HB 2352 — centrally assessed property; valuation; pipelines.

HB2352 - 542R - H-WaysH &Ver Means-Proposed    Fifty-fourth  Legislature                                            House WaysEngrossed &  Means      State of Arizona House of Representatives Fifty-fourth Legislature Second Regular Session                                                 Session H.B.    HOUSE BILL 2352       AN ACT   amending section 42‑14204, Arizona Revised Statutes;

 amending PROPOSEDtitle HOUSE42, OFchapter REPRESENTATIVES14, AMENDMENTSarticle TO5, H.B.Arizona Revised Statutes, by adding section 42‑14205;

2352relating (Reference to printedpipelines. bill)       Page 2, line 16, after "adjusted" insert a period strike remainder of line Strike line Page 3, line 29, after the period strike remainder of line Strike lines and 31 Line 32, strike "stable full cash values from one year to the next." Line 33, strike "may result in" insert "require" Line 34, strike "include the following" insert "are as follows" Line 39, after the comma strike remainder of line insert "the final full cash value of the system plant in service" Line 41, after "appeal" insert "shall be the base value for the subsequent tax year, and the department shall adjust all valuations for future years according to section 42‑14204" Line 45, strike "base value" insert "full cash value of the system plant in service";

after  "date"  insert(TEXT aOF periodBILL strikeBEGINS remainderON ofNEXT linePAGE) Page  4,Be strikeit linesenacted 1by through 4, insert "In such cases, the departmentLegislature shallof adjust the baseState valueof asArizona: set forth in the stipulation." Line 6, strike "a material" insert "an";

strikeSection 1.  Section "or42-14204, omission";Arizona Revised Statutes, is amended to read:

strikeSTART_STATUTE42-14204.  Computing "basevaluation value" insert "full cash value of thepipelines; system plant in service" Line 7, after "state" insert a period strike remainder of line Strike lines and 9 Line 10, strike "title." insert "In such cases, the department shall adjust the base value as set forth in the agreement.";

strikedefinitions "or"A.  The Linevaluation 11,of strikepipeline "omission"property Pagethat 4,is strikesubject lines 13 through 25 Renumber to conformvaluation Amendfor titletax topurposes conformshall  be  determined BENin TOMAthe  manner  prescribed 2352TOMA1by 02/18/2020this 9:22section. AM C:

EDB.  The  value  of construction work in progress equals eighty‑five per cent percent of the amount spent and entered on the taxpayer's accounting records as of December 31 of the preceding calendar year as construction work in progress.

C.  The value of materials and supplies equals the total cost of materials and supplies as of December 31 of the preceding calendar year.

D.  The value of gas stored underground equals the total cost of gas stored underground as of December 31 of the preceding calendar year.

E.  The value of noncapitalized leased operating property shall be determined by applying to the original cost of the noncapitalized leased operating property the ratio derived from dividing the preliminary system value by the original cost of the plant.

F.  The department shall determine the valuation of a pipeline as follows:

1.  Determine the base value.

2.  Compute the value change factor.

3.  Multiply the values in paragraphs 1 and 2 of this subsection to compute the preliminary system value.  If the value change factor does not apply, the preliminary system value is the system net book value of plant in service as of December 31 immediately preceding the current year.

4.  Add the value of construction work in progress, materials and supplies, noncapitalized leased operating property and gas stored underground to the preliminary system value.

5.  Compute the allocation factor.

6.  Multiply the sum computed pursuant to paragraph 4 of this subsection by the allocation factor.

G.  All terms and applications of terms shall be interpreted as nearly as possible, under the circumstances, according to the federal energy regulatory commission uniform system of accounts for pipelines in effect on January 1, 1989.

H.  In For the purposes of this section, unless the context otherwise requires:

1.  "Allocation factor" means the factor used to assign a portion of the system value to this state and is computed by dividing the total Arizona original cost of plant in service, materials and supplies, construction work in progress, noncapitalized leased operating property and gas stored underground as of December 31 of the preceding calendar year by the corresponding total system original cost as of December 31 of the preceding calendar year.

