ARIZONA DEPARTMENT OF REVENUE and J. Elliott Hibbs, Director, Plaintiffs-Appellees, v. TRICO ELECTRIC COOPERATIVE, INC., an Arizona Corporation, Defendant-Appellant.
No. CV-86-0080-T.
Supreme Court of Arizona, En Banc.
Nov. 19, 1986.
Reconsideration Denied Jan. 13, 1987.
729 P.2d 898
Molloy, Jones, Donahue, Trachta, Childers & Mallamo by John F. Molloy, Tucson, for defendant-appellant.
GORDON, Vice Chief Justice.
Appellant Trico Electric Cooperative, Inc. (“Trico“) owned property in Arizona subject to property tax assessment in 1982 and 1983 under
Trico appealed the DOR‘s valuations to the State Board of Tax Appeals (the “Board“). The Board concluded that the DOR had not used standard appraisal methods and techniques to calculate Trico‘s taxable values and that the DOR‘s taxable vаlues were excessive based upon economic and functional obsolescence and equity considerations. The Board then determined that the taxable value of Trico‘s property for 1983 and 1984 was $8,820,000 and $9,000,000, respectively.
The DOR appealed the Board‘s decision to superior court as permitted by
For reasons below, we affirm the superior court‘s reinstatement of the DOR‘s valuations and reverse its decision to assess interest at 16% on the additional tax assessments.
II.
The legislature amended both statutes in 1980. Paragraphs (B) through (I) were added to
B. All electric, gas distribution and combination gas distribution and electric utility property subject to valuation for property taxation purposes shall be valued as provided in this sectiоn.
* * * * * *
D. An electric, gas distribution or combination electric and gas distribution plant shall be valued as follows:
1. The department shall determine the original plant in service cost.
2. The original plant in service cost shall then be reduced by the related accumulated provision for depreciation.
* * *
When amended
III.
Trico argues that
Investor-owned electric utilities, unlike cooperatives, are profit-motivated. To reduce their tax liability on income earned, investor-owned electric utilities depreciate their property much more rapidly than do cooperatives. Both types of utilities can have the same initial cash outlay for utility property. However, full сash value of investor-owned property will be less than full cash value of cooperative-owned property at any given point in time because the investor-owned electric utility will depreciate the property over a shorter life, resulting in larger depreciation deductions in early years.4 For example, if property purchased for $1,000,000 is depreciated over a 10-year life by an investor-owned utility and over a 33 1/3-year life by a cooperative utility, the full cash value after five years will be $500,000 on investor-owned property and $850,000 on cooperative-owned property. If the applicable property tax rate is 30% of full cash value, property taxes for the investor-owned utility and cooperative utility will be $150,000 and $255,000, respectively. Trico argues that this disсrepancy between property tax assessments on identical property violates uniformity requirements of
We acknowledge that discrepancies between property tax assessments on identical property may result under
Trico also contends that the property classification statute,
A. There are established the following classes of property for taxation:
*
2. Class two:
*
(b) All property, both real and personal, of gas, water and electric utility companies and pipeline companies valued under the provisions of
§ 42-124.01 or42-201 , whichever is applicable.
Under
Despite express statutory language suggesting otherwise, we believe that
We confronted a similar dilemma in Apache County, supra, where the relevant portion of
1. Class one:
(a) Flight property valued under the provisions of
§§ 42-701 through42-705 .(b) All real and personal property used in the operation of private car companies valued under the provisions of
§§ 42-741 through42-748 .(c) All real and personal property of railroad companies used in the continuous operation of a railroad valued under the provisions of
§§ 42-761 through42-766 .(d) Producing mines and mining claims, the personal property used thereon, the improvements thereto and the mills and smelters operated in conjunction therewith valued under the provisions of
§ 42-124 .(e) Standing timber.
Despite express statutory language suggesting that all property listed as “Class one” comprised one property class, we held that each subparagraph constituted a separate class for purposes of the uniformity clause. 106 Ariz. at 359, 476 P.2d at 660.
Extending our holding in Apache County to permit finding two property classes within a subparagraph is logical for at least three reasons. First, such an interpretation permits harmonization between
(b) All property, both real and personal, of electric and gas distribution utilities, valued under provisions of
§ 42-124.01(B) .(c) All property, both real and personal, of water and gas pipeline utilities, valued under provisions of
§ 42-201 .
Substantively, the legislature‘s actual amendments are no different than those just proffered. We decline to require the legislature to substantively articulate in separate subparagraphs what it could permissibly articulate in one. Third, in interpreting a statute we should, if possible, avoid making the statute unconstitutional. Mardian Construction Company v. Superior Court, 113 Ariz. 489, 493, 557 P.2d 526, 530 (1976). Interpreting
IV.
