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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:

Ad valorem. Utilities also pay a state gross receipts tax.

2. Property subject to taxation:

All real property, and both tangible and intangible personal property.

3. Classification (if applicable):

All classes are assessed at constitutionally set levels, ranging from 25 percent (residential property) to 55 percent (utility property). The tax rate is the same for all classes. The assessment ratio for railroads was reduced from 55 percent to 40 percent (the ratio used for the commercial/ industrial class) in 1980 when the "4R" legislation was enacted.

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

The Comptroller of the Treasury Office of State Assessed Properties (OSAP) assesses all utilities and railroads (buildings as well as track, wires, pipes, etc., and both personal and real property).

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

Section 67-5-1322 of the Tennessee Code Annotated requires that the following factors be taken into account, where appropriate: capital stock; corporate property, franchises, and income; and market value of shares of stock and bonded indebtedness. Unit-value appraisal is required. Annual reporting of property to OSAP is required. OSAP also has the power to summon company representatives, call for records, etc.

6. Practical application of valuation method(s):

Railroads: Real property is valued annually. For buildings and land, comparable sales are used when available. However, building values are usually based on depreciated cost figures. For rail and related improvements, three approaches are used: cost (original cost less depreciation as according to the Surface Transportation Board); market (stock and debt approach); and income. Tangible personal property is valued using original cost less STB depreciation. The value of intangible personal property is assumed to be in the income and stock/debt values.

Other Utilities: All three approaches are used; if data are available, replacement cost is used when that approach is chosen (otherwise historical cost is used). Often data are not available for all methods: for example, a new company which is not publicly traded would be missing income and stock/ debt information, and a water supply company might show negative net income, rendering the income approach impractical.

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

Power plants and dams are typically valued utilizing the historical cost less depreciation for improvements and sales comparison approach for the land. Rail yards are valued by the sales comparison approach for the land, and Marshall & Swift cost less depreciation for improvements.

8. Apportionment method(s) required by statute:

Section 67-5-1322 requires that consideration be given, where appropriate, to: the ratio of miles traveled in the state to miles traveled in the entire system; the original cost of in-state property to system wide property; the ratios of ground hours, gross revenue, track miles, ton-miles and tons in-state to system wide; and any other factors which help determine the state's share. For apportionment to taxing units, consideration must be given to local-state ratios of these same factors, plus the ratio of traffic density in the taxing unit to the state average traffic density. All property having an actual situs must be apportioned to the taxing unit where it is located.

Practical application or apportionment requirements

Railroads: A combined factor, based on property and use, is applied, with equal weighting for the two considerations. The property factor reflects a combination of physical property and gross investment in the state vs. in the system. The use factor reflects a combination of ton-miles and originating/terminating trips. To allocate to taxing units, equal weight is given to a property factor based on track miles and a use factor based on branch density.

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

For power plants, Tennessee mostly has TVA facilities, which makes payments in lieu of taxes. Rail yards are valued by sales comparison approach for land. For improvements, Marshall & Swift cost table are utilized.

11. Description of assessment appeals system:

 Description of assessment appeals system
TCA     67-5-1327    allows for an informed hearing
    67-5-1328 provides for a review by the State Board of Equalization

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

No deregulation/restructuring programs are currently in place.

13. State Government Staffing:

Staff consists of fourteen employees (full-time equivalent basis).

Law Source(s):     Tennessee Tax Law, Titles 65-67

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