Survey of Railroad and Utility Taxation Practices Among the States: 2005 Update
1. Basis for taxation: Ad valorem property tax is the tax basis on all types of utilities except motor carrier (freight).
2. Property subject to taxation
Taxable: All real and personal property (excluding the fair market value of intangible assets and rights except that taxable property may be assessed and valued by assuming the presence of intangible assets or rights necessary to put the taxable property to beneficial or productive use) is taxable unless otherwise exempt by law.
Exempt: Any type of property qualified for exemption by law. Examples are business inventory, property located in federal enclaves, government property within its jurisdictional boundary, etc.
3. Classification (if applicable): (real vs. personal, assessment level and/or tax rate differentials).
Classification system between real vs. personal property is not applicable for utility property under the unit valuation method.
Assessment level is based on 100% of the fair market value except certain railroad properties. Specifically, a 4-R Act Ratio is applied to the fair market value of rail transportation property of railroads and the value of private railroad cars to arrive at the assessed value.
Tax rate differentials exists between unitary and nonunitary property, as well as, between private railroad cars and other state-assessed property of utilities and railroads.
Unitary property (except railroads) is allocated to the counties in a general countywide tax rate area and taxed accordingly. Unitary railroad property is allocated to specific tax rate areas by track miles. Nonunitary property is assessed and taxed at the specific tax rate area where the property is located. County tax collectors generate the property tax bills and collect the tax payments directly from the state assessees.
Private railroad cars are taxed at an average rate of general property taxation in the state for the preceding year.
4. Level of government which determines basis for tax liability - ad valorem property tax:
State Board of Equalization values and assesses public utilities and railroad properties as prescribed in the State Constitution. In accordance with Article XIII, Section 19 of the California Constitution, the Board annually assesses certain public utilities and other specified properties. State-assessed properties include:
Pipelines, flumes, canals, ditches, and aqueducts lying within two or more counties.
Property (except franchises) owned and used by regulated railway, telegraph, or telephone companies; railroad car companies operating on railways in the state; and companies transmitting or selling gas or electricity.
All other properties not owned or used by the state assessees are locally assessed by the county assessors.
The county tax collector generates property tax bills for all taxable properties other than private railroad cars (state-assessed and locally assessed) and collects property tax payments from all assessees except private railroad car companies.
5. Report filing and valuation method(s) required by statute for ad valorem taxation: Non-specific valuation methods are required by statute, but assessors are strongly advised to consider all three. Reporting requirements are administered by local governments.
Private Railroad Cars -- These companies are required to file an annual report setting forth specific information prescribed by the Board to enable it to make the assessment required. Failure to file results in a penalty of 10% of the assessed value.
Other Utilities and Railroads -- Upon request of the Board, a person shall submit a property statement pertaining to any state-assessed property owned, claimed, possessed, used, controlled, or managed by him, in the form prescribed by the Board. The statement shall show specifically any information required by the Board in order to assess the property. Failure to file the statement results in the addition of the following penalty to assessment:
(a) For any part of the property statement relating to the development of the unit value of operating property, 10% of the unit value,
(b) For any part of the statement that lists or describes specific operating property, 10% of the value of the allocated value of the property,
(c) For any part of the statement that lists or describes specific nonunitary property, 10% of the value of the property, and
(d) If the failure to timely file a property statement is due to a fraudulent or willful attempt to evade the tax, 25% of the assessed value of the estimated assessment.
No penalty added pursuant to (a), (b), (c), or (d) shall exceed $20 million of full value.
Private Railroad Cars -- Assessed based on a replacement cost method derived from a mechanical formula per statute. The valuation factors are car-days, owner's acquisition cost less depreciation computed on a straight-line basis with prescribed depreciable life schedules per statute.
The value of private railroad cars shall not include the owners' tools, shop equipment, materials, supplies, or other like items of personal property customarily kept or maintained at fixed locations for use in repairing, improving, servicing, or operating the cars.
Other Utility and Railroad Property -- The Board uses the principle of unit valuation.
6. Practical application of valuation method(s):
Private Railroad Car: The assessment of private railroad cars is based on (1) Car Days -- the average number of each class of private railroad cars physically present in the state in the calendar year preceding the lien date on the basis of car days, and (2) Value of Car by Class -- the owner's acquisition cost less statutory depreciation. The assessment is the product resulting from multiplying these two items together.