Trico also contends that the legislature‘s decision tо use the cost-less-depreciation formula in
Value, like beauty, is often defined by the eye of thе beholder. It is incapable of being calculated with mathematical precision and therefore necessarily must be estimated.5 Arizona has recognized three generally-accepted approaches to estimating real property valuations: the income approach, the market data approach, and
the cost-less-depreciation approach. Department of Revenue v. Transamerica Title Insurance Co., 117 Ariz. 26, 570 P.2d 797 (App.1977).
We have held that using the income approach to calculate full cash value of property owned by a cooperative utility is “fundamentally wrong” because such an entity “is a non-profit corporation, and it sets its rates with the deliberate intention of not making a profit.” Graham County v. Graham County Electric Cooperative, Inc., 109 Ariz. 468, 471, 512 P.2d 11, 14 (1973). Left with selecting either the market data approach or the cost-less-depreciation approach, we decline to find the legislature‘s selection of the latter approach arbitrary or capricious. Market data is not always available. Even when it exists, market data is not immune from being attacked as over- or understated. In addition, both parties acknowledge that at least some sales of utility property are made at cost less depreciation. We conclude that the legislature‘s 1980 decision to require full cash value of certain utility property to be calculated by the generally-recognized cost-less-depreciation method was rational.
V.
We have held that a taxpayer has a constitutional right to have its tax valuations equalized. See, e.g., Southern Pacific Co. v. Cochise County, 92 Ariz. 395, 377 P.2d 770 (1963). Trico argues that
The Board has statutory authority to equalize property vаluations within a property class “so that all property subject to property taxation is listed on the rolls at its full cash value.”
VI.
In addition to reinstating the DOR‘s full cash value amounts, the superior court ordered Trico to pay interest at 16% on the additional tax assessments resulting from reinstatement of higher valuations. The superior court invoked
A. The roll with the warrant affixed shall be the authority of the treasurer to collect the taxes therein levied.
B. Immediately upon receipt of the tax roll from the board of supervisors, thе county treasurer shall publish an official notice specifying:
1. That the assessment and tax roll of the county for the year is now in his possession for collection of the taxes levied.
2. That one-half of the taxes on all personal property secured by real property and one-half of the taxes on all real property will be due and payable October 1, unless the total amоunt of taxes is ten dollars or less in which case the full amount of the taxes will be due and payable on October 1. Such taxes will be delinquent pursuant to
§ 42-381, subsection A and unless paid interest will be added to the tax from the time of the delinquency at the rate of sixteen per cent per year simple, prorated monthly as of the first day of the month until paid.* * * * * *
(Emphasis added.) The emphasized language indicates that only after taxes listed on the tax rolls havе become delinquent can the taxpayer be charged 16% interest on delinquent amounts. Before the statute applies, however, taxes first must be recorded on the tax rolls.
Trico has paid all taxes recorded on the tax rolls. Taxes paid were based on the Board‘s, rather than the DOR‘s, calculation of full cash value. Despite the superior court‘s reinstatement of the DOR‘s full cash valuеs, the resulting higher taxes have yet to be recorded on the tax rolls because Trico‘s timely appeal of the superior court‘s judgment precluded correction of the tax rolls. See
Nevertheless, interest is due on the superior court‘s judgment.
VII.
Judgment of the superior court is affirmed in part and reversed in part and remanded for proceedings consistent with this opinion.
HOLOHAN, C.J., and HAYS and CAMERON, JJ., concur.
FELDMAN, Justice, concurring.
I concur in the rеsult reached, but only because that result is mandated by our decision in Apache County v. Atchison, Topeka & Santa Fe Railway Co., 106 Ariz. 356, 476 P.2d 657 (1970). I believe the principles announced in Apache County
The legislature has classified investor-owned urban utilities and cooperative rural utilities, together with telephone and telegraph companies, water utilities, and pipeline companies, as “Class two” prоperties for “taxation.”
The principle of uniformity required by
Apache County, supra, holds, however, that the constitutional requirement of uniformity only prevents the legislature from establishing a different tax rate for identical types of property, but does not prevent the legislature from establishing different valuations by placing property with similar attributes in different classes. 106 Ariz. at 359, 476 P.2d at 660. This, the majority holds, is all that has been done here. 151 Ariz. at 548-549, 729 P.2d at 902-903. Thus, under Apache County, the legislature can fulfill the constitutional requirement of uniformity not only by taxing horses at one rate and camels at another, but by enacting a statute providing that some horses shall be callеd camels and taxed as such. We give too much deference to legislative prerogative when we allow the legislature to destroy constitutional protection.
It is, however, late in the game to overrule the precedents on which our tax schemes have been based for the last twenty years. I therefore concur in the result.