HOUSE BILL NO. 668
INTRODUCED BY C. HIBBARD
A BILL FOR AN ACT ENTITLED: "AN ACT REVISING AND CLARIFYING THE VALUATION OF CENTRALLY ASSESSED PROPERTY FOR THE PURPOSES OF PROPERTY TAXATION; SPECIFYING THE METHODS TO BE USED BY THE DEPARTMENT OF REVENUE IN THE VALUATION OF CENTRALLY ASSESSED PROPERTY; PROVIDING DEFINITIONS; AMENDING SECTIONS 15-23-101, 15-23-202, 15-23-303, AND 15-23-403, 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 15-23-101, 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, 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."
NEW SECTION. Section 2. Definitions. As used in this part, unless the context requires otherwise, the following definitions apply:
(1) "Base value" means the assessed value of railroad transportation property of a railroad in the preceding tax year. If railroad transportation property was not subject to valuation in the previous tax year, the base value is the value determined by the department using accepted unit value methods. If the ownership of the railroad changes, the base value is not affected and must be transferred to the new owner.
(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) "System cost" means the total depreciated cost of all railroad transportation property, including leased property within the state and outside the state.
Section 3. 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 assessed value of the railroad system 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 assessed value of railroad property to Montana by multiplying the system value of the railroad determined under subsection (2) by the allocation factor determined in 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 roadbed and equipment in the state to total system gross investment in roadbed 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 write-offs, write-downs, 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 4. Section 15-23-303, MCA, is amended to read:
"15-23-303. Assessment of property -- apportionment to counties. The department must shall assess all the
properties property described in 15-23-301, but except that franchises granted by the United States must may not be
assessed. The value of such properties telecommunications company property, electric utility property, natural gas company
property, and oil and natural gas pipelines for assessment purposes shall must be determined as provided in [sections 5
through 8]. The value of other property described in 15-23-301 for assessment purposes must be determined upon such
factors as that the department considers proper."
NEW SECTION. Section 5. Assessment of telecommunications company property. (1) Except as provided in subsections (2) through (4), the department shall value:
(a) all taxable personal property and buildings of a telecommunications company located within the exterior boundaries of the state by using the replacement cost new less depreciation method, without regulatory adjustment; and
(b) value all land of a telecommunications company located within the exterior boundaries of the state by using the cost, income, and market valuation methods applicable to real property in a manner that is consistent with the valuation of similar property that is similarly situated. The value of the land of a centrally assessed telecommunications company must be added to the state unit value of other property of the telecommunications company in determining the unit value.
(2) For tax year 1999, the department shall value the property of a centrally assessed telecommunications company located within the exterior boundaries of the state at the greater of the value determined under subsections (1)(a) and (1)(b) or the actual 1998 Montana assessed value of the company as determined by the department.
(3) For tax year 2000, the department shall first value the property of a centrally assessed telecommunications company located within the exterior boundaries of the state as provided under subsections (1)(a) and (1)(b).
(a) If the total value of the property determined under subsections (1)(a) and (1)(b) is less than the total value of the property that was established for tax year 1998, then the tax year 2000 assessment is equal to two-thirds of this difference plus the value determined under subsections (1)(a) and (1)(b).
(b) If the value of the property determined under subsections (1)(a) and (1)(b) is greater than the value of the property that was established for tax year 1998, then the assessed value of the property of the telecommunications company is the value determined under subsections (1)(a) and (1)(b) for tax year 2000.
(4) For tax year 2001, the department shall first value the property of a centrally assessed telecommunications company located within the exterior boundaries of the state as provided under subsections (1)(a) and (1)(b).
(a) If the total value of the property determined under subsections (1)(a) and (1)(b) is less than the total value of the property that was established for tax year 1998, then the tax year 2001 assessment is equal to two-thirds of this difference plus the value determined under subsections (1)(a) and (1)(b).
(b) If the value of the property determined under subsections (1)(a) and (1)(b) is greater than the value of the property that was established for tax year 1998, then the assessed value of the property of the telecommunications company is the value determined under subsections (1)(a) and (1)(b) for tax year 2001.
NEW SECTION. Section 6. Definitions. As used in [sections 6 through 8], unless the context requires otherwise, the following definitions apply:
(1) "Base value" means the assessed value of property described in [section 7 or 8] in the preceding tax year. If the property was not subject to valuation in the previous tax year, the base value is the value determined by the department using accepted unit value methods. If the ownership of the property changes, the base value is not affected and must be transferred to the new owner.
(2) "Capitalization rate" means the rate reported by the department.
(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) "System cost" means the total depreciated cost of all property of the entity subject to valuation, including leased property within the state and outside the state.
NEW SECTION. Section 7. Valuation of electric utility and natural gas property. (1) The department shall assess electric utility property, including electrical generation property, and natural gas company property operated in more than one county or more than one state as provided in this section.
