Wyo. Code R. 011-0006-7
Effective Date: 05/27/2008 to 06/02/2014
Rule Type: Superceded Rules & Regulations
Reference Number: 011.0006.7.05272008
Section 1. Authority.
These Rules are promulgated under the authority of W.S. 39-11-102(b).
Section 2. Purpose of Rules.
These rules are intended to describe the valuation methodology to be used to determine the taxable value of Department assessed utility, railroad and telecommunication properties for ad valorem tax purposes. The formulae, methods, systems, standards, and criteria to be used by the Department of Revenue, Property Tax Division, to determine fair market value are set forth herein. Unless otherwise provided by law, these rules also prescribe the level of assessment to be applied to all Department assessed property to determine assessed value.
Section 3. Duties of the Department of Revenue, Property Tax Division, with regard to Department Assessments.
(a.) The Property Tax Division is hereby delegated the authority to appraise and value all property specified in W.S. 39-13-102(m)(ii-ix) at its Fair Market Value in accordance with Generally Accepted Appraisal Standards and appraisal methods as prescribed by these rules.
(b.) Any appraisal method used by the Department of Revenue, Property Tax Division, shall be in accordance with the rules adopted by the Wyoming Department of Revenue.
(c.) All real and tangible personal property existing on January 1 of each year shall be subject to assessment, except as otherwise specifically exempt by Wyoming Statutes.
Section 4. Definitions.
For the purpose of ad valorem taxation under these rules, the definitions set forth in Title 39, as amended, are incorporated herein by reference. In addition, the following definitions shall apply:
(a.) "Best Information Appraisal" means the calculation of taxable value based upon the most recent annual report filed with the Property Tax Division adjusted by:
(i.) The producer price index, if applicable;
(ii.) Recognized financial measures of economic conditions; and
(iii.) Comparison to the most comparable state-assessed properties currently being assessed by the Property Tax Division.
(b.) "Capitalization rate" means a ratio between anticipated future income, either accounting income or cash flow and present value. Capitalization ratios can be derived from any income level, but once they have been so derived they can only be applied to a comparable income level. Such rates may be developed by generally accepted appraisal methods, to include but not be
limited to the following:
(h.) "Non-operating Property" means all property owned or leased by the utilities, railroads and telecommunications not used in operations.
(i.) "Operating Property" means all property which is owned, leased, or otherwise used exclusively in the public utility or railroad operations as specified in W.S. 39-13- 102(m)(ii)-(ix).
(j.) "Department Assessment Appraiser" means those personnel employed by the Department of Revenue with specific job responsibilities for appraisal of properties specified in W.S. 39-13-102(m)(ii)-(ix).
(k.) "Unitary valuation" is the process of determining the value of a company as a whole without reference to individual parts. The unitary approach is used in the valuation of properties which derive their value from interdependent assets working together. The market value is not a summation of fractional appraisals, but the value of a company as an operating unit.
Section 5. Annual Reporting Requirements.
(a.) Each Department assessed company as specified in W.S. 39-13-102(m)(ii)-(ix) shall submit an annual report to the Department of Revenue, Property Tax Division, on or before the mandatory dates specified by statute. Any request for extension of the filing deadline with the Department shall be submitted in writing prior to the statutory due date. Extensions shall not be granted for greater than thirty (30) calendar days. None of the requested information and supplemental documents required shall be excluded from the report filing. Failure to file a reporting form or an incomplete filing by a company shall require the Property Tax Division to appraise the company by a best information available method as defined by this chapter and subject those companies to the penalties specified in W.S. 39-13-108.
(b.) Leased Property. The annual report filed by each Department assessed company with the Property Tax Division, as required by W.S. 39-13-102 (m) (viii) and these Rules, shall include schedules for reporting non-capitalized leased property and equipment used exclusively in the utility, railroad and telecommunication operations. It shall be understood the leased property is used by the company in connection with its primary operating functions, comparable to owned property, but is leased from private parties. The leased property shall be subject to the same level of assessment as provided by these rules for all owned property.
Section 6. Appraisal Methods.
The appraisal techniques which may be used by the Department of Revenue, Property Tax Division include the approaches described in this section. Each approach used shall be an appropriate method for the type of property being valued; that is, the property shall fit the assumptions inherent in the appraisal method in order to calculate or estimate the fair market value of the property. Each approach used shall also consider the nature of the property or industry, and the regulatory and economic environment within which the property operates.
