Survey of Railroad and Utility Taxation Practices Among the States: 2005 Update
1. Basis for Taxation:
|Public Utility Tax on
|Airline||Yes||2.5% of intra-state receipts|
|Telephone company||Yes||2.5% of intra-state receipts|
|Pipeline||--||None in state|
|Electric company||Yes||2.2% (c)|
|Gas company distribution||Yes||2.2%|
|Steam power company||Yes||--|
|Wharf, dock, terminal||Yes||--|
|Toll bridge or road||Yes||not a utility|
|Boat line (non-stream)||Yes||not a utility|
|Motor vehicle carrier||Yes (b)||not a utility||Mileage tax (d)|
|(a) Freight cars -- 3-1/2% of 30% of value of cars in state during year. Revenues are retained by the state; i.e., they are not apportioned to local tax districts. License tax in lieu of property tax.
(b) Vehicles are assessed by the county where they are domiciled; valuation is on the basis of average market value. Terminals and garages are locally assessed.
(c) Hydroelectric power companies - plus additional tax of 2/5 mill per kilowatt hour manufactured and sold during year.
(d) Exemptions: school buses, vehicles for hire operating within city or town limits, vehicles delivering goods sold by the vehicle owner, vehicles transporting agricultural commodities (but not manufactured products thereof), vehicles hauling road materials and paid by the state or local subdivision (or contractor for the state or subdivision) for no more than 50 miles, vehicles owned or operated by hotels for the transportation of hotel patrons, vehicles owned and operated by the U.S. or any other government unit, vehicles controlled and operated by a bona fide cooperative association, vehicles transporting newspapers, magazines, or the U.S. mail, vehicles owned by a farmer and used occasionally in transporting household goods and furniture, vehicles (other than taxicabs or airport limousines) used primarily for transporting 14 or fewer passengers to and from their regular places of employment, church-owned buses, ambulances, and hearses.
Note: Since many types of utilities are subject to both a property tax and a license tax on gross receipts, it might appear that utilities are taxed at a considerably higher rate in Alabama than in other states. In fact this is not the case, since effective property tax rates in Alabama are substantially lower than they are elsewhere. The maximum rates allowed there are: 2% for utility property, 1.5% for commercial property, and 1% for residential property.
2. Property subject to taxation:
Taxable: Real and personal property.
Exempt: Property used for air or water pollution control.
Property class assessment ratios:
|Class I||Property of utilities used in utility business||30%|
|II*||All property not otherwise classified, plus railroads and airlines (includes merchant power plants)||20%|
|III||Agricultural, forest, single-family owner-occupied residential property, historic buildings and sites||10%|
|IV||Private passenger vehicles and pickup trucks operated for personal use||15%|
|*Railroads and airlines centrally assessed by state as utilities but they are assessed at 20% and not 30% of market value.
Local taxing jurisdictions may increase or decrease any of these percentages, but no assessment ratio may be less than 5% or more than 35%.
Transportation property, to the extent required by Title III, 306 of Pub. L. 94-210 (the Railroad Revitalization and Regulatory Reform Act of 1976, codified as 49 USC 26c), may not be assessed as Class I property. Railroads and airlines fall into this category; they are assessed as Class 11 property.
4. Level of government which determines basis for tax liability - ad valorem property tax:
State Department of Revenue -- except for (a) motor vehicle carrier terminals and garages and (b) nonoperating property, which are locally assessed.
