Survey of Railroad and Utility Taxation Practices Among the States: 2005 Update
1. Basis for taxation:
All property is taxable at 100% of true and fair value unless specifically exempted from property tax (RCW 84.36.005 and 84.70.040). True cash value criteria are listed under statute (WAC 458-50-080).
2. Property subject to taxation:
Taxable: All property, both real and personal, is subject to property tax unless specifically exempted by statute. (RCW 84.40.040)
Exempt: Certain intangible personal property are exempt, such as cash and accounts receivable, private non-government athletic or sports franchises, trademarks, trade names, brand names, patents, copyrights, trade secrets, franchise agreements, licenses, permits, core deposits of financial institutions, non-compete agreements, customer lists, patients, favorable contracts, favorable financing agreements, reputation, exceptional management, prestige, good name, or integrity of a business. Intangible personal property does not include zoning, location, view, geographic features, easements, covenants, proximity to raw markets, availability to skilled work force, and other characteristics or attributes of property. (RCW 84.36.070)
Computer software is classified as canned, custom, or embedded software. Custom software is exempt, canned software is exempt after two years, and embedded software is fully taxable.
3. Classification (if applicable):
Operating and Non-operating property: "Operating property" means and includes all property, real and personal, owned by any company, or held by it as occupant, lessee or otherwise, including all franchises and lands, buildings, rights-of-way, water powers, motor vehicles, wagons, horses, aircraft, aerodromes, hangars, office furniture, water mains, gas mains, pipe lines, pumping stations, tanks, tank farms, holders, reservoirs, telephone lines, telegraph lines, transmission and distribution lines, dams, generating plants, poles, wires, cables, conduits, switch boards, devices, appliances, instruments, equipment, machinery, landing slips, docks, roadbeds, tracks, terminals, rolling stock equipment, appurtenances and all other property of a like or different kind, situate within the state of Washington, used by the company in the conduct of its operations; and, in case of personal property used partly within and partly without the state, it means and includes a proportion of such personal property to be determined as in this chapter provided. (RCW 84.12.200 (12))
"Non-operating property" means all physical property owned by any company, other than that used during the preceding calendar year in the conduct of its operations. It includes all lands and/or buildings wholly used by any person other than the owning company. In cases where lands and/or buildings are used partially by the owning company in the conduct of its operations and partially by any other person not assessable under this chapter under lease, sublease, or other form of tenancy, the operating and non-operating property of the company whose property is assessed hereunder shall be determined by the department of revenue in such manner as will, in its judgment, secure the separate valuation of such operating and non-operating property upon a fair and equitable basis. The amount of operating revenue received from tenants or occupants of property of the owning company shall not be considered material in determining the classification of such property. (RCW 84.12.200 (13))
Real and Personal Property: In making the assessment of the operating property of any railroad or logging railroad company and in the apportionment of the values and the taxation thereof, all land occupied and claimed exclusively as the right-of-way for railroads, with all the tracks and substructures and superstructures which support the same, together with all side tracks, second tracks, turn-outs, station houses, depots, round houses, machine shops, or other buildings belonging to the company, used in the operation thereof, without separating the same into land and improvements, shall be assessed as real property. And the rolling stock and other movable property belonging to any railroad or logging railroad company shall be considered as personal property and taxed as such: provided that all of the operating property of street railway companies shall be assessed and taxed as personal property. (RCW 84.12.280)
4. Level of government which determines basis for tax liability - ad valorem property tax:
The Department of Revenue is responsible for general supervision and control over the administration of the assessment and tax laws (84.08.010). The Department has the jurisdiction to determine operating utility property (84.12.210). The Department makes annual assessments of all state operating property. (84.12.270)
5. Report filing and valuation method(s) required by statute for ad valorem taxation:
Annual reports are filed with the Department on or before March 15. (RCW 84.12.230) The Department has access to all books, papers, documents, statements and accounts on file or of record. (RCW 84.12.240) (WAC 458-50-040)
Valuation of interstate utility companies is done by valuing the unit as a whole system using generally accepted principles applicable to the valuation of public utilities (cost, market, and income approaches as applicable for a unit valuation). (RCW 84.12.300) and (WAC 458-50-080)
6. Practical application of valuation method(s):
Valuation is carried out in accordance with procedures explained in #5. When the cost approach is used, both historical cost and RCNLD are applied to unregulated utility property. For rate-regulated utility property, only historical cost is applied.
7. Valuation treatment of large facilities such as power plants, dams, or rail yards:
The valuation of these large facilities would be captured in the unit valuation method that captures the value of the entire system.
8. Apportionment method(s) required by statute
9. Practical application or apportionment requirements:
Allocation from system value to state value: The Department uses established industry units of measure to allocate system values down to Washington state values. These methods vary among different utility industries, but reflect either quantity, economic, and/or use elements. Historical costs and revenues are used as primary elements, but other elements are pipe size and miles, railroad miles, equated hours, ton miles, etc. These methods are agreed upon and used uniformly by the 13 Western States Association of Tax Administrators (WSATA).
Apportionment from state value to local taxing districts: Historical costs are the primary units of measure used to apportion assessed values to local taxing districts. Apportionment for railroads and pipelines also incorporate miles of track or pipelines.
10. Apportionment treatment of large facilities such as power plants, dams, or rail yards:
Treatment is explained in #9.
11. Description of assessment appeals system:
Following the making of an assessment, every company may present a motion for a hearing on the assessment with the department of revenue within the first ten working days of July. The hearing on this motion shall be held within ten working days following the hearing request period. During this hearing, the company may present evidence relating to the value of its operating property and to the value of other taxable property in the counties in which its operating property is situate. (RCW 84.12.340)
Utility companies can further appeal their assessed values to the State Board of Tax Appeals. The last avenue of appeal is to pay property taxes under protest and then file for litigation.
12. Status of deregulation/restructuring of electric generating and impact on valuation and apportionment methods used:
At the direction of the 1998 Legislature, the Washington Utilities and Transportation Commission (WUTC) and the Department of Community, Trade and Economic Development (CTED) have undertaken a study of the state's retail electricity system. As policy makers in Washington consider changes that might be made to the state and local regulation of electricity utilities, this study was intended to provide basic information about the nature of the existing system and a number of key issues that may require consideration in any policy changes.
According to the Energy Information Institute (Subdivision of the Department of Energy) Washington is taking a tentative, gradual approach to deregulation.
13. State Government Staffing:
The utility section consists of nine full-time employees.