(a.) All taxable property shall be annually valued at its fair market value, using generally accepted appraisal standards as prescribed in W.S. 39-13-103(b)(ii) and by this Chapter.
(b.) Department assessment appraisers shall estimate fair market value utilizing specific appraisal standards which reflect three distinct methods of data analysis: i.e. sales comparison or market;
cost; and income capitalization. One or more of these approaches shall be used in all determinations of value, except when utilizing the "best information available method".
(c.) All Department appraised and assessed properties as specified in W.S. 39-13-102 (m)(ii-ix) shall be annually reported by the taxpayer, valued and assessed as required by subsection (a) of this section or as specifically prescribed in these rules
(i.) Market Approaches to Value
(A.) The Sales Comparison. The comparable sales approach is an appropriate method of valuation where there is an adequate number of reliable arms-length sales and the properties subject to such sales are similar to the property being valued. Comparable sales shall be adjusted to reflect differences in time, location, size, physical attributes, financing terms or other differences which affect value. The use of this approach to value depends upon:
(1.) The availability of comparable sales data;
(2.) The verification of the sales data;
(3.) The degree of comparability or extent of adjustment necessary for time differences; and
(4.) The absence of non-typical conditions affecting the sales price.
(B.) The Stock and Debt. The stock and debt approach is a method of estimating the value of property based on the premise that the total assets (property) are equal to the total liabilities plus owner's equity. This approach substitutes for the conventional market data approach by equating market prices at which fractional interests in the property, or similar properties, have recently sold recognizing other existing claims on assets and premiums paid to acquire entire interests. The approach is normally used when there are not sales of whole properties comparable to the subject property.
(ii.) Cost Approaches to Value
(A.) Replacement Cost. The replacement cost approach is a method of estimating the value of property based upon the cost of construction at current prices of a substitute property which provides utility or usefulness equivalent to the property being appraised, constructed with modern materials and according to current standards, design, and layout. The replacement cost shall consider all forms of depreciation and appreciation. The appraised value of associated land shall be added to the depreciated replacement cost.
(B.) Reproduction Cost. The reproduction cost approach is a method of estimating the value of property based upon the cost of construction at current prices of an exact duplicate or replica using the same materials, construction standards, design, layout, and quality of workmanship, embodying all the deficiencies, super adequacies and obsolescence of the subject building. The reproduction cost shall consider all forms of depreciation and appreciation. The appraised value of associated land shall be added to the depreciated reproduction cost.
(C.) Historical Cost. The historical cost approach is a method of estimating the value of property based upon the actual or first cost of property at the time it was originally constructed and placed in service. In an assembled property, the historical cost as of any date means, the first cost as defined, plus all subsequent additions and replacements less deduction or removals. The historical cost shall consider all forms of depreciation and appreciation. Items such as construction work in progress, plant held for future use, acquisition adjustments, non-capitalized leased property, materials, supplies and other items shall also be included to the extent they are taxable and not otherwise valued.
(A.) The Ellwood or Mortgage Equity Method. This method is an extension of basic mortgage-equity analysis involving certain assumptions concerning income flows and the nature of the claims against those income flows. The calculation includes the estimated future income stream from depreciable assets and land over the typical or optimum term of ownership and including the proceeds from the estimated resale of the property in the last year.
(B.) The Income or Capitalized Earnings Approach. The income or capitalized earnings approach is a method of estimating the value of property by converting anticipated benefits to be derived from the ownership of property into a value estimate as is reflected or accomplished by yield capitalization. These benefits can be reflected through the net operating income or cash flow of a company. The anticipated future income and/or reversions are discounted to a present worth. Direct capitalization may also be used to convert a single year's income expectancy into an indication of value. This conversion is accomplished by either dividing the income estimate by an appropriate income rate or by multiplying the income estimate by an appropriate factor in accordance with generally accepted appraisal techniques. Both direct and yield capitalization methodologies are considered to be the income or capitalized earnings approach as discussed in this subsection.
(1.) For the purposes of this subsection, cash flow is the difference between dollars paid and dollars received. Dollars received include all revenues generated from operating assets. Dollars paid include all current expenses and capital expenditures, or annual allowances therefore, required to develop and maintain the income stream. Cash flow must also take into account all legally enforceable restrictions on the property.
