INTERACTIVE LEGAL UPDATE

Transcription

1 INTERACTIVE LEGAL UPDATE Peter J. Crossett Barclay Damon LLP David Crapo Crapo Deeds Jonathan A. Block Pierce Atwood LLP Sarah M. Bradshaw Tax Division, Arkansas Public Service Commission Interactive Legal Update You be the Judge! 1

2 Solarcity Corp v. Arizona Dept. Of Revenue Arizona Dept. of Revenue v. Mesquite Power LLC Minnesota Energy Resources Corp. v. Commissioner of Revenue Level 3 Communications, LLC v. Dept. of Revenue Level 3 Communications, LLC v. Dept. of Revenue Solarcity Corp. v. Arizona Dept. of Revenue, 243 Ariz. 477, 413 P.3d 678 (2018) Taxpayer leases solar panels to residential and commercial property owners Excess energy generated by solar panels transferred to utility company and lessee property owner receives credit for the retail value of the excess energy In 2015, ADOR notified Taxpayer that taxes would be assessed on the full cash value of the leased solar panels Taxpayer sought declaratory judgment that the leased solar panels are not renewable energy equipment used in operation of electric generation facility and therefore, not subject to assessment by the ADOR 2

3 Solarcity Corp. v. Arizona Dept. of Revenue, 243 Ariz. 477, 413 P.3d 678 (2018) Tax Court found that the solar panels should be assessed locally as real property Court of Appeals found that ADOR should assess but give the panels zero value Supreme Court granted review because whether ADOR should value leased solar panels is a recurring issue of statewide importance Solarcity Corp. v. Arizona Dept. of Revenue, 243 Ariz. 477, 413 P.3d 678 (2018) Are leased solar panels: A. Personal Property B. Real Property Question 1 3

4 Solarcity Corp. v. Arizona Dept. of Revenue, 243 Ariz. 477, 413 P.3d 678 (2018) Question 1 Are leased solar panels: A. Personal Property B. Real Property Answer: A. Arizona Supreme Court found that leased solar panels are personal property Solarcity Corp. v. Arizona Dept. of Revenue, 243 Ariz. 477, 413 P.3d 678 (2018) Taxpayers are in the business of leasing solar panels and taxpayers do not operate a facility to convert solar energy into electricity Businesses that lease solar panels are not operators of electric generation facilities subject to assessment by the ADOR Court remanded to the Tax Court to consider how the counties should value and assess businesses that lease solar panels 4

5 Arizona Dept. of Revenue v. Mesquite Power LLC, Ariz. Tax Court, Maricopa County, No. TX (June 28, 2018) Appeal by ADOR from Board of Equalization decision reducing ADOR s 2016 value of Mesquite Power from $230,593,000 to $188,646,735 Cross-appeal by Mesquite of 2016 tax year alleging that value adjusted for obsolescence still exceeds market value of property and appeal of 2017 tax year value for failure to adjust for obsolescence In a sale that closed in April 2015, all of Mesquite Power s real and personal property and it s intangible assets sold for $356,938,000 Intangible asset is a Purchase Power Agreement paying $34 million per year for 24 years Purchase price allocated $118,925,000 to real and personal property, and $238,013,000 to non-taxable intangible PPA Arizona Dept. of Revenue v. Mesquite Power LLC, Ariz. Tax Court, Maricopa County, No. TX (June 28, 2018) Mesquite s experts used an income approach to value the property ADOR s expert used three variations of the cost approach and a direct capitalization of income approach The Court found Mesquite s use of an income approach more reliable for valuation because it is used by actual buyers and sellers of property The Court found that ADOR s statutorily derived value using the cost approach was greater than the market value of the property The Court found the market value of the real and tangible personal property of Mesquite to be $130, 876,000 for the 2016 tax year and $99,714,000 for the 2017 tax year 5