5. Report filing and valuation method(s) required by statute for ad valorem taxation:
Reporting Requirements -- A verified statement must be filed annually showing, in addition to identifying information, (a) total amount of business done in the state, (b) total gross receipts from that business (including the in-state proportion of any interstate business), (c) total gross receipts from business done everywhere, (d) number of shares and value of common and preferred stock, (e) description of any lien, mortgage, or other charge upon the property, (f) description of all series of bonds, debentures, and other securities forming part of funded debt, (g) gross income and earnings for the preceding fiscal year (including interest on investments and all rents, profits, revenues, and receipts from all sources), (h) amount of income used for repairs and betterments, (i) amount of income used for extension in the state, (j) amount of income paid in dividends on common stock and in interest on each issue of preferred stock or bonds or other forms of indebtedness, (k) amount set aside for depreciation, obsolescence, and retirements, (1) amount passed to surplus, and (m) expenses for the preceding fiscal year (including federal, state, and local taxes paid). If the company does business in other states, the same items must also be shown for the business as a whole. If any item is prorated or allocated to Alabama, the reason for such proration or allocation must be given. The company must also report (a) each item of real estate (including number of acres), (b) the improvements thereon, and (c) all machinery, fixtures, appliances, and all other tangible property and assets within the state and in each county, city, town, school district, or other taxing district, and the company must indicate whether or not such property is specifically used in the business of the company. It must also report on such property owned outside the state and give its true value, the sum of that value at which it is assessed for taxation, and the locality in which ft is assessed.
Railroad companies must also report the following for the preceding year: (a) total length of railroad lines within and outside the state, (b) length within the state and in each county, city, incorporated town, school district, and other tax district in the state, (c) number of locomotive engines or other units of motive power, (d) number of passenger, freight, construction, and other cars for the entire system and the number of each allocated to the state, and (e) the average amount of merchandise and supplies kept or carried on trains for sale or other disposition for profit.
Telephone and telegraph companies must also report the following: all property owned in the state and connected with the business, specifying the counties in which such property is situated and the items of property situated in each of the counties, towns, and school districts.
Telephone, telegraph, and electric power companies must also report the following: (a) number of miles of right-of-way in the state, (b) number of miles of right-of-way along public roads or on government land or along the streets of incorporated cities and towns used by the company (showing the number of miles of each class separately and by what authority such use is granted), (c) total length of telephone, telegraph, or transmission lines within or outside the state (stated by the number of miles of poles and towers, number of miles of wire, and number of miles of conduit or cable), and (d) the length of lines within the state and in each county, city, town, school district, or other tax district. Electric companies must also state their mileage according to the voltage capacity of each line.
Water, gas, and pipeline companies must also report the following: (a) total length of all lines within or outside the state, (b) total length of each size pipe and of what material each is constructed, (c) total length of each type of line within the state and in each county, city, town, school district, or other tax district, (d) number of miles of right-of-way in the state, and (e) number of miles of right-of-way along public roads or on government land or on or along the streets of incorporated cities and towns used by the company (showing the number of miles of each class separately and by what authority such use is granted).
Car companies (sleeping, chair, dining, and other types of cars) must also report the following: for the preceding year, total miles traveled by the cars and miles traveled within the state.
Express companies must also report the following: (a) total gross receipts from all business done under its charter during the preceding year within and outside the state, (b) total gross receipts within the state for the same kind of business done during the same period (including a due proportion of receipts from interstate business, and (c) total gross receipts in each county or town in the state for the same kind of business done during the same period.
If a company fails to file the required statement at the required time, the Department of Revenue may add to the assessment it makes against the company a penalty of up to 25% of the assessment.
a. Factors to be considered in determining the true value of the entire property (tangible and intangible, including franchises): the sum of (a) average net earnings, averaged over a period of 5 years, and (b) for the preceding year, the aggregate average market value of all shares of stock plus the average market value of all secured indebtedness. The Department of Revenue may also consider the value of the individual units and items of property and the sum of the values of such units or items.
b. To determine the value of the property within the state and within the respective counties, cities, towns, and other tax districts in the state, the Department of Revenue is authorized to consider: (1) original cost, (2) reproduction cost new less depreciation, (3) recent sales of contiguous or similar property, (4) the nature of the property, (5) its location, whether in town, city, or county, (6) whether it is vacant or occupied, (7) its proximity to local advantages, (8) its use, (9) its fitness for the use to which employed or its fitness for other uses, (10) the quality of soil, (11) its growth of timber, (12) its mines, minerals, coal beds, oil or gas deposits, (13) the amount and character of improvements thereon, (14) the amount of insurance carried on each item of property, (15) the gross and net income received there from during the year or years preceding the date of assessment, (16) the market value of its shares of stock or bonds, or both, if sold in the open market, or if not quoted in the open market, the value thereof, (17) the amount of any bonded indebtedness, loans, or mortgages on the property, and (18) any other information useful to the assessing authorities. In assessing any property where such information is obtainable and has or may have any bearing on the value of such property, the assessing authorities must consider the average market or actual value of the stock and bonds of the company during the preceding year and also must take into consideration the estimated investment as reported to the state Public Service Commission, ICC, TVA, Reconstruction Finance Corporation, Railroad Credit Corporation, or other similar agency of the U.S. or Alabama, or the value stated in folders, schedules, or prospectuses. Any valuation made for ratemaking or other purposes of the Public Service Commission, ICC, or other government body must also be considered.
