained as provided by law.”

Utah Code Ann. §59-2-201(1)(a) provides that “[b]y May 1 of each year the following property shall be assessed by the Commission at 100% of fair market value, as valued on January 1, in accordance with this chapter: all property which operates as a unit across county lines, if the values must be apportioned among more than one county or state. . . .”

Utah Code Ann. §59-2-201(5). Property assessed by the unitary method, which is not necessary to the conduct and does not contribute to the income of the business as determined by the Commission, shall be assessed separately by the local county assessor.

ANALYSIS

The sole issue presented to the Commission in this case is whether the property of Petitioner should be centrally assessed by the Property Tax Division or locally assessed by each of the respective county assessors where Petitioner’s property is located.

Petitioner argues that there are no operations from the property giving rise to this issue, however the company aspires to be a telephone provider but will not reach that level in Utah until sometime in the future. Conduit pipe is presently laid end to end across the State of Utah but there is no wire inside the pipe and in its present status the conduit pipe is useless. The system will not be operational until January 1, 1998 when wire together with intermittent tracking stations are put in place. In this case, Petitioner says the Property Tax Division was premature in making the assessment because the property is clearly not operating. The conduit cannot operate without the wire being strung inside. Petitioner argues that Utah Code Ann. §59-2-201(5) provides that property assessed by the unitary method, which is not necessary to the conduct and does not contribute to the income of the business should be assessed by the local assessor, the property in question here is not contributing to the income of the business and is not necessary to the conduct of the resale business of Petitioner. Although the company is operational providing telephone services in California, there is no connection to the Utah business. The only Utah business at the present time is the resale of telephone services purchased from other carriers. Petitioner’s suppliers are already being assessed for their respective property in their reports to the Utah State Tax Commission.

Respondent’s procedures are consistent in that the Division has always moved to centrally assess these types of property when they discover certificates issued by the PSC. Respondent points out that the company is operating in the communications industry in California, that the company is operating a resale business in Utah, and the XXXXX is part of a nationwide network for providing communication services. The company has reported revenue in the past on an annual basis on total Utah and interstate basis and eventually all of their traffic will be routed through the lines running through Utah. Therefore, the Respondent says they operate as a unit across state and county lines and should be centrally assessed.

DISCUSSION

Before the Commission can answer the question of where jurisdiction lies for the assessment of Petitioner’s property, the Commission must determine when operations start. The Commission has to determine if the property should be centrally assessed when the Certificate of Necessity is issued or when the Petitioner starts operations as a telephone service company. At the present time the conduit is physically connected in a nationwide network but is not connected to the California telephone business. Since there is no wire in the pipe, there is nowhere that a physical presence or connection with the telephone service company in California is made. Petitioner and Respondent both agree and anticipate that operations in Utah will start in the near future giving rise to the intended revenues from the telephone service company.

The project being undertaken by Petitioner is not complete and should not be assessed at full value as a communications system but rather as a project with a status of partial completion. The conduit pipe itself has physical presence in Utah and crosses county lines, therefore lending itself subject to assessment by the Property Tax Division which should value the property at its percentage of completion. When the product starts to flow through the pipeline, that is when electronic signals are sent through the wires in the network through Utah, then the property should be valued as a fully operational telephone service company.

CONCLUSION

For the reasons stated above, the Commission finds that the company is not operating in Utah, however the conduit pipe placed in the ground has physical presence in Utah and crosses county lines. Therefore, the conduit should be assessed as centrally assessed property as a project in a status of completion which should be determined by the Property Tax Division assessed together with the real equipment located in Utah.

DATED this 31 day of MARCH, 1997.

BY ORDER OF THE UTAH STATE TAX COMMISSION.

W. Val Oveson Richard B. McKeown

Chairman Commissioner

Joe B. Pacheco Alice Shearer

Commissioner Commissioner

NOTICE: You have twenty (20) days after the date of a final order to file a Request for Reconsideration with the Commission. If you do not file a Request for Reconsideration with the Commission, you have thirty (30) days after the date of a final order to file a.) a Petition for Judicial Review in the Supreme Court, or b.) a Petition for Judicial Review by trial de novo in district court. (Utah Administrative Rule R861-1A-5(P) and Utah Code Ann. §§59-1-601(1), 63-46b-13 et. seq.)