2023 Arizona Revised Statutes › Title 42 - Taxation › § 42-14355 - Computing valuation; definitions

42-14355.
Computing valuation;  definitions
A. The department shall determine the valuation of a railroad as follows:
1. Determine the base value.
2. Compute the value change factor.
3. Compute the current year system full cash value by multiplying the base value determined under paragraph 1 of this subsection by the value change factor determined under paragraph 2 of this subsection.
4. Compute the allocation factor.
5. Multiply the current year system full cash value determined under paragraph 3 of this subsection by the allocation factor determined under paragraph 4 of this subsection.
6. Compute the Arizona full cash value by subtracting the Arizona licensed transportation equipment value from the value determined under paragraph 5 of this subsection.
B. For purposes of computing the valuation under this section:
1. The " allocation factor" ,  used to assign a portion of the system value to this state,  is computed by adding:
(a) The property factor,  weighted by forty-seven per cent.
(b) The line haul factor,  weighted by forty-four per cent.
(c) The terminal factor,  weighted by nine per cent.
2. The " Arizona licensed transportation equipment value"  is computed as follows:
(a) Subtract the system accumulated depreciation of motor vehicles that are subject to a license tax in lieu of an ad valorem property tax pursuant to article IX,  section 11,  Constitution of Arizona,  from the system original cost of those vehicles.
(b) Divide the current year system full cash value,  determined under subsection A,  paragraph 3,  by net operating property.
(c) Multiply the values determined in subdivisions (a) and (b) of this paragraph.
(d) Multiply the value determined in subdivision (c) of this paragraph by the allocation factor.
3. The " base value"  is the final full cash value of the system in the preceding calendar year. If the system was not subject to valuation in this state in the preceding calendar year,  the base value is the acquisition cost. If the system's ownership changes,  the base value is unaffected and shall be transferred to the new owner.
4. The " capitalization rate"  is the rate determined and reported by the interstate commerce commission in its annual cost of capital report.
5. The " change in capitalization rate"  is computed by dividing the current year capitalization rate by the preceding year capitalization rate.
6. The " change in earnings"  is computed by dividing the average earnings for the five years immediately preceding the current valuation year by the average earnings for the five years immediately preceding the previous valuation year. If three or more years of data are available,  those data should be used,  but if only one or two years of data are available,  the change in earnings shall not be considered in computations under this section.
7. The " current gross profit margin"  is computed by dividing the average earnings for the five years immediately preceding the current valuation year by the average gross revenues for the five years immediately preceding the current valuation year.
8. The " current return on investment"  is computed by dividing the average earnings for the five years immediately preceding the current valuation year by the average net operating property for the five years immediately preceding the current valuation year.
9. The " current year efficiency"  is computed by dividing the average earnings for the two years immediately preceding the current valuation year by the average gross revenues for the two years immediately preceding the current valuation year.
10. " Earnings"  means the income realized before deducting interest,  taxes,  depreciation and lease expenses.
11. The " efficiency change factor"  is computed by dividing the current year's efficiency factor by the previous year's efficiency factor.
12. The " efficiency factor"  is computed by dividing earnings by gross revenues.
13. The " gross profit margin factor"  is computed by dividing the current gross profit margin by the previous gross profit margin.
14. " Gross revenues"  means total revenues from operations.
15. The " income change factor"  is computed by dividing the change in earnings by the change in capitalization rate.
16. " Leased property"  means noncapitalized leased operating property that is subject to an agreement that transfers the use of the property to the lessee during the term of the lease and that is not capitalized on the lessee's balance sheet.
17. The " line haul factor"  is computed by dividing total revenue ton miles in this state by the total system revenue ton miles.
18. The " net operating property"  is computed by subtracting accumulated depreciation and amortization including leased property from system cost.
19. " Operating property"  means real or personal property that is owned or leased and used in operating the railroad,  including land,  track,  right-of-way,  buildings and structures,  equipment,  materials,  tools and rolling stock.
20. The " previous gross profit margin"  is computed by dividing the average earnings for the five years preceding the previous valuation year by the average gross revenues for the five years preceding the previous valuation year.
21. The " previous return on investment"  is computed by dividing the average earnings for the five years preceding the previous valuation year by the average net operating property for the five years preceding the previous valuation year.
22. The " previous year efficiency"  is computed by dividing the average earnings for the two years preceding the previous valuation year by the average gross revenues for the two years preceding the previous valuation year.
23. " Profitability change factor"  means the average of the gross profit margin factor and the return on investment factor. If three or more years of data are available,  those data should be used,  but if only one or two years of data are available,  the profitability change factor shall not be considered in computations under this section.
24. The " property change factor"  is computed by dividing the system cost as of December 31 immediately preceding the current valuation year by the system cost as of December 31 immediately preceding the previous valuation year.
25. The " property factor"  is computed by dividing the total original cost of operating property in this state,  including leased property,  by the system cost.
26. The " return on investment factor"  is computed by dividing the current return on investment by the previous return on investment.
27. " Revenue ton mile"  means the amount of revenue derived from the number of tons hauled over a distance of one mile.
28. " System cost"  means the total original cost of all operating property,  including leased property,  in and outside this state.
29. The " terminal factor"  is computed by dividing the sum of tons originating,  terminating,  received and delivered in this state by the sum of tons originating,  terminating,  received and delivered in the system.
30. The " value change factor"  is computed by adding:
(a) The income change factor,  weighted by fifty per cent.
(b) The profitability change factor,  weighted by twenty per cent.
(c) The efficiency change factor,  weighted by fifteen per cent.
(d) The property change factor,  weighted by fifteen per cent,  except that if the income change factor,  efficiency change factor and profitability change factor do not apply,  the property change factor is equivalent to the value change factor and is weighted at one hundred per cent.