6. Practical application of valuation method(s):
The Department of Revenue values the property as a unit, using the market (stock and debt), income, and cost approaches, with most weight given to the latter two approaches. In applying the cost approach, the department uses historical cost less depreciation. Historical cost is the cost of acquisition plus capitalized expenditures for replacement.
7. Valuation treatment of large facilities such as power plants, dams, or rail yards:
All except wholesale power generators certified by Federal Energy Regulating Commission are state assessed using unitary appraisal methodology as stated above. Exempt wholesale power generators are locally assessed at 20% of value. Realty is valued more by market approach; personalty is valued by original cost trended.
8. Apportionment method(s) required by statute:
Property other than franchises and intangibles: See Valuation Factors (b) above.
Franchises and intangibles:
To the state -- Either: (a) proportion of lines or business within the state to total lines or business, or (b) proportion of receipts within the state to total receipts.
Among local units --
Railroad property: Single track main line mileage.
Telephone, telegraph and electric company property: Pole or wire mileage.
Pipelines and car companies other than express companies: Mileage.
Other property: In proportion to amount of business done in and receipts derived from locality.
9. Practical application of apportionment requirements:
Franchises and intangibles are not separately allocated. Their value is included in the unit value of the property and is apportioned to the state and to local tax districts along with the value of tangible property.
To the state --
Railroad property: In proportion to the average of (a) and (b), as follows:
a. Average of the proportion in state of (1) train miles, (2) revenue tons, and (3) tons originating and tons terminating.
b. Average of the proportion in state of (1) total track miles and (2) gross investment.
Airline Property: In proportion to the average of (a) and (b), as follows:
a. Proportion of ground time at airports in state to ground time at airports everywhere.
b. Proportion of passenger or cargo ton miles in state to passenger or cargo ton miles everywhere.
Other property: In proportion to the percentage of gross investment in the state.
Among local units -
Railroad property: In proportion to the average of (a) and (b), as follows:
a. Average of the proportion in locality of (1) train miles, (2) revenue tons, and (3) tons originating and tons terminating.
b. Average of the proportion in locality of (1) total track miles and (2) gross investment.
Airline property: In proportion to the average of (a) and (b), as follows:
a. Proportion of ground time at airports in locality to ground time at airports in state.
b. Proportion of passenger or cargo ton miles in locality to passenger or cargo ton miles in state.
Other property: In proportion to the percentage of gross investment of the locality.
Property taxes on freight cars are not allocated to local tax districts; instead, the revenues from such taxes are retained by the state. Property taxes on airports and the vehicles of motor carriers are also not apportioned to localities, although local tax districts receive the revenues from such taxes; the value of airports is assigned to the localities where they are located, while the value of motor vehicles is assigned the localities where they are domiciled.
10. Apportionment treatment of large facilities such as power plants, dams, or rail yards: Gross (undepreciated) cost to gross cost.
11. Description of assessment appeals system:
(a) Informal review department hearing
(b) Administrative law judge hearing
(c) Circuit judge appeal
12. Status of deregulation/restructuring of electric generating and impact on valuation and apportionment methods used:
Property of wholesale power generation companies are now locally assessed at 20% of value, with other generation company assessed at 30%.
13. State Government Staffing:
Staff consists of two employees (full-time equivalent basis).
Law Source(s): Alabama Constitution and Code of Alabama as cited in McMillan's State and Local Taxes