HOUSE BILL NO. 669
INTRODUCED BY B. STORY, B. DEPRATU, K. GILLAN, C. HIBBARD, S. STANG
AN ACT REVISING AND CLARIFYING THE VALUATION OF RAILROAD TRANSPORTATION PROPERTY FOR THE PURPOSES OF PROPERTY TAXATION; SPECIFYING THE METHODS TO BE USED BY THE DEPARTMENT OF REVENUE IN THE VALUATION OF RAILROAD TRANSPORTATION PROPERTY; PROVIDING DEFINITIONS; AMENDING SECTIONS 15-8-111, 15-23-101, AND 15-23-202, MCA; AND PROVIDING AN IMMEDIATE EFFECTIVE DATE AND A RETROACTIVE APPLICABILITY DATE.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MONTANA:
Section 1. Section 15-8-111, MCA, is amended to read:
"15-8-111. Assessment -- market value standard -- exceptions. (1) All taxable property must be assessed at 100% of its market value except as otherwise provided.
(2) (a) Market value is the value at which property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts.
(b) If the department uses construction cost as one approximation of market value, the department shall fully consider reduction in value caused by depreciation, whether through physical depreciation, functional obsolescence, or economic obsolescence.
(c) Except as provided in subsection (3), the market value of special mobile equipment and agricultural tools, implements, and machinery is the average wholesale value shown in national appraisal guides and manuals or the value before reconditioning and profit margin. The department shall prepare valuation schedules showing the average wholesale value when a national appraisal guide does not exist.
(3) The department may not adopt a lower or different standard of value from market value in making the official assessment and appraisal of the value of property, except:
(a) the wholesale value for agricultural implements and machinery is the average wholesale value category as shown in Guides 2000, Northwest Region Official Guide, published by the North American equipment dealers association, St. Louis, Missouri. If the guide or the average wholesale value category is unavailable, the department shall use a comparable publication or wholesale value category.
(b) for agricultural implements and machinery not listed in an official guide, the department shall prepare a supplemental manual in which the values reflect the same depreciation as those found in the official guide; and
(c) as otherwise authorized in Titles 15 and 61.
(4) For purposes of taxation, assessed value is the same as appraised value.
(5) The taxable value for all property is the percentage of market or assessed value established for each class of property.
(6) The assessed value of properties in 15-6-131 through 15-6-133 and 15-6-145 is as follows:
(a) Properties in 15-6-131, under class one, are assessed at 100% of the annual net proceeds after deducting the expenses specified and allowed by 15-23-503 or, if applicable, as provided in 15-23-515, 15-23-516, 15-23-517, or 15-23-518.
(b) Properties in 15-6-132, under class two, are assessed at 100% of the annual gross proceeds.
(c) Properties in 15-6-133, under class three, are assessed at 100% of the productive capacity of the lands when valued for agricultural purposes. All lands that meet the qualifications of 15-7-202 are valued as agricultural lands for tax purposes.
(d) Properties in 15-6-143, under class ten, are assessed at 100% of the forest productivity value of the land when valued as forest land.
(e) Railroad transportation properties in 15-6-145 are assessed based on the valuation formula described in 15-23-202.
(7) Land and the improvements on the land are separately assessed when any of the following conditions occur:
(a) ownership of the improvements is different from ownership of the land;
(b) the taxpayer makes a written request; or
(c) the land is outside an incorporated city or town."
Section 2. Section 15-23-101, MCA, is amended to read:
"15-23-101. Properties centrally assessed. The department of revenue shall centrally assess each year:
(1) the franchise, roadway, roadbeds, rails, rolling stock, and all other operating property the railroad transportation
property of railroads and railroad car companies operating in more than one county in the state or more than one state;
(2) property owned by a corporation or other person operating a single and continuous property operated in more than
one county or more than one state, including but not limited to telegraph, telephone, microwave, and electric power or
transmission lines; natural gas or oil pipelines; canals, ditches, flumes, or like properties and including, if congress passes
legislation that allows the state to tax property owned by an agency created by congress to transmit or distribute electrical
energy, property constructed, owned, or operated by a public agency created by the congress to transmit or distribute
electric energy produced at privately owned generating facilities (not including rural electric cooperatives);
(3) all property of scheduled airlines;
(4) the net proceeds of mines;
(5) the gross proceeds of coal mines; and
(6) property described in subsections (1) and (2) that is subject to the provisions of Title 15, chapter 24, part 12."
Section 3. Definitions. As used in this part, unless the context requires otherwise, the following definitions apply:
(1) (a) "Base value" means, except as provided in subsection (1)(b), the system value of railroad transportation property of a railroad in the preceding tax year.
