Opinion ID: 1362962
Heading Depth: 1
Heading Rank: 6

Heading: Defendant's Treatment of Deferred Taxes.

Text: The tax court found that the value for plant built with deferred taxes should not be included in the income indicator of value. As Mr. Bredehoeft testified, the Department separately appraised the value of the property purchased with deferred income tax and added it to the value of the unit, There was no element of the property purchased with deferred tax included in our unitary valuation. It was added additionally to the end. Defendant's explanation for this appraisal approach was that plant built with deferred taxes was not recognized in the income indicator of value, and since all indicators should reflect the value of the same elements of plant, the impact of deferred taxes should be computed separately and then added to the unitary valuation. Mr. Arrowsmith testified that the value attributed to deferred taxes is equal to the reduction in rates that the rate payer experiences as a result of having deferred income taxes in the rate of return calculation. During cross-examination Mr. Arrowsmith admitted that deferred taxes made no difference in value to the owner or to the potential buyer. Under the basic appraisal assumption to which both parties agree, that the goal of assessment is to determine the market value or what a reasonable purchaser would pay for this property, defendant's focus on value to the ratepayer rather than the potential purchaser is misplaced. Mr. Madden, a public utility security analyst who testified on behalf of plaintiff, testified that from the investor's point of view no value can be attributed to the reserve for deferred taxes. Mr. Bredehoeft testified, though, that not to value this reserve separately is to ignore the value of some dollars that the company has in its possession for some length of time to use as it sees fit, to buy other utility property with, or whatever. However, Mr. Goodman testified that this reserve does not have any effect in lowering the company's actual federal income taxes, but merely affects the timing of the payment of those taxes. Also, there is not some kind of a trust account in which actual monies are put into a separate account. The money involved here is in the plant, and the PUC does not allow earnings from plant built with funds derived from deferred taxes. Yet value of the plant built with deferred taxes is reflected in the cost approach and in the stock and debt approach.