Title: RT COMMUNICATIONS, INC. v. STATE BOARD OF EQUALIZATION

State: wyoming

Issuer: Wyoming Supreme Court

Document:

RT COMMUNICATIONS, INC. v. STATE BOARD OF EQUALIZATION2000 WY 18311 P.3d 915Case Number: 99-319Decided: 09/29/2000Supreme Court of Wyoming

RT 
COMMUNICATIONS, INC.; TCT WEST, INC.; and UNION TELEPHONE COMPANY, Appellants 
(Petitioners),

v.

THE STATE BOARD OF EQUALIZATION FOR THE STATE OF 
WYOMING, Appellee (Respondent), and  
THE DEPARTMENT OF REVENUE FOR THE STATE OF WYOMING, Appellee 
(Intervenor).

 

                                 

 

W.R.A.P. 12.09(b) Certification 
from the District Court of Laramie County

The Honorable Edward L. Grant, 
Judge

 

   
Representing Appellant:

   
Bruce S. Asay of Associated Legal Group, LLC, Cheyenne, 
Wyoming

    
Representing Appellee Department of Revenue:

    
Gay Woodhouse, Attorney General; Rowena L. Heckert, Deputy 
Attorney

 General; and P. Olen Snider, Jr., 
Assistant Attorney General

 

   
Before LEHMAN, C.J., and THOMAS, GOLDEN, HILL & KITE, 
JJ.

 

   
KITE, Justice.

[¶1]          Appellants RT 
Communications, Inc., TCT WEST, Inc.,1 and Union Telephone Company (the 
Telephone Companies) filed a consolidated Petition for Review of a decision of 
the State Board of Equalization,2 which affirmed the 1995 final 
determinations by Appellee Department of Revenue of the fair market value of the 
state-assessed industrial property of the three companies.  The Telephone Companies argued that the 
values improperly included the value of intangible property exempted by statute 
and the Department of Revenue failed to adjust the values of TCT WEST and RT 
Communications for economic obsolescence.  
We affirm the State Board of Equalization's order and conclude the 
valuation of the Telephone Companies was 
consistent with applicable statutes and regulations.

 

                                    
ISSUES

 

  [¶2]    The Telephone Companies 
present five issues for review:

 

Issue One:  
Was the inclusion of the "acquisition adjustment" in the department's 
valuation of the petitioners' property erroneous and contrary to 
statute?

 

Issue Two:  
Was the decision of the Board of Equalization which allowed an 
acquisition adjustment contrary to statutory 
interpretation[?]

 

Issue Three:  
Was the decision of the Board of Equalization supported by the 
record?

 

Issue Four:  
Was the Department's exclusive reliance on the purchase price 
erroneous?

 

Issue Five:  
Was the Department's failure to consider obsolescence 
erroneous?

 

 The Department of Revenue counters with a 
statement setting out nine issues for consideration:

 

1.  Is 
the unitary method of valuing telephone company property a rational valuation 
method?

 

2.  Is 
the unitary valuation method the generally accepted appraisal standard of 
valuing telephone company property?

 

3.  Was 
the Department of Revenue's use of the unitary valuation method arbitrary and 
capricious, an abuse of discretion or contrary to law?

 

4.  Do 
acquisition adjustments, going-concern values and related intangibles differ 
materially from the "intangible personal property" exempted by the 
Legislature?

 

5.  Does 
the Department of Revenue's use of the unitary valuation method result in the 
taxation of intangible personal property?

 

6.  Would 
the disregard of the enhancing effect of going-concern value upon a telephone 
company's tangible property result in an unconstitutional undervaluation of that 
tangible property?

 

7.  Did 
the Department of Revenue's 1995 valuations of these telephone companies' 
properties account for obsolescence?

 

8.  Has 
the Department of Revenue consistently applied the unitary valuation method to 
and among these telephone companies?

 

9.  Was 
the State Board of Equalization's decision supported by substantial 
evidence?

 

                                    
FACTS

 

[¶3]         In May 1994, the Telephone 
Companies executed letters of intent to purchase certain rural telephone 
exchanges located throughout the State of Wyoming from US WEST Communications, 
Inc.  They were aware at the time of 
the purchase that many of the assets and facilities were in poor condition and 
in need of immediate repair and/or replacement.  At that time, the certificates of 
convenience and necessity were exclusive and unlimited in duration.  Following a review by federal and state 
regulatory authorities, the transactions were approved, and on October 25, 1994, 
the exchanges were transferred to the Telephone Companies.  The amounts paid for their respective 
exchanges were $17,000,000 by Union Telephone Company, $52,200,000 by RT 
Communications, and $15,400,000 by TCT WEST.  Those costs were significantly higher 
than the "book value" of the exchanges.  
That difference is called the "acquisition adjustment," and it reflected 
the value of the purchases above and beyond the physical components of the 
exchanges.  According to their 
annual reports, the acquisition adjustments for each company were: Union Telephone Company-$6,517,330; TCT 
WEST-$5,713,196; and RT Communications-$21,130,751.  The acquisition adjustments associated 
with the exchanges purchased by the Telephone Companies lie at the heart of this 
dispute.  Furthermore, as a 
condition of the sales, the Public Service Commission required the Telephone 
Companies to immediately replace certain facilities and equipment that were 
obsolete and upgrade the plant to provide enhanced telecommunications 
services.