(b) For tax year 1999, base value means the system value of railroad transportation property used to determine the railroad's Montana property taxes paid for the 1998 tax year.
(2) "Capitalization rate" means the capitalization rate reported by the surface transportation board, provided for in 49 U.S.C. 701, in its annual cost of capital report.
(3) "Change in earnings" means the value determined by dividing the average earnings for the 5 years immediately preceding the current tax year by the average earnings for the 5 years immediately preceding the previous tax year.
(4) "Change in the capitalization rate" means the value derived by dividing the current year capitalization rate by the preceding year capitalization rate.
(5) "Earnings" means income realized before deducting depreciation, interest expenses, lease expenses, and taxes.
(6) "Gross profit margin" means the ratio of earnings to operating revenue.
(7) "Leased property" means property that is subject to an agreement that transfers the use of the property to the lessee during the term of the lease and that is not capitalized on the lessee's balance sheet.
(8) "Operating revenue" means the amount of money that the railroad is entitled to receive or that accrues to its benefit from services rendered in transporting property or persons by rail.
(9) "System cost" means the total depreciated cost of all railroad transportation property, including leased property within the state and outside the state.
Section 4. Section 15-23-202, MCA, is amended to read:
"15-23-202. Assessment -- how made. (1) The department must shall assess the franchise, roadway, roadbed, rails,
rolling stock, and all other operating properties railroad transportation property of all railroads operated in more than one
county or more than one state as provided in this section. All rolling stock must be assessed in the name of the person
owning, leasing, or using the same. Assessment must be made to the person owning or leasing or using the same property
and must be made upon the entire railroad within the state. The depots, stations, shops, and buildings erected upon the
space covered by the right-of-way and all other property owned or leased by such person, except as above provided, shall be
assessed by the department.
(2) The department shall determine the value of the railroad system for the current year by multiplying the base value of the railroad by the value change factor determined under subsection (3).
(3) (a) The value change factor is the sum of the income change factor, weighted by 50%, the gross profit margin change factor, weighted by 25%, and the property change factor, weighted by 25%.
(b) The income change factor is determined by dividing the change in earnings by the change in the capitalization rate.
(c) The gross profit margin change factor is determined by dividing the average gross profit margin for the 2 years immediately preceding the current tax year by the average gross profit margin for the 2 years immediately preceding the previous tax year.
(d) The property change factor is determined by dividing the system cost reported by the railroad for the tax year immediately preceding the current tax year by the system cost reported by the railroad for the tax year immediately preceding the previous tax year.
(4) The department shall apportion the system value of the railroad to Montana by multiplying the system value of the railroad determined under subsection (2) by the average of the allocation factor for the 2 years immediately preceding the current tax year. The allocation factor is determined under subsection (5).
(5) The allocation factor used to apportion the system value of the railroad to Montana is the average of the sum of:
(a) the ratio of track miles in the state to total system track miles;
(b) the ratio of revenue ton miles in the state to total system revenue ton miles;
(c) the ratio of gross investment in road and equipment in the state to total system gross investment in road and equipment;
(d) the ratio of operating revenue reported in the state to total system operating revenue; and
(e) the ratio of railroad car and locomotive miles in the state to total system railroad car and locomotive miles.
(6) The department shall take into account extenuating circumstances to adjust the assessed value of railroad property in the state. Occurrences that may result in an adjustment to the assessed value of railroad property include but are not limited to:
(a) extraordinary, unusual, or infrequent events that are material in nature and of a character different from the typical or customary business operations, that are not expected to recur frequently, and that are not normally considered in the evaluation of the operating results of a business; and
(b) material increases or decreases in income and property as a result of events such as writeoffs, writedowns, and changes in accounting methods or practices.
(2)(7) In determining the taxable value of railroad property, the department shall determine the percentage rate "R"
provided for in 15-6-145 in order to achieve compliance with the requirements of the federal Railroad Revitalization and
Regulatory Reform Act of 1976, as amended."
Section 5. Codification instruction. (1) [Section 3] is intended to be codified as an integral part of Title 15, chapter 23, part 2, and the provisions of Title 15, chapter 23, part 2, apply to [section 3].
(2) (a) Section 15-23-201 is intended to be renumbered as 15-23-204.
(b) Section 15-23-202 is intended to be renumbered as 15-23-205.
Section 6. Effective date. [This act] is effective on passage and approval.
Section 7. Retroactive applicability. [This act] applies retroactively, within the meaning of 1-2-109, to tax years beginning after December 31, 1998.
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