TEXAS EASTERN TRANSMISSION CORPORATION, APPELLEE, v. TRACY, TAX COMMR., APPELLANT. PANHANDLE EASTERN PIPELINE COMPANY, APPELLEE, v. TRACY, TAX COMMR., APPELLANT.
Nos. 95-1514 and 95-1515
Supreme Court of Ohio
March 26, 1997
78 Ohio St.3d 83, 1997-Ohio-233
Submitted October 15, 1996
APPEALS from the Board of Tax Appeals, Nos. 93-P-594 and 93-P-595.
{¶ 1} Texas Eastern Transmission Corporation (“TET“), appellee, is a natural-gas pipeline transmission company which transports and stores natural gas from producing fields in Texas, Louisianа and the Gulf of Mexico to customers in the Northeast. Its transmission system consists of two onshore pipelines--a thirty-inch system which transports gas from southeast Texas and Louisiana through Mississippi, Alabama, Tennessee, Kentucky and Ohio through West Virginia into Pennsylvania, and а twenty-four-inch system, which transports gas from farther west in Texas through Arkansas, Missouri, Illinois, Indiana and Ohio through West Virginia into Pennsylvania.
{¶ 2} The twenty-four-inch system was originally built by the government during World War II but was purchased by TET in 1947. When the twenty-four-inch system was originally installed, the entire pipeline, еxcept for a portion between Lebanon, Ohio, and Eagle, Pennsylvania, was coated to prevent corrosion.
{¶ 3} Prior to 1990, TET‘s property was assessed by “unit appraisal.” Under this method, the value of the entire operating system is determined and then an amount is allocated to those components located within the various states. In late 1989,
{¶ 4} For tax year 1991, the Ohio Department of Taxation applied the newly enacted statutory formula set forth in
{¶ 5} TET appealed the Tax Commissioner‘s decision to the Board of Tax Appeals (“BTA“). In challenging the use of the statutory valuation procedure, TET argued that the statutory formula does not represent true value and that the $81.2 million Capacity Restoration Project represents a special or unusual occurrence. TET presented the expert testimony of Thomas K. Tegarden, who proposed in place of the statutory formula, use of the “unit-appraisal method.” Under this method, the value of the unit is first determined. Then, the value of the properties being appraised is determined by measuring their contribution to the unit. Since TET‘s interstate pipeline systems operate as an integrated group of properties that work together to provide a service, Tegarden testified that the unit-appraisal method is the proper valuation procedure to be applied. He explained that due to the very
{¶ 6} Using the unit-appraisal method, Tegarden first valued the entire transmission system as a whole by using a cost-approach analysis, an income-approach analysis, and a stock-and-debt-approach analysis. In giving greatest weight to the income approach, Tegarden arrived at a total system value of $1,425,000,000. Next, Tegarden apportioned 8.14 percent of the unit value to Ohio, which resulted in a valuation of $115,995,000 for TET‘s Ohio property.
{¶ 7} The commissioner presented no witnesses at the hearing before the BTA. The BTA rejected the rigid application of the statutory method set forth in
{¶ 8} In the companion case, No. 95-1515, Panhandle Eastern PipeLine Company (“Panhandle“), appellee, is an interstate pipeline company engaged in trаnsporting, storing and selling natural gas obtained from producing areas in Texas, Oklahoma and Kansas. The Panhandle pipeline system extends 1,300 miles from the producing areas through Missouri, Illinois, Indiana and Ohio into Michigan.
{¶ 9} The Tax Commissioner, pursuant to
{¶ 10} It is from these decisions of the BTA that these appeals of right are taken.
Jones, Day, Reavis & Pogue, Maryann B. Gall and Todd Swatsler, for appellees.
Betty D. Montgomery, Attorney General, and James C. Sauer, Assistant Attorney General, for appellant.
FRANCIS E. SWEENEY, SR., J.