 

[¶4]         In 1995, the Department of Revenue 
commenced its annual appraisal of the Telephone Companies.  In January, it sent its annual reporting 
form for the telecommunications industry to the Telephone Companies.  Based upon information provided by the 
Telephone Companies in the returned reports, the Department of Revenue valued 
the companies to determine their fair market value.  The Department of Revenue's appraisals 
utilized the unitary valuation method, which values a company as a whole working 
unit rather than looking at each individual asset separately and simply adding 
the values. The Department of Revenue's regulations authorize the use of the 
market, cost, and income approaches to establishing unitary value.  Because RT Communications and TCT WEST 
had existed for only a short period of time prior to the appraisal, the 
Department of Revenue could only use a 
historical cost approach to determine the fair market value of those utilities. 
Similarly, without a reliable estimate of future income, the Department of 
Revenue claimed it was unable to perform the calculations necessary to establish 
the amount of economic obsolescence associated with the exchanges purchased from 
US WEST by TCT WEST and RT Communications.  
The result was valuations of $28,554,396 for Union Telephone Company, 
$13,803,651 for TCT WEST, and $52,640,000 for RT 
Communications.

 

[¶5]         The Telephone Companies filed 
objections to the final assessments of the Department of Revenue on the grounds 
that they improperly included tax-exempt property, the acquisition adjustments, 
and failed to account for the economic obsolescence of the systems purchased by 
TCT WEST and RT Communications.  
After a contested case hearing, the State Board of Equalization affirmed 
the assessments.  It concluded that 
the Department of Revenue had properly accounted for the acquisition adjustments 
to the extent that they enhanced the value of the Telephone Companies' taxable, 
tangible personal property and that the refusal to account for the economic 
obsolescence of the exchanges was appropriate given the absence of information 
necessary to make the calculations.  
The Telephone Companies appealed from that decision to the district 
court, which has certified the matter to us.

 

                              
STANDARD OF REVIEW

 

[¶6]         Wyo. Stat. Ann. § 16-3-114(c) 
(LEXIS 1999) delineates the scope of appellate review for agency 
decisions:

 

(c)  To 
the extent necessary to make a decision and when presented, the reviewing court 
shall decide all relevant questions of law, interpret constitutional and 
statutory provisions, and determine the meaning or applicability of the terms of an agency 
action.  In making the following 
determinations, the court shall review the whole record or those parts of it 
cited by a party and due account shall be taken of the rule of prejudicial 
error. The reviewing court shall:

 

(i)  
Compel agency action unlawfully withheld or unreasonably delayed; 
and

 

(ii)  
Hold unlawful and set aside agency action, findings and conclusions found 
to be:

 

(A)  
Arbitrary, capricious, an abuse of discretion or otherwise not in 
accordance with law;

 

                        
(B)  Contrary to 
constitutional right, power, privilege or immunity;

 

(C)  In 
excess of statutory jurisdiction, authority or limitations or lacking statutory 
right;

 

                        
(D)  Without observance of 
procedure required by law; or

 

(E)  
Unsupported by substantial evidence in a case reviewed on the record of 
an agency hearing provided by statute.

 

When faced with contested 
issues of fact, we examine the entire record to determine if the agency's 
findings are supported by substantial evidence. Laramie County Board of 
Equalization v. Wyoming State Board of Equalization, 915 P.2d 1184, 1189 (Wyo. 1996).  If they are, we do not substitute our 
judgment for that of the agency and will uphold the factual findings on 
appeal.  Id.  Substantial evidence is more than a 
scintilla of evidence; it is evidence that a reasonable mind might accept in 
support of the conclusions of the agency. Id. Borrowing from the Third Circuit 
Court of Appeals, we have articulated the difference between findings of basic 
fact and ultimate fact as follows:

 

"Basic facts are the historical and narrative events 
elicited from the evidence presented at trial, admitted by stipulation, or not 
denied, where required, in responsive pleadings.  Inferred factual conclusions are drawn 
from basic facts and are permitted only when, and to the extent that, logic 
and human experience indicate a 
probability that certain consequences can and do follow from the basic 
facts.  No legal precept is 
implicated in drawing permissible factual inferences. But an inferred fact must 
be distinguished from a concept described in a term of art as an `ultimate 
fact.' So conceived, an ultimate fact is a mixture of fact and legal precept . . 
. ."

 

 Union Pacific Railroad Company v. Wyoming 
State Board of Equalization, 802 P.2d 856, 860 (Wyo. 1990) (quoting Universal 
Minerals, Inc. v. C. A. Hughes & Company, 669 F.2d 98, 102 (3rd Cir. 1981) 
(citations omitted)).

