1. (a) Property used or committed by agreement for use in the pipeline transportation of gas or unrefined oil or in the operation or maintenance of facilities used for pipeline transportation of gas or unrefined oil shall be valued at its full and true value as of January 1 of each year.

2. (b) The full and true value of pipeline property under construction will be all the actual costs incurred or accrued with respect to the pipeline property, regardless of the nature of the items of costs, as of the assessment date. Pipelines under construction will be valued in the context of the entire pipeline being constructed. The costs will be included in the valuation of the pipeline as they are incurred except as otherwise specifically provided in (1), (2), and (3) of this subsection. Examples of those costs which are included as they are incurred, include but are not limited to permanent camps and related facilities, pump stations, permanent storage facilities, roads, permanent airstrips, terminal facilities, tank farms, docks, labor, materials, supplies, machinery, equipment, pipe, easements, rights-of-way, improvements, structures, and all other related costs.

   1. (1) Those costs which are more properly attributable to the period of construction of the pipeline project will be included as they are accrued with respect to the property. These costs, which may be included as they accrue, are construction machinery and equipment, construction camps and related facilities. These accrued costs also include unallocated costs which relate to the overall project and are incurred both within and without the state and include such items as overhead and administrative costs, engineering costs, design costs, and research and development costs. The method for the allocation of these accrued costs will be based on a formula which prorates the costs accrued in a given year over the estimated months remaining to complete the pipeline project from the date the cost is incurred. It will be presumed that the cost is incurred at the midpoint of the calendar year in which it has been incurred.

   2. (2) Salvage value will be recognized as a reduction of the actual costs incurred or accrued with respect to the pipeline project under the following circumstances:

      1. (A) In the case of equipment, machinery, or facilities sold, there will be deducted the actual realized sales price from the cost of the pipeline project for subsequent assessment purposes.
      2. (B) In the case of roads or airstrips that are used during the construction period or a portion thereof, and are subsequently dedicated to and accepted by the state; as of January 1 following the date that the pipeline begins to transport gas or unrefined oil, there will be deducted the salvage value of these roads or airstrips. The deductible salvage value of the road or airstrip as of that date will be assumed to be the undepreciated cost based on a useful life of 10 years.
   3. (3) Ad valorem taxes assessed and paid during construction will be excluded from the costs incurred or accrued with respect to the pipeline project.

   For the purpose of illustration of this method of allocation the following example is offered:

   EXAMPLE

   A pipeline transportation company anticipates that the construction phase of its project will commence during January, 1975, and will terminate in December, 1976. (A 24-month construction period.) During 1974 the company acquires construction equipment, construction camps, and related facilities for a cost of $20,000; during 1975, $200,000; and during 1976, $100,000. For the purpose of accrual of these costs it is assumed that they were expended at midyear. This accounts for a six-month depreciation factor on the first year's investment and a 30-month depreciation period for the costs incurred in the first year. Subsequent investment periods are treated in the same manner with annual adjustments made for the months remaining during the construction period.

   The costs accrued with respect to the pipeline project for each assessment date during the construction period will be calculated as follows:

   Date Factor Cost Value 1-1-756/30x20,000=4,0001-1-7618/30x20,000=12,0006/18x200,000=66,66778,6671-1-7630/30x20,000=20,00018/18x200,000=200,0006/6x100,000=100,000320,000

3. (c) Except as provided in (d) of this section, the full and true value of pipeline property in operation is its economic value based upon the estimated life of proven reserves of the gas or oil then technically, economically and legally deliverable into the transportation facility. Economic value is determined by the use of standard appraisal methods such as replacement cost less depreciation, capitalization of estimated future net income, analysis of sales, or other acceptable methods. The valuation may include any item contributing to value including capitalized interest.
4. (d) If the taxpayer can show that the economic life of proven reserves is materially shorter than the estimated physical life of the pipeline, then the pipeline property will be valued at actual cost less depreciation on a straight-line basis over the economic life of proven reserves of gas or oil then technically, economically and legally deliverable into the transportation facility. Where a portion of the economic life of proven reserves exists before the date of assessment, that portion will be included for purposes of determining depreciation at the date of assessment. The burden is on the taxpayer to come forward with convincing evidence to show that the economic life of the proven reserves is materially shorter than the estimated physical life of the pipeline. It is not sufficient for the taxpayer merely to show that the economic life of the proven reserves is actually shorter than the estimated life of the pipeline. Instead, the taxpayer must show that the economic life of the proven reserves is materially shorter than the physical life of the pipeline. If incurred and accrued costs are used as a criterion for the valuation of the pipeline property in operation, ad valorem taxes assessed and paid during construction and deductible salvage value as described in (b)(2) of this section may not be included.

(Eff. 3/1/75, Register 53; am 7/30/82, Register 83)

Authority: AS 43.05.080, AS 43.56.060