(2) The department shall determine the assessed value of the electric utility system or natural gas company system by multiplying the base value of the electric utility or natural gas company 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 5%, the gross profit margin change factor, weighted by 5%, and the property change factor, weighted by 90%.
(b) The income change factor is determined by dividing the change in earnings of the electric utility or natural gas company by the change in the capitalization rate.
(c) The gross profit margin change factor is determined by dividing the average gross profit margin of the electric utility or natural gas company 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 electric utility or natural gas company for the tax year immediately preceding the current tax year by the system cost reported by the electric utility or natural gas company for the tax year immediately preceding the previous tax year.
(4) The department shall apportion the assessed value of electric utility property or natural gas company property to Montana by multiplying the system value of the electric utility or natural gas company determined under subsection (2) by the allocation factor determined in subsection (5).
(5) The allocation factor used to apportion the system value of electric utility property or natural gas company property to Montana is determined by the department.
(6) The department shall take into account extenuating circumstances to adjust the assessed value of electric utility property or natural gas company property in the state. Occurrences that may result in an adjustment to the assessed value of electric utility property or natural gas company 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 write-offs, write-downs, and changes in accounting methods or practices.
NEW SECTION. Section 8. Valuation of oil and natural gas pipeline property. (1) The department shall assess oil pipeline and natural gas pipeline property operated in more than one county or more than one state as provided in this section.
(2) The department shall determine the assessed value of a pipeline system by multiplying the base value of the pipeline 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 related to the oil pipeline or natural gas pipeline by the change in the capitalization rate.
(c) The gross profit margin change factor is determined by dividing the average gross profit margin related to the oil pipeline or natural gas pipeline 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 pipeline company for the tax year immediately preceding the current tax year by the system cost reported by the pipeline company for the tax year immediately preceding the previous tax year.
(4) The department shall apportion the assessed value of pipeline property to Montana by multiplying the system value of the pipeline determined under subsection (2) by the allocation factor determined in subsection (5).
(5) The allocation factor used to apportion the system value of pipeline property to Montana is determined by the department.
(6) The department shall take into account extenuating circumstances to adjust the assessed value of pipeline property in the state. Occurrences that may result in an adjustment to the assessed value of pipeline 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 write-offs, write-downs, and changes in accounting methods or practices.
Section 9. Section 15-23-403, MCA, is amended to read:
"15-23-403. Determination of value -- exception for new aircraft and supporting equipment -- notice. (1) The
department of revenue shall determine the full and true valuation of all property of all airlines operating in this state or used
by every scheduled airline company in air commerce. Except as provided in subsection (2) (3), this valuation may be
ascertained by:
(a) determining the full and true valuation of all property owned and operated by every scheduled airline company by using original cost less depreciation as provided for in subsection (2); and
(b) allocating to the state of Montana from this total valuation a valuation which that represents this state's proper share
of the valuation of the property, through the application of ratios which that are indicated in subsections (8), (9), (10), and
(11) of 15-23-402(8), (9), (10), and (11) against the total valuation.
(2) (a) The department shall compute depreciation from original cost by using a 15-year, straight-line depreciation-to-salvage value.
(b) For the purposes of this subsection (2), salvage value is:
(i) 10% of the original cost of aircraft that are out of production; or
(ii) 25% of the original cost of aircraft manufactured after [the effective date of this act].
(c) The department shall allow additional obsolescence if supported by market evidence.
(3) For a scheduled airline company operating within this state whose allocation of valuation within this state, as determined under subsection (1)(b), is 50% or more, the department shall determine the valuation of a new aircraft acquired and new equipment acquired to support that aircraft at 28% of full and true valuation for the first year after acquisition. For each succeeding year, the department shall increase the valuation by 8% over the previous year's valuation until the valuation equals full and true valuation.
(3)(4) After making the assessment as provided in subsection (1) or (2) (3), the department shall give written notice
thereof of the assessment to the person or persons to whom the assessment is made."
NEW SECTION. Section 10. Codification instruction. (1) [Section 2] 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 2].
(2) [Sections 5 through 8] are intended to be codified as an integral part of Title 15, chapter 23, part 3, and the provisions of Title 15, chapter 23, part 3, apply to [sections 5 through 8].
(3) (a) Section 15-23-201, MCA, is intended to be renumbered as 15-23-204.
(b) Section 15-23-202, MCA, is intended to be renumbered as 15-23-205.
NEW SECTION. Section 11. Saving clause. [This act] does not affect rights and duties that matured, penalties that were incurred, or proceedings that were begun before [the effective date of this act].
NEW SECTION. Section 12. Severability. If a part of [this act] is invalid, all valid parts that are severable from the invalid part remain in effect. If a part of [this act] is invalid in one or more of its applications, the part remains in effect in all valid applications that are severable from the invalid applications.
NEW SECTION. Section 13. Effective date. [This act] is effective on passage and approval.
NEW SECTION. Section 14. 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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Latest Version of HB 668 (HB0668.01)
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