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BILL # SB 1445 |
TITLE: NOW: pipeline valuation |
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SPONSOR: Borrelli |
STATUS: Senate Engrossed |
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PREPARED BY: Hans Olofsson |
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Description
The Senate Engrossed version of SB 1445 would require the Department of Revenue (DOR) to determine the full cash value of pipeline property by adjusting for economic obsolescence and other criteria.
The bill would become effective on the general effective date.
Estimated Impact
The fiscal impact of SB 1445 would depend on how DOR legally interprets and implements the provision in the bill that requires the department to adjust the valuation of pipeline property to account for economic obsolescence and other criteria. Given the legal issues surrounding SB 1445, the impact of the bill cannot be determined in advance.
Due to Tax Court rulings, the state has been incorporating obsolescence into pipeline valuations. If DOR were to interpret SB 1445 consistent with these Tax Court rulings, there would be effectively no fiscal impact.
DOR asserts that they already factor economic obsolescence into their valuations.
Analysis
A large pipeline company has successfully appealed their annual DOR valuations several times. It is our understanding that at these appeals, the Arizona Tax Court essentially ruled that DOR did not adequately account for economic obsolescence in their valuation of the company's pipelines.
Following the court's rulings, the company's taxable property value was reduced, which in turn required the state to backfill the associated tax revenue losses that otherwise would have been incurred by affected school districts under the state's K-12 funding formula.
Our office has asked DOR for their perspective on the proposed legislation and they stated that they are effectively already factoring in economic obsolescence when determining the value of pipeline property. Therefore, from DOR's perspective, the bill's economic obsolescence provision does not change their valuation practices. This suggests that the impact would ultimately depend on how DOR interprets and implements the bill's economic obsolescence provision.
Local Government Impact
The local government impact would depend on how DOR legally interprets and implements the bill's economic obsolescence provision.
3/20/19