(2.) Net operating income or cash flow is discounted to fair market value using a capitalization rate developed by the methods described in Section 7 of this Chapter.
(3.) The Section may utilize a direct capitalization model for the purposes of valuing the property of public utilities such as private electric/gas distribution companies, rural electric cooperatives, municipalities, pipelines (liquid and natural gas), telecommunication (cellular, rural cooperatives, re-sellers, long distance, local exchange and cable or satellite television), airlines and railroad companies.
(a.) The capitalization rate is any rate used to convert an income stream into a present worth of future benefits. The rate reflects the relationship between one year's income or an annual average
of several years' income and the corresponding value. The Department of Revenue, Property Tax Division, shall annually calculate capitalization rates based upon the band of investment method as defined by these rules for all Department assessed industries. The primary components of the rate shall include capital structure (book, market and/or regulatory) as determined for the industry and/or company being appraised (if industry data is not available or applicable) and cost of capital (debt, preferred, and equity) as developed in appropriate money markets.
(i.) Band-of-investment shall mean the method based on the concept that the capitalization rate is equal to the weighted average cost of the debt and equity portions of the capital investment. Proper development and application of the band-of-investment requires obtaining and analyzing data by industry type for:
(A.) The percent of debt and equity which makes up the capital structure as determined from published financial sources (Mergents Bond Record, Mergents Bond Survey, Value Line, Mergents public utility and/or transportation manuals, regulatory reports or other recognized financial materials). The determination shall be done by industry type and subgrouping (if sufficient data is available for review) by corporate bond rating or other means if bond ratings are not available.
(B.) Debt rate estimates used in the band-of-investment method shall reflect the average current cost of yield to maturity of outstanding issues of debt financing for the year ending closest to the lien date of appraisal. The rates shall be taken from published financial sources (Mergents Public Utility News Reports, Standard and Poor's 'Credit Week', Public Utility Financing Tracker (Flotation Costs) and/or other recognized financial materials). The determination shall be done by industry type and sub-grouping (if sufficient data is available for review) by corporate bond rating or other means if bond ratings are not available.
(C.) Preferred rate estimates used in the band-of-investment method shall reflect the average current cost of market yield of outstanding issues of preferred stock financing for the year ending closest to the lien date of appraisal. The rates shall be taken from published financial sources (Mergents Public Utility News Reports, Standard and Poor's 'Credit Week', Public Utility Financing Tracker (Flotation Costs) and/or other recognized financial materials). The determination shall be done by industry type and sub-grouping (if sufficient data is available for review) by corporate bond rating or other means if bond ratings are not available.
(D.) The current cost of equity shall be based on data from the capital markets of public utility industries. Equity rates shall reflect the representative cost of equity financing for a given industry and sub-grouping (if sufficient data is available for review) by corporate bond rating or other means if bond ratings are not available as of the lien date of appraisal. The current cost of equity will be developed by accepted models in the appraisal and financial communities. These models shall include, but are not limited to, equity risk premium (ERP), capital asset pricing model (CAPM), and the discounted cash flow model (DCF). The sources of required data shall be taken from published financial sources, i.e. (Value Line, Morningstar-'Stocks, Bonds, Bills and Inflation' Annual Yearbook-Classic Edition, Wall Street Journal, regulatory filings, Federal Reserve Bulletin 20 Year Treasury Bond Yield, Public Utility Financing Tracker (Flotation Costs) and/or other recognized financial materials).
(b.) Not later than the 15th day of March each year the Department of Revenue, Property Tax
Division, shall conduct a public meeting for presentation of the capitalization rates to be used for the current year in the valuation of Department assessed property. Notice of the date and time of the meeting shall be provided to all interested parties at least thirty-days prior to the meeting. Upon written request submitted at least 5 days prior to the meeting, industry representatives, County Assessors, and other interested parties may, at the meeting, present written or oral comments on the proposed capitalization rates. A final determination of the capitalization rates shall be made available to industry representatives, County Assessors, and other interested parties annually by the Property Tax Division on or before March 31st or as soon thereafter as possible. This final determination of rates shall not affect the rights of a taxpayers to object in accordance with contested case procedures of the Administrative Procedure Act (W.S. 16-3-101 et seq.) and the Rules of Practice and Procedure for Appeals Before the Wyoming State Board of Equalization Involving Taxation Matters.