 

[¶7]         If a conclusion of law is in 
accord with the law, it is affirmed.  
Id. We consider three distinct possibilities when reviewing agency 
determinations on questions of law.  
Id.  If the agency correctly 
applied its findings of fact to the correct rule of law, the agency's 
conclusions are affirmed.  Id.  However, if the agency applied its 
findings of fact to the wrong rule of law or if the agency incorrectly applied 
its findings of fact to the correct rule of law, we correct the error.  Id.

 

 [¶8]       When an agency's determinations contain 
elements of law and fact, we do not treat them with the deference we reserve for 
findings of basic fact.  Id.  When reviewing an "ultimate fact," we 
separate the factual and legal aspects of the finding to determine whether the 
correct rule of law was properly applied to the facts.  802 P.2d  at 860-61.  We do not defer to the agency's ultimate 
factual finding if there was an error in either stating or applying the 
law.  802 P.2d  at 
861.

 

[¶9]         Parties claiming an improper 
valuation shoulder the burden of proof when challenging the assessor's valuation 
of their property.  Gray v. Wyoming 
State Board of Equalization, 896 P.2d 1347, 1350-51 (Wyo. 
1995).

 

            
We have said it is not the duty of this court

 

"to 
determine which of various appraisal methods is best or most accurately 
estimates FMV [fair market value]; rather, it is to determine whether 
substantial evidence exists to support usage of the [particular] method of 
appraisal, and, if so, whether substantial evidence exists to support the manner 
in which it was used."

 

            
Holly Sugar Corp. v. State Bd. of Equalization, 839 P.2d 959, 963 (Wyo. 
1992).

 

896 P.2d  at 1351.  The Department of Revenue is vested by 
law with the duty of establishing and implementing a system to establish the 
fair market value of all property valued for taxation.  Wyo. Stat. Ann. §§ 39-1-101(a)(vi), -301 
(Michie 1997) (repealed 1998).3  The purchase price of property, although 
evidence of its fair market value, is not conclusive. Gray, 896 P.2d  at 
1352-53.

 

                                  
DISCUSSION

 

[¶10]      The Telephone Companies contend 
that the acquisition adjustments were a reflection of the value of certain 
intangible assets including franchise and service rights and goodwill or the 
value of the property purchased as part of a "going concern."  The Telephone Companies argue that, as 
intangible personal property, the acquisition adjustments were exempted from 
taxation pursuant to Wyo. Stat. Ann. § 39-1-201(a)(xxix) (Michie 1997) (repealed 
1998).4 What constituted intangible 
personal property was defined at Wyo. Stat. § 39-1-101(a)(vii) (Michie 1997) 
(repealed 1998),5 which 
provided:

 

            (vii)  "Intangible personal property" 
includes:

 

(A)  
Money and cash on hand including currency, gold, silver and other coin, 
bank drafts, certified checks and cashier's checks;

 

                        
(B)  Money on 
deposit;

 

                        
(C)  Accounts receivable and 
other credits;

 

(D)  
Bonds, promissory notes, debentures and other evidence of 
debt;

 

                        
(E)  Shares of stock or other 
written evidence of ownership;

 

                        
(F)  Judgments for the 
payment of money;

 

                        
(G)  Annuities and annuity 
contracts.

 

[¶11]      The Telephone Companies assert 
that the use of the word "includes" indicated the definition of "intangible 
personal property" was not one of limitation but rather was a nonexclusive list 
of specific examples.  Based on 
definitions of "intangible property" as a thing that was not "tangible or 
corporeal," the Telephone Companies argue that the acquisition adjustments were 
intangible property.  Therefore, 
because Wyoming law exempted intangible property from taxation, the Telephone 
Companies contend that the intangible value of that property must be deducted 
from the unitary value of their tangible property.

 

 [¶12]    
Although the Department of Revenue agrees that § 39-1-101(a)(vii) did not 
present an all-inclusive list of intangible personal property, it contends that 
the acquisition adjustments were not intangible personal property.  The Department of Revenue argues that 
the items listed as intangible personal property in the statute shared three 
characteristics: (1) they were items that had no inherent worth but were 
representative of an underlying right or duty that had appreciable value; (2) 
they had a physical existence as a proxy for the underlying right or duty; and 
(3) they were properties that could be separately transferred and freely 
alienable. The acquisition adjustments had none of these three characteristics 
and, therefore, should not be considered intangible personal property under § 
39-1-101(a)(vii).

 

 [¶13]     As a preliminary matter, we note 
that the State Board of Equalization made the following decision regarding § 
39-1-101(a)(vii):

 

The 
Board holds the Department is incorrect in its interpretation of Wyo. Stat. § 
39-1-101(a)(vii) that the list of intangibles is all inclusive.  To the contrary, the word "includes" is 
ordinarily a term of enlargement and not 
one of limitations.  Schwab v. 
Ariyoshi, 564 P.2d 135, 141 (Hawaii 1977); [s]ee also 2 A N Singer, Sutherland 
Statutory Construction, Section 47.07 (Sands 4th ed. 1984).  Because the ordinary and usual sense of 
the word "includes" is not one of limitations, we are bound to interpret 
"includes" as set out heretofore and not as argued by the Department. Wyo. Stat. 
§ 8-1-103(a)(i).

