Survey of Railroad and Utility Taxation Practices Among the States: 2005 Update
1. Basis for taxation:
Ad valorem at market value. There is also an excise tax on generation, transmission and delivery of electricity and natural gas. In 1998, Iowa started using the replacement cost -- less depreciation (RCNLD) method on the large telephone companies.
2. Property subject to taxation:
Taxable: All real property of railroads and other utilities. Personal property is not taxable in Iowa is not taxable in Iowa. Electrical gas companies pay a minimum statewide property tax. Taxation on the facilities is mainly through a "replacement" or excise tax on the generation, transmission and delivering of electricity and natural gas. Such property is subject to a statewide property tax (three cents per $1,000 of base year assessed value (1997).
Exempt: If municipally owned and within municipal limits and used for municipal customers.
3. Classification (if applicable):
4. Level of government which determines basis for tax liability - ad valorem property tax:
State Department of Revenue assesses both Railroads and Utilities. Non-operating properties are assessed locally.
5. Report filing and valuation method(s) required by statute for ad valorem taxation:
All three valuation methods are used (per administrative rules) with the greatest weight placed on market (stock & debt). Second greatest weight is on income and third on cost.
Companies are required to report, by statute, all financial data in great detail, also any regulatory reports. For example, every telegraph and telephone company operating a line in this state shall furnish annually a statement showing: (1) Total number of miles owned, operated or leased, (2) The average number of poles per mile and the whole number of poles in this state, (3) The total number of miles in each separate line or division thereof, also the average number of separate wires thereon, (4) The whole number of stations on each line and the value of the same, including furniture, (5) The whole number of instruments on each separate line, and the gross rental charges per instrument, where the same are rented to patrons of the company making the return, together with the number of stations maintained, other than railroad stations, (6) The gross receipts and operating expenses of said company for the year ending December 31 next preceding, on business originating and terminating in this state, (7) The gross receipts and operating expenses of said company for the year ending December 31 next preceding, and not included in the statement made under subsection six above, (8) The total capital stock of said company, (9) The number of shares of capital stock issued and outstanding, and the par or face value of each share, (10) The market value of such shares of stock on the first day of January next preceding, and if such shares have no market value, the actual value thereof, (11) All real estate and other property owned by such company and subject to local taxation within this state, (12) The specific real estate, together with the permanent improvements thereon, owned by such company and situated outside this state and taxed as other real estate in the state where located, with a specific description of each piece, where located, and the purpose for which the same is used, and the actual value thereof in the locality where situated, (13) All mortgages upon the whole or any part of its property, together with the dates and amounts thereof, (14) The total length of the lines of said company, and (15) The total length of the lines of said company outside this state.
If companies do not report, then the Department of Revenue determines a value based on "good judgment" or they can grossly overvalue to force reporting of data.
6. Practical application of valuation method(s):
Market and/or income approach are used for both railroads and utilities. The cost approach is used for all companies except class 1 railroads, per federal court order.
7. Valuation treatment of large facilities such as power plants, dams, or rail yards:
In 1998 Iowa eliminated the centrally assessed ad valorem tax on power plants and replaced it with an excise tax imposed on generation of electricity in Iowa (Chapter 437A).
8. Apportionment method(s) required by statute:
The director shall allocate that portion of the total unit value of the railroad company's operating property to the State of Iowa based on factors which are representative of the ratio that the railroad company's property and activity in the State of Iowa bear to the railroad company's total property and activity. These factors are:
a. gross operating revenue weighted 40 percent,
b. all track mileage weighted 35%,
c. revenue traffic units weighted 15%,
d. car and locomotive mileage weighted 10%.
The director shall allocate that portion of the total unit value of the utility company's operating property to the State of Iowa based on factors which are representative of the ratio that the utility company's property and activity in the State of Iowa bear to the utility company's total property and activity. These factors are:
a. gross operating property weighted 75%, and
b. gross operating revenues, or MCF miles, or barrel miles weighted 25%. The selection of the property and use factor to be utilized shall depend on the type of utility being valued.
9. Practical application or apportionment requirements:
To the State -- Railroads use four factors; other utilities use two factors including gross book property values and gross revenues. Can also use mileage.
Among local units -- Values are sent (by miles of track, or line, etc.) to counties who then apportion among municipalities.
Railroad and phone company -- By mile of line/track per county.
Others -- Pipeline cost of construction, miles of transmission lines, etc., per taxing district.
Example: Power plant has $44 million plus in "situs value," but all other value is spread over areas with property and lines, based on proportion of book costs.
10. Apportionment treatment of large facilities such as power plants, dams, or rail yards:
Using the above example, the first $44 million of taxable value (for excise tax purposes) will be allocated to the power plant site. The remainder of taxable value will then be allocated over the other operating property of the company. The generation tax is then allocated over the general property tax equivalent of the taxable value.
11. Description of assessment appeals system:
Companies may protest their assessment through an informal conference; they may then have a formal appeal to the State Tax Board of Review.
12. Status of deregulation/restructuring of electric generating and impact on valuation and apportionment methods used:
Although Iowa has yet to adopt restructuring legislation, it has chosen proactively to deal with the property issues associated with restructuring. Iowa is a low cost generated state, therefore, it will be easier for Iowa to compete in surrounding states that have higher generation rates.
13. State Government Staffing:
Staff consists of three employees (full-time equivalent).
Law Source(s): Code of Iowa 428, 433-438, 437A