Appeal from: Property Valuation and Review Division. DOCKET NO. 2011-130.
Reiber, CJ.. Dooley, Skoglund, Robinson, JJ.
[¶1] This property tax appeal concerns the valuation of five electrical substations, seven transmission lines, a fiber-optic line, land, and utility easements located within the Town of Vernon. Taxpayer Vermont Transco LLC challenges a decision of the state appraiser fixing the 2011 listed value of taxpayer's utility property in the Town at $92 million. We reverse and remand for further findings regarding the lifespan of the property to be used in calculating depreciation, and whether to depreciate the assets in the first year of service.
[¶2] The equipment at issue in this case was designed and installed to handle the transmission of electric power generated by the Vermont Yankee Nuclear Power Plant and the Vernon Hydroelectric Station. Taxpayer is the successor to Vermont Electric Power Company, Inc. (VELCO), which operates Vermont's electric transmission system.
[¶3] The town listers set a value of $92,023,693 on the property effective April 1, 2011. This value was upheld by the Town of Vernon Board of Civil Authority. Taxpayer appealed to the state appraiser pursuant to 32 V.S.A. § § 4461-4467.
[¶4] On appeal to the state appraiser, the principal issue was the correct method of calculating depreciation with respect to the electrical equipment that comprises almost the entire value of the property. In addition, taxpayer and the Town disagreed about whether the valuation should include the value of utility easements and rights of way held by taxpayer, estimated by the Town's appraiser at $277,100. Finally, the parties disagreed about whether to apply depreciation for certain equipment's first year of life.
[¶5] In May 2013, the state appraiser issued a ruling setting the total value of the property at $92,023,700. The state appraiser agreed with the Town and its appraiser that an appraisal based on replacement cost new, depreciated in a straight line, provided the most accurate basis for estimating the value of the improvements. The state appraiser did not address taxpayer's arguments that easements cannot be taxed and that depreciation should have been taken for 2010, the first year of service. This appeal followed.
[¶6] Taxpayer raises four issues on appeal. First, it argues that the state appraiser should have used an alternative
nonlinear depreciation schedule -- the " Iowa Curve" method -- because that method was previously approved by this Court in reviewing the method of property tax appraisal in Vermont Electric Power Co. v. Town of Vernon, 174 Vt. 471, 807 A.2d 430 (2002) (mem.). Second, taxpayer contends that the state appraiser's decision on fair market value is not supported by a sufficient analysis of the " core factual issues, including whether fair market value is best estimated by the economic or physical life of the assets, and what those lives are." Third, taxpayer contends that the state appraiser failed to explain its decisions not to depreciate assets during their first year of service. Finally, taxpayer challenges the state appraiser's decision to include an appraised value for the utility easements.
[¶7] In an appeal to the state appraiser, a town's property appraisal is presumed to be valid and legal. City of Barre v. Town of Orange, 152 Vt. 442, 444, 566 A.2d 951, 952 (1989). If the taxpayer introduces evidence that his or her property was assessed above fair market value, the presumption disappears. Vanderminden v. Town of Wells, 2013 VT 49, ¶ 8, 194 Vt. 96, 75 A.3d 598. It is then up to the town to introduce evidence showing " either that it substantially complied with the relevant statutory and constitutional requirements or that its valuation was supported by independent evidence of fair market value." Id. ¶ 8 (quotation omitted). The taxpayer has the ultimate burden of proving that the appraisal was incorrect. Adams v. Town of West Haven, 147 Vt. 618, 620 n.*, 523 A.2d 1244, 1245 n.* (1987).
[¶8] We will not disturb the state appraiser's findings of fact unless they are clearly erroneous. Vanderminden, 194 Vt. 96, 2013 VT 49, ¶ 9, 75 A.3d 598. " Our review of legal conclusions, by contrast, is nondeferential and plenary." Barnett v. Town of Wolcott, 2009 VT 32, ¶ 5, 185 Vt. 627, 970 A.2d 1281 (mem.).
I. Depreciation Method
[¶9] This is the second time in less than fifteen years that the state appraiser and this Court have considered the depreciation schedule and appraised value of taxpayer's transmission equipment and realty within the Town. See Town of Vernon, 174 Vt. 471, 807 A.2d 430 (affirming Town's valuation of taxpayer's utility property). In 1999, the Town conducted a town-wide reappraisal. VELCO, taxpayer's predecessor in interest, appealed the Town's valuation to the state appraiser. Although VELCO owned less property than taxpayer in this case (only one substation and four parcels containing transmission lines), the issues resolved by the state appraiser then were similar to the issues raised before the state appraiser in this case. In particular, the parties and their expert appraisers disagreed about the appropriate depreciation methodology for the electrical equipment. The state appraiser accepted the methodology used by VELCO's expert, including the application of the Iowa Curve method to the useful life of the equipment. Id. at 472, 807 A.2d at 433.
[¶10] We affirmed the state appraiser on the ground that as the factfinder the state appraiser exercised his discretion appropriately in choosing the Iowa Curve method over straight-line depreciation. Id. at 473-74, 807 A.2d at 434-35. We noted that the Iowa Curve method had been employed in a previous tax appeal, Vermont Electric Power Co. v. Town of Cavendish, 158 Vt. 369, 611 A.2d 389 (1992). 174 Vt. at 473, 807 A.2d at 435. We ruled that the state appraiser's decision to use the Iowa Curve method was supported at the hearing below by " testimony indicating that [this method was] standard practice in Vermont, endorsed by the State Department of Taxes, and most appropriate for use with transmission lines." Id. at 473-74, 807 A.2d at 435. We further noted that " [t]he unswerving goal of the statute is fair market valuation, but there is no single pathway to that goal." Id. at 474, 807 A.2d at 435 (quotation omitted).
[¶11] In this appeal, taxpayer claims that the state appraiser erred in failing to adopt the Iowa Curve method as a matter of law on the basis of this Court's decisions in Town of Vernon and Town of Cavendish.
[¶12] At the hearing before the state appraiser in this matter, an accountant employed by taxpayer, Sharon Tucker, testified that in the valuation taxpayer submitted to the Town it used the Iowa Curve method to calculate depreciation. Ms. Tucker testified that taxpayer adjusted the value of all equipment owned by taxpayer through the use of the Handy-Whitman Index of Public Utility Construction Costs to determine its " trended" or " replacement cost new" value. Taxpayer assigned each piece of equipment to a thirty-or forty-year curve and calculated a depreciated value on that basis. If a piece of equipment had been owned for longer than the depreciation schedule, taxpayer assigned a fixed value of 24.745%. This calculation resulted in a value of $80,950,830 for the equipment alone. Ms. Tucker testified that taxpayer used the Iowa Curve method because the method had been approved by the state and this Court in Town of Vernon.
[¶13] Taxpayer also presented expert testimony from a professional appraiser, George Silver. Mr. Silver testified that he employed three appraisal methods (comparable sales, cost, and income-based) to determine fair market value, and determined that the cost approach was most appropriate. Depreciation was relevant to his cost analysis. He employed straight-line depreciation over periods ranging from forty-seven-and-a-half to sixty years for different classes of equipment. He calculated a total value of $83,100,000, of which $79,775,250 was attributed to depreciable equipment. The remainder is land or improvements to land not subject to depreciation. Mr. Silver testified that he did not use the Iowa Curve method of ...