Section 0600-11-.07 - VALUATION OF ACTIVE MINERAL RESERVES - COAL(1) The Assessor shall value coal reserves by compiling the information necessary to complete the spreadsheet or a facsimile in Appendix A.(2) In order to complete the spreadsheet in Appendix A, the Assessor shall utilize the following procedure to the extent practicable:(a) Contact the Office of Surface Mining ("O.S.M"), or other appropriate entity, to obtain the coal production for the permitted area for prior years;(b) Contact the O.S.M., or other appropriate entity, for information concerning: new permits, the Inspectable Units List, current coal producers, permit information, renewed permit list, pending permits, successor list, and listings in the Applicant/Violator System;(c) Contact each coal producer or owner for the royalty rate per the permit;(d) Estimate a discount rate and management allowance utilizing the best available market data;(e) Estimate the economic life of the mine after consideration of the issue date of the permit, the year production began, the total production over the life of the permit and the anticipated production of the life of the mine; and(f) Reduce the indicated value by the appraisal ratio for the tax year and jurisdiction under review.(3) Where necessary, such as when market data is limited or unavailable, the Assessor shall utilize appraisal judgment so long as it is reasonably designed to arrive at the market value of the mineral reserves being appraised.(4) The Assessor's estimates shall be presumed indicative of market rates and the resulting market value absent evidence from the Taxpayer supporting different assumptions for the particular reserves being appraised. In order to rebut the presumption, the Taxpayer must provide the Assessor with either market data or information specific to the reserves being appraised. Mere criticism of the Assessor's methodology is not sufficient by itself to overcome the presumption of correctness.(5) The following example illustrates how Assessors should value a parcel with active mining of coal reserves: Assume that a coal mine is found to have 50,000 tons of reserves in place. Its production history establishes that annual production is 10,000 tons. This would indicate an economic life of five years (50,000 ÷ 10,000 = 5). Assume an economic royalty rate of $2.00 per ton, allowable expenses of 10% of gross income and a discount rate of 16%. The following calculation demonstrates how to calculate the present worth of the reserve:
10,000 | -- annual production in tons |
x 2.00 | -- economic royalty in dollars |
$20,000 | -- gross annual income |
-2,000 | -- allowable expenses in dollars |
$18,000 | -- net operating income |
x 3.274294 | -- the present value of the right to receive $1 per period |
| for five years at a 16% discount rate |
$58,937 | -- present net worth of reserve |
The above example assumes a level annuity, which would be appropriate for a coal mine where the coal is being mined at a constant rate.
Tenn. Comp. R. & Regs. 0600-11-.07
Original rule filed April 25, 2017; effective 7/24/2017.Authority: T.C.A. §§ 67-1-305, 67-5-502(d) and 67-5-801.