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Department of Taxation and Finance

Survey of Railroad and Utility Taxation Practices Among the States: 2005 Update


1. Basis for taxation:     

Ad Valorem, unit value. Gas utilities are subject to the lower of either a gross receipts tax of 5% or 2.4 cents per therm of all gas distributed, supplied, furnished or sold or transported, but tax is not imposed "...with respect to any business in interstate commerce." There is also a gross receipt on "carrier" utilities, i.e., motor carriers, rail carriers, and pipeline carriers. Electric utilities are also subject to a gross receipts tax, as well as one on invested capital. Water companies also pay a tax on invested capital.

Every public utility subject to regulation under the Public Utilities Act and the Electric Supplier Act pay for administering the Acts via a tax on their gross revenues.

Telecommunications utilities must also pay a percentage-of gross-charge tax on the privilege of originating or receiving intra- and interstate telecommunications.

2. Property subject to taxation:

Taxable - Real property (generally comprises land and structures)

Exempt - Personal property (includes wires, poles, conduits, rails --(see #4 below)

3. Classification (if applicable):


4. Level of government which determines basis for tax liability - ad valorem property tax:

Railroad - Carrier real estate is valued by the Illinois Department of Revenue. Non-carrier real state is valued by county and/or township assessors.

Utilities - Assessed locally. Local assessors and utilities usually meet and compromise, though there is occasional conflict over what is real vs. personal property. In many cases, conflicts are resolved within each local assessing jurisdiction.

5. Report filing and valuation method(s) required by statute for ad valorem taxation:

Railroad's-income, Stock and Debt and Cost approaches - A correlation of these approaches is used to determine a system value. In assessing RR taxable property, the Department shall first determine 33 1/3% of the fair cash value of such property. The Department shall take into consideration the actual or market value of the shares outstanding, the actual or market value of all bonds outstanding and all other indebtedness as is applicable; considering also quotations for the next preceding five years; the net earnings during the five calendar years preceding the assessment date and any other information considered pertinent. The Department shall determine the equalized assessed value of the taxable property of every RR company by applying to its determination of 33 1/3% of the fair cash value an equalization factor, which factor shall be the statewide average ratio of the equalized assessed value of locally assessed property to 33 1/3% of the fair cash value of such locally assessed property.

Specific filing schedules are required of each railroad as indicated in the Revenue Act of 1939. Annual report showing changes in property held for right of way and the length of the first, second and third and other main and all side tracks and turnouts, and the number of acres of right of way in each county and in each taxing district. Schedules must also describe all improvements and stations, giving the quantity, quality, character and original cost. Each company must also file separate report of all non-operating personalty.

Annual statement must be filed with Department of Revenue showing stock issued, market value of shares, bonds, gross receipts and net earnings (during last 5 years), and must also contain a list of all non-carrier real estate.

Utilities - no specific methods in statutes.

6. Practical application of valuation method(s):

Railroads - Standard appraisal practices are used in determining a system value. Each approach is weighted on its merits. The income approach is given the greatest weight.

Utilities - Locally assessed. The market approach is more heavily used than in the past, although many structures are still valued with the cost approach.

7. Valuation treatment of large facilities such as power plants, dams, or rail yards:

Power plants are valued locally using the market approach to value (on kilowatt hour basis).

8. Apportionment method(s) required by statute:

Railroad -

To the state - Section 84 of Revenue Act of 1939 states: the State shall take as the value of a railroad company "the average percentage of (a) the length of all track and turnouts within this State, (b) its gross revenues arising from railroad operations in this State, (c) the reproduction cost of its operating property within this State, as determined by the Interstate Commerce Commission.... plus additions and betterments, less retirements and depreciation." Other reasonable factors may also be used.

Among local units - The equalized value of the operating property of every RR company subject to assessment shall be taxed in the several taxing jurisdictions that the length of all track owned or used in such district bears to the whole length of all the track owned or used in this State, except the value of all station houses, depots, etc. or other buildings of an original cost exceeding $1000 shall be deemed to have a situs in the taxing district in which located. Also, where any RR operates over the track of another RR, the value of such trackage rights, including other taxable property (except buildings of original cost greater than $1000), shall be taxed in each taxing district in the proportion that the length of all the track so used in such district bears to the length of all the track so used in this state.

Utilities - by site within taxing jurisdiction (assessed locally).

9. Practical application or apportionment requirements:

Railroad - The final system value of railroads is apportioned on the basis of the amount of property in Illinois. It is further broken down by mileage in each county.

Utilities - Not applicable.

10. Apportionment treatment of large facilities such as power plants, dams, or rail yards:

Not applicable.

11. Description of assessment appeals system:

Owners can appeal to county board of assessment review. Next level of appeal is either to the State Property Tax Appeal Board (preferred) or to the State Court.

12. Status of deregulation/restructuring of electric generating and impact on valuation and apportionment methods used:

Illinois has undergone extensive deregulation/restructuring, as power plants have now become merchant plants, where the proportion of property deemed real (taxable) versus personal (exempt) has been negotiated at the local level.

13. State Government Staffing:

Staff consists of two employees (full-time equivalent basis).

Law Source(s):     Smith-Hurd Illinois Annotated Statutes, Sections 560-571, 632

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