2.  The "Asset change factor" is computed by means dividing the system net book value of plant in service as of December 31 immediately preceding the current valuation year by the system net book value of plant in service as of December 31 immediately preceding the prior valuation year.  If the denominator is zero, the asset change factor does not apply.

3.  The "Base value" is means the final full cash value of the system plant in service in the preceding valuation year.  If the property was not subject to property valuation in this state in the preceding valuation year, the value is the net book value of plant in service plus the value of construction work in progress, materials and supplies, noncapitalized leased operating property and gas stored underground.  If ownership changes, the base value shall be transferred to the new owner.

If one of the circumstances described in section 42‑14205 applies, the base value shall be adjusted.

4.  The "Capitalization rate" is means the sum of the year‑end thirty year thirty-year treasury bond rate plus 6.8 per cent percent.

5.  The "Change in capitalization rate" is computed by means dividing the current year capitalization rate by the previous year capitalization rate.

6.  The "Change in earnings before interest and taxes" is computed by means dividing the average earnings before interest and income taxes for the three years immediately preceding the current valuation year by the average earnings before interest and income taxes for the three years immediately preceding the previous valuation year.  If less than four years of earnings data are available, this factor does not apply.  If four years of earnings data are available and a major plant addition or retirement occurs, for the valuation year after the addition or retirement occurs, this ratio shall be derived by dividing the earnings before interest and income taxes for the year immediately preceding the current valuation year by the earnings before interest and income taxes for the year immediately preceding the previous valuation year.

7.  "Construction work in progress" means the total of the balances of work orders for plant in process of construction on the last day of the preceding calendar year.

8.  "Gas stored underground" means the noncurrent portion of the cost of recoverable gas that is purchased or produced by the utility, that is stored in depleted or partially depleted gas or oil fields or other underground reservoirs and that is not held to meet the service requirements of the utility's customers.

9.  The "Income change factor" is computed by means dividing the change in earnings before interest and taxes by the change in the capitalization rate.

If the change in earnings before interest and taxes does not apply, the income change factor does not apply.

10.  "Major plant addition or retirement" means an addition or retirement of plant in the year preceding the current valuation year that results in an increase or decrease of at least twenty per cent percent of the original cost of plant in service.

11.  "Noncapitalized leased operating property" means property that is subject to an agreement that transfers the use of property to the lessee during the term of the lease and that is not capitalized on the lessee's balance sheet.

12.  "Preliminary system value" means the base value multiplied by the value change factor.

13.  "System net book value of plant" means the original cost of the system plant in service less minus the related accumulated provision for depreciation.

14.  "System value" means the sum of the system value of plant in service, construction work in progress, materials and supplies, noncapitalized leased property and gas stored underground.

15.  The "Value change factor" is means the average of the income change factor and the asset change factor.  If the income change factor does not apply, the value change factor is the asset change factor.  If the asset change factor does not apply, the value change factor does not apply.END_STATUTE Sec. 2.  Title 42, chapter 14, article 5, Arizona Revised Statutes, is amended by adding section 42-14205, to read:

START_STATUTE42-14205.  Adjustments to base value to reflect market value In attempting to more accurately assess ongoing business operations, income and property, adjustments to the base value may be necessary to reflect changed circumstances.  Circumstances that require adjustments to the base value used to determine the full cash value of pipeline property are as follows:

1.  A final ruling by a court of competent jurisdiction in this state that the full cash value of a pipeline in this state using the method prescribed by section 42‑14204 is more than the market value of the pipeline property using standard appraisal methods and techniques.

In such cases, the final full cash value of the system plant in service determined by the court for the most recent tax year involved in any such tax appeal shall be the base value for the subsequent tax year, and the department shall adjust all valuations for future years according to section 42‑14204.