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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:

Market value.

2. Property subject to taxation:

Real and personal, including both tangible and intangible property. However, intangible personal property is exempted according to 15-6-218, MCA. Electric and telephone companies are subject to state license taxes. Rural cooperative utilities pay an annual fee to the state in lieu of excise and income taxes. Pollution control equipment of railroads and utilities is regarded as Class 5 property, and is taxed at lower rates (see property classes below).

3. Classification (if applicable):

At present, Montana has thirteen classes of property for taxation purposes. The classes most pertinent to railroad and utility valuation are listed below along with the percent at which assessed property in each class is taxed:

Class 5 - Property of rural cooperatives except those classified in Class 7 and property of businesses engaged in providing telephone service exclusively in rural areas or in cities of 800 persons or less. Station and transformer property owned by non-centrally assessed power and gas companies. (3%)

Class 7 - Property owned by cooperative rural electric associations that serve less than 95% of the electricity consumers within the incorporated limits of a city or town. (8%)

Class 8 - Property of cable television systems and cellular phone companies. (3%)

Class 9 - Centrally assessed utility transmission and distribution systems owned by electric, telephone and gas companies. (12%)

Class 12 - Centrally assessed property of railroad car companies, railroad companies and airline companies. Tax rate is average of all properties. (3.88% in 2003)

Class 13 - Centrally assessed property of electrical generation companies. (6%)

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

The department is responsible for valuing all property in the state of Montana.

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

Owners of centrally assessed utilities are required to annually submit information pertaining not only to physical inventory but also to company finances; gross investment; expenditures; capital stock authorized; funded debt; and other facts deemed necessary in the valuation of these utilities.

6. Practical application of valuation method(s):

When applying unit methodology, the department uses current, commonly accepted appraisal methods, techniques and standards. The cost, income and market approaches are always considered. The cost approach generally consists of a historical/book cost less depreciation. Replacement and reproduction costs are always considered when available. Income approaches include direct and yield capitalization methods, also dependent on the availability of data. The market approaches are generally based on the stock and debt approach for publicly traded companies and the sales comparison approach when arms-length-transactions (sales) are available.

In the absence of reliable market data, the department may employ other valuation techniques such as net scrap, net salvage and corridor values. In some cases methodology reflects a statutory requirement. Currently railroads are valued using a formula based methodology based off a prior year appraisal.

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

See answer to question 6.

8. Apportionment method(s) required by statute:

Values of centrally assessed utility property are apportioned to county levy-districts on a mileage basis or on the basis of original installed cost. Where data are unavailable or unreliable the department does use/consider other methodologies.

9. Practical application or apportionment requirements:

Allocation of Unit Value to State: The department allocates value based on operating criteria pertinent to the industry in question. These criteria include such things as quantity, use and productivity ratios. The criteria by industry is as follows:

(1)    Electric Companies - cost, revenue, megawatts of generation (2)    Gas Pipelines - cost, revenues (3)    Oil Pipelines - cost, revenues (4)    Railroads - Statute (MCA, 15-23-205) (5)     Telecommunications Companies - cost, revenue, net operating income

Apportionment of State Value to Levy-Districts: Done on a cost and/or mileage basis as described in question 8 above.

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

Same as question 8.

11. Description of assessment appeals system:

The department uses a system that offers the taxpayer several avenues in which to resolve any questions they may have. The first step in the appeals process is to request an informal meeting in which to discuss any issues with the appraiser. The request for informal review is made in writing, or by using department form CVR-01. If the taxpayer is still unsatisfied with the appraisal, they may request mediation through the departments Office of Dispute Resolution. They may use the department's in-house facilitator or request an independent facilitator at their own cost. From there, the matter would go before the State Tax Appeal Board or go directly to District Court.

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

The Montana Legislature deregulated electric utilities allowing the separation of generation from transmission and distribution, in calendar year 2000. This was accomplished through the passage of SB 390. SB 390 has no direct affect on valuation, allocation or apportionment.

13. State Government Staffing:

Staff consists of 3 full time appraisers and a fulltime auditor.

Law Source(s):     Montana Code Annotated Title 15(Taxation) Ch. 8, Sections 404407; Ch. 23 (Centrally Assessed Property)

Rule: Administrative Rules of Montana (ARM) Title 42, Ch. 1, Subch. 1 (Centrally Assessed Property)

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