{¶ 11} The issue before this court is whether natural-gas pipeline companies which arе classified as public utilities can use a unit-appraisal method to determine
{¶ 12} The commissioner argues that
{¶ 13}
{¶ 14}
“[T]he true value of all taxable property *** to be assessed by the tax commissioner shall be determined by a method of valuation using cost as capitalized on the public utility‘s books and records less composite annual allowances as prescribed by the commissioner. If the commissioner finds that application of this method will not result in the determination of true value of the public utility‘s taxablе property, he may use another method of valuation.”
(Emphasis added.)
{¶ 15} Although
{¶ 16} The commissioner also argues that in order to apply alternate valuation methods, there must be a showing of “special or unusual circumstances.” The commissioner‘s referеnce to “special or unusual circumstances” stems from
{¶ 17} The ultimate goal imposed by
{¶ 18} Turning to the facts of these cases, to challenge the statutory valuations of the commissioner, appellees submitted the unit appraisals of expert Tegarden as evidence of the properties’ true value. The commissioner presented no evidence to refute Tegarden‘s underlying assumptions. The BTA accepted Tegarden‘s unit appraisals as being more aсcurate in determining true value than the statutory method imposed by the commissioner. In reaching this conclusion, the BTA weighed the evidence and found that the value presented by appellees was sufficient to overcome the prima facie presumption of true value accorded to the statutory method.
{¶ 19} The BTA is vested with the discretion to determine the weight to be given the evidence and the credibility of the witnesses. Cardinal Fed. S. & L. Assn. v. Cuyahoga Cty. Bd. of Revision (1975), 44 Ohio St.2d 13, 73 O.O.2d 83, 336 N.E.2d 433, paragraph three of the syllabus. This court will not substitute its judgment for that of the BTA on factual issues (including a determination of true value) unless it affirmatively appears from the record that such decisions are unreasonable or unlawful. R.R.Z. Assoc. v. Cuyahoga Cty. Bd. of Revision (1988), 38 Ohio St.3d 198, 201, 527 N.E.2d 874, 877.
{¶ 20} In this case, we find that the BTA‘s decisions are reasonable and lawful, and they are hereby affirmed.
Decisions affirmed.
RESNICK, PFEIFER and LUNDBERG STRATTON, JJ., concur.
MOYER, C.J., DOUGLAS and COOK, JJ., dissent.
{¶ 21} I respеctfully dissent. Am. Sub. S.B. No. 156 enacted
{¶ 22} Under the majority‘s interpretation of the applicable law, a taxpayer may successfully contest application of the statutory formula by demonstrating that another valuation method produces different results. By such reasoning, disparity in the accounting-method computations constitutes evidence that application of the statutory formula does not result in true value. The factfinder is then left to choose which accounting method is preferable in arriving at true value.
{¶ 23} By permitting taxpayers to attack the statutory formula as flawed, as opposed to arguing that specific factors make application of the statutory formula inappropriate for valuation of their property, the majority has rendered meaningless the General Assembly‘s choice of accounting methods to establish true value.
{¶ 24} The BTA‘s conclusion here has at its root a preconception that, as applied to interstate pipelines, the income-approach analysis is a better measure of true value than the statutory formula based on cost. The General Assembly could have chosen a unit method of appraisal based primarily on the income approach, but chose the current statutory formula as a better estimation of true value. It is not the рlace of the BTA or this court to override that determination.
{¶ 25} Because the BTA‘s rejection of the Tax Commissioner‘s determination is founded on the concept that a unit appraisal is a better measure of the true value of tangible personal property held by a public utility than the statutory formula, its decision is unreasonable and unlawful. Further, inspection of the “special or unusual circumstances” alternatively relied on by the BTA reveals that it is the statutory valuation method and not a partiсular quirk in the application of that method to this case that the BTA finds inappropriate. Accordingly, I would reverse the decisions of the BTA and reinstate the commissioner‘s determination in case Nos. 95-1514 and 95-1515.
MOYER, C.J., and DOUGLAS, J., concur in the foregoing dissenting opinion.