N.M. Admin. Code § 3.6.5.38

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

Section 3.6.5.38 - SPECIAL METHOD OF VALUATION - OPERATING RAILROAD PROPERTY

A.RAILROADS - PROPERTY TO BE VALUED AS PROPERTY USED BY A RAILROAD COMPANY IN THE OPERATION OF A RAILROAD:

(1) All property owned or leased and used by a railroad in its operation, which is subject to valuation for property tax purposes, is required to be valued except for railway cars with respect to which the railroad is remitting payments to New Mexico under the Railroad Car Company Tax Act. "Property" means tangible property, real or personal.

(2) The following types of property used by a railroad company in the operation of a railroad are to be valued:

(a) "Road property" means all property owned or leased and used by a railroad company in the operation of a railroad and which may be partially or totally carried in accounts for this type of property, as prescribed by the interstate commerce commission of the United States;

(b) "Equipment" means locomotives, cars and other equipment owned or leased and used by a railroad company in the operation of a railroad which may be partially or totally carried in accounts for this type of property, as prescribed by the interstate commerce commission of the United States;

(c) "Material and supplies" means all material and supplies owned or leased and used by a railroad company in the operation of a railroad, the costs of which may be partially or totally carried in accounts or an account of this type of property, as prescribed by the interstate commerce commission of the United States;

(d) "Property in the process of construction" means all property owned or leased and used by a railroad company in the operation of a railroad which is in the process of construction on January l of the tax year; and

(e) "Other property" which means any other property not otherwise defined including, but not limited to, real property and tangible personal property used in the conduct of the railroad business.

B.RAILROADS - VALUATION METHOD:

(1) Property defined in Subsection A of Section 7-36-31 NMSA 1978 and Section 3.6.5.38 NMAC is valued by applying the unit value of appraisal to the valuation methods stated in Subsection B of Section 7-36-31 NMSA 1978. 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.

(2) A "railroad business" as that term is used in regulations under Section 7-36-31 NMSA 1978 includes any entity owning a railroad or a railroad company including, but not limited to, holding companies, trustees or receivers.

(3) Capitalized earnings are computed as follows: the net operating income derived from the operations of the railroad business in all states is divided by a capitalization rate determined for the particular railroad being valued. The capitalization rate is determined by the division using the band of investment method. The quotient resulting from this division is the capitalized earnings of the railroad company.

(4) "Net operating income" as that phrase is used in Paragraph (3) of this subsection means the expected future gross income of the railroad business from the operation of a railroad after deduction of the operating cost of the railroad, including taxes and depreciation directly relating to the railroad. Net operating income is determined after an analysis of the preceding five years' net operating income and that operating income is intended to reflect the future earning ability of the railroad business from the operation of the railroad. In determining that operating income, reference is made to reports which the railroad 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.

(5) Market value of stock and debt is computed as follows:

(a) The market value of all of the stock of the railroad 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 railroad 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 acceptable appraisal technique to determine the market value of the stock.

(b) The market value of the railroad 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 railroad business.

(c) The total of the market value of stock as computed under Subparagraph (a) of this paragraph plus the market value of debt and other obligations as computed under Subparagraph (b) of this paragraph produces the total system value of all of the railroad business' property, both tangible and intangible. From this total system value, there is subtracted the system value of property not used by the railroad business in the operation of a railroad and the system value of intangible property used by the railroad business in the operation of a railroad.

(6) Original cost less depreciation is computed as follows:

(a) Original cost of all road property in all states less depreciation and amortization as reported to the interstate commerce commission of the United States, as of January 1 of the tax year, plus

(b) The original cost of all equipment in all states less depreciation and amortization, as reported to the interstate commerce commission of the United States, as of January 1 of the tax year; plus

(c) The original cost of other property including all leased property in all states, less depreciation and amortization as of January 1 of the tax year; plus

(d) The original cost of any property in the process of construction, in all states, on January 1 of the tax year; the original cost being 50% of the cost or amount expended for such construction work which is partially complete on January 1 of the tax year as shown on the books and records of the business. Advance payments for work not partially completed or not commenced on January 1 of the tax year, however, may be excluded from the original cost of property in the process of construction upon a proper showing by the taxpayer; plus

(e) The original costs of all materials and supplies in all states as of January 1 of the tax year; minus

(f) A deduction for economic obsolescence, functional obsolescence, or both, upon a showing by taxpayer of substantial evidence supporting the deduction from the total of the costs computed under Subparagraphs (a) through (c) of this paragraph. The division may consider the following factors to determine obsolescence:

(i) The actual rate of return on depreciated investment of the subject railroad property as compared to the average rate of return on the depreciated investment of other comparable railroad companies;

(ii) The difference between the system depreciated cost of a railroad business' property and the system capitalized income value of that business;

(iii) The difference between the system depreciated cost of a railroad business' property and the system stock and debt value of that business;

(iv) The "blue chip method", using a "best of the best", "blue chip", or "super blue chip" approach of comparison; or

(v) Any other recognized method which is a generally accepted appraisal technique.