 

 Furthermore, the State Board of 
Equalization's decision specifically treated the acquisition adjustments as 
intangible personal property.  Thus, 
this Court finds itself in the odd position where the appealing party's position 
on appeal is the same as the State Board of Equalization's decision below.  Conversely, the appellee-the Department 
of Revenue-did not perfect an appeal on any aspect of the State Board of 
Equalization's decision.  Ultimately 
then, a party adversely affected by the State Board of Equalization's decision 
did not perfect an appeal on the issues of whether § 39-1-101(a)(vii) was an 
all-inclusive definition of intangible 
personal property and whether the acquisition adjustments were that type of 
property.  Ordinarily, for purposes 
of this appeal, we would assume that the acquisition adjustments were intangible 
personal property as defined by § 39-1-101(a)(vii) based on the concept of the 
law of the case.  There is a high 
likelihood that this issue will arise again in the context of subsequent annual 
assessments of the Telephone Companies.  
Therefore, we will address the merits of the issue.

 

 [¶14]    
We have often repeated our rules for interpreting statutory 
language:

 

Our rules relating to the interpretation of statutes 
demand that we abide by the plain meaning of the statute if its language is 
clear and unambiguous.  The statute 
will be construed as a whole with the ordinary and obvious meaning applied to 
words as they are arranged in paragraphs, sentences, clauses and phrases to 
express the intent of the legislature.  
In analyzing the clarity or ambiguity of the statute, we turn to the 
guidance of grammarians.

 

 Peterson v. Wyoming Game and Fish 
Commission, 989 P.2d 113, 117 (Wyo. 1999) (citations 
omitted).

 

[¶15]      As noted above, the State Board of 
Equalization held that the word "includes," as used in § 39-1-101(a)(vii), was a 
term of enlargement and not one of limitation.  This holding was correct because, as we 
noted in a recent decision, the use of the word "includes" in a statutory 
context has specific implications:  
"The use of the word `includes' is significant because `includes' 
generally signifies an intent to enlarge a statute's application, rather than 
limit it, and it implies the conclusion that there are other items includable, 
though not specifically 
enumerated."  Board of County 
Commissioners of Teton County v. Bassett, Nos. 98-342 & 98-343, slip op. at 
3 (Wyo. July 25, 2000).  Thus, § 
39-1-101(a)(vii) provided a definition of the term "intangible personal 
property" through a nonexclusive list of examples.

 

[¶16]      Of course, the obvious shortfall 
of that method of defining a term arises when the status of certain property is 
at issue that was not included within the nonexclusive roster set forth in the 
statute.  That difficulty comes into 
play when we consider whether or not the acquisition adjustments were intangible 
personal property.  The one common 
characteristic of each of the items listed within § 39-1-101(a)(vii) was that 
they had no inherent value in and of themselves but instead represented 
value.  In the ordinary sense of 
usage, this is what "intangible property" means:  "As used chiefly in the law of taxation, 
this term means such property as has no intrinsic and marketable value, but is 
merely the representative or evidence of value, such as certificates of stock, 
bonds, promissory notes, copyrights, and franchises."  Black's Law Dictionary 809 (6th ed. 
1990).  This definition is clearly 
what was intended by the legislature as evidenced by the fact that § 
39-1-101(a)(vii) specifically listed some of the examples cited therein such as 
stocks, bonds, and promissory notes.  
Within that context, the acquisition adjustments were clearly intangible 
property.  The acquisition 
adjustments did not reflect real or physical property that had value intrinsic 
to it; rather, the value reflected by the acquisition adjustments related to 
values associated with the business of the utilities such as goodwill, the 
certificate of convenience, and franchise rights.  We conclude, therefore, that the State 
Board of Equalization was correct in treating the acquisition adjustments as 
intangible personal property pursuant to § 39-1-101(a)(vii).

 

 [¶17]    
We turn now to the methodology employed by the Department of Revenue in 
its assessments of the Telephone Companies.  In reviewing property tax assessments, 
"this court has consistently interpreted Wyo. Const.  art. 15, § 116 to require `only a rational method 
[of appraisal], equally applied to all property, which results in essential 
fairness.'"  Holly Sugar Corporation 
v. State Board of Equalization, 839 P.2d 959, 964 (Wyo. 1992) (quoting Teton 
Valley Ranch v. State Board of Equalization, 735 P.2d 107, 115 (Wyo. 
1987)).

 

[¶18]      The Department of Revenue assesses 
public utilities on a statewide basis. This centralized approach to assessment 
of utility property was historically designed by the states because a local 
assessor could not effectively reach and tax railroad companies' large 
intangible values.  James A. Amdur, 
Property Taxation of Regulated Industries, 40 Tax Law. 339 
(1987).

