Survey of Railroad and Utility Taxation Practices Among the States: 2005 Update
1. Basis for taxation:
Ad valorem property taxation, plus taxation on gross receipts of utilities. Fees are also imposed on utilities and railroads to compensate for costs incurred in various state regulatory and assessment activities.
2. Property subject to taxation:
All railroad and utility real property. Taxable real property of utilities includes tangible utility property operating on, under, or above both privately and publicly owned rights of way, plus the value of the intangible right to operate in the public way for utilities holding special franchises.
Exemptions apply to pollution abatement and control facilities, and to the extent that that locally assessed values on intrastate and interstate railroad system property exceed special "ceiling values," as established by the state. Partial exemptions are available for qualifying capital improvements to real property. Transmission equipment for radio/TV, and central office equipment of telephone companies, is personal property, which is not taxed in New York. Equipment at the base of cellular phone towers may be taxable real property real property or exempt personal property depending on the fixity of installation. In lieu of real property taxation, taxing jurisdictions may enter into PILOT agreements with owners of nuclear power plants (see #12).
3. Classification (if applicable):
New York does not have a classified system of taxation applicable in the entire state. Exceptions are New York City and in Nassau County, which have a four-rate class system of assessment. Furthermore, other municipalities have the option of adopting a two-class "homestead-nonhomestead" system, whereby higher tax rates are applied to non-residential property. At present, the overwhelming majority of municipalities are required by law to value and tax railroad and utility property at the same rates as all other types of property.
4. Level of government which determines basis for tax liability - ad valorem property tax:
The State Board of Real Property Services (SBRPS) is charged with valuing utility property operating in the public way, as special franchises. SBRPS also values both intrastate and interstate railroads for the purpose of setting an upper limit, or ceiling, on locally assessed values for purposes of taxation.
Local assessors are responsible for valuing utility property on privately owned rights of way, and also railroad property. Locally assessed values on railroads are taxable up to ceiling values set by the state.
5. Report filing and valuation method(s) required by statute for ad valorem taxation:
New York requires that railroads and utilities file annual reports on finances and inventory by municipality to SBRPS. SBRPS also uses information these companies file with the Public Service Commission, the Department of Transportation, and with the Interstate Commerce Commission.
New York has no statutory language that specifies valuation methods on utility property, other than that such valuation must include the value of the tangible property involved. However, railroad ceiling values are produced by statute according to reproduction cost new, less depreciation from physical, functional, and external obsolescence. Railroad company earnings are used in conjunction with the reproduction cost approach to establish ceiling values for each railroad company according to legally prescribed schedules. Both special franchise and railroad ceiling values are adjusted to local assessment levels by applying equalization rates set by SBRPS.
6. Practical application of valuation method(s):
Recent court rulings have established that special franchise property is "specialty property," and that reproduction cost new less depreciation is the proper method for valuing these properties. SBRPS uses this particular cost approach for valuing special franchise property as well as for setting railroad ceiling values, as indicated above.
The methods used to value locally assessed utility and railroad property (i.e., other than special franchises and ceiling railroads) are not known, but they probably vary from one assessing unit to another.
7. Valuation treatment of large facilities such as power plants, dams, or rail yards:
Power plants have for the most part been divested from the transmission and delivery portion of regulated utilities. As with utility property, there is no statutory language that specifies valuation methodology for power plants (and associated dams with hydroelectric facilities), and such facilities are valued by local assessing units using any or a combination of appraisal approaches. However, assessing units undergoing reassessment often rely on advisory appraisals provided by SBRPS. Such appraisals place greater reliance on income and market approaches to value than before divestiture, when no discernible markets for power plants existed. Ceiling values for rail yard property are set according to the procedures outlined in #5 above.
8. Apportionment method(s) required by statute:
New York does not use the unitary method of valuation, and there is thus no statutory formula-driven apportionment process. The law requires that all property, including that of utilities and railroads, be assessed according to location.
9. Practical application or apportionment requirements:
The assessment of each special franchise and ceiling railroad value is provided by SBRPS to the appropriate assessing unit according to the location of railroad and utility property as identified by the assessor. Assessors apportion special franchise and ceiling railroad values whenever there is more than one school district or special district within the assessing unit.
10. Apportionment treatment of large facilities such as power plants, dams, or rail yards:
As with railroad property in general, ceiling values of rail yard property are provided by SBPRS to the appropriate assessing unit according to the location of the rail yard property. Privately owned power plants and associated dams are not normally situated in the public way, and as such are valued locally -- no apportionment treatment applies.
11. Description of assessment appeals system:
After determining tentative assessments of special franchise and railroad ceiling values, SBRPS notifies both property owners and local assessing units of these assessments. If owners or assessing units object to the tentative values, they each may file for a formal hearing before SBRPS. Following any necessary hearing, SBRPS makes final determination of these values, and owner or assessing unit may appeal final assessments before state Supreme Court. When a special franchise owner appeals in the State Supreme Court, the expenses of experts retained to defend these assessments are billed pro rata to each assessing unit in which the properties under review are located. Owners may appeal locally valued assessments on assessment grievance day, to be followed by hearings before boards of local assessment review. If dissatisfied, owner may appeal to state Supreme Court (as local assessing units are ultimately responsible for valuing railroad property, owners may appeal locally assessed values as well as state-determined railroad ceiling values).
12. Status of deregulation/restructuring of electric generating and impact on valuation and apportionment methods used:
At this time, utility companies have divested power plants (except for one utility company), and have sold them to various companies. These companies are not required to file annual reports to SBRPS. As a market has developed for such plants (as well as for newly constructed plants), local assessments based on a cost approach may be increasingly challenged by the owners, despite past court rulings treating such property as "specialty property," to be properly valued through reproduction cost. Assessing units that reassess are requesting and receiving advisory appraisals from SBRPS that incorporate all three approaches to value. Given that prior case law may no longer be applicable for power plant property, and that the presence of power plant markets are become increasingly discernible, values on such facilities, especially nuclear, may result in sharply reduced values following litigation taken by plant owners. To mitigate these forecasted events, Real Property Tax Law now permits affected local taxing jurisdictions to opt into a program that exempts nuclear generating facilities from the real property tax for a period that can extend through the 2015 roll year. For the duration of the exemption PILOTs will be required. All seven nuclear plants in New York are presently covered by such PILOT agreements.
13. State Government Staffing:
Staff consists of 56 employees (full time equivalent basis).
Law: Real Property Tax Laws of the Consolidated Laws Article 4, Titles 2-A (intrastate Railroads) and 2-B (interstate Railroads), and Article 6 (Special Franchises); Real Property Tax Law §485.
Rules: Procedures of Office of Real Property Services 1) Railroad Ceilings for City, Town and Village Assessment Rolls; 2) Special Franchise Assessments and Values, City, Town and Village Assessment Rolls