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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 property tax.

2. Property subject to taxation:

Taxable: All property is constitutionally taxable, including both real and personal. Utility companies are subject to gross receipts taxation in local school districts.

Exempt: Goods and property in transit and stored in Kentucky. Also, intangible property is subject to an annual state tax only, at the rate of $0.10 on each $100 of fair cash value.

3. Classification (if applicable):

Basic distinction is between residential and commercial/industrial property, but all is assessed at 100% fair cash value and tax rates are the same for all real property. However, tax rates may vary for various kinds of tangible personal property (inventory, for example).

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

The Revenue Cabinet exercises all administrative functions relating to assessment of public utilities and public service corporations for taxes and assessments of franchises, has supervision of franchise and gross receipts tax laws and assesses the property and franchise of public utility companies; also reviews and equalizes the assessments of all property.

The Railroad Commission receives annual statements of affairs of railroads and express companies.

The Public Service Commission regulates certain utilities and is also authorized to make and collect assessments against such utilities.

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

Public service corporations must annually report information concerning amount of capital stock, number of shares, value of shares, amounts of surplus funds and undivided profits, the total amount of indebtedness, the cost and year acquired of all operating property owned, operated or leased, and the depreciation attributable thereto; also, the cost and market value of all intangible property; the net utility operating income before and after depreciation and before and after income taxes, etc., including where situated in each county, city and taxing district, the length and description of all the lines operated, owned or leased, and where located, etc. Must also provide list of all motor vehicles and trailers.

Railroad companies must report similar information concerning stocks, assets and liabilities, as well as detailed data on the estimated value of the roadbed, including rails, bridges, rolling stock, stations, buildings and fixtures, the length of single main track, the length of the double main track, the length of branches, the aggregate length of other siding and track, what freight and transportation companies run on its road and on what terms, etc. For the preceding year, railroad companies must also report information on the number of miles run by passenger and freight trains, the number of tons of local freight carried; monthly income from transporting passengers and freight; expenses, stating separately the salaries of officers, amounts for repairs, etc.

All property is assessed at fair cash value, which is estimated as the price it would bring at a fair, voluntary sale.

The Revenue Cabinet shall determine the fair cash value of the operating property of a domestic public service corporation as a unit. The fair cash value is then equalized.

6. Practical application of valuation method(s):

Valuation of regulated utilities always use all three methods, but emphasis is placed on the income approach as much as possible.

Non-regulated utilities (cable companies, etc.) do not always have RCNLD data available, so historical cost less depreciation is preferred type of cost approach whenever used.

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

Such facilities are valued within the unitary system using the valuation procedures described above. Power plants owned by energy companies (separate from utility companies) are valued as part of energy companies' operating systems.

8. Apportionment method(s) required by statute:

To the state -- Statute requires calculation of both property and business factors and there can be one or several subfactors in each category. The Revenue Cabinet shall use the following factors: (a) the property factor shall fairly reflect the amount of operating property operated, owned or leased in Kentucky compared to the total amount of operating properly elsewhere, (b) the business factor shall fairly reflect the utilization of the operating property in Kentucky compared to the utilization elsewhere.

Among local units -- Such units usually use original cost less depreciation. Also, the Revenue Cabinet shall consider the location of operating property and the proportion which the length of line or route operated in such taxing jurisdiction bears to the total length of lines or route in the state. However, the assessed value of nonoperating tangible property is allocated to the taxing district where it is situated.

9. Practical application or apportionment requirements:

Practical application follows statutory requirements.

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

See #8.

11. Description of assessment appeals system:

Utility companies have 45 days to appeal assessments, but they must pay scheduled property taxes up to uncontested level. First level of appeal is informal. If not resolved, formal state mediator tries to resolve. If not resolved, appeal goes to Kentucky Board of Tax Appeals.

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

Little deregulation/restructuring has occurred so far. Regardless, such activity should not affect procedures for allocating value. More consideration may be given to the market approach to value.

13. State Government Staffing:

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

Law Source(s):     Kentucky Revised Statutes, Chapter 136.5 to 136.180

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