Survey of Railroad and Utility Taxation Practices Among the States: 2005 Update
1. Basis for taxation:
Railroad property values for operating property are determined by the commissioner of revenue annually using information required of all affected companies. Non-operating property is taxed and assessed locally. Utility company values of electric, gas distribution, natural gas pipelines and petroleum pipelines operating properties are determined by the commissioner of revenue annually, using information required of all affected companies. Non-operating property such as offices, garages warehouses and land are taxed and assessed locally. All other property is locally assessed and taxed.
2. Property subject to taxation:
Taxable: All real property and personal property of utilities described in #1.
Exempt: Personal property except for utility personal property and all property specifically exempted by statute.
3. Classification (if applicable):
Assessment of property is made at specified percentages of market value according to the state's classification system Minnesota Statutes §273.013. The rate for commercial/industrial property is generally 1.5% of the first $150,000 and 2% on value above $150,000. Contiguous property parcels receive only one first tier rate. Utility machinery is not eligible for the first tier rate. Utility personal property (power lines and pipelines) and railroad property receive one first tier rate per company per county.
4. Level of government which determines basis for tax liability - ad valorem property tax:
Operating property of railroad companies is valued by the State Commissioner of Revenue. Non-operating property, land and rights-of-way are assessed under general property taxation by local and county assessors for utilities other than railroads. With railroads, only non-operating property is valued locally.
5. Report filing and valuation method(s) required by statute for ad valorem taxation:
Every railroad and utility company doing business in Minnesota must annually file a report by March 31 with the Commissioner of Revenue. Every year between March 31 and June 30 the Commissioner determines the value of operating property as of January 2 of that year in accord with adopted rules. There is no valuation methodology specified in statute.
6. Practical application of valuation method(s):
Publicly owned railroads are valued using cost, income and stock and debt. Other railroads are valued using original cost and income. Utility companies are valued using cost and income approaches except for non-profit companies and non-common carrier companies, which are valued solely by original cost.
7. Valuation treatment of large facilities such as power plants, dams, or rail yards:
No special treatment is provided to valuing rail yards. For electric utilities many special exemption exist in Minnesota Statutes 272.02 for new alternative fuel electric plants. In addition, wind energy production systems are taxed under a special tax. See Minnesota statutes §272.028 and 272.029.
8. Apportionment method(s) required by statute:
Value is apportioned in accordance with adopted rules. For railroad property acres of land, miles of track and cost of structures with a cost of over $10,000 are used. For utilities the original cost of property is used.
9. Practical application or apportionment requirements:
10. Apportionment treatment of large facilities such as power plants, dams, or rail yards:
None; values are assigned by situs.
11. Description of assessment appeals system:
Railroads have 60 days from the date of the commissioner's order to file an appeal to tax court. Administrative appeals may be filed with 10 to 15 days after the notice of value.
12. Status of deregulation/restructuring of electric generating and impact on valuation and apportionment methods used:
Deregulation is stalled as of 2003, and as such there is no impact on valuation.
13. State Government Staffing:
Staff consists of 3.5 FTE employees.
Law Source(s): Minnesota Statutes
Chapter 270 Section 270.80 - 270.88 for railroads
Chapter 272 (taxation general provisions)
Chapter 273 Listing assessment
Rules Minnesota Rules, Chapters 8100, 8106.