6 Minnesota Energy Resources Corp. v. Commissioner of Revenue, 909 N.W.2d 569 (2018) Case returns to the court after remand to the Tax Court Original case was appeal by MERC and the Commissioner of the Tax Court order on the value of MERC s natural gas distribution system for the years Remanded for further findings on beta-factor and MERC s claim of economic obsolescence Rejected Tax Court s application of the Eurofresh test for obsolescence On remand, the Tax Court determined that MERC failed to demonstrate that external obsolescence affected the value of its property Minnesota Energy Resources Corp. v. Commissioner of Revenue, 909 N.W.2d 569 (2018) Question 2 There is evidence of external obsolescence if the number of customers increased and gas sales increased. A. True B. False 6

7 Minnesota Energy Resources Corp. v. Commissioner of Revenue, 909 N.W.2d 569 (2018) Question 2 There is evidence of external obsolescence if the number of customers increased and gas sales increased. A. True B. False Answer: Court said B. False Minnesota Energy Resources Corp. v. Commissioner of Revenue, 909 N.W.2d 569 (2018) Question on remand to Tax Court was whether MERC offered sufficient evidence to support its claim of obsolescence Court said its decision in MERC I was neither a declaration that MERC s evidence of obsolescence was conclusive nor the creation of a rebuttable presumption MERC retained the burden of persuasion to show obsolescence The Court found that the Tax Court undertook a detailed evaluation of the credibility, reliability, and relevance of MERC s evidence and in rejecting MERC s obsolescence claim, the Tax Court did not revert to the Eurofresh standard 7

8 Level 3 Communications, LLC v. Dept. of Revenue, 2018 WL (Or. Tax 2018) Motions by the Dept. of Revenue to consolidate tax year with consolidated case for tax years through and motion to amend DOR s answer to assert a real market value higher than the original assessed value of Level 3 s property The Court denied the first motion on the basis that consolidating the cases would not avoid delay but would cause delay in the resolution of the existing consolidated cases dating back to tax years The Court granted DOR s motion to amend answer to allow DOR to assert a system value higher than ordered by the Director The DOR based its new assertion of system value at least in part on the transaction completed on or about November 1, 2017, in which Level 3 was merged into a subsidiary of CenturyLink Level 3 Communications, LLC v. Dept. of Revenue, 2018 WL (Or. Tax 2018) DOR objects to testimony, reports, and work papers of Level 3 expert witness related to valuation of Level 3 property Level 3 objects to testimony, reports, and work papers of DOR s expert witnesses related to valuation of Level 3 property Each party questions whether the other party s witnesses are experts for the purpose of giving an opinion on the value of property or for the purpose of critiquing the other party s appraisal or valuation Level 3 objects to the introduction of testimony and exhibits related to transaction with CenturyLink that occurred after the valuation date 8

9 Level 3 Communications, LLC v. Dept. of Revenue, 2018 WL (Or. Tax 2018) Question 3 Is a non-appraiser permitted to offer an opinion on the value of property in testimony? A. Yes B. No Level 3 Communications, LLC v. Dept. of Revenue, 2018 WL (Or. Tax 2018) Question 3 Is a non-appraiser permitted to offer an opinion on the value of property in testimony? A. Yes B. No Answer: A. In Oregon, the answer is yes 9

10 Level 3 Communications, LLC v. Dept. of Revenue, 2018 WL (Or. Tax 2018) The Tax Court found that in determining the qualifications of a witness as an expert the Court must look to the nature and the basis for the opinion All the expert witnesses in this case expressed opinions relating to unit valuation of centrally assessed property and all were qualified to give such opinions Admission of post assessment date transaction requires analysis of whether the condition of the property and the market are sufficiently stable that a willing buyer on the assessment date would have reached a conclusion of value similar to the later transaction Whether the post assessment date transaction is relevant is a question of law and fact Cable One, Inc. v. New Mexico Taxation and Revenue Dept. Fayetteville Express Pipeline, LLC v. Arkansas Public Service Commission Bosque Disposal Systems, LLC v. Parker County Appraisal Dist. Union Electric Company v. Estes Public Service Company of New Hampshire v. Town of Bow 10