 

Regulated industry property commonly is valued under 
the "unitary" method. The enterprise first is valued as a whole as a going 
concern; a portion of that value is then allocated by formula to the property in 
the taxing jurisdiction.  The theory is that the property "forms a 
part of an organic system and may be assessed in terms of the economic 
contribution which each component makes to the entire system."  To the extent that the total system 
value exceeds the aggregate physical value of the individual tangible assets, 
the appraisal includes the company's intangibles, principally "going concern 
value," which is the "value added by the property's assemblage into a going 
business," and the "franchise," which is the authority of the company to operate 
in a certain area.

 

Id., at 343-44.  Thus, the unitary method values a 
company as a whole and may utilize intangible property in a valuation to the 
degree that intangible property enhances the value of tangible property.  Beaver County v. WilTel, Inc., 995 P.2d 602, 610-11 (Utah 2000); James A. Amdur, Telecommunications Property Taxation, 
46 Fed. Comm. L.J. 219, 228 (1994) ("Although the intangible property may not be 
taxed directly, it may `enhance' the value of the tangible property in the unit 
and may be taxed indirectly as part of such enhanced value").  This use of intangible property to 
assess the value of tangible property is justified on two grounds.  First, intangible property can affect 
the value of tangible property.  As 
one commentator explained:

 

Trying to separate intangible rights from tangible 
value is comparable to trying to separate the tangible value of the bricks and 
mortar of your house from the intangible rights found in your deed and building 
and occupancy permits to use and occupy the house.  In other words, if you do not have the 
intangible legal right to live in your house and evict others from the premises, 
what possible value can the house have to you?

 

 Robert W. Lambert, Cellular Telephone 
Companies: Property Tax Litigation in California, J. Prop. Tax Mgmt. 15, 16 
(1991).  This leads to the second 
ground: the difficulty of separating intangible property from tangible 
property.

 

The value of intangible assets is manifested in their 
ability to generate profits for the enterprise in excess of those necessary to 
provide a fair return on the value of the tangible assets and working capital of 
the business.  Some intangible 
assets have value in their own right, such as franchises, patents, licenses, 
copyrights and the like.  However, 
many of the intangible assets of a business enterprise derive their value from 
being a part of the business and thus cannot be severed and sold 
separately.  Some of these types of 
intangibles include a trained and assembled work force, management systems, 
customer base, and elements of "going-concern" value.

 

 Michael E. Green & Terrence J. 
Benshoof, Exclusion of Intangibles From The Unit Value, 1 St. Tax Notes 547, 
548-49 (1991).  The Telephone 
Companies themselves made no attempt to allocate specific amounts to the values 
of the certificates of convenience and necessity, rights of way, or other 
intangible items of value that they contended were obtained when the property 
was purchased.  Yet, the Telephone 
Companies conceded in their reply brief by reliance on certain authorities and 
in argument by counsel that some portion of the acquisition adjustments could 
represent enhanced value of the taxable property.  None of the tangible property such as 
telephone poles, lines, and switching equipment had any value unless it could be 
used, and it could not be used without a certificate of convenience and 
necessity and these other intangible items that the Telephone Companies argued 
were accounted for in the acquisition adjustments.  If the Telephone Companies could not, or 
would not, allocate separate values to these intangible assets, they cannot 
reasonably argue that the Department of Revenue could have or should have done 
so.

 

[¶19]      The rationale for allowing 
taxation of the enhanced value imparted by intangible property is grounded in 
the concept of valuing a company as a "going concern" or unit, which is to 
ensure that the entire real value of a company's property is considered.  As the court in ITT World 
Communications, Inc. v. City and County of San Francisco, 693 P.2d 811, 815 
(Cal. 1985), noted:

 

One of the primary objectives of the system of unit 
taxation of public utility property is to ascertain and reach with the taxing 
power the entire real value of such property. . . . It has long been recognized 
that "public utility property cannot be regarded as merely land, buildings, and 
other assets.  Rather, its value 
depends on the interrelation and operation of the entire utility as a unit.  Many of the separate assets would be 
practically valueless without the rest of the system.  Ten miles of telephone wire or one 
specially designed turbine would have a questionable value, other than as scrap, 
without the benefit of the rest of the system as a whole."  (Bertane, [The Assessment of] Public 
Utility Property [in California (1973) 20 UCLA L. Rev. 419] .  . . 433.)  Unit taxation prevents real but 
intangible value from escaping 
assessment and taxation by treating public utility property as a whole, 
undifferentiated into separate assets (land, buildings, vehicles, etc.) or even 
separate kinds of assets (realty or personality).

 

 See also Amdur, Telecommunications 
Property Taxation, supra, at 228.  
The unitary method is considered the most rational means of central 
assessment to determine the value of an enterprise whose functions 
rely on cross-boundary 
connections.  Beaver County, 995 P.2d  at 607.