Section 8. Intangible Assets.
Intangible assets as specified in W. S. 39-11-105 (b) (i-vi) shall be removed from the Fair Market Value, to the extent that the taxpayer can establish and document, to the satisfaction of the Department, the contributory value to the unit, using generally accepted appraisal standards or generally accepted accounting principles, as appropriate. Chapter 14, Section 10 "Ad Valorem Tax Exemption Standards" of these rules identifies the criteria requirements for exemption of intangibles, statutory conditions and the types of exemptions for consideration.
Section 9. Reconciliation.
The appraiser shall consider the relative significance, applicability and appropriateness of the indications of value derived from the approaches to value or methods outlined above, and will place the most consideration and reliance on the value indicator which, in his professional judgment, best approximates the value of the subject property. The appraiser shall evaluate all alternative conclusions and correlate the value indicators to arrive at a final estimate of fair market value.
Section 10. Allocation.
This is the process of assigning a portion of the unitary value of an interstate utilities, railroads and telecommunications to Wyoming. The goal of allocation is to reasonably reflect the property value contained in Wyoming. Standard allocation formulas aimed at equitable value allocations between states can be based on a combination of factors, i.e. property (asset costs), use or capacities, and/or revenue. The Department shall develop standard models by industry to meet the criteria as specified above.
Section 11. Apportionment or Distribution.
This is the process of assigning a portion of the Wyoming allocated value to geographical areas (county and tax district as determined by the Department Rules Chapter 21, "Tax District Mapping"). The process is completed in two steps:
(a.) All situs property, i.e. property which has a well defined legal location, site specific delineation, and specific investment accounting records; and
(b.) All non-situs property or property not defined by legal descriptions, such as property which is continuous in nature (i.e. miles of pipeline, wire miles, cable miles, transmission lines, and others), and specific investment accounting assets segregated by the above items.
Section 12. Department Assessed Property Inspections.
Department assessed properties shall be physically inspected (on-site review) by the Department of Revenue, Property Tax Division, once every four years.
Section 13. Assessed or Taxable Value.
The taxable value for all Department assessed property in Wyoming as specified in W.S. 39-13-102(m) (ii), (iii), (iv), (v), (vii) and (viii) shall mean eleven and one-half percent (11.5%) of fair market value. The taxable value for all Department assessed property in Wyoming as specified in W. S. 39-13-102 (m) (vi) and (ix) shall mean nine and one-half percent (9.50% for fair market value.
Section 14. Appraisal Basis Explanations to Taxpayer.
Any taxpayer whose property is appraised pursuant to W.S. 39-13-102(m)(ii)-(ix) will be notified of a preliminary estimate of fair market value of the subject property. The taxpayer shall receive:
(a.) A statement indicating those methods set forth in Section 6 of this Chapter which were used in arriving at the value; and, upon request,
(b.) The identification and values of all elements and data used in each method, as well as any simplifying assumptions which have been made or deviations from the method as set forth in these Rules. This includes identification of any industry-wide or other data not specific to the taxpayer's property and the utilization of such data.
Section 15. Preliminary Notice-Informal Conference Procedure-Taxpayer.
(a.) If there is objection to the stated valuation on the preliminary notice of value, the taxpayer may request an informal conference to provide information as to any errors of fact or law or to explain or expand upon any of the information presented in the taxpayer's original filing for the company. If the objection is based on a clerical error, the taxpayer shall immediately notify the Property Tax Division, and a conference is not necessary.
(b) Requests for conferences must be made in writing to the Appraisal Supervisor, Appraisal Services Group, Property Tax Division, Department of Revenue within ten (10) calendar days of the postmark date of the preliminary notice. Notification of the date and time for such conference may be made by phone followed by written confirmation. Conferences shall be brief and to the point.
Section 16. Annual Report Audit Rights and Responsibilities.
The Department of Revenue, Property Tax Division, reserves the right to engage the Department of Audit or a third party contractor to conduct ad valorem tax audits on state-assessed companies.
Section 17. Final Fair Market Value Determination.
Annually the department shall make a final determination of the fair market value and assessed value that will be provided to each taxpayer as a final notice. Written objections to the values may be filed pursuant to W.S. 39-13-102(n).