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


1. Basis for taxation:

Ad valorem taxation of real and personal property at true cash value as determined by the State Board of Assessors. Under the "George Montgomery Railroad Act" as amended, railroad companies can get a tax credit of 100 percent of the amount expended for maintenance or improvement of rights of way in the State during the calendar year preceding the tax year. (Not to exceed the tax due under the Act.) In addition, public utilities pay for the costs of their regulation based on their gross revenue from intrastate operations for the preceding calendar year.

2. Property subject to taxation:

Taxable:     All transportation, telephone and telegraph property (real and personal). This includes property of interexchange carriers (such as pipelines), which conduct no business within the local assessing unit.

Exempt:     Telephone and telegraph property owned by companies with gross receipts (within state) of less than $1,000 during the calendar year; and all materials and supplies including repair parts and fuel are exempt. Air and water pollution control equipment and anti-erosional devices are also exempt.

3. Classification (if applicable):

There is specified classification scheme and the state constitution limits assessments to 50 percent of true cash value.

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

The State Board of Assessors (consisting of the State Tax Commissioners and the Governor) make annual determination of assessments. The State Board then sets average tax rates applicable to those assessments using total equalized values provided by the State Board of Equalization and the total ad valorem taxes as reported by the county clerks.

The Department of Commerce determines the proportion of regulatory costs to be apportioned to each public utility on the basis of gross revenue derived from intrastate operations in the preceding calendar year. Each utility pays a minimum assessment of $50 (except municipally owned utilities).

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

Companies are required to annually file a report to the State Board of Assessors, including information prescribed by the Board. Such filing is made under oath and the Board also has subpoena power to get documents from other government (state and local) agencies and to call witnesses. The Board may impose penalties of $500/day for delinquent or non-filing of reports unless a company can show that it cannot furnish any of the information requested. Additional detailed reports are required by railroad companies claiming the tax credit.

All telephone companies, car lines and railroads are required to file such a report annually. Telephone companies are companies which: (1) provide switching and/or routing of 2-way information of the user's choosing that is transmitted over landlines and/or landline transmission of 2-way information of the user's choosing that are voice and/or data and/or data and/or broadband, and (2) offer these services, either directly or indirectly, to the public in Michigan.

Property is to be assessed at true cash value as determined by the Board. The Board must have the roll available for inspection by the third Monday of May and continue to be available for appeals each day necessary there after but not later than June 15. Once all valuations are finalized, the Board determines the average rate of taxation to be applied from the information contained in the reports (dividing the total ad valorem taxes reported by each county clerk by the State equalized value determined for the prior year by the State Board of Equalization). No specific statutory language is provided for valuing state assessed railroad and utilities.

6. Practical application of valuation method(s):

All three approaches to value are used: (original) cost, income, and market (stock and debt). The market approach is seldom used. Income valuation is used if net income is stable over time. With telecommunications property two approaches are used: 1) original cost less book depreciation, and 2) capitalization of net income (with 70% of weight given to this latter approach).

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

Power plants have been valued according to reproduction cost new less depreciation. Straight-line depreciation is being revisited for considering "equal life grouping" methodology, based on survivorship curves.

8. Apportionment method(s) required by statute:

Allocation of value to the State of Michigan for property of companies operating both within and outside of the state is based upon the proportion of track miles or miles of telephone or telegraph lines. Special procedures pertain to express companies operating on water routes within the state, especially where such routes are ocean routes.

9. Practical application or apportionment requirements:

The ratio of Michigan investment and revenue to total company investment and revenue is used to apportion value to Michigan for telephone/telegraph properties and for railroads. Railroad property value is also apportioned according to traffic density on lines. Private car company property is apportioned exclusively by proportion of track miles within Michigan.

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

Value is apportioned by situs, and not along utility or rail systems.

11. Description of assessment appeals system:

Tentative valuations are produced on May 15 of each year. Owners may appeal to State Board of Assessors for a hearing. Further appeal may be made to Michigan Tax Tribunal by June 30.

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

Deregulation has been underway in Michigan since 2000 when the Public Service Commission created the Customer Choice Program. Customers may purchase electricity from merchant generating plant owners. To date the presence of merchant generating stations has not affected valuation or apportionment procedures.

13. State Government Staffing:

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

Law Source(s):     Michigan Statutes Annotated §§207.1-207.20, Title 22, Chapters 208, 211-213, 215, 222, 223, 225, 226, 230

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