(7) The division considers the values computed under the three evidences of value referred to in Paragraphs (3) through (6) 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 evidences 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 railroad 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 railroad business.

(8) The total system value of all property used in the conduct of the railroad 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 revenue, gross operating expenses, track miles, tonnage originated or terminated and ton miles of the railroad company in New Mexico and the respective denominators of which are the total gross investment, gross operating revenue, gross operating expense, track miles, tonnage originated or terminated and ton miles of the railroad company in all states. The products of the multiplication by each of these fractions are considered by the division in determining the proper allocation of the total system unit value to New Mexico. Use of other fractions or factors to compute allocation of the total system unit value to New Mexico, or elimination of one or more of the required fractions from consideration, may be permitted by order of the director upon good cause shown. The correlated product of the multiplication of the total system unit value in all states by the fractions is New Mexico's allocated portion of property used in the conduct of the railroad business and is the value for property taxation purposes of the railroad's property used in the conduct of the railroad business in New Mexico. Exemptions authorized by the Property Tax Code are not to be applied until a determination of net taxable value is made.

C.RAILROADS - ALLOCATION OF VALUE WITHIN NEW MEXICO:

(1) Distribution of the value of all property allocated to New Mexico for property taxation purposes used in the railroad business which is valued by the division pursuant to Subsection B of Section 3.6.5.38 NMAC is accomplished in the following manner:

(a) An equitable portion of the total unit value allocated to New Mexico as determined under Subsection B of Section 3.6.5.38 NMAC is computed and distributed to the specific governmental unit or units wherein are located sizeable terminal facilities, such as yards, shops and other special facilities not normally spread along the lines of railroad.

(b) The value computed under Subparagraph (a) of this paragraph is deducted from the total value as determined under Section 3.6.5.38 NMAC, and the remainder is distributed to the governmental unit or units in which the railroad is located on the basis of the proportion of main, branch and spur track miles in the governmental unit or units compared to the total of main, branch and spur track miles of the railroad in New Mexico. In making such allocations, consideration is given to the physical characteristics and traffic density patterns of such track miles.

(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 railroad company within the governmental units.

(2) "Gross investment" as that phrase is used in Section 3.6.5.38 NMAC means the original cost, without depreciation or deduction, of any kind of property used in the conduct of a railroad. Reference is made to reports made to federal or state regulatory agencies in determining gross investment.

D.RAILROADS - DETERMINATION OF OPERATING AND NONOPERATING PROPERTY:

(1) To determine if a property is operating property, the division considers the use to which the property is put and whether it is subject to scrutiny by the interstate commerce commission. "Operating property" for purposes of Section 7-36-31 NMSA 1978 means all property, owned, leased, or used, which is reasonably necessary to the maintenance and operation of a railroad company's business.

(2) "Non-operating property" is all property owned or leased from others which is not necessary for the conduct of a railroad company's business.

(3) Non-operating property is valued by the county assessor of the county in which the property is located pursuant to the valuation method stated in Section 7-36-15 NMSA 1978, and regulations thereunder.

E.RAILROADS - DEFINITIONS:

(1) "Best of the best" means a comparison approach in which the appraiser compares eight quality and efficiency factors. The appraiser selects the highest figure for each of the quality and efficiency factors without regard to the make up or operations of any of the railroads.

(2) "Super blue chip" means a comparison approach in which the appraiser compares eight quality and efficiency factors. The appraiser selects the three (3) highest figures for each of the quality and efficiency factors without regard to the make up or operations of any of the railroads.

(3) "Blue chip" means a comparison approach in which the appraiser compares eight quality and efficiency factors. The appraiser selects a complete railroad by analyzing the make up and operations of all railroads and uses this as a standard for comparison. The eight quality and efficiency factors to be used in all three methods are: rate of return, freight traffic density, load factor, transportation performance, operating ratio, gross profit margin, revenue per mile, and transportation ratio.

N.M. Admin. Code § 3.6.5.38

3/23/83, 12/13/85, 12/29/94, 8/31/96; 3.6.5.38 NMAC - Rn & A, 3 NMAC 6.5.38, 4/30/01