N.M. Admin. Code § 3.6.5.37

Current through Register Vol. 35, No. 21, November 5, 2024

Section 3.6.5.37 - SPECIAL METHOD OF VALUATION - PROPERTY THAT IS PART OF A COMMUNICATIONS SYSTEM

A.COMMUNICATIONS SYSTEMS - MICROWAVE TRANSMISSION: Property that is used in the conduct of the communications business includes all property that is a part of a communications system, including, but not limited to, property which is used for purposes of microwave transmission or reception. It does not include the installation, operation or maintenance of microwave property incidental to the operation and conduct of radio and television broadcasting stations licensed by the federal communications commission, except when microwave transmission or reception is separately sold during the regular course of business, or when a two-way communication link is established and service provided by the link is sold to another person during the regular course of business, such as two-way cable television communications linkage.

B.COMMUNICATIONS SYSTEMS - VALUATION OF PROPERTY NOT "PLANT": If property does not fall within the definition of "plant", "construction work in progress" or "materials and supplies" as defined in Paragraphs (4), (5) and (7) of Subsection B of Section 7-36-30 NMSA 1978, then that property is valued pursuant to Section 7-36-15 NMSA 1978 and regulations thereunder.

C.COMMUNICATIONS SYSTEMS - DEPRECIATION AND TANGIBLE PROPERTY COSTS:

(1) For purposes of calculating depreciation or related accumulated provision for depreciation, straight line depreciation over the useful life of the item of property, as defined by federal or state regulatory agencies having jurisdiction, is used.

(2) If property does not fall under federal or state regulatory agency authority, the division establishes the useful life of said property in accordance with its class life under Section 167 of the Internal Revenue Code and regulations thereunder. The tangible property costs of the portion of the plant comprising land shall be the total actual costs of acquisition of the land as of January 1 of the tax year in which the property is valued.

D.COMMUNICATIONS SYSTEMS - CONSTRUCTION WORK IN PROGRESS: those persons who maintain their records in accordance with a uniform system of accounts approved by a state or federal regulatory agency may use the amounts entered on those accounts as construction work in progress as of December 31 of the preceding calendar year as the value of construction work in progress, provided that the account is limited to work orders for "plant" as defined in Paragraph (4) of Subsection B of Section 7-36-30 NMSA 1978, and regulations thereunder. Land and land rights included in construction work in progress accounts must be reported at the actual cost of acquisition as of January 1 of the tax year in which the property is valued.

E.COMMUNICATIONS SYSTEMS - VALUATION METHOD:

(1) Communications systems property may be valued by applying the unit rule of appraisal at the election of a taxpayer. The unit rule of appraisal is, generally, an appraisal of an integrated property as a whole without reference to the value of its component parts. At the election of a taxpayer, the unit rule of appraisal may be applied using the approaches to value set out in Section 3.6.5.37 NMAC.

(2) Capitalization of Earnings - Capitalization of earnings value is computed as follows: the net operating income derived from the operations of the communications business in all states is divided by a capitalization rate determined for the particular company being valued. The capitalization rate will be determined by the division using the band of investment method, or any other method that is consistent with generally accepted appraisal techniques. The quotient resulting from this division is the capitalized earnings value of the communications business. "Net operating income" as that phrase is used in the first sentence of this paragraph means the expected future gross income of the business from operations after deduction of the operating costs of the business, including taxes and depreciation directly relating to the business. Net operating income is determined after an analysis of the preceding five years' net operating income. In determining net operating income, reference is made to reports which the business is required to make to federal and state regulatory agencies and taxing agencies. The division is not bound, however, by the income information shown on these reports in determining net operating income and may use information acquired from other sources. Net operating income may be adjusted to reflect future earnings ability of construction work in progress.

(3) Market Value of Stock and Debt - Market value of stock and debt is computed as follows:

(a) The market value of all the stock of the business is computed on the basis of the average of the monthly high and low market prices quoted in financial publications for the preceding tax year. If stock of the business is not traded or is not traded in sufficient volume to indicate value, the division may rely on a price earnings ratio, or other methods consistent with generally accepted appraisal techniques to determine the market value of the stock.

(b) The market value of the business' debt and other obligations is determined on the basis of the published quotations for each of the various types of obligations and current liabilities as reflected on the books and records of the business.

(c) The total of the market value of the stock as computed under Subparagraph (a) of this paragraph and the market value of debt and other obligations as computed under Subparagraph (b) of this paragraph produces the total system value of all the communications business property, both tangible and intangible. From this total system value, there is subtracted the value of non-communications property which is not used by the communications company in its communications operations, and the value of intangible property used in its operations. To this net total system value, there is added the value of all leased equipment to produce the total stock and debt value.