 

[¶20]      The Department of Revenue's 
regulations provide, and have provided for a number of years, for the use of the 
unitary method for valuing public utilities in Wyoming.  See Department of Revenue Regular Rules 
ch. 7, Ad Valorem Valuation Methodology and Assessment (State Assessments) 
(1996).  The Department of Revenue 
has, in fact, employed the unitary method since at least 1988 to all public 
utility valuations.  As shown by the 
foregoing authorities, the unitary method is a rational method of appraisal and, 
when equally applied to all property, results in essential fairness.  Although intangible personal property is 
exempt from taxation, it may add value to taxable, tangible property, and to 
that extent, it should be included in any assessment in order to properly 
reflect the true value of the property.  
Wyo. Const. art. 15, § 11.  
In utilizing the unitary method, however, to the extent that intangible 
property has value beyond any enhancing effect on tangible property and is 
separable from those assets, it must be excluded.  GTE Sprint Communications Corporation v. 
County of Alameda, 32 Cal. Rptr. 2d 882, 891 (Cal. Ct. App. 1994); § 
39-1-201(a)(xxix).

 

[¶21]      The question we now address is 
whether the Department of Revenue properly accounted for the acquisition 
adjustments in its assessment of the Telephone Companies.  In other words, we must determine 
whether substantial evidence supported the Department of Revenue's 
valuations.  The State Board of 
Equalization made the following findings:

 

51.  
These Board decisions clearly hold "(w)hile intangible property is exempt 
from property taxation, such property may enhance the value of taxable tangible 
property and this may be reflected in the valuation of the tangible property." Quoting, ITT 
World Communication, 162 Cal. Rptr. 186, 190 (1980).  "Intangible property is considered in 
determining the market value of the company as a whole because it bears on the company's value as a going 
concern."  Quoting, Mich. Wis. 
Pipeline Co. v. Iowa St. Bd. Of Rev., 368 N.W.2d 187, 192 (Iowa 
1985).

 

52.  
Going-concern value includes an intangible enhancement of value that 
assimilates the effect of all the operating property interacting together.  The unit valuation concept involves 
determining a going-concern value which may include contributions due to 
intangible property, but only to the extent such intangible property is 
necessary to the operation of the property being assessed.  Clearly the certificate of convenience 
issued by the Public Service Commission and the going-concern or customer base 
was necessary for the operation of all three Petitioners.

 

            . . . 
.

 

54.  
Wyoming may attempt to tax the intangible "going-concern" value, as well 
as the value of the tangible assets within the state.  Northwest Natural Gas. Co. v. Clark 
County, 658 P.2d 669, 673 (Wash. 1983).  
Other states allow the enhancement of value of tangible personal property 
by considering the intangibles.  
U.S. Transmission Sys. v. Bd. Of Assessment, 715 P.2d 1249, 1256 (Colo. 
1986).  "Unit taxation prevents real 
but intangible value from escaping assessment and taxation by treating public 
utility property as a whole . . ."  
ITT World Communications v. San Francisco, 693 P.2d 811, 815 (Cal. 
1985).

 

55.  This 
Board does not find the Department's treatment of the intangibles, including but 
not limited to the "acquisition adjustment[,"] amounted to a direct taxation of 
intangibles. Rather, the Board finds the 
Department merely considered and weighed the intangibles when deriving its value 
for tax purposes by relying on the value of the company using the unitary 
approach.  In particular, the 
Department's rules on historical cost 
merely direct "acquisition costs" etc. be considered. Although the Department's 
appraiser, Mr. Cordingly, testified erroneously as to what property was taxable 
in terms of intangibles and tangibles, 
the testimony as a whole indicates intangibles were merely considered by the 
Department in enhancing the value of Petitioners' 
properties.

 

 [¶22]  The focus of the Telephone Companies' 
arguments is on the use of the acquisition adjustments for any valuation purpose 
under any circumstances.  Having 
held that it was proper for the Department of Revenue to consider the 
acquisition adjustments, the question becomes whether substantial evidence 
existed to support the Department of Revenue's consideration of that factor 
within the context of the unitary methodology.  The Telephone Companies, who bear the 
burden as the challenger of the valuation, simply claim that there was no 
evidence to support the State Board of Equalization's decision delineated 
above.  They fail, however, to cite 
to any part of the record supporting that contention or to explain why the State 
Board of Equalization's decision was incorrect beyond bald statements that it 
was so.  Our review of the record 
leads us to conclude that the evidence supported the State Board of 
Equalization's decision.  The 
principal appraiser for the state assessed property section testified that the 
appraisals complied in all respects with the Department of Revenue's rules and 
the acquisition adjustments were considered for the value they added to the 
Telephone Companies.  This 
testimony, coupled with the exhibits detailing the assessment process, was 
sufficient to constitute substantial evidence in the absence of any reference to 
evidence by the Telephone Companies demonstrating misallocation of the acquisition 
adjustment.

