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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:

True and full value, determined by considering the productive capacity, market value, and all other matters that affect the actual value of the property to be assessed.

2. Property subject to taxation:

Utility companies are subject to taxation of their franchises and all operative property, real and personal, by statute. Only real property of railroads and air transportation companies is subject to taxation. All personal property in North Dakota, other than utility property, is exempt from taxation. Telecommunications carriers and rural electric cooperatives are subject to gross receipts taxation in lieu of property taxation.

3. Classification (if applicable):

All utility property, real and personal, is considered personal property for purposes of taxation. For all types of property in North Dakota, the assessment level is 50 percent of true and full value (assessed value). For commercial, railroad, and centrally assessed property, and agricultural land, taxable value is 10 percent of assessed value. For residential property, taxable value is 9 percent of assessed value. Tax rates vary by jurisdiction but are uniform on all classes of property located in each jurisdiction.

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

The State Tax Commissioner is responsible for calculating tentative assessments of utility properties prior to their submission to the State Board of Equalization for final approval. Local assessors assess non-operative portions of utility property which are not currently part of the business of the specific utility.

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

Each company must file an annual report on forms prescribed by the Tax Commissioner with the Office of State Tax Commissioner and the counties in which the company has property by May 1. The reports include the property of the company, both within and outside the state, and financial information about the company. Valuation methods are not specified by statute, but the basis of valuation implies that the three main approaches to value (cost, income, and market) should be used to arrive at property value whenever possible.

6. Practical application of valuation method(s):

Weighting of cost, income, and stock and debt indicators of value is done by judgment, not percentages. With the cost approach, the commissioner uses original cost less depreciation adjusted for obsolescence or asset enhancement. Income shortfall is used as a measure of obsolescence, and thus the cost indicator is influenced by income. (Reproduction or replacement cost data is difficult to obtain.)

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

Coal-fired power plants pay the coal conversion facilities privilege tax in lieu of property tax on all property except land. Other power plants are included in the ad valorem assessments of the utilities. There are no taxable generating dams in North Dakota (only a government-owned dam). There is no provision for rail yards; they are included in the railroad unit value. All railroad value is distributed according to miles of track.

8. Apportionment method(s) required by statute:

All railroad property value is apportioned according to track mileage, by main line and branch line. There are no statutory provisions for separately apportioning value of other railroad operative property. For all other utilities, the State Board of Equalization fixes a value per mile for all operative property constituting a single and continuous property (pole lines, pipelines, wire lines). All property not part of any single and continuous property is allocated to the taxing district in which the property is located.

9. Practical application or apportionment requirements:

Three criteria are used for allocating the value of railroad system property to the state: 1) gross earnings, 2) revenue traffic units, and 3) car and locomotive mileage. Traffic density is the basis for apportionment within the state, and the formula for determining the relative values of the various main lines and branch lines is updated every few years. For all other public utility property, value is distributed to the taxing districts in which the property is located.

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

The coal conversion facilities privilege tax paid by coal-fired electric generating plants in lieu of property tax has two parts. The tax based on installed capacity is allocated 15 percent to the county where the plant is located and 85 percent to the state general fund. The tax based on generation goes 100 percent to the state general fund. The only generating dam in North Dakota is owned by the federal government and not subject to property taxation. Rail yard value is included in total railroad value which is distributed by miles of track.

11. Description of assessment appeals system:

A company may appeal the tentative assessment to the State Board of Equalization. After the State Board finalizes the assessments, a company may bring an action in the district court of the county in which the company maintains its principal place of business in this state. Action must be brought on or before the date on which the taxes become due.

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

No deregulation/restructuring has occurred to date. Interim committees have been trying to develop a new method for taxing all electric companies (investor-owned and rural electric cooperative) for the last six years and will continue to do so. So far the IOU's and REC's have not been able to reach any agreement.

13. State Government Staffing:

Staff consists of one employee (full-time equivalent basis).

Law Source(s):     North Dakota Century Codes Section 57-05 (Railroads) and 57-06 (Other Utilities)

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