Survey of Railroad and Utility Taxation Practices Among the States: 2005 Update
1. Basis for taxation:
True value in money of each public service company (includes railroad, pipeline, telephone, telegraph, electric power, and electric membership companies). Cable television companies are not regarded as utilities subject to central assessment, and are instead assessed locally. All utilities are subject to gross receipts taxes.
2. Property subject to taxation:
Taxable utility property comprises:
System property -- both real and tangible personal property, used by public service company in its public service activities;
Nonsystem property -- includes real and tangible property not a part of system business operations. Pollution abatement and energy conservation structures and fixtures are exempt from real and tangible personal property taxation. '"Freight car lines," which have specific commodities by rail, pay gross receipts taxes in lieu of ad valorem taxes.
3. Classification (if applicable):
4. Level of government which determines basis for tax liability - ad valorem property tax:
State of North Carolina, Department of Revenue (DOR), Property Tax Division.
5. Report filing and valuation method(s) required by statute for ad valorem taxation:
Utilities in North Carolina are valued as units, according to: (1) book value of company's system property, as reflected in books of account of public service company, (2) gross receipts and operating income of the company, (3) market value of company's stock and debt, factoring in nonsystem property, (4) any other factor or information that the Department of Revenue deems vital in determining the true value of the company's system property. Public service companies are required to file annual property reports on operating property, whether owned or leased, to the DOR, including financial reports and those provided to federal regulatory agencies.
By statute the assessed value of public service company system property subject to appraisal by the DOR is determined by applying to the allocation of such value a percentage, to be established by DOR. Such a percentage is based on sales ratio studies conducted by DOR in the year a given county conducts a reappraisal of real property (by law, once every eight years) and in the fourth and seventh years thereafter. The percent applied will either be:
(a) the median ratio established in the sales assessment ratio study; or
(b) a weighted average percentage based on the median ratio as established in (a) and 100% ratio for personal property. No percentage will be applied in a year in which median ratio for real property is 90 percent or greater.
If the median ratio in a given county falls below 90 percent and if DOR deems assessment practices in the county are satisfactory, then weighted average percentage will be applied toward public service company property, based on assessed value figures for real and personal property reported by county for the preceding year. If local assessment practices are deemed unsatisfactory, the percentage to be applied shall be the median ratio for real property.
DOR certifies both system and nonsystem values to the appropriate counties and municipalities. Each local unit shall assess public service companies at the figures certified. These properties, as well as with all other properties, shall be assessed at 100 percent of true value in money.
6. Practical application of valuation method(s):
ln general, DOR places nearly equal emphasis on depreciated cost of utility property (including any necessary adjustments), and net operating income, capitalized to present value. Stock and debt is not emphasized in the valuation. Nonsystem properties are often valued using the sales comparison approach.
7. Valuation treatment of large facilities such as power plants, dams, or rail yards:
Such facilities are appraised as a part of the system method, and consists of cost, income and market approaches to value.
8. Apportionment method(s) required by statute:
DOR is charged with valuing utilities as systems, both inside and outside the state. Once the true value of each public service company is determined as a system, DOR applies business, mileage, and property factors to the ratio of each company's respective business, mileage, and property located within North Carolina to determine values to the state. Within the state system properties of public service companies are allocated to local taxing jurisdictions according to mileage factors (railroads) and uniform system of accounts (telephone equipment, lands and buildings, large equipment), and according to the proportion of original cost of taxable system property in the state to the total original cost in the entire utility system.
9. Practical application or apportionment requirements:
For railroads, cost and various revenue factors are used to allocate value to the state. Within the state value is allocated according to traffic density factors. Nonsystem and nondistributable system properties are allocated by situs.
For telephone companies, system property is valued in two parts: central system property, which is allocated first to the state then to each situs; and all other property, which is allocated by wire mileage within the state. Procedures for valuing nonregulated system and nonsystem property are the same as those for railroads.
For all other utilities, the original cost of operating line property is allocated first to the state, and then distributed according to location of mileage in the state. Values are assigned nonsystem and nonregulated system property by situs.
10. Apportionment treatment of large facilities such as power plants, dams, or rail yards:
Apportioned in same means as other properties for their property or industry type.
11. Description of assessment appeals system:
Step 1 - Informal appeal to the Director; Step 2 - Appeal to the Property Tax Commission; Step 3 - Appeal to the State Court of Appeals; Step 4 -Appeal to the State Supreme Court
12. Status of deregulation/restructuring of electric generating and impact on valuation and apportionment methods used:
Deregulation is not currently being pursued in North Carolina.
13. State Government Staffing:
Staff consists of two employees (full-time equivalent basis).
Law Source(s): North Carolina General Statute, Chapter 105, Subchapter 11, Articles 13 and 23.