 

 [¶23]    
The Telephone Companies also argue that the Department of Revenue's 
appraisal essentially valued the property at the purchase price and caused an 
immediate and unreasonable increase in taxable value.  They  incorrectly contend that Gray, 896 P.2d 1347, prohibits that result.  This 
Court held in that case that purchase price could not be relied upon as the sole 
measure of value, but could properly be considered as part of the analysis. 
Certainly, the telecommunications industry is experiencing dramatic 
changes.  The mere fact that the 
Telephone Companies were willing to pay the purchase price reflected by the net 
book value plus the acquisition adjustment was evidence of what they believed 
the property was worth.  Their 
experts testified they were willing to pay significantly more for the property 
than net book value for several reasons.  
First, the sale was the result of a "competitive bidding process which 
established at that time the market value of the exchanges over and above the 
net book value."  Second, the 
Telephone Companies were paying for the right to make future investments in this 
property for which they would have the exclusive right to operate.  Third, these were ongoing operations 
which would have immediate cash flow.  
Further, because these were regulated utilities with a guaranteed rate of 
return, future revenues could be predicted with accuracy.  Consequently, as the Telephone Companies' 
expert testified:

 

[I]t is almost advantageous for a small company to 
buy property that is antiquated and that they're going to replace because . . . 
they're going to have the ability to invest in the future and earn an authorized 
return on that investment. . . . There was pent-up demand in every one of those 
exchanges. There were services customers wanted that they couldn't get.  And by investing in the infrastructure, 
we knew we'd have substantial customer growth that U.S. West didn't see. We'd 
have increased demand for services.

 

 In addition, the Telephone Companies saw 
possibilities for future income that was not regulated by the Public Service 
Commission.  The Telephone Companies 
knew from the outset that they would not be allowed to earn a rate of return on 
the difference between net book value and the purchase price, the acquisition 
adjustment.  Both the Public Service 
Commission order approving the sales and the US WEST purchase contract 
prohibited it. Yet, the Telephone Companies' projections of the income they 
would be able to earn still justified the purchase price including the 
acquisition adjustment.  In light of 
the Telephone Companies' own testimony, their position on appeal that the 
purchase price does not reflect the value of the property rings 
hollow.

 

                            
Economic Obsolescence

 

   [¶24]            
RT Communications and TCT WEST complain that their valuations were not 
adjusted for economic obsolescence.  
Their argument in their main brief is presented below in its entirety: 

 

An assessor must use a method of valuation 
appropriate to the property being assessed.  The failure of an assessor to account 
for functional or economic obsolescence affecting the salability of the property 
constitutes an abuse of discretion. Wyoming State Board of Equalization Docket 
No. 93-162, cited in Wyoming State Board of Equalization Quarterly Review, vol. 
1, no. 1, at 2-3; see also, First City Corp. v. City of Lansing, 395 N.W.2d 26 
(Mich.Ct.App. 1986).

 

In the instant case, the Department made an 
adjustment for Union's obsolescence and yet failed to account for the 
acknowledged obsolescence suffered by TCT WEST and RT Communications.  The assessments were accordingly 
defective and must be revised consistent with the Petitioners' 
testimony.

 

This is simply not a cogent 
argument.  This is nothing more than 
generalized statements without support by argument, record support, and citation 
to authority.  The Telephone 
Companies do present a more detailed argument complete with aspects lacking in 
their main brief, but inexplicably they choose to present it in their reply 
brief.  The purpose of a reply brief 
is to allow the appellants the opportunity to address issues and arguments 
raised by the appellees.  Idaho 
Migrant Council, Inc. v. Warila, 890 P.2d 39, 42 (Wyo. 1995); W.R.A.P. 
7.03.  The reply brief fails to 
conform to our rules.  The Telephone 
Companies have failed to present a cogent argument on this issue, and ordinarily 
we would not address it.  Basolo v. 
Gose, 994 P.2d 968, 970 (Wyo. 2000).  
However, given the possibility of this situation arising again in the 
future, we will briefly address the substance of the Telephone Companies' 
argument.

 

  [¶25] 
   RT Communications and 
TCT WEST note that an adjustment for economic obsolescence was made for Union 
Telephone Company, but despite the availability of the same financial 
information for RT Communications and TCT WEST, a similar adjustment was not 
made for them.  The Department of 
Revenue responds that an economic obsolescence analysis was not possible because 
those companies had only a few months of operating experience and, therefore, a 
limited income history.  An economic 
obsolescence analysis depends on capitalization of the income expected from the 
property with a comparison of that rate of return to the approved industry rate 
of return, the difference constituting the percentage of  economic obsolescence deducted from the 
total valuation. Without a reliable estimate of future income, the Department of 
Revenue contends the analysis would not be reasonable.  The Telephone Companies' appraiser did 
such an analysis using income he estimated the Public Service Commission would 
allow.  However, that estimate of 
future income would not have included all of the income that the Telephone 
Companies had projected when they did their analysis of what price they could 
justify paying for the property.  In 
addition, a Department of Revenue witness testified that, during the valuation 
process, an information request sent to the Telephone Companies specifically 
asked for any claims for economic obsolescence and supporting documentation and 
none of the Telephone Companies responded to that request.  However at the hearing, the Telephone 
Companies provided their own analysis and suggested that the Department of 
Revenue could have used income history from US WEST.