(4) Cost less Depreciation and Obsolescence - Cost less depreciation and obsolescence is computed as follows:

(a) The cost of all communications plant in service in all states, less depreciation and amortization as of January 1 of the tax year as reported to the federal communications commission of the United States or other state or federal regulatory agencies having jurisdiction; plus

(b) The cost of all materials and supplies in all states as of January 1 of the tax year; plus

(c) Fifty percent (50%) of the cost or amount expended for "construction work in progress" in all states on January 1 of the tax year, as reported to the federal communications commission, or other state or federal regulatory agencies having jurisdiction. advance payments for work not partially completed or not commenced on January 1 of the tax year, however, may be excluded at one hundred percent (100%) upon a proper showing by the taxpayer.

(d) A deduction for functional or economic obsolescence may, upon presentation of substantial evidence and documentation, be made from the total of the cost computed under Subparagraph (a) of this paragraph.

(e) Functional obsolescence is the loss in value due to functional inadequacies or deficiencies caused by factors within the property.

(f) Economic obsolescence is the loss in value caused by unfavorable economic influences or factors outside the property.

(g) Requests for economic or functional obsolescence adjustments to the cost approach must be made at the time the annual report is filed. The request must be supported with sufficient documentation, and must be based on a situation present at least six (6) months prior to January 1 of the tax year. An economic or functional obsolescence factor must be provided, together with documentation to support and demonstrate how the factor was arrived at. Such documentation shall consist of objective evidence supporting functional or economic obsolescence. Failure to provide enough documentation or proof shall result in denial of an obsolescence adjustment.

(5) The division considers the values computed under the three evidences of value referred to in Paragraphs (2), (3) and (4) of this subsection and, either:

(a) assigns weights, in terms of percentage to each evidence of value, with a total of 100%, on the basis of the evidence which appear to be most indicative of market value, multiplies the values determined under the three evidences of value by the respective weights and adds the three totals to give the total system value of all property used in the conduct of the communications business; or

(b) correlates the values computed under the three evidences of value to determine the total system value of all property used in the conduct of the communications business.

(6) The total system value of all property used in the conduct of the communications business in all states is allocated to New Mexico by multiplying this total value by fractions, the numerators of which are the total gross investment, gross operating revenues, wire miles, and number of access lines of the communications company in New Mexico and the respective denominators of which are the total gross investment, gross operating revenues, wire miles, and number of access lines of the communications company in all states. The products of the multiplication by each of these fractions is considered by the division in determining the proper allocation of the total system value to New Mexico. Use of other factors to compute allocation of the total system value to New Mexico or elimination of one or more of the required factors from consideration may be permitted by order of the director upon good cause shown. The correlated product of the multiplication of the total system value in all states by the fractions is New Mexico's allocated portion of property used in the conduct of the communications business and is the value for property taxation purposes of the communications property used in the conduct of the communications business in New Mexico.

F.COMMUNICATIONS SYSTEMS - ALLOCATIONS OF VALUE WITHIN NEW MEXICO:

(1) Distribution of the value of all communications system property allocated to New Mexico which is valued by the division is accomplished in the following manner:

(a) An equitable portion of the total unit value allocated to New Mexico is computed and distributed to the specific governmental unit or units wherein are located sizeable facilities, such as offices, shops, and other special facilities.

(b) The value computed under Subparagraph (a) of this paragraph is deducted from the total value as determined under Section 3.6.5.37 NMAC, and the remainder is distributed to the governmental unit or units in which the property is located on the basis of the proportion of wire miles and number of access lines in the governmental unit or units compared to the total of wire miles and number of access lines in New Mexico respectively.

(c) The division may vary the distribution methods described in Subparagraphs (a) and (b) of this paragraph to account for unusual or substantial changes in the operations or gross investment of the company within the governmental units.

(2) "Gross investment" as that phrase is used in Section 3.6.5.37 NMAC means the original cost, without deductions of any kind, of all kinds of property used in the conduct of communications business. Reference shall be made to reports made to federal or state regulatory agencies having jurisdiction in determining gross investment.

N.M. Admin. Code § 3.6.5.37

3/23/83, 12/13/85, 12/29/89, 12/29/94, 8/31/96; 3.6.5.37 NMAC - Rn & A, 3 NMAC 6.5.37, 4/30/01