11 Cable One, Inc. v. New Mexico Taxation and Revenue Dept., 412 P.3d 1121 (N. M. App. 2017) Appeal of lower court decision finding Cable One not centrally assessed Issue is whether a cable television company providing cable television programming, VoIP and internet is within the definition of communications system in New Mexico In 2008, Revenue Dept. began centrally assessing cable systems that provided two-way communications Cable One argues that the Legislature intended communications systems to apply only to traditional regulated telecommunications companies Since Cable One is not a regulated telecommunications company, it contends that it is not subject to central assessment Cable One, Inc. v. New Mexico Taxation and Revenue Dept., 412 P.3d 1121 (N. M. App. 2017) Non-regulated companies are not subject to central assessment. A. True B. False Question 4 11

12 Cable One, Inc. v. New Mexico Taxation and Revenue Dept., 412 P.3d 1121 (N. M. App. 2017) Question 4 Non-regulated companies are not subject to central assessment. A. True B. False Answer B. False in New Mexico Cable One, Inc. v. New Mexico Taxation and Revenue Dept., 412 P.3d 1121 (N. M. App. 2017) The Court found that Cable One met the definition of a communications system subject to central assessment, regardless of its regulatory status In 1985, New Mexico legislature revised the code on central assessment, removing the references to telephone and telegraph companies and replacing with a new classification of communications systems All property used as part of a communications system subjected to central assessment and valued using one or more of three methods of valuation; capitalized income, market value of stock and debt, and cost less depreciation and obsolescence New Mexico Supreme Court granted certiorari January 4,

13 Fayetteville Express Pipeline, LLC v. Arkansas Public Service Commission, 2017 Ark. App. 557, 533 S.W.3d 106 (2017) FEP challenged the Tax Division s 2014 assessment of its pipeline Commission affirmed the Tax Division s assessment Circuit Court affirmed the Commission s decision On appeal, FEP argued that the Commission failed to consider FEP s market evidence of economic obsolescence, refused to make findings based on evidence submitted by FEP, erred in rejecting FEP s methods of calculating obsolescence and that the income approach was excessive Fayetteville Express Pipeline, LLC v. Arkansas Public Service Commission, 2017 Ark. App. 557, 533 S.W.3d 106 (2017) The standard of review is whether the Commission s findings are supported by substantial evidence and the Commission has regularly pursued its authority Under Arkansas law, the consideration of obsolescence by the Tax Division is optional and discretionary FEP argued that if the Commission rejected its methods of calculating obsolescence, the Commission was required to provide an alternative method for calculating obsolescence The Court found that the Tax Division s expert witness had used an alternative method and found no obsolescence Court refused to consider the argument that failure to consider economic obsolescence violated professional appraisal standards because the argument was not raised below and there was no ruling on the issue by the Commission or the Circuit Court 13

14 Bosque Disposal Systems, LLC v. Parker County Appraisal District, 61 Tex. Sup. Ct. J. 1196, 2018 WL (2018) Taxpayers own land containing salt water disposal wells in which wastewater from oil and gas operations can be injected and permanently stored underground In 2012, 2013, and 2014, the Appraisal District assigned a value to the wells and another value to the land Taxpayers contend the District s appraisal is illegal double taxation and the Taxpayers should not be taxed on the value of the wells Appraisal District valued the wells on an income approach for a total value of $7 million and the land was valued at $700,000 total Bosque Disposal Systems, LLC v. Parker County Appraisal District, 61 Tex. Sup. Ct. J. 1196, 2018 WL (2018) Question 5 Does appraisal of land account for all aspects of the land s value? A. Yes B. No C. Maybe 14

