Survey of Railroad and Utility Taxation Practices Among the States: 2005 Update
1. Basis for taxation: Ad valorem property tax.
The following public utilities are subject to the tax: railroads, express companies, car companies, telephone companies, telegraph companies, pipelines (natural gas), gas companies, electric companies, water companies, airlines, ferry or toll bridge companies, water transportation companies, toll road companies, and motor carriers (intercounty).
2. Property subject to taxation:
Taxable: Real and personal property (tangible and intangible).
Exempt: None, for railroad and utility property.
3. Classification (if applicable): No. However, operating property is to be taxed at the average tax rate, the total of mileage rates used by all local tax districts, divided by the number of tax districts.
4. Level of government which determines basis for tax liability - ad valorem property tax:
Operating property - Tax Division, Arkansas Public Service Commission.
Nonoperating property - county assessors.
5. Report filing and valuation method(s) required by statute for ad valorem taxation:
Reporting Requirements: A statement must be filed annually showing, in addition to identifying information, (a) par value of outstanding capital stock and funded debt (including the market and, if no market, the actual value), (b) total gross revenues, expenses, net revenues, and net income, separately, from utility operation, non-utility operation, and nonoperating properties, both for the state and all states of the company operates in states other than Arkansas, in which case Arkansas' stated proportion of the total revenues, expenses, and income must include not only revenues, expenses, and income arising from intrastate business but also the state's due proportion of the revenues, expenses, and income from interstate business, (c) total value of all real and personal property owned or controlled by the company and situated outside of Arkansas, showing separately that part used in connection with the daily operations of the company and that part used otherwise, (d) detailed statement of all real and personal property owned or controlled by the company and situated in Arkansas, giving the description, location, and value thereof and showing separately that part used in connection with the daily operations of the company and that part used otherwise, and (e) such other and additional information as to ownership, amount, kind, location, operation, and value of property or controlled as the Tax Division may require.
Car companies must also file an annual statement showing: (a) the aggregate number of miles made by each class of its cars over the several lines of railroad in the state, and (b) the average number of miles traveled per day by the cars of each particular class in the ordinary course of business.
Railroad companies must also file an annual statement showing: (a) separately, by class, the total number of miles traveled by the cars of each private car company over its lines within the state, (b) the post office address of each car company, and (c) the average number of miles traveled per day, in the ordinary course of business, over its lines in Arkansas by each class of car.
Valuation Factors: The returns (annual statements) of the companies shall not be held to be conclusive as to the value of the property, but the tax Division may make such assessment of the property, as it may deem just and equitable.
The Tax Division shall take into consideration the value of all the property of the company as a unit, whether all or only a part of it is within the state.
Valuation of the taxable property shall be made upon the consideration of what a clear fee simple title thereto would sell for under conditions which usually govern the sale of property of that character. The Tax Division must take into consideration:
a. Original cost less depreciation, replacement cost less depreciation, or reconstruction cost less depreciation, with proper consideration for functional or economic obsolescence and for operation of nonprofitable facilities which necessitate regulatory body approval to eliminate.
b. Market value of all outstanding capital stock and funded debt, excluding current and deferred liabilities, except accumulated deferred income taxes, investment tax credits, and items associated therewith. A premium or discount to capital stock may be considered above or below the current market price where evidence warrants. In cases where the outstanding capital stock is not traded or is not capable of reasonably accurate determination, book values may be substituted.
c. (1) Operating income after deduction of all income taxes paid, capitalized in the manner and at such rates as shall be just and reasonable, but in no event shall the capitalization rate be less than 6%. The deduction from income of deferred income taxes, investment tax credits, and items associated therewith is prohibited, and (2) operating income after the deduction of all income tax expense capitalized in a manner which recognizes the utility's ability to defer income taxes, utilizing accumulated deferred income taxes, investment tax credits, and items associated therewith as cost-free debt in the capital structure to determine the capitalization rate. The utility operating income to be capitalized should be determined by reference to the company's historical income stream, appropriately weighted, with consideration to the future income stream. Directory sales revenue produced in the state is considered attributable to utility real and personal property located in the state and is to be appropriately considered in determining operating income.
d. Such other information as evidence to value as may be obtained that will enable the Tax Division to determine the fair market value of the property.
Nonoperating property is to be assessed by county assessors.
6. Practical application of valuation method(s): The property of each company is valued as a unit. If the company's stock is traded, the Tax Division bases the valuation on all of the factors described in #5 above. If the company's stock is not traded, the original cost approach is used.
7. Valuation treatment of large facilities such as power plants, dams, or rail yards: Such facilities are valued in the same manner as other properties indicated above; the property of each utility and railroad is valued as a unit.
8. Apportionment method(s) required by statute:
To the state -
a. Proportion of lines within state to total lines,
b. Proportion of operating receipts or income within state to total operating receipts or income, or
c. Such other recognized method or combination of methods as will, in the judgment of the Tax Division, results in a just and equitable apportionment.
Among local units -
a . Fixed situs real estate and tangible personal property is to be assigned to tax district where located.
b. Other property is to be apportioned in proportion to the value of the tangible property assigned or apportioned thereto.
c. The value of rolling stock of railroads is to be apportioned to local tax districts by the mileage operated therein.
d. The value of personal property of express or sleeping car companies is to be apportioned on the basis of mileage operated.
9. Practical application or apportionment requirements:
To the state -
Railroad property: Car and locomotive mileage, main tract mileage.
Other property: Proportion of gross revenue, operating revenue, and gross property value (value before depreciation) in state.
Among local units -
Railroad Property: Car and locomotive mileage, main track mileage.
Rolling stock of railroads: Main track and sidetrack mileage.
Rolling stock of private car companies: Mileage operated.
Airline property: Flight mileage, ground time.
Other property: In proportion to the value of the fixed situs tangible property assigned to each tax district.
10. Apportionment treatment of large facilities such as power plants, dams, or rail yards: Such properties are treated no differently than as indicated in #9. These properties are valued in the unitary system.
11. Description of assessment appeals system: Property owners of utility and railroad operating systems may appear at the pre-assessment hearing, where assessments may be negotiated with the Public Service Commission. Once assessments are published, owners have a 10-day period to file for a hearing, supervised by an administrative judge, at the Public Service Commission (utilities) or the Highway Commission (railroads). Appeal of ruling goes to Pulaski County Circuit Court (proceedings are de novo). Final appeal is to the Arkansas Supreme Court.
12. Status of deregulation/restructuring of electric generating and impact on valuation and apportionment methods used: This process was terminated by the state legislature in early 2003; such action was based on deregulatory problems in California.
13. State Government Staffing: Staff consists of 13 employees (full-time equivalent basis).
Law Source(s): Arkansas Code of 1987, Annotated, as cited in Macmillan's State and Local Taxes