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Survey of Railroad and Utility Taxation Practices Among the States: 2005 Update

STATE OF OHIO

1. Basis for taxation:

True value in money, defined as the current market value of fair value of a property and is the price at which it should change hands between informed, willing buyers and sellers not acting under compulsion. At present railroads, long distance telecommunications companies and electrical utility companies pay a corporate franchise tax. Local exchange companies will pay this tax effective in 2005.

2. Property subject to taxation:

The real property owned by utilities is taxable at an assessment level of 35%, the same assessment level as all other real property in Ohio. Taxable tangible personal property is taxable at various assessment levels. The assessment rates vary from 88% to 25%. The taxable transmission and distribution property of an electric company is assessed at 88% of true value. All other taxable personal property of an electric company is assessed at 25% of true value. The taxable transmission and distribution property of a rural electric is as assessed at 50% of true value. All other taxable personal property of a rural electric company is assessed at 25% of true value. All of the taxable personal property of an interexchange telecommunications company, a natural gas company, a railroad company (the federal 4-R Act prevents any state from assessing railroads at higher levels than other categories of personal property) and a water transportation company is assessed at 25% of true value. Taxable telephone personal property first subject to taxation in tax year 1995 is assessed at 25% of true value while all other taxable personal property is assessed at 88% of true value. The taxable personal property of a heating company, pipeline company and a water works company is assessed at 88% of true value. The cost of air and water pollution control facilities under approved certificate and personal property under construction are exempt from taxation.

3. Classification (if applicable):

Real and personal property classifications are set by statute.

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

The Tax Commissioner determines the taxable value of all public utility and interexchange telecommunication company personal property owned and located in Ohio. The Tax Commissioner also determines the taxable value of all real property and personal property owned or operated by railroads. Assessments reflecting the taxable values determined by the Tax Commissioner are sent to the county auditors in Ohio and the public utilities. The real property of non-railroads is valued and assessed by the county auditors.

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

; Public utilities and inter-exchange telecommunication companies file Annual Reports with the Tax Commissioner listing all Ohio property. The Annual Reports are due on March 1 for property owned on December 31 of the previous year. A filing extension of up to 60 days may be obtained from the Tax Commissioner upon request. Generally, public utility personal property is valued on a unit basis using the cost as capitalized on the books and records of the company less composite annual allowances as prescribed by the Tax Commissioner. Railroad property is valued using the unitary method utilizing the cost and income approaches. In certain circumstances, the Tax Commissioner may use another method of valuation if it is determined that the prescribed method does not arrive at true value. The true value of current gas stored underground is determined by adding the cost of gas in storage at the end of each month during the year and dividing that total by the number of months in business during the year. The true value of noncurrent gas stored underground is the cost on the books on December 31. The true value of the production equipment of an electric company and all taxable personal property of a rural electric company is the cost as capitalized on the books and records less a 50% allowance for depreciation and obsolescence.

6. Practical application of valuation method(s):

Most public utilities and inter-exchange telecommunication companies are valued using the cost on the books and records of the company less composite annual allowances prescribed by the Tax Commissioner. The unitary method of valuation, which uses a cost, income and market approach, is used in valuing railroad property and in certain other circumstances.

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

Electric production equipment is valued using two statutory methods. The first uses the cost on the books and records less a 50% allowance for depreciation and obsolescence. Electric production equipment sold, transferred or first placed into service after December 31, 2000 is valued using the cost on the books and records less composite annual allowances prescribed by the Tax Commissioner.

8. Apportionment method(s) required by statute:

The taxable value of telephone companies and inter-exchange telecommunication companies with wire is apportioned using the proportion of wire miles in a taxing district to the total wire miles in Ohio. The taxable value of telephone companies and inter-exchange telecommunication companies without wire is apportioned using the same proportion of cost in a taxing district to the total cost of taxable property in Ohio.

The taxable value of electric production equipment is apportioned to the taxing district where the property is physically located. The taxable value of all other electric personal property is apportioned using the same proportion of cost in a taxing district to the total cost of taxable property in Ohio.

The taxable value of an interstate railroad is apportioned using two methodologies. First, the entire value of the railroad is apportioned to Ohio using the proportion of miles of single or first main track in Ohio to the total system miles of single or main track. Then, the taxable value of personal property used in operations is apportioned using the proportion of miles of single or first main track in a taxing district to the total system miles of single or main track in Ohio. The taxable value of real property is apportioned by its relative value in each taxing district. The taxable value of an intrastate railroad is apportioned in the same manner, as an interstate railroad after the Ohio value has been determined.

The taxable value of all other utilities is apportioned to each taxing district in the proportion that the taxable cost in the taxing district is to the total value in the state.

9. Practical application or apportionment requirements:

Apportionment is governed by statute. Wire miles, rail miles, taxable cost and physical situs are the primary methods used for apportioning taxable value.

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

The taxable value of electric production equipment is apportioned to the taxing district where the plant is located.

11. Description of assessment appeals system:

Preliminary assessments of taxable value are issued on or before the first Monday in October. The taxpayer has sixty days to file a petition for reassessment (appeal) with the Tax Commissioner. The Office of Chief Counsel reviews the petition. The taxpayer may have an informal hearing if they so choose. The decision of the Tax Commissioner is issued on a final determination. The taxpayer has sixty days to appeal that decision to the Ohio Board of Tax Appeals. The Board of Tax Appeals will conduct a formal hearing with attorneys representing both sides in the hearing. The Board will issue a formal decision on the matter after the hearing and all final briefs are filed. Both sides have sixty days to appeal the Board's decision to the Ohio Supreme Court. The Supreme Court may or may not elect to hear the case. if the case is heard, the Supreme Court will issue a binding decision.

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

Electric restructuring impacted the valuation and apportionment of electric personal property. All non-transmission and distribution property is assessed at 25% of true value (rather than at 100%) for taxable production equipment and 88% for all other taxable equipment installed prior to electric restructuring. The taxable value of electric production plant is apportioned to the taxing district where the plant is located. All remaining taxable value is apportioned to each taxing district in the same proportion that the taxable cost in the taxing district is to the total cost of taxable personal property in the state.

13. State Government Staffing:

The Public Utility Tax Section consists of six full-time employees.

Law Source(s):     Chapter 5727 of the Ohio Revised Code

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