15 Bosque Disposal Systems, LLC v. Parker County Appraisal District, 61 Tex. Sup. Ct. J. 1196, 2018 WL (2018) Question 5 Does appraisal of land account for all aspects of the land s value? A. Yes B. No C. Maybe Answer: In Texas, the answer is C. Bosque Disposal Systems, LLC v. Parker County Appraisal District, 61 Tex. Sup. Ct. J. 1196, 2018 WL (2018) Court found no bright-line rule dictating when the law permits separate appraisal of valuable aspects of real property Each property appraised based on the individual characteristics affecting the property s value The saltwater disposal wells are facilities that combine manmade elements with the ground itself for use in the oil and gas industry and the facilities increase the market value of the taxable real property containing the wells Saltwater disposal wells can be classified as an improvement and make the land more valuable than raw acreage The Appraisal District was obligated to take the value of the wells into account in its appraisal given the value the wells added to the land 15

16 Union Electric Company v. Estes, 534 S.W.3d 352 (2017) Union Electric Company, d/b/a Ameren Missouri appealed decision of Circuit Court affirming the 2013 assessed valuation of its natural gas pipeline real property in Cole County Ameren is required to report value of its property to the County on a form created by the Tax Commission Ameren reported the original cost of its property on January 1, 2013 as $53,252,364 and the depreciated market value as $20,498,505. The County rejected Ameren s value and assigned a market value for Ameren s property of $53,252,400 Uncontested evidence during the hearing that the values adopted by Cole County and 16 other counties did not reflect a depreciation deduction Union Electric Company v. Estes, 534 S.W.3d 352 (2017) County assessors argued that Ameren could not establish that the market value adopted by each county was unlawful or unfair Counties offered testimony from an expert witness who used a reproduction costs new approach to value the property and his value approximated the values adopted by the counties Ameren s appeal challenged only the failure to allow depreciation per Commission guidelines and not the counties use of a cost approach to value Ameren s property The counties argued that Ameren did not meet its burden of proof because Ameren did not provide an appraisal of its property and failed to present evidence of the market value of its property 16

17 Union Electric Company v. Estes, 534 S.W.3d 352 (2017) The Court found no authority for the proposition that evidence of market value must be in the form of an appraisal and the Commission s finding on that issue is legally erroneous Failure to deduct depreciation is not harmless error and a tax assessment must take into account all factors relevant to determining market value Court remanded for determination of appropriate depreciation to be taken on Ameren s property FAIR MARKET VALUE 17

18 Public Service Company of New Hampshire v. Town of Bow, 170 N.H. 539, 178 A.3d 690 (2018) Town of Bow appealed lower court decision granting PSNH an abatement of taxes on property in the Town for the tax years 2012 and 2013 PSNH challenged the Town s valuation of special purpose property at PSNH s Merrimack Station PSNH presented the expert testimony of John P. Kelly on the value of the property and the Town used George Sansoucy as its expert witness Lower court found Mr. Kelly s testimony more credible than Mr. Sansoucy s testimony Town argues that court erred in accepting PSNH s highest and best use determination and its net book valuation of PSNH s transmission and distribution system Public Service Company of New Hampshire v. Town of Bow, 170 N.H. 539, 178 A.3d 690 (2018) Determining fair market value of a public utility is a question of A. Fact B. Law Question 6 18

19 Public Service Company of New Hampshire v. Town of Bow, 170 N.H. 539, 178 A.3d 690 (2018) Question 6 Determining fair market value of a public utility is a question of A. Fact B. Law Answer: A. Fact and the court gives deference to the trier of fact Public Service Company of New Hampshire v. Town of Bow, 170 N.H. 539, 178 A.3d 690 (2018) The search for fair market value is not an easy one, and is akin to a snipe hunt carried on at midnight on a moonless landscape. Extraordinarily difficult to value public utilities and the Court gives deference to the trier of fact in determining credibility of valuations Court has never held that a single valuation approach or combination of approaches is correct as a matter of law Matter of judgment whether net book value is an appropriate valuation method for PSNH s transmission and distribution property 19

20 Questions? 20