 

 [¶26]    
Quite simply, the Department of Revenue lacked the requisite information 
to make the necessary, reliable calculations to establish an economic 
obsolescence adjustment.  The 
Department of Revenue specifically 
requested information relevant to an economic obsolescence analysis, but the 
Telephone Companies failed to provide any information at all. Clearly, the 
Telephone Companies possessed such information because they were able to provide 
their own analysis at the hearing. The Telephone Companies are ill positioned 
now to complain that the Department of Revenue failed to perform an analysis 
when they failed to provide the necessary information.

 

[¶27]      Further, the Telephone Companies 
argue that certain changes in the federal and state statutes after the sale 
reduced the value of the property and were not considered by the Department of 
Revenue.  In 1995, the Wyoming legislature enacted the Wyoming 
Telecommunications Act of 1995 which made a number of changes in the regulation 
of this industry including limiting the life of certificates of convenience and 
necessity to ten years. Further 
deregulation was accomplished by the Federal Telecommunications Act of 1996, 
Public Law No. 104-104, 11 Stat. 56 (1996).  The Telephone Companies testified that 
those statutory changes caused their 
property to be worth less and they would not have paid the same purchase price 
had those statutes been in effect at the time of the sale.  However, they provided no specific 
information about the amount of 
devaluation allegedly caused by the new regulatory scheme.  Any attempt by the Department of Revenue 
to quantify the alleged devaluation with no supporting evidence would have been 
improper.

 

[¶28]   The Department of Revenue did not 
act arbitrarily or capriciously in rejecting an economic obsolescence analysis 
based on insufficient data.

 

                                  
CONCLUSION

 

[¶29]   The unitary method is a rational 
means of determining the fair market value of a public utility.  Intangible personal property, although 
generally exempt from taxation, may be considered in valuing utility property to 
the extent that the property enhances the value of taxable, tangible 
property.  This is an appropriate 
methodology to determine the fair market value of utility property.  However, the Department of Revenue 
shall, to the extent possible, remove the value of intangible personal property 
that is separable and identifiable.

 

[¶30]   The Department of Revenue's 
assessment of the Telephone Companies for the 1995 tax year was supported by 
substantial evidence, and accordingly the State Board of Equalization's decision 
is affirmed.

  

    

FOOTNOTES

1  TCT WEST and RT Communications are 
wholly owned subsidiaries of Tri County Telephone Association, Inc. and Range 
Telephone Cooperative, Inc. respectively.  
They were formed expressly for the purpose of owning and operating the 
exchanges acquired from US WEST Communications, Inc.

  

2  
Although the State Board of Equalization is listed as a party in the 
caption of this case, it properly did not file a brief or appear at oral 
arguments in accordance with our directives in Antelope Valley Improvement v. 
State Board of Equalization for State of Wyoming, 992 P.2d 563 (Wyo. 1999), 
clarified at 4 P.3d 876 (Wyo. 2000).

 3  All references, unless otherwise 
indicated, are to the statutes in effect at the time of the subject 
assessments:

 § 39-1-101(a)(vi) was repealed and 
recodified at § 39-11-101(a)(vi), and § 39-1-301 was repealed and recodified at 
§ 39-11-102(b).  1998 Wyo. Sess. 
Laws ch. 5, § 1.

  

4  Repealed and recodified at § 
39-11-105(a)(xxix).  1998 Wyo. Sess. 
Laws ch. 5, § 1.

  

5  Repealed and recodified at § 
39-11-101(a)(vii)(A-G). 1998 Wyo. Sess. Laws ch. 5, § 1.

  

6  Article 15, Section 11 of the Wyoming 
Constitution provides:

 

   (a)  All property, except as in this 
constitution otherwise provided, shall be uniformly valued at its full value as 
defined by the legislature, in three (3) classes as 
follows:

 

     (i)  Gross production of minerals and mine 
products in lieu of taxes on the land where produced;

 

     (ii)  Property used for industrial purposes as 
defined by the legislature; and

 

     (iii)  All other property, real and 
personal.

 

   (b)  The legislature shall prescribe the 
percentage of value which shall be assessed within each designated class. All 
taxable property shall be valued at its full value as defined by the legislature 
except agricultural and grazing lands which shall be valued according to the 
capability of the land to produce agricultural products under normal 
conditions.  The percentage of value 
prescribed for industrial property shall not be more than forty percent (40%) 
higher nor more than four (4) percentage points more than the percentage 
prescribed for property other than minerals.

 

   (c)  The legislature shall not create new 
classes or subclasses or authorize any property to be assessed at a rate other 
than the rates set for authorized classes.

 

   (d)  All taxation shall be equal and uniform 
within each class of property.  The 
legislature shall prescribe such regulations as shall secure a just valuation 
for taxation of all property, real and personal.