Other Utility and Railroad Property: Unit valuation method is used. In applying the method, the Board uses a combination of the three approaches to value (cost, income, and/or sales) with various weightings of the approaches depending on the company.
7. Valuation treatment of large facilities such as power plants, dams, or rail yards:
Power plants -- Power plants (except those plants owned by the regulated electric utilities) are valued individually by situs. The Board employs the cost, income, and/or sales approaches to value appropriate for deregulated property based on the specific circumstances of each power plant.
Power plants owned by regulated electric utilities are reflected in the unitary value under the unitary valuation method. There is no difference in treatment in the valuation of these power plants from other operating properties of the electric utility.
Dams and Rail Yards -- Dams and rail yards are reflected in the unitary value under the unitary valuation method. There is no difference in treatment in the valuation of dams and rail yards from other operating properties.
8. Apportionment method(s) required by statute:
Private Railroad Cars -- Not applicable. Taxes are collected by the state and not shared with localities.
Other Utility and Railroad Property -- No specific allocation method is stated in the statute for allocation among states and among the counties within California. The Board allocates assessed values to counties where the properties are located.
9. Practical application or apportionment requirements:
Private Railroad Car -- Not Applicable.
Other Utility and Railroad Property --
Railroad: Revenues ton miles, cost of fixed property, and/or other factors are used for allocation among states. Track miles are used for allocation of assessed values among localities within California.
Other Utility Property: Cost, income, and/or operating statistics (depending on the company and/or the type of utility) are used for allocation among states. Cost (reported cost or reproduction cost less depreciation) is the basis for allocation of unitary assessed values (except land, which is allocated based on appraised value of each parcel) among the counties within California. Nonunitary properties are assessed directly to the tax rate area in the county in which it is physically located.
10. Apportionment treatment of large facilities such as power plants, dams, or rail yards:
Deregulated power plants -- Each power plant is valued individually. Each plant is assessed in the tax situs where it is located. Apportionment is not applicable.
Non-deregulated power plants and dams -- These properties are part of the total unitary value of a utility. Cost is the basis for allocation of unitary assessed values (except land, which is allocated, based on the appraised value of each parcel) among the counties within California.
Rail Yards -- Unitary property of a railroad including rail yards is allocated based on track miles.
11. Description of assessment appeals system:
The Board sets unitary values for state assessees by the end of May.
Board staff (staff) mails official notices of Board-adopted unitary values to state assessees immediately afterward.
Board adopts nonunitary values for state assessees by the end of July.
Staff mails official notices of Board-adopted nonunitary values to state assessees immediately afterward.
State assessees have until July 20 to file a petition for reassessment of unitary value, and have until September 20 to file a petition for reassessment of nonunitary value. A petition can be either written or oral.
Staff reviews petitions and prepares staff recommendations (written appeals) or staff hearing summary (oral appeals).
Board hears petitions for reassessment of unitary and nonunitary values typically during September through December.
Board must render decisions on all petitions for reassessment of unitary and nonunitary values by December 31 per statute.
12. Status of deregulation/restructuring of electric generating and impact on valuation and apportionment methods used:
Electric generation facilities in California (except facilities that are still owned by the regulated electric utilities) are deregulated.
The deregulated electric generation facilities were initially assessed by the county assessors, and valued primarily based on sales (during 1998 and 1999) of the divested power plants. The assessed values were subject to the limitation imposed by Proposition 13. Once the base year value is established, assessed values of the subsequent years is the lower of market value or Proposition 13 limitation value (a maximum 2% increase from the previous year's value).
The Board assumed jurisdiction of these deregulated power plants beginning with the 2003 lien date. State-assessed property is not subject to the provisions of Proposition 13. These power plants are valued each lien date at their current market value utilizing one or more of the three generally accepted valuation approaches (replacement cost less depreciation, income, and/or sales) appropriate for deregulated utility property.
Special legislation (AB 81) was enacted to address the assessment allocation issues. AB 81 requires that these power plants be assessed by situs in the specific tax rate area where the property is located. Therefore, these power plants are not subject to allocation as in the case of other utility and railroad properties assessed by the Board.
13. State Government Staffing: The Valuation Division consists of 43 full-time employees.
Law Source(s): California State Constitution Article 13 Section 19
California Revenue and Taxation Code
Property Tax Rules
State Assessment Manual
Unitary Valuation Methods book
(These documents are available at the Board's web